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    "title": "Volume 339, December 12 – December 14, 1940",
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        "Henry Morgenthau, Jr. Papers",
        "Diaries of Henry Morgenthau, Jr."
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    "ocrText": "DIARY\nBook 339\nDecember 12 - 14, 1940\nRegraded Unclassified\n- A -\nBook Page\nAmerican Friends Service Committee\nSee War Conditions: Foreign Funds Control (France)\nAppointments and Resignations\nBasby, Duiley: Rockefeller group asks for his transfer -\n12/12/40\n339\n1\n- B -\nBank for International Settlements\nSee Mar Conditions\n- 0 -\nCanada\nSee War Conditions: Canada; (Fereign Funds Control\nCullen bill\nSee War Conditions: United Kingdom\nCustems, Bureau of\nSee War Conditions: United Kingdom\n- D - -\nDesmark\nSee Var Conditions: Shipping\n- I -\nMasky, Budley\nSee Appointments and Resignations\n- , -\nFederal Bureau of Investigation\nClass memerandum - 12/12/40\n119\na) cosporation reported\nb) Wythe Williams' activities commented on\nPritz Mandl: Report by Federal Bureau of Investigation - -\n12/12/40\n120\n(See also Book 240. page 234)\nFrance\nSee Var Conditions: Foreign Funds Control\n- G -\nGermany\nfor propagenda in Latin America, see Latin America\nles also War Conditions: Foreign Funds Centrol\none\nBee Mar Conditions\nRegraded Unclassified\n- H -\nBook Page\nHeath, Donald\nHMJr thanks Heath for informal observations on\nsituation in Germany - 12/13/40\n339\n369\n- I -\nItaly\nSee War Conditions: Foreign Funds Control\n- J -\nJapan\nSee War Conditions: Foreign Funds Control\n- L -\nLatin America\nGerman propaganda films showing bridges, landing\nfields, etc., made in South America, printed in\nUnited States by subsidiary of German Dye Trust,\nfall into the hands of Customs - 12/12/40\n9,316\nLiquor\n\"Army and Havy Whiskey\" - label discussed by HMJr\nand Berkshire - 12/12/40\n21,313\na) Berkshire memorandum - 12/13/40\n403\nLothian, Lord\nDeath announced at 9:30 meeting - 12/12/40\n1\na) Mackensie-King and HMJr discuss - 12/14/40.\n427\nLumber\nSee Var Conditions: Price Control\n- M -\nMorgan, J. P.\nSee War Conditions: Purchasing Mission\n- I -\nNelson, Donald H.\nSpeech before Bankers' Club of Chicago - 12/13/40..\n377\nNeutrality Act\nSee War Conditions\n- O -\n011; oil Companies\nSee Mar Conditions\nRegraded Unclassified\n- P -\nBook Page\nPhillips, Sir Frederick\nSee War Conditions: Purchasing Mission\nPike, Summer\nSee War Conditions: 011; 011 Companies\nPortugal\nSee War Conditions: Gold\nPrice Control\nSee War Conditions\nPuerto Rico\nHass reperts on conversation with Davila, Puerto Rico\nHousing Authority - 12/12/40\n339\n123\nPurvis, Arthur B.\nLeaving London for United States - 12/14/40\n247\nArrives in New York City - 12/23/40: See Book 342, page 74\n- 1-\nResearch and Statistics, Division of\nReport on projects during November 1940\n440\nRevenue Revision\nTax-exempt Securities: Sullivan, Foley, and Murphy to\nwork out examples for speech by HMJr or magazine\narticles - 12/12/40\n4\na) Foley memorandum on conference with Walter Stone\n(Scripps Howard), etc. - 12/12/40\n213\nRockefeller Foundation\nFood Situation in Spain: Chamberlain resume' of Janney\nmemorandum - 12/13/40\n374\nRoumania\nSee War Conditions\nShipping\n- $ -\nSee War Conditions\nSpain\nSee War Conditions\n- T -\nTaxation\nSee Revenue Revision\nTax-exempt Securities\nSee Revenue Revision\nTurkey\nSee War Conditions\n- U -\nUnited Kingdom\nSee War Conditions: Military Planning: United Kingdom\nRegraded Unclassified\n- Y -\nBook\nPage\nWar Conditions\nAirplanes:\nEmployment in Aviation Manufacturing Industry:\nHass memorandum - 12/12/40\n339\n146\na) Copy sent to FDR - 12/18/40:\nSee Book 341, page 149\nBank for International Settlements:\nFrench shareholders - resume' of situation - 12/14/40.\n433\nCanada:\nForeign exchange position - 12/12/40\n175\nFrench gold - sale of discussed by Phillips and\nHMJr - 12/12/40\n208\na) Clark (Canadian Treasury) and HMJr discuss -\n12/13/40\n388\nExchange market resume' - 12/12/40, etc\n211,411,439\nExport Control:\nExports of petroleum products, scrap iron, and scrap\nsteel from United States to Japan, Russia, Spain,\nand Great Britain, as shown by departure permite\ngranted for week ending December 14, 1940\n432\nForeign Funds Control:\nGeneral over-all control discussed by Treasury group -\n12/12/40\n40\na) Recent movements of Ario funds\n58\nb) Gold shipped here by and for account of Bank\nof Portugal\n59\nc) Corporations suspected of subversive activity\nor of concealing assets subject to freezing\n62\nd) Treatment of American property interests by\nGermany, Canada, Italy. and Japan\n72,258\nAxis funds - recent movements of - 12/12/40\n156\nFrance:\nOffers $50,000 \"from Government frosen funds in\nUnited States\" to American Friends Service\nCommittee for purchase of Swies milk for French\nchildren - 12/13/40\n326\nGermany:\nTransactions with Chase National Bank - 12/13/40\n415\nItaly:\nTransactions with Chase National Bank - 12/13/40\n413\nFrance:\nBank for International Sattlements: French shareholders -\nresume of situation - 12/14/40\n433\nGermany:\nFor propaganda in Latin America, see Latin America\nHAJr thanks Heath for informal observations on\nsituation - 12/13/40\n369\nGold:\nshipment to United States by and for account of Bank of\nPortugal discussed by Treasury group - 12/12/40\n69\nSale of French gold by Canada discussed by Phillips\nand HNJY - 12/12/40\n208\na) Clark (Canadian Treasury) and HNJr discuss -\n12/13/40\n388\nRegraded Unclassified\n- W - (Continued)\nBook\nPage\nWar Conditions\nMilitary Planning:\nReports from London transmitted by Butler - 12/12/40,\netc\n339\n255,406,464\nCharacteristics of German Anti-Aircraft and Anti-Tank\nMateriel: Var Department bulletin - 12/14/40\n470\nNeutrality Act:\nResume' of various steps made by Foley - 12/12/40\n215\nOil; 011 Companies:\nSummer Pike \"to go into South American companies\" -\n12/12/40\n19\nPrice Control:\nHenderson \"minding everybody's business except his own °;\nHMJr to call his attention to price of lumber, wool,\nhides, tallow, butter, wheat, and cocoa - 12/12/40\n13\n(See also Book 340, page 14)\na) Memorandum and charts\n393\nb) FDR sent lumber charts - 12/17/40:\nSee Book 340, page 347\nc) Henderson's letter and HMJr's answer - 12/23/40:\nSee Book 342, page 60\n1) Telephone conversation: Book 342, page 191\na) Hass memorandum on \"sequence of events\":\nSee Book 342, page 65\nPurchasing Mission:\nAssets:\nPhillips and HMJr confer privately: Cochran\nmemorandum - 12/12/40\n208\na) Sale of French gold by Canada discussed\nb) Financial assistance to Great Britain definitely\nrequested\n1) Butterworth memorandum\n399\nc) Jones told by HMJr Phillips, at last, asked\nfor & loan from United States - 12/17/40:\nSee Book 340, page 328\nPurvis leaving London for United States - 12/14/40....\n247\na) Arrives in New York - 12/23/40:\nSee Book 342, page 74\nGold and dollar resources of British Empire and extent\nof depletion reported on by Federal Reserve Bank of\nFew York - 12/12/40\n302\nConference on sale of American-owned securities in\nUnited States as well as direct investments; present:\nHMJr, Purcell, Frank, Cochran, White, Gifford, Pinsent,\nPhillips, Playfair, Forrestal, Wise, Bell, and Clark -\n12/13/40\n337\na) Phillips sends list which will be included in\nvesting order dated December 14, 1940\n387\n1) See announcement: Book 340, page 177\nBackground on vesting procedure and Kennedy's place in\nproblem covered in Pinsent memorandum - 12/17/40:\nSee Book 340, page 195\nMorgan (J.P.) as agent: Frank tells HMJr of Gifford's\nstatement that he had taken Ranes' and Butterworth's\ncomments to his 'as informal tip from HMJr\" - 12/13/40.. 361\na) HMJr-White conversation - 1/10/41:\nSee Book 346, page 416\nRegraded Unclassified\n- V - (Continued)\nBook\nPage\nWar Conditions (Continued)\nRoumania:\nNegotiations with Turkey for exchange of cotton for\npetroleum products - 12/12/40\n339\n126\nShipping:\nDenmark: Ships tied up in United States waters -\ndiscussion at 9:30 meeting - 12/13/40\n318\na) Conference in Land's office: Foley-Pehle\nmemorandum - 12/13/40\n391\n1) Maritime Commission hostile to Treasury\nparticipation: See Book 340, page 25\nb) Coast Guard asks for DANMARK for use at Academy -\n12/23/40: See Book 342, page 93\nc) Conference of Treasury group - 12/26/40:\nBook 342, page 176\nd) Use of ships in our and other neutral porte -\nmemorandum sent by HMJr to Navy and to Land -\n12/27/40: Book 342, pages 268 and 276\n1) Knox's acceptance of invitation to confer -\n12/28/40: See Book 343, page 1\ne) Cabinet discussion - \"for some reason FDR does\nnot want Treasury in on it\" - 12/27/40:\nBook 342, page 302\nSpain:\nFood Situation: Chamberlain resume³ of Janney\n(Rockefeller Foundation) memorandum - 12/13/40\n374\nTurkey:\nNegotiations with Roumania for exchange of cotton for\npetroleum products - 12/12/40\n126\nUnited Kingdom:\nSee also War Conditions: Purchasing Mission (Assets)\nLothian's death announced at 9:30 meeting - 12/12/40.\n1\na) Mackenzie-King and HKJr discuss - 12/14/40.\n427\nPhillips and HMJr confer privately: Cochran memorandum -\n12/12/40\n208\na) Sale of French gold by Canada discussed\nb) Financial assistance to Great Britain definitely\nrequested\n1) Butterworth memorandum\n399\nGold and dollar resources of British Empire and extent\nof depletion reported on by Federal Reserve Bank of\nNew York - 12/12/40\n302\nNelson (Donald M.) speech on urgency of need for\nassistance - 12/13/40\n377\nTax to be imposed on purchases of goods from wholesalers:\nUnited States Customs valuation of these goods further\ndiscussed in British Embassy memorandum - 12/13/40\n396\na) Gaston memorandum concerning Cullen bill -\n12/17/40: See Book 340, page 300\n1\nDecember 12, 1940\n9:30 a.m.\nGROUP MEETING\nPresent:\nMr. Haas\nMr. Cochran\nMr. Young\nMr. Wiley\nMr. Foley\nMr. Pehle\nMr. Graves\nMr. Thompson\nMr. Bell\nMr. Sullivan\nMr. White\nMrs. Klotz\nMr. Berkshire\nH.M.Jr:\nIt is bad news about Lothian, isn't it?\nBell:\nWonder what the trouble was, do you know?\nCochran:\nThe coroner has been there and they haven't given\na report yet, you see. He had no doctor. He\nwas a Christian Scientist.\nWiley:\nHe was converted to Christian Science by Nancy\nAstor.\nH.M.Jr:\nDid you say, \"By Nazi Astor?\"\nWiley:\nNancy, yes.\nH.M.Jr:\nIs she a Christian Scientist?\nWiley:\nYes.\nH.M.Jr:\nEdward?\nFoley:\nWe have a lawyer by the name of Dudley Easby.\nRegraded Unclassified\n- 2 -\n2\nNelson Rockefeller would like to take him.\nHe speaks Spanish and he has some knowledge\nof things that Nelson thinks would be valuable\nto him. I can get along without him, if you\nwant to let him go.\nH.M.Jr:\nWhat is he doing?\nFoley:\nWell, he is working on matters coming up from\nthe Treasurer's Office in connection with checks\nand handles matters in connection with the\nComptroller General's Office. He is one of\nthe boys in Norman Tietjens' shop.\nH.M.Jr:\nWhat does he get?\nFoley:\nHe gets around thirty-eight hundred.\nH.M.Jr:\nWhat would Rockefeller give him?\nFoley:\nI think he would probably pay him the same thing.\nH.M.Jr:\nDo you see any reason, Norman.\nThompson:\nHe is a good man, but we can spare him.\nH.M.Jr:\nSpeak Spanish?\nFoley:\nYes.\nH.M.Jr:\nIt is all right with me.\nFoley:\nJim Forrestal wants to resume those lunches on\nthe Defense with Army and Navy, and 80 on, and\nI understand he has asked Eddie Greenbaum and\nPatterson and several others. He has some new\nlawyers now. Some of his older group has gone\nback to New York, and he has got a new group.\nI guess he wants to break them in.\nH.M.Jr:\nWhere do they eat, downstairs?\nFoley:\nNo, this one, he is going to have in his office.\n- 3 -\n3\nE.V.Jr:\nI see. All right.\nFeley:\nWalker Stone, one of the editorial writers for\nthe Scripps Howard chain, called up and said they\nwanted to so to town and do a campaign on the\nelimination of exemptions.\nI saw the editorial yesterday. I almost fell\nover backward.\nVoley:\nMe said he needed help. he said he had gotten\nthe paper that I had read over at the meeting\nof the municipal law officers, and he thought\nit was good but he had to have a different ap-\nproach for his stuff, and he wanted examples\nalong the line you mentioned about the fellow\nwho goes to Palm Beach and stays all winter end\ndoesn't have to contribute.\nGive him the telegram that came in this morning\nfrom the Palm Beach fellow calling me down,\n\"day pick on Palm Beach?\"\nKlotz:\nI loved that. (Laughter)\nFoley:\nI had a letter from a fellow by the name of\nDominick in Greenwich, Connecticut. lie said\nhe would fight me in Washington or in hell.\nH.M.Jr:\nSure, go ahead. (Laughter)\nFoley:\nCan John and I get together? We will probably\nneed Murphy on these examples.\nH.M.Jr:\nI don't know whether you can get together.\nFoley:\nWell, give him the material.\nH.M.Jr:\nI think it would be wonderful to get together\non something with Scripps Howard.\nFoley:\nAnother fellow by the name of Izzy Stone--\nI.K.Jr:\nWhat is the name?\nRegraded Unclassified\n4\n- 4 -\nFoley:\nIzzy Stone. (Laughter) I am distinguishing\nhim from Walker Stone. He is Washington editor\nfor The Nation and wants to do something on that.\nH.M.Jr:\nOh, that is the fellow. They ran their real\nnames in something or other.\nFoley:\nYes, his name was Einstein, and he changed it to\nIzzy Stone. (Laughter)\nH.M.Jr:\nWell, the question is, is he?\nFoley:\nIs he, or isn't he?\nH.K.Jr:\nThe answer is yes. (Laughter)\nI have got Norman crying here.\nSullivan:\nOn these examples--\nH.K.Jr:\nWhat does Ike want to do?\nFoley:\nHe wants to write a full piece for The Nation on\nit. He says from where they sit up in New York,\nit seems to him that the Treasury has been carry-\ning the banner for what the New Deal stands for\nmore than any other department in town during\nthe last year or so, and they want to help where-\never they can.\nH.M.Jr:\nSure. Who all do you want to help you?\nFoley:\nWell, I think if George could make Henry Murphy\navailable, John and I can get him the stuff he\nwants.\nSullivan:\nBut we want to know about this series of speeches\nyou are going to make. You remember before you\nwent away, you wanted four written. Now, we\ndon't want to waste any of these good examples -\nI mean not waste them, but we want to give you\nfirst crack at them.\nH.M.Jr:\nOh, well--\nRegraded Unclassifie\n- 5 -\n5\nFoley:\nWell, what he really wants, Mr. Secretary, is\nto show what a man would pay in the way of state\nand federal taxes with an earned income of 50\nthousand dollars, and what he would get away\nwith if he had everything in tax exempts, and\nthen he would like to show what a fellow would\nhave to pay if he invested 50 thousand dollars\nin stock that produced a magneto or something\nthat went into an airplane after he got through\ntaking the risk and after he got through supply-\ning something useful for the Defense Program\nand compare that with somebody that just putsit\ninto something like tax exempts.\nH.M.Jr:\nWell, I was all steamed up down in Jamaica, in\nthe tropics, to do a speech and - I was all\nsteamed up in the tropics to do a speech.\nFoley:\nYes, I get it. (Laughter)\nH.M.Jr:\nI wasn't sure.\nSullivan:\nYou have to say it twice. If they don't laugh,\nit is not very good.\nH.M.Jr:\nI didn't think I got the necessary response.\nDon't wait on me. If you fellows have got any-\nthing, I would go to it. What I would like you\nto do is, keep a little record of what you do\nfor these people, each one, just to have it,\nbut by all means, don't wait on me. Let them\ngo. Like all these things, they are going to\nhave to be like drops of water on a stone. We\nare going to have to do it over and over and\nover again. If Scripps Howard takes hold of it\nand goes to town, maybe somebody else will want\nto.\nBell:\nThe Treasury hit the Washington Post yesterday\nmorning in three places on the editorial page.\nA cartoon and two columns.\nSullivan:\nHere are the four speeches you asked for.\nRegraded Unclassified\n- 6 -\n6\nH.M.Jr:\nWonderful.\nSullivan:\nHere are more of these memoranda. You wanted a\ncriticism on a summary of all those things. It\ntakes quite a lot of work. I think you have\ngot to determine whether or not you want us to\ncontinue those.\nH.M.Jr:\nWell, I would until further notice.\nSullivan:\nAll right, sir.\nH.M.Jr:\nIf, for instance, this thing comes along, I\nthink we ought to get some very good newspaper\nman who will just do a really first class job.\nHe could help you fellows prepare this sort of\nthing.\nSullivan:\nDo you recall you agreed that Mr. Blough should\ngo to Canada to look into that sales tax and the\nexcess profits? If he is to go before Christmas,\nhe should go tonight and be back here a week\nfrom Monday. Is there any reason we can't let\nhim go now.\nH.M.Jr:\nNo.\nSullivan:\nYou wanted me to remind you about Mr. Stewart.\nDo you want to call him or shall I?\nH.M.Jr:\nI will.\nSullivan:\nWhen you talk with him, he should have in mind\nthat he said that he felt that they would, and\nhe was going to put it up, and he wasn't going\nto let his view become at all apparent.\nH.M.Jr:\nI am always very frank. On second thought, I\nam simply going to say I think the Treasury\nshould finance it.\nFoley:\nOn McCloy, I have those statutes any time you\nwant to look at them. Bernie ran into McCloy\ndown at the Supreme Court on Monday. He was\n?\n- 7 -\ndown there when Mitchell was arguing. He, in\nan offhand way, told Bernie that he had resigned\nfrom his firm, and that he was down here full\ntime.\nH.M.Jr:\nI see.\nFoley:\nSo I don't think that he violates the statute,\nbut I talked to Eddie about it, too. Eddie\ndropped in the other night, but - shall I show\nthe statutes to you?\nH.M.Jr:\nNo, that is enough.\nSullivan:\nI have to call Gulick this morning for his meet-\ning. We can get him $22.20 a day and part of\nthe time we can base him at New York, if you\nwant to do it that way.\nH.M.Jr:\nNo. Twenty-two twenty is plenty for anybody.\nIf he doesn't want to come down on that basis,\nlet his own institution take care of it.\nSullivan:\nI will tell him that is what we will do.\nThompson:\nBesides five dollars subsistence?\nH.M.Jr:\nThe twenty-two twenty plus five.\nFoley:\nAnd I think you can shove him up to twenty-five\nafter you have had him 30 days or something like\nthat, but I don't think we ought to do anything\nmore; and, Norman, that won't work out on the\ncontract basis.\nThompson:\nI didn't think it would.\nH.M.Jr:\nTwenty-two twenty plus five, and if you can go to--\nSullivan:\nTwenty-five plus five.\nFoley:\nThey did it in Procurement, but I think they\nwere playing fast and loose. I think on that\ncontract arrangement which they never cleared\nRegraded Unclassified\n- 8 -\n8\nwith us, they were paying him for three days\nwhen he only worked two.\nH.M.Jr:\nWhen were they doing that?\nFoley:\nI think that is what they were doing in some\ninstance the Norman called to my attention.\nH.M.Jr:\nIf, for no other reason, Congress may say,\n\"Well, we want to take this group over, and then\nThey find out that we are paying this thing, and\nsay, \"How do you get that way?\"\nFoley:\nThe only way it could be done, Mr. Secretary,\nwould be out of the President's hundred million\ndollar fund.\nH.M.Jr:\nTry and get it.\nFoley:\nI shouldn't think he would want to pay for this\nout of that.\nH.M.Jr:\nHe wouldn't.\nCochran:\nPinsent will confirm to me before noon about\nthat meeting tomorrow, and I suppose you don't\nwant to get the SEC man until we get that taken\ncare of.\nH.M.Jr:\nI will be incommunicado from twelve-thirty today\non until tomorrow morning. I will be home, and\nI don't want to be bothered.\nCochran:\nPinsent told me that last night Sir Frederick\nsuggested to him that he might call this morn-\ning and want to see you privately, but he asked\nme if Phillips had phoned me last night.\nH.M.Jr:\nI am leaving here today at twelve-thirty and no\nappointments until tomorrow morning. I am tak-\ning all of this stuff home. I hope to read most\nof it while I am not asleep.\n- 9 -\n9\nCochran:\nI talked to Stone this morning, and he is going\nto send us that memorandum which you wanted.\nAnd on that question of the military mission\nof Germany in Argentina, that has been dispersed\nsome months ago. There have been four men\nthere. One went to Chile, and one went to Rio.\nThey passed a law in Argentine that the couldn't\nhave & military mission of a beligerent country,\nso that is stopped.\nH.M.Jr:\nWiley?\nWiley:\nCustoms has run into something interesting.\nGerman educational films are made in South\nAmerica, and then they are sent up here and\nprinted by a subsidiary of the German Dye Trust.\nThese educational films apparently are only of\neducational value for German Military Intelli-\ngence. They show bridges, landing fields, and\ndifficulties of terrain.\nH.M.Jr:\nIn this country?\nWiley:\nIn South America, chiefly in Peru, but not much\nis known about them yet. The films for the\nmoment are in the Treasury Department, and\nthere is hope that we can run them off and look\nat them.\nH.M.Jr:\nGood. You know Coast Guard has a projector.\nWiley:\nI don't think it fits. These are 35 millimeter\nfilms. I believe we will have to go over to\nAgriculture.\nSullivan:\nWhat size are they, John?\nWiley:\nThirty-five.\nFoley:\nWe have one, but ours is sixteen.\nH.M.Jr:\nArchives has a beautiful picture theater.\nWhite:\nWhy do you imagine they would want to display\nRegraded Unclassified\n10\n- 10 -\nthem here?\nWiley:\nI don't think they were to be displayed here.\nThey were probably sent here to be printed and\nthen go on, probably to Germany via Siberia.\nH.M.Jr:\nAnything else? Pehle?\nPehle:\nNothing, sir.\nH.M.Jr:\nPhilip?\nYoung:\nI have & note here with a copy of Buckley's\nreport.\nH.M.Jr:\nOh, yes. I sent one to Mr. Hull.\nCochran:\nHere is & memorandum on the destination of\nsecurities that you asked for.\nH.M.Jr:\nRight. Philip, I read this morning early, this\nreport of Buckley's, see. Got a pencil?\n(Buckley's report of December 10 regarding\nWest Coast airplane manufacturers inspection\ntrip)\nYoung:\nYes.\nH.M.Jr:\nNow, these are the things that I would like to\nhave an answer on tomorrow morning: 1. Why\nshouldn't the English cancel their order with\nBoeing for these so-called Douglass bombers\nand leave Boeing free to do just the big ones.\nIn this report it said the English would take\nit under consideration. I would like to have\nthe answer on that.\nYoung:\nAll right.\nH.M.Jr:\n2. There seems to be a desperate need for an\naluminum factory on the West Coast to make the\nparts, tubing, and so forth and so on, and can\nRegraded Unclassified\n11\n- 11 -\nyou find out from somebody at National Defense\nwhy the hell - excuse me - don't they do some-\nthing about it?\nYoung:\nThat is a hard one.\nH.M.Jr:\nThen in reading this report on Lockheed, why\ndon't the English have permission to put in\nsuper-chargers in all of their planes that they\nwant to? If they can have them in some, why\ncan't they have them in all? Then on a 24-\nhour basis, I would like to get, on the same\ntwo weeks that Haas has his thing set up on,\nsee, the same two weeks, I would like to know -\nfor instan ce, the English get so many engines.\nWe know how many engines they get of each kind.\nI want a report from them tomorrow - we will go\nback, say, for four weeks. That will be enough.\nWhat distribution did they make of these engines,\nsee?\nYoung:\nYes, sir.\nH.M.Jr:\nI want that tomorrow because it is - to me - I\ncan't understand why Lockheed should be short,\nwaiting for 25 or 30 engines. I just can't\nunderstand it. When I look at their production,\nthe ones that they received - the two things.\nI want to know what did they do with all of\nthese engines? If they are selling them to\nEngland, they are breaking their agreement, see.\nThere are plenty of these engines coming off.\nWhat are they doing with them? According to\nthis report, there are 25 or 30 planesawaiting\nengines of the Hudson Model 414. Now, there is\nsomething wrong somewhere.\nHaas:\nAre those those interceptors?\nH.M.Jr:\nI don't know what it is.\nHaas:\nI think one plane they make has the Allison.\nH.M.Jr:\nAnyway, they are waiting for the Pratt and\nRegraded Unclassified\n12\n- 12-\nWhitney 1830's or the Wright 1820's of which\nthere are plenty each week being turned out,\nmany, many more than lanes. If they are send-\ning them to England, then they are breaking\ntheir agreement. The agreement is that there\nshall be no planes without engines in this\ncountry.\nYoung:\nPart of those planes were supposed to be the\nones which were grounded due to the fact they\ngave up the engines to the Boeings.\nH.M.Jr:\nThat is just plain, unadulterated \"hooey.\"\nThey can't fool me. And the other thing, which\nis not on a 24-hour basis, is that I am shocked\nto find that in every case except the Merlin,\nwhich they had with Ford, England's orders\nexpire in the fall of '41. All of their engine\norders run out. That seems unbelievably short-\nsignted to me. They have got enough people that\nthey ought to be able to answer that. Now, one\nother thing: this request of rifles for Canada,\nthat seems important. How hard are you hitting\nthat?\nYoung:\nHaven't done anything on it.\nH.M.Jr:\nWell,\nYoung:\nI wanted to--\nH.M.Jr:\nSupposing I forward your memorandum to Stimson?\nYoung:\nAll right.\nH.V.Jr:\nSay that this seems important, what can he do\nabout it.\nYoung:\nThe only reason I wanted to call that to your\nattention, or one of the principal reasons, was\nthat is not a recommendation of the United States-\nCanadian joint defense board. Now, we have got\nto get a tie-in there with what they are doing\nand what Canada and British Purchasing Commission\nRegraded Unclassifie\n13\n- 13 -\nare doing also. There is no coordination.\nM.M.Jr;\nSupposing you (Reporter) take this letter:\n\"Hy dear Mr. Stimson:\nI an forwarding herewith a memorandum from\nPhilip Young to me in regard to rifles for\nCanada. This seems very important to me and\nI would like to have your advice and help.\nMay I hear from you at an early date.\"\nDoes that fit in?\nYoung:\nYes, sir.\nB.K.Jr:\nNow, George, in the room here - I have been\ncatching up with my memos. Oh, if you would\nbring in the head of the Netherland Purchasing\nCommission, I would like to meet him.\nYoung:\nHe is in London at the moment talking with\nPurvise.\nH.M.Jr:\nGet him. (Laughter) Next time he is around.\nYoung:\nThat is a very interesting development. You\nhave van den Broek and Purvis and Howe all con-\nferring in London on evidently some sort of a\njoint purchasing effort.\nH.M.Jr:\nWell, I got a secret message this morning that\nPurvis will leave - I think this weekend for\nthe United States.\nYoung:\nThe sixteenth he was scheduled to leave.\nH.M.Jr:\nThe message says he will leave this weekend.\nNow, George, will you write a letter for me,\nunless Mr. Bell wants to do it in another way,\nto Leon Henderson who is worrying about every\nother person's responsibilities except his own,\nsee. I would like to draw to his attention\nRegraded Unclassified\n- 14 -\n14\nthese charts which you have sent me which show\nthat lumber is up sky high, What is he doing\nabout it? What is he doing about wool, hides,\ntallow, butter, wheat, and cocoa? Those seem\nto be the ones. I would say that they are all\nout of line. Isn't that worse?\nHaas:\nYes, those are the ones that made the greatest\nrise. There is some question about some of them,\nwhether anything should be done.\nH.M.Jr:\nWell, let's say,\"What do you think should be done,\nif anything, and what are you doing about it?\"\nDo you want to send him these two charts?\nHaas:\nOh, yes.\nH.M.Jr:\nWhy don't you send him these charts, the lumber\nchart and the other one.\nHaas:\nYes.\nH.M.Jr:\nAnd, George, it would make life easier for me\nif, instead of sending these things with about\nfive of these things on, you would put them in\na little book from now on. Any report, instead\nofpinning it up like this, if it could be in a\nlittle folder.\nHarry, do you seen any reason - oh, pardon, me,\nPasha. (Laughter) From now on, it is Pasha\nWhite.\nWhite:\nThat is very dangerous, Mr. Secretary. I was\nthinking that over, and I was thinking one of\nthe wits around here is liable to mention that\nto my wife. (Laughter)\nH.M.Jr:\nI hope you aren't getting personal.\nWhite:\nNo. I am afraid of what response there will be.\nShe will say, \"What does that stand for?\" and\nI can just see Ed Foley saying, \"That is short\nfor passionate, and the part thattroubles me\nRegraded Unclassified\n15\n- 15 -\nis my wife's response. (Laughter)\nWhite:\nMy wife is liable to say, \"Oh, yeah!\" (Laughter)\nLet's forget the nickname. It is really danger-\nous.\nYou were asking me about whether it was fair,\nwhat you just said about Leon Henderson?\nH.M.Jr:\nNo, advisable.\nWhite:\nOh, definitely. He is worrying about prices,\nMr. Secretary.\nH.M.Jr:\nAll right. We will just send it over.\nI didn't give George a chance to finish, and we\nhave got to give White a chance to recover, and\nme.\nWhite:\nThanks.\nH.M.Jr:\nYou don't even want me to tell them how the nick-\nname came around?\nWhite:\nI don't mind what you say, but some of them have\na way af adding on. It is unrecognizable by the\ntime it gets where it shouldn't. (Laughter)\nH.M.Jr:\nI will let Harry tell it to you in his own im-\npassioned manner. (Laughter)\nKlotz:\nThat was good.\nHaas:\nThe Boeing situation is interesting.\nH.M.Jr:\nI want to take this chart to the house.\nHaas:\nHere is all the other stuff (handing reports to\nSecretary).\nH.M.Jr:\nAll right, George. Yes, Dr. White.\nRegraded Unclassified\n16\n- 16 -\nWhite:\nThe Dutch East Indies have apparently come to\nan agreement with Japan on the oil arrangements.\nH.M.Jr:\nAll I want to S ay is, I can't help it. I have\nnot seen Kintner and Alsop or Pearson and Allen,\nand I don't expect to see them the rest of this\nweek, so if it appears Monday in their column,\nit is not my fault.\nWhite:\nYou mean you don't want me to tell you so you\nwill be able to run it down?\nH.M.Jr:\nNo, I mean on this Pasha White stuff.\nWhite:\nOh, they don't bother with such small fry.\nH.M.Jr:\nYou may be surprised. (Laughter)\nSullivan:\nMerry Christmas.\nWhite:\nLet's see, we were talking about oil. The Dutch\nEast Indies - the Japanese asked them for about\n25 million barrels, which is about what they\nneed. The Dutch East Indies companies, the\nAmerican and the others, offered them about a\nthird, which has been accepted, so that accord-\ning to current contracts, they will get about\n10 million barrels of oil on these contracts &\nyear.\nH.M.Jr:\nAs against what? What were they getting before?\nWhite:\nI have forgotten, but it was less than that. I\nhave forgotten how much less. It was less. I\nwill write this up in connection with the other\noil matter and have it for you when you come back.\nThere is a phrase here that I don't understand.\nI don't know whether it is important because maybe\nMerle Cochran could explain it. It says \"force\nmajeure\" applies. Does that mean if they don't\ndeliver, Japan can force them to deliver?\nCochran:\nThat is the way I understand it.\nRegraded Unclassified\n17\n- 17 -\nH.M.Jr:\nHarry, Walter Stewart tells me one of the\ngreatest authorities on oil and oil companies\nin this country, if not anywhere, is this SEC\nCommissioner.\nWhite:\nPike?\nFoley:\nYes, Sumner Pike.\nH.M.Jr:\nThat is field oil and oil companies.\nWhite:\nWe are ready for him to go into these South\nAmerican companies any time you are ready.\nH.M.Jr:\nJust call him up.\nWhite:\nI see, Also ask him about oil.\nH.M.Jr:\nYes.\nWhite:\nCanada has just imposed some new restrictions\non imports in an effort to conserve foreign\nexchange. They will hit our exports, particu-\nlarly, to the extent of about 50 or 60 million\ndollars a year, at present contemplated. Auto-\nmobiles and petroleum products, electric appli-\nances.\nH.M.Jr:\nWhat is our export?\nWhite:\nOur exports to Canada will be reduced. They\nhaven't touched fresh fruit, including applies,\nI suppose, because they said it is politically\nundesirable.\nH.M.Jr:\nAs a matter of fact, they export apples. They\nare not importing apples.\nWhite:\nThen I was wrong. Applies aren't included. That\nwas my own addition. It just says fresh fruit\nand vegetables.\nBell:\nClark said they might have to include fresh fruit.\nRegraded Unclassified\n18\n- 18 -\nH.M.Jr:\nAs a matter of fact, my apple grower friends\nare worried because they are duping so many of\ntheir Canadian applies in the United States.\nThey are not helping me at all.\nWhite:\nThere is a ltter here that you passed on from\nWelles indicating what is being done for Chile\nand also indicating that it is less than they\nhad hoped and wondering whether we couldn't\nre-examine the situation and see, in the light\nof the current situation, whether a little might\nnot be done for them.\nH.M.Jr:\nBring it up - let's make it for next Monday's\nstaff meeting.\nWhite:\nRight. That is all I have.\nH.M.Jr:\nAre you (Bell) going to see me before ten\ntwenty-five?\nBell:\nI am going to try to. I am going to try to get\nit out of New York. They started working at\neight thirty.\nH.M.Jr:\nWhile I an talking to Berkshire, you might slip\nout and then come back again, and we will go\nahead with foreign funds. I mean, while I am\ntalking to Berkshire, if you will slip out and\nget the dope.\nBell:\nIf it isn't ready, I should think you could say\nthat preliminary reports indicate that this\nissue has gone as well as any previous issue.\nFoley:\nI think if you could say that, it would be a\ngreat help.\nH.M.Jr:\nWell, I will tell you what I can say, because\nI had what's-his-name dictate it to Hadley last\nnight, that at five o'clock last night he com-\npared the subscriptions with the last five year\nnote and at five 'clock last night we had more\nRegraded Unclassified\n19\n- 19 -\nsubscriptions for this than the previous one\nwhich was also three-quarters of a percent.\nFoley:\nYes, that would be a big help. That was one\nof the things that Walker Stone wanted to know,\njust what the difference was in actual performance,\nbecause he thought that if we could demonstrate\nthat there was no real difference between a\npartially exempt and a wholly taxable security,\nit would go a long way toward overcoming some\nof the handicaps.\nH.M.Jr:\nWell, Bob Rouse gave ne that at five o'clock,\nand I said please dictate that over the tele-\nphone to Hadley, which he did, but at five\no'clock last night, compared with - when was\nthe last five year note?\nBell:\nLast December.\nH.M.Jr:\nThere were more subscriptions at the same time\nthan there were for last December.\nFoley:\nWould it have been the same, Mr. Secretary, if\nyou had offered it as a partially exempt?\nBell:\nIt might have been, but it could have gone down\nto five-eights, but it might have been the same\ncoupon rate, but the Secretary could have made\nit a little thinner and made it five-eights.\nH.M.Jr:\nYou mean this one, the one we just sold?\nBell:\nYes. You could have gone on a five-eights and\ngot twelve thirty-seconds.\nHaas:\nAbout eight, I think.\nH.M.Jr:\nWell, the whole Street had the price at seven-\neights.\nWhite:\nThat is speculative. You don't know if it was\nfive-eights, Dan, it might have gone to a little\nRegraded Unclassified\n20\n- 20 -\ndiscount.\nFoley:\nIt might have gone sour.\nBell:\nIt would have been a little too thin to put a\nfive-eights coupon. I think it would have been\nabout the same.\nFoley:\nI think, if you could say that, that would be\ngrand.\nH.M.Jr:\nThey would all jump on me, The New York Times,\nfor instance, have a little piece and say the\ngossip is that I could have priced the tax free\nnote at five-eights. Well, it would start a\nwhole argument. I an just going to say, \"These\nfellows don't know enough about it. It just\nwent as well as the last one.\nBell:\nAnd I think that is a good thing to say. I\nwouldn't go in too much but you got as many\nas you did last time because you have got a\ndifferent situation.\nH.M.Jr:\nWell, I would say it went just as well.\nBell:\nI think that is good. We will try to have some\nfigures.\nH.M.Jr:\nNorman?\nThompson:\nWe are planing to move Mr. Pehle's Foreign Funds\nsection over to the Raleigh Hotel.\nH.M.Jr:\nGood.\nBell:\nMay I tell you some more?\nH.M.Jr:\nPlease.\nBell:\nJesse Jones announced a loan yesterday to Argen-\ntina. Ambassador Espil called up and wanted to\nknow if you couldn't say something on the Treasury\nRegraded Unclassified\n21\n- 21 -\nend. I said I would speak to you, but I didn't\nthink we ought to do that at this time.\nH.M.Jr:\nNo. Now, if you want to go out and get that,\nI will have Berkshire come in and then if you\nwill come back, we will continue on foreign\nfunds.\nFoley:\nThey think that these fellows --\n(Mr. Bell left the conference and Mr. Berkshire\nentered)\nK.M.Jr:\nBerkshire, show them this sign (\"Serve Army and\nNavy Whiskey. James Moroney.\") which I picked\nup. I was shocked. I picked it up when I was\nup there. I think it is terrible. Now, what,\nunder the law, can you do?\nBerkshire:\nWe have, by wire, after I had the poster last\nnight, conceled the label first. There had been\nan old label issued by the Federal Alcohol Ad-\nministration in 1936 authorizing that whiskey\nto be labeled \"Army and Navy Brand whiskey.\"\nI find that later they advertised it as \"Army\nand Navy Whiskey.\" The FAA had cited them for\nthat, that is, the dropping of the word \"brand,\"\nand they had paid a fifty dollar offer - compromise\nof that violation. Now, this evidently is the\nnext that they have observed. They have dropped\nthe name \"brand\" again. That doesn't go to the\nbottom of the thing, I might say, Mr. Secretary.\nWe don't propose that they use this kind of a\nlabel even with the word \"brand\" there, and since\nthe FAA came over to the Unit, we had refused to\nissue Army and Navy Brand to sherry wines and\nsomething else. This I didn't know about. It\nwas the first I had heard, but we canceled that\nbrand, and we may, if this advertising material\nhas been disseminated outside of the State of\nPennsylvania - that is necessary, and my wire asks\nthat that be investigated. If it is disseminated\nbeyond the borders of the State of Pennsylvania,\nRegraded Unclassified\n22\n- 22 -\nwe may cite them and even revoke or suspend\ntheir permit.\nH.M.Jr:\nWell, couldn't I, B5 Secretary of the Treasury,\ntelegraph the Governor of Pennsylvania and ask\nthem to cooperate to stop this thing?\nBerkshire:\nYou should. I can't say what authority the\nGovernor of Pennsylvania would have in control-\ning a matter of this kind.\nR.S.Jr:\nWhat I thought of doing, and that is what I\nwanted your advice on - I mean, I an all right\non my law. I think that this is pretty shock-\ning. I didn't know whether you people thought\nit was wise or unwise for me, as Secretary of\nthe Treasury - I would like, for instance, at\nmy press conference to show this to the boys,\nand say, \"This is the kind of thing here the\nTreasury is not going to stand for, and that\nwe hope we will get public support on. This\nis the first thing of its kind I have seen, and\nthat I have seen it myself, and that we have\ntaken steps to cancel this brand. If You can\nsee - I didn't know that that was & brand name.\nWhen I saw \"Serve Army and Navy Rye Whiskey,\"\nI thought it meant to serve it to them. That\nis the way I read it.\nWhite:\nThat is the way I read it.\nFoley:\nYes, and then you have got \"for company attention\"\ndown there in quotes, too. What does it say\nover the name \"Moroney?\" On the left hand side.\nRlots:\n\"At holiday time.\"\nWhite:\nIt is specifically designed to convey an in-\npression of the prestige of the Government and\nSO on,\nH.M.Jr:\nWhat I thought, I would just 20 out and say to\nthe boys, \"I think that this is absolutely out-\nrageous. This is the kind of thing we want to\nRegraded Unclassified\n23\n- 23 -\nnip in the bud, and I want to do my part to\nsee that this kind of thing doesn't spread.\"\nWhite:\nI am wondering, Mr. Secretary, whether there\nmight not first be tried. to get in touch with\nthe people who have done it and merely request\nthem, talk it over with them. I have 8. little\nbit doubts about making--\nH.M.Jr:\nWell, they have done it, Harry.\nWhite:\nDo they know that you disapprove or that there\nis disapproval in the Government on it?\nH.M.Jr:\nWell, how are you going to let them know?\nWhite:\nWell, I would be inclined to let the Army and\nNavy take it up with them. I feel 8 little bit\n\"leery\" about clamping down on anything if it\nis within the law, even though it is of that\ncharacter.\nH.M.Jr:\nWell, it is 8. matter of taste.\nWhite:\nThat is why I think it should be done either\nthrough cooperation or let the Army and Navy\ncomplain. I don't feel strongly about it.\nSullivan:\nI agree with Harry in principle, but not in his\ntechnique. You have full authority. You don't\nneed cooperation from anybody. I think it is\nbeneath your dignity to go after a thing like\nthat. That is pretty small. And the whole\npurpose is accomplished by having Stewart re-\nvoke it. That is all there is to it. He has\nfull authority under the law. He doesn't need\ncooperation with the Army or the Navy or the\nGovernor of Pennsylvania or anybody.\nWhite:\nDoesn't he need a good legal reason for revoking\nit.\nSullivan:\nWhy certainly he does. He has got it. He has\nRegraded Unclassified\n- 24 -\n24\nto approve every bit of their--\nH.M.Jr:\nevery label--\nSullivan:\nof their labeling and everything else.\nH.M.Jr:\nI have got to go out in the field to check up\non you fellows.\nBerkshire:\nIt seems so, Mr. Secretary.\nH.M.Jr:\nWell, somebody certainly in Philadelphia - the\nSecretary of the Treasury has to go up and see\na thing like that and pull it off a sign post.\nBerkshire:\nIt certainly should have been picked up by our\nmen.\nH.M.Jr:\nThe question is, how much other obscene and\nstuff of bad taste is there like that going on\nin the United States.\nBerkshire:\nWell, Mr. Secretary, if we weren't on the watch\nconstantly, I can't imagine what might happen.\nH.M.Jr:\nWell, do you get copies of all advertisements.\nBerkshire:\nNo, sir. The law doesn't require that they\nget approval of advertised material. They must\nget approval of their labels, and then there\nare certain restrictions about their advertis-\ning matter. Unless they submit one for free\napproval, we don't have anything to say about\nit unless we just catch them.\nH.M.Jr:\nBell, I want to say at my press conference that\nI saw this advertisement, and I have taken the\nfirst steps to cancel the permit. Is that what\nyou call it?\nBerkshire:\nThe label approval.\nBell:\nWell, it was approved?\nRegraded Unclassified\n- 25 -\n25\nH.M.Jr:\nYes.\nThompson:\nThe label on the bottom hasn't the word \"brand.\"\nH.M.Jr:\nThey call it \"Army and Navy Brand, and then you\nsee they use the word \"serve\" - you see, it is\n\"Serve Army and Navy Rye Whiskey.\" You wouldn't\ndo it, if you were me?\nBell:\nI don't know, but I don't understand how it got\napproved. Do they have authority in the field\nto approve things like that?\nH.M.Jr:\nIt says, \"brand,\" but they just serve Army and\nNavy whiskey, for company attention.\nBell:\nEven what is on the label, \"Army and Navy Brand,\"\nI don't see how they got it.