Volume 335, December 3 – December 4, 1940

DIARY Book 335 December 3 and 4, 1940 - A - Book Page Alaska See Coast Guard Appointments and Resignations Gulick, Luther: Sullivan told by HMJr to make arrangements for bringing Gulick to Treasury to work on overlapping taxation - 12/3/40 335 2 a) $22.20 daily: part of time in New York City: See Book 339, page 7 b) For Magill reaction see Book 340, page 23 Argentina See Latin America Argentine meat: See War Conditions: Foreign Funds Control (France) - B - Batavia See War Conditions: Netherlande last Indies Batt, W. L. (Deputy Commissioner - Industrial Materials Division, National Defense Advisory Commission) Speech delivered before American Society of Mechanical Engineers in New York City - - 12/4/40. 248 Brasil See Latin America See War Conditions: Gold - C - China See War Conditions Chinlund, Edwin 1. (President, Postal Telegraph Company, Inc.) Viner speaks to HMJr about appointment to Defense Comunications Board - 12/3/40. 57 Coast Guard Cut in budget protested to Bureau of Budget by HMJr and Knox - 12/3/40 51 Countervailing Duties Situation to be reconsidered by State Department at request of British - 12/3/40 22 - D - Dumping Application of laws to be reconsidered by State Department at request of British - 12/3/40 22 Dutch Bast Indies See War Conditions: Netherlands East Indies Regraded Uclassified - 7 - Book Page Federal Bureau of Investigation Klaus memoranda - 12/3-4/40 335 48,48-A,161-A Financing, Government Open Market Committee: Eccles transmits memorandum in anticipation of meeting - 12/3/40 137 Open Market Committee meeting - 12/4/40 191 a) Hase recommendations for December financing 233 b) Memorandum based on discussion by members of Federal Reserve Board and Sinclair (Preaident, Federal Reserve Bank of Philadelphia) 237 Ford Motor Company Bee War Conditions: Airplanes France See War Conditions: Foreign Funds Control - G - Germany See War Conditions: Foreign Funds Control: Germany: Gold Gold See War Conditions Guadeloupe See War Conditions: Foreign Funds Control (France) Gulick, Luther See Appointments and Resignations - I - Italy See Var Conditions: Foreign Funds Control - J - Japan See War Conditions - L - Latin America Rockefeller memorandum on discussion with D'Arcy Cooper, representing British Board of Trade: to be discussed with Sir Frederick Phillips - 12/3/40 67.77 Argentina: Trade agreement again discussed at 9:30 meeting - 12/3/40 21 s) HMJr wants to see United States buy as much as possible, thus providing Argentina with dollars Argentine loan: Conference: present: HMJr, Jones, Welles, Grady, Collado, Jones, Pierson, Clayton, White, Bernetein, Cochran, Gaston, Foley, and Bell - 12/4/40 164 Brazil: Ship carrying military equipment from Germany to Brazil (payment to be made in blocked marks) stopped by Britten: United States asked to intercede - - 12/3/40. 18 Regraded Uclassified - L- - (Continued) Book Page Liquor Fractions of pints and quarts opposed by HMJr - 12/3/40.. 335 11 - M - Martinique See War Conditions: Foreign Funds Control (France) - If - Netherlands See War Conditions Netherlande East Indies See War Conditions - P - Poland See War Conditions: Gold - R - - Revenue Revision New York Times to be checked for "misstatements" as, for example, "business losing money on account of higher taxes" - 12/3/40. 1 Overlapping taxation to be studied by Gulick (Luther): from 1912 to 1939 Federal has increased from 35% to 40% - state from 14% to 27% - municipal decreased from 58% to 32% - 12/3/40 2 Canadian excess profits and general sales tax to be studied by Blough - 12/3/40 10 a) State Department asked to arrange Blough's projected trip to Canada - 12/5/40: See Book 336, page 88 Harrison-Doughton decision: No now taxes or tax rates to be applicable to 1940 income discussed in Sullivan memorandum 12/3/40 26 Gulick "comprehensive review of Federal-State tax relations" - 12/3/40 80 - S - Sleesor, Air Commodore See War Conditions: Airplanes State Department Assignees to Treasury Yearly advances, 7/1/34-7/1/40 - 12/4/40 269 Sweden See War Conditions: Foreign Funds Control Regraded Uclassified - T - Book Page Taxation See Revenue Revision Treasury Personnel State Department assignees Yearly advances, 7/1/34-7/1/40 - 12/4/40. 335 269 - U - U.S.S.R. See War Conditions: Foreign Funds Control United Kingdom See War Conditions United States Savings Bonds Report to September 30, 1940 - 12/4/40 245 - V - Viner, Jacob See War Conditions: Foreign Funds Control - W - War Conditions Airplanes: Air Commodore Slessor. HMJr, and Young confer on increased production - 12/3/40 29 a) Chart showing outline of organization of British air staff - 12/3/40 31 b) Slessor's supplementary memorandum - 12/7/40: See Book 336, page 342 c) Sleesor's criticisms sent to FDR - 12/9/40: See Book 337, page 274 d) Sleesor's criticisms sent to Stimson, Patterson, Knox, and Stark - 12/9/40: Book 337. pages 282,285,288,291 1) Stimson and HMJr discuss: See Book 340, pages 36 and 52 o) Memorandum discussed with Wilson (Canada): See Book 338, page 250 Vast Coast inspection trip: Buckley memorandum - 12/3/40, 34 (See also Book 338. page 156) a) On basis of report, HMJr to urge 24-hour 7-day week: See Book 336, page 181 1) Discussion at 9:30 meeting - 12/12/40: See Book 339. page 10 2) Copy sent to Hull - 12/12/40: Book 339, pages 114 and 117 3) Copy sent to Henderson: Book 339, page 251 Ford Motor Company asked for report on orders, unfilled and new, together with deliveries - 12/3/40. 58 a) Edsel Ford's reply - 12/5/40: See Book 336, page 80 Regraded Uclassified - Y - (Continued) Book Page War Conditions (Continued) China: Stabilization Funde discussed in memorandum from British Embassy - 12/3/40 335 142 Anglo-Chinese-American cooperation as requested by Chieng Kai-shek discussed in memorandum from British Embassy - 12/3/40 144 Chen eende pictures taken during trip over Tunnan-Burma Highway - 12/4/40 270 a) Oil transportation b) Malaria research Exchange market resume' - 12/3-4/40 65,160 Foreign Funds Control: Viner asked to work on over-all freezing - 12/3/40 5 Wiley to succeed Uphan on committee - 12/3/40 6 France: Payments for Argentine meat again discussed at 9:30 meeting - 12/3/40 16 Guadeloupe, Martinique: Shipmente of fuel oil for public utility services and merchant and naval vessels now in harbor there - State Department aske Treasury to release funde every five weeke - 12/3/40 49 Germany: Transactions with Chase National Bank - 12/3-4/40. 60-A,157 Italy: Transactions with Chase National Bank and National City Bank - 12/3/40 64 Iveden: Transactions with Federal Reserve Bank of New York - 12/3/40 60 U.S.S.R.: Transactions with Chase National Bank - 12/4/40 158 Germany: American creditor claims and assets in Germany discussed in Viner memorandum - 12/3/40 140 Gold: German bank inquires concerning sale of gold bullion to Bank of Brazil - 12/4/40 162 American Consulate, Dakar, reports on request by director of Polish Central Bank for return of Polish gold; State Department informed there has been no answer - 12/4/40 264 Japan: Japanese mission to Batavia to discuss economic as well as political matters, and American Ambassedor at Tokyo so informed - 12/4/40 155 Military Planning: War Department bulletins: The German 210-mm. Howitser, Model 18, and Its Prime Mover - 12/3/40 146 Miscellaneous Observations on the German Army - 12/4/40. 296 Regraded Uclassified - W - (Continued) Book Page War Conditions (Continued) Netherlands: Purchasing Commission commodity statements - 12/3/40 335 43 Difficulties in connection with aircraft procurement program reviewed in letter to Major Henry 8. Hooker, which letter in turn is transmitted to FDR - 12/3/40. 88 Netherlands East Indies: Japanese mission to Batavia to discuss economic as well as political matters, and American Ambassador at Tokyo 80 informed - 12/4/40 155 Plant Expansion: Airplane, munitions, and shipbuilding programs - additional British orders: Conference; present: HMJr, Welles, Feis, Stimson, Knox, Jones, Patterson, Forrestal, Knudsen, Marshall, Palmer, McCloy. Bell, Viner, Young, and White - 12/3/40 97 United Kingdom: Inflationary dangers pointed out by Keynes and Stamp - 12/4/40 265 1 GROUP MEETING December 3, 1940. 9:30 a.m. Present: Mr. Graves Mr. Pehle Mr. Viner Mr. Young Mr. Wiley Mr. Foley Mr. Gaston Mr. Thompson Mr. Bell Mr. Schwarz Mr. Sullivan Mr. Cochran Mr. White Mrs Klotz N.M.Jr: Good morning, everybody. Where is Jacob Viner? Winer: Right here. Sullivan: Where? H.M.Jr: Well, we had a good day yesterday. One thing, I told 8. number of you people in confidence that yesterday in Cabinet the only person who came to my rescue when I said I wanted to go up on the Hill was Mr. Ickes. In the heat of the battle, I forgot thet also Frank Knox did. He offered to give me the 50 million dollars that he had allocated for the bases and that he would take - wait and get his 50 million dollar reimbursement in January, and as I say, in the heat I over- looked it and I just want to say to those of you that I told, that I forgot about it. He was also swell, besides Ickes. If you (Sullivan) will get the financial New York Times, Sunday, and look through it, you will find two instances where they say that business is losing money on account of Regraded Uclassified 2 - 2 - higher taxes. Now, I am willing to gamble they have been doing that right straight along, that it is the fact that they charge all the excess profits to the third quarter, you see. I would like you to get the facts on that and have your own office watch the Times particularly for those kind of mis- statements, When you get the facts on that, I will personally take them and write a letter to Sulzberger, but have somebody look in the financial section from your own office. Sullivan: I will. H.M.Jr: Because I mean they are constantly making misstatements and nobody in the Treasury has taken it on himself to answer it. Then the other thing, would you get in touch with Luther Gulick for me and tell him we would like him to come down and work for me, I mean for the Treasury. Sullivan: Yes, sir. As soon as he can? H.M.Jr: As soon as he can, and his man Buck, also. Sullivan: Ask him to bring Mr. Buck with him? H.M.Jr: Whoever he wants, and arrange for the money. I mean, if you will take it up - if you will carry the ball, and when he gets down here and gets set up - he is coming down, Jake, to do & study on overlapping taxes after seven and a half years. And the most astonishing thing in the figures that he gave us - check my memory, John - the Federal taxes have about doubled, the state about doubled, and municipal taxes went from 55% to 35%, something like that. 3 - 3 - Sullivan: No, the Federal from 1912 to 1939 only went up about 5%, 35% to 40%. The state prac- tically doubled, from 14% to 27%. The muni- cipal dropped from 58% to 32, Those vicini- ties are on the total tax in all three. H.M.Jr: Due to all of our contributions to Mayor LaGuardia, much to his delight, they dropped their taxes and the Federal Government picked them up, which is a thing which I don't think anybody realizes. Viner: There has been a shift in the tax collection within the states from the local to the states. The states give back a large proportion of their funds now to the local governments. H.M.Jr: No, how much do they give back? He has got it there. How much did they give back? Sullivan: The proportion given by the states to the localities is quite large. H.M.Jr: Is it? Sullivan: Yes, sir. H.M.Jr: How large? Does it give it in percentage? Sullivan: No. H.M.Jr: Well, the point is, Jake, I am really going after this now. I am seven years late. Viner: No, you did something in '34. You have got Haig's study in your files. It was a good study, too. Sullivan: And that study has been continued all along since. Regraded Uclassified 4 - 4 - Viner: But I would say it needs each six months something new in the picture, a new look, until something is done about it. Sullivan: We go along in accordance with the plan outlined in my memorandum to you? H.M.Jr: No. Bring him down and let's get him started. I am not going to wait on anything. Sullivan: Well, I mean he is going to want to know how he is going to work. H.M.Jr: lle will work for the Treasury for the time being. Sullivan: That is what I say. Did you read my memorandum? H.M.Jr: I guess I didn't. What did you recommend, John? Sullivan: I recommended until later on in the next session he work just for Treasury, familiarize himself with -- H.M.Jr: I dreamed it, John. Sullivan: I had forgotten your telling me about it. H.M.Jr: Nowadays, Jake, this year, it isn't that I thought of it, you dream it. Viner: Happy dreams. H.M.Jr: All right? Sullivan: Sure. H.M.Jr: And then - where else am I? Merle, I see by the papers that the English Regraded Uclassified 5 - 5 - have assisted Spain, and it also says the United States is linked with the deal. Maybe if you ask the State Department, some- body might let us in on the secret. Philip, your memo on giving Hinckley this data, I think he is entitled to it. Hinckley has been terribly helpful to me. Young: He has been very cooperative all the way along. H.M.Jr: He has helped me more on this stuff than any- body else. The answer is yes. Dr. Viner, you are lunching with me today and there are two things where you could be most helpful to me. We are still trying to work on the question of freezing all funds, and I wish you would have & talk with Mr. Bell and Mr. Wiley on that this forenoon and in connection with that, here are certain memoranda which Mr. Wiley has written to me which I would like you to read. You can bring them back at lunch. If you have any time left after you soak that up, talk to Cochran and White, but I think you should start with Bell and Wiley. After that, I want to talk to you on a broad basis of how we are going to raise our money. That is also Bell. I have got one more memo- randum that goes with that, Jake. Have you (Young) told McKay about that 11:00 o'clock appointment? Young: No. H.M.Jr: Well, will you? Regraded Uclassified 6 - 6- Bell, will you ask McKay to give you, Preston Delano, and Foley an appointment on the Bank of America? Bell: Better put it off until the end of the week, hadn't we? H.M.Jr: Yes. Bell: It is going to be a crowded week. H.M.Jr: And would you put - who runs this committee on foreign funds; who is chairman of that? Bell: Pehle. H.M.Jr: Well, I think it would be useful to have Mr. Wiley on that committee, and will you (Pehle) tell McKay that I would like to see Upham? I think he has served his usefulness on that committee, but I will tell him that. But the two things have nothing to do with each other. Would you have time, Wiley, to sit on that? Wiley: Yes, sir. H.M.Jr: I think it would be very useful. Bell: Upham would like to be relieved. He has all of this Wagner questionnaire and the Comptroller's annual report. H.M.Jr: Well, we will relieve him. And Herbert, I read your report on seeing Budd. I think that worked out very well. Gaston: It did. They are entirely satisfied. Wood is entirely satisfied and he is entirely happy and I think it is a good arrangement. 