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Volume 374, February 20 – February 23, 1941
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Volume 374, February 20 – February 23, 1941
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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WARE
DIARY
Book 374
February 20 - 23, 1941
- A -
Book Page
Anglo-Palestine Bank, Limited
See War Conditions: United Kingdom
- 3 -
Bank for International Settlements
See Var Conditions: Foreign Funds Control
Bank Holding Company Legialation
Effect of group banking on the availability of
bank facilities: Comptroller of Currency
memorandum 2/21/41
374
208,210
Brasil
See Var Conditions: Foreign Funds Control
- C -
China
See War Conditions
Corcoran, Thomas G.
See War Conditions: China
Customs, Bureau of
See War Conditions
- D -
\
Davis, Norman
See Var Conditions: Foreign Funds Control
Defense Savings Bonds, United States
See Financing, Government
- 7 -
Financing, Government
3/15/41:
Discount Corporation recommendations - 2/20/41
4
Knight (of Chicago) estimates - 2/20/41
57
Recent issues slow in secondary distribution:
Hadley memorandum - 2/20/41
58
Federal intermediate credit: Hadley memorandum -
2/20/41
59
Treasury bonds: Hadley memorandum - 2/20/41
60
Conference; present: HMJr, Bell, Hadley, Haas,
and Murphy - 2/20/41
61
Conference between Treasury and Federal Reserve
group: pricing of two issues discussed - 2/21/41..
168,184
a) Piser memorandus discussed
b) Poor reception of issues by Morgan-Stanley,
Chesapeake and Ohio, Republic Steel, etc.,
discussed
184
c) Conversation with Devine
186
d) Insurance Companies: Consultation with
suggested by Douglas (Lewis)
198
e) Conversation with Rouse
200
(See also Book 375, page 1)
f) Opening at "101, 20 to 22" discussed at 9:30
meeting - 2/25/41: Book 375, page 8
- 1- (Continued)
Book Page
Financing, Government (Continued)
3/15/41 (Continued):
High-grade corporate bond issues: Haas report -
2/21/41
374
242
Defense Program:
March 1 rather than May 1 urged by HMJr in talk
with Graves - 2/21/41
158
a) Special bill before Congress to pay for
advertising urged by HMJr in memorandum
to Bell - 2/21/41
162,197
- G -
Germany
See War Conditions
- I -
Harriman, V. Averill
HMJr's congratulations on trip to England - 2/21/41..
245
Hungary
See War Conditions: Foreign Funds Control
- I -
Imports
See War Conditions: Customs, Bureau of
Istorik, L.
See War Conditions: United Kingdom (Anglo-Palestine
Bank, Limited)
- J -
Japan
See War Conditions
- L -
Latin America
Mexico:
Stabilization of Mexican peso: Hochschild
memorandum - 2/21/41
222
- M -
Mexico
See Latin America
Morgenthau, Henry, III
Reports automobile accident in Cleveland - 2/20/41..
7
- P -
Book Page
Palestine Foundation Fund, Incorporated (American
subsidiary of Palestine Foundation Fund, Limited)
See War Conditions: United Kingdom
Procope, HJ. J. (Finnish Minister)
Speech delivered at Beth Sholom Congregation banquet -
2/23/41
374
299
- R -
Research and Statistics, Divison of
Report of projects during January 1941
258
Roumania
See War Conditions: Export Control
- 8 - -
Sinclair, John S. (President, Federal Reserve Bank of
Philadelphia)
Gaston report - 2/21/41
219
- U -
United Kingdom
See War Conditions: Military Planning: United Kingdom
- V -
Vandenberg, Arthur H. (Senator, Michigan)
World War debt in name of United Kingdom or entire
British Empire? Treasury answer - 2/21/41
251
- V -
War Conditions
China:
Increase of exports through Chungking - American
Embassy, Chungking, memorandum - 2/20/41
56-A
Establishment of banks in small towns - American
Embassy, Chungking, memorandum - 2/20/41
56-0
Corcoran, Thomas G.: Consults HMJr about temporary
association with Soong until such time as
Corcoran's brother is able to take up
association - 2/21/41
163
Japanese plane carrying Osumi brought down by
Chinese guerillas; plan for taking Singapore
base found among papers - Nicholson report from
Shanghai - 2/21/41
255
War Loans: Resume of to end of 1940 - 2/22/41
293
Regraded Unclassified
- V - (Continued)
Book Page
War Conditions (Continued)
Customs, Bureau of
Defense materials - imports of: Application of
customs duties to - Treasury memorandum
prepared for FDR's consideration - 2/20/41
374
51
Exchange market resume' - 2/20-21/41
20,230
Export Control:
Roumania:
State Department asked for opinion on export
license applications covering "varied
assortment of war materials" - 2/20/41
14
Foreign Funds Control:
Norman Davis discusses situation with HMJr and
tells him of conversation with Hull
concerning registration of all foreign
companies - 2/21/41
205
a) Pehle and Foley discuss with Davis
206
Bank for International Settlements-Bank of Brazil
gold transaction will require license -
2/20/41
18
Hungary:
Gold and dollar resources - resume' of -
2/20/41
16
Germany:
Food Problem in German War Economy by Frederick
Straues: Copy sent to HMJr by Wickard - 2/20/41
75
Indebtedness reported on by American Embassy.
Berlin - 2/21/41
256
Japan:
Osumi's plane brought down by Chinese guerillas;
plan for taking Singapore base found among
papers: Nicholson report from Shanghai -
2/21/41
255
Lend-Lease Legislation:
See also War Conditions: Purchasing Mission
Proposed Executive Order submitted to FDR - 2/20/41
36
Military Planning:
Reports from London transmitted by Halifax -
2/20/41, etc
148,155,310
Purchasing Mission:
British Financial Position (See also War Conditions:
Lend-Lease Legislation): Securities and Exchange
Commission asked to assist Treasury by studying
valuation of insurance direct investments -
2/21/41
221
Bank of England account: Debits reported by Federal
Reserve Bank of New York - 2/21/41
225
Federal Reserve Bank of New York statement showing
dollar disbursements, week ending February 11,
1941 - 2/20/41
227
Security Markets (High-Grade):
Current Developments: Haas memorandum - 2/21/41
231
- W - (Continued)
Book Page
War Conditions (Continued)
United Kingdom:
Anglo-Palestine Bank, Limited: Istorik inquires
concerning involved transaction, effect of
which 1a to provide dollars for British
Government (Foley opinion) - 2/20/41
374
23
a) Istorik letter to HMJr - 3/15/41:
See Book 382, page 240
b) Istorik sees Foley and Bernstein -
3/19/41: Book 383. page 306
c) Istorik-Bernstein conference - 3/20/41:
Book 384, page 51
d) Brandeis-Bernstein conference - 3/25/41:
Book 384, page 245
e) Ietorik-Bernstein conference - 4/1/41:
Book 385, page 46
f) Alternative proposals: Foley memorandum -
4/15/41: Book 389, pages 73 and 238
g) Treasury letter regretting inability "to
extend financial assistance at this time"
and suggesting "necessary funds for
Anglo-Palestine Bank **** should come,
more appropriately, from within British
Empire (sterling area)" - 4/21/41:
Book 390, page 91
1) Foley discusses at 9:30 meeting:
Book 390, page 89
World War Debt
Vandenberg (Senator, Michigan) question concerning -
2/21/41
251
Regraded Unclassified
1
February 20, 1941
MEMORANDUM FOR THE SECRETARY'S DIARY
On Tuesday, February 18, there was a
meeting in Mr. Foley's office and on February 19,
there was a meeting in Dean Acheson's office.
Present at both meetings were Messrs. Acheson
and Pasvolsky of the State Department and Messrs.
Foley, White, Pehle and Bernstein of the Treasury.
At these two meetings there was a full and
comprehensive discussion of the possible advantages
and disadvantages of extending freezing control on
a geographic basis. Mr. Acheson is to prepare a
memorandum describing the advantages and disadvantages
and will submit the memorandum to the Treasury for
comment.
9.18.7L
Regraded Unclassified
2
February 20, 1941
9:15 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Jones.
H.M.Jr:
Hello.
Jesse
Jones:
Hello, Henry. I'm kind of mixed up about
our - I've kind of got more dates for lunch
than I can fill. What is your situation?
H.M.Jr:
Four dates?
J:
I say I've got more dates than I can fill for
luncheon. What is your situation - could I
see you at another hour?
H.M.Jr:
Well, I'm awful tight on that and I wanted
to talk to you and tell you what we were
thinking about on finanoing and get your
ideas. That's what I had in mind and I'm
seeing people all day on the financing, but
if you've got three other dates I can't bid
you more than 4% for lunch.
J:
Can't do what?
H.M.Jr:
Can't offer you more than 4%.
J:
For lunch, huh?
H.M.Jr:
Yeah.
J:
Good. Well, now could I beg off and see you
a little bit - could I come and then get
away.
H.M.Jr:
Well, here's the point - I'm afraid we're
going to have Cabinet this afternoon.
J:
I gee.
H.M.Jr:
Are you busy around 11:30?
J:
No, I could come any time.
3
- 2 -
H.M.Jr:
Well, let's forget lunch
.....
J:
And come at 11:30.
H.M.Jr:
At 11:30.
J:
That will be fine.
H.M.Jr:
I'll just save some fish.
J:
Fine, thank you very much. I'll miss the
fish.
H.M.Jr:
All right. 11:30.
J:
11:30.
4
February 20, 1941
10:05 a.m.
H.M.Jr:
Hello. Have I got Haae and Hadley?
George
Haae:
Yes, sir.
Mr. Hadley: Yes, Mr. Secretary.
H.M.Jr:
Well, now the Discount Corporation, what they
recommend is a 5-year 18; a 7x-year, 2% and
a '61-63, 2-3/4ths. I wish both Haas and
Hadley would figure this thing and see what
it looks like. See? Or what they are?
Hadley:
They all look pretty good except that 71;
that's a little short.
H.M.Jr:
Well, anyway they are recommending 3 and I
wanted you both to know about it and be working
on it.
Hadley:
All right.
H.M.Jr:
0. K., George?
Haas:
Yes, right away.
5
February 20, 1941
D. W. Bell
Secretary Morgenthau
I would like to have before my 10:30 press conference
today the following information:
If we borrow & billion dollars in new money today,
what percentage of it can I say would go for national
defense?
6
or Miss Chauncey
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 20, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
Mr. Livesey telephoned me at 11:30 this morning in regard to the memorandum dated
February 19 with respect to Hungarian accounts in New York, a copy whereof had been
given to Mr. Livesey. After talking with Mr. Livesey, I spoke by telephone with
Mr. Knoke who confirmed our opinion that the transaction made by the Central Corpora-
tion of Banking Companies of Budapest in the sum of $370,871 suggested a movement of
Hungarian funds out of this country. Mr. Knoke promised to have a special study made
of Hungerian balances and to give me the result thereof. He volunteered the informa-
ion that he had already instructed his people to draw up a remorandum on Greek,
Bulgarian and Yugoslavian balances end offered to send me a copy of this study as soon
as it is finished.
J/wel
7
February 20, 1941
12:35 p.m.
Mrs.
Klotz:
Hello, Henry.
Henry, III: How are you?
K:
I'm fine, thank you, and how are you?
H:
I'm fine.
K:
Good.
H:
I called you because I wanted to find out
about my automobile insurance, because I
had a little accident today.
K:
Oh!
H:
As you know it's snowing very hard out here
and I had a collision.
K:
Oh, my! You weren't hurt?
H:
No, I wasn't hurt at all and the other people
weren't hurt. He had a slight cut, but you know
it was very 1cy and we were both coming very
slow and the cars were banged up a little bit
but there was no serious damage.
K:
I see.
H:
I've looked and I have absolutely no record
of anything at all.
K:
You mean of any insurance.
H:
Yeah.
K:
No, I have it here I think, Henry. I don't
know. I mean, I know we were carrying it
.....
H:
Oh, I know that because you spoke to me
about renewing it.
K:
Well, we did. I mean, you're covered.
H:
I wasn't worried about that but I thought that
I had to report it right away.
8
- 2 -
K:
Yes, you do and you see I'll have to report
it for you. Now give me some more of the details
because I know that's what they'll want. When
did it happen?
H:
It happened at 11:25 Central time.
K:
Today.
H:
Yes.
K:
And you were riding alone in your car?
H:
Yes. It is reported at the Shaker Heights
Police Station.
K:
At the what?
H:
Shaker Heights Police Station.
K:
Shaker Heights.
H:
They have the complete record.
K:
That's Cleveland.
H:
Shaker Heights, Cleveland.
K:
All right. Well, I think that's
.....
H:
Well, I think I had better give you a little
more. I asked the Chester Body Company .....
K:
What?
H:
Chester, like in Chesterfield, to take my
car away and repair it.
K:
I see. Well, I don't think that they care
much who 1s doing the repairing. I tell you,
Henry, I don't know what questions they may
ask and I think that there are forms to be
filled out and all that business. I'll report
it to the broker when I know better what he wants,
then I'll let you know.
H:
You don't know what insurance company it 18?
K:
No, off hand I don't know.
9
- 3 -
H:
Yeah, but they probably have an agent here
in Cleveland.
K:
Well, that's what they'll probably do but
I'll have them communicate with you at once.
H:
You have my telephone number and address and
everything?
K:
Yes, of course.
H:
I'll give you my two telephone numbers in case
they want to call me. Maine 8231
.....
K:
Maine 8231.
H:
..... during the day.
K:
That's the office.
H:
Yes, and Fairmount 8166.
K:
And home, Fairmount 8166. All right, Henry.
I'll report it and then I'll let you know just
what the next step 1s. Did you do much injury
to the other car?
H:
He ran into me - the front of his car was
damaged.
K:
I see.
H:
The front of his car was smashed up, the
radiator, I think, was broken and my car was
hit on the side, on the right side, and I
think the transmission was smashed. The car
had to be removed from the accident.
K:
I see, and you weren't hurt at all?
H:
Not the slightest.
K:
Oh, that's marvelous. Well, that's all that
really mattered.
H:
The man in the other car got a slight cut on
his head, but there was nothing at all - he's
gone to the hospital though 80 it will all be
reported in the regular fashion.
Regraded Unclassified
10
- 4 -
K:
Well, they make big things out of these little
ones, you know.
H:
Well, it will all be reported.
felt
K:
Well, you know how I've always/about - I mean,
BO finicky about the insurance, and it's just
for things like this.
H:
I know you have. I've never had an accident
before but you never can tell and in this
weather if you drive at all, it 18 almost
impossible not to have one.
K:
Well, Henry, don't worry about it. I'll call
the broker immediately and report it from this
end and I guess that they - I'll let you know
just what the next steps are.
H:
You needn't say anything to Daddy at all
unless you want to or if you have to.
K:
Well, he knows you called.
H:
He does.
K:
Yeah.
H:
Well, you can tell him that there isn't anything
in it at all. I think that would be better.
K:
Yeah.
H:
Well, then I won't speak to him now
.....
K:
No, he's downstairs resting but he knew that
you were calling me.
H:
Yes.
K:
All right, Henry, don't worry about it. I'll
look after it.
H:
Right-o.
K:
Henry, look, would you be good enough as long
as I have you on the phone to let me know what
your income was?
11
- 5 -
H:
on, I sent that to Mr. Martin.
K:
Oh, you did.
H:
I got something from the people out here;
I got them to fill out a thing 80 it 18 all
official.
K:
Oh, that's grand!
H:
I sent it to him quite a little while ago
I think.
K:
oh, well that's good. Well, I didn't know.
You see I've been away for a couple of weeks
and I just got back.
H:
Have you been sick?
K:
No, I was out West with Elinor.
H:
How is she?
K:
Oh, she's fine. We're simply thrilled to
death.
H:
Oh, that's fine. She really likes school
now.
K:
Oh, she likes the school and she is feeling
80 well and looks 80 well and it's just the
perfect place for her.
H:
Well, that's fine.
K:
We're awfully happy. Thank you for asking
about her.
H:
One other thing, 8.8 long as I have you on
the phone. I have some traveling money, you
know that I usually report, that I haven't
reported for quite some time. It's about
$110 for traveling back and forth between here
and Washington.
K:
Oh, you mean that your father owes you. $110.
H:
Yes, $110.
Regraded Unclassified
12
- 6 -
K:
All right.
H:
So you can send me a check.
K:
Surely.
H:
Well, then I'll hear from you.
K:
Right. You'll hear from me, Henry.
H:
Or from the agent.
K:
Or from the agent - - from one of us. You can
count on it. 0. K. I'm 80 happy that nothing
more serious happened.
H:
Well, it was all right.
K:
Right.
H:
Thank you.
is
Good-bye.
H:
Good-bye.
Regraded Unclassified
13
HVC this v to they
Internety so. 1942
Files
Mr. Contron
After B. Notwish brenght to or attention a w Relivery
4as to crrive es Pointery so, of 680,064,000 of gold from Otters w the Pateral Restrve
Bank of Sev Tools, for colo be the Bew York Assey Office for of Sie Brittenic
Majosty's Covernment. $ ingaired of Mr. Flagfair whether this chiparat right represent
gold from - corrected assount of France, for which gold is South Adriss had boen
evegyed. m. Playing called - badie to 100 m have that this 6024 use not one of
French origin against which Seath African gaid had boon coupped, too - principally
from instralla. That to, the British had home able to cosmble enoughtgeld of their
own is Canada to nate w this $20,064,000 chiyerat.
then Mr. Placent colled 48 MP this an, 8 asked Ma the - question is
regard to this Others one chiparat. a use met - of the include which I had mate
of Playfair. Placent's impodiate - we that this mai be everyed ones, but action
the to leok tate 10 further visa I 100 his law what Pleyfulr bed thought of the
assestion.
R.M.P.
C:dm:2.21.41
Regraded Unclassified
14
For uses Channecy
FEB 20 1944
My door Mr. Secretary:
There is referred to you herewith for your consideration
a transaction involving materials in this country owned by the
Covernment of Humania, relative to which two applications are are
pending before the Treasury Department.
Enclosed herewith is a resporandum summarizing the trans-
action set forth in application No. * 98569 filed by the Standard
011 Company of New Jersey and application No. MY 103328 filed by
Secony Versua 011 Company, Ime.
It will be appreciated if this Department is advised
as prosptly as possible of your views with respect to the trans-
action set forth in such memerandum M the Advisory Commission
to the Council of National Defense has indicated its interest
is this matter.
Very truly yours,
(Signed 30%
Acting Secretary of the Treasury.
The Nonorable,
who
The Secretary of State.
Inclosure
BYI to 21 bill 251
BLT tmgb 2/14/41
Regraded Unclassified
15
Application Nos. XI 98569 and II 103328 are pending
which sock licenses to permit the Standard 011 Company of In
Jersey to sell as brokers on behalf of the Government
a varied accortment of war materials now in the United States
which have been bought and paid for by the Rumanian Government
for the use of its aray and air force. This miscellansous mater-
ial, consisting chiefly of airplane parts and strategic metals,
is leaded on a Rumanian vessel, the 88 "Mangalis", presently
tied up at Brooklyn, New York; in addition there are 468 Ford
tracks and trailers st Chester, Pennsylvania. Upon completion
of the sale it is proposed that the proceeds would be divided
between the Standard 011 Company of New Jersey and the Secony
Terms 011 Company, Inc. and applied by them to accounts 100
seivable due or anticipated from their respective
subsidiaries, such amounts receivable having arisen from
equipment supplied to such subsidiaries by the two parent
companies. It is not indicated in the applications under
reference in what prepertion the proceeds of the proposed
sale would be divided between the too companies. The
Rumanian Government would be reimbursed in lei through pay-
mento by the above mentioned Runanian subsidiaries from credit
balances now on deposit in Imain banks and from collections
which such subsidiaries expect to make in the future. The
value of the was materials and trucks is estimated at between
$2,000,000 and $3,000,000.