\nH.M.Jr:\nWell, it was approved by the old FAA. Do you\nsee any reason why I, as Secretary of the Treas-\nury--\nFoley:\nMr. Secretary, I don't think we ought to shoot\ntoday on this. I think you ought to give us a\nlittle time to look into it and make sure we\nare on good, sound grounds. I would like an\nopportunity to determine what constitutes a\nviolation and what our power is to summarily\nrevoke these permits. I am not prepared now\nto say that it is all right for you to go out\nand make this statement at a press conference.\nH.M.Jr:\nYou are not?\nFoley:\nNo.\nWhite:\nIt is a matter of morals involved there, Mr.\nSecretary.\nFoley:\nIt doesn't make any difference whether it is\ndone today or at your next one, and then we\nwill know 8. little more than we know now.\nRegraded Unclassified\n26\n- 26 -\nWhite:\nIt is a matter of morals involved, and I - I\ndon't know.\nBell:\nHow about him saying he is looking into it?\nSullivan:\nNo. What you are objecting to--\nKlotz:\nI think these fellows ought to be given a chance.\nAfter all, they are perfectly all right. Every-\nbody advertises that way. If they won't cooper-\nate then, I would say, Go after them,' but they\nhaven't been given a chance.\nFoley:\nMy reaction, Mrs. Klotz, is this: I think we\nought not to be objective or personal about this.\nI don't think we ought to single out one fellow.\nI think when we do it, we ought to put it on a\nhigher plane, and say, \"That this sort of ad-\nvertising, at a time when we are marshalling\nthe resources, the man power of this country,\nis the sort of thing that just can't go on.\nIt is unpatriotic, and it isn't compatible\nwith what we are doing. The Secretary of the\nTreasury is going to see to it that this kind\nof advertising and this sort of sales campaign\nfor liquor is not conducted anywhere within\nthe United States or anywhere in the vicinity\nof our training camps.\nH.M.Jr:\nThat is what I want to say.\nFoley:\nYes, but I think that we ought to put it on a\nbroader basis, and I think you ought to give us\na little chance to look into it.\nH.M.Jr:\nAll right, but also I think it just raises this\nwhole question of advertising and labeling and\nhow good are you since you have taken it over.\nBerkshire:\nMr. Secretary, we think we have pretty close\nsupervision over certain of the labels, because\nthere isn't one approved that doesn't go through\nthe office down here. Now, as far as that\nRegraded Unclassified\n- 27 -\n27\nadvertising is concerned--\nH.M.Jr:\nYes, but how about outstanding ones?\nBerkshire:\nWell, there isn't any way, of course, of condemn-\ning this liquor, and all of the liquor that is\nnow labeled \"Army and Navy\" must be sold that\nway.\nH.M.Jr:\nI will tell you what you haven't done, Berkshire.\nYou haven't made a review of the permits for\nlabels and advertising which were given prior\nto the time you took this thing over, have you?\nBerkshire:\nWe haven't gone back through all of those\nrecords.\nH.M.Jr:\nI am ordering you to do it now. I want you to\nbring in every label, every piece of advertis-\ning, and review it just the way we do in Inter-\nnal Revenue. I gave orders that every charitable\norganization that had been granted tax exemption,\nwe reviewed every single one, and each year they\nhave got to come in and prove that they have\nthat right. Now, I put this on the same basis,\nthat first you should review every single one\nthat has been issued, and then make a business\nof reviewing them once a year.\nBerkshire:\nWe can do that, all of the active ones. Of\ncourse there have been some three hundred labels\na day approved ever since the FAA went into\neffect.\nH.M.Jr:\nGo back - if you haven't'got enough help, get\nyour help, but go back and review every out-\nstanding label and every piece of advertisement\nthat has been issued prior to the time that you\ntook it over.\nBerkshire:\nWe can do that.\nH.M.Jr:\nBecause you don't know how many more things\nthere are.\nRegraded Unclassified\n28\n- 28 -\nBerkshire:\nThere isn't very much of this because they\npass through our office there.\nH.E.Jr:\nAnd what I would think of is getting in an\nadvisory committee of outsiders, sort of &\njury.\nBerkshire:\nWe denied this same label.\nH.M.Jr:\nDid you hear what I said?\nBerkshire:\nYes, sir.\nH.M.Jr:\nI would get a kind of a jury, get some women\non them and some people - get some women and\nsome men to represent the American nation,\nrepresent the League of Women Voters, some\ngroups like that. They could be a sort of\njury. They would love it. You don't have to\npay them. You should have done it long ago.\nThen you and Foley get together. Does this\ncome under Foley?\nFoley:\nSure.\nH.M.Jr:\nWe will have a report from Philadelphia about\nthis in the next two or three days, I am sure.\nFoley:\nMonday.\nBerkshire:\nYes, sir.\nH.M.Jr:\nO.K., Berkshire. I will see you Monday, Berkshire.\nWhat I am going to do, now, gents, on this frozen\nfunds, those who sat with me yesterday, we have\nadded Philip Young to the list. He said it would\nsolve 80 percent of his problems. We will meet\nagain at twelve o'clock. Frozen funds at twelve.\nI have got to see Bell.\nRegraded Unclassified\n29\nDecember 12, 1940\n10:27 a.m.\nWalter\nStewart:\nHello, Henry.\nH.M.Jr:\nHow are you?\nS:\nVery good, sir.\nH.M.Jr:\nWalter, on thinking over this question of\nasking your one organization to assist us on\nthis Federal tax study, 800, on second thought\nI agree with you. I think that it is something\nthat the Treasury ought to pay for itself.\nS:\nYou do think 807\nH.M.Jr:\nYes, I do.\n3:\nYou mean - just how will you set it up then?\nH.M.Jr:\nWell, we'd set it up just the same. I mean,\nwhoever comes down we'd pay it in the regular\nway. I mean, we can pay them $22.50 and $5.\na day, I mean, for the top men.\nS:\nRight. I think I'd do that until I got deeper\ninto it anyway.\nH.M.Jr:\nAnd Thompson tells me that we have money enough\nto do that.\nS:\nRight. All right, sir.\nH.M.Jr:\nSo I wanted to tell you that. On second\nthought I think we ought to do it.\n8:\nWell, then if you want me to be of any help\non personnel or something I'll be delighted\nto do it.\nH.M.Jr:\nWell, we certainly will. It was most helpful\nhaving you down.\nS:\nThanks very much.\nH.M.Jr:\nAll right.\n3:\nGood-bye.\nRegraded Unclassified\n30\nDecember 12, 1940\n11:14 a.m.\nH.M.Jr:\nHello.\nFiorello\nLaGuardia:\nHello, Mr. Secretary.\nH.M.Jr:\nHow are you?\nL:\nPretty good.\nH.M.Jr:\nI was Henry the other day. Why do you demote\nme?\nL:\n(Laughs). Maybe I have to be on my guard.\nH.M.Jr:\nOh, you never know. Look, I got word that you\nwere coming down either Monday, Tuesday or\nWednesday - going to have lunch with me Tuesday.\nL:\nNo, I've got the Canadian Commission. Let's\nsee, Monday and Tuesday I have the Canadian\nCommission.\nH.M.Jr:\nWhere?\nL:\nIn New York.\nH.M.Jr:\nOh. I understood from\n.....\nL:\nYeah, I thought Bo too. I was off my track.\nNow I could come down Wednesday for a very\nshort time.\nH.M.Jr:\nWell, do you want to come around noon?\nL:\nUh-huh.\nH.M.Jr:\nDo you like my lunches - you remember you\nkicked about it the last time you were here.\nL:\nYes. Suppose I take a 11 o'clock plane and\nthat will get me at the Air Port at 12:30.\nH.M.Jr:\nAnd then you'd come up here?\nL:\nAnd then I'd come right up there and then I'd\ncome right back.\nRegraded Unclassified\n31\n- 2 -\nH.M.Jr:\nSwell.\nL:\nAll right. Then I'll make that for Wednesday.\nH.M.Jr:\nThat'll be fine.\nL:\nYeah. They're raising hell all through the\ncountry on that.\nH.M.Jr:\nOn what.\nL:\nOn your proposed unconstitutional tax.\nH.M.Jr:\nI'm getting wonderful support.\n(\nL:\nYou are. (Laughs).\nH.M.Jr:\nYes, sir, from everywhere except Palm Beach.\nL:\nPalm Beach.\nH.M.Jr:\nYeah. They don't like it.\nL:\nAw, they haven't got anything down there.\nH.M.Jr:\nThey don't like it.\nL:\nThey're just\nH.M.Jr:\nYeah.\nL:\nAll right, 12:30 Wednesday.\nH.M.Jr:\nWell, you're plane gets in - you'll be here\nabout 12:45.\nL:\nYeah. The plane will be there at 12:30. Just\ngive me time to get to your office.\nH.M.Jr:\nAll right. I'll be waiting for you.\nL:\nThank you.\nRegraded Unclassified\n32\nDecember 12, 1940\n11:19 a.m.\nH.M.Jr:\nHello.\nOperator:\nForrestal.\nH.M.Jr:\nHello.\nJames\nForrestal:\nHello, Henry.\nH.M.Jr:\nJames, how are you?\nF:\nWell, a little bit dizzy.\nH.M.Jr:\nWell, ah - I was going to get off a wisecrack\nbut I - (laughe) - I was going to say I hope\nit isn't the blonde that's responsible.\nF:\n(Laughs).\nH.M.Jr:\nI've got these English fellows coming in at\n10:30 tomorrow morning to talk about why they\ndon't sell their stocks different and also\ntheir assets in this country, and I'd like very\nvery much to have you sit in.\nF:\n0. K., Henry.\nH.M.Jr:\nNow, I don't know whether your former boss\ntold you what he told me as to the damn fool\nway they've been selling their stuff.\nF:\nYeah.\nH.M.Jr:\nDid he feed that to you? Have you got all of\nthat?\nF:\nYeah.\nH.M.Jr:\nSo that you can dieh it out to them?\nF:\nYeah.\nH.M.Jr:\nWell, that's what I want you to do.\nF:\nAll right.\nRegraded Unclassified\n33\n- 2 -\nH.M.Jr:\nI mean, how for instance they whisper to a\nfellow - you get your security in one place\nand your money in another place?\nF:\nYeah.\nH.M.Jr:\nHe told you all that.\nF:\nYeah.\nH.M.Jr:\nAll right. And I'm going to try to have\nJerome Frank or somebody here from the S.E.C.\nF:\nO.K.\nH.M.Jr:\nBut I'm going to lay it right on the line and\nI need your help because you know this Wall\nStreet .....\nF:\nRacket. (Laughs).\nH.M.Jr:\nThank you, and I only know it by hearsay.\nF:\nWell, you know it good enough all right.\nH.M.Jr:\nBut I got along fine with Clarence Day\nand I liked him.\nF:\nWell, he's got a first-rate brain.\nH.M.Jr:\nYeah, and if you've got what he told me then\nI want to lay that right on the line.\nF:\n(Laughs). All right.\nH.M.Jr:\nYou've got it haven't you?\nF:\nWell, I think so, yes.\nH.M.Jr:\nYou might want to talk to him about it - Just\nhow he thinks that they've been making a fool\nof themselves up on the Street, and one of the\nthings that I want to get them to do is to\nas soon as they're out of an issue 1s to tell\nthe world.\nF:\nThat's right. Absolutely.\nRegraded Unclassified\n34\n- 3 -\nH.M.Jr:\nSee?\nF:\nThat's right.\nH.M.Jr:\nAnd also that the possibility of negotiating\nsome of these sales privately.\nF:\nYeah.\nH.M.Jr:\nWell, you be thinking about it, will you?\nF:\nWell, I'll probably talk to him sometime\ntonight.\nH.M.Jr:\nWill you do that?\nF:\nYeah.\nH.M.Jr:\n10:30.\nF:\nAll right, Henry.\n35\nDecember 12, 1940\n11:22 a.m.\nH.M.Jr:\nHello.\nOperator:\nChairman Frank.\nH.M.Jr:\nHello, Jerome.\nJerome\nFrank:\nHello.\nH.M.Jr:\nAre you back at work?\nF:\nOh, yes.\nH.M.Jr:\nOh, good. I got your message that you went\nafter the Trans-America suit.\nF:\noh, yes. We're having lots of fireworks now.\nH.M.Jr:\nGood for you.\nF;\nThey're probably going to refuse to comply\nwith a subpoena on a cock-eyed reason and\nwe're probably in the next day or 80 going to\nhave to go into court after them.\nH.M.Jr:\nI Bee. Jerome, the reason I'm calling you\nis the English are coming in here at 10:30\ntomorrow morning to have you and Forrestal\nand me tell them why we think they've been\nhandling their sales 80 badly because I feel\nthat very strongly. You remember you and I\nspent a lot of time with them and then they\ndidn't take any of our advice.\nF:\nNo.\nH.M.Jr:\nWell, I told them the other day that I thought\nthey had been handling it very badly and now\nthey're coming in at 10:30 tomorrow. Could\nyou be here?\nF:\nYes. Could I bring one of my men with me?\nH.M.Jr:\nWhich one?\nF:\nI'd like to bring Purcell.\nRegraded Unclassified\n36\n- 2 -\nH.M.Jr:\nYeah. That's the fellow you had the other\ntime.\nF:\nYeah, that's right.\nH.M.Jr:\nYeah, I think that would be helpful.\nF:\nAll right. 10:30.\nH.M.Jr:\nIf you please.\nF:\nAll right.\nH.M.Jr:\nThank you.\nRegraded Unclassified\n37\nDecember 12, 1940\n11:29 a.m.\nH.M.Jr:\nHello.\nCordell\nHull:\nHenry, this is about those Grecian planes.\nH.M.Jr:\nYeah.\nH:\nThe way I understood it we undertook to get\nthe British to put up 30 in the beginning\nwhich we wanted the Greeks to have and the\nBritish said they couldn't and anyhow the upshot\nwas we were to put up 15 of these 42's or\nsomething and the British 15 and they were to\ncome out of the British order.\nH.M.Jr:\nYeah.\nH:\nNow, the British step in to you and say here\nthese don't exactly fit in over there and we'll\nfind out whether - what you have got that they\ncan use and let you know.\nH.M.Jr:\nThat's right.\nH:\nWell, now, the British are taking the thing\nout of our hands in & sense Bo far as our\npledge to the Greeks are concerned and I'm\ntelling Mr. Murray and he's agreeing with me,\nin fact suggesting 1t, that we must make clear\nto the Greeks that we are not in any way welsh-\ning on our pledge, that we're not going to let\nthe British unless they and the Greeks with\nthe Greeks voluntarily agreeing on modifying\nour promise. We re not going to modify it\nourselves or go to the Greeks and say you can't\nuse this, you can't use that and so on and 80\non and .....\nH.M.Jr:\nWell, let me ask you this: has somebody for\nthis Administration promised the Greeks 30\nplanes?\nH:\nWell, I thought the Greeks were to have 30 -\nthey asked for 60 and somebody said they - there\nare so many people who are in on this, you know.\nWelles has been in on 1t, I've been in on it\nand Berle has been on it and you've been in on it\nRegraded Unclassified\n38\n- 2 -\nH.M.Jr:\nWell, we don't have to promise anybody anything.\nH:\nYes, well then .....\nH.M.Jr:\nWe ven't promised anybody anything.\nH:\nWell, anyhow - what I'm getting at is this:\nthat we don't want the British to come back\nand tell us that they have talked the Greeks\nout of this thing and leave the Greeks wondering\nif we haven't welshed on them in some way. Now,\nwe want to keep in touch with the Greeks. I\nthink that it's understood that we were to\nbe responsible for 12, I mean, 15 to go to\nthe Greeks and we want them to know that we\nare not trying in any sense to get out through\nanything that may be said to them by the\nBritish, that we stand by our promise.\nH.M.Jr:\nWell, I haven't contacted the Greeks. I've\nonly talked to your office - I've talked to you\nand to Stone, that's the only person I have\ntalked to. Now on the practical side they\nclaim, and it is very easy to ascertain it,\nthat this Curtiss P-40 cannot land in Greece\nbecause they haven't got the kind of airports\nthat this plane needs. This needs a smooth\nconcrete field to land in. You see?\nH:\nYes. Well, now, we want to get that from the\nGreeks.\nH.M.Jr:\nSo I made the suggestion to Stone last night\nthat what I told him of my conversation with\nthe British be immediately repeated to the\nGreek Minister here BO that he could check up\nas to whether the English were telling the\ntruth.\nH:\nYeah. Now, Murray is going to do that this\nmorning and send you a copy of his conversation.\nH.M.Jr:\nWell, who 18 Murray?\nH:\nHe's the head of the Near Eastern Division.\nH.M.Jr:\nWell, you and I are together because we're\nboth saying the same thing. I said that the\nRegraded Unclassified\n39\n- 3 -\nGreeks ought to be told that to make sure\nthat the English are telling the truth.\nH:\nThat's all. We don't want the Greeks to have\nthe least occasion for suspicion.\nH.M.Jr:\nI can get that but you agree that if what the\nEnglish say is true that it would be stupid\nto send a plane over that they couldn't use.\nH:\nYes, we are glad for the British to tell us\nanything, but we want the Greeks personally in\non it.\nH.M.Jr:\nI think that 16 perfect.\nH:\nYeah.\nH.M.Jr:\nI think that's perfect.\nH:\nYes. All right, Henry.\nRegraded Unclassified\n40\nDecember 12, 1940\nRee\nlints\n12:00 m.\nPres of 12/22\nRE FREEZING\nPresent:\nMr. Bell\nMr. White\nMr. Cochran\nMr. Graves\nMr. Young\nMr. Pehle\nMr. Wiley\nMr. Klaus\nMr. Bernstein\nMr. Foley\nH.M.Jr:\nNow, where do we go?\nPehle:\nHarry seems to be missing.\nH.M.Jr:\nWell, we won't wait. Go ahead.\nPehle:\nWell, on the point as to movements of Axis funds,\nI have a memorandum which points out some of the\nhigh-lights, things that have been gathered\nrecently.\nH.M.Jr:\nRead it out loud so that everybody can get it.\n(Mr. Pehle read memorandum which is Attachment 1)\nH.M.Jr:\nWell, the one thing which seems to be missing,\nin the first place, is how few cases you have,\nand the second thing is, what about that move-\nment of gold out of Portugal?\nCochran:\nI have a memorandum on that.\n(See Attachment 2)\nRegraded Unclassified\n41\n- 2 -\nH.M.Jr:\nWell, that ought to go here. Do you know about that?\nWhat is that?\nCochran:\nWell, we have gotten more gold here now than\ntheir Central Bank statement shows that they\nposess.\nH.M.Jr:\nThat ought to go on, Portugal.\nCochran:\nAnd the Federal has made some investigations of\nthat, and they are going to give us a list of\nthe different types of bars and so on that they\nhave.\nH.M.Jr:\nI think that was one of the most - how much\nmoney?\nCochran:\nAbout 70 million dollars. That is their total\ngold that they have over here now.\nH.M.Jr:\nHow much of that has come in the last two or three\nmonths?\nCochran:\nI will have to check up on that. We have had\n33 million dollars in gold shipped since\nOctober 2.\nH.M.Jr:\nThat ought to go into this thing. To me, that\nis one of the most - there is 33 million dollars\nhere, which can hire a lot of propagandists, if\nthat is German.\nWiley:\nMr. Secretary, it looks as if they have enough\nmoney already in Brazil to almost buy the\ngovernment and the armed forces.\nH.M.Jr:\nNot quite.\nWiley:\nIt is somewhere about a hundred million dollars.\nH.M.Jr:\nBut look at this thing coming out of Portugal.\nDid you know about that?\nRegraded Unclassified\n42\n- 3 -\nWiley:\nNo. The last I heard was that they had sus-\npended shipments of gold.\nPehle:\nThey are starting again, aren't they, Merle?\nH.M.Jr:\nI would add that, very definitely. Now, who\nelse was going to have things for me?\nBell:\nWhite. He was in my office at a conference,\nand he had to go to his office to get it.\nH.M.Jr:\nOh.\nCochran:\nYou asked me for several things.\nH.M.Jr:\nPlease, will you (Pehle) take this back and add\nPortugal on there.\nCochran:\nI have the statement from Sir Frederick Phillips\non their desires and the one from Clark describ-\ning the Canadian situation. I kept the one from\nSomary, which the men, most of them, have seen,\nbut which was submitted before this thing came up.\nH.M.Jr:\nWell, where are they?\nCochran:\nI have them right here.\nH.M.Jr:\nI would like to have them and take them home.\nCochran:\nAnd if you want this Portugese memorandum.\nBecause we are trying to find whether the Portu-\ngese treasury owns this gold. This is the one\nfrom Clark, here is the one from Phillips, and\nthis is the Somary memoranda, and this is the\nmemo the British sent us sometime ago telling\nus what they want if we put on exchange control\nin China.\nH.M.Jr:\nIs Phillips coming now?\nCochran:\nHe is coming at 12:30 and is going into my\noffice.\nRegraded Unclassified\n- 4 -\n43\nH.M.Jr:\nWho else has got some more work?\niley:\nHere is a little item of back ground, sir, that\nmight be helpful in talking to the Secretary\nof State.\n(Mr. White entered conference)\nWiley:\nThis is from the alien property custodian report\nof 1919: \"The relation between the German\nGovernment and the great German chemical houses\nwas so close that representatives of the indus-\ntry were naturally almost direct representa-\ntives of the government and their work in this\ncountry gave them unequalled opportunities for\nexamining our industries from within * #,\nAfter the war began the industry became a center\nnot only of espionage but of propaganda and of\ndirect governmental activity. The number of\nstriking instances of this development is so\ngreat that only a few can be detailed, but\nthese appear sufficiently striking * #.\"\n(See Attachment 3)\nWiley:\nNow, of course that should apply with equal\nforce to the possibilities of the present. Then\nwe have already got several items of interest\nwith regard to what is going on now: \"The FBI\nis watching the Dye Trust activities, especially\nsince two persons posing as aspirin salesmen in\nits employ were found actually to be engaged in\nsubversive or at least dubious activities in\nthe Western Hemisphere, including the carriage\nof secret codes (the Hoehne and Wolff cases).\n(Mr. Foley entered conference)\nWiley:\n\"2. Chemical Marketing Company and German Gold\nand Silver Refining Institute (Dr. Kertess and\nassociates) are undoubtedly engaged in activi-\nties close to espionage according to the Dies\nCommittee report.\nRegraded Unclassified\n- 5 -\n41\n\"3. Ufa Film. This is B. propaganda agency and\nis being used in connection with the Agfa Ansco\nfor taking pictures of military objectives in\nthe Western Hemisphere in the guise of producing\n\"educational films\" for consumption in Germany.\nThen German shipping facilities, they can be\naccepted as going into that work.\nThe German money forwarding agencies, Robert\nHautz and Company, New York and Chicago; Hans\nUtsch and Company, New York; Carl Marks and\nCompany, New York; etc., are believed clearly\nto need investigation.\nH.M.Jr:\nNow, I can't remember, but I know I have asked\neach one of you for something. Does that\nfinish you?\nWiley:\nA little later I will have something.\nH.M.Jr:\nFine. I will give you a call. Harry?\nWhite:\nYou asked for a description of the treatment of\nAmerican property interests by Germany, Japanese,\nCanada, and Italy.\nH.M.Jr:\nYes.\nWhite:\nI have it here. Would you like me to read the\nsummaries or just tell you?\nH.M.Jr:\nNo, I want to take it and read it at home.\nWhite:\nThe one on Italy, as I indicated before, is\nrather brief.\nH.M.Jr:\nHave you got anything else?\nWhite:\nThen you asked for a statement of the remittances\nby the--\nII.M.Jr:\nPost office.\nRegraded Unclassified\n45\n- 6 -\nWhite:\nYes. We had submitted those figures about two\nmonths ago. We got in touch with the Post\nOffice and the American Express Company to\nfind out that, and we brought them up to date\nas much as possible.\nH.V.Jr:\nI would like them all. I will take it all home\nand do the best I can.\nShite:\nAll right. There is a brief memorandum here on\nwhat the fund might do with regard to Latin\nAmerican relations.\nR.S.Jr:\nYou give all of that stuff that you prepared to\nMcKay and tell him to send it up to the house.\nWhite:\nRight. There is one thought that occurred to\nme that I don't think has been mentioned. I\nhaven't heard it mentioned. It just occurred\nto me today. With respect to the possibilities\nof controlling subversive activities in Latin\nAmerica through the extension of exchange control,\nall that information that we received of the\ntie-up between American concerns and others is\nvery comprehensive. There is E possibility that\nmight be worth thinking about, that where ex-\nports are sent to companies that this Govern-\nment doesn't approve of through agents, through\nthe extension of exchange control, you have an\ninstrument which you can use if you wish in that\nso as to get the changes made by the American\ncompanies if they don't see fit to cooperate\nthrough the ordinary channels.\nH.M.Jr:\nNow, does Mr. Wiley get those Nelson Rockefeller\nreports?\nWhite:\nI don't know. I have got them on my desk, and was\ngoing to - didn't know who they would go to.\nH.F.Jr:\nThe ones where he is looking into which American\nbusinesses are being--\nRegraded Unclassified\n- 7 -\n4S\nWhite:\nThat is right. I was going to give them to\nGaston.\nKlaus:\nWe got one set on Peru and a report from the\nState Department man.\nH.M.Jr:\nNo, Nelson Rockefeller.\nKlaus:\nHe sent them in. They were State Department\nreports.\nH.M.Jr:\nYou had better get together with White and make\nsure they are the same things.\nWhite:\nIf they haven't got them, I will make them avail-\nable.\nH.M.Jr:\nIt is something Rockefeller made available to\nme personally. I doubt if you have them.\nWhite:\nThey are very comprehensive. It is one of the\nbest jobs I have seen done on anything like\nthat. I was very much suprised at the amount\nof work they have done in a brief time of that\ncaliber.\nH.M.Jr:\nJust make sure, because it ought to flow into\nthem for digestion.\nWhite:\nI think it has great possibilities.\nH.M.Jr:\nWill you?\nWhite:\nI will do that.\nH.M.Jr:\nNow, just a second. Tomorrow morning at ten-\nthirty the English are coming in on their securi-\nties, and I would like to have you (Bell) here\nand White and you (Cochran). That is all that\nsits with me on England, isn't it?\nBell:\nI think that is all that has been in so far.\nWhite:\nYou wouldn't want to have one of the men in the\nSEC?\n47\n- 8 -\nM.M.Jr:\nYes. I an having Frank and Purcell.\n:\nOh, you are.\nR.C.Jr:\nYes, Frank and Purcell.\nCochran:\nAnd Clark just accepted. He will be here.\nR.H.Jr:\nGood. Now, there is, and we seem to have for-\ngotten it, & committee that is supposedly between\nthe State Department and the Treasury and in\nwhich you (Bell) represented me on this thing.\nYou remember when we were over there, we said\nwe would appoint a committee. Now, as you\nremember, who was it up to to call that meet-\ning.\nFell:\nHull.\nS.M.Jr:\nWas it up to Hull?\nBell:\nHe went out of the room, and you said, \"Bell\nis at your disposal, and we will wait until he\nhears from you, so he said, \"All right, I will\nget in touch with you in the next few days.\"\nAlso at the last Cabinet meeting I attended,\nthe President said that Mr. Hull \"has the\nSecretary's memorandum and he is supposed to\nget in touch with you in the next two or three\ndays. Mr. Hull said again, \"I will call you\nin the next few days.\"\nThen that is all right.\nBell:\nThat is the last I have heard of it.\nJr:\nNow, why is Philip Young here? How does he\ncome into this thing? In this thing, there are\nB. number of agencies - let's put it in this way.\nI am a exporter. Let's say we put on exchange\ncontrol. I want to sell & thousand dollars\nexport stuff, and the thing we have got to en-\nvisage - while you (Bell) are busy, if somebody\ncould take this who isn't overworked - it is\nan administrative matter - that this exporter\nRegraded Unclassified\n- 9 -\n48\ncould make an application, let's say to Foreign\nFunds, if that would be the place, and also all\nthe other things so that when he got a license\nhe wouldn't have to go to a half dozen agencies\nin Washington, see. Now, I think what we ought\nto do is, let's take the initiative so that this\nexporter - I mean, after all, if he has got to\ngo here, if he has got to go to Colonel Maxwell,\nif he has got to go to Joe Green - where else?\nYoung:\nIf it is a new order that has to be placed, it\nclears through my office, and we, in turn, clear\nit with Defense and War and Navy and State.\nH.M.Jr:\nWell, Harold, you are always quiet, so you never\nseen busy, although I know you are busy. This\nis EL strictly administrative matter. I mean\nthe machinery. You see what I mean. I wish\nyou would take on this thing, you see. You\nhave been studying Pehle's setup. Now study Ree Pres the\nbe set up so that this exporter, when he applies\nthe thing that Young can give you. How can it to of\nfor the funds, can get the whole works, 80 that 12-23\nhe doesn't - the poor fellow would wear himself\nout, so by the time he gets through, he would\nsay, \"Well, the hell with it, I would rather not\nsell it,\" see. It is administrative machinery,\nwhich you are a past master at.\nWhite:\nI think there is a way of doing it.\nH.M.Jr:\nWell, but I mean the question of the setup, and\nall that, and all you other fellows are mixed\nup with Argentine and China and God knows what\nelse, so I think, Phil, if you and Harold could\nget together, you see, and pour out your heart\nto him and tell him the troubles about the\nPriorties Committee, and McReynolds is in on\nthis too, but Mac tells me, when I ask him,\nthat he can't find out what Don Nelson is doing\nbecause Don Nelson won't let him see the forms\nthat he wants the President to sign, you see.\nWhite:\nI think that would be a remarkable development,\n49\n- 10 -\nif you could head that into one hand because\nthat is one of the difficulties they are hav-\ning in all the other countries, is that they\nare segregated, and there is a lot of red tape.\nH.M.Jr:\nWell, I mean Mac tells me that, and he says,\n\"Well, I will go down the hall and see Don Nelson\nand find out what he is doing.\" Well, that was\na week ago, but it is your old pal Mac. You\nknow Mac when he doesn't want to do something,\nthat is, you know him just as well as I do.\nBut I would like to - I don't say that it all\nshould be headed up in the Treasury, but I do\nsay that a manufacturer shouldn't have to go to\nthree different places to get an export license\nand B. permit for the money because they won't\nstand for it.\nWhite:\nThe policy cannot head up here. It shouldn't.\nThe administration absolutely would have to--\nH.M.Jr:\nNow, I am coming to that. I am glad you men-\ntioned it. The question of the machinery, I\nthink, ought to be here. Now, as to policy,\nthat is something else.\nWhite:\nThat is right.\nH.N.Jr:\nAnd what I think, the question of - the way I\nlook at it, whether a man should or shouldn't,\nthe high policy, I think, should be settled by\nState, Treasury, and Commerce, possibly War and\nNavy. But there ought to be those five Depart-\nments.\nBell:\nLeaving out the Defense Commission?\nWhite:\nThey don't need them, but they will get their\nfoot in.\nH.M.Jr:\nBut anyway, I am just thinking out loud, and as\nI say, somebody has got to carry this through\nadministratively, but I think certainly State,\nRegraded Unclassified\n- 11 -\n50\nTreasury, War, Navy, Commerce--\nI am not at all sure you want Mar and Navy on it,\nYoung:\nexcept in an advisory capacity.\nE.I.Jr:\nWell, after all, how are you going to tell\nwhether a machine tool should leave the country\nif the Navy says they need it.\nWhite:\nThey have got to be on it.\nE...Jr:\nOh, sure they have.\nI think one person from the National Defense.\nNow supposing a man is going to sit on Pri-\norities. He will say, \"Well, I need this\nmachine tool.\" Well, it is like the case you\n(Young) cited me the other day. They wanted\nto buy some boxcars - I may not have it exactly\nright - from South Africa and they wanted to\nplace the order in a factory that is now making\ntanks. Now, should South Africa be permitted to\nget an export license and be permitted to place\nthe order with a company who is making tenks?\nNow the question is the Priorities, and I think\nit would be Nelson who is the administrative\nhead of the Priorities Board. That is the way\nI feel as of today.\nWhite:\nHow about the Department of Justice in view of\nthe activities of the FBI and so on?\nH.M.Jr:\nNo. They are legal advisors.\nNow I am just throwing this out, you see. I\nam beginning to get in to the thing, just begin-\nning. How does it sound to you, Ed?\nFoley:\nAll right.\nH.M.Jr:\nWould that be two things: administrative\nmachinery in one spot, and then a board which\nwould sit once & week and fix the high policies\nas to what should or shouldn't go out.\nRegraded Unclassified\n51\n- 12 -\nFoley:\nYes. There are so many Departments involved in\nit you have to have an inter-departmental board,\nas far as policy is concerned.\nH.M.Jr:\nAnd that would really be a board of economic\nwarfare.\nFoley:\nThat is right, and if you had the administration\nhere where the policy that was determined would\nbe carried out and not sabotaged--\nWhite:\nAnd another thing the administration would break\ndown if the administration has to determine the\npolicy alone.\nH.M.Jr:\nWell, I wouldn't take the responsibility, Harry.\nWhite:\nNo, I don't think you should, but if you can\nsegregate the two, the better job the policy\nboard does, the simpler the administration,\nand it can be very effectively done, I think,\nand done with much less red tape than elsewhere.\nH.M.Jr:\nAnd not done by personal hunches the way it is\nnow. I mean the best example is in the room\nhere, Mr. Hull tells me that somebody, he doesn't\nknow who, has given the Greeks their word of\nhonor that we are going to give them 15 Curtiss\nP-40's, and the English are going to give them\n15. I said, \"Well, who gave them that word?\"\nHe said, \"I don't know, somebody did.\" And\neverybody else tries to scramble around and make\ngood on it, and the British say positively that\nthe Curtiss P-40 can't be flown by a Greek\nbecause he doesn't know how to fly it, and in\nthe second place there is no field where they\ncan land it, because they need an absolutely\nperfect landing field. Otherwise, it is a\nbeautiful idea.\nWhite:\nI think that policy committee would have to be\nof Cabinet rank, Mr. Secretary.\nH.M.Jr:\nOh, definitely.\nRegraded Unclassified\n- 13 -\n52\nWhite:\nThey could have subcommittees to deal with\nany technical material.\nH.M.Jr:\nHow do you like that, just pulling it out of\nthe air? I dreamed it. Did you dream it?\nWhite:\nI think that is a perfect plan and an essential\nplan.\nH.M.Jr:\nDid you dream it, Harry?\nWhite:\nNo, I didn't dream much last night. (Laughter)\n(Discussion off the record)\nH.M.Jr:\nPhilip, you have given a lot of thought to this.\nDoes this at all fall into what you have been\ngroping for?\nYoung:\nYes, sir, it does. You will find an ardent\nsupporter for that scheme in Berle. He and\nI have talked about exactly the same sort of a\nplan, of a coordinating committee at the top\nwith the administration centralized, which he\nis very enthusiastic about and also very anxious\nthat the administration be carried on in the\nTreasury.\nH.M.Jr:\nYes, but I mean this would fall into - I haven't\ngiven you a chance to pour out your heart on this,\nbut would this be along the lines that you have\nbeen thinking?\nYoung:\nYes, exactly, because, at the present time, you\nhave four clearances that a foreign supplier\nhas to go through. Joe Green, technically under\nthe neutrality act; Maxwell, in the interest of\ndefense, representating the President; my office\nfor the placement of an order before even a con-\ntract can be signed, and frozen funds where you\nrun into it at the moment or everywhere if ex-\nchange control is put on. Our difficulty is in\nkeeping control over foreign orders which may\ncome into the category of strategic items or\nwar supplies, the boundary line being very\nRegraded Unclassified\n- 14 -\n53\nshadowy. Where they come through the hands of\nimport firms and agents over whom you have no\ncontrol, because the original setup for our\noffice was to deal directly with the foreign\ngovernment, and you have all of these purchases\nin instances where you don't have purchasing\nmissions or accredited representatives coming\nthrough all sorts of different ways.\nH.M.Jr:\nHarold, you see there are these four agencies,\nand I think the argument for the Treasury doing\nit is - after all we have Customs, which can be\nused to reverse - I mean they could be used to\nsupervise stuff going out as well as coming in.\nWe have Coast Guard to stop the boat from leaving\nif we don't want it to. We have complete con-\ntrol of all ports now through the port captains.\nWe have - we issue a license before a ship can\nsail through our ship control. We issue the\nlicenses for the money, so the machinery, the\npolicing and all that, I think, belongs here.\nGraves:\nIs this contingent upon the extension of the\nforeign funds control to the uncovered areas,\nor is it a separate proposition in your mind?\nH.M.Jr:\nNo, what I would do - what I am thinking of,\nif I was going to do this for the President,\nI would lay the whole thing before him so he\ncould do it all at once, freeze the funds,\nset up this thing, and the whole thing would\nbe explained.\nGraves:\nBut they do hang together?\nH.M.Jr:\nDefinitely.\nBell:\nBut this other thing was in the mill before the\nextension of foreign funds came up. You have\nbeen talking about this with Philip, how it\ncould be separated and still work.\nH.M.Jr:\nYes, but if I am going to do this, why not let's\ndo a good job for the President, and also it\nRegraded Unclassified\n- 15 -\n54\nkind of takes the curse off the foreign funds\nbusiness. It doesn't stick out like a sore\nthumb.\nBull:\nI think if a decision were made not to go any\nfurther on freezing foreign funds, you still\nmight want to do this.\nE.C.Jr:\nThat is right.\nBell:\nIn order to get the loose ends together.\nM.M.Jr:\nI didn't understand, but I think this is defi-\nnitely something which needs a smooth running\nmachine, and Harold is the fellow to do it.\nWhite:\nIsn't there an additional reason why it should\nbe in the Treasury Department, Mr. Secretary?\nThe State Department after all is the important\nDepartment that shapes foreign policy.\nH.M.Jr:\nRight.\nWhite:\nAnd it seems to me that there should be & seg-\nregation between the shaping of policy which\ncorresponds to legislation, the legislative\nbranch of the Government, and the administration\nbranch of the Government, those who execute the\npolicy. In that way you get both a counter-check\nand the division of labor lends for efficiency;\nand, I think, for that reason alone - and those\nare the only two Departments who could possibly\nhandle it. For that reason alone, it should be\nhere.\nI.M.Jr:\nHarold, what I would like you to do - I didn't\nmean to shut you off.\nWhite:\nNo, I an through.\nH.M.Jr:\nDo you like the way I am approaching this now?\nBell:\nVery much.\nRegraded Unclassified\n- 16 -\n55\nH.H.Jr:\nWhat I would like you to do is, anybody that\nyou (Graves) don't know, and I think the person\nwhose work you likely know the least about is\nYoung. Get that. I would get hold of McReynolds\nnot later than tomorrow and give him a sketch\nof this thing 50 that he doesn't go off on some\nangle before it is too late, and then tell him\nthat we want to work with him on this, you see.\nGet to Mac not later than tomorrow.\nGraves:\nRight.\nH.M.Jr:\nAnd tell him quite frankly just what we have in\nmind.\nWhite:\nWould you want this to get out before you inform\nthe President.\nH.M.Jr:\nWell, McReynolds is administrative assistant to\nthe President. Any orders have to flow through\nhim anyway.\nWhite:\nThat is the channel?\nH.M.Jr:\nYes. Administrative orders have to be set up\nby McReynolds for the President.\nWhite:\nBut you weren't thinking of McReynolds taking it\nup with the Council of Defense first.\nH.M.Jr:\nIn his capacity as administrative assistant, as\na man who draws up these orders, isn't that right?\nGraves:\nThat is right.\nH.M.Jr:\nAnd is a Treasury employee on leave--\nBell:\nHe has already discussed one phase of it with\nDon Nelson.\nH.M.Jr:\nI know, but the thing is all sixes and sevens.\nNow, if it could be done in a nice adminis-\ntrative package, the whole thing would have an\nappeal to the President, and he would say, \"Well,\nRegraded Unclassified\n56\n- 17 -\nthis makes sense.\" What do you think, Wiley?\nWiley:\nSounds all right to me.\nM.M.Jr:\nNothing in here but what it would be much easier\nfor you to work. Well, Harold, get your teeth\ninto this thing. Is anybody, from an administre-\ntive standpoint, unhappy about this?\nCochran:\nJust the one thing. You would consult with State\nand Commerce on this business of extending the\nfreezing before you tried to put it in--\nII..Jr:\nOh--\nCochran:\nThat is my only reservation.\n.....Jr:\nThey way I would do it now, if I were going to\ndo it, I would consult with Mr. Hull after we\nhave the whole package rather than a piece of\nit.\nCochran:\nBut give him 8. chance to give his O.K. before\nit goes to the President.\nM.M.Jr:\nOh, sure, but I don't want to - I wasn't happy\nto walk over just on this thing, but the way\nI Bill talking and thinking, it secms to me that\nthat is something that might appeal to Mr. Hull\nand to anybody else who is interested. I mean,\non this basis, after we go along 8. little Tur-\nther - you see, I will keep pushing it.\nWhite:\nThere is one consideration that is not quite\nclear, Mr. Secretary. Luch of what you are\nspeaking of in the exchange would not apply to\npresent controls, SO that it really has point\nonly if there is some extension because the\nkind of problems that come bafore Philip and\nthe other groups do not apply to most of the\ncountries with which we freeze the funds, so\nthat the kind of problems that they would con-\ntend with, it seems to ne, depends largely\nupon the prior assumption that it is zoin to\nRegraded Unclassified\n- 18 -\n57\nbe extended into other areas. Otherwise, the\norganization doesn't have much point with the\nkind of problems that are confronting it now.\nH.N.Jr:\nBut this puts the whole thing together. It is\na vast, important problem, and the President can\nsee it and whereas a man withdraws from taking\naction because he is afraid of the administra-\ntive end of it, he will say, \"I can do this.\nThis is all right. This will work.\"\nO.K., gents, I hope you all have a nice after-\nnoon.\nNOTROUTS or AXIS JUNDS\n58\nTRANSFIRS TO SOUTH AMERICA. It is reported that since September soss\n$4,600,000 of German funds have bom transferred to South American banks,\nand that approximately $2,300,000 has returned from Argentina and Pera to\nthe account of the Reichabank in Too York. During: the - period there vas\ntransferred from Italian assomia in the United States approximately\n$13,000,000 to South incrios, of which $10,000,000 vest to the Italian\nRoberty in Brasil from the Italian Foreign Imlange Central Tunis in You Terk\nand in addition, $4,500,000 MM and in ask by courier. As & result of\nrecent return transfers of Less than $1,000,000 the net amount of Italian\nfunds transferred to latin America since September anomis to more then\n$16,000,000. Recent information indicates that the Bank of leasil expects\nto reseive $10,000,000 for credit to a Jupenese assess M part of the\nJapanese program designed to centralise dollar enclungs operations of the\nToknhama Specie Bank with the Tank of Brasil.\nGERMAN runns. The flow of Gurna funds in this country appears principally\nto have been to the accounts of Swedish banks here, $1,500,000 being trans-\nforred to such assocate from Gream abcounts since November 25. About\n$1,350,000 is known to have born transferred to Swine accounts here, while\n$750,000 has returned from Buies to Garman accounts. Cash withdrawale from\nGerman consular accounts since December 1 have anounted to $850,000.\nof this amount $650,000 was vithirawn W the Censul General in New York,\nwho paid $530,000 to cover interest payments n German bonds. The remining\n$120,000 is apparently still in the consulate. The Bernan Tubseay in\nVashington recently reseived $200,000 w draft from the Reichobank, Berlin,\nand obtained this amount in notes of $20 to $1,000 demoninations. There is\n- indication that eash deposite are being mão by the Relahsbank by way\nof South America, National City Bank having resently reseived $180,000 w\nthis mothod.\nITALIAN runds. Transfers of Italian funds, excluding those to South America,\nhave been principally to Spanish, Swedish, and American assomite and treasfers\nfrom Sundish to Italian assomis have been noted. It has also boen recently\nreported that the Italian Attache at Tokyo has carried $800,000 is American\ncurrency from Shanghai to Japan. Further reporte indicate that substantial\nItalian Government funds have been converted into eash which is being kept\non diplomatic premises.