7 - 7 - H.M.Jr: This is a constructive thing. And you hire the car ferry? Gaston: Yes. We will let Wood do the negotiating, because he will probably get a better price than the Government would. H.M.Jr: Yes. What else? Gaston: We are preparing to make a very modest pro- test on the budget, but I think we ought to be quite firm about it. We are asking for only a million dollars, of which four hundred thousand will be for additional aids to navi- gation which the Navy needs very badly in Alaska, and the Navy will give us some help on that, and three hundred thousand for an infirmary at the Academy, which we need very badly, and then three hundred thousand for & new type of boat which they can use for ice breaking, taking their buoy tugs. It is only a 65-foot boat, but they are adapting that so as to use it as an ice-breaker in shallow water and if we can squeeze in three of those it will relieve the pressure very much on the most expensive type of 110-foot ice-breaker tug, and that is all we are asking for, but we may have to have some help. It is only 8. million dollars added to 65 million, about 11% It seems pretty reasonable. They have out us 35 million. H.M.Jr: Anything else? Gaston: That is all. We are still working on that question of what additions they can put on to merchant ships for defensive purposes, trying to get some definite ruling out of 8 - 8 - the State and Justice, rather than standing - taking the heat ourselves for violating the law, which we don't want to do. H.M.Jr: Incidentally, the New York Times today has the best story. Schwarz: It is 8 nice story. Gaston: I haven't read it. H.M.Jr: It is very nice. This fellow is the only one who would take the trouble to look up that paragraph where it says I would come up for guidance. He was the only one to look that up. He got that paragraph. Schwarz: It makes & good point. The members of the committee were pleased to see that you re- membered. Gaston: I was amazed to see that Alsop and Kintner were the only ones to discover that the Johnson Act doesn't restrict loans to belligerent countries. H.M.Jr: They practically live in the Treasury. Gaston: I wonder where they live. H.M.Jr: I can tell you, mostly. White: By the way, Senator Wagner kept, accidentally possibly, the memorandum which contained all the statements you had made with reference to the stabilization fund, when you showed it to him. Shall we get it back? He asked to see the paragraph. I showed it to you and you showed it to him. Foley: You were asking for the letter you sent to Regraded Uclassified 9 - 9 - the Speaker and Harry had only the quotations. H.M.Jr: That is all right. Bell: It is all public information, isn't it? White: Yes. H.M.Jr: Incidentally, I will do everybody a boy scout deed. Don't go to the play at the National Theatre. It is the first time that Mrs. Mor- genthau and I walked out at the end of the second act. It is terrible. (Discussion off the record) Foley: The House agreed to the Senate amendment to the Walter-Logan bill, so it now goes to the President. I will check with Bob Jack- son and Smith over in the Budget to make sure that there is a proper veto message given to the President. Tom Manning is back from the hospital. He is much better and is going to Florida on Friday for & little while. Norman Tietjens, who was at Saranac, is doing very much better and they think he will be back with us two or three months sooner than they thought. H.M.Jr: Swell. Foley: Here is B. decoration for that dinner (pre- senting large button with Secretary's pic- ture). H.M.Jr: I don't know whether I was invited to that thing. Regraded Uclassified 10 - 10 - Foley: Yes, he checked, and an invitation to the dinner was given to you. It came in the form of a draft notice. It was a great big sheet. Bell: He probably looked at it. Klotz: I never saw it. Bell: He probably thought it was an advertisement. Sullivan: I think, Mr. Secretary, you ought to send for Mr. Foley's picture. I think that would interest them. H.M.Jr: How do I do that? Sullivan: Oh, he has got it in there. H.M.Jr: Will you do that, willingly? Foley: Not willingly. Sullivan: That is why I said I thought you would have to send for it. H.M.Jr: Subpoena? Sullivan: No, I think if you just ask McKay to get it, he will get it in here. It would be quite handy to drive undesirable people away. H.M.Jr: What else, Ed? Foley: I have nothing. H.M.Jr: John? Sullivan: I would like to send Roy Blough up to Canada for about & week. We have heard so much 11 - 11 - about the Canadian excess-profits system and general sales tax that I -- H.M.Jr: And the one before and after election. They have had two. They have had one before elec- tion and another right after. Sullivan: That is right. H.M.Jr: And you might ask the financial adviser to the Canadian Government what he knows about it, Dr. Viner. Sullivan: I see, sir. I think I would like to have Roy go up there for about a week. There is a proposed press release in con- junction with our new policy of allowing 4/5ths pints of certain types of liquor that hadn't previously been used, and I didn't know whether you wanted to see that or not. H.M.Jr: 4/5ths? You mean you are getting out 4/5ths of & pint? Sullivan: That is right. You see, we have done that right along on Scotch and Irish whiskey and rum. H.M.Jr: Now, listen. In '33 and '34 when I used to spend & lot of time on liquor (laughter) - studying it - I was opposed to 4/5ths of a quart, you remember, and I don't want to move in that direction of 4/5ths of a pint. It just cheats the people. They don't know they are not getting a pint. Sullivan: That is why I opposed it, sir, and we have gotten into a position now with the tax 12 - 12 - where we are just driving out one part of the industry in favor of another part of the industry, and what is being done is a type of bottle is being used that is un- like the other pint and it is being con- spicuously labeled so the deception part of it is being taken care of. H.M.Jr: Do you mind if Harold takes a look at it? Sullivan: No, I would like very much to have him. H.M.Jr: Too bad Mac isn't here. He is an expert on bottles. (Laughter) Viner: So was I, don't forget. white: But McReynold's was whiskey and yours was milk. H.M.Jr: Do you remember, Mac went up to Barkley and put about 12 bottles on his desk? Gaston: I think you remember when he put about 20 on your desk in a conference one time. H.M.Jr: liave something on Mac for me, if you think it is funny. Klotz: He won't. H.M.Jr: He will if they are full. Sullivan: It would be tragic if they were empty. H.M.Jr: Well, think about it, anyway. Sullivan: There was that matter you wanted me to look up yesterday afternoon. H.M.Jr: Yes. Now listen, read the minutes of my press conference yesterday. Regraded Uclassified 13 - 13 - Sullivan: I couldn't find it in the paper. H.M.Jr: Exactly. I used it. They asked me the question. You planted it and I used it. Sullivan: I didn't plant it. I beg your pardon. H.M.Jr: I used it and it just fell completely flat. Now, I am perfectly willing for you to use it any way that you want to. This is to emphasize Section 102, that I mentioned it because they asked me yesterday. Sullivan: It was to do something more than that. It seemed to me that after you started the business of no more retroactive taxes, somebody else was getting all the credit for it and I wanted to show that that had started here, was part of our policy. H.M.Jr: Well, if you can dope a way to get it into the newspapers, it is all right with me. Sullivan: Read that at leisure. H.M.Jr: I have no leisure. Well, as I say, if you can get it over any way at all, well and good. Any way you want to do it is all right. You see if you can dope out a way. I tried it and got nowhere. Schwarz: The Chinese story smothered that yesterday. H.M.Jr: Read the press conference. Sullivan: I will. H.M.Jr: Anything else? Sullivan: No. Regraded Uclassified 14 - 14 - Cochran: The Chinese yuan is up 3/32nds this morning. H.M.Jr: Wow! Wang! Last night at the theatre, Senator Wagner was there and he said - turned to Mrs. Mor- genthau and he said, "I saved Henry 50 million dollars today." She turned to me and said, "How did he do that?" I said, "I would like to know." That was his reaction. Coohran: Did you hear Swing on the radio last night? H.M.Jr: He cited this as one of the big events of recent months, credit to China. White: Good or bad? Cochran: That remains to be seen. White: What did he say? Cochran: He said it was very helpful. (Laughter) White: Oh, you think it remains to be seen. I just thought you overlooked an important point. Foley: About 20 million, Harry? H.M.Jr: Did you ever either figuratively or literally sit on White, Merle? Try it literally once. (Laughter) Gaston: Once ought to be enough. White: From now on I will carry pins. H.M.Jr: Anything else, Merle? Cochran: No, sir. 15 - 15 - Schwarz: We made up a collection of editorials from all over the country on your statements last month on raising the debt limit, if you care to see them. I can leave them with you. H.M.Jr: All right. Thanks. Schwarz: The other point I had, Pearson and Allen had & reference to financial help to Britain. They are talking about gifts instead of loans. Do you want to take a look at it? H.M.Jr: I saw it. Wiley, you stay behind after this thing. I would like to talk to you a minute. Is there something you would like to say? Wiley: No. H.M.Jr: Do you know Dr. Viner? Wiley: Yes, we met this morning. H.M.Jr: Pehle? Pehle: I want to raise B. point of the application in- volving some payments by the French for Ar- gentine meat, particularly in view of the difficulty we had before when we asked the Argentines for information and the Ambassador came in and thought it was an affront to their sovereignty or something. The French back in July made an application to make 8. lot of payments down in South America. None of them have been made to date except one to Uruguay, where we got some supporting informa- tion from Uruguay. The rest of them more or less just remained dormant. Regraded Uclassified 16 - 16 - Now, the Argentine Embassy sent in some time ago a request for payment of about a million two for some meat and wool products that they said the French had purchased from them, and the figures did not exactly square with the amount that the French had asked to pay the Argentine, and we told them so. They asked that we not request any information of them, that if we wanted to get information from the French it was all right, but they didn't want us to ask them for any information. So we wrote a letter to the French and asked them for more detailed information, which we haven't got as yet. In the meantime, the Argentine Embassy has come in again and more or less squared the figures up and said that the meat, wool products, were shipped prior to June 15. The last shipment they said left June 15. However, we haven't all the information that we asked the French for. The Argentines are very insistent that they need the money badly and I assume that if we tell them we are going to wait until we hear from the French, they won't like it. On the other hand, we would feel better if we got the information we asked for. H.M.Jr: Who would feel better? Pehle: We would. H.M.Jr: How much is involved. Pehle: A million two. H.M.Jr: Has the meat gone? Is it a transaction which took place prior to the 15th of June? 17 - 17 - Pehle: Well, the French have been a little evasive on that. The Argentinians say it was shipped. Whether the ships came back or anything, we don't know. There has been all this talk about meat being purchased in the Argentine for shipment, that the British - there were some navicerts issued and then revoked. H.M.Jr: I would get to the bottom of it. Pehle: Then if you agree, we will tell the Argentinians that we have asked the French for this informa- tion and as soon as we get it we will reexamine the case. H.M.Jr: Yes. What else? Pehle: That is all. H.M.Jr: Philip, I told you to be at my office at 3:00 and have enough copies of that Sir Walter Layton thing that he gave me on Saturday to distribute. Will you? Young: Of the estimated value statement? H.M.Jr: No, this two billion thing. Young: Do you want me here at 11:00 with Slesser? H.M.Jr: Yes. Young: Judge Patterson called me up yesterday -- H.M.Jr: Harry, you sit in at this 3:00 o'clock meet- ing on the English assets. Young: Judge Patterson called yesterday concerning Regraded Uclassified 18 - 18 - this Brazilian ship which the British have stopped, carrying military equipment from Germany to Brazil. Evidently Brazil bought a lot of stuff from Germany, which has slowly been filtering over, and the British stopped one of their ships outside of Lisbon and took it under control. Due to the fact that - of policy, good neighbor policy and so on, General Marshall wrote a very strong memorandum to Patterson, of which he sent me B. copy, urging that whatever pressure we have be brought to bear on the British Pur- chasing Commission to let the ship go on to Brazil with its equipment. White: They practically are getting that for nothing, because it is supposed to have been received some time ago and payment was to be in blocked marks, so the Brazilians would feel quite badly about it, I think, if they weren't permitted to get it. Young: They are all up in the air about it, the Brazilians. H.M.Jr: Isn't that a little out of our field. I mean, isn't it rather peculiar, coming from the War Department? Young: Well, they have evidently taken it up with Mr. Welles and he is going to talk to the British Ambassador about it also. It seems to me that would be adequate. H.M.Jr: I don't want to get in on that. I don't think it is in our field. I don't think that is our business. I mean, Welles should take it up with the British Ambassador. Don't you think so? Cochran: Yes, sir. Regraded Uclassified 19 - 19 - H.M.Jr: Wiley? Wiley: Yes. H.M.Jr: Don't you think that is getting out of our field? Wiley: I think so, sir. Young: That is all. H.M.Jr: George? Haas: Allison didn't do so well (handing report to Secretary). H.M.Jr: Or let them take it up with Nelson Rockefeller. Young: I think they are taking it up with everybody they can get to take it up with. H.M.Jr: I am interested but it is not my business. George? Haas: That is all. H.M.Jr: I said that Young and White were to come in this afternoon at 3:00. The reason I am not asking you (Bell) is that I want to leave you free to do this Chinese business. Bell: Well, there isn't anything we can do on that until we get a draft of a letter. It will be about Thursday before we can do anything. H.M.Jr: Well, do you want to come at 3:00? Bell: Yes. Young: There is just one other thing. Harry Collins called me yesterday to say that the ninth Regraded Uclassified 20 - 20 - engine was there. They are putting it in the ship. H.M.Jr: What is that, the "E" engine? Young: Yes, the Allison "E". H.M.Jr: Isn't that ahead of schedule? Young: He didn't say. I don't know. H.M.Jr: George, you had better get your engines now by model numbers. That figure shows total. Haas: I think on the Allison detailed sheet it has whether they are "E" or "C". H.M.Jr: Does it? Haas: Yes. H.M.Jr: Dr. Viner? Viner: Nothing. H.M.Jr: See you at 1:00 o'clock? Viner: Yes. H.M.Jr: Mr. White? White: I have the information with regard to ship- ments of ore from the Philippines to Japan that you asked for. Their shipments have been rising very rapidly this year. They are seven or eight times larger than they were in the early part of the year. I will leave the table with you, unless there is anything more you want to do about it. There is a decision coming up regarding trade agreements which may be important. The State Regraded Uclassified 21 - 21 - Department called me up. It will probably come to a vote. The Treasury vote may be decisive, I am not sure, and that is on the trade agreements contemplated with Argentine. One of the key items is flaxseed. The Depart- ment of Agriculture, I think, is opposed to reducing the duty, which is pretty high, sixty-five cents. The State Department wants to lower the duty. We feel that the duty under the circumstances should be lowered. If it comes to 8 vote, do you want us to vote, or do you want to have it reexamined? H.M.Jr: Well, in view of this thing we are going into with the Argentine, I want to see us buy as much as we can. White: That is one of the important reasons. H.M.Jr: So I would vote to lower it. Bell: In that connection, Mr. Secretary, I think we might adopt a rather liberal policy in our fund control. That gives the Argentines more dollars. H.M.Jr: True. I agree with you, but we have got to get the French to tell us the truth. Bell: I think so, too, but in the end -- Pehle: We have been adopting a very friendly atti- tude, of course, in connection with South America. H.M.Jr: But there has been a little fast footwork there that I don't understand. That is what is bothering you, isn't it? Pehle: Yes, sir. Regraded Uclassified 22 - 22 - White: If there is any difficulty about getting information from that, you might like to take it up with Prebisch when you see him. It would be a good thing to talk with him about. He would get the facts immediately and then if you are going to give it to him, it would be a nice gesture to him. H.M.Jr: But suppose you have got to turn them down? White: It wouldn't be so good, but I don't think you are apt to turn him down if he gives you the information. H.M.Jr: I have got to hurry a little bit, Harry. White: Oh, now, you mean? H.M.Jr: Now, today. (Laughter) White: llere is something that is coming up this afternoon that is rather important. The British have requested the State Department to reconsider the application of dumping laws and countervailing duties on goods because it is going to, they feel, affect them rather adversely. That is coming up for discussion. Viner: You meen the valuation? White: There are three matters, the valuation of the exports. Now, I take it -- H.M.Jr: Start over again. White: The British are saying there are three things that they find objectionable. Now -- H.M.Jr: Who do they say this to? 23 - 23 - White: The State Department. The State Department has brought it up as a commercial