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Volume 321, October 11 – October 14, 1940

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Henry Morgenthau, Jr. Papers

Diaries of Henry Morgenthau, Jr.

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DIARY Book 321 October 11 - 14, 1940 - A - Book Page Abbott, Fred c. Letter sent from Governor's office to EMJr's homer BWr aske Graves to investigate - 10/14/40 331 227 Allison Ingineering Company See Var Conditions: Airplanes (Ingines) Antorg Trading Company See Var Conditions: Export Control (U.S.S.R.) Apples HMJr-Fraleigh conversation concerning prices and sales at farm - 10/14/40 305 - B - Bank for International Settlements See Var Conditions: Foreign Funds Control Banking Services, Federal Government See Financing, Government Blake, Charles See Coast Guard Bombers See Var Conditions: Airplanes Business Conditions Hass memorandum on situation for week ending October 12, 1940 - 10/14/40 265 - C - Chile See Latin America China See War Conditions: French Indo-China Coast Guard Blake, Charles: After trip on cutter, sends Waesche commendatory letter and offers services as public relations officer - 10/11/40 3 a) Letter sent to FDR b) Newspaper guests to clear through HMJr before writing broadcast, etc., after trip: Orders of FDR - 10/17/40: See Book 323, page 65 Shipyards available for building 327-ft. cutters - survey made by Coast Guard and Maritime Commission: Gaston and HMJr discuss - 10/11/40 13 Consolidated Aircraft See War Conditions: Airplanes Cuba See Latir America Curtiss-Wright Corporation See War Conditions: Airplanes Csechoslovakia See War Conditions: Foreign Funds Control - D - Book Page Defense, National "Estimate of the Situation" sent to HMJr by Stimson: HMJr acknowledges receipt - 10/11/40. 321 110 a) "Problem of Munitions Production in Relation to United States' Ability to Cope with its Defense Problems in Present World Situation" Denmark See Var Conditions: Scandinavia - 3 - Economic Defense See War Conditions Education, Office of See War Conditions: Airplanes (Consolidated Aircraft) "Estimate of the Situation" See Defense, National - 7 - , Far East See War Conditions: Export Control; Far East Financing, Government Proposed adjustment of banking services for Federal Government: Bell memorandum - 10/11/40, 19 (See also Book 240, page 123, for HMJr's memorandum to FDR) a) Special bond issue suggested Fort Knox Depository Permission to photograph interior: HMJr refuses Life Magasine request - 10/14/40 222 Four-Man Committee See War Conditions: Airplanes Fraleigh, Elmer Apple prices and sales at farm discussed with HMJr - 10/14/40 305 French Indo-China See War Conditions Fuel 011 See War Conditions: Export Control - G - Germany See War Conditions: Foreign Funds Control: Germany Gold See War Conditions Regraded Uclassified - I - Book Page Hawk, Walter German refuges; in United States to organize Fifth Column activities against Germans: Young gives resume' of career at 9:30 meeting - suggeste Gaston ⑉ him - 10/11/40 321 12 Hoover, Herbert 16% of salary returned to Treasury during term of office - economy law: FDR-Hoover comparison and release of information discussed at 9:30 meeting - 10/14/40 217 a) National Committee, at Mrs. Morgenthau's request, inquires concerning editorial Housing See War Conditions: Airplanes (Consolidated Aircraft) Hungary See War Conditions - I - India See War Conditions: Gold Indo-China, French See War Conditions: French Indo-China Internal Revenue, Bureau of Tax collection film discussed at 9:30 meeting - 10/14/40 221 Italy See War Conditions: Foreign Funds Control - J - Jamaica, British West Indies HMJr contemplates trip - 10/11/40 2 a) Rumor in Jamaica of imminent German activity in United States Japan See War Conditions: Export Control; Foreign Funds Control (Mowrer article); Japan - K - Klaus, Samuel See War Conditions: Foreign Funds Control Kondo, Hirochi (Vice Minister of Foreign Affairs, Tokyo) See War Conditions: Japan - L - Book Page Latin America See also Var Conditions: Foreign Funds Control (Italy) Chile: Coal: Government wishes to purchase from United States in anticipation of strike - American Embassy, Santiago, report - 10/11/40 321 142 Jones (Jesse) to confer with HMJr concerning financial assistance: HMJr-Jones conversation - 10/14/40 308 Cuba: Economic Mission: HMJr assures Hull of Treasury cooperation - 10/11/40. 147 State Department representative (Assistant Secretary) to be present at Treasury meeting: HMJr instructs Bell at 9:30 meeting - 10/14/40.. 228 a) White ill; Coe to substitute Layton, Sir Walter See War Conditions: Purchasing Mission Lothian, Lord Calls on HMJr before returning to England: See War Conditions: United Kingdom - X - McDonald, Thomas (Monsignor, Society for the Propagation of Faith) See War Conditions: Foreign Funds Control (Italy) Mowrer, Edgar Ansel See War Conditions: Foreign Funds Control (Japan) - N - National Defense See Defense, National Netherlands See War Conditions - 0 - Oil, Fuel See War Conditions: Export Control - P - Phillips, Sir Frederick See War Conditions: United Kingdom Plant Expansion See War Conditions: Airplanes Procurement Division Personnel changes recommended by Mack (Director) - - 10/12/40.. 190 - R - Book Page Revenue Revision Excess Profits Taxes: Special study prepared by Standard Statistics Company, Incorporated - 10/14/40 321 334 Roumania See War Conditions: Foreign Funds Control - S - San Diego, California Housing: See War Conditions: Airplanes (Consolidated Aircraft) Ship Movements See War Conditions Society for the Propagation of Faith See War Conditions: Foreign Funds Control (Italy) Standard Statistics Company, Incorporated Excess Profits Taxes: Special study - 10/14/40... 334 Standardization See War Conditions: Airplanes Studebaker, John W. (Dr.: Office of Education) See War Conditions: Airplanes (Consolidated Aircraft) Sweden See War Conditions: Foreign Funds Control; Sweden Switzerland See War Conditions: Foreign Funds Control - T - Tax Evasion Darryl Zanuck case: Acceptance of settlement proposal recommended in Helvering memorandum - 10/11/40. 153 Taxation See Revenue Revision Turrets See War Conditions: Airplanes - U - Unemployment Relief Work Projects Administration report - 10/14/40 261 U.S.S.R. See War Conditions: Export Control; Foreign Funds Control: U.S.S.R. United Kingdom See War Conditions: Military Planning; Purchasing Mission United States See War Conditions - V - Vocational Education See War Conditions: Airplanes (Consolidated Aircraft) Book Page War Conditions Airplanes: Bombers: Six B-24's for the British: Young memorandum - 10/14/40 321 193 a) Beaverbrook message of gratitude transmitted by Purvis - 10/14/40 337 Consolidated Aircraft: Conference: present: HMJr, Foley, Young, Buckley, Knudsen, Stimson, Marshall, Brett, Lyon, Towers, and Forrestal - 10/11/40 25,193 a) Deliveries discussed b) Sperry automatic pilot installation arranged by Lyon 33 c) Deficiency liet 48 d) Housing in San Diego: Report 49 1) Knudsen informs HMJr 6200 houses now available: discussed at 9:30 meeting - 10/11/40 5 Six B-24 Bombers for the British: Young memorandum - 10/14/40 193 a) Beaverbrook message of gratitude transmitted by Purvis - 10/14/40 337 Fleet inquires concerning allotment from Studebaker (Office of Education) - 10/14/40, 220 Curtiss-Wright Corporation: P-40 under fighting conditions; P-40 Bell plane-Lockheed Interceptor comparison: HMJr requests Young to get report from British - 10/14/40 225 P-40: Last one in storage shipped - Haas informs HMJr at 9:30 meeting - 10/14/40 229 Schedule of deliveries as of October 12, 1940 333 Engines: Allison Engineering Company E-5 engine needed for Bell plane teste - 10/12/40 192 Saturday Evening Post story based on plant discussed at 9:30 meeting - 10/14/40 226 Schedule of deliveries - 10/14/40 331 Shipments - 10/14/40 332 Four-man committee to speed production (HMJr to be chairman): HMJr requeste Schwars to see Early concerning publicity - 10/14/40 214 a) No objection to discussion by HMJr at press conference: Early's reply 336 b) See Henderson report to White Rouse of Knudsen's "jealousy": Book 322, page 83 1) HMJr and McReynolds discuss HMJr's press conference announcement: See Book 322, page 212 Plant Expansion: Contracts now to be approved by Defense Commission (Miss Elliot, Hillman, etc.) instead of Knudsen: Forrestal informs HMJr - 10/11/40 90 a) Stimson-HMJr conversation - 10/14/40 244 b) Form of contract as completed by National Defense Commission: See Book 322, page 179 1) Summaries of contracts by Havy to be published in Federal Register: Army will probably follow suit. - W - (Continued) Book Page Var Conditions (Continued) Airplanes (Continued): Plants (United Aircraft, Republic, etc.): Forrestal and Patterson plan to visit: Forrestal-HMJr conversation - 10/14/40 321 301 a) Forrestal consults HMJr concerning Knudeen representative - 10/14/40, 335 Standardization and delivery schedules discussed at conference; present: HMJr, Buckley, Young, Knudsen, Foley, Stimson, Marshall, Brett, Lyon, Towers, and Forrestal - 10/11/40 38 a) Young appointed to committee - 10/14/40 338 b) Competent British technical personnel urgently needed: Brett memorandum transmitted by Young - 10/14/40 341 Turrete: Situation discussed at conference; present: HMJr, Buckley, Young. Knudsen, Foley, Stimson, Marshall, Brett, Lyon, Towers, and Forrestal - 10/11/40. 35 Denmark: See War Conditions: Scandinavia Economic Defense: Young memorandum concerning development of program - 10/11/40 107 a) White to be consulted: HMJr tells Young at 9:30 meeting - 10/15/40: See Book 322, page 3 Exchange market resume' - 10/11/40, etc. 171,299 Export Control: Exports of petroleum products, scrap iron, and scrap steel from United States to Japan, Russia, Spain. and Great Britain, as shown by departure permits granted for week ending October 12, 1940, 201 Far East: No shipments to be withheld - order from FDR: Gaston informs HMJr at 9:30 meeting - 10/14/40. 215 Japan: Machine tool shipments not to be withheld: Gaston memorandum - 10/12/40 196 Navy requests that chronometer shipment be stopped: Gaston informe HMJr at 9:30 meeting - 10/14/40 215 011, Fuel: French SS WINNIPEG, destined for Liverpool, held at New Orleans pending clarification of excess supply - 10/12/40 197 U.S.S.R.: Machine Tools: Amtorg Trading Company requests permission to export without license to Vladivostok: Gaston memorandum - 10/12/40 196 a) Press reports all withheld shipments released by State Department as good-will gesture to Russia Far East: Lothian and HMJr discuss situation - 10/14/40 324 Regraded Uclassified - W - (Continued) Book Page Var Conditions (Continued) Foreign Funds Control: Bank for International Settlements: Transactions with Federal Reserve Bank of New York - 10/11/40.. 321 152 Csechoelovakia: Transaction with Chase National Bank - 10/14/40 259 Germany: Transactions with Chase National Bank and National City Bank - 10/11/40 165,167,231 Italy: Italian Imbassy to withdraw $3,850,000 to order of Italian Exchange Institute for propaganda in Latin America (Haiti and Cuba mentioned): Cochran informs HMJr - 10/11/40 6 a) Cochran memorandum 17 b) Conference: present: HMJr, Bell, Foley, Cochran, and Bernstein, 10/11/40 137 1) All Italian assets to be frosen Society for the Propagation of Faith: Check to order of Thomas McDonald (Monsignor) discussed at 9:30 meeting - 10/11/40 8 Transactions with Chase National Bank, National City Bank, and Guaranty Trust Company - 10/11/40 161,165 Transactions with Chase National Bank and Federal Reserve Bank of New York - 10/14/40 232 Japan: Article by Mowrer (Edgar Ansel) discussed at conference; present: HMJr, Bell, Foley, Cochran, and Bernstein - 10/11/40 137 a) Unfavorable reaction Klaus, Samuel: To handle all unusual cases (Society for the Propagation of Faith an example); not to return to Chicago - 10/11/40 9 a) Assignment to be kept confidential: HMJr's instructions to 9:30 group - 10/14/40 221 b) Gaston to supervise; Cochran prefers that he have no supervision over Klaus' activities: See Book 322, page 261 Roumania: Office established in Treasury: assets and Minister's request for staff expenses discussed at 9:30 meeting - 10/14/40 223 Sweden: Transaction (by order of Reichsbank, Berlin) with Chase National Bank - 10/11/40 167 Switzerland: Needs of Swiss insurance companies stressed by Minister to Cochran: prevention of further blocking requested - 10/11/40 61 U.S.S.R.: State Bank transaction with Federal Reserve Bank of New York - 10/11/40 166 French Indo-China: Situation report, emphasizing Chinese cargo, by American Consul, Hanoi - 10/11/40. 168 - y - (Continued) Book Page War Conditions (Continued) Germany: Hawk, Walter (German refuges): In United States to organise Fifth Column activities against Germans: Young gives resume' of career at 9:30 meeting - suggests Gaston see him - 10/11/40 321 12 Economic reorganisation in Europe following potential German victory: American Embassy, Berlin, report - 10/11/40. 53 Lothian and HMJr discuss: Lothian predicts future action - 10/14/40 324 Gold: India: Shipment to Chase National Bank, New York - American Embassy, Calcutta, report - 10/11/40 109 Hungary: Pengo value increased, thus reducing dollar premium - instigated by Germany (American Legation, Budapest, report) - 10/12/40 189 Japan: Kondo (Vice Minister of Foreign Affairs, Tokyo) comments in interview with Nicholson (Treasury Agent, Shanghai) - 10/14/40 318 a) Copies of report sent to FDR, Hull, Stimson, and Knox - 10/14/40 310,312, 314,316 b) Commendatory message sent to Nicholson by HMJr - 10/14/40 322 Lothian and HMJr discuss Russian-Japaness relations - 10/14/40 324 Military Planning: War Department reports - 10/11/40, etc 62,85,87. 200,205,207. 280,281 War Department bulletins: "General Requin's 'Lessons and Conclusione' from Operations of French Fourth Army" - 10/11/40 63 "The German Flame Thrower" - 10/12/40 202 Reports from London transmitted by Butler and Lothian - 10/11/40, etc. 176,283,289 Netherlands: Foreign securities in Holland to be registered with German authorities (American Embassy. Berlin, report) - 10/12/40 199 Purchasing Mission: Aircraft Needs of British Government: Beaverbrook memorandum - 10/11/40 52 a) For discussion with Stimson see Book 322, page 151 Needs of British Army: Layton memorandum (supplemental letter, page 187) - 10/11/40 95 See supplemental Layton memorandum, 10/15/40: Book 322, page 153 a) Original sent to FDR - 10/14/40 182,249 1) Purvis-HMJr conversation 209 b) Stimson and Knox given copies 191,185 c) Stimson, Knox, and HMJr to confer concerning: HMJr-Stimson conversation - 10/14/40 243 1) Knox unable to be present 304 - V - (Continued) Book Page War Conditions (Continued) Scandinavia: Denmark: Economic resume' by American Embassy, Berlin - 10/14/40 321 236 Economic survey stressing superabundance of idle money (American Embassy, Copenhagen, report) - 10/15/40: See Book 322, page 120 Ship Movements: See also War Conditions: Export Control Three French passenger ships permitted departure from New Orleans to England: Gaston memorandum - 10/12/40 197 Sweden: National debt status and tax proposals reported by American Embassy, Stockholm - 10/14/40. 260 U.S.S.R. : Lothian and HMJr discuss Russian-Japanese relations - 10/14/40 324 United Kingdom: Lothian calls on HMJr prior to return to England - 10/14/40 324 a) Far Eastern situation discussed b) Russian-Japanese relations discussed c) German action predicted d) Phillips (Sir Frederick) to confer again with HMJr (November 20, 1940) e) Representative of Air Marshal to come to United States f) Joint licensing of commerce between England, United States, and Latin America: FDR and Lothian discuss United States: "Estimate of the Situation" sent to HMJr by Stimson; HMJr acknowledges receipt - 10/11/40 110 a) "Problem of Munitions Production in Relation to United States' Ability to Cope with its Defense Problems in Present World Situation" Military Intelligence Division bulletins: See War Conditions: Military Planning Work Projects Administration See Unemployment Relief - Y - Young, Philip See War Conditions: Airplanes (Standardisation) - 2 - Zanuck, Darryl F. See Tax Evasion 1 GROUP MEETING October 11, 1940 9:30 a.m. Present: Mr. Bell Mr. Thompson Mr. Graves Mr. Pehle Mr. Young Mr. Gaston Mr. Haas Mr. Cochran Mr. Foley Mr. Schwarz Mrs Klotz H.M.Jr: Good morning, everybody. Thompson, in reading this, I don't under- stand this. Is it five dollars plus a dollar thirty-three? Thompson: No, sir, he gets nothing now. H.M.Jr: Read that. It looks as though he gets five dollars plus his usual allowance. Thompson: His usual allowance is when he is away from here. H.M.Jr: "You will be granted an allowance in lieu of subsistence. In addition --" Thompson: It is badly worded. Let me rewrite that. H.M.Jr: I would read it five dollars in addition to the dollar thirty-three. Thompson: I can fix it up. It does read badly. H.M.Jr: Well, let him have the five dollars. Herbert? Gaston: That airport dedication -- 2 - 2 - H.M.Jr: Oh, by all means. You do it. Swell. Gaston: We have some Canadians popping in on us by surprise. H.M.Jr: You are Assistant Secretary of the Treasury. That is good enough. Gaston: You saw a little notice that came through FBI from Hoover about Jamaica. We got the same thing through Coast Guard channels. It may be a reverberation of the same thing, but we posted all the fellows in Customs and Coast Guard to be on the lookout. H.M.Jr: I am thinking of going there after the election is why I was interested. Gaston: To -- H.M.Jr: Jamaica, with Mrs. Morgenthau. I spoke to Hoover last night and he knew about it. McKay called up his secretary and he said he didn't think there was anything. He didn't know any reason why we shouldn't go. Gaston: I think this rumor didn't relate to any activity in Jamaica, but somebody picked up in Jamaica this rumor from a Gestapo man that they were going to start in the United States. H.M.Jr: I think if it were going to start in the United States, it would be a good thing to go to Jemaica. Gaston: This man suggested that he would like to have some practice in mine sweeping and similar maneuvers. I think that is a legitimate thing in his getting ready and I suppose we will have to accede. 3 - 3 - H.M.Jr: 475? Gaston: Yes. H.M.Jr: Sure, that is all right. What else? Gaston: Shall I give you a memorandum for the Presi- dent on this Charlie Blake matter, the man who wrote the letter to Hearst? He is a Hearst newspaper man. He was a friend of Steve Gibbons. He was ill and they let him take 8. little trip on the Coast Guard cutters. H.M.Jr: I don't get him like that. Gaston: No. All right. H.M.Jr: Was that in Steve Gibbons' era? Gaston: No, I think it was arranged with Chick, and I think you spoke to me about it, didn't you? Schwarz: Yes. Gaston: He has been quite friendly. He was probably ordered to write this. H.M.Jr: Pegler speaks today about "Hopkins to board a cutter of the U. S. Coast Guard to go along the coast of Florida.' Gaston: Incidentally, Blake, immediately on his return wrote a long letter to Waesche praising the Coast Guard and asking if he couldn't be hired as a public relations officer. H.M.Jr: You might send that over to the President. What else? Gaston: That is all. 4 - 4 - Foley: Here is the memorandum for the Diary on the meeting over at Hulls' office the other day. H.M.Jr: On what? Foley: The meeting in Hulls' office the other day on extension of the freeze control. H.M.Jr: Oh, did you do one? Foley: Bernie did it for the whole crowd. H.M.Jr: Wonderful. Foley: I don't know whether I told you that Fleet had a complete change of heart and sent a most consiliatory telegram to Forrestal yes- terday saying he would take anything they said. H.M.Jr: I got it one way or the other. Foley: Well, after the meeting over here when every- body decided to get tough, word must have been transmitted back to Fleet that this was no time for fooling and he had better change his tune, so he sent back the most conciliatory telegram I ever saw. Butter would have melted in his mouth when he wrote that. So, I think it pays to get tough. H.M.Jr: I will let you know on the 18th of October whether I agree with you or not. Foley: What is the 18th of October? H.M.Jr: The day after they open the Burma Road. Foley: Oh well, it works for Southern California. H.M.Jr: I think that it works everywhere. It is a 5 - 5 - question of where you pack the punch when you got it. Foley: I think Fleet must have had a couple of friends in the room who got in touch with him - I think Admiral Towers, and I think Mead must have called him, too, after Knudsen spoke to him. H.M.Jr: Well, it was all to the good. Knudsen rode down with me this morning and he said that as 8. result of that luncheon yesterday, he has got 6200 houses now. I didn't argue with him, but how would he get 6200 houses? Foley: I will tell you that. The 1200 are the Navy's 1200 for their enlisted people. That is entirely independent from what we were talking about. We decided our objective was 5,000, and that is 6,000. That adds up to 6200. Palmer looks at it altogether. They are going ahead with the 1200 for the enlisted people, plus 2,000 for Fleets' people, which will give us 3200 immediately, and then they are going to make a survey as to how many of the additional 3800 - no, 3,000, they should do at the present time, and they are also going to look into the question of how much they can take care of now for the single men, and how many single men's parents they will have to take care of. But they are going to set aside money to cover the whole thing. But nothing had been done, Mr. Secretary; no arrangements for civilian houses had been made. H.M.Jr: Two days ago it was decided to do the 1200 when Moreell and Palmer saw the President, and yesterday it was decided to do the rest. I decided at 3:00 o'clock this morning I am not going to give them any advance. I am not going any place. 6 - 6 - N Foley: You are not going to Baltimore? H.M.Jr: No, I am not going any place until after the election. What else? Cochran: I was told last night in strict confidence that the Italian Embassy is going to receive instructions today, I think, that they are to draw three million eight hundred fifty thousand dollars to the order of the Italian Exchange Institute. They are to draw it all out in big currency and send it down by a member of their staff to Rio for a member of the Embassy to distribute to agents in Latin America. They mentioned Haiti and Cuba, particularly. H.M.Jr: Well, we will just have to stop it, that is all. Where are they drawing that out of? Cochran: I don't know which bank. It is probably the Chase or the National City because the In- stitute carries its account with those banks. H.M.Jr: Let's just take 8. minute to think about this. Incidentally, somebody ought to call up the Washington Post and tell them they spell Ru- mania with a "u" and not with an "o". They have got a big headline "Romania". Gaston: That is an alternative way of spelling. H.M.Jr: It is the only paper that is carrying it that way. Gaston: It is modernistic. Schwarz: Most of them used our style. H.M.Jr: Anyway, they were going to send that four million dollars down to the Argentine, weren't they? 7 - 7 - Cochran: That is right, yes. That would leave most of their balance with the Federal Reserve Bank. H.M.Jr: The Germans think the Argentine is a good place to operate from. Now, the Italians are going to send some down. Cochran: To Rio de Janeiro. They already have a deposit of five or six hundred thousand dollars. H.M.Jr: Come over figuratively on my side of the table a minute. How can we stop it? Cochran: Through control is about the only way. You might get him on withdrawing so much money and say it was for hoarding purposes. Ed, is that possible? Or you could stop him going into Brazil because of exchange regulations, but -- H.M.Jr: You said Rio. That is Brazil? Cochran: Yes. They would probably welcome this much American money coming in. H.M.Jr: Come on, how can we stop it? I want to stop it. Bell: The only way to stop it is the control. H.M.Jr: Have they drawn it already? Cochran: I don't know. I had reports yesterday and it isn't listed among the transactions. H.M.Jr: Is the money with the Federal? Cochran: No, it isn't with the Federal, because they only have thirty thousand dollars worth in 8 - 8 - the Federal, so it would be with the Chase or National City, I think. It might be in one of the branches of the Italian banks. H.M.Jr: Come on, smart boys. Bell: I. suppose there might be some way we could get cooperation between the central banks and get information on what it is being used for, but I don't think you can stop it except through control. I question whether you should stop it if you could, except through control. H.M.Jr: Did you get it where I think you got it from? Cochran: Yes. He phoned me last night at 11:15 and hoped we could stop it. (H.M.Jr. places call for George Harrison) Bell: He was in town yesterday. H.M.Jr: Not in his office. Bell: I mean in Washington. Who was it George Harrison had an appointment with? Schwarz: I think that was the labor man. H.M.Jr: Well, this was the Harrison. What else? Cochran: That is all. Bell: Did you notice that transfer of the three hundred fifty-two thousand from Chase National, check to be drawn to Thomas Mc- Donald? 9 - 9 - Cochran: Yes, the Monseignor up in New York, Society for the Propagation of Faith, or something like that. H.M.Jr: Yes, what is that? Bell: I don't know what it is, but shouldn't that be given to Hoover? Cochran: I passed it on to our man here, Sammy Klaus. He gets copies of all those now. Bell: It sounds like propaganda or organization. Gaston: Who is that to? Bell: An Italian. Gaston: We had a settlement like that, you know, and it turned out to be payment for some property, missionary society property. H.M.Jr: Is that going to be our contact now, Sammy? We are going to turn these queer ones over to Sam Klaus? Cochran: That is right. I give him copies of all these things. Gaston: I am sending everything I get to Sam. H.M.Jr: Good. Sam only got back this morning. I want him to stick on this job, Ed. I don't want him to go to Chicago. Foley: I told you that was the last time. H.M.Jr: I know, but this is the last time. Foley: Yes, Bill said it would be the last time. H.M.Jr: I know. I just wanted to make sure. Regraded Uclassified 10 - 10 - Foley: All right. Schwarz: I think it would be an interesting story. The Soviet reporters are reporting German stock sales in New York. H.M.Jr: We ought to be able to think up some way of stopping that thing. Foley: Suppose we get together. H.M.Jr: Yes, you and Bell. There must be some way. Bell: Strong-arm method. H.M.Jr: I want to stop it. Bell: Let us think about it. H.M.Jr: Don't think too long until it goes. I would hate to have to take the money off the boat at the Trinidad. Of course, we have always got that. Don't forget that. The boat pulls in at Trinidad and we could pull it off. Bell: This will probably be through transfer, won't it? Cochran: No, a member of the Embassy staff is going to carry the money down. H.M.Jr: Well, I say, as a last resort the boat can always stop at Trinidad. Bell: Yes. H.M.Jr: Well, the first thing you want to do is find out who gets the money and then have some- body tail him. Cochran: I will check up with Cameron in New York as soon as we go out and see if there was any 11 - 11 - payment made, yesterday. I haven't had yesterday's figures yet. H.M.Jr: What else? Cochran: Nothing. H.M.Jr: Anything? Schwarz: That is all. I an waiting for the file on that other matter. H.M.Jr: Okay. Philip? Young: I saw this man, Walter Hawk, yesterday who was sent in to see you by Mr. Kingdom from New York, who is the German refugee. He had A very interesting career. He was a German cavalry captain in the World War and was sent down into Turkey and Mesopotamia and Iran, that whole country down there. lle wound up being Commander of the German Air Force down there. He fought against Lawrence and the Arabians. He instigated the Afghanistan and Indian riots from Persia, and so on. He came back up to Germany after the war -- H.M.Jr: Will you talk a little more distinctly? It seems as though your tongue is a little bit thick this morning. Young: A little tanky? (Laughter) H.M.Jr: He is blushing now. All right. Young: He came up to Germany after the war and managed the Junkers factory, and then went Regraded Uclassified 12 - 12 - out to Russia and started that one, and finally wound up as the manager of Skoda and went back down to Iran as the Skoda representative, which evidently gave him the opportunity to get over to England when Germany went into Czechoslovakia. He has been working very closely there with Duff Cooper and various propagandists and is now a resident of the Bahamas and is up here for about three months trying to stir up interest in organizing fifth column activities against Germans, using Germans, because he says no German can understand a German except a German. I think Herbert might be interested in talking with him. H.M.Jr: Herbert specializes for me in fifth column- ists. Personally, I am distrustful of all Germans. Anyway, turn him over to our expert, Mr. Gaston. Young: Yes. H.M.Jr: Incidentally, if you would tell your friend, Purvis, that if they have in mind speed boats, which they have been talking about -- Young: Rescue boats? 13 - 13 - H.M.Jr: Resoue boats, crash boats, anything else. I mentioned it to Knudsen this morning. There are all kinds of boat building com- panys up on the Great Lakes who have no business and who could turn them out now, and I am putting him on notice now, 80 he doesn't come around in two months and ask for every other one. Young: This British merchant shipping mission which just came over a week or 80 ago is making a very careful study of those Great Lakes companies. H.M.Jr: Well, just give that message to Purvis, will you please, today. Young: Right. H.M.Jr: I mean, they have been talking about it for three months and about next March when they are again talking about invasion, they will come around and want half of what we have got. Now, I am telling them now if he places his orders now he can get production for themselves. Gaston: Incidentally, the Coast Guard made a survey with the assistance of the Maritime Com- mission on who could build now 327-foot cutters, and they found there were 13 ship- yards that need business and could take it right now. H.M.Jr: I wrote to the President on it. Gaston: Oh, you did? H.M.Jr: While you were away. Gaston: Oh, I didn't know that. 14 - 14 - H.M.Jr: Asking for a million dollars to lay down the keels for three, and I said before I do it, I want to know if the shipyards are available. It was in connection with that. I gather you (Young) had an interesting session. How was the tank party? Young: It was quite an elegant party. I was glad that - they had a string orchestra and a lot of people standing around, and so on. H.M.Jr: And? Young: It was a pretty good party. I was glad it wasn't financed on the continental pattern so I didn't have to get a certification as to capacity. H.M.Jr: I see. Young: I think it was probably very successful from the British point of view. Klotz: It doesn't matter what you say now. H.M.Jr: I see. Did Buckley go with you? Young: Oh, yes; also, Cox. H.M.Jr: Are you glad that you went? Young: Oh, I enjoyed it. H.M.Jr: Anything else of a serious nature? Young: No, sir. H.M.Jr: What did you do with Mr. Roosevelt? Pehle: I am sending you a memorandum. We didn't do very much. It seemed to me that it was 15 - 15 - a pretty vague state that the whole thing was in and all sorts of possible things that might be done, but some doubt as to whether anything should be done. H.M.Jr: You got my message, didn't you, in which I said, "Don't feed him any better than you would anybody else"? He was sitting here when I said that. Okay. George? Haas: I have nothing this morning. H.M.Jr: Harold? Dan? For those who are golfers, I just want to let you know I am leaving around 3:00. Bell: A little late for golf. You couldn't make it 2:00, could you? H.M.Jr: Well, officially, I am leaving at 2:00. Bell: That is good. H.M.Jr: Officially, I have left at 2:00. Bell: It gets dark early. The last time I played, I had to light a match to see the hole. H.M.Jr: Did you make it? Bell: I didn't make the put, but I got on in two. These letters from New York on the Discount, it is just a matter of information is all. They have got about eleven and a half million of capital and they can't make any return on that capital, so they are turning back 16 - 16 - the original capital of six million, and now they will be capitalized on about a five and a half million dollar basis in- stead of eleven and a half, and they just wanted you to know it and that the reduction in capital wouldn't interfere with their operations as in the past. They would still continue to help the Treasury when- ever it was called for. H.M.Jr: Did it take three letters? Bell: Yes, it took three letters to tell you that. Here is that memorandum on the depository. H.M.Jr: Oh, yes. Who was the girl - four different Senators wrote me about some woman. Bell: We are investigating that. H.M.Jr: What was it about? Was she about to be fired? Bell: She anticipated it. Thompson: She has been borrowing heavily from the Credit Unions. H.M.Jr: I gave Foley a message for you on that other gal last night. Thompson: Yes. Bell: That is all. H.M.Jr: Norman? Thompson: Nothing. H.M.Jr: Then you and Ed stay, and Mrs. Klotz. TREASURY DEPARTMENT 17 INTER OFFICE COMMUNICATION DATE October 11. 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran Last night, at 11:15, Mr. Pinsent, Financial Counselor of the British Embassy. telephoned me at my home. Ee stated that his Embassy had Juet received a most con- fidential message with instructions to communicate the substance thereof to the Treasury, with the further instruction that any memoranda on this matter be burned. It was made clear that the source of the information was unimpeachable, but should be protected. The message stated that the Italian Embassy vas instructed by the Institute "Cantro" (which I assume may have been "Cambio") to withdraw from "Pur E Account" $3,850,000 in bank notes and to send this sum by a member of the staff of the Embasay in Washington to the Italian Embassy at Rio, which would, in turn, redis- tribute the money to Italian missions in Latin America, Havana and Haiti being particularly mentioned. The message stressed the importance of preventing this money from being delivered, since it was felt that this would be inimical to the interest of both our countries. I gave the foregoing information to the Secretary at our Staff Meeting this morning. After the meeting I telephoned Mr. Cameron, in charge of the Foreign Department of the Federal Reserve Bank at New York. He had McKeon check up and telephone us down Italian transactions up to last evening, as reported by the usual New York banks. There was nothing of especial interest in it. Mr. Cameron promised, however, to keep in touch and let me know of any instructions covering important Italian transactions which might be received in New York today. It is understood that the Chase and National City Banks are the principal American banks carrying official Italian accounts. Certain sums have been drawn out of those accounts in the past by order of the Italian Exchange Institute. It is possible, however, that there may not now be one big withdrawal in the amount above specified. It is conceivable that branches in New York of Italian banks may have been drawing out cash in the past and accumulating it in their own vaults for an emergency, such as a possible freesing of Italian assets in this country, or for sending abroad as in the present instance. If, on the other hand, the Italian Embasay did desire to withdraw over $3,000,000 in currency at one time there is no present restriction thereon, providing an affidavit were filed to the effect that the currency is not desired for hoarding purposes, If the currency is to be sent to Brazil, manifestly such a statement could be honestly made. If we had a complete blocking of Italian funds and the Italian Embassy sought to make such E withdrawal, we would then be faced with the same diplomatic problem as that now experienced with France, with the Vichy Government desiring to use dollar deposits in New York to pay for expenses of French diplomatic and consular establishments in Latin America. 2.mg 18 SEE FIRST MEMO TO PRESIDENT DATED Feb. 8, 1940 (Book 240, p.123) P. 19 THE UNDER SECRETARY or THE TREASURY WASHINGTON 10/11/40 MEMORANDUM FOR THE SECRETARY: It has long been the established policy of the Treasury to designate banking institutions as depositaries of public monies where such depositaries are necessary for the performance of certain essential banking services for the Government which cannot adequately be transacted by Federal Reserve banks and branches. At present the major functions performed by these depositaries are (1) to supply disbursing officers of the Government, principally Army and Navy officers, with currency and coin to meet payrolls and other expenditures; (2) to receive deposits from governmental officers and to transmit such funds to the Treasury, through credit with Federal Reserve banks; and (3) to service collection and checking accounts involved in the transmission of funds into the Unemployment Trust Fund in the Treasury and the payment of benefits out of funds withdrawn from such Trust Funds. This essential service has grown during recent years with the broadening of the activities of the Federal Government and ag a result of action taken to improve depositary facilities. 40 indicative of the trend, on June 30. 1933, there were 320 depositaries with aggregate bal- ences of 9 million, while on August 31, 1940, there were 456 depositaries with balances totalling 58 million. The demands arising as a direct result of en- larged tax receipts end cash expenditures by Army and Havy disbursing officers for paying troops, etc., ETC causing = further charg increase in the services required by the Government and the number of points where depositaries are necessary. There is a substantial cost to banks in servicing the Government accounts, much of which is direct out-of-pocket expense such as additional clerk hire, 20 - 2 - space and equipment. The satablished as thod of offastting these costs is through the medium of Treasury balances maintained with the depositaries. These balances are fixed in direct preportion to the amount and character of the business transacted and are adjusted periodically. It is becoming increasingly difficult to effect and maintain satisfactory arrangements with banks due primarily to the decline in the earning value of bank assets, including the Treasury deposits which must either be loaned or invested in the current market to provide earnings which the bank may apply as offsets against the cost of transacting the Government's business. There is the additional important factor from the practical, administrative viewpoint, that the net earnings of banks upon their loans and investments is constantly changing, requiring corre- sponding changes in the amounts of Treasury balances maintained as offsets. To eliminate these difficulties and in order that efficient service may be procured and equitable relations maintained between the Treasury and its designated depositaries, it is considered desirable to provide a special type of Government obligation which may be subscribed to by such depositaries only to the extent necessary to offset the costs of maintaining the Government accounts. This obliga- tion should have a term of about ten years, be registered, and have a fixed rate of yield, say 2%, and which would not be subject to market fluctuations, with provision for redemption either at the option of the registered owner (depositary) or the Treasury at face value plus accrued interest only when the Treasury's accounts are discontinued or decreased. This obligation would stabilize the investment value of the Treasury deposits, make such deposits reasonably attractive to banks, permit the Treasury to retain the advantages of its present efficient system, reduce the aggregate balances required B.B offsets by 25 to 30% and at the same time would be suitable 21 - 3 - for use by banks as collateral security required by law. If a 2% yield is provided, it is believed that it will not be necessary to have obligations outstanding at any one time in excess of $75 million, due primarily to the fact that ownership will be restricted to approximately 500 qualified banking institutions and that, as a result of the careful administrative control of the depositary system, the Treasury has been able to secure rates for services which are approximately 50% lower than the rates applied by banks against comparable commercial accounts. An alternative to the bond plan would be the direct payment of bank charges out of appropriated funds. The Treasury is not opposed to such payment but experience and careful investigation lead to the opinion that such direct payments would materially increase the cost and the administrative problems involved. Furthermore, it appears that some additional legislative authority and, certainly, additional appropriations would be necessary, while the bond plan could be adopted under the existing authority of the Second Liberty Bond Act, as amended. This plan was submitted to you on February 8, 1940, and was returned without approval with the request for further explanation. DwB WAR DEPARTMENT OFFICE CHIEF OF STAFF 22 WASHINGTON, D.C. Mc/ray:- - The have radued Cluno & tales sme time to get 8 1 possibly three "form days. M. BS. 23 war DEPARTMENT WAR DEPARTMENT GENERAL STAFF G-2/2078-163 MILITARY INTELLIGENCE DIVISION 0-2 WASHINGTON October 11, 1940. The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: The following is a summary of the information available to this Division concerning Mr. Charles Healy Day, formerly Technical Adviser, Commission on Aeronautical Affairs, Chinese Government. Graduated as C.E., Rensselaer Institute, 1906. Went to California, then to Alaska. In the automobile business for 1½ years in Los Angeles with Mr. H. C. Brombacher. Member of the automobile firm of Brown and Day until 1908 or 1909. Moved to Dansville, N. Y., where he had charge of a small automobile concern called Klink Motor Car Co. Returned to California in 1910. Designed and built an airplane, flew it and crashed. Manufactured airplanes in Los Angeles under the name of Day Tractors. Twice with Glenn Martin between 1910 and 1914. In 1914 came east and joined Sloan Airplane Company, which grew into the Standard Aircraft and Standard Aero Corporation, of which he was Vice President and Chief Engineer. He designed the Standard J-1 and several other ships built there. 24 Joined the Electron Corporation of America (light alloys). In 1927 organized the Gates-Day Aircraft, and afterwards the new Standard Aircraft Company, of which he was Vice President. In 1929 Standard ceased operating and he did consulting engineering work except for a time in 1931 when he built an airplane and toured the world with it for some six months. In 1934 employed by General Wong Kong Yue, who at that time was Chief of the Canton (China) Air Force, Took charge of operating the Chinese aircraft factory at Shiuchow (north of Canton), making the Curtis Hawk, type III pursuit ship. Returned to the United States on leave in 1938. Returned to China and was Chief Engineer of the factory, which moved to Kunming, where he remained until 1940 when he resigned and returned to the United States. In the opinion of this Division, Mr. Day, though at present not in the best of health, has a good reputation among aircraft en- gineers and designers. Sincerely yours, Bussuan Smihs SHERMAN MILES, Brigadier General, U. S. Army, Acting Assistant Chief of Staff, G-2. -2- Regraded Uclassified 25 October 11, 1940 10:30 a.m. RE AIRPLANE DELIVERY SPEED-UP Present: Mr. Buckley Mr. Young Mr. Knudsen Mr. Foley Mr. Stimson General Marshall General Brett Major Lyon Admiral Towers Mr. Forrestal Mrs. Klotz H.M.Jr: I was talking to your former associate, Mr. Evans, yesterday. I was telling him how pleased I was. I thought it didn't do any harm to call up and say thank you. So then he told me that the English had taken eight planes and sent them out to Lockheed and that Lookheed won't be able to use them until next March. (Mr. Foley entered the conference.) H.M.Jr: They won't have any use for them until next March. Evans and Hunt did 8. swell job out there. Knudsen: Don't get too rosy about the picture. Let's get 800 engines a month and then I will feel better. Then they get a medal. H.M.Jr: They don't get a medal until they get 800 a month? Well, I see that the President had to think up one for Dick Byrd the other day. He had given him all the medals there were, 80 now he attached B. gold star on one. He had every medal they had ever had, 80 the President pinned a gold star on the medal he got last year. 26 - 2 - Foley: Here is that report of that Subcommittee, if you would like to look at it before the others come. Buckley: Mr. Secretary, here is the letter from Consolidated that came in on the deficiencies, finally. I have copies of that in case the Army or Navy will be able to do anything about it. It is very weak, it seems to me. There 1s very little there that they claim they are behind on. H.M.Jr: You mean there isn't much? Buckley: There isn't much. Knudsen: Foley, do you like these barracks and thinge? I don't. Foley: Well, I don't have any feeling on it, Mr. Knudsen. That 1s what the Navy said would be adequate to take care of the single men. I am no expert on housing at all, and all I am trying to do here is to suggest funds and agenoies and possible action. What would you consider as an alternative to barracks? Knudsen: Rooming in two-family houses. Foley: There is nothing here that they are going to do insofar as the single men are concerned, the single civilians. They are going to make 8. study of the rooming conditions and things of that kind. (Mr. Stimson, Mr. Patterson, General Brett, Major Lyon, and General Marshall entered the conference.) H.K.Jr: Did General Lewis get in touch with you on that machine gun thing? Young: Yes. H.M.Jr: Everybody is here but Forrestal. Knox, I think, played hooky today and went home. - 3 - Stimson: Well, I think you had better come up here, General Marshall. Marshall: I there. was leaving some room for the Navy up Stimson: Well, I think they are taken care of properly. Marshall: He is recording you here. H.M.Jr: Does that bother you? Poor Philip made notes yesterday. He took 17 pages and I thought I would give Phil a rest. Patterson: It is worse yet for you (Stimson) today, Colonel, because this man 1s taking down verbatim what you Just said. Stimson: All right. H.M.Jr: The Colonel trusts me. Do you want to - Forrestal knows about this. Why don't we -- Foley: Distribute this? H.M.Jr: Hear from Mr. Knudsen first, because he has to leave at eleven o'clock. Foley: This 1e that Subcommittee on Housing. Knudsen: As you remember, the last time there were certain things that I was supposed to do. The first thing was, I was to get Fleet on the telephone about this and tell him that we were rather disappointed in the delivery schedules that had been brought back by the men that had been out from here and that I would send him - the men out to nee what could be done to help the thing along. (Admiral Towers and Mr. Forrestal entered the conference.) Knudsen: Mead left yesterday noon and took a fellow along by the name of Grant, 8. production fellow, to go out there to advise and call 28 - me back as soon as he had anything to tell me. Fleet himself is quite ocoperative. He said his doctor ordered his away, that was the reason for his hunting trip, but he promised to stay there until Monday night 80 ae to get some time with these fellows and they can contact the organization while he is away. He says he 18 only going to be away for four days, 60 that is point No. 1. Point No. 2, Mr. Palmer, who is the housing man for the Commission, contacted Mr. Foley and reported back that there seemed to be an agreement with reference to the housing that was required and that is embodied in this report you have before you. That represents all that I have to do in the picture until I hear from Mead. In the meantime, I had the delivery schedules checked up, the aeronautical part of our picture over there, and, of course, we have on the bombers 93 four-motored bombers promised. I asked if this schedule was given - as far as we are concerned, we feel he ought to turn out 93 but he has told the people that came out from here he was only going to turn out 64. Until Mead confirms or rejects that, I haven't anything else to say about it. Stimson: What models are included in the 64, what models that you have just spoken oft Knudsen: B-24. Stimson: All B-24? Knudsen: That is right. H.M.Jr: Well, now we have had the advantage at last of getting hold of Major Lyon, who stayed out there to check up on certain things which were very vital to this point. I have only had time for a very short talk with him this morning, but it seemed to me that his report is very important and 29 - 5 - determinative on my view of the situation. I can only say one thing, that he impressed me with the fact that the Consolidated Company has been doing & great deal better than I gathered from the last meeting that it had been doing and he has reasons for that. I would like to have General Marshall or one of the others who have been with Major Lyon longer or Lyon himself, give out a statement, but it has impressed me that we have got to hear from Mead before we can go very much further or faster. Forrestal: Have to get his support, Mr. Secretary. Stimson: Yes, Mr. Mead's support. H.M.Jr: Couldn't we hear what Lyon has to say? Stimson: Yes. Lyon: First, Mr. Secretary, with regard to the condition in the Consolidated plant as related to meeting their guaranteed deliveries, which we cited in our proposals to the British of October 1st. The facts that are concerned, that they cannot meet their guaranteed schedules, either to the Army - - on the Army's B-24's or to the British Purchasing Commission for what they call the LB-30. It is a divided responsibility, part of it the Army, part of it the British, and part of it the manufacturer. Superimposed on that is the element of risk and the element of gamble that is always taken in an airplane contract. The manufacturer will meet his guaranteed schedule deliveries if the tests that are made progressively with the development of the airplane are satisfactory. As applied to both the Navy contract for the PBY boats, on an engine installation, which is identical to an engine installation on the Army, there have been unforeseen delays. Like- wise, the Army in the negotiations with the Consolidated Company, following our agreement with the French Government last March, you - 6 - 30 remember, sir, in which we released the B-24, made certain changes and took in exchange for that an improved airplane on a current contract, which again was dependent upon certain tests being completed and satisfactory tests. In all instances, those teste had not been eatisfactory and have required changes in the airplanes that are to come along later. H.M.Jr: Let me interrupt you. I want to check on that one. You released it for & better plane to the Army? Lyon: Exactly, sir. However, the French, sir, received a better plane. They provided for turret installations, for example, of their design, which was not in the original B-24 8.8 we released it. Now, when the British took over the French order, it required still further production changes in the installations of the turret. The British, the Army and the French installations are not identical, and as of this date the British are requiring a changed turret from what the French agreed to, and I don't believe the final approval has been given, although it was promised when I left the plant day before yesterday. The final approval on the Army turret, which 18 different from the British, again, has not been given, although the manufacturer has been given 8. go-ahead to out the holes in the airplane, but the final details have not been released. We have to be honest with ourselves in that. The manufacturer, as a necessity, will have to hold back certain components in production. The next point that was discussed, in which I got the very definite impression while I was there, was the first six airplanes and which we agreed to turn over to the British Purchasing Commission during October and November, in order that those airplanes could be placed in service, 31 - 7 - we will say, by December, during the month of December. As & result of the teste on the first Navy boat, they discovered that little details of the engine cowling cracked as 8. result of a pedestal type of engine mount which the Army and Navy had standardized on. It made changes in both the Army and Navy airplanes. That results in a delay of 30 days. I finally uncovered that was the reason that the manufacturer would not obligate himself to saying he would have the airplanes out in October and November. They don't know Just yet how they will cure the cracking of cowlings that occurred on the Navy's boat. Stimson: Cracking of what? Lyon: Cowling, sir, that goes around the engine. It is a very vital part of these high speed air- planes. But the facts are, the results of the tests on this Navy boat proved that although the engine mount was okay, the cowling was not, and they don't know the answer yet, BO the guesses that Consolidated give or we give to the British are still guesses and estimates. It 1s not a firm guarantee, either on the part of the Army or Consolidated. Now, that brought up the question next in our tentative agreement, in my conversations with Mr. Fairey, that should the British Purchasing Commission take priority on the delivery of the next 20 airplanes instead of the one to one ratio we agreed to originally, in other words, should they take their 20 airplanes and then we take our 9 - that was a matter that was not - no comitments were made. However, I told Mr. Fairey that the Army would do everything possible in cooperation - cooperating with them to get the earliest possible deliveries to them. Going back again for a moment to the first six airplanes, the next point that was brought up, 32 - 8 - the manufacturer represented that it would take an additional 60 days to put in the Sperry automatic pilot, forgetting the bomb sight. I committed myself to Mr. Fairey to find out why it would take 60 days. To do that, I had to go to the Douglas plant and pull out the drawings of a similar revised installation that we made in the Douglas bombers to answer certain technical questions, highly involved details, that were charged by the Consolidated engineers and which I thought caused Mr. Fairey to believe that they would not get their air- planes in time to be of any use to them. As 8. result of my investigations on Monday and Tuesday of this week, the Sperry automatic pilot will go into the B-24 airplanes without any structural changes, either in the instrument board or in the airplane itself. The Sperry pilot plus the Sperry bomb sight will go in the next 20 airplanes without any structural changes. Now, particularly with respect to the nose of the airplane, on the LB-30 I stayed there until -- H.M.Jr: Wait a minute. For the benefit of Mr. Stimson and I, what 18 an LB-30? Knudsen: It 1s the British counterpart of the B-24. Lyon: The LB-30 is the British counterpart of the Army B-24. Therefore, the proposal that the Army made to the British Purchasing Commission for turning over the 0-1 sight will allow them to not only install that sight in the - any number of Army B-24's that can be made available to them, but in their LB-30's, that is, to their account, with very small delays in delivery. Now, a sidelight of that, there was what I - in my own opinion - felt an inclination on Mr. Fairey's part to take too much stock in what the manufacturer of the - the airplane manufacturer was - represented. Likewise, it was my estimate of the situation that the airplane manufacturer, knowing that he would 33 - 9 - be stuck, to use my own language, with guarantees, capitalized in this opportunity of a change in bomb sight to save him dollars on penalties. Therefore, I called General Brett - first I called the Sperry representative on the West Coast and received the flat state- ment that it was not the policy of the Sperry Company to bother with installations. However, I obtained his agreement to have a technical man at the Consolidated Company to meet with me on Monday afternoon. I went to Los Angeles to make these arrangements. I arrived in Los Angeles at eleven o'clock by special airplane, and the Sperry representative who was a resident in San Diego was not there. On the telephone he could not be located, and the Sperry representative at the moment was not particularly concerned about it. I gained the impression that they were evading the issue. I called General Brett and he in turn called the Sperry people in New York, and immediately there was an entirely different situation, with the result that the Sperry engineers and the Sperry representative said that they could make this installation, the Sperry Company, instead of with 60 days' delay, in something like two weeks for the first airplane and ten days thereafter. The next point came in. The Consolidated Company heretofore had said, "We don't want anything to do with it." Then they came around the back door to me and said Terhaps we had better make this in the plant, and we can cooperate with the Sperry Company and when we are not working on the sixth airplane or the fifth airplane, they can work on it; it won't interfere with us." I took the liberty of stating that I would present to General Brett a proposition that if it would interfere with the Consolidated production, that we would move the airplanes across the field into the Coast Guard Hangar 80 that there would be no possible chance of interference. H.M.Jr: Just as long as we don't lose that one plane. 