\nJAPANESE FUNDS. Japanese Institute, Inc., a Japanase cultural organization,\nis known to have been reseiving its principal Income from the Japancee Consul\nGeneral in New York. The various Infence consular officers throughout the\nWorld are apparently being supplied with funds from the Japanese consuler\naccounts with the Bank of America.\nRegraded Unclassified\n2\nC\n59\n0\nP\nY\nDecember 9, 1940\nMr. Cochran\nMr. Hawkey\nSubject: Gold shipped here by and for\naccount of the Bank of Portugal.\nMore than $70 million in gold has arrived here from Portugal\nsince the beginning of July, 1940, shipped by and for account of the\nBank of Portugal. Since all of the gold was earmarked upon arrival\nin New York, that Bank's gold balance here rose from $30.1 million\nas of July 3 to $109.8 million at the clost of December 5. (About\n$6.0 million of this increase resulted from the purchase of gold\nfrom the U. S. Stabilization Fund.)\nOn October 10, I wrote you a memorandum in which comparison was\nmade between the Bank's gold in New York and the asset item\n\"Encaisse-or\" (gold coin and bullion) on the Bank's own weekly\nstatement. At that time, the most recent statement available was\ndated August 21, and it could not be asserted definitely that the\nBank's gold in New York was of B. greater value than its \"Encaisse-or.\"\nWe have now received the Bank's statement as of October 2,\nlisting an \"Encaisse-or\" of $69.1 million. On the same date, its\ngold balance in New York amounted to $70.5 million and since October\n2, the Bank of Portugal has shipped another $33.3 million in gold\nto New York. (All of this has arrived: there is no gold in transit\nat present.) We have no \"encaisse-or\" figure available for dates\nsubsequent to October 2, but since this item has moved upward less\nthan $2.0 million in the past six years, it is very likely that\nlittle or no change has taken place since early October.\nThe foregoing information is tabulated below (in millions of\ndollars):\nImports for\nGold bal-\n\"Encaisse-\nacct. of Bk.\nance here\nor\" 3/\nPeriod-1940\nof Port. 1/\n(At end of each period)\n$30.1 (July 3)\n$68.8 (July 3)\nJuly 4 - 31\n$ 7.1\n37.8\n68.9\nAug. 1 - Sept. 4\n16.7\n55.3\n68.9\nSept. 5 - Oct. 2\n15.2\n70.5\n69.1\nOct. 3 - 31\n21.1\n97.6\n(69.1) Carried\nRegraded Unclassified\n60\n- 2 -\nNov. 1 - Dec. 5\n12.2\n109.8\n(69.1) Forward\nAll from Portugal, except $1.4 million from England in July.\nDuring October, the Bank of Portugal also purchased $6.0 million\nin gold from the U. S. Fund.\n3/ According to 1931 law, the Bank values its gold at .066567 fine\ngrams per escudo; conversion of escudo value into dollars hence\nmade at the rate of $.0748 per escudo.\nThe apparent conclusion is that the Bank of Portugal has sent\nto the United States at least $33.3 million of gold not shown in\nits \"Encaisse-or\". Since only $14.6 million of Bank of Portugal\ngold arrived here during the first half of 1940 (of which $2.1\nmillion came from Portugal and about $12.5 million from England),\nit may be further concluded that most of the \"extra\" gold was shipped\nin the past five months.\nThis \"extra\" gold may be any of the following:\n1) The Bank of Portugal's own gold. In addition to the gold\nlisted under \"Incaisse-or\", there is a reason to believe\nthat the Bank carries some gold in its asset item \"Dispon-\nibilittesor a l'etranger et autres reserves\" (liquid gold\nexchange assets abroad and other reserves). Here is some\nevidence: in the week ended March 20, 1940, the Bank purchased\nslightly less than $5.0 million in gold from the U. S. Fund\nin order to strengthen its gold reserves. In that week, its\n\"Incaisse-or\" changed not even 8 fraction of one escudo.\n\"Disponibilities, etc.\", however, rose $4.9 million (using the\nrate of $.0749)\nAbout a year ago, the largest amount of gold that could\nhave been included under \"Disponsibilities, etc\". was $22.0\nmillion. In the Bank's statement for December 30, 1939, this\nitem was valued at 536.3 million escudos. Examination of the\nBank's annual report for 1939 reveals that 242.2 million\nescudos of the above represented the Bank's holdings of the\nGovernment of Portugal's 3% sterling obligations. Therefore,\nthe maximum amount of gold that could have been included under\nthis item was 294.1 million escudos worth, or $22.0 million.\n(The Bank's holdings of dollars were negligible at that time.)\n2) Gold held by the Portuguese Treasury. The Federal Reserve\nRegraded Unclassified\n-3-\n61\nBulletin, in its table \"Gold Reserves of Central Banks and\nGovernments\", uses only the Bank's \"Incaisse-or\" figure,\nconverted at $.0748. But the Portuguese Bank's annual report\nfor 1939 shows a table of the Treasury's liquid assets at the\nend of November, 1939, wherein appeared 430.2 million escudos\nworth of gold in bars, equivalent to $32.2 million.\nFor all we know, the Bank of Portugal may have exchanged\nits holdings of Portuguese Government sterling bonds for\nTreasury gold, shipping the latter to New York.\n3) Gold of some foreign bank or government, in the shipment and\nearmarking of which the Bank of Portugal acted really as\nintermediary. Unless we receive further evidence that 8\nthird party's interest was involved, it would seem inad-\nvisable to question the Bank of Portugal for what appear to\nbe shipments of \"extra\" gold. The information presented under\nthe preceding two points suggests that Portugal does own gold\nbeyond that shown in the \"Encaisse-or\" asset item of the\nPortuguese Bank statement. Regarding the markings on gold\nbars already shipped here, from Portugal, I think you will\nagree that these cannot be offered as proof of ownership, since\nmany Continental assay marks constitute good delivery in\nEurope's gold markets.\n#The dollar funds used in this purchase were remitted to the\nFederal by various banks in New York. Indication that the\nBank of Portugal acquired such dollars during that same week\nis given in the Bank's statement, wherein Portuguese bank\ndeposits at the Bank of Portugal rose 100 million escudos, or\nslightly more than $4. million.\nRegraded Unclassified\n62\nRegraded ev Unclassified\nA partial list of corporations of subversive activity 07 of\ncensealing assets subject to freesing:\nAs Japanase. Mr. White has estimated that our assets in Japan are\naround $200,000,000. Obviously our bargaining position with regard to\nJapan my term an the concealment of substantial assets by Japanese is\nthe United States.\n1. Tekeheme Specie Bank. This Bank has breaches in New York, Hawaii\nand Sep Francisco, is controlled by the Japanese government, and has at-\nready been found to have filed false reports consealing about $100,000,000\nin assets from American banking authorities.\na. Mitoubishi Bank, Led., New York.\n8. Missui Bank, Ltd., Now York.\n4. Bank of Chosen, lieu York.\n8. Sendtome Bank, Ltd., New Yerk.\n6. Bank of Taisan, Ltd., New York.\n7. Eyede Wire Insurance 00., Ltd., New York.\na. Meiji Fire Insurance Go., Ltd., New York.\n9. Mippen Pire Insurance Go., Ltd., Homolulu.\n20. Tokyo Marine and Fire Insurance Do., Ltd., Nov York.\n11. Iwai and Company, Led., New York (impart and export).\n12. Marimure Brothers, Inc., New York (impert).\n19. Mitsubishi Shoji Kaisha, Ltd., New York (impert and export).\n16. Tenancial of Company, Ltd., Osaka, Japen (dealore is are goods\nwith then Customs has had difficulties).\n63\n- 2 -\n15. Nagoya Seite Kaisha, Ltd., New York (chineware).\n16. Mitsui and Company, Ltd., New York (trading in commodities).\n17. Nissho Company, Ltd., New York (import and export).\n18. Fuso Marine and Pire Insurance Co., Ltd., New York.\n19. Temacho and Company, Ltd., Beattle (import and export).\n(All of the above have been incorporated in Japan, but are doing\nbusiness in the United States. The 1939 tax returns in many of the above\ncases show alleged locass.)\n20. Among the large accounts being monitored by FBI is Shows Teache\nKaisha, which in New York City shows balances in excess of $500,000.\nIn addition there are Japamese banks in Hawaii (two or three) and the\nPhilippines which are apparently viewed with suspicion by FBI.\nB. Gorman. German controlled corporations which are more or less nb-\nject to suspicion include the following:\n1. German Dye Trust. This consists of a group of corporations,\nincluding General Analine and Film Corporation and subsidiaries some of which\nare as follows:\nAgfa Ansee.\nAgfa Raw Film Corporation.\nOsalid Corporation.\nWinthrey Chemical Company (80 per cent).\nAmerican Magnesium Corporation (80 per east).\nRegraded Unclassified\n64\n- 3 -\nThis group was described as far back at the last way (Alien Prop-\ncrty Custodian report, 1919) as follows:\n\"The relation between the German Government and the\ngreat German chemical houses was # clese that represents-\ntives of the industry were naturally almost direct repre-\nsentatives of the government and their work in this country\ngave them unequalled opportunities for examining our 100\ndustries from within : After the war began the\nindustry become a center net only of espionage but of\npropaganda and of direct governmental activity. The number\nof striking instemees of this development is ⑉ greet that\nonly a few can be detailed, but these appear sufficiently\nstriking . . \",\"\nThe FBI is watching the Dye Trust activities, especially since\ntwo persons posing M aspirin salemen in its employ 1020 found actually to\nbe engaged in subversive or at least dubious activities in the Testern Hende-\nphere, including the carriage of secret codes (the liochne at Welff casse).\ns. Chemical Marketing Company at Come Gold and Silver Befining\nInstitute (Dr. Kerbese end associates) are undoubtodly engaged in activities\nclose to espiemage ascording to the Dies Committee report.\n5. Ura Film. This 10 a propaganda agency at 10 being used in\nconnection with the Agfa Assee for taking pictures of military objectives\nin the Western Hemisphere in the guise of producing \"educational filme\"\nfor consumption in Germany.\n4. German Shipping at Tourist Agencies (HAPAD, North German\nLloyd, German Railroads Information).\na. German Money Forwarding Agencies (Robert Hants and Company,\nNew York and Chicago: Same Utesh and Company, See Yesh: Carl Marks and Date\npasty, New York; etc.)\nRegraded Unclassified\n65\n- 4 -\n6. Dures Plastics and Chemical Company, North Tonovanda, New York.\nFBI is interested in this company.\n7. Pilot Reinsurance Company, 70 Pine Street, New York. Forty-six\nper cent of the stock 18 owned by non-resident German aliens worth $1,240,000.\ns. Allgemeine Klektricitats Gesellschaft, Berlin.\nC. Italy. Italian banks represent the chief subject of interest with\nregard to Italy. They are controlled by the Italian Exchange Institute and\ntheir transections as reported to us have been multifarious and mysterious.\nThey include the following:\n1. Banes Commerciale Italians, New York agency (a foreign or\nporation)\na. Credite Italians, New York agency,\n5. The subsidiaries of the Italian Exchange Institute, such as\nthe Bance di Napoli Trust Company, Nov York and Chicago, and the Bease -\nmerciale Italiana branches. The you has been observing these banks. The\nresident alien president of the Benes di Mapoli, Chicago, w recently die-\ncharged by the Italian Archange Institute for not being sufficiently pro-\nFascist.\n4. The General Insurance Company, Led., Trieste. This company 10\nbeing watched by British Intalligence at 10 engaged is mysterious financial\ntransactions in the United States through at individual and Hernth, resid-\ning in the Hotel Pennsylvania, New Yerk.\nRegraded Unclassified\n66\n- 8 -\nB. Do Mobile Cigar Company, Brooklyn, New York, is Italiam wa-\ntwolled; paid dividends to non-resident Italians in 1939 of about $88,000 with\na stock value of $1,546,000.\nD. Switserland. The largest amount of payments to non-resident aliens\nin non-frosen Continental Europe today 10 in Swiss names. It is believed\nthat the largest portion of this is Geman (for comple, I. 0. Farben).\nThe Electrolux Corporation 10 a suspect company. Thirty-seven\nper cont of the total outstanding stock 10 represented by dividends to\nnon-resident aliens with Swine addresses. The FBI has been watching the\nSuede, Arel Weaner Grean (owner of the yesht SOUTHERN CROSS), of this our\nporation very closely. The company has 331 brench offices manufacturing\nand selling THERE excepers etc.\nOther Swies companies that might bear emmination are Hoffman-\nLaReche, Inc., of Matley, New Jersey, paying dividends to Swice names above-\ning a stock value of over $5,000,000 Sendes Chemical Works, New York City,\npaying dividends to a company in Basle, Suitserland, showing stock worth\nabout $1,500,000; Syar Distributing Company of Nashville, Teansses, paying\ndividends to one Adalyh Geneg, Durich, with stock valued at $1,314,000; ore.\nSK:von - 12/12/40 - - 5\nRegraded Unclassified\n4\n67\nThere are undoubtedly types of reprehensible activity not made oriminal\nby any statute and which 4. regine of foreign exchange control would probably\nnot affect in any direct way. For example, the employment by the Glenn Martin\nplant of substantial members of persons suspected of being Mest sympathisers;\nagainst this FBI has apparently been unable to do enything today and in the\nabsence of action by the plant itself nothing further of a remedial nature\ncan apparently be expected. A twilight sone existe with regard to American\nenterprises and funds used for pro-Axis purposes-en example, perhaps, 10 the\nalleged fortune of Whitehead, deceased operater of the Cose Cola bostling\nbusiness.\nThe following are some transactions which have already taken place over\nwhich the Treasury would have & ascaure of control in the event of the insti-\ntusion of a foreign exchange centrol regise.\n1. Une of American dollar balances (frequently in surrency) in 1745\nactions involving alleged repatriation of German securities held in this\ncountry. It has been estimated by Mr. White's division that during the month\nof October and the first two vocks of November $15,000,000 in eash alone was\nspent repurchasing $75,000,000 par value of German bonds as a misimm 0811-\nmate, amounting to about 60 per cent of all German dollar bonds held is the\nUnited States. Under a regine of fereign exchange control we would know more\nabout the precise purpose of such transactions (the British have intercepted\novidence that this has to do with German preparation for an appearment pro-\n(7th in the United States at the continuence of the fraudulent bankruptcy\nprogram involving a cheap depletion of United States bargaining power by\nvay of off-sets). It also appears from FBI reports that German refuges\nRegraded Unclassified\n63\n- 1 -\nin this country are being used in acas of these transactions (for example,\nJakeb Goldschmidt, A.E.B. Corporation) and that in this connection these\ntransactions are being used to cover up the salting essy of funds for\nother purposes, possibly subversive (for example, FBI's discovery of\nMargaret Goyl, a stooge for Hermann Kollmar, and the Transfer Trues Limited's\nactivities in Mexico City).\n1. The Rueckwanderer mark system involves the probable dispoiling of\nthe life sevings of large numbers of gullible Germans in this country for\nverious ends (the Chase National Bank alone from July through October handled\n$1,160,000 of this kind). Today nothing 18 being done to stop this (although\n\" have turned the matter over to the FBI) but under & system of foreign\nexchange control this fraud upon residents of this country could be promptly\nstopped. Related to this is the feed package recket also indulged in by the\nRussians.\n8. Aria powers are reseiving reyalties on American patents and sopyrights\nin substantial - but are refusing to make any payments except in blocked\naccounts to imericans in similar eircumstances. Under the proposed regime\nthis might premptly become a natier for negotiation.\n4. amounts of surrency are being shuttled between this and\nother countries for activities largely subversive. The amount of money ear-\nried by Italian couriers to South American 18, as any realist know, sufficient\nto purchase the allegiance of persons of the highest importance in these cour-\ntries, sad the American dollar is undoubtedly being used as the surrency of\npayment for activities against our interests throughout the world. The pro-\nRegraded Unclassified\n69\n- $ -\nposse regine could prevent cash from being paid out of bank accounts to such\ndiplomate and could be used for diplomatic demarches to prevent importation\nor exportation abuses.\n5. Payment and receipt of remittences from Seviet sources, undoubtodly\nfor Communist purposes, are me entirely lewful and have taken place in -\nstential amounts. The proposed regine would provent this.\n6. Payments by consulates, embassies, serporations, end individuals\nfalling under the inhibitions of foreign exchange control could be serutinized.\nToday the Chemical Marketing Company and other organizations of the kind No\nforred to in the Dies Committee White Paper\" would be subjected to class\nserutiny.\n7. Transfers of credits emounting to flight of And credits to Latin\nAmerica to be used undoubtedly, however, within the United States by gradual\nrepatriation in currency or disguised credit transactions are me teking place.\nThe Italians, for instance, are reported to have in this name? built up a\nbalance in Rie of m less than $10,000,000. The Japanese end Germans are\ndoing the same, The purpose of these activities is to place beyond our ⑉\ntrol all these runde. In view, however, of the feet that dollar creation\nsources remain in the United States a regine of foreign change centrol,\nsuch as is propesed, would provent a continuance of this practice; and 1%\nmight over smable us to centrol the repatriation, bewever disguised.\nSK:ven - 12/12/40 - - 5\nRegraded Unclassified\n7\n70\nEXCHANGE CONTROL\nArswing\n72\nDesember 12, 1940\nMr. thite\nMr. Dee\nsubject: Treatment of American property interests by Cernany, Japan, Canada\nand Italy\n4.\n1. American of brench plants in Commany have not been per-\nmitted to control the management or personnel of these plants.\n2. American of direct investments in Germany have not been\npermitted to collect dividends - their direct investments.\n3. incrison - of bended investment have not been permitted to\nreceive the full interest and amartination - these investasets,\nnore than half of which have been is complete defealt. Probably\nnore than $700 million of clear less has been taken by terrican\nbandhalders.\nhe American long-term investors have been discriminated against in\nfavor of investors from countries politically related to Germany\nor free countries which had sufficient control over international\ntransactions to be able to retaliste.\n5. American private citizens who vare suarded over 8600 million by\nthe Ittmed Claims Commission have not been permitted to sellect\non these claims from Cerreny.\n6. American owers of short-torm claims on Germany have been per-\nnitted to withdraw them only over a 10-year poried and have suffered\nconsiderable leases en three claims.\nOur total claims - dermany, shirt-term and long-torm, excluding war\ndebta, are about $350 million.\nThe total claims of Commany en the United States are less than $100 million.\n(Both of there totals the areas nov occupied by Dermany.)\n3. Iss\n1. The - is the exercise of their foreign amazonge centrol\nand collateral regulations have canced esuaiderable damage to\ninterests is the For East.\n(a) Lim\n(1) American assete have been from. st the discretion\nof the Japanese Government, is met CADGE American\nbusiness have been allowed to withdraw their earnings.\nRegraded Unclassified\n73\n- 2 -\nDivision of Monutary\nResearch\n(2) The Japanese Deverment, through its foreign trade\ncontrols, has aliminated all importe of American\nexcept these vitally necessary u their\nwe effort.\n(3) American enterprises in Japan are discriminated\nagainst and pressure is brought to curtail their\nactivities.\n(b) In Manchmria\n(1) The Japanese system of foreign exchange centrol and\nstate nonopolies has practically climinated American\nenterprise from the field.\n(2) The foreign exchange centrol is administered to\ndiscourage importe from the United States and\nother non-Japaness controlled countries.\n(e) In North China\n(1) As the Japanese tighten their hold upon Morth\nChina similar regulations directed against\nAmericans have become increasingly severe.\n2. American investments in Japan have a neminal value of & quarter\nof & billion dollars. Since these are fromes their astual value\nis deubtful. While enaller, the Japanese investment of $1.50 att-\nlien in the United States 18 crucially important to Japam M 10\nrepresents about half of Japan's foreign exchange reserves.\n(There is appended a longer discussion of the injurious effects of the\nJapanese exchange control.)\nc. Italy\nItalian exchange centrel has been more lenient 02 American industrialists\nand investors than that of Germany.\n1. The Italians have serviced the greater part of their U.S.\ndollar bends.\n2. Short-term assets have been withdrawable with little diffi-\nonly. However, the total of these assets has been mall.\n3. Regular resittances of dividends and profits to the United States\nhas been profitable since 1935, but there have been & number\nof special examptions.\n(Total Averican heldings in Italy are under $140 million. Italian\nholdings in this country are 690 million.)\nRegraded Unclassified\n74\nDivision of Monstary\n- 3\nResearch\nD. Canada\nCanadian exchange central is mash less hersh with respect to\nthe United States than the centrols of the Ande powers. but the\nfollowing restrictions may be noticed:\n1. Balances hold prior to the was cannot be withirem by\nincrisons at the official rate.\n2. withdrawal of profits required 30 days' notice before\na permit is issued,\n3. Importe from the United States in excess of 825 require\n6 permit. Certain categories of goods are prehibited\nand others restricted.\n4. Proceeds from the sale of securities held prior to the\nwar may not be withdrawn at the official rate.\n5. Insurance companies mut declare their heldings of\nforeign exchange.\n6. American companies must nake a monthly report of\noperations and submit to periodis emaminations.\nIn this commestion, it is only fair to list the activities which\ncan be engaged is by American property - in Canada and which\nwould net be permitted under the Avis type of exchange control.\nAmericans can withdraw interest and dividents on Canadian investants.\nBrench plants can conduct business freely with parent company in the\nUnited States. American investors can withdraw DEV funds in foreign\nexchange. incrican residents in Canada on held and dispose of foreign\ncurrency and securities. Returning Americans may withdraw foreign\nexchange which they brought in, and goods up to 8100. Americans\nmay sell foreign or demostic securities to the United States. American\nbalances my be used freely within Canada. Comittments by insurance\ncompanies to pay in foreign exchange are being honored as respects\nAmericans. United States life insurance companies are permitted to\nde business as usual.\n(There is appended a lenger report on the organisation of the\nCanadian exchange control system.)\nVFC:esh\n12/12/40\nRegraded Unclassified\nGermany\nDivision of Monetary\nResearch\nto\nIff. lite\nDecember 11, 1940\n1900\nMr. Used\nDubject Cermac Exchange Control and American Interests.\njumary\n1. The Germans have for many years exercised an exchange control vis-a-via\nthe United States which has cost this country and its nationals hundreds of\nmillions of dollars. They are now using this central to damage this nation not\nonly in its external relations but also in its internal affairs. Mitherto, the\nmjor damage has been effected through German control exercised over American-\nowned assets in Germany and other areas: more recently the use of the foreign\nexchange control over Dersan-owned dollar assets in the United States has been\nthe souree of injury. Specifically the effects of the German Exchange Control\nas it has been exercised with respect to the United States are as follows\n2. The greatest lesses inflicted on American property interests by Germany\nhave been borne by those Americans who, during the 1920's, invested liberally\nin the reconstruction of German industry, both through the purchase of long-term\nGerman dollar bonde and through the establishment of modern branch plants in\nGermany.\n3. Under the liast Regime, United States holdings of Derman dollar bonde\nhave been reduced from a face value of approximately $1,100 million to & face\nvalue of approximately 875 million. Considerably more than half of this redue-\ntion, probably over 6700 million, represents a elear loss by the American\nbondbolders.\n4. When the National Socialists came into power in Germany, American\nbranch plants in that country had an estimated value of over $260 million. There\nhas been very little repatriation of this investment, tut st has gradually become\nalmost valueless for practical purposes. Since the widdle of 1933, transfer of\ndividends has been permitted only intermittently and only to a few favored -\ncerns. The American parent company, in most cases, receives no dividends, has\nno control over management and personnel, and 1s not permitted to receive informe-\ntion concerning the details of operations. Ownership has been reduced to the\nthinnest legal fietion.\n5- At the end of 1930, Americans held about 0925 million of short-term\nclaims on Germany. Today the value of our outstanding short-term claims is\nless than 050 million. This reduction was not achieved thout considerable\nlosses to the American creditors, though the short-term ereditors fared sush\nbetter than the owners of Cerman dollar bonds or the owners of direct invest-\nsente in Germany.\n6. About 61,275 million is the Derman Government's indebtedness to the\nGovernment of the United States. Over $600 million of this represents awards\nof the Mixed Claims Commission to American private citizens. These totals are\nexclusive of the debts to the United States Government of other countries which\nGermany has occupied and amount to the Reich.\nRegraded Unclassified\n77\nDivision of Monetary\n- 2 -\nResearch\nRegraded Unclassified\n9. The National Socialist Covernment has discriminated against American\nlong-term investors ever since 1933. Several other countries, who either had\ncloss political time with Germany or were in a position to retalists by taking\nover German assets of by eliminating - - of importe from Germany, was\nable to get specially favorable cottlements. The United States was unable to\nsecure equal treatment for American creditors. lione of the former American lease\nhas been serviced in full and nore than half have been in complete default. Tes\nvirtually all Dateh and Juice leans, and the English Dame and Young loans, wore\nserviced in full up to the authoresk of mr.\n8. Since 1933, when the last Government defaulted en transfers of bend\ninterest and amertisation, ostensibly because dollars were scaree, Germany has\nrepurchased approximately & billion dellars face value of United States-bald\nGerman dellar bonds, at a cost of between $200 and 6250 million. Dellars, of\nwhich there 4 seareity when 10 - & question of meeting legitimate oblign-\ntions, apparently became plentiful when there w an opportunity to repurchase\nthere came obligations at the low prices which were the direct result of Derman\nGovernment policy.\n9. Since September, 1940, the Insi Government, with avonued political unde,\nhas accelerated the repatriation program by repurshases of a face momt of\napproximately 675 million of United States-hold German dollar banda. the purpose\nof these repurchases, all avowed by German agents, is to strengthen the position\nof Germany at the Peese Conference by subling her to min a cheep gesture of\nagreeing to service all her international obligations in full. German control\nover United States preperty, is all the area today under her jurisdiction, is\nalso regarded as - instrument of M eventual all-rease settlement with the\nUnited States. The withdrewal of all German liquid caseta from this country,\nor their consealment in the accounts of other sountries, serve the - purpose.\n10. In recent months, German officials in the United Dates have carried\n- a large part of their financial transactions in eash, presenably to prevent\nthe detection of Improper disbursements or to build up secret in care\nGerman balances are blocked. In tide way, the unrestprecated freedom wideh W\nafford to the use of German dollar balances enables the German Government to\nfinance activities directed against our national interests, without perious\ndanger of detection.\n11. The Germane are in a position to utilise every losphele and every\nlicensed area in our our foreign funds control insefar of our foreign funds\ncontrol ⑉ be persuaded to release French or other funds to Latin America,\nto Switnerland, to Seeden and other countries. The Gersons are given the\nopportunity through intermediaries in the case of Latin America and through\ncommie and politival ocereien in the case of countries adjacent to Commany\nto sequire the dollars which w free.\n12. German-controlled direct investments in to United States constitute\n8 formidable source of direct influence by the Gurman Government over certain\nAmerican industries. Im addition, the widespread influence of German-ocutrolled\n78\nDivision of Monetary\nI\n- 3 -\ncapital, and certain German individuals, in - domestically controlled indus-\ntries makes possible the exertien of German influence in quarters not super-\nficially apparent. Germany also controls many industrial processes in the\nUnited States, - of which are vital to National Defense, through patent\nholdings and licenses.\n13. German investments and the activities of German nationals in the\nUnited States are strictly centrolled by the Mast Government. is long as the\nUnited States Government fails to establish its em system of central over\nGerman assets, it permits the Masi Government a the hand here. The alternatives\nare not freedom versus control but German control versus American centrol.\n00 tmg\n12/11/40\nRegraded Unclassified\n79\nDivision of Numbery\n- & -\nResearch\nCarger receive and sectrol.\nPersign exchange centrol - first adopted in Germany ea July 16, 1931,\nas 8 result of the covere financial crisis of that year. Prom that date on,\nthe commonic life of Germany and the position of the foreign crediter has been\nsubject to increasingly rigerous government central. Long before the outbreak\nof war, the Cerses Government had assend complete eastrol over international\ntransections of all kindes without the permission of the proper authorities,\nDE treasfere abroad of payments for importe, for foreign dobt service, for\nprefits, rente, # reyalties, or cepital withdressal might be made. The regula-\ntime governing such permission were complex, the use which might be made of\nany Reichemarks belonging to, or accordag no, foreigners being dependent upon\nthe specific origin of these balances.\nPermission to transfer Reichmark funds or claims into foreign currently is\ngranted or withheld according to the commonde, political and strategie policies\nof the Germen Government. For exemple, substantial amo of foreign exclunge\nhave been paid to certain countries with when Germany either was in a poor\nbargaining position, or found 10 desirable to maintain very good relations. In\nthe case of the United states, elmest the only transfers permitted were payments\nfor current importations into Gernery from the United States, and even here a\nlarge propartion of our total experts to Commany could eally be name by scoopting\nvarious forms of blocked balances.\nGerman restrictions on international emital transporting.\nThe system of regulations which the German Government our up to control\ncepital asvanents was repidly expended after 1993 to ester every conseivable\ntransaction and plug every loak wherely capital might essape the country. the\nGerman authorities are erned with valimited authority and the regulations have\nbeen adopted with great vigue be take account of new developments is\ncommis position. Additions, subtractions, and exceptions to the rules are\nfroquent, and a complete description of the regins at any time would be our of\ndate before it could be compiled. the following description 10 intended only\nto illustrate the scops end nothed of the German regulations; any specific vales\nor examples sentioned may have been experseded.\nifter June 1933, the Gestann Government required that interest, dividends,\ncapital payments, and rests resulting from foreign is Commany -\nbe paid in Reichmarke into the Conversion office for Gereen Persign Date to\nthe credit of the foreign crediter. Standstill agreement debte and Income from\nempital sequired after 1931 with free foreign exchange were emeryted from this\nrequirement. The Conversion Office Lossed to foreign creditors men-interest\nbearing Reichanark certificates w interest-bearing bonds in the currenty of the\noriginal claim. Alternatively, the anomis paid into the Conversion office could\nbe transferred to Mested accounts in the foreign exchange besin, there they could\nbe drown a for cortain limited purposes. Copital papaymento could be made only\ninto special blocked secumber which could be expended for certain spostfied\nlimited purposs.\nRegraded Unclassified\n80\n- 5 -\nDivision of Mometary\nResearch\nRegraded Unclassified\nis a result of the severe restrictions - transfer payments, 4 large\nnumber of blocked mark accounts were opened in the German banke authorised to\naccept and associate. German debtate is meet cases were permitted to discharge\ntheir obligations to foreigners by payments into these accounts, may of which\nare still held, shile others have been used chiefly for investment in certain\nsecurities and real estate in Certify or for payment for German experts. Elocked\nmarks could also be sold to other foreignare, but the was of such asquired marks\nwro even more restricted than the uses of the original assounts, and -\nquently they could be sold only at a heavy discount.\nIn addition to the rigorous regulation of financial transastions, the\nGerman Government also bas imposed direct restrictions since the outbreak of\nwar en the expert of commedities from Germany. These restrictions are a further\nobstasle to the liquidation of American assore in Germany.\nDiscrimination U.S. holders of German dellar bendy.\nSince 1933 the National Socialist Government has discriminated against\nAmerican leng-term creditors. Up until I'me of that year Germany had ml is\nfull the interest and amortisation charges - her foreign bonds. not a July 1,\n1933, Gerasey premiented a law relieving German debitere of the obligation to pay\nis foreign surrencies and requiring them to pay their fored.go obligations in\nreichemarks into the conversion office. lines that time, - of the former\nGerman dollar bondshhave been fully serviced is this country and nare than half\nhave been is complete default.\nYes the Detah and Indian creditors were able to collect virtually the\nwhole of the interest due these they 0970 able to reach auch as agreement\nbecause of Owner's favorable balance of trade with Holland and Switeerland.\nThis VAI clearly & discrimination against the incriom creditors. And is 1934\nthe British Deverment was able to obtain fall service a British heldings of\nthe Dame and Terms leans) they vers able to reash such an agreement by PASSA\nof & Law expewering the British Government to take retalistery action against\nGerman trade. The United States, however, had & strong favorable balance of\ntrade with and emeoquently ⑉ net able to bring effective presenze\non the German Government with respect to these leans. The have been\nservicing about 75 persont of the payments due - the American haldings of\nthose leas. This procedure also slearly discriminated against the American\nwediters.\nFurthermore, although the Need Government defmulted a transfers of bed\ninterest and martisation, ortensibly because dellars 05/1 peareo, -\nhas reperchased approximately - billism dellars fase talse of UnitedStates-\nheld German dellar bands at a sect of between $200 and $250 million.\n81\nDivision of Nome tary\n- 6 -\nResearch\nThis repatriation of Carmen dollar bonde was stimulated by special\nmeasures undertaken by the Certer Government. After 1933 default by German\ndebiers and official restrictions on service transfers staresd caused the price\nof German bonds held abroad to fall severely. On the German market prices\nreceived relatively high. The German Government book advantage of this differ-\nential to inetitute - system of \"supplementary exports\". by this wethod German\nexportere sould buy dollar bonds with part of the proceeds of their exports,\nand then could register them for sale at the higher prices prevailing is Gernany,\nThose, dollars, which were scaree when 11 was I question of meeting legitimate\nobligations, wore plentiful when 1% was a question of saking American beadhelders\nindirectly may for German exports.\nFince 1940, however, Wasi Government has accelerated the repatriation\nprogram for avoved political ends. It has repurchased 8 face amount of\napproximately $75 million of United States-held German dellar bands at a cools\nof about 820 million. Two German agents alone, acting privately for the German\nGovernment have received $15 million since October 10 for the express purpose\nof making these repurchases. The purpose of these repurchases, M avound by\nthese Cereas agents, 10 to strangthen the position of Germany at the Posce\nConference by enabling her to nate a geoture of agreeing to service all wher\ninternational obligations in full. Here again dollars which were scares when\n10 one 4. question of meeting legitimate obligations became plentiful when 11\nwas e question of realizing German political ends.\nInjury to American-owned direct investments in Cerumar.\nThe value of American direct invostments in Gerenay has been estimated by\nthe Department of Commorce at about $264 million as of the end of 1933. \"\npresent the book value of these investments is about $225 million. However,\nthis figure of 8225 million is deubly fletitions. On the - hand, these\ninvestments are at the newst practically valualess to their medinal imerican\nowners because they yield no transferable interest or dividends. On the other\nhand, the back value of American direct investments under German centrol has new\nbeen more than doubled by the extension of Gorman control over the larger part\nof Continental Europe.\nAlready American sepital and managing personnel are being eliminated from\nenterprises in all the occupied area-from Pranos to Rusends.\nResent experience in humanie still comes fresh to the mind. In that\ncountry, ae Feen as the Germans sequired complete economic emiral, with the\nadvent of General inteneses to power, American-owned subsidiaries began to\npass into Garman bands. For instance, the director-gemeral of the American-\nowned Societa Amendum Roman de Telefons, a $90 millice subsidiary of the\nInternational Telephone and Telegraph Company, was permaded be agree be s\ndemand of the Irem Guard for a reorganisation of the Telefona's directorship.\nThe Irea Ceard thereupen named a special commissear to supervise the telephone\nRegraded Unclassified\n82\nRegraded Unclassified\nMvisism of Honetary\n- 7 -\nResearch\ncompany's activities. On Ostober 11, 1940, the commissar took over centrol of\nthe company, and it was announced that Iron Ouard understrudies would be solected\nto take over all the nost important executive posts. Also, on December 4, 2940,\na decree announced the expropriation of all the orude eil and gaseline lines,\ntogether with pumping stations and tank farms, of the Rousno-Americans, & company\nowned by the Standard 011 Company of New Jersey. Payment for the exprepriated\nproperty will be made in bends to be mortized in 25 years and carrying interest\nat , percent. Similarly the International Business Machine advidiary in\nRumania was confronted with the alternative either to accept a commisser or to\nreplace American managers by Germans, and to relinquich part of their share-\nheldings to German interests.\nShort-term investments and the standstill agreements.\nDuring the late 1920's American short-term capital named in large volume\nto Europe, principally to Germany. In 1930, American short-term claims an\nGermany totalled about $925 million.\nThe severe financial crisis of the number of 1931 convinced Germany's\nforeign commercial creditors that any attempt at general liquidation of their\ncomercial credits to Cermany would lead to # collepse of German industry.\nA Standstill Agreement was reached between a condittee of the foreign bankers\nand a consittes representing the Reichabank and the German backers. the\nforeign benkers agreed to maintain the existing volume of short-tom credits\nwhich had already been extended to German firms. In return the German banks\nprovided certain guarantees of the regular payment of interest and agreed to\ncertain previsione which permitted the gradual reduction of the extetending\ncredits. The Agreement bas been renewed each year since 1932.\nAbout $486 million of American boat leans WN covered by the first\nStandstill Agreement. Be estimates are at hand for the volues at that time\nof short-term credite not covered by the agreement, but they probably were\nseveral hundred millions.\nThe arount (in marks) due the incrican bankers under the Agreement has\nbeen steadily reduced since 1931. This reduction has been the result of three\nfactors\n1. Cansellation of unceed credit lines.\n2. Repayments through the sale of Travel marks.\n3. Develuation of the dellar.\nby March 1939 the movent outstanding The mly 065 million. In Suptember\n1934 the agreement was emeelled, but - December 9, 1939, - of the heries\nbeaks reached a - agreement covering about 846 million of credits. Per the\npost three years, credito not covered by the Standstill Agreement have been &\nmall and shrinking frestion of all Incrican short-torm credits to Germany.\nat the end of 1938, the Agreement covered $71 million out of a total of about\n090 million. Our latest Treasury figures show a total of only about 845 millies\nis U.S. short-taym claims ⑉ Commany.\n83\n6\nDivision of lionotary\nBaccareb\nInternevernentel\ndebt.\nThe mounts ared the United States Devernment by the Derman Devertment\nrepresent the cost of the American Army of Decupation and the amade of\nthe Mixed Claims Commission. On June 30, 1940, the total value of these\ndobts, including principle and accumulated interest, VISA 81,264 million.\nThe last payments, of about $1,250 thousand, - these debta were\nreceived in 1934. This brought the total paid to about 434 million.\nSince 1934 Sermany has been in complete default.\nTo these debts of the Ourman Deverment wast now be added the debie\noved to the Government of the United States w the countries which Commany\nhas occupted.\nDoe of Cornen Dollar Recources for Inproper Activities in the Prited States\nA common tochnique currently being used by Germany to finance improper\nactivities in the United States is the cocuralation of large cash balances\nwhich can be disbursed fee various subversive perposes without leaving\ntraces behind.