policy. All three things happen to be Treasury ad- ministration, but the Treasury is only ad- ministering the law. They want the law changed. I don't feel that either of the three laws should be changed. H.M.Jr: Well, I can't do that as a curbstone thing. I need more time. White: Yes. Here is a letter that I would like to have your signature on (to Jerome Frank). H.M.Jr: But you don't mention who the person is. White: He said he would call me up and give us any- body we want or we can pick 8. man ourselves. H.M.Jr: No, I want you to name a man. White: Classify a man in the sheet? H.M.Jr: You know who you want, don't you? White: One of two. H.M.Jr: Then say that, either one or the other. Men- tion the name. White: All the other things can wait. H.M.Jr: Good. White: That is all. H.M.Jr: Harold? Bell? 24 - 24 - Bell: Jay Crane would like to have an appointment. H.M.Jr: You tell McKay he will have to wait B. day. Bell: I told him probably the end of the week. It is all right to make a date? H.M.Jr: Tell McKay to give him Friday morning between 10:00 and 11:00. Bell: Finland has notified the State Department it is going to take advantage of the Vandenberg resolution on the December 15 payment. We have that letter and it has been made public by the State Department and they have sent another letter in which they say they would like to have the debt reconsidered, would like to enter negotiations, which letter has not been made public. I thought you might want to consider that sometime in the next ten days, as to what we should do with it. Didn't you say you were going to see Jones and -- H.M.Jr: Jones is coming here -- Bell: And Pierson today on the Argentine? H.M.Jr: Jones is coming in here at 10:30 and he said he wants to see me alone. Bell: I am seeing Pierson at 12:00 on the China thing, but you said Sunday night that you -- H.M.Jr: I called Jones up and I said I would - well, he wants to see me alone. I figured that right after that, beginning tomorrow morning, we could go to work on the thing. Bell: Tomorrow morning is Open Market meeting at 10:30 for at least an hour or an hour and 8. half. 25 - 25 - H.M.Jr: Well, we can start with the Argentine at 9:00 o'clock. Bell: Do you want a preliminary conference with Jones and Pierson and the State Department? H.M.Jr: Well, let me see what Jones has in his mind. I have got the Argentine - my financing comes next, then comes the Argentine. Bell: That will probably be Wednesday afternoon or Thursday morning. H.M.Jr: Yes. Bell: That is all I have. H.M.Jr: Norman? Thompson: Nothing. H.M.Jr: Mr. Wiley, I am going to give you a definite appointment. 11:30. Wiley: Very good, sir. H.M.Jr: And I won't be rushed. If I see you now, I will be rushed. attach to 26 12/3/40 Mr. Sullivan gave this to the Secretary at the 9:30 group meeting today. 27 The Friday evening conference was very helpful, and I believe the conclusion announced by Senator Harrison and Congressman Doughton that no new taxes or tax rates would be made applicable to 1940 income discloses a policy which will meet with the approval of the country. Numerous inquiries had recently been received by the Treasury Department as to whether the Department would recommend that further increases be made in the rates of tax applicable to the year 1940. Many of those making such inquiries indicated the pertinence of this question to the determination OF corporate policies with respect to year-end dividend distributions and reserves for taxes. The Friday night statement provides our answer to these inquiries. In view of the Administration's policy it may also be appro- priate for me to state that in its enforcement of Section 102 of the Internal Revenue Code the Department will not regard corporate reserves for 1940 taxes in excess of the rates now provided by law as an accumulation for the reasonable needs of business. I trust that all corporations will continue to demonstrate their good faith by distributing to their stockholders all earnings not actually required for their business needs. Regraded Uclassified 28 0-2/2657-220 RESTRICTED M.I.D., W.D. December 3, 1940. No. 260 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 an Restricted. I. Western Theater of War. 1. Air Force Operations. The German Air Force apparently took part in a coor- dinated air and naval attack on a British convoy on the 3rd, some 300 miles west of Ireland. Last night a heavy attack was made on Bristol. The R.A.F. confined its offensive activity to the North Sea and to the occupied territories. Lorient was again raided. II. Greek Theater of War. The Greek Army continued to advance, reporting its great- est success in the center, where it was claimed 5,000 Italian troops were captured. The Italian Air Force operated against Greek troops and lines of communication. III. Mediterranean and African Theaters of War. No ground operations and only minor Air Force activity reported. RESTRI CTED Regraded Uclassified 29 Notes on Meeting in the Secretary's office 11 A.M., Tuesday, December 3, 1940. Those present at this meeting were, Secretary Morgenthau, Air Commodore Slessor, and Philip Young. The Secretary opened the conference by asking Air Commodore Slessor if he had been securing the desired information and see- ing everything he wished to see. Slessor said that everybody had been fine to him and that he vas planning on staying about three weeks longer as more of the technical air people were coming over from England. The Secretary asked him if he had seen Lord Lothian since the Secretary had talked with the latter, and Slessor said that he had not, The Secretary said that he W&B worried about the British orders as the stuff which vas now coming off the production line WAS the stuff originally on order for the French. He went on to emphasize that the British should only place orders for those types of planes which would also be useful to the United States. The Secretary cited the tank program as an example of standardi- zation. He inquired from Air Commodore Slessor B.B. to what was the next fighting plane beyond the Bell and better than the ones the Germane now had. Slessor said that there was nothing coming on in the United States which was as advanced as the Typhoon. He added that the threat of the Germans gaining air supremacy had increased because of the taking over of aircraft capacity in France. While this would not affect German production capacity as far as numbers were concerned, it would give the Germans an opportunity and the place to develop new types without decreasing quantity production of existing types. He added that he thought it would be the spring of 1942 anyway before the British would have planes equal in number to the Germans. Slessor said that the Typhoon was equipped with the Napier Sabre 2000 horsepower engine and that the plans for the engine had just arrived in the United States and had been sent to Knudsen. The Secretary said that the British Government had been slow in letting us have samples of this sort of thing. He emphasized the fact that the quickest way to sell the United States on & new item was to send n sample over. The Secretary asked Slessor no to his personal background and Slessor replied that for the last three and one-half years he had Regraded Uclassified 30 been the herd of the Plans Division of the Air Ministry. Evi- sently in May, 1940, the Ministry of Air Production WAS created out of the Air Ministry, which up to that time had handled the military as well BE the production aspects. Instead of going over with Beaverbrook in the Air Production Ministry, Slessor stayed on with the original Air Ministry in the Operational Division, Slessor explained that the Plans Division, of which he wes the head, was responsible for developing the tactical plans to be used against the Germans, the policies involved, and the disposition of the British air force all over the world. He ndded that he had nothing to do with training or personnel. His division wrote un reporte for the Joint Staff, and the Chiefs of Staff in turn reported to the War Ministry a single coordinated view of what should be done. The Secretary asked Slessor if he could furnish him with a chart showing the setup of the organization, In explanation Slessor said that his division determined the type of planes which they would have to have and then Benverbrook had the job of building them. The Secretary said that the United States would have to take full advantage of the British war experience and inquired 8.9 to the wpeed of the Typhoon. Slessor replied that it would do about 400 miles per hour which WAS much faster than the P-40 or the Bell. The Secretary asked if Slessor had any reports on the fighting qualities of the P-40, but he replied that when he left England no P-40's had yet been in battle. Slessor added, however, that he would send e cable on it immediately to find out. The Secretary saked Slessor to give him some information on losses of pilots, etc., duplicating what Mr. Purvis had given him previously about September 27th or 28th. He added that he would like to have it on R monthly basis so that he could use it in talk- ing with Knox and the President. The Secretary added that every effort should be made on the part of the British to see that good nove was publicized in America because the American public would be much more enthusinstic about helping on the basis of good news. Purther, he added that the American mublic would not be scared into helping. These organization charts were subsequently submitted by Air Commodore Slessor and are attached. Dr. 00000 Regraded Uclassified SECRET BRITISH AIR MINISTRY OUTLINE OF ORGANIZATION OF AIR STAFF, DECEMBER 1940. 31 SECRETARY OF STATE FOR AIR CHIEF OF THE AIR STAFF Principal adviser to Secretary of State on all matters of Air Force policy: assisted by the Vice Chief of the Air Staff DEPARTMENTS OF DEPUTY CHIEF OF THE AIR STAFF ASSISTANT CHIEF OF ASSISTANT CHIEF OF ASSISTANT CHIEF OF AIR STAFF (RADIO) AIR STAFF (GENERAL) AIR STAFF (TACTICS) PERSONNEL Day to day conduct of Air operations Use and operational de- R.A.F. ground defence, Includes Directorate of TRAINING velopment of all forms of Censorship policy, Operational Requirements OPERATIONAL DIRECTORS DIRECTOR OF radio in R.A.F., includ- Press. which 1a responsible for SUPPLY and INTELLEGENCE ing radio direction find- collating developments in ORGANIZATION Home, Overseas, ing and the countering of design brought about Naval and Milit- enemy radio aids to navi- through practical exper- ary/operations gation etc. Close liaison ience. Close liasion with etc, with technical staff in Ministry of Aircraft Ministry of Aircraft Production, Production, DIRECTOR OF PLANS Planning for composition and employment of R.A.F. In May 1940 the department of Production was separated from Member of Joint Planning the Air Ministry and a new department was set. up, the Ministry Sub-Committee. of Aircraft Production to meet the production requirements of the Air Ministry. Specialist personnel are seconded from the R.A.F. for service in the M.A.F. and its associated research stations. There 18 direct liaison between the two Ministries, particularly with the Department of Supply and Organization in the Air Ministry and, an the Air Staff side, with A.C.A.B.(R) and A.C.A.S.(T). Regraded Uclassified SECRET BRITISH WAR CABINET 1940 - OUTLINE OF MILITARY ORGANIZATION CHIEFS OF STAFF COMMITTEE 32 Chiefs of Staff of the three Services and Chief Staff Officer to the Minister of Defencer The Committee is collect- ively responsible for advising the War Cabinet on military matters, and in addition the Chiefe of Staff are each individually responsible for ad- vising their respective Ministers, They are normally present wherever military matters are discussed by the War Cabinet, and are responsible for stating their opinions, whether or not they are specifically invited to do so, JOINT PLANNING SUB-COMMITTEE JOINT INTELLIGENCE SUB-COMMITTEE The Directors of Plans of the three Services: Foreign Office representative as president, plus Directors of Intelligence of the three The sub-committee examines and re- Services: Liaison with other ports on all matters of operational policy Departments such as relating to the three Services, as directed The sub-committee collates in- Foreign Office, by the Chiefs of Staff, and, in addition, telligence and makes reports to the Chiefs Ministry of Economic with the latters' cognisance initiates the of Staff Warfare, etc. examination of and reports on current or probable future strategical problems. Staff Officers of all three Services are in continuous session to assist the J.P. sub- committee in the pre- paration of inter-service and executive plans, etc, Serving Officers are seconded to the War Cabinet Secretarist which provides a permanent secretary for each of the above commition. Regraded Uclassified BALTIMORE.-GEORGE R. HUTCHINSON, WOTED/NARYLAND PILOT, LEFT TODAY FOR AN UNDISCLOSED AIRPORT IN "BRITISH MORTH AMERICA* WHERE, ACCORDING TO HIS WIFE, HE WILL HELP FLY A LARGE CONSIGN- MENT OF AMERICAN AND CANADIAN FIGHTING PLANES TO BRITAIN. MRS. NUTCHINSON SAID HER HUSBAND HAB PARTICIPATED IN SEVERAL SUCH FLIGHTS IN WHICH AS MANY AS 40 AMERICAN PILOTS AND 20 BRITISH AND CANADIAN FLIERS VIRE EMPLOYED AT ONE TIME. 12/3--R1244P Regraded Uclassified TREASURY DEPARTMENT 34 INTER OFFICE COMMUNICATION DATE December 3. 1940 TO Mr. Young FROM Mr. Buckley Re: West Coast Inspection Trip During the week beginning November 25, 1940, we visited the following airplane manufacturers: Monday - Boeing - Seattle Tuesday - Lockheed and North American - Los Angeles Wednesday - Douglas - Los Angeles Thursday - Consolidated and Ryan - San Diego Friday - Vultee and Northrup - Los Angeles Included in the party were James V. Forrestal, Undersecretary of the Navy, Captain S. M. Kraus, Advisory Commission to the Council of National Defense, and Messrs. Fairey, Gray and Mansell, of the British Purchasing Commission. Messrs. Siegrist, Wessell and Addans of the British Purchasing Commission joined the party at Los Angeles, as did Col. Joseph L. Strome of the United States Air Corps. From the discussions at these various plants, several general problems emerged which merit immediate consideration since they affect production. Accordingly, I shall outline these points before giving any detailed description of the visite to individual plants: 1. There is substantial additional production which can be secured from present facilities by going to three-shift operation seven days per week, for Be None of the plants is now on full three-shift operation and some are operating only two shifts. b. None of the plants is now on full seven-day operation and most work only five days. 2. Even without going to three-shift, seven-day operation, there is substantial additional production available between now and June 30. 1942, for as Boeing ostimates that they can produce about 275 additional DB-7B bombers. b. Lockheed estimates that they can make about 1,300 additional Model 37 bombers. Regraded Uclassified 35 - & C. Vultee estimates that it can maice an undetermined but substantial number of fighters at its Downey plant and of dive-bombers at its Nashville plant. 3. This additional capacity which probably exists in cor- responding amount in other plants can not be used unless there is an early increase in the rate of production of engines and of other items which the airframe manufacturers buy from outside suppliers. There was general agreement throughout our discussions that the immediate answer to this problem W&B to place the entire industry on B. twenty-four hour basis seven days a week. To do this will require centralized direction so that the entire aircraft production problem must be tied together in one person or committee having the requisite authority to carry out the policies necessary to achieve maximum production. 4. A specific example of the delay in aircraft production which could probably be eliminated or greatly alleviated by continuous follow-up of some central agency is the present serious bottleneck in the procurement of aluminum, A delivery list supplied by the Douglas Aircraft Company showed the following delivery promises on various aluminum items as of November 15. 