34 - 10 - Lyon: The net result -- H.M.Jr: We don't mind losing the hangar. Lyon: The net result was, the last thing before I left the plant, their Chief Engineer said it was a 5 to 1 gamble that they would have the six airplanes out with the complete Sperry automatic pilot by January 10, and even gambled that they would have the Sperry automatic pilot in the airplanes by December 30, whereas they said 60 days when we left out there. Forrestal: Yes. H.M.Jr: Do they want the bomb sight too or do they just want the automatic pilot? Lyon: The first six airplanes are the Sperry automatic pilot only. Forrestal: These are Army planes. H.M.Jr: But they don't want any bomb sights on those? Brett: No, sir, they are using those primarily for transports. Lyon: That sums up, sir, the situation as I saw it. H.M.Jr: I think that is a very intelligent report. I compliment you on it. It looks as though somebody had been given a series of run-arounds. That makes it much easier about - we don't have to do anything about the Nortons, then, do we? Forrestal: Well, we were talking to Norton on the Navy flying boats. Brett: Yes, except that the Norton is involved in our B-24's. Forrestal: This is involved in your B-24's, but we still have probably -- Towers: Our engineers say that the Sperry automatic 35 - 11 - pilot cannot be replaced - I mean, the Norton control system, stabilizing system, cannot be replaced by this Sperry automatic pilot without a great loss of time. They figurs that to live up to the proposed schedule of deliveries of our planes to the British, that they would have to put - leave the SBAE part of the Norton sight in seven of them. Lyon: You are speaking of the boat, sir? Towers: Yes. Lyon: I wish to make perfectly clear that my remarks do not apply to the boats. The point I wish to make, sir, the problem of putting the Sperry automatic pilots on the PBY5's and the B-24 airplanes are an entirely different proposition. Towers: Yes. It represents a complete rebuilding of the entire instrument board. Marshall: My impression of this affair at the present time, if I may intervene, is that until we hear from Dr. Mead, there 1s nothing much we can do in determination of plane deliveries. H.M.Jr: There is just this suggestion, General Marshall, that if, for instance, the Army and English are arguing about two kinds of turrets, it seems to me that the argument ought to be terminated and they ought to agree to one kind of turret and they ought to start right there. Stimson: And I feel the same way. I haven't had time to think it over, but we have had such a report from abroad to the effect that the British turret - I should like personally to see it settled. Brett: The question involved on that turret situation, Mr. Secretary, is the fact that the United States Army and, I believe, the Navy, believe that the 50 calibre gun 1s the gun for all air warfare on the larger type airplane. Now, all English turrets are designed for the 303, which 1s approximately 30 calibre turret, and Uclassified 36 - 12 - therefore we cannot standardize where they will not admit that the 50 calibre 1s the suitable gun. Forrestal: They will do it, though, I think, General, if we will give them the ammunition and guns. Brett: Yes. Knudsen: The 50 ammunition 1s identical. H.M.Jr: I want to make myself clear. I think the time has come - I would give them every opportunity to argue, but when it gets to the final thing, I think some place we have got to eay we are going to draw the line and beyond that they will just have to take it, because I have always taken the position where I have been playing nurse to them but the time may come where we may have to take over what they have and when we do, we don't want something which the Army and Navy don't want, not something that the English want, BO I think -- Stimson: Well, now, I would like to, before you go further into that, be sure what the Army's feeling 1s in regard to turrete. I haven't had an opportunity to confer with them. I had a conference yesterday with a member of the Ordnance Department who has been over there, and General Strong's report was 80 complimentary, the way he put it, and he came in and told me his impressions about the British turret and they were very striking and very flattering to the British turret as compared with ours. Brett: I wonder if he has had an opportunity to go over our latest turrets. Stimson: I don't know. It was one of the most striking reports that I have gotten from abroad 8.8 to - well, this is just my impression from what he told me, that the British had devised a hydraulic turret for quickness and ease of operation with multiple gun power which was a very striking 37 - 13 - advance on anything that - any sight, not only that anybody had over there -- Knudsen: May I ask to be excused? I am sorry. Brett: We have one of those turrets in the Materiel Division right now, and the Navy has the other running turret to that. The only discrepancy that we found 80 far 1s the fact that the turret is designed for a 30 calibre gun, and we feel that we must redesign that turret to take the 50. Patterson: May I be excused? Forrestal: The British gives them an are of fire which is greater. Brett: Our development has been based on electric power and their development 1s on hydraulic. Therefore, their operation 1s much smoother and they don't get the jerky reaction we have gotten in our turrets, and we have practically accepted their turret except we do feel it should be built and designed for the 50 calibre gun. Stimson: I am very glad to hear that. The general state- ment of Major - what was his name? Marshall: Studler? Stimson: Yes, it was Major Studler. His recommendation or general statement 1s acceptable, as far as you know now to our -- Brett: Oh, absolutely. Stimson: He spoke of it as a turret that moved 80 smoothly that if you could put a penoil in one of the guns, you could write your name on & piece of paper out in front. I mean, it moved every way just BO easily, without jarring the sight of the gun any, that it was to him a very remarkable improvement. Brett: We have conceded all that, Mr. Secretary. 38 - 14 - The question only arises in the calibre of the gun that 16 carried. Lyon: May I point out the situation that has como up on the standardization of turrete? From the point of view of the airplane manufacturer, the agreement is now that the manufacturer up- holds - that is, the airplane structure will be identical for both the Army and the British. The faot that we cannot get delivery on British type of turrets - even if we standardized on it - would not allow us to install turrets on the airplanes. Therefore, the hole in the airplane 1s standardized 80 we put our turret in if we get it. They put their turret in if they get it. Now, the next point -- Stimson: The turrets are not made by the Consolidated Company? Lyon: No, with the exception of the tail turret, and we are together on that. It is the main turret which the Secretary was just describing, which is the critical one. On that hole question of standardization, as discussed at the Consolidated Company, we were standardized to a point from the construction part of the airplane, but there was & definite cleavage where technique entered, 80 as a result the standardization argument was that if we standardized, for instance on flares, and things like that and identification lights, which are peculiar to the British technique and tactics, it was an additional item for the Army which we would take for the sake of standardization. Likewise, requirements that the Army have for furnishings and equipment that are peculiar to our taction and technique, in many instances the British agreed to take for the purpose of standardization. The poor manufacturer sat down and when he added up the score, instead of having a simplified airplane, he had a more complicated airplane from the point of view of - for the reason that he had to go back and change the airplanes to the British account, the LB-30's in process at the time, and then go back and change their planes to our account, 80 this standardization can be a double-edged sword if we try and put it in too fast. 39 - 15 - Forrestal: In other words, trying to apply it to current production. Lyon: That 1s it exactly. Now, I think this upset things very specifically because Mr. Fairey was extremely anxious to get a turbine super- charger into the LB-30's 80 that they could be standardized with the Army's so-called latest production order for B-24's. There are 352 of them on order. We have already gone back and picked up that change of turbine supercharger on nine airplanes on the contract that was let over a year ago, a year and a half ago, with a costly delay. That 1s the one I was mentioning awhile ago. H.M.Jr: That is for the Army? Lyon: Yes, nine for the Army. Why? Because we wanted to get a test of this turbine super- charger before the order came along, 80 looking at it from the broad point of view we will gain in the end, but we will lose in the next few months, until July. Now, Mr. Fairey would like to interject the turbine supercharger for the sake of standardization, again, into his order for 165. If we do that it 18 going to cause further delay in the Consolidated plant. Likewise, this question of the turret, any changes now on these airplanes underway, I believe, will result in further delays rather than accelerated deliveries. Forrestal: No question about it. H.M.Jr: But there must be a point at which you could make changes far enough in advance -- Forrestal: On the stuff that isn't designed, drawn, and in process. In other words, the stuff you may start on next June. H.M.Jr: As far ahead as that. Forrestal: Yes. Regraded Uclassified 40 - 16 - Lyon: Specifically if the British Purchasing Commission take this supercharger. They are now considering 110 additional airplanes. The 110 should have it. The 165 should come out as they are. H.M.Jr: How much improvement in performance does a supercharger give, approximately? Lyon: It is a - it moves what we call the critical altitude, which is now about 14 or 15 thousand feet, that 18, the altitude at which the engine gives its maximum power and the maximum speed to the airplane, from 15 thousand feet to 25 thousand feet and with appreciable increases in speed at those higher altitudes. H.M.Jr: Pretty important, isn't it? Brett: Very important at the present time. H.M.Jr: Well, what do you think? Stimson: I want to stabilize my own mind a little more. I have just come in contact with it. H.M.Jr: Don't you think that all of this, though, as far as the English orders and the Army's orders and the Navy's are concerned, have been helpful? Stimson: It has been very illuminating to me. Major Lyon has brought a whole new picture to me. I was worried the other day because he hadn't returned, but he was putting that extra time into most valuable information. H.M.Jr: Well, now, to me it has been of tremendous value and I think in the long run it will be to the manufacturer, because this meeting - as a result of this meeting these gentlemen had yesterday, this fellow has decided to take full responsi- bility. He has sent two fellows out there, hasn't he? Forrestal: Last night. H.M.Jr: I understand he finally convinced Admiral Moreell 41 - 17 - that he should let him have it. Foley: On the civilian housing? Forrestal: There never vas any difference. Moreell thought he wanted to intervene in the stuff the Navy had in process and he didn't. It was just a question of the civilian stuff that we are now -- H.M.Jr: Where are we today on the flying boat situation, as far as Navy and the English are concerned? Towers: Just where we were yesterday afternoon. There 1s that revised schedule which I understood had your approval and Secretary Knox' approval and we have the draft of a letter going out to our inspector. Forrestal: We have got a specific list, also, of aluminum deliveries which we are going to shoot to -- H.M.Jr: Well, he has got one here on the deliveries, of which he can give copies to all of you people. Forrestal: Have you got that one? Buckley: No, I have got additional companies. I can give you a copy after the meeting. H.M.Jr: Well, if this 16 worthwhile, the English have big orders in Lockheed and Douglas and Vultee, and I think North American, all on the West Coast. Would it be agreeable to you if a similar group went out there to look over that situation and see where the Army and Navy and the English could get together? Stimson: Do what they have done at these other four, do what they have done at Consolidated? H.M.Jr: Yes. What do you (Brett) think about that? Brett: I think the four-engine bomber is the most important thing, and my reaction to the con- ferences that have been held is the fact that we could standardize, Mr. Secretary, if we 42 - 18 - could get an answer from the English. Now, we can get a decision from our own people within 24 hours, but there is a continual delay due to lack of the technicians, on which I sent a memorandum to Mr. Young, and also the question that they will not give us a decision. Stimson: You mean the English haven't got their technicians here? Brett: They apparently haven't the technicians, and everything has to be referred back to. England before we get a decision. Marshall: Let's go to the specific question. The Secretary spoke of - is it profitable now for us to go out to a conference out there similar to the Consolidated? Brett: I don't believe 80, sir, simply because the production in Douglas is entirely different from our production at the present time and they have their production lines set up. Now, we should go at that from a standpoint of standardizing well in the future. Forrestal: Future stuff, that is right. Brett: It is the same way with Lockheed. Lockheed 1s in good production for the English. We should, if we have a parallel airplane in the Lockheed factory, which we haven't, consider the possi- bility of standardization out at a given point but nothing to affect the present production line. That has been discussed with Mr. Fairey and Commander Mansell with an idea of setting up an immediate study to begin to standardize on any future orders, such &s the case of the 110 LB-30's with the Consolidated. Marshall: Do we understand, then, that you don't think at the present moment it should be done? Brett: I don't think 80 at the present moment. Forrestal: It will be much more effective, Mr. Secretary, 43 - 19 - when the technicians are here 80 that you know what you are shooting at. Marshall: There is not apparently a confusion of orders there. Stimson: Do you know whether they sent for their technicians as we asked? Young: I don't know. They had the list yesterday afternoon and Fairey was going after it. H.M.Jr: If they haven't, I will see that it goes today. Towers: Mr. Fairey came in to see me about six o'clook last evening with your (Brett's) list. Stimson: Was it a list -- Towers: A list of jobs and the numbers of people that General Brett seemed to think the English should have for the different jobs under this standardization. He felt that in two cases he would not be able to give as many people as you (Brett) asked for. He told me that he was going up and see the head of his mission and ask him to telephone to London last night. He told me that when he left. Whether or not he did it, I don't know. Forrestal: Couldn't they be here next week, then? If they could be here next week, then we could get at it. H.M.Jr: Yes, but if you don't -- Towers: Transportation 1s very difficult. Stimson: I was just trying to get at the same thing, to find out whether the speed we would gain by having the technicians here who could answer yes or no on the spot was greater than the speed we could have by going ahead and cabling yes or no. That all depends on how long it would take to get the technicians here. H.M.Jr: Well, you could continue to cable until they 44 - 20 - get here, but if you don't mind, I an not -- Brett: Much too complicated, sir. Forrestal: Can't do it. We have got to have it on the spot, Mr. Secretary. Brett: You have got to sit down and look at the drawings and talk the thing over. H.M.Jr: If General Brett doesn't mind my differing with him, I differ with you 8. lot, not on the technical end because that 18 your field and not mine, but we found out things there by going there. We never - at least I didn't know - take Just, for example, the delay in aluminum products. You may have known it, but I don't think Mr. Forrestal knew it. Forrestal: I didn't know it. H.M.Jr: I don't know whether you people knew it, but just take that one thing alone. Now, I don't know how many troubles Mr. Douglas had with the Government or these other people, but it has all been the other way. They have all been coming to us and I think if these companies- do the Eastern companies first, if it takes too much time. I mean, where they have English orders. Take Glenn Martin. Clean up these companies first, and let these companies tell us what their troubles are. Maybe Martin has got a housing problem over there. I don't know. But I personally think we could learn an awful lot and maybe get some results. I would hate to just sit here and wait until these English experts come. Stimson: I agree with you on that. I want to see motion. H.M.Jr: We may not be able to do anything on the standardization, but at least we can get these people to tell us their troubles, whether it is labor or housing or -- Foley: Financing, taxation. Regraded Uclassified 45 - 21 - Marshall: General Brett was just talking about standardization. Forrestal: There is no question in my mind, Mr. Secretary, that you do get, any time you go to one of these places, on the spot, things that are on their minds coming out that you don't get in a visit down here. Marshall: Well, Mr. Secretary, it is just exactly the same as troops. I have got the Inspector General's department and the Major General with the staff and plane and I am just going through these troops every week, and I want to telephone three or four times a day. That is the only way I can find it out. That is the only way you can learn those things. H.M.Jr: Why not, if Mr. Stimson agrees, and I know how Mr. Forrestal feels, because both he and Mr. Knox have been pushing me on this, that they want to do more. Forrestal: Yes, that 1s right. H.M.Jr: Mr. Knox wants to do more, but next week - if you don't want to wait on the West Coast thing, you can clean up the Atlantic Coast thing first where there are English orders and I know they have an order with Glem Martin and I know they have an order with Brewster. I don't know whether they have an order with Republic or not, but there are several here. Towers: They have one in Grumman. H.M.Jr: You could clean up those on the Atlantic Coast first. It would be easier to do it next week. Stimson: I think 80. Marshall: That is very specific on our side. At the present moment when the standardization will be in the forefront, something for Judge Patterson's section and I presume your (Forrestal's) section in the Navy Department. Regraded Uclassified 46 - 22 - Stimson: I agree with the principle. H.M.Jr: Couldn't we go ahead, then, on the Atlantic Coast next week? Stimson: I should think 80. Marshall: Yes, I think 80. I think you have got to do that. That is Just exactly like a troop. H.M.Jr: Then there is no argument about it? Marshall: No. H.M.Jr: Well, who -- Marshall: It is merely the decision of who goes. H.M.Jr: Well, when Mr. Knox comes back -- Stimson: Judge Patterson left here. He is the man I would ask to go or have someone that he wants to go. H.M.Jr: Who could take the leadership to organize this for early next week? Forrestal: I will be glad to, if you want me to. H.M.Jr: Would you? Forrestal: Sure. H.M.Jr: Is that agreeable to you? Stimson: Yes, that is agreeable to me. I will be very glad if you (Forrestal) would do it. Forrestal: Well, I will do it with Bob Patterson. H.M.Jr: And then our boys are ready. They are on call. Forrestal: I would like to have Mr. Foley, if it is agreeable to you, go. H.M.Jr: Entirely. And Buckley and Young. Regraded Uclassified 47 - 23 - Forrestal: And Buckley. H.M.Jr: Because they ran into tax things which they were able to help on, on the ground there. Forrestal: If you can give these people a feeling that in addition to our making complaints as to their production they have got - we are trying to find out how we can help them, it gives them a mental reassurance that they aren't being ridden all the time, that we are anxious to try to help them as well. Marshall: Just look on each plant like we look on an Army division right now. H.M.Jr: I have confidence some good will come out of it. Then you will push for next week to clean up the Atlantic Coast where there are English orders? Forrestal: Right. H.M.Jr: And Fairey and Mansell can go with you. Forrestal: Yes. H.M.Jr: Fairey and Mansell. You said Mansell was good. Forrestal: Very good. Don't you think 80, Major? Lyon: Yes, sir, I think 80. Forrestal: He knows the job. He has had fighting experience and he has got the power of decision. Lyon: My impression was that Mansell was one man that could make up his mind as to what they ought to have and that was a great assistance to us. Forrestal: And he was talking with a background of actual fighting experience. H.M.Jr: Are you satisfied? Stimson: Yes, I am satisfied. Is that all? H.M.Jr: Okay, gents. 48 CONSOLIDATED AIRCRAFT CORPORATION LINDBERGH FIELD SAN DIEGO. CALIFORNIA CONSOLAIRCO IN REPLY ELEPHONE BEFER TO - BIRT RGMsjh 8 October 1940 Mr. James C. Buckley United States Treasury Department Washington, D.C. Doar Mr. Buckley, We have been gathering together data sheets for the deficiency list which I promised to send to you. However, in studying these lists it appears that in a great many cases by the time your organization would get in contact with the various firms involved that time would have taken care of the condition. However, we have a few individual items which are connected with the msoline system or the engine installation without which it would be im- possible to fly the airplane. Such items include the following: Item Our purchase number Vendor 32P1661-8 check valve 30233C Parker Appliance Co., Cleveland, Ohio 10-U-182 engine ⑈⑈ unit 27726C Thomas A. Edison, Inc., 27725C West Orange, N.J. Type 1809-1 compase 296700 Pacific Scientific Co., 27791C 1206 Maple Ave. 27234C Los Angeles, Cal. 8DJ13 SBE5 tachometer indicator 27226C General Electric Co., 27227C Los Angeles, Cal. In the cases of the other items we have sufficient to carry us thru four or five airplanes and in another month when we wouldneed these parts In greater volume it is believed that the vendors will have been able to supply them. In view of the above I have not bothered you with the multiplicity of small items which we are trying to take care of in the usual manner. These are part of the worries of producing airplanes and we do not wish to shirk our responsibility in the matter. As before stated, the situation with reference to Browster seems to be the most serious one and any pressure which your depart- ment can bring to bear to get us outer wings quicker will be appreciated. With kindest personal regards, GOTTEN Production Manager CRAPY Consolidated Aircraft Corporation Regraded Uclassified 49 October 11. 1940 MEMORANTOM FOR Secretary of the Treasury Morgenthau Secretary of War Stimson Secretary of the Navy Knox Pursuant to your instructions the subcommittee designated on October 9, 1940 to consider the housing problem in San Diego met at the office of the Under Secretary of the Navy from 12:30 to 2:30 o'clock on Thursday afternoon, October 10, 1940. The following were present: The subcommittee: James V. Forrestal, Under Secretary of tho Navy E. H. Foley, Jr., Goneral Counsel, Treasury Department Charlos Palmer, Coordinator of Housing for the Advisory Commission From the Federal Works Agency: John Carmody, Federal Works Administrator C. F. Reynolds, Commissioner of Public Buildings Howard Hunter, Acting Commissioner of Work Projects Others prosont: Admiral B. Moreell, Chiof of the Bureau of Yards and Docks Charles Detmar, Special Assistant to the Under Secretary of the Havy C. L. Kades, Assistant General Counsel, Treasury Department The conference considered ways and moans of securing adequate housing facilities promptly, with a view to providing safe and sanitary sholter for the increased personnel needod to expodite the production of aircraft for the Arny and Navy and the British Government at the Consolidated Aircraft Corporation's plant at San Diogo. The Under Secretary of the Navy stressed the importance of San Diego as a naval operating base as woll as the importance of the Con- solidated plant as a supplier of patrol bonbers. Admiral Moreell and Housing Coordinator Palmer outlined the steps now being taken to neet the housing problem in San Diago. 50 -2- It was unanimously agreed as followe: 1. The havy Department, through the Bureau of Tards and Docks, will proceed as rapidly as possible with the construction of 1,200 units in San Diego, of which 600 units will be for married enlisted men near the Destroyer Base and of which 600 unite will be for married Navy Department civilian employees near the Naval Training Station. Note: The total cost of these projects will be $4,800,000 (each being estimated to cost $2,400,000). and the funds to finance the samo have been allotted from the Second Supplemental National Defense Act, 1941, $201 (the $100,000,000 fund), 2. It is imporative that additional housing facilities for civilian employees at Consolidated be provided by the Federal Government. The exact acope of the need will be determined by the Federal Works Agency at once. Note: It 1s understood that Mr. Palmer's assistant and representatives from WPA and PBA will leave this evening for a personal inspection of the situation at San Diego and will report their findings upon their return to Washington. 3. The Federal Works Agency through the Public Buildings Administra- tion will begin to construct 2,000 dwelling units for married civilian employees at the Consolidated plant as soon as funds are made available for this purpose. Note: H.J.Res. 614, now before the President for his signa- ture, appropriates $75,000,000 and authorizes the execution of contracts for an additional $75,000.000 to enable the Federal Works Administrator to provide low-cost housing for persons engaged in national defense activities, as authorised by H.R.10412, which is also awaiting the President's signature. 51 -3- 4. The Reconstruction Finance Corporation will aid a private corporation in financing the construction of 600 dwellings through using B. plan of financing worked out in cooperation with the Housing Coordinator, the RFC Mortgage Company, and the Federal Housing Administration. Note: This plan involves the purchase by the RFC of preferred stock for about half of the equity money, the other half being supplied by the private corporation; the lending by the RFC Mortgage Company of the balance necessary to build the project on the security of a first mortgage; and the insuring of the mortgage by the Federal Housing Administration. 5. The Federal Works Agency. through the Public Buildings Administra- tion, will study the construction of an additional 2,400 dwelling units for married civilian employees at the Consolidated plant as well as barracks for 6,000 single employees; and, meanwhile, will earmark sufficient funds for this purpose. 6. So far as legally possible, the administration and operation of all housing projects for civilians engaged in national defense activities which are constructed by departments or agencies of the Federal Government will be centralized in the Public Buildings Administration of the Federal Works Agency. 7- The Federal Works Agency, through the Work Projects Administration, will provide the water distribution and sewerage facilities for the housing projects contemplated and will decide the extent to which the public improvements necessitated by the national defense program and described in the report of October 8, 1940 can be built as work relief/Federal or public works projects. Copy T Sec Stemam to Him by lunk 0/15/40 Puris 10-15-40 52 COPY London, October 11, 1940. To: Morris Wilson From: Beaverbrook It is imperative that we should have an increased flow of aircraft from the United States. In particular we want bombing machines capable of reaching Berlin at night with a ton or more of bombs. We want very much the Consolidated LB 30 and the Boeing B 17. We would be well satisfied with the PBY flying boat. Can you persuade the Administration and Morgenthau to send us forthwith 10 or 12 of these aircraft as a special claim by us to enable us to defend ourselves more completely. It would appear desirable that you should undertake on behalf of our Government a drive for more production in the aircraft factories for more assistance in suitable aircraft for the American Government and for a speeding up of production of Wright 2600 engines which are essential for our Stirling programme here. If you would consider pressing forward with a programme to give us the aircraft and accessories we need, I would ask the Ministry to confer on you special powers and authority. 53 PARAPHRASE OF TELEGRAM RECEIVED FROM: Berlin via Lisbon DATE: October 11, 1940, 11 a.m. NO.: 4286 FOR THE TREASURY FROM HEATH AND FOR THE INFORMATION OF THE DEPARTMENT. Reference, my telegram of July 25, midnight, No. 3183, about the speech of Minister Funk on that date. Following the speech by Funk, the various economic authorities of the Third Reich went actively to work on plans for controlling and reorganizing the economy of Europe west of Russia - on the assumption that victory for Germany was near. Within the Government there was considerable struggle for primacy in the planning of this new Europe, mainly between the economic organization of Goering and the Economics Ministry. There was also competition from the Reichsbank and the Economic Section of the Foreign Office. However, Goering delegated to Funk the matter of German economic reconstruction of Europe. Funk in turn decided to favor the Economics Ministry which designated the office of Ministerial Direktor Schlotterer as central clearing office for German economics for Europe, to the extreme dissatisfaction of the four year plan officials of Goering. While memoranda and studies on the new economic organization for Europe are still being produced, at the present 54 - 2 - present time this question has become if not & dead issue a rather academic pursuit. The Berlin ministries are now giving their attention to the problem of bolstering the economy of Germany to withstand a long fight. On the other hand, the German press and officials in public speeches continue to state that work toward the economic reorganization of Europe by Germany is still proceeding. They claim, for example, that substantial progress has been made on one of the central projects of the new economic order, the realization of the European mubtilateral clearing arrangement. What has happened in fact is that the German Government has negotiated with the neutrals of Europe a limited resumption of the trade they formerly carried on with occupied Norway, Belgium, and the Netherlands. The three occupied countries are treated essentially as part of greater Germany in these negotiations. The European trade of the occupied countries is covered into the clearing agreements which Germany has with the unocoupied neutral countries of Europe. The tripartite arrangement between Germany, Sweden and Denmark is the nearest approach to a true multilateral agreement. However, although Denmark is officially independent, it 1s in all essential respects 8.8 much a part of war-time Germany as are the Netherlands and Norway. No 55 3 - No attempt has been made to start negotiations for clearing the trade of unocoupied neutral countries with each other through Berlin, but according to authoritative information, there was no intention to proceed with such negotiations at a later time. No advantage would acurue to either the unoccupied neutral countries of Europe or to Germany if the trade of the former were cleared through Berlin under war conditions. It 18 claimed that the advantages for a system of multi- lateral olearing are that the blocked balances which occur in bilateral clearing agreements and which hamper and reduce trade would be avoided. It is argued that there would be a tendency toward canceling out debit and credit balances in an enlarged multilateral arrangements At B. time when practically all the countries are clearing creditors of Germany, such canceling out cannot occur. German finan- cial writers clearly recognize that to operate a European multilateral agreement successfully a fundamental condition is that Germany become a creditor nation. Under war con- ditions, the Reich cannot hope to attain such a status through developing & surplus of exports. There would not be much advantage to Germany in having neutral trade cleared through Berlin under war conditions, on the other hand, since the already topheavy bureaucratic structure of Germany would thereby be extended. Under present circumstances, the Reich 56 the Reich 10 in a position to exert sufficient control over trade between neutrals without adding to the existing complicated clearing apparatus. The active planning for a new economic order in Europe has, in short, been largely shelved. Instead the economic authorities of the Reich are grappling anew with the practical problem of foroing a maximum production of goods and services by the occupied and unocoupied countries of the Continent which are needed by Germany for & prolonged war, and the problem of obtaining such goods and services on credit or in exchange for the least possible quantity of goods from Germany. The foblowing methods are being used toward the accomplishment of the latter - (a) The trading partners of Germany are being pressed to deliver on credit, in 80 far as is practicable. The clearing debt of Germany to Denmark 18 understood to have risen to almost 400,000,000 Danish crowns. The result of the recent negotiations with Switzerland is that the Swiss agreed to grant 100,000,000 Swise francs in temporary clearing credits. (b) In general European countries have to pay more for products from Germany while they themselves are prevented from raising their export prices. The sole instance which has come to the attention of the Embassy where Germany consented to pay more for gooda imported Regraded Uclassified 57 - 8 - imported 1a in the case of the Netherlands. In this 0860 it is understood that Germany agreed to 8 slight increase in export quotations of certain agricultural products, but higher prices for iron, steel and other products imported by the Netherlands from Germany offset this advantage. It is understood that in the case of Sweden, Germany forced an actual reduction in export prices of lumber of some 25 percent. Both direct and indirect methods are employed for increasing German export prices. The export prices of iron and steel products from Germany have been increased directly, and it is understood that there will be an increase in the prices of other products as a result of the considerable reductions in export subsidies, which was one way by which Germany tried to overcome the mark over- valuation and bring quotations for exports from Germany into competitive range. I have been informed that eventually in the European export trade of Germany subsidies will be wholly abolished. The terms of trade for Germany are improved indirectly through insisting that higher exchange rates for the clearing mark be granted. Following this line, Yugoslavia has had to elevate the clearing rate of the mark to 17.82 dinars, where formerly it was 14.80 dinars. Announcement 58 - 6 - Announcement has been made by Landfried, the State Secretary of the Economics Ministry, that quotation of the clearing mark below nominal value will not be tolerated permanently in any other European country, although quotation at & discount of 20 percent will be permitted for a time. According to information here, the clearing mark at present has been quoted at a discount of 23 percent in Greece, 40 percent in Rumania, 22.5 percent in Hungary, and up to 35 percent in Bulgaria. (o) Exchange regulations closely analogous to the German system have been imposed in all occupied countries. In these countries Germany 1s enforcing the registration of all securities foreign-owned and bank accounts and the surrender of gold foreign currency and foreign exchange. When I was in the new Reichsbank recently completed I noticed employees weighing and storing bullion and gold coin from Sweden, France, Denmark, Belgium, and the Netherlands. Up to the present it has been impossible to get an estimate of how much gold and exchange has been acquired by the Reichsbank from the occupied countries. However, the amount 16 undoubtedly a considerable one, and will be employed, in case of need, as payment for imports into Germany particularly perhaps from such countries 88 Spain and Russia. (a) In the occupied countries, German individuals and firms Regraded Uclassified 59 - 7 - firms are permitted to obtain at bargain terms participation or complete control of valuable industrial and commercial enterprises. This 18 another means whereby eventual foreign exchange resources for Reich purchases are being created. (e) In the occupied countries Germany has confiscated huge stores of military equipment and valuable materials, in addition to (omission) the whole cost of the German army of occupation on these countries. Germany is in this way accumulating foreign exchange credits which may be used in payment for materiels and services which it would not be practicable or desirable to confiscate outright. (f) In order to remedy the labor shortage in Germany, both skilled and unskilled labor is being drawn from Paland, Belgium and the Netherlands in particular. Most of the two million prisoners of war are being forced to do productive work practically for their subsistence. Several hundred thousand laborers from Poland are being forced to deliver their services to the Reich at less than prevailing wage scales as a result of the 15 percent special tax. Germany may be able temporarily to alleviate the funda- mental economic difficulties which ultimately would confront Germany in a long fight by means of these procedures and devices, but they will not be sufficient to overcome such difficulties. Regraded Uclassified 60 - 8 - difficulties. As contrasted with the confident attitude displayed three months ago by German officials, one now obtains inferential and even direct admissions that there is official preoccupation over economic problems which will eventually confront them and over the potential economic superiority of the British Empire and the sources TRENTIME 03V6019 of supply available to it. One informed source stated recently that at the most the rigid system of control of prices could not last for more than two years unless a drastic deflationary revision of the present financial and monetary policy 1s resorted to. KIRK. EA:LWW 61 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 11, 1940 TO Secretary Morgenthau FROM Mr. Cochran The Swiss Minister telephoned me at 11:15 this morning. He confirmed the information which Dr. Somary had given me yesterday morning in regard to the rea- sons for repatriation of Swise assets. He stressed the need of the big Swies in- surance companies for funds in their own country to cover their possible needs. The Minister had just received a cablegram from his Government in regard to a specific application for license which our Control had refused on August 30. The Minister promised to send me a copy of his cablegram for possible use by me in asking the Control Committee whether this matter should be reopened upon the repre- sentations of the Swiss Government. The Minister stated further that he had talked with Mr. Berle about the possi- bility of this Government conferring with him in the event that any extensive blocking of additional European countries might take place. That is, he hoped to to have opportunity to make arrangements which would prevent Switzerland from being included in any hasty blocking. I assured the Minister that the Treasury was fully familiar with the Swiss viewpoint and would always give it careful con- sideration. On the other hand, I frankly told him that no one of us could commit our Government in advance. but 62 0-2/2657-220 RESTRICTED M.I.D., W.D. October 11, 1940. No. 217 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. No ground operations. 2. Air Force Operations. On the 10th the German Air Force made daylight attacks over Sussex, Kent and London. Airdromes were again attacked in south- east England. Heavy night attacks were made on London and Liverpool. Activity over London was at the same high level as on preceding nights. The R.A.F. made small daylight attacks along the Dutch coast yesterday and last night made their usual raids on France, Bel- gium, Holland and along the north coast of Germany. The heaviest attack seems to have been made on Amsterdam. Hamburg was also raided and had a 2-hour alert. II. Mediterranean and African Theaters of War. No ground operations reported. Air force activity was spo- radic but the Italians claim a highly effective raid on Port Sudan, Egypt. RESTRICTED 63 CONFIDENTIAL SPECIAL BULLETIN MILITARY INTELLIGENCE DIVISION, No. 20 WAR DEPARTMENT, 0-2/2657-231 Washington, October 11, 1940. NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. This document is being given an approved distribution, and no additional copies are available in the Military Intel- ligence Division. For provisions governing its reproduction see Letter TAG 350.05 M.I.D. (9-19-40) M-B-M. GENERAL REQUIN'S "LESSONS AND CONCLUSIONS" FROM OPERATIONS OF FRENCH FOURTH ARMY SOURCE This document is the last part of a lengthy report made in July, 1940, to the French General Staff by General Requin, who com- manded The French Fourth Army during the Champagne operations. Pre- vious comment by General Requin has been covered in TENTATIVE LESSONS BULLETINS No. 31 and 55. In order to preserve the exact ideas of the author, the document presented here is a verbatim translation, unedited and unrevised. CONTENTS 1. INTRODUCTION 2. ESSENTIAL CAUSES OF THE GERMAN SUCCESS 3. PROBLEMS OF THE FOURTH ARMY, POSSIBLE SOLUTIONS, AND NECESSARY MEANS 4. CONCLUSIONS CONFIDENTIAL -1- 64 CONFIDENTIAL 1. INTRODUCTION An exhaustive study of the operations in June 1940 in CHAMPAGNE can only be made after a certain time has clapsed. In fact, in order to make a worthwhile study, pertinent documents must be collected as well as the memories, opinions and suggestions of the qualified participants in these operations and above all, it must be undertaken with a free and serene mind. At present too much passion is apt to upset both logic and reason. However, among the numerous lessons that a study of the battle fought by the Fourth Army from the AISNE to the AUBE will bring to light, some can be determined immediately, for they impose themselves beyond any possible question. It will not be possible to question them later on even though legend and certain misleading versions replace the truth. They set forth principally: (1) The essential causes of the enemy's success. (2) The modern solutions of certain tactical pro- blems which are obvious and at the same time the insufficiency of our material means. 2. ESSENTIAL CAUSES OF THE GERMAN SUCCESS Two words are ever recurring in the stories of the combatants: -Tanks -Aviation They are simultaneously an explanation and a justification. An explanation, because the German power, insofar as tanks and airplanes are concerned, is the very basis of the decisive suc- cesses of the litlerian armies. A justification, for the lack of comparable neans in our mobilized forces excuses the faint-heart of certain combatants due to discouragement and proves to those who held their ground to the bitter end that, although vanquished, they are worthy of their fore- fathers. CONFIDENTIAL -2- Regraded Uclassified 65 CONFIDENTIAL a. THE ARMORED WEAPON It is the Arm of "Decision". Its entry into action 1s preceded by classical attacks carried out by the Infantry and Artillery which, thanks to the effec- tiveness of airplane "dive-bombing", are more rapidly penetrating. These attacks have as their object to insure to the armored units a "jumping-off place" for the conquest of bridgeheads beyond an obstacle (coupure, ditch, anti-tank works), or the creation of salients in a defensive position organized in depth. with this objective in view, the Infantry launches an attack on a large front, en masse, with utter disregard of the losses. The effort of the attack is then brought to bear on the points of least resistance which have been disclosed. As soon as the bridgeheads, or salients seem to be sufficiently deep, the Large Armored Units "go into action." They create the event by their irruption in deep massive colums. This is a modern charge going right ahead by succes- sive echelons. Launched slantwise, this charge will overcome the last resistance of the Infantry and anti-tanks. The first tactical objective is: Overcome the whole position whose entire sides are outflanked, then encircled and this done, the charge continues by an exploitation conducted without in- terruption and having as objectives the vital rears of the Armies. The Large Armored Units are kept informed, supported, and protected by Aviation in close liaison with their action. They are followed up closely by motorized infantry and artillery columns which insure their security by day and night and open up for them, by actions of force, the passage of the gaps or narrow defiles that are held. The development of this strategical exploitation is BO rapid, that the reorganization of a constituted front in order to limit the effects thereof, becomes impossible even when the classical general reserve of Large Units and Artillery, are still available to attempt such action. CONFIDENTIAL -3- 66 CONFIDENTIAL The decisive breaking-through, tactically possible, but strategically an utopia during the last war of 1914-1918, has become a reality thanks to the use of Large Armored Units and Avi- tion for the exploitation. In order not to be vanquished in a single large battle, one must oppose to the last man, the last tank, the last gun, the breaking-through of one's front; if worst comes to worst, it must be reorganized within the shortest delay possible. To conquer, perhaps it may be sufficient to "break- through" the first. b. THE AIR ARM German aviation is the great conqueror of the war. Without neglecting its role as an independent arm, with distant missions in enemy territory, which pertain to the general con- duct of war, German aviation participated in the land battle with a power, a discipline and a dash to be admired. On the front of the Fourth Army, it was without question permanently master of the sky. Each day its bombers carried out the same program closely adapted to the operations on land: - bombardnents in a zone situated from 10 to 50 las in rear of the front, of centers of communication, of important highways and railway lines, of halted troops, convoys and located depots. - bombardment of important objectives: villages, bridges over large streams, cuts, etc., immediately ahead of the armored units and regulated directly by an officer belonging to these units. (*) - "dive-bombing" and machine-gunning of centers of resistance which opposed the advance of the Infan- try, or still resisted though encircled. (#) The Army intercepted many radio messages sent in clear by an officer of the armored forces "controlling" directly the take- off and use of the aviation stationed on fields more or less near, supporting the operations of the tanks. CONFIDENTIAL + 67 CONFIDENTIAL The German Aviation cooperating with the land army con- stituted without doubt a true modern artillery, powerful, flexible and whose moral effect was crushing. It took upon itself missions: - of long distance interdiction and harassing fire. - of protection of the independent operations of tanks at great distances. - of furnishing direct support for infantry attacks. Thus by its use the following problems were solved all at the same time: - concentration of fires. - observation of firing. - instantaneous action. - resupply of munitions during a combat. The constant threat hovering over the troops wherever they were, certainly contributed to a great extent to diminish their capacity of resistance and their confidence in success. C. However, if the Armored Arm and the Air Arm fulfilled the hope that an entire nation entrusted to them, and carried out the "Blitzkrieg" announced by Hitler, it is because they had available modern materiel in very large quantities, served by young and fanaticized crews ready for the supreme sacrifice. Their triumph is the result of unrelenting effort during the first eight months of the war. This effort was indispensable in order to have available before the launching of active operations on the Western front, a more powerful and more plentiful materiel than was had in September 1939 against Poland. It was thus that on this date the 37 mm antitank gun was powerless against the French tanks - even the 35 R - as had been proven in the combats of the Fourth Army north of the BLIES. On the other hand, no German tank could withstand the fire of the 25 mm guns of our Infantry. It was therefore necessary to put into service new anti- tank arms and new powerfully armored tanks. As early as April 1940, a formidable program correspond- ing to these vital requirements was realized and HITLER assured his CONFIDENTIAL -5- Regraded Uclassified 68 CONFIDENTIAL army that it could charge without fear of destroying its sirplanes and victory. tanks, for they would all be replaced as often as necessary until The German industrial power weighed fully in the balance and proved just what it could do. 3. PROBLEMS OF THE FOURTH ARMY, POSSIBLE SOLUTIONS AND NECESSARY MEANS a. DEFENSE OF THE "COUPURES" In this case, they are the rivers whose valleys are but relatively of little importance as obstacles, such as the AISNE, the MARNE, the AUBE and the SEINE in the part of their course which traverses the "CHAMPAGNE POUILLEUSE" region. These rivers are of great importance to an enemy in a country essentially favorable to the use of tanks. It sufficed to prohibit the crossing thereof by the In- fantry charged with establishing a "bridgehead" indispensable to permit the construction of bridges, or the use of large size rafts and boats. This problem is not new and its solution is classical. But in the beginning of June, owing to the lack of available Large Units, the principle that "a coupure is only valuable if it can be properly held" was not respected. Instead of a Division in line on a 10 Km front, 3 Divisions which had already suffered losses, were extended over a 45 km front in rear of the AISNE and its adjacent canal. This weakness of the defense proved to be all the more serious because the Germans, after being sure that they were masters of the air, used very modern means and threw across the river masses of Infantry in order to be certain that sufficient forces, in spite of losses, would succeed in reaching the opposite bank. The enemy attacking under such conditions on a very large front, took in the entire zone of the Army and outflanked the zone of the adjacent armies, pushing without hesitation large effectives against recognized weak points. He thus succeeded in constituting several "bridgeheads" on the southern bank of the AISNE. CONFIDENTIAL -6- 69 CONFIDENTIAL Formerly, there would have been nothing much to worry about in such a situation. The Command "had the tine" to take neasures in view of: - holding the hinges of the door opened in its formation, - stopping at its source the arrival of reinforcements by artillery fire placed on the crossings of the river, - bringing up reserves in order to set up the classical counter-attack on the flank in order to reduce the bridgehead. Now, the problem is entirely different. The Command has but little time. The enemy Infantry must be thrown back before the tanks have had a chance to follow. In fact, once the tanks have crossed the river, and no new antitank obstacle is in their way, experience has proven that for a normally dense formation (1 Infantry Division on a 10 Km front, re- inforced by 1 Regiment of 75 mm Artillery) the fire of the antitank guns do not always stop the "tank charge". Yet the effectiveness of these guns is generally adequate insofar as the 25 num guns are concerned, and certainly insofar as the as the 47 mm and 75 cum guns are concerned. But many rounds go amiss, and the "charge" in spite of the tanks put out of commission, continues to advance on the gunners of the antitank weapons who are bombarded without respite by dive- bombing airplanes. Some hold their ground and finally fall, submerged or destroyed; others bewildered, weaken and give way before being actu- ally in contact; while others, unfortunately, panic stricken, abandon their weapons without having used them. How can the local Command reduce, in the shortest time possible a bridgehead which threatens the complete downfall of the entire defensive organization of the obstacle? He must have reserves available on the spot, capable of brutally throwing back into the river the attacking Infantry, whether installed or not, even if soma tanks have already succeeded in crossing. Per Division, this reserve might include: 1 Infantry Battalion, General Reserve, entirely motorized: CONFIDENTIAL -7- 70 CONFIDENTIAL - 1 Troop of motorcyclist riflemen. - 1 Troop of reconnaissance armored cars. - 1 Troop of machine guns and antitank guns including: - 2 platoons of 47 - (4 guns) on caterpillar automotive mounts. - 2 platoons of machine guns (8 machine guns) 1 Infantry Battalion 1 Tank Battalion (R.40 or F.C.M.) Placed at a practical distance for intervening within one hour; under the direct command of the Commanding General of the Division. Such a reserve should be engaged as a whole under a single direction. It should insure its own reconnaissances, its own pro- tection, occupy the regained terrain and re-establish the defense of the ravine or other obstacle. If its intervention is not decisive, the breaking- through of the position is to be feared as soon as the enemy tanks are engaged. The command will then fight, no longer for the "dbstacle" but will endeavor to prevent any exploitation of the rupture of his position. b. DEFENSE OF POSITIONS The war of 1914-1918 witnessed on the Western front the triumph of "positions" and the uselessness of "exploitations" attempted after their rupture. Even though not organized, a position on which the com- mand accepted battle, held by Divisions reinforced by artillery and deployed on fronts of from 5 to 7 Kms, could not be broken through except by a "large scale" attack. Such an attack was characterized by the use of consider- able artillery well provided with munitions and by very dense Infantry (1 Bn per 200 or 300 meters of front). Therefore it was first necessary to destroy the Infantry of the defense, or at least prevent it from using "its fire" which prevented any contact; then submerge the defenders under successive assaulting waves. CONFIDENTIAL & CONFIDENTIAL It was only during the last year of the war that, thanks to new means, vis, powerful and mobile heavy artillery, poisonous gas, tanks, the rupture of a front became an operation whose success was DRI- tain provided one was willing to pay the price and that it was technic cally well set up. However, will exploitation, decisive phase of the battle, be able to follow the break-through? No, because the former arm of exploitation, the Cavalry, has lost all offensive power in front of modern arms; a sheet of fire overcomes it, and Infantry, too slow, will advance all the more slowly because it will lack the support of Artillery, for even the field ar- tillery will follow with difficulty across rough terrain. Furthermore, all Infantry and Artillery actions are of a mechanism incompatible with the rhythm characterizing a "pursuit". Finally, the necessary time for the emplacing of the means for a breaking-through attack, the duration of the preparation, the slow advance from objective to objective, have always given the defender the possibility of bringing up reserves: - either to avoid a complete break-through. - or to stop the breach opened in his front. If worst comes to worst, after a total surprise (Chemin des Dames in May 1918), or an initial success of an unforeseen extent (Somme-Oise, March 1918), the arrival of reserves by rail or trucks limited the exploitation of the break-through to the creation of a "salient" more or less deep. In conclusion, no deep strategical exploitation was pos- sible with the means available to the belligerents. The British tanks "Whippels" raised the hopes of new possibilities, but their belated entry into service and their small number did not permit any realiza- tion of the possible action of rapid tanks in rear areas. The decisive exploitation having as objective the mastery of communication centers, the disorganisation of the command and of the reserves and even the encircling of complete armies attacked in their rear, having failed of accomplishment, the close-in exploitation materi- alized by a "salient" (#) was alone sought during the decisive battle engaged by Marshal FOCH July 12, 1918. (*) It was conceded that "salients" could not exceed a depth equal to half of their base. CONFIDENTIAL -9- Regraded Uclassified CONFIDENTIAL The break-through operations of the Allied Araies carried on at a rapid pace thus, salient after exlient, dialocated the entire German front and obliged LUDENDORFF to angage all his reserves in order to maintain a united front. Without reserves, no stopping of a breach was possible. The next break-through battle was no longer to end in "salients" but by a strategical exploitation, which the total wearing down of the German Army foreshadowed as being decisive. To avoid this, vanquished Germany asked for an armistice. As early as July 1940, may one already conclude - as some have asserted after the operations of May-June 1940 - that the system of war of "positions" is over? The rapid success of the Germans in all the break- through battles, even those covered by an obstacle, would seem to prove this. But it must not be overlooked that the defense of the positions attacked would have seemed hazardous even in 1914-18 owing to: -combat fronts too extended (15 to 30 kma per Infantry Division). -the absence or weakness of obstacles (entanglements in particular). -lack of reserves. -the mediocre quality of Large Units in personnel and material (the value of a position is that of its weakest sector). Their break-through was therefore unavoidable. It was all the more rapid due to the new means applied: -Dive-bombing airplane attacks demoralizing the -Attacks defenders; of armored weapons which found no obstacles nor anti tank guns in sufficient quantity in front of them. The results of the combats which took place between the Aisne and Marne show that the value of a position depends essen- tially on the antitank obstacles available. CONFIDENTIAL -10- 73 CONFIDENTIAL [/ithout such obstacles, set up in depth, the attack of armored weapons passes through, in spite of the fire of antitant guno of all calibers: (25 m, 47 mm, 75 m.). Whatsoever may be their losses, the armored weapons, not being able to avoid the hits by dropping to the ground as does the Infantry, charge at top speed to overcoms and go beyond the antitank arms. There are always some which succeed in doing this. The position is then broken through, and through the breach, however narrow it may be initially, new masses of tanks, followed soon by motorized Infantry and Artillery, are going to pass. It is the beginning of a close-in exploitation carried on by the weapons