\nAccording to reports from the Federal Puress of Investigation, bills\ntraced recently by serial numbers from the account of the Germen consulate\nla les York City are Incm to have been received by firms and organizations\nsupported of being engaged in propagands activities.\nThat this device of using eash assorate for undersover purpose is\nemealy being reserted to is attested by the fellowing exempless\n(2) on Desember 4, 1940, the German Schesey withdraw $200,000\nin each from its account. All of this was to bills of $1,000\n:\ndemonination or smaller.\n(2) In the last for menths, the German Commiste General in Bes York\noccured - $1,000,000 in cash. & detober 14, 11 withdrew\n$400,000 in eash; on November 19, $30,000; as November 25,\n$20,000; - December 2, $650,000.\n(3) Frite Wiedeman, when be assumed the Ownewlate in\nSm Francisco, opened - account with a local bank W depositing,\nreportedly, 05 million.\nDetran October 2, 1940, and the middle of November, it has been\nsubmited that Gerean bank funds in this country have dropped from appread-\nmately $13,200,000 to $7,700,000. The freeden of notion which these\ntransastions represent is hardly resiprocated by Generary N for no incricen\nfunds is Nasi-hold territory are concerned.\nMission\n12/11/60\nRegraded Unclassified\nR1\nDivision of Monetary\n- 9 -\nResearch\nGerman astempte to circumstant our formign funds control.\nThe Cermane have ant up various devices whereby they attempt to\ncircument the foreign funds control which we have established with regard\nto the compted countries. in recent senths, they have affected important\ntrade and remittance transactions, in which nationals of the countries sub-\njoot to licensing have an interest, through interesdieries in Latin invoice,\nsiberia, Adtserland, Portugal and Spain. For example, the Surich branch of\nan Alentian bank has cabled 6 liew York bank stating that they can effect\npayments syst: of considerable amounts against dollars in New York, both in\nuncompied and in the occupted French Lerritory. This ties up with the\nannouncement of the German Consul-Osneral in San Francisco that resitioness\ncould be made to France and other countries whose funds have been blocked by\ntransfers through this ties York bank. Again, & New York fire has been\ncooperating with a Fresich fire in the occupied sone in oveding our foreign\nfunds control by facilitating payments for perfumes in Mexico and Switserland.\nIn another case, an exte controlled benie in the Argentine odvertises that\n18 has established a regular payments service for France. Although there is\nnothing irregular in transfers from this bank to France, yet the purpose of\nthese transfers to clear. Cne can effectively evade the centrols by remitting\nFunds to agents in the Argentine who, in their tarn, regit these funds to\nFrance.\nGerman influence in imerican industry.\nThe direct investments of Cermany in the Enited States, clus the direct\ninvestments in the United States of those countries over which Oarmany has\nmontrol, pake Mast influence in some United States industries of considerable\nimportance. The General Aniline and yilm Corporation of you York is a good\nexample of a Berman-controlled firs which has AD important place in one of\nthe large industries of this country, vis., the chemical industry.\nThe extent of Corman influence en industries in this country ie greater,\nhowever, than indicated nerely by the anount of derman-controlled direct\ninvestments here. Yor example, General Aniline and Film Corporation (which\nis indirectly owned by I. 0. Farben, the Cerman dye trust) has considerable\ninvestments in Standard 011 of New Jersey, in sterling Products, Ins., and\n10 E. I. du Pant de Nameurs and Co. Purthermors, many of the officers and\ndirectore of General Aniline and Film are officers and directors of large\ndemestically-centrelled corporations. Idsel Ford, holds the position\nof director in General Aniline and Film as well w the position of officer\nand director in several other well-known demestic fine. The presence of such\ninterlocking directorates can hardly fail to eshance the magnitude of German\ninfluence in American infustries.\nIn still another way, the presence of Kasi control in United States\nindustry manifests itself. In 1937, Germany hald 37 persont of all foreign\nheld United Itstes patents. Not only is this patent control important, but\nit 1a important in - cases with respect to industrial processes vital to\nnational defense, among which - the following may be mentioned:\nRegraded Unclassified\n85\nDivision of Monetary\n- 20 -\nResearch\n(2) Patent control of Bausch and Lamb Optical Company has recently\nkopt easential instruments from Army and Havy use;\n(2) Magnosium, an sevential netal, 1a preduced in this country partly\nunder patents held by a partially Gorman-owned corporation)\nBoard as \"strutogic\", is produced by Consral Electric, with Krupp having\n(3) Tungsten carbide, & material listed by the Army and Navy Manitions\nthe right, under contract, to limit the number of new licenses of\ntungaten cartide patents.\nThe \"freedou\" of Nasi assets in this country.\nà special circumstance which should be taken account of in the formulation\nof our policy with respect to regulating OF not regulating the use of German\nfunds in tide country, 10 the pesuliar relationship which exists between the\nlies: Government and its subjects. Unlike the situation in meet democratie\ncountries, the control over foreign assets held by German subjects 10, in offect,\nheld by the German Government. The idea of free and individual property\nownership has been eliminated in Namidom. the State has assumed full juris-\ndietion and control over all funds and properties of its subjects, whether\nthe altus of these is at home or abroad. The private, individual ownership\nof Gegzen investments and funds in the United States 10 convenient to the\nGerman Government as a legal fiction, but the reality of the situation is that\nthey are the property of the Raich.\nHence, the absence of American control over the funds of German subjects\nis tentamount to giving the Octuan Government & tree hand in whatever finan-\neial control it can obtain over industries in this country. It is impessible\nunilaterally to maintain \"free\" rights where a bilateral relationship exists\nand where the other party exercises control. The institution of Centrol\nmeasures by the United States over Oerman funds in this country, therefore,\nwould not destroy 8. \"freedom\" which does not axist, bet would rather vest in\nthis Government a control now exercised by a foreign government.\nRegraded Unclassified\n86\nJapan\n87\nDashange Centrol and American Intereste\n1. the depanses in the exercise of their foreign exchange centrol and\ncolleteral regulations have ocused great damage to American interests\nis the Far East.\na.\nthe Japances imposed embange centrol on May 1, 1933.\nThis brought the resittence of - from Japan ro United\nStates from American investments in Japan under Japanese\ncontrol with resulting damage to American interests in\nseveral instances. As early as Nevember, 1934, for example,\n10 - reported by Mr. Grow that the Concral Motors Company\nsubsidiary in Japan wes net permitted to export funds no-\nsulting from the sale of some of its sharee.\nsince 1937 the Japansee centrol has become increasingly\nstringent to the extent that incrison funds in Japan are -\ncompletely freem. it present, only transactions amouting\nto less than 100 you a year (623.00) are exempt from the\ncontrol.\nThe Japance Government is - organizing a complete\ncontrol of all inports and asperts. Iven under the partial\ncentrals in endstence before, the depansee ware able arti-\ntrustly to discriminate against American exporters to Japan.\nThe Japanase have eliminated all importe from the United\nStates except these vitally moonessy for their war effort.\nAmerican enterprises in Japan are being forced out of\ninstruct. After Long years of profitable existence, the\nAmerican-emed Japan Advertiser has been received foreed to\ndiscontines.\nb.\nthe system of foreign exchange control\nis Mansteria has discriminated effectively against jacrican\nbusiness. The estensible purpose of the embange control was\nplainly stated se being \" ourtail imports from\ncomtrice other then Japan\".\nthe papper foreign enshange centrol 10\nlinked with the Japanases centrol and in prestice surve only\npurposes. Under all transactions in\ncurrenation, other then the you, including transcriptions in\nUnited States dollars, are mbject to rigerous administrative\nPrepared by Mr. A. N. Issurek\nRegraded Unclassified\n88\nDivision of Memotary\n- 2 -\nResearch\ncontrol. time all other currenales than the you are regarded\nall foreign exchange and the purpose of the control is to\nrestrict the we of foreign enchange, 18 is obview that\nconstant discrimination against Americans and in favor of\nJapances exists.\nImplementing the foreign enchange centrol are & vide\nvariety of puppet state nonspelies dominated by Japanese and\nexcluding insuriems from fertile fields of industry. American\n- have been foreed to abandon industry after injustry\nto the Japanese. For mumple, the petrolem\nnemopely was organized to beenes the sole importer into\nManchuria of prestically all petroleum products. American\ncompanies were forced to discontime their Mansharian business\nat great loss.\nthe Kwantung Any enforees discrimination by the\nGovernment against the purchase of American motor trusks in\nfavor of Japanses-assembled products.\nthe Government's Law of Ostober, 1937\nresulted in the withdrawal of practically all American notion\npicture companies from the Manchurian murket.\n6. North China\nThe Japanese paypet government in Borth Grina has sixilarly\npremigated a fevel.gn auchange centrol which is increasingly\ninjuriess to American business. the puppot Federal Receive Bank\nof North China has been placed in charge of all foreign contrange\ntransestions. Since the value of the Borth China year to\nefficially first - a partly with the you, while its astual\nforeign enchange value in terms of other currension 10 much\nlover, a produm is placed - importe from Jepan w against\nthe United States.\nthe Japanese are instituting a system of trade nanapelies\nin North China which already has caused considerable damage to\nAmerican interests in this area.\nthe Impense military and nevel authorities in North China\nengage in posstices which discriminate against Americans.\nseale marling dependes various\nprovidess - are enter\nthe compled Chinsee ports without the payment of - w\npart fees.\nRegraded Unclassified\n89\nDivision of Memotary\n- , -\nI\nRegraded Unclassified\n2. Under present American assots under the control of Japan\nhave statemer value the Jupenson wish to not upon them.\nhaving Larestments in Japan have no protection against the arbitrery\nactions of the Japanazo Government. Freesing of Japannee assets in\nthe United states is essential to provide the necessary protection\nass to American property.\nAmericans have a quarter of a billion dollars invested in Japan of\nwhich over one-third is represented in short-term funds which have\nbeen from by the Japanese. on the other side of the lodger, the\nJapanese have about $100 million in short-torm funis and about\n$50 million in direct investments in the United States.\nFrom the viexpeint of relative importance, however, the Jaganese\nfunds in this country represent almost mis of Japan's known foreign\nenchange reserves shoress, inviow funds is Japan represent only a\nnegligible portion of our foreign exchange receives.\n3. Yes effective defense, centrol of Japanese reserves in the United\nstates is measurery.\na. Exchange centrol is the neet flerible and poverful nothed\nof controlling international economic transactions. At\nthe present time, the extatending feet about the commis\nrelations between Japan and the United States is that the\nJapanese are supplying their var - with materials and\nmachines from the U. s. their me - with enshange\ncontrol M a compenses part, has already emard -\ndamage to the commis interests of the U. 8d in the For\nSect. Rechange control would enable the U. s. to place\ninto operation my desired curb on the supply of materials\nacress the Pasific. This ourb might be nevely a gradual\nalouing down. It adght be drastic on seme articles and\nloss on others. Whatever the peljey was, 11 could be\nquickly enforced. The exchange control could be med -\na supplament to diplematic negotiations and bargaining.\nNot only because Jupensos policy has already conced great\ndamage to the United States, but also because the dominent\norientation of Japanese foreign policy - to be against\nthe United States, W should sut of elementary self-interest\ntake stops to provent the strengthening and culargment of\nJapanase my interests.\nbe It is corcential to have the dollar reserves available to\n$ I 1 yes I a A\nboxis in New York, is bee appeared that Japan was libely\nto enhaust ber foreign enchange received. This false\nplature has meenmged the viempoint that no setion by the\nUnited States w necessary sizes Auren would automatically\nbe forced to curtail her war offert du to lask of foreign\nI\n30\nDivision of limetary\n- 4 -\nI\nRegraded Unclassified\n0. Ankassedor Grow has recommend that Japancee funds in the\nUnited states be blooked to esciet his in covering the\nliquidation of from American funds in Japan. This to\nregards as particularly urgent at the present time as be\nhas caught eigne that inficate the depenses will -\nwithdraw all available funds on of the United States.\n4. It is essential for national security that control be maintained\nover Japanese expenditures in the United States.\na. the Japanase efficials in the United states statein a class\nrepervision over all of their nationals in the United States,\nthe recent registration of all Japaness recidents with the\ndepansee consule being a good instance. the Japanese foreign\nexchange control has required registration of all Japanese\nforeign assets and these are, therefore, also at the disposal\nof the Jepanese state. 10 is obview that all Japanese\nassets, consume and nationals in the United States man\noperate for Japanese state ends. The existence of such 6\nforeign centrol reaching incrison borders and\nemercising its influmes on people and concerns resident\nin the United States is a direct threat to the security of\nthe American nation. In self-defunce 14 10 vitally necessary\nthat such foreign control be neutralised by the importion\nof an ineriesn centrol reclaiming the severei.go rights of\nthe United States over all within our boundaries.\nb. The Japanese are medistaining an extensive explemage network\nin the United States. For proof, 10 is nersly measury to\nrecall the - recent 08000 of the apprehension of - income-\npaid agents, Farneworth and the Philippine\nSecute officer recently convicted.\nthe Japaneee have recently started a - school for explanage\nagents to be sent to the Philippines. Unquestionaly, the\nUnited States has many graduation of - of the older\ndepense any schools,\nThe F.B.I. reperted that - agreement for cooperation and\ninterchange of information has already been reached between\nthe German and Japanane explanage organisations in the\nUnited States.\nThe Japanese naturiously attempt to influence public opinion\nin the United States by paying large - for noutnal services\nto influential people (Consural O'hyan being a case in point).\nUnile control over Japanese funds would not stop Japanese\nemplanage and attempts at helbery, both of these Japaname\npractices would understatly be severely crippled.\n31\n- 5 -\nDivision of Necetary\nI\nSo The Japanese have engaged in merch financial transmetions in the\nUnited States.\nfor a period of over two years (July 27, 1938 to September 4, 1940),\nthe New York office of the seal-official Tekehana Specie Bank -\ncoaled accounts held for the Bank of Japan, the Japanese Government,\nand the pappet Federal Reserve Bank of North China. n its highest\npoint on April 10, 1940, the secret account held for Japan assurated\nto $111,000,000 while $3,000,000 was held for puppet North China.\nFor the last two years, the Tekshown Specie Bank of See York bought\nand sold American securities and these transactions were nbb reported.\nThese faste were discovered by the lieur York Federal Reserve Bank\nalmost by pure chance. & thoreagh investigation lasting ovveral\nseaths proved necessary to secure the complete story. It is\nentirely pessible that the Japanese have other Midden associate\nin the United States which only a complete census of Japanese\nfunds would reveal.\nAMK/Jm\n12/12/40\nRegraded Unclassified\n32\nCanada\nat\n93\nDecember 12, 1940\nm. white\nMiss sistler and Mr. adder\nsubjects Canadian Foreign Issurance Central\nI Codumil 1 and I I I 1 a\nDeprember 15, 1939. The Bank of Cameda - appointed technical advisor\nto the Beard ml authorised to mt M its agent or benker. The heard w\ngiven the prove w regulate all foreign enthange transportions\nbetwom residents of Canada at the outside world and take over the No\nof the Exchange 7ml areated in 1935.\n1. Objectives of Persion Reshanges Central\na. to insure that the foreign exchange secraing from experts will\nbe available to the Heard to purchase assential imports and\nmost other Canadian conditments abroad.\nb. To provent the flight of capital is erder to Canadian\nforeign resources and to prevent disorgamisation of\nsecurity markets.\n6. to stabilise the rates of enshange between the Canadian dollar\nand the unjer foreign currencies.\nd. To insure that commercial and financial transactions with the\nBritish Empire take place in Empire survencion.\nthe boste principle underlying the orders and regulations of the\nConsition Foreign Surbange Deard is that no transastions between Canada\nand non-residente of Canada involving foreign exchange or financial\ndealings shall be effected without sending under the supervision of the\nForeign Control hard. All foreign exchange received by residents\nof Conada is required to be cold se, and all purchases of foreign exchange\nare required to be made from, an authorised dealer. The energenci.es of\nthe Beard are directed tomal obtaining and conserving all large an -\nof United states dollare as pessible becomes the United States is the ⑉\ncountry with which Geneta has a large debdt is 14a balance of international\npayments,\n2.\na. Besidents of Conada my not bay or sell foreign enshange encept\nManugh the Reard or its agents and at unlieve rates proseribed\nw the Deard. Possits are required both for exports and for\nimports. All inports or experts of goods and services - be\nat 8 fair yel.ec.\nRegraded Unclassified\nB1\nDivision of Honetary\n- 2 -\nI\nb. Residente my not dispase of foreign assets to non-residents\nexcept for payment in foreign enchange, nor transfer Canadian\ndollars to non-residents except with the Board's permission.\nC. headdents were required to deelare their holdings of securities\nand foreign exchange all of September 15, 1939.\nd. Residents were required to sell all foreign evehange in their\npessession as of April 30 by June 1 under the Foreign Enchange\nAcquisition Order of April 30, 1940.\ne. The Seard designates to the Authorized Dealers the buying and\nselling rates for foreign exchange. Since the inception of\ncentral, they have been as follows:\nU. 3. dollars, buying rate\n108 premism\nU. 5. dollars, solling rate\n115 premium\nFounds sterling, buying rate\n4.43\nPounds sterling, selling rate\n4.47\n3. Mechanica of Operation\na. Licensing armite. Every curtoms office and post office WM made\na licensing agency. No importe can be cleared and delivered to\nthe importers without & Foreign isshange Control Board permit.\nLikewise, no exports can be cleared from Canada without & Foreign\nExchange Control permit. Unless exports are made under a general\nexport license or a special export-import license, the permit must\nbe signed by the Collector of Customs and Incise at the Customs\nFrontier , art of Madet before the carge is cleared. If the export\nis made under & general license, the permit must be subsitted\nwithin six days of clearance. If the export is made under .\nspecial export-import license DD permit is submitted to the\nCollector of Customs and Excise, but the operator is required to\nmake a monthly return to the Foreign Exchange Control Board and\nheard examiners have the authority to examine bis books and\nreserds in order to verify hão reports. The use of the Contons\nDivision and Post office was a natural and obvious step is My\nsystem of control over goods entering or leaving Conada.\nb. Authorized Dealers. Every chartered bank in Canada vas made all\nauthorised dealer by the Board) the Bank of Canada corres 40 &\nrechnical advisor. The fact that there are only ten chartered\nbanks and that Canada has a breash banking system, facilitated\nthe establishment of the system of authorized dealers for the\ncollection and payment of foreign exchange.\n4. tra License\na. Importe. No export license or peridt to required in the following\ni\nRegraded Unclassified\n95\nDivision of Hometary\n- , -\nResearch\n(1) For export of goods having a value net exceeding 825 where\npayment is reseived in foreign surrencies.\n(2) For goode passing through Canada \"in transit for exports\nwithout entry at Customs.\n(3) Goods taken out by a non-resident tourist, not conselling\n$100 in value per person.\n(4) Personal effects taken out by travellers.\nb. Importe. No licenses for the import of goods are required in the\nfollowing 01:00:\n(1) For the import of goods having the value not exceeding 625\nwhere payment is made in foreign currency.\n(2) For goods passing through Canada \"in transit for export\"\nwithout entry at Customs.\n(3) Goods to a total value not exceeding $200 imported by my\nperson in any calender month.\n(4) Personal effects belonging to and necessary for any person\nentering Canada.\n0. Insurance\n1. No permit is required for my payment in Canadian dollars to,\nor to the order of, a nen-resident by any life insurance\ncompany authorised so do business in any part of Canada,\nwhere such payment is made by the company in persuance of an\ninsurance policy, munity, or other contract of & sinilar\nnature. This prevision extends to any insurance policy,\nanmity, or other similar contract entered into prior to\nSeptember 16, 1939.\n2. No interference 10 nade with the maintenance of payments in\nforeign exchange by insurance companies - the obligation\nof the company is to naise payment in foreign anchange. Life\ninsurance companies authorized to do business is my part of\nCanada and in my country outside Canada are authorized to\ncontinue the contact of their business in accordance with\ntheir normal procedure.\nRegraded Unclassified\nDivision of Nonwtary\n36\n- 4 -\nHosearch\n5. offeness and Fesalties\nIt 10 an offence under the Foreign Enchange Centrel Order to make a\nfalse statement is my application; to deselve or mislead the Board or an\nauthorised dealer or a Collecter of Customs and Insise or any other person\nconserned is the administration of the provisions of the order) to fail\nto comply with the conditions of any liemse or pendit or to violate my\nprevision of the Order or any Regulation of the Board.\nEveryone guilty of an offense is liable to a fine up to $2,000 or to\nimprisement up to one year or to both fine and imprisement, and in\naddition, If any person, contrusy to the provisions of the Order, importe\nor attempte to import into Canada any goods or other property or buys or\nattempts to buy any foreign exchange, such goods and foreign exchange are\nliable to forfeiture.\n6. Personnel and Origination\nOrganisation arrungements for foreign exchange control bad born care-\nfully worked out in Canada in advance. This enabled drabange control to\nbe established an the morning of September 16 with a sinimm of inconvenience\nand dialesation to business.\nas soon as exchange control THE established, the Beard called together\na group of experienced - from banks, financial institutions, chartered\naccountant firms, investment dealers, trust companies, insurance companies\nand various government departments. Has with vide professional and\nindustrial experience took charge of the section of the Deard for which\nthey were best qualified.\nThe Fereign Eashange Central Board consists of the following members\nChairess, Oraham Towers, Governor of the Bank of Canada\nDr. 1. c. Clark, Deputy Minister of Vinance\nB. Fortier, Chief Inspector Past office Department\nB. 4. Robertoon, First Secretary, Department of Enternal Affeirs\n2. D. Soully, Comissioner of Customs\nL. D. Wilgress, Director of Commercial Intelligance\nThere are three branch offices, at Tennessey, Turento and\nemploying forty people.\nThe balk of Canadian foreign enchange transactions originate in\nMentral and Torento but mort of the centrol work is dome in ottens.\nThe Board is composed of the fellowing sections:\n(a) deals with experts seld\nfor payment in Canadian dellare, issuing special\npermite for this purpose. Three thousand such pendite\nhave been issued. This costion explays ten people.\nRegraded Unclassified\nDivision of Monetary\n97\n- 5 -\nResearch\n(b) The Central File Dection employe twenty-two people.\n(e) The Commercial Section is concerned with the transactions\nof companies which operate under special export-import\nlicenses and report on a monthly or periodic banis instead\nof using forms for each individual transaction. This sytem\nis employed for companies having a large volume of transas-\nMone and was adopted in order to relieve them of the\nburden of the routine which would have been necessary if\nindividual form for seeh transaction had been required.\nUp to the and of June 1940 a total of 4,500 such organiss-\ntions had been granted permite of this kind. The work of this\nsection is divided into five groups as follows:\n(1) Examiners - dealing with foreign currency bank ascounts\n(2) Investigation of records of the special permit holders\n(3) Orain trade\n(4) Approvals of interest end dividents paid by such\ncompanies, especially as they affect non-residente\n(5) General\nThe Consercial Section also has supervision ever the\nMontreal and Torunto branches of the Board. The number\nof persons employed 10 108.\nThe problem of controlling and supervising the foreign\ntrude and foreign exchange activities of the larger cor-\nporations and compandes engaging in numerous international\ntransactions might at first sight have appeared exceedingly\nsumbersome, if not untractable. but the device of special\nlivenses and periodic examination by the Commercial Section\nwhich - substituted for seruting of individual transactions\nhas apparently provided a satisfactory solution of the\nproblem and contributed to the efficient functioning of\nthe exchange control system.\n(d) The Traffic Section mintains limison with various govern-\nmest departments such as the Post Office Department, the\nDepartment of National Revenue, Board of Transport Commissioners,\nNational Narbere Heard and the Certedian of Enesy Property.\nIt employe 12 persons,\n(o) The Inforcement Seation cooperates with other government\nagencies in safereing foreign exchange centrol for which\n11 has the prine responsibility. It has a staff of 17.\nRegraded Unclassified\n38\nDivision of Memory\n- 6 -\nI\nRegraded Unclassified\n(f) The Foreign Exchange Dention maintains contacts with the\nauthorized dealers and settles foreign exchange policy.\nIt has a staff of 47.\n(g) The General Seation has a staff of 23 people.\n(b) The Insurance section has 4 staff of 5 persons.\n(1) The Intellicence Costion handles problems of public relations.\nThere are 4 people employed.\n(3) The Vatching Seation (Exemining Section) examines, matches\nand disposes of copies of forms. the device of matching the\n\"Deslaration of Goods Exported\" Form provides an excellent\n- for assuring that the Board will receive the foreign\nexchange assering from exports. While the \"Application for\nLicense to Import\" Form is also estabed with the \"Application\nfor Foreign Exchange\" Fern, the natching process here is net\nso important, as the Board retains asro foreign exchange if\nan application for license to import 10 not followed through\nwith an application for foreign exchange. It also recerds\ninformation supplied by residents # their holdings of foreign\neashange and securities. It has a staff of 115.\n(k) The Mail Section employe 14 people.\n(1) The employe 2 people.\n(m) The Descrities partion exportises all transactions in foreign\nsecurities a the part of residents. It employs 11 people.\n(a) The Secretary Section employe 20 people.\n(e) The Statistical SeeMem analyzes and classifies the forms\ninvolving foreign asshange transactions and representing\ntransfers of Canadian dellars to the assounts of neo-residents.\n(p) employe 5 people.\n(a) The Tecentry Seation deals with the Fereign Insurance\nAcquisition Order of May 40 1940. A staff of 24 people so\nemployed.\nAll in all the Canadian Foreign Enchange Centrol Deard employe a total\nof 509 people. The 509 people ware recruited w follows:\non lean from Bank of Canada\n20\n- - . Civil Service\n6\n- - - entoide time\n33\nTesporary employees\n490\n99\nDivision of Memotory\n- 7 -\nI\nExpenses of the Foreign Exchange leard for a normal year, after\nelininating special organisational expenses or items of a mm-reverring\nnature, are expected to total about 03.1 million. this amount will be\nrecounted for as follows:\n(In thousands)\nSalaries\n5758\n(average salary so about\n$1400 por -\nStationery and printing\n150\nRentals\n53\nTelegrame and telephone\n52\nTraveling expenses\n50\nSundries\n37\n7. The Board and Leonomic Relations\nCanadian international transactions total 64 billion to $5 billion per\nyear of which almost half 10 accounted for by foreign trade. Two countries -\nthe United Kingdom and the United States - dominste the international trans-\nsetion of Canada. More than half of all Canada's international transactions\nare confucted with the United States and almost one-third with the United\nKingdom. Therefore, the problem of foreign exchange centrol largely resolves\nitself into the supervision and centrol of transactions with these two countries.\nIn the case of England the problem is further simplified through the intimate\neseperation of the Canadian Toreign Exchange Control Board with the British\nEnchange Centrol and the exchange controls of storling area countries. is\nCanada's belance of payments is favorable with England and the starling area,\nand unfaverable with the United States, and as sterling is not age freely\nconvertible into D. 3. dollars, the mainttask of the Board 10 to conserve\nCanadian holdings of U. 3. dollars.\nThe Beard is notivated by two decisive fusters:\na. The desire to less at small, and to acquire M large, -\nanount of U. 0. dollars as possible.\n(1) There has been a tread in the direction of tightening\nup regulations to prevent Loss of foreign enchange\non service and trade items.\n(1) Traveling by Canadians in the United States has\nbeen drestically restricted and assisage ter\ntravel 10 new granted in linited - only\nfor business, educational, official, medical,\nand scientifie purpose.\nRegraded Unclassified\nDivision of Denetary\n100\n- 8 -\nIssuarch\n(11) Restrictions on the imports of goods not urgently\nneeded for Canada's var effort have recently been\nimposed. The impart of certain catagorias of\ngoods from the United States has been entirely\nprobibited and of others restricted, these\nrestrictions and probibitions are in addition\nto the 10 percent far Tax on imports.\n(2) Positive amouragement is given to U. D. tearist\nexpenditures in Canada, and to the investment of\nU. 5. dollars in Dev Consition enterprises. New\ncapital invested in Canada can be withdrawn at a\nlater date is foreign exchange.\nb. The desire to preserve amicable political and economic rela-\ntions with the United States.\n(1) & reciprocal agreement between Canada and the United\nStates me reached on June 18, 1940 providing for\nreciprocal exemption from vertain aspects of the 02-\nchange control regulations for American residents in\nCanada and far Canadian residents in the United States.\nAmerican citizens resident in Canada are exempted from\nthe Foreign Exchange Control Order of September 15, 1939,\nfrom the Foreign Exchange Acquisition Order of April 30,\n1940, and from any future orders respecting the acquisi-\ntien and disposition of foreign currency and foreign\nsecurities held by such individual Americans. This\nexemption does not apply to corporations nor to foreign\nauchange reselved in connection with exports from of\nimports Late Canada of other than exempted property.\n(2) In the case of transactions between parent and sub-\nsidiary companies, a special license only is required\nand individual transactions are net subject w 5 crutiny, but\nthere is periodic assissation of company books. Meet\nof the companies involved are American companies with\naffiliates in Canada and Canadian companies with affiliates\nin the United States. Benever, the Deard doss net approve\napplications for foreign exchange which would reduce the\n\"capital employed* in Canadian subsidiaries.\n(3) while applications for lisenses for foreign exchange to\npay interest and dividends to non-resident investors\nmust be made thirty days in advance, M obstruction\nis placed in the may of payment of interest and dividends\nto American investors. Furthermore, the Deard sells\nforeign exchange for payment of services mah as\ninsurance preduces, agents' commissions, malandag,\nfreights, case, patent rights, traveling expenses, ere.\nA large part of these payments of foreign eashange as\nservice Items goos to the United states.\nRegraded Unclassified\n101\nDivision of Nonstary\n- 9 -\nI\n(4) Foreign holders of Canadian balances are allowed to -\nthen freely within Cenada itself. (This in sharp\ncontrast with the United States Fereign Fund Control.)\nThe desire to accomodate American interests and to preserve U. s.\ndollar exchange cannot always be easily resemeiled and the difficulties in\nthe way night even increase with the ortension of Canada's var offort.\na. -\na. Canada\n(1) Experts constitute from 15 person's to 20 pareent of the\nnational income.\n(2) The value of the items on service account in the balance\nof international payments 10 relatively high.\n(3) The intimesy of comments relations with the United States\nboth on trade, service, and capital account and the extent\nof the common land frestiers with the United States make\nadministration and enformement complex.\n(4) The former triangle or relationships between the\nUnited States, Canada, and the United Kingdom has born\nbroker. Canada compequently has to make me provisions both\nto neet its mounting unfeverable balance of international\npayments with the United States and to utilise its -\nlation of starling belonces.\n(5) Canadian embange central started from I erstek as for as\ntrained personnel and administrative presedent end experience\nin Canada in related aphere were emerged.\n;\nThe\nand without imposing - strain\nand as the functioning of the Consdian -\n(1) the of foreign trade has not been disturbed by\nthe functioning of the enchange control system. The\nexporter sells me foreign exchange to the Authorized\nDealer, who happeno to be the bank with which be had\nalways examinated Me business.\n(2) Payments of interest and dividents to foreigners - be\nuse - application for 4 license thirty days in\n(9) Insurance ompunies are allowed to earry a their foreign\noperations without distructors. life insurance empenies\nare emported to report their not foreign asshange position\ne 4 quarterly busis.\nRegraded Unclassified\n102\nDivision of Monetary\n- 10 -\nI\n(6) intercourse with the United States MI allowed\nto contitue unhampared except for\n(1) Nestrictions on certain categories of non-essential\nimporte.\n(11) Prohibition of Canadian pleasure expenditure in the\nU.S.\n(5) Dealange are freely permitted between Canadian companies and\ntheir foreign affiliates.\n(6) The Board is & useful instrument to facilitate the repatria-\ntion of British-hold Conadian securities. The repatriation\nof these securities is the seens by which Canada's favorable\nbalance with the U. K. 10 being liquidated. The Board\nsupervised and carried through the orderly repatriation of\n$200 million of Brittsh-held Canadian securities in the\nfirst year of Mar.\n(7) The imposition and enforcement of enchange control relued no\ndifficult edministrative and personnel problems. The\nproperation for the introduction of the enchange central\nsystem were carried through expeditionaly and secretly and\nthe system went into effect without unformable reparenceions\n⑉ the Canadian enonomy. Trained and competent personnel.\nw recruited from the Civil Service, banks and industry, ao\nthat exporienced - vere in leage positions from the very\nbeginning. The use of existing facilities and institutions\ncontributed to the efficiency of the control system. timpli-\nfisation and standardisation of roatine reduced the adminio-\ntrative complexities and the volume of work. the Deard has\nbeen able to edequately cope with the different tacks and\nproblems arising from a variety of the transactions and of\nthe types of corporations and individuals it had to doal\nwith. The administering exchange control in Canada has been\nnegligible and runs at the rate of about $1.1 aillien per\nI\nTNX:SA:esh\n12/12/40\nRegraded Unclassified\n103\nItaly\nRegraded Unclassified\n101\nRegraded Unclassified\nDecember 12, 1940\nSecretary Morgenthan\nMP. white\nSubject: Italian treatment of American property interests.\nAmerican owners of enterprises and investments in Italy have\nbeen treated moderately well in comparison with the treatment\naccorded them in Cormany.\n1. The Italians have serviced by far the greater part\nof their United States-hold dollar bonds.\n2. There has been relatively little difficulty in with-\ndrawing short-term American assets in Italy though\nAmericans have never hold any considerable short-torm\nfunds in that country in recent years for fear of\nblocking.\n3. Regular remittance of dividends free the operations\nof American branch plants in Italy has not been permitted\nsince 1935. On the other hand the Italian Exchange\nCentrel has granted a considerable mober of exemptions\nand special permissions.\nTotal American holdings in Italy are under 8140 million. Short-\nterm American assets in Italy are now only about 3,300,000.\nAmerican holdings of Italian dollar bonds are new less than\n870 million; the lew quotations on these securities indicate\nthat Americans have been accepting leases in order to repatriate\ntheir funds. American direct investments in Italy are less\nthan 870 million.\nTotal Italian holdings in this country are about #90 million.\nThese holdings in the United States include about 019 million\nin short-term funds, about 437 million in security holdings,\nand about 034 million is direct investments.\nIn recent months the Italians have even outdons the Germans in\nturning their accere in this country into United States Govern-\nment bonds, each and accounts held in the names of Latin\nAmerican countries. Obvieusly, the Italians desired to son-\nseal the exact nature of the transactions in which they were\nengaging and feared that their assets in this country would\nbe subjected to licensing control.\n00:rel\n12/12/40\n105\nRemittance\nData\nRegraded Unclassified\n106\nDecember 12, 2940\nM. N. D. White\n6. 4. Saly\nSubjects Personal Remittences to Generary, Italy and Japan.\nLittle information is new available on 1940 resittances to the\nAndo yours.\nThe Department of Commiree estimate for 1939 were:\nJapan $6 millies (84 personal, $2 institutional)\nItaly 20 million (of which $13.5 was through Itale-U.S. banks,\nwhich report once yearly.)\nGermany 7.5 - 10 million\nReparts - only too courses of resittances are available before the\nend of the year. A table is attached showing Pestal Money Orders to the\nthree countries during the first eleven months of 1940. Nothing specially\nsignificant - to be indicated.\nThe American Express resittences of marks and lire are also shown\nin a table attached. Seen increase in the rate of sending marks in recent\nmonths is explained as due to resitiances through New York to Chinese\nand Japanese students in Borlin, who fernerly obtained their funds through\nAnsterden.\nI\n12/12/48\nRegraded Unclassified\n107\nFestal Money Orders - 1940\nGermany\nItaly\ndease\nJanuary/March\n$14,272\n8253,940\n$123,900\nApril/June\n5,885\n183,736\n106,200\nJuly/September\n3,604\n90,000\n99,700\nOctober\n-\n1,100\n105,000\n73,600\nNovember\n3,000\n$27,860\n$632,776\n$403,000\nliste: November Nermally includes a pre-Christmass increase.\nTreasury Department,\nDivision of Nonetary Research,\nDecember 12, 1949.\nGAE:dla\n2/12/40\nRegraded Unclassified\n108\nPostal Money Orders - 1940\nGermanz\nItaly\ndanan\nJemary/March\n514,272\n$253,940\n$123,500\nApril/June\n5,885\n183,736\n106,200\nJuly/September\n3,604\n90,000\n99,700\nOctober\n$\n1,100\n105,000\n73,600\nNovember\n3,000\n$27,860\n6432,776\n$403,000\nNotes November Normally includes e pro-Christmas increase.\nTreasury Department,\nDivision of Hometary Research,\nDecember 12, 1940.\nGABedla\n1/12/40,\nRegraded Unclassified\n109\nAmerican Express Company Resittances\nIn thousands of dellare\ndan./July\nAug./Hov.\nTotal Jan./Nev.\nto Germay\nReg'd., sife, and\nsupport marks\n15 - 15.64\n362\n332\n$\nTravel marks\n16 - 16.64\nR\n137\n233\nFree marks (noney\norders) (404)\nMIL\nTotal to Cornamy.......\n494\n620\n1,014\nTo Italy\nEsigrant live (4.054)\n622\n463\n1,285\nInternal live\n(sinee Sept. only)\n3.94\n0\n334\n334\nFree live 5.074\n100\n216\nTotal to Italy\n1,002\n8\n1,835\n20 Japan - no data\nfreesury Department, Division of Memotary Research.\nDec. 12, 1940\nGAE:ion\n12/12/40\nRegraded Unclassified\nAmerican Express Company Hamittances of Marks and Lire\nReg. Warks\noift & Support Mke.\nTravelmarks\nTree Marks\nEmigrant Tire\nInternal Lire\nPree Lire\nN.O.only\nM.O.only\n1940\nJan.\n293,841.\n27,400.\n24,463.\n1,845,717.\n-\n588,117.\nFeb.\n323,694.\n20,272.\n17,920.\n3,023,399.\n575,397.\nMar.\n414,678.\n22,579.\n26,001.\n4,164,513.\n...\n826,469.\nApr.\n337,261.\n18,353.\n26,242.\n2,854,760.\n---\n492,027.\nMay\n354,888.\n13,114.\n3,280,487.\n...\n30,427.\n595,292.\nJune\n367,365.\n148,495.\n13,722.\n2,468,528.\n258,206.\n18,996.\n2,656,858.\n...\n221,839.\nJuly\n324,533.\n212,402.\nAug.\n378,386.\n253,056.\n28,053.\n3,493,781.\n- -\n411,716.\nSept.\n345,057.\n213,724.\n14,853.\n2,892,598.\n1,620,743.\n96,138.\nOct.\n506,213.\n219,494.\n44,592.\n2,313,685.\n3,135,523.\n140,176.\nNov.\n801,504.\n124,298.\n39,375.\n2,729,059.\n3,814,407.\n59,890.\nTotal- 4,447,420.\n1,284,494.\n267,421.\n31,723,345.\n8,570,673.\n4,264,267.\nc .1560\n9 .1660\ne .4005\n0.0405\[email protected]\n0.0507\nDollar\nEquiv. $691,797.\n$213,226.\n$107,102.\n81,284,795.\n$334,256.\n$216,198.\nTreasury Department, Division of Monetery Research\nDecember 12, 1940.\ngraded Unclassified\n111\nForeign Funds in\nthe United States\n112\nFunds in the United States of Jersey,\nItaly, Japan, Rumania and Hungery\n(In Millions of Dollars)\nTotal of\nI\nGermanya Italys Japane Humaniss\nItems\nI\nDate\nold - earmark\n-\n-\n-\n27.1\n-\n27.1\n12/4/40\nficial funds:\nn Bew York Fede Ass. Bank\noh\n-\n-\n2\n-\nsb\n12/4/40\nas other Here York banks\n.5\n.1\n-\n1\n,\n66\n11/27/40\nPrivate funds\nV\n4.8\nw\nIn Bes Zerk Fed. lies. Dist.