1940: 10 to 20 weeks on castings 18 weeks on bars 18 weeks on wire 20 weeks on forgings 20 to 28 veeks on cheete 24 weeks on extrusions 28 weeks on tubing In our conferences it vas brought out that the Defense Com- mission is satisfied that there is no shortage of aluminum poundage for the domestic production program. While this may be true, it is apparent that their analysis has not extended to the capacity for the supply of the various forms in which aluminum is used in the aircraft industry. While Boeing, Douglas, and other aircraft manufacturers can supply us with lists of items on which they need priority in order to maintain indicated deliveries, it is difficult to see how the Priorities Board can consider any such requests intelligently unless they have B picture of the requirements of the entire industry correlated with delivery dates for finished products. Regraded Uclassified - 3 - Our conversations in the various plants indicated that the gluminum problem is most critical and immediate action vas suggested along the following lines: Be Reduce AS quickly and as drestically n.o. pos- sible the production end fabrication of aluminum for non-defence purposes. b. Procure from each aircraft manufacturer a complete list by item of aluminum deliveries required monthly for the next year to meet indicated sir- plane deliveries and arrange to have this list corrected and extended at monthly intervala, C. On the basie of the information obtained from individual manufacturers, arrange with the Prior- ities Board for the establishment of such oriorities as will give the necessary deliveries. d. If necessary in order to meet the required deliveries arrangements should be made for eluminum producers to go at once to 24hour, 7-day operation. 5. Maximum production will be difficult if not impossible to achieve unless immediate attention be given to standardizing labor policies in the industry. An it stands now, the agreements and practices of the various companies represent a serious obstacle to achieving 24-hour, 7-day operation. for A. In several plants work on Saturday must be paid for at the rate of time-and-a-half and work on Sunday at double time, even though this work is within the 40-hour work week. Regraded Uclassified 40More Plane Plants Face Wage Bid With the Vultee strike settled, United Automo- bile Workers of America, a C. I. O. affiliate, yester- day laid plans to open con- tract negotiations, calling for similiar wage in- creases, with at least four more Southland airplane plants. Ryan Aeronautical Company, San Diego, employing 1000 workers, is next on the union's list for attention, it was stated. Then will follow negotiations with North American Aviation, In os Angeles Municipal Air- port, employing 7000; the Me- nasco Manufacturing Company, Inglewood, 1000, and the Harvill Aircraft Die Casting Corpora- tion, Los Angeles, 800. PARLEY TO OPEN Ryan employees already have voted the U. A. W. aircraft divi- sion as their official bargain- fing agent. Contract negotia- Rions will open next week. officials said. A petition by the U. A. W. for a hearing and setting of an elec- tion date at North American now is pending before the Na. tional Labor Relations Board Decision is expected shortly. The NLRB previously denied a similar petition, but union leaders said yesterday they were prepared now to convince the board that employees in that plant favored the C. I. O. affill- ate. Wage increases under terms of the Vultee settlement, basically 12¹, cents an hour, had not been met yesterday by other aircraft industries in this area, C. I. O. dea es declared. her news about Vultee strike - Page 3.) 37 4 b. Bonus payments for work on the second and third shifts vary markedly as between companies, for 1. Boeing pays its third-shift employees five cente per hour bonus with eight hours pay for six and three-fourths hours work, 2. Lockheed pays its third-shift employees six cents per hour bonus with eight hours pay for six and one-half hours work, 3. Douglas pays its third-shift employees five cents per hour bonus with eight hours pay for seven hours work. These non-standard practices in plants located in the same area and with employees doing practically identical work are a source of discontent among workers, leading to high turnover of employees and eventually to strikes. That the recent strike at Vultee was but the forerunner of serious labor difficulties in the industry was generally the opinion of the manufacturers with whom we talked. The attached clipping from a Los Angeles newspaper bears out this point. To counteract this threat to maximum production immediate constructive action is necessary. It vas suggested that we might well proceed on several lines such as the following: & Standardisation of the practices of all aircraft companies BO as to permit 7-day operation without penalty for work within the 40-hour limit. b. Establishment of a procedure to prohibit one manufacturer from robbing another manufacturer of skilled employees. C. Establishment of incentive compensation plans BO as to increase the productivity of labor. 5 38 11 It stands today, almost all aircraft work on the West Const in done on n. straight hourly basis and there 16 very general agreement that workers are not producing the maximum possible per hour of labor. Several of the manufacturers expressed an interest in the British premium-bonus plan, and it seems very clear that production could be increased substantially with the development of some standard system for the entire industry. d. Enactment of legislation either for the airoraft industry specifically or for all defense industries providing for compulsory arbitration of labor disputes and the elimination of strikes. The striko at Vultee lost about eight working days, which will have a serious effect on their production program. Even woree will be the effect of strikes at the larger producers, or of strikes in the plants of sub-contractors who manfacture products used by many manufacturers. A. serious strike in the aluminum industry today could tie up elmost the entire aircraft industry. 6. The work on standardigation of design as between United States and British planes has still not produced A single identical airplane. While it 13 true that the tactical use of certain airplanes differe 8.8 between the two forces, making complete standardization impossible, there obviously must be eome planes intended for the same tactical use. In these cases it would seem that standardization could be nohieved if the necessary pressure were exerted on both sides of the conference table. Particularly surprising was the fact that the Harvard trainer which is made for both the United States and the British is not standardised as between the two forces, even though it is & plane which in used only for training. It is recognized, of course, that standardisation can not be effective for production within the next six to eight months, but the planes which will go into production at that time should certainly have immediate consideration from the standpoint of standardigation. It would soon in these cases that better results might be achieved if agreement were reached on the intended tactical use of an airplane, after which standardisation in detail could be required in a plane intended for the same tactical use by both forces. 7. The problem of housing was discussed with each manufacturer, but in no case is it a paramount issue except in San Diego where the problem is being net by the Navy. The management at Lockheed felt that it would be desirable to have some low-rent Federal Housing projects in their area, not because there is any indicated lack of housing, but because private real estate operators in the Los Angeles area are maintaining rentals at quite a high level, which 10 a source of labor discontent and demand for high wages. Regraded Uclassified 39 6 8. None of the plants visited felt that their production was being seriously hindered by lack of trained men. All the large plants are cooperating with local public and private schools on A broad training pro- gram. The problem of securing federal aid is apparently working out setisfactorily through the state officials. Lockheed seems to be in the best position with a complete and well-rounded training program which has been developed over 8. four to five year period. Some shortages will undoubtedly arise if the industry moven to 24-hour, 7-day operation, but this should be overcome with the existing training programs. The smaller plants without training programs of their own are likely to be at a dis- advantage if any procedure 1e established to prevent the transfer of workers from one plant to another. I gathered from informal comments that BONG of the smaller plants have followed a policy of getting employees from the larger plants by offering them a greater number of hours work per week. If those plants had to develop their own skilled workmen, they might need assistance for & short time in setting up a training program. 9. The statements of Secretary of War Stimson and of the Priorities Board with reference to production of commercial airoraft were issued while we were on the West Coast. There seemed to be general diseatisfaction with these actions, particularly by the Douglas Aircraft Company, which felt that it had been condemned without having an opportunity to defend itself. From my conversations with representatives of Douglas, Booing, and Lockheed, I got the following impressions: a. Most manufacturers producing commercial aircraft have made provision in their plants for this production in addition to their full military program. This means that reduction of effort on the commercial ships will probably not increase military production for many months If at all. b. In some plante slowing down of the commercial program will eventually decrease military production, since men are being trained on the commercial planes who would later be transferred to military production. C, Reduction in commercial plane production and the resulting reduction of commercial planse available in this country say have the effect of retarding the defense program as a whole, for 1. Many critical items are shipped now by air express and Any freezing of the capacity of this transportation facility is likely to affect production and create delays. Regraded Uclassified 40 - 7 - 2. Increasing demand for air transportation by travelers working on the national defense program is taxing com- mercial lines to capacity now and may well impede the progress of the defense program if capacity is frozen at present levels. d. The freezing of production of commercial planes at a low figure and the resulting practical impossibility of making any sales for foreign account will have the effect of taking our manufacturers out of the foreign market at a time when they would have an opportunity to enter many markets which formerly were supplied by manufacturers in other countries. From the standpoint of maintaining pro- duction in these new facilities after our present extra- ordinary military demand has been satisfied, this is certainly not & desirable policy. 0. Freesing production of commercial aircraft is likely to retard development of new types and place our manufacturers and airlines at & disadvantage in world competition after the war. The above general problems were developed from discussions at the various plants and from the related conversations with the other members of the party. A more detailed description of the conference at each plant follows. Regraded Uclassified 41 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 3. 1940 TO Secretary Morgenthau FROM Dr. Jacob Viner Dr. Hans memorandum on bottlenecks. (11-27-40) This is an excellent memorandum as far AB it goes. I have only the following comments to make: (1) I think it would be a good thing if Dr. Haas were asked to prepare a memorandum on the bottleneck situation, say, once a month as a regular routine. (2) In considering actual or potential bottlenecks with respect to any production, explicit reference should be made AB to whether this bottleneck arises from production facility, raw material, or labor scarcities. (3) The zinc situation should be canvassed immediately from the point of view of the desirability of controlling exports. I BAW A statement recently in the press from an American manufacturer of brass that shortagesof zinc were already making themselves felt within the country, including shortages on rearmement activities, and that nevertheless exports to Japan were still going on on A substantial and increasing sonle. May I repeat my opinion that the bottleneck problem has major significance, not only with respect to the direct problems of effective rearmament, but also the general fiscal and monetary health of the Government. The prompt and effective removal of bottlenecks 18 the surest way to prevent an uncontrollable in- flationary situation from developing. or Regraded Uclassified 42 December 3. 1940 Secretary Morgenthau Dr. Jacob Viner Dr. Haas memorandum on bottlenecks. This is an excellent memorandum as far as it goes. I have only the following comments to make: (1) I think it would be a good thing if Dr. Haes were asked to prepare a memorandum on the bottleneck situation, say, once a month as a regular routine. (2) In considering actual or potential bottlenecks with respect to any production, explicit reference should be made as to whether this bottleneck arises from production facility, raw material, or labor scarcities. (3) The zinc situation should be canvassed immediately from the point of view of the desirability of controlling exports. I saw a statement recently in the press from an American manufacturer of brass that shortagesof sine were already making themselves felt within the country, including shortages on rearmement activities, and that nevertheless exports to Japan were still going on on 8. substantial and increasing scale. May I repeat my opinion that the bottlensck problem has major significance, not only with respect to the direct problems of effective rearmament, but also the general fiscal and monetary health of the Government. The prompt and effective removal of bottlenecks is the surest way to prevent an uncontrollable in- flationary situation from developing. Jr. JV:Jba 12/3/40 Regraded Uclassified 42 December 3, 1940 Secretary Morgenthau Dr. Jacob Viner Dr. Hass memorandum on bottlenscks. This is an excellent memorandum as far as it goes. I have only the following comments to make: (1) I think it would be a good thing if Dr. Haas were asked to prepare a memorandum on the bottleneck situation, say, once a month as a regular routine. (2) In considering actual or potential bottlenecks with respect to any production, explicit reference should be made as to whether this bottlensck arises from production facility, raw material, or labor scarcities. (3) The zinc situation should be canvassed immediately from the point of view of the desirability of controlling exports. I sav a statement recently in the press from an American manufacturer of brass that shortages of sine were already making themselves felt within the country, including shortages on rearmament activities, and that nevertheless exports to Japan were still going on on & substantial and increasing scale. May I repeat my opinion that the bottleneck problem has major significance, not only with respect to the direct problems of effective rearmament, but also the general fiscal and monetary health of the Government. The prompt and effective removal of bottlenecks is the surest way to prevent an uncontrollable in- flationary situation from developing. ge. JV:jba 12/3/40 Regraded Uclassified Prepared 1 As 43 and undered as of that date 44 Netherlands Purchasing Commission Commodity Statements As of November 2, 1940 STRICTLY CONFIDENTIAL Orders Placed in the United States Schedule I Deliveries on Orders Placed in the United States Schedule II Current Status of Orders Placed in the United States Schedule III Office of the Secretary of the Treasury, Division of Research and Statistics Prepared December 3. 1940 Source: Netherlands Purchasing Commission Note: Cusulative data begin September 28. 1940 and for orders include unfilled orders as of that date. 45 Schedule I Orders Placed in the United States by the Netherlands Purchasing Commission Classified by Commodity Group la of November 2. 