which have broken through, having as objective the disorganization of the rear areas of the position, to complete tacti- cally the success and to open the door to the deep strategical exploi- tation which will follow without loss of time. What solutions may already be contemplated to check the attacks by tanks against positions not leisurely organized, or in other words, not fortified? Two suggest themselves immediately: - Increase the number of antitank weapons. - Oppose to the tanks obstacles which can be quickly set up. (1) Increase the number of antitank weapons? Yes, but only where the attack takes place. In fact, to equip similarly an entire position, is to willfully not use 9/10 of the guns, as the armored tanks attack on narrow fronts, since the slightest breach is sufficient for them. It suffices therefore to be able to concentrate at the desired point and in due time the necessary antitank weapons. To do this, the Command, beginning with the Army Corps echelon, should have available mobile and powerful antitank guns. (2) Oppose to the Tanks new obstacles? which ones? Mobile obstacles: tetrahedrals in steel tubes, CONFIDENTIAL -11- Regraded Uclassified 74 CONFIDENTIAL = is rails or cornered iron, falled trees, eto...are very heavy, and the total tonnage necessary to transport then and put them in position would require considerable time: weeks. Their use is therefore limited to the framework of fortified positions except in the case of defiles. Alone, light mines (6 Kgs) which can be repidly and simply put in place are liable to constitute an effective antitank ob- stacle. All Infantry and Artillery units, down to the echelons company and battery, should be provided with them. In front of a position consisting of successive lines of antitank obstacles, the enemy would have to prepare an Infantry attack, therefore slowly developed. This position, even conquered, will always constitute a "cut" from which the tanks will have to debouch by certain itineraries reestablished for them. All these operations of conquest and preparation for crossing an obstacle will again permit the defense Commander to make his dispositions: - Occupation by the reserves of one or two salients partitioning the rears of the position attacked, these salients being protected in turn by obstacles and mines; - or assembly of antitank means, of large mechanized units and aviation to prevent the enemy's armored and motorized forces from debouching on the rear of the position, in a terrain free from obstacles. In sum, a modern position must include obstacles which will require THAT A PREVIOUS Infantry attack be necessary, or that the advance of a tank attack be considerably slowed down. The antitank armament of units holding this position on normal fronts need not necessarily be reinforced. The Command must have available: (1) Batteries of powerful and very mobile antitank guns (on cross-country vehicles) to follow the maneuver decided upon: CONFIDENTIAL -12- Regraded Uclassified 75 CONFIDENTIAL - oppose in time the enemy tanks debouching; - support the counter-attack organized by the Large Armored Units; - maneuver in retreat in front of the enemy mechanized forces making the exploitation. These batteries on motorized mounts should be of a caliber from 75 mm to 90 mm; either - for antiaircraft fire, batteries that require but a few minutes to go into position; or, - for normal firing. They should be included in the Corps Artillery (1 bn. of 3 batteries), as well as in regiments of general reserve. In principle, Army Artillery should include 1 Regiment of this type. (2) Large Armored Units - to prevent the debouching of enemy tanks; - to fight a battle of annihilation with forces of exploitation which have succeeded in debouching. These Large General Reserve Units should have as a basis very heavily armored tanks: - some small and speedy; - others heavy, slower perhaps, but heavily armed. All should have: (*) - a duration of combat action of at least 15 hours; - minitions for several days; - food supplies and water for 4 days in a baggage locker. One reconnaissance squadron should be an organic part of the Large Armored Unit. Each Army should normally have one Large Armored Unit, except armies occupying fortified positions. (*) 10 hours of which at an average cruising speed of 30 km per hour for the small tanks and 20 km per hour for the heavy ones, in average terrain. CONFIDENTIAL -13- Regraded Uclassified 76 CONFIDENTEAL This Large Unit should always be engaged "as a whole and honce organized for action "35 2. whole" and with rapidity at the same time. (3) Pursuit eviction, to neutralize the action of dive- bombers and to aid the morale of the defenders. Dive-bombing aviation to attack: - the bridges if the obstacle is a cut; - the tanks while they are crossing the obstacles in column; - the Infantry and the batteries, during the entire battle. The land army must direct this air action closely linked with its OWN OPERATIONS. Dive-bombing aviation represents for the Commanding General of the Army his real Army Artillery. This organic Air Artil- lery should include as a minimum: 1 Groupment of 3 Groups of 3 squadrons each; that is, about 80 operating planes always available. The summary expose above shows obviously how dif- ficult it was, beginning May 26th, to hold on a front extending from the Bay of the Some to MONTMEDY, before an adversary having at his disposal the most modern means, which he engaged regardless of cost, In fact, we lacked everything at the same time: - effectives, to such a degree that the Large Units constituting the main body of the army were exten- ded over large fronts and reserves were few) - modern materiel: tanks, airplanes, motorized antitank guns, mines; - the necessary time to organize strong positions. The grim determination to resist to the end was even lacking in cortain units. C. RETREATING L'AUBUVERS Faced with the coordinated action of Aviation and tanks supported by motorized Infantry and Artillery units, it is no longer possible to carry out B retreating maneuver in open country with Large Units of a normal type - not to mention a retreating combat such as the Fourth Army was compelled to do in CHAMPAGNE. CONFIDENTIAL -14- Regraded Uclassified 77 CONFIDENTIAL As a matter of fact, the "fire curtains" which formerly permitted the breaking-off by night after having held the entire day, are swept aside by the tanks. The resistance nests holding the centers of communications are either outflanked by mechanized and motorized columns, or if their capture is necessary they are crushed by bonbing aviation and mopped up by the motorized forces. The Large Units, once ordered to withdraw, can not, under these conditions, prevent the total dissociation caused by the action of the tanks which outspeed them and reach their rear. Only the motorized elements of these Large Units can avoid being encircled and can re-assemble in rear of a protecting ob- stacle, of a new position duly held. Isolated nen can sometimes succeed in "passing" through the advance of the armored weapons and rejoining these motorised elements. However, on the immonse battlefields of today, events may oblige the Command to order a retreating maneuver on a certain front. How can this be carried out successfully? (1) Foot elements of the Large Units must be allowed to move away rapidly. The mission of holding up the advance of the armored and motorized enemy columns is then left to rear-guards composed of mechanized UNITS REINFORCED DY ANTITANK ARTILLERY. (*) Hence, the double necessity for the army concerned to have available: - motor transport for the Infantry of the Large Units, it being understood that the Artillery, Engineers, Train, etc., of these units are motorized organically. - mechanized units and antitank units. (*) (2) As close as possible in rear of the position whose evacuation has been necessary the following should be hold: - either the passages of an obstacle which tanks can not cross; = or a new organized position with antitank obstacles. (a) 75 m, 80 or 90 mm guns on motorized cross-country mounts. CONFIDENTIAL -15- RegradedUclassified 78 CONFIDENTIAL (3) Finally pursuit and bombing aviation capable of acting in liaison with the rear-guards should be available. In sum, for the defence of obstacles and positions, if success is to be had, modern means must be available: Aviation, Tanks and antitank guns, all characterized by power and mobility. Morse-drawn or foot means can not compete with motorized means. The retreating manouver, or rather the retreating combat carried out by the Fourth Army between the AISNE and the MARNE, illus- trates particularly well the conclusions stated above. On the 10th and 11th of June, thanks to the intervention of the 7th Light Motorized Division and the 3rd Armored Division still representing a real force, the front of the Army was held together. On the 12th of June, it was ruptured, separating the 8th and 23rd Corps. The Germans were able to develop on the flank in the dir- ection of RHEIMS-CHALONS, the action of the tanks reinforced by new units, which the absence of our bombing aviation enabled them to bring up by way of BERRY au BAC. On the contrary, the situation of the Fourth Army on the MARNE west of DAMERY, obliged the Commanding General of the Fourth Army to use in the emergency the main body of the 7th Light Mechanized Division at the time it was returned to it by the 4th A.G. to save its left wing. The few tanks remaining in the 3rd Armored Division and a small detachment of the 7th Light Mechanized Division, therefore remained alone confronted with 4 Panzer Divisions which were kept in- formed, protected and supported by numerous airplanes. The breach was thus more easily opened up in the forma- tion of the Army, followed by the development on its rear, the close- in exploitation in the direction of CONDE sur MAINE - CHALONS, and by the exploitation in depth launched on the axis: CHALONS, VITRY, ST. DIZIER. The latter continued vil thout interruption in the direction of LANGRES, DIJOII and the SAONE. The desperate resistance of the defense in the region of MOURIELON did not permit the enemy elements of the close-in exploitation to reach the rear of the 8th Army Corps, which endeavored to withdraw, east of VITRY, back of the obstacle MARNE-SAULX. All its CONFIDENTIAL -16- CONFIDESTIAL motorized elements succeeded in arriving there. But the distance to be covered (50 to 60 loss) was beyond the possibiliti.es of the horse teams and of the men harassed by four days of battle and three of withdrawal. Constituted detachments and isclated men succeeded nevertheless during the night of June 12-13th and the day of June 13th in reaching the region South and Southwest of VITRY. Thanks to the obstacle of the MARNE, whose passages were all held, the Commanding General of the Army expected to regroup the remains of the 8th and 23rd Army Corps. It seemed as though this maneuver, the only one which could be attempted, might possibly succeed; however, the enemy's ad- vance in the direction of MONTMIRAIL - SEZANNE and the SEINE at ROUILLY, did not permit the MARNE to fulfill its contemplated check- ing role. During all these operations between the AISNE and the MARNE, German Aviation never ceased to prepare and accompany the ad- vance of the armored and motorized columns, to paralyse our movements, our supply services and our evacuations, and to disrupt all bur tele- phone communications by launching continuous waves of planes, thus hampering considerably the exercise of command. Our ovn pursuit aviation never once opposed these activities. No friendly aviation participated in the struggle on land, to check the German exploitation, to help the breaking-off of our troops or their crossing of the MARNE bridges. This difference of air activity weighed heavily on the execution of the retreating maneuver of the Fourth Army. d. CLOSE-IN COUNTER-ATTACKS The few close-in counter-sttacks carried out within the franework of the Infantry Division by 35 R Tanks accompanied by Infantry, proved their effectiveness. At times, the enemy, panic-stricken when the tanks de- bouched, left many prisoners in our hands. It seems to have been proved that Gerrian Infantry does not hold any better than our own when faced with a sudden intervention of tanks. CONFIDENTIAL -17- 80 COMPIDENTIAL 0. COMBAT BETWEEN UNITS Our mechanized units had the arduous mission of stopping and sometimes throwing back the Panzer Divisions in order to free strong points which were threatened or encircled. In spite of the unquestionable value of the German materiel engaged beginning with May 1940, our tanks of every type proved their superiority in combat. They lacked only radius of action, and gasoline being exhausted, they had to be destroyed oftentimes by their own crews so that they should not fall intact in the hands of the enemy. Furthermore, the composition of the Large Units and the technical and tactical methods of their use entailed delays too pro- longed for going into action. For example, the attack of the Armored Groupment (*) on June 10th on both banks of the RETOURNE, could not be launched until 7 hours after the order for it had been given. For the success of such an attack its suddenness, which permits the exploitation of a known situation, and the brutality of the charge straight ahead in a given direction until a final definite objective is reached, are more important than clever maneuvering which merely disrupts the cohesion as a whole and diminishes the effect of mass, decisive factors of a shock action. Finally, the game between our armored units, left to their own forces, and the Panzer Divisions, was not equal. The FLAK (antiaircraft) guns, very mobile in cross country and very powerful (77 mm), opening fire within a few seconds, accompanied these Panzer Divisions, as well as numerous airplanes which, with unlimited activity and abnegation, informed, supported and protected them constantly. In these new operations between Large Armored Units it is, as always, the combined action of the arms which wins the day. The Aviation and Artillery must fight for the benefit of the principal arm of the attack: the Tanks. With this object in view, they must have specialized (*) Including the 3rd Arnored Division and the 7th Mechanized Light Division. CONFIDENTIAL -18- 81 CONFIDENTIAL materiol equipping their units which, in turn, must be trained to maneuver with tank units. f. EVACUATIONS (1) Civilian Evacuations The stability of the front of the Army the 9th and 10th of June and the reduced size of the successive withdrawals up to June 13th (inclusive) in a region sparsely populated, enabled civilian evacuation to take place according to a preconceived plan without too much congestion of the main highways. However, beginning at midnight June 13th civilian evacuation turned into a panic and the civilian authorities, taking entirely the place of the Army Commanding Generals, were themselves swamped. The highways became useless for all military require- ments, even to effect simple lisisons. The dissociation of retreating units ended in a non- descript rout; there was nothing on the highways except intermingled civilians and military fugitives. What measures should be taken to avoid such dis- order in the rear areas and free the highways to serve the battlefield? They should be exactly those provided for in Sep- tember 1939 at the time of mobilisation, in the case of populations protected by a fortified position. Back of such a position an entirely evacuated zone of from 10 to 15 kms in depth, should be created. On the other hand, back of fronts weakly held and in rear of an active front, no movement of motor or horse-drawn vehicles, or of personnel on foot should be tolerated. Each civilian, whoever he may be, private or official, should remain home or at his post. Danger is less great there than on the road where the congested convoys offer particu- larly easy and vulnerable objectives to aviation. Dissemination (#) will be the rule only in centers (#) That is to say, the partial evacuation of the center or of the vital points of the populated area, for the purpose of seeking cover in the immediate vicinity. CONFIDENTIAL -19- 82 CONFIDENTIAL situated in rear of active fronts and where air attacks could not be preceded by an "alarm". Aa in the days prior to the advent of the automo- bile, certain people will suddenly find themselves in the midet of operations. That is OND of the terrible eventualities of war which a strong nation must envisage without fear. (2) Military Evacuations These are always necessary to avoid leaving the personnel and materiel of the abandoned territory in enemy hands. However, these evacuations should begin in suf- ficient time and should be carried out normally by rail, even inso- far as the automobile materiel 18 concerned. In this nanner certain evacuations, resembling "flights" and sometimes even the actual abandoning of posts, will be avoided. The highways will not be crowded with an inextricable mix- ture of elements from the armies and from the territory, the latter hastening the dissociation of the former. Finally, to settle definitely the question of evacuations, it is important to envisage them as useful and possible only when reduced in size and echeloned in time. that we saw in June 1940 was not an evacuation but the modern migration of a nation before the victorious invader. 4. CONCLUSIONS From the study of the events of June 1940 on the front of the Fourth Army, three main lessons may be drawn: a. In the offensive, the use of the system of force: Tanks- Aviation, is the modern formula of a decisive attack. However, it should be prepared by preliminary Infantry action if the enemy is holding behind a out, or occupies a position protected by antitank obstacles. b. In the defensive, a position can only be held if provided with antitank obstacles. It is erroneous to contend that antitank arms are to armored vohicles what the machine gun is to Infantry. Even in open country, machine guns are masters of their CONFIDENTIAL -20- Regraded Uclassified, 83 CONFIDENTIAL fire and pin to the ground any Infantry attack, while antitank guns under similar conditions do not stop the charge of tanks. It is by combining obstacles with antitank guns that the defense of a position can: - either be carried on to the very end (in case of a fortified position); - or that it can hold long enough for the Command attacked to be able to deploy advantageously his antitank artillery and dispose his maneuvering reserves. C, A Large Mechanized Unit should include, in addition to its miscellaneous armored vehicles and motorized infantry: - Artillery on mechanized mounts, - Reconnaissance and dive-bombing aviation. On the other hand, to benefit by the other lessons set forth above, one should not lose sight of the very special conditions which characterized the operations of the Fourth Army in CHAMPAGNE between the AISNE and the MARNE. (1) Initial Situation Belated taking up of position, organization of the Command effected at the last moment (engagement of the organic elements of the VIII Army Corps on the 8th of June only) absence of Army Services which did not rejoin. (2) Strength of the equipment used by the Germans: - 4 Armored Divisions - 2 Motorized Divisions -12 Infantry Divisions strongly supported by a powerful aviation, facing initially: - 3 and later 4 Infantry Divisions - 1 armored division incomplete - 1 Light motorized division recently organized without any appreciable air forces. (3) Form of Battle - At first, frontal attack: CONFIDENTIAL -21- 84 CONFIDENTIAL On the AISNE, already crossed by the enemy in the West, and continued in CHAMPAGNE POUILLEUSE by a retreating maneuver to a depth of 80 kms, for the purpose of reaching the MARNE. The absence of reserves in fact obliged the troops to fight while retreating, the same units fighting throughout the day after hav- ing withdrawn during the night. - On the Left Wing as of June 11th the battle extended progressively to the south of the Marne the 11th and 12th owing to the deep withdrawal of the Right wing of the Sixth Army whose VII Army Corps could no longer insure liaison with the Fourth Army. - Decisive Intervention of the Panzer Divisions on June 12th, which took advantage of the over- extended Left wing of the Fourth Army and attacked in two directions: RHEIMS - CHALONS DAMERY - EPERNAY This crushed the XXIII Army Corps, some of whose elements succeeded in crossing the MARNE, and separated it from the VIII Army Corps whose withdrawal was carried out partly East of VITRY-1e-FRANCOIS under particularly difficult conditions. CONFIDENTIAL -22- CONFIDENTIAL 85 SECRET Persphrase of date Rediagram Received as the Yes Department st 12.049 Pello, October 11, 1940 Belgrade, Filed 11:40 A.M., Outober 11. Chief of Staff Keeie's Senier Secretary, teld no that die- aster wes indians in the Balkmas. What be said confirmed a similar statement made to - by the Belgarian Military Attache. the latter said that German infiltrations into human was prolinimary to a joint major offensive w Italy and Germany directed toward Salemika and the Straits and to begin about October n. Balguria and Italy were to net jointly against Grosse, while Germany attached Terring from Balguria. If the Yugeslave place water and yoil transportation facilities at Axis disposition, m military action will be taken against their country. the ultimate objective of this effensive is the compation of Turkey, Ireq, and syria in order to operate against Faleshine and the Sam Canal in conjunction with the Italian attack from Libya. Inscia is to have freedom of action in the and Persia and ultimately to obtain to the Persian Culf. Kasis says that only the Serbs - to fight. the slovenes, Create, and the edoting government will not appose passage of tate troops asress Tageslavia. no general nobilisation has been ordered. 1 four days ago, a premise - unde to the my that & military distatership would be not - but to dable - mush action CONFIDENTIAL SECRET 86 CONFIDENTIAL SECRET Inc taken place. the Tegrelar Military Made in Massew we that = - should be alsose an - hals fax a Tugeslare Military Attache in sefia reported that - Milisstion began October 15. FORTIER. Miskributions Military Aide to the President secretary of War state Department Secretary of Treasury Aust. Secretary of Yes Crief of Staff War Plans Division Office of Neval Intelligence CONFIDENTIAL SECRET 2 Regraded Uclassified 87 Parephrese of Code Radiegram Received as the to Department at 2:32 Colober 22, 1940 CONFIDENTIAL Lenden, filed 17:40, October 11, 1960. 1. During daylight hours of Thereday, October 10th, the Booker Command flow no adasions a account of weather emil- tions. That night 10 dispatched 157 aircraft against their usual types of objectives. During the day the Ceastal Commi operated 94 planse on 55 patrols and for the oscart of 19 cerveys. That night 25 of its aircraft flow five sttack missions, losing too planes. The Fighter Command operated 702 planes - 133 patrols. 2. During daylight house of October 20th the - curried out four main attacks, - of about 100 planes against Dorset and three, of about 20, 60, and 145 planes, respectively, were against Landon. Eight raids lasted from 7:00 p.m. to 6:00 a.m. with London M the primary and Biruinghts the securiary - jective. 3. Damages during the day ware generally confined to the Landon and Southeast England area. No vital targets vere hit. One aircraft factory w not - fire, with - hanger destruyed, and unsuccessful attacks were made against too airfields. during that night - indissriminate ml ruther violest. There were DOMB fires but reports received w to this time show little damage to maities producting plants. Traffic in Landon - tengled this merning because of unexpleded & telephone unshange W not as fire by hite from high explosive beats. CONFIDENTIAL Regraded Uclassified 88 CONFIDENTIAL Indivents - London www damaged in eda: places, Constitution - of - to the Mother my addition, there ware naturial. actived damages to fasilities in Lendon, there - a - feibure to - district and bonks falling a wher and breaking mine coursed a shartage of where in - districts. There were superficial damges in - Brighton, Benkill, and Hartings. Rightown - shalls full in nover - there - no and - - nagligible. the 1 I I â s I 1 a 6 I I I 4a terms plans Laters wire five entired and five damged. the British last five planse and three pilote. 2a atti- time to other civilies caredities in Landon not yet reported, there were " Milled at 39 surienly injured, 5. Brittish endows and strered) corriers bonkerded Charbourg during the night w October - I 1 I yourseas 4 f B 1 1 I I damaged, the and of 6 29 ship - from America and the classing of a 34 ship - w reported. s In same a Italian recomed.com to fores advanced w miss Served in - of as within 9. the believe that the balk or the dermin 1 a a 1 E : I I 1 of Orto Nos. There are initiations that - planse of this type - been - to Italy and that Italian pilate - being trained CONFIDENTIAL Regraded Uclassified CONFIDENTIAL I $ 1 $ 2 I I I # s a I Lilya. & Officere of the Mr Force are this a I 1 1 I 1 1 I 1 2 E I using bonhs veighing from 1,000 to 2,000 pounds. Date of these a I 1 I I I I à cheese 5 # I 1 Index Includes 1 E LEE Distributions Military Ade to the Freeiden's of Was State Department > I % 1 I r I Chief of staff to Plane Division office of Movel Intelligence CONFIDENTIAL 90 October 11, 1940 12:12 p.m. James Forrestal: Hello. H.M.Jr: Hello, Jim. F: Henry, a subject has come up here which bears upon what we talked about in relation to the Defense Commission. They've appointed a - up to now whenever we wanted to get a plant extension approved to come under the - get the benefits of the amortization scheme, we got the approval of one fellow, Knudsen. They've now set up a Commission and the entire Commission has to approve those extensions which means Miss Elliot, Mr. Hillman and various other members. H.M.Jr: Well, their contribution will be worthwhile. F: Well, I think the contribution is worthwhile if it doesn't result in a creation - if it isn't delegated authority do you 800 ..... H.M.Jr: I'm smiling. F: ..... and you set up another intervening instrument that has to be hurdled before you get quick action. I'm not sure that it's going to do that yet but I just wanted to ..... H.M.Jr: Well, now, let me see if I get it straight. Do you mean to say that before they'll approve any contract the whole Commission has to pass on it? F: Yeah, the whole Commission has to pass or the - it's a subcommittee appointed - it's a sub- committee - for example, we've got a contract to Consolidated. That has to be vised by 8. committee appointed by the Commission and each member of the Commission has a representative on that committee. H.M.Jr: My God. F: It sounds a little bit dangerous to me. Maybe with you that the contribution - the suggestion we're boxing with shadows, but I agree of people ..... 91 - 2 - H.M.Jr: Oh, I was joking - I was joking when I said that. 7: Well, I'm not certain, I think Sydney Hillman can make some suggestions all right. H.M.Jr: Well, no, I was just ..... F: Henry, don't charge your mind with this. I simply want to - I'm going to have a summary of this made and I'm going to give it to Ed Foley and you can forget about it but I just wanted to tell you I'm going to do that to be sure that he gets it in his mind. H.M.Jr: Well, don't give me anything that you want me to forget about. F: (Laughs). Well, you're not going to forget about it because he'll be after you on the problem. But it just looks to me like an unnecessary clogging of procedure. H.M.Jr: Yeah. Well, I think that I know how - - I think I can help. F: All right. H.M.Jr: I think I can help. F: Well, I'll send the memorandum direct to you. H.M.Jr: Yeah. Will you? I think I know how to do it. F: 0. K. H.M.Jr: Thank you. 92 October 11, 1940 12:16 p.m. H.M.Jr: Hello. Operator: Mr. Purvis. H.M.Jr: Hello, Arthur. Arthur Purvis: Yes, Henry. H.M.Jr: You got word the trip was off. P: I was sorry to hear that, yes. H.M.Jr: Well, I'll explain it to you sometime. I thought for political reasons with a capital "p" it was a mistake for me personally to go. I can't go without Glenn Martin telling it to the press. P: No, that's dangerous. H.M.Jr: And I was afraid Mr. Knudsen might take offense, 80 I thought it was better not. Now, after meeting this morning, it was decided though that we go ahead next week and send a similar group to the plants which have English orders on the Atlantic Coast. P: Yes. H.M.Jr: So they're going to go ahead with that because Stimson 1s very much pleased and certain things here we'll discuss about turrets, et cetera, et cetera, and standardi- zation which Philip Young will pass on to you, but the main thing 1s we're going to go on and do all of the plants. P: Yes. H.M.Jr: And they had a meeting yesterday and they are actually going to build at once 2,000 houses for married people - for civilians. P: Ch, yes. Very good. Regraded Uclassified 93 N 1 1 H.M.Jr: And the Public Works group are on their way out there now and, as you know, - 80 that's started and Mr. Knudsen sent out Mead and somebody else BO that - the thing has been very, very hepful. P: Oh, I'm sure those steps are going to be invaluable and once they get started they'll gather momentum, too, don't you think? H.M.Jr: Oh, yes. And then the other thing which Phil can give you the details on - they've reported now that not to exceed two weeks delay will be on the 4-engine bomber putting in a complete - putting in the Sperry auto- matic pilot. P: Oh, I see. They're going to do.1t that way. H.M.Jr: Well, that's for the Army. The Navy still maintains that they can't rip out the certain secret thing, you know, and 80 I think the thing will happen - what I told you would. P: Yes, I see. H.M.Jr: In other words, if the Army 1s correct that Sperry can install the thing in two weeks - they say that the first six that they can install in not less than two weeks - they'll take turns installing them, you see. They'll take one out of the first six - they only want the automatic pilot in that anyway and 80 ..... P: Yes, yes. That's quite different from the previous picture that they got. H.M.Jr: Quite. Major Lyons brought it back. I think that both you and Fairey ought to get this because it's really quite important and Philip Young's available. P: Yes. Well, we'd better get hold of Philip Young and have a word with him. H.M.Jr: Right. And I'll be seeing you next week. But the only reason I called the thing off, I thought looking at it in a b1g, broad way, if it got in the papers that I went, it might hurt some feelings. Regraded Uclassified 94 - 3 - P: Yes, I know. I know. I think those things - I mean, one has to keep them in mind. By the way, Sir Walter wants to send that memorandum --- when will you be going up to the country? H.M.Jr: Well, sometime after 2 o'clock. P: Sometime after 2, 80 it's better to get it to you by 2. H.M.Jr: Yes, if they can put it in the hands of Lt. Commander McKay. P: Yes. I think he'd like very much also to feel that you could authorize that the other copies go to Secretary Stimson and Knox 80 that he could feel that they'd get progress next week. H.M.Jr: Well, if he wants to deliver them, it's all right with me. P: Will it be all right if you had gone, otherwise, send them to you. H.M.Jr: Well, let's say I have gone. P: All right. (Laughs). H.M.Jr: Knox isn't here anyway. P: Oh, he isn't. H.M.Jr: But if he wants to get it over to Stimson today by all means let him do it. P: Thank you very much. H.M.Jr: Right. P: Good-bye. 95 COPY. 11th October 1940. Dear Mr. Morganthau, Arising out of conversations with the War Department and with Mr. Knudsen, I have been asked to submit as precise & statement as possible of the supplies for the British Army which we should like to receive from North America in 1941 in respect of the main items included in the table on page 8 of the memorandum which I sent to you on October 2nd. I therefore enclose a short summary of the quantities of artillery and rifles which would be needed to complete the British Army's programme. I also enclose a fuller statement, which shows the relation of the quantities asked for to the whole British programme and, in a short commentary, sets out the basis of our requirements and the limits within which it would be possible to make an adjustment of British standard types and those of the United States Army. You will appreciate that this second document contains information of a very secret character, since it necessarily gives the key to our military development next year. I am, therefore, enclosing four copies for the personal perusal of the President, yourself, Mr. Stimson and Colonel Knox. I venture to ask that no further copies be made. I commend to your attention the outstanding urgency of certain items to which the memorandum refers. No hope to submit to you at a very early date a similar memorandum covering the extended aircraft programme, some notes on Admiralty requirements, and a statement relating to advances of capital to contractors for war supplies. A note on Dominion supplies is also in preparation. Yours sincerely, (Signed) W. T. Layton. Secretary of the Treasury, Washington, D.C. Regraded Uclassified 96 Inclosure No.1. Statement of British Requirements from North America of Artillary and Rifles to 1941 The following supplies are needed from North America in 1941 to complete the British Army's equipment and, in part, to provide an insurance against a reduction in British output 88 a result of enemy actions- 1. Field Guns (25 wirs.) ... 1,800 2. Medium Artillery 300 (4.5" Gun Howitzer) and 5.55 Gun 3. Anti-Aircraft Guns. (a) Heavy ... 1,600 plus (b) Light ... 1,800 plus 4. Tank Guns and Anti-Tank Equipments. (a) 2 pdr. Carriages 2,000 (b) 2 pdr. Guns - 4,250 (c) 6 pdr. Guns 1,000 (d) Carriages for 6 pdr. guns (same carriage as (a)) --- 1,000 (o) 37 me Guns for M.3 Tanks ... 1,500 (r) 75 m. Guns for M.3 Tanks ... 1,500 5. Rifles (.303 Enfields) 1,000,000 Votes 1. Suggested capacity 200 a month. Delivery should commence as soon as possible after July 1st 1941, and be completed before March 31st 1942. The rate of supply will determine the rate of replace- ment of obsolete weapons in the field artillery of the British Army. Owing to the advanced state of the British programme and the complication resulting from mixed types, it is desirable that this supply should be of British type. 2. Buggested capacity rate for British order 30 a month. It is unlikely that 300 can be delivered in 1941; but if deliveries are certain to start in the autumn of 1941, the British Army would be justified in sending the British made guns abroad and running on a narrow reserve margin in the summer of 1941. The supply coming forward in 1941 would be used to complete the initial equipment of existing Army formations. Later deliveries, if British output remains unimpaired, will be needed to replace obsoletemt in assigne this supply should, if possible, be of the British types now in production. 3. For reasons stated elsewhere, this requirement is practically unlimited. Uniformity of type is not as important in this as in the two preceding cases. Regraded Uclassified 97 - 2 - to the doesad for 2 pdr. anti-tenk equipments one to - extent be net by a further supply of 37 = Anti-tank Equipments, of which 500 are already on order. It is very desirable that as large a pro- portion of these deliveries CS possible should be made before mid-summer 1941. The 6 pdr., which is mounted on the same carriage as the 2 pdr., is designed ultimately to supersede the lighter anti-tank gun, The demand for 37 missing and 75 m. guns for the H3 tanks will ultimately amount to 3,000 of each, or an equivalent mumber of whatever areasent is used in any subsequent modification of the present task design. The figure given is the number required for the tanks likely to be delivered in 1941. 5. Delivery of the Enfield rifles should, if possible, be completed during 1941 or at latest by March1942. This will require 8 capacity of 100,000 & month. 6. Ammittion requirements connected with these artil- lery items can be dealt with as soon as the programe of weapons is settled. 11th October 1940. Regraded Uclassified 98 Enclosure No.2 VERY SECRET COPY NO.2. SUPPLEMENTARY OF ARMY REQUIRE The British Army supplies which it is hoped to obtain in North America cover a very wide field. But I propose in this note to deal only with artillery of various kinds and with rifles, for it is on the supply of these items that the main questions of principle arise. Ammition orders will depend on the decisions taken on the points raised in the following note; the tank programme has been settled and is wall in hand, while 20- quirements of various miscellaneous stores will be put forward through the ordinary channels. In my note of October 2nd, however, I pointed out that little progress had been made in settling the programe of weapons for the land army. It is hoped that this note will enable all outstanding points to be cleared and a programme to be put in hand. In the table below I have added to the figures which I quoted in my previous memorandum & column in which is shown the additional supply of weapons which it is desired to obtain during 1941 from North America:- Stock on Foresast Additional August 1st. of output supply de- Aug. 940 sired from to end $41. North America during 1941. 1. Field Artillery 2,650 4,850 1,800 2. Medium Artillery 400 700 300 3. Anti-Aircraft Guns:- Heavy 1,775 1,660 1,600 plus Light 650 3,760 1,800 plus 4. Tank and Anti-Tank Quast- 2 pdr. Anti-Tank Carriages 600 6,000 2,000 . . Guns for A.T. Car- 600 . # Guns for riages Tanks @ $ 10,700 4,250 5. Rifles About 2 million 850,000 One million 3 1 Including 500 37-m. equipments from U.S.A. and 600/700 2 pdr. equipments from Canada. 2 Most of the Tanks in stock were armed with 2 pdrs. LAP Including half a million American Enfields. Including output from India and Australia. Regraded Uclassified 99 2 the following paragraphs explain the final figures here shown, The stock figure of 2,650 equipments in the hands of the Army on August 1st consisted of (a) 650 75-m. field guns from the United States:* (b) about 1,000 18-pdr. and 4.50 Howitzer equipments surviving from the last 112, (c) Over 1,000 25-pdrs. (655 being converted 18 pdrs and 410 now 25 pdrs.). Thus, of the 7,500 guns in sight (stock plus production) by the end of 1941, some 1,650 are of old types and should be replaced as soon as circumstances permit. This leaves 5,850 as the total of modern or reconstructed weapons available between now and the end of next year. The initial equipment of the divisions for which provision has to be unde by the and of 1941 calls for at least 5,000 for estahlishment plus reserves - the figure would have to be a little larger if the fores were dispersed over several theatres of war, In order to provide what the Army Council consider an adequate reserve and to meet a moderate estimate of wastage during 1941, we should have available 6,650 gims, 1.00 ve need 800 more than the total available. Further, in order to provide & 20% margin against less of British output, we should place an insurance order for 1,000 equip- ments. In order, therefore, to be assured of meeting our timetable, ve should like to receive from North America 1,800 equipments during 1941.** Canada has already started production of 25 pdrs., but we do not count on receiving more than 100 equipments before the end of 1941. I have briefly indicated in my preceding - randum why these 1,800 equipments should be in the form of 25 pounders and not of some alternative weapon. No are producing at the rate of 150 equipments a month. We expect to be producing at the rate of 380 a month next automa 9 of these 565 were with units in Great Britain and 65 in depots undergoing niner repairs. The balance of the number sent to Britain were aflost or in part witing to be unloaded on August 1st. 48 It will be noted that this is approximately the figure of the obsolete types which - hope to replace. Regraded Uclassified 100 The existing stock of medium artillery consists minly of " Novitiers Nus a fee 60 pounder guid (5") which have teen converted to sta calibre and will take the shall designed for the INVO ⑈ - The output of Dew medium artillery shown in the table will consist is approximately equal quankities of the DIEW ⑈ pm and the - 4 guan Loviter (these two waspons are mounted on a change carringe). Delivery has just begun and one of the first complete w equipments will shortly be on its may to this country. The forecast to the and of 1941 is about 100 equipments short of the total number required to cover the for Office estimate of wastage and appropriate reserve, on the assumption that the 6" Nowitzers remain in service. To the deficiency of 100 should be added a figure for less of output through bombing which should be fairly high as the production of these equipments cannot be widely distributed. To should, therefore, like to order 300 of these equipments from North America for delivery between September 1941 and June 1942. It 12 intended to replace the 6" Howitzers with nodern weapons as soon as production permits. The productive expacity involved in manafact- uring these veapons is largely alternative to that required for heavy anti-aireraft guns. If, therefore, we could secure more of the latter from oversens, no could enlarge the output of this medium artillery from our gun factories, and vice versa. We expect to be producing 66 a month of these equipments next satum, (a) HEAVE Our stock of heavy anti-aireraft guar on August 1st consists, as to nearly come half, of " and 4.5" guns, the production of which is not being continued, and, as to rather more than one half, of our standard 3.74 guns. The new production shown in the above table is made up entirely of this last veapon. If the forecast is realized 18 shall have over 3,400 heavy anti-aireraft guns before the and of next year. In the view of the General Staff this figure should be at least 5,000, and if all vulnerable points are to be protected, as well as provision made for supplying a cartain number of these reapons to our field forces, the figure should be 1,300 more. The deficiency is thus at least 1,600 without providing any insurance against our our loss of output. If the full requirement were to be net and insurance provided, from 3,000 to 3,500 (ims would be needed. There is - possibility of filling this desand either from British or overseas sources before the end of next year. Dut, unless se can assume that the struggle for air mastery will be substantially settled in our favour by the and of next year, these figures serve to show the need for hroedening the basis of production of heavy anti- aircraft pas. Regraded Uclassified 101 In the dase of this equipment, the need of uniformity is less imporative than in the 0114 of artile lary which is used to the field, for & considerable proportion of these gms can be fixed in position and the sumunition supply our be arranged with comparative - Horsover, the total amount of assumition that has to be dealt with is much mile then that which has to be supplied to & field force. Our own domand 15, moreover, swollen by the desirability of giving protection to vulnerable points all over the world. It 15, therefore, very desirable that a large production of the most readily produced beavy A.A. (un should be planned in the U.S.A., and that allocation of the early deliveries should be made in accordance with the war situation prevailing at the time. At the soment - are producing 80 3.7" daho guns a month and 10 expect to be producing 120 a month in the autumn of next year. (b) LICEN Our present stock of light anti-aircraft gums consists almost entirely of 40 m, (Bofors) guns. The DEV production shown in the table will consist entirely of this weepon. Our total supply at the end of next year will be some 800 guns short of the Army Council's minimm requirement and some 2,800 short of the total which the army would like to mount throughout the country, in addition to equipping the field force. We must also allow for some loss on our production foresasts. Ou the basis of the lower requirement figure which shows a deficit of 800, plus an insurance against loss of, say, 1,000 guns, we should like to order 1,800 guns for delivery during 1941 from North America. Our present output is 113 a month, and 19 expect to rise to 460 a month at the end of next year. - The life of the habe guns is very short. A large mumber of spare barrels must, therefore, be supplied. No have ordered, and are anxious to secure quick delivery of, spare barrels for both the 3.70 and 4.5% guns - which are mounted in considerable numbers for the defence of London. I would ask that these orders may have high priority. Our ammunition supply is abundant and the barrage fire which has recently been put up in London represents the wear of something like 100 barrels a week of the heavy lake guns. Our programs of tank guns and anti-tank equipments is far behind our requirements. At the outset I should explain that the 2 pdr. gun is used both as an Regraded Uclassified 102 anti-tank mapsings when musted on as anti-tank carriage, and as the mix stauent of our tanks, The production of the (in itself has therefore to belance against.yro- dustion both of 2 pir. carriages and tanks. In the Nattle of France the Army was insufficiently equipped with anti-tank vespons and lost all the 850 anti-tank squipments which were on the Continent, as well as several Immired 2 pdr. pm which were in the tanks that were left behind. We have, therefore, had to build up our supply from the relatively few equipments and pas that remained in England. In other words, 18 had in this case to start again marly from scratch. Though the output of 2 pdr. anti-tank equipments and of 2 pdr. guas for tanks is rising rapidly, we shall be considerably behind the military timetable by May of next year. And though 190 shall estch up rapidly in the latter half of the year, the completion of the programa by the end of 1941 is not in sight. Taking first the anti-tank carriage as the measure of our supply of anti-tonk equipments, the output will be 2,600 behind the military timetable in June and will still be 1,000 in arrears in December of next year. It will catch up in the early months of 1942.# Allowing a margin for less of output due to enemy action, we should like to secure an additional 2,000 anti-tank equipments from North America by the end of 1941. In addition to the guns to be sounted on these carriages, our forecast of tank deliveries will require about 6,000 more 2 pdr. guns before the end of 1941. This, with the 4,850 2-pdr. guns required for mounting on 2 pdr. anti-tank carriages of British manufacture, gives a total gun requirement of 10,850. Our expected production is 9,600, leaving & deficit of 1,250. On this additional gm output for British tanks there should also be a surgin of safety of, my, 1,000 grans. Thus, to complete the programe the follow- ing additional supplies are needed from North America during next years- + The deficiency here quoted is after allowing for the delivery from the United States of 500 complete anti-tank 37 m. equipments and of 600 2 pdr. anti-tank equipments from Canada. Regraded Uclassified 103 Regraded Uclassified Owns Carriages 2 pdr. Anti-tank Equipments 1,000 1,000 Insurance Margin 1,000 1,000 Additional Owns required to couplete Tank programe 1,250 Additional Insurance on Gun production 1,000 4,250 2,000 It is not practicable fully to meet these deficiencies by additional output from Canada. To should like, therefore, to be able to secure a substantial supply from U.S.A. The figures do not include the arming of the M.3 tanks which have been ordered in the United States. For these tanks 1,500 75-mi guns and a further 1,500 37 m. guns will be required before the and of 1941. In considering how to provide this tank and anti-tank areasment two points should be noted. The first is that the Army Council, and I think also the American Military Authorities, recognise that by 1942 both the British 2 pdr. and the 37 m. anti- tank guns may not be powerful enough to pierce the armour with which the German tanks my thon be protected. The 2 pdr. anti-tank carriage has, therefore, been re-designed to earry a new 6 pounder gin, One of these guns is on its By to the United States. If it commends itself to the American Military Authorities it would be a great help if this gun could be put into production promptly in the United States, in parallel with the production of the lighter anti-tank gun. This suggestion is put forward because it is almost impos- sible to contemplate doing this in England owing to the great pressure on our gun-making capacity and the danger of interfering with the production of the 2 pdr. gun which is in full flight and is the only weapon that will be available next summer. If the American War Department is not yet ready to reach a decision on this point, se should in any case like to place in initial order for the earliest possible delivery. The second consideration is that the gap in the British programs in 1941 could to some extent be filled by a further supply of American 37 M. equipments if they can be unde available in time. Substitution to the full extent of the defic- Lency would not be entirely satisfactory. On the one hand, a special mounting would have to be designed if the 37 mine 104 mill to be well in British tasks, and oz the other, as omerns the subt-tast equipments, 90 thould 15km to have both 2 ptr, pm and 2 par. carringes in production in the United States in order to met the possibility that OUT 022 flow of equipmente wight brease through damage by - action to either the - or say= ringe production M the case, my bee We should, therefore, like a supply of 2 par, guns and carriages to be included in the American supply programs. For the reasons already mentioned, ve are anxious that deliveries of 2 pdr. or of 37 m. anti-tank equipments on existing or supplementary orders should be brought forward as far as possible to the early part of the year. In August production of both guns and ear- ringes was running at the rate of about 150 a month, and ve have in stock a small surplus of 2 pdr. guns which are being mounted in British produced tanks. Production of the guns will run substantially ahoud of carriages is December and at the and of next year " shall be providing from home sourees 1,100 guard and 400 carriages - north, In August the British Army, which had lest some 150,000 of its rifles in the Bettle of France, posses- sed some 11 million .303 Huffeld rifles. This enabled it to equip the divisions in formation and supply 8 certain number of rifles to the Navy, which, in addition to its ordinary requirements, needs a considerable under for the Non engaged in trawler and ancillery services. The new output in, however, very small and the surplus in ordnance stores will with difficulty suffice for the intake of recruits and other urgent demands. The War Office desand for the field force, for troops engaged in home defense, and for vastage during the compaign of 1941 estimated on a very modest basis, amounts to 21 millions. This figure is exclusive of the needs of the Nome Quard, which have been sainly armed by American Refield rifles from the United States, Towards this requirement of air millions, the Army possessed # little over 14 millions in August, Our foreast of deliveries from existing British factories, from new factories which will come into production at about Christmas, and from small factories in Canada and Australia, amounts in all to an output of 850,000 more rifles before the and of next your. The figure of 21 millions se, homover, only 8 sinimus requirement. IS, M is possible, the unber of divisions in forastion at that time is increased boyond the programs figure - 10 spite of a deficiency of some items of their equipment - & larger number of rifles will Regraded Uclassified 105 Regraded Uclassified be needed. No have also to provide for Polish, Crech, French and other troops in Regland, for the requirements of the Dominions and Colonies, and fortified posts abt ad, as well as for & reserve which should be system able to replace wastage is, in the latter part of 1941 of early 1942, it should be insurred on a full battle basis. No need also to provide a morgin against possible loss of output from energy action. We therefore should like to order for as speedy delivery as possible at least one million Enfield .303 rifles in the United States - the rifle which is standard not only in the British regular forces but throughout the British Empire. In our view, this order should be in addition to and not in substitution for an expansion of capacity beyond that now available for making +30 riflest for 8 large supply from this country my be required not only to neet special British demands that can be isolated from our general programme, such as the Home Guard, but also to neet needs that are likely to arise in the next two years from sany other sources. In this comeotion it is worth putting on record that during the four years of the last war production of rifles in Britsin and North America was approximately as follows:- Great Britain 1914-1918 4,000,000 .303 calibre Canada 1916-1918 120,000 - # U.S.A. 1916-1917 1,250,000 # . U.S.A. 1917-1919 2,950,000 .300 calibre So far as I an sware, no preparations have been made to manufacture rifles on anything like this scale. Nevertheless, the Germans must have in their possession, or at their dommand in the countries under their control, an almost unlimited supply of rifles, while the French supply cannot, as in 1914-1918, be counted in the scale against them. It may be that the machine gm and the auto- matie rifle my for certain purposes replace the standard rifle; but those figures suggest that the production of small arms in some form or another should now be envisaged on a very great scale. PREPAIL In order to give 8. general picture of the scale of our production in relation to military needs and what has been done in the past, I have set out below a comparison of our forecast of production at the end of next year with figures of the last war. I have not avail- able any statistics of French artillery production, which should be added in when considering the output of the Allied and Associated Powers; but I have quoted a figure for the United States from Colomal Ayres' Official Statistical Summary of the War with Germany. For purposes of the table I have assumed that his figure does not include any 106 - 9 - considerable univer of tank and anti-tank pas, The British figures were achieved after r years of warj the American - aided by the capacity created by previous Allied orders - was reached in 18 months; the British figures for 1941 represent the prospective situation after approximately 2 years. Monthly Output of Artillery British peak British output March U.S.A. Forecast 1918 Oct. 1918 1941 Field Guns 340 380 (plus 200 gun (plus so bodies) barrels) Medium 160 420 66 Heavy 64 a few A.A. Heavy 45 120 A.A. Light None 460 Tank and Anti- tank guas 285 1,100 The figures are a measure of a part only of the industrial wer effort - which can only be estimated as a shole if W also take account of the comperative production of tanks and aircraft. 107 October 11, 1960 STRICTLY CONFIDENTIAL MEMORANTOM To: The Secretary From: Mr. Young In the memorandum and material which I put in your envelope for the farm a week ago concerning a meeting of Colonel Maxwell's Advisory Committee on Export Control, there was some stuff relating to the possible development of a division of "Economic Defense" or "Economic Warfare". You may recall that I have spoken to you about this on a couple of occasions since that time. A situation is developing beneath the surface which is designed to place the control of all measures taken for "economic defense" purposes in the hands of Colonel Maxwell or the War Depart- ment. At the present time the only people who have had anything on this subject are in the Army War College, and Secretary Stimson has promised to transfer this group to Colonel Maxwell's staff by December 1st. Colonal Maxwell took no to lunch today and we had quite a lengthy discussion on this matter. Among other things, I discovered that Maxwell's State Department adviser is a committee of three appointed by Secretary Hull and consisting of Feis, Green and Grady. Presumably this committee refers the difficult decisions to Secretary Hull for consideration. Colonel Maxwell invited no to come to see him next week BO that both of us might go down to the War College and talk with the people there on this business of economic defense. I have been doing a good deal of thinking along those lines recently and it would seem that the time is rapidly approaching when some inde- pendent program will have to be developed for the existence of economic controls as a matter of national defense. This question is a much broader one than the question of export control per se, as the latter is merely the mechanism for executing the former. 108 - 2 At the moment I feel quite strongly that the matter of economic defense could not be handled adequately either by the Administrator of Export Control, the State Department, the War Department, or the Advisory Commission. Preferably it should be handled by an old line department such as the Treasury, which has the facilities and the economic background. As a matter of fact, if the work of the Liaison Committee is analyzed it is found that this function is being performed already in certain instances. Colonel Maxwell is quite alive to the potentialities of the situation and he and I both agree in that we believe a common- sense coordinated economic and control program is necessary. For your information, I have started to assemble certain basic data and various ideas dealing with the subject. D.Y. 109 GRAY RDS MA CALCUTTA Dated October 11, 1940 Rec'd 12:44 a.m., 12th Secretary of State, Washington. October 11, 4 p.m. FOR THE SECRETARY OF THE TREASURY FROM BOMBAY. National Bank shipped to Chase National Bank, NEW York, by the stramship PRESIDENT HAYES (sailed on October 1st) 8875 ounces of gold valued at $300,915. GROTH EMB Regraded-Uclassified 110 October 11, 1940 My dear Mr. Secretary: I an writing to acknowledge receipt of the "Estimate of the Situation" which you were kind enough to send me on October 8th. I appreciate so much your making this information available to me. Yours sincerely, (Signed) H. Morgusthau, Jr. Honorable Henry Stimson, Secretary of War, Washington, D.C. By Messenger 15 15 Regraded Uclassified 111 Ostober 11, 1940 My dear Mr. Secretary: I an writing to acknowledge receipt of the "Estimate of the Situation" which you were kind enough to send me on October 8th. I appreciate so much your making this information available to me. Yours sincerely, (Signed) H. Morgenthau, Jr. Honorable Henry Stimson, Secretary of War, Washington, D.C. By Measenger 112 WAR DEPARTMENT WASHINGTON October 8, 1940. MEMORANDUM for the Secretary of the Treasury: Here is a copy of the "Estimate of the Situation" which I promised to send you some time ago. Newryh. Otimson N. Secretary of War. encl. 113 WAR DEPARTMENT OFFICE OF THE CHIEF OF STAFF Regraded Ucla WASHINGTON, D. C. October 2, 1940. MEMORANDUM for the Secretary of War: Attached is a copy of the "Estimate of the Situation" for Mr. Morgenthau. It might be well to explain to Mr. Morgenthau that this is the product of the Joint Army and Navy Board, later revised in accordance with instructions from Admiral Stark and myself - and also from you; that it is now being considered by the State Department representative of the Liaison Committee, the Under Secre- tary of State, preliminary to its acceptance by the Liaison Committee - Mr. Welles, Admiral Stark and General Marshall, for submission to the Secretaries of War, State and Navy, for their approval and trans- mittal to the President. Chief of Staff. encl. SECRET 114 STOREX SUBJECT: The Problem of Production of Munitions in Relation to the Ability of the United States to Cope with its De- fense Problems in the Present World Situation. Section I. Estimate of the Position of the United States in Relation to the World Situation. 