\n6.8\n18.2\n115.8\n24.9\n170.5\n11/27/40\nIn other districts\n.3\n6\n4.2\n?\n?\n501\n11/13/40\nIssu States securities\n15.\n37.\n?\n?\n2\n52.\n10/31/40\nand other investments\n84.\nthe\n1\n?\n?\n118,\n12/31/39\nTotal\n107\n89.9\n120\n52.2\n4.8\n373.9\n- Suptember 25, 1940. Deposite only.\nTreasury Department, Division of Neastary Desearch\nDecember 12, 1940.\nRegraded Unclassified\n113\nBRITISH air COMMISSION\n1785 MASSACHUSETTS AVENUE\nWASHINGTON. D. c.\nTELEPHONE HOBART 9000\nPLEASE QUOTE\nDecember 12, 1940\nREFERENCE NO.\nThe Hon. Henry Morgenthau, Jr.\nWashington\nD. C.\nMy dear Mr. Morgenthau:\nI have just received the following cablegram from\nLord Beaverbrook:\n\"Please tell Morgenthau I have interviewed\ntoday Group Captain Sorley who is in charge of\nBoscombe Down, the experimental station. He\nsays Curtiss P40 is a straight-forward job.\nFlies easily. Allison engine has proved to be\nreliable. It's performance is equivalent to\nSpitfire which is very fine according to our\nviews. Speed equal to Spitfire in actual exper-\nience. Altitude comparison shows good results.\n\"If desired by Morgenthau, immediate facil-\nities will be given for United States Observers\nat Boscombe Down to study Curtiss P40 perform-\nance compared with British types.\"\nIf there is anything further you would like us to\ndo in this connection, please let us know.\nYours sincerely,\nin\nMorris W. when Wilson\nv\nMT\nRegraded Unclassified\n114\nDecember 12, 1940\nX\nMy dear Cordell:\nIn view of our conversation, Tuesday\nat your apartment, I an sending you herewi th\nin strietest confidence copy of a report by\nMr. Buckley, of my office, on his recent in-\nspection trip of West Coast airplane manu-\nfacturing plants. This report points out\nthe many weaknesses in the present program\nand the opportunity for increasing production.\nIf this kind of material interests you,\nI shall be glad to send you additional reports\nas they 60M9 to my desk.\nYours sincerely,\nHonorable Cordell Hull,\nSecretary of State.\nRegraded Unclassified\n115\nDecember 12, 1940\nMy dear Cordell:\nIn view of our conversation, Tuesday\nat your apartment, I an sending you herewith\nin strictest confidence copy of a report by\nMr. Buckley, of my office, on his recent in-\nspection trip of West Coast airplane -\nfacturing plants.\nThis report points out\nthe many weaknesses in the present program\nand the opportunity for increasing production.\nIf this kind of material interests you,\nI shall be glad to send you additional reports\nas they come to my desk.\nYours sincerely,\nHenorable Cordell Hull,\nSecretary of State.\nRegraded Unclassified\n116\nDecember 12, 1940\nMy dear Cordell:\nIn view of our conversation, Tuesday\nat your apartment, I an sending you herewi th\nin strictest confidence copy of a report by\nMr. Buckley, of my office, on his recent in-\nspection trip of West Coast airplane -\nfacturing plants.\nThis report points out\nthe many weaknesses in the present program\nand the opportunity for increasing production.\nIf this kind of material interests you,\nI shall be glad to send you additional reports\nas they come to my desk.\nYours sincerely,\nHonorable Cordell Hull,\nSecretary of State.\nRegraded Unclassified\n117\nTHE SECRETARY OF STATE\nWASHINGTON\nDecember 12, 1940\nDear Henry:\nThank you very much for your note of\nDecember twelfth and the enclosure, which I\nam very glad to have. I should indeed appre-\nciate receiving any supplementary information\nalong the same line.\nSincerely yours,\nCorrecthes\nThe Honorable\nHenry Morgenthau, Jr.,\nSecretary of the Treasury.\n113\nTREASURY DEPARTMENT\nWashington\nFOR RELEASE, MORNING NEWSPAPERS,\nPress Service\nThursday, December 12, 1940.\nNo. 22-83\n12/11/40\nSecretary of the Treasury Morgenthau announced last\nnight that the subscription books for the current offering of\n3/4 percent Treasury notes of Series B-1945, National Defense\nSeries, closed at the close of business Wednesday, December 11.\nSubscriptions addressed to a Federal Reserve Bank, or\nBranch, or to the Treasury Department, and placed in the mail\nbefore 12 o'clock midnight Wednesday, December 11, will be\nconsidered as having been entered before the close of the\nsubscription books.\nAnnouncement of the amount of subscriptions and the\nbasis of allotment will probably be made on Saturday, December 14.\n00000\nRegraded Unclassified\n119\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE December 12, 1940\nstortly CORPIDENTIAL\nTO\nSecretury Morgenthau\nFROM\nMr. Klaus\nFBI reports:\nDecember 3. The usual report regarding Hans Thomsen states, among other\nThomsen's reiteration that Oumansky on instructions from his with superiors\nthings, Thomsen fully advised with regard to every move Oumansky makes\nUnited keeps States officials; that Thomsen believes Russia will exercise pressure of\nOF Bulgaris ut the expense of Greece and Turkey; that Weygend is cooperating\nBulgaria for Hitler in exchange for an outlet to the Aegean in favor\n100 cent with the Vichy government and is more anti-British than Petain; the\nCreeks; that landslides and not sabotage were the causes of recent railroad\nthat per Italy will land sufficient troops in two months in Albanie to beat\ndamage in Norway; and that Germany had already extended feelers for peace\nwith the cooperation of continental powers, including Russia.\nDecember 5. Memorandum on the activities of Wythe Williams, radio com-\nmentator of the Mutual Broadcasting System and editor of the Greenwich \"Time,\"\ncharges him with being guilty of deliberate distortion of facts concerning\nnational defense broadcasts over the Mutual Broadcasting System; it appears\nthat Williams has been called before grand juries to compel him to give ovi-\ndence concerning his broadcasts after refusal to cooperate with FBI\nDecember 9. Transmits a copy of a letter from the president of the\nGeneral Mercury Corporation, Dallas, Texas, who requests Government protection\naround the Big Bend mercury district of Texas in order to safeguard American\nmercury mines; he says similar measures were taken in 1914-1918.\nState Department reports:\nDecember 7. American Consulate General at Shanghai says the Italian Com-\nmercial Attache at Tokyo carried $800,000 in American currency B. few days be-\nfore from Shanghai to Tokyo; the currency was obtained in Shanghai.\nRegraded Unclassified\nJOHN EDGAR HOOVER\nDIRECTOR\n7\nFederal Bureau of Investigation\nUnited Stutes Department of Justice\n120\nWashington, D. C.\nDecember 12, 1940\nany\nPERSONAL AND CONFIDENTIAL\nBY SPECIAL MESSENGER\nThe Honorable\nThe Secretary of the Treasury\nWashington, D. C.\nMy dear Mr. Secretary:\nAs of possible further interest to you, I\nam transmitting herewith a copy of a memorandum containing\ninformation to supplement the data sent with my letter\nof November 6, 1940 concerning Fritz Mandl, alias Frederick\nMandl.\nSincerely yours,\n2a. Hower\nEnclosure\nRecd few 12-16-40 - skrid - 12/16- degisted for dieg\n121\nRegraded Unclassified\nDecember 7, 1940\nMEMORANDUM\nA highly confidential informant has advised Frits\nMandl, alias Frederick Mandl is alleged to have said that:\n1. He was convinced of 4 Masi vistery\nand British collapse.\n2. He was arrenging his affaire accordingly\nand was now on excellent terms with the\nMasis who permitted him to set twelve\nmillions out of Germany.\n3. He was using Schicht, formerly the Unilever\nrepresentative in Germany as his \"go-betmoun\"\nwith the Ramis and was also in close toush\nwith Matteresse in See Paule.\n4. He was in contact in New York with Brown\n\"Chairm or Vise-Chairman of Resington\"\nand with Frank Altechull, who is busily\nengaged in buying German bends) that both\nof these nen were of his opinion as to the\noutcome of the war.\n5. He wanted to get & share of the $500,000,000.00\nlean to South American countries. (Informant\nstated it was believed at one time if Mandl\nwas successful in this he would use it for buy-\ning up supplies and plantations for Germany,\nbut, it has since been heard that he has recently\nretired from Washington very disgramtled after\na conversation on this point with the Treasury\nDepartment).\n6. Be was in close touch with Dester Moriali,\nthe Italian Consul in Baltimers who was previously\n122\n- 2 -\npress attachs at the Italian Legation\nat Vienna.\nThe source of the above information reports that Mandl\nis MW staying at the Waldorf Towers, New York city: that he is\neither & eitisen of Argentina or Paraguay and has & large industrial\nplant, Cometa, outside of Buence Aires and is also the amer of\nlarge rise plantations and centrols the Mihanovich Shipping Line at\nBusace Aires.\nThe Princess Starhenberg is at present living M his\nguest in that city.\nRegraded Unclassified\n123\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE December 12, 1940.\nSecretary Morgenthau\nTO\nFROM\nMr. Have NA\nSubject: Report on conversation with Mr. Cesar Corders Davila,\nExecutive Director, Puerto Rico Housing Authority.\nIn accordance with your instructions, Commander McKay made\nen appointment for Mr. Davila and Colonel Manuel Font, Commissioner\nof the Housing, Authority of San Juan, to see me at 3 o'clock\nthis afternoon. Mr. Davila explained that his colleague, Colonel\nFont, WAS unable to come with him as he had gone to Baltimore this\nmorning.\nBriefly, Mr. Davila's problem is this. The United States\nHousing Authority \"earmarked\" $12 millions for slum clearance in\nPuerto Rico. Later $2 millions were deducted from the $12 millions,\nthe reason being given by the United States Housing Authority that\nthe funds were needed for defense housing in the United States.\nKr. Davila said, however, that since the time of the deduction\na direct appropriation has been made for defense housing. He 1a\nendeavoring, therefore, to have the $2 millions restored to the\nfunds \"earmarked\" for alum clearance in Puerto Rico.\nMr. Davila stated that Admiral Leahy said he had shown you\nthe Puerto Rican slums and that you therefore had firet-hand\ninformation with regard to them and were aware of the needs.\nIt is Mr. Davila's hope that you will call Mr. Straus and put in\na word in behalf of having the $2 millions restored to the Puerto\nRican slum clearance fund.\nRegraded Unclassified\n124\nJR\nGRAY\nBerlin\nDated December 12, 1940\nRec'd 7:15 p.m.\nSecretary of State,\nWashington,\n5018, DECEMBER 12, & p.m.\nMy 4406, October 22, 2 p.m.\nFOR TREASURY FROM WOODS IN THE ABSENCE OF H ATH AND\nFOR DEPARTMENT'S INFORMATION.\nAccording to a statement published in WIRTSCHAFT and\nSTATISTIK the Reich's disclosed Indebtedness increased\nduring September by 3,179 million marks to a total of\n69,721 million marks as compared with an increase of 3,631\nmillion marks in August. However, whereas in August over\nthree fifths of the increase had been in the form of short\nterm indebtedness 2,336 million marks of the total\nborrowed in September was on long term and only 843 million\nmarks on short term.\nThe major increases in long term debentures during\nSeptember were 1,383 million marks in the sixth series of\n4% bonds (with 20 year maturity) and 955 million marks li\nloans of which 623 million marks were 4% loans and 332\nmillion\nRegraded Unclassified\n125\n-2- #5018, December 12, 4 p.m., from Berlin.\nmillion marks 42% loans (apparently an old issue since to\nour knowledge new issues carrying 43% interest were\ndiscontinued some months ago). Of the total increase in\nshort term borrowing during September 244 million marks was\nin Treasury bills and certificates 307 million marks in\n\"other loans\" (including the loan of the Reichkreditkassen\nsystem to the Reich) and 306 million marks in the Reich's\noperating credit at the Reichsbank offset in part by a\nreduction of 14 million marks in tax certificates outstanding.\nMORRIS\nWWC\n10 THE\nTECHNICY varialvas\nOFFICE of THE\nDVD DEC 13 VVV \" IS\nIBEVENSA\nBECEINED\n126\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nEA 840.51 Frozen\nCredits/985\nDecember 12, 1940\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\ncopies of a paraphrase of telegram no. 782 of December 4,\n1940 from the American Legation at Bucharest, regarding\nTurkish and Rumanian negotiations for the exchange of\ncotton for petroleum products.\nEnclosure:\nFrom Bucharest,\nDecember 12, 1940.\nRegraded Unclassified\n127\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Legation, Bucharest, Rumania.\nDATE: December 4, 1940, 4 p.m.\nNO. : 782.\nReference is made to Department's telegram no. 374\nof Oct. 29, 8 p.m.\nYesterday this Legation was visited by an officer\nof the National Bank, who showed me a telegram received\nfrom the Chase Bank to the effect that the United States\nTreasury was reconsidering the license in the amount of\n$1,410,000 for Turkish cotton, which was issued on Oct. 29.\nHe asked if I knew anything about why this license was\nbeing reconsidered. I replied that I knew nothing of this\nmatter: whereupon he requested that I make recommendations\nto the Treasury that the license be issued. I told him\nthat he should make B representation through the Rumanian\nLegation in the United States.\nEdson has been notified by the Turkish Commercial\nAttache here that negotiations between his Government\nand Rumania involving the exchange of cotton for petroleum\nproducts have reached a deadlock. He said that Rumania\ninsists that Turkey import petroleum products in the ratio\nof 4 units of gasoline to one unit of kerosene, and Turkey\n(which urgently needs kerosene) insists on 8. ratio of one\nto one. Evidently Turkey insists that no cotton will be shipped\npending the granting of its request.\nThe\nRegraded Unclassified\n128\n- 2 -\nThe desire of Rumania to export gasoline is due to\nthe shutting off of markets in the Mediterranean and the\noil-buying policy which Germany (which since last June\nhas been the sole buyer of any importance) has pursued\nin recent months. In spite of the fact that Germany\nhas been buying more Rumanian gasoline than kerosene or\ndiesel oil, her gasoline purchases have been below the\nratio of kerosene and diesel oil provided by the Rumanian\ncrude oil. Moreover, Germany does not desire to step up\nher imports of gasoline enough to equal the refining\nratio as she apparently has a greater need for kerosene\nand diesel oil than for gasoline. This has resulted in\na shortage of kerosene and diesel oil, while gasoline\nstorage space has been completely filled up. Therefore,\nthe refineries are confronted with the question as to\nwhether they ought to keep up their refining operations\nwhen there is a market for kerosene and diesel oil and\nstorage space for gasoline is already used up. This\nsituation (plus pressure by Germany) has forced Rumania\nto attempt to make all her Balkan markets take gasoline,\nin order that the problem of storage may be alleviated.\nGUNTHER\nEA:MSG\nim\nCOPY\nRegraded Unclassified\n129\nJT\nGRAY\nBERLIN\nDated December 12, 1940\nRec'd 3:10 p.m.\nSecretary of State,\nWashington.\n5009, December 12, noon.\nBy decree of the Reich Minister of Finance goods\noriginating in the Netherlands are to be admitted free\nof customs duties as from December 16, 1940. In Berlin\ncircles it is anticipated that the Staathalter in the\noccupied Netherlands territory will issue a parallel\ndecree stipulating duty free entry of German goods.\nMORRIS\nCSB\nCopy:emk\nof\n010 DEC 18 bit V S9\nABEVENSA DESTRIMENT\nBECEINED\nRegraded Unclassified\nCOPY\n28254\n130\nPLAIN\nStockholm\nDated December 12, 1940\nRec'd 10:30 p.m.\nSecretary of State,\nWashington.\n1099, Twelfth.\nGovernment revenue for fiscal year 1941-1942 estimated by\nBudget Bureau at 2076 million crowns or slightly higher than\ncurrent fiscal year. Riksbank December 7 million crowns metallic\nreserve 663 foreign exchange 808 loans discounts 638 circulation\n1375 check clearances November Stockholm 3296 Gothenberg 339.\nGovernment price guaranty to forest owners for pulpwood fixed at\nfirst class sulphite wood between 30 and 36 ore per floating\ncubic foot, second class sulphite and first class sulphate wood\nbetween 24 and 30 ore, second class sulphate wood between 22 and\n28 ore. Price guaranty covers 30 million cubic meters. Press\nreports Boliden Company copper production 12 thousand tons 1940\nand further increase to 16 thousand tons expected with exploitation\nof state-owned deposits. First recurrence foot and mouth disease\nsince July fifth reported from south Sweden. Industrial production\nindex up one point to 106 for October but current falling off in\nimports of coal causing considerable anxiety. Negotiations looking\nto renewal of basic wage agreement for industry for 1941 resumed,\nRegraded Unclassified\n131\nI -2- 1099, December 12 from Stockholm.\nit is too early to predict outcome but negotiations are proceeding\nslowly. After lengthy debates Rikedag finally approved sales tax\neffective January 1, 1941 on nearly all retail sales of 5 per cent\nestimated to yield nearly 200 million crowns in one year also\napproved appropriation 15 million crowns for erection shale oil\nplant expected to yield 15 thousand metric tons of crude oil per\nannum. Also appropriation nearly 32 million crowns for laying\ndown two light cruisers and undisclosed number of destroyers and\nsubmarines. Bankrupticies November numbered 113.\nINFORM TREASURY, AGRICULTURE, COMMERCE.\nSTERLING\nNPL\n10 THE\n100HWOYF\noclictor 145\nBIO DEC 11 bill s 12\nBECEIVED\nCopy:jpt\nRegraded Unclassified\n132\n0-2/2657-220\nRESTRICTED\nM.I.D., W.D.\nDecember 12, 1940.\nNo. 268\nSITUATION REPORT\n12:00 M.\nThis military situation report 18 issued by the Military\nIntelligence Division, General Staff. In view of the occasional\ninclusion of political information and of opinion it is classified\nas Restricted.\nI, Western Theater of War.\n1. Air Force Operations.\nDuring daylight of the 11th, the Germans made scattered\nraids on southern England. Last night Birmingham was bombed rather\nheavily and there were light attacks in southwest England and the\nLondon area.\nThe R.A.F. last night operated normally against porte\nin occupied territory and against inland docks and railroad yardo\nin western Germany.\nII. Greek Theater of War.\nIncreased Italian resistance has slowed down the Greek ad-\nvance in the center and north. The Greeks are reported to have\npushed ahead on the southern front north of Argirocastro and Porto\nEdda. Italian air activity appears to have been somewhat more ef-\nfective.\nIII. Mediterranean and African Theaters of War.\nThe capture of Sidi-Barrani on the afternoon of December 11,\n1940 is reported by the British. Cairo dispatches officially estimate\n20,000 prisoners (probably mostly native) and huge quantities of war\nmateriel. Two Italian divisions, one native and one Blackshirt,\nappear to be cut off from Graziani's main army. The British have\ngained air superiority on this front and are exploiting it.\nRESTRICTED\nRegraded Unclassified\n133\n0-2/2657-220\nRESTRICTED\nM.I.D., W.D.\nDecember 12, 1940.\nNo. 269\nSITUATION REPORT\n12:00 M.\nThis military situation report is issued by the Military\nIntelligence Division, General Staff. In view of the occasional\ninclusion of political information and of opinion it is classified\nas Restricted.\nI. Western Theater of War.\n1. Air Force Operations.\nThe German Air Force during daylight on the 12th\noperated normally over southern England. Last night bombing\nactivity was high. Sheffield was subjected to a. particularly\nheavy attack. Smaller raids were made on various other points.\nThe R.A.F. last night cancelled all operations ex-\ncept a small Coastal Command raid on Brest.\nII. Greek Theater of War.\nThe capture of Porto Palermo on the coast road about\ntwenty miles north of Porto Edda has been announced officially\nby the Greeks. It is believed that stiffening Italian resistance\nand bad weather have slowed up the Greek advance, except along the\ncoast. Air activity apparently limited.\nIII. Mediterrenean and African Theaters of War.\nIn Egypt British forces are now following up the Italian\nwithdrawal toward Sollum.\nRESTRICTED\nRegraded Unclassified\nFEDERAL RESERVE BANK\n134\nOF NEW YORK\nDecember 12, 1940.\nMrs. H. S. Klotz,\nSecretary to Hon. Henry Morgenthau, Jr.,\nTreasury Department,\nWashington, D. C.\nDear Mrs. Klotz:\nIn accordance with the suggestion made by the Secretary\nlate this afternoon, I am enclosing copy of the notes which we\nmade of our interviews with the market here on Tuesday morning\nwith respect to the new issue of Defense Notes. He told me that\nyou would see that it got to him promptly in the morning, and\nthat it would not be subject to general distribution.\nSincerely yours,\nRobert G. Rouse,\nVice President.\nEnc.\nRegraded Unclassified\nFEDERAL RESERVE BANK\nOF NEW YORK\n135\nFFICE CORRESPONDENCE\nDATE TUESDAY, DECEMBER 10,1940\nPILES\nSUBJECT Recommendations by banks and dealers\nwhich were interviewed by us this morning with\nrespect to the maturity and coupon on cash\nPre les house and & A. Miller\noffering this week of $500 million taxable\nDefense Notes.\nc. Levy of Salomon Brothers and Hutzler\nLIVE Teasury could seli any of the following notes:\n1 year\n- 1/4%\n2 \"\n- 3/8%\n3 \"\n- 1/2%\n4 or 4 1/2 \"\n- 3/4%\n5 \"\n- 7/8%\nbelieved there WELB no question about a one year note at 1/4% or et five year note\n..t. 7/82 being EL success and that & five year 7/8% note might even be sold by the\nPensury at 100 1/4 to yield 0.82% which would save the Treasury B. little money.\nNo also thought that a 3/4% coupon on a four and one-half year note would be\nreasonable. He believed the market basis for a four to four and one-half year\nnote would be 0.60% to 0.65% and for B. five year note 0.70%. He mentioned that\nDate estimate of the market basis for the five year note was lower than the tax\nsulvalent murket basis for the 2 1/2% bonds of December 15, 1945, because of an\nallowance he made for the high premium on the latter issue.\nMessrs. Wills, Marckwald and Leeds of Discount Corporation:\nThey submitted the following statement of estimates covering a. one year,\n2ND year, three year, four year or five year note:\n1 Year Taxable Note Due December 1941\nCoupon\n.125%\n.0833%\n.05%\n1/18\n100.4\n100.6\n100.7\n3/8%\n100.8\n100.9\n100.10\nComparable with 0.0.0. 1% - 11-15-41 on .00% basis tax equiv.\n.32%\nU.S.H.A. 1 Year 1/ 4's on.04% basis tax equiv.\n.12%\n2 Year Taxable Note Due December 1942\nDoubon\n.275%\n.225%\n.175%\n3/81\n100.6\n100.9\n100.13\n1/2\n100.14\n100.17\n100.21\nComparable with - H.O.L.C. 2 1/4% 7/1/42-44 on .08% basis -tax equiv. .57)\nR. 1. C. 1% 7/1/42 on .06% basis -tax equiv. -38%\n3 Year Taxable Note Due December 1943\ncupón\n-425%\n.375%\n,325%\n1/3\n100.8\n100.13\n100.17\n100.19\n100.24\n100.29\nComparable with - 3 1/4% October 15, 1943-45 on 265 besis - tax eouiv, 1.44\n1 1/8% December 15, 1943\non .18% basis - tax equiv. .54%\nRegraded Unclassified\nFEDERAL RESERVE BANK\n135\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE TUESDAY, DECIMED 10,1940\nFILES\nSUBJECT:\n1.9.Rouse and S.A.Miller\n- 2 -\n4 year Taxable Note Due December 1944\n/\n-55%\n.50%\n-45%\n100.7\n100.16\n100.23\n100.25\n101.\n101.6\nConvirble with 4% December 15, 1944-54 on 14% basis - tex equiv. 2.78%\n1% September 15,1944\non .38% basis - tax equiv. 70%\n5 year Taxable Note Due December 1945\nboron\n.60%\n65%\n.70%\n.75%\n.80%\n06\n100.24\n100.16\n100.8\nT/M\n101.3\n100.28\n100.20\n100.12\nComparisons:\n3/15 Che March 15, 1945 at 101.6\n- .47% basis - tax equiv.\n.71%\n3/44 il Sept. 15, 1945-47 \"110.3\n- .60% basis -\n\"\n\"\n1.47%\n1/2% \" Dec. 15,1945\n\"109.13\n- .60% besis -\nn.\n\"\n1.3%\n1 1/2% June 1, 1945-47 at 103.5\n- .78% basis -\nIf\ner\n1.25%\nComments:\nA defense note would have no right value. Assuming one point premium\nright velue on outstanding five year notes, you might, therefore, justifiably\nedd .20% basis to the yield now obtainable on present 5 year tex exempt note.\n-7.12 additional .20% basis would place 8. 5 year texable defense note on\napproximately El 70% basis. To arrive at probable yielde for shorter\ntabable defense notes, 8. straight line from .70% basis for 5 years\ndescensing to zero for December 140 (there being no right value) was drawn,\n12765 the yields above were thereby indicated.\nPrices derived from probable yield on taxable notes, based on current\nmirket level.\nVills believed that there would be some resistance in the market to a\ntelable note and thought E. 3/4% coupon on & five year note would be too thin,\nsecondin to their estimate that such en issue would sell in the market on E basis\nDetails 0.00% and 0.70%. He also thought that a 3/45 note for four and one-half\nSMITH rould be stretching it. He said the new note issue will be an experimental\nor = the murket will be watching it closely. While it might be possible that\n-- I'Lye year issue would be taken, 8. 7/8% five year note would be & greater\nTHE und would pave the way for future issues. He believed that some allowance\nthat Dy crüe for & possible increase in texes next year which would make vulnerable\nnote put out on the basis of present market levels. Owing to the \"smoke\"\nAccountrying & long taxable note, his recommendation would be to put out & short\nmarry,\nRegraded Unclassified\nFEDERAL RESERVE BANK\n137\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE TUESDAY, DECEMBER 10,1940\nCONFIDENTIAL FILES\nSUBJECT\nA.G. Rouse and S.A.Miller\n3\nMessrs. Morris and Schlioting of Bankers Trust Company\nSubmitted the following ostimates:\n1 Year\n2 Year\n3 Year\n4 Year\n4 1/2 isar\n5 Year\nCoupon\n1/4%\n3/8%\n1/2%\n3/4%\n3/4%\n7/8%\nEstimated\n0.58%\n0.66% = 101.\nWorket\n0.08 - 0.10 -\nI\n+50 .55%\n0.60%\n0.70% = 100.28\nRasis\nMr. Morris stated that his first choice would be B. five year 7/8% note\nen he Telt 1% would be too generous and 3/4% too close. He thought, however, that\n* four year 3/4% note might be stretched to four and one-half years. Mr. Schlicting\nstated that he thought 8 five year 7/8% might be too rich and his first choice\nwould be a four and one-half year 3/43 which should \"hit it on the добе\". Mr. Morris\nmid that a one year 1/4% note would be no problem and that the same would be true\nfor a two year 3/8% or & three year 1/2%. He said that he did not believe there\nwould be any resistance in the market to the innovation in the type of securities\nbeing issued and there would not be too much selling of the tax-exempt issues\nbecause as time goes on more banks will need the tax exemption. Both Mr. Morris\nand Kr. Schlicting believed the total amount of subscriptions received for the\ntaxable note should compare favorably with the amount of subscriptions received\nIn the past for tax-exempt notes.\nMessrs. Garner and Richmond of Guaranty Trust Company\nMr. Garner stated that short paper is attractive to them; however, the\nevount of their taxable securities income is increasing and an increase in taxes\nLa probable mext year. He believed that the question of \"Right\" value was also\nà factor in pricing a new note as it would make B. difference of about 1/4 of B point\nin the price of & five year note. Both Mr. Garner and Mr. Richmond believed the\nTreasury could sell & one year 1/4%, a four year, or possibly a four and one-\nhalf year 3/4% or B. five year 7/8%. However, a. four and one-half year 3/4%\nnote looked thin to them although it would not be impossible for it to sell\nin the market at a yield as low AE 0.58%. They believed it might be wiser\nfor the Treasury to add an extra 1/8% to the coupon in order to insure success\nuntil the market can be tested for this kind of an issue. While they believed a\nfour and one-half year 3/4% note might be too thin, they also believed that\nfive year 7/86 note might be B. little rich and Mr. Garner said that it might\nbe desirable to put out a short issue to conform with present legislation\nwhich provides for payment of the notes at maturity with taxes. If this were done,\nLt, would permit the Treasury to get away from cumbersome financing at an early\ndate provided it could obtain the necessary approval of Congress. In any event,\nthey would put out either a one year or a five year note as there appeared to\nbe little reason for doing anything in between. Although a one year 1/4% note\nwould not enjoy as wide distribution 88 B five year note, it would be taken\nor the larger banks. They would subscribe for such an issue if for no other reason\nRegraded Unclassified\nEDERAL RESERVE BANK\n138\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE TUESDAY, DECEDED 10,1940\nFILES\nSUBJECT:\n40,Rouse and S.A.Miller\nto jut some deposits to work and to cover the cost of deposit insurance. They,\nof course, would also take a four or four and one-half year 3/4% note or a five\nyear 7/8% note.\nMr. Green, Vice President of Chase National Bank\nThe Treasury could sell a one year 1/4%, a four and one-half year\n3/4% or 8. five year 7/8% note. Based on the current market yield of 0.70% for\nthe HOLC 1 1/2s of 1945-47, 8. five year 3/4% taxable note would look too thin. He\nalso believed a four and one-half year 7/8% note would be safer than E. 3/4%\nnote as there undoubtedly will be a lot of market resistance to EL new taxable\nissue. He believed, however, that the Treasury should sell B. short note in\nenticipation of taxes, pending such time as the Treasury could put out a long bond.\nno said be realized, of course, that B. short issue would wind up in E. few large\nbanks, which would not be as desirable as the wider distribution of & longer note.\n/nother objection he saw to the one year maturity was that 1941 was pretty well\nfilled up with other maturing issues which might make it more desirable to put out\n= two year maturity as there are relatively few issues maturing in 1942.\nMessrs. Burgess and Kane of National City Bank\nThe bond market feels pretty much like the stock market in 1929, or\nLas other words it is EL \"hectic bull market\". This should be taken into consideration\nIn new Treasury financing. Furthermore, if there is any question of the authorities\nDeling with excess reserves in the near future, a five year 3/4% note issue at\nthis time might look very bad later. Therefore, they would recommend B. four\nme one-half year 3/4% note or a five year 7/8% note, recognizing that either might\n2 et little full. While there is something to be said in favor of a one year 1/45\nnote, such an issue would add more fuel to the fire in the keen demand for longer\nnaturities of short issues at a higher yield. Notwithstanding their recommende tion\nof t. four and one-half or five year note, they believed it would be no problem\nfor the Treasury to sell a one year 1/4%, 8. two year 3/8%, B. three year 1/2% or\nN. four year 5/8% note. Their preference, however, would be for 8 note maturing in\nWree years or longer. They also commented on the need for the Treasury to give\nconsideration to the earning requirements of investors as the return on investments\nis getting much too small to provide a. livelihood.\nMr. Devine of 0. J. Devine and Company, Inc.\nA five year 3/4% note would go very well and sell in the market on\nEL 0.65% basis equivalent to E price of 100 1/2. However, others in his offics\nthink that a five year note should carry a 7/8% coupon. He also said the Treasury\ncould sell a one year 1/4%, a two year 3/8% & three year 1/2% and a four year 5/8%,\nalthough his office thinks that the three and four year issues should carry a coupon\n1/8% higher. Re believes that, under existing conditions, the question of paying\noff maturing taxable notes with taxes in one year is merely something to talk\nabout and that, owing to the state of the market, the maturity should be made\nIf Long as possible, in this case five years.\nRegraded Unclassified\nLIKM 0.40\nFEDERAL RESERVE BANK\nOF NEW YORK\n139\nFFICE CORRESPONDENCE\nDATE TUESDAY, DECEMBER 10,1940\nCONFIDENTIAL FILES\nSUBJECT:\nMessrs. E.G.Rouse and S.A.Miller\nROM.\n- 5 -\nThe above mentioned views of the banks and dealers were telephoned\nto Undersecretary of the Treasury Bell shortly after 11:00 a.m. today.\nOur recommendation was, briefly, that while most of the banks and\ndealers recommend a 7/8% coupon on a five year note, our estimates indicate\nthat a five year 3/4% note should sell in the market to yield around 0.60%;\nthat we believed such an issue would be well received but that, for reasons stated\nin the memorandum presented to the Treasury at the meeting on Monday, if the\nTreasury decides to use the National Defense authorization we would prefer to see\nit issue a one year 1/4% note, which is the shortest maturity that could be\nmade taxable.\nSAM:FD\nRegraded Unclassified\n140\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATEDecember 12, 1940\nTO Mr. D. 1. Bell\nFROM W. H. Hadley\n3/48 DEFENSE NOTES\nSubscriptions by 25 Largest Commercial Banks and\n5 Largest Savings Banks in the New York District\nMaximum Allowable\nBank\n(1/2 Cap, & Surplus)\nSubscription\n1.\nGuaranty Trust\n$130,000,000\n$100,000,000\n2.\nChase National\n100,000,000\n100,000,000\n3.\nNational City\n65,250,000\n65,250,000\n4,\nFirst National\n55,000,000\n55,000,000\n5.\nIrving Trust\n51,467,500\n10,000,000\n6,\nCentral Hanover\n40,500,000\n40,500,000\n7.\nBankers Trust\n37,500,000\n37,500,000\n8,\nManufacturers Trust\n37,373,000\n37,373,000\n9.\nChemical Bank\n35,000,000\n35,000,000\n10. Bank of Manhattan\n20,000,000\n20,000,000\n11. J. P. Morgan, Inc.\n20,000,000\n20,000,000\n12. New York Trust\n18,750,000\n18,750,000\n13. Savings Bank Trust\n16,248,000\n16,000,000\n14, Corn Exchange\n15,000,000\n5,000,000\n15, United States Trust\n14,000,000\n5,000,000\nRegraded Unclassified\n141\nBank\nMaximum Allowable\nSubscription\n16. City Bank Farmers\n$ 10,000,000\n$ 10,000,000\n17. Marine Trust,Buffalo\n7,500,000\n7,500,000\n18. Public National\n7,000,000\n7,000,000\n19. Commercial National\n7,000,000\n7,000,000\n20. Fidelity Union Trust, Newark\n6,750,000\n6,750,000\n21. Brown Bros. Harriman\n6,632,000\n6,000,000\n22. Brooklyn Trust Co.\n6,337,500\n6,337,500\n23. Manufacturers & Traders Trust,\nBuffalo\n6,250,000\n6,250,000\n24. Marine Midland\n5,000,000\n5,000,000\n25. Lincoln Alliance, Rochester\n3,400,000\n3,400,000\nSAVINGS BANKS:\n1.\nAgency Bank, Montreal\n37,500,000\n25,000,000\n2.\nBowery Savings Bank\n22,100,000\n22,000,000\n3.\nImmigrant Industrial\n21,490,000\n21,000,000\n4.\nDrydock Savings\n12,700,000\n10,000,000\n5. Union Dime Savings\n11,750,000\n10,000,000\nNote:\nThe above banks are listed in the order of the maximus allowable subscription\nand not according to relative size of the banks.\nRegraded Unclassified\n142\nDecember 18, 1940\nMr. D. 1. Bell\nI. 1. Hadley\n3/45 was NOTES\nSubscriptions W 25 Lergest 0 oroial Banks at\n5 Largest Savings is the Bee York Matriet\nMaximum Allowable\nlook\n(1/2 Can. & Purplus)\nAubscription\n1.\nGuaranty Trust\n$130,000,000\n$100,000,000\n2.\nChase National\n100,000,000\n100,000,000\n3.\nNational City\n55,250,000\n65,250,000\n4.\nFirst National\n55,000,000\n55,000,000\n6.\nIrving Trust\n51,467,500\n10,000,000\n6.\nCentral Hanover\n40,500,000\n40,500,000\n1.\nBeakers Trust\n37,500,000\n37,500,000\n8.\nNanufacturers Trust\n37,373,000\n37,373,000\n9.\nChemical Bank\n$5,000,000\n36,000,000\n10. Bank of Manhatten\n20,000,000\n20,000,000\n11. J. P. Norgen, Inc.\n20,000,000\n20,000,000\n12. Bew York trest\n18,750,000\n18,750,000\n18. Savings Bank Trust\n16,248,000\n16,000,000\n14. Gora Exchange\n15,000,000\n5,000,000\n15. United States Trust\n14,000,000\n5,000,000\nRegraded Unclassified\n143\nMaximum Allowable\ntask\nDebecription\n16. City Bank Farmers\n$ 10,000,000\n$ 10,000,000\n17. Marine Trust,Buffalo\n7,500,000\n7,600,000\n10. Public National\n7,000,000\n7,000,000\n19. Commercial National\n7,000,000\n7,000,000\n20. Fidelity Union Trust, Newark\n6,750,000\n6,750,000\n2. Brown Bros. Harriman\n6,632,000\n6,000,000\n22. Brooklyn Trust Co.\n6,337,500\n6,337,500\n25. Nanufacturers & Traders Trust,\nBuffale\n6,260,000\n6,250,000\n24. Marine Midland\n5,000,000\n5,000,000\n25. Lincoln Allience, Rechester\n3,400,000\n3,400,000\nSAVINGS BANKS:\n1.\nAgency Bank, Mentreal\n37,500,000\n26,000,000\n2. Bovery Savings Bank\n22,100,000\n32,000,000\n8.\nImmigrant Industrial\n21,490,000\n21,000,000\n4.\nDrydook Sevings\n12,700,000\n10,000,000\n8. Union Dine Savings\n11,750,000\n10,000,000\nMate:\nthe above banks are listed in the order of the maximum allowable subscription\nand not according to relative sise of the banks.\nRegraded Unclassified\n144\nFEDERAL RESERVE BANK OF CHICAGO\nDecember 12, 1940\nHon. D. W. Bell\nUnder Secretary of the Treasury\nTreasury Department\nWeshington, D. C.\nDear Dan:\nIn line with our telephone conversation I am setting\nout below the subscriptions entered by the various banks men-\ntioned to the current offering of Treasury notes:\nChicago\nContinental Illinois National Bank &\nTrust Company\n$ 42,500,000\nFirst National Bank\n15,000,000 65m\nCity National Bank & Trust Company\n3,500,000\nHarris Trust & Savings Bank\n2,500,000 - 14A M\nNorthern Trust Company\n4,500,000\nDetroit\nDetroit Bank\n$ 3,925,000\nManufacturers National Bank\n3,000,000\nNational Bank of Detroit\n12,875,000\nIndianapolis\nIndiana National Bank\n$ 4,500,000\nMilwaukee\nFirst Wisconsin National Bank\n$ 9,000,000\nAll of the above subscriptions are for the maximum\namounts permissible with the exception of the First National Bank of\nChicago, whose capital and surplus is $65,000,000, and the Harris\nTrust & Savings Bank, whose capital and surplus is $14,000,000.\nEnjoyed hearing from you and hope that this gives you\nthe desired information.\nVery truly\nal yours, Sihh\nAlfred T. Sihler\nB\nAssistant Vice President\nRegraded Unclassified\nSTANDARD FORM No. 14A\nAPPROVED BY THE PRESIDENT\nFROM\nThe White House 145\nMARCH 10. 1926\nMashington\nTELEGRAM\nOFFICIAL BUSINESS-GOVERNMENT RATES\nDEC. 28, 1940\nVIA NAVAL COMMUNICATIONS.\nCLEAR\nTO: THE PRESIDENT.\nFROM: HENTOS MORGENTHAU, Jr.\nI an pleased to inform you that first public offering of fully\ntaxable notes has been a great cussess.\n(Copy for Mrs. Klotz as requested by Secretary Morganthau.)\nRegraded Unclassified\nCOPY 2\nTREASURY DEPARTMENT\n140\nINTER-OFFICE COMMUNICATION\nCONFIDENTIAL\nDATE December 12, 1940\nTO\nSecretary Morgenthau\nFROM\nMr. Hase all\nSubject: Employment in the Aviation Manufacturing Industry\n1. Employment in the aviation manufacturing industry has\nmultiplied more than four times in the last twenty months\nand has doubled in the last nine months. In November 1940,\nmanufacturers of airplanes employed approximately 120,700\nfactory workers, and manufacturers of airplane engines\napproximately 34,300 factory workers,s total of approx-\nimately 155,000 for the entire industry. Included in these\nfigures are the employees of manufacturers of parts for\nairplanes and airplane engines.\n2, For the industry as a whole employment rose by approx-\nimately 7,100 factory workers in November. The largest\nincrease in employment -- approximately 2,150 factory\nworkers -- occurred at the Lockheed Aircraft Corporation.\nConsolidated Aircraft Corporation added 1,300 factory\nworkers to its rolls during the month, raising its total\nemployment to 12,355. In January of this year Consolidated\nemployed only 2,837 factory workers.\n3. The increase in employment during November was not\nexperienced by all plants in the industry, however, there\nbeing important decreases at two of the large plants. At\nthe United Aircraft Corporation employment decreased by\n800 during the month. At the Boeing Aircraft plant in\nSeattle there was 8. decrease of 1,040 factory workers.\nBoeing reported that this decrease in employment Was due\nto \"between contracts and laok of materials\".\n4. Two charte are attached to this memorandum. The first\nshows total employment in the industry and the employment\nof selected companies since January 1937. The attached\ntables give the figures plotted on the chart. The second\nchart presents total employment in the industry by\ngeographic areas for December 1938, December 1939, and\nNovember 1940.\nAttachments\nRegraded Unclassified\nEmployment in Aviation Manufacturing Industry\n(Airplanes and Airplane Engines)\n147\n1937-1940\n:\n:\n:\n:\n: 1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nAirplanes\nJanuary\n22,100\n23,700\n25,251\n58,000\nFebruary\n60,500\nMarch\n24,100\n24,200\n27,875\n64,500\nApril\n67,000\nMay\n73,000\nJune\n25,200\n22,800\n35,973\n80,000\nJuly\n90,000\nAugust\n97,448\nSeptember\n23,400\n22,050\n41,425\n105,362\nOctober\n115,241\nNovember\n120,650\nDecember\n23,800\n24,450\n52,800\nAirplane Engines\nJanuary\n5,500\n6,500\n6,989\n13,900\nFebruary\n15,800\nMarch\n6,000\n6,600\n7,825\n17,300\nApril\n18,600\nMay\n20,800\nJune\n6,600\n6,900\n8,727\n22,900\nJuly\n25,400\nAugust\n27,019\nSeptember\n6,400\n6,772\n9,289\n28,981\nOctober\n32,633\nNovember\n34,314\nDecember\n6,600\n6,847\n12,600\nTotal Industry -- Airplanes and Airplane Engines\nJanuary\n27,600\n30,200\n32,240\n71,900\nFebruary\n76,300\nMarch\n30,100\n30,800\n35,700\n81,800\nApril\n85,600\nMay\n93,800\nJune\n31,800\n29,700\n44,700\n102,900\nJuly\n115,400\nAugust\n124,467\nSeptember\n29,800\n28,822\n50,714\n134,343\nOctober\n147,874\nNovember\n154,964\nDecember\n30,400\n31,297\n65,400\nOffice of the Secretary of the Treasury,\nDivision of Research and Statistics.\n148\nEmployment of Selected Aircraft Manufacturing Corporations\n1937-1940\n:\n:\n:\n:\n:\n1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nBell Aircraft Corp.\nJanuary\n615\n222\n654\n859\nFebruary\n865\nMarch\n850\n290\n912\n896\nApril\n840\nMay\n873\nJune\n808\n440\n1,410\n1,192\nJuly\n1,480\nAugust\n1,963\nSeptember\n718\n235\n703\n2,413\nOctober\n3,355\nNovember\n3,449\nDecember\n213\n606\n799\nBoeing Aircraft Co. - Seattle\nJanuary\n1,834\n1,493\n2,380\n5,137\nFebruary\n4,942\nMarch\n1,726\n1,700\n2,749\n4,759\nApril\n4,198\nMay\n5,190\nJune\n1,249\n1,736\n2,989\n5,882\nJuly\n6,571\nAugust\n6,926\nSeptember\n1,109\n1,798\n3,985\n6,940\nOctober\n6,391\nNovember\n5,351\nDecember\n1,380\n2,285\n4,749\nConsolidated Aircraft Corp.\nJanuary\n3,169\n2,540\n968\n2,837\nFebruary\n3,477\nMarch\n3,246\n2,518\n819\n3,807\nApril\n4,349\nMay\n5,040\nJune\n3,099\n2,104\n832\n5,821\nJuly\n6,743\nAugust\n7,836\nSeptember\n2,617\n989\n1,408\n9,289\nOctober\n11,018\nNovember\n12,355\nDecember\n2,580\n981\n2,540\n149\nEmployment of Selected Aircraft Manufacturing Corporations\n1937-1940\n(continued)\n:\n:\n:\n:\n: 1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nCurtiss-Wright Corp. - Buffalo\nJanuary\n1,241\n2,211\n3,802\n4,380\nFebruary\n4,744\nMarch\n1,500\n2,347\n2,939\n5,016\nApril\n5,213\nMay\n5,698\nJune\n1,933\n2,310\n2,848\n6,314\nJuly\n6,531\nAugust\n6,597\nSeptember\n2,202\n2,736\n1,562\n6,824\nOctober\n7,682\nNovember\n7,889\nDecember\n2,007\n3,491\n3,447\nDouglas Aircraft Co., Inc.\nJanuary\n5,591\n6,328\n4,334\n11,952\nFebruary\n12,077\nMarch\n5,961\n6,173\n4,177\n13,119\nApril\n14,033\nMay\n14,656\nJune\n6,653\n4,672\n5,445\n14,957\nJuly\n14,662\nAugust\n14,898\nSeptember\n5,532\n4,028\n6,318\n14,219\nOctober\n14,158\nNovember\n14,787\nDecember\n6,771\n4,110\n10,362\nLockheed Aircraft Corp.\nJanuary\n910\n1,577\n2,305\n5,157\nFebruary\n4,768\nMarch\n1,094\n1,594\n3,509\n4,362\nApril\n4,400\nMay\n5,016\nJune\n1,338\n1,797\n5,699\n5,591\nJuly\n6,599\nAugust\n7,296\nSeptember\n1,383\n1,997\n5,324\n7,582\nOctober\n8,517\nNovember\n10,675\nDecember\n1,428\n2,123\n5,156\n150\nEmployment of Selected Aircraft Manufacturing Corporations\n1937-1940\n(continued)\n:\n:\n:\n:\n:\n1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nGlenn L. Martin Co.