1940 STRICTLY CONFIDENTIAL (In thousands of dollars) Total Orders placed week ended unfilled Total Comodity group orders as Oct. Oct. Oct. Oct. Nov. Nov. of Sept. 28, Nov. Nov. Nov. Dec. orders 1940 5 12 19 26 2 9 16 23 30 7 to date 1. Airframes 37,563.6 5.5 1.271.8 53.4 38.894.3 2. Airplane engines 4,253.6 .5 1.2 57.4 4.312.7 3. Airplane accessories 413.7 .3 7.6 50.2 386.1 .2 858.1 4. Total aircraft products 42,230.9 5.8 8.1 50.2 1,659.1 111.0 44,065.1 5. Machine tools 6. Chemical varfare material 30.1 30.1 7. Explosives 5 propellants 365.3 365.3 5. Ammunition 13,571.9 543.3 112.8 14,228.0 %. Ordnance equipment 6,775.6 35.6 13.5 10.2 2.0 6,836.9 10. Tanks 5 tank equipment 8,354.0 8,354.0 11. Motor vehicles 2,444.9 21.0 2,465.9 12. Iron 4 steel 13. Son-ferrous metale 1.4 .1 .8 -5 2.8 14. Textiles & clothing 7.7 .4 .3 8.4 15. Poodstuffs 4. tobacco 16. Petroleum products .2 .2 17. Asimals 15. Shipa 106.6 4.6 111.2 19. Communications equipment 669.3 2.1 31.8 120.8 230.3 2.7 1.057.0 20. Timber 21. All other 275.9 1.2 5.8 .6 .6 284.1 22. Total non-aircraft products 32,601.3 4.7 610.7 161.6 247.0 115.6 33,743.9 23. Total commodities 74,832.2 10.5 618.8 211.8 1,906.1 229.6 77,809.0 24. Carital 25. Grand total 74,832.2 10.5 618.8 211.8 1,906.1 229.6 77,809.0 Office of the Secretary of the Treasury, Division of Research and Statistics. Prepared December 3. 1940. Source: Setherlands Purchasing Commission. Note: Cusulative data begin September 28, 1940 and include unfilled orders as of that date. Regraded Uclassified 46 Schedule II Deliveries on Orders Placed in the United States by the Netherlande Purchasing Commission Classified by Commodity Group is of November 2, 1940 STRICTLY CONFIDENTIAL (In thousands of dollars) Vosk ended Commodity group Total Oct. Oct. Oct. Oct. Nov. Nov. Nov. Nov. Nov. Dec. Dec. to date 5 12 19 26 2 9 16 23 30 7 14 1. Airframes 109.0 109.0 2. Airplane engines 3. Airplane accessories 5.2 9.1 14.3 4. Total aircraft products 114.2 9.1 123.3 5. Machine tools 6. Chemical warfare materials 9.4 9.4 7. Explosives & propellants 14.3 14.2 28.5 8. Ammunition 324.4 231.6 173.7 11.2 740.9 9. Ordnance equipment 6.2 6.2 10. Tanks & tank equipment 11. Motor vehicles 12. Iron & steel 13. Non-ferrous metals 14. Textiles & clothing 7.5 7.8 15. Foodstuffs & tobacco 16. Petroleum products 17. Animals 18. Ships 21.0 21.0 19. Communications squipment . 20. Timber 21. All other 1.2 .4 1.6 22. Total non-aircraft product 359.7 252.0 174.9 17.6 11.2 615.4 23. Total commodities 359.7 366.2 174.9 17.6 20.3 938.7 24. Capital 25. Grand total 359.7 366.2 174.9 17.6 20.3 938.7 Office of the Secretary of the Treasury. Division of Research and Statistics. Prepared December 3. 1940. Source: Netherlands Purchasing Commission. . Less than $50. Note: Cumulative data begin September 25. 1940. Regraded Uclassified 47 Schedule III Current Status of Orders Placed la the United States by the Netherlands Purchasing Commission Week ended November 2, 1940 Classified by Commodity Group STRICTLY CONFIDENTIAL (In thousands of dollars) Unfilled Deliveries Unfilled Orders Total Total orders Commodity group during orders during orders deliveries beginning week and of vesk to date to date of week week 38,731.9 53.4 38,785.3 38,894.3 109.0 1. Airframse 57.4 4,312.7 4,312.7 2. Airplane anginee 4,255.3 3. airplane accessories. 852.7 .2 9.1 843.8 858.1 14.3 4, Total aircraft products 43,839.9 111.0 9.1 43,941.8 44,065.1 123.3 5. Machine tools 6. Chemical varfare materials 20.7 20.7 30.1 9.4 1. Explosives & propellante 336.8 336.8 365.3 28.5 13,385.5 112.8 11.2 13,487.1 14,220.0 740.9 5. Ammunition 2,0 6,830.7 6,836.9 6.2 9. Ordnance equipment 6,828.7 10. Tanks & tank equipment 8,354.0 8,354.0 8,354.0 11. Motor vehicles 2,465.9 2,465.9 2,465.9 12, Iron & steel 13. Non-ferrous metale 2.3 5 2,8 2,8 .6 .6 8.4 7.8 14, Textiles & clothing 15, Foodstuffs & tobacco 16, Petroleum products ,2 .2 ,2 17. animals 15. Ships 90.2 90.2 111.2 21,0 19. Communications squipment 1,054.3 2.7 1,057.0 1,057.0 . 20, Timber 21, All other 281.9 .6 282.5 284.1 1.6 22. Total non-aircraft products 32,821.1 118.6 11,2 32,928.5 33,743.9 615.4 23. Total commodities 76,661.0 229.6 20.3 76,870.3 77,809.0 938.7 24, Capital 2). Grand total 76,661.0 229.6 20.3 76,870.3 77,809.0 938.7 Office of the Secretary of the freasury, Division of Research and Statistics. Prepared December 3. 1940, Source: Notherlands Purchasing Commission. . Less than $50. Note: Cumulative date begin September 26. 1940 and for orders include unfilled orders as of that date. Regraded Uclassified 48 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STATEMEN DONFIDEMTIAL DATE December 3, 1940 Secretary Morgenthau TO Tr. Klaus FROM 181 re orts: November 28. A 43-page report on the activities of William Rhodes Duvis of Sockefeller Plasa, New York City, international oil operetor, who is sus- ested or being on American fiscal agent for Goering end has engaged in ship- Inc Vexican oil to Cermeny. December 2. The Chase Bank has on file approximately 3500 Rusckwanderer plications which are being investigated by FBI. December 2. United States currency is being received by registered mail; as lovember 22 and November 26 National City received from the Reichsbank 100, It currency. APLI Intelligence reports: September 26 - Santiago, Chile. It is indicated that German firms repre- senting American rincipals are compelled by the German government to send to Femily information useful to German competitors of the American principals. November 9 - Guatemala. There are further indications that the German and Italian Legations are seeking dollar credits; Germans in Nicaragua are represented as buying United States money and checks on the streets of Manague 44 are believed to be sending them to the German Minister in Gustemela, and norican tourists in Guntemala City are being solicited for supplies of Ameri- dell currency by ersons suspected as acting for the German Minister. The livel Attache believes this is in order to enable the Ada to finance subvers- ive activities with United States currency in the event the United States entore the war end the American dollar supply 18 closed. November 9 - Guatemala. Advertising received in Gustemala from William 3. Schults of the "Reichmark Exchange und Central Food Package Department," 11 Broodway, indicates this person is apparently engaged in collecting United states funds in return for Reichamerks designated blocked in Germany. Movember 14 - Mexico City. Enrique Kahn, son of the United States Customs Collector in Laredo, Texas, and suspected of being pro-Nazi, has obtained author- 17 to construct a radio broadcasting station in Monterey and is suspected to be a front for the Germen Nasi leader in Monterey. 81 Regraded Uclassified 48-A TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE December 3, 1940 TO Secretary Morgenthau FROM Mr. Klaus FBI reports that $650,000 was withdrawn today in currency, probably in $10,000 bills, from the German Consulate account, $350,000 of which was paid over to J. P. Morgan and Company to meet interest on two German bond issues and 300,000 was taken to the German Consulate General at 17 Battery Place. This makes & record of at least $400,000 in $10,000 bills brought to the German Consulete General. 871 Regraded Uclassified 49 COPI DEPARTMENT OF STATE MPC Washington December 3, 1940. My dear Mr. Secretary In recent weeks requests have been made on behalf of the French authorities in Martinique and Guadaloups for shipment of fuel oil to permit the functioning of the public utility services and likewise the normal fune- tioning of the merchant and naval vessels now in harber there (electric light, sanitation, et estera). After giving the matter some consideration this Department has, in conjunction with the naval authorities, agreed that there would be no objection if the Treasury Department found it possible to release sufficient funds for the payment of 1200 tons of oil every five weeks from date (600 tons type 0 and 600 tons type B). We understand this amounts to $12,752.03 per five weeks. This Department would appreciate being informed ТИА any licenses which the Treasury Department may issue the purchase of oil for Martinique and Guadaloups THE 2EC ORIGINAL of for OLEICE GVO DEC & bill 31 IBEVENUA BECEINED DELYB1WEW1 Sincerely yours, oT /a/ Summer Welles Under Sectetary The Homorable Heary Morgenthan, Jr., Secretary of the Treasury Regraded Uclassified 50 COPY ATP GRAY MOSCOW Dated December 3, 1940 Rec'd 11:19 a.m. Secretary of State, Washington 1665, December 3. 9 p.m. The Riga press of November 26 published & resolution of the Soviet of Peoples Commissars of the Latvian Soviet Socialist Republic in accordance with which customs duties and other taxes on merchandise imported into Latvia from the Soviet Union are abolished from November 25. The Chief Customs Administration in Moscow has informed the Embassy today that this exemption does not apply to Latvian goods imported (*) the Soviet Union proper nor is any similar exemption operative with respect to the trade between Lithuania and Estonia and the Soviet Union or between the three former Baltic provinces themselves. In other words the existing customs frontiers continue in operation with the single exception cited. THURSTON YRAT YR YRATING JMT 07 THAT THA JAGGHOST EAL 50/10 VOIDEC 00 at 0 If 20 - DEWYING BECOMED G.W. Copy: eb Regraded Uclassified 51 , December 1940. The Director, Bureau of the Budget, Washington, D. C. Dear Sir: The Estimates for 1942 submitted by no to the Bareau of the Budget for the Coast Guard have been reduced by the Bureau in the net amount of $23,475,352. While I all convinced that no non-essential items whatsoever were included in the Estimates, I cannot too strongly urge a reconsideration of the following items: Appropriated Contrast Funds Authorization (1) Four outters-bucy boats, 65- foot class, $68,500 cach $274,000 (2) Hospital and Infirmary, Coast Guard Academy, New London $312,000 (3) Special Projects, aids to navigation. $409,935 $450,000 Total $995,935 $450,000 Both the appropriated funds and the contract authorisation should be immediately available. In order that maximum service may be obtained from the four 65-foot vessels, they will include the features of a buay-boat, thereiy serving the purpose of four of the busy-boate requested under "Special Projects, Vessels)* therefore, theee vessels will be triple-purposs vecuela, namely, busy-boate, ice breakers and harbor craft. They will be replacement vousels no that no increase in the annual operating - ponses of the Count Geard, and no increase in the number of vessels will result. They will replace harbor sraft which have long since outlived their weful life. Their 100-breaking charasteristics are urgently needed in the shallow charmels serving industrial centers along the Narth Atlantic Coast where delay in moving national defense materials throughout the winter months would seriously interfere with the preparation of this Country for mr. It me ice breakers of this type that dalegations from Chambers of Conneros and maritine bodies of Now York and other Borth Regraded Uclassified 52 Atlantie sesports CARE to Mashington and strongly urged Dangress to provide. with the additional we of these vessels as busy-boate it will permit re-assignment of Coast Guard oraft so as to give - N- lief in the serious shortage of equipment to saistain aids to navigation. The Bureau of the Budget already has & graph showing the serious shortage of vessel equipment to saintain aids to navigation. The records clearly show that the apprepriations made by Congress for this purpose IN for below those needed for the increase in bedyage and other aids to navigation resulting from the costly improvements of rivers, harbore and other enter- ways. The need for the hospital and infirwary at the Academy - probably not heretofore fully presented. The increase in the number of cadete and the further increase that will be made next year has already clearly demonstrated to the Bureau of the Budget and to the Congress the need for additional barracks, additional library facilities and additional bost stowage facilities. The need for additional classrooms is equal to the need for the additional facilities already provided. The hospital and infirmary will provide this need by permitting the space now used for hos- pital and infirmary to be turned into classrooms and providing additional classroom in the basement of the proposed new building. It is an essential part of the expansion of the Academy due to the increased number of cadets, The elimination of this item by the Bureau of the Budget is e matter of serious concern and I cannot too strongly urge that it be restored. The Estimates for aids to navigation were reduced from $4,084,085 to $1,500,000, a reduction of over sixty percent. The total amount approved was less than the amount needed to provide the side to navigation urgently requested by the Navy Department on account of national defense bases in Alaska and in the Pacific Islands. I am attaching hereto & copy of a letter from the Secretary of the Navy stressing the vital national defense importance of this program. The Navy Department is spending approximately $21,500,000 in Alaska for naval basse and approximately $40,500,000 in the Pacifie Islands. The Army 1s also spending may millions for air bases in Alasks. Not only will these bases require aids to navigation exclusively for the harbors and approaches thereto where the bases are losated, but the 10- creased Alaskan traffic - Army, Navy and Commarcial - require that these enterways, which have heretofore been pearly marked, be made reasonably safe to navigation. Hundreds of millions of dollars worth of shipping will use these waterways. The loss of one naval vessel alone would pay many times over for the ocet of miding these waterways safe to navigation. I an saking that $687,400, of which $450,000 is contract authorisation, be restored in Coast Ouard Estimates to take care of aids to navigation in Alaska, and this does not include all the aids to navigation requested by the Secretary of the Navy. In addition thereto, I AS seking that 3172,535 be restored for other items which I consider of equal importance. with the United States spending billions of dollars in floating equipment for the Army, Havy and Merchant Marine, with the shipment of hundreds of millions of dollars of war materials from our harbore vital to the defense of our Country, it appears false 00000mg in the extreme to 00 drastically reduce the Estimates for providing safe navigation to these vessels. The amount Regraded Uclassified 53 requested is & very, very small fraction of one percent of the value of ships and shipping that will be protected thereby. Again, the less or serious damage to one major vessel would far more than pay the entire cost of this protection. with the full realization of the urgent need for economy in governmental expenditures, I urge you to restore these items to the approved Notimates of the Coast Guard for 1942. Very truly yours, (Signed) EL Morgesthau, Jr. Secretary of the Treasury. Enclosure 1. (Letter and file to Mr. Rose for handling as per McKay. CC sent to Mr. Thompson and cc in this office) 626 COFT 51 63 Op-3052-LR 12/333(401104) Serial 356730 Nov 29 1940 Sir: The attention of the Havy Department has been invited to the budgetary provisions in the 1942 budget of the Treasury Department and the proposed 1942 Supplementary budget which makes provision for Special Projects for Aids to Wavigation in the Alaskan Área. In particular Project 20 (Budget pages 1043d to 1043k inclusive) amounting to $1,408,650. and of importance in furthering national lefense in the Alaskan Area. It is desired to emphasise the importance of the early establishment of the Aids to Mavigation contained in Project 20 referred to above. The interest of the Navy Department in this matter of increased Aids to Navigation in the Alaskan Area is founded on the furtherance of national defense in this area. The project contained in the Rouse of Representatives Document No. 260, 76th Congress, lot Seasion providing for improvement to the channel at Wrangell Marrows is likewise of importance to the interest of the Navy Department in national defense. It is hoped that the Treasury Department will further the matter of obtaining the funds required in connection with improving Navigation facilities in the Alaskan trea. Respectfully, (Signed) Frank Enox The Honorable The Secretary of the Treasury Copy to: Commendent U. 8. Coast Guard Regraded Uclassified 55 December 3, 1940 12:03 p.m. H.M.Jr: Hello. Secretary Stimson: Hello, Henry. I'm going to appear ..... H.M.Jr: Hello. S: Hello. H.M.Jr: Henry talking. S: Yes. H.M.Jr: Did you call me? 8: I'm coming around to your meeting this afternoon with & tail H.M.Jr: With a tail - how do you spell tail? S: ..... in addition to the head and body. (Laughs). H.M.Jr: How do you spell tail. S: I spell it in the term of two human beings, one of them by the name of McCloy and the other by the name of Palmer. Palmer you've met and McCloy I want you to meet. H.M.Jr: Oh, tail is t-a-1-1. 8: Yes, that's t-a-1-1, not a t-a-1-e. I leave that to the Department of Commerce. H.M.Jr: I 800. All right. S: Well, how are you? H.M.Jr: oh, I feel much better after what Congress did for me yesterday. S: Well, I heard a full account of it from Rull this morning. H.M.Jr: Oh, really. 