1. In relation to the existing world situation, the first consideration in regard to the position of the United States is that its action in opposition to the three Totalitarian Powers, Germany, Italy, and Japan, may cause them to undertake hostile action against the United States if their serious preoccupation with other militery adventures will permit. with respect to Germany and Italy, it appears reasonably certain that neither will engage in open hostilities with the United States unless or until they have succeeded in inflicting & major reverse on Great Britain in the British Isles, and in the eastern Mediterrunsan, and as well, have assured themselves that Soviet Russia will not seise the opportunity to cause trouble for them in Europe while they were engaged elsewhere. With respect to Japan, definitely hostile action against the United States will depend upon the 000- requested of any steps taken by the United States to oppose Japan- ⑉ aggression. These consequences My become such a hindrance to her economic and military welfare that stops in retalistion such as the seisure of the Philippines my be undertsken. Further- more, the obviously expending self-confidence and aggressiveness of Japan have became so great that there can be no assurance that in the near future she will not take action which will face the United States with the alternative of araed opposition or complete modification of our For Eastern policy. 2. Our estimate of the threat of aggressive setion by Germany or Italy must be concerned with two aspects of the question, The first is the time factor, affecting their attainment of sufficient strategic freedom of setion to under- take operations against objectives in the Western Headsphere, and second, the question whether, by the time they have attained such strategic freedom of action, the United States will have built up its armed strength sufficiently to render the attempt a dubious gamble with success, and therefore disadvantageow. SECRET Regraded Uclassified SECRET 115 3. As the situation stands is late Beytember, 1940, the expected invasion of Regist has not been attempted and with away passing day the of this alvergis expours to decrease. Normbile, uninterrupted violent air attacks on the British Iales have been continued for several vocks with no imediate indication of causing a breakdown in British merale or resistance. There is M prior precedent of air operations ea such a scale with so apparent a prospect of long continuence. Consequently, no one can say whether British resistance will eventually succusb to air attack alone. However, from present indications it appears reasonable to assume that by air attack alone Germany cannot foree British espitulation in the British Isles for several months yet to come. At the present time, the outcome of the Italians' offensive against British forces in the eastern Mediterraness is also uncertain. Undoubtedly, if the Italian drive should reach the Bues Canal and Italian foress should thereafter be able to deprive British naval and commercial shipping from - of the Snes Canal, the British would have to release their hold on the Hear East and probably be driven out of the Mediterramen. 4. It has been suggested that the less of Gibraltar by Great Britain would not only reset seriously on the possibility of continued British operations in the Mediterreneen, but would also open the way to serious consequences to the United States, by opening the way for movement of Italian neval forces into the Atlantic, especially if based on Dakar. the threst the indicated would have to be oppesed either by a part of the British Havy now based in the British Isles, or if that should prove impossible by the withdrawal of a part of the United States fleet from the Pacific into the South Atlantie, thereby wakening our Pacific position in opposition to Japan. Purther- more, occupation of Dekar by the Axis Powers, both as a neval and is sir base, would open the way to serial panetration of South America by forrying flights to Natal. It is well recognized that it would be imporative for the United States to anticipate such action by the proventive occupation of the air fields and ports in northeastorn Brasil. While the ousting of Greet Britain from 0ibraltar would undoubtedly make more difficult the position of British neval foreas in the Wediterrunsen, it is considered doubtrul that even with the gateway open to the Atlantic, that Italian navel foreen would leave the Nediterraneen while the British Fleet is still in being. 50 Meamhile, the indications are that both Spein and Portugal will be drum into the orbit of Azia control. In this event, valees imediately compled w Great Britain or the United States, it my be expected that the Ascres, Canary and Caps Terde Islands will be occupded and defended w Axis foress, and pet to such use as operating bases as may be found practicable SECRET Regraded Uclassified SECRET 116 is order to disturb British savel emtrel of the Atlantic. Ada control of the Aseres would offer 3 definits threat w the needly of the Western If is would micrially charten the distrase for operations against our outports at and Burwan, as well as against commercial shipping or naval forces in the Atlantic, 6. From the standpeint of the time fastor, it appears reasonable to estimate that the British hold a the British-Isles cannot be BO weakened as to make the withdrawal of the British Flest therefrom necessary in less than 6 months. Assusting that the British Government adheres to its expressed purpose, under no aircumstances to surrender the British Flest, the Ands Powers would still lack freedom of setion in the Atlantic if the British Fleet continued to operate from basse in the Western Headsphere. Under these circumstances, serious attempts by the Axis Powers of aggression against the Western Handsphere would have to mail the building of sufficient naval forces to allow them to contest the combined navel supresary of Creat Britain and the United States in the Atlantic Ocean. This could not occur for several years, if STUS. Revever, & part of the responsibility of the United States should be to be prepared to mot the west possible situation, So the M the Atlantic is concerned, this worst possible situation would arise if, instead of withdrawing, the British Flest vare largely destroyed or were foreed to surrender. Iven if a sufficient pertion of the British Floot should be surrendered so that the strength of the surrendered vessels added to the existing strength of the German and Italian Havise would exceed the nevel strength of the United States, it has been estimated that a pariod of at least 6 months from such surrender would have to elspee before British units could be effectively named by German or Italian crews and, by training and operating practice, insorporated in the German or Italian Ravies. Consequently, if the previously stated belief is correct, that it would be at least 6 months before the British hold on the British Inles ⑉ be destroyed, it appears that et least a year from now must elspee before the possibility will cour of freedom of action for the Axis Powers to sperate against the Western Headsphere unless, is the menting, no become seriously involved in the he East. 7- Nevertheless, there is 8 strong possibility that the United States will be confronted with the necessity for the employment of srand fores for consential defensive adssions in the Vestern Emisphare within a year. This possibility orises from too different types of potential timests. The first is that German infiliration into Latin America, which is already courring at which is known to be increasing, MY bring about from of so-salled "Firth Calmen" activities which wd. thenk the SECRET 1 SECRET 117 Regraded Uclass assistance of the United States would be to overately, by our versive or revolutionary activity, the stability of existing Istin American Governments, which 19 have undertaken to support, Regisms thus set up and affiliated with the German Government would afford ready overseas bases for rebsequent German infil- tration or for outright military, neval, and air operations when the Axis Powers should become foot-losse in the Atlentic. the second of these potential threats arises from the possibility that, following attrition of British naval forces, Germany probably would dispatch naval raiders for such harassing attacks on shipping and exposed coastal and island possessions in the Western Atlantic as night tend to withdraw British nevel forces from the protection of the British Islee or United States neval forees now maintaining our strong position in the Pacific. 8. With regard to our position in the Pacific, as has previously been indicated, there is no assurance that Japan will not, within the next few months, nove swiftly either against the Dutch East Indies or against the Philippines or Guam, especially if the Japanese Government should become increasingly embarrassed by embargos on exports from the United States to Japan, and at the seme time should become convineed that despite protests by the United States it was only throwing a bluff and would back down in the face of a serious situation. 9. This brief survey leads to the following conclusions regarding the position of the United States in relation to the world situation. & Within the near future, the United States my be confronted with the demand for a major effort in the Far East, - effort for which TO are not now prepared and will not be prepared for several years to come. If, in the near future, TO should be confronted with the necessity of armed opposition to Japan, in the face of the potential threat in the Atlantic, that effort probably will be limited to the exployment of miner naval surface and air foress operating from Singapore and Dateh East Indies bases, plus the interruption of Japanese shipping in the eastern Pacific. be If it develope that the British Flest is destroyed or surrendered, from that very day the United States met within 3 months securely cosupy all Atlantic outpost positions from Bahia in Brasil northward to include Greenland. SECRET SECRET 118 w AS my time from the present - formant, the United States my be required to mall its - - for the emlerant of Reval and Military forces to prevent Gornan-inspired upsets of latin American Governments. so In order to safeguard our own security the United States my at any time, even before the collapse of the British Fleet, need to occupy preventively Dekar and the Ascres. 20 It appears possible that within 8 year from the present time, the United States my be in a post- tion requiring the conduct of widespread operations for the protection of the Western Headsphere. for the full accomplishment of such operations, the Any may need a foree of approximately 1,400,000 mon, fully organized, trained, and equipped, and backed up by an adequate reserve of munitions. The Mavy will require all elements of the U. 8. Flest fully manned, including Marine Expeditionary Forces of approximately 18,000 mm, completely organized local defense foress, and Nevel Transportation Service capable of transporting Any and Marine Expeditionary Forces and maintaining the supply of these Foress and the Fleet. Section II. the Munitions Situation 1. s From the standpoint of Amy forces, our ability to neet the requirements outlined in paragraph 9 above is drastically limited by actual and prospective shortages of military equipment, particularly summition. Today - earnot maintain in combet MIX. balanced military force without seriously reducing allowances of sumunition required for the training of National Guard and Selective Service personnel seca to be brought into service. By reducing training allowances of amountion by 50% a balanced foree of con Corps of five Divisions, approximately 55,000 mon, can be unintained in the field. On March 31, 1941, the situation will not be greatly improved, due to the continuing critical insufficiency of ammunition, It will be somewhat improved by September 30, 1941, on which date We will be able to maintain in the field a balanced force 150,000 me. On March 31, 1942, our supply facilities will of one Any of two Corps of six Divisions, approximately be sufficient to met the requirements of a balanced force of two Arries of 9 Corps of 27 Infantry Divisions, 4 Amored Divisions and certain OHR and autiliary troops, approximately 1,400,000 - provided that shin the energency cosure 10 sequester all foreign munitions pro- dustion in the United States. SECRET - 5 - Regraded Uclassified SECRET 119 From the standpoint of the Navy, the Kleet is available for imediate operations except fee personal, which to inadequate in numbers and training. Within a short time these deficioncies can be corrected 12 the Naval Reserve is called to active duty. nevel Local Indense Forces can be provided initially from the 22cet until they can be relieved by conversion and new construction. The transportation of Army Expeditionary Forces by the Havy Transportation Service presents a problem of 0020> version of passenger vessels which may cause a consider- able delay in initial movement of treeps, and their sub- sequent support. This can only be avoided by the pro- paration of Army and Havy transports and suitable passenger vessels for this task before the necessity for their use arises. Two special transports with & especity of 1300 each, will be available for the Flest Marine Force by 2 November. Two additional special transports for the neet Marine Force will be available by 1 April, 1941. There are available at this time fully equipped Marine Expeditionary Forces, including defense battalions, of about 8,000 men. W March 50, 1941, these forces will total about 13,000. Additional forces of about 10,000 mon can be organised, squipped, and mintained in combat by March 31, 1942. Ammunition for the May and Marine Corps, supplied by the Amy, has priority over Army requirements, and is being delivered to the Navy in accordance with its requests. Stocks of ammition for the Mavy, supplied W the Navy, are adoquate for initial noval operations. 2. The time schedule of requirements covering the current Any munitions program (excluding aircraft) provides, generally, for initial equipment for 1,200,000 man, to become available If follows: w Antisircraft and Field Artillery Material, Doc. x 1941. be Modernisation of Ordnance Equipment, Mar. n, 1941. & Engineer, Chesical Warfare Service, Medical, and Quartermator Equipment, Mar. n, 1941. 4. Ammition Prodmotion to equal Expenditure, as stated, dept. 30, 2962. June 30, 1941. 2. All others, 3. In the case of Field Artillery and Antiairereft Materiel, the above schedule lage six months bohind the availability of troops. the actual production of certain other items, such as height finders, flank spotting instruments and 37 - guns will probably 10g six months or More behind the schedule. SECRET 6 Regraded Uclassified secret 120 40 No time-requirement objective for definite quantities of ammition to be usenfactured has been established. Instead, a monthly production-rate objective, to be resebed by September, 1941, has been set up. This rate is based on the sistem monthly expenditure of ammition which would occur if & force of 2,000,000 ma, including Air Corps, were in the field on that date. The estimated production of many types of mmitions, as of September 30, 1941, will support only a portion of such & force; for examples Caliber .30 munition 7-1/25 Caliber .50 ammition R 37 60 a ~~~ Infantry ammition 75% 30 and 90 - AA ammition 35% Field Artillery (smaller than 155 m) 50% Incendiary bombe 50% In the case of all other Critical Items, the present time-schedule of requirements for 1,200,000 sen provides for delivery as troops become available. However, in the case of some items probable deliveries will not meet this objective; - this includes such items as medium and heavy tanks, certain Signal Corps radios, service gas masks, sirplane smoke tanks, and sertain fire control equipment. 5. The Munitions Policy as set forth by the Office of the Assistant Secretary of War is as follows: The munitions necessary to equip a ground any of 1,400,000 - with modern equipment for training purposes by June 30, 1941, and of 2,000,000 man for train- ing purposes by September 30, 1941, together with necessary stocks and production sufficient to support these forces on a combat status by September 30, 1941, and December 31, 1941, respectively. 6. The time-schedule of requirements referred to in para- graph 2 above, which represents a practical medium effort based on availability of production facilities, falls far short of meeting this policy. 7. The situation with respect to the production and delivery of aircraft follows: ₺ The time schedule of requirements based upon the current Army objective of 12,884 airplanes, predicted deliveries and pros- peotive shortages, is as follows: MAH Objective 6,882 10,430 12,884 Predicted Deliveries 6,757 9,694 12,884 Thortages 2,125 736 8 SECRET , Regraded Uclassified SECRET 121 w The above objective, which to closely coordinated with the pilot training program, 10 designed to provide 25 embet groups w April 2, 1941, 41 W October 1, 1941, and 54 by April 1, 1942, with maintenance, agare parts and washout and the required training and service wits. s Deferments in deliveries have resulted in & dalay of from three to eight months in the completion of the provious 5,500 plane progrem, as evidenced by the feet that there are on hand only 49 bombers suitable for daylight operations, and but 140 suitable pursuit airplanes. Subsequent to these deferments, the increased desands of foreign nations plus the sugmentation of Army and Havy programs created & critical situation in the engine and airfress industry. s 20 met this situation all interested prosuring agencies, including the National Advisory Comission of National Defense and the British Purchasing Countration, agreed a July 23, 1940, that the United States production expecity for the period up to April, 1942, would be allocated as follows: Army 12,484 Mary 6,208 British 24,375 Total 33,467 2. The shortages in the Army share inficated in A above and a proportional shortage in the May's share result from insufficient production expecity in being, aggrevated by the fact that M of August no 1940, there were 7,223 engines under contract for the Army and May Combined, wherees British - trasts totaled 21,564. & A condition use appointed September 23, 1940, W the Secretary of Mar to decide matters partaining to aireraft standardination and aireraft delivery schedules. The consities consists of Generals Moore and Brett, U. 5. Any, Admiral Towers and Webster, U. 5. Havy, Air Osmodoro c. B. A. Baker and Mr. c. 4. Fairey of the British Purchasing Commission, and Major Repicine, U. 5. Any Air Corps. Each group of nambere is authorised to set and obligate the agency it represents. Do- cisims are to be formilated in collaboration with the Advisory Commission of the National Defense in order that the Commission our proceed to establish a firs schedule of deliveries, take full adventage of additional deliveries and plan for fature produc- ties expecity. As a result standardination is being affected. Insurer, satisfactory delivery schodules, to amaliorate Any shortages have net been formilated due to the refusal of the British nambers to agree to any relaxation of the santrastual obligations of the engine industry to the British Government. h addition, no prevision has been usle to met the aircraft requirements of Latis American Republics. SECRET - 6 Regraded Uclassified SECRET 122 s Under existing advountances 11 1a extinated the initial quote of notern sporating sirghamse san be provided for Mindress 10 follows: 2m Avril 1, 1943 havy Bonb & 6 16 90 57 Medium Boab Sq o 13 30 at Light Boalb n o 6 18 st Purent & 5 18 of F the above units will be without a maintenance quota and all losses must be replaced from current production. be It is evident that the current objective for the timited States should be mt and to this end every effort should be nodo to obtain edjustments in fever of the United States with special reference to alleeation of engine deliveries. 8. The creation of additional preductive especity to meet the desired program is controlled primarily w the available pro- dection of mashine tools. Colomel Burne, is a to the Assistant Secretary of War, under date of September 26, analyzed the machine tool output and consluded that the demand of the United States and Grest Britain for machine tools approximates twice the present supply per year. 9. Productive especity created in the United States by other powers my contribute to the attainment of our Menitions Policy, provided that such capacity is created within the United States and that the especity no created is based on the numbersature of manitions standardised for we w the United States Any or Mary. 10. It is evident that rigid control. and be exercised OTHER the allocation of machine tool production at that before us additional releases are made to any use other the furthersnes of the Munitions Program, that specific approval. therefor should be secured by those in a position to judge the effect of such release on our schedule of desired production. 11, The Navy's principal comera in this problem is that releases of productive espacity to other nations should not result in ourtailing the Navy's present or prospective contractual and- mate and the fulfillment of its requirements, SECRET Regraded Uclassified SECRET 123 Bostion m. 1. Existing productive especity for material of which critical shortages exist should be utilized to the naximum through increased hours and operation of additional shifts, 2. The present program for expansion of productive facili- ties should be forcefully expedited with priority given to existing or prospective bottle-medks. 3. Capacity engaged in existing foreign orders should not be disturbed without consent of the government concerned except where the employment of this productive especity involves a choke point such as sirplane enginee, machine tools, forgings, munition, and fire control equipment. 40 In the case of choke points, particularly with refer- case to machine tools, the capacity available to foreign powers for use in the United States should be rationed on such a basis as to avoid han-stringing the expansion of our own production facilities. 50 The exportation of machine tools and similar items affecting productive capacity in the United States should be stopped, except where specific needs are shown to maintain present British Empire production, 6. Plant expension already financed by the British should be reserved for their use as long as required by them valore the safety of the United States compels other action. 7. Foreign purchases of critical and essential items of munitions should be accomedated to the current procurement program of the Any and May. Special consideration should be given ealy to Canada, as material furnished to Canada will result in less demand upon United States forees for defense of Newfoundlend and Canada. 8, A committee ecusisting of appropriate representatives of the Advisory Commission to the Council of National Defense, Treasury, Mar, and Havy Departments, and wated with authority to carry out the policies emmointed in paragraphs 1 to 7, inclusive, should be appointed without delay. SECRET - 10 . Regraded Uclassified 9921 124 MEMORANDUM1 SUBJECT: The Problem of Production of Munitions in Relation to the Ability of the United States to Cope with its Defense Problems in the Present World Situation. Section I. Estimate of the Position of the United States in Relation to the DTJO 1. In relation to the existing world situation, the first consideration in regard to the position of the United States 1s that its action in opposition to the three Totalitarian Powers, Germany, Italy, and Japan, may cause them to undertake hostile action against the United States if their serious preoccupation with other military adventures will permit. with respect to Germany and Italy, it appears reasonably certain that neither will engage in open hostilities with the United States unless or until they have succeeded in inflicting & major reverse on Great Britain in the British Isles, and in the eastern Mediterranean, and as well, have assured themselves that Soviet Russia will not seige the opportunity to cause trouble for them in Europe while they were engaged else- where. With respect to Japan, definitely hostile action against the United States will depend upon the conse- quences of any steps taken by the United States to oppose Japanese aggression. These consequences may become such & hindrance to her economic and military welfare that steps in retaliation such as the seizure of the Philip- pines may be undertaken. Furthermore, the obviously expanding self-confidence and aggressiveness of Japan have become so great that there can be no assurance that in the near future she will not take action which will face the United States with the alternative of armed opposition or complete modification of our Far Eastern policy. 2. Our estimate of the threat of aggressive action by Germany or Italy must be concerned with two aspects of the question. The first is the time factor, affecting Regraded Uclassified 125 - 2 - their attainment of sufficient strategic freedom of action to undertake operations against objectives in the Western Hamisphere, and second, the question whether, by the time they have attained such strategic freedom of action, the United States will have built up its armed strength sufficiently to render the attempt & dubious gamble with success, and therefore disadvan- tageous. 3. AS the situation stands in late September, 1940, the expected invasion of England has not been at- tempted and with every passing day the likelihood of this attempt appears to decrease. Meanwhile, uninter- rupted violent air attacks on the British Isles have been continued for several weeks with no immediate indi- cation of causing a breakdown in British morale or re- sistance. There is no prior precedent of air operations on such a scale with so apparent a prospect of long con- tinuance. Consequently, no one can say whether British resistance will eventually succumb to air attack alone. However, from present indications it appears reasonable to assume that by air attack alone Germany cannot force British capitulation in the British Isles for several months yet to come. At the present time, the outcome of the Italians' offensive against British forces in the eastern Mediterranean 18 also uncertain. Undoubtedly, if the Italian drive should reach the Suez Canal and Italian forces should thereafter be able to deprive British naval and commercial shipping from use of the Suez Canal, the British would have to release their hold on the Near East and probably be driven out of the Medi- terranean. 4. It has been suggested that the loss of Gib- raltar by Great Britain would not only react seriously on the possibility of continued British operations in the Mediterranean, but would also open the way to serious consequences to the United States, by opening the way for movement of Italian naval forces into the Atlantic, especially if based on Dakar. The threat thus indicated would have to be opposed either by a part of the British Navy now based in the British Isles, or if that should prove impossible by the withdrawal of a part of the United States fleet from the Pacific into the South Atlantic, thereby weakening our Pacific posi- Regraded Uclassified 126 tion in opposition to Japan. Furthermore, occupation of Dakar by the Axis Powers, both as a naval and an air base, would open the way to aerial penetration of South America by ferrying flights to Natal. It 18 well recog- nised that it would be imperative for the United States to anticipate such action by the preventive occupation of the air fields and ports in northeastern Brazil. While the ousting of Great Britain from Gibraltar would undoubted- ly make more difficult the position of British Naval forces in the Mediterranean, it 18 considered doubtful that even with the gateway open to the Atlantic, that Italian naval forces would leave the Mediterranean while the British Fleet 18 still in being. 5. Meanwhile, the indications are that both Spain and Portugal will be drawn into the orbit of Axis control. In this event, unless immediately occupied by Great Britain or the United States, it may be expected that the Azores, Canary and Cape Verde Islands will be occupied and defended by Axis forces, and put to such use as operating bases as may be found practicable in order to disturb British naval control of the Atlantic. Axis control of the Azores would offer a definite threat to the security of the Western Hemisphere as it would materially shorten the distance for operations against our outposts at Newfoundland and Bermuda, as well as against commercial shipping or Naval forces in the Atlantic. 6. From the standpoint of the time factor, it ap- pears reasonable to estimate that the British hold on the British Isles cannot be 80 weakened as to make the withdrawal of the British Fleet therefrom necessary in less than 6 months. Assuming that the British Government adheres to its expressed purpose, under no circumstances to surrender the British Fleet, the Axis Powers would still lack freedom of action in the Atlantic if the British Fleet continued to operate from bases in the Western Hemisphere. Under these circumstances, serious attempts by the Axis Powers of aggression against the Western Hemisphere would have to await the building of sufficient naval forces to allow them to contest the combined naval supremacy of Great Britain and the United States in the Atlantic Ocean. This could not occur for several years, if ever. However, & part of the responsibility of the Regraded Uclassified 127 United States should be to be prepared to meet the worst possible situation. Bo far as the Atlantic is concerned, this worst possible situation would ariss if, instead of withdrawing, the British Fleet were largely destroyed or were forced to surrender. Even If a sufficient portion of the British Fleet should be surrendered so that the strength of the surrendered vessels added to the existing strength of the German and Italian Navies would exceed the naval strength of the United States, it has been estimated that & period of at least 6 months from such surrender would have to elapse before British units could be ef- fectively manned by German or Italian crews and, by train- ing and operating practice, incorporated in the German or Italian Navies. Consequently, if the previously stated belief 18 correct, that it would be at least 6 months be- fore the British hold on the British Isles can be destroyed, it appears that at least a year from now must elapse be- fore the possibility will occur of freedom of action for the Axis Powers to operate against the Western Hemisphere unless, in the meantime, we become seriously involved in the Far East. 7. Nevertheless, there is a strong possibility that the United States will be confronted with the necessity for the employment of armed force for essential defensive mis- sions in the Western Hemisphere within & year. This possi- bility arises from two different types of potential threats. The first is that German infiltration into Latin America, which 18 already occurring and which is known to be in- creasing, may bring about forms of so-called "Fifth Column" activities which without the assistance of the United States would be to overwhelm, by subversive or revolu- tionary activity, the stability of existing Latin American Governments, which we have undertaken to support. Regimes thus set up and affiliated with the German Government would afford ready overseas bases for subsequent German infil- tration or for outright military, naval, and air operations when the Axis Powers should become foot-loose in the Atlantic. The second of these potential threats arises from the possibility that, following attrition of British naval forces, Germany probably would dispatch naval raiders for such harassing attacks on shipping and exposed coastal and island possessions in the Western Atlantic as might tend to withdraw British naval forces from the protection of Regraded Uclassified 128 5 Regraded Ucla the British Isles or United States navel forces now maintaining our strong position in the Pacific. 8. with regard to our position in the Pacific, as has previously been indicated, there is no assurance that Japan will not, within the next few months, move swiftly either against the Dutch East Indies or against the Philippines or Guam, especially if the Japanese Govern- ment should become increasingly embarrassed by embargos on exports from the United States to Japan, and at the same time should become convinced that despite protests by the United States it was only throwing 8 bluff and would back down in the face of a serious situation. 9. This brief survey leads to the following conclusions regarding the position of the United States in relation to the world situation. a. Within the near future, the United States may be confronted with the demand for a major effort in the Far East, an effort for which we are not now prepared and will not be prepared for several years to come. If, in the near future, we should be confronted with the necessity of armed opposition to Japan, in the face of the potential threat in the Atlantic, that effort probably will be limited to the employment of minor naval surface and air forces operating from Singapore and Dutch East Indies bases, plus the interruption of Japanese shipping in the eastern Pacific. Do If it develops that the British Fleet is destroyed or surrendered, from that very day the United States must within , months securely occupy all Atlantic outpost positions from Bahia in Brazil northward to include Greenland. C. At any time from the present moment forward, the United States my be required to fulfill its com- mitment for the employment of Naval and Military forces to prevent German-inspired upsets of Latin American Governments. 129 - 6 de In order to safeguard our OWN security the United States may at any time, even before the col- lapse of the British Fleet, need to occupy preven- tively Dakar and the Azores. 8. It appears possible that within a year from the present time, the United States may be in 8. position requiring the conduct of widespread operations for the protection of the Western Hem- isphere. For the full accomplishment of such op- erations, the Army may need a force of approximately 1,400,000 men, fully organized, trained, and equipped, and backed up by an adequate reserve of munitions. The Navy will require all elements of the U. 8. Fleet fully manned, including Marine Expeditionary Forces of approximately 18,000 men, completely organized local defense forces, and Naval Trans- portation Service capable of transporting Army and Marine Expeditionary Forces and maintaining the supply of these Forces and the Fleet. Section II. The Minitions Situation 1. a. From the standpoint of Army forces, our ability to meet the requirements outlined in paragraph 9 above 18 drastically limited by actual and prospec- tive shortages of military equipment, particularly ammunition. Today we cannot maintain in combat any balanced military force without seriously reducing allowances of ammunition required for the training of National Guard and Selective Service personnel soon to be brought into service. By reducing training allowances of ammunition by 50% & balanced force of one Corps of five Divisions, approximately 55,000 men, can be maintained in the field. on March 31, 1941, the situation will not be greatly improved, due to the continuing critical insuffi- ciency of ammunition. It will be somewhat improved by September 30, 1941, on which date we will be able to maintain in the field a balanced force of one Army of two Corps of six Divisions, approxi- mately 150,000 men. on March 31, 1942, our supply Regraded Uclassified 130 7 facilities will be sufficient to mest the re- quirements of a balanced force of two Armies of s Corps of n infantry Divisions, 4 Armored Divisions and certain GHQ and auxiliary troops, approximately 1,400,000 men, provided that when the emergency occurs we sequester all foreign munitions production in the United States. b. From the standpoint of the Navy, the Fleet 18 available for immediate operations except for personnel, which is inadequate in numbers and training. Within a short time these deficiencies can be corrected if the Naval Reserve is called to active duty. Naval Local Defense Forces can be provided initially from the Fleet until they can be relieved by conversion and new construction. The transpor- tation of Army Expeditionary Forces by the Navy Transportation Service presents a problem of con- version of passenger vessels which may cause a considerable delay in initial movement of troops, and their subsequent support. This can only be avoided by the preparation of Army and Navy trans- ports and suitable passenger vessels for this task before the necessity for their use arises. Two special transports with a capacity of 1300 each, will be available for the Fleet Marine Force by 1 November. Two additional special transports for the Fleet Marine Force will be available by 1 April, 1941. There are available at this time fully equipped Marine Expeditionary Forces, including defense battalions, of about 8,000 men, By March 31, 1941, these forces will total about 13,000. Addi- tional forces of about 10,000 men can be organized, equipped, and maintained in combat by March 31, 1942. Ammunition for the Navy and Marine Corps, supplied by the Army, has priority over Army re- quirements, and is being delivered to the Navy in accordance with its requests. Stocks of ammunition for the Navy, supplied by the Navy, are adequate for initial naval operations. Regraded Uclassified 1 - 8 - 2. The time schedule of requirements covering the current Army minitions program (excluding aircraft) provides, generally, for initial equipment for 1,200,000 men, to become available 85 follows: so Antiaircraft and Materiel, Field Artillery Dec. 31, 191 be Modernization of Ordnance Equipment, Mar. 31, 191 C. Engineer, Chemical Warfare Service, Medical, and Quartermaster Equip- ment, Mar. 31, 191 do Ammunition Production to equal Expenditure, as stated, Sept.30, 191 e. All others, June 30, 191 3. In the case of Field Artillery and Antiaircraft Materiel, the above schedule lags six months behind the availability of troops. The actual production of cer- tain other items, such as height finders, flank spotting instruments and 37 guns will probably lag six months or more behind the schedule. 4- No time-requirement objective for definite quantities of ammunition to be manufactured has been established. Instead, a monthly production-rate ob- jective, to be reached by September, 1941, has been set up. This rate 1s based on the minimum monthly expenditure of ammunition which would occur if a force of 2,000,000 men, including Air Corps, were in the field on that date. The estimated production of many types of munitions, as of September 30, 1941, will support only a portion of such a force; for AX- ample: Caliber .30 amminition 7-1/2% Caliber .50 ammunition 5% 37 mm) 60 nm) Infantry ammunition 75% 81 mm) Regraded Uclassified 133 - 9 - 3" and 90 mm AA ammunition 35% Field Artillery (smaller than 155 mm) 50% Incendiary bombs 50% In the case of all other Critical Items, the present time-schedule of requirements for 1,200,000 men provides for delivery as troops become available. However, in the case of some items probable deliveries will not meet this objective; - this includes such 1tems as medium and heavy tanks, certain Signal Corps radios, service gas masks, airplane smoke tanks, and certain fire control equipment. 5. The Munitions Policy as set forth by the Office of the Assistant Secretary of War is as follows: The munitions necessary to equip a ground army of 1,400,000 men with modern equipment for training pur- poses by June 30, 1941, and of 2,000,000 men for train- ing purposes by September 30, 1941, together with nec- essary stocks and production sufficient to support these forces on 8. combat status by September 30, 1941, and December 31, 1941, respectively. 6. The time-schedule of requirements referred to in paragraph 2 above, which represents a practical meximum effort based on availability of production facilities, falls far short of meeting this policy. 7. The situation with respect to the production and delivery of aircraft follows: a. The time schedule of requirements based upon the current Army objective of 12,884 airplanes, pre- dicted deliveries and prospective shortages, is as follows: By 4-1-41 By 10-1-41 By 4-1-42 Objective 6,882 10,450 12,884 Predicted Deliveries 4,757 9,694 12,884 Shortages 736 00 2,125 Regraded Uclassified 183 - 10 - Regraded Ucla be The above objective, which is closely 00⑉ ordinated with the pilot training program, is de- signed to provide 25 combat groups by April 1, 1941, w by October 1, 1941, and 54 by April 1, 1942, with maintenance, spare parts and washout quotas, and the required training and service units. C. Deferments in deliveries have resulted in & "delay of from three to eight months in the completion of the previous 5,500 plane program, as evidenced by the fact that there are on hand only 49 bombers suitable for daylight operations, and but 140 suitable pursuit airplanes. Subsequent to these deferments, the increased demands of foreign nations plus the augmentation of Army and Navy programs created a critical situation in the engine and airframe industry. d. To meet this situation all interested procuring agencies, including the National Advisory Commission of National Defense and the British Purchas- ing Commission, agreed on July 23, 1940, that the United States production capacity for the period up to April, 1942, would be allocated as follows: Army 12,884 Navy 6,208 British 14,375 Total 338457 6. The shortages in the Army share indicated in 8 above and a proportional shortage in the Navy's share result from insufficient production capacity in being, aggravated by the fact that as of August 31, 1940, there were 7,225 engines under contract for the Army and Navy Combined, whereas British contracts totaled 21,564. I. A committee was appointed September 13, 1940, by the Secretary of War to decide matters pertaining to aircraft standardisation and aircraft delivery 134 - 11 - schedules. The committee consists of Generals Moore and Brett, U. 8. Army, Admiral Towers and Captain Webster U. S. Nevy, Air Commodore C. Be A. Baker and Mr. C. A. Fairey of the British Purchasing Commission, and Major Hopkins, U. S. Army Air Corps. Each group of members is authorized to act and obligate the agency it represents. Decisions are to be formulated in collaboration with the Advisory Commission of the National Defense in order that the Commission can pro- ceed to establish a firm schedule of deliveries, take full advantage of additional deliveries and plan for future production capacity. As a result standardization 1s being effected. However, satisfactory delivery schedules, to ameliorate Army shortages have not been formulated due to the refusal of the British members to agree to any relaxation of the contractual obliga- tions of the engine industry to the British Government. In addition, no provision has been made to meet the aircraft requirements of Latin American Republics. g. Under existing circumstances, it 1s estimated the Initial quota of modern operating airplanes can be provided for combat squadrons as follows: Type 10-1-40 4-1-41 10-1-41 4-1-42 Heavy Bomb 8q 6 16 50 57 Medium Bomb Sq o 13 30 31 Light Bomb Sq o 6 12 31 Pursuit 8q 5 18 51 73 The above units will be without a maintenance quota and all losses must be replaced from cur- rent production. he It is evident that the current objective for the United States should be met and to this end every effort should be made to obtain adjustments in favor of the United States with special reference to allo- cation of engine deliveries. 8. The creation of additional productive capacity to meet the desired program 18 controlled primarily by the available production of machine tools. Colonel Burns, in a memorandum to the Assistant Secretary of War, under date Regraded Uclassified 135 - 12 - of September 16, analyzed the machine tocl output and concluded that the demand of the United States and Great Britain for machine tools approximates twice the present supply per year. 9. Productive capacity created in the United states by other powers may contribute to the attainment of our Munitions Policy, provided that such capacity is created within the United States and that the capacity 80 created 1s based on the manufacture of munitions standardized for use by the United States Army or Navy. 10. It 18 evident that rigid control must be exercised over the allocation of machine tool production and that before any additional releases are made to any use other than furtherance of the Munitions Program, that specific approval therefor should be secured by those in a position to judge the effect of such release on our schedule of desired production. 11. The Navy's principal concern in this problem is that releases of productive capacity to other nations should not result in curtailing the Navy's present or pros- pective contractual commitments and the fulfillment of its requirements. Section III. Necessary Additions to the National Policy Covering Release of Munitions and Production Capacity to Great Britain and Other tions. 1. Existing productive capacity for materiel of which critical shortages exist should be utilized to the maximum through increased hours and operation of additional shifts. 2. The present program for expansion of produc- tive facilities should be forcefully expedited with priority given to existing or prospective bottle-necks. 3. Capacity engaged in existing foreign orders should not be disturbed without consent of the government concerned except where the employment of this productive capacity involves a choke point such as airplane engines, machine equipment. tools, forgings, amminition, and fire control Regraded Uclassified 136 - 13 - 4. In the case of choke points, particularly with reference to machine tools, the capacity available to foreign powers for use in the United States should be rationed on such & basis as to avoid ham-stringing the expansion of our own production facilities. 5. The exportation of machine tools and similar items affecting productive capacity in the United States should be stopped, except where specific needs are shown to maintain present British Empire production. 6. Plant expansion already financed by the British should be reserved for their use as long as required by them unless the safety of the United States compels other action. 7. Foreign purchases of critical and essential items of munitions should be accommodated to the current procure- ment program of the Army and Navy. Special consideration should be given only to Canada, as materiel furnished to Canada will result in less demand upon United States forces for defense of Newfoundland and Canada. 8. A committee consisting of appropriate repre- sentatives of the Advisory Commission to the Council of National Defense, Treasury, War, and Navy Departments, and vested with authority to carry out the policies enunciated in paragraphs 1 to 7. inclusive, should be appointed with- out delay. emo Regraded Uclassified 137 E FOREIGN FUNDS CONTROL October 11, 1940 2:30 p.m. Present: Mr. Bell Mr. Foley Mr. Cochran Mr. Bernstein H.M.Jr: Where is Pehle, or isn't he supposed to be here? Foley: He wasn't in on it. Bell can tell you very quickly what the things are. Bell: We discussed it this morning and there are four things we can do. One, of course, is the most important and the one most effective would be to freeze all Italian assets, and two, we could require an affidavit as to the purpose for which the funds are going to be used under our hoarding regulations of 1933. That would be more for delay than anything else. The other, we could - Bernie calls it a freezing control of this par- ticular bank, just order them not to pay it out. He thinks it is legal, but he doesn't know what the Department of Justice might say about it. H.M.Jr: Well, we can't freeze Italy, 80 I think the thing to do is to get an affidavit. Bell: We have got one more. You could let them pay the money out and then have somebody trail the fellow that gets it and see where it goes and see if we can't push them into the hands of the British. H.M.Jr: We will do that 8.8 a last resort. Bell: We question whether you ought to do any of the last three unless you are going to freeze eventually. H.M.Jr: How about the affidavit? 138 - 2 - Foley: Well, that is going to put them on notice, isn't it? They may give you an afridavit as to this fund, but they will grab all the rest of their funds and get them out of here. Bell: That is just advance notice. Cochran: They could turn around and transfer it out by cable and not take it out by currency. H.M.Jr: That is right. Are you sure they are going to do it? Cochran: Well, they came down and showed me this message which they got last night from Lon- don, which was marked very secret and so on, but there is 8. possibility that the money may already be in one of those other banks. They may have been drawing it out 80 we may not see one big transaction now. I mean, they have both the National City and the Chase, which are the two principal depositories, on notice to let the Federal Reserve know as soon as any important trans- action comes up. H.M.Jr: I think we had better just watch it and try to shadow the money, in the hope of -- Foley: That is my recommendation. H.M.Jr: Bernie? Bernstein: I agree. Cochran: Yes, sir. Bernstein: I think that after the freezing control -- H.M.Jr: We can't freeze now. 139 - 3 - Foley: We can't do that now. The President is out of town and it would take 8. meeting. Bell: If you think we could freeze it next week, an affidavit would be the next best step. H.M.Jr: I hope we can freeze it next week, but I don't think we would freeze it unless they invaded us. Bell: We have got an article that appeared in today's Star by Mowrer, and he talks about the study that is being made to freeze Japanese assets, which is pretty bad, I should think, at this time. H.M.Jr: Where is the study being made? Bell: I don't know where he got his information and he had a date to come in and see Bernie at 2:45, and I am going to see him, but I don't want to see him. It is a bad time to see him, after he has written such an article. Foley: We didn't want to see him and we told - and then he, when he called to see Bernie - Bernie told him that he would have to talk to Chick, so Chick made arrangements for him to see Bernie. And we saw this article. I don't want Bernie to see him. I think it is too dangerous. So I told that to Chick and Chick sort of feels that he has to take him to see somebody, so he is going to sic him on to Dan. H.M.Jr: Because I have seen him several times and so has White. You know, he works for Frank Knox. Bell: Well, I knew -- 140 - 4 - Foley: Well, this story is a pretty hot story in view of the relationship between the State Department and the Treasury, and the Japanese business, and I would rather not have Bernie see him. H.M.Jr: Okay. Supposing you (Bell) see him. You can talk very frankly. Bell: I can? H.M.Jr: Well, I mean, you can tell him he had better lay off this. Bell: It is a little late now. It is too bad we didn't see him before, if we knew he was going to write it. H.M.Jr: I didn't know he was going to write it. Bell: If we asked him not to, he wouldn't write it, is he that kind of a fellow? H.M.Jr: Yes, he is all right. Bell: Then I can talk? H.M.Jr: Yes, he is all right. He is a very decent fellow, one of the most responsible. Bell: I suppose he got hold of the information from the State Department. I understand he is very close to some of the -- H.M.Jr: Well, the other day when he left here, he went to see Sumner Welles. Bell: How long ago was that? H.M.Jr: A week or ten days ago. At least a week ago. He hasn't been in this week. 141 - 5 Foley: He works for Knox and writes for the Star. H.M.Jr: They most likely buy the Chicago Daily News service. Foley: I see. Well, it is over his name. H.M.Jr: He is a reliable fellow. Bell: I see. Okay. H.M.Jr: I mean, I would treat him just as I would Alsop. I think he is on that level, and I think if you asked Joe Alsop not to do something, he wouldn't do it. Bell: To be frank with you, I don't Bee very many of them at all. H.M.Jr: Well, I don't see many of them. Cochran: If we get word that this deposit is being drawn out, should we get in touch with the FBI then? H.M.Jr: Yes. Cochran: Through Herbert? H.M.Jr: Let "State trooper" Klaus. Foley: "Storm trooper." H.M.Jr: That is it, "storm trooper." I was trying to think of something. Foley: He is outside, without his horse. H.M.Jr: That is marvelous. Bell: He may have it some place around. Strictly Confidential 142 PARAPHRASE No. 239. October 11, 4 p.m., from Imbassy Santiago I vas called to the Foreign Office to receive message which Foreign Minister was instructed deliver by President at the instigation of Labarca, leader of the pro-United States element in the Government. Foreign Minister stated definitely that shock troops of Nazi element are composed of Communists. States that idea is for Communicts to create disturbances and initiate strikes in preparation for a coup. Labarca feels he can take care of strikes except one in coal industry which would cause considerable trouble because of no surplus. Labarca is confident he could deal eventually with coal strike, but would require possibly two weeks in which time existing coal supplies would be depleted with consequent paralysation of power plants and rail- roads. In preparation for this emergency Government desires purchase 100,000 tons coal from United States. Credits given Pedregal cannot be used since they are already assigned. Additional credite are desired by Government to purchase this coal. Foreign Minister states the selling of coal to industries, power plants and railroads would liquidate credits in twelve months. Situation here undoubtedly serious and granting of such credits would be protection to ourselves and investments, as well as defense neasure for Chile. In my opinion Export-Import Bank should consider promptly end take action. Escuiero departing today for United States. Hopes to be in Washington for conference. His instructions are to return to Chile - 2 - 143 as soon as possible because of threatening situation. Requests Department's reaction by telegraph since this appeal by Ohilean Government is serious. BOWERS RA:Pool eh COPY 10 1165 10.195 RECUEITHA LECENICAT OLVICE Oz LE 00 CCL N W 0 31 PM3098 1991 rain 144 1. are OCT 11 1940 Sir: There is transmitted herewith a proposed bill "10 provide for the establishment, administration, and maintenance of a Coast Guard Auxiliary and a Coast Guard Reserve". The proposed bill is designed to accomplish the following major per- posso, namely: 1. Repeal the Coast Customer Recerve wer of 1939, as State 864 (U.S.C., Sup. V, title 14, 4. 9), as assended by Public No. 564, 96th Congress, 3d Semsion, and in lieu of the Coast Guard Reserve provided for in outh Act, establish a United States Count Guard Auxiliary. The establishment of the Auxiliary is lieu of the existing Receive involves little more than a change in mm. 2. Create a now United States Const Guard Neserve, to be & military organization similar to the Navel Reserve. 