\nJanuary\n1,364\n1,814\n2,905\n10,984\nFebruary\n9,407\nMarch\n1,716\n1,892\n4,092\n9,133\nApril\n9,010\nMay\n9,357\nJune\n2,044\n2,134\n6,029\n9,133\nJuly\n9,513\nAugust\n11,200\nSeptember\n2,032\n2,341\n10,070\n10,019\nOctober\n11,414\nNovember\n12,950\nDecember\n1,818\n2,777\n11,174\nNorth American Aviation, Inc.\nJanuary\n829\n1,713\n2,223\n4,049\nFebruary\n4,324\nMarch\n889\n1,935\n2,457\n4,154\nApril\n4,371\nMay\n4,336\nJune\n841\n2,400\n3,125\n4,782\nJuly\n4,918\nAugust\n4,916\nSeptember\n1,272\n2,685\n2,992\n5,111\nOctober\n5,828\nNovember\n6,054\nDecember\n566\n2,530\n3,795\nUnited Aircraft Corp.\n(excluding Pratt & Whitney)\nJanuary\n2,350\n2,245\n1,826\n2,757\nFebruary\n3,051\nMarch\n2,444\n2,16g\n1,766\n3,468\nApril\n3,735\nMay\n3,912\nJune\n2,497\n1,972\n1,952\n4,282\nJuly\n4,823\nAugust\n5,016\nSeptember\n2,439\n1,880\n2,123\n5,445\nOctober\n6,010\nNovember\n5,251\nDecember\n2,338\n1,774\n2,588\n151\nEmployment of Selected Aircraft Manufacturing Corporations\n1937-1940\n(continued)\n:\n:\n:\n:\n: 1937\n:\n1938\n: 1939\n:\n1940\n:\n:\n:\n:\nVultee Aircraft, Ino.\nJanuary\n364\n742\nFebruary\n938\nMarch\n440\n959\nApril\n1,008\nMay\n1,334\nJune\n560\n533\n2,127\nJuly\n2,618\nAugust\n2,857\nSeptember\n430\n288\n3,531\nOctober\n3,652\nNovember\n3,749\nDecember\n334\n662\nRegraded Unclassified\n152\nEmployment of Selected Airplane Engine Corporations\n1937-1940\n:\n:\n:\n:\n:\n1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nAllison Engineering Co.\nJanuary\n218\n262\n454\n1,114\nFebruary\n1,261\nMarch\n229\n297\n466\n1,610\nApril\n1,958\nMay\n2,766\nJune\n238\n339\n558\n3,254\nJuly\n3,917\nAugust\n4,595\nSeptember\n238\n382\n642\n5,282\nOctober\n6,280\nNovember\n6,295\nDecember\n266\n439\n901\nContinental Motors Corp.\n(Airplane Engine Division)\nJanuary\n151\n153\n134\n288\nFebruary\n344\nMarch\n153\n152\n138\n358\nApril\n368\nMay\n378\nJune\n162\n144\n171\n388\nJuly\n398\nAugust\n382\nSeptember\n135\n146\n203\n567\nOctober\n732\nNovember\n855\nDecember\n152\n142\n243\nLycoming Division of Aviation Manufacturing Corp.\nJanuary\n849\n729\n519\n581\nFebruary\n638\nMarch\n889\n704\n521\n657\nApril\n711\nMay\n765\nJune\n901\n549\n573\n819\nJuly\n873\nAugust\n970\nSeptember\n756\n514\n644\n1,080\nOctober\n1,459\nNovember\n1,320\nDecember\n762\n506\n689\n153\nEmployment of Selected Airplane Engine Corporations\n1937-1940\n(continued)\n:\n:\n:\n:\n:\n1937\n:\n1938\n:\n1939\n:\n1940\n:\n:\n:\n:\nPratt & Whitney Aircraft\nJanuary\n1,931\n2,567\n2,264\n5,642\nFebruary\n6,549\nMarch\n2,119\n2,489\n2,659\n7,158\nApril\n7,541\nMay\n7,765\nJune\n2,384\n2,555\n3,066\n8,504\nJuly\n9,121\nAugust\n9,449\nSeptember\n2,471\n2,384\n3,394\n9,406\nOctober\n9,794\nNovember\n10,377\nDecember\n2,61g\n2,227\n5,022\nWright Aeronautical Corp.\nJanuary\n2,254\n2,607\n3,398\n5,411\nFebruary\n6,081\nMarch\n2,515\n2,705\n3,771\n6,537\nApril\n6,984\nMay\n7,882\nJune\n2,800\n2,930\n3,997\n8,682\nJuly\n9,491\nAugust\n10,151\nSeptember\n2,690\n3,184\n4,026\n10,726\nOctober\n11,240\nNovember\n11,950\nDecember\n2,608\n3,374\n5,141\nRegraded Unclassifie\nEMPLOYMENT IN THE AVIATION MANUFACTURING INDUSTRY, BY REGIONS\n/\nFactory Wage Earners\n-\n⑈\nMINN\nuna\n5\n**\n;\nS DAE\nare\nWYO\nNov, - 1030-2000 Pacific 61,500\n-\nwith\nNew\nIRANS\nCOMM\n:\nPTAM\nNEAR\n-\n(Lk.\nMICH\nIND\nOHIO\nDEG\n-\n-\nMO\n1\nEANS\nMount\nn\nCentral and Southern\ne\nDec 1938- 2,300\n: $ *\nAllia\nDec. 1939- 400\nDel\nNov 1940\n000\n-\nN.MES\nNov. Dec\n1940-71.5000\nST\nSELA\nTEXAS\nTEHR-\nARE\n\"\nBA-\nCALIF\n-\nN\nLA.\nPCA\nTotal U.S.\nDAL IV38 - 21,300\nDec. 1939-65400\nNov. 1940-155000\nincluding Parts Companies\n14 all 15th Secretary of the Transary\nRegraded Unclassified\n-\nat\n1\n-\n155\nEMPLOYMENT IN AVIATION MANUFACTURING INDUSTRY\nSTRICTLY COMMENTIAL\nFactory Wage Earners\n1937\n1938\n1989\n1940\n1941\n.\nN\na\nM\na\n*\n9.\nM\na\n-\nM\nJ\n.\nN\n4\nM\na\nJ\nE\n#\nJ\n$\n$\nM\nE\n,\nEMPLOYEES\nEMPLOYEES\nThousands\nThousands\nTotal Industry (Aircraft and Enginee)\n140\n140\n120\n120\n100\n100\n80\n80\n60\n60\n40\n40\n20\n20\n0\no\n.\n-\n,\nM\nM\nJ\n.\nM\n,\nM\na\nJ\na\nN\nJ\nM\nM\n7\n#\nN\n4\nM\nM\nJ\n.\nN\nJ\nM\nM\nJ\n1937\n1938\n1939\n1940\n1941\nSelected Aircraft Manufacturing Companies\nSelected Airplane Engine Companies\nEMPLOYEES\nEMPLOYEES\nThousands\nThousands\nThe Deuglas Aircraft Ca.\nStann L.Martie Ca.\nWright Carp.\n01\n15.0\n15.0\nH t\n12.5\n125\n11\n10,0\n10.0\n#:\n7,5\n7.6\n\"\n5.0\n0.0\n\"\n2.5\n25\n\"\na\na\n1937\n1938\n1939\n1940\n1941\n1937\n1938\n1939\n1940\n1941\n15.0\n17.5\nD\nBoxing Amount Ca\nPrast and Whitney Aircraft\n1937\n1938\n1939\n1940\n1941\n0,5\n12.5\n16.0\nConsolidated Aircraft Corp.\n10.0\n12.5\n:\n1.1\n7.5\n19.0\n5.0\n9.0\n7.5\n+\n7.5\n2.5\n5.0\ne\no\nz.a\nHERT\nres\n-\n1939\n1948\n1941\n1937\n1938\n1959\n1140\n1941\n12.5\nLockheed Aircraft Corp.\nCurtim Wright Corp.\na\nI 1 the I\n1987\n1938\n1921\n1140\n1991\n--\n19.0\n12.5\nAllison Engineering Ca.\n1.5\n7.5\n16.0\nse\ns.e\n7.5\nLS\n2.5\n5.8\ne\na\n25\n1937\n1938\n-6.6\n1930\n1945\n1941\n1937\n1938\n1939\n1940\n1941\n10.0\nUnited Aircraft Corp.\nNerth Americas Aviation, Inc.\na\nI I I I\n1987\n1988\n1939\n1940\n1941\n7.5\n7.5\n76\nLycoming Devision of\ndelation Manufacturing Corp\n1.0\n5.0\n:\n1.5\n2.5\n1.5\ne\nB\na\n1937\n1938\n1039\n1940\n1941\n1437\n1938\n1939\n1948\n1941\n1981\n1934\n1948\n1141\n5.0\n5.0\nso\n- Carp\nVultae Aircraft Corp.\nCertinatial leurs\nI 5 I\n2.5\n2.5\n25\ne\nD\na\n1997\n1938\n1929\n1940\n1941\n1937\n1434\n1939\n1940\nI\n1987\n-\n1981\n-\n1441\nRegraded Unclassified\nDecember 12, 1940\n156\nRECENT MOVEMENTS IF AXIS FUNDS\nRUSTIN TO SOUTH AMERICA. It 16 reported that since September some $4,600,000\nof Germen funds have been transferred to South American banks, and that approxi-\nmtely $2,300,000 has returned from Argentina and Peru to the account of the\nReichsbank In New York. During the same period there was transferred from Italian\naccounts in the United States approximately $13,000,000 to South America, of which\n$10,000,000 went to the Italian Embassy in Brazil from the Italian Foreign Exchange\nCostrol Funds in New York and in addition, $4,500,000 was sent in cash by courier.\nla 4. result of recent return transfers of less than $1,000,000 the net amount of\nItelian funds transferred to Latin America since September amounts to more than\n$16,000,000. Recent information indicates that the Bank of Brazil expects to re-\ncaste $10,000,000 for credit to a Japanese account as part of the Japanese program\ndesigned to centralize dollar exchange operations of the Yokohama Specio Bank with\nthe Bank of Brasil.\nGERRAN FUNDS. The flow of German funds in this country appears principally to have\nbeen to the accounts of Swedish banks here, $1,500,000 being transferred to such ac-\ncounts from German accounts since November 25. About $1,350,000 is known to have\nbeen transferred to Swiss accounts here, while $750,000 has returned from Swiss to\nServez accounts. Cash withdrawals from German consular accounts since December 1\nhave ascunted to $850,000. Of this amount $650,000 was withdrawn by the Consul\n(enoral is liev York, who paid $530,000 to cover interest payments on German bonds.\nThe remining $120,000 is apparently still in the consulate. The German Embassy\nis Tashington recently received $200,000 by draft from the Reichsbank, Berlin, and\nortained this amount in notes of $20 to $1,000 denominations. There is some indi-\ncaties that cash deposits are being made by the Reichsbank by way of South America,\nNational City Bank having recently received $180,000 by this method.\nITALIAN FUNDS. Transfers of Italian funds, excluding those to South America, have\nbeen principally to Spanish, Swedish, and American accounts and transfers from\nto Italian accounts have been noted. It has also been recently reported\nthat the Italian Attache at Tokyo has carried $800,000 in American currency from\nShanghai to Japan. Further reports indicate that substantial Italian Government\nfunds have been converted into cash which is being kept on diplomatic premises.\nPUNDS. Japanese Institute, Inc., a Japanese oultural organization, is\ncons to have been receiving its principal income from the Japanese Consul General\nto lien look, The various Japanese consular officers throughout the World are ap-\nparently being supplied with funds from the Japanese consular accounts with the\nBank of Imerica.\nPORTUGUESE GOLD. Since October 2, 1940, $33,000,000 in gold has arrived here from\nPartugal and been sarrarked at the Federal Reserve Bank of New York for account of\nthe Bank of Portugal. It is not clear that this WELS actually the Bank of Portugal's\nXII gold, since on October 2 the amount of gold under earmark in New York for that\nbenk's account amounted to $70,000,000, about equal to the Bank of Portugal's gold\nDate and bullion reserves as shown in its bank statement. A detailed statement with\nregard to gold imports from Portugal in comparison with the gold reserves of Portugal\nis outsined in the menorandum of December 9, 5 copy of which is attached.\nRegraded Unclassified\n157\nDecember 9, 1940\nMr. Cochran\nMr. Hawkey\nSubject: Gold shipped here by and for account\nof the Bank of Portugal.\nMore than $70 million in gold has arrived here from Portugal since the\nbeginning of July, 1940, shipped by and for account of the Bank of Portugal. Since\nall of the gold was earmarked upon arrival in New York, that Bank's gold balance here\nrose from $30.1 million as of July 3 to $109.8 million at the close of December 5.\n(About $6.0 million of this increase resulted from the purchase of gold from the\nU. 8. Stabilization Fund.)\nOn October 10, I wrote you B. memorandum in which comparison was made between\nthe Bank's gold in New York and the asset item \"Encaisse-or\" (gold coin and bullion)\non the Bank's own weekly statement. At that time, the most recent statement available\nwas dated August 21, and it could not be asserted definitely that the Bank's gold in\nNew York was of B. greater value than its \"Encaisse-or\".\n(\nTie have now received the Bank's statement as of October 2, listing an \"Encaisse-\nor\" of $69.1 million. On the same date, its gold balance in New York amounted to\n$70.5 million and since October 2, the Bank of Portugal has shipped another $33.3\nmillion in gold to New York. (All of this has arrived; there 10 no gold in transit\nat present.) We have no \"Encaisse-or\" figure available for dates subsequent to\nOctober 2, but since this item has moved upward less than $2.0 million in the past\nsix years, it is very likely that little or no change has taken place since early\nOctober.\nThe foregoing information is tabulated below (in millions of dollars):\nPeriod-\nImports\nGold bal-\n\"Encaisse-\n1940\nfor account of\nance here\nor\" 3/\nBk. of Port. 1/\n(At end of each period)\n$30.1 (July 3)\n$68.8 (July 3)\nJuly 4 - 31\nr 7.1\n37.8\n68.9\nAug. 1 - Sept. 4\n16.7\n55.3\n68.9\nSept. 5 - Oct. 2\n15.2\n70.5\n69.1\nOct. 3 - 31\n21.1\n97.6 2/\n(69.1) Carried\nNov. 1- - Dec. 5\n12.2\n109.8\n(69.1) Forward\nAll from Portugal, except $1.4 million from England in July.\nRegraded Unclassified\n- 2 -\n158\nDuring October, the Bank of Portugal also purchased $6.0 million in gold\nfrom the U. S. Fund.\nAccording to 1931 law, the Bank values its gold at .066567 fine grams per\nescudo; conversion of escudo value into dollars hence made at the rate of\n$.0748 per escudo.\nThe apparent conclusion is that the Bank of Portugal has sent to the United\nStates at least $33.3 million of gold not shown in its \"Encaisse-or\". Since only\n$14.6 million of Bank of Portugal gold arrived here during the first half of 1940\n(of which $2.1 million came from Portugal and about $12.5 million from England), it\nmay be further concluded that most of the \"extra\" gold was shipped in the past five\nmonths.\nThis \"extra\" gold may be any of the following:\ni) The Bank of Portugal's own gold. In addition to the gold listed under\n\"Encalsse-or\", there 1s reason to believe that the Bank carries some\ngold in its asset item \"Disponibilites or a l'etranger et autres reserves\"\n(liquid gold exchange assets abroad and other reserves). Here is some\nevidence; in the week ended March 20, 1940, the Bank purchased alightly\nless than $5.0 million in gold from the U. S. Fund in order to strengthen\nits gold reserves. In that week, its \"Encaisse-or\" changed not oven a\nfraction of one escudo. \"Disponibilites, etc.\", however, rose $4.9\nmillion (using the rate of $.0748).*\nAbout e. year ago, the largest amount of gold that could have been\nincluded under \"Disponibilites, etc\". was $22.0 million. In the Bank's\nstatement for December 30, 1949, this item was valued at 536.3 million\nescudos. Examination of the Bank's annual report for 1939 reveals that\n242.2 million escudos of the above represented the Bank's holdings of\nthe Government of Portugal's 3% sterling obligations. Therefore, the\nmaximum amount of gold that could have been included under this item\nwas 294.1 million escudos worth, or $22.0 million. (The Bank's holdings\nof dollars were negligible at that time.)\n2) Gold held by the Portuguese Treasury. The Federal Reserve Bulletin, in\nits table \"Gold Reserves of Central Banks and Governments\", uses only the\nBank's \"Encaisse-or\" figure, converted at $.0748. But the Portuguese\nBank's annual report for 1939 shows a table of the Treasury's liquid\nasseta at the end of November, 1939, wherein appeared 430.2 million\nescudos worth of gold in bars, equivalent to $32.2 million.\nFor all we know, the Bank of Portugal may have exchanged its\nholdings of Portuguese Government sterling bonds for Treasury gold,\nshipping the latter to New York.\n* The dollar funds used in this purchase were remitted to the Federal\nby various banks in New York. Indication that the Bank of Portugal\nacquired such dollars during that same week is given in the Bank's\nstatement, wherein Portuguese bank deposits at the Bank of Portugal\nrose 100 million escudos, or slightly more than $4. million.\nRegraded Unclassified\n159\n-3-\n3) Gold of some foreign bank or government, in the shipment and earmarking\nof which the Bank of Portugal acted really 8.8 intermediary. Unless we\nreceive further evidence that a third party's interest was involved, it\nwould seem inadvisable to question the Bank of Portugal for what appear\nto be shipments of \"extra\" gold. The information presented under the\npreceding two points suggests that Portugal does own gold beyond that\nshown in the \"Encaisse-or\" asset item of the Portuguese Bank statement.\nRegarding the markings on gold bars already shipped here, from Portugal,\nI think you will agree that these cannot be offered as proof of owner-\nship, since many Continental assay marks constitute good delivery in\nEurope's gold markets.\nRegraded Unclassified\n160\nMEMORANDUM\nDecember 12, 1940.\nTO:\nThe Secretary\nFROM: Mr. Sullivan\nI attach hereto summaries of various\nnewspaper articles on taxation.\nT-S\nΓ\nRegraded Unclassified\n161\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE December 9, 1940\nTO yr. Sullivan\nFROM Mr. Blough\nThe following items of interest relating to taxes appeared in\nthe newspapers of December 9, 1940:\n1. New York Times, page 1, column 3\nAn article entitled \"Labor laws, taxes, handicap program, Navy\nreport says\" reports that Rear Admiral Ray Spear, Chief of the Bureau\nof Supplies and Accounts, in his annual report for the year ended\nJune 30. 1940, cites certain Federal laws as hampering naval expansion\nefforts. Contractors are mentioned as being loath to undertake\nexpension of plant facilities \"due to the restrictions on the\nemployment of surplus and plant expansion in the form of & limitation\non the profit and the excess profit taxes. It is reported that\nninety-nine contracts having a money value of $33,577.165 showed\nexcess profite amounting to $3,704,220 while contracts of $20,344,135\nshowed losses. Accordingly, it is indicated that profit limiting\nprovisions such as those under the Vinson-Trammel Act are not needed.\nIt is noted that the Act of June 28, 1940, amending the Vinson-Tramel\nAct did much to expedite the defense program but came too late to\naffect fiscal year 1940 procurement.\n2. New York Herald Tribune, page 21, column 1\nAn article entitled \"Treasury due to press tax exempt fight\"\nreports that Mr. Foley's speech last Friday is the beginning of\nanother administration move to end tax-exempt securities. The author\nsays that a constitutional amendment 1s the \"best and possibly only\nmeans of effecting this reform.\"\n3. The Wall Street Journal, page 2, column 1\nAccording to the article entitled \"Defense notes expected to be\nannounced today.\" the new defense notes soon to be issued may be subject\nto Federal income taxes.\nRB\nRegraded Unclassified\nTREASURY DEPARTMENT\n162\nINTER-OFFICE COMMUNICATION\nDATE December 9, 1940\nTO Mr. Sullivan\nFROM Mr. Blough\nThe following items of interest relating to taxes appeared in\nthe newspapers of December 5-7, 1940:\nDecember 5, 1940\n1. Journal of Commerce, December 5, 1940, page 3, column 4\nAn article entitled \"Eccles urges need of Congress action on\nBritish credite\" reports a speech by Mr. Eccles before the National\nIndustrial Conference Board. Mr. Eccles recommended that steps\nshould be taken to close the gap between income and outgo, but that\ntaxes should not be raised to a point that would close the gap\nentirely before reaching the condition of full production and\nemployment. Other recommendations, including restoration of the\nprinciple of undistributed profits taxation, were also made.\n2. Journal of Commerce, December 5, 1940, page 7. column 7\nAn article entitled \"State barrier taxes, U. S. tariffs scored\"\nreports Professor Medlar of Clark University, Worcester, Massachusetts,\nas condemning taxes which act as trade barriers including national\nprotective tariffs because they increase the consumers' bill for the\nbenefit of special interest groups. Chain store taxes were also\ncondemned as harmful to free enterprise.\n3. New York Herald Tribune, December 5, 1940, page 41, column 6\nAn article entitled \"Rigid economy drive is urged on taxpayers\"\nreports an address by A. Vedder McGee of the Taxpayers' Federation, Inc.,\nto the effect that New York State taxpayers should insist upon rigid\neconomy in state and local budgets. Otherwise, state and local taxes\ncombined with increased taxation needs for national defense may lead\nto confiscatory taxation.\nDecember 6, 1940\n1, New York Times, December 6, 1940, page 14, column 1\nAn article entitled \"35 billion outlay seen for defense\" reports\nan estimate prepared by the Department of Agriculture to the effect\nRegraded Unclassified\n- 2 -\n163\nthat the national defense program as now rojected will involve\nan expenditure of about 35 billion dollars in the next five years.\nThe article is based on a report entitled \"The impact of war and\nthe defense program on agriculture\" which indicates that if all the\nexpenditures were to be cared for by increased taxation and decreased\nspending for other purposes, the effects on our domestic economy\nwould be relatively small.\n2. New York Times, December 6, 1940, page 14, column 2\nAn article entitled \"Flexible tax plan urged by Anderson\" reports\nthe study made public by the T.N.E.C., \"Taxation, Recovery and Defense\"\nby Dr. Dewey Anderson. The report advocates, among other things, a\nvalue added tax and a flexible tax system easily adaptable to meet\nchanging conditions.\n3. New York Times, December 6, 1940, page 25, column 7\nIt is reported by the American Automobile Association that gasoline\ntaxes will yield $1,160,000,000 this year or $130,000,000 more than in\n1939. Of this increase, approximately $55,000,000, or 42 percent, is\naccounted for by the increase in the Federal gasoline tax rate which\nbecame effective last July 1.\n4. New York Times, December 6, 1940, page 37, column 1\nIt is reported that the Fortnightly Review of Fuller, Rodney and\nCompany states that defense spending and accompanying deficits will make\ne. new tax law inevitable.\n5. Journal of Commerce, December 6, 1940, page 13, column 3\nAn article entitled \"Repeal of state margarine taxes urged by\nJanssen\" reports the recommendation of the President of the National\nAssociation of Margarine Manufacturers with respect to the tax on\ncleomargarine.\n6. Wall Street Journal, December 6, 1940, page 3, column 2\nAn article entitled \"Marked uptrend in recent years cause heavy\nexcess profits levy\" reports the profit position of the chemical industry.\nThe article indicates that chemicals have had a marked upward trend in\nearnings in recent years, which has been accelerated by the present peak\nvolume of operations. This will, it is reported, result in most instances\nin heavy excess profits tar liability.\nRegraded Unclassified\n164\n- 3 -\n7. New York Herald Tribune, December 6, 1940, page 21, column 7\nAn article entitled \"Super-tax is proposed on large land holdings\"\nreports the recommendation by the National Catholic Welfare Council\nto the House Migration Committee for super-tax on large land holdings\nas a step in solving the problem of destitute migratory workers.\nDecember 7, 1940\n1. New York Times, December 7, 1940, page 3, column 5\nAn article entitled \"Canada passes bills to reduce luxuries\" reports\nthat Canada has passed a 25 percent excise tax on large categories of\nCanadian lurury manifactures and suspends imports from the United States\nof virtually all similar articles until after the war as a measure of\nexchange economy.\n2. New York Times, December 7, 1940, page 32, column 5\nAn article entitled \"Tax exempts' end linked to defense\" reports an\naddress by Mr. Foley, General Counsel of the Treasury, that the further\nIssuance of tax-exempt securities interferes with the effectiveness of\nthe defense program. He urged municipalities to cooperate in ending the\nissuance of tax-exempt securities so that their securities would not have\npreference over Federal issues.\n3. New York Herald Tribune, December 7, 1940, page 1, column 3\nAn article entitled \"Tax framers turn to levy on small incomes\" reports\nthat as a result of the President's decision against resorting to a\nmamifacturers' sales tax, the possibilities of increased income taxes\non the lower and middle income brackets are receiving the attention of\ncongressional and governmental experts.\n4. Wall Street Journal, December 7, 1940, page 2, column 2\nAn article entitled \"Anderson urges broad revision of tax structure\"\nreports that Professor Benjamin M. Anderson of the University of California\nand former Chase National Bank economist, has recommended tax revision in\nthe form of broadening the income tax base by a lowering of exemptions.\nAs a spur to private capital flow, he also recommends that the rates of\ntax in higher brackets be reduced.\nRB\nRegraded Unclassified\n165\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE December 9, 1940\nMr. Sullivan\nTO\nMr. Blough\nFROM\nThe following items of interest relating to corporation taxes and their\neffect on corporation profits appeared in the newspapers of the week beginning\nDecember 2, 1940 1/1\n1. New York Herald Tribune, December 2, 1940, page 1, column 3.\nAn article entitled \"Increase to 30 percent in Corporation Taxes Fore-\ncast\" revorts Senator George as stating that the corporation income tax rate\nmight be boosted as high as 30 percent before the national defense program\nis paid for. He indicated that increase in the corporation tax to that rate\nnight possibly harm business to some extent, but added that there appears to\nbe no alternative.\n2. Fall Street Journal, December 3, 1940, page 3. column 2.\nAn article entitled \"Invested Capital Base to be Used by Most Companies\nfor 1940 Year\" reports that the majority of concerns in the paper industry\nwill elect to use the invested capital base for the 1940 excess profits tax.\nIt 1a reported that, because the paper industry as a whole, earned much less\nthan 8 nercent on invested capital over the past four years, most companies\nin the industry probably will elect to make their 1940 tax returns on the\ninvested cavital base.\nThe outbreak of the European War in September produced a record-breaking\ndemand for both paper and pulp. In 1939, 11 companies had earnings equal to\nonly 5. percent of invested capital. Earnings for this year will probably\nrange from 5 percent upward to as much as 27 percent. A majority of the\ncomunies in the paper industry are expected to have to pay out part of their\n1940 earnings in excess profits taxes.\n3. Wall Street Journal, December 4, 1940, page 3, column 1.\nAn article entitled \"More Firms Study Capital Revisions as Tax Benefits\"\ndiscusses the tax saving possibilities of retiring existing preferred stock\nissues and replacing that amount of capital with bonds or debenture issues.\nSuch a change would result in reducing the income tax but might increase the\nexcess profits tax. General Motors, for example, has outstanding 1,8 million\nshares of preferred stock callable at $120 per share. If this issue were\nreplaced by bonds, it is estimated that, with no saving of interest, the total\ntax liability of the corporation would be reduced by $2.2 million.\n1/ This supplements my memorandum of December 5. 1940, commenting on similar\nItems in the New York Times of December 1, 1940.\nRegraded Unclassified\n166\n- 2 -\n4. The New York Times, December 8, 1940, Section 3, page 1, column 3.\nAn article entitled \"Makers of Machinery Show Rise of 72 Percent in\nProfits in Year\" discusses the earnings of 73 concerns of machinery parts\nand equipment for factory construction, mining, road building and automo-\ntive and aircraft production during the first nine months of 1940 as com-\npared with the similar period in 1939. It is stated that the increase of\n72.1 percent would have been even greater were it not for the heavier tax\nschedules under the second Revenue Act of 1940. The generally declining\ntrend of profits in the third quarter of 1940 is attributed to the effect\nof taking from that quarter's earnings all the taxes applicable to the\nfirst nine months of the year including, in many instances, provisions for\nexcess profits taxes.\nRB\nRegraded Unclassified\n167\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE December 7. 1940\nTO\nMr. Schwars\nFROM\nMr. 31ough\nRB\nThe National Industrial Conference Board's study on corporation\nprofits and taxes published in its Economic Record of November 23,\n1940, together with the press release and an Associated Press item\nrelating thereto, have been reviewed.\nThe study is misleading in many respects. The main points which\nshould be noted are the following:\n1. Exaggerated increases in Federal income tax\nfor 1940 as compared to increases in net in-\ncome are shown.\n2. Tax recerve data are used instead of tax\ncollection or tax limbility data.\n3. Combined date for net income and deficit\ncorporations are used instead of separate\ndata.\n4. Portions of the analysis relate to certain\nselected corporations without any indication\nas to the criteria used in the selection.\n5. No distinction is made between direct and in-\ndirect or shiftable and nonshiftable taxes\nin analyzing the tax burden.\n6. Federal income taxes are not clearly dis-\ntinguished from state and local taxes.\n1. Increased Federal income 1940 over 1939 in relation\nto increased income\nThe study reports that for the 116 companies analyzed, net income\nfor the first nine months of 1940 increased 48 percent as against a.\ntax increase of 131 percent. This increase exceeds the maximum\nincrease possible for the Federal income tax of any one of the 116\ncompanies. If a corporation's net income in 1940 increased 48 percent\nover 1939, the maximum possible increase in Federal income tex would\nhave amounted to 97 percent, not 131 percent. The exaggerated tax\nRegraded Unclassified\n168\n- 2 -\nincreases reported by the National Industrial Conference Board are\nobviously not correct for any one company. Their results are pro-\nbably due to the erroneous and misleading use of data discussed below.\nThe sttached tables indicate the maximum possible percentage increase\nin tax for certain increases in 1940 net income over 1939.\n2. Use of tax reserve data\nThe amounts of income taxes reported for 1940 in the study are\ncorporate tax reserves, that is, estimates by the corporation of what\nthe tex liability for 1940 will be. Since these figures are estimates,\nthey may, of course, contain a large margin of error.\n3. Grouping of net income and deficit corporations\nIt is reported that increased corporate income taxes (exclusive\nof excess profits taxes) absorb 37 cents out of every dollar gained in\nearnings during the first nine months of 1940. Other statements are\nalso made showing 8. disproportionate rise in income taxes over BB\nagainst income.\nAssuming an accurate estimate of tax liability, the relations\nindicated are meaningless because profitable and deficit corporations\nare grouped. Grouping of this type may yield fantastic results. For\nexample: In an industrial group in 1939 the profitable corporations,\nlet us say, showed net income of $1,000,000 on which was paid an\nincome tax of $200,000. The deficit corporations reported deficits of\n$500,000. On the basis of the Conference Board. type of analysis. this\nindustrial group would show for the year a net income of $500,000 and\nincome taxes amounting to $200,000. In 1940, let us say, the profit-\nable corporations become twice 28 profitable and with no increase in\nrates pay twice as much tax, that 1s, $400,000. The deficit corpore-\ntions, let us say, report a deficit of $1,450,000. The picture,\naccording to the Record for this group in 1940, would show a net\nincome of $550,000. and income taxes amounting to $400,000. That is,\nIt would be argued that while profits for the industrial group\nincreased only $50,000 or 10 percent, texes increased from $200,000\nto $400,000 or 100 percent; that, in 1940, taxes took almost 75 per-\ncent of the net income of the industrial group and that the tax\nincrease absorbed four times the increase in profits. Further comment\nis not necessary on this type of fallacious reasoning.\n4. Selection of corporations\nIt is stated that in a tabulation of 20 companies Federal govern-\nwent taxes would take 72 cents out of every dollar of increased income.\nNo indication is given, however, of how profitable these 20 corporations\nRegraded Unclassified\n169\n- 3 -\nare. If, for example, by selection, corporations which had been\nearning 40 or 50 percent on their invested capital were chosen, no\nserious inequity would result even if the fact stated were true.\n5. Inclusion in tax burden of shiftable taxes recaptured\nthrough price adjustments\nConsiderable importance is attached to the finding that in some\ninstances \"Stockholders\n......\nhave a smaller amount available for\ndividends than that allowed for Federal taxes.\" The implication\nthere is that taxes amount to more than 50 percent of net earnings\nof the corporation. Obviously these data, if they relate, as they\nproperly should, to net income corporations only, contain taxes\nother than income taxes. The bulk of Federal taxes paid by corpora-\ntions are not borne by them since they may be included as a cost item\nand recaptured through price ijustments by the corporation. These\ntaxes should be considered in the same manner as any other cost and\nhave no more effect on amounts available for dividends than do other\ncosts. Since these taxes may be recaptured in price, they give no\nindication to what extent taxes have detracted from amounts which\nwould otherwise be available for dividend payments.\n6. Identification of Federal with Federal, state and local\nincome taxes\nThe statistics themselves do not indicate whether the reserves\nare on behalf of Federal income taxes exclusively or also contain\namounts for state income taxes, franchise taxes based on income, etc.\nThe implication is, however, that the percentage increases are in no\nsmall part attributable to the increased Federal income tax rate,\nsince no mention is made of taxes other than the Federal income and\nexcess profits taxes.\n170\nTable 1\nFederal corporation income taxes, Revenue Acts of 1939 and 1940 1/\nand amount of net income remaining after income tax, for\nselected amounts of net income\nNet\nincome\n:\nIncome tax\n:\nIncome re- : Income tax\n:\nIncome re-\nbefore : Revenue Act :maining after: Revenue Act :maining after\nincome taxes\n:\nof 1939 1/\n: income tax\n:\nof 1940 1/\n: income tax\n$1.00\n$ .18\n$ .82\n$ .24\n$ .76\n1.25\n.225\n1.025\n.30\n.95\n1.14\n1.50\n.27\n1.23\n.36\n1.75\n.315\n1.435\n.42\n1.33\n2.00\n.36\n1.64\n.48\n1.52\n.90\n.162\n.738\n.216\n.684\n-75\n.135\n.615\n.18\n-57\n.50\n.09\n.41\n.12\n.38\n1/\nComputed at the rate of 18 percent for 1939 and 24 percent for 1940.\nDoes not include excess profits tax.\n171\nTable 2\nComparison of percent increase and net income 1940 over 1939 with\npercent increase in Federal income tax 1/ and percent increase\nof net income after Federal income tax\nIncrease in net :\nIncrease in\n:\nIncrease in net\nincome before :\nFederal\n:\nincome after\nFederal income taxes:\nincome taxes\n: Federal income taxes\n100%\n166.7%\n85.4%\n75\n133.3\n62.2\n50\n100.0\n39.0\n25\n66.7\n15.9\n0\n33.3\n(Decrease)\n7.3\n(Decrease) 10\n20.0\n(Decrease)\n16.6\n(Decrease)\n25\n0\n(Decrease)\n30.5\n(Decrease)\n50\n(Decrease)\n33.3\n(Decrease)\n53.7\nComputed at the rate of 18 percent for 1939 and 24 percent\nfor 1940. Does not include excess profits tax.\nRegraded Unclassified\n172\nDecember 12, 1941\nMy dear Mr. Stimson:\nI an forwarding herewith, a memorandum (see 12/9)\nfrom Philip Young to me, in regard to rifles\nfor Canada. This seems very important to me,\nand I would like to have your advice and help.\nMay I hear from you at an early date?\nVery sincerely,\n(Signed) H. Morganthau, Jr.\nHonorable Henry L. Stimson,\nSecretary of War\nEnce:\nMemo and attachment.\nBy Memenger 11°7\nRegraded Unclassified\n173\nDecember 12, 1941\nMy dear Mr. Stimson:\nI an forwarding herewith, a memorandum\nfrom Philip Young to me, in regard to rifles\nand would like to have your advice and help.\nfor I Canada. This seens very important to me,\nMay I hear from you at an early date?\nVery sincerely,\n(Signed) H. Morganthau, Jr.\nSecretary of War\nHonorable Henry L. Stimson,\nBy Measenger\nRegraded Unclassified\n174\nDecember 12, 1941\nMy dear Mr. Stimson:\nI am forwarding herewith, a memorandum\nfrom Philip Young to me, in regard to rifles\nfor Canada. This seens very important to me,\nand I would like to have your advice and help.\nMay I hear from you at an early date?\nVery sincerely,\n(Stgned) H. Morgesthau, Jr.\nHonorable Henry L. Stimson,\nSecretary of War\nBy Messengué\nRegraded Unclassified\nDecember 12th, 1940.\n175\nSICRET,\nCANADA'S FOPEIGN EXCHANGE POSITION\nI. Forecast of future payments to be made by Canada which require\ngold or U. S. dollars.\n4. For vurchases from the United States by the Canadian Govern-\nment or any of its agencies.\nFor the second year of war (September 1, 1940-August\n31, 1941), Canadian purchases for wer purposes in the United\nStates are estimated at $325,000,000. (Can.) and for the nine\nconths' period from December 1, 1940, to August 31, 1941,\nthey are estimated st approximately $275,000,000. (Can.).\nThese figures include estimates of purchases made or to be\nmade by government agencies and contractors who have war con-\ntracts from the Canadian Government or war contracts placed\nin Canada for account of the British Government. The industrial\nrelations of Canada and the United States are 60 close that\nthere is some United States content in nearly all Canedian\nmanufactured products and consequently it is exceedingly\ndifficult to made any precise estimate of aggregate Canadian\nwar purchases in the United States, including those used in-\ndirectly as well as directly for wer purposes. It is believed,\nhowever, that the figures given above are underestimates rather\nthen overestimates.\n1. War purchases classified by major commodity items and by\nperiods.\nAn examination of commitments (1) made or to be made by\nCanadian Government agencies or by contractors to such agencies\nRegraded Unclassified\n-2-\n176\nhas resulted in the segregation of most of the estimated\nexpenditures by major items, as follows:\nDec. 1/40 to Sept. 1/41 to Mar.1/42 to\nAug. 31/41\nFeb.28/42\nAug.31/42\n(In millions of Canadian dollars)\nIron & Steel (pri-\nmary castings &\nforgings, scrap\n& ore)\n$65.9\n$45.2\n$45.2\nMachine Tools\n29.3\n7.2(2)\nnil\nOther capital\nadvances\n5.9\n14.8\n17.6\nAircraft (includ-\ning engines and\nother parts)\n55.0\n23.5(3)\n16.5(3)\nPetroleum & products,\ndirect & indirect\n22.2\n14.9\n14.9\nNon-ferrous raw\nmaterials, mechan-\nical transport\ncomponents & mis-\ncellaneous\n58.2\n59.4\n70.8\nTotal, segregated\n$236.5\n$165.0\n$165.0\nOf which\nfor Canadian\nGovt. orders\n$176.0\n$123.7\n$123.7\nfor British\nGovt. orders\n60.5\n41.3\n41.3\nEstimate of in-\ndirect purchases,\nunnegregated\n38.5\n?\n?\nGrand Total\n$275.0\n$165.04\n$165.01\nN.B. (1) While this breakdown has been based on commitments,\nit is believed to give a reasonably accurate estimate\nof the payments or expenditures required during the\nperiods covered.\n(2) If skilled labour can be made available, this amount\nmay increase in each case to, say $25,000,000.\nRegraded Unclassified\n-3-\n177\n(3) This amount may be lower than required if the\nwar continues for a longer period and present\nplans have to be extended.\n2.\nProjected monthly payments through August, 1941.\nThe following breakdown by months, while necessarily\nsomewhat arbitrary, represents the best estimate that can\nbe made at this time:\n1940 - September\n$ 15,000,000.\nOctober\n17,000,000.\nNovember\n18,000,000.\nDecember\n19,000,000.\n1941 - January\n21,000,000.\nFebruary\n25,000,000.\nMarch\n29,000,000.\nApril\n31,000,000.\nMay\n36,000,000.\nJune\n40,000,000.\nJuly\n38,000,000.\nAugust\n36,000,000.\nTotal\n$325,000,000.(can.)\n3.\nSegregation as between unpaid balance on orders already\nplaced and orders being negotiated.\nThis information is not available, and in view of the\nnature of many of the purchases, particularly the indirect\npurchases by contractors, it would be exceedingly difficult to\nobtain figures that were at all reliable.\n4.\nEstimate of payments required on Capital Account.\nThe estimate of commitments or payments on Capital Account\nRegraded Unclassified\n-4-\n178\nis included under the second and third items of the table in\nSection 1 above; that is to say, it is covered by the amounts\nshown for purchases of \"machine tools\" and for \"other capital\nadvances\". It is possible that some small portion of the amounts\nshown for iron and steel purchases should also be regarded as\ncapital.\nB.\nFor merchandise imports from the United States other than those\nincluded in the above government orders, through August, 1941.\nFor the second year of war, these are estimated at\n$550,000,000. (Can.). The breakdown by months necessarily\nsomewhat arbitrary in character, is as follows:\n1940 - September\n$ 48,000,000.\nOctober\n57,000,000.\nNovember\n57,000,000.\nDecember\n44,000,000.\n1941 - January\n39,000,000.\nFebruary\n37,000,000.\nMarch\n45,000,000.\nApril\n43,000,000.\nMay\n48,000,000.\nJune\n46,000,000.\nJuly\n42,000,000.\nAugust\n44,000,000.\nTotal\n$550,000,000. (Can.)\nC.\nFor invisible imports from the United States.\nFor the second year of war, invisible imports from the\nUnited States are estimated as follows:\n-5-\n179\nInterest\n$ 95,000,000.\nDividends\n160,000,000. (1)\nTourist and travel expenditures\nin United States\n25,000,000\nFreight and miscellaneous (Net)\n55,000,000.\n$335,000,000. (Can.)\n(1) The estimato of dividends payable includes those\nof wholly-owned subsidiary companies, and 1s there-\nfore higher than estimates previously published by\nthe Dominion Bureau of Statistics.\n(2) This compares with a figure of $55,000,000. for the\ncelendar year 1940.\nIt should also be noted that during the second year of\nwar Canadian obligations, payable either solely or optionally\nin U. S. dollars, mature in the amount of $70,000,000. In-\ncluded in this total is & $20,000,000. Dominion of Canada\n1-1/4% note issue due May 1, 1941, which it is believed is\nheld largely or wholly by banks. Based on the experience of\nthe recent past, slightly over 70 per cent. of the amount of\nsuch issues are held by residents of the United States. If\nthis percentage continues to be applicable, and if no refunding\nis possible, fifty to fifty-five million dollars would be re-\nquired to meet these maturities.\nThese maturities (Approximate net amounts) may be allocated\nby months as follows:\n1940 - September\n$ 1,000,000.\nOctober\n1,000,000.\nNovember\n3,000,000.\nDecember\n2,000,000.\n1941 - January\n2,000,000.\nFebruary\n1,000,000.\n-6-\nMarch\n$ 1,000,000.\n180\nApril\n1,000,000.\nMay\n23,000,000.\nJuno\n3,000,000.\nJuly\n15,000,000.\nAugust\n2,000,000.\nTotal $55,000,000.\nD.\nFor imports (visible and invisible) from other areas with\nwhich Canada has an adverse balance which must be settled\nin gold or U. S. dollars.\nEstimate of Imports for second year of war.\nMerchandise imports\n$45,000,000.\nImmigrant remittances and other\ninvisible debit items\n10,000,000.\n$55,000,000. (Can.)\nRegraded Unclassified\n-7-\n181\nII.\nForecast of Canadian dollar (U.S.) receipts during the second year\nof war.\nA.\nFor merchandise exports to the United States\nEstimate of merchandise exports\nother than gold.\n$450,000,000.\n(This includes silver at\n$9,000,000.)\nEstimate of export of non-\nmonetary gold.\n212,000,000.\nTotal\n$662,000,000. (Can.)\nB.\nFor invisible items with the United States\nEstimate of invisible credit items in transactions with\nthe United States.\nIntorest & dividends receivable $30,000,000.\nTourist receipts\n150,000,000.\n(1)\nTotal\n$180,000,000. (Can.)\n(1) This includes an estimate of $25,000,000. for tourist\nexpenditures from Canadian dollar accounts. It may also\nbe noted that it assumes a. substantial increase in tourist\nreceipts as compared with the calendar year 1940. The\nbest estimate of U.S. tourist expenditures in Canada during\n1940 runs from $100,000,000. to $110,000,000. of which per-\nhaps $20,000,000. to $25,000,000. was made from Canadian\ndollar accounts.\n(For attempt at monthly breakdown, see Table I attached hereto,\nand for general summary of Canada's balance of payments with\nU.S., see Appendix B.)\nC.\nFor exports (visible and invisible) to other areas which will\nbe paid for in U.S. dollars or gold.\nEstimate of exports end other credit items for second year\nof war.\nMerchandise exports\n$50,000,000.\nDividends & other invisible credits\n15,000,000.\n$65,000,000. (Can.)\nRegraded Unclassified\n-8-\n182\nD. Estimated Canadian gold production during second year of\nwar.\nApproximately 5% million ounces, valued at $211,750,000. (Can.).\n(Included as exports under II.A. above)\nE. Estimated Canadian silver production during second year of war.\n22g million ounces, valued at approximately $9,000,000. (Can.).\n(Included as exports under II.A. above)\n-9-\nIII. Assets of Canada possibly convertible into dollar exchange.