THE
All EEB SI bw 2 51
Regraded Unclassified
16
FEDERAL RESERVE BANK
OF NEW YORK
ICE CORRESPONDENCE
CONFIDENTIAL
Date February 20, 1941.
To
Mr. Knoke
Subject: Hungarian Gold and Dollar
From W. H. Rozell
Resources
(Copies to Mesers. Sproul, Rounds, Williams, Roelse (Sanford), McKeon (Cameron) ).
Supplementing the data contained in yesterday's memorandum on the
gold and dollar resources of Bulgaria, Yugoslavia, and Turkey, the table
below gives available data on Hungarian holdings. The gold reserves of
Hungary were last reported at $24,500,000, none of which, however, was
under earmark in this country and, therefore, subject to Treasury control
in the event of a "freezing" of Hungarian accounts in the United States.
Such action, in fact, would probably not affect more than $5,000,000.
Hungarian deposits in the Second District were reported at only $3,100,000,
as of December 31, 1940, and long term investments have been estimated by
the Department of Commerce at only $400,000 for the end of 1939.
United States investments in Hungary, on the other hand, would
appear to amount to over $50,000,000, or at least 10 times Hungary's short
and long term investments here. Our estimated investments at the end of
1939 consisted largely of $42,800,000 of bonds payable in dollars, all but
$7,800,000 of which were government or government-guaranteed obligations.
In addition, Americans had an estimated $9,300,000 invested in Hungarian
business enterprises.
COPY
Doaraded
17
- 2 -
ESTIMATED HOLDINGS OF GOLD AND AMERICAN ASSETS OF HUNGARY
(In Millions of Dollars)
Gold
Earmarked at F. R. Bank
-
Elsewhere
24.5
Total (Dec. 15)
24.5
Dollar Balances in Second District
Official at F. R. Bank
(a)
Other
3.1
Total (Dec. 31)
3.1
Long Term Investments (End of 1939)
0.4
Total Gold and Dollar Assets
28.0
Estimated Holdings in U. S.
3.5
(Excluding gold elsewhere)
(a) Less than $100,000. The same, currently.
ESTIMATED UNITED STATES INVESTMENTS IN HUNGARY
As of End of 1939
(In Millions of Dollars)
Estimated Holdings of Dollar Bonds
42.8
Direct investments
9.3
Total (a)
52.1
(a) Exclusive of short term assets, figures on which are not available,
but probably small.
WHR:EC
COPY
18
$ I if
2. Twice
I á
was you Mothy ml 6 along the fellowing Items
Bio to Sensive.
Beforetag w your 2. 96. February 13. 9 D.B., the treasury Department
states that you my africe the fast w Brandl that D.I.O. to a matteral vitida
1948. 600 B á 19. 1991 I I I Deposit % I $ $
latting foreign enchange transactions. etc. Accordingly. before D.S.S. could
transfer - of the one to New York to the Sask of Travil as would be -
- to obtain from the Valied States Treasury a license user such Recentive
frier and also 8 license use the Geld Reserve set of 1934 permitting and a
Whether w an má licenses will be granted will deposit - the
full faste and circumstances of the - as decaribed is applications which
world have be - filed with the Treasury n behalf of the D.I.S.®
NMR.
EMC:lap-2/20/41
Regraded Unclassified
19
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 20, 1941.
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
The Federal Reserve Bank of New York reported the following transactions in
which Hungarian accounts are involved.
Guaranty Trust Company of New York
Date
Account Debited
Amount Debited
Paid To
February 19
Central Corporation of
$40,000
Chase National Bank of
Banking Companies,
the City of N.Y. for
Budapest
account of Reichsbank,
Berlin, in favor of
Reichspostzentralamt
Auslandsabrechnungen,
Berlin, by order of
Royal Hungarian General
Direction of Posts,
Budapest
Chase National Bank
Date
Account Credited
Amount Credited
Received From
February 19
Reichsbank, Berlin, in
$40,000
Guaranty Trust Company
favor of Reichspostzen-
of N.Y. by order of
tralamt Auslandsabrech-
Royal Hungarian General
nungen, Berlin
Direction of Posts,
Budapest, by order of
20ml
Central Corporation of
Banking Companies,
Budapest
Regraded Unclassified
20
TREASURY DEPARTMENT
for Miss Churneey
INTER OFFICE COMMUNICATION
DATE February 20, 1941
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£88,000
Purchased from commercial concerns £11,000
Open market sterling remained at 4.03 up to about noontime. It then moved down
to 4.02-3/4 and stayed at that level for the remainder of the day. There were no
transactions by the reporting banks.
In Shanghai the U. S. dollar moved lower against both the Chinese yuan and
sterling. The yuan was quoted at 5-11/16#, up 1/32#, and for sterling it was 3.93-1/2,
up 1-1/4*. In Hong Kong sterling was 3.92, off 24.
Closing quotations for the other currencies were as follows:
Canadian dollar
15-1/4% discount
Swiss franc (commercial)
.2323-1/2
Swedish krona
.2385-1/2
Reichsmark
.4005
Lira
.0505
Argentine peso (free)
.2370
Brazilian milreis (free)
.0505
Mexican peso
.2066
Cuban peso
7% discount
There were no purchases or sales of gold consummated by us today.
The Federal Reserve Bank of New York reported the shipment of gold valued at
$5,600,000 from Vladivostok to the Chase National Bank, San Francisco, for account
of the State Bank of the U.S.S.R. This gold will be sold to the U. S. Mint in that
city.
The Treasury issued licenses under both the Gold Reserve Act and Executive Order
No. 8389 as amended, permitting the Federal Reserve Bank of New York to effect the
following transfers of gold in its vaults:
$1,120,000 from the National Bank of Denmark's account to B.I.S. account
No. 2, and a like amount from B.I.S. account No. 2 to the
account of the Swiss National Bank, Berne.
The above operation represents a purchase of gold by the B.I.S. from.the Danish Bank
nd a sale of the same amount of gold by the B.I.S. to the Swiss National Bank, Berne.
Payment will be made in dollars on the books of the Federal Reserve Bank of New York.
Regraded Unclassified
21
- 2 -
In London, the price for spot silver vas unchanged at 23-3/8d and forward silver
was off 1/16d, at 23-5/16d. The U. S. equivalents of these prices are 42.444 and
42.33$ respectively.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/4#.
The Treasury's purchase price for foreign silver was also unchanged at 35#.
We made two purchases of silver amounting to 125,000 ounces under the Silver Pur-
chase Act. This silver consisted of new production from foreign countries, for forward
delivery.
CONFIDENTIAL
22
>
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 20, 1941
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
I called Mr. Gifford at 3:20 this afternoon and thanked him for the inform-
tion which he had sent us by airmail in regard to British official holdings of U. S.
Government securities. I asked Mr. Gifford if he wanted to take advantage of the
offer which we made yesterday of providing him with & customer for such American
Government securities as he may have immediately available for sale. Mr. Gifford
replied in the negative. He said that of the U. S. Government securities which he
had immediately on hand there were only $130,000 worth which he was not committed to
sell to British insurance trust funds, and that he had succeeded in disposing of this
$130,000 worth this morning. Since this item had been so small, he had not cared to
bother us with it.
Mr. Gifford was quite struck by today's turn in the security market and said
this again confirmed his belief that it is always foolish to make market predictions.
Jinel
23
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 20, 1941
TO Secretary of the Treasury
FROM Mr. Foley
fel
Pinsent was in today and left the attached papers
with me. The proposition, to which my initial reaction
was unfavorable, is as follows:
The Anglo-Palestine Bank, Ltd., & commercial bank
operating primarily in Palestine, is desirous of improving
its liquidity; the Palestine Foundation Fund, Ltd., a
British organization carrying on Jewish eolonization work
in Palestine and supported by contributions of Jewish
people, is desirous of raising funds for its work.
In order to carry out the above purposes, it is
proposed that the Palestine Foundation Fund, Inc., the
American subsidiary of the Palestine Foundation Fund, Ltd.,
borrow a maximum of about $8,000,000. There is apparently
some desire to borrow this money from the Export-Import
Bank. The $8,000,000 will be used as follows:
(a) To purchase from the Anglo-Palestine
Bank L750,000 of shares and debentures
in various Palestine enterprises owned
by the Palestine Bank and also to purchase
£250,000 in new shares to be issued by
the Anglo-Palestine Bank; thereby increasing
the liquidity of the bank by 11,000,000.
(b) To pay off a loan of L450,000 owed by the
Palestine Fund, Ltd., to Lloyd's Bank of
London, thereby giving the Palestine Fund,
Inc., the lien now held by Lloyd's on the
collections and assets of Palestine Fund,
Ltd.
24
- 2 -
(c) To extend 8 revolving credit not to
exceed $2,000,000 to the Palestine
Fund, Ltd., for its activities in
Palestine.
The $8,000,000 borrowed by the Palestine Fund, Inc.,
would be secured by all of the aforementioned assets
acquired by the Palestine Fund, Inc., and a floating charge
on the present and future collections of the Palestine Fund
both in the United States and elsewhere in the world.
In accordance with an understanding arrived at with
the Bank of England, the dollar equivalent of all sums
which become payable to Anglo-Palestine Bank and to Lloyd's
Bank will be turned over to the British Treasury which will
provide these two institutions with the sterling equivalent.
Furthermore, the British Treasury will be asked to agree to
the unrestricted transfer into dollars of all interest and
dividends to be received on the assets pledged under the
American loan contract.
Although the proposition here involved is somewhat
different from the first situation presented by the British,
namely, borrowing money against the security of American
shares, I believe that this is not a propitious time to
encourage any type of loan the effect of which is to give
dollars to the British Government.
Do you agree?
E.10.7h.
CK.10mg.
Byader (7rby
e
TO:
25
STRICTLY CONFIDENTIAL
March 4, 1941
Mr. Foley called Mr. Pinsent today
and advised him that the Secretary approved
Mr. Foley's memo to the effect that this
is not a propitious time to encourage any
type of loan the effect of which is to give
dollars to the British Government.
Mr. Pinsent requested the return of
terial. (Returned 3-5-41 - 5 photostatic
copies were made and sent to: Miss Chauncey,
V Bennstein
Cochran, White, Pehle,)
MR. FOLEY
doans:
420/1/41 141
The SHOREHAM
27 January 1941
Dear Sir,
re Anglo-Pelestine Bank Ltd
I em a British subject,s member of the Bar(Gray's Inn)
and e Director of the Anglo-Palestine Bank Ltd in London;I am in
" position to eatisfy you that I Am personally known to the Rt.
Non.Montagu Norman Governor of the Bank of England,-
I have come to this country with the approval of the
Bank of England for the purpose of ascertaining whether it would
be possible for me with the help of associated zionist control-
led Institutions to raise dollar funds to increase the liquid
resources of my Bank.-
The enclosed Memorandum outlines the nature of the
transactions which I have in contemplation;these transactions
come under the Defence Finance Regulations and would normally not
be permitted;-however by B. letter dated the 9August 1940 the Bank
of England informed me that there would be no objection reised
if the dollare thus obtained will be offered to H.M. Treasury.-
Regraded Unclassified
I am now advised by competent friends that I may have a good
chance to succeed in my endesvours if my proposition 1e brought
before the Ex-Import Bank owing to some specific features of the
proposition and before doing this I would like to know whether I
can count on support from H.M.Embasey.-
me
I shall be grateful if you will give the opportunity of
discussing the matter with you after you have read my Memorandum.-
I am, dear Sir,
Yours faithfully L.Ishurik
L,Istorik
R.Opie Eeq.
First Secretary
British Embassy
Washington.
P.S. Kindly note that on pp5-6 you will find
the actual construction of the proposition, -the rest is explana-
tory.-
Regraded Unclassified
Bank of England
9th August 1940
Deer Mr. Istorik,
In Mr Kershaw's absence I em replying to your letter of the 26th July
I em sorry there has been tome delay.-
The poeltion of your Bank under the Defence(Firance)Regulations with re-
gard to the raising of edditional resources outside the sterling erea may be
defined 8.8 follows:
A corporation reeident/wathinthe United Kingdom may not without permie -
sion of the Treasury-
a) acknowledge a debt in the form of a loan in favour of a non-resident,
b)sell, deliver or transfer its shares to a non-resident,
o) increase the share capital.
A bank, of course, 18 fully entitled to accept deposits from any customer,
subject to such regulations 68 may exist affecting financial relations * ith the
country of the customer concerned.-
In the circumstances it would perhaps be better for you to obtain a con-
crete proposition from your friends in U.S.A. and to put this before Foreign
Exchange Control 9.6 regards items e) and b) above, and the Capital Issues Com-
mittee AB regards item c), rather than sttempt to obtain anewers to hypothetical
questions.I do not think that in this case objections are likely to be raised
should you find it possible to increase the capital of your Bank through the
medium of doller funde reised among your friends in the U.S.A. Such funds would
of course, have to be offered for sale to the Tressury.-
Yours sincerely
J. Fisher
L. Istorik Eoq.
Regraded Unclassified
MEMORANDUM RE:
THE ANGLO-PALESTINE BANK, LIMITED
LONDON, ENGLAND
Regraded Unclassified
The Anglo-Pslestine Bank, Limited, is an
English company formed in the year 1902 in London. It is
a commerical bank, operating in London and in Palestine
where it has its headouarters and ten branches.
Attached hereto you will find a copy of the
bank's last published annual report with balance sheet as
of December 31, 1939.
You will note that the paid up share capital
is 6860,854 and the reserve "und 6218,643.
The Jevish Coloni-1 Trust, Ltd. 06 London,
a holding company, owns substantially all of the 300,854
ordinary shares of b1 par value. In addition, there are
outstanding 250,000 preference shares of El per value which
were issued at par to Messrs. Benson & Co., Ltd. of London
in 1935. The 310,000 ordinary "A" shares of 61 par value
outstanding in addition to the above were issued in 1956
to the Jewish Colonial Trust Ltd. of London (100,000 shares
88 at stock bonus). Subsequently, Messrs. Benson & Co. Ltd.
purchsed all of the ordinary "A" shares at 61/15/0 per
share and placed them at 61/17/6 with institutions such as
Lloyds Bank Limited, Prudential Assurance, Pearl Assurance,
Equity DC Low Life Assurance Society. Gresham Life Assurance
and other insurance and investment companies which clso
own most of the preference shares.
The An 10-Priestine Pour holes controlling
interest in the General/Bank of Palestine, which grants
credit against urban property only. The share canital of
the Mortgage Ben is 6475,000 end debentures or the bank
in circulation total £2,497,000.
Polatine town coard sutisfactory progress
Lges tine Print 1.- naturally
played a veryimportant part in the economic development of
that country. It has readered very ppreciable teln to com-
merce and Industry. This explains why, mont the assets of
the 40-15-? lestine Bank, are sign controlline interest
in the nizze 0801591 of the General Montgare Bank of Polestine
and an number 0ⁿ rhores in the Publine Flectric
Corpor tion, T1-h 1; 2ⁿᵈ Inrest in ustrial undertaking in
Polestine, providing 11 ht nd Joyer End operating under
->V concession. The controllinr share interest of
that company is hel by the Pothechild Administration, the
Regraded Unclassified
Anglo-Polastine Bank, ne, partly, by the Ceneral
Electric Company of London. E-ch o" these three cod-
panies hol\ their shares independently, the control
being n° intrined by tacit unierstanding.
The total smount of shares ani debentures now
owned by the Anrlo-Polestine Bank in the General Mortgage
Bank of Palestine, the Polestine Electric Corporation,
the Palestine Potssh Company, Ltd. (the Dead Beg conres-
sion), the Bizur Corporation (the public utility finance
corporation), end the Anglo Polestine Trust Company re-
presents a. capital investment of sporoximately 6760,000.
When the present war broke out, the uncertainty
of Italy's part in the war e used some economic and
psychological upheaval in the country, which resulted
in heavy withdrawals of deposits at the beginning of
September, 1939, when the Anglo-Palestine Bank paia out
over 62,000,000 to depositors; but soon efterwards the
entire amount was brought back by the decositors. You
will note from the atteched balance sheet that the bank's
deposits as of December 31, 1939 were 67,360,775, only
about 665,000 below the high record of deposits in the
bank's history, reached during 1936,
Liquidity in the form of cash in hand and at
banks and in securities of the British Government totalled
L3,410,437 as of the same date, or approximately 48%.
In June, 1940, when Italy entered the war, a
second heavy withdrawel of deposits occurred, causing
a shrinkage in liquidity to L1,250,000, et which level
this remained for a few months only. Since September,
deposits started to return and, according to the latest
cabled information from Polestine, the preliminary bal-
ance sheet will show total deposits and other creditor
accounts at the end of 1940 of sporoximately 67,600,000,
with liquid funds of approximately 67,300,000 -- all
represented by cash in hand and in banks -- & liquidity
of about 43%.
The recent successes of the British armies
in Libya have restored the feeling of security to Palestine.
However, the fortunes of war are changeshle, end, as long
as the war continues, the directors of the bank consider
it their duty to improve further the bank's liquidity.
Regraded Unclassified
3.
This they would wish to achieve either by in-
creasine the bank's capital or by selling some of the
bank's holdings in various enterorives in Palestine--
such es the debentures one chares of the Ceneral fort-
gage Bank of Palestine, shares of the Prlestine Flectric
Corporation and of the Palestine Pottsh Compeny. How-
ever good the value of these assets may be intrinsionily,
their lack of marketability in time of or 117 mes the
directors to consider their The
The British defecte "inance rerulations nro-
hibit increase of capital and sale 05 ssnetr, hus the
Benk of England, by = letter dated 2.1 vist i, 1240 -8-
dressed to me as director of Lie Bank,
has indicated that no objections would be raised if
transactions in either of these forms are handled in
the United States snd the dollar croceedr 2" such trans-
actions are turned over to H.M. Preveury, which the
Anglo-Palestine Bank would be -Ind to do.
The purpose of my present vicit to Nor York in
to ascertain whether It would be nocrible to ork sut a
transaction between one 0% more American bunding 10-
stitutions and the Anrlo-Prlestine Bank -hi-h noul- be
acceptable to both the British not American authorities
snd serve the nurbore in mind,
This mederritates 27 bringin 1:0 :- lectine
Foundation Fund, Limited, :n "-"-" Le:
1920 by the 21oniste DE ":: :-
carrying on the Jewish colonization work in Palestine
under the supervision of the Jewich erency for Delectine,
(a consulting body preated by man ate of the Les Vº of
Nations). The D. lertine Poun tion "un', IV., 10, in
feet, the inted 7 instrument 2n the Jerinh "or
Palestine sul on 1:17 70 I: N°S
subsidiaries In STATE
contributions--veluntery, not compulsory--from Jews
in every country.
The the 3" the P' lectice Fountion Fund, Ltd.
are used for various in "unds
of C government EYE uned for number.