3. Authorize the use of motorboate will yeshts, which are placed at the disposal of the Coast duard persuant to law, for additional purposes incident to the earrying ont of the functions and duties of the Coust Guard. Title I of the bill would repeal the Coast Guard Reserve Act of 1989 and establish in lieu of the Receive provided for is much 40t 4 United States Coast Guard Auxiliary. This is accomplished by the receasement with a number of siner changes of all provisions of the Ast which 10 to be reyealed. All orders, rales, regulations, enrollments, privilages and other benefits which use mde, issued or granted purcuant to the coset Guard Reserve Act of 1959 and which are in effect as the date of the easet- amt of the propesed bill age to be applicable to the Coast Geard Auxiliary use 420 to continue is effect under the bill until modified or revoked. The Auxiliary would continue to operate of a voluntary non-miliery organiss- tion, although its musbers would be mubled to caroll is the proposed MW incerve. thes, numbers of the Auxiliary who loan their meterboats OF yechie to the Const Guard could be called to active duty as ambers of the Reserve and placed is charge of their om equipment. Motorboate and of the proposed Anxiliary which mey be placed at the disposal of the Coast suard, as authorised by law, are very wall Regraded Uclassified 145 1 as stepted for operations as inlend mins el smill be used very to patrol burbero easi - grownin, to traport - ml other vessels w fames empliance we the I'm ul replations relating to the sefety of envigation, et quartity to acetos the - - is carrying out other duties is situations where the - of - bests ml yushts wald be mitchle and oppropriate. Inver, unite law such craft are authorised to be used by the Cost Courd the 1150 and proporty caving and arts regalls patvaliing daties only. the proposed bill would authorise the 5 of such enti the - additional const Ourd daties as the Secretary of the Treasury my date appropriate. the the coast Ourd would be embled n devote 199 - versio and personnel. to purposes of national defense is cooperation with the Havy and is the performance of its may other durine. Title II of the bill establishes 6 - Goast Ceard horm patterned u for M practicable after the Nevel Incorve. Bush Zecare muld be ailitary is character at its matero swellshie for active daty in the of w or during - period of & national declared by the resident to exist. the bill provides also that Insurve missre my be called to cetive duty is time of years with their ement. the rate, grotes and retings for the Reserve would be the - M the nations risks, postes and retings, not above lientenat - procestived to the Coast Card, and vaile a active daty the of the lesserve would be vested with the - your, entherity, rights and privileges and would be catitled to receive the - pay one allownces ⑉ an applicable " les to matere of the regular Goast Guard of sinilar name, grabes at relings. In addition, use II of the bill provides that the regular officers at - of attectests at yeshte placed at the disposel of the Coust hard by members of the Anniliery or by of the Receive - also an embers of the Antiliery, my be carelled in the Receive as univers thereof daring the periode the asterbate or yushts to which they 480 attached are utilized in the service of the Goast thes, not mly weld 10 be possible to continue is employment the officers and - of - smft, in there wold be mis evailable to the doest ourse the services of experienced an funiliar with the operation of such vessels. In may instructor meterbants and yashts was be is charge of their - as makers of the Receive as setive daty. In view of the full that the count - sporates - part will as with the Havy in afters of nutional defore, the bill provides that regula- May is time of me, is sistlarly and 10 elessly associated Name the the eduinistration of the some, to be preseribed by the consent x the Coast Guard, shall be approved by the Secretary of as beauty with the of the decretary of de Davy. Regraded Uclassified 146 & as Title II also atherises the oppointment of qualified thist - soû valvent officero and milisted all - is the remier Goast - to commissioned, chief unit at ment states is the Reserve, there an a considerable maker of dief versut mi - officies ent ealisted - is the regular Coast cased who by mass of thair training el experience would be of greater value to the Geast curd in the yes posed advanced status during a mp w G period of national margenty, Persons who are so appointed would removi to the status beld by them is the regular Coast Guard upon the termination of such active daty as they my w required to perform during was or national emergency. Title III of the Mill contains general provicious which are appli- cable to the Auxiliary at the - Recerve. Same of those provisions ressist of modifications of the Goast card Reserve AN of 1999, which 18 is proposed to repeal. This proposed bill w propared with the of the Havy Department. The Treasury Department is of the opinion that the additional services end facilities which the propered legislation mult provide ⑉ to emble the Coast Guard to perform and daties as my be mecomitated by energency confitions. It would be approciated, therefore, If you would lay this propesod bill before the House of Representatives. & similar bill has boon transmitted/te the President of the Smate. The proposed bill has been submitted to and approved by the President of the United States. Very truly years, (Signed) 1 a. Secretary of the Treasury. the Speaker of the Mede of Representatives. + typed 0-13-40 File to Mr. Thompson Enc. not ant from this office Directions Regraded Uclassified 147 October 12, 1940 BY mr Mr. Secretary: This will acknowledge receipt of your letter of Geteber 4th informing - of the arrival in Washington of the delegation of economic and financial exports. The Treasury will be very glad to cooperate with you in helping to asswe the sussess of this mission. Yours sincerely, (bigued) H. Mongenthau, JI. Nonerable Cordell Rall, Secretary of State, Washington, D. c. Rg Manager Regraded Uclassified 148 October 32, 1940 sty (my Mr. Secretary: This will acknowledge receipt of your letter of October 4th informing - of the arrival in Washington of the delegation of Cuban economic and financial experts. The Treasury will be very glad to cooperate with you in helping to asswe the - of this mission. Yours sincerely, (Signed) H. Morgenthan, Jr. Monorable Cordell Mall, Secretary of state, Washington, D. 6. & I Regraded Uclassified 149 Catcher 11, 1940 By cour Mr. Secretary: This will acknowledge receipt of your letter of Ostober 4th informing - of the arrival in Washington of the de logation of Cabate economic and financial experts. The Treasury will be very glad to cooperate with you in helping to assure the of this mission. Yours sincerely, (bigned) H. Morgesthau, Jr. Monorable Cordell Hall, Secretary of State, mahington, D. c. By Memeerer Regraded Uclassified 150 net - of STATE y DEPARTMENT OF STATE WASHINGTON October 4, 1940 In reply refer to My dear Mr. Secretary: I have just been informed that a delegation of distinguished Cuban economic and financial experts will arrive in Washington on Saturday, October 5, in order to initiate discussions with officials of this Govern- ment regarding the agenda of a broad program of 00- operation in the economic field between Cuba and the United States. The delegation will be presided over by Dr. Pedro Martinez Fraga, Cuban Ambassador to Washington, and will consist of the following additional members according to present advices: Mr. Eduardo I. Montoulieu, Secretary of the Treasury. Mr. Amadeo López Castro, Former Secretary of Agriculture and of the Treasury. Dr. Oscar Garcia Montes, Former Secretary of the Treasury. Major Antonio Bolet, of the Army Engineer Corps. Among The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. Regraded Uclassified 151 -2- Among the subjects which it is believed will be discussed are the following: (a) A survey of Cuban agricultural possibilities, with particular reference to non-competitive products. (b) Examination of the Cuban monetary, banking, and exchange organization and situation, and fiscal system, with the object of drawing up specific proposals for legislation and cooperation. (o) The financing through the Export-Import Bank of a moderate and largely self-liquidating program of public works in Cuba. (a) The negotiation of a treaty of residence and navigation between Cuba and the United States in order, particularly, to protect the status of the citizens of the two countries residing in and doing business in the other country. (e) The reaching of an agreement for the prompt settlement of & number of claims owed by the Cuban Government to American citizens. (f) The examination of the situation faced by the Cuban sugar industry on account of the current paralysis of Cuba's European markets. Your assistance will of course be essential to the success of these discussions, and I shall consult with you shortly regarding details. Sincerely yours, CIV ONG 130 to activkI downed statement 152 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 11, 1940 Secretary Morgenthau TO FROM Mr. Cochran Mr. Cameron of the Federal Reserve Bank of New York gave us the following information regarding the transfer listed below from the account of the Bank for International Settlements maintained with the Federal Reserve Bank of New York. Date Amount Debited Account Debited Paid To October 11 $3,300,000 B.I.S. (by order of Guaranty Trust Co. of the National Bank of N. Y. for account of Hungary) Central Corporation of Banking Companies, Budapest Juirl TREASURY DEPARTMENT 153 WASHINGTON OFFICE OF DIRECTOR OF INTERNAL REVENUE October 11, 1940. - of INTERNAL REVENUE - MRT TO - will N MEMORANDUM FOR THE SECRETARY. As you requested, I am transmitting herewith a copy of my memorandum addressed to you recom- mending the acceptance of the offer of Darryl F. Zanuck in the sum of $584,250.42, in settlement of the tax claims of himself and wife for the years 1934 and 1935, together with copies of the memorandums addressed to me by Mr. J. P. Wenchel, Chief Counsel of the Bureau, and Mr. Elmer L. Irey, Chief of the Intelligence Unit, concurring in the recommendation for acceptance of this offer. The last paragraph of the memorandum of Mr. Wenchel contains the statement that Assistant Attorney General Clark of the Department of Justice and United States Attorney John Cahill of the Southern District of New York concur in the recommendation for the acceptance of this offer. Commissioner. Encs. 154 TREASURY DEPARTMENT WASHINGTON OFFICE OF - OF INTERNAL REVENUE October 11, 1940 - REPLY TO - of INTERNAL REVENUE - ALTER 20 Mr. Secretary. In re: Darryl F. Zanuck Virginia Zanuok B.T.A. 10937, 10938 In a telegram dated October 7, 1940 addressed to Mr. Wenchel, Chief Counsel for the Bureau of Internal Revenue, Darryl F. Zanuck wired as follows: "I HEREBY ADVISE YOU THAT I HAVE SENT THE FOLLOWING TELE- GRAM TODAY TO MY ATTORNEY DOCTOR JOSEPH J. KLEIN QUOTE DEAR DOCTOR: I HEREBY AUTHORIZE AND REQUEST ON BEHALF OF MY WIFE AND ME AS OUR ATTORNEY THAT YOU OFFER TO THE GOVERNMENT FULL SETTLEMENT OF ALL INCOME TAX CLAIMS AGAINST MY WIFE AND ME FOR THE YEARS NINETEEN THIRTY FOUR AND NINETEEN THIRTY FIVE THE SUM OF FIVE HUNDRED EIGHTY FOUR THOUSAND TWO HUNDRED FIFTY DOLLARS AND FORTY TWO CENTS WITHOUT INTEREST AND WITHOUT PENALTY AND TO EXECUTE ALL PAPERS NECESSARY TO RELIEVE ME AND MY WIFE FROM FURTHER LIABILITY UNQUOTE" determined are (a) valuation of shares of stock of the Twentieth With respect to the year 1935, issues that would have to be Century Fox Film Corporation; (b) taxability as a matter of law of notices of deficiency; and (c) fraud arising from the alleged will- the receipt of such shares of stock described in the statutory ful omission to report the receipt of such income. While the Bureau is of the opinion that as a matter of law the receipt of such shares constituted a taxable income for the year 1935, it is, nevertheless, obvious that there are the inevitable hazards and risks of litigation concerning the possibility of the Bureau respect to fraud. As to the latter item, of course, the successfully maintaining its valuation and its contentions burden with of proof is upon the Government. of increased proposed valuation of twenty shares of stock of the old company, The additional tax for 1934 arises solely by virtue Twentieth Inc., received by Zanuck in 1934. Government, as the as a practical matter of litigation, would have Inasmuch Century normal Pictures, period of limitations expired in 1938, the the 155 Mr. Secretary. - 2 - burden of proof to sustain the increased valuation in order to obtain the benefits of Section 275(o) of the 1934 Act which extends the period of limitations for an additional two years where there has been an omission of gross income on the return in excess of twenty-five percent. The additional tax for 1934 was asserted because it was deemed expedient, among other things, to protect fully the interests of the Government in the event it should turn out that the income now determined for 1935 was in fact income for 1934. The Chief Counsel for the Bureau of Internal Revenue and the Chief of the Special Intelligence Unit recommend acceptance of the settlement proposal submitted by the taxpayers, namely, the payment of the full principal amount of tax for 1935 ($584,250.42) without interest and without penalty and the clos- ing of the year 1934 without further tax. I am attaching hereto the recommendations of Mr. Wenchel and Mr. Irey. I am informed by Mr. Wenchel that Assistant Attorney General Clark and United States Attorney Cahill are agreeable to the settlement as proposed by the taxpayers. I recommend acceptance. (Signed) Guy T. Helvering Commissioner. Approved: (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Regraded Uclassified 156 TREASURY DEPARTMENT WASHINGTON off of or OCT 10 1940 new of INTERNAL REVENUE - and to 1 - INTERNAL - - - 00:E:LAD MEMORANDUM FOR COMMISSIONER HELVERING: In re: Darryl F. Zanuck, Virginia Zanuck, Docket Nos. 101937, 101938 On January 5, 1940, statutory notices were sent to Darryl P. Zanuok and his wife proposing a deficiency in income tax against each for the year 1935 of $292,125.21, plus statutory fraud pon- alty of $146;325.63 against Zanuck. These amounts, exclusive of interest, aggregate $730,576.05. The deficiencies were predicated on treating as additional income the value of 61,326-1/2 shares of common stock of the Twentieth Century Fox Film Corporation computed at $13.25 per share, plus the value of 7,315-1/6 shares of preferred stock of the same corporation, computed at $25.375 per share. The fraud penalty was asserted against Zanuok because the omission to report such income was considered by the Bureau to be willful and with intent to defeat and evade tax. Deficiencies of $78,451.30 against Darryl F. Zanuck and $78,223.30 against his wife have been asserted on the ground that the value per share of twenty shares of stock of Twentieth Century Pictures, Inc. (the corporation which existed prior to the reorgani- zation) received by Zanuck in 1934 was $23,685.36 instead of $10,100.00. An additional tax of $102,541.98 had been asserted and collected from the taxpayers in 1936 on the latter value. Petitions were duly filed with the Board of Tax Appeals to ré- view the determination of the Commissioner in proposing deficiencies for 1935. On behalf of the Commissioner a motion was filed by this office to require the taxpayers to make their petitions more specific in certain particulars. The motions were sustained in all material respects by the Board. On the same day, namely, July 10, 1940, Dr. Joseph Klein, counsel for the taxpayers, approached me with a sug- gestion of settlement, More specifically, Dr. Klein stated in sub- stance that if some satisfactory basis could be mutually agreed to in determining the value of the common and preferred shares of Twentieth Century Fox Film Corporation which were made the basis of the proposed deficiencies of 1935, a settlement could in all probability be effected. Several conferences were held from time to time in this office with Dr. Klein. While in no wise abandoning his position that as a matter of law Zanuck received the shares of Regraded Uclassified 157 yen, for Commissioner Helvoring In re: Darryl F. and Virginia Zanuok - 2 - stock in the Twentieth Century Fox 7ilm Corporation tax free 0.00 result of a reorganization, his main offort was directed to fix & 8 value of said stook below that stated in the deficiency letters. For example, he suggested ai one time that whereas he would accept the figure of $25.375 per share of the proferred stock the value of the common stock should be computed at not in excess of $5.81 per share. That latter figure was arrived at by the use of an ad- mittedly arbitrary formula based upon earnings and 8. combined average ratio of selling price of common stock to annual earnings experienced by certain other mction picture companies, Dr. Klein also submitted figures as low as $2.00 per share of common stock and suggested that a possible basis for settlement might be to ignore the preferred stock entirely. His highest settlement proposal was slightly less than $400,000, inclusive of interest, whereas his lowest figure was less than $100,000. At one of the later conferences Dr. Klein wade an offer of $400,000, which offer he was told subsequently was unacceptable. On October 8, 1940, this office received a telegram dated October 7, 1940, from Darryl 7. Zanuck reading as follows: "I HEREBY ADVISE YOU THAT I HAVE SENT THE FOLLOWING TELEGRAM TODAY TO MY ATTORNEY DOCTOR JOSEPH J. KLEIN QUOTE DEAR DOCTOR: I HEREBY AUTHORIZE AND REQUEST ON BEHALF OF MY WIFE AND ME AS OUR ATTORNEY THAT YOU OFFER TO THE GOVERNMENT FULL SETTLEMENT OF ALL INCOME TAX CLAIMS AGAINST MY WIFE AND ME FOR THE YEARS NINETEEN THIRTY FOUR AND NINETEEN THIRTY FIVE THE SUM OF FIVE HUNDRED EIGHTY FOUR THOUSAND TWO HUNDRED FIFTY DOLLARS AND FORTY TWO CENTS WITHOUT INTEREST AND WITHOUT PENALTY AND TO EXECUTE ALL PAPERS NECESSARY TO RELIEVE ME AND MY WIFE FROM FURTHER LIABILITY UNQUOTE" After careful consideration of the terms of the offer contained in the foregoing telegram, I have no hesitancy, for reasons presently to be enumerated, in recommending the acceptance of the settlement proposal. 1. With respect to the proposed liability for 1935, a principal issue is the value of the shares of stock of Twentieth Century Fox Film Corporation. The values as stated in the deficiency notices were determined by taking the mean between the high and the low of market prices obtaining on August 28, 1935 (the first day of market quotations) although the taxpayers received the stock on August 22, 1935. The question of value is always a fact question. The outcome 158 yes. for Commissioner Helvering In re: Darryl F. and Virginia Zannok - , of that question is never predictable in litigation. It cannot, therefore, be gainsaid that in view of the number of shares valued for purposes of the deficiency notices, there is some uncertainty as to the success of the Bureau to have its determined values sus- tained. 2. Taxpayer's counsel at the hearing held on July 10, 1940, above described, gave notice that the taxpayer's defense would be that the shares of stock received by Zanuck in 1935 were the result of a non-taxable reorganization and that the distribution of those shares was likewise tax free. While this office is of the opinion that in an actual contest the odds are in its favor of succeeding on the question of law as to the taxability to Zanuck of the shares of Twentieth Century Fox Film Corporation stock stated in the de- ficiency notices, it is nevertheless pertinent to point out certain material observations. The burden of proof is on the Government to establish that the omission to report the determined income was willful and with intent to defeat and evade tax. Zanuok would, of course, defend upon the ground that he acted upon the advice of counsel. In such circumstances it is possible the Board would re- fuse to sustain the fraud penalty even though it should hold that the receipt of the shares in 1935 represented a taxable transaction as to Zanuck. 3. With respect to the year 1934, the normal period of limi- tations within which an additional assessment could have been made expired March 15, 1938, and the bar of the statute could be lifted only if it appeared in any final determination there was an omission from taxpayer's gross income in excess of 25 percent (section 275 (0), Revenue Act of 1934). Here the sole issue is the value of the 20 shares of the old company, Twentieth Century Pictures, Inc., re- ceived by Zanuck in 1934. Upon a contest on the issue of value for 1934, the burden of proof, from the practical aspects of the case, would be on the Government. The additional tax for 1934 was asserted because it was deemed expedient, among other things, to protect fully the interests of the Government in the event it should turn out that the income now determined for 1935 was in fact income for 1934. The matter of accepting the taxpayer's settlement proposal was submitted informally to Assistant Attorney General Clark 159 Ven. for Commissioner Helvering In re: Darryl F. and Virginia Zanuck - because of the desire of this office to avoid taking any action in this case which might prejudice to the disadvantage of the Government the outcome of the pending criminal cases in New York against Joseph M. Schenck. I am authorized by Mr. Clark to say that he and United States Attorney John Cahill concur in my recommendation for acceptance of the offer of settlement proposed by the taxpayers, namely, the payment of the full principal amount of tax for 1935 ($584,250.42) without interest and without penalty and the closing of the year 1934 without further tax. (Signed) J. P. Wenchel J. P. Wenchel, Chief Counsel. Approve (Signed) E. H. Foley, Jr. 160 TREASURY DEPARTMENT WASHINGTON OFFICE or CHIEF, INTELLIGENCE UNIT BIREAU of SI-15580-F INTERNAL REVENUE October 10, 1940. ELI-DW MEMORANDUM FOR COMMISSIONER HELVERING. Darryl F. Zanuck has submitted to the Department an offer in compromise in the sum of $584,250.42, in settlement of all tax claims against him and his wife for the years 1934 and 1935. This matter was fully discussed in a conference which you had with Mr. Wenchel and me some days ago. At that time we agreed that the offer should be ao- cepted. I have carefully reviewed the statement of facts and discussion of this case contained in the memorandum of Mr. Wenchel which he is submitting to you today and find them in accord with my own views; further review and discussion are not being made in this memorandum because of needless repetition. It is on the basis of these facts that I concur in the recommendation that the offer be accepted. On the occasion of his recent visit to Washington I discussed this offer with Special Agent Oftedal, who conducted the investigation of the Zanuck case. He stated he was in entire agreement for the acceptance of the offer and that, in his opinion, it would be a very good settlement for the Government. (Signed) Elmer L. Irey Chief, Intelligence Unit. 161 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 11, 1940 Secretary Morgenthmi TO FROM Mr. Cochran Mr. McKeon of the Federal Reserve Bank of New York gave us the following in- formation regarding the transactions listed on the attached statements in Italian accounts maintained at: Chase National Bank National City Bank Guaranty Trust Company pmp Chase National Bank Amount Amount Date Credited Account Credited Received From Debited Account Debited Paid To Oct. 11 $300,000 Banca Commerciale Banca Commerciale $1,361,500 Banca Commerciale Federal Reserve Bank of Italiano, New York Italiano, New York Italiano, New York, New York for account of by order Nat'l In- the National Bank of stitute of Foreign Tugoslavia in favor of Exchange, Rome Hrvatska Banca, Zagreb 160,000 Banca Commerciale Credito Italiano, 500,000 Banca Commerciale Italiano, New York Rome Italiano, New York The Trust Company of North America, New York 100,000 Credito Italiano, Irving Trust Co., 160,000 Credito Italiano, Banca: Commerciale New York New York, by order Rome Italiano, New York, for of Credito Italiano, account of Banca Com- New York mercials Italiano, Rome 1,400,000 Banca Commerciale Bank of Manhattan 150,000 Banca Commerciale Cash withdrawal Italiano, New York Company by order of Italiano, New York Credito Italiano, New York 105,000 Banca Commerciale J. Heary Schroeder Bank- Italiano, New York ing Corporation, New York 100,000 Banca Commerciale Irving Trust Company, Italiano, New York Few York 100,000 Credito Italiano, Cash withdrawal in $100 New York bill, 100,000 Banca Commerciale J. Henry Schroeder Italiano, New York Banking Corporation, New York 162 National City Bank Amount Amount Date Credited Account Credited Received From Debited Account Debited Paid To Oct. 11 $100,000 Banca Commerciale Banque Federale, $100,000 Banca Commerciale Cash withdrawal in $100 Italiano, New York Zurich Italiano, New York bills 90,000 Credito Italiano, Cash wi thdrawal in $100 New York bills 500,000 Banca Commerciale Central Hanover Bank à Italiano, New York Trust Company, New York, for account of B.C.I., Nov York 150,000 Banca Commerciale Cash withdrawal in $100 Italiano, New York bills 125,000 Bank of Naples Cash therswal in $100 Trust Company bills 163 Regraded Jclassified Guaranty Trust Company Amount Amount Date Credited Account Credited Received From Debited Account Debited Paid To Oct. 11 $100,000 Banca Commerciale Cash vi thdrawn in $100 Italiano, New York bills 100,000 Credito Italiano, Cash thdrawn in $100 New York bille 100,000 Bank of Emples Cash withdrawn in $100 Trust Company billo 164 Regraded Jclassif 165 TREASURY department INTER OFFICE COMMUNICATION DATE October 11, 1940 Secretary Horgenthau TO FROM Mr. Cochran Kr. McKeon of the Federal Reserve Bank of New York gave us the following information regarding the transfers listed below from German and Italian accounts mistained with the Chase National Bank. German Date Amount Debited Account Debited Paid To October 10 $560,000 Deutsche Gold Discount Irving Trust Company, Bank, Berlin (by order New York for account of of Svies Bank Corp., Vongibara Zurich) 70,000 Reichebank, Berlin by Brown Bros, Harriman order Konversionkasse Co., New York. Deutsche Auslandsche, Berlin Italian Date Amount Debited Account Debited Paid To october 10 $250,000 Banca Commerciale Check drawn to the order Italiano, New York of Monsignor Thomas McDonnell for deposit with the Central Hanover Bank & Trust Co. for the account of the Society for the Propagation of the Faith 100,000 Banca Commerciale Chase National Bank, N.I. Italiano, New York for account of and by order of Banque Francaise et Italienne pour L'Amer- ique du Sud, Buenos Aires AMP TREASURY DEPARTMENT 166 INTER OFFICE COMMUNICATION DATE October 11, 1940 Secretary Morgenthau to FROM Mr. Cochran Mr. McKeon of the Federal Reserve Bank of New York gave us the following information regarding the transaction listed below in the account of the State Bank of the U.S.S.R. maintained with the Federal Reserve Bank of New York. Date Amount Credited Received From October 11 $1,300,000 Credit Suisse, New York by order Credit Suisse, Zurich amp 167 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 11, 1940 Secretary Morgenthau TO FROM Mr. Cochran Mr. Cameron of the Federal Reserve Bank of New York gave us the following information regarding the transfers listed below from accounts maintained with the Chase National Bank, New York. Date Amount Debited Account Debited Paid To October 11 $400,000 Skandinaviska Banka, Yokohama Specie Bank, Stockholm (by order of New York, for account the Reichsbank, Berlin) of Yokohama Specie Bank, Tokio 300,000 Reichsbank, Berlin Yokohama Specie Bank, New York, for account of Yokohama Specie Bank, Tokio ams 168 CONFIDENTIAL DUPY:PE:OJL C AMERICAN CONSULATE 0 So. 137 P American Foreign Service, Hanoi, Indochina, Y October 11, 1940. Ar Mail Subject: Conditions at Haiphong the Honorable The Secretary of State, Washington. Sir: I have the honor to report, as of possible interest to the Department, as to present conditions in Haiphong, with particular reference to Chinese cargo ind former Chinese cargo. This matter is of peculiar interest at this time in riew of the fact that the Foreign Service Officer on detail at Hanoi is charged with a limited representation of Chinese interests in Tonkin. Characteristically, at the time of Indochina-Japanese tension which ime- distely preceeded the signing of the agreement of September 22, 1940, a great may Chinese fled from Haiphong. Among these were many Chinese Government officials, who should have at least put their affairs in order before departure. Instead, as a number of interested parties have subsequently found out, important documents were taken away, other records were left in a state of utter confusion, and minor employees were left in charge without proper credentials or powers of attorney. Following the signing of the agreement of September 22, 1940, the outbreak of hostilities at Dong Dang and Langson, and the final capitulation of the French, the Regraded Uclassified 169 - 2 - the situation at Haiphong became if possible even worse. A number of automobiles and trucks, either belonging to Chinese governmental agencies or repurchased by American firms, disappeared at the time - although there were reports that the Incense had seized these automobiles and trucks, it has been proved in almost every instance that the Chinese themselves used the automobiles and trucks for their OWN flight from Haiphong. The following example is illustrative of the condition of at least one third of the Chinese or former Chinese owned cargo: during the early evacuation of certain types of cargo from Haiphong in July, some 7,200 sets of tires and tubes vira transferred to Hanoi; theoretically these tires and tubes were part of the cargo transferred by the China Syndicate to the North American Syndicate: but lov, when the latter company has the opportunity of either reexporting these tires or tubes or of selling them locally, no documents can be found. In going through the papers of the China Syndicate and other Chinese organ- instions, & number of customs guarantees were found. In attempting to trace the cargo covered by these guarantees it was ascertained in some instances that the cargo had been shipped to China months ago but that the Chinese had "forgotten" to have the guarantees canceled by the customs in other instances the cargo has not been traced as yet. In still other cases the cargo 18 in bonded ware- houses but the customs papers are lost or have been taken away. The value of these various lots of cargo is large and the customs fines, in default of a regularization of the matter, is bound to be appreciable. Lack of communications with Hongkong and Yunnanfu, whence many of the Chinese officials fled, vill render difficult the clearing up of the situation nt Halphong. In the meantime, with no documentary evidence of ownership available - 3 - 170 emilable on which to base protection by the Foreign Service Officer on detail at Hanoi, the Japanese, who are evidencing great interest in much of the cargo at Haiphong, may be able to confiscate parts of the cargo with virtual impunity. Respectfully yours, For the Consul at Saigon, CHARLES S. REED II, American Consul. In triplicate to the Department (Original by air mail) Copies to the Embassy, Chungking and Peiping Copies to Consulates General, Hongkong and Shanghai Copy to Consulate, Saigon 15.6 52/11 RECEIVED THENTRA930 940 DEC 10 VII D 31 CHICE or INF THATEISEA JASMH03T 10 THE Copy:alm 171 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 11, 1940 TO Secretary Morgenthau confidential FROM Mr. Cochran The six reporting banks' transactions in registered sterling were as follows: Sold to commercial concerns 193,000 Purchased from commercial concerns 113,000 In the open market, sterling opened and closed at 4.03-1/2. Transactions of the reporting banks were as follows: Sold to commercial concerns -0- Purchased from commercial concerns I 1,000 The Cuban peso has had a weak tendency since last Monday, on which day it was quoted at 7-3/16% discount, the best rate in more than & year. Today's quotation as B-1/8% The other currencies experienced little change and closed as follows: Swise franc .2318 Canadian dollar 13-5/8% discount Swedish krona .2384 Reichsmark .4005 Mexican peso .2075 Argentine peso (free) .2355 Brazilian milreis (free) .0505 Lira .0505 There were no gold transactions consummated by us today. The Federal Reserve Bank made a three-months loan of $50,000 to the Central Bank of El Salvador, setting aside as collateral $54,291 in gold from the Salvadorean Bank's earmarked account. The total of such loans now outstanding amounts to $625,000, secured by $703,534 in gold. No new gold engagements were reported to us today. The Bombay gold price was equivalent to $33.79, off 44 from Wednesday's quotation. Silver was unchanged at the equivalent of 44.56#. -2- 172 the London spot silver price was fixed at 23-7/16d, up 1/16d. The forward quotation was unchanged at 23-5/16d. The dollar equivalents were 42.56# and 42.334 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 made three purchases of silver totaling 425,000 ounces under the Silver Purchase Act. Of this amount, 350,000 ounces represented a sale from inventory, and the remaining 75,000 ounces consisted of new production from foreign countries, for forward delivery. p.m. CONFIDENTIAL 173 TELEGRAM SENT ATP GRAY October 11, 1940 8 p.m. AMERICAN LEGATION BUCHAREST, (RUMANIA) 333 Executive Order 8565, October 10, 1940 Extended all provisions of Exccutive Order 8389 of April 10, 1940, as amended, to include Rumania. For reference SEE last paragraph of Radio Bullstin No. 85, April 10, 1940. HUIL (AAB) 840.51. Frozen Credits/648 Eu:RDC:DKP:VD EA TREASURY DEPARTMENT 174 INTER OFFICE COMMUNICATION DATE October 11, 1940 TO Secretary Morgenthau FROM E. H. Foley, Jr. You asked for a. copy of John Carmody's letter for your files. 9.10th COPY 175 FEDERAL WORKS AGENCY Washington Vice of the Administrator October 10, 1940 Mr. E. H. Foley, Jr. General Counsel Treasury Department Washington, D. C. My dear Ed: Before I get swamped with the flood of business that rushes in each day, I want to express my high regard for the speed with which you assimilated the essentials of the San Diego situation, and brevity and clarity in which you expressed it. Thanks for sending a copy to my house last night, where I had both time and quiet to read it. I assume I will be told where the meeting you referred to will be held. Sincerely, (Signed) John M. Carmody John M. Carmody Administrator 176 BRITISH EMBASSY, WASHINGTON, D.C. October 11th, 1940. Personal and Secret Dear Mr. Secretary, In the temporary absence of the Ambassador I am enclosing 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, Nevile Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 177 Telegram from London dated October 10th, 1940. 1. Navel. A navel mine-sweeping trawler was sunk by an underwater explesion on the evening of October 9thj there are no survivors. Portland dockyard was attacked by 2 aircraft about 9.00 P.M. October 9th, 1 storehouse and 2 eranes were damaged and a water main was out. Most bombs fell in the sea. 2. Royal Air Foree During the night of October 6th-9th our bombers attacked 4 cheanel ports and burete were reported in the basine at Caleie. Fires were started at 2 norshalling yards in Germany. 011 torgets et Heaburg and Golsenkirehen were leasted; at the former an explosion was caused and at the latter barbe streddled the torget and a number of fires and explosions resulted. Fourteen sircraft attacked shipping yarde at Brenon where all belie fell in the target area and violent explosions followed. Sixteen aircraft also attacked "Tirpits" at wilhelmahaven; and although no direct hits are elaimed there were segaral neer misses including are with 6 2,000-pound bomb. Single aircraft attacked 4 acrodromes, the Fokker aircraft factory, 8 metal factory in Germany and Kiel Ganal power station. fires were started in Erapp's works at Besen W , afrect mil - mine-laying use also corried out, Regraded Uclassified 178 + During the daylight on October 9th 8 Blenheims were despatched. one scored direct hits on an oil target at Hamburg and others attacked barges, reilway tracks and an seredrene in Holland. During the night of October 9th-10th 82 aireraft were sent out to the following targets: invesion porte 20 medium bombers, railway communications 6 heavy bombers, oil target Cologne 18 heavy bombers, an aluminium works 17 heavy bombers, Erupp's works at Eases 20 heavy bombers. Mine laying was also carried out and 4 aircraft were detailed to drop leaflete in the Lille area end over Peris and Guerneey. Twelve medium bombers of the coastal command also attacked Boulogne and Brest; at the former place fires were caused at the reilway station and explosions in the doeks and at Breat our pilots reported a probable hit on 1 destroyer and 2 hits on another destroyer. From all these operations 2 aircraft have failed to return. 3. German Air Force. Hight of October 6th-9th. Later reports. In the London area some damage was caused to public utility services but none was of major importance. Some machine gunning by ler flying airereft occurred is the country districts; no militery damage was reported although 19 unexpleded bombo were dropped at Southempton airport. During the daylight on October 9th there were 2 main reidej the first by about 200 aircreft during the nerains which passed London on the met and west towards Teses and the turned away; and later w about 270 enemy aircraft in the afternoon, come of which Regraded Uclassified 179 -3- entered the inner London sone. The majority of enemy aircraft were fighters. A feature of yesterday's attacks was low level boubing and machine gunning by single machines particularly during the dusk period. Although some interruption was caused on the roads and railways no military damage was reported but a suspected delayed action bomb fell in e festory at Woolwieh and outside London bombs fell in close proximity to 2 factories engaged on was work without causing damage. Premiseuous bombing of senside towns with damage to property was also reported. During the night of October 9th-10th London was again the chief enemy objective although minor bombing was reported from other parts of the country and mine- laying was suspected off the east coast. Nost enemy activity took place before midnight. From the London area no damage of 6 militery nature is reported nor say important damage to dooks, communications or industrial premises although 1 factory manufacturing wireless telegraphic material was hit and e 20 pump fire was started in Holborn. Damage was also caused to the Royal Courts of Justice. Outside London 2 Royal Air Force stations and a navel station were attacked; at the letter 1 aircraft was destroyed and the aerodrome is temporerily out of service owing to unexploded bambs. More attention than usual was paid to South wales where there was some damage to houses and public services. Aircraft/ Regraded Uclassified 180 + Aircraft casualties. Enemy: Destroyed Probable Damaged By fighters Bombers 1 2 Fighters 2 2 Totals 4th 4 5 mot 3 Our losses. 1 airereft, pilot cafe. 3 bombers missing. 4. Shipping casualties. One British ship (3,700 tens) and a dreek ship (4.400 tons) in a homeward bound convoy were torpedoed and sunk in the northwestern approaches on October 9th. A British ship (5,000 tons) in a homeward bound convoy which vas torpedoed off the Hebrides on October 8th has now sunk. 5. Middle Kest. on October 8th our medium bombers attacked enemy aircraft on a landing ground at Bardia end mechanical transport and targets in the Sollum area with good results. One enemy aircraft was shot down by ground forees while attacking our forward troops. Britres on October 9th Blenheims attacked a suspected ammunition dump at Asceb where fires started the previous morning were still burning. 6. Germany. Germany has at the moment 4 divisions in Blovakie, 11 divisions in Austria, 8 divisions in the protectorate and 10 divisions in south Poland. of these 4 divisions are ermoured and at least 1 motorized. The majority of these divisions could be available against tomanis If required. 7. There are positive indications that invesion preparations continue unremittingly. Regraded Uclassified File under THE SECRETARY OFFICE OF OF THE TREASURY trom has # 2 10-11-40 fred 181 Knox has.#3 3 Pres. has rebbon copy Itemson was suen copy #4 by Layton personally 182 October 14, 1940 My dear General Watson: I am sending you herewith, by hand, a very secret document furnished to no by Sir Walter Layton of the British Purchasing Commission. I would appreciate it if you would personally place this in the hands of the President. There are only four copies of this document in existence. One has been furnished to the See- retary of War, one to the Secretary of the Navy and I have the fourth copy. Just as soon as the President has had an op- portunity to read the Layton memorandum, I would like very much to discuss it with him, the Secretary of War, the Secretary of the Navy, the Chief of Staff of the Army and the Chief of Navel Operations. Yours sincerely. Major General Edwin N. Watson, Secretary to The President, The White House. Regraded Uclassified 183 October 14, 1940 My dear General Watson: I am sending you herewith, by hand, a very secret document furnished to me by Sir Walter Layton of the British Purchasing Commission. I would appreciate it if you would personally place this in the hands of the President. There are only four copies of this document in existence. One has been furnished to the See- retary of war, one to the Secretary of the Navy and I have the fourth copy. Just as soon as the President has had an op- portunity to read the Layton memorandum, I would like very much to discuss it with him, the Secretary of War, the Secretary of the Havy, the Chief of Staff of the Army and the Chief of Maval Operations. Yours sincerely, Major General Edwin M. Watson, Secretary to The President, The White House. Regraded Uclassified 184 October 14, 1940 My dear General Watson: I All sending you herewith, by hand, a very secret document furnished to no by Sir Walter Layton of the British Purchasing Commission. I would appreciate it if you would personally place this in the hands of the President. There are only four copies of this document in existence. One has been furnished to the See- retary of war, one to the Secretary of the Navy and I have the fourth copy. Just as soon as the President has had an op- portunity to read the Layton memorandum, I would like very much to discuss it with him, the Secretary of war, the Secretary of the Havy, the Chief of Staff of the Army and the Chief of Naval Operations. Yours sincerely, Major General Edwin M. Watson, Secretary to The President, The white House. Regraded Uclassified 185 October 14, 1940 Dear Frank: I an sending over herewith, by hand, 8 very confidential memorandum which has been furnished to me by Sir Walter Layton of the British Purchasing Commission. I have promised him secrecy in connection with this memorandum, but you are at liberty to show it to anybody in the Havy as long as you personally feel that its secrecy will be kept. Yours sincerely, Honorable Frank Knox, Secretary of the Navy, Washington, D.C. Regraded Uclassified. 186 October 14, 1940 Dear Frank: I am sending over herewith, by hand, a very confidential memorandum which has been furnished to me by Sir Walter Layton of the British Purchasing Commission. I have promised him secrecy in connection with this memorandum, but you are at liberty to show it to anybody in the Havy as long as you personally feel that its secreey will be kept. Yours sincerely, Honorable Frank Knox, Secretary of the Navy, Washington, D.C. Regraded Uclassified 15 BROAD STREET, NEW YORK TELEPHONE HANOVER 2-2460 187 protect to BRITISH PURCHASING COMMISSION We young 10/12/10 also to General atron SECRET October 12, 1940. pery steven Know Dear m. Secretary In confirmation of the memorandum that I sub- mitted to you with my letter of October 11th, I have subsequently received a cable from the War Office and the "inistry of Supply in London emphasizing the im- portance of the provision of 1,000,000 - .303 rifles next year. The cable states that even if the full number cannot be supplied by November 1941, they hope very much that it will be possible for the greater part to be supplied by that date. At this moment the supply of rifles is insufficient. The intake of recruits in the next six months should be at least 300,000 and by November 1941 at least another 700,000 will be enrolled. Rifles are at present one of the usin limiting factors in the expansion of the army. "If", they say, "capacity now existing or being created in the United States could be adjusted so as to give us some substantial deliveries of .303 rifles by next spring or early summer, this would be of supreme value.' It is essential to have some reserve and to allow for wastage and 1,000,000 plus British production affords a very narrow margin. The cable adds that if the United States could release a further quantity of .30 calibre Enfields In addition to the 1,000,000 - .303 rifles, they would be very welcome. The releases hitherto made have been invaluable; but the Home Guard will not be adequately armed even after receipt of the recent release of 250,000 .30 calibre Enfields. Moreover, if no .303 rifles from U. S. production are available by the spring of 1941, it may well be that the Army will be compelled to take away some of the .30 calibre rifles in the hands of the Home Guard in order to use them for the training of recruits for the regular Army. You will appreciate from this statement that the request I submitted to you yesterday is one of grest urgency. Yours sincerely, the Secretary of the Treasury, ashington, D. C. W.T.Layter 19 BROAD STREET. NEW YORK TELEPHONE HANOVER 2-2460 188 BRITISH PURCHASING COMMISSION SECRET October 12, 1940. Dear m- Secretary In confirmation of the memorandum that I sub- mitted to you with my letter of October 11th, I have subsequently received a cable from the War Office and the winistry of Supply in London emphasizing the 1m- portance of the provision of 1,000,000 - .303 rifles next year. The cable states that even if the full number cannot be supplied by November 1941, they hope very much that it will be possible for the greater part to be supplied by that date. At this moment the supply of rifles is insufficient. The intake of recruits in the next six months should be at least 300,000 and by November 1941 at least another 700,000 will be enrolled. Rifles are at present one of the main limiting factors in the expansion of the army. "If", they say, "capacity now existing or being created in the United States could be adjusted so as to give us some substantial deliveries of .303 rifles by next spring or early summer, this would be of supreme value." It is essential to have some reserve and to allow for westage and 1,000,000 plus British production affords a very narrow margin. The cable adds that if the United States could release R further quentity of .30 calibre Enfields in addition to the 1,000,000 - .303 rifles, they would be very welcome. The releases hitherto made have been Invaluable; but the Home Guard will not be adequately ermed even after receipt of the recent release of 250,000 .30 calibre Enfields. Moreover, 1f no .303 rifles from IL S. production are available by the spring of 1941, it may well be that the Army will be compelled to take away some of the .30 calibre rifles in the hands of the Home Guard in order to use them for the training of recruits for the regular Army. You will appreciate from this statement that the request I submitted to you yesterday is one of great urgency. Yours sincerely, The Secretary of the Treasury, Mashington, D. C. Regraded Uclassified 189 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Legation, Budapest, Hungary DATE: October 12, 1940, 2 p.m. NO.: 251 CONFIDENTIAL. No. 230 Reference is made to telegram/of September 30, 7 p.m., from the Legation and to telegram of October 2, 5 p.m., No. 235 from the Legation. We are advised by the National Bank of Hungary that because of Italian intercession, the amount of the reduction of the dollar premium on the pengo will be much less than had been indicated previously, possibly amounting to only 4 or 5 percent; no definite decision on this has as yet been reached. If the New York money market should disregard this increase when announcement is made, it seems likely that Germany would be caused some embarrassment, since it 1s Germany which 1s foreing Hungary to effect this appreciation of the pengo in terms of the dollar. MONTGOMERY. EA:LWW 190 Regraded Uclassified Detober 12, 1940 MEMORANISM TO: Mr. Graves It 10 ay thought to make certain changes which will be of & distinct advantage, and the proposed action is briefly sumarised all I would like to have your opinion. As you know, the position of Assistant Director has not been filled, and Mr. LeFevre, Assistant to the Director, has been handling both positions. For the past few weeks and, undoubtedly, for some time to case, a large part of his time will be required both here end at Sex York City in connection with Red Cross purchasing and, as you know, TO expect very shortly to be called upon to buy the asterial and equipment under the Housing Program for defense workers, also cortain ailitary personnel, involving approximately 125,000 units. Therefore, the proposed personnel changes, in my opinion, should be made promptly in order to be properly equipped to take on the ad- ditional work. The following personnel changes are under considerations Robt. Lefevre, Assistant to the Director, (CAF-14), $7,000, to Assistant Director, (CAF-14), $7,000. This change will enable Mr. LeFovre to spend more time upon the actual supervision of term contracting, as be has had A long experience In the handling of General Schedules of Supply. Be will also be required to serve as Acting Director in my absence, and to handle the other responsibilities of the position of Assistant Director. Geo. Landisk, Jr., Chief, Contract and Purchase Branch, (CAF-13), $6,200, to Assistant to the Director, (CAF-14), $6,500. This change will permit Mr. Landick to supervise special purchasing programs, for example the housing purchasing program, to hear protosts, and to give consideration to improved means and methods of purchasing, such all 4 determination of better sources of supply, and to serve as & Technical Assistant. vas. Fromen, Chief, Stores and Operations Branch, (CAF-13), $5,600, to Chief, Contract and Purchase Branch, (CAF-13), 85,600. Hr. Freeman 10 4b. capable employee) be has & broad experience of procurement aatters, and is the best qualified to fill the vacancy by reason of Mr. Landick's promotion, Berman Klots, Chief, Surplus Property Division, (CAF-11), $4,400, to Chief, Stores and Operations Branch, (CAF-13), $5,600, Mr. Klots has shown ability in handling the work of the Surplus Property Division, an important function, which was not in good shape when be took over the I think be is qualified to take over the supervision of the Stores and Operations Brunch, of which the Surplas Property Division is 4 part 191 - 2 - Harry Smith, Planning Officer, (CAF-11), $3,800, to Chief, Surplus Property Division, (CAF-11), $3,800. Mr. Smith is a capable employee, and the position of Chief, Surplus Property Division, is a responsible one. Unfortunately, however, he is in the same position as Mr. Freenan in that the change is at the same grade and an administrative increase in either case is not possible at the moment. It is my purpose, however, to see that both Mr. Smith and Mr. Freeman receive proper recognition as soon as it is possible to do BOO It is believed that those changes should be made effective October 16, 1960. Will you please let no have your reaction. Clifton E. Mack, Director of Procurement. CEM/ejw 0. K. (Signed) H. M. JR. (Oct. 14, 1940) Regraded Uclassified 192 October 12, 1940. MEMORANDUM TO: The Secretary FROM: Mr. Buckley Re: Allison E-5 Engine for Bell Aircraft While talking to Judge Patterson this morning about the six B-24's, I told him that Bell Aircraft was very anxious to secure an Allison E-5 engine to check the details of its installation in the planes which they are building for the British. I also told him that we understood one was just about completed for the Air Corps, and it would expedite future production on the British contract with Bell if this engine could be at least loaned to Bell for such time as they need to make their various tests. He said that he would check this at once and 800 if it could be 80 diverted. In accordance with your instructions, I called Captain Collins at Bell Aircraft and told him that you were trying to get this engine for him. He was very pleased about it, saying that they were ready to use such an engine four days ago and the sooner they got it the quicker they would have the production problems straightened out. He added that he had mentioned this problem to General Arnold two or three weeks ago, who was very sympathetic. Captain Collins also said that they would need the engine only for about sixty days, so that a loan for that period would be just as satisfactory as a permanent transfer. I think it would be entirely appropriate to check with Judge Patterson on Monday as to the progress which he 1s making. R Regraded Uclassified 193 October 12, 1940. MEMORANDUM TO: The Secretary FROM: Mr. Buckley Re: Six B-24 Bombers for the British Major Lyone called me about 9:30 Saturday morning to say that he had a wire from Consolidated asking him when the Army anticipated a decision regarding the allocation of the early B-24's. Major Lyons added that it was his opinion that all work was held up on these six ships pending & decision as to whether they would go to the British or not. As Major Lyons brought out in the meeting in your office on Friday morning, it appears that these ships can be diverted to the British with Sperry Automatic Pilots installed and still have delivery by January 10, 1941. In view of the relatively small delay to be occasioned by the installation of the Sperry equipment, the Army 18 rather anxious that the British take them with the Sperry equipment rather than to have to settle the Norden question before they can proceed with these six ships. Accordingly, I called Mr. Fairey in New York, asking him if the British Purchasing Commission would take these six B-24's with the Sperry Automatic Pilot with delivery to be completed by January 10, 1941, barring unforeseen developments. He said that he would take that decision upon himself and that they would be delighted to have these planes under those oon- ditions. I then called Judge Patterson and sketched out for him the wire which Major Lyons had received from Consolidated and told him that the British were willing and anxious to take these planes with the Sperry installation, delivery presumably to be completed by January 10, 1941. He agreed that there was no reason for any delay in the transfer of these ships and said that he would see that proper notification was forwarded to Consolidated immediately. Major Lyons called me back at 1:15 P.M. to say that he had called their Western District Representative at 1:00 P.M. 194 - 2 - to give him & message for immediate transmittal to Consolidated, authorizing the diversion of the six planes to the British and immediate resumption of work on them. This message is rather important, and I attach a complete transcript of 18. I then made this message available to Mr. Gray of the British Purchasing Commission (Mr. Fairey being in New York) and suggested that they contact their west coast representative immediately and make arrangements to furnish whatever agreement Consolidated may require in order to protect them on the contract, and whatever additional agreement may be necessary to take care of the overtime work and additional engineering which will be necessary to get the planes out and to get the Sperry Pilot installed. I also suggested that the British Purchasing Com- mission make immediate arrangements with Sperry 80 that they could begin installing the Automatic Pilot as soon as possible. Mr. Foley was not in the office Saturday, but I shall remind him the first thing Monday to call Mr. Morgan of Sperry to enlist his best efforts for the British Purchasing Commission on the work on these planes. PR 195 Telephone message from Major Lyons, Air Corps, to Consolidated Aircraft Co., October 12, 1940, As read over telephone by Major Lyons to Mr. Buckley. The following message was transmitted to Colonel Smith, Western District Representative of the Army Air Corps. at Santa Monica, California: "The Deputy Chief of Staff has authorized and instructed m to transmit the following information for your immediate action: 1. The Assistant Secretary of War has authorized the manufacturer to proceed immediately with the substitution of six B-24 airplanes being nanufactured for the Army account to the British account for delivery by December 30, 1940. 2. The six B-24 airplanes will provide for the installation of the Sperry automatic pilot in lieu of the present pilot equipment. The Sperry Company representative will be notified accordingly. 3. The delivery of the sixth airplane will be by January 10, 1941, with the Sperry automatic pilot installed, barring unforeseen contingencies. 4, Mr, Firth, representing the British, will be advised that Mr. Buckley, representing the Treasury Department, has notified the Assistant Secretary of War that the British Purchasing Commission has accepted the delayed delivery and Sperry automatic pilot in the first six airplanes. 5, You are authorised to release six B-24 airplanes from the requirements of Army inspection in accordance with the oral agreement between Mr. Firth, Mr. Ladin, and Mr. Lyons. 6. You are authorized to advise the Consolidated Aircraft Company that all the foregoing is subject to suitable adjustment in contractual obligations between the United States Army and Consolidated Company, the details of which will be worked out later. 7. You are authorized to acquaint the manufacturer with the decision of the Deputy Chief of Staff that no action whatsoever will be taken by the manufacturer or the Air Corps with respect to the allocation of any additional airplanes over and above the six until further notice." 196 October 12, 1940. To: Secretary Morgenthau wr From: Mr. Gaston Supplementing my previous memorandum with reference to the request from Under Secretary of State Summer Welles to avoid withholding any shipments of machine tools to Japan, a check was made to ascertain if any such shipments were be- ing withheld. No departure permits were being withheld by reason of such shipments and telegraphic inquiry to the Col- lectors of Customs at West Coast ports verified the fact that no actual shipments were being withheld from exporta- tion. The Collector at Seattle reported that the Amtorg Trading Company had requested permission to export without license for Vladivostok certain machine tools off the American steamer WILDWOOD and that a dispatch had been sent to the Secretary of State on September 24th requesting information whether the tools should be released without license. The Collector reported that to date no answer had been received. It was noted in the morning press that as e gesture of good will to Russia all withheld shipments of machine tools to Russia have been released by the State Department and it is presumed that the Collector at Seattle has been instructed accordingly. m 197 October 12, 1940. MEMORANDUM TO: The Secretary FROM: Mr. Gaston me On Thursday evening, October 10th, after telephone message from Mr. Welles which I reported to you, I authorized departure permits for three French passenger ships now at New Orleans to go to England, where they are to take aboard French military refugees to be repatriated. Yesterday afternoon the Collector of Customs at New Orleans reported over the teletype to Johnson that the French SS WINNIPEG, which had been granted permit to depart for Liverpool, had taken on at New Orleans 504,000 gallons of fuel oil (grade C bunker oil, U.S. Navy specifications) which was in addition to 194,000 gallons aboard when the vessel arrived at New Orleans from Miami, and that Coast Guard estimated requirements for voyage to Liverpool as approximately 288,000 gallons, making an ex- cess of 365,000 gallons. The Collector said he would withhold clearance pending advice. In cases where ships attempt to take as bunker supplies fuel far in excess of that required for the scheduled voyage, it is customary to require that the additional amount be shown as cargo. I consulted Berle of the State Department and in- structed the Ship Control office to revoke or suspend permission to depart. Berle called back a few minutes later to say that the British Embassy found it necessary to consult London, which might cause some delay. In the meantime the ship is being held. m 198 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 12, 1940 TO Secretary Morgenthau FROM Mr. Cochran On October 10 I received by appointment Mr. Lacour-Gayet, formerly Franch Financial Attache in the United States (from 1924 to 1930), who recently arrived in the United States, and, according to his statement, will have the duty of supervising French economic and financial interests in the United States for a period of a few vocks, or perhaps a. few months. His prime task will be to liquidate the French Purchasing Commission affairs in the United States. He 18 also to work with the imbassador in Washington and Mr. Alphand in New York on their economic and financial problems. and to a certain extent take the place of the French Commercial Attache at You York, who recently resigned and has not been replaced. Mr. Lacour-Gayet talked to no about the general French situation and the problems of France in this country. I had little to say on the pending questions in regard to French assets in this country, emplaining to Lacour-Gayet that the general problem vas now in the hands of the Department of State. Under Secretary Bell received Mr. Lacour-Gayet and myself for a few minutes before 11 o'clock. This gave an opportunity for the renewal of the acquaintance of Messrs. Bell and Lacour-Gayet. At 11 o'clock the Secretary received Messrs. Lacour-Gayet, Bell and myself. Miss Chauncey took notes of the meeting. The principal point made by the Secretary was that the Department of State was the branch of this Government to which the French should look for 8. decision on pending problems with respect to utilization of official French funds held in Yew York, After the conversation with the Secretary. Mr. Lacour-Gayet talked with Mr. Bell and then with me. While he is quite unhappy over the manner in which official French funds are 80 far being withheld from utilization for expenses of French diplomatic and consular officers in Latin America and certain other purposes. he is disposed to following an otherwise rather cool and common sense policy. He will spend most of his time in New York but hopes to come to Washington at least once a week, b. Bell knows Mr. Lacour-Gayet well from previous service here, and I had much contact with Lacour-Gayet when the latter vas an official of the Bank of France during By stay in Paris. JMS. 199 RDS GRAY BERLIN Dated October 12, 1940 Rec'd 5:15 p.m. Secretary of State, Washington. 