\n183\nA. Gold (as at Dec. 9, 1940)\n....\n$137,000,000. (U.S.)\nB. Dollar balances\n1. Official (as at Dec. 9. 1940)\nForeign Exchange Control Board -\nLong .... $183,000,000.\nShort\n...\n14,000,000.\nNet\n$167,000,000.\nMinister of Finance\n22,500,000.\n$189,500,000.(U.S.)\n2. Private (as at Sept. 30/40) about\n(1)\n30,000,000.\n(held against import commitments)\nTotal Gold and Dollar balances (net)\n$356,500,000.(U.S.)\nNOTE. (1) The amount of gold shown under III.A. as an asset of\nCanada is the amount of gold owned by the Government of\nCanada and held in the Exchange Fund. In addition,\n11,135,127 ounces of gold valued at $426,927,487. (can.)\nwas formerly held by the Bank of Canada for account of the\nBank of France and is now in the custody of the Custodian\nof Enemy Property.\nAll gold reserves of the Bank of Canada were sold to the\nForeign Exchange Control Board under the terms of the Foreign\nExchange Acquisition Order.\n(2) The U.S. dollar balances shown under III.B.1 as assets of\nCanada as at December 9. 1940, do not include $101,885,000 (U.S.),\nwhich was formerly in an account in the Bank of Canada in the\nname of the French Republic and is now under the custody of the\nCustodian of Enemy Property.\n-10-\n184\n(1) Under the Foreign Exchange Acquisition Order (Order-in-\nCouncil P.C.1735. dated April 30, 1940) residents of Canada\nwere required to sell to the Foreign Exchange Control Board\ntheir holdings of foreign currency and balances, except\nsuch amounts as could be demonstrated to be necessary for\nthe carrying on of normal business transactions. The figure\nof $30,000,000. does not include foreign balances of banks\nand insurance companies; any balances held by these institutions\nsurplus to the requirements of their foreign position was sold\nto the Board under the above Order, and further surpluses\naccumulating to their credit are subject to transfer on a\nquarterly or half-yearly basis. An analysis of the foreign\nposition of Canadian banks and insurance companies is included\nin Appendix A to this memorandum.)\n0. Long-term investments in the United States\n1. Securities\nUnder the Foreign Exchange Control Order (Order-in-\nCouncil P.C.2716, dated September 16, 1940) all foreign\nsecurities which, or any right, title or interest in or to\nwhich, were in the possession, ownership or control of &\nresident of Canada at the time the order came into effect\nwere required, unless the Board should otherwise direct,\nto be declared forthwith to the Foreign Exchange Control\nBoard. Any non-resident of Canada becoming a resident\nof Canada subsequent to September 15, 1939. was required\nforthwith to make a similar declaration to the Board in\nrespect of foreign securities owned by him at the time of\n-11-\n185\nhis becoming a. resident. Citizens of the United States\nresident in Canada have been exempted from the requirement\nof making such declarations.\nThe figures shown below have been computed from the data\ngiven on the declaration forms filed with the Board under the\nabove requirements, up to September 15, 1940, but do not\ninclude the holdings of banks, insurance companies, trust\nand loan companies, etc. Foreign securities held by these\nfinancial institutions have been regarded as held against\ntheir foreign liabilities but data in respect of them will\nbe found in Appendix A to this memorandum.\n(a) Listed Stocks (Stocks listed on any recognized Stock\nExchange, with valuations based on market quotations as\nat December 31, 1939, which are substantially higher than\nexisting market valued)\nNo. of issues\nValuation as at\nheld in excess\nDecember 31/39,\nof $500,000.\nIndustrial\n$228,200,000.\n92\nMines\n10,000,000.\n5\nRails\n8,300,000.\n5\nUtilities\n47,500,000.\n15\nInvestment companies\n7,100,000.\n3\nInsurance companies\n7,700,000.\n4\nBanks and Trust Co's\n4,000,000.\n2\nTotal\n$312,800,000.(U.S. 126\n-12-\n186\n(b) Listed and Unlisted Bonds (Valued on basis\nof market quotations as at December 31, 1939.)\nIndustrial\n$14,400,000.\nRails\n7,900,000.\nUtilities\n15,500,000.\nU. S. Government\n......\n7,000,000.\nState and Municipal\n2,000,000.\nReal Estate\n1,300,000.\nTotal\n$48,100,000.(U.S.)\n(c) Unlisted Stocks\nNo attempt has been made to value holdings reported\nin a large number of miscellaneous unlisted stocks -\nsome 3,500 items - a great many of which are believed\nto be valueless or practically BO, On the basis of a\nrough guess, total value is estimated for this purpose\nat, say, $20,000,000. to\n.....\n$40,000,000.(U.S.)\nAggregate value of all securities (on above bases)\n$380,900,000. to $400,900,000.\nN.B.(1) Sales of the above securities made by their\nholders from dates of declaration up to December 9.\n1940, total $35,000,000., and there have been maturities\nof approximately $2,500,000., leaving a total holding as\nat December 9. 1940, estimated on the bases of valuation\nindicated at approximately $343,400,000. to $363,400,000.\nFrom this total should be deducted brokers' loans of\n$10,000,000., leaving a net balance of roughly $333,000,000.\nto $353,000,000.\no0o\no0o\no0o\nRegraded Unclassified\n-13-\n187\nGeneral note. The figures given above as representing\nholdings of U. S. securities by Canadian residents (with\nthe exceptions noted) are as indicated the result of the\ncompilation of declarations made to the Foreign Exchange\nControl Board on Form M. It may be that certain residents\nhave not filled out this return or have not disclosed all\ntheir holdings, but as such offences under the Foreign\nExchange Control Order are subject to substantial penalties,\nit is not believed that the error in the figures due to\nfailure to report can be of significant proportions.\n2. Direct Investments\nThere is no estimate available of the real value of\nCanadian direct investments in the United States. The\nnominal book value, according to balance sheets at\nDecember 31, 1938, as estimated by the Dominion Bureau of\nStatistics (which is probably substantially in excess of\nreal or market value) is as follows:\nType of Industry\nMerchandising, sales, etc.\n$6,800,000.\nManufacturing\n93,000,000.\nMining\n10,600,000.\nPetroleum products\n9,900,000.\nUtilities, transportation and\nmiscellaneous\n206,800,000.\nTotal\n-14-\n188\nThese figures can be broken down by class of\ninvestment as follows:\nTotal Bonds Stocks Other\n(Millions of dollars)\nIncorporated subsidiaries\nwholly owned\n$ 93.5 $41.5\n$20.0\n$32.0\nIncorporated subsidiaries\npartly owned\n5.7\n2.6\n0.7\n2.4\nBranches or agencies\n0.1\n0.1\nUnincorporated operations\n10.1\n10.1\nCompanies in which Canad-\nians have a majority\ninterest\n8.2\n8.2\nRailway investment in\nwholly owned subsidiaries 133.7\n67.4\n63.3\n3.0\nRailway investment in part-\nly owned subsidiaries\n72.1\n35.1\n36.9\n0.1\nAdvances & other forms\n3-7\n-\n3,3\n0.4\n$327.1$154.8 $124.2\n$48.1\nN.B.(1) Many subsidiaries represent holdings in source\nof raw materials.\n(2) Railway investment which is taken at par or\nother nominal valuation includes:\nSoo Line\n$36,000,000.\nSpokane & International\n4,000,000.\nDuluth South Shore\n30,000,000.\nGrand Trunk Western\n86,000,000.\nCentral Vermont\n41,000,000.\n$184,000,000.\nIt is obvious that these figures in no way represent\nreal or marketable values.\nRegraded Unclassified\n- 15 -\n189\nD. Long-term investments in Latin America\n1. Securities\nEstimate based on data compiled from\ndeclarations on Form M, with market valuations\nas at December 9. 1940.\nGovernment Bonds Market Value Par Value\nArgentina\n-\n$2,600,000.\n$3,600,000.\nBrazil\n2,000,000.\n15,000,000.\nOther\n....\n1,800,000.\n12,700,000.\n(U.S.)\nTotal\n....\n$6,400.000/ $31,300,000.\nOther securities - believed to be negligible\nin amount.\n2. Direct Investments\nThere is no estimate available of the real\nvalue of Canadian direct investments in Letin\nAmerica. The nominal or book value, as at December\n31, 1938, is estimated by the Dominion Bureau of\nStatistics at $175,600,000.(U.S.) This estimate\nincludes the following items:\nBolivian Power\n$6,000,000.\nMonterey Railway\n6,000,000.\nVenezuela Electric\n3,800,000.\nPorto Rico Light & Power\n....\n3,100,000.\nMassey-Harris (Buenos Aires)\n:\n3,000,000.\nBrazilian Traction &c.\n....\n75,000,000.\nInternational Petroleum\n...\n70,000,000.\n$166,900,000.(U.S.)\nRegraded Unclassified\n- 16 -\nE. Long-term investments elsewhere\n190\n1. Australasia\nPar Value\nAustralian Covernment bonds\npayable in U.S. dollars\n...\n$4,400,000.\nAustralian Government bonds\npayable in sterling\n.....\n1,900,000.\nNew Zealand Government bonds\npayable in sterling\n.....\n300,000.\nTotal bonds\n$6,600,000. (Can.)\nDirect investments at nominal\nbook value\n$13,700,000. (Can.)\nThese include\nFord of Canada $8,700,000.\nMassey-Harris 3,900,000.\n$12,600,000.\n(Can.)\nTotal nominal value of in-\nvestments in Australasia\n$20,300,000.(can.)\n2. Africa\nPar Value\nSouth African Government\nbonds\n$ 600,000.\nDirect investments at nominal\nbook value\n5,900,000.\nThese include\nFord of Canada $3,300,000.\nMassey-Harris 2,600,000.\n$5,900,000.\nTotal nominal value of in-\nvestments in Africa\n....\n$6,500,000. (Can.)\n3. British Asia\nPar Value\nBonds\n$ 600,000.\nDirect investments at nominal\nvalue\n5,500,000.\nTotal nominal value of in-\nvestments in British Asia\n$6,100,000. (Can.)\n4. Non-British Asia\nPar Value\nGovernment bonds\n$1,400,000.\nDirect investments at nominal\nvalue\n500,000.\nTotal nominal value of invest-\nments in Non-British Asia\n$1,900,000.(Can.)\n- 17 -\n191\n5. United Kingdom\nSecurities - as at September\n15, 1939, based on Form M\nreturns.\nGovernment bonds at par value\n$17,000,000.\nStocks and corporation bonds\n15,000,000.\nTotal\n$32,000,000. (Can.)\nDirect investments, according to\nDominion Bureau of Statistics\n$16,000,000. (Can.)\nTotal\n$48,000,000. (Can.)\n6. Europe (excluding United Kingdom)\nInvestment in Government bonds,\nas indicated by Form M returns,\nat par value\n$ 5,500,000.\nInvestment in stocks, say ..\n5,000,000.\nLoans made at close of last\nwar by Dominion Government to\nGovernments of Greece and\nRoumania, probably valueless\nbut par value\n30,854,000.\nDirect investments, according\nto estimates of Dominion\nBureau of Statistics\n...\n8,000,000.\nTotal\n$49,354,000.(0an.)\nThe direct investments include holdings by\nthe Massey-Harris Company in France and the\nFalconbridge Nickel Company in Norway. They do\nnot include European holdings of the Aluminium\nCompany or the International Nickel Company, as\nthese two companies are controlled in the United\nStates.\n-18-\n192\nIV. Forecast of Canada-United Kingdom balance of payments\nfor the second year of war.\nA. On Merchandise Account\nU. K.'s \"warlike\" expenditures in Canada $823,000,000.\nU. K.'s other expenditures in Canada\n338,000,000.\nTotal\n...\n.$1,161,000,000.(Can.)\nLess U. K. exports to Canada\n161,000,000.(can.)\nCredit balance in Canada's favour\n$1,000,000,000.(Can.)\nB. On Service items\nNet debits against Canada\nInterest & dividends (net)\n$62,000,000.\nExpenditures of Canadian armed\nforces in U. K.\n75,000,000.(Revised)\nFreight & miscellaneous services (net)\n20,000,000.\nTotal debit against Canada\n$157,000,000.\nIf we combine visible and invisible items, the\nabove estimates show a net total credit in Canada's\nfavour of $843,000,000. A summary of Canada's\nbalance of payments with the United Kingdom and\nwith the sterling area as a whole is given in\nAppendix D.\n-19-\n193\nV.\nProposed basis of settlement of the Canada-United Kingdom\nbalance of payments on Current Account.\nCanada has undertaken to assist the United Kingdom\nin meeting the latter's debit balance in her trans-\nactions with Canada, to the maximum practicable extent\nof Canada's capacity, by the repatriation of Canadian\nsecurities held in the United Kingdom. The remainder\nof the deficit will have to be met by the United King-\ndom by the transfer of gold or cash.\nDuring the first year of war, Canada agreed to\nprovide approximately $200,000,000. (Can.) in this way,\nand did BO provide about $193,000,000. For the six\nmonths' period, August 1, 1939. to January 31, 1940.\n(1)\nCanada agreed to provide $150,000,000.\nand hoped\nthat in the succeeding six months' period it would\nbe possible to increase this amount somewhat, possibly\nup to $200,000,000.\nThe normal process 1s that the Foreign Exchange\nControl Board accumulates sterling until a suitable\nopportunity occurs for the calling and redemption of\ne Dominion Government direct or guaranteed issue pay-\nable in London. In addition, there have been sales,\ndirectly in the Canadian market, of British holdings\nof Canadian provincial or municipal bonds or of\nprivate corporate securities, but the narrowness of\nthe Canadian markets limits the amount of securities\nthat can be so absorbed.\nRegraded Unclassified\n-20-\n134\nIt need not be emphasized that there are practical\nlimits to Canada's capacity to assist the United Kingdom\nby the repatriation of securities. From the standpoint\nof Canada, such repatriation involves the same problems\nAE B direct war expenditure - the money must be raised\nin Canada - en equivalent amount of securities or the\nidentical securities must be absorbed by Canadian 10-\nvestors. For this reason it is necessary to look at\nthe total burden assumed by Canada as a result of the\nwar. Canada's direct war expenditure during the\npresent fiscal year ending March 31, 1941, is expected\nto approximate $900,000,000. and for the rext fiscal\nyear will rise substantially - it may run from\n$1,200,000,000. to $1,500,000,000. To this must be\nadded non-war expenditures of the Dominion Government\nof approximately $450,000,000. (excluding the cost of\nfinancing an enormous surplus of wheat) and provincial\nand municipal expenditures of approximately $600,000,000.\nA comparison of the aggregate war and other governmental\nexpenditures with the national income (estimated at\nabout $5,000,000,000. for the. next fiscal year) will\nthrow light on the further amount which can be raised\nby Canadian citizens for the purpose of repatriating\nCanadian securities now held in the United Kingdom.\n(1) Note that of this amount only about $130,000,000.\nwould be available to the U. K. during the\nsecond year of war.\nRegraded Unclassified\n-21-\nVI.\nUnited Kingdom Investments in Canada.\n185\nCanadian data in regard to British investments in Canada\nare neither up-to-date nor very satisfactory. For what it may be\nworth, there are presented in the following table certain data,\npurporting to represent United Kingdom direct and portfolio invest-\nments for the year 1937, taken from a publication of the Dominion\nBureau of Statistics entitled \"The Canadian Balance of International\nPayments\" (Ottawa, 1939.). The method of valuation is more fully\ndescribed in Chapter IV of this publication but, stated briefly,\nbonds or other evidences of funded debt are taken at par value,\npreferred stock at par or stated value, and common stock at book\nvalue, while holdings in unincorporated branches or agencies are\nvalued on the basis of net assets in Canada.\nGovernment Securities\nDominion\n$317,100,000.\nProvincial\n61,300,000.\nMunicipal\n135,800,000.\nTotal\n$514,200,000.\nPublic Utilities\nRailways\n$1,065,600,000.\nOther, - Traction, light, heat,\npower, telephone, &c\n176,000,000.\nManufacturing\nWood & paper products\n$ 97,000,000.\nMetal industries\n72,000,000.\nAll other\n201,000,000.\nRegraded Unclassified\n-22-\n136\nMining\n$ 90,000,000\nMerchandising & service\n73,000,000\nInsurance.\n85,200,000\nFinance & mortgage corporations\n150,800,000\nMiscellaneous (agricultural lands, summer\nhomes, assets administered for persons\nor corporations residing outside of Canada). 160,000,000.\nTotal\n$2,684,800,000. (Can.)\nApart from considerations arising from the arbitrary basis of\nvaluation of such investments and the reduction in value of securities\npayable in sterling due to depreciation of the pound, it is, of\ncourse, necessary to reduce the aggregate amount shown above by\nthe amount of securities which have matured or which have been\ncalled for redemption or which have been resold to Canadians since\n1937. While complete data are not available here, the total amount\nof securities (chiefly government bonds and guaranteed reilway\nobligations) 80 repatriated cannot well be less than $350,000,000.\nand may well exceed this figure.\nRegraded Unclassified\n-23-\nVII. Forecast of Canada's balance of payments with the rest of the\n197\nsterling area for the second year of war.\nEstimated merchandise imports from Canada\n$113,000,000.\nEstimated merchandise exports to Canada\n87,000,000.\n$ 26,000,000. (Can.)\nAdd net balance of invisible items, in-\ncluding payments by Australia and New\nZealand on account of Air Training Plan,say 29,000,000. (Can.)\nNet credit balance in Cenada's favour\n$55,000,000. (Can.)\nUp to date, the United Kingdom has been meeting the adverse\nbalance of the rest of the sterling area with Canada, For masons\noutlined under V above, it is impossible for Canada to contribute\nto the financing of this debit balance.\n-24-\n138\nVIII. The amount of sterling balances now held by Canada in London.\nAs of December 9, 1940\nForeign Exchange Control Board -\nSpot\nL31,200,000\nFutures\n6,700,000\nL37,900,000\nMinister of Finance.\n1 350,000(1)\n$38,250,000\n(1) This does not include amounts held temporarily in the\nsinking funds of certain Dominion of Canada obligations payable\nin London, pending investment in securities to be held in such\nsinking funds.\n-25-\n199\nAPPENDIX A\nU. S. DOLLAR POSITION OF CERTAIN\nCANADIAN FINANCIAL INSTITUTIONS.\n1. Canadian Life Insurance Companies, as at September 30, 1940.\nAssets\nBonds - Canadian debtor\n$ 15,400,000.(U.S.)\nU. S.\nII\n242,700,000.\nOther\nIf\n12,000,000.\nStocks - Canadian debtor\n1,000,000.\nU. S.\n#\n236,000,000.\nOther\n#\n-\nMortgages\n6,900,000.\nPolicy loans\n46,700,000.\nCash\n36,200,000.\nOther Assets\n3,700,000.\nTotal Assets\n$600,800,000.\nTotal Liabilities\n545,600,000.\nGross long position at book values\n...\n55,200,000.\nAdjust for market values (approx.)\n...\n50,000,000.\n$5,200,000.\nAdjust for non-U.S. debtors\n28,400,000.\nNet short position in U. S.\n......\n$23,200,000.\nIt will be obvious that the above adjustment for\nmarket values relates mostly to the investment in stocks.\nRegraded Unclassified\n-26-\n200\nThe investment in U. S. debtor bonds is subdivided\nas follows:\nGovernment\n$39,300,000.\nMunicipal\n19,300,000.\nRails\n41,800,000.\nUtilities\n126,700,000.\nIndustrials\n14,100,000.\nMiscellaneous\n1,300,000.\n$242,700,000.\nThe investment in stocks is subdivided as follows:\nRails\n$ 2,800,000.\nUtilities\n115,500,000.\nIndustrials\n110,600,000.\nMiscellaneous\n11,300,000.\n$236,200,000.\nThe total liabilities which are shown at $545,600,000.\ninclude the appropriate amount of the companies' surplus\napplicable to their U. S. position.\nThe all-over position of the Canadian life insurance\ncompanies, excluding assets represented by multiple\npayment bonds, is as follows:\nUnited States\nGross long position\n$55,200,000.\nLess Canadian debtor bonds & stocks\n16,400,000.\n$38,800,000. (long)\nRegraded Unclassified\n-27-\nUnited Kingdom & Sterling Area\n201\nShort\n$206,800,000.\nCanada\nShort\n58,600,000.\n$265,400,000. (short)\nBalancing figure, which represents\ninvestments in multiple payment\nbonds, and assets and liabilities\nin other currencies\n$226,600,000.\n(Note - In the above, all conversions are at\npre-war rates of exchange.)\n2. U. S. Dollar Position of Canadian Trust and Loan Companies.\nThe total U. S. dollar investments held by these companies\nis reported to amount to only about $18,000.\n3. U. S. Dollar Position of Canadian Chartered Banks (including both\nCanadian and foreign branches) as at June 30, 1940.\n(a) Total Assets and Liabilities in U. S. Dollars, as at June 30, 1940.\nin Cuban silver\nTotal such assets were $365,000,000. including\n$40,000,000.\nof which:\nCash Assets\n#\n181,000,000.\n#\n13,000,000.\nforeign securities\n53,000,000.\ncurrent loans\n100,000,000.\n#\n21,000,000.\nletters of credit\n22,000,000.\n#\n2,000,000.\nTotal such liabilities\n329,000,000.\nII\n36,000,000.\n-20-\n202\nBetween June 30, 1940, and October 31, 1940, total\nsuch assets probably declined about $23,000,000. and\ntotal such liabilities about $21,000,000. As at October\n31, 1940, total such assets would probably include\n(roughly): cash assets, $185,000,000; securities,\n$40,000,000; and current loans, $85,000,000.\n(b) Net Long Position in U. S. Dollars\nAs at June 30, 1940\nthe net spot position was\n$35,700,000. long\nfuture exchange contracts were\n1,200,000. short\nitems in transit were\n7,900,000. long\nleaving a true net position,\n$42,400,000. long\nSince June 30. 1940, the net long position has declined\nabout $2,000,000, and would now be approximately $40,400,000 -\nof which $3,000,000 is in the form of Cuban bank premises.\nNote. - In view of the size of the U. S. dollar\nbusiness and the need of maintaining adequate working\ncapital margins in order to satisfy state banking laws,\nwe would not under present conditions regard this net\nlong position as available.\n(c) Holdings of Foreign Securities, payable in U. S. Dollars.\nAs shown above, the Banks had at June 30, 1940, foreign\nsecurities payable in U. S. dollars of a total book value\nof $53,000,000. Known sales between June 30, 1940, and\nOctober 31, 1940, indicate present holdings of about\n$40,000,000.\nRegraded Unclassified\n-29-\n203\nRoughly, this total would be divided somewhat\nas follows:\nU. S. Government & State Government bonds\n$35,000,000.\nU. S. railway bonds and stocks\n......\n1,000,000.\nOther U. S. stocks\n1,000,000.\nLatin American securities (some govern-\nments, some industrials, chiefly\nCuban)\n3,000,000.\n$40,000,000.\n-30-\n204\nAPPENDIX B\nSUMMARY OF CANADA'S BALANCE OF PAYMENTS WITH THE\nUNITED STATES AS ESTIMATED FOR SECOND YEAR OF WAR.\n(Millions of Canadian dollars)\nCurrent Account\nCredits\nDebits\nNet\nMerchandise - ordinary\n$450\n$550\n-$100\n- war\n-\n325\n- 325\nNon-monetary gold (net)\n212\n-\nplus 212\nTourist and travel\n(1)\nexpenditures\n150\n25\nplus 125\nInterest and Dividends\n30\n255\n- 225\nFreight and miscellaneous\nservices (net)\n-\n55\n- 55\nTotal\n$842\n$1,210\n-$368\nAdd estimated amount of tourist\nexpenditures in Canada pro-\nbably paid for from Canadian\ndollar accounts\n25\n- 393\nCapital Account\nMaturing obligations\n$55\n- 55\nCapital imports\n7\n1\n!\nTotal\n7\n$55\n- 55(7)\nTotal unfavourable balance\n$448\n(1) Includes $25,000,000. estimated to be paid for\nout of Canadian dollar accounts.\nRegraded Unclassified\n-31-\n205\nAPPENDIX C\nSUMMARY OF CANADA'S BALANCE OF PAYMENTS\nWITH COUNTRIES OTHER THAN THE UNITED\nSTATES FOR WHICH PAYMENT MUST BE MADE\nIN GOLD OR U. S. DOLLARS, AS ESTIMATED\nFOR SECOND YEAR OF WAR.\n(Millions of Canadian dollars)\nCredits\nDebits\nNet\nMerchandise\n$50\n$45 plus $5\nDividends and other invisible\ncredits\n15\nplus 15\nImmigrant remittances and\nother invisible debits\n10\n- 10\n-\n$65\n$55\nplus$10\n-32-\nAPPENDIX D\n206\nSUMMARY OF CANADA'S BALANCE OF PAYMENTS\nWITH THE UNITED KINGDOM AND STERLING\nAREA, AS ESTIMATED FOR SECOND YEAR OF WAR\n(Millions of Canadian dollars)\nCredits\nDebits\nNet\n(a) With United Kingdom\nMerchandise, &c.\n...\n$1,161\n$161\nplus $1,000\nInterest & dividends (net)\n62\n-\n62\nExpenditures on Canadian\nArmed Forces in U. K.\n75\n-\n75\nFreight & miscellaneous\nservices (net)\n20\n-20\n$1,161\n$318\n-$ 843\n(b) With rest of sterling area\nMerchandise\n113\n87\nplus\n26\nInvisible items (net)\n29\n-\nplus\n29\n142\n87\nplus\n55\n(c) With Sterling area\n(including U.K.)\nMerchandise\n1,274\n248\nplus\n1,026\nInterest & dividends (net)\n62\n- 62\nExpenditures on Canadian\nArmed Forces in U.K.\n75\n- 75\nFreight & miscellaneous\nservices (net)\n20\n- 20\nOther invisible items (net)\n29\n-\nplus\n29\n$1,303\n$405\nplus\n$898\nRegraded Unclassified\nTABLE I\nESTIMATE OF CANADA'S BALANCE OF PAYMENTS WITH THE UNITED STATES FOR SECOND YEAR OF WAR\nAn attempt at Monthly Allocation of the Various Items.\n(Millions of Canadian Dollars)\nFreight &\nTotal\nTotal\nCapital\nInterest &\nOther\nCurrent a/c\nCurrent a/c\nExport\nTourist\nImports\nDividends\nCurrent\nex War\nWar\n(Net)\nincluding\nre\nExports\nGold\nNon-War\n(Net)\n(Net)\nImports\nImporte\nWar\nTourists\nSeptember\nMaturities\nTotal\n37\n17\n13\n48\n18\n5\n4\n15\n19\nIN\n1\n22\nOctober\n38\n17\n8\n57\n16\n5\n15\n17\n32\n2\n1\n35\nNovember\n38\n17\n3\n57\n12\n5\n16\n18\n34\n1\n3\n38\nDecember\n35\n17\n3\n44\n33\n4\n26\n19\n45\n1\nIn\n48\nJanuary\n33\n17\n5\n39\n19\n4\n7\n21\n28\n2\n?\n32\nFebruary\n33\n16\n5\n37\n9\n4\n4\n25\n21\n2\n1\n24\nMarch\n33\n17\n4\n45\n20\n5\n16\n29\n45\n1\n1\n47\nApril\n36\n18\n4\n43\n18\n5\n8\n31\n39\n1\n1\n41\nMay\n40\n19\n6\n48\n19\n5\n7\n36\n43\n2\n23\n68\nJune\n42\n19\n14\n46\n32\n5\nlos\n40\n48\n2\n3\n23\nJuly\n42\n19\n30\n42\n19\n4\n26\n38\n12\n4\n15\n31\nAugust\n43\n19\n30\nhills\n10\n24\n34\n36\n2\n15\n5\n2\n9\n450\n212\n125\n550\n225\n55\n43\n325\n368\n25\n55\n448\nNote.-Allocation of individual items by months is necessarily subject to\na considerable margin of error.\n2\nRegraded Unclassified\n208\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE December 12, 1940\nTO\nSecretary Morgenthau\nFROM\nMr. Cochran\nSTRICTLY CONFIDENTIAL\nAt 5:30 this afternoon the Secretary telephoned me from his residence in\nregard to the conversation which he had had with Sir Frederick Phillips. Sir\nFrederick had asked me this morning to make an appointment with the Secretary which\nwould permit a brief but private talk. At the Secretary's suggestion, Sir Frederick\nhad come to the Treasury at 12:30 and had ridden home with the Secretary.\nPhillips explained that the British could not sell us the French gold held\nin Canada because the Prime Minister of Canada has so far objected to it. Part of\nthis objection comes importantly from consideration of the large French population\nof the Dominion. Furthermore, the British are very conscious of the fact that they\nare running $600,000,000 behind on their annual account with Canada. An officer of\nthe Canadian Government is in Washington, however, and Phillipe planned to nake a\nfurther attempt through him today to overcome the objection of the Prime Minister.\nThe Secretary's press statement of today was discussed. At his press COD-\n\"erence the Secretary had made the point that be was against any loan to Great\nBritain which violated even the spirit of the Johnson Act; furthermore, the British\nhad not yet asked for any loan, Phillips said that he is now definitely asking for\nfinancial assistance. The Secretary replied that while he had consistently been\nopposed to lending funds to Great Britain in circumstances such 8.6 exist at present,\nhe would favor making 8. gift of such assistance. In his relations with the press\nand with his colleagues in the Government the Secretary has purposely taken the\nposition of pushing the British as far as possible. That is, he wanted it to be knowne\nthat be vas calling upon them to put forth their best efforts and vsa demanding from\nthem a frank and full expression of their financial end economic situation. It is\nthe Secretary's view that his plan of getting assistance for Great Britain can best\nbe achieved through this approach, and be is therefore pushing it. Phillips asked\nIf he could cable this idea to his Government. The Secretary replied in the negative,\nstating that this was just his own personal feeling.\nPhillips' attitude seemed to change remarkably 80 the conversation developed.\nEe affirmed his desire to let us have everything, considering the position which the\nSecretary has taken, The Secretary was such gratified over this conversation, feeling\nthat he had made more progress in the fifteen minutes drive home, than he had made\nsince Phillips' arrival in the United States.\nThe Secretary talked briefly with Phillips on the question which is to come\nbefore our Group tomorrow morning, namely, that of marketing British-owned American\nsecurities in this country. It is the Secretary's desire that this question should\nbe gone into thoroughly with Gifford and the British brought to realise the necessity\nif the most efficient system possible for carrying out the marketing of such securities\nB.M.\nRegraded Unclassified\n209\nHSM\nGRAY\nBucharest\nDated DECEMBER 12, 1940\nRec'd 7:42 a. me, 13th\nSecretary of State,\nWashington.\n805, December 12, 5 p. m.\nAn official of the Ministry of National Economy\ncalled at the Legation recently to discuss the question\nof the period of validity of United States Treasury\nlicenses for the unblocking of Runanian funds. HE\nstated that the United States Treasury had hitherto\nfollowed 8 policy of limiting licenses to a validity\nof only a few days usually five days; that Rumanian\nbudgetary legislation required that all payments bE\napproved for separate organizations including the\nMinistry of Finance, the Ministry of National Economy\nand the National Bank; and that this process was\ninevitably tine-consuning and difficult to Expedite\nEspecially in VIEW of the recent reorganization of the\nRunanian Government. HE inquired whether the Legation\ncould recommend that the United States Treasury if it\ndecided to issue a particular license at all, could not\nmake\n210\nhsm -2- No. 806, December 12, 5 P. me, from Bucharest\nmake it valid for a longer period such as twenty days.\nWhile the official in question was informed that\nthe Rumanian Legation at Washington was the proper\nchannel for such a request, I an bringing the foregoing\nto the Department's attention for such action, if any,\nthat it may SEE fit to take.\nGUNTHER\nDDM\nYOURABAT\nBECEIVED\nGVO DEC GW DEC 17 LMT IS 10\nRegraded Unclassified\nTREASURY DEPARTMENT\n211\nINTER-OFFICE COMMUNICATION\nDATE December 12, 1940\nTO\nSecretary Morgenthau\nFROM Mr. Cochran\nconfidential\nRegistered sterling transactions of the reporting banks were as follows:\nSold to commercial concerns\ni 71,000\nPurchased from commercial concerns\nL134,000\nAbout 693,000 of the registered sterling purchased from commercial concerns rep-\nresented dividend payments received by American firms.\nIn the open market, sterling was again quoted at 4.03-3/4 throughout the day.\nTransactions of the reporting banks were as follows:\nSold to commercial concerns\n1 5,000\nPurchased from commercial concerns\n1 5,000\nAs for the other currencies, there was a continued improvement in the Canadian\ndollar and Cuban peso discounts. Closing quotations were:\nCanadian dollar\n13-1/2% discount\nSwiss franc\n.2321\nSwedish krona\n.2385\nReichsmark\n.4005\nLira\n.0505\nArgentine peso (free) .2363\nBrazilian milreis (free).0505\nMexican peso\n.2070\nCuban peso\n9-1/4% discount\nThe yuan in Shanghai was again unchanged at 5-15/16¢.\nTe purchased $50,118,000 in gold from the earmarked account of His Britannic\nMajesty's Government.\nNo new gold engagements were reported to us today.\nThe Bombay gold price was unchanged at the equivalent of $33.83, and silver was\n3/15# higher at the equivalent of 42.874.\nIn London, the prices fixed for spot and forward silver were both unchanged, at\n22-7/8d and 22-13/16d respectively. The dollar equivalents were 41.54$ and 41.42#.\nHandy and Harman's settlement price for foreign silver was unchanged at 34-3/44.\nThe Treasury's purchase price for foreign silver was also unchanged at 35#.\nRegraded Unclassified\n-2-\n212\nBe made four purchases of silver totaling 225,000 ounces under the Silver\nPurchase Act. Of this amount, 175,000 ounces represented sales from inventory,\nand the remaining 50,000 ounces consisted of new production from foreign countries,\nfor forward delivery.\nThe Federal Reserve Bank's report of December 4, listing deposita of banks\nin Asia with the New York agencies of Japanese banks, showed that such deposits\ntotaled $100,455,000, a decline of $10,345,000 since November 27. As usual,\nnearly all of the change in deposits took place on the books of the Yokohana\nSpecie Bank's New York agency. The latter's reported dollar liabilities to and\ndollar claims on Japanese banks in Asia stood as follows on December 4:\nDecember 4\nChange from Nov. 27\nLiabilities: Deposits\n$89,796,000\n- $10,124,000\n#\n: U.S. Treas. bills, comm. paper, etc\n30,426,000\n-\n935,000\nClaims\n: Loans\n$37,566,000\n- 4,391,000\n\"\n: Other - mainly Jap. import bills\n18,429,000\n+\n4,783,000\nIt will be observed that $4,391,000 of the decline in deposits apparently were used\nto reduce loans. No definite explanation was provided for the other $5,733,000\nwithdrawn from deposit, although the agency stated that this represented ordinary\ndisbursements from several branch accounts. Such funds may have been used in the\npurchase of American goods, or transferred to other banks in this country or abroad.\nRegarding the $4,783,000 net purchase of Japanese import bills, the agency empha-\nsized that these were bought for its own account, and that Asiatic deposits were\nnot used in the operation. With the exception of $36,925,000 which Japanese banks\nin China had on deposit with the Yokohama agency (off $1,048,000 from November 27),\npractically all of the agency's figures shown in the above table refer to Japanese\nbanks in Japan and Manchuria. The agency's foreign currency liabilities and claims\nremained negligible.\nWe have also learned, from the Federal's letter of December 5 to the Secretary\nreporting its investigation of the Yokohama agency's accounts, that at the present\ntime the agency holds no American long-term securities for foreign account. Such\nholdings, consisting mainly of U.S. Treasury bonds held for account of the head\noffice, rose to a value of $66.6 million by the end of 1939. The entire amount has\nbeen liquidated since then, the bulk of the sales having been made during the past\nfive months.\nCONFIDENTIAL\nRegraded Unclassified\nTREASURY DEPARTMENT\n213\nINTER OFFICE COMMUNICATION\nRegraded Unclass\nDATE\nDes13,1940\nSecretary Morgenthau\nTO\nBe H. Foley, Jr.\nFROM\n12-12-40\nIn addition to Walter Stone, editorial writer for the Scripps-Howard\nnewspaper chain, and myself the following were present at a conference\nheld in my office this afternoon from 3:30 to 4:30 o'clock, Assistant\nSecretary Sullivan, George Hear, Director of Research and Statistics,\nHenry Murphy, Assistant Director of Research and Statistics, and C. L. Kades.\nMr. Stone stated that the Scripps-Uoward newspaper desired to institute\nan aggressive editorial campaign directed at securing the elimination of tax\nexempt securities. He further stated that he expected to carry on this can-\npaign through editorials and news articles which would appear in the various\nnewspapers comprising the chain, and that he desired material for such\neditorials and articles. Mr. Stone asked if be could be supplied with a\nseries of hypothetical cases showing the tax avoidance resulting from invest-\nment in state and municipal securities, as distinguished from investment in\nbusiness enterprise, after taking into consideration not only Federal income\ntaxes but state income and intangible personal property taxes. It was agreed\nthat this could be done and that the material would be submitted to him from\ntime to time beginning within a week. A committee was appointed to collect\nthe necessary information consisting of Mr. Murphy AB chairman, Mr. Kades and\nMr. Ecker-Racz of Mr. Blough's Tax Research Division.\nMr. Stone also said he would be interested in ascertaining who was\nfinancing the Conference for State Defense and the other pressure groups\nopposing the elimination of tax exempt securities, and Mr. Sullivan and I\nindicated that we would be glad to cooperate with him in such an undertaking.\nMr. Stone also suggested the advisability of the Federal Government con-\nsenting not only to the imposition of state income taxes upon the interest of\nFederal securities but also to the intangible personal property texation by\nthe states of such securities in private hands at the Bane extent as the\nstates taxed their securities. This suggestion was explored at some length\nthe object being to take away from the opponents of the proposal to sliminate\ntax exempt securities the argument that states not having an income tax would\nbe discriminated against if the Federal Government subjected its securities\nonly to state income taxation. Such opposition, for example, smanates from\nGovernor Bricker of Ohio for this reason.\nAfter exploring generally the entire problem of tax exampt securities,\nMr. Stone raised the question whether the Treasury was going to do anything\nabout income taxation so far as community property was concerned and Mr. Sul-\nlivan stated that it was not thought desirable to do anything about eliminat-\ning this inequity at this time for fear it wight jepardise the success of the\nproposal to eliminate tax exempt securities.\n214\nI asked Mr. Stone if he thought it would be desirable for the\nTreasury to retain a newspaper man having editorial experience to put\nthe material in the form in which he wanted it. Mr. Stone said he did\nnot think this was necessary as the information he needed was of the\ncharacter which could be supplied adequately by economists, lawyers\nand accountants.\n9.10.7L\nTREASURY DEPARTMENT\n215\nINTER OFFICE COMMUNICATION\nDATE December 12, 1940.\nTO\nSecretary Morgenthau\nFROM\nE. H. Foley, Jr.\nHere is some additional material that you might want to glance\nover in connection with the memorandum on the \"Johnson Act Conference\" which\nI sent to you this afternoon.\nE.10.7h.\nAttachments\n(CONFIDENTIAL)\n216\nC\n0\nOctober 1, 1939\nP\nY\n7:10 p.m.\nThe President called me awhile ago, and I told him that we\nhad been asked by the State Department to prepare something for Key\nPittman on the Neutrality Bill.\nWe felt that the consideration fell into two matters:\nOne, whether the credit clause in the cash-and -carry plan now\nunder consideration was contrary with the Johnson Act, and that we in\nthe Treasury felt that, and were of the view that, the opposite was the\nfact. Particularly in view of a memorandum in the Treasury's files of\na conference in my office in 1934 at which Senator Johnson was present.\nWhen we had asked the Senator the specific question relative to short-\nterm credits, the Senator had answered that the elimination of short-term\ncredits had not been considered part of the purpose of his Bill.\nThe President said, \"That's wonderful! That's finel\"\nAnd the second part, with reference to the question of the\nextension of 90-day credits, I felt that the President shouldn't do\nanything to urge it. That the whole history was that it had been\nintroduced in the House for the direct purpose to restrict the powers\nof the President as to the extension of any such credits, and that we\nin the Treasury felt that the President should let the pressure come\nfrom outside on this.\nThe President said, \"I an in complete agreement with you, and\nRegraded Unclassified\n217\n- 2 -\nthat is exactly the way I feel, and Cordell agrees absolutely.\"\nI told him that Cordell didn't talk that way to me this morning.\nHe gave me the impression that he would like to see this included.\n\"So would I\", said the President, \"but I am not going to do anything\nabout it. The Pressure will have to come from elsewhere.\"\nHe asked me to send over to him the memorandum, and the memorandum\non the conference in my office, and while he didn't tell me 80 in so many\nwords, I got the impression that he will see that it is sent and gets to\nKey Pittman.\n(Dictated via telephone by\nthe Secretary to McGuire)\nThe original sent to the Secretary's office for the Secretary's diary.\nRegraded Unclassified\n218\n0\nP\nOctober 1, 1939\nI\nMEMORANDUM\nRe: Credits to Belligerents\nSection 7 of the Senate neutrality bill relates to financial\ntransactions with belligerents. It continues the existing provisions\nof the neutrality statute which prohibits the making of loans and\ncredits to belligerents and persons acting on their behalf. It is\nalso to be noted that the existing neutrality law authorizes the\nPresident, when he finds it in the interest of the United States, to\nexempt from this prohibition \"ordinary commercial credits and short-\nterm obligations in aid of legal transactions and of a character\ncustomarily used in normal peacetime commercial transactions.\" The\nSenate Committee apparently felt that the existing provision could\nbe strengthened, without sacrificing American interests, by limiting\nthe discretion of the President and by confining to a more limited\ncategory the permissible forms of short-term commercial credits.\nAccordingly, the Senate bill provides that (1) the short-term commercial\ncredits may not be for a period more than 90 days without renewal;\n(11) if any belligerent or person acting for a. belligerent defaults\non any such 90-day credit, no new commercial credit may be extended;\nand (111) the President report to Congress every six months full in-\nformation as to each commercial credit which has thus been permitted.\nRegraded Unclassified\n- 2 -\n219\nIt is thus entirely clear that Presidential authority to permit\nshort-term commercial credits to belligerents has been a part of the\nneutrality law continusously since February, 1936, and that the only\nchanges which the Senate bill makes in the existing law are in the\ndirection of additional restrictions on the Presidential discretion\nto permit short-term commercial credits.\nIt has been charged that the provision in the present bill\nrelating to short-term commercial credits to belligerents is inconsistent\nwith the Johnson Act of 1934, and is the opening wedge for the granting\nof loans to belligerents. I think that an examination of the history\nof the Johnson Act and the Neutrality Act will show these charges\nto be unfounded.\nJOHNSON ACT\nThe Johnson Act provided in part as follows:\n\"That hereafter it shall be unlawful within\nthe United States or any place subject to the\njurisdiction of the United States for any person\nto purchase or sell the bonds, securities, or other\nobligations of, any foreign government or political\nsubdivision thereof or any organization or association\nacting for or on behalf of a foreign government or\npolitical subdivision thereof, issued after the passage\nof this Act, or to make any loan to such foreign\ngovernment, political subdivision, organization, or\nassociation, except a renewal or adjustment of existing\nindebtedness while such government, political sub-\ndivision, organisation, or association, is in default\nin the payment of its obligations, or any part thereof,\nto the Government of the United States. ***,*\nWithin a few weeks after the passage of the Johnson Act a\nnumber of problems arose necessitating the interpretation of that\nstatute. On April 27, 1934, a conference was held at the Treasury\n- 3 -\n220\nDepartment attended by Senator Johnson, the Attorney General, the\nSecretary of State, the Secretary of the Treasury and a number of\nother officials of the State, Treasury and Justice Departments.\nDuring the conference, Senator Johnson was asked if he thought that\nthe statute applied to such every-day commercial instruments as time\ndrafts, bankers' acceptances, etc. Senator Johnson stated that he did\nnot think that the statute could be interpreted in any such manner\nand that it was not the intention of the statute to interfere in any\nway with ordinary commercial transactions. It also appeared to have\nbeen the view of the participants in the conference, including Senator\nJohnson, that the Johnson Act did not apply to time drafts, acceptances,\netc., employed in connection with ordinary commercial transactions.