56 - 2 - S: Yes, but I'm having a busy day. I'm leaving for a meeting in ten minutes up at my house between Hull, Knox and myself and Stettinius, Knudsen and Nelson, with the idea of trying to get them impressed with the situation in the world which Hull disclosed to us this morning, to try and get a little steam into the industry. H.M.Jr: I see. Wonderful. S: Well, 80 that there may be no steam left in me when I get down, and I'm bringing these fresh young men in to take the ball and carry it along. Is that all right.? H:M.Jr: Fine. 8: I'll be there but I mean they're the people that have to carry the ball afterward. H.M.Jr: Good. 8: All right. H.M.Jr: Thank you. 57 TREASURY department INTER OFFICE COMMUNICATION DATE December 3, 1940. TO Secretary Vorgenthau FROM Dr. Jacob Viner This is the gentleman I spoke to you about today. / Defense Post for Chiniund apailal to Tax Yore this Toisk WASHINGTON, Dec. F. Chimium, president of the al Telegraph Company, Ins) - invited today by the Defense Com- munications Board to serve as a member of its Industry Advisory Committee with the executives of seven other communications com- panies who have been requested to advise and assist the board in plan- ning the role of communications in the preparedness program. 58 December 3. 1940. Dear Mr. Pords In comestion with reports I as receiving bi-weekly from the airplane and sirplane engine industry, I should like to secure certain information regarding unfilled orders, - orders, and deliveries of sirplane enginee for year company. I - enclosing a table which has been prepared for your company from various data svailable at the Ver Department shoving the maker of air- plans engines on ovder en November 23. 1940. will you please revise this table in accordance with the presedure outlined below. Pring forward to December 7 the estimated deliveries of the unfilled orders by (1) inserting new orders received during the parted November # through December 7 in their proper place, soubining MV orders with orders MV shown on the table where the type of airplane engine and class of yurchaser age the - and using a - line for my type of airplans engins not already included is the schedule, and (2) indicating any revisions that have been nale is the estimated delivery dates of the remining orders now den on the schedule. After these revisions have been nale, the schedule should shew estimated deliveries of all orders willied en December 7. including MV orders received during the period. When deliveries start, of course, a further adjustment of the figures to reflect each deliveries would have to be nate. Date deval4 exclude que parts. If any spare parts are included is the contract, please show the persontage these bear to the total order is the column at the extress right of the table. Please indicate the horespover for the model 2-2800-21, and provide a breakleva of deliveries for the two modals, which age shown ea the enclosed table. FILE COPY Regraded Uclassified 59 Mr. Ford - 2 Please forward the revised table, tegether with a state- ment of nov orders reselved and deliveries male in the period & I "% s : I s I É 6. / Director of Research and Statistics, Treasury Department, Washington, D. c., when I have asked to arrenge to obtain from you such Ambasquent figures as are assessary to bring the information - to date. 2 shall approciate 10 If you vill 1 your reply w air mil special delivery ⑉ that 10 will reach his on Monday. Documber 9. (Signed) II Morgenthau, Jr. Mr. Mool B. Bord, President I 1 Ford Neter Company, 3674 Schanfer Read, Dearborn, Hichigan. Inclosure Table. (Returned to Mr. Haas' office for mailing). MA FILE COPY Regraded Uc assified 60 TREASURY DEPARTMENT Secretary Morgenthau Missum INTER OFFICE COMMUNICATION DATE December 3, 1940 TO FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Sveriges Riksbank, Stockholm, maintained with the Federal Reserve Bank of New York. Date Amount Credited Received From December 2 $150,000 Credito Italiano, New York, by order of Credito Italiano, Rome HMP 60-A 195 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION - DATE December 3. 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transaction in the account of the German Consul General, N.Y., maintained with the Chase National Bank, N. Y. Date Amount Debited Paid To December 2 $650,000 Cash withdrawal BMP < 61 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 3, 1940 TO Secretary Morgenthau FROM Dr. Jacob Viner Mr. Wiley's draft of memorandum for the Secretary of State on general exchange control. I submit for Mr. Wiley's and your consideration A Graft of A revision of Mr. Wiley's memorandum. It follows in the main the line of thought of Mr. Wiley's memorandum end to some extent its language. My modifications are in the main merely to reduce the length. 82 Poaradod 62 Revised draft suggested by J. Viner THE SECRETARY 07 STATE. I communicated to the President in my memorandum of ovember 7, 1940, my conviction that the introduction of A regime or general for- ein junce control WP8 urgently desirable, In the light of recent developments I think that we should proceed to A decision without fur- ther delay. I Am well aware that this decision 18 one of major Dolicy. The Treasury, however, has not failed to weigh its alleged dongers the adventages to be derived. : review, herevith, the more importent considerations which enter into this matter: 1. General control of foreign exchange funds 16 essential for effective volicing and prevention of the use of foreign funds for nubversive ourposes, Circumstantial evidence that foreign funds are currently being used for this purpose comes to us from various sources, but it vill not be noseible to secertain the extent of such use or to take effec- vive measures for prevention unless the facilities for ascertaining ANÉ controlling the movements into and out of Axis-controlled bank recounts which e foreign exchange control can alone provide are made 2. There 1F widesprend demand for control of use of foreign funds for subversive purposes. If the Executive does not itself respond to this demand, there will inevitably result efforts by the Legielative each, either through Congressional Committees, or by legislation, to establish such control. This 18 properly en executive function end orn DE effectively and safely carried out only by the Executive and failure to do BC on our part 18 likely to result in serious emborres- nent leter. 3. In the light or the present state of international relations, It try nrove expedient and even gent that, in order to protect the status of American holders of claims against Axis or Axis-controlled overnments and corporations and of American ownere of tangible property in Axis-controlled territory, the Resets of Axis-controlled governments, livate corporations, and individuals in this country be frozen with A view to possible application of offsets or use of the threat of such oction in any eventual negotiations with the Axis powers. 4, A general exchange control will make possible e more accurate and comprehensive inventory of British-owned assets in this country, information essential to U.S. in connection with any negotiation that my be carried on for financial aid to Britsin. 63 -2- The long-continued and discriminatory application of exchange- control and foreign-owned asset-control in general by the Axis powers, deprives them of any ground for specific complaint if we should follow their example. The extension of our present control to All countries could be explained in terms of inoffensive commercial and monetery considerations. Through the discreet use of the license system, interTerence with legitimate commercial and financial operations could be minimized and any discrimination na between countries found ex- optient could be applied without being made overt. At least 08 long DE the control did not result in complete and uncualified freezing of any country's assets, that country would have renson to hesitate Defore reteliating in any way. The Trensury has given cereful thought to the administrative feasibility of A regime of general foreign exchange control. I wish to state that the Treasury is fully prepared to put into operation, on short notice, A complete regime of effective control, so decentralized HB so operate without impediment to the normal and legitimate trans- nations of domestic industry and foreign commerce. The proposed regime would, in its operations, be equitable to all legitimate interests, both comestic end foreign. It would be entirely elestic. With certain THERE of the world a system of blenket licenses, subject only to responable reporting recuirements, could be employed. The edoption of general foreign funds control would involve a Protnion of gravity; but P. decision not to introduce such A regime ^DDEARE to me to be even more grave. A negative decision would ner- mit the Axis oowers to continue freely to employ American dollars for ourgoses of economic warfare, political menipulations and subversive vivities. gr Regraded Uclassified 64 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE December 3, 1940 TO Secretary Morgenthan FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transactions in Italian accounts maintained with the Chase National Bank, New York, and the National City Bank, liew York. Chase National Bank Date Amount Debited Account Debited Paid To December 2 $150,000 Credito Iteliano, New Check to order of Federal York Reserve Bank of New York 86,000 Banca Commerciale Check to order of Chase Italiana, New York National Bank for account of Stockholms Enskilda Bank, Stockholm 200,000 Banca Commerciale Check to order of Manu- Italiana, New York facturers Trust Co., N.Y. 35,000 Banco d'Italia, Rome Guaranty Trust Co., N. Y., for account of Banca d'Italia, Rome National City Bank Date Amount Debited Account Debited Faid To December 2 $ 36,000 Benca Commerciale Check to order of National Italiana, New York City Bank, New York 100,000 Banco di Napoli Trust Check to order of Credit Co., N. Y. Suisse, N.Y., deposited with National City Bank, N.Y., for account of Credit Suisse, N.Y. BMT Regraded Uclassified 65 TREASURY DEPARTMENT more Secretary Morgenthau INTER OFFICE COMMUNICATION DATE December 3. 1940 TO FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £ 64.000 Purchased from commercial concerns £109,000 In the open market. sterling was first quoted at 4.03-1/2. It moved to 4.03-3/4 about noontime and closed at that level. Transactions of the reporting banks were as follows: Sold to commercial concerns -0- Purchased from commercial concerns £1,000 Other than & slight improvement in the Argentine free peso rate, and some widening of the Canadian dollar discount. there were no conspicuous changes in he other currencies. Closing rates were: Canadian dollar 13-1/8% discount Swiss franc .2321 Swedish krona .2385 Reichsmark .4005 Lira .0505 Argentine peso (free) .2360 Brasilian milreis (free) .0505 Mexican peso .2070 Cuban peso 8-1/2% discount The yuan rate received from Shanghai this morning was 5-29/32#. the gain of 3/32# over yesterday's rate no doubt reflecting further announcements from Washington regarding financial assistance to China. We understand that there is very little trading in yuan in the New York market, although a few banks transact a fair amount of business selling yuan drafts to Chinese living here. There were no gold transactions consummated by us today. No new gold engagements were reported. The New York banks received no gold or silver prices from Bombay today. In London, the price fixed for spot silver was unchanged at 22-13/16d. The forward quotation, however, was 1/16d higher, at 22-7/8d. The dollar equivalents ere 41.42# and 42.54 respectively. 2 65 Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. 3.0 Treasury's purchase price for foreign silver was also unchanged at 354. We made six purchases of silver totaling 600,000 ounces under the Silver Purchase ict. Of this amount, 200.000 ounces represented a sale from inventory. and the re- entains 400.000 ounces consisted of new production from foreign countries. for forward delivery. The report from the Federal Reserve Bank of New York listing deposits for the account of Asia as reported by the New York agencies of Japanese banks on November 27. showed that such deposits totaled $110,800,000. a decrease of $7,963,000 since November 20. Included in this total were $37,973,000 in deposits with the Yokohama Specie Bank. New York, made by its branches in China, a gain of $228,000 over the figure of November 20, and $99,920,000 in deposite with the Yokohama agency made by Japanese benks in Japan and Manchuria, off $8,897,000. In addition to their deposits with New York agencies, Japanese banks held. on November 27. about $31,361,000 in U.S. Tressury bills and short-term commercial paper expressed in dollars at the Tokohama agency, up $1,231.000 from November 20. The Tokohama agency reported that italoans to Japanese banks in Asia amounted to $41,957,000 on November 27, an in- crease of $9,174,000, while its other dollar claims on Asia, consisting mainly of Japanese import bille, totaled $13,646,000. a drop of $14,953.000 since November 20. Jayanese banks in Asia apparently paid off maturing import bills held in the Tokohama agency's portfolio by drawing upon their deposits and securing additional loans from the Tolcohamm agency. The report of November 27 received from the Federal Reserve Bank of New York, dying foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $9,743,000. & decrease of $497.000 in the short position. Net changes were as follows: Short Position Short Position Change in Country November 20 November 27 Short Position* England** $ 370,000 $ 111,000 (Long) -$481,000 Europe 3,746,000 3,870.000 + 124,000 Canada 46.000 38,000 (Long) - 134,000 Latin America 293.000 317.000 + 24.000 JADAN 4,427,000 4,460,000 . 33.000 Other Asia 1,341,000 1,376,000 35,000 All others 17,000 51,000 (Long) E 98.000 Total $10,240.000 $9,743,000 -$497.000 increase in short position. or increase in long position. indicated by minus (-). Increase in short position, or decrease in long position. indicated by plus (+). "Combined position in registered and open market starling. ME CONFIDENTIAL Regraded Uclassified incomeng referred 67 to Dr. white to dring up at the time of Rin frederek Phillips' mut 119 December 3, 1940, Coaf Mr. Recimfeller: Thank you very much for your letter of November 20th, vid sh enclosed a covering the outstanding pointe of your dismissions with Mr. D'Arey Cosper. I have been such Interveted is reading this result and I - gind to have " for my records, 11th thenks for year want of personal creating. Sincerely, (Signed) H. Morgesthau, J1, Homerable Holem 4 hookersller, Coordinator of Commercial mé Gultural Selations between the American Republics, Commetl of Metional Defease, State Department Building, Weshington, D. G. GMF/dbs Regraded Uclassified 69 Deamber so 1940. Deaf Mr. Resisefellers Thank you very mush for your letter of November 20th, which enclosed a severing the outstanding polate of your discussions with No. D'Aray Coopar. 