4305, October 12, noon. FOR TREASURY FROM HEATH AND DEPARTMENT'S INFORMATION. hile no such announcement has appeared in the German press the NEUEZURCHER ZEITUNG, October 8 issue, carries a despatch from the Hague stating that all holders of foreign securities in Holland are obliged to register them with the authorities. The despatch states that compulsory surrender of such securities is for the present at least not contemplated. It is understood that some weeks ago similar regulations WERE introduced in Belgium but to dete residents of Belgium have not been forced to surrender their holdings. MORRIS EMB 200 0-2/2657-220 RESTRICTED M.I.D., W.D. October 12, 1940. No. 218 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. No ground operations. 2. Air Force Operations. German operations occurred in their regular pattern during daylight of the 11th and last night. London and Liverpool were the principal foci of attacks which the Germans claimed were directed at the dock areas. The Germans are using Messerschmitt pursuit, both single and twin-engine, to carry bombs in daylight operations. The normal level of bombers used over London nightly is estimated at approximately 200. II. Mediterranean and African Theaters of War. 1. No ground operations reported. 2. The air forces were active against communications along the Mediterranean coast. There were also scattered British raids in East Africa. III. Miscellaneous. Between 150 and 300 German-made planes flew into Rumania on the 11th. RESTRICTED 201 EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN AS SHOWN BY DEPARTURE PERMITS GRANTED Week ended October 12, 1940 : JAPAN : RUSSIA : SPAIN : : : GREAT BRITAIN : : TROLEUM PRODUCTS Fuel and Gas Oil (including Diesel 011) 98,000 Bbls. I 82,000 Bbls. --- Crude - Blended or California High Octane Crude e 87,523 Bbls. --- --- --- All Other Crude 329,644 Bbls. --- I 68,000 Bbls. Gasoline - Gasoline A ** --- --- ! --- Gasoline B * 216,921 Bbls. 74,600 Bbls. --- I All Other Gasoline --- --- --- --- bricating 011 - Aviation Lubricating Oil *** 52 Bbls. --- --- 22,157 Bbls. All Other Lubricating Oil 9.752 Bbls. --- 12,129 Bbls. 74,439 Bbls. Tetraethyl Lead *** --- --- --- I "Boosters", such as Iso- Octane, Iso-Hexane, or Iso-Pentane --- ! --- --- SAP IRON AND SCRAP STEEL Number 1 Heavy Melting Scrap 16,691 Tons --- I 3,950 Tons All Other Scrap 9,915 Tons --- I 5,950 Tons fice of the Secretary of the Treasury, Division of Research and Statistics. Source: Office of Merchant Ship Control, Treasury Department. October 14, 1940 Any material from which by commercial distillation there can be separated more than 3% of aviation motor fuel, hydrocarbon or hydrocarbon mixture - President's regula- tions of July 26, 1940. Aviation Gasoline. As defined in the President's regulations of July 26, 1940. Regraded Uclassified 202 CONFIDENTIAL TENTATIVE LESSONS BULLETIN MILITARY INTELLIGENCE DIVISION, No. 58 WAR DEPARTMENT, G-2/2657-235 Washington, October 12, 1940. NOTICE The information contained in this series of bul- letins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document ia being given an approved distribu- tion, and no additional copies are available in the Mill- tary Intelligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. THE GERMAN FLAME THROVER SOURCE Although it was not shown to him officially, an official American observer had "about ten seconds close view" of a German flame thrower on display at the Leipzig Fair on September 2, 1940. The flame thrower was located in the Pioneer section of the mili- tary exhibition. CONTENTS 1. INTRODUCTION 2. CHARACTERISTICS 3. UNIFORM OF OPERATOR 4. USE OF FLAME THROWER **** CONFIDENTIAL -1- 203 CONFIDENTIAL 1. INTRODUCTION The German ar Ministry considera the flame thrower a secret weapon and states that it will neither release information upon it nor permit foreign military attaches to inspect it during the present var. The following conflicting information wes received before the weapon was inspected by the observer upon whose report this bulletin is based: a. From a British source, May 31, 1940: "The flame thrower now in use is said to have a range of 50-60 yards and a jet of heat sufficient to melt 3/4-inch armor plate at that range. It can be carried by one man. After use, the flame thrower must be returned to the factory for re-charging." b. From an American source, July 27, 1940: "A German Pioneer officer said that flame throwers were generally used at ranges not greater than 15 yards and that the maximm range was 20 yards. When played into firing ports of a cupola, the flame develops a temperature of 2000° C." 2. CHARACTERISTICS The flame thrower on display at the Leipzig Fair consisted of two metal tanks strapped to the back of the soldier and a flex- ible hose which came under his right arm to a metal nozzle. The soldier held the nozzle in both hands. He could point it in any direction, but best towards his left front. a. Metal Tanks A large cylindrical tank, estimated to be about 10 inches, in diameter and 30 inches long was strapped to middle of the upper back; a small tank, estimated to be four inches in diameter and eight inches long, was attached to the large tank on the soldier's left. Neither the control levera nor the details of pipe connections between these tanks and the exhaust tube could be seen. However, no control levers were seen on the exhaust tube or the nozzle. b. The Exhaust Tube The exhaust tube was covered with a flexible banket CONFIDENTIAL -2- 204 CONFIDENTIAL weave copper sheathing. It was estimated to be 12 inches in diam- eter and about 36 inches long. C₂ The Nozzle The nozzle vas a continuation of the exhaust tube. It appeared to be a metal tube 13 inches in diameter and three feet long. The nozzle end consisted of a 1/4-inch brass or copper tube passing through the center of the nozzle to within 3/4-inch of the end of the nozzle. On top of this tube, but separated from it by about 1/8 inch, is a second 1/4-inch brass or copper tube whose open- ing is cut on the bias about 3/4-inch shorter than the first tube. A third tube of white metal passes along the first tubes to within 1/2-inch of the nozzle end, where it turns to form a three-quarter circle fitting close to the inner surface of the nozzle and perpendicular to its axis. The end of the tube is closed, but about eight small holes, one millimeter in diameter, open towards the exhaust end of the nozzle. The thickness of the nozzle wall ap- pears to be about two millimeters. 3. UNIFORM OF OPERATOR The uniform of the Pioneer handling this apparatus has the appearance of leather. The soldier wears heavy black gloves of an unknown material. His steel helmet is covered with a special mater- ial, and attached to it is a special visor of transparent material 1/4-inch thick. The visor is molded in a half cylinder to cover the front and sides of his face as far down as the chin. A German sol- dier who was examining the equipment tapped this visor with a pencil. From the sound, it is believed that the visor is of a plastic material. 4. USE OF THE FLAME THROVER Flame throwers have been used in the present war principal- ly in the attack of bunkers under the protection of antitank guns. Cerman officers have shown badly melted machine guns and steel hel- mets as examples of their effect. Official moving pictures of flame throwers in action show a spurt of birth smoke and flame lasting three or four seconds. It is believed in plete combustion takes place at the extreme portion of the spurt. No 11 inmation is avail- able on the material used to create this combustion. (For further information on use of the fiame thrower, 868 TL28-20.) CONFIDENTIAL -3- 205 Paraphurase of Code Rediegree Received as the Ver Department at 16:08, October 12, 1940. CONFIDENTIAL London, filed 17:25, October 12, 1940. 1. During daylight hours of Friday, Geteber 11th, the Bomber Commind operated six planes on a North Sea recommaissance. That night 132 aircraft were dispatched against invasion parts and enemy industrial and silitary targets. The Fighter Command operated 900 planse on 154 patrols. During daylight hours the Coastal Command dispatched 72 planse on w missions and the event of n conveys and carried out successfully very extensive photo- graphie recommissances, That night 12 planes laid wines and & tacked energy shipping. No planes were lest in all of these epera- tions. 2. The German Air Force carried out BOYBER main attachs, consisting of six, 194, 110, 50, 60, 50, and 25 planes, respectively, and several small raids during daylight hours of the 11th. In five of the main attacks ene-quarter of the planes my bookers and three-quarters fighters) while in the other - only fighters ware employed. Only one of these raids reached London. The raids during that night against Liverpool and Landon disinished gredually and stepped about 2:00 a.m., probably because of the fag. 3. The damages during this period ware meh less them weal. The commissions system at ⑉ airfield w interrupted and several factories were shut dom due to a lask of water. CONFIDENTIAL Regraded Uclassified 206 CONFIDENTIAL There were - niner fires at m and water usine were broken in several places. to refiresia - interrupted. 28 is reported that the Ceremal are using a - type insenting book weighing - them - kilegres that exploies while burding, w desmin ylans Leases - eight confirmed, four - chile, at at damgal, the Britdsh lest nine planse and three pilate. 5. Marchant shipping totalling 21,500 - - oak w I a I I a 1 E a by nines. 4. Intensive British ato indication that the are loading harges, possibly to - immation, ab - at other Charmal parte, LES Distributions Milliary Adde to the President Secretary of for State Department Secretary r I Secretary s for United of statf Wer Plane Division office of Nevel Intelligence CONFIDENTIAL 206-A CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department 6:44 P.M. October 12, 1940, Berlin, Filed October 12, 1940. 1. Responsible efficials have stated to no that Germany intends to continue and increase the severity of the air attacks against the British Isles. 2. It is believed that the Geormany government is consolidating the Balkans in order to better the comente situation and to prepare for future action. PETTON Copies to: Military 42de to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff WPD ONI CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 207 Paraphrase of Code Cablegram Received at the War Department from the Military Attache, London, 21:20, October 13, 1940. London, filled 14:00, October 13, 1940. 1. Adverse conditions ourtailed & mumber of the missions of the Bomber Command during the night of October 12-13th. The following attacks were made by the number of planes indicated: Channel ports, 10; alloy factories, 121 disputched to Stettin but failed on account of weather, 18, setting fire to Hamburg, 10; enemy ports and docks, 143 bombing enemy airdromes, 4a and assorted Dutch targets by single planes, 16. One nine was laid in the Elbe River and fear in the Kiel Canal. The Coastal Command, using 67 planes, carried out 12 reutine patrols, 28 special patrols, two offensive missions, eight photographic reconnaissances, and ascerted 21 convoys. During daylight hours the Fighter Command dispatched 756 planes on 144 missions. 2. During the night of October 12-13th the German Air Force TM intensely actimuntil 11:00 then operations were light until about 1:30 Balley at which time they stopped. The Midlands area was also attacked until 1:00 a.m. 3. In the London area additional water, electric, and - mins were damaged) four minor railway lines were temperarily blocked; there were - seattered damages to residential and commercial buildings; and high explosive bombs hit the following places of public interests Trafelgar Square, The National Gallery, the War office, and 8. subway. There were about 100 civilian casualties. In Chesire CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 208 there was widespread damage to residential property, and railway, road, gas and water mains were blocked. In Manchester rail sidings, flats, business premises, and a main telegraph cable were damaged. Damages in Liverpool were very alight. While none were of a strategic character, damages were widespread throughout the Midlands and Southeastern counties. In Coventry there were two very severe night raids causing 70 fires which were all extinguished by 2:30 a.m. The central fire station and the min telephone exchange were ovacuated. The damages to key industry plants were light. 40 German planselosses were 11 confirmed, 11 probable, and seven damaged. The British lost four pilots and 10 planes. Casualties to civilians were fairly light. 5. One 6,900-ton commercial ship in convey was torpedoed. A small ship was bombed in the Mediterranean. Due to nines the entrance to the Humber River has been closed. A total of 41 ships in two convoys has arrived here from the United States. 6. There is no further news of & possible invasion. LME Copies to: Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of Mar Chief of Staff WPD ONE CONFIDENTIAL Regraded Uclassified 209 October 14, 1940 9:08 a.m. H.M.Jr: Hello. Operator: Mr. Purvis. H.M.Jr: Hello. Arthur Purvis: Hello. Good morning, Henry. I'm sorry to disturb you at this hour. H.M.Jr: It's all right. P: There's Just one matter that I was asked to see whether you could help in any way. H.M.Jr: Well, where are you, Arthur? P: I'm here in New York and coming down on the 1 o'clock. I'm up here on some organization problems of the New York office. H.M.Jr: Right. P: Layton, you will remember filed that additional memorandum. He then in the afternoon had a talk, I understand, with Patterson and Stimson and later, at their request I gather, with Strong. H.M.Jr: Yes. P: Strong, having just perused it I imagine, said if it were possible for the Secretary - for you, to get to the President word to go ahead as promptly as possible - a sort of instruction to go ahead as promptly as possible and settle this matter, I believe it would be most helpful. Now, when Layton put that to me, my reaction was - well, of course that sounded to me a little like an old sort of thing that has come up over and over again in that quarter when they wanted responsibility taken by somebody else instead of taking their share of it, but I said I would call you to see whether anything was possible along that line. 210 - 2 - H.M.Jr: Well, Arthur if you don't mind, the thing really makes me quite angry. Layton comes over here - how many weeks is he here? P: It's three now. H.M.Jr: All right, and after being here three weeks he lays this thing on my desk on a Friday. P: Yes. H.M.Jr: It takes the British Government thirteen months to tell us what they want and three weeks after Layton arrives here he puts a memorandum, which immediately goes to the Secretary, and on the President's return 18 laid on his desk. P: Yes, quite. (Laughs). H.M.Jr: Now if he can wait three weeks to write a report and thirteen months before they can make up their mind, I really - you can tell the - I think it's entirely uncalled for to put pressure on me or the President. P: Yes, well, I felt, frankly, In ringing you up somewhat in a private capacity on it. H.M.Jr: Well, I'm talking to you 8,6 I always do. P: Yes, exactly. H.M.Jr: And I think it's really quite uncalled for. P: Yes, well, fine. Now as a matter of fact H.M.Jr: And that - what I'm saying 18 for Layton and not for you. P: Yes. I know. H.M.Jr: My God! It takes him three weeks to write what we should have had two yeare ago. P: And what should have been written at Lisbon I think when he was waiting. 211 - 3 - H.M.Jr: Well, what in the hell did he do in Lisbon for two weeks? P: Frankly, that's the question I ask myself a good deal. However, thank God we've got it now and it's not been quite as easy to get it even. But I fully understand that. I just felt I had to pass it on. H.M.Jr: Well, you passed it on but it's - and you can tell Layton if you want to - it doesn't sit well at all. P: No. H.M.Jr: It doesn't sit well at all and what I've had Philip Young do now is to make a list of the things that you've already got and the things which are on order which - I want to see that and before I talk with the President I want to find out what you've received and what is on order here. P: Sort of get it into focus. H.M.Jr: Well, what's the use of discussing half a picture, and in this memorandum he said there's more to come yet. P: Yes, that's the difficulty of the Admiralty. H.M.Jr: So when we have the whole picture - I'm not going to bother the President with the thing until we have the whole picture although I sent it over to General Watson and asked him to bring it to the President's attention and 8.0 soon as the President has read it would he see Mr. Stimson, Mr. Knox and me. Now, I can't do any more than that. P: Well, now, that's exactly the course I thought it would take. H.M.Jr: Well, that's already been done. P: Yes, of course. I can 80 thoroughly understand your reaction to this 80 please just don't do anything you can when it's the proper time ..... H.M.Jr: Well, it's been done. Regraded Uclassified 212 - 4 - P: Yes. H.M.Jr: It's been done and I wish that your people would help Philip because he doesn't know whether he has it - to get a list of stuff which you've already received and what 1s on order. P: I'll Bee that he gets that today showing the deliveries all the way through. H.M.Jr: So that we can add that to this column. P: Be delighted to do that. H.M.Jr: But everything by quantities just the way Layton has done it. P: Yes. Well, I'll give him the whole picture today. H.M.Jr: And my excitement 1s directed at the British Government and Layton and not at you, because if it hadn't been for you they wouldn't have got anything by now. P: (Laughs). All right. Thank you very much. I've done my duty now. I just felt - he made such a point of my ringing - but frankly - he wanted me to ring you up in the country. I said, no, I won't. (Laughs). I said, he's hardly got the memo. All right. Thank you very much and I'll see that Philip gete that at mid-day when I get down. H.M.Jr: Thank you. P: Thank you. Good-bye. 213 GROUP MEETING October 14, 1940 9:30 a.m. Present: Mr. Haas Mr. Sullivan Mr. Pehle Mr. Thompson Mr. Cochran Mr. Young Mr. Schwarz Mr. Bell Mr. Gaston Mr. Graves Mr. Foley Mrs Klotz H.M.Jr: The funniest one on the column thing is, you know his lawyer is Max Gardner. You know that, don't you? One of his lawyers is Max Gardner, and he was talking to Max Gardner about a story about Clay Williams, and he says, "You know, the story is all right, but you have the fellow wrong: It wasn't Clay Williams, it was Cannon. So when he told me that, I said, "Well, I know I didn't tell it to you." That fixes that one up. Well, you (Schwarz) got your story over very nicely. Schwarz: Thank you. We got the front page of the Times, I hear. H.M.Jr: Yes, which amazes me, and Mrs. Morgenthau tells me the 11:00 o'clock broadcast had it. Schwarz: One of them had it. H.M.Jr: Have you got it? Schwarz: I am getting a transcript, and then at 12:30 in the morning on the "Milkman's Matinee", we had it. Regraded Uclassified 214 - 2 - Foley: I am told. H.M.Jr: It seems that Mr. Foley gave my son a legal opinion on the so-called Hatch Act, 80 then he calls everything "so-called." He says that "so-called." is legal language, 80 now everything is Well, everybody seems happy after getting such a nice Sunday. Incidentally, Chick, according to the Wall Street Journal, it says the President named B. four-man group to hurry war plans, with Morgenthau as chairman. I think you had better walk across the street and see Early and ask him what I should do about it, be- cause the facts are, the President told us at Cabinet to get together, but tell him I have got a - what should we do about it? Schwarz: I will do that. H.M.Jr: Harry isn't here, is he? You (Klotz) might send that clipping to his office. The other thing I see, "Release of Tools for Soviet Granted, Charter of 100,000 Ton Tanker for Petroleum. How true is that? Gaston: It is true. It is true they have been getting a flood of oil. H.M.Jr: Tools? Gaston: Yes, that is right. H.M.Jr: And I see the Journal of Commerce, Chick, has an editorial based on Willkie. Could you get my statement to the editor? Schwarz: Yes, sir. Regraded Uclassified 215 - 3 - H.M.Jr: Would you make a. note? Schwarz: Yes, sir. H.M.Jr: And have you got the press conference thing which he quoted me on? Schwarz: Yes, sir. H.M.Jr: Where is it? Schwarz: Upstairs. We are cutting a stencil on it. H.M.Jr: Oh, will you get it to me as soon as possible? Schwarz: Yes, sir. H.M.Jr: And the other thing, shipping notes, first cotton to Russia since -- Gaston: Yes, there were three cargoes went in one day. H.M.Jr: Business is picking up with Russia, is it? Gaston: Yes. We got an order to be very regular, not gum up the works on any shipments to the Far East, from the President. H.M.Jr: Not to? Gaston: Yes. And right on top of that we got a request from a Navy officer, a man in Naval Intelligence, to stop some chronometers that were going to Japan. Before I learned about it, an order went out to stop them and I had it countermanded and I had Johnson get after Maxwell and tell him that we have got to get our requests through regular channels on that sort of thing. H.M.Jr: Well, who told you to go slow? 216 - 4 - Gaston: Sumner Welles gave me a message which he said was from the President. When he re- ported back to me about the French ships, he said the President in this critical situation in the Far East wanted us to do everything in order, strictly according to routine. I was a little afraid this Navy thing might have been a trap. I think it was just a blunder, but Johnson -- H.M.Jr: Aren't you suspicious? (Mr. Gaston was handed a note by Mr. McKay) Want to go? Gaston: Fly is calling 8. meeting on communications. I hadn't known about it. H.M.Jr: Why don't you stay here and then go over later? Gaston: I will go over later. H.M.Jr: McKay, tell them Mr. Gaston is occupied until 10:00 o'clock. Is that all right. Gaston: Yes. He didn't tell me about a meeting to- day. H.M.Jr: What else, Herbert? Gaston: That is all. I told Johnson hereafter that any orders on stopping anything, we would have to get it through the Division of Con- trols, State Department, or somebody higher than that, before we would do it, on the face of what Welles told me. H.M.Jr: The 17th is the day they are supposed to open up the Road, isn't it? 217 - 5 - Gaston: Yes. That order on optical instruments and 80 on goes into effect tonight, and we are not even sure that these chronometers that the Navy wants to stop are covered under the Order. The ship sails today. H.M.Jr: Well, what I was telling Drew, he had the story all mixed up. I got him off that - told him that the way the stuff was going - I mean, constantly changing, is making it more and more difficult for the British to get what they needed, because the Japanese were buying more and more semi- manufactured steel. That is right, isn't it? Young: Yes. H.M.Jr: I said if he wanted to get more details, he should see Mr. Elliott of the British Pur- chasing Commission. Right? Young: Yes. H.M.Jr: He picked up the story when Knox, Stimson and I were up at the British Embassy about two months ago, and he only had half. of it and I didn't tell him the rest of it. The State Department doesn't like me. Gaston: By the way, that about the cotton, instead of three cargoes going in one day, itwas three charters of American ships to Vladivos- tok approved in one batch. Foley: The Director of Research of the National Com- mittee, at Mrs. Morgenthau's request, wrote a letter in regard to that editorial that is being sent around to the country news- papers, drawing & comparison between the Roosevelts and the Hoovers. The thing they wanted to know particularly from us was 218 - 6 - whether or not the statement in that aditorial that Mr. Hoover turned back his salary to the United States when he was President, to the Treasury, was correct. It is not correct. The records show that the 15% deduction that applied uniformly to all people that Congress could reduce, also provided that if the salary was protected by the Constitution or other- wise and Congress didn't have the power to reduce it, the Secretary of the Treasury could accept voluntary reimbursement to the Treasury up to the amount of the out that otherwise would have been inflicted if Congress had the power. Mr. Hoover returned 15% of his $75,000 and Mr. Roosevelt did the same thing while the law was in effect. Now, I think we ought to answer the letter. There is a disposition on the part of the people upstairs not to give out information of that kind. It is not in violation of the law on the tax return and it is information that our own bookkeeping warrants can pro- perly give, in my opinion. I think we ought to do it. Bell: Well, doesn't the letter give that very in- formation? Just individuals, writing in, you know, asking if it is true that Hoover turned back his salary, and we are saying that it is not true, that probably where they got the idea is due to this economy law and that the law affected not only President Hoover but also President Roosevelt, and they both voluntarily turned back that portion of their salary. We are answering letters every day. Gaston: We had that repeatedly in 1936. We had many of the same inquiries in '36. 219 - 7 - tell: I sign 8. letter almost every day on that. L.M.Jr: Why isn't it all right to give it to Mrs. Morgenthau? Foley: I don't know. The people in Bookkeeping and Warrants said they didn't think we ought to give it out. Tell: They won't give it out. Laston: We can give it out in a letter, if somebody writes a letter and we answer the letter -- R.M.Jr: Bell will answer it for you. I mean -- Dell: It is a perfectly good statement. It is in accordance with the facts in the records. I see no reason, if you want to give out some public statement on it, for not saying you have got a number of these inquiries -- II.M.Jr: Mrs. Morgenthau wants to do that, doesn't she? Baston: The replies to letters is the best way to handle it. H.M.Jr: Okay. |oley: Yes. H.M.Jr: Did you see the Goodheart letter? Toley: Yes, I did. H.M.Jr: We sent that in to Mrs. Morgenthau. They don't say he is a United States citizen. I cut it out, and I will write a little letter on it. id 220 - 8 - Foley: There is a letter on that San Diego thing from Palmer, 80 there isn't any resentment on the part of Palmer. H.M.Jr: Good. You told me that once. Foley: I showed you the letter from Carmody. This is from Palmer. H.M.Jr: Wonderful. Now, a telegram came in Saturday from - addressed to me for you four fellows from Fleet. Do you know about it? Foley: I haven't seen it. H.M.Jr: Well, your (Young's) assistant has. He said he saw Studebaker has received some money and how could he get his out there? I gave it to your (Young's) man, a telegram. It should be answered. Will you and Ed get to- gether? Who looks after the money that Studebaker has for training the workers? Will you take that or will Ed take that? Young: I should think it is nearer down Ed's alley. H.M.Jr: Well, one or the other of you do it, will you, right after this meeting? Find out what Jim has done about it. I would like to answer today. I would like to keep Fleet under the impression we are right on our toes. Am I registering? Young: Yes, sir. Foley: You mean Dr. Studebaker, the Office of Education? H.M.Jr: Yes. Foley: I think that is mine. I think that is in my report. 221 - 9 - H.V.Jr: Well, anyway, Jim Buckley has it, and will somebody draft an answer by telegram for me to acknowledge and tell him what we are going to do, this morning? Foley: Yes. H.M.Jr: Anything else? Foley: No. H.M.Jr: There is a little note from the President, of which I sent you (Sullivan) 8. copy, on the tax bill. Sullivan: I have it. Cochran: I gave Mr. Klaus on Friday and Saturday the information I got from New York on those Italian balances. There is over a million dollars withdrawn in one and two dollar bills. H.M.Jr: Incidentally, I don't want it to get outside this room that Klaus is doing this work, 80 let's keep it in this room. Anything else? Cochran: No, sir. Schwarz: You may wish to ask Norman Thompson to see if we can work out some other method of working on an Internal Revenue film for tax collection, in view of the reluctance of the Bureau to accept my recommendation. H.M.Jr: Talk to him about it afterward. He doesn't know what you are talking about. Schwarz: You know we talked about the problem. H.M.Jr: I know. It was last June when a memorandum went through recommending something like 222 - 10 - that, and Helvering doesn't want it. He (Sullivan) is back, too. The three of you get together. Schwarz: That is right. H.M.Jr: Helvering is upset about it. My name was used. Schwarz: When I checked it over and had the full text, it was a correct statement. I have a letter from the publisher of Life, just for the sake of the record, to you, asking permission for his men to make pictures of the interior of Fort Knox depository. H.M.Jr: The answer is no. Schwarz: I have asked. H.M.Jr: Anything else? Schwarz: That is all. H.M.Jr: Phil, if you stay behind a minute - I had quite a heated conversation with Purvis. I will tell you about it. Young: Yes, sir. Judge Patterson is working on the transfer of that E-5 engine over at Bell. It is going on all right. H.M.Jr: Good. Young: Also the negotiations on the first six Consolidateds. H.M.Jr: I told him - I told him to go along the Sperry line for those first six. Young: Yes. They said go ahead on that basis. 223 - 11 - H.M.Jr: I said if they had any trouble, to call up Tom Morgan of Sperry. Anything else? Foley: Buckley said he wanted me to call Tom. He told me this morning. H.M.Jr: No, this man, Young. I may have misspoken myself, but it is Philip I want to call. He will follow this through. You follow this through on education and sewage. Did you know he (Foley) can go to any city and say they need a million and & half dollars sewage disposal plant by simply sniffing. (facetiously)? Sullivan: If he happens to have a cold, they get twice as much. Foley: They don't get any. H.M.Jr: Or they may get nothing. He may not smell it. Foreign Funds, have you set up a room for Rumania? Pehle: Yes. H.M.Jr: I hope you spell it with a "u". Pehle: I have. We don't think we are going to get very many transactions. The Minister wrote in some letters, though, asking for what looks to me to be a considerable amount of money to run his staff, which is pretty small, which we thought we would refer over to the State Department and see what they thought, also see if we couldn't get a line on what attitude this fellow was going to take. 224 - 12 - H.M.Jr: I see in the papers where they are supposed to have a hundred million dollars in Rumania. Pehle: Well, we will know about that. Bell: Chick says that is slightly inflated. H.M.Jr: How much is there, anyway? Cochran: They said most of this was gold. They only have twelve million in gold here. It is a little high. Bell: The Rumanian Minister has asked me for an appointment this morning. I suppose it is all right if I see him? H.M.Jr: Sure. Anything else? Pehle: Only this: Klaus was in to see me and we had a talk Saturday about what information we might have that tied in with what he is doing. I assume that we can go along on that line and anything that we have -- H.M.Jr: Sure. Sammy has got one already, if he is right, and I think he is. He has already got & lead on one thing that looks to me as though he is on the right track on one thing. Pehle: That is all. H.M.Jr: I have got one for him. I am having some fun again. I haven't done any detective work in years. I am having lots of fun. George? Haas: They jumped back up again. H.M.Jr: What? 225 - 13 - Haas: Allison. H.M.Jr: Oh, good. Incidentally, I gathered in my talk with Evans of Allison that Bell are ahead of their schedule, Bell Aircraft. Would you (Young) make a note that I would like to have - in the first place, please tell the British as soon as they get a report on what the Curtiss P-40 does under fighting conditions, I would like to have it. That is number one. And then number two, in laymen's language, a comparison of the P-40, the Bell, and the so-called Lockheed Interceptor, see. Their armament and speed, and so forth and so on. I mean, could they give me a comparison of those three. Now, who else do they have a fighter from? Does Vultee or Grumman come in there? Young: Vultee makes a fighter. H.M.Jr: I mean what the English have bought, any other fighter that they have bought, that they have on order. Any other fighter that they have on order, please. Young: All right. H.M.Jr: This is good. Allison is up to 73 engines. They are really going to town. Haas: Curtiss, Mr. Secretary, didn't report this week any storage, at least their report didn't show any. I am checking that to make sure that is the situation. I am not positive. H.M.Jr: They are really going to town. It is marvelous. Regraded Uclassified 226 - 14 - Gaston: That must be that master mechanic that the fiction story in the Saturday Evening Post talks about. It is 8. fiction story that is plainly written around the Allison plant. H.M.Jr: Oh, this last week? Gaston: Yes, last week. H.M.Jr: No, I think the two men that deserve the credit are one, Sloan, two, Evans, and three, Hunt, the Chief Engineer. They say that Hunt just worked 20 hours a day on this stuff. And incidentally, this time we are getting a fighting plane in the air. Last time We never got a fighting plane in the air, in the last war, American-made. Gaston: The Allison really work when they put them in the planes, do they? H.M.Jr: We will know when we get a report from abroad what they do under fighting conditions, but they have got enough of them out now. They have turned out 343. Haas: Curtiss P-40, the report that you get Wednes- day morning, I just glanced at the one that just came in. It shows that they made 60 P-40's in the last two weeks. H.M.Jr: Well, the head of the company told me they are turning out six a day. Haas: That is approximately right. H.M.Jr: They work five days a week. That is right, thirty. Haas: Yes, that is right. H.M.Jr: The report shows 60? 227 - 15 - Haas: Sixty. H.M.Jr: That checks. Would you (Young) get me that other thing? Young: Yes. Graves: When you have time, I should like to have & few minutes to talk to you about Procurement. H.M.Jr: I will have time today. Please note that this (letter from Fred C. Abbott, October 9) came in from the Governor's office, which is rather unusual, at my house, and it is & complaint of somebody, one of our men, but it sent to us from the Governor's office. Some man is being persecuted. Look at it yourself, would you? Graves: Yes, sir. H.M.Jr: I couldn't get down to what they had accused him of. It sounds & little crazy to me. I will see you this morning. Stick around and I will see you. Dan? Bell: We got word that that appointment is tomorrow at 11:00 with the Cubans. H.M.Jr: Yes. And please, somebody, call up the State Department. I want some representative of the State Department to be here. Will you take care of that? Bell: Yes. H.M.Jr: Would it come through you? Bell: Yes. 228 - 16 - H.M.Jr: Well, I want somebody here - I want at least an Assistant Secretary. I want an Assistant Secretary of the State Depart- ment to be here to introduce them. Bell: Do you want Collado to come along, too? H.M.Jr: No, he's not an Assistant Secretary. Bell: But to come along, too. He is apparently handling this. H.M.Jr: Well, I want an Assistant Secretary. Bell: They want somebody over there this morning at 11:00 to meet these people, and I told them I thought Harry White would be there, but Harry, I guess, is still sick. H.M.Jr: Who is his second man? Bell: Coe. H.M.Jr: Oh, that is that man who used to teach in Canada, isn't it? Bell: That is right. H.M.Jr: Yes, let him go. Now, does anybody know what Jesse Jones wants at 3:00 o'clock? Bell: I have & suspicion. May I stay a minute afterward and tell you some gossip? H.M.Jr: Yes. I love gossip. With all I have seen of Drew Pearson this morning, I haven't had much. Bell: I don't know that that is what he wants, but I have a suspicion it is. H.M.Jr: Right. Is that a fixed appointment to- morrow, Chile? 229 - 17 - Bell: No. H.M.Jr: That is tentative? It is down for 3:00 o'clock for tomorrow. Bell: Oh, I don't know. I think that came through Miss Chauncey. I didn't have anything to do with that. H.M.Jr: The Cuban is fixed? Bell: The Cuban is the only one I have. H.M.Jr: (To Commander McKay) Mac, get together with Miss Chauncey on this 3:00 o'clock tomorrow appointment with Jesse Jones. Is that defi- nite or indefinite? McKay: Yes, sir. Thompson: I have nothing. Haas: Mr. Secretary, I just got a report. The last P-40 which was in storage was shipped last Friday, so that is all cleaned up. H.M.Jr: They cleaned out all of them? That is per- fectly amazing. Haas: You see, they have got plenty of engines. H.M.Jr: Well, you haven't got the figure how many P-40's have now gone to the Army as of Saturday, and how many have gone to the English? Haas: Yes. I don't recall it, but it is on that report that I took the 60 on. H.M.Jr: But I mean as of Friday? 230 - 18 - Haas: As of the close of business Saturday. H.M.Jr: Yes. That isn't on here. Haas: No, but it would be in this report you get Wednesday, but I have it in the office, I know, because it came in this morning. H.M.Jr: Send it in. How many P-40's have gone to the Army and how many to the English, as of Saturday. Haas: You mean for the last two weeks or -- H.M.Jr: Total. McKay: That is tentative, sir, waiting for Mr. Jones to call you. H.M.Jr: Total Haas: I will get it for you. 231 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 14, 1940 Secretary Morgentheu TO FROM Mr. Cochran Mr. McKeon of the Federal Reserve Bank of New York gave us the following information regarding the transfers listed below from the account of the Reichebank, Berlin, maintained with the National City Bank and the Chase National Bank. National City Bank Date Amount Debited Paid To October 14 $400,000 German Consul, New York 200,000 Yokohama Specie Bank, New York Chase National Bank October 14 $4,500,000 Chase National Bank for account of German Gold Discount Bank, Berlin 232 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 14, 1940 Secretary Morgenthan TO FROM Mr. Cochran Mr. McKeon of the Federal Reserve Bank of New York gave us the following in- formation regarding the transactions listed on the attached statements in Italian accounts maintained at: Chase National Bank Federal Reserve Bank of New York A.M.S. Chase National Bank Amount Amount Date Credited Account Credited Received From Debited Account Debited Paid To Oct. 14 $110,760 Credito Italiano, Sveriges Riksbank, $700,000 Banca Commerciale Credit Suisse, N. Y. Rome Stockholm Italiano, New York 250,000 Banca Commerciale Banca Commerciale 55,000 Banca Commerciale Federal Reserve Bank Italiano, New York Italiano, New York Italiano, New York of N. I. for account (check drawn on of Bank of Italy. Guaranty Tr. Co.) Rome 250,000 Banca Commerciale Banca Commerciale 550,000 Banca Commerciale Guaranty Trust Co. Italiano, New York Italiano, New York Italiano, New York for account of (check drawn on Banca Commerciale Manufacturers Tr.Co.) Italiano, New York 100,000 Banca Commerciale Banca Commerciale 350,000 Banca Commerciale National City Bank for Italiano, New York Italiano, New York Italiano, New York account of Banca (check drawn on Commerciale Italiano Bankers Trust Co.) 50,000 Banca Commerciale Banca Commerciale Italiano, New York Italiano, New York (check drawn on J. Henry Schroeder Banking Corporation) 233 Regraded Uclas Federal Reserve Bank of N. Y. Amount Amount Date Credited Account Credited Received From Debited Account Debited Paid To Oct. 14 $108,000 Bank of Italy, Bank of Naples Trust $175,000 Bank of Italy, Federal Reserve Bank Rome Co., New York Rome of N. Y. for account of the Bank of Sweden, Stockholm 55,000 Bank of Italy, Banca Commerciale 10,000 Bank of Italy, Bank of Naples Trust Rome Italiano, New York Rome Oo., New York 12,000 Bank of Italy, Credito Italiano, Rome New York 234 Regraded Uclas 235 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Berlin. DATE: October 14, 1940, 10 a,m, NO.: 4313. ON ONE. Refer to your telegram no. 2502 of September 17, 4 p.m., and our telegram no, 4174 of September 27, 4 p.m. From informed sources the Embassy has received the following data on the economic situation in Denmark. (a) Germany had & 20,000,000-orown clearing credit against Denmark on the first of April. 590,000,000 orowns on clearing account were owed to Denmark by Germany at the first of October. 270,000,000 crowns of this total represented the costs of the German army of occupation (including big construction projects); the rest ($20,000,000 crowns) was accounted for by normal clearing accounts. Estimates are that by the end of this year Danish claims against Germany will have reached 8. total of 1,360,000,000 crowns; 850,000,000 crowns of this will represent Danish exports to Germany; 510,000,000 crowns will represent various items, particularly the occupation expenses of the Germany military foroes. However, these will be partly offset by Reich claims for exports to Denmark; it is estimated that such claims will amount to 460,000,000 orowns for the half year ending Dec. 31st; to this will be added 1,860,000,000 crowns for certain exports from Sweden and Norway to Denmark, which Germany will pay. By 236 -2- By the end of this year, therefore, the Reich's net clear- ing debt to Denmark will probably total 942,000,000 crowns; this figure is much greater than the currency circulation of Denmark which totaled 695,000,000 crowns on the 30th of September. The occupation costs of the German military force are paid entirely in Danish crowns now, such money being requisitioned from the National Bank of Denmark and included in the clearing account between Germany and Denmark. (END SECTION ONE) MORRIS EA:MSG 237 PARAPHRASE OF SECTION TWO, TELEGRAM NO. 4313 OF OCTOBER 14, 1940 FROM THE AMERICAN EMBASSY, BERLIN Danish bank loans and discounts, since the beginning of the occupation, have shown a marked contraction, while record figures have been attained for deposits and cash holdings. A further reduction of the discount rate is believed probable in view of this situation. It 1s rumored that there 18 to take place a conversion of funded indebtedness for the benefit of the Government and the overmortgaged agricultural industry. It 1s reported that up to the present there has been no disturbing of the Danish gold reserve. (b) It 18 estimated that there has been an increase of 40 percent in living costs during the past year. There has been practical cessation of imports of so-called luxury products. It 1s said that for many Danish agricultural commodities Germany 1s paying some 25 percent more, but of there has been an increase in still greater degree in the price/ exports to Denmark from Germany. The retail prices of foodstuffs and other products are therefore mounting in spite of the Government's strenuous efforts to check them through such means as limiting the profits of producers, fixing the maximum prices on consumers goods, and rationing restrictions and restrictions against hoarding. Boards have been set up in many industries under supervision of the Government Regraded Uclassified 238 - 2 - Government for controling production and distribution and allocating and rationing the available supplies of raw materials among the plants. Such control measures have been taken to cover the distribution of feedstuffs and grain to farmers as well as for the textile, iron, tobacco and most other manufacturing industries. There 18 rationing of the following articles at the present time: bread flour tea coal fuel oils cocoa gasoline coffee kerosene coke margarine firewood sugar It is believed likely that in the near future many additional products will be rationed. MORRIS EA:LWW 239 SECTION THREE. (c) Before Germany stationed troops in Denmark, 22 per was cent of Denmark's import requirements NETE supplied by Germany, whereas at the present time 84 percent is sup- plied by Germany. Whereas Germany took 28 percent of total Danish exports prior to occupation, it now takes 92 percent of total Danish exports. Denmark's trade with less important customers and suppliers W&S almost paralyzed for a long time after the occupation but now there is a gradual revival of such trade through the renewal of old agreements with Norway, Finland, Lithuania, Russia, Latvia, Sweden, Estonia, Italy and Switzerland. However, it 18 believed that there will be a dissolution of the trade agreements with Lithuania, Latvia and Estonia. Negotiations are now in progress with Bulgaria, Rumania and Yugoslavia; these countries are reported to be willing to furnish Denmark with cattle feedstuffs on the condition that Germany supply them with needed products on 8. trilateral basis. It appears that the possibility of bringing these negotiations to a successful conclusion is small. (END SECTION THREE) MORRIS EA:MSG 240 PARAPHRASE OF SECTION FOUR, TELEGRAM NO. 4313 OF OCTOBER 14, 1940, FROM THE AMERICAN EMBASSY, BERLIN The report has come to us that all Danish trade agreements are negotiated now directly under supervision by Germany. For example, the arrangements with Sweden and Norway are agreements supervised by Germany, and Germany 1s a third party to the trilateral arrangements. Under the agreement with Sweden, Denmark will import from Sweden 36 million crowns of goods, and will export to Sweden goods in the amount of 24 million crowns. The deficit of 12 million crowns 18 to be debited by Sweden to Germany and applied to the clearing account between Sweden and Germany. The same basis 1s followed for the clearing agreement with Norway. (d) Denmark has been practically deprived of free foreign exchange from shipping since occupation by the German military, and this source of national income had previously been one of the most important. It 1s expected that by the end of this winter Danish agricultural income will deoline radically because of excessive slaughterings of livestock due to a lack of feedstuff for it. Agreement has been reached ameng Danish employers and workers in all industries that they will keep industrial peace. It 18 regarded as inevitable that the number of unemployed will grow. Some 13,000 Danes are employed in Germany now, but it is expected that still more will be 241 - 2 - forced to accept work in the Reich because of circumstances. It 1s requested that Treasury be informed of the foregoing. END OF MESSAGE. OLLICE VBA 307 70 MORRIS. 10 THE 10/11 Bio OCL 12 by H 02 THE IMEVENIC BECEINED 242 New York, October 14,1940 For Mr. Morgenthau: I refer to my letter and enclosed memorandum of October 10th. Since that letter was written we have received confidential advices from Mexico that it is reported on good authority that the export tax on lead will be abolished effective around the end of this month and that export taxes on other metals will be reduced possibly as much as 50%. Harold K. Hochschild. DESYRIMENT lavo 00012 W 8.20 decreased VEGICA 243 October 14, 1940 10:06 a.m. H.M.Jr: Hello. Operator: Secretary Stimson. H.M.Jr: Hello, Henry talking. Henry Stimson: Hello. I'm glad to hear you're back. I've been tied in here pretty hard so that I didn't - I heard you'd called but I didn't ..... H.M.Jr: That's all right. 8: You've seen this new Layton paper? H.M.Jr: Well, that's what I'm calling you up about. S: Yes. He came in Friday and left it with me. H.M.Jr: And, frankly, I'm very much disturbed by it. S: Well, 80 am I. H.M.Jr: And I wondered whether at your convenience if you and I and possibly Frank Knox couldn't sit down quietly and talk about it. That's what I was calling up about. S: I've been trying to outline with Patterson some principles before we tackled our own people on it because I foresee great difficulties with our own people. H.M.Jr: Yeah. S: And the thing is - the only thing about Knox 1s - this doesn't involve nearly anything of his stuff, does it. H.M.Jr: No, it's all Army but his is coming and I wasn't thinking - I'm thinking of the whole picture rather than individual guns and - I mean, after all, I'm thinking of ..... 244 - 2 - B: Well, I'm thinking of the whole picture and I tell you this, I've always been on the principle of my private life not to get - when I got in a stuck position where I had gotten into a bad contract or lost some money, I've always thought it was better policy to go ahead and make some more than to spend too much time fighting out the by-gone - 800 what I mean? H.M.Jr: Yeah. 8: Well, now, that principle applied to our present position is to put as much steam as we can on speeding up production, which is the main thing to being in a position to give more to the British. H.M.Jr: Right. S: And I'm concerned just at present with some little troubles with the Defense Commission. They're our trouble now. H.M.Jr: Well, would you rather see me alone? S: What? H.M.Jr: Would you rather see me without Knox? S: No, I think Knox would be helpful but he won't be very much interested. H.M.Jr: Well, but I ..... 8: What I was going to say 1s - on this before we go back to that - I agree to that - is that I'm just thinking of having a talk this morning with some of the people in the Defense Commission. You see, we're stuck in regard to making speed somewhat by their theoretical plan - they're up in the air - it's getting into our Ordnance now - I've just been hearing about it from Bob Patterson. On some of these new contracts they've held up - you see, the President gave them virtual veto power over any of our contracts over 500,000 - well now they're sticking out on some Ordnance contracts, which are different from airplane 245 - 3 - contracts in that it doesn't involve any facilities that are worth fighting over - new facilities, I mean - not often - but to a much less degree than the airplane business which meant the building up really of a new industry. H.M.Jr: Right. S: They're trying to apply the same questions of amortization to the contracts they've made to almost every damn one of those contracts. H.M.Jr: Well, I don't see why they do that. S: Why it would be better to lose a little money. H.M.Jr: Yeah. I don't see why they do that. 8: And I'm going to have a pretty fine talk with them and I don't want to get into any position that you would disapprove of or feel ..... H.M.Jr: Uncomfortable. S: ..... uncomfortable about. H.M.Jr: Well, this is the thought that I had in mind - whether possibly we could get together at lunch tomorrow . - you, Knox and I, because I'm really disturbed about this report and our whole attitude towards the English. That's what I want to talk about - towards England. 8: Well, I was going to try to see how far I could get - it's a thing I've got to take over myself virtually because Patterson is terribly involved in pushing production now. He's making this week a series of very important trips in order to push production. H.M.Jr: Good. I'm delighted. S: And this is a thing, anyhow, which involves outside nations and I'd have to give full attention to anyhow. H.M.Jr: Well, the thing that I had in mind was that the three of us have a talk and then we will be seeing the President on it - I senthim a copy and I wanted to have a talk before we saw the President. 246 - 4 - S: Well, the thing that's - I think we ought to, but you've got to remember that we're tied up with this infernal step which the Congress took in June in putting that limitation on the certificate and that applies to contracts as well as to the actual trans- fer of munitions themselves. H.M.Jr: Would you be free at noon tomorrow? S: Yes, I think I could make myself free. H.M.Jr: Would you like to have lunch at the Treasury - at my little dining room? S: Yes or suppose we transfer it. Suppose you come up to my house at that time and I'll ask Knox to come up there if he can. H.M.Jr: I'll be delighted. S: Well, that'd be very nice. One o'clock tomorrow. H.M.Jr: One o'olock at your house. S: Yes. H.M.Jr: And tomorrow. I'd be delighted. S: All right and I'll try to get ..... H.M.Jr: But this thing has disturbed me more than anything that has come along in & long time and I'm not thinking in the same terms of a gun or making this, but the whole thing - what are they getting at and where are we going to be next spring - that's what I'm thinking about. S: Yes, I see. H.M.Jr: What? 8: No, I know it. H.M.Jr: And if we say no to them, then what? S: We'll be gone. 247 - 5 - H.M.Jr: See? S: But I don't think we ought to say no. H.M.Jr: Well, I'm just ..... S: I think they're up against it on a good many of these things. Well, of course, some of that - I think some of them - of course, they show in their paper No. - my paper is copy No. 4, I suppose yours 1s copy No. 1, or 2, or 3 ..... H.M.Jr: No. 2. 8: Well, they do indicate that after the first two items, three and four seem to be open to compromise and I thought there it would be a question of getting them to use our own standard to a large extent. The great trouble is going to be in regard to the field guns where they're already dug in and we're already dug in. There the only thing I think we could possibly give would be to give new capacity - entirely new capacity to them. H.M.Jr: Well, I'd like to talk also, as long as you've raised it, about the Defense Council because that bothers me a lot. 8: Beg pardon? H.M.Jr: This whole question of the Defense Council and its position bothers me an awful lot and I'm glad you've raised it. I'd like to have a heart to heart talk with you about it. 8: Well, I'd be very glad to because, you see, it's different - the position that the President has taken about those contracts - giving them an absolute right to approve contracts of over 500,000 is a distinct step over the boundary into my territory beyond what ever happened in the last war. H.M.Jr: I know. Well, he did that before you came to town didn't he? S: I don't know; I imagine he did. 248 - 6 - H.M.Jr: I think 80 because a lot of these things, you see, came up which never would of come if you'd been here. 8: (Laughs). Wall, I hope 50. H.M.Jr: Well, I'll look forward - I'm really very anxious to have & talk ..... S: Well, we'll talk - that's a very important part of our talk tomorrow. H.M.Jr: And you'll have Knox there ..... 