\nA memorandum of the conference is in the Treasury Department's files.\nA copy of the memorandum is attached.\nOn the same day the State Department issued the following\npress release:\n\"Enquiries have been received at the Department of\nState as to whether the Act of Congress approved April\n13, 1934, to prohibit financial transactions with foreign\ngovernments in default on their obligations to the\nUnited States, applies to ordinary commercial 'acceptances\nor time drafts,' such as are used by foreign governments\nto finance the current requirements of their embassies\nand consulates in the United States.\n\"The Department of State and the Attorney General\nare in agreement that such instruments do not constitute\n'obligations' within the purview of the Act.\n\"Certain other questions that have been presented\nregarding the interpretation of the Act are under con-\nsideration. #\nOn May 5, 1934, the Attorney General, in response to a request\nRegraded Unclassified\n221\n- 4 -\nfrom the Secretary of State, rendered an opinion on a number of questions\nrelating to the Johnson Act, which opinion stated in part as follows:\n\"1(2) To what types of transactions does the\nAct apply?'\n\"The Committee Reports (s. Rept. 20 and House Rept. 974,\n73d Cong.) recite that the bill was introduced following an\ninvestigation by the Senate Committee on Finance and the\nrevelation therein that 'billions of dollars of securities\n*** * offered for sale to the American people' were overdue\nand unpaid; that some of these 'foreign bonds and obligations\n*** were sold by the American financiers to make out-\nregeously high profits'; and stated a purpose 'to prevent\n& recurrence of the practices which were shown by the\ninvestigation to be little less than a fraud upon the\nAmerican people * * * to curb the rapacity of those engaged\nin the sale of foreign obligations * *,'\n\"This, I think, is indicative of a purpose to deal\nwith such 'bonds' and 'securities' and with 'other\nobligations' of like nature, observing the rule of\nejusdem generis - that is, obligations such 88 those which\nhad been sold to the American public to raise money for\nthe use of the foreign governments issuing them - not\ncontemplating foreign currency, postal money orders,\ndrafts, checks and other ordinary aids to banking and\ncommercial transactions, which are 'obligations' in 8\nbroad sense but not in the sense intended. It was\nobviously not the purpose of the Congress to discontinue\nall commercial relations with the defaulting countries.\"\n*****\n\"(4) Does the Act apply to acceptances or time\ndrafts?'\n\"This question appears to be sufficiently answered\nby the comments under Question No. 2, supra. It appears\nproper to add, however, that such transactions must be\nconducted in good faith, in order to be within the law,\nand not as mere subterfuges to circumvent its purpose.\"\nIn other words, the Attorney General found that while the\nJohnson Act prohibited the sale of bonds and securities of countries\nRegraded Unclassified\n222\n- 5 -\nin default it did not prohibit those ordinary short-term commercial\ncredit devices customarily used in international trade. The entire\ntext of the opinion of the Attorney General was quoted in a State\nDepartment press release dated May 5, 1934 which also included the\nstatement that the State Department concurred in the Attorney General's\ninterpretation of the Johnson Act. Unquestionably this opinion has\nbeen relied upon by American business interests in their commercial\ntransactions with defaulting countries and persons on their behalf.\nIn the light of this background and at this late date, the Johnson\nAct should not be construed as making illegal short-term credit\ntransactions with defaulting governments relating to otherwise per-\nmissible trade and commercial transactions.\nNEUTRALITY ACT\nIn February, 1936, Congress in amending the then existing\nNeutrality Act included the following provision:\n\"SEC. la. Whenever the President shall have\nissued his proclamation as provided for in section 1\nof this Act, it shall thereafter during the period of\nthe war be unlawful for any person within the United\nStates to purchase, sell, or exchange bonds, securities,\nor other obligations of the government of any belligerent\ncountry, or of any political subdivision thereof, or of\nany person acting for or on behalf of such government,\nissued after the date of such proclamation, or to make\nany loan or extend any credit to any such government\nor person: Provided, That if the President shall find\nthat such action will serve to protect the commercial or\nother interests of the United States or its nationals,\nhe say, in his discretion, and to such extent and under\nsuch regulation as he may prescribe, except from the\noperation of this section ordinary commercial credits\nand short-term obligations in aid of legal transactions\nand of a. character customarily used in normal peace-\nRegraded Unclassified\n223\n- 6 -\ntime commercial transactions.\"\nIt will be noted that this provision, which has been the law since\nFebruary, 1936, specifically authorized the President to permit short-\nterm ordinary commercial loans to belligerents and persons acting on\ntheir behalf. The debate in Congress reveals no feeling that this\nprovision was inconsistent or in conflict with the provisions of the\nJohnson Act. The view of Congress was quite the contrary. The House\nreport on this provision in the 1936 amendment stated:\n## * * It is the law now under the Johnson Act\nthat it is unlawful to sell bonds, securities, etc.,\nin this country of any foreign country that is in\ndefault of its indebtedness to the United States.\nThis covers most of the greater powers in Europe.\nThis section, however, goes much further and makes\nit unlawful, as before stated, to all belligerent\ncountries. Now, there is a provision in this section\nthat if the President shall find that such action\nwill serve to protect the commercial or other interests\nof the United States or its nationals, he may, in his\ndiscretion, and to such extent and under such regulation\nas he may prescribe, except from the operation of\nthis section ordinary commercial credits and short-time\nobligations in aid of legal transactions and of a\ncharacter customarily used in normal peacetime commercial\ntransactions. There is also another provision that\nthis section does not apply to renewal or adjustment\nof indebtedness which may exist on the date of the\nPresident's proclamation. The only discretion given\nthe President under this section is in reference to\nsuch credits used in normal peacetime commercial trans-\nactions.\"\nBy specifically prohibiting in the Neutrality Act the extension of\n\"any credit\" (which words do not appear in the Johnson Act) Congress,\nin view of the purposes of the Neutrality Act, apparently intended\nthereby to prohibit even short-term commercial credits unless the\nRegraded Unclassified\n224\nC\no\nP\nY\n-7-\nPresident found that the making of such short-term commercial credits\nto belligerents was in the public interest, in which event, such credits\nwould be lawful.\nNo change was made in this provision of the Neutrality Act when\nthe Neutrality Act was otherwise amended in 1937. When the neutrality\nlegislation wes considered in the House of Representatives last July,\nit was proposed to circumscribe further the President's power to\npermit short-term commercial credits to belligerents by limiting such\ncredits to 90 days without renewal, and requiring the President to\nmake periodic reports to Congress of such transactions. These\nlimitations on the power given to the President by the existing\nstatutory provision are included in the Senate bill, and in addition\nthe Senate bill prohibits further 90-day credits if a belligerent\ndefaults on prior 90-day credits given to it.\nOriginal and 1 copy taken to White House by Foley 8:30 p.m.\n1 copy to Attorney General at Washington Hotel by Shelley (returned\n1 copy sent to Secretary by Bernstein\napproved and original run given to Attorney General.)\n1 copy to Viner\n1 copy to Bell\n1 copy to Cochran\n1 copy to Bernstein\n1 copy to Pehle\n1 copy to Foley\nBailie returned copy after reading it.\nRegraded Unclassified\n225\nC\n0\nP\nY\nOctober 2, 1939\nSecretary of the Treasury\nMr. Foley\nAs you know, we have ruled that neither the Johnson Act,\nnor the provisions of the Neutrality Act relating to the making\nof loans and the extension of credit to belligerent countries,\napply to the Government or any agency thereof. The Attorney\nGeneral has concurred in this view. Nothing in the Neutrality\nBill, which has been reported out in the Senate, necessitates\na change of this view.\n(Initialed) E. H. F., Jr.\nJWP:mgt 10/2'39\nInitialed JWP and BB\nRegraded Unclassified\n226\nC\no\nP\nOctober 24, 1939\nY\nTo:\nSecretary Morgenthau\nFrom: Messrs. White and Foley\nSenator Wagner inquired by telephone as to the Department's position\non Taft's amendment to the Neutrality Bill to limit the atabilization fund's\nholdings of the currency of any belligerent to no more than $50,000,000 at\nany one time. Tie feel that the Department should indicate to Senator Wagner\nits opposition to Taft's amendment for the following reasons:\n(1) When Congress extended the stabilization powers it was fully\nconscious of the possibility or probability of a war in Europe.\nThere is accordingly no need at this time for Congress to re-\nconsider the problem and to limit the stabilization powers.\n(2) Senator Taft questioned the Secretary about the use of the\nstabilization fund in the event of war. The Secretary said that\nbefore he would use the stabilization fund to assist any\ncountry in prosecuting that war he would come up before the\nproper committee and ask for guidance. This procedure would\npermit greater flexibility than Taft's proposal in dealing with\nan emergency situation in which it might be greatly in the\ninterests of this country to purchase the currency of a belliger-\nent in amounts greater than $50,000,000. By going to the con-\ngressional committees the Treasury could ascertain the views of\nCongress without the publicity and delay involved in getting\nnew legislation.\n(3) If we do not indicate our opposition to Taft's amendment, there\nis likelihood that other amendments would be offered prohibiting\nthe stabilization fund from purchasing any belligerent currency\nand in effect mullifying its use during the war.\nIf you agree with the foregoing, we can give these views to Senator\nWagner orally.\n(Initialed) E.H.F.Jr.\nH.D.W.\nAPPROVED: October 25, 1939\n(Initialed) H.M.Jr.\nOriginal was left with Senator Wagner by White and Foley\nRegraded Unclassified\n227\nC\n0\nThe original copy was pulled. The following note appeared\nP\non it \"Please talk to me. H.M.Jr.\", and \"White House\".\nY\nOct. 30, 1939\nSecretary Morgenthau\nMr. Foley\nAs I stated to you in my memorandum of October 2, 1939, it is our\nview, concurred in by the Attorney General, that the Johnson Act and the\nprovisions of the present neutrality law relating to the making of loans\nand the extension of credit to belligerent governments do not apply to this\nGovernment or agencies thereof.\nThe pending neutrality bill contains similar language and it would\nhave been appropriate to interpret it in a similar manner but for the state-\nment made by Senator Pittman on the floor of the Senate late in the evening\non October 27, 1939. Senator Pittman indicated that he and the other\ndrafters of the bill construe its provisions to prohibit the making of\nloans or the extension of credit to belligerent governments by governmental\ncorporations, such as R. F. C. and the Export-Import Bank. A discussion\nof this matter appears in the attached excerpts from the Congressional\nRecord. On October 17, 1939, Senator Barkley said on the floor of the\nSenate that his offhand view WBB that the credit provisions of the pending\nbill applied as rigidly to the R. F. C. and any other agency of the Govern-\nment as to any private person in this country.\nSenator Pittman made the statements in question notwithstanding the\nfact that on October 27, the Senate voted down an amendment introduced by\nSenator Taft, which was designed to prohibit the making of loans and the\nextension of credit by the Government or agencies thereof. You will note\nfrom the discussion of the matter which appears in the excerpt from the\nCongressional Record that Senator George pointed out that Senator Pittman's\nconstruction \"covers precisely one of the amendments offered by the dis-\ntinguished Senator from Ohio, which was voted down by this body yesterday.\"\nUnless Senator Pittman can be persuaded to take some appropriate 8.0-\ntion that would nullify the effect of this statement I an fearful that we\nwill be unable to hold that the R. F. C. and the Export-Import Bank have\nlegal authority under the now-pending legislation to make loans of the type\nwhich have been considered to an American corporation acting on behalf of\nbelligerent governments, collateralised by American securities owned by\nsuch belligerents.\n(Initialed) E. H. F., Jr.\nJWP:BB:mgt 10/28/39\nRegraded Unclassified\nEXCERPT\nCONGRESSIONAL RECORD\nRegraded 2289 Unclas\nSENATE\nOctober 27, 1939 Page 1655\nMr. TAFT.\nMr. President, while this matter is being discussed I should\nlike to ask the chairman of the Committee on Foreign Relations one\nquestion regarding this section. On page 21 it is provided that\nwhenever the President shall have issued a proclamation it shall\nbe unlawful for any person within the United States to advance\ncredits to foreign governments. I wish to know whether or not\nthe chairman of the Committee on Foreign Relations considers\nthat the word \"person\" which is also defined on page 30 as\nincluding corporations, and so forth, is broad enough to\ninclude the Reconstruction Finance Corporation and the Export-\nImport Bank.\nMr. PITTMAN.\nand\nThe word \"person\" expressly includes corporations,/I therefore\ntake it that it does include them.\nMR.TAFT.\nIn the Senator's opinion, it includes the Reconstruction Finance\nCorporation and the Export-Import Bank?\nMr.PITTMAN.\nThat is my opinion, and that was the opinion of those who drafted\nthe joint resolution.\nMr.GEORGE.\nMr. President, I wish to make a short statement. Particularly\nI wanted to say that my construction of the word \"person\"\nis identically the same as that given by the chairman of the\ncommittee. I think that is pertinent, because in effect it\ncovers precisely one of the amendments offered by the distinguished\nSenator from Ohio, which was voted down in this body yesterday.\nI think the word \"person\" here does include a subsidiary\nof the Government, a corporate subsidiary such as the\nReconstruction Finance Corporation, or any other corporation\nwhich is owned wholly or practically wholly by the Government\nitself.\n229\nCommissioner of Accounts\nTREASURY DEPARTMENT\n11/12/20\n& Deposits.\nWASHINGTON\nApril 28, 1934.\nCONFERENCE RE: JOHNSON BILL:\n(Public No. 151, 73rd Congress)\nThe Secretary of the Treasury called 8 conference at 11 o'clock\nFriday, April 27, 1934, for the purpose of considering some of the\ndifficulties in interpreting the provisions of the so-called Johnson\nBill, which prohibits the flotation of loans in the United States by\ngovernments in default on their indebtedness to the United States\nGovernment. Those present were the Secretary of the Treasury, the\nAttorney General of the United States, Senator Johnson of California,\nUnder Secretary Phillips and Assistant Secretary Moore of the State\nDepartment, Mr. Hackworth, Solicitor of the State Department, Mr.\nNacLean, Assistant Solicitor General, Mr. Coolidge, Mr. Oliphant, and\ntr. Bell, of the Treasury. Secretary Hull came in at 11:20.\nThe Secretary asked Senator Johnson to outline to the meeting\nthe objectives which he had in mind in presenting the bill to the Con-\ngress.\nSenator Johnson went into the history of the measure and stated\nthat as it was first introduced and passed the Senate more than a year\nago, he had in mind definitely the protection of the American citizen\nin his purchases of foreign securities in the United States issued by\nforeign governments which are in default on any of their indebtedness\nto the United States Government or its nationals. He stated that he\nhad definitely in mind at that time the South American governments. He\nstated that just after the bill first passed the Senate, Senator Robinson\nasked that it be laid on the table and reconsidered. At a conference be-\ntween him and Senator Robinson at a later date, he agreed to further\namendments, after which it was referred back to the Foreign Relations\nCommittee and was there amended to its present form. He thought as the\nbill now stands, its main objective W&G to preclude the flotation in this\ncountry of any securities of those governments or any subdivisions there-\nof which are in default on their indebtedness to the United States Govern-\nment.\nThe Secretary asked him just what he meant by the term \"default\" and\ndid he have definitely in mind including those governments which have\nmade token payments as & result of which the President had stated that be\ndid not consider those governments in default?\nSenator Johnson said that it was his personal opinion that if these\ngovernments did not pay the full amount due they were certainly in default\nRegraded Unclassified\n230\n2.\nas to the remaining balance. However, he realized that this was largely\nan administrative matter and the President under the powers granted by\nthe Constitution to handle foreign affairs, certainly had the authority\nto state whether or not a particular government was in default on its\nindebtedness to the United States Government. He did not think that\nthe act was intended to disturb the action already taken by the President\nin declaring those governments not in default.\nThe Attorney General stated to the Senator that he thought the\nPresident's previous action WEB quite in line with his authority, but\nsaked the Senator if he thought the President could take similar action\non future token payments in view of the act.\nThe Senator stated that his personal opinion was that the President\nhad no authority after the passage of this act to accept from our debtors\ntoken payments and then consider them not in default.\nThe Secretary then asked the Senator if he thought the bill included\nsuch everyday commercial transactions as time drafts and bankers' acceptances\netc. The Senator said he did not think it could be interpreted in any\nsuch manner and that it was not the intention of the bill to interfere in\nany way with ordinary commercial transactions. The question was then raised\n0.8 to what was meant by time drafts, acceptances, etc. lr. Coolidge ex-\nplained an ordinary commercial transaction with respect to the purchase of\ncotton in the United States by the national of some foreign government -\nthat the concern selling the cotton might draw a bill of exchange on the\npurchaser, which would be honored in thirty days more or less and that this\nbill of exchange could be sold on various terms. It was the concensus of\nopinion that such B. transaction would not fall within the provisions of the\nact.\nThe Attorney General then asked the Senator if he thought that a fair\ninterpretation of the act web that it did not intend in any way to limit\nthe ordinary everyday commercial transaction, and the Senator said that,\ncertainly, WAB the interpretation he would put on it.\nMr. MacLean, Assistant Solicitor General, then called attention to\nthe fact that France exercised 6. monopoly in tobacco, and that the organisa-\ntions in this monopoly would no doubt in the course of business sell their\ndrafts and other instruments of credit in this country. The Senator said\nthat he did not have such transactions in mind and that the words \"organisa-\ntions or associations\" in the act were not his language. It seemed to be\nthe concensus of opinion that these transactions would fall within a commer-\ncial transaction and not within the provisions of the Act.\nRegraded Unclassified\n231\n3.\nMr. Hackworth brought up the question that had been presented to\nhim just before he came to the Treasury, i.e., as to whether the oper-\nations in coupons on German bonds would fall within the provisions of\nthe act. He explained that coupons falling due on many of the German\nbonds were paid partly in cash and partly in scrip, and that later the\nscrip was purchased by a bank in Germany which was more or less under\nthe supervision of the Reichsbank and the German Government.\nSenator Johnson thought that such a transaction would clearly\nfall within the exception in the act with respect to renewal or ad-\njustment of existing indebtedness.\nMr. Coolidge said that he thought that one way in which to in-\nterpret the act was to decide whether or not any of the transactions\npassed upon involved new American money and that this should be a de-\nciding factor. This seemed to be agreed to by the Attorney General and\nMr. Hackworth.\nInitialed - D.W.B.\nRegraded Unclassified\n232\nDetember 12, 1960.\nSecretary\nLe L Felow, it.\nHere is - additional material that you night wast to glance\n- in connection with the en the Volution Act Conference which\nI - to you this afternoon.\n(Initialed) L.H.N. Jr.\n1\nAttachments :\nSent out to the Secretary at his House (by hand)\nat 6 pollo 12/12'40\n1. Momo in the Secretary's disry 10/2'39 20 telephone call from\nthe President and the Secretary's explanation of the\nTreasury's views an the Neutrality Bill,\n2. Memoranders ret \"Credits to Belligerents\". Propared at the\nsuggestion of the State Department 10/1'20 for Key Pittern\nto use in connection with the debutes on the pending\nNeutrality Bill.\n3. Foley's - to the Secretary 10/2'39 halding that neither\nthe Johnson Act not the Neutrality AST (as reported out of\nthe Senate) in regard to the miking of loans to, and the\nextension of credits to belligerent countries applied to\nthe Governments or any agency thereof. The A.G. concerted\nin that view.\n40 Messrs. White and Feley's - to the Secretary on 10/24'39\nThree reasons viry the Treasury should object to Taft's\nto the Neutrality mill to limit stabilization fund's holdings of the\ncurrency of any belligerent to as nore than $50,000,000.\n50 Feley's - to Secretary 10/30'39 relating to the Secretary that\nKey Pittuan's statement - the floor of the Senate a Date 27,1939\nwould have to be changed # w would have to hold that the me and\nthe Expert-Import Bank de not have the authority to miss lease\nto M American scrporation seting on behalf of the belligeremb\nRegraded Unclassified\n233\nOctober 1, 1939\nI\n7020 -\nthe President called - subile ego, and I told his that w\nhad been asked by the State Department to propare something to Ear\nPitteen a the Neutrality MILL\nNo falt that the consideration full into two entiers)\nCas, whether the credit clause in the eash-sad -48777 plan -\nunder consideration was controry with the Johnson sor, and that we in\nthe Treasury falt that, and were of the view that, the apposite was the\nfast. Particularly in view of a memerandem in the Treasury's files of\n& conference in my office in 1934 at which Senster Johnson was present.\nhas 90 had asked the Senster the specific question relative to short-\nterm credits, the Smater had answered that the elimination of short-term\ncredits had not been considered part of the purpose of his mill.\nthe President said, \"That's venderfull That's finel*\nAnd the second part, with reference to the question of the\nextension of 90-day credits, I falt that the President shouldn't -\nanything to urge 13. That the whole history was that 10 had been\nintroduced is the House for the direct purpose to restrict the powers\nof the President as to the extension of my mish credits, and that -\nin the Treasury felt that the President should let the pressure -\nfrom outside - this,\nThe President said, \"I as in complete agreement with you and\nRegraded Unclassified\n234\n- 2\nthat is emetly the way I feel, and Cordell agrees absolutely.\"\nI told him that Cordell didn't talk that my to - this seraing.\nthe gave no the impression that be would like to ⑉ this included,\n\"Se would IS, said the President, \"bat I as not going to de enything\nabout is. The Pressure will have to come from alsothere.\"\nBe asked no to send over to his the memorandum, and the\nas the conference in my office, and while be didn't tall me 60 in n may\nwords, I got the impression that be will 000 that 10 is sent and gate to\nKey Pitteen.\n(Distated via telephone by\nthe Secretary to MeGuire)\nThe original sent to the Secretary's office for the Secretary's diary.\nThe original of this sent to the Secretary at his house on 12/12'40\ncopied 12/12'40 by fm\nRegraded Unclassified\n235\nOctober 1, 1939\nBet Credits 11\nSection 7 of the Somete neutrality MII relates to financial\ntransactions with belligerents. It continues the existing previsions\nof the neutrality statute which prohibits the miking of leans and\ncredits to belligerents and persons acting 00 their behalf. It-is-o\nalso to be noted that the existing neutrality Law authorizes this\nPresident, when be finds 18 in the interest of the United States, to\nexempt from this prohibition \"ordinary commercial credite and short-\nterm obligations in aid of legal transactions and of a character\ncustomarily used in nermal peacetive commercial transactions.\" The\nSenate Committee apparently felt that the existing provision sould\nbe strengthened, without sacrificing American interests, by limiting\nthe discretion of the President and w confining to a mere limited\ncategory the permissible forms of short-town commercial credits.\nAccordingly, the Senate bill provides that (1) the short-torm commercial\ncredite may not be for & period mre than 90 days without renowal)\n(11) if say belligerent or person acting for a belligerent defaults\non my rush 90=day credit, 20 - commercial credit my be extended)\nand (111) the President report to Congress every als souths full in\nformation M to cash commercial credit which has the been paraltted.\nRegraded Unclassified\na s -\n236\n26 to the entirely clear that Presidential authority to permit\nshort-term commercial credito to belligerents has been a part of the\nneutrality law continuously since February, 1936, and that the only\nchanges which the Senste bill unless is the existing las are in the\ndirection of additional restrictions on the Presidential discretion\nto permit short-term consercial credito,\nIt bee been charged that the provision in the present bill\nrelating to short-term commercial credits to belligerents is investatent\nwith the Johnson Act of 1934, and is the opening wedge for the granting\nof leans to belligerents. I think that as emmination of the history\nof the Johnson Act and the Neutrality Act will show these charges\nto be unfounded.\nThe Johnson Act provided is part as follows\nThat heresfter it shall be wiseful within\nthe United States or any place subject to the\njurisdiction of the United States for any perces\nto purchase or call the bonds, securities, or other\nobligations of, any foreign government or political\nsubdivision thereof or any organization or association\nseting for w on behalf of & foreign government of\npolitical subdivision thereof, issued after the passage\nof this set, or to nake my Loan to must foreign\ngevernment, political addivision, organization, or\nassociation, encept a renowal w adjustment of enisting\nI allas 1 1\ndivision, organization, or association, Le in defauls\nin the payment of its obligations, w any part thereof,\n1 3 $ :- Mill Mates, s . a 8\nWithin a fee weeks after the passage of the Polmon we a\n- of problems aress assessitating the interpretation of that\nstatute. be April m, 1934g 6 confirmence me hold at the Treasury\nRegraded Unclassified\n- , -\nRegraded 23% Unclassified\nDepartment attended by Senator Johnson, the Attorney General, the\nSecretary of State, the Secretary of the Treasury and a number of\nother efficials of the State, Treasury and Justice Departments.\nDuring the conference, Benater Johnson me asked if be thought that\nthe statute applied to such every-day commarcial instruments as time\ndrafts, bankers' acceptances, etc. Benater Johnson stated that he did\nnot think that the statute could be interpreted in any sush nasser\nand that 10 was not the intention of the statute to interfere in any\nway with ordinary commercial transactions. It also appeared to have\nbeen the view of the participants in the conference, including Senstor\nJohnson, that the Johnson Act did not apply to time drafts, acceptances,\notd., employed in connection with ordinary Commercial transactions.\nA nemerandum of the conference is in the Treasury Department's files.\nA copy of the memorandum is attached.\nOn the same day the State Department issued the following\npress release:\n\"Inquiries have been received at the Department of\nState as to whether the Act of Congress approved April\n13, 1934, to prohibit financial transactions with foreign\ngovernments in default on their obligations to the\nUnited States, applies to ordinary commercial 'secoptances\nor time drafts,\" such as are well by foreign governments\nto finance the current requirements of their embassies\nand consulates in the United States.\n\"The Department of State and the Attorney General\nare in agreement that sush instruments 4e not constitute\n'obligations' within the purvice of the dor.\n\"Certain other questions that have been presented\nregarding the interpretation of the hot are under 000+\nalderation. #\nOn May 5, 1934, the Attorney General, is response to 4 request\n238\n4\nRegraded Unclassified\nfrom the Secretary of State, readered an opinion a a number of questions\nrelating to the Johnson Act, which epinion stated is part as follows:\n**(2) To what types of transactions dose the\nAct apply?*\n\"The Committee Reports (s, Sept. 20 and House Rept. 974g\n734 Comg.) resite that the bill was introduced following -\ninvestigation by the Senste Committee on Pinance and the\nrevelation therein that 'billious of dollars of securities\n... offered for sale to the American people* more overder\nand unpaid, that some of these \"foreign bonds and obligations\n... vere sold by the American financiers to sake out-\nregeously high profits's sad stated a purpose \"to prevent\ne recurrence of the practices which were shown by the\ninvestigation to be little less than a fraud upon the\nAmerican people # \" to curb the repacity of those engaged\nin the sale of foreign obligations . . 0,1\n\"This, I think, is indicative of a purpose to deal\nwith such 'boads' and 'securities' and with 'other\nobligations' of like nature, observing the rule of\neinadem generia - that is, obligations such as those which\nhad been sold to the American public to reise money for\nthe use of the foreign governments issuing then - not\ncontemplating foreign currency, postal money orders,\ndrafts, checks and other ordinary side to benking and\ncommercial transactions, which AND 'obligations' is a\nbroad sense but not in the sease intended, It was\nobviously not the purpose of the Congress to discontines\nall commercial relations with the defaulting countries.\"\n.....\n**(4) Does the Ast apply to acceptances or time\ndrafts?'\nThis question appears to be sufficiently carvered\nby the comments under Question No. 2g - It appears\nproper to add, however, that such transactions smot be\nconducted in good faith, in order to be within the les,\nand not as mere subterfuges to circumvent its purpose.\"\nIn other words, the Attorney General found that while the\nJohnson Act prohibited the sale of bonds and occurities of countries\n239\n- 5 -\nin default it did not prohibit those ordinary short-term comercial\ncredit devices customarily used in international trade. The entire\ntext of the opinion of the Attorney General we quoted in a State\nDepartment press release dated May 5, 1934 which also included the\nstatement that the State Department concurred in the Attorney General's\ninterpretation of the Johnson Act. Inquestionably this opinion has\nbeen relied upon by American business interests in their commercial\ntransactions with defaulting countries and persons on their behalf.\nIn the light of this background and at this late date, the Johnson\nAct should not be construed as making illegal short-term credit\ntransactions with defaulting governments relating to otherwise per-\nmissible trade and commercial transactions.\nSEUTRALITY ACT\nIn February, 1936, Congress is amending the then existing\nNeutrality Act included the following provisions\n\"SEC. 1a. Whenever the President shall have\nLosued his proclemation as provided for in section 1\nof this Act, it shall thereafter during the period of\nthe war be unlawful for my person within the Maited\nStates to purchase, sall, or exchange boads, securities,\nor other obligations of the government of any belligerent\ncountry, or of any political subdivision thereof, or of\nany person acting for or or behalf of such government,\nLossed after the date of such proclemation, or to mine\nany loan OF extend any credit to ear such government\nor persons Profided, President\nand of & character customerily used\nRegraded Unclassified\n240\n-\nRegraded Unclassified\ntime commercial transactions.\"\nIt will be noted that this provision, which has been the law since\nFebruary, 1936, specifically authorised the President to permit short-\nterm ordinary commercial loans to belligerents and persons noting on\ntheir behalf. The debate is Congress reveals no feeling that this\nprovision as inconsistent or in conflist with the provisions of the\nJohnson Act. The view of Congress was quite the contrary. The House\nreport on this provision is the 1936 assendent stateds\nso # . It is the law now under the Johnson Act\nthat it is unlawful to sell bonds, securities, etc.,\nin this country of any foreign country that is in\ndefault of its indebtedness to the United States.\nThis covers most of the greater powers is Europe.\nThis section, however, goos such further and makes\nit unlewful, as before stated, to all belligerent\ncountries. Now, there is a provision in this section\nthat if the President shall find that such action\nwill serve to protect the commercial or other interests\nof the United States or its mationals, be say, is his\ndiscretion, and to such extent and under such regulation\nas he may preseribe, ensept from the operation of\nthis section ordinary commercial credits and short-time\nebligations in aid of legal transactions and of 0\ncharacter sustomarily used in normal peacetive commercial\ntransactions. There is also another provision that\nthis section does not apply to reneval or adjustment\nof indebtedness which my exist on the date of the\nPresident's proclamation. The only diseretion given\nthe President under this section is in reference to\nsuch credits used in normal peacetine commercial trans-\nactions.\"\nBy specifically prohibiting in the Neutrality set the extension of\n\"my credit\" (which words do not appear in the Johnson Act) Congress,\nin visa of the purposes of the Neutrality set, apparently intended\nthereby to prohibit even short-term commercial credits unless the\n241\n0\n0\n?\nI\n-7-\nPresident found that the making of such short-term comercial credite\nto belligerents was in the public interest, in which event, such credits\nwould be lawful.\nNo change was made in this provision of the Neutrality Act when\nthe Neutrality Act was otherwise asended in 1937. When the neutrality\nlegislation was considered in the House of Representatives last July,\nit we proposed to circumscribe further the President's power to\npermit short-term commercial credits to belligerents by limiting such\ncredits to 90 days without renewal, and requiring the President to\nmake periodic reports to Congress of such transactions. These\nlimitations on the power given to the President by the existing\nstatutory provision are included in the Senate bill, and in addition\nthe Senate bill prohibits further 90-day credits if a belligerent\ndefaults on prior 90-day credits given to it.\nOriginal and 1 copy taken to White House by Foley 8130 P.M.\n1 copy sent to Secretary by Berustein\n1 eopy to Attorney General at Washington Hotel W Shalley (returned\napproved and original run given to Attorney General.)\n1 copy to Viner\n1 copy to Bell\n1 copy to Cookran\n1 copy to Berastein\n1 copy to Puble\n1 copy to Foley\nBuilie returned copy after reading 10.\nRegraded Unclassified\n242\nC\n0\n?\nI\nOctober 2, 1939\nSecretary of the Treasury\nMr. Foley\nM you know, we have ruled that neither the Johnson dot,\nnor the provisions of the Neutrality Act relating to the making\nof loans and the extension of credit to belligerent countries,\napply to the Government or any agency thereof. The Attorney\nGeneral has concurred in this view. Nothing in the Neutrality\nBill, which has been reported out in the Senate, necessitates -\n& change of this view.\n(Initialed) & a. For Jr.\nJUPingt 10/2039\nInitialed JMP and n\nRegraded Unclassified\n243\n0\n,\nOctober 24g 1939\nI\nTot decretary Morgentham\nFrom lears. White and Foley\nDesator Taguer inquired by telephone u to the Department's position\non Taft's assistment to the Neutrality Bill to limit the stapilization fund's\nholdings of the currency of any balligerent to no more the $50,000,000 or\nany one time. To feel that the Department should indicate to Senstor Vageor\nits opposition to faft's assistment for the following remain\n(1) When Congress extended the stabilisation premo 10 was fully\nconseious of the possibility or probability of a var in Berope.\nThere is accordingly no need at this time for Congress to No\nconsider the problem and to limit the stabilisation powers,\n(2) Benater Taft questioned the Secretary about the use of the\nedabilisation fund in the event of war. The Secretary said that\nbefore he would use the stabilization fund to assist any\ncountry in presenting that SAP be would come up before the\nproper committee and ask for guidance. This procedure would\npermit greater flexibility this Taft's proposal in dealing with\nN energency situation in which it might be greatly in the\ninterests of this country to purchase the currency of & belliger-\nat in amounts greater than $50,000,000. by going to the -\ngressional committees the Treasury sould assertain the visas of\nCongress without the publicity and duly involved in getting\nnew legislation.\n(3) If - do not indicate our opposition to Taft's assedemt, there\nis likelihood that other Amendments would be offered prohibiting\nthe stabilization fund from purchasing any belligerent currency\nand in effect mullifying its use during the will\nIf you agree with the foregoing, we can give these views to Benefot\nTaguer orally.\n(Initialed)\nH.D.W.\nAPPROVED: October 25, 1939\n(Taitialed)\nOriginal me left with Senstor Vaguer by White and poler\nThe original of this \"copied\" run was sent to the Becretary\nInsurance\nat his house on 12/12'40\n10/24(39\ncopied 12/12'40 fa\nRegraded Unclassified\n244\nRegraded Unclassifi\n0\no\nThe original copy was pulled. The following note appeared\nP\non its \"Please talk to M. H.M.Jr.\", and \"White House\",\nI\nOct. 30, 1939\nSecretary Morgenthau\nMr. Foloy\nAs I stated to you in my assorandus of October 2, 1939, it is our\nview, concurred in by the Attorney General, that the Johnson Act and the\nprovisions of the present neutrality law relating to the saking of leans\nand the extension of credit to belligerent governments do not apply to this\nGovernment or agencies thereof.\nThe pending neutrality bill contains similar language and it would\nhave been appropriate to interpret it in . similar nanner but for the state=\nsent made by Benator Pittman on the floor of the Senate late in the evening\non October 27, 1939. Benator Fittmen indicated that be and the other\ndrafters of the bill construe its provisions to prohibit the saking of\nloans or the extension of credit to belligerent governments by governmental\ncorporations, such as R. 1. c. and the Export-Import Bank. A discussion\nof this matter appears in the attached excerpte from the Congressional\nRecord. On Ostober 17, 1939, Senstor Barkley said on the floor of the\nSenate that his offhand view was that the credit provisions of the pending\nbill applied as rigidly to the B. 1. c. and any other agency of the Govern-\nsent as to any private person in this country.\nSenator Pittman made the statements in question notwithstanding the\nfact that on October 27, the Senate voted down an emendment introduced w\nSenator Taft, which was designed to prohibit the seking of loans and the\nextension of credit by the Government or agencies thereof, Yes will note\nfrom the discussion of the matter which appears in the excerpt from the\nCongressional Record that Denator George pointed out that Senater Pittman's\nconstruction \"Govers precissly one of the amendments offered by the die-\ntinguished Senster from Ohie, which was voted dom by this body yesterday.\"\nUnless Senster Pittman can be personded to take - appropriate 4-\ntion that would nullify the effect of this statement I as fearful that W\nwill be usable to hold that the 2. 7. c. and the Export-Import Bank have\nlegal authority under the now-pending legislation to nake leans of the type\nwhich have been considered to an American corporation acting - behalf of\nbelligerent governments, collateralised by American securities owned by\nsuch balligerents.\n(Initialed) L. a. 1., Jr.\nJUPelMingt 10/28/39\n245\nRECORD\nOctober 27, 1939 Page 1655\nTAXE\nMr. President, while this matter is being discussed I should\nlike to ask the chairess of the Committee OG Foreign Relations -\nquestion regarding this section. On page 21 10 is provided that\nthenever the President shall have issued a proclemation is shall\nbe unlowful for any person within the United States to advance\ncredits to foreign governments. 1 wish to know whether w not\nthe chairman of the Connittee as Foreign Relations considers\nthat the word \"person\" which so also defined GEL page 30 as\nincluding corporations, and ao forth, is broad enough to\ninclude the Reconstruction Finance Corporation and the Export=\nImport Bank.\nand\nPITTMAN.\nThe word \"person\" expressly includes surporations./I therefore\ntake 10 that 11 does include them.\nIn the Senstor's opinion, 10 includes the Resonstruction Finance\nCorporation and the Expert=Impert Sank?\nThat is my opinion, and that me the opinion of these the drafted\nthe joint recolution.\nMr. President, I wish to mike a short statement, Particularly\nI wented to my that my construction of the med \"yursun\"\nis identically the - as that given by the chairman of the\nconsittee. I think that is partinent, because in effect 18\ncorrer precissly - of the offered w the\nfrom Chio, which was voted down in this body yesterday.\nI think the word *perscall here does include a\nof the Government, a corporate emboidiary reth M the\nResenstruction Finance Corporation, w my other corporation\nwhich is camed wholly or practically vally w the Governmenth\nitself.\nRegraded Unclassified"
}