1 have been such intervated is reading this result ad I - glad to have 11 for w records. vita thenks for year word of personal cresting, tincerely, (Signed) H. Morgesthau, Jt. Nonorable Falsen 4. Coordinator of Commorcial and Cultural Relations between the American Republics, Council of National Defense, State Departments Pullding Vachington, a de GRF/dbs Regraded Uclassified 70 *940* s I Dawn No. Recessellows any 1 Istite % 1 I g E 1 i I 1 I 6 covering the outstanding yoints of your diseasions with m. D'AFey Cooper. I have 1 the a I 1 I and I - glod to have as for my records. personal 8 any I i E greeting, Sincerely, (Stgned) H. Morgenthau, Sr. Removable Metern 4 Occrdinator of Commetral and Relations between the American Reychlice, Council of Entional Defense, State Department Buildings I s d GHF/dbs Dr white 71 wants you to bring The sccretary time of fin Frederick this or at the 'hally's' visit n mechanney he been COUNCIL OF NATIONAL DEFENSE ach'd 72 COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS BETWEEN THE AMERICAN REPUBLICS STATE DEPARTMENT BUILDING WASHINGTON. D.C. November 28, 1940 My dear Mr. Secretary: I am pleased to send you herewith a memo- randum, covering the essential points of the dis- cussions which we have had with Mr. D'Arcy Cooper, $ & representing the British Board of Trade, and his full associates, relative to British, U. s., and Latin American problems. I hope that you enjoyed your brief holiday and look forward to seeing you soon. Sincerely, Ullson a. Norhifeller The Honorable The Secretary of the Treasury, Washington, D. C. GMS 2030 Regraded Uclassified 73 To: Secretary Morgenthau From: Melson A. Rockefeller Re: Discussions with Mr. D'Aroy Cooper and associates, relative to British-United States-Latin American trade The Background of the Discussions Mr. Cooper gave us a copy of the letter of instruction from the President of the Board of Trade, requesting him to proceed to the United States to follow the suggestions made by the President and Secretary Morgenthau to Sir Frederick Phillips that Britain "force out" exports to the United States and that excessive competition for Latin American markets be avoided. The following pertinent points of Mr. Cooper's letter of instruction served as 6. background for the discussions: (a) The letter instructs Mr. Cooper to inform the United States of Britain's capacity to export. Although capacity to expand output of exports generally is doubted, it expresses the belief that larger quantities of woolen and cotton textiles could be made available. It points out, however, that such goods would be handicapped by falling in 5. higher value bracket for United States duties, due to a 50% rise in costs. The possibility of larger sales to the United States of ma- terials for the new Caribbean bases and for Army equipment is mentioned. (b) It instructs Mr. Cooper to discuss fully the problems in- volved in avoiding excessive competition for Latin American markets. Recognizing the connection with Latin America's surplus problem, it suggests facilitating triangular relationships among United Kingdom, United States, and Latin America. (c) It requests Mr. Cooper to discuss the possibility of B. supplementary trade agreement, and to explore possible action rela- tive to increase in duties when the British purchase tax came into effect on October 21. (d) It mentions the need to avoid difficulties due to anti- dumping regulations and the recent United States subsidy on cotton goods exports. (e) It directs Mr. Cooper to follow thoroughly all matters per- taining to expansion of British trade. Meetings: As directed by the Secretary of the Treasury, discussions have been held with Mr. D'Arcy Cooper, his associates, and members of the British Embassy. Meetings were hold on November 6, 12, 19, 1940, withropresentatives of the Office of the Coordinator, Treasury Department, State Depar tment, and Export-Import Bank present. Regraded Uclassified 74 - 2 - First meeting on November 6, 1940 The British delegation outlined their problems in Latin American markets, indicating that they anticipated favorable trade balances with some countries and adverse balances with others. Their views were most nearly crystallized on these points: (a) That we agree in principle not to compete on commodities which they could ship, since British export capacity is currently limited to certain lines. British purchases in the United States, including agricultural goods, were cited in support of the triangu- lar trade principle. (b) That dollar loans should not be restricted to use for pur- chase of United States goods. (o) That we act with Britain in our purchases of Latin American goods. They expressed concern over surpluses that were accumulating in Latin America and suggested a joint survey to determine the most effective measures to handle the situation. The possibility of a lending operation between the United States and Argentina based on British securities delivered to Argentina in part payment of balances was discussed. In the course of conversa- tions touching on various phases of British-Latin American and British-United States trade, the British delegation reiterated the need for United States assistance. We indicated B. sympathetic and cooperative attitude in our spproach to the problem. When the matter of the adverse effect of the British attitude on competition between American and British interests in Latin America W&S brought up, the British agreed that a. continuance of such a line would be unfortunate. The British agreed to send 115 memoranda giving the essential facts of their trade and balance of payments situation with each Latin American country. Second meeting on November 12, 1940 The discussions followed lines similar to those of the previous meeting. The British reiterated their desire that some of the proceeds of dollar loans to Latin America be available for purchases outside the United States. We indicated our appreciation of their interests in the matter and our practical problems relative to it. Regraded Uclassified - 3 - 75 The possibility of preclusive murchases of strategic commodi- ties, jointly or otherwise, was discussed. The matter of Latin surpluses was again discussed. lie were informed that sterling investments in Argentina (nominal the totaled 6394 million, of which h45 million were National Government obligations. The list included provincials, municipals, otilities, industrials and rails; rails were the largest item, totaline 6266 million. No coucrete proposals were advanced. The Eritish lacked data as to the volume of securities that had been transferred to the Argentine. The British delegation had no information as to whether the arrivel où the Argestine Prebisch mission would clarify the possi- bility of un Arcontine-United States financial operation based on regatriated British securities. The British presented memoranda giving the essectial fects of their trade and balance of payments situation with individual Latin American countries. Twird Vacting on November 19, 1940 Discussions arain followed the lines oc the earlier reetings. to further factual material was presented by the British. regarding the inadequacy of the balance of payments material that Lad been Purnished, they explained that these data had been intended marely to indicate the nature of the problem and the particular coun- tries where sterling deficiencies or surpluses were anticipated. Ne were informed that the Willingdon lission t.o South america 005 ossertially E yood-will mission and that we would be kept in- Incred of whatever right result from it. Desclusions: 1, The British have Indicated certain problems of u serious nature: (a) Their requirements of e large quantity of easential commod- Itims from Latin America and their limited capacity to finance such purchases. (5) Their capacity to deliver goods of certain types, and the obstacles to meintenance or expansion of deliveries of such roods in the face of adverse trade conditions in Latin America. (o) The flow of strategic and critical materials to ultimate enery use. Regraded Uclassified 76 - 4 - 2. On our part, we have endeavored to show sympathetic considera- tion, without becoming committed beyond the scope of our authority: (a) We have implied that in dollar loans to Latin America we would bear in mind the British trade situation. (b) We shall continue our efforts to provide markets for Latin American products. (o) We recognize the principle of triangular trade relation- ships among the United States, United Kingdom and Latin America. (d) We shall work for a clarification of policy on the matter of preclusive purchases of strategic and critical materials. (e) It was generally recognized that the pertinent matters discussed will require our continued attention during the period of the emergency. We shall consequently continue following these matters and shall welcome the collaboration of the British group. Treasury Department 77 Division of Monetary Research 12/5/40 Date 19 To: Mr. White From: L.S. Miss Chauncey said this is another letter to bring up at time of Sir Frederick Philipps' visit. (Receipt has been acknowledged) kest MR. WHITE Branch 2058 - Room 210 their 78 COUNCIL OF NATIONAL DEFENSE COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS BETWEEN THE AMERICAN REPUBLICS STATE DEPARTMENT BUILDING WASHINGTON.C.C December 3, 1940 My dear Mr. Secretary: Pursuant to the request of Mr. Rockefeller, who is to be out of town during most of this week, I an writing with respect to our fourth meeting with Mr. D'Arcy Cooper and his associates. The meeting was held on November 30, 1940, and was attended by repre- sentatives of the Treasury and State Departments, Export-Import Bank and the Office of the Coordinator. Several questions which had been raised in & preliminary way at previous meetings were answered. On behalf of the Export-Import Bank, its representative, Mr. Will L. Clayton, stated that up to 40% of the proceeds of future dollar loans to Latin America would be made available for the pur- chase of British goods, on the understanding that such dollars be utilized by the British in the purchase of agricultural products in the United States. Mr. Clayton also indicated that the funds repre- senting the above-mentioned 40% proceeds of dollar loans were not to be used for debt service, but they could be applied by the Latin American countries to commercial arrears owing to the British AS well as to new purchases, that they would apply to the full sterling area, and that the term "agricultural products" would be broadly interpreted. With respect to the proposed use of British-owned Latin American securities as collateral for loans from the Export-Import Bank, Mr. Clayton stated that the Bank had decided to determine minimum import requirements of the individual nations, estimate probable state of other items on the balance of payments for 1941, and thereby ascertain the extent of financial assistance required by particular countries. He added that it was the present position of the Bank that it was not necessary to introduce sterling securities as collateral 10 connection with the lending operations. Mr. D'Arcy Cooper indicated that it would be useful if the British could be kept informed of the course of negotiations on Latin American loans. It was indicated that, although such information could not be afforded during the course of negotiations, it could be conveyed prior to public announcement. Regraded Uclassified 79 - 2 - The British delegation expressed regret at not being able to present any further factual material on their anticipated balance of payments to Latin America or on their purchasing program. With regard to the matter of preclusive buying, another item on the agenda of the Mission, the British were advised that the fundamental decision of policy had been presented to the President for determination, since it was explained that the Advisory Commission to the Council of National Defense had recommended action in connection with this matter and that the Office of the Coordinator had filed a supporting memorandum. The British suggested the desirability of close liaison in the event that a preclusive buying policy is decided upon. At the conclusion of the meeting, Mr. Cooper, in expressing appreciation, stated that he would inform the Secretary of the Treasury with regard to the usefulness of the conferences. It was agreed to continue discussions as they might be called for by new developmente. Very sincerely yours, B. CARL B. SPAETH Executive Assistant The Honorable, The Secretary of the Treasury, Washington, D. C. Osta 1 Regraded Uclassified 80 INSTITUTE OF PUBLIC ADMINISTRATION 261 BROADWAY Trustees NEW YORK FL TRUBEE DAVISON HAROLD W. DODOS WILLIAM TUDOR GARDINER E. ROLAND MARRIMAN HERBERY HOOVER FRANK o. LOWDEN December 3, 1940 CARL *. PRONZHEIMER GEORGE 5. VAN SCHAICH DELOS WALKER LUCIUS WILMERDING in Secretary Henry Morgenthau Treasury Department Washington, D. C. Dear Secretary Morgenthau: I enclose an outline which may serve to summarize the points discussed at our meeting Friday, November 29, and to trace their implications. I shall be interested to hear what decision you, Mr. Roosevelt and the Congressional leaders reach with re- gard to this project. Mr. Sullivan's last suggestion was that the announce- ment of any specific plan be patponed until your major reform measure has been approved by the Congress. This policy has much to commend 1t, especially if an understanding can be reached with the President and with key Congressional leaders to set up the proposed Temporary National Tax Commission subsequently. Under such a plan, preliminary work can be started in the near future within the Treasury. There are two or three men in the United States whom you should go out after immediately in connection with this project if you plan to proceed beginning say February 1. To free myself for this work under your leadership, I will have to place some such definite proposal before my Board, as you will readily understand. Sincerely yours Regraded Uclassified 81 COMPREHENSIVE REVIEW OF FEDERAL-STATE TAX RELATIONS Regraded Uclassified 82 COMPREHENSIVE REVIEW OF FEDERAL-STATE TAX RELATIONS A. Plan of Action It is proposed to initiate a comprehensive rethinking and a prac- tical replauning of the American federal, state and local tax structure and to devise the general system of tax laws- but not all the detailed texts- through which such a program may be carried into effect, especially 58 to ite federal phases. This ambitious Project involves: (a) a small amount of research; (b) a large amount of liaieon to develop coordination and joint action; (c) cour- age and creative imagination in architecting practical, and in some cases rev- clutionary. plane: and (d) the most careful salesmanship. Each of these factors is discussed below. Research Mont of the relevant facts are now known or can be brought together without great effort. This can be done through the following undertakings: Make a general comprehensive review of the more important tax developmente of the past generation focusing attention on the problem as a whole. Identify the chief points of difficulty and inefficiency and make separate but related studies of these issues. Among such problems would be included the administrative cost of duplicate administration: the cost to the taxpayer of such tax compliance; state tariff walls; the relationship of tara- tion to fiscal policy and to financial controls; problems of state and federal aid and "shared taxes": and the division of functions and parts of services as between the various levels of government in the light of their tax resources, (This last study is of great importance.) Review recent developments abroad which bear upon the problems of central and local fiscal systems and tax coordination. Regraded Uclassified -2- 83 Prepare simple authoritative statements, designed to serve as a basis of mass education and understanding, summarizing the best current thought on the principles which must govern the development of the total American tax system. Develop plans for a. comprehensive readjustment of the American tax system, and outline the practical stages of action leading to its gradual adoption. Limison While these research assignments are important, the most exacting part of this Project is liaison. For example, it will be necessary to keep abreast of researches and of developing ideas within other federal government agencies. The Bureau of the Budget, the National Resources Planning Board, the Department of Commerce, the Federal Reserve Board, the Department of Agriculture, and several other important independent establishments each have an interest in the problems here dealt with, and each have related studies now under way. Moreover the whole problem of federal-local tax coordination is dependent upon the National Fiscal Policy, and cannot proceed without a con- cern for, and a knowledge of the ideas, the factors and the decisions which are involved. There can be no practical outcome for this Project unless it is carried through in close collaboration with the Congressional leaders, who will in any case have much to contribute to its scientific and analytical aspects as well. Equally important is collaboration with the leaders of state and local finance, A coordinated system cannot be erected without their 00- operation. The informed public, particularly the officers and paid staffs of financial, commercial, civic, labor, professional and research groups Regraded Uclassified 84 throughout the land will demand a hearing, will have important contributions to make, and can help greatly in the final acceptance of the constructive program when developed. A sense of participation from the very beginning is half of the battle. Each of the five areas of cooperation referred to in the foregoing paragraphs would seem to call for the most thoughtful and skillful attention, not only as a means of bringing together the best possible constructive program from the standpoint of the federal government and securing its adoption by the