8: I'll try to get him. H.M.Jr: ..... and if you don't mind - I can't eat red meat. S: Pardon? H.M.Jr: I'm unable to eat red meat. s: You don't eat red meat. H.M.Jr: I can eat anything else. S: All right. H.M.Jr: Thank you. S: Good-bye. H.M.Jr: Good-bye. 249 October 14, 1940 Dear General watsons Referring to my letter to you of this worning in which I enclosed a secret document from Sir Walter Layton, of the British Purchasing Commission, X am now enclosing a photostatic copy of a supplemental memorandum which I have just received from him. I would appreciate it if you would be good enough to ⑉ that this also reaches the President. Yours sincerely, (Signed) E. Morgusthan, Jr. Major General Edwin M. watson, Secretary to the President, The white House. By Manager 250 October 14, 1940 Dear General Watsons Referring to my letter to you of this morning in which I enclosed a secret document from Sir walter Layton, of the British Purchasing Commission, I an now enclosing a photostatic copy of & supplemental memorandum which I have just received from him. I would appreciate it if you would be good enough to ⑉ that this also reaches the President. Yours sincerely, (Signed) H. Morgenthau, Jr. Major General Edwin M. watson, Secretary to the President, The white House. I & 1 14, 2040 I I Die (Signed) H. Norgenthan, Jr. á Ene. 252 October 14, 1940 My dear Mr. Stimson: In connection with the confi- dential document which I understand Sir Walter Layton gave you personally, I an in receipt of a supplemental memorandum from his en the - nb- jest. I as enclosing a photostatic copy for you . Yours sincerely, (Signed) 1 Morgenthau, Jr. Hon. Henry L. Stimson, Secretary of War. By 253 October 14, 1940 My dear Mr. Stimson: In connection with the confi- dential document which I understand Sir Walter Layten gave you personally, I as in receipt of a supplemental memorandum from his en the came no- jeet. I an emelosing a photostatic copy for you . Yours sincerely, (Stgned) E Morgenthau, Jr. Hon. Menry L. stimson, Secretary of Var. By Measuager 254 October 14, 1940 Dear General Watson: Referring to my letter to you of this morning in which I enclosed a secret document from Sir Walter Layton, of the British Purchasing Commission, I an now enclosing a photostatic copy of a supplemental nenorandum which I have just received from him. I would appreciate it if you would be good enough to ⑉ that this also reaches the President. Yours sincerely, (Signed) H. Morgenthau, h. Major General Edwin N. watson, Secretary to the President, The white House. Exc. By Measonger3 320 255 October 14, 1940 Dear Franks with further refurence to my letter of this morning, with which was enclosed a secret document from Sir Walter Layton, of the British Par- chasing Commission, I - emelosing herewith a photostatic copy of a - plemental memoraném I have just No- coived from him, Yours sincerely, (Signed) H. Morgesthau, Jr. 1 I Secretary of the Havy. bnc. By 3 20 256 October 14, 1940 Dear Franks with further reference to my letter of this morning, with which was enclosed a secret document from Sir walter Layton, of the British Par- chasing Commission, I an enclosing herewith a photostatic copy of a sup- plemental nemoranám I have just - selved from him. Yours sincerely, (Signed) H. Morgesthau, Jr. Honorable Frank Know, Secretary of the Havy. By Memorager October 14, 1940 257 Dear Franks with further reference to my letter of this morning, with which me enclosed a secret document from Sir Walter layten, of the British Par- chasing Commission, I an enclosing herewith a photostatic copy of a sup- plemental memorandum I have just 76- ceived from him. Years sincerely, (Signed) E. Jt. Honorable Frank Knes, Secretary of the Ravy. By Measuager 15 BROAD STREET, NEW YORK TELEPHONE HANOVER 2-2460 BRITISH PURCHASING COMMISSION SECRET October 12, 1940. Dear m- Secretary In confirmation of the that I sub- mitted to you with my letter of October 11th, I hive subsequently received a cable from the War Office and the -inistry of Supply in London emphasiving the im- portance of the provision of 1,000,000 - .303 rifles next year. The cable states that even if the full number cannot be supplied by November 1941, they hope very much that it will be possible for the greater part to be supplied by that date. At this moment the supply of rifles is insufficient. The intake of recruits in the next six months should be at least 300,000 and by November 1941 at least another 700,000 will be enrolled. Fifles are at present one of the main limiting factors in t. e ex,ansIon of the aray. "If", they say, "capacity now existin_ or being crew ted in the United States could be injusted so 85 to sive us some substantinl deliveries of .303 rifles by next spring or early summer, this would be of supreme valne." It is essential to have some reserve and to 2110 for wastage and 1,000,000 plus British production affords a very narrow wargins The cable adds that if the United States could release e further centity of +30 eslibre Enfields in addition to the 1,000,000 - .303 mirlea, they would be very welooue. The releasés hitherts unde have been armed even efter receipt of the recent release of 150,000 invaluable; but the 4001e Guard will not be idequately .30 calibre Inflel's. Loreover, If no .003 rifles seo U. 3. you duction are av. :11sble by the rine of 1941, it may well be that the Any ill be compelled to take may some of the .30 callhre rifles in the hards or the name Guard in order to use them for the training of recruits for the regular Aray. You 111 appreciate from this rent that the request I sub Itred to you yesterday is one of are irgency. Yours sincerely, ne Secretary of the !reasury, hington, In C. Willayton Regraded Uclassified 259 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 14, 1940 Secretary Morgenthau TO FROM Mr. Cochran Mr. McKeon of the Federal Reserve Bank of New York gEVe us the following information regarding the transfer listed below from the account of the Narodni Banke, Praguo, Caschoslavakia, maintained at the Chase National Bank. Amount Debited Paid To Date October 14 $700.000 Chase National Bank for account of the Union Bank of Switzerland, Zurich B.M/R. Regraded Uclassified 260 jt PLAIN STOCKHOLM Dated October 14. 1940 Rec'd 8:34 p.m. Secretary of State, Washington. 979, fourteenth. Swedish national debt increased by 323 in September total 4231 budget deficit 1939-40 was 1100 and 1940-41 estimated 1500 proposal turnover tax to raise 200 in calendar year 1941 presented Riksdag provides 5 percent on sales excepting certain necessities and avoiding double sales taxation all million crowns. Further proposals for sales tax on luxuries in preparation. Protested bills September 2850 valued one point five million. INFORM TREASURY, COMMERCE. STERLING NPL COPY eh 261 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION ... DATE October 14, 1940 TO Secretary Morgenthau FROM Mr. Haas MA Work Projects Administration employment increased to 1,747,000 persons during the week ended October 2, 1940, representing a gain of 44,000 over the last week in September. - Attachments 262 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Week ending Number of Workers 1940 (In thousands) 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 8 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 July 10 1,619 July 17 1,659 July 24 1,689 July 31 1,700 August 7 1,709 August 14 1,708 August 21 1,699 August 28 1,692 September 4 1,690 September 11 1,687 September 18 1,689 September 25 1,703 October 2 1,747 Source: Work Projects Administration. 263 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 July 1,700 August 1,692 September 1,703 Source: Work Projects Administration. Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 264 WORK PROJECTS ADNINISTRATION Number of Workers Deployed United States Healthly W.P.A. Reployment Weekly W.P.A. Employment 1935 1936 1937 1938 1939 (S40 41 1939 1940 TRAC LLIBBS MAY BILLIONS JULY 3571. NOT. - or or OF BORKERS or MAINS 2,4 14 3,3 3.2 3.2 2,3 3.2 1.2 3.1 3.1 2.0 2.8 3.0 3.0 2.9 2.9 2.4 2.4 2.8 2.8 2.7 2.7 1.0 2.0 2.6 2,6 2.5 2.5 1.6 1.6 2.4 In 2.3 2.3 2,2 2.2 1.2 1.2 2.1 2.1 2.0 2.0 & J 1.9 1.5 1.8 1.8 4 A 1.7 1.7 1.6 1.6 0 - $ # . . 1.5 4 . a . 1.5 JAN. MAR. MAY JULY SEPT. NOV. JM. MAR. MAY JULY SEPT. NOV. JM. MAR. 1935 1936 1937 1935 1939 1940 41 1939 1940 1941 aguster MORE PROJECTS MAINTAINATION Office el the Secretary of the Transury - of Imports and I 2-221-12 265 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE October 14, 1940 TO Secretary Morgenthau FROM Mr. Hase M Subject: The Business Situation, Week ending October 12, 1940, Conclusions (1) As prices of industrial materials continue to rise, and e prolonged period of high industrial activity appears ahead, businessmen are becoming more concerned over the adequacy of their inventories. Heavy buying to replenish stocks has already been done by consumers of certain industrial materials, but the movement has not yet spread to all industries nor to the wholesale and retail trade. (2) While some slackening in a few indices of business activity has appeared in the past two weeks, this appears to be merely temporary. Steel activity continues to rise, and new ordere for steel are increasing. An expansion in commercial loans is getting under way, apparently reflecting the participa- tion of banks in financing the defense program, both for factory expansion and for raw material accumulation. (3) Industrial material prices have reached a new high since June, with further increases recorded in prices of such basic materials as copper, lead, zino, tin, steel scrap, and coke. The relative stability of foodstuff prices, on the other hand, suggests that no widespread or general demand for com- modities has yet developed. The present situation While the general business trend continues to improve, B alackening in some indices of business activity in early October suggests that the improvement remains gradual rather than rapid. In recent months the FRB index of industrial production has risen only slightly, the tentative figure of 124 for September comparing with 122 in August and 121 in June End July. Regraded Uclassified 266 Secretary Morgenthau - 2 During the week ended October 5 the New York Times index reversed its previous rising trend and declined 1.3 points to 107.3. (See Chart 1.) All components were lower except miscellaneous freight car loadings and cotton mill 80- tivity, both of which showed good gains. The principal factor in the decline was B. drop of more than 2 points in the adjust- ed index of electric power production, resulting from e. contra- seasonal decline in actual power output. It should be noted, however, that the decline occurred from the highest level on record, and that actual electric power output in that week was still at the third highest figure ever recorded. Next in importance was a contra-seasonal drop in "all other" freight car loadings, the result of 8. sharp decrease in loadings of coal. This development appears to have been due largely to some distortion in the normal movement of bituminous coal resulting from the establishment of minimum price regulations effective October 1. A substantial de- cline occurred in the index of automobile production, but, as pointed out in our memoranda of recent weeks, this seasonally adjusted index had reached an artificially high level due to the earlier start made this year in volume production of new model cars. The adjusted index of lumber production also de- clined, but it should be noted that orders for lumber still continued to run ahead of production. Actual steel operations continued steady at very high levels, and after seasonal ad- justment this component of the index showed only a moderate reduction. Barron's index of business activity, which lagged behind the Times index during most of its extended rise, is now narrowing the gap between the two indexes. While the Times index was declining in the week ended October 5, Barron's index moved up to 115.1 from 114.0 in the previous week. Construction awards lower Heavy construction awards and structural steel awards declined last week. The Engineering News Record reported 384, 797,000 in heavy construction awards, a8 compared with $94,181,000 in the previous week. Structural steel bookings totalled 54,610 tons, versus $5,190 tons in the previous week. 267 Secretary Morgenthau - 3 More inventory buying noted The continued rise in prices of industrial materials, and the assured outlook for a prolonged period of high industrial activity, have led businessmen to look with more concern toward the adequacy of their stocks of raw materials and supplies. This has led to heavy inventory buying in recent weeks by con- sumers of certain industrial materials, notably the non-ferrous metals. The movement has not yet spread to all industries, nor to wholesale and retail trade, but further price increases might provide the incentive for rather widespread inventory buying. Increased buying by industrial concerns in Detroit, partly for the purpose of enlarging stocks of essential materials in advance of possible Government priorities, 1e indicated by figures compiled by the Purchasing Agents Association of Detroit as of September 30. These show that 77 percent of the reporting members are now buying 3 months or more ahead, as compared with 61 percent at the end of June. Commercial loans of reporting Federal Reserve member banks, which usually reflect any important tendency toward inventory accumulation, have recently shown B. noticeable upturn. (See Chart 2). Since part of the rise, however, is attributed to term loans, presumably to finance plant expansion under the armament program, it seems evident that the amount of inven- tory accumulation financed by bank borrowing is 8.8 yet rela- tively small. The situation, it will be noted, is in marked contrast to that during the inventory boom of 1937. The steel situation Increased operating schedules for the two most important steel districts -- Pittsburgh and Chicago -- indicate that the steel industry this week may operate closer to capacity than at any time since 1929. A continued increase in new orders for steel from various industries 1e given in trade reports 8.8 the reason for the expanded production. New orders reported by the U. S. Steel Corporation for the week ended October 3 rose to 101 percent of capacity from 98 percent in the previous week. 268 Secretary Morgenthau - 3 More inventory buying noted The continued rise in prices of industrial materials, and the assured outlook for a prolonged period of high in- dustrial activity, have led businessmen to look with more concern toward the adequacy of their stocks of raw materials and supplies. This has led to heavy inventory buying in re- cent weeks by consumers of certain industrial materials, notably the non-ferrous metals. The movement has not yet spread to all industries, nor to wholesale and retail trade, but further price increases might provide the incentive for rather widespread inventory buying. Increased buying by industrial concerns in Detroit, partly for the purpose of enlarging stocks of essential mate- rials in advance of possible Government priorities, 18 indi- cated by figures compiled by the Purchasing Agente Association of Detroit 8.8 of September 30. These show that 77 per cent of the reporting members are now buying 3 months or more shead, as compared with 61 per cent at the end of June. Commercial loans of reporting Federal Reserve member banks, which usually reflect any important tendency toward inventory accumulation, have recently shown a noticeable up- turn. (See Chart 2.) Since part of the rise, however, is attributed to term loans, presumably to finance plant expan- sion under the armament program, it seems evident that the amount of inventory accumulation financed by bank borrowing is 8.8 yet relatively small. The situation, it will be noted, 18 in marked contrast to that during the inventory boom of 1937. The steel situation Despite reported increases in operating schedules in the two most important steel districts -- Pittsburgh and Chicago -- the operating rate for the steel industry this week is estimated at an increase of only 0.2 above last week's rate. The figure of 94.4 per cent of capacity, however, equals the highest rate in 1939. A continued increase in new orders for steel from various industries 1s given in trade reports 88 the reason for the expanded production. New orders reported by the U. S. Steel Corporation for the week ended October 3 rose to 101 per cent of capacity from 98 per cent in the previous week. 269 Secretary Morgenthau - 4 The concern of steel buyers over possible Government priorities 16 indicated by & trade report that "for the first time since 1937 a large number of buyers are flooking to mill districts to arrange for future deliveries." More concern is being felt by steel men over the pos- sibility of a shortage of pig iron, which 18 believed in the trade to be more of 8. bottleneck than steel ingots. Three more blast furnaces were in blast at the end of September than at the end of August, according to the Iron Age, raising the number to 193 out of & total of 232, but many of those in blast are reported to be in need of relining and other repairs. The Iron Age composite price of scrap steel as of October 8 was 8% a ton higher at $20.62, registering a new high for the year and the highest level since November 11, 1939. Scrap prices were advanced in Pittsburgh, Cleveland, and Youngstown. By-product coke prices in Boston were raised 50% a ton. Shipments by the United States Steel Corporation in September were the highest for that month in 20 years, and on a daily average basis were 7.6 per cent higher than in August. Because of a decline in new orders in that month, more tonnage was shipped than was placed on the books. (See Chart 3, upper section.) The backlog of unfilled orders (lower section of chart) has accordingly shown some decline. Residential construction high in September The volume of residential construction, as measured by F. W. Dodge data, held during September at the high August level. (See Chart 4, upper section.) This is in line with seasonal expectations, and the trend confirms previous indi- cations based on the volume of FHA mortgages selected for appraisal. (Dotted line.) These mortgages in recent weeks have continued to maintain their wide margin over last year's figures. (Lower section of chart.) An earlier indication of residential construction trends may be provided by the number of new homes to be built, as re- ported by the Federal Housing Administration. (See Chart 5, upper line.) These represent prospective new houses which 270 Secretary Morgenthau - 5 have been selected for appraisal, but have not yet been accepted for insurance nor has construction actually been started. An increase in new homes to be built has usually been followed about 8 month later by an increase in homes started (lower line). The rise in the former figure last month may therefore be followed by a further increase in new homes started during October. Further increase in industrial material prices The rise in industrial material prices was extended last week, and was shared by practically all of the principal basic materials usually included in this group. The BLS price index of 16 industrial materials (see Chart 6, upper line) reached the highest level since June. Bo far, however, no widespread increase in demand for commodities in general has occurred, which explains why prices of basic foodstuffs (lower line on chart) have remained relatively steady. In the futures markets last week, prices of practically all industrial materials reached higher levels. Futures prices for copper, lead, zino and tin were increased sharply (see Chart 7). Spot prices of lead and tin were also higher. The American Zino Institute now reports that visible supplies of zino have decreased almost 60 per cent between the end of April and the ênd of September. Stocks in the hands of consumers, however, may not be as short as many had feared, since B. special inquiry made by the Bureau of Mines indicates that such stocks decreased only about 13 per cent between April and September. There 18 also some encouragement in the reported increase in the number of zinc retorts operat- ing in September: 47,700 as compared with 44,400 in August. This has been reflected in & rise of 10 per cent in the daily average output of zino during September. The recent pressure on the copper market caused by in- tensive buying and tightness in the supply has evidently slackened somewhat. Sales of copper in the first ten days of October showed considerable decline from the record rate established in September. The daily average rate in this period of October was 3,032 tone compared with 10,639 in September. 271 Secretary Morgenthau - 6 Statistics released by the Copper Institute on Friday show that stocks of refined copper were reduced in September by only 13,400 tons, as compared with 25,000 previously esti- mated by trade reporters. The increase in the spot price of lead had no deterrent effect on buying, according to trade sources, and orders con- tinued to be booked in good volume. Industry commentators estimated that stocks of refined lead at the end of September were down to 37,000 tons, which is the lowest figure since at least 1931. The first ten days of October witnessed heavy buying of silk in anticipation of a possible embargo. It 1s reported that virtually all stocks of desirable grades of raw silk held in warehouses here and in transit from Japan have been sold. Like silk, rubber was another commodity whose futures prices showed 8 marked increase under the influence of uncer- tainty concerning the Far East situation. The rise in hide futures was influenced by reports from Argentina that Britain is negotiating for 640,000,000 of commodities including hides. Sales of domestic packer hides last week were close to the estimated level of current produc- tion. New orders well maintained Our weekly index of new orders (see Chart 8) held during the first week of October close to the high levels of the previous month. A slight downturn in the combined index was due to 8. decline in orders for electrical equipment from the high volume of the previous week. Steel and textile orders both showed 8. slight increase. INDEXES OF BUSINESS ACTIVITY AND PRICES OF INDUSTRIAL MATERIALS Weekly 1939 1940 MAR MAY JULY SEPT. NOV. JAN, MAR- MAY JULY ACPT. NOVA PERCENT PERCENT PERCENT (BARRON'S) (N. Y, (PRICES) TIMES) 120 106 BARRON'S INDEX 85 1923-25 = 100° N. Y. TIMES 110 100 EST. NORMAL . 100 60 100 94 75 90 68 70 80 82 65 INDUSTRIAL MATERIAL PRICES B. L. S., 1926 e 100 70 76 8 8 70 55 MAY JULY SEPT. NOV. JAN. MAR. MAY MAR. JULY JAN. SEPT. NOV. 1939 1940 *ADJUSTED FOR BEASONAL, NOT FOR TREND 272 Chart 1 - of the Serviary of the Treasury - of - of - C - 305 Regraded Uclas 273 COMMERCIAL LOANS AND INDUSTRIAL MATERIALS PRICES Chart 2 1937 1938 1939 1940 DOLLARS PER BILLIONS CENT (LOANS) (PRICES) 5.4 180 5.2 170 5.0 160 4.8 150 COMMERCIAL LOANS WEEKLY REPORTING NEMBER BANKS 4.6 BILLIONS or DOLLARS 140 4.4 130 4.2 120 4.0 110 16 RAW INDUSTRIAL MATERIALS/ AUG. 1939 = 100 3.8 100 3.6 90 9 SENSITIVE INDUSTRIAL MATERIALS 1936 = 100 3.4 BO 3.2 70 3.0 60 2.8 J M 50 M J $ " J M M J 5 . J M M J $ # J M M J 5 . 1937 1938 1939 1940 Office of the Secretary of the Treasury Division of Research and Statistics c - 263 . A Chart 3 CONFIDENTIAL NEW ORDERS, SHIPMENTS AND ESTIMATED UNFILLED ORDERS OF THE U.S. STEEL CORPORATION 274 ..... TOMS TONS THOUSANDS THOUSANDS 2000 2000 NEW ORDERS 1600 1600 1200 1200 SHIPMENTS 800 800 400 400 0 o 1935 1936 1937 1938 1939' 1940 TONS TOMS WILLIONS MILLIONS 4.0 4,0 3.5 3.5 3.0 3,0 ESTIMATED UNFILLED ORDERS 2.5 2.0 N 2.5 2.0 1.5 1.5 1.0 1,3 .5 .5 0 0 1935 1936 1937 1938 1939 1940 CORRECTED TO TAKE ACCOUNT of CANCELLED ORDERS the и The Secretary of the Treasury I-100 - of - and - RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES 1938 1939 1940 J F M A - J , A 5 o N D J , M A M J J A 3 o N. D of F M. A M J. J. 5. o N DOLLARS DOLLARS MILLIONS MILLIONS (AWARDS) (MORTGAGES) Mortgages Selected for Appraisal 138 and F.W. Dodge Awards 130 Monthly 126 120 114 110 102 100 90 90 78 80 F. W. Doose AMARDS 66 70 MORTGAGES SELECTED FOR APPRAISAL, F. H. A. 54 09 42 50 30 40 18 30 J F MAMJJASONDJFMAM J J A $ o a D J F - A M J J A 5 o M D 1938 1939 1940 DOLLARS JAN. MAR. MAY JULY SEPT. NOV. DOLLARS MILLIONS MILLIONS 40 Mortgages Selected 40 for Appraisal, F.H.A. Weekly 35 35 30 30 25 25 1939 20 20 15 15 1940 1938 10 10 5 5 o o JAM. MAR. MAY JULY SEPT. NOV. 275 Office of the Secretary of the Treasury Division of Reserrch and Includes C - 260 - A Chart 4 Regraded Uclass 276 Chart 5 NEW HOME CONSTRUCTION, F.H.A. Daily Average Number of Homes 1939 1940 1941 J M o # M o D M o D HOMES HOMES 950 950 900 900 850 850 HOMES TO BE BUILT 800 600 750 750 700 700 650 650 600 600 550 550 HOMES STARTED 500 500 450 450 400 400 350 350 300 300 250 250 200 200 J F M A M J J A $ o N D J F M A M J J A $ o # D J F M A M J J A $ o N D 1939 1940 1941 Office of the Secretary of the Treasury Company of Research and Statistics C 359 277 PRICES OF RAW INDUSTRIAL MATERIALS AND FOODSTUFFS 1940 JUNE JULY AUGUST MAY SEPTEMBER OCTOBER NOVEMBER 2 9 16 23 30 7 14 21 28 DECEMBER 4 II 18 25 I B 15 22 29 6. 5 12 19 26 13 20 27 3 10 17 24 0 15 22 29 PER PER CENT CENT Daily 124 124 122 122 120 120 118 118 116 116 114 114 PRICES or RAM INDUSTRIAL MATERIALS B.L.S. AUG. 1939 = 100 112 112 110 110 106 108 106 106 104 104 102 102 PRICES OF FOODSTUFFS B.L.S. AUG. 1939=100 100 100 se 98 96 5 96 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 I 8 15 22 29 6 13 20 27 3 10 17 24 I B 15 22 29 MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 1940 Office of the Secretary of the Treasury Division of Research and Statestics P 194 PRICES OF SELECTED INDUSTRIAL MATERIALS Daily Futures - weekly Averages (Futures) 1940 AUGUST SEPTEMBER OCTOBER 0 1941 MAS. i JULY SEPT. NOV. JAN. i is 25 - . 15 = at 5 13 20 27 TENT) CENTS CENTS CENTS PER PER PER FEE POLICE libbler POUND POURS POLICE Rubber 22 22 20 2 20 or : : is 18 is 16 16 = BOLLARS DOLLARS PLA 2 DOLLARS SOLLARS FORMS FOURS Silk PER 2 FOUND FORD BILE 3.50 3.50 2.60 2.40 3.00 2.40 3.40 3.00 2.20 2.20 2.50 2.50 conta SENTS FER PER I POLID 2.00 2.00 Hideo CENTS CENTS PER PER FOURS Hides FOUND 10 = H 14 * # 9 12 12 a . 10 10 7 a 7 8 NO. - APRIL, JMRS FUTURE 12 6 s 12 12 Copper 12 = Copper " 11 = ID 10 10 10 9 , 9 8 # 9 7 7 60 8 ad 60 Tia Tis 35 55 so 55 50 50 50 45 50 45 40 40 & & 7.5 7.5 Zine 7,0 7.4 7,0 7.6 6.5 Sine 7.2 6.5 7.2 6.0 2 6.0 6,8 5.5 4.4 5.5 6.4 5.0 5.0 6.0 5.0 4.5 4.5 5.4 5.6 6.0 4.0 Land 2 Load 1.5 1.2 5.5 3.0 4.8 5.0 4,8 4.5 / 4.4 4.5 4.4 4,0 4.0 4.0 3.5 4.0 LA 18 25 1 4 15 32 29 6 15 20 27 1.5 MY upf. NOV. - i James see, - 1941 I SEPTEMBLE OCTOBER 1940 1940 - SEPT. FVTWES - BIT FUTURES MPT. - FUTURES - FUTURES - - FUTURES 278 F - Office - be Secretary of the Treasery - # - - - ChaRegraded Uclass 279 Chart to CONFIDENTIAL INDICES OF NEW ORDERS Combined Index of New Orders and Selected Components 1938 1939 140 PERCENTAGE PENDENTAGE POINTS POINTS 160 160 150 150 140 140 1 130 130 Total (combined Index) 1936 . 100 120 120 110 110 100 100 8 90 80 80 70 70 60 60 Total excluding Steel and Textiles 50 50 40 40 Steel Orders 30 30 20 20 10 10 Textile Ordere 0 o A $ o N D J F M A M J J A . o M D J F M A M J J A $ o # D 1938 1940 1939 - et The Secretary of the Treasury - of - - 1-85-C 280 0-2/2657-220 RESTRICTED M.I.D., W.D. No. 219 October 14, 1940. SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. No ground operations. 2. Air Force Operations. German air activity continued in its established pattern by day and night on the 12th and 13th. Raids centered over southeast England, the London area, the Midlands and northwest England, notably Liverpool. Level of activity was high. The R.A.F.'s offensive operations were conducted princi- pally at night. There was some bombing of the "Invasion Ports". Ber- lin was bombed on the night of the 12th-13th. The Krupp works at Essen were raided on the 12th-13th and 13th-14th. Other points bombed included the railroad yards at Harm and Cologne, 3 oil plants, Kiel and Wilhelmshaven, and the Fokker aircraft factory at Amsterdam. II. Mediterranean and African Theaters of War. 1. No ground operations reported. 2. There were widespread air raids on both sides over the entire theater. It is probable that all missions were executed by small formations. 3. The Italians claim destruction of 8 British cruiser and damage to an aircraft carrier and to another cruiser in a naval-aerial action near Malta on the 11th-12th. They admit the loss of one des- troyer and two torpedo boats. RESTRICTED 281 Paraphrase of Code Disputch Received at the Var Department at 10,00, October 26, 1940 CONFIDENTIAL London, filed 14:00, October 240 1940. 1. During the night of October 13-24th the Donber Commind dispatched 133 planse against ensuy objectives, with 75 against Wilhelmshaven and the Kiel Gamal, 35 against oil targets, 18 against invesion parts, five against aircraft fasteries, and 12 against railreed yards. In addition six planes recomeitered the North Sea. The Coastal Command operated 28 planes a 19 routine patrols, 21 planes en 16 special patrols, 14 planes as five offer- sive missions, seven planes an seven photographic missions, and excerted 19 cenveys. time of these planse vere lest. The Fighter Command sent out 121 patrols and engaged in 121 serties. 2. The Comm Air Force made four main attacks during day- light heare of Sunday, October 13th, employing about 25, 60, 90, and 50 mechines, respectively, practically all of which were fighters. Elements of the last three reids were successful in reaching Landon. Landon - the min objective of the raids that night, with Liverpool the uncondary target. In addition German planse laid rines. 3. Damages inflicted by the daylight attacks - negligible. Boube damaged the Eastern London - works, and had a seattered effect an railmys. The more prenomed activity during the night refused industrial activities in 18 fasteries. German minalaying resulted in the closing of the entrasses to the Modray, Humber and Toway Rivers, Falmouth Day, the Kyles of Date, and the Bay entrance to Serge CONFIDENTIAL Regraded Uclassified 282 CONFIDENTIAL 40 Commin plans Lances - tax entired and five probable. the Fighter Commend last - piles and tap strents. 5. two outbound curveys with & total of 99 ships have cleared the British Isles. 6. - attacks en rest and rail comminations continue. In competion with tosties of daylight attache, 11 is the - of epizion here that the Cornums are in a qualary. thair notion in stopping the we of benbers and the diversion of fighters for basing above is considered a proof of this belief. the experience of the part week indicates that handleng attacks by British fightere - the German attache to break w easily. Namer 11 is w spinion that these changed tasties resulted from an adoption of 6 policy of infilization by the - rather then free & lewered swale. 7. It to the general impression here that it is the present intention of the Germans to centain the British with their - Channel threet is enter to provent the senting of reinferements to the Middle last. & growing apprehension is created w the situation there. 6. Lard Halifax informed - during the weekend that be w setisfied that - Transe's brother-in-low, - back from Berlin and Issue undepresed w the proposals of the Anda. Be to very sptimistic that Spain will remain neutral. LEE Distributions Bilitary Adde to the President Decretary of for = s I Order Se Years Division Regraded Uclassified 283 BRITISH EMBASSY, WASHINGTON, D.C. Personal and Secret October 14th, 1940 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, Lowards The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 284 Telegram from London October 9th, 1940. Naval. Two naval trewlers were sunk by enemy action south of the Isle of Wight on the night of October 11th - 18th. A British destroyer sighted and engaged two fast enemy small craft but lost touch. A naval trawler was sunk by an explosion off Sheerness, night of October 18th. During fleet operations in the Mediterraneen there has been little enemy sir activity some enemy submarines reported South- west of Crete and one heavily depth-charged. Units of the fleet re-fuelled at Malta without incident. The convoy from Alexandria arrived safely. Thunderstorms prevented air attacks. Two Italian destroyers were encountered on the night of October 11th-19th. H.M.S. Ajax disabled one of them (1200 tens completed 1930-2) which was sunk by the fleet on the following morning. s. Royal Air Force. Adverse weather, including severe 101ng conditions, restricted our night-bombing as October 11th-10th. several invesion ports were attacked though is meet cases accurate observation/ Regraded Uclassified 285 + observation was not possible but a large explosion was coon is the ducks at Boulegno and targets were hit at Botterdam as oil refinery at Husburg and Krupp works at 5101 decks were located and fires caused. An aluminium works ship building yards at Humburg, and docks at three seval stations were attacked without observed results. Other air craft muble to locate their primary targets attacked twelve merodromes, deeks is Dateh ports, and Fokker aircraft factory at Ansterism. Some mines were successfully laid. One aircraft shot down an M.M. 109 into the 000. Daring daylight on October 19th two Blen- keins on patrol attacked an easay convoy off Treadjhom with small calibre and incendiary bombs. Several near misses were obtained, and probably one hit. During the sight of October 19th-13th ninety nine aircraft were despatched to the following targets: Invasion ports (35 medium bombers). Aluminium and chemical works and Krupp works at (55 heavy bombers). Marshalling yards in Germany and Folker aircraft factory. In addition four aircraft were sent to lay mines and two to drop leaflets in Northern France. All our aireraft have returned. 8. German Air Forge. Right of Getober 11th - 19th. Purther reports. - dislocation of public utility service Regraded Uclassified 286 and wide-spread damage to house property was caused at Manchester and a ship was damaged by fire in Liverpool docks. In London area approximately 64 persons were killed and 167 seriously injured. Darlight Ostober 18th. On seven occasions during the day enemy formations of approximately 40 to 60 aircraft crossed the South Coast and flow towards the London area. The final raid, between 4 and 5 Pollo contained about 180 aircraft. In each instance a small proportion of enemy machines, mostly flying at a very great height reached inner London area. Our fighters intercepted and engaged the enemy and shot down 10 aircraft. Bombing in the London area was not heavy and no serious damage occurred. Outside London, Hestings was bombed twice, the second time heavily and a serious fire was started at the gas works. During the night of October 18th - 18th weather conditions were clear with bright moon- light. inemy attacks on London and the Midlands were heavy between 8 and 10:45 p.m. A lighter scale attack was resumed on London at 11 o'clock, but by 8:30 s.m. the country was clear. Is the Lendon area no important damage has been reported, although the National Gallary and the Var office 9470 his. at Trafelger Square union/ Regraded Uclassified 287 under - station BOTOR persons were killed and thirty - forty vounded. Coventry vas heavily attacked between 6:50 and 20 Dome, and several fires were Gamaged which were all extinguiched by carly mersing. Intensive damage vas done to commercial property but the damage to key factories 988 slight. the Gentral fire station and telephone enchange were hit. Casualties from this area # far reported are 18 killed and 63 wounded. Your soldiers were killed and 16 wounded at 6 military comp in South West Regland. Aircraft Carrellies fighters Desprared Probable Deganed 10 -others 2 1 ail By anti-aireraft unspecified mill nil Totals F 11 + la addition a Tunker as dived into the ⑉ eff the Isle of wight last night being blinded w searchlights). We lost 10 aircraft 4 pilots being lost. 4. Centers- two conveys aggregating 41 ships have arrived safely. Cargoes included 8 of steel and a of lanber. Middle Libya. On October 11th our circraft attached shipping at Tabrok and scored a direct hit - - Langu ship. On the night of October 11th - 19th RPP with benefore attacked Banghast, fires - started in areas, direct hite mN ascred Regraded Uclassified w 288 on military buildings and a ship was set on fire. Erythrea & Abyssinia On October 9th - 10th two Italian aerodromes were attacked fires and explosions were caused and bombs fell amonget hangers and buildings. On October 11th bombers of the South African airferce attacked an Italian serodrome and scored direct hits on a building and on mechanized transport. Suden Kassala sector. On October 10th one of our mechanised patrols engaged the enemy and killed 18, our casualties 1 killed 1 wounded. West Africa It is reported that 8 French aircraft flew over Duala on October 18th and dropped anti- British leaflets. Regraded Uclassified 289 BRITISM EMBASSY, WASHINGTON, D.C. October 14th, 1940 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Loluzan The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 290 Telegram from London dated October 11th, 1940. Naval. During the night of October 10th-11th a bombardment of the harbour and shipping at Cherbourg was carried out by one battleship and a force of cruisers and destroyers in conjunction with an air attack by heavy and medium bombers. A naval patrol vessel was mined and sunk in the Firth of Forth on October 10th. 2. Royal Air Force. During the night of October 9th-10th observation of our bombarding operations vas difficult and results could not always be assessed. However, 4 invasion porte were attacked and fires started at Flushing and Amaterdam; the synthetic oil plant at Colegne and Krupp's work were attacked; large fires were started by 7 heavy bombers at an aluminium works; Reishols power station and an armsment factory at Colegne were bombed by single aircraft. Several reilway targets and 10 acrodromes were also attacked and mine laying and leaflet dropping were also undertaken. During the night of October 10th-11th 167 bombers were despatched as follows. Invasion porte, 52 sireraft; marchalling yards, 10 aircraft; cooperating with Royal Navy, 13 aircraft; 6 oil targets, 67 have benbers; wilhelmahaven dooks, 13 heavy beabers; Eropp's works at Kiel, 21 heavy bembers;/ Regraded Uclassified 291 bombers) Eindhoven acrodranc, 3 heavy bomberes mine laying was carried out by 24 aircraft und 1 machine was detailed to drop leaflots in northern France. All our aircraft have returned. 3. Gorman Air Porce. Night of October 9th-10th. Later reports. Some temporary interruptions to road and telephone communications end public utility services are reported from the London area where casualties were approximately 79 killed and 31 seriously wounded; at Challen e bonb fell in a barreeks where 5 persons were killed and 20 seriously wounded. During the daylight of October 10th four major formations of enemy circraft crossed the const. Two of these consisting of 50 end 100 aircraft respectively came between 8.30 and 10.00 name: the first penetrated to the eastern outskirts of London while the second remained over the Dover area. AS mid-day 100 sirereft operated in the Weymouth area for a short time but aid not penetrate far inland. At 3.15. p.m. a raid took place in the Themes estuary area while a patrol of about 70 aireraft remained off Dever] by 4.00 e'clock all had recroased the coast. AB a result of interception by our fightors 4 enemy aircraft were destroyed. During these raids bembe ware dropped in southeastern London suburbs causing some casualtion and outside London damage to property was esused at seaside resorts on the east and southeast coasts. During the night of October 10th-11th London m again the main objective. Until 11.00 Dallie activity was 68 a normal scale bas diminished later on. Isolated aircraft operated widely over the country. Design/ Regraded Uclassified 292 Demage is reported as follows. In the London area interruptions were eaused to electrical suburban services and a few streets in the nest Ind are temporarily closed. Dislocation of public utility services was enused in three districts and services at one telephone exchange are interrupted. The only damage to var industry reported vas a forty pamp fire in a factory engaged on aircraft works the fire is under control and two-thirds of the factory 10 sefe. Casualties appear to be small although reports are incomplete. Outside London bombe fell on the southern suburbe of Hanchester, in Liverpool and Bootle but to damage of military importance was caused although some structurel damage was done to Heasrs. Lever Broo., Part Hunlight, Cardiff and towns on Tyneside were visited but there are no reports of serious damage from these areas. The nevel air station reported at being out of service yesterday is again in use. 4. of air casunities. Easay Destroyed Probable Damaged If our fighters: 1 . 8 Bonbers s - 5 Fighters Bankers 1 - Total 5 5 Britted 5 fighters (8 pilots safe) Regraded Convoye/ Uclassified 293 5. Cenvoys A convey of 89 ships has arrived safely; cargees included 4 of oil and 6 of steel. s. Middle East Libya on October 9th 5 Blenheims bombed shipping at Tobruk starting a fire on one tanker, hitting another and also scoring direct hits on a large ship. on the morning of October 10th three Itelian columns made a short advance of 15 miles but later withdrew to their original position. These columns consisted of mechanical transport and some tanke; fire from a battery of the Royal Horse Artillery caused considerable casualties to personnel and to about ten vehicles. Our casualties mil. No information has so far been received of German forces in Libya though a report of October 9th says that 3,000-4,000 specialists are in the country and that this number 18 increasing every week. There is no confirmation of a Press report that General Feldmarchall Keitel has been appointed to take over command of Italian troops in Libya. walts on October 8th a Hurricans shot down one of a file of enemy aircreft which approached the island and severely demaged a second. The remain- der turned away before reaching the coast. 7. Germany Indications from the Press and other acuress agree that the German public is being told that/ Regraded Uclassified 294 8, that the British are preparing to use gas warfare and is being advised to take precautions. From previous experience of German methods there is the possibility that this may be 8 move in preparation for the Germans themselves adopting chemical worfare against this country. This possibility has been forseen and measures which are being actively pursued have been already taken to counter any such step by the enemy. Regraded Uclassified 295 Telegram from London dated October 12th. 1. Naml. During operations off Charbourg a night of October 10th/11th, one hundred and teenty shalls (fifteen inch) and eight hundred shells (4.7 100h) were fired w our warships. Many solves fell in target area and large fires were started. M first enemy 414 not appear to realise that attack case from 000 but later fire was opened w a 13.5 inch battery which struddled our ships up to 28 miles without causing damage OP cosualties. During night of October 11th-October 12th three motor terpedo beats terpedsed and senk two easy trawlers and brought home thirty-four priscnere. (10 is not proposed to publish this). Reports from two British merchant vesselsimdicated that two enemy surfact reiders my be operating in mid-Atlentie. 2. During the night of October 10th-11th, fifty-nine bonbers attacked shipping is invasion ports, five norshalling yards were bombed and hits vero registered a all except ⑉ where results could not be observed. Attacks a oil targets in German appear to have been very susessaful) and 44 heavy beniers located and bonbed their objectives. Hite vore - is deckyards at Brenerhaven and Kiel which vere attacked W n havy benbers but at wilholmshaven results were - Eintheven and 7 other were/ Regraded Uclassified 296 vere humbed end other targets included a Must furness, a fastery and at Cologue a noter verks but results on these targets sould not be accouned. All sireraft detailed tw sine laying operations completed their tasks. During above operations too energy airereft are claimed to have been shot com. During night of October 11th-12th, 76 sivereft were despatched so the following targets; shipping at Datend, Retterdam, eltuinium verts, cill targeto in Commany (30 heavy bonbers), skipbuilding yard in Commay (17 heavy bookers), "Tirpits" at Wilholmahaven (six heavy bookers). In addition 18 aircraft were detailed for mine laying. All our mathines have returned safely. 3. During the night of October 100h-11th is addition to damage already reported come temporary dislesation of min railway line occurred in Lenden area. Casualties at Liverpool were only two killed and four injured and at Cardiff four killed and six injured. Day-light October 12/03. may formations contained a my large proportion of fighters. Two min attacks consisting entirely of fighter aircraft, and composition of others me approximately three fighters to - booker. setivity started at 7.30 whis six cirereft penstrated to central Londen. Later in the norming, in the early afternoon and at 4 Dolla large emmy formations operated over Kent but some penetrated the inner Leadon seae except at 4.30. Interesptions were made w our fighters. caly alight damage is cast at southeast Loadon arees to reparted. - dropped at Centerburg where / Regraded Uclassified 297 -3- vindoms. of the Gathedral and roof of church vare damaged, Surprise boulding of tome oz the south seast accurred, causing damage to property though consultion = see, Inc formations of about fifty aircraft each operated over coast, but no bonking was reported. Summary of sir ensualties:- Destroyed Probable beet w our fighters Banbero 4 2 ail Pighters 4 2 1 by night benkers Unidentified 2 mil nil Totals 20 4a. T British 9 aircraft (6 pilots sefe). Night of October 11th-12th. During the early part of the night the usual scale of ensuy attack was maintained over London an min objective although other raids visited Liverpool, Manchester and Bristol areas. Later is the night activity FBB greatly reduced and by early morning country was clear. 41ne laying activity is suspected off the East Secttish Coast. In London area no damage of military importance is reported but some dialocation of rail and read services was caused and two factories and # power station ware his but 18 10 believed output will not be seriously affected. AS about s p.m. thirty persons were killed and 20 injured when 3 buses were mee. A serious fire at Roshampton Ecopital vas grickly get under control. outside London a ress of serviy too hours duration was made as Liverpool Regraded Uclassified 298 dooks but damage is not extensive; bombing also took place at Manchester but no damage of major significance has been reported. be Shipping Casualties. Last night 6. Norwegian ship (4700 tone) and a British ship (5700 tons) the latter earrying rifles end aeroplanes homeward bound and in convey were attacked by a U-boat in Northwestern appreaches. Damage and casualties are not yet known. A Greek ship (3800 tone) torpedoed on October 9th disappeared last night when under escort and is presumed sunk. 5. Middle East, Libya. On the night of October 10th twelve medium and three heavy attacked shipping and dooks at Bonghasi. A large fire was started and direct hits were made on three ships. Kenya- AB infentry reconnaissance on October 10th met strong enemy resistance five miles south of Bune and withdrew after inflicting casualties. Regraded Uclassified 299 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 14, 1940 to Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran The six reporting banks' transactions in registered sterling were as follows: Sold to commercial concerns 699,000 Purchased from commercial concerns $10,000 The Federal Reserve Bank sold £15,000 in registered sterling to a non-reporting lank. In the open market, sterling was first quoted at 4.03-1/2. It moved to 4-03-3/4 in the early afternoon and closed at that level. No commercial or foreign bank transactions were reported. Continuing its improvement, the Swive franc advanced to close at .2321, a. now purrent high. The volume of Swiss franc business transacted in New York was reported have been small. The other currencies closed as follows: Canadian dollar 13-3/8% discount Swedish krons .2387 Reichamark .4005 Mexican poso .2073 Argentise peso (free) .2365 Brazilian milreis (free) .0505 Cuban peso 8-1/2% discount Lira .0505 A Vichy report on the Dow Jones ticker stated that American banks in France, by common agreement, lowered their buying rate for dollars to 42.97 france per dollar, the lowest point since the start of the war. Previously, the buying rate was 43.60. the banks said their action was caused by the difficulty and cost in transferring ollars between New York and Vichy. However, the rate at which the banks will sell bllars was maintained at 44 france per dollar. French franc-dollar business was Jery small, according to the news item, The new rates for dollars in Vichy are quivalent to .0232-3/4 buying (as against .0229-3/8 previously) and .0227-1/4 willing. To sold $800,000 in gold to the National Bank of Afghanistan, to be added to is earmarked account. To purchased $500,000 in gold from the earmarked account of the Central Bank if the Uruguayan Republic. 300 -2- The Federal Reserve Bank made a three-monthe loan of $25,000 to the Central Bank Il Salvador, setting seids as collateral $30,150 in gold from the Salvadorean next's earmarked account. The total of such loane now outstanding amounts to $650,000, peared. by $733.684 in gold. The Federal Reserve Bank reported the following shipmente of gold: 3,049,000 from Japan, shipped by the Yokohana Specie Bank to its San Francisco agency, for sale to the U.S. Mint. 2,022,000 from Canada, shipped by the Bank of Canada, Ottaws to the Irving Trust Company, New York, for account of the National Bank of Iran, Tehran, Iran, for sale to the U. 3, Assay Office, 1,521,000 from South Africa, shipped by the South African Reserve Bank to the Federal Reserve Bank of New York for account of the Bank of Sweden, for sale to the U. S. Assay Office, 606,000 from Portugal, shipped by the Bank of Portugal to the Federal Reserve Bank of New York, to be earmarked for its account. 54,000 from El Salvador, shipped by the Central Bank of El Salvador to the Federal Reserve Bank of New York, to be carmarked for its account. 17,252,000 Total The State Department forwarded to us & cable stating that the National Bank of bila, Bombay, shipped $311,000 in gold from India to the Chase National Bank, Tork, for sale to the U. S. Assay Office. The report from the Federal Reserve Bank of New York listing deposite for the account of Asia as reported by the New York agencies of Japanese banks on October 9, stowed that such deposite totaled $102,455,000, an increase of $3,443.000 since the last report as of October 2. Included in this total were $35,759,000 in deposits Nth the Yokohama Specie Bank, New York, made by its branches in China, off $123,000 from October 2, and $55,757,000 in deposits made by Japanese banks in Japan and aucharia, up $3,384,000. Loans made to Japanese banks by Yokohama's New York agency Detaled $17,756,000. an increase of $780,000 over the October 2 figure. The Bombay gold price was equivalent to $33.79, unchanged from Friday's Rotation. Silver was priced at the equivalent of 44.514. off 1/16#. In London, the prices fixed for spot and forward silver were both unchanged n: 23-7/16d and 23-5/16d respectively. The dollar equivalente were 42.56# and 42.334. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/4#. Treasury's purchase price for foreign silver was also unchanged at 35#. To made four purchases of silver totaling 475,000 ounces under the Silver Purchas* kt, Of this amount, 200,000 ounces represented a sale from inventory. and the reatning 275,000 ounces consisted of new production from foreign countries, for corward delivery. RMR. CONFIDENTIAL Regraded Uclassified Pages 301-303 placed with Willkie (Wendell L.) material. - (Forrestal-!MJr telephone conversation - 10/14/40) 304 October 14, 1940 12:40 p.m. H.M.Jr: Hello. Operator: Secretary Stimson. H.M.Jr: Hello, Henry talking. Henry Stimson: Yes, Henry. I've just talked with Frank Knox and he just remembered that he had an engagement to go off on a trip - some inspection trip or other with a body of officers of some two weeks standing tomorrow in the middle of the day. He could if you thought it important enough meet with us right early in the morning - about 9 o'clock, or he was perfectly willing for you and me to go on ahead. Which would you prefer? H.M.Jr: Well, why don't just you and I go ahead sort of. S: Well, all right. I think it's rather better - of course, that all relates to Army. H.M.Jr: Well, then, why don't I just come up there at 1 o'clock tomorrow. S: That's it. Fine. H.M.Jr: O. K.? S: O.K. H.M.Jr: Thank you. 305 October 14, 1940 2:48 p.m. H.M.Jr: Hello. Operator: Mr. Fraleigh. H.M.Jr: Hello. Elmer Fraleigh: Hello. H.M.Jr: Elmer, I got your message via Mrs. Morgenthau and before deciding I wondered if anybody had been in today who wanted to buy any apples. F: There hasn't been a one around. H.M.Jr: There has not. F: No. H.M.Jr: I see. Nobody showed up, huh? F: I haven't seen one around the storage at all. H.M.Jr: Well, I did a little figuring on the $2.10 and I figure after storage it works out about $1.57. I don't know what you figured it. F: I don't think it's any better. H.M.Jr: What? F: I don't think it's any better. H.M.Jr: $1.57. F: It figures $1.57? H.M.Jr: $1.57 after storage. What do you figure it? F: I didn't figure it exactly, but I figured around $1.60. H.M.Jr: Well, we're not far apart then. F: No. 306 - 2 - H.M.Jr: Well, before I change over I think we'll keep See? on where we are for another day or 80. F: Yes. H.M.Jr: Because to go to the boxes would disturb the whole thing. F: That's right. H.M.Jr: Well, I'd just like to wait another day or 80. F: Yeah. H.M.Jr: Now, what do you want to tell me? F: I think that was all. Oh, I couldn't find Mr. Hart to find out about when they were going to start up there. I did find out that registration is until 9 o'clock in the evening and 80 I can go up after I get through. H.M.Jr: O.K. Would it be agreeable to you if I wrote Hart a letter and asked him whether you could stay for the month of November as a favor to me, if I wrote him? F: Well, I don't believe I can. H.M.Jr: But you - I mean, it would be agreeable to you if it was agreeable to him. F: Yeah. H.M.Jr; O.K. Well, I think I'll write him a letter today then - today or tomorrow and see what he says. Because if we had you in November then we'd have everything pretty well packed up and out of the way. F: We'll finish the McIntosh the latter part of next week. H.M.Jr: Right. If you make any sales tomorrow, give me a call. F: Beg pardon? 307 - 3 - H.M.Jr: If you sell any apples tomorrow give me a call. F: All right. H.M.Jr: I think that what you should be careful to watch and try to sell a bushel of No. l's to every bushel of utilities. Try to keep it on that basis. F: Yes. H.M.Jr: Somebody might come in tomorrow and want only utilities - I'd try to keep it if possible one-and-one. F: Well, Thurman wants a load. H.M.Jr: Who? F: Thurman, Wednesday or Thursday he said. He wasn't quite definite about it. H.M.Jr: Well, try if you can to keep it on a one-and-one basis. F: All right. H.M.Jr: I thought that price in New York was pretty good. F: Yes, but it doesn't compare to what we're getting here. H.M.Jr: No, that's right. That's right. 0. K. F: All right. H.M.Jr: Good-bye. F: Good-bye. 308 October 14, 1940 3:13 p.m. H.M.Jr: Hello. Jesse Jones: Hello, Henry. H.M.Jr: How are you? J: Pretty good. How are you? H.M.Jr: I'm O.K. I got some word that you wanted to talk tomorrow about Chile. J: Yes, somebody said I did. I don't know who told me. (Laughs). H.M.Jr: Well, do you? J: Yeah, I suppose 80. H.M.Jr: Well, I mean, the call, I understood, came from your office. J: Well, the State Department people were here this morning about - they said that it had been suggested that I see you tomorrow at 3 o'clock. H.M.Jr: Oh. Did you know what it's about? J: About Chile. H.M.Jr: Yeah, but I mean as to what? J: I suppose it's their exchange end of their desire for credit. H.M.Jr: What's the fellow - Collado - is that the fellow? J: That's the fellow. H.M.Jr: I see. Well, I can find out through White what he has on his mind. J: All right. Would you do that? H.M.Jr: Are you coming over? 309 - 2 - J: I'll come any time you say. What time suite you? H.M.Jr: Well, I put you down tenatively for 3 tomorrow. J: huh? I see. You haven't got me down for 1 o'clock, H.M.Jr: No, I'm - (laughs) - going to have lunch with Mr. Stimson. J: (Laughs). o. K. H.M.Jr: But I'll put you down Wednesday at 1 o'clock. J: Wednesday at 1. H.M.Jr: Yeah. J: I wonder if that wouldn't be - I don't know whether this thing's going - whether these other boys will have a calf in the meantime. H.M.Jr: It's all right with me - only have one appointment. J: Put it down tenatively and let me check and see if that won't suit the State Department just as well. H.M.Jr: Now what do you.- I can't keep up with you as usual, Jesse. J: I say I prefer 1 o'clock Wednesday but - no, no, I'm sorry, I remember now, I've got a 1 o'clock luncheon for Wednesday. Better make it tomorrow I guess. H.M.Jr: Tomorrow at 3 o'clock, and that will be on Chile. J: Yeah. H.M.Jr: 0. K., Jesse. J: All right. 310 October 14, 1940 My dear Mr. President: I an inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. I have sent copies of this to the State, War and Navy Departments. Yours sincerely, (Signed) 1 Morgenthan, ft. The President, The White House. bnet By Measongee 455 4 311 Optober 14, 1940 My dear Mr. President: I an inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. I have sent copies of this to the State, War and Navy Departments. Yours sincerely, (Signed) H. Morgonthan, Jr. The President, The White House. By Mesemper Regraded Uclassified 312 October 14, 1940 My dear Mr. Secretary: I on inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (Signed) E. Morgunism, dt. Honorable Cordell Hull, Secretary of State, Washington, D.C. Encl. R I y Regraded Uclassified 313 October 14, 1940 My dear Mr. Secretary: I M inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (Signed) B. Morgantiso, Jr. Honorable Cordell Hull, Secretary of State, Washington, D.C. Encl. By Meascager Regraded Uclassified 314 October 14, 1940 My dear Mr. Secretary: I am inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (Stgned) H. Morgenshau, Jr. Honorable Henry Stimson, Secretary of War, Washington, D.C. Encl. By Memenger 455 315 October 14, 1940 w dear Mr. Secretary: I - inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (hagned) H. Merganthan, Jr. Honorable Henry Stimson, Secretary of War, Washington, D.C. Enal. By Memoneger Regraded Uclassified 316 October 14, 1940 My dear Mr. Secretary: I am inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (Signed) H. Morgesthati, Jr. Honorable Frank Knox, Secretary of the Navy, Washington, D.C. Encl. By Memenger 455 317 October 14, 1940 My dear Mr. Secretary: I am inclosing herewith an extremely interesting interview between Hirochi Kondo and Treasury Agent Nicholson. Yours sincerely, (Signed) E. Morganthan, Honorable Frank Knox, Secretary of the Navy, Washington, D.C. Encl. By M MWC - - TO n. 318 ADDRESS TM - M. s. COAST - treasury DEPARTMENT UNITED STATES COAST GUARD HEADQUARTERS WASHINGTON 14 October, 1940. SECRET From: Spagent, Shanghai, China. To : Secretary of the Treasury. Message from Mr. Nicholson. The following is highly confidential: Hirochi Kondo, Vice Minister of Foreign Affairs, Tokyo, who has been in Shanghai for the past five days collecting information regarding the general situation and activities of agents of different Japanese intelligence services, left today for Tokyo. As he is a very old friend of mine, he talked with me more freely than with his Japanese colleagues and the following summary of information was obtained: First: The purpose of his visit was to get a better understanding of all actions which have been taken by local military and civil authorities on their own initiative. Second: While here, he got acquainted with various Japanese organizations and their activities and was deeply shocked to learn of their criminal operations. He pointed out that Japan had long since been purged of the dregs of the society involved; then Harbin underwent 8. similar cleaning process, then North China, following which the whole crowd came to Shanghai to continue their criminal activities along the old lines trying to attain leadership by terrorism and gangster tactics. Kondo stated that there would be sweeping changes by replacing local officials who are supporting such activities. 