It I- to
Government
disistrates
"rom
Regraded Unclassified
the Lesgue of Nations, 1: 1- preceminently Jerdyh
money the t is employed in the unbuil In- 5' PrIestine,
and tris money finit its by to D lesting through var-
1ous channels -- oriv te or public. Priv ce in'ividuals
invest money in privite integorises while vubli money
collected as contribution "ind its usy t- Polactine
through the Palestine Foundation Fune, Lt. chd through
the Jewish National sund, Ltd.
The latter Funi =1so vollects money through its
subsidiaries all over the world but uses this congy for
1snd purchases only, :nd the Jevish National Fund, Ltd.
is the overlord of all land accuired with sublic funds
and leases the I'm to settlers on lon- term leases.
The Palestine Foundation rand, Ltd. ima taken
an active part in the creation of various publi utility
and industrial undertakings in the country, and it there-
fore holds assets 0 various descriptions--such as land
and shares in industrial -n- publi utility enterprises--
but the main assets of this company consists 0" contracts
with the settlers whose colonising work is beins "in-nred
by the Foundstion's funds.
In 1934, Lloyds Bank Limited: of London granted
a 15-year loan to the Pslestine Foundstion Fund, Ltd.
in the amount of 6500,000 at 4-1/55, receiving as
security a floating charge DU all the assets and col-
lections of the Fund.
In 1937, Lloyds Bank granter an additional -hort
term Ioan of 6250,000, the Anclo-Palestine Bank partici-
pating in both loans to the extent of 10%.
At present, the total outstan in- balance of
both loans is about 6450,000, the Anrlo-Palestine Bank
having been repaid its share in the short term loan but
still participating proportionately in the "irst loan.
The account of the Foundation Fund with Lloy's
Bank is a perfectly satisfactory one and the bank is
happy to carry the o-iginal 1934 contract until its
maturity in 1949 and has expressed willin/ness to carry
the short term loan until after the var, inasmuch as the
remaining balance of both loans has now been reduced to
below the amount of the original credit.
Regraded Unclassified
5.
The subsidiary of the Palestine Foundation Fund,
:
J
Ltd. in the United States 1° called "Palestine Founda-
tion Fund, Inc." the is en American leral entity. The
funds collected in the United States for the Palestine
Foundation Fund in the last ten years were as follows:
1931
-
$588,892
1936
-
$628,197
1932
-
491,560
1977
-
822,680
1933
-
437,807
19:9
- 1,095,750
1934
-
793,996
1239
- 2,012,187
1935
-
626,773
1240
I
808,383
Since the Palestine Foundation Fund, Ltd., like
the Jewish National Fund end the Jewish Colonial Trust,
is under the control of the Zionists organisation and has
an absolute interest in the economic stability of Pslestine
(in fact, it her no interest whatever outside Palestine),
it would be only natural for the Palestine Foundstion Fund
and/or the Jerish National Fund, separately or torether,
to helo to provide those licuid Jer n7 that the Anglo-
Palestine Bank, Its. her Invested in the hove mentioned
protemi
enterprines (Connrel Bank of Palastine, Palastine
Electric Corporation, 7. 93% Comuny, etc.)
until such time siken miltions, both in the United
States in Steet Rx: in, 1: cossible to
dispose of there 2 the investors.
However, neither of these two "und: is in nos-
session of the decessary liogitity, ' n' , in "cy cire,
they are Pn-lish compander situated in Prinstine and/or
London.
quihm
I: ::
Foundation Fund, Inc., the /merican organization, shall
pay Lloyes Bank the remaining 6450,000 due from the
Palestine Foundation rund, Ltd., - -- to liberate the
lien 301 existing in Pevor of Lloyes Book on the concolidated
collections AR : ESATE or the Polectine Frindation und,Itd.
In order to 3, the Prlestine "oundation Fund, Inc. must
raise loan or countly $1,200,000. In -diltion, the
Polestine Fund, Inc. ake'l buy from the Anrio-
Palestine Beak Invertor to referred to in the first
Parternah 0° 05.00 to for total mount of 6750,000 -nd
Regraded Unclassified
6250,000 worth of the Anrlo-Palestine Bank, by
$1,000,000. Finally, the Palestine Found tion Fund,
Inc., on the strength 0" its having scoutred sub-
stantially all the assets of the Palestine Foundation
Fund, Ltd. now pledged with Lloy's Bank (originally
acquired at a cost of not. less than $3,000,000), should
be placed in a position to extend a revolving credit
not to exceed $2,000,000 to the Palestine Foundation
Fund, Ltd. should it need funds to carry on its
activities in Palestine during the life of the loan
contract. To do all this, the Prlestine Foundation
Fund, Inc. would Have to borrow n maximum 0" sbout
$8,000,000 under a loan contract to be secured by a
lien on all the debentures and shares to be acquired
from the Palestine Foundation Fund, Ltd. and from
the Anglo-Palestine Bank and further by A "loating
charge on the present and future collections of the
Fund in the United States and elsewhere.
In accordance with the understending
arrived at with the Bank of England, the dollar
equivalent of all sums that vill thus become payable
to the Anglo-Palestine Bank and to Lloyds Bank will
be handed over to H.M. Treatury in London which will,
in turn, provide these tro institutions with the
sterling equivalent. In turn, H.V. Treasury will be
asked to agree to the unrestricted transfer into dol-
lars of Fll interest and dividents to b^ received on
the assets pledred under tle ------- lo entr et.
There is no doubt in my ind (and I em
supported in -y vie? joint by number of eminent Jevs
in your country) that American Jews will patinue to
contribute to the Prlestine cause liberally AS they
have shown millineness to do in mind. Purther-
more, it unt "Ap horns in
ations, Jews in all parts 0" the world save invested
some hundred million nounds in Polestine, shout holf of
which amount was invested durine the cast trenty years.
It 1- recornized that the anclo-Priestine Brink 1° an
important artery within the mainic tion 2° 677 bus1-
ners interned.re resulting "rom the 86 inventounts end,
-50 such, renders perving h just bei continued -t
All to t. in It. Interes
Regraded Unclassified
34
Cox received this from Mr. McCloy on
February 20th.
35
PROVERING FOR THE ADMINISTRATION OF THE AGT
'All ART FURTHER 90 PRONOTE THE
OF THE UNITED BRATIS AND
FOR OTHER PURPOSES."
Value and by virtus of the authority vested in 20 by the of
Congress cutitled "All AM Further to premote the defense of the United
States, and for other purposes." approved March . 1941. at M
President of the United States, 10 is hereby ordered as follows:
(1) Subject to general supervision and centrol by the Prosident.
the previsions of the foregains 409 shall be administered two a agency
to be lane M the "Administration for Imediate Defense* which shall
consist of the Secretary of State, the Secretary of the Treasury, the
Secretary of Mar, the Secretary of the Havy, an Executive Secretary
and appropriate staff.
(3) Vacuever the Agency, under the direction of the President,
shall determine that my action authorised w the not of March
1941, is is the interest of national defense it shall take such stops
as my be necessary to GARRY such determination into effect in the
- prescribed w the Ast.
(s) VE thia the limite of such funds as my be allocated to 10 w
the President on the recommendation of the Bureen of the Buiget, the
Agency my employ securency personnel and mike provision for the
necessary supplies, fasilities and services. All departments and
agencies of the government shall make available for the use of the
Agency statistical, informational, fiscal and other general business
services and facilities.
(4) The Agency my premulgate such rules mi regulations as may
be model to implement this Incentive Order.
Regraded Unclassified
36
February 20, 1941
14y dear Mr. President:
When I lunched with you on February 10th,
I submitted a memorandum, photostatic copy of
which you will find attached to this letter.
You approved the form which the Appropri-
ation measure would take when we met with you on
February 17th.
I an now submitting to you, for your con-
sideration, a proposed Executive Order to make
effective the Lend-Lease Bill. I have not shown
this to anybody as I was not sure whether you
wanted me to do this or not. If you would like
ne to clear this with the various individuals con-
cerned, I will be glad to do so. However, I will
do nothing further until I hear from you.
Yours sincerely,
The President,
The White House.
Regraded Unclassified
37
February 20, 1041
My dear Mr. President:
When I lunched with you on February 10th,
I submitted & memorandis, photostatie copy of
which you will find attached to this letter.
You approved the form which the Appropri-
ation measure would take when n met with you on
February 17th.
I a now submitting to you, for your 600->
sideration, a proposed Executive Order to make
effective the Lend-Lease Bill. I have not shown
this to anybody as I was not sure whether you
wanted - to do this or not. If you would like
- to clear this with the various individuals con-
earned, I will be glad to do so. However, I will
do nothing further until I hear from you.
Yours sincerely,
The President,
The White House.
38
February 20, 1941
My dear Mr. President:
When I lunched with you on February 10th,
I submitted & memorandum, photostatic copy of
which you will find attached to this letter.
You approved the form which the Appropri-
ation measure would take when we met with you on
February 17th.
I an now submitting to you, for your con-
sideration, a proposed Executive Order to make
effective the Lend-Lease Bill. I have not shown
this to anybody as I was not sure whether you
wanted me to do this or not. If you would like
me to clear this with the various individuals con-
cerned, I will be glad to do 80. However, I will
do nothing further until I hear from you.
Yours sincerely,
The President,
The White House.
Dearadod
42
4
" The kind and extent of test-
ing, inspecting, proving, repairing,
outfitting, resonditioning, or otherwise
putting into good working order, of de-
fense articles which it would be in
the interests of our defense to do for
such foreign countries.
k) The kind of defense information
which can and should be communicated to
any such foreign country in the interests
of our defense.
1) The conditions under which any
foreign country can transfer to anyone
else any defense article or information
dispesed of to it under the Act.
m) The terms and sonditions upon
which material aid should be supplied
to such foreign countries, and the
benefit or benefits which the United
States should receive for the supplying
of such aid.
n) The information of the opera-
tions under the Act of March , 1941,
which it would be in the public interest
to report to the Congress.
43
5 -
0) The method or methods for
protecting the rights of citizens of
the United States in dafense articles
or defense information disposed of
to any such foreign country.
2) The eircumstences under which
and when it would be necessary in the
interests of our national defense to
pur chase or otherwise acquire arms,
ammunition and implements of war from
a foreign country whose defense is
determined to be vital to our defense.
a) The revisions which the Board
doems necessary or desirable in this
Executive Order.
z) The amendments to the Act of
March . 1941, or the additional
legislation, which the Board doens
necessary or desirable more effectively
to supply material aid to such foreign
governments in the interests of our
our defense.
s) The other basic matters nesss-
sary OF desirable to effectuate the
purposes of the Act of March
, 1941.
Regraded Unclassified
44
- 6 -
3. Each member of the Board may assign from
the staff of the department or agency of which he
is the head the kind and number of persons which
he deems it necessary adequately to assist him
in his capacity as & member of the Board.
4. The Board is empowered to employ the
kind and number of persons which it considers
necessary to assist it efficiently to execute
the duties and responsibilities imposed on it
by this Order.
5. Each member of the Board may designate,
from the department or agency of which he is the
head, an alternate to not for him on the Board
when be deems it desirable to do 50.
6. The Board is empowered to consult with
and receive the advice of the Chief of Staff of
the Army, the Chief of Naval Operations of the
Navy, and, with the consent of the head of the
department or agency conserned, any other officer
or employee of the Government, whose advice the
Board deems desirable to carry out its functions
under this Order.
Regraded Unclassified
45
- 7 -
II.
Administration
1. The chief administrative officer of the
Board (hereinafter called the Secretary) shall be
a person appointed by the President, with the ad-
vice of the Board, and may be a person detailed
from any of the departments or agencies of the
Government.
2. In accordance with the policies formulated
by the Board, the Secretary shall:
a) Receive the requests of the
foreign countries for assistance or act
as the liaison between the Board and the
department or agency of the Government
designated by the Board to receive the
foreign request or requests.
b) Collaborate with or act as the
liaison for the representatives of the
department or agency concerned and the
representatives of the foreign country
concerned in standardizing specifications
for defense articles, and in disposing of
the other administrative problems involved,
Regraded Unclassified
39
EXECUTIVE ORDER
Providing for An All-Inclusive Defense
Policy Board, the Administration and
the Rules and Regulations to Carry Out
the Act of March , 1941, "An Act to
Promote the Defense of the United States.' -
By virtue of the authority vested in me by section
9 of the Act of March , 1941 (Public No. , 77th
Cong.), by the Constitution of the United States and
otherwise, it is hereby ordered as follows:
I.
The All-Inclusive Defense Policy Board
1. There is hereby established an All-Inclusive
Defense Policy Board (hereinafter referred to as the
Board). It shall consist of the Secretary of War, the
Secretary of the Navy, the Secretary of State, and the
Secretary of the Treasury. The Board shall elect 8 chair-
man from one of its five permanent members, From time to
time, the Board can, when problems arise concerning &
particular department or agency, add as A temporary member
the head of such department or agency.
Regraded Unclassified
40
- 2 -
2. From time to time, the Board shall form-
late the policy and make recommendations to the
President on:
a) The foreign countries which
should receive material aid because
their defense is vital to ours.
b) The method or methods for
best ascertaining the needs of such
foreign countries for material aid.
c) The nature and extent to
which such aid is intended to be
given to such foreign countries.
a) The plant expansion, pro-
curement and other operations which
are necessary, in the interests of our
own defense, effectively to supply our
own direct defense needs and the de-
fense needs of such foreign countries
in the requisite time.
e) The appropriations which should
be requested to manufacture, procure and
repair defense articles and otherwise to
carry out the purposes of the Act of
March , 1941.
Regraded Unclassified
41
. 3 -
t) The method or methods of
handling the allocation of appropria-
tiens which may be made to the President
to earry out the purposes of the Act.
g) The results of the Board's
determinations, after consultation with
the Chief of Staff of the Army, the Chief
of Naval Operations of the Havy, or both,
of what existing defense articles and de-
fense information of the Government can
and should be transferred, in the interests
of our om defense, to those foreign nations
whose defense is determined to be vital to
ours.
b) The method or methods to be used
in ovaluating existing defense articles
or defense information disposed of to
say such foreign government.
1) The allocation or distribution
which should be mde of newly produced
defense articles as between the United
States and each foreign country whose
defense is determined to be vital to
our defense.
Regraded Unclassified
46
w . 0
e) After consultation with the
department or agency concerned, present
to the Board, with his recommendations the
requests of the foreign countries for
material aid.
a) Determine the value of any defense
article or defense information disposed
of to any such foreign country and execute
& valuation certificate therefor.
e) Keep records of the dellar value
of existing defense articles disposed of
and check the observance of the limitation
in the Act on the value of existing defense
articles disposed of under the Act.
1) Prepare the necessary agreements
with the foreign country concerned, clear
them with the departments or agencies con-
cerned and sign them on behalf of the
Government.
g) File with the Department of the
Treasury all agreements and all collateral
or security that is received under the Act.
47
- 9 -
h) Receive the necessary information
from the department or agency concerned
and prepare the reports under the Act re-
quired to be submitted to the Congress and
the Administrator of Export Control.
1) Prepare and keep all of the
records required under the Act or neces-
sary to show clearly all of the operations
under the Act.
1) Act as a central clearing house
of information about the administration
of the Act.
k) Perform such other administrative
duties which may be necessary to carry out
the purposes of the Act or which the Board
deems desirable to assign to him to carry
out the Act.
III.
General
1. When & request is sent by the Secretary to
any department or agency, as a source of supply, such
department or agency will state with its recommendation:
Regraded Unclassified
48
20 # I
a) The extent to and the manner in
which the requested aid should be granted.
b) What defense articles are imme-
diately available for transfer to foreign
countries whose defense is vital to ours.
e) What defense articles are on
order and will be available in the future.
d) What defense articles will re-
quire additional contracts and against which
appropriation or appropriations they can or
should be placed.
e) What additional plant, machinery,
tools or facilities are necessary adequately
to meet the request of the foreign country
for aid in the requisite time.
f) What factors should be considered
in arriving at the value of such defense
articles.
g) Any other information or data
requested and deemed by the Secretary
necessary or desirable to execute his
duties.
Regraded Unclassified
49
- 11 -
2. The Secretary of War, the Secretary of
the Navy, or the head of the department or agency
concerned will execute the contracts for manufac-
turing, presuring, acquiring or repairing of de-
fense articles, and the contracts necessary to carry
out the other purposes of the Act, except the con-
tracts with the foreign country receiving the material
aid, and will handle and clear them in the manner now
provided by statute, executive orders and regulations.
3. Delivery of the defense articles in accord-
ance with the terms of the agreement with the foreign
country shall be effected by the supplying department
or agency which shall immediately upon such delivery
notify the Secretary and the Administrator of Export
Control of the quantities, character, value, t erms of
disposition and destination of the defense articles
or defense information so delivered.
4. In those cases where the supplying of the
material aid is to be financed by allocations from
appropriations, requests for such allocations shall
be routed through the Secretary to the Bureau of the
Budget for approval.
Regraded Unclassified
50
a e .
5. The Department of the Treasury shall be
the custedian of all agreements excented under the
Act and of my sollateral or security received from
such foreign countries.
6. The Department of the Treasury will deter-
nine how and when property, collateral or security
received from any foreign country shall be liquidated
or otherwise handled best to protect the interests
of the United States.
copiediaja
2/20/41
OSC:djb
2/17/41
51
>
FEB # A 1941
My dear Mr. President:
I submit for your information a
memorandum prepared in the Treasury
Department regarding the application of
customs duties to imports of defense
materials.
Faithfully yours,
(Signed) E. Morgenthau, Jr.
Secretary of the Treasury.
The President,
The White House.
Enclosure
HC/mjb 2/19/41
By Messenger + 15
52
Res Application of customs duties to Imports of
All articles imported into the United States are
subject to daily unless expressly exempted therefrom and
me general exemption exists in favor of articles inported
by - for the use of the United States or any department
or agency thereef. The Tariff Act of 1980 provides
specifically for the free entry of certain articles such
as books, mays, charts, etc., imported by or for the use
of the United States; but there is no free entry prevision
in the tariff not for articles likely to be classifiable
as defense materials.
The only provision for free entry outside the tariff
net likely to be of interest in connection with imports
of defense materials is found in the Act of June so, 1914,
as State 399 (U.S.C., title 34, see, 568), which provides:
"That hereafter the Secretary of the
Havy is hereby authorised to make emergency
purchases of 182 material abread: And
provided further, That when such purchases
53
- 2 -
are mão abroad, this material shall be
admitted free of duty."
In connection with recent purchases by the Havy
Department of copper and sine, which materials at the
time of purchase were located in customs bonded ware-
houses within the United States, the Treasury Department
took the position that it would net question a entegerical
certificate of the Navy Department that the procurement by
it of such materials constituted an emergency purchase
of war material abread. Pursuant to such certificate
the customs officers concerned have been authorized to
release the copper and sine without the collection of
customs duties or import duties.
Article 314(a) of Customs Regulations of 1937
provides as follows:
"Estimated duties need not be deposited
on shipments consigned to Government depart-
ments or bureaus or authorized representatives
thereef, nor will the bond above provided
for be required in such cases. After due
entry therefor has been made, such merchandise
1/Temporary provisions in similar language with regard
to purchases of was material by the Secretary of war
appeared in the following appropriation acts: Act of
June 6, 1896, 20 State 200; Ast of March 2, 1907,
34 Stat. 1062; Act of June 15, 1917, 40 State 2015
and the Act of February 23, 1927, n Stat. 1137.
Regraded Unclassified
54
- s -
may be immediately released. On liquida-
tion of the entry the collector will state
the duties due on voushers, in duplicate,
and present them for payment to the proper
department disbursing offiser.'
Under this regulation it would be entirely possible
in the case of importations for imediate clearance
through customs, which will be released without deposit
of estimated duties, for the importing department or
agency to find itself without funds to pay the vousher
for eustoms duties. In such case the importing depart-
ment or agency might apply to Congress for a specific
appropriation to pay the duties, or the claim might be
closed on the ground of uncollectibility.
A more direct way to meet the situation, if it
is determined that duties should not be payable, would
be to seek legislation. This appreach has already been
considered to some extent. A draft bill was informally
submitted to this Department by the Office of Production
Management. A copy as revised by this Department is
attached.
Attachment
BG/mjb 2/19/41
54
w + .
may be immediately released. on liquida-
tion of the entry the collecter will state
the duties due on voushers, in duplicate,
and present them for payment to the proper
department disbursing efficer.
Under this regulation it would be entirely possible
in the case of importations for imediate clearance
through customs, which will be released without deposit
of estimated duties, for the importing department or
agency to find itself without funds to pay the vousher
for customs duties. In such case the importing depart-
ment or agency night apply to Congress for a specific
appropriation to pay the duties, or the claim night be
closed on the ground of uncellectibility.
s more direct my to meet the situation, if st
is determined that duties should not be payable, would
be to seek legislation. This approach has already been
considered to some extent. A draft bill was informally
submitted to this Department by the Office of Production
Management. A copy as revised by this Department is
attached.
Attachment
HC/mjb 2/19/41
55
-
77th Congress
1st Session
IN THE HOUSE OF REPRESENTATIVES
ABILL
To exempt strategie and critical materials
from customs duties and internal revenue taxes
in certain cases.
Be it enasted by the Senate and House of Representatives
of the United States of America in Congress assembled, That
no duty or internal revenue tax shall be imposed or sollected
upon any strategie and critical materials precured in accord-
ance with the Act of June 7, 1939 (U.S.C., 1934 edition,
Supplement V, title 50, section 98-98f), or sestion 5d of
the Reconstruction Finance Corporation Act, as enended by
section 5 of the Act of June 25, 1940 (Pub. No. 664, 76th
Cong. " and entered, or withdrawn from warehouse, for consump-
tien on or after the day following the passage of this Ast by
or for the account of the United States or any agency thereef,
including any sorporation all the capital stock of which is
owned and controlled directly or indirectly by the United
States, when such materials are, or have been, imported or
brought into the United States or any of its Territories OF
possessions (exsept the Philippine Islands).
Regraded Unclassified
56
# 1 0
See. 2. In the case of the sale by the United States
or say such agency of any such material ingerted or brought
into the United States or into any of its Territories or
possessions (except the Philippine Islands), no tax shall
be imposed by reason of such sale.
(COPY:FE:OJL)
Treas 56-A
EMBASSY OF THE
UNITED STATES OF AMERICA
No. 784.
Chungking, February 20, 1941
Subject: Increase of Exports through
Chungking in January.
Air mail
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
I have the honor to report that certain commodities
exported from or through Chungking during January, 1941,
showed an increase as compared with the previous month.
According to the statistics released by the Bureau
for the Inspection and Testing of Commercial Commodities,
893 tons of wood oil were exported through Chungking last
month as compared with 473 tons during December. of the
January shipments 826 tons were transported through Burma
and the remaining 67 tons to Hong Kong.
Exports of pig casings during January showed almost
a hundred per cent increase as compared with December and
hog bristles registered an approximate 250 per cent
increase over the previous month.
The
56-B
-2-
The following table gives a comparative list of
certain commodities exported from or through Chungking
during the months of December, 1940, and January, 1941.
Commodity
January exports
December exports
in tons
in tons
Wood Oil
893.0
473.40
Black Hog Bristles
115.3
46.69
White Hog Bristles
3.06
0.61
Pig Casings
30.78
17.30
White Silk
.67
Respectfully yours,
NELSON TRUSLER JOHNSON
Original (by air mail) and
five copies to the Department
Copy to Peiping
Copy to Shanghai
610.22
JJM:MCL
(COPY:FE:FRE)
Taxes
56-c
EMBASSY OF THE
UNITED STATES OF AMERICA
No. 786.
Chungking, February 20, 1941
Subject: Establishment of Banks in Small Towns.
Air mail
The Honorable
The Secretary of State,
Washington, D, C.
Sir:
I have the honor to report that the Joint Adminis-
tration Office of the four Government Banks, namely the
Central Bank, the Bank of Communications, the Bank of
China and the Farmers Bank of China, has decided to
establish branch offices in towns with a population of
50,000 or more as well as in mining centers, railway
and highway stations, industrial centers with more than
500 workers, cultural centers with concentrated schools,
distributing centers for special products and rural
commercial centers.
These branches will be small institutions with only
one or two clerks. They will handle remittances, make
small loans, accept saving accounts and sell Thrift and
Saving Certificates.
Such additional banking facilities will be of con-
siderable assistance in furthering the development of
unoccupied China and in addition it means another step
towards more bank credit which China urgently needs to
develop in order to help finance the continued hostilities
against Japan and to control inflation. The banking
community considers the establishment of these branch
banks as an important step forward 88 it has always been
realized that the lack of e larger and more nationally
spread banking system has been a serious economic weak-
ness in China. While no immediate general economic
improvement can be expected due to the establishment of
the branch banks, it indicates, however, that the Govern-
ment banks are following a progressive policy which will
eventually strengthen the country's financial position.
Since the outbreak of hostilities the Government
banks have established 250 branches in interior cities.
Respectfully ours,
NELSON TRUSLER JOHNSON
Original (by air mail)
and five copies to the Department.
Copy to Peiping
Copy to Shanghai
851.6
JJM:MCL
Regraded Unclassified
(COPY:FE:FRE)
Topeas
56-c
EMBASSY OF THE
UNITED STATES OF AMERICA
No. 786.
Chungking, February 20, 1941
Subject: Establishment of Banks in Small Towns.
Air mail
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
I have the honor to report that the Joint Adminio-
tration Office of the four Government Banks, namely the
Central Bank, the Bank of Communications, the Bank of
China and the Farmers Bank of China, has decided to
establish branch offices in towns with a population of
50,000 or more as well 88 in mining centers, railway
and highway stations, industrial centers with more than
500 workers, cultural centers with concentrated schools,
distributing centers for special products and rural
commercial centers.
These branches will be small institutions with only
one or two clerks. They will handle remittances, make
small loans, accept saving accounts and sell Thrift and
Saving Certificates.
Such additional banking facilities will be of con-
siderable assistance in furthering the development of
unocoupied China and in-addition it means another step
towards more bank credit which China urgently needs to
develop in order to help finance the continued hostilities
against Japan and to control inflation. The banking
community considers the establishment of these branch
banks as an important step forward as it has always been
realized that the lack of a. larger and more nationally
spread banking system has been a serious economic weak-
ness in China. While no immediate general economic
improvement can be expected due to the establishment of
the branch banks, it indicates, however, that the Govern-
ment banks are following a progressive policy which will
eventually strengthen the country's financial position.
Since the outbreak of hostilities the Government
banks have established 250 branches in interior cities.
Respectfully ours,
NELSON TRUSLER JOHNSON
Original (by air mail)
and five copies to the Department.
Copy to Peiping
Copy to Shanghai
851.6
JJM:MCL
Regraded Unclassified
Id. on
Passole equiv-
Probable
Basis
Total spread
DL
Li
fund or
to corp.
of com-
taxable
slent yd. to
opening
between pro-
in nið
corp.or
or bank
parable
bond at
bank or corp.
market
posed taxable
points
bank pay-
paying
issue in
100, to
paying tax and
return & tax
ing no
30% tax
market
produce
having offset-
exempt in mkt.
tax
(normal)
yd. in
ting capital
column 3
gains compared
with yd. in
column 3
2 3/4,59/56
102 16/32
.54
+ .35
2 3/4% 1961/56 @ 100v
2.75
1.93%
2.21
3.15
3.39
2.55
2 1/4,53/51
2 1/2% 1953/51 @ 100
1.75%
1.90
2.71
2.86
102 8/32
2.25
.60
+ .35
2.50
2,50/48
2
$ 1950/48 # 100
2.00
1.40%
1.44
2.05
2.30
101 20/32
1.75
.56
+ .31
1 1/8,June'43
1
.70%
.29
.41
.76
101
:51
.71
+ .22
$ Mar. 43 @ 100y
1.00
mi Knight of chicago
From
Feb th 1941
57
Regraded Unclassified
58
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEFebruary 20, 1941
Secretary Morgenthan
1. H. Hadley
ROM
Recent Issues Slow in Secondary Distribution
Approximately $40 million of recent corporate and municipal bond
and stock issues offered since the first of the year remain on
dealers' shelves. The groups included in this amount frozen or
moving very slowly in secondary distribution are:
Municipal Bonds
$ 5 - 10 million
Corporate Bonds
20 - 25 million
Corporate Stocks
10 million
Estimated Total 35 - 45 million
Price losses from original syndicate prices run as high as 4 points
with an average loss on recent issues near 3 points.
Included in the municipal group is $1 million of an original $3
million U. S. Housing offering of various term bonds issued recently,
$2 million of the $4.3 million offering by the City of San Diego
on January 2 and $1.5 to $2 million of the $12 million November
offering by New York Metropolitan Water District.
Included in the corporate bond group is $12 million of a $25 million
1 - 25 year bond of Chesapeake & Ohio Railway offered February 6
and $7 million of an $11 million Monongahela Railway 25 year issue
of February 5.
Sticky stock issues include $7.5 million of an original $20 million
common offering by Libby, McNeill & Libby on January 29 and $2 million
of 8 $6.5 million common offering on February 10th by S. H. Kress,
Regraded Unclassified
59
TREASURY department
INTER OFFICE COMMUNICATION
DATEFebruary 20, 1941
TO
Secretary Morgenthau
FROM W. H. Hadley
FEDERAL INTERMEDIATE CREDIT
Up to the present moment $30 million subscriptions
have been received on the offering of $25 million Federal
Intermediate Credit 3/4% 6 and 10-month maturities. The
offering is going very well according to early reports on
subscriptions. Of the 130 dealers in New York, all but
one large one and two or three smaller ones have placed
their subscriptions. All the New York banks have already
made subscriptions and the out-of-town wires are beginning
to show up very well.
There may be no quotations on this issue until some
indication of allottment is given to the various subscribers.
60
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 20, 1941
TO
Secretary Morgenthau
FROM
W. H. Hadley
TREASURY BONDS
Probable
Coupon
Term
Yield
Price
Premium
2%
8 - 10 years
1.75
101.28
1 pt. 28/32
(3/15/49-51)
1.80
101.15
1 pt. 15/32
8 1/2-10 1/2 yrs.
1.78
101.23
1 pt. 23/32
(6/15/49-51)
1.83
101.10
1 pt. 10/32
2 1/8%
9 - 11 years
1.90
101.27
1 pt. 27/32
(3/15/50-52)
1.94
101.16
1 pt. 16/32
2 1/4%
10 - 12 years
2.02
102.2
2 pts. 2/32
(3/15/51-53)
2.06
101.22
1 pt. 22/32
11 - 13 years
2.11
101.12
1 pt, 12/32
(3/15/52-54)
2.15
101.
1 point
2 3/85
12 - 14 years
2.20
101.27
1 pt. 27/32
(3/15/53-55)
2.24
101.13
1 pt. 13/32
2 1/2%
13 - 15 years
2.30
102.8
2 pts. 8/32
(3/15/54-56)
2.34
101.25
1 pt. 25/32
2 5/8%
16 - 20 years
2.45
102.10
2 pts. 10/32
(3/15/57-61)
2.50
101.20
1 pt. 20/32
2 3/4%
20 - 25 years
2.60
102.10
2 pts. 10/38
(3/15/61-66)
2.65
101.17
1 pt. 17/32
21 - 26 years
2.61
102.8
2 pts. 8/32
(3/15/62-67)
2.66
101.14
1 pt. 14/32
61
February 20, 1941
4:35 p.m.
RE FINANCING
Present:
Mr. Hadley
Mr. Bell
Mr. Haas
Mr. Murphy
H.M.Jr:
Well, Bell knows mostly what I am going to say
anyway. I have sent some of these people back
to you, and the way I feel tonight after listen-
ing to them, I feel on two issues, a two percent
and a two and three quarters. That is the way
I feel tonight.
Haas:
I am just half of that, just the two.
H.M.Jr:
Well, to give you my reasons, I am afraid if
we do a two, they will all come piling to us,
"There you go right back to the banks again.
I thought you were going to go to the insurance
companies and not just rely on the banks."
Murphy:
Of course we are dealing with an exchange offer
and rights.
(Mr. Bell entered the conference.)
H.M.Jr:
I was telling them how I feel.
62
- 2 -
Haas:
If that was new cash, there would be a stronger
argument.
Murphy:
The insurance companies have practically no
rights. The only way that they would be able to
acquire them would be through a secondary market.
H.M.Jr:
We just had one in here that has 27 million,
Mutual.
Murphy:
But with only & few large insurance companies,
that is probably exceptional. You wouldn't get
to a substantial amount. As you know, we
haven't accurate data on this. We hope to get
it as Mr. Haas indicated to you, but probably
the total insurance company holdings of rights
would be - oh, & hundred million?
H.M.Jr:
Well, as of tonight, how do you feel, George?
Haas:
As of tonight, I, after thinking it over and
listening to the arguments and propositions these
people put up, would be inclined to take what
Burgess called the anchor and just the anchor
only, for this reason. The anchor was & two
percent issue, probably eight to ten, depend-
ing on what the market was. I think that the -
I think, first of all, you want to have the
thing go over beautifully without any catch,
and the visibility certainly isn't very good.
I mean there are a lot of things you are not
sure about. There is a lot of switching going
to take place in the market and all that sort
of thing, and if you put out the long issue,
I think there is a tendency for people out in
the market to get you to put out an issue which
they can sort of tag, "Is that somewhat the rate
that the defense effort is going to be financed
at?" And I think a good deal of that is behind
this recommendation for a long issue. And another
thing, Mr. Secretary, what occurred to me was
Regraded Unclassified
63
- 3 -
that in - if a larger amount goes out into the
long, well, that will look well, it will look
as though the Government's credit is good and
most of it went into the long, but I don't think
it will do the market any good under these con-
ditions to get too much of it out in there, and
I think if you nurse this market along, you can -
the market will handle itself beautifully. Now,
you start with the bills. You put out this sure
thing of eight to ten, and then you have got some
cash to come out, and then by that time the market
will have a chance to settle down, and it is show-
ing, as you pointed out, evidences of doing it
right now. Those are my reasons for - I mean the
way but-- I feel tonight. I don't feel very strongly,
Murphy:
Mr. Burgess, in talking to us, envisaged as
little as two hundred million going into the
long issue with a possibility of perhaps nine
hundred million in the medium and a hundred
million note issue that you recommended.
H.M.Jr:
I think Burgess is all wet on that. I think he
is all wet on it. I think the five-year market
is all cluttered up now with these last two
issues.
Murphy:
It is very difficult to predictit, of course.
H.M.Jr:
He agreed with you on that.
Bell:
He doubts the note.
Haas:
He told me it was no good at all.
H.M.Jr:
Discount, that is right.
Bell:
Yes, that is right.
Murphy:
He envisaged a possibility of easily & billion
Regraded Unclassified
64
- 4 -
in a medium term issue, but he said, "If you get
two hundred million out in the long, that is two
hundred million."
H.M.Jr:
Never mind what Burgess thinks. What do you
think after listening today?
Murphy:
I would go with Mr. Haas for the anchor issue.
H.M.Jr:
What do you mean?
Murphy:
For a single issue.
H.M.Jr:
And what is that?
Murphy:
About an eight ten.
H.M.Jr:
One issue?
Murphy:
Yes.
Hadley:
I am for two issues because you are going to get
some buying support. If you put something out
in the long area, you have got your insurance.
companies and some of the other investors that
have been holding back, and they can come in
with cash and help your issue, where if you just
put out the one issue, and it goes to the exchange
holders, you won't attract the same cash buying
support.
H.M.Jr:
Dan, how do you feel?
Bell:
I am leaning toward two issues, but I have to
admit that I am a little bit afraid of the two
and three quarters, '60 area. I have some doubt
about it.
H.M.Jr:
But you don't like the two and a quarter?
Bell:
No, I don't like the single issue very well.
65
- 5 -
H.M.Jr:
I mean, what the Federal is recommending, the
two and a quarter.
Bell:
I don't like that very well now. I would like
to see a short bond somewhere in that area of
six to eight or seven to nine, and then along
intermediate somewhere in the 54-56 area, but
I realize again that that is pretty close to-
gether. Where would the two and a half come in
that area?
Hadley:
Thirteen years.
Bell:
That would be eight, wouldn't it? I am still
& little afraid of the two and three quarters.
H.M.Jr:
Have you spoken to Eccles?
Bell:
No.
H.M.Jr:
I will tell him.
Well, I haven't heard anybody come in to recom-
mend a two and a quarter.
Bell:
No.
Haas:
I think that was a compromise, Mr. Secretary.
Hadley:
That is adding the market up and dividing by
two, and it doesn't work that way.
H.M.Jr:
No.
Murphy:
I am greatly disturbed by the fact that the
people who presumptively want the long issue
are not large holders of rights and vice versa.
If we priced the long issue attractively so that
the banks go into it nevertheless, we may have
a very weak secondary market. On the other hand,
if we don't do it, and we get a very short sub-
scription in the long issue, it is just a question
Regraded Unclassified
66
- 6 -
of whether we are going to be psychologically
satisfied with it. If we are prepared to accept
a very short subscription in the long issue and
be happy about it, why that is one thing; but
if it is to be taken or if it would be taken,
it is another matter. Also, there is a question,
as Mr. Haas says, of striking the keynote, set-
ting the rate, whether before we felt out the
market, we want to set a rate as high as two
and three quarters.
Hadley:
If we don't set & rate now, we have got to set
it later.
Haas:
Well, that is the point.
Bell:
Devine recommended the two percent in the fifties,
about nine and three quarter years. Then when
we asked him about the long bond, two and three
quarters, he said there would be no harm in
adding it, but & two and three quarters in the
early sixties he thought would be very sweet.
H.M.Jr:
He was very enthusiastic about it. He said he
didn't dream that we would offer it.
Bell:
Yes, he said he thought it would be a higher
coupon than we would want to pay. He saidthe
note market needs a rest, and he wouldn't recom-
mend that. He thought one issue, nine and three
quarters, two percent, would tone up the market.
(Telephone conversation with Marriner Eccles
follows:)
67
February 20, 1941
4:45 p.m.
H.M.Jr:
Hello.
Operator:
Chairman Eccles.
Marriner
Eccles:
Hello.
H.M.Jr:
Marriner, I thought you'd like to know the
result of our talking to the people today.
E:
I would.
H.M.Jr:
Nobody that came down suggested the 21.
E:
They didn't.
H.M.Jr:
Nobody. Some suggested a 5-year note, an 8 to
10-year, and then a long bond, but most of them
were talking about was a 2%
.....
E:
Shorter - a 2% shorter than the
.....
H.M.Jr:
A 2% and then a 2-3/4ths and let them take
their choice. I got more on that than on
anything else.
E:
Was that the market - some of the dealers
you talked to ?
H.M.Jr:
Well, I had a dealer, I had a president of an
insurance company, I had a head - second man
in one of the big banks, 80 there is three
different fellows: a dealer, the second man
in one of the biggest banks and the president
of an insurance company, and then another
dealer.
E:
In other words they go all the way from a
5-year note to a 22% long bond.
H.M.Jr:
No, 2-3/4ths.
E:
I mean, 2-3/4the long bond. Did they all
favor putting out two issues?
H.M.Jr:
Wait a minute. Let me ask Bell. (Talks aside.
68
- 2 -
Nobody wanted one issue did they?
D.W. Bell: Devine, but he changed when we told him.)
H.M.Jr:
Well, Devine when he came down first said a
2%. Then we said we were thinking about a
2-3/4s and he said that was more than he'd
hoped for but he thought that would be
wonderful.
E:
Un-huh. Well, in that case I would think that
if you were going to put a 2-3/4 out you would
want to put two issues out. I would think if
you put a 2% one out, you wouldn't want - you
wouldn't need, if you didn't want to, to put
out the long one. I don't see any great
objection to the long one, that's a 2-3/4.
There will probably be some insurance company
and some other savings bank buying, but I'm
rather surprised that they wanted the 2%
bond in the shorter maturity.
H.M.Jr:
Well, that's what they seemed to think was
the safest.
E:
When did they talk about maturity on the 2%?
H.M.Jr:
Between 8 and 10 - somewhere around there.
E:
It would be priced about the same as we
figured the 2è on the 10-12.
H.M.Jr:
I would say 80. A little bit less.
E:
of course on Just the note issue alone, that
wouldn't help you much on future pricing,
would it?
H.M.Jr:
No, but they all wanted to keep away from the
5-year note.
E:
Well, that's the way we felt about it. I
thought you said some of them suggested the
5-year note.
H.M.J.:
One, the Discount Corporation. They wanted
three things: they wanted a 5-year note, 8.
2% and a 2-3/4s. They wanted it three ways.
69
- 3 -
E:
Well, that 18 just on refunding.
H.M.Jr:
Yeah.
E:
We agree on that on new money possibly, but
they wanted that on refunding.
H.M.Jr:
Yeah.
E:
Well, how are you leaning? Are you leaning
toward the 2%.
H.M.Jr:
Well, I was leaning tonight towards two issues:
toward the 2% and a 2-3/4a. That's what I
wanted to tell you BO that you could
.....
think
E:
Well, we'll/of it. We've just been discussing
now the savings proposal. We were just going
over the Haas memorandum and we had one from
Piser and Rouse and we're just considering
all the aspects of the savings
......
H.M.Jr:
But this I got today was so different to what
we've been telking yesterday that I wanted
to get it to you so you could digest it tonight.
E:
What did they think about not getting new
money? I guese they were a little disappointed
weren't they?
H.M.Jr:
No. They all thought it was fine. They all
thought that the bill thing was smart.
E:
And that you ought to try out the market on
the refunding until you got - determined the
method of pricing.
H.M.Jr:
They all thought that was smart. They all
thought that bill thing was smart. They all
thought it was smart and of course the market
reacted that way today.
E:
Oh, yes. Well, I was sure the market would
go up when they found that out. Well, O.K.,
then and in the morning you'll want to discuss
likely these two issues
......
H.M.Jr:
Well, we'll take that up and any other
70
- 4 -
suggestion that you have, and I'm seeing
two or three other people tomorrow. I'm
starting at 9:30 and we'll listen and then
I'd like to discuss the whole thing with
you and also these savings bonds.
E:
Yeah. Well, O.K. We'll be over there at
11 o'clock then prepared to discuss that
whole program.
H.M.Jr:
Thank you.
E:
Thanks for calling.
71
- 7 -
H.M.Jr:
Well, let's all sleep on it.
Bell:
It is really quite a nut to crack.
Haas:
Yes, it is.
Bell:
It is quite a decision.
H.M.Jr:
Well, at least they have got a nice market.
The market has been falling away from us every
night. It is 8. damn sight better to have it
get a little better each day. How are the
rights?
Hadley:
They came up two thirty seconds today. They
are 117 or 115, something like that.
Bell:
We did get an indication from the insurance
president that he would buy a lot of long bonds
in case they were turned out. He turned all of
his 27 million for the long two and three
quarters, and then he would have about 20 to
30 million dollars more in cash they would
invest in them if he could get them in the
market.
Hadley:
He said that there is nine hundred million cash
in the insurance companies.
H.M.Jr:
Nine hundred fifty five million.
Haas:
They only take & fraction of that.
Hadley:
Yes, but it is available, some of it.
Haas:
It has been available for a long time.
H.M.Jr:
Well, anyway, I am going home. I had a good day
and we will start in, you (Bell) and I at 9:30
tomorrow morning.
Regraded Unclassified
72
- 8 -
Bell:
O.K.
H.M.Jr:
Thank you all.
Haas:
Good night.
H.M.Jr:
Whatever we do, I think you ought to put in a
little for the trust fund.
Bell:
I was wondering whether we ought to put in an
additional amount for the trust fund. It might
increase a hundred million on the long bond.
Of course, the trust funds now are a pretty
good cushion because we have got tax exempt
securities in the trust funds, and we may some-
time want to sell them out.
H.M.Jr:
I also may want to take all of them and cancel
them.
Bell:
Well, that is an idea. You hadn't ought to treat
them any differently than you do the others.
H.M.Jr:
No worse, anyway.
Dearaded
73
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON
February 20, 1941.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Morgenthau:
Thank you very much for the following reports,
which you sent me this date:
Part I - Airplanes
Deliveries of and New Orders for Airplanes,
June 23, 1940 - February 15, 1941; Unfilled
Orders and Estimated Deliveries on February
15, 1941.
Part II - Airplane Engines
Deliveries of and New Orders for Airplane
Engines, June 23, 1940 - February 15, 1941;
Unfilled Orders and Estimated Deliveries on
February 15, 1941.
Sincerely yours,
ORLANDO WARD,
Colonel, General Staff,
Secretary, General Staff.
74
S 17840-203
008
ON
February 20, 1941.
Honorable Heary Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. c.
Dear Mr. Morgenthams
Thank you very such for the following reports,
which you sent no this dates
Part I - Airplanes
Deliveries of and for Orders for Airplanes,
June 23, 1960 - February 15, 1941; Unfilled
Orders and Estimated Deliveries on February
15, 1941.
Part II - Airplane Engines
Deliveries of and Rev Orders for Airplane
Engines, June 23, 1940 - February 15, 1941,
Unfilled Orders and Estimated Deliveries -
February 15, 1941.
Sincerely yours,
(Signed) ORLANDO WARD
ORLANDO WARD,
Colonel, General Staff,
Secretary, General Staff.
vah
Regraded Unclassified
75
DEPARTMENT OF AGRICULTURE
CHECK 1 DEPARTMENT
WASHINGTON
February 20, 1941.
The Honorable,
The Secretary of the Treasury.
Dear Henry:
I am sending you, and a very few other people, the at-
tached article by Dr. Frederick Strauss, an economist who works
jointly for this Department and the National Bureau of Economic
Research. The subject is The Food Problem in German War Economy
and the Conquered Nations.
Dr. Strauss relates the food problem to the total war
economy and shows that the conquered nations could feed them-
selves if it were not for German confiscations of food and the
forced integration of the conquered economies to the needs of
Germany rather than to their own needs. He points out that
there is no likelihood that during this war a breakdown in food
supplies such as occurred during the first World War will take
place. But even maintenance of present rations will probably
reduce working efficiency and staying power of the working pop-
ulation. In a prolonged war Germany would not be able to meet
her ration requirements by domestic food production and surpluses
available from the Danubian countries. Unless the Soviet Union,
for political reasons, is willing to ship food which she needs
at home, the conquered nations are the most convenient and probably
the only source of such foods in which Germany will be deficient
in a prolonged war.
A summary of the findings in the article is attached for
your own personal convenience, since I doubt that you will have
time to read the full text, although I recommend a full reading
if you have the time. Dr. Strauss has worked on this subject con-
siderably since the outbreak of the war in Europe, both on his own
time and for a temporary period in the Office of Foreign Agricul-
tural Relations. The article should be treated confidentially
since it has been prepared for publication in a forthcoming issue
of one of the economic journals. Dr. Strauss has consented to a
limited distribution in advance of publication.
Claude Sincerely n.Wickard
Enclosure
Secretary.
Summary contained
76
in do I.Tt
Not for publication
Official use only
THE FOOD PROBLE: IN THE GERLIAN WAR ECONOMY
AND THE CONQUERED NATIONS
by Frederick Strauss
77
TABLE OF CONTENTS
Page
I. Germany's Food Requirements during this 7ar
1. The Lessons of the World War
2
2. Consumption Planning and Differentiated Rationing
5
d) Tar Preparation: Consumption Planning
5
b) Food Policy during the Present Var
8
3. Total German Food Requirements during this War
10
II. Germany's Ability to Produce its Var-time Food Requirements
1. Food Policy as an Integral Part of the Rearmament Program
13
2. Accomplishments of the Food Production Program
15
3. Strains Resulting from the Agricultural 'Battle of Production'
21
a) Farm Labor
22
b) Farm Nachinery and Other Improvements
25
c) Fertilizer
27
4. German Food Supplies in War Time
a) War-time Factors Influencing the Domestic Supply Situation 32
b) Germany's Potential Food Imports in War-time
40
c) Germany's War-time Food Outlook
46
III. The Tar-time Food Problem in the Conquered Nations
51
1. Apparent Food Import Requirements
52
2. Could the Conquered Nations Feed Themselves without
German Interference?
53
3. The Conquered Nations in the German War-time "New Order"
59
78
-
THE FOOD PROBLEM IN THE GERMAN WAR ECONOMY AND THE CONQUERED NATIONS
SUNMARY AND
This article emphasizes that the food problem in a modern war does not con-
sist merely in averting starvation for the population at large, but that the
Germen war strategy requires a diet safeguarding the striking power of the army
and the efficiency of the working population (p. 1-4). Therefore armament workers
receive higher rations than average workers, and soldiers still higher rations
(p. 8-10). The article surveye the food problem, within Germany and the conquered
nations, as part of the total Germen war effort.
Germany tried, during the period of war-preparation, 1934-39, to adjust
domestic food production to the needs of the expected war (p. 13-21) and to alter
people's food habits to go with war-time supplies (p. 5-8). Consumption planning
was more successful than the attempts at expanding domestic food output. On the
whole, however, Germany is better prepared to face the present war than it was in
1914-18, While more intensive farming methods resulted in higher grain and potato
yields before the war, (p. 15-21), such high yields cennot be expected in war-time
(p. 21-32); and shortages of labor, fertilizere, fuel, and transportation in a
protracted war will reduce German farm production (p. 32-40). Meanwhile, German
war-time requirements of breadgrains (wheat and rye), potatoes, and vegetables are
20-40 percent higher than in peace-time, (p. 10-13), even during the period of
inactive war.
This is the German food outlook, based on German production, existing re-
serves, currently available imports from the Damube Basin, and from the Netherlands
and Denmark, assuming that Germany would not extract from the conquered nations
food quantities they themselves need urgently (p. 46-50). Breadgrain supplies will
meet German needs fully, at least until the end of 1941, possibly till mid-1942.
Potato supplies are ample, though transportation difficulties may interfere with
79
- II
distribution to the ultimate consumer, as in 1939-40. Windfall meat supplies,
the result of emergency slaughter, from Dehmark and the Netherlands have supplied
Germany with at least 5 weeks' ration requirements. These may be enough to are
tain the present meat rations at least till the middle of 1941. In 1941-42, the
cessation of Dutch and Danish supplies, and decreasing domestic output, will make
it necessary either to allot the heavy manual workers' ration to fewer workers or
to reduce the rations generally.
The fat situation is most critical. By mid-1941 most of Germany's fat
reserves will be used up, with Holland and Denmerk no longer able to supply ap-
preciable quantities. Current supplies, including imports, will then be only
about half of pre-war - while present rations require 80 percent of pre-war
quantities.
Deficiencies of vitamine and minerals may not damage health immediately
or visibly. But they tax the nervous system of workers, who already have to en-
dure lack of proper clothing, insufficient heat, and all the nervous strains that
go with war itself, The effects of malnutrition may be postponed, but workers'
efficiency and staying power will decline.
Under these circumstances Germany could not maintain, in 8 protracted war,
the prevailing differentiated rations in the face of steadily decreasing domestic
food output, depletion of emergency stocks, and dwindling imports. The task has
become even more difficult with the course of events in Italy.
However, the ruthless Nazi determination in the preparation and execution
of the war indicates clearly that the Reich will employ every means to avert, or
at least postpone, the serious food difficulties to be anticipated. The conquered
nations, including Hungary and Rumania, remain the most convenient - perhaps the
only - source of the needed food supplies (p. 61-65).
80
- III -
It must be assumed, therefore, that Germahy will extract from the conquered
area all the food she needs for the maintenance or her war effort, disregarding the
food needs of the population in these countries. Such exploitation will be limit-
ed by their capacity to produce food rather than by their own needs. There are
signs that farmers in the occupied regions have little incentive to adjust their
farm operations to the German demands,
Denmark, Norway, Holland, Belgium, and France would actually be able to
feed their people, despite the British blockade, if Germany were not adjusting
their agricultural economies to her own growing food needs and their industrial
machinery and transport systems to her war effort.
There are those who argus that we must send food to the conquered nations
because their peace-time food imports were great and these have been cut off by
the blockade, But these peace-time imports were needed largely to produce food
surpluses (meat, dairy products, eggs) for export (p. 52-53).
The article shows that domestic food production in these countries could be
adjusted to furnish somewhat better than minimum food requirements for a. moderate
level of economic activity, with no danger of malnutrition, despite the blockede
(p. 53-59).
How about the crucial period of 1940-417 Despite war destruction and poor
1940 grain harvests, these 5 countries could have fed themselves, thanks to emer-
gency reserves they had stored up, and the meat and fat from emergency slaughter
(p.57-59). For the conquered nations as a whole, food supplies for this season
would have been adequate, although concentration of refugees and transportation
disruption would have created temporary difficulties,
Why, then, has there been widespread food shortage (p.59-65)? Nazi offi-
cials themselves answer this question. They proudly declare that the conquered
81
IV -
nations' economic life is being reconstructed-from the cove' milk to foreign
exchange"-- to meet the needs of the German was machine.
The food consumed by the German armies of occupation is only the most ob-
vious drain. In Norway alone, for instance, the army of occupation is consuming
enough to keep a fourth of the Norwegian population from malnutrition. However,
the Germans are drawing off enormously greater quantities of food from the con-
quered nations for use in Germany herself than for their armies of occupation.
Germany has extracted from Denmark enough meat to supply Denmark and Norway com-
bined for 2 years; from emergency slaughter in Holland enough meat to supply the
entire Belgian population for 6 months. Part of the shortages in Belgium and
France are due to German "purchases" of wheat, meat, and fat.
These are only the direct effects of German coordination. The indirect
effects are no less important. The Nazia are drafting Danish, Norwegian, Dutch,
Belgian, and French, as well as Crech and Polish prisoners and civilians in an
attempt to overcome the shortage of farm labor in Germany. The confiscation of
rolling stock and the utilisation of rail, water, and truck transportation in the
conquered nations interrupt both the flow of products which these countries need
in farm production and the distribution of farm products to their own people.
The German war effort has begun to subordinate the industrial machinery of
the occupied regions to its immediate needs, The occupied countries are being
merged into the Nazi war-time New Order. Their food supplies are being used as
an integral part of the total German war effort.
Regraded Unclassified
82
- 2 -
THE FOOD PROBLEM IN THE GERMAN WAR ECONOMY
AND THE CONQUERED NATIONS
The food question in continental Europe at the present time cannot
be separated from the complex problem of Germany's total war economy. From
the beginning of the rearmament program in 1934, German "Wehwirtschaft"
specialists have studiously applied the lessons which they drew from the
world war experience, namely that the war-time food problem does not consist
merely in averting starvation for the population at large. The German war
strategy proper, with its emphasis on the large-scale use of highly mechanized
war weapons, requires utmost efficiency, and physical and mental alertness,
of the armed forces and of the workers in war industries. The food problem
posed to the German war economy is therefore not the maintenance of a bare
subsistence level, but of a diet safeguarding the striking power of the army
and the efficiency of the working population.
This article attempts to show how Germany endeavors to solve this
problem by integrating the food policy within Germany herself and in the
conquered nations completely to her war effort.
I. Germany's Food Requirements During This Var
I, The Lessons of the World War
The world war brought against each other, for the first time in a pro-
longed struggle, highly industrialized nations, whose domestic food supplies
were insufficient and whose war effort relied on a developed industrial
machinery. Only gradually did the authorities in the belligerent countries
83
- 3 -
conceive the changed importance of food in such a novel war, whose decision
depended largely on the industrial potential.
Even during the first two years of the first world war neither the
German nutrition experts nor the officials in charge of food production
planning and of food distribution envisaged clearly the peculiarities of the
war-time food problem. They carried on with the traditional concept derived
from previous wars, that the population at large should be protected from
starvation or malnutrition and that an army marches on its stomach.
Probably the first clear notion was expressed by the German General
Staff through Field Marshal Hindenburg in September 1916 when he made this
ominous appeal to the German chancellor: ..."You are aware that, in order
to terminate this war victoriously, our war industries must solve a tremendous
task. The labor question is of decisive importance, not only mainteining a
sufficient number of workers, but particularly keeping up their working
efficiency by means of adequate nutrition."
Before that time no attention had been paid to the special food re-
quirements of workers engaged in war industries. Towards the end of 1916,
the neglect of the munition workers' diet was recognized, and the resulting
serious reduction in efficiency noted with much apprehension. "Fatigue and
exhaustion after hard work became the rule. Equally serious was the effect
on the mental attitude of heavy manual workers. Lack of initiative, loss
of mental alertness, nervousness and irritability were general. 1)
This observation led to a complete reorganization of the rationing
system. The original plan had been one of general rationing. At the and
of 1916 a new system was adopted: Heavy manual workers were allotted be-
tween 15 and 40 percent, extra heavy manual workers between 40 and 60
1) Max Rubner, Deutschlands Ernachrung nach dem Weltkriege, Berlin,
84
percent more bread and other foods than other civilian adults. Tet it also
became apparent that maintenance of workers' efficiency is not solely A
function of food quantities.
After the var, it was seen, on the basis of special enquiries on
workers' food consumption 2) during the war, covering a representative sample
of 6000 family budgets, that "the diet of urban working families was
typically deficienct in protein and fat. Hunger was stilled by means of
coarse food, containing predominantly carbohydrates. But since such food
fills rather than satiates, the workers suffered constantly from hunger.
The urban worker was accustomed to a varied diet favoring animal products
that kept his balance and maintained his health and efficiency. The war
experience has demonstrated the damages which a diet deficient in protein
3)
and fat inflicts upon urban workers."
With the increasing emphasis on mechanized war instruments, the
heavy industries experienced an expansion no one had anticipated at the
beginning of the first world war, Nazi economists studied the effects of
this expansion very closely: In a special study on the munition workers,
4)
Schilling-Vose points out that "millions of additional workers were needed
in war industries. All these men, women and children were not satisfied
with food barely meeting physiological requirements. In view of the heavy
manual work before open furnaces to which they had not been previously
accustomed, of the nervous strain as a consequence of the noise of the
machines, they had to be well fed to sustain their staying power."
These lessons were the basis for the planning of food production
and distribution for this var.
2) Beitraege sur Lebenshaltung, special publication of the Reichs Arbeits Blatt,
No. 17 and 21, Berlin 1918 and 1919.
3) Carl von Tyseka, Ernaehrung and Lebenshaltung des deutschen Volks, Berlin, 1934,
1936. 4) D.A.F. Schilling-Vose, Die Sonderernaehrung der Ruestungsarbeiter, Hamburg,
85
- 6 -
2. Consumption Planning During 1934-39 Rationing Correlated with Occupational
Activities in War-time,
a) War Preparation: Consumption Planning.
Long before the outbreak of the present War, the German authorities laid
plans to avoid such a breakdown in food supplies 88 occurred during the first
world war, Not only was it necessary to avoid the world war mistakes in
production and distribution; it was recognized that it was equally important
to adjust both differentiated individual food allotments and the procurement
of total food requirements to the new pattern of the war economy.
From the outset, the limitation of domestic food resources presented
a serious obstacle. It was clearly recognized that war-time conditions would
make impossible a continuation of food consumption habits as they prevailed
before 1933. On the other hand, world war experience had shown the serious
psychological effects of sudden changes in the workers' diet. Therefore the
government tried, from 1934 on, to direct food consumption into channels
suited to the quantities and qualities of food supplies which would be avail-
able in war time.
By 1937 the effect of such planning of consumption had become apparent.
A comparison of the average weekly per capita consumption of German working
5)
class families in 1937 with that in 1927 reveals the changes. They were
clearly in accordance with the official recommendations to substitute foods
which could readily be produced domestically, for foods whose domestic pro-
duction potentialities were limited. Thus the consumption of bread was 3
percent higher in 1937 than in 1927, and that of potatoes 7 percent higher;
whereas the consumption of meat had decreased 16 percent, of all fate combined
5) This comparison is based on official German enquiries. The 1927 figures are
derived from "Die Lebenshaltung von 2000 Arbeiter-, Angestellten-und, Beamten-
Haushaltungen," published in "Einzelschriften zue Statistik des Deutschen Reiches,
No. 22, Parts I and II, Berlin 1932: the 1937 figures from Wirtschaft and
Statistik, No, 4 and 8, February and April 1939.
Regraded Unclassified
86
- 6 -
7 percent, and of milk 20 percent, Reduction in imports, forced by foreign
exchange considerations, had by 1937 reduced consumption of fruits by 30 per-
cent, and green vegetables by 5 percent, The German policy of consumption
planning was gradually directing the food habits of the population towards
a war-time diet. The authorities could rightly point out at the beginning of
this war that "those who had followed the government recommendations in the
field of nutrition during the past few years will hardly find that they must
6)
now change their food habits essentially."
But consumption planning preparatory to war has another less desirable
effect - an effect which is bound also to have its repercussions on the con-
tinental Duropean food situation in & protracted war, The diet of German
working class families in 1947 had corresponded closely to internationally re-
cognized calorie requirements. The food energy value of the 1937 diet, however,
was 15 percent below that of 1927. Although it did not result in serious mal-
nutrition, the 1937 diet allowed almost no margin of safety, Since the compo-
sition of the diet deteriorated in 1938 and the first half of 1939, it is safe
to say that the German people entered this war after 3 years of inadequate con-
sumption compared with what is generally considered a desirable
diet.
At the outbreak of this war, the average German did not possess the
physical reserves to carry on strenuous work over any considerable period on
the insufficient war-time diet, In contrast, the German population had entered
the first world war with those body reserves, - for the energy value of the
7)
food consumed in 1913 was roughly 15 percent above that of 1937.
6) Nationalebzialistische Landpost, October 20, 1939.
7) Analyses of the pre-world war workers' diet can be found in Tyszka, 1.c.,
Y, Ziegelmayer, Die Kost der Schwerarbeiter, in Zeitechrift fuer Volksernaehrung,
July 20, 1937; Einzelschriften Zur Statistik des Deutschen Reiches, No. 23,
Part I. D. 81.
Regraded Unclassified
87
- ? -
Experience during the world war showed that consumption may in certain
respects go a good deal below the generally accepted standards, even for a
period of several years, without dangerous donsequences, if the population is
willing to accept hardships. During & var such criteria as malnutrition be-
come obsolete, and only the direct consequences of a. restricted diet on workers'
efficiency count. Nutrition experts know from experiments and actual observa-
tion that the human organism automatically tries to overcome the consequences of
insufficient food by loss of weight, by the economical use of its reserves, and
by adjusting their activity. Deficiencies in the diet may therefore more readily
be counterbalanced by average consumers, who are in a position to adjust their
activity, than by heavy manual workers.
The food specialists in the German War Ministry gathered ample informa-
tion of this kind during the period of war prenaration, so as to get maximum
efficiency of the war machinery out of restricted war-time food supplies. One
of the leading nutrition experts, Ziegelmayer, carried out a large-scale in-
quiry into the food consumption of heavy manual workers in the manufacturing
and mining industries as early as 1936. He found that the energy value of their
diet was nearly 10 percent below the level necessary for the maintenance of
efficiency, that meat consumption could not be further reduced and fat con-
sumption only if a decrease would be compensated for by larger quantities of
8)
carbohydrates.
His conclusions appear to have been justified by later developments.
When it became necessary in 1938 to increase working houre in coal mining to
offset a 15 percent decrease in output per miner, the government had to allot
higher fat rations to the miners. Yet even towards the end of the rearmament
period it became evident that the then available food was insufficient to
8) Wilhelm Ziegelmayer, Die Kost der Schwerarbeiter, Zeitschrift, fuer Volkser-
naehrung July 20, 1937, P. 205-18, also Der deutsche Volkswirt, August 20, 1937,
P. 2284,
Regraded Unclassified
88
8 -
mustain the kind of working efficiency that was demanded,
A few months before the outbreak of the present war, the official
9)
economic journal of the Nasi party said! "Lately signs of overexertion of
workers and employees have become apparent, First, the grippe epidemic has
reached such an extent that it can only be explained by increased susceptibility
owing to physical and psychological weariness (Abgekaempftheit). Secondly,
extreme irritability on account of nervous strain resulting from overexertion is
common. Thirdly, unexcused absences and attemnts to stay away from work for
flimsy reasons have increased sharply. This also can only be attributed to the
need for recreation and relaxation from overstrain, The overexertion of the
workers is, in the last analysis, only another symptom of the general over-
utilization of all resources which, at the same time, has led to scarcity of
goods, slowdown of deliveries, and labor shortage."
b) Food Policy During the Present War.
In regulating war-time food distribution, the authorities had to be
primarily concerned with the preservation of the physical and psychological
strength of the workers engaged in essential war industries, This lesson was
applied from the very first day of the outbreak of this war, whereas during
the first year of the world war no systematic food rationing had been intro-
duced and differentiated rationing was not resorted to before the end of 1916.
The rigid food rationing system initiated at the outbreak of the present war
undoubtedly attempted to strike a compromise between the satisfaction of the
minimum requirements of the various types of consumers and the potentially
10)
available food supplies. In view of the limited domestic supply situation,
this compro ise leaves the individual consumer with a reduced diet. But the
present food rationing aystem tries to maintain the differentials in consumption
9) Die deutsche Volkswirtschaft, March 2, 1939.
10) This point will be dealt with in the next section of this article
89
- 9 -
between average adult consumers, heavy manual workers and extra heavy manual
workers as they prevailed before the war.
In 1936 and 1937 heavy manual workers consumed roughly 30 percent more
bread, 70 percent more meat and 120 percent more fat than the average adult.
The present rations allotted to heavy manual workers provide for only 45 per-
cent more fat, but grant 100 percent more meat and 58 percent more bread.
The absolute quantities of the rations are much below pre-war consump-
tion for most foods. Average adults obtain now 6 percent less bread, 32
percent less meat, 24 less fat than in 1937, The rations of heavy manual
workers for meat are 22 percent below 1936, for fat 50 percent lower; but
15 percent higher for breac,
The relatively high bread ration is the backbone of the present German
diet, and as long as potatoes are available in sufficient quantity, there is
probably no danger of serious malmutrition. But the lack of variety and the
diminished palatability of food will necessarily have psychological, if not
tangible physical effects, on staying power and efficiency. The present diet
cannot sustain heavy manual work for. more than 8 hours, and even within 8
hours efficiency will be below pre-war. This had already become apparent to-
wards the end of 1939, when the authorities found it advisable to modify
noticeably the demands on labor they had proclaimed at the outset of the war,
Since November 1939 the 10 hour working day has been, with few exceptions, the
upper limit: and most of the privileges abolished in September 1939, have been
restored,
It is safe to say that even if the present rations can be maintained,
the efficiency of the working population must continuously deteriorate in a
protracted war,
Regraded Unclassified
90
- 10 -
The food requirements of the armed forces will be met first, as during
the first world war, Nasi economists found that the German world var army of
6 million soldiers (comprising B percent of the population) and 1 million
11)
horses had obtained 15 percent of all available food supplies, This means
that the individual soldier alone was allotted approximately 70 percent more
food than the average civilian.
The food requirements of the individual soldier have not decreased since.
It may not be commonly known that the soldier's food ration far exceeds even
12)
that of the heavy manual worker, Ee receives more than twice as much bread as
the average consumer at the present time, and 40 percent more than the heavy
manual worker, 140 percent and 20 percent respectively more meat, and 100 per-
cent and 30 percent more fat. His potato consumption is more than double that
of the average adult and nearly double that of the heavy menual worker.
3, Total German Food Requirements During this Var,
The change to a war economy, even for a well organized war-directed
economy such B.B the German, involves important shifts in food needs. Such
shifts occur in three directions: (1) Adult males formerly belonging to the
group of average adult consumers, and to. a lesser degree to that of heavy
manual workers, become soldiers and consume the higher rations of soldiers:
(2) those formerly employed in occupations which are not essential during a
war (workers in consumers' goods industries, merchants, salesmen, etc.) are
11) Florian Lorz, Kriegsernaehrungswirtschaft and Nahrungamittelversorgung vom
Weltkriege bis heute, Berlin 1938.
12) Derived from V, Ziegelmayer, Die Ernachrung des deutschen Soldaten, in Zeit-
schrift fuer Volksernachrung, September 30, 1938 and Quartermaster General
Pieszczek. These figures refer to the soldier's peace-time consumption. His
war-time rations are even higher. Soldiers in the field obtain more than 3 times
as much meat as the average adult, more than 10 times as much cheese, and 4 times
as much potatoes. In addition they are allotted large quantities of fresh
vegetables, legumes and canned fish,
91
11 -
drawn into war industries and their consumption needs increase from a level
slightly above the average adult's to near that of the heavy manual worker;
(3) women in non-essential occupations and women not formerly employed are
directed into occupations requiring increased food consumption. The extent
of such shifts is, of course, largely dictated by the course of war activities.
Yet it is possible to arrive at approximate estimates of minimum requirements
based on the present rations, and to indicate the increase in total needs
which would result from an expansion in war activities.
Now to consider Germany's total war-time food requirements. The follow-
ing estimates of minimum needa (i.e. during a period of limited war activity)
assume that army rations go to 5 million soldiers; that the ration for extra
heavy manual workers is granted for all rationed foods to 10 million people,
composed of farmers, miners and workers in war industries; that the increased
bread ration for heavy manual workers is allotted to 10 million people, but
the higher fat and meat ration only to 4 million people, and that an additional
6 million workers working longer hours receive the "special" meat and fat
rations, which are only slightly higher than the rations for average adults.
The reduced rations for children of various age groups are considered. On
this basis we find that the minimum war-time breadgrain needs exceed posce-
time needs by more than 20 percent. Instead of 9 million tons, as in peace-
time, the Old Reich now requires at least 11 million tons of breadgrains a
year. Even more striking is the increase in potato requirements for human
consumption. Since potatoes have to offset the lack of a great many other
foods, war-time consumption will exceed peace-time consumption by at least
40 percent. Minimum needs are about 17 million tons a year, as against 12
million tons before the war.
92
- 12 -
Although the present nest and fat rations are greatly below the peace-time
consumption levels, the total savings in requirements are relatively mall, This
is largely because it was necessary after the first few months of the war to 10-
crease children's rations to near peace-time 4a order to counteract unfavorable
effects on children's health. At present, the total moat requirements are only
17 percent below pre-war, the fat requirements roughly 20 percent lower. This
allows savings of 500,000 tons of meat and 300,000 tone of fat per year.
The approximate changes in food requirements resulting from the war are
summarized in the following table:
TABLE 1
Germany's Approximate Food Requirements in War-time
Requirements in Million Tone
Change in Requirements
Per Year
In Million
In Percent of
Peace-time
War-time
Tons
Fesce-time
Breadgrains
9,0
11,0
+2,0
+22
Potatoes
11.9
17.0
+5.0
+42
Meat
2,9
2.5
-0.5
-17
Pat
1,5
1.2
-0.3
-20
Milk
7.5
4.5
-3.0
-40
It is worth noting that throughout the first year and a half of this war,
the demand on the German workers' efficiency and the length of the working day
were probably not much higher than during 1937-39. This W&B largely made pos-
sible by the long periods of relative lulls in military activity and by the
contribution of the war industries of some of the conquered natiors, notably
Austria, Osechoslovakia and Poland. Without this latter factor, the Nazi author-
ities would undoubtedly have been obliged to allot the higher rations for heavy
and extra heavy manual workers to a much larger sector of the population, thus
increasing the total German food needs.
The allotment of the rations for heavy manual workers to an additional
million workers in the category of average adults automatically increases total
93
- 15 -
breadgrain needs by 100,000 tons & year. It raises meat needs by 1 percent of
total peace-time consumption, and neede for potatoes, vegetables and fruit in
the same ration.
Any expansion of the armed forces would have a similar effect: each adds-
tional million soldiers would add 2 percent to the over-all German breadgrain
needs, 1.5 percent to the potato needs and 0.5 percent to the meat needs.
As the war is prolonged, a continual lessening of the German workers'
stamina will probably have to be offset by granting the higher rations to many
more workers, if the present rate of efficiency is to be maintained.
II. Germany's Ability to Produce its War-time Food Requirements.
I. Food Policy as en Integral Part of the Rearmament Program.
Regulation of consumption was only one side of war-preparation in the food
economy. More important from the original Nazi viewpoint - was the final accom-
plishment of what was grandiloquently called "food freedom as a pre-requisite of
political freedom," or in plain Anglish - self-sufficiency. "In Hitler's Reich
the German peasants and farmers, organized and led by the Reich Food Estate, will
prove through work and relentless will that in spite of all difficulties it will
be possible to close the remaining gaps and thus to win the battle for food free-
dom. In former years doubts were in place. Today, however, the Reich Food Es-
tate is a guarantee that measures formerly considered Utopian can be put into
13)
practice within the shortest period."
These original intentions had to be revised gradually, and the farm pro-
gram became of necessity less ambitious. More and more it was condensed to the
more modest goal of pushing output in products whose imports would be jeopardized
in time of war. Early in 1938, State Secretary of Agriculture Herbert Backe
13) Ernst Schneider, Kraftfutter aus eigener Scholle, Reichanaehrstand 1936, P-
545.
94
- is -
stated openly that "absolute food freedom will not be obtained unless ve succeed
not only in substituting domestic output for imported feedstuffs, but in addition
provide enough feed to produce the animal products heretofore imported. It is
14)
now apparent that such a degree of self-sufficiency cannot be reached.'
Nazi propaganda nevertheless claims that the "battle of production" in-
creased self-sufficiency in food from 79 percent to 83 percent of total food
requirements between 1933 and 1939, It is significant that only once before had
a similar increase in the self-sufficiency ratio been obtained, namely between
1929 and 1932, the years of the deepest depression, when import restrictions
"improved" the ratio from 73 to 81 percent, The apparent sharp increase then
was largely a result of decreased total consumption. The deterioration of the
German diet since 1933 shows clearly the meaning of the alleged improvement in
self-sufficiency between 1933 and 1939,
As will be shown in this section of the article, the consumption planning
part of the Nazi program was far more successful than the endeavors to increase
total domestic food supplies. The failure to approach food self-sufficiency is
no reflection on the organizational efficiency of the Reich Food Estate. Consider-
ing the resources of Germany, the task of "closing the remaining gape" would have
been an impossible task even under ideal conditions. But the conditions during
the "battle of production" were far from ideal, The agricultural program was
from the beginning an integral part of the total program of war preparation.
Obviously, in a country with limited resources and depleted reserves in all
fields, direct war preparation left inadequate resources for the extremely diffi-
cult task of increasing self-sufficiency in food,
Whatever partial successes towards the goal of food autarchy may have been
(14) Herbert Backe, Die Ärzeugungsschlacht - eine Putterfrage, in Der Vierjahres-
plan, January 1938, P. 20.
Regraded Unclassified
95
- 15 15 - -
attained, they dedessarily resulted in straine in practically every area of the
economy, including agriculture itself. In the official German publications of
the last few years before the var, the authorities responsible for carrying out
production plans in agriculture as well as in várious branches of industry and
transportation, again and again complained that progress in their own fields
vas delayed by excessive demands on available resources of material and labor
made by other sectors of the economy. It was probably unavoidable that, in at-
tempting to push domestic production of practically all essential war materials,
shortages arose even in raw materials for which the German supply situation was
highly eleastic, such as coal, electricity, etc. Delayed deliveries of machinery,
coal and even substitutes retarded production plans, particularly in agriculture,
whose progress had to be sacrificed to the needs of essential war industries,
When the construction of the western fortifications and the preparation and execu-
tion of the Austrian and Cgech invasions required large additional resources, the
farm program felt even more acutely the shortage of machinery, building materials,
and transportation. In fact, the authorities drew increasingly upon the existing
agricultural resources to support the rearmament program proper.
2. Accomplishmente of the Food Production Program.
To what extent is Germany able to meet her present food requirements as
dictated by her war machinery? Upon the answer to this question largely depends
the Germany policy toward the agricultural and industrial economies of the con-
quered nations.
Are the German claims justified that, in contrast to the world war exper-
ience, the farm program since 1934 has succeeded both in increasing the production
level of important foods and in strengthening the farm economy so that domestic
production can be maintained or even increased in a war of long duration?
96
- 16 -
The agricultural "battle of production" centered around two main factors.
namely, (1) to make the country independent of breadgrain (wheat and rye) in-
ports, and (2) to increase the output of virtually every kind of animal products
by expanding the domestic feedatuff basis.
The solution of the breadgrain problem involved no major difficulties.
In favorable crop years Germany had produced, before the Nasis came into power,
sufficient quantities of both wheat and rye to meet the domestic requirements
for human consumption and in addition to feed 2.7 million tons of rye (or 25
percent of the total domestic breadgrain output) to livestock. But consumer
taste was switching from rye to wheat bread. However, since domestic production
of wheat cannot easily be increased, varying quantities of wheat had to be in-
ported. The Nasi farm program had to be concerned with potentially higher bread-
grain needs in war-time, which could be fulfilled domestically only if rye was
partly substituted for wheat. The first step VAS therefore "consumption plan-
ning* to change food habits back to rye bread, and to regulate bread quality
through admixture of potatoes and corn. In order to avoid the necessity of an
expansion in breadgrain production, feeding of breadgrains to livestock was
prohibited, The success of these measures depends, of course, on the possibility
of providing other feedstuffs, notably root crops such as potatoes and beets,
in place of the rye feed,
In this way the breadgrain problem is closely connected with the feed-
stuff problem. This the Nasi authorities recognised at the outset: "The feed
question is of decisive importance not only for the solution of the fat and
meat problem, but it is also a necessary pre-requisite for adequate bread sup-
plies. This became apparent in 1937, when ve were forced to prohibit the feeding
Regraded Unclassified
97
- 19 -
of breadgraine to safeguard our bread supplies. One can even say that nearly
all food shortages as they occurred intermittently within the last few years
can be traced directly to preceding feed shortages. The solution of the feed
15)
question is therefore the central problem of the 'battle of production'."
To gain or increase independence from feedstuff imports in war-time
vae not simply a task of expanding output of such feed crops as can easily
be grown on German soil, German agriculture has always been able to produce
nearly sufficient feed carbohydrates such as potatoes and beets, To offset
the lack of rye as feed, merely larger quantities of potatoes and beets had
to be made available for feeding purposes.
The real difficulty, as during the world war, consists in securing the
necessary amount of protein feed, To fatten animals and to produce milk re-
16)
quires definite minimum quantities of carbohydrates and protein. If these
requirements cannot be met for any length of time, the weight of slaughter
animals and the volume of production must decline. One purpose of the imported
feedstuffe (concentrates like oilcake and corn) was to fill the quantitative
protein gap. Hardly less important was another purpose, to maintain the neces-
sary ratio between carbohydrates and protein. To keep up milk production, for
instance, milk COWS require feed containing a protein-carbohydrate ratio of
about 1:6, The bulk of Germany's domestically produced feed, however, has
an unsatisfactory protein-carbohydrate ratio,
15) Ernet Schneider Die Futterfrage, ein Zentralproblem der Erzeugungschlacht,
in Landwirtschaft and Technik, March 1939.
16) German and American experts on animal nutrition are very nearly agreed on
the minimum requirements. Compare, for instance, the figures of O. Kellner
in Grundzuege der Futterungslehre, 8th edition, Berlin 1928, with the figures
of morrison, Hacker, Mitchell, and Hamilton, Yearbook of Agriculture 1939.
Regraded Unclassified
98
- 18 -
When the agricultural "battle of production" started in 1934, there vas
& protein deficit of over 1 million tons e. year, about 15 percent of the total
requirements. To produce this quantity domestically would have required an
additional acreage of 12.5 million acres, one sixth of the acreage then opera-
ted by German farmers. This was impossible: Germany possesses virtually no
*additional land that could be put to farm use. On the other hand, the annual
population increase of 470,000 persons necessitates the equivalent of an
annual addition of 650,000 acres of improved land, corresponding to fully 1
percent of the entire improved acreage of the Old Reich. To make matters
more difficult, the rearmament program required considerable acreage for
roads, airdromes, cantonments, fortifications, etc., with the result that in
1937 and 1938 alone there was a net reduction of 1.4 million acres of improved
land, an area large enough to feed 360,000 people.
One of the Food state officials stated the dilemma as follows: "Our
farm acreage is limited, and nowhere did we previously produce more than we
needed. To increase acreage of a particularly important crop, we had to cur-
tail acreage of other crops whose production had, however, to be maintained 17)
as well, since otherwise shortages in these products would have arisen."
The impossibility of increasing the crop acreage explains largely the
nature of emergency farm measures introduced by the Nazi authorities since
1934, Essentially, the entire program was an attempt to circumvent the limita-
tion of acreage. One way was the substitution of higher yielding crops, or
17) Gustav Behrens, Hat die Erseugungschlacht Erfolg gehabt?-in Der Vierjahre-
plan, January, 1938,
Regraded Unclassified
99
- 19 -
crops containing & higher food or feed value per acre, or crops especially
18)
rich in protein, for less productive crops. This method, however, did not
create any net production increases.
A second device was the increased utilisation of intermediate or
cover crops. Intermediate crops make it possible to harvest two crops in
one year or at least three crops in two years. They furnish not only green
feed for summer and autumn feeding, but especially feed the protein content
of which can be preserved for the winter months be fermenting in silos.
Although the protein content of such feed is low, this silage feed would
19)
partly compensate for feed concentrates formerly imported. Despite tremen-
dous efforts, this most important latent feed. reserve could be utilized only
20)
to a very limited extent. Labor shortage was one reason, the impossibility
of constructing silos owing to shortage of building material and labor was
another. In order to provide sufficient amounts of silage, 80 million cubic
21)
yards of silos would have been necessary. However, by the middle of 1939,
22)
not even one tenth of this silo capacity was available, BO that barely 10
percent of the cattle can now be supplied with this kind of protein feed,
18) This device is the only one that produces higher yields per acre without
great additional efforts, and that can be readily continued in war-time. It
Vas largely restricted to substituting winter barley (whose yield is 25 percent
higher) for spring barley, of increasing the acreage of sugar beets (whose
protein content is B. third higher than that of fodder beets), and by shifting
to high yielding clover and alfalfa.
19) Herbert Backe, 1,c., p.22.
20) Der Anbau Landwirtschaftlicher Zwischenfruechte in Jahre 1938, in Wirtschaft
und Statistik, February 1939.
21) Werner Willikens, Bauten fuer die Volksernaehrung, in Der Vierjahresplan,
June, 1939.
22) Hermann Hildebrand, Futteraufbewahrung and Gaerfutterbereitung in der
deutschen Landwirtschaft, in Der Vierjahresplan, June 5, 1939.
100
. 20 -
Kost important under the circumstances were the attempts at increasing
the yield of virtually all crops by more intensive farm methods. Increased
mechanization, and particularly tremendous increases in fertilizer consumption,
actually led to & noticeable improvement in average yields. If one compares
average yields during the 4 year period before 1934 with those during 1935-39,
one will find that the yield of alfalfa was increased by nearly 14 percent,
that of hay 12.5 percent, of clover 8.7 percent, of sugar beets 8.2 percent,
of potatoes 7.1 percent and of all grains combined 6.3 percent. For the
question as to whether such a favorable level of yields can be maintained in
war-time (when fertilizer consumption is curtailed), it is important to call
attention to the fact that "even the layman can easily note that the coincidence
of record yields in three different groups of crops during three consecutive
years is almost entirely due to the influence of increased fertilizer applica-
23)
tion."
As long as these measures of intensification could be applied, partial
output successes resulted. Most important was the 10 percent increase in
potato production during' 1935-39 as compared with 1925-32. The record potato
crop of 1937 and the excellent crops of 1938- and 1939, in combination with
the favorable yields of sugar and fodder-beets, largely overrame the effects
of the prohibition of breadgrain feeding. The efforts to increase domestic
24)
production of protein feed were far less successful, as we have seen,
Even during 1934-39, such partial success was accompanied by acreage and
production reductions in other fields. The continuous decrease in forage crops,
23) K. Schuenemann, Der Duengerbedarf in der Landwirtschaft, in Die deutsche
Volkswirtschaft, January 20, 1939.
24) It is true the acreage of corn and sweet lupines was expanded eight-fold
between 1934 and 1939, but the 1939 corn acreage of 100,000 acres and the
lupines acreage of 115,000 acres were of no practical significance.
Regraded Unclassified
101
- 21 -
amounting by 1939 to 10 percent of the total acreage, vas noted with much appre-
25)
hension by the authorities. The acreage in breadgrains vas reduced 6 percent,
and the total grain acreage by 1,4 million acres. The level of production
could be maintained only by means of yield improvement.
To summarise briefly the accomplishments of the "battle of production":
The farm program was limited from the outset to such measures A0 promised to
increase production by intensified farm methods. Prior to 1937, these measures
did not produce the desired effect; periodic food shortages occurred, forcing
the authorities to relax their policy of import restrictions. After 1937, the
intensification program resulted in improved yields. This improvement in yield,
particularly of root crops, offset the acreage decrease in grains. Although
the official output figures for animal products cannot be taken at their face
value, the large root crops probably led to some increase in lard and pork
production. Yet, although buge imports of feed concentrates were being fur-
nished by overseas countries, Germany still depended on importe for close to
50 percent of its fats for human consumption.
Probably the outstanding asset of the efforts during 1934-39 1s the
creation of the rigidly organized Reich Food Estate, which plans and supervises
war-time food production and distribution incomparably better than during the
world war.
3. Strains Resulting from the Agricultural "Battle of Production."
Long before the outbreak of war, it became apparent that whatever partial
successes had been obtained, they were overshadowed by the seriousness of the
strains that developed in the course of the agricultural "battle of production."
It is well to recall in this connection that in 1914 the German farm economy
possessed latent reserves in virtually every field which could be and actually
25) Joh. Stephan, Die Entwicklung des Futterpflanzen Anbaus seit 1933, in
Deutsche Landwirtschaftliche Presse, March 4, 1939.
Regraded Unclassified
102
22
were utilized, and which were of great assistance at least during the first
two years of the world war. Except for the advantages of better organisation,
it is safe to say - and the following discussion will show - that the basic
conditions in German agriculture were, on the whole, probably less satie-
factory at the outbreak of this war than they were in 1914,
a) Farm Labor:
Before the start of the "battle of production" in 1934, farm labor re-
presented no problem. The authorities were therefore justified in recommending
acreage expansion in root crops, corn, oilseeds and intermediate crops rather
than in grains, although under the German crop system potatoes require 2.5
times as much labor as grain, beets 3.5 times as much, corn 5 times as much,
26)
intermediate crops twice as much and oilseeds 5 times as much. During the
first few years, these higher labor requirements could be met without much
difficulty, since at that time farmers were still able to increase their
manual efforts in the same way as at the beginning of the world war, Efficient
organization succeeded within a short time, by education as well as by
intimidation, in making farmers work longer and more strenuously.
But neither education nor intimidation could avert large-scale city-
ward migration, once the rearmament program opened better opportunities in
factories. "The original plans of the 'battle of production' had to be sacri-
ficed on account of the urgent industrial expansion and the pressing work con-
nected with the rearmament program. Farm labor, urgently needed for expanding
domestic food output, had to be drawn off into construction and other industries,
26) H. Reischle, Wirtschaftliche Auswirkungen der Landflucht, in Der deutsche
Volkswirt, Jan. 1, 1939; also, Rugo Richars, Die Sorgen der Landwirtschaft,
ibid., Dec. 17, 1937.
rded
103
- 28 -
27
thus further despening the existing farm labor shortage."
According to official figures, the total number of farm workers vas re-
duced 18 percent between 1935 and 1938. Small farms (those between 12,5 and 50
acres) even lost 26 percent of their total labor and 30 percent of their male
26)
workers. Darré, the Minister of Agriculture, estimated the net city-ward
migration at between 700,000 and 800,000 persons. This figure would be alarming
enough, since it would mean that 10 percent of the total number gainfully em-
ployed and helping as family members in agriculture had left farms within 4
years. But the actual decrease was about twice the number admitted by Darré.
29)
The farm labor expert of the Reich Food Estate, Guenther Pacyna, arrives at
an estimate of 1,800,000 farm workers and farmers who had left farms for
cities between 1933 and 1938, 1.0., before the intensified rearmament program
led to a new wave of city-ward migration. The outstanding German labor expert,
P. Bramstedt, corroborates this estimate and explains Darré's estimate by stat-
ing that "the Minister of Agriculture intended merely to indicate the lower
30
limit of the magnitude of this migration." The actual net loss of farm labor
amounted to 1.5 million persons between 1933 and 1939, according to the farm
census of 1939 whose results were published recently.
Farm policy from 1933 on, combined with the pre-eminence of the indus-
trial rearmament program, thus led to a 16 percent decrease in the number of
farmers and farm workers between 1933 and 1939. It is fair to assume that
27) Editorial in "Der Vierjahresplan", October, 1938.
28) Konrad Mayer, ed,, Gefuege and Ordming der deutschen Landwirtschaft, Berlin,
1939. p. 322.
29) In Nationalsozialistieche Landpost, March 3, 1939.
30) Paul Bramstedt, Lohngefuege and Landflucht, in Die deutsche Volkswirtschaft,
March 8, 1939.
Regraded Unclassified
104
M & -
at the outbreak of war, close to 20 percent of the 1933 number had been drawn
into the war machinery.
The effect of this shortage can hardly be overrated, Instead of a
lengthy analysis, it may be far more elucidating to let one of the highest
Nazi officials, Reich Food Estate leader Behrens, describe the situation:
"It may not be generally comprehended how the farm labor shortage affects our
agriculture, Whoever visits our villages is struck by the consequences of this
shortage, visible on nearly every single farm... Many farmers are thinking about
giving up their livestock entirely. On a great many farms herds have been cut
in half... solely on account of labor shortage.
"The health of farm youth is suffering to an alarming extent on account
of overexertion. In Saxony, 680 out of 1938 applicants for the Storm Troops
had to be refused as unfit. In a farm college in Saxony only 7 out of 66
students were physically fit, and of the 7 fit ones, 4 came from the city, The
other 59 pupile all exhibited deformities of the back and chest, fallen arches
and other deformations, which were clearly a result of overexertion.,
do
"The number of women and girls willing to/farm work has decreased con-
tinually. The work load is increasingly shifted to married and older women,
No fewer than 500,000 women over sixty are occupied in agriculture as full-
time help, in most cases day-in, day-out from 4 or 5 o'clock in the morning to
late at night. From all this, one can gauge how difficult it is for the in-
dividual farmer to carry out the demands of the 'battle of production.' Nay,
31)
this appears virtually impossible under the circumstances."
31) Gustav Behrens, Stillstand in der Erseugungschlacht; in Odal, Monatechrift
fuer Blut and Boden, March 1939, p. 152/53.
105
Conditions may not have been quite as alarming as Behrens described them,
although it is difficult to see any reason, B few months before the outbreak of
rar, for painting the picture darker than it actually was. In any case, these
conditions largely explain why after 1938 it was impossible even to maintain
acrenge in general, and production of animal products in particular. 32)
It should be emphasized that these conditions persisted long before the
outbreak of war. This was in marked contrast to farm labor conditions before the
outbreak of the world war.
In view of the extent of the labor shortage during the last few years, it
is not surprising that the farm production program could not be extended. Rather,
it is remarkable that Germany came near to maintaining the output of crops re-
quiring much labor and of animal products.
b) Farm Machinery and Other Improvements.
The shifts from imported feed concentrates to domestic root crops and
33)
fermented green silage, accompanied by sharply increased labor requirements in the
32) The effect of the shortage of trained help on the livestock economy had been
viewed with anxiety by officials: "Care and feeding of milk COWS necessitate well
experienced and qualified personnel. By far the greatest part of silk production
originates in districts of small peasant holdings. In these districts help was
predominantly young, unmarried farm hands and girls, who migrated to cities during
the last few years. Thus, the farmer and his wife must now do their work as well,
besides all the work which has already kept them busy from dawn to dusk. Of course,
they are just not able to do all the necessary work for any length of time. When-
ever possible, they reduce the number of milk COMB and substitute feeding cattle,
which requires loss work." Of. Lage and Aussichtem der Butterproduktion (Situation
and aspects of butter production) in "Deutsche Landvirtschaftliche Presse,
January 7. 1939.
33) Internediate crops whose tilling and harvesting coincide with the poak of the
usual workload on farms, involved novol additional labor requirements. Sinilarly,
the fermenting of groonfood, and the artificial drying of roughage and loaves,
represent operations which were unnocossary bofore 1934. (cf., for instance, Albort
Brumnenbaun, Mooglichkviten dor Tochnisiorung dor Landwirtschnft, in Dor Vior-
jahrosplan, Juno 5, 1939.
Regraded Unclassified
106
face of a 20 percent decrease in the number of farn workers and farmers, had been
possible only at the cost of overexertion of the remaining farm population. But
this explains only partly the relatively favorable output conditions before the war.
Tithout the utilization of labor saving measures of intensification, the general
level of farm output would certainly have rapidly diminished after 1937.
The Reich Food Estate had originally planned a large-scale mechanization of
farm operations. Às late as 1937 it had hoped for en annual delivery of 50,000
farm tractors to medium and large farms. This program could not be carried out.
According to State Agriculture Secretary backe, the total number of tractors on
farms does not exceed 57,000; this means that less than 2 percent of Geruan farms
are equipped with tractors. Backe gives specific reasons for the limited use of
the tractor: "At first the conservative attitude of the German peasant, which 1s
adverse to new devices, prevented rapid mechanization. Today (1939) another reason
stands out: German agriculture has, during the last few years of labor shortage,
learned the great advantages of the tractor. But then the scarcity of raw mater-
ials, or rather the insufficient quotas of raw materials allotted to agriculture,
made it impossible to satisfy farmers' demands for tractors and trucks. But this
may be changed in the future. On small and medium-sized farms, tractors are rarely
seen, except where tractors are used cooperatively. This is to be regretted, since
the labor shortage is most serious on small and nedium-sized farms." 34)
Increased mechanization facilitated operations on larger farms, and may have
been instrumental in the relative maintenance of grain production. It was not able,
34) Herbert Backe, Hehr Farmschlepper, in Nationalsozialistische Landpost, January
6, 1939.
Regraded Unclassified
107
however. to overcome to any appreciable extent the effects of the general labor
shortage. On the whole the construction of fermenting bins and silos, and the
mechanization of dairy operations, which led to a sharp increase in manufactured
butter in place of farm butter production, was far more important than the mechani-
zation of crop production.
Under war-time conditions, the limited progress in mechanization is an
advantage, rather than an impediment, because of the present gasoline shortage.
The inability to use most of the farm machinery during this war is apt to cause
additional labor difficulties.
c) Fertilizer.
By 1937, the farm labor shortage was doubtless at a critical stage and
endangered the continuation of the food self-sufficiency program. At about the
same time, shortages of strategic raw materials and ensuing retardation in the
delivery of farm machinery made it impossible to offset labor shortage by extended
35)
mechanization. Increased application of fertilizer was probably the only effective
means of improving crop yields without additional labor. The increased use of
fertilizer was further stimulated in 1937 when prices of nitrogen and potash were
greatly reduced.
The sharp increase in fertilizer proved to be the most fruitful of all the
emergency farm measures. "The success of the 'battle of production', and especially
the larger root - and feedstuff crops, would not have been possible without it." 36)
35) In January, 1937, it was admitted by Backe that the potentialities of production
increases had reached their limit, particularly for fats (cf. H. Backs, Varum wurde
eine Feuregelung des Fett Verbrauchs notwendig? in Der Vierjahresplan, January,
1937 36) Carl Trauch, Gesicherte Duengemittelversorgung. in Nationalsozialistiache
Landpost, February 16, 1940.
108
It is significant that even critical observers accept at its face value the
argument of German propaganda which emphasizes only the accomplishment of noticenble
expansion of fertilizer consumption without, of course, indicating the real issues
hehind the specific German fertiliser problem. Te believe that the fertilizer
problem is even more decisive than the labor problem in determining douestic German
food supplies during this par, because Germany will be able to alleviate the labor
shortage, but cannot possibly remedy the fertilizer shortage.
The belief that German agriculture had been able in the years of increased
fertilizer application to enrich its soil with the necessary plant nutrients, and
thus to store reserves for emergencies, is completely unfounded. In view of the
important conclusions with regard to war-time food supplies which the fertilizer
question poses, it is necessary at least to indicate the crucial factors deter-
mining the present aspects of this problem.
During the "battle of production" considerably greater quantities of
fertilizer than before were needed merely to maintain the level of crop yields
37)
since less care in tilling and soil preparation could be exercised, since the
38)
quality and quantity of the manure had deteriorated, since intermediate crops,
37) "Efficient tilling and soil preparation save half the amount of fertilizer other-
wise needed. The shortage of trained farm labor made it impossible even on well
managed farms to till the soil adequately and in time." (F.Hertscher, Die Bodenunter-
suchung in Dienste der praktischen Landwirtschaft, in Die Phosphorsasure, vol.VI,1937.
38) The manure showed a decided deficiency in phosphoric acid and in nitrates owing
to shortages of feed concentrates. The only means of overcoming these deficiencies
is increased application of fertilizers." (P. Ehrenberg, Welche Folgen hat das
weitgehende Fortfallen der Handelsfuttermittel: fuer die Begchaffenheit unseres
Stallduengers, in Superphosphat, Oct. 1937.) The Reich Food Estate attempted in par
to overcome this loss in plant nutrients by inducing farmers, through subsidies. to
construct liquid manure tanks. But owing to construction material and labor short-
ages, only 5 percent of all farms now possess such tanks. (Karl Schuenemann, Die
Duengerwirtschaft Deutschlands, in Der Vierjahresplan, June 5, 1939.)
Regraded Unclassified
109
29 -
formerly used as green nanure, must obtain the 1009 fortiliser quantities as main
crops."and particularly since the planned shifte in crops emphasized root crops and
oilseeds, which require a to 3 times as much phosphoric acid per acre as grains. 40)
All these novel factors caused & sharp rise in fertiliser needs merely to
maintain yields. Yet the "battle of production" demanded increased yields as the
one means of expanding total farm production. However, according to the leading
German soil experts, "at a time when not medium but record harvests were required,
German agriculture was not provided with the amounts of fertilizer necessary to off-
set the loss of plant nutrients drawn out of the soil by the current crops. Even
worse, we have further deprived our soil of plant nutrients and endangered its
41)
fertility.
There is ample evidence that soil conditions at the outbreak of this war were
such less satisfactory than before the first world war. In 1914 "German agriculture
Tas assisted by the fact that for decades it had appMed phosphoric acid fertilizer
far beyond the amounts drawn out of the soil by the current crops. The soils
contained large reserves, which could be splendidly utilized when the energency
arose. 42) The soil was equally well supplied with the other plant nutrients.
39) "Intermediate crops mist obtain the sane quantity of fertilizer as main crops,
therefore fertilizer consumption must be increased in line with the expansion of
intermediate crops." (Hans Seher, Anbau von Zwischenfruechten als Grundlage der
Viehaltung, in Superphosphat, August 1937.) Host of the intermediate crops had been
plowed under prior to 1934, and thus had furnished green manure; their nearly ex-
clusive utilization as feed after 1934 occurred at the cost of increasing soil
depletion. (Gonrad Meyer, Gefuege und Ordnung P. 537.)
40) F. Kertscher, l.c. p.87,
41) S. Gericke, Neue Untersuchungen usber die Duengswirkung des Thomasmahls, in
Die Phosphorsasure, Vol. VII, p. 95
42) 7. Aereboe, Der 3influss des Zrieges auf die landwirtschaftliche Produktion in
Deutschland, Stuttgart 1927, P. 44.
110
- 30 -
Before the outbreak of this var, the soil showed marked deficiencies In
virtually every kind of plant nutrient. The deficiency was most serious in the
case of phosphoric acid, Official soil teste on a large scale revealed that
43)
70 percent of the soile were greatly deficient in phosphoric acid, Some 6X-
perts believed that only the light moils had suffered, but that the heavy moils
possessed sufficient reserves to endure a reduction in phosphoric acid applica-
tion. "The soil tests proved, however, that 64 percent of the heavy soils have
insufficient reserves and are, for instance, no longer able to produce sugar
44)
beets; only 19 percent still had sufficient reserves." The phosphoric acid
deficiency of the soil would be less alarming if the lime content had been
satisfactory. Lime deficiency causes the phosphoric acid in the soil to be
converted into a state in which it cannot be absorbed by the plants. But the
German soil experts found that 50 percent of all soils suffer from lime im-
45)
poverishment and the other half needed to be kept under constant observation.
Even the number of potash-deficient soile increased, and more than half the
46)
cultivated acreage contained insufficient potash.
The phosphoric acid deficiency was primarily due to shortage of raw
material supplies. Germany does not produce any raw phosphates and its output
of basic phosphate slag, a by-product of the steel industry, did not nearly
meet the phosphoric acid fertilizer requirements, It was forced to import
43) Prof. 0, Engels, Verstaerkte Duengerverwendung im Zeichen der Ertragesteiger-
ung-in Kunstduenger und Leim, August 1937.
44) S. Gericke, Die Leistung der Phosphorsasure im Zuckerruebenbau, in Zeitschrift
der Wirtschaftsgruppe Zuckerindustrie, January-February, 1940,
45) R. Berrmann, New Results of Soil Research and Their Importance for Practical
Agriculture, in Proceedings of the 18th International Conference of Agriculture,
Dresden, June 6-12, 1939, P. 25.
46) L. Schmitt, Zeitgemaesse Duengungsfragen--, in Die Phosphorsaeure, Vol. VI,
p.128; also, 0. Engels, Erfolgt die Kaliversorgung Unserer Boeden nach richtigen
Gesichtspunkten?, in Deutsche Landwirtschaftliche Presse, March 18, 1939.
111
- 31 -
about 1 million tons of phosphates annually, mostly from countries with which
no barter arrangements existed - 90 percent from the United States and French
North Africa, now cut off by the British blockade. The remaining 10 percent
came from Russia, whose total pre-war phosphate exports would have met only
half the German import needs. Long before the war, it became increasingly
difficult to obtain even basic phosphate slag from neighboring countries.
France bad imposed an embargo in 1938. German foreign exchange difficulties
forced B curtailment of both kinds of imports with the result that phosphoric
47)
acid was clearly "at the minimum." It has been at the minimum for 20 years.
The reasons for the deficiency of potash, lime and nitrates are less
obvious, since the domestic supply situation should normally cause no problem.
Transportation difficulties were the primary cause, To transport the amounts
of fertilizer consumed in 1938, 906,000 railway freight cars were needed, more
than twice as many as for breadgrains and flour and nearly 4 times as many as
48)
for potatoes. At least since 1937, the German railway system had faced in-
creasing difficulties, which became critical when the rearmament program was
stepped up in 1938, "Unfortunately the political events (Austria, Western
fortifications) led to serious strains in the transportation facilities, which
have cut the level of fertilizer consumption, Transportation difficulties
were most severe at the time when the fields had to be plowed and immediate
49)
delivery of fertilizer would have been necessary."
47) For a decade and & half after the world war, phosphoric acid consumption
vas, on the average, 30 percent below pre-war, although the soil had been
seriously depleted of phosphoric acid during the world war years.
48) Nationalsozialistische Landpost, August 11, 1939.
49) Kunstduenger und Leim, October 1938.
Regraded Unclassified
- 32
112
The effect of this deficiency of the soil on the war-time domestic food
output, discussed in the following section, can hardly be overrated.
4. German Food Supplies in War-time.
The preceding discussion purported to develop and to emohasize the two
sain issues of the German war-time food problem, namely (1) that the minimum
war-time needs for breadgrains, potatoes, and vegetables are noticeably greater
than in peace-time, and (2) that the potentialities for increasing or even
maintaining the level of domestic food production have been lessened rather
than improved in the course of the "battle of production" since 1934.
It is difficult to determine accurately the extent to which domestic
food production and still available imports can meet food requirements now and
during a protracted war, Most of the belligerent countries do not publish cur-
rent crop figures, and such figures as have been released by the German authori-
ties are not acceptable as a basis of analysis.
le must instead, appraise the effect of specific war-time factors on
domestic food supplies, in the light of the preceding analysis. This will
elucidate not only the German war-time food situation, but also the ways in
which Germany may use the conquered nations to support her war effort.
2) War-time Factors Influencing the Domestic Supply Situation.
The war itself created no major new difficulties in German agriculture,
but it greatly intensified the existing difficulties. The greatest difficulties
still are the shortage in trained farm labor and in draft animals, the deficiency
in some fertilizers, and the inadequacy of transportation facilities.
113
- 33 -
During the first year of the war the farm labor problem vie probably
the greatest single impediment in maintaining pre-war production. The loss of
a great many of the most afficient farmers to the armed forces added tremendously
to the farm labor shortage, which was serious, long before the var, The
shortage was accontuated by the simultaneous reduction in the mumber of avail-
able draft animals and the difficulties in operating the existing farm machinery.
Meanwhile unusually heavy rains in the autumn of 1939 and severe cold in the
50)
winter 1939-40 increased the work load. The use of school children and soldiers
on leave for farm work hardly alleviated the labor shortage. By the middle of
December 1939, 70,000 Polish prisoners and farm workers had been transported
to Germany. The authorities had contemplated employing about one million
Poles on German farms, but now they admitted that organizational and transport
51)
difficulties would delay such help for many months.
The German domination of Denmark, Norway, the Low Countries, and France,
bids fair to alleviate part of the farm labor difficulties. The number of
prisoners and conscript workers from these countries on German farms is not
known. Yorld war experience showed that such forced labor 18 only a meager
substitute for trained German farm labor, familiar with the peculiarities of
52)
the work. German regulations for the treatment of Polish farm help hold out
little inducement to the workers to overexert themselves.
50) Landwirtschaftrat B. Vieweg, Richtlinien zum Sommergetreideanbeu 1940, in
mitteilungen fuer die Landwirtschaft, Sonderhaft 19,
51) F. Syrup, Beseitigung des Landarbeitermangels, in Nationalsozialistische
Landpost, February 16, 1940.
52) When the world war started, 400,000 Russian Polish farm workers were engaged
in German agriculture and most of them stayed in Germany throughout the var, In
1916, there were 600,000; in 1918, 800,000; and in 1919, 900,000 prisoners on
German farms. In spite of all efforts, these prisoners could not be forced to
do efficient work, The farm labor problem during the world war did not express
itself in a sharp decrease in the number of total workers on farms, but in lack
of trained farmers, particularly of competent managers (ef, F. Aerebor, 1.c.,
P. 32 ff.)
Regraded Unclassified
- 34 -
114
The loss of these workers to the agriculture of the German-dominated
countries is far greater, absolutely and relatively, than the benefit which
German agriculture is likely to receive. This forced labor say be able to avert
some reduction in crop output, but it will be of little use to the German
livestock industry, which requires highly trained and experienced help.
The farm labor problem is bound to have important ramifications which
were unknown until the last year of the world var, It may be recalled that
the main efforts since 1933 have been directed towards substituting domestic
feedstuffs for imported feed concentrates. The most serious difficulty right
from the beginning of this war has been the shortage of protein feed. This
deficiency ought to be partly overcome by such emergency measures as the
fermenting of the roots and leaves of beets, Even during 1934-39, this device
was widely applied, although at that time large imports of feed concentrates
were still taking place. During the war, such measures have to be applied on
a much larger scale. It is therefore significant that, as early as the end
of 1939, great anxiety was expressed lest the labor shortage endanger the
execution of these measures, which partly determine the output of milk and meat,
"The shortage of help and draft animals made it impossible to exercise the
necessary care when the root crops were harvested, Unfortunately this lowered
their quality and increased their perishability. But other difficulties re-
sult, aside from the loss of feed value. The roots and leaves frequently
contain 15-20 percent of foreign matter. Everybody knows that such unclean
and rotted feed are a great danger to our livestock. Reductions of 4 quarts
a day in the milk output per COW are frequent, Even if feed concentrates can
Regraded Unclassified
115
- 35 -
be added, direct damage to the health of livestock and to their digestion
cannot be avoided, 53) The labor shortage has already caused a decline in herds
in sany districts."
Such factors will become increasingly important if the war continues,
With the depletion of the reserves stored before the war, the various ener-
gency measures become more and more essential. Yet each single emergency
neasure involves additional requirements for experienced labor, This was
the reason why before 1937 increased mechanisation was encouraged and why
expansion in fertilizer consumption was feasible and fruitful,
Shortages of gasoline, binder twine and many other materials make it
more and more difficult to utilize labor-saving devices. As a high Nasi
official states, "At the present time, when we are forced to save labor to
the utmost, it is particularly regrettable that we should give up the ad-
54)
vantages resulting from labor-saving machinery."
The most serious war-time difficulty is the shortage of phosphoric
acid fertilizer. Owing to lack of supplies, the allotment of phosphoric
acid fertilizer was reduced to 40 percent of the 1937-38 consumption (which was
10 percent below 1938-39) right at the outbreak of war. For the fertilizer
55)
year 1939-40 only 25 percent of 1937-38 will be available. In combination
with the various other impediments, the curtailment must reduce crop yields
in a protracted war.
53) H. Jenal, das ist bei der Verfuetterung von Ruebenblasttern su beachten? In
witteilungen fuer die Landwirtschaft, Nov. 18, 1939, also: Wochenblatt der Landes-
bauernschaft Schlesien, Dec. 30, 1939.
54) Prof. L. W. Ries, Wie hilft man sich beim Drusch ohne Bindergarn? - -
Mitteilungen fuer die Landwirtschaft, Oct. 7, 1939.
55) At the end of 1939, the 1939-40 ration was increased to 50 percent, and in
November 1940 the 1940-41 ration was improved to 30 percent of 1937-38; it is not
known whether the higher rations have actually been allotted.
Regraded Unclassified
116
- 36 -
German soil experts know that the world war attempt to offset the lack
56)
of certain fertilizere by increased consumption of others, must be futile.
They also know that "the view formerly held, that phosphoric acid application
BAY be reduced momentarily without damage to quantity and qualtity of crop
yields, is unwarranted--. Yields cannot be maintained without adequate
57)
phosphoric acid fertilization."
Of course, yields are determined by many other factors aside from
fertilizer, not least by the vagaries of the weather, as was again demonstrated
all over Europe in 1940, Yet it is possible to indicate approximately what
potential reductions in yield may result from reduced phosphoric acid consump-
tion, assuming that all other factors remain unchanged.
The following estimates of potential yield reductions are derived from
58)
5000 German field experiments,
In order not to burden this article with details, only the conclusions
56) Prof. Engels, Die Notwendigkeit der Beachaffung genuegender Mengen von
Robphosphaten Zwecks Gewinnung und Anwendung leichtloeelicher Phosphorsasure-
duenger, in Das Superphosphat, April 1935, P. 33.
57). Potash consumption was increased (as against 1913-14 consumption) 70 percent
in 1914, 205 percent in 1915, 355 percent in 1916, 310 percent in 1917 and 342
percent in 1918. During the world war, nitrates had played the role phosphoric
acid is bound to play during this war, since it was the factor "at the minimum."
Yet nitrate consumption had to be reduced 53 percent in the first year, 65 per-
cent in the second year, 62 percent in the third year, 55 percent in the fourth
year, whereas phosphoric acid was already reduced by 75 percent in the second year
of this war,
58) These experiments were undertaken with the utmost care "in all parts of
Germany, under different climatic and soil conditions, running over a decade, and
are far more conclusive than pot experiments." (s. Gericke, Wege and Moeglich-
keiten einer Ertragssteigerung in Getreidebau, in Die Phosphorsaeure, Vol. 7,
1938, P. 287). The German experts regard these experiments as representative;
In fact the recommendatione of the Reich Food Estate with respect to fertilizer
application were based largely on their results.
Regraded Unclassified
117
- 37 -
59)
applicable to the present-day problem may be stated. The estimates here given
refer to & 60 percent reduction in phosphoric acid fertilizer. The experiments
assume full quantities of all other fertilizers, although actually, nitrates,
potash, and lime will hardly be 60) applied in full quantities on account of labor
and transportation difficulties, of course, since these estimates are derived
from field experiments and represent average results for the years 1927-1936,
the reduction in crop yields in 1941 and the following years need not coincide
completely with the estimates here presented, although the deviations from
the average in the 1927-1936 period are as & rule small.
From the experiments it appears that a 60 percent reduction in phos-
phoric acid fertilizer resulted, ceteris paribus, in a reduction of the
yielde of rye by 12.4 percent, of whent by 11,5 percent, of oats by 11.3 percent,
of barley by 10 percent. The reduction in notato yield depends greatly on the
nature of the soils: one set of 1000 experiments reveals a decrease of 6.5 per-
cent, another set of 230 experiments carried out on average or below-average
59) The reader who is interested in these highly significant experimente may be
referred to the following sources: S. Gericke, ibid, p. 289 ff. for rye, P. 292
for wbeat; R. Floess, Zweckmaessige Massnahmen sur Leistungssteigerung in
Kartoffelbau, in Die Phosphorsaeure, Vol. 7. 1938, p. 216, for potatoes; S.
Gericke, Die Phosphorduengung der Hackfruechte, in Wiener Landwirtschaftliche
Zeitung, Febr. 10, 1940, for sugar beets; S. Gerlach, Erolgreiche Wirtschafts-
fuehrung, in Die Phosphorsaeure, Vol. 7 1938, P. 227, for fodder beets; Th.
Pollinger, Ziele and Aufgaben der sukuenftigen Wiesenwirtschaft, in Die Phouphor-
saeure, Vol. 7, 1938, p. 348 for hay.
60) fith the outbreak of war, shortages of labor and transportation made it im-
possible, for instance, to apply lime on many farms. In the autumn of 1939 lime
consumption was therefore reduced appreciably as commared to 1938, and even in
1938 consumption had been low on account of the difficulties connected with the
occupation of the Sudetenland, (Oberlandwirtschaftarat Hiller, Vie ist die
Duengung sur Ernte 1940 versunehmen?, in Wochenblatt der Landesbauernachaft
Schlesien, Doc. 16, 1939). Reich Food Estate officials are aware that neither
lime nor potash can be supplied in sufficient quantities. "Lime and nitrates
are not restricted. In practice, however, it is different: Transportation
difficulties make it impossible to fill the demand." (Womit Kosunen Vir jetzt
duengen?-, in Gartenbauwirtschaft, Dec. 28, 1939.)
Regraded Unclassified
118
- 38 -
farms showed a reduction of 9 percent. The average yield reduction for sugar
beets and fodder beets is in the neighborhood of 10 percent. Hay yields, which
are of particular importance since hay is the most valuable protein feed, may
be expected to decline between 7.5 and 10.5 percent, provided potash and
nitrates are applied in satisfactory quantities.
Before the outbreak of war, the Reich Food Satate had contemplated soil
analyses on a large scale in order to allot fertilizer according to the needs
of individual soils. This project has not progressed far, however, Furthermore,
the rationing of fertilizer is handled in such a way that "requests for special
allotments cannot be considered, even if soil analyses have shown that the nu-
61)
trient content is particularly low."
In view of the many additional difficulties, and the fact that the 1940
allotment of phosphoric acid fertilizer was below 40 percent of 1937-38, it is
fairly probable that the actual decline in yields will be greater than these
estimates.