Administration and by Congress, but also as a. means of bringing to the development of the program and to its adoption the full and enthusiastic sup- port of public opinion and of responsible state and local officers as well. Courage and Invention At the center of this whole Project is the assumption that we in the United States have the brains and the ability to cut through our tax- tangles and their interrelated problems of government and of economics, and to invent practical solutions. This hope seems justified, provided we pro- ceed without fear or inhibition on & foundation of research and a system of cooperation through which the ideas, however revolutionary, of qualified in- dividuals and groups are brought to the surface and subjected to scrutiny. Under these conditions, a small, competent staff devoting itself to these problems, and to these problems alone, without interruption, will surely bring early results. The success of this approach in states like New York and Wisconsin has been notable, and the recent Canadian tax study is a fur- ther case in point. A further factor is the increasing pressure of necessity, a pressure which will not diminish in the months that lie ahead. If necessity be the mother of invention, the coordinated tax system V0 seek is already in the womb of time. Regraded Uclassified 85 Dissemination Most research gathers dust on shelves because the academic mind finds such complete satisfaction in a printed report and such full immortality in footmote acknowledgments. If something more in desired in this Project, the objectives must be defined at the start and the appropriate steps taken from the very first. In the commercial field, few survive who do not consider what will be done with their wares, and from the first design their productive efforts to meet their sales problem. In accordance with this philosophy, the proposed development of plans for coordinating federal, state and local tax systems should set as its objectives not primarily the production of research reports but primarily the development of a new, practical course of action and its adoption by the federal government and by the states and the localities. The sales problem-- the problem of dissemination and implementation- requires five related types of effort: The public must know about the study and its objectives from the very first and must be encouraged to expect important results. All important leadership groups must be drawn into the fact and opinion gathering stages of the work so that there is a widespreal feeling of participation. The form of all reports coming from the Project must be designed with the greatest care to suit each particular audience and the appropriate channels of dissemination must be utilized, including the leadership groups. In the issuance of any in- formation or conclusions timing is of the essence. To receive attention from the public or consideration from state and local officials, this Project must be & major interest of the Secretary of the Treasury and of Congressional leaders, and must have the full backing of the President. Ultimately bills must be drafted for the federal aspects of the progrem as action 1e taken by enacting laws. Staff The work which has been outlined in the foregoing pages will require some such staff as the following: Regraded Uclassified 86 -8- Director of the Project Private secretary Assistant Director Stenographers Stenotypist (for hearings) File clerk Draughteman General and statistical clerk Messenger Bibliographer Editor Public Relations Counsel Legal Counsel Directors of Technical Studies 3- full time, for not less than one year 15-20- part time, for individual studies, reports, and assignments. If the Project is decided upon immediately, BO that key members of the staff can be recruited on or before February 1, 1941, the research work should be completed early in 1942. Though certain of the conclusions could be acted upon by the Congress of 1942, the Project itself should be continued until about February, 1943. The Winter of 1942-1943 would be devoted to ex- planation and dissemination, and the staff would be somewhat changed for the purpose. A considerable part of the service required could be performed by service divisions of the department. There is, however, certain advantage in having the same individuals assigned to this Project from start to finish. If there is to be a Temporary National Tax Commission created by the Congress, or a similar Departmental Commission, allowance should be made for the travelling expenses of the group and for secretary of the commission ibelf. Regraded Uclassified 87 -6- In any case it is planned ',0 appoint a Technical Advisory Committee of 20 to 25 men and women to consider the initial plans of research, to help make contacts throughout the country, to review the findings and recommenda- tions, and then to assist in dissemination. While the members of this committee will not be compensated, it will be necessary to meet their travel expenses for five or siz meetings during the course of the Project, On the basis of a two-year time limit, the salary costs of the staff above may be estimated at about $99,000 for the first twelve months, and $65,000 for the second. This can be reduced somewhat through the use of departmental services. To this would be added the costs of holding about ten to fifteen hearings throughout the country, and the expenses of the Temporary National Tax Commission and of the Technical Advisory Group. Provision should be made for publication and wide circulation of the general summary report, and for a more limited distribution of the supporting volumes. The total cost thus estimated comerwell within the $500,000 budget expended in Canada for their comparable study. December, 1940, Regraded Uclassified 88 DEC 8 1940 My dear Mr. President: Attached herewith is a draft of a letter addressed to Major Henry s. Nooker, concerning the aircraft purchasing progrem of the Notherlands. Certain requests for the clearance of air- craft orders for the account of the Notherlands have not been granted the to the fast that as engines of the types required could be made avail- able without interference with the defense program. These requests are being cleared, bewever, as rapidly as engines can be supplied for the par- ticular planse required. This office has been working closely with three official Netherlands purchasing commissions and rish the Royal Netherlands Legation 08 all purchases of var supplies in this country. Faithfully yours. (Signed) H. Morgenth...u. Vi. The President, The White House. Encs. Original and 2 carbons of draft of ltr. for Pres's signature. Returning ltr. addressed to Maj. Hooker. P4. PY:bj 11/29/40 By Messonger 1040 Regraded Uclassified 89 DEC 3 1940 My dear Mr. President: Attached herewith is a draft of a letter addressed to Major Henry S. Hooker, conserning the aircraft purchasing program of the Netherlands. Certain requests for the clearance of eir- craft orders for the account of the Notherlands have not been granted due to the fact that as engines of the types required could be unde avail- able without interforence with the defense program, These requests are being cleared, however, as repidly as engines can be supplied for the par- ticular plenes required. This office has been working closely with three official Netherlands purchasing commissions and with the Royal Metherlands Legation en all purchases of var supplies in this country. Faithfully yours, (higned) H. Morgusthau, Jr. The President, The White House. Pr:bj 11/29/40 By Memeanger Regraded Uclassified 30 DEC 8. 1940 My dear Mr. President: Attached herewith is a draft of a letter addressed to Major Newry s, Hooker, concerning the aircraft purchasing progres of the Notherlands, Certain requests for the clearance of air craft orders for the account of the Netherlands have not been granted due to the fast that m engines of the types required could be más avail- able without interference with the defense program. These requests are being cleared, however, AS repidly as engines can be supplied for the par- ticular planes required. This office has been working closely with three official Netherlands purchasing commissions and with the Royal Netherlands Legation on all purchases of var supplies in this country. Faithfully yours. (Signed) E Morganthan, Jr. The President, The White House. Plibj 11/29/40 By Messenger Regraded Uclassified 91 Regraded Uclassified Dear Major Rooker: The satter of sircraft orders for the Notherlands has been carefully investigated in the light of your letter of September 9th from Lieutenant Colonel A. Fischer of the Royal Fetherlands Indies Ordnance Commission. As of August 20, 1940, the Betherlands had on order in the United States 72 Broveter pursuit ships, 108 Breveter dive bombers, 24 Curties interceptors, 64 Ryan trainers, and 2 Tought Sikersky amphibians. of the 320 aircraft engines of various types required for these planse. 31 had originally been ordered by the Datek Savy, 12 ordered by the Royal Datch Airlises. and 30 ordered by the Dateh Army. leaving a balance of 247 engines to be procured from whatever United States engine production capacity was available. These orders for both planes and engines were approved and cleared by the War Depart- ment, the Havy Department, and the Advisory Commission to the Council of National Defense through the President's Liaison Committee for the coordination of foreign purchases on September 4. 1940. In addition. the Netherlands wished to place the orders referred to in Colonel Fischer's letter. assely, 72 Brovater purenit ships. 54 Provater dive bombers. 48 Consolidated PBT flying bosts, 56 Curties Falcon pursuits, 28 Curties P-36 pursuits. 20 Lockheed trans- ports. 6 Lockbeed trainers, and 24 Ryan trainers. These vere duly considered by the Advisory Commission, the Var and Savy Departments. and the Aeronautical Board. On September 4th, clearance and approval " two interested Government agencies was secured for the 38 Certies Falcon pureuite, the 20 Lockhood transports. the 24 Ryan trainers and for 36 of the 48 Consolidated PBY - 2 - 92 Regraded Uclassified flying bonts. Thus, of the total of 368 aircraft for which the Netherlands wished to place additional orders, clearance and approval vas given on 116. Approval and clearance could not be given on the balance of 173 because engine production capacity was not available. In those instances where clearance vas given, the Fetherlands already owned or had on order 86 ongines which had been acquired from the British, 34 engines originally ordered by the Dateh Havy and 18 enginee which had been bought secondhand from United States air- lines. In all instances where clearance and approval vas not granted, it was found that engines of the types required could not be made available without inter- ference with the United States Government program. In addition, the Netherlands representatives were advised at the time clearance was given that orders for cel- lateral materials to be purchased, including guas, bombs, propellers, spare parts, etc., should be reduced pro- portionately. Since September 9th. the date of Colenel Fischer's letter, the 72 Broveter pursuits which were not granted clearance on September 4th have been approved due to the fact that certain reconditioned engines have become available. Reconsideration is currently being given to some of the other Netherlands aircraft requests for the same reason. In almost every instance the determining factor has been availability of production capacity. The Netherlands has the second largest foreign purchasing program in the United States and its requests for the purchase of var supplies are given every - sideration and granted clearance wherever it is possible to do so. Sincerely, Major Henry S. Hooker. 50 Broadway, New York, Sev York. Air PY:10 (. THE WHITE HOUSE 93 WASHINGTON September 27, 1940 MEMORANDUM FOR THE SECRETARY OF THE TREASURY What can I tell Harry Hooker in confidence about this? F. D. R. Enclosure ( 94 Mr. Young also has photostat of this letter. ROYAL NETHERLANDS INDIES ORDNANCE COMMISSION TELEPHONE CIRCLE s 4691 Cable Address #HIOC NEWYORK 10 ROCKEFELLER PLAZA NEW YORK FIRST TO 1863L/KA September 9, 1940 Major Henry 8. Hooker 50 Broadway New York, New York My dear Major Hooker: Pursuant to our conversation at luncheon on Saturday, I should like very much to have the benefit of your advice concerning the diffi- oulty in which we find ourselves in connection with our aircraft procurement program. Several months ago, after extensive negotiations with various air- craft manufacturers in this country, we decided upon the purchase from them of a quantity of aircraft. At that particular time, the United States Government requested my Government to advise what air- craft it was our intention to purchase here. Accordingly, we held up the placing of orders and submitted to The Advisory Commission to the Council of National Defense our program, which consisted of the following: Quantity Type Delivery Date 1. 72- Brewster model 339 pursuit air- Sept.-Dec. 1941 planes 2. 54 Brewster model 340 dive bomber Oct.-Dec. 1941 airplanes 3. 36 Consolidated PBY-5 patrol bombers Aug.-Nov. 1941 4- 12 " " " " = Dec.-1941 and Jan. 1942 5. 36 Curtiss Falcons model 22 Dec. 1940 and Feb. 1942 6. 28 Curtiss Model P36 pursuit planes June and July 1941 n. 20 Lockheed Model 18 transport planes Dec. 1940 8. 6 Lockheed Model 212 training planes Jan.-March 1941 a 24 Ryan Model PT-20 training planes Oct. and Nov. 1940 In our negotiations with the manufacturers, we made it a point to ascertain that our purchase of the above would not interfere with your Government's procurement program. Only a week ago, alarmed by the deliy of two months in receiving formal approval to proceed with the orders, we again inquired of the manufacturers involved whether there was any conflict between our own and the United States Govern- PLEASE ANSWER IN TRIPLICATE ALL CORRESPONDENCE STRICTLY CONFIDENTIAL Regraded Uclassified Major Henry S. Hooker -2- September 9, 1940 ment's programs and were again reassured that there was none inso- far as was disclosed by their negotiations with your Government to date. Therefore, it was a shocking surprise to us to be in- formed on Friday, September 6, that, with the exception of Items 3, 5, 7 and 9 of the above, we would not be permitted to place any of these orders. Assuming that the manufacturers are not fully aware of your Govern- ment's future plans, it is still inconceivable to me that these plans are so definitely formulated that such a small quantity of aircraft to be delivered 50 far in the future could possibly inter- fere with them. It is likewise inconceivable to me that your Gov- ernment's action is taken as a precaution against possible conflict with future plans not yet definitely formulated inasmuch as, 1f it so develops, your Government can always exercise its right of emi- nent domain and commandeer all or any of these aircraft that it may need. In the meantime, these orders will definitely assist your Government in its defense program by enabling the manufacturers to expand their facilities and organization. My report of this official refusal, given my Government by overseas telephone on Friday, was received with complete incredulity. It is impossible to reconcile your Government's repeated official expres- sions of a desire that the Netherlands East Indies Government re- main in status quo with its action in this matter which leaves my Government completely helpless to bolster its defenses. Other than this country, there is no source of supply that we can turn to for defensive weapons certainly none that would be in keeping with the present foreign policies of both the Netherlands East Indies and the United States Governments. It is my sincere hope that this action is the result of a misunder- standing and does not reflect the true attitude of your Government. I am sure that the latter is deeply concerned with the welfare of my country and with safeguarding, against transgression and seizure, its resources which are so valumble to the success of the national defense program of your country. I know of no better way to accom- plish this than to assist us, without any cost to your Government in money or man power, to bolster our own defenses and enable us in- dependently to defend these mutual assets, just as your Government is so unqualifiedly doing in the case of our allies, the British Empire. I should greatly appreciate any information that you may be able to secure concerning the natter. Very truly yours, Lt.-Colonel A. FISCHER Chief Regraded Uclassified