319 SECRET - 2 - Third: Regarding the new order, Kondo says an essential feature thereof is to destroy domination of Anglo-Saxons in Asia, but that this does not mean expulsion of all foreigners. The strug- gle is against those foreign groups and financial concerns which want to maintain the high position they acquired a hundred years ago, Against them the struggle will be continued to the end, but others, regardless of nationality, whether French, Jews, British, Americans, will be able to continue their activities on a basis with the new order by simply acknowledging the same. Fourth: Kondo believes that an agreement ending the war will be reached between Japan and China and that Chiang Kai Shek and Wang Ching Wei share a common point of view on this subject. Fifth: War in China and regimentation of economics to military ends are displeasing to Japanese workers. There is a shortage of man power in all branches of industry and commerce. All men are mobilized and are being held in reserves in case more divisions have to be sent south, as armies in Manchulaio and Korea cannot be moved. Wherever opportunity offers, grown men are being replaced in jobs by young boys and girls. Sixth: Half the people of Japan are socialists. The regimentation of capitalists by force and persuasion is an easy undertaking in comparison with the prospective task of bringing workers and farmers into line. The relation between rural and urban classes is one of antagonism; village blames city for harness of life, and city dwellers are displeased with country districts 320 SECRET - 3 - because farmers do not wish to supply rice and other farm products at controlled prices. This is causing as situation unprecedented in Japan. In town markets there is a lack of most important goods; farmers have them but consider it unprofitable to sell them at fixed prices, hence they keep them in the country. The same situation applies to wholesalers who will not sell to retail shops. As a result, trade is dead and there is hunger in cities. Leftist elements are using this growing displeasure to fan their anti - government propaganda. Seventh: Konoye is very popular in Japan as 8. represen-- tative of an ancient family, but he is too weak for present demands and unsuited for the roll of a dictator. The tragedy of Japan is that there is in the country no Hitler or Mussolini and the social- ists make the most of this. The only authority which still holds the country together is that of the emperor. Eighth: There was a recent meeting in Tokyo attended by Kondo at which representatives of the Ministry of the Interior considered the present situation. Domestically this was found to be exceedingly difficult. One of the main reasons discovered was that numerous small officials recently appointed to replace drafted men were people without any experience or ideas of government. The meeting considered that it would be necessary to recall former officials from the army and reinstate them in their old posts and introduce some resolute measures to stop further developments of socialism. The growth of the idea of socialistic monarchy may lead 321 SECRET -4- to revolution; in fact, Kondo says practically speaking, Japan is living on top of revolution. Nobody expected events would take such a turn. Ninth: Kondo does not consider war between Japan and America likely. Knowing Matsuoka personally, he believes that the latter will be able to work out some mutual understanding with the United States. Even if such negotiations should fail, and war be- came & reality, the Japanese fleet is strong enough 80 that Japan could easily dominate eastern waters against the United States Navy. Japanese Naval Headquarters, so far as he knows, believe that they can easily defeat the United States Navy and any possible allies in this part of the Pacific and are not worrying at all about the next two or three years. This is the end of the interview with Kondo, but I will have more information later on other subjects. SECRET 322 October 14, 1940 Coast Guard Secretary Morgenthau Will you please transmit the following message for me to Treasury Agent Nicholson, Shanghai: "Compliment you on message of interview with Kondo. Regraded Uclassified 323 October 14, 1940 Coast Guard Secretary Morgenthau Will you please transmit the following message for me to Treasury Agent Nicholson, Shanghai: "Compliment you on message of interview with Kondo. 324 October 14, 1940 (Dictated October 15, 1940) The British Ambassador came to see me at 7 o'clock last night. I said, "Does your returning to England at this time mean that you are more cheerful about the Far Eastern situation?" He said, "Yes. I am very much more cheerful." lie said that the President has handled the Japanese magnifi- cently, and they don't look for any trouble other than that the Japanese will bombard that part of the Burma Road which is in Indo-China. He said, "We have absolutely reduced our fleet to the irreducible minimum in the Far East." I think he said they only have six naval vessels there, and they sounded like ships of no consequence. He said, "We have taken every Navy ship into the Mediterranean with the result that we control the Mediterranean." I asked about Russia, and he said, "We have just had a very disturbing telegram from the British Ambassador at Moscow who said the Japanese threw a party for the high ranking Russian Foreign Office officials and others, and before the evening was over the Russians became thoroughly drunk and were throwing their arms around the Japanese and hugging them." He said that it would not be surprising if we see a non-aggression pact announced between the Russians and the Japanese, but he said it will be meaningless just the way the non-aggression pact between the Germans and the Russians has been. But at this time I don't think the world will think it is meaningless. He added, "Of course, you can't trust the Russians, but, he said, "Stalin is afraid of having an enemy on both frontiers and he is scared to death of Germany." I asked him what he thought the Germans were up to, and he said, "Well, of course, undoubtedly what their dream is now is for the Germans to come down through Rumania and Turkey and take the Dardanelles, and come into the Suez Canal, while the Italians come through North Africa and meet the Germans at the Suez Canal." He said that the Germans will then tell the French to get out of North Africa. I asked him if he thought that would happen, and he said, "I don't know, but we are convinced that the Yugoslavians 325 - 2 - are going to fight because they realize that only if they fight will they have any place left at the table of nations." I asked, "What about Greece and Turkey?" and he said, "Well, we hope that they also will fight." He took pains to pay his complimentary remarks to both Yugoslavia and Turkey as fighters, and I agreed with him. But he wasn't at all sure as to what Russia would do as he said they might want back that part of Turkey which they lost during the war; namely, Armenia, and he mentioned another province. The Ambassador said, "You remember when Sir Frederick Phillips was here the last time you said you would be very glad to have him return. Sir Frederick now says that he would like to see you again and raise the red light signal in connection with our finances." So I said, "Well, I expect to be gone for B. couple of weeks after the election." He then asked, "Well, if he arrived around November 20th or thereabouts would that be all right?" and I said, "Yes." I added, "You tell Sir Frederick that I would be glad to see him at that time." The Ambassador said that the President told him yesterday that he (the President) was going away right after election, and that if the President and I were going to be away, he thought he wouldn't hurry back himself. When he first came in, he read me a cable from the Air Marshall, Portal, saying that he himself couldn't come at this time but that he would send one of his first assistants. I asked the Ambassador if he didn't think it would be 8. good idea to have somebody come, and he said, "Yes. Absolutely." He said that in his discussion with the President the conversation got around to the joint licensing of com- merce between England, United States and the Americas, and he (Lothian) was very enthusiastic about this idea. He thought that this was the way to beat the Germans and Italians on the economic front. I agreed with him. Pages 326-330 placed with Willkie (Wendell L.) material - (N.Y.Times article - 10/14/40) STRICTLY CONFIDENTIAL ALLISON ENGINEERING COMPANY Deliveries of Airplane Engines 331 : Actual : Estimated deliveries on : deliveries : existing orders II 1940 January 10 May 1 - June 1 15 June 2 - 29 31 June 30 - July 6 6 July 7 - 13 18 July 14 - 20 11 July 21 - 27 15 July 28 - August 3 30 August 4 - 10 1 August 11 - 17 1 August 18 - 24 14 August 25 - 31 45 III September 1 - 7 28 September 8 - 14 52 September 15 - 21 61 September 22 - 28 80 September 29 - October 5 49 October 6 - 12 73 October 13 - 31 166 November 336 December 364 1941 400 January 416 February March 433 Il 454 April 448 May 437 June 400 July 369 August 431 September 45 October 45 November 45 December 1942 25 January 21 February Office of the Secretary of the Treasury, October 14, 1940. Division of Research and Statistics. 332 STRICTLY CONFIDENTIAL II ALLISON SHIPMENTS : Sept. : Sept. 29- : Oct. : Total : 1-28 : Oct. 5 : 6-12 : British 164 43 67 274 Army 56 6 6 68 Navy 1 - I 1 Total 221 49 73 343 Office of the Secretary of the Treasury, Division of Research and Statistics. October 14, 1940. 333 STRICTLY CONFIDENTIAL CURTISS AEROPLANE DIVISION OF CURTISS-WRIGHT CORP. P-40's delivered to October 12, 1940 United States Army 203 British 191 Total 394 Office of the Secretary of the Treasury, Division of Research and Statistics. October 14, 1940. I 334 ROZET atilor9 Excess Profits Taxes A Special Study Prepared By Standard Statistics Company, Inc. SEASONGOOD & MAAB MEDIAN you YOUR BIOCK EXCHANGE MALL STREET 5D: YORK OCTOBER 14, 1940 Excess Profits Taxes Computation of Tax-Income Base Invested Capital Basis Account exempation of the amount of excess profin tax to allowing 60. exemption of % of invented capital Highlights of the Lmo-Mothods of Computation Under Average Earnings and Invested in companies using the average earnings las is - exemple- before liability for area profits use, the law defines cared problem. When the company's accounting desart- invested capital - equity capital phe half of inveronmed Capital Option-Special Examptions sets me to figare the tax, it must decide whether BY rapital. Burrowed capital, in effect, indule all oblige- The new DOC law-the Second Revenue Act of The tax measure 20 enacted - the relative hunden not fill file . consolidated return. It must make adjust- tione in the form of a. written promise to pay (bonds, per very email companies but rurrespondingly invoice for changes in capital, for the special non-recurring protes, debertures, bank drive, me). Equity capital DMH 1940-s both an excess profits txx measure and a measure to increase normal income taxes. It also the load on hig companies, which must divide equally with numbioned, and for dividends received. sitts of money or property paid is for stock OF for paid-in the givernment any "excesa" profits above $500,000 which nily, it will take weeks for such calculations. surplus, plus accumulared ramings, including the value of strves such collateral purposes as suspending the they cin cam after increasing their numbers constitute Obvinualy, it is impossible, without ACCASS the do earning distributed in work dividents if such stock divi- profits limitation un aircraft and shipbuilding pm- tion by ove-third. valued accounting records of each company and all in sub- denda were in the them of esentife Income to the re- Thats for the United States military services and charges, for arrive at exact Sgure for tas Bability. The ciplents. The method used in determining invested capital providing for five-year amortization of emergency compotations no the following pages, consequently, (if from published balance sherts will he discussed in the Average Farnings Option bond - consolidated income statements, as reported fir following section. defense plants Under the average carnings option, the cives stuckholders, which may differ considerably in detail from As in the case of the average earnings option, there is Like the Revenue Act of 1940 passed in June, it tax scale D applied m the FSLTM of earning in the Can reports to the TAX authorities. They, therefore, represent $5,000 far exemption and adjurments are provided for is applicable to all fiscil years beginning after Decem- able year over 95% of the average armual earnings in the only approximations, but sine they are travest on artain non-recutring items, including increase from retire les 31, 1939. In general, it increases the normal fiscal years beginning after Decumber 31, 1935, of - of eximings, an exact figure could not be given in any nome and discharge of refunds of processing texes, fore January 1, 1940-four fiscal years, estryt for - event. Only where adjustments are obrimualy mineries on bad debo, and leog-term capital pim and income tas nn orporations by 1.1% and establishes A. panies which changed their accounting period dulling de in the case of DUPONT, which derives some 40% of in Toues. Dividends reserved are 100% exempt under but sliding scale, ruming up to 50%, in the excess of insprior. In addition, there in a fist exemption of claim increase from dividends on its haldings of GENERAL options Because half of borrowed capital in included in carnings (IVC) either (1) 95% of average profits in An allowance is made for changes in rapital, the Movors work-have they been made. invested capital, half of the interest on borrowed capital the four years 1936-39 or (2) 8% of invested capital, fine heing increased by 8% of the net capital addition or The amount of exemption an the average earnings lose must be included in incure in determining the rate of - redically defined in the law. decreased by 6% of the net capital reduction Irvill de is figured for all cienpanies, CYUI rhose which will chooe return, but the 8% permitted is after normal improme average for the base period. the intested capital option, in order fill show which option (of 24% for the current year). Net interne, for both the texable you and the tom they will choose and how much of an adventage it given Insurance in Normal Tax them The exemption figure under the option as drown A special adjustment is provided in the case of wholly period, is after normal income tas. Adjustments are Corporation marring liver $25,000 were mijor unler provided DU exclude certain nun-recorring in the tables is in each case based on the present capitalisa- (M) partially twe-exempt writes-didly Federal Govern- the 1939 law. to . normal income tax of 10% of siet of processing taxes, recoveries on bad debts prevanty tion The method tan be eaily distrated as follows: ment and municipal bonds. The can be taken into eccount in figuring the extes profits tax, under the in- income The line Revenue Act of 1940 increased the written all, profits un repurchase of bonds at a docume, CORPORATION c vested capital option, only if the company chones also to FREE to 19% and Insul . special tax el 10m of the tax, and lung-term capital gxini and losses. For purposes et Oxpiralisation Bonds, $1,000,000; es Proformd, include them in is normal to calculations and to pay the making the viffetive TATE 20,0%, The new Isw address the exima profits TAX, 100% of dividents are charge, 82.00 par Common Locome shares. 24% rate en income frum «I) such seorrities. If it e un- 3.1% invoice, making the immane les 24% Sat she Fised Charge sell escluded, instead of the 85% ratio applicable in uin Normal Invoice Tax willing to do this, then these securities are classed as This means that line corporations must now pay - Pating normal income tases, An affiliated group of unpo 1999 $1,400,00 inadmissible amets, along with stocks held which are, in shind in insure Mase in the Federal Government, rations may his a commidated return, provided no of 1,000,00 every case, inadmissible assets, and the invested capital exclusive of whatever profits laws they may be smile claim of etock of each company (excluiling (MIP 1,00,00 base on which earnings are calculated is reduced in the UM In. voting preferred) la owned by the parent company or other Less Dr. - ratio that inadmimble asiets bear to rocal assets. The June increase in the case of sax was provided fur subsidiaries. 10s taste of first are of 1000, before An illustration will make this dear. additional $15 Renal Intome EST. in the Insurance natements nil imrporations for the Rind If during the Comp-year have peried, une yesr a Envionsly, the 1940 antimated est la application in Amount that total invertil expital tax been completed to half of the year, but with the me intrease restructive to 11 a mumbers sliarw after proferred dividiods W $400,000 is 60,000,000 Trail are $50.000,000, including D. deficit, the deficit year is taken as zero. If there will the beginning of PNA ( on of the 1940-41 final year), The Invoice tax of 0.1% to applied, ent to of and proferred storks the including two years of deficits, the larger deficit is riken - charges must be made agains earnings applic- This would work call a follows: the $1,000,000 with after . soroal DET of 209% by: to of - - $8,000,000 of government la - immmy Inform unread taxes of approximately 2. and materipal invoice with the required the treat BP able fill the fine half income. In the titles on later pages which la aprivalent to $1,000,000 aftur n tax of - This) amots would, there of this BITTEY, the informated simune of increase in onrol CORPORATION &-NET INCOME 20.00 Thus the nume) Invoice tax la In the - Dury, be or half of notal and Invested 6491 by or roughly $0.00 a. share, IA male way of espital on -- %% reture ennid NO assupt world in invoice for the full your resulting from the Security I - newthg the in Lie normal INT is to take 10% at malured by half, for (in the Revenue Ace of 1940 a shuwn in a separate column, - 170,990 the Inrmas after The - tas. This figure is arrived at and dividende on the world out for Included in 4ad, - N dividing the 21% by ai, which LA the pur- Excess Profits Tas 1981 140,500 of must the net more remaining after delocting " the charge is LPMIT the finda as Trading Mari - figure as SENI, tomal nd Invoice lie 20,0% tax previously In effect.) administive lia assets would to only Corporations have the option of choosing to any an The giving protita the is determined by Use of IIF of total and lite allowable to for the must years world be the everage Hims probits box - ner income almove either AVERAGE has $110.000 and the exemptão would TAX 10% of profits after the full 24% personal tax, to this FRM 11,537,500 votrel multal would le of $1/00/100, - H, issuings of the has period If 8% of invested capital the 1500, A Ternes varnings for 1980-82 RETT $1,250,000, and 800,000. The of $244,000. Instand of $240,000, would Clai. us $104,200 (iv) of this figure Las $1,187,200. The exam profit, there- be - true profits lave Insi the Internet mited Under fellows: miss option. the FILE nil name proviles tax HE - form, la $1,037,500 esinve $1,187.50 and mlaux the first on the $3,000,000 of - Sex included not only CORPORATION B-NET INCOME memption of $5.000 This is mpst to $341,800 and (De in profile tax net Invoice but aim la personal tag DEL - - TERM profits far le 10 follows: Income US Mos firm Thats Blue at Prottis Tes - MIT Sel. 9a this - profile 46. of as - The option of including otherwise experiempt bands in of I pratts BLOW ! and - 9 the - $50,000 of 0,000 $0,600 of - Minismible assets is of value only to financial institutions (in the NONE aso 9a the sast = et - profits $100,000 35% 17,000 il 110/98 wt - - 00,000 such - sertain hucks and insurance companies, which Total 4A/26 133,000 Imating the HIRT Fignes-tip lirest affill 100,000 all, - PUB AS ME 42,544 Income total net Invime for the friu yours - - have a high ratio of total poeta to invested capital (be- Der an - $500,000 - BIALING The the evittid in $00,000, and cause of their use of depositary or policyholders money), 1 - 947,000 Thus, the previously estimated art Indice of $1,000,000 in and a high ratio of esempt bonds to total suarts. 11 received by $6,77% and $134,140 A. tital of Suring will to of value e shem only if ramings an substantially FLANKING After 2000,000 proferred dividents, innime above the 1936-39 were - M - - a - su - - - Two . - placed le reduced BY the les form as to pass. Par 2 Pose . Bire # - OCTOBER M. - Computation of Tax-Invested Capital Base land above weld las the Gas a En - that prior to che 1939 yesrend, the company had worren grift of - the $5,000 Cat exemption. - Which off in $6,000,000 ná and will againer. surplie. In in- PAABODV and COMMERCIAL Son- As in the our di de average eming option, computer the or to is fallower vesied capital would have been reduced by the amount, VENTS, for example. cien nil the and EXITY profits as payable is . compli- - of as - in profits would have been $450,000 greater, int It is emplisationd aux toon that these calculations circli procedure which in the are of must large I - NS - - M as ITAM is DO would have been $240,000 more relucing eam- are made nei the basis of extraings reported to stock- will require werks of slove ior . ex8 of accountants. - M - - inp by an additional $0.24 a share. On the other hand, holders and not earnings reported to the Driver of This option a likely to less 10 more controvere with 650,400 ## 48% non because the writing n8 of good will was purely a book- Internal Revenue and that they are, mmmover, band) the Internal Revenue Bureau than rbe AVENUE carrings DLIMI M 50% keeplog cransaction, the wording of the law would ap 06 metimates of earning. Nevertheles, widle they option. $13,499 I parently have permited it to add back into in capital may TREY widely from actual taxes paid in neur le- The increase in the normal tax is Sgural eartly the Not after come proflie lass is 55, 406,000 have the envount previously erineo off The calculations section may - Inc using the artive estangs $400,500 (if $9,068,000 eyes: after pesterred dividends to here presented do not take euch conditions loss remidera- dividual TMS the whole they should provide $2.66 a sharn A fair beasing of the soal of the new lass to regis- buse for CACCIE profits taxes; the only relation between rion. but they could be important in the case of a enstative corporations - profits taxes and the increase in the normal fas is In this calculation, there are, of civite, certain that they are included in the sure law. tiona. We have assumed that the 1939 printend balance sheet is representative of the average invested capital For invested capital, If la provery CAP BM SAP the during 1940; actually, profits or loss de by day, in- 1999 gainted buisnes about of the company. stalment payments INS bank Tomm or remporary additional herrowings, sale or redemption of stock during the year CORPORATION D would make for considerable variacion in the case of some Estimated Earnings and Excess Profits Taxes - Lisbilities companies. In the calculations on page 5 to 12, WE - Benda (1%) 10,000,000 Producted - (99) have not attempted in refune our estimates to this extent. The basis on which these Agores have been calculated la explained to detail - the Land and Signature - part 12,000,000 foregoing pages. To understand just what the Agures mean and, more important, what Missing, and - 11,000.00 Does. - Les part 5,300,000 0.000,000 3a. for 0,004,000 Special Cases they de mit mean, please refer to that discussion. K.000,000 345. 3,000,000 1 1,000,000 Busk Souths ONL- - Drive 1,000,00 Payable 1,000,000 For all companies, under either option, provision " DOLLARS 750 - SELES - Seem. 1,000,000 made for eliminating from the excess profits the calculs- Internal Paid-IN Burglas - Inco Pould Tax Cradit Barned Burjas Y,04,00 tim such extramdinary income during a taxable year 24 Instructed 1000 Brand - - a judgment or award in e law suite payments or . knows Address Millional ADDITIONAL - - as firmal US On use perfurmed ever - period of name than a year; income Digital Adhel at - I AND - from a development, exploration, me, taking over . year; Seam a It la obview One that core of the units is "to Prodi Vasa - TAXIS 2nder AIRORAPT-AIELINTS - that capital will in as stirize 00 the and certain other open of non recurring income. In ad- lisbility abõe of the talance street. First, ne creat determine dition, there a a special provision allowing the Commis- Airlines (Del.) all.A 4,84 7,50 4,39 # what emity expital, of tet worth for depreciation abroad not be as It might moner of Internal Revenue la agree to adjustments for Eastern Air Une all 2.00 3.00 0,10 <N 24 SWARE - well law bein shown no the ocher are of the abnormalities in incomie in the taxable year, with privilege Abrange a5,06- I.M 9 e и belance about as a defection Irons value of fired summa Box of review by the Board of Tex Appeals. Delied Alr Line an 0.00 9.30 are v0.00 DE name and Insuration reserve represent - transfirmal from surgide not for expenses Chat have strendy Besides these general provisions, there are certain pro- Tenal on 199 mill mean - DAIV & TB: positive. are to - - fat M line - - - after and MD la Less than all - - - heip Incurred (as BRA the monthy to replace depreciment visions applicable to special types of corporations. Motral property) Imt positive Indian expense which may investment companies and registered diversified invest- Therefore, them DW9 time give the - and proferral docks and paid Nas and earned surple sala us ment companies are entirely exempt From excess profits Wright Carp. 0.07 0.05 0.29 1.63 0.10 0.50 7N the equity Invested regital-s total of $20,000,000. To this taxes. Air transport companies are entirely crempt as the in súdul half of replial-booke and tenk long as their net income is less than their tocal mail me stimugise Aircraft 5.22 LM 4.21 11.80 213.00 TE making a total invested expital of Loddend Airmal) 0.00 0,00 4.84 5.30 0.00 15 - cities. According to the wording of the law, it would $34,560,000 Martie (6. L.) LSL 131 2.70 7.50 0.58 4.50 an appear that if their net incomes excess air mail revenue, Horth Aviation 0,65 6.23 1.00 LES 0.66 1,55 If Now IN as leds at this mayway's retinated 1940 services. the entire net income and not just the excess is ennsidered 0.50 = e excess profits tax net income, but this point a for Spirry Corporation LM all E.71 5 0,19 CORPORATION D-INCOME ACCOUNT away from present earnings of the companses DO be of United Alreraft LN 0.38 18 0.50 13 630 46 Males immediate importance. Domestic corporations deriving Timel your - Birn, - Deals all poin will a over 95% of their income from abroad are exempt. There are certain special provisions for shipbuilden completing AUTOMOBILES AND TRIXES- 61,700,000 situe, paint and state. exp. 5,001,00 contracts for the United States Maritime Commission Chryalar Corp. 5.39 Life MM 12.00 0.49 19.40 39 Depossition - Companies producing certain strategic metals are exempt inasfar as their profits come from the mining of these Product Trailer 1.99 1.30 4,56 4.50 0.26 IS - Good Molare Clary. 8.75 181 5 LS 0.59 LB # metals within de United States There are extensive findom Motor One 5 LS ass 3. IN provisions for restiuments in the our of livi - Intere - usus during the 1936-39 bee period OF during the taxable year. Mark Trucks 134 EM LM LM 0.00 1226 9 Normal Federal - - 1,300,000 affach 0.00 0.79 89.27 4.55 0925 9% Hadabaker Darp. 0.01 0.00 13 1.98 MS 41.18 . N/A Many Uncertainties 25 before profits inno to equal, after Twis Cards Ca DAS 0.54 18 1.15 0.05 LM profess divides to $2.00 a or the These are only the highlights of the law. Many of in White Motor 6.21 LA 9.17 LS 8,18 40.28 14 $1,104,000 of Inzal income taxes, $1.42,900, or 80,14 . thire provisions are not entirely clear, and the section relating Yelive Trank a Couch Mrs. "B" 9.65 an 4,56 LP 0.00 1135 18 represents the additional levy Imposed by the Becomed Ad At 194). to abnormalities, especially, will doubtles give rise to Timel your - Min. a b0e without - 1 - - - Delails many appeals and to payment of nases under protest. hel lines for does gruffla tax purposes la the net la How difficuls is is to arrive at any fund - a one The profis last baind - average 1906-1998 - lonitie apúlos - elevative YEsess the mmal tame time one-ball m&i the tured - the Invested capital uptim 2Nd 4a and R - grefil tax of Income bi - total of 08/07/160. and by referring again to the analysis of Excess prefits first your milling is 1841; - period any for Inc pun 1906-37 to - - IMMOS of B% - the 834,000,000 of Invist expital als- taves for Corporation D presented above. Suppose medial - a empained from publiched year-mill below del he he - 36, - DOLLARS FEB COMMOS PRABS Entimated Profit Tax Credit 2040 Burnings 001 DEFORE APTER Average Additional Additional ADDITIONAL Burnings Invested 1579 81% Normal as 82% NORMAL 1500-1929 Ospital Actual and Bormal Approx. AND RECESS Base Base Profis Texas Direct Company- Barnings Tas PROFIT TAXIS Price AUTO PARTS & ACCESSORIES- Bendlx Aviation 1.12 1.12 2.14 a3.50 & 10.15 a (1.00 32 Bohn Alminium & Brast 2.90 2.07 2,15 3.75 0,15 8.25 37 Borg-Warner Corg. 2.27 1.39 2.48 2.75 0.10 2.50 19 Bower Boller Bearing 3.94 1.18 3.23 6.25 0.16 3.70 35 Briggs Munufacturing 2.74 1,33 1,09 2.75 0,15 8.20 22 Cleveland Graphite Bronze 3.54 1.15 5.42 5.25 0,20 4.60 as Doshler Die Casting 2.21 1,54 2.43 4.35 0,15 S.40 20 Enton Manufacturing 2.60 1,64 3.85 4.75 0,20 3.55 34 Electric Auto-Lite 3.22 1,57 4.72 6.50 0.25 4.80 36 Electric Storage Battery 1.96 3.04 2.01 3.00 0.10 12.90 30 Houdaille Hersbey "B" 1.38 0.04 1.34 2.50 0.10 1.96 13 Libbey-Owens-Ford Glass 3.11 1.94 3.21 8.50 0.20 3.70 44 Motor Wheel 1,70 c1.16 2.18 h2.75 b 10.10 bf2.20 17 Noblitt Sparks Industries 3.26 1.76 4.23 4.35 0.15 3.90 29 Spleer Mig. 3,36 2.02 04.49 e6.35 $e6.25 38 Standard Steel Spring 1,05 0,97 1,66 3.75 0.15 2.55 33 Stewart-Warner 0.86 0,96 0.45 1.10 0.05 +1.00 7 Thompson Products 2.33 2.00 3.90 6.50 0.25 4.40 34 (imhen-Detroit Axle L83 el.12 2.63 A3.69 A3.69 28 Tinken Roller Bearing 2.83 1.42 1.02 4.25 0.15 3.50 49 A-Astual Fiscal year ended June 30, 1840, after allowing for $1,190,000 excess profits tax (as reported by company) applicable to Income effice Jan. by 1940, equal to 01.11 per share. a Titral your ended Sept. a big months ended June no. a Based on belatico about dated June 20, 194A e Placal year ended Ang. a. f Reosure of change in fiscal year, DEW taxes are applicable only to earnings strice December ai, 192. AUTOMOBILE TIRES- atFirestone Tire & Rubber 1.95 3.69 2.03 1.55 $1.85 15 Goodrich (B. F.) 1.18 3.81 3.53 1.35 0.10 11.25 13 Goodyear Tire & Rubber 2.06 3.60 b4.07 2.75 0.15 12.00 16 atLes Bubber & Tire 3.50 3.00 5.46 2.50 $3.50 25 U. 8. Bubber 1.78 2.50 2.91 3,15 0.25 +2.70 20 a Piscal year ended Del. an. ъ Before foreign exchange adjustment. BEVERAGES- atCanada Dry Ginger Ale 1.47 1.25 1.88 2.00 $2.00 14 Coca-Cola 5.49 1.19 6.82 7.35 8.30 6.20 100 Nehi Corp. 0.74 0,21 b0.96 1.05 0.05 0.90 9 a Placel your ended Bept. 55. b Adjusted for 400% stock dividend paid la 1940. BUILDING- Amer. Radister & Standard Saultary 0.40 0.74 0.34 0.60 0.02 10.58 7½ Crans Company 1.67 2.44 1.55 2.40 0.10 12.20 21 Holland Furnace 2.90 1.74 3.11 8.50 0.15 3.20 83 Johns-Manville Carp. 2,75 4.02 M/I 5.30 0.25 14.00 28 Lone Star Cement 3.30 3.67 a3.69 3.00 0.10 12.00 37 elMasonite Corporation 2.87 0.67 1.99 AZ01 $A3.91 R Minneapolls-Honeywell Regulator 2.30 1.23 8.37 4.50 0,20 3,85 48 National Gypsum Co. 0.56 0.09 0.96 6.96 0.05 10.80 6% National Lead 1.05 1.93 b1.23 1.50 0,10 11.40 18 Other Elevator 1.02 132 1.15 150 0.05 11.40 15 Pittsburgh Plate Glass 5.55 4.00 4.95 6.50 0.25 8.90 93 U. 6. Gypsum 4.08 8.00 5.71 6.25 0,25 5.10 80 &-Actud. B Before foreign enchange adjustment. DAtter son-resarring losses, e Fiscal year ended Ang. $1. profit las Instruct on the Invested expital option. $Not subject to additional normal or excess profil tax "Excess profit tax based on average 1936-1959 net Income option unless otherwise (adleated. tExcem until fiscal year ending le 1941; hase period enrolues are for four years 1936-37 to 1939-10 and lovested espital base in computed from Intent published year-end balance sheet. Page 6 DOLLARS FEE COMMON SHARE Bettersted has Profit Tax Credit Estimated 1940 Barnings Based on ERFORD Average APTER Additional Additional ADDITIONAL Zarutrige Invested 1989 43% Formal 83% US HORMAL Capital Across Approx, Company sad Expess Normal AND EXCH Baire Since Curress Marnings Profit Taxas far PROFIT TAXES Fries CHEMICALS a FERTILMER- Air Reduction 1.04 1.90 1.98 2.75 0.10 2.35 41 Allied Chemical a Dye 9.04 8.10 9,50 11.50 0.45 10.05 185 stAnwrican Agrie. Chemical 1.86 2,66 1.22 ALM $A145 15 bAnkerican Cynnectid "B" 1.52 1.72 3.07 2.65 0.10 42,15 as Commercial Solvents 0.49 0.54 0,61 0.85 0.05 10.70 10 e Dow Chemical 2.79 2,47 6.05 8.50 0.30 6.40 Ide duPent (E. 1.) deNemours e3.40 c2.80 7,65 0.30 0.25 8.00 176 Freeport Sulphar 2,51 1.92 2.76 3.75 0.15 8.10 as Hereales Powder 1.69 5,33 3.65 5.25 0.20 3.90 56 Mathleson Alkall Works 1.35 2.11 LE 1.90 0.10 11.50 30 Monsanto Chemical 3.09 2.64 4.01 5.00 0.20 4.00 94 Texas Gulf Sulpher 2.24 1,24 2.04 2.50 0.10 2.35 34 Union Carbide & Carbon 5.00 2.47 8.86 5.00 0.20 4.50 18 United Carben 4.50 3,04 3.82 4.00 0.30 4.30 02 U. 8. Industrial Alcohol g0.50 2.19 gl.06 f2.50 0.10 112.40 22 Westvace Chlorine Prod 1.60 2.09 2.01 3.40 0.15 12.55 35 A-Actual a Fiscal year ended June 30. b On combined Class A and a noumson shares. e Fiscal your ended May 82. of the following calander year. . Excluding Income from investment in General Motors. Fiscal year ended March n, 1041, Details extraordinary charges. OOAL- Island Creek Coal 1,89 1.46 2.42 3.00 0.15 2.45 37 atUnited Electric Deal 0.36 1.18 0.32 A0.38 - $A0.33 416 &-Astual A Fleshi year ended July 31. CONTAINERS- American Can 5.29 4,12 6.22 7.35 0.35 6,15 99 Continental Oan 2.49 2.94 2.71 3.50 0.15 13.15 40 Crown Cork & Seal 2.29 3.67 2,80 4.25 0.20 +2.95 26 Hazal Atlas Glass 5.90 LB 6,64 5.40 0.20 5.50 102 Owen-IIllinols Glass 2.97 2.19 8.17 3,25 0.15 2.05 07 ELECTRICAL PRODUCTS- stBlack & Dockar Mig. 181 1,18 1,60 2.50 $2.50 19 Outler-Hammer 1.22 0,97 1.28 2.50 0,10 1.90 39 General Electrie 1,45 0.94 LB 2.15 0.10 1.75 35 McGraw Electric 2,14 0.66 2.99 3.75 0.15 2.95 25 Badlo Corp. of America 0,29 0.19 0.35 0.65 0.05 0.05 5 Square D Company 1.73 0.75 3.03 5.00 0.20 3.40 22 Westinghouse Elee. & Mfg 5.22 6.07 5.18 8.50 0.35 17.15 107 & Fiscal year ended Sept. 26. FINANCE COMPANIES- Beneficial Industrial Loan 145 1.61 9.57 2,60 0.10 2.40 19 Commercial Credit 5.10 4,77 4.01 4.00 0.15 13.85 21 Commercial Invost Trust all a5.10 a4.00 4.50 0.20 +4.30 ST Household Finaline 0.47 4.95 6.98 7.50 0.35 6.85 59 6 Reducting Wational Burety. "Exem profit tax based OR average 1936-1939 des Income option unless ollerwise inflested. tExema profit tax based on the Invested expital option. (Not subject to additional normal OF excess profit tax until that year coding in 1941; base period enrologs are for four years 1930-37 to 1939-40 and Invested espital base is computed from Intest published year-end balance cheet. OCTOBER 14, 25d Page 7 - PRI - SEARS the Credit IND Sening - - ORANG Band - SEPORT I the I Additional Brand - - Invested IN us s Capital - . Surnal AND Current Imagi Million) R - T Two the prom as as Price - I 2 I AND (FOOD PRODUCTS- METAL FABRICATORS- Profity the - 5,61 1.92 1.79 5.50 0.55 America Chicle B.M. 120 Bridgipart Bran 1.56 193 LAL 1.70 0.05 YLES 4.27 25 ess MM 3.00 Good Cable "A" 13 Borden Company 0.63 3,86 164 3.00 $9,61 11.18 11 Card Products Refining 0,15 156 EL S.M. din Brans 4. 0.51 0.70 6.05 MI 2.54 = General Baking 0,50 0,75 4% 1.00 1.60 18 General Fords 2,55 1,81 275 2.75 0.10 1.45 = lieress Capper a lieus "A" L64 $2.80 a 5.80 aGental Mills 0.66 6.60 MM b 4.00 91 Beard LM 0.45 YES 1.00 de 2,38 13 = Life Saves 3.00 0.30 0.10 1.00 = de LS 152 am 1,09 1.35 Welvedes Table 0,05 11.79 0.10 0.04 39 Loose-Willes Black 11.68 13 0.00 0.97 LN 4.46 un Mead Jobsem & O as $30 10.37 0.25 0.40 156 42b positive. Fiesi yes 2m. at Matory tomathing - Child 01a an National Biscoit Co LB LB 1.00 1.00 0.00 155 If National Dairy Products LAL 1.85 1.97 1.70 0.05 +1.65 13 METAIS-Gold . Blve- Purlly Bakeries 135 185 2.14 1,00 0.05 12.55 II Stanifard Brunds 0.70 0,35 0.51 0,05 0.05 0.00 0% Alaska June (ink) Mining al.16 1.05 n0.75 all.70 0.00 United Biscoli Co. of America 1.06 S.67 2.10 0.16 12.00 34 Bomertaks Mining all.53 4M MI 0.91 1.51 1.00 4.75 AJS United Fruit 4,11 4.65 4,57 0.20 H.S. U. R. Howling & Beftning a.m ME 18 1.00 6.09 Wrigley (Was) Jr. 4,60 6.77 an 2.24 4,35 0.20 7.35 4.29 4.40 a 6.73 - If - year Bay 11 of the Delivery estendar year. 1-20 - pails Alminisum Co. of America all34 en all.26 27.00 HOUSEHOLD PURNISHINGS- 1.30 10.79 101 American Smalling 4 Befluing LM IN 4.M € 0.25 4.10 d mustrong Ourk 9.55 2.78 2.03 100 0.18 95.65 28 Capper Mining M.II 4.76 M.D. 50.20 Congolarm Naira LAL LTT 1.70 1.48 as 0.00 11.55 153.55 18 13 Climact Molyblemum 1888 SM Elemsons Company 2.34 1,52 150 4.00 1.11 0.10 0.00 150 19 6,10 2.40 29 Ragle Picher Lesd 0.00 1,39 1.37 15 0,00 11.30 . Barla Mining MISS 0,65 MMI 60.70 0.05 WAI . Hww Board Ca 64.97 se 0525 53.85 0.18 66.79 LEATHER & SHOES- # Konnecett Cupper h2.90 2,62 M.14 62.85 0.15 50.30 - affiren How 2.17 4.20 10 an $2.75 DE Magris Capper MITH Let bas 0,10 15.00 R 150 6.22 107 2.73 $2.75 49 New Jeney Time 10 e 3.70 1.50 Minternational Shoe LM 1.88 1.97 1.84 $1.85 0.15 2.30 DE 4d Malville Stor 251 0.75 1.56 0,15 2.70 19 Photos Dodge M.I. LM 1.01 h245 M.M. 0.10 REW a NL Jongh Land M.I. LS MM ML05 - your unded Ort. a. b-Piral your unded Nov. a 2. F. Maltivala Do, 0.19 2.70 56 Fanadlum Corp. of America 1.54 IM 155 5,95 0.20 14.00 - a plan - base the postume sail returned at proferred stork. before deplation - - represed, MACHINERY- MISCELLANBOUS MANUFACTURERS- Allis-Chaimers Mfg. Os 143 1.47 1.00 1,15 0,10 45.05 H Cell's Primi no Almo Mig. Cu. ass 4,10 4.84 13.00 0.00 9.25 M Austican Chair à Cable 1.99 1.27 1.99 2.75 0,10 E35 = Hollard Company Lee 1.64 0.36 as Dismind Maich 186 2.66 LA 4.85 LES 6,91 0,00 0.18 1140 IN Caterpliar Tracter 1,0 1.75 2.89 4.00 0.15 5.30 = Minnesota Minday a Mfg. MI Lu 4.54 5.00 0.50 4.14 5 atDeen & Company 2.50 1.71 1.81 2.50 12.00 29 Sarage Arma 1.57 1.42 145 5.54 0.15 2,99 N Rx-Od-0 Corp. 1A2 0.74 251 7.00 0.25 4,25 20 Burbanka More 2.95 16 4.12 LN 0.25 L40 41 Beredes Motors 1.50 1,84 1.07 2.30 0.19 1.00 15 MOTION PICTURES & AMOSEMENTS allernational Harvester 8,55 5.00 LTI 3.00 12.00 48 2,16 2.87 4,25 S.M 4,26 0.04 N Unk Belt 2.55 L96 123 3.50 0.15 8.95 M Festaine Bedsk 1.54 CSP R 1.78 4.30 TAB IN National Arme 1.37 0.79 4.16 655 0.30 3.20 59 4,90 4.71 13.00 1.50 44 General Theirs Equip. 1.51 LST E 145 6.85 5 YL46 = 0.45 e-Pail 702 Oth EL Paramount Pictures 1,34 LTD 1.07 1.41 0.05 11.00 1 20th Century Far Film 1.91 LSE L58 . 1 - 5 1 1 a MEDICINES, DRUGS a CORMETICS- Abbett Laboratories OFFICE a BUSINESS EQUIPMENT- 2.04 1.46 2,61 0.85 0,10 1.45 57 American-Bous Products SAL 0.65 5.33 4,20 as Barreaghn Adding Nachine 0.00 EAP ass 6.00 0.01 0.00 . 5.00 0.39 Heistol-Myers 8.16 0.91 2.49 3.55 0,15 2.10 45 International Brainess Machine and S.M 18,25 0.50 15 197 Giflette Safety Bank LIS 0.21 0.89 0.05 0.85 LM 3% La Lambert Company LM are 1.89 0.65 LAS 12 National Cash Register Lee LM 1.10 0.05 11.20 и 19 Parks, Davis & 34 billemington Rand LSS 0.78 531 LSS 0.05 1.20 8% 1,74 0.62 LBS LTD 0.00 LAS Sterling Products $ 2.00 5.25 ST villeyal Typewriter 3 122 au ATSE SATAI Unlied Dric 1.00 0.39 4.50 I es 6.27 1.30 0.79 afVick Chemical 0.50 8,85 NM 4% 4.00 1,85 155 1M 0.19 1.90 H LTS 1M 4,00 ALM 154.00 45 A-Astral be M alosk that paid is 1990. I-Pail per ended Minds a of the information year. - e-Thad year endad has - Times you ended 2uly = The tax based - average 1936-1989 not naise alternise tellested. Etmi "Exress you'll at burd - average - Income option - etherwise positi las based - the Interted mplial - $Not mildont to additional surrenal or - grefit MI profil tax land on the invested expital glin. (Net misject to netal or - prait ⑉ el fistal FOR mine - 1941; Isso period excellege are for for / 1916-37 - and Servented intill fism) year miling In 1041; been period osimings we for for years 1936-17 la and invested expital have la competed from lated publicabed your Inlume - espital base la ostputed from latent policied year-ead belance start. 8 Expe 9 OCTOBER 14. tale Regraded Iclassified DOLLARS PINA COMMON SEARS Intimated Earnings Bacam Profit Tax Credit Blaced on: REFORE "APTHE Average Additional Additional ANDITIONAL Harnings Invested 1000 115 11% 11% HORMAL 1830-1980 Accual Formal Approx, Ospital and AND Company Date Base Earnings Profit Taxes Tax Ourrent PROFIT TAXES Price OIL PRODUCING & REFINING Adantle Refining 2,15 5.06 1.66 2,75 0.10 12.65 23 Continental on Co. (Del.) 1.77 1,76 1.35 0,90 0.05 0.85 +18 Gulf Oil 2.37 3,19 1,00 2.25 0.10 12.15 30 Phillips Petroleum 3.85 3,29 2.91 2.50 0.10 12.40 35 Flymouth on 2.85 0.81 2.28 1.75 0.05 1,70 the Pure ou 0.98 2,33 1,11 1,19 0,10 11.00 74 Shell Union on 1.01 1.79 0,76 1,00 0.05 10.95 9 Socony Vaenum Oil 1.31 LM 1.09 1.25 0.05 11.20 816 Standard Oil of Indiana 2,56 3.55 2.24 2,25 9.10 +2.15 B4 Standard Oil of New Jersey 3.59 4.98 3.27 4.50 0.20 +4.30 33 Texas Corp. 3.35 3.76 3.02 4.00 0.15 15.50 35 PAPER & PAPER PRODUCTS- Container Corp. of America 1,38 2,16 1.85 2.50 0.10 12.30 15 aCrown Zellerbach 1.39 1.84 2.42 2.75 0.15 12.25 16 International Paper & Power d0.04 4.30 0.14 6.00 0.35 15.00 14 Kimberly-Clark 2.84 6.35 4.21 4.75 0.55 44.50 34 Suthorland Paper 2,35 1,45 2.5% 3,00 0.10 2,70 24 Unlon Bag & Paper 0,69 0.97 0,76 3.00 0.10 12.00 12 Fiscal year ended April 30 of the following calonder year. a Deficit. PRINTING & PUBLISHING American Bank Note 0.36 1.46 d0.57 de.50 d0.50 8 aColumbia Broadeasting System "A" 2,30 0.64 2.93 3.35 0.15 2.80 20 General Printing Ink 0.99 0.40 0.94 0.95 0.05 0.90 716 Interebemical Corp. 2,06 2.43 4.10 3,00 0,15 12.75 28 Time, Inc. 7,33 1,40 13.63 17.50 0.70 12.25 127 a On combined the "A" and "B" shares, 4 Deficit. BAILROADS- Atehisou, Topeka & Santa Fe 0.81 25.45 0.95 1.25 0.15 11.10 17 Atlantic Coast Line 1,39 20.32 0.96 1,50 0.05 41.45 14 Chesapeake & Ohio 3.84 4,71 3.49 4,35 0.15 44.20 40 Great Northern, Pfd. 2.99 15.50 3.48 4.50 0,20 14.30 28 Illinois Central 0.30 18.55 0.90 0.15 0.05 40.10 8% Kansas City Southern d0.45 12,09 d0.15 0.65 0.10 10.55 5 Louisville & Nashville 5,45 17.37 6.32 8.50 0.35 +8.16 59 Nashville, Chatt. & St. Louis 0,75 12.15 2.43 1.95 0.10 +1.85 17 New York Central 0,73 11.64 0.70 2.00 0,10 +1.90 15 New York, Chiengo & St. Louis 3.04 26.32 3.58 5.15 0.45 +4.70 15 Norfolk & Western 18.73 23.85 20.68 23.00 0.05 12.05 220 Northern Pacific 0.19 16.39 0.03 0.90 0.05 +0.85 7 Pennsylvania Railroad 1.97 7.85 2.43 2.85 0.10 12.75 23 Pere Marquette 0.99 14.04 d1.89 0.80 0.10 +0,70 12 Union Pacific 6,50 24.56 6.74 6.60 0.35 46,45 64 4 Definit. RAILWAY EQUIPMENT- American Brake Shoe & Fulry 2,39 2,80 2.39 3.25 0.15 13.00 35 a American Car & Fdry d2.60 8.08 d3.40 2.50 0,25 +2.25 27 American Locomotive d1.24 2.31 64.28 0.65 0.10 40.55 16 American Steel Foundries 1.59 2.15 1.15 2.65 0.10 12.49 36 Baldwin Locomotive Works do.17 3.00 0.41 1.85 0,10 +1.75 17 General American Transportation 3,16 5.41 3.11 4.50 0.20 +4.30 50 New York Air Brake 2,24 4.14 2.80 0.00 0.25 46.10 44 Pullman, Inc. 1.55 4.14 1.05 1.75 0.05 11.70 85 Union Tank Car 1.69 2.59 2.07 8.85 0.10 42.15 $8 Westinghouse Air Brake 1.17 1.26 0.87 2,00 0.10 +1.00 12 a Final year ended April 30 of the following calendar year. 4 Deficit. *Excess profit tax based on average 1936-1939 net income option unless otherwise indicated. HEscess profit tax based on the Invested capital option. $Not subject to additional normal or excess profit tax until fiscal year ending in 1941; base period earnings are for four years 1936-37 le 1928-40 and Invested espital base is computed from lated published year-end balance sheet. 10 DOLLARS PEB COMERON SHARE Retimated be Tax Credit 1040 Esrologs Band OILI ENTORE SAFTER Energy Additives) Additional ADDITIONAL Sentings Invested 1950 11% Formal 8.3% as NORMAL Capitial Approx. Actual and Company- Normal AND EXCESS June Citizens Wase Hartfage Profit Tasse Tax PROPTY TAXES Price RETAIL TRADE- nAlled Stores 0,95 1,44 1,26 1.60 0.10 +1.45 7% aBest à Company 3.59 2.87 3/12 3.50 0.15 0,35 20 bFirst National Stores 8,44 2.46 3.34 3.35 0.15 3.20 41 aGrant (W. T.) 2.82 2,16 2.92 3.15 0.15 2.85 R aGross (EL. L) 3,08 1,50 3.51 3.75 0,15 3.40 32 Jowel Tea 2.67 1.24 c2.83 2.85 0.10 2.72 48 Kreage (S. B.) 1.78 1.67 1.90 2.00 0.10 1.85 15 Kress (8. H.) 1.87 2.21 1.93 2,15 0.10 12.05 25 Kroger Grocery & Baking 2.03 1.97 3.01 2.80 0.10 2.40 52 aMacy (R. H.) & Co. 2.16 3.77 2.36 2.25 0.10 +2.15 58 aMay Dept. Storen 3.51 3.29 3,58 4.10 0.15 3.80 63 aMontgomery Ward 3.65 2.87 4,91 5,00 0.30 4.25 42 Permany (J. C.) 5,67 2,54 6.48 6,25 0.25 5.85 9A Safeway Stores 4.04 4.42 6,61 6.00 0.30 +5.00 4d aSeara, Roebuck A Co. 5,12 3.80 6.60 7.80 0.30 6.30 81 a Fiscal year ended Jan. IL of the following calendar year. b Fiscal year ended March as of the Adjusted for 8-108-1 wylls made during 1946. following calenter year. SHIPPING & SHIPBUILDING- Bath Iron Works 0.59 0,65 1,58 3.50 0.15 12.10 15 Electric Bost 0.79 0.73 1.44 1.85 0.05 1.35 15 New York Shipbuilding (Partie.) 1.36 1.92 1.61 4.50 0.20 13.25 21 SOAPS a VEGETABLE ons- atAreher-Daniels-Midiand 3,60 4.30 3.02 ASAB - $A542 20 Bon Aml "B" 3.44 d0.45 4.01 3.85 0.25 3.55 38 atProcter & Gamble 3.50 1.56 3.60 A4.37 --- $44.37 - A-Actual & Fiscal year ended June 20. Deficit. STEEL & IRON- Alleghany-Ludium Steel al.31 1.00 1.49 3.50 0.15 12.50 22 Bethlebem Steel 3.58 12.05 5.75 14.50 0.65 +12.95 80 Crudite Steel Cd. of America 1.52 13.99 254 11.25 0.60 +10.65 34 General Refractories 2.10 2.75 S.26 2.75 0.10 12.65 n Harbison-Walker Refractories MS 1.73 LN 1.75 0.05 +1.70 as Inland Steel 0,03 5.76 6.73 as 0.30 7.05 as Interlake Iron 0.09 1,91 d0.28 0.45 0.02 10.13 0 Jones a Laughlis Steel d1.95 17/44 d1.60 10.50 0.70 19.80 28 National Sted 5.35 5.69 5.71 7.50 0.30 +6.45 Б Oth Stock 0.34 1.20 80.00 d0.35 0.00 td0.37 9% Republic Steel 0.78 3,13 1,46 3,00 0.15 12.83 18 Share Steel 1,00 2.00 d0,11 2.15 0.10 12.05 11 U. a. Pipe & Fountry 3,03 3,10 3,89 2.65 0.10 12.55 29 United States Stael 2,19 10.55 1.83 6.50 0.45 18.05 5P Warren Foundry à Pipe 2,43 1.94 2.93 3.00 0,10 2.75 26 Wheeling Steel 2.65 941 6.34 5.00 0.35 14.65 25 Youngstown Sheet & Tube S.44 7.95 2,50 5.00 0.20 14.80 34 a Hosed on combined eschings of Alleghany Bled Co. and Indian Ellent Oo. ta 1934 and 1507. d'Defist. SUGAR PRODUCING & REFINING- American Sugar Refluing d0.84 11.99 d0.84 a - 14 bpContral Aguirre Assoe. 1,33 1.00 1.51 L25 - $1.25 18 eGrest Western Sugar 2.29 1.75 1.67 a --- 20 elSouth Porto Rico Sugar 1,95 2.59 2.11 2.25 $2,25 19 são estimate postfile, Find year ended July at year ented Pok = of the following calendar year. definit First your ensted Sept. BO. *Excess profit las based on average 1936-1959 net Income option unless otherwise Indicated. *Exees profit las based on the invested capital option, $Not subject to additional normal or oxtets profit tax will finest year ending to 1941; base period enrologs are for four years 1936-37 to 1930-40 and Invested espital base la computed from Islest publicied year-end bulsore wheet. OCTOBER 34. 1240 Page Il DOLLARS FAIR COMENOR SHARE - Frodit Tax Credit Selfmated 1010 Marnings OUT BEFORE AFTER ATHINGS Additional Additional ADDITIONAL Barniage Invested 1500 0.1% Bermal 41% as NORMAL Approx. Capital Actual and - Normal AND Current Blue Date Harnings Profil Taxes Tax PROFIT TAXES Company- Price EXTILES & APPAREL- American Woolen d4.71 5,84 d0.25 NO 0,35 1d0.25 0% Burlington Mills 189 1.58 8.88 4.00 0.15 2.95 19 Celanene Corp. of America 1.43 1.55 153 5.80 0.30 3.05 29 Clost: Probody 1.21 1.40 a4.15 4.25 8.50 3,00 95 bCottins & Allanan 4.94 2.31 4.16 6:00 0,25 5,20 27 Industrial Rayon 1.00 2.96 1.75 3.00 0.10 12.70 26 B Before foreign enchange adjustment. Fiscal year ended Feb. a of the following calendar year. Definit. TOBACCO & TOBACCO PRODUCTS- American Souff 3,01 2.99 1.03 3,80 0.15 t.85 57 aAmedeso Tobacco "B" 4,00 3.36 5.12 5,50 0.25 4.85 79 Bayak Cigars 230 2.06 4,33 5.15 0.20 4.05 20 General Cigar 2,06 3.91 LB 2.10 0.10 12.00 17 allggett & Myers Tobacco "B" 6.11 3.49 6.13 6.40 0.25 b4.15 100 Lerillard (P.) 1.37 1.55 1.69 1.60 0.10 t1.50 21 aReynolds (R. J.) Tobacco "B" 2.54 1.22 2.56 2.70 0,10 2.58 36 U. a Tobacco 1.79 1.00 1.77 1,85 0.10 1/15 34 the sombland comunion and sommon È shares. R Excess profits 9 natimated as Insur than con cant per share UYILITIES-Electrie Light, Power, Gas, Etc- NOTE: It has been found impracticable to attempt computations of the excess profits base and to estimate taxes for most utility holding companies. Detailed subsidiary company figures are necessary for this purpose, whereas most holding company reports are on a consolidated basis. For tax purposes, consolidated reports can be filed only when 95% of each class of voting stock is owned few holding companies own this ratio of such voting shares. Generally speaking, however, it is true that utility holding company earnings are well under the base level of 8% on invested capital as defined for the purposes of this act, and that utilities are, as a class, not particularly vulnerable to excess profits taxes. American Gas & Electric 2.23 3,67 2.50 3.00 0.15 12.85 Boston Edison 2.04 3.91 a2.22 2.25 0.10 12.15 36 Brooklyn Union Gas 2.44 5,26 2.42 2.00 0.10 12.50 16 Commonwealth Edison 0.59 2.42 2.43 2.35 0.10 42.25 31 Consulidated Edison of N. y. 2.03 5.19 2.23 2.15 0.10 +2.05 26 Consol. Gas Elee. LL & Pwr. (Balt.) 4.11 5,41 4.94 5.00 0.25 14.75 80 De roll Edison 7.11 12.20 7.58 8.00 0.30 47.70 110 Lobo Star Gas 1.02 1,40 0.98 1,25 0.05 +1.20 9% Peoples Gas Light & Coke 1.07 11.17 3.49 5.55 0.20 15.05 37 Public Service of New Jersey 2.46 2.72 2.88 2.70 0.15 +2.55 33 Seuttiern California Edison 2.00 4J6WE 2,20 2,25 0,15 12.00 28 Stone & Webster 0.42 0,05 0.40 0.75 0.05 10.70 8% United Gas Corp. do.n1 0,73 69.55 d0.25 0.05 +d0.30 6 Biljested for 4-far-1 aptils. d'Deficit. UTILITIES-TeL & M- New England Tel. & Tel. 5.97 10,48 7.37 7.75 0.20 47.45 117 Boothern New England Tel 7.29 10.35 8.05 8.40 0.35 16.05 160 Western Union Telegraph Co 2.70 15.65 1.32 a 20 No extimato postible, *Excess profil tax based on average 1936-1930 net. Income option unless otherwise indicated. tExcesa profli tax based on the Invested eapital option. $Not subject to additional normal or excelle profit Iss andil fireal year endlog in 1941; base period earnings are for four years 1936-37 to 1939-40 and invested cantis) base is computed from Intest published year-end balance sheet. The final motalned birdo has - dechind finance - within - billered to be annumis, DEL to me estanted Opinions and Formenta em listed upon and analysis, but are also BUL - sul - subject to claims attant peties. Page 12 335 October 14, 1940 3:17 p.m. Il H.M.Jr: Hello. Operator: Mr. Forrestal. H.M.Jr: Hello. James Forrestal: Henry, do you want to ask Knudsen who he wants to have, if anybody, join us up at Hartford? H.M.Jr: Oh, I think you could do it. It doesn't have to be 80 formal as to do it through me. F: 0. K. H.M.Jr: I just think you can call him. F: All right. H.M.Jr: Thanks for the courtesy. F: 0. K. H.M.Jr: Are you going to have anybody from the English? F: Yes, I talked to Young on that. H.M.Jr: Oh, good. F: And I presume he'll inform you. H.M.Jr: Yes, he surely will. F: 0. K. H.M.Jr: Thank you. 336 October 14, 1940. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Schwarz @ S Steve Early believes that, since the story on the four-man committee to accelerate aircraft production is out, there should be no objection to discussing the subject at your press conference this afternoon. He thinks that, in your discretion, you may wish to go into some of the details of the technique of the field trips to straighten out production situations "on the scene." He says that during his own half-hour press conference this morning, none of the White House correspondents raised the question of this morning's Wall Street Journal story, which apparently leaked out after the Cabinet meeting, and that he 1s satisfied the President was not planning to go into the subject at any length tomorrow afternoon at his press conference. 337 I London October 14, 1940 COPY To: Morris Wilson From: Beaverbrook Your Mny 965. How deeply indebted we are to you for all the benefits you confer upon your own people. And how much we appreciate the assistance we derive from Morgenthau. We can never repay our debt to him. I have tried to express it to him in a telegram but I left much unspoken. We could not have got on so far without his backing. The arrangements you made for us over the Hispano Suizas were very welcome. Now we deal in bigger and better things. We are most grateful for the Consolidated B 24's. So urgent is our need that they should be ferried across Atlantic. Provide ferrying equipment in United States and please notify us if any ferrying equipment is required from this side. We need those airplanes for bombing Berlin 1500 miles return journey carrying bombs of 2000 pounds. Overall length of bombs 100.8 inches, diameter 18.7 inches. Please advise at once service equipment we shall have to install this side, to fit those machines for night bombing. Suggest you consult Mansell about these requirements. We will be very glad to take B 17(s. For use for them. We are now happy, contented and the engines we are most grateful. We have immediate that with all the assistance are receiving the from end certain the United States we will in the end prevail. And is not far off. Received Oct 15,1940 4.30 P.M from A. Purvis Regraded Uclassified 338 WAR DEPARTMENT Photoslatec copies WASHINGTON to me Il October 14, 1940. My dear Mr. Secretary: In conformity with your request the other day, I have added the name of Mr. Philip Young, the Assistant to the Secretary of the Treasury, to the committee which I appointed on September 13th to con- sider matters pertaining to aircraft standardization and delivery schedules. I send you enclosed a copy of my letter to the Deputy Chief of Staff making that appointment here and also copy of the original letter of September 13, 1940, containing the membership of this committee with Mr. Philip Young's name added. Very sincerely yours, Thury h Stinson Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. BIO 12 WE yote WD 452 (8-13-40)0 339 CONFIDENTIAL Aircraft Standardization and Delivery Schedules. September 13, 1940. CORRECTED COPY Brigadier General Richard C. Moore, Deputy Chief of Staff, Washington, D. C. 1. W1th the concurrence of the Secretary of the Navy and the Chairman of the British Purchasing Commission, a committee consisting of the following-named members is appointed to consider and decide matters pertaining to aircraft standardization and aircraft delivery schedules: Brigadier General Richard C. Moore, U. S. Army, Brigadier General George H. Brett, U. S. Army, Rear Admiral John H. Towers, U. S. Navy, Captain Walter W. Webster, U. S. Navy, Air Commodore C. B.A. Baker, British Purchasing Comm ission, Mr. C. R. Fairey, British Purchasing Commission, Major Frederick M. Hopkins, Jr., Air Corps, U.S.Army, Recorder, Third later Philip Young, Assistant to the Secretary of the Treasury. 2. Each group of members of this Committee is authorized to act for and obligate the agency it represents. Decisions will be formulated in collaboration with the Advisory Commission to the Council of National Defense in order that that Commission can proceed to establish a firm schedule of deliveries, take full advantage of potential deliveries, and plan for future productive capacity. 3. The Committee will meet initially at the call of the senior Army member thereof. HENRY L. STIMSON, Secretary of War. DISTRIBUTION: Secretary of War Secretary of Navy British Purchasing Comm. 725 15th St., N.W. Advisory Comm. to the Council of Nat'l Def. Chief of the Air Corps Asst. C, of Staff, G-4, Each member listed above Captain Joseph G, Hopkins, Air Corps. 340 WD 452 (10-11-40)0 Subject: Aircraft Standardization and Delivery Schedules. Major General Richard c. Moore, Deputy Chief of Staff, Washington, D. C. 1. With the concurrence of the Departments concerned, Mr. Philip Young, of the Treasury Department, is appointed as an additional member of the Army-Navy-British Purchasing Commission, Joint Committee, appointed by letter, this office, dated September 13, 1940. 2. A copy of letter referred to above is being furnished Mr. Young for his information. (Signed) HENRY L. STIMSON Secretary of War. WIO our R 3 341 October 14, 1940 MEMORANDUM To: The Secretary From: Mr. Young Attached herewith is a copy of a memorandum which I have received from General Brett concerning the furnishing of British technical personnel to work with the Army and Navy on aircraft standard- isation. A copy of this memorandum has been transmitted to Mr. Fairey, of the British Purchasing Commission. P.G. 342 COPY WAR DEPARTMENT Air Corps Materiel Division Washington, D. C., October 10, 1940. MEMORANDUM FOR - Mr. Philip Young, Assistant to The Secretary, Treasury Department. l. In connection with my statement in Mr. Morgenthau's office the afternoon of October 9 referring to the lack of British technical personnel to conduct standardization with the Army and Navy, it is very evident that the British should immediately secure the services of technical men capable of discussing and deciding upon standardization of the following items: a. Power plants and accessories - 1 man. b. Radio and installations - 1 man. C. Navigational instruments and navigation - 1 man. d. Armament: - 3 men. Bombs and small arms, Pyrotechnics, Torpedoes, Fire control, Turrets, Bombays. e. Armor and fuel tank protection - 2 men. f. Bomb sights and accessories - 1 man. &- Equipment and accessories such as oxygen, photography, cloth- ing, small power installations, lighting, safety devices, etc. - 2 men. h. Tactical employment dealing primarily with military characteri- stics and military employment. These men should be qualified in tactics and technicians of the air arm - 3 men. 2. Clarify the situation. The Materiel Division at Wright Field and the Bureau of Ordnance and Naval Aeronautics of the Navy Department have their functional duties divided approximately as indicated above. Considerable progress could be immediately made if British technicians were available who could sit down with the various sections of the Army and Navy 343 Memo. to Mr. Philip Young, Treasury Dept., October 10, 1940. and discuss standardization along the lines in which they are specialists. Today with only two men available in the British Purchasing Commission there is a tremendous delay caused by the British through lack of suitably qualified technical personnel to discuss the many questions arising on aviation standardization. (Signed) Geo. H. Brett GEO H. BRETT, Major General, U.S.A., Chief, Materiel Division. 1 1

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Volume 321, October 11 – October 14, 1940

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collections	Henry Morgenthau, Jr. Papers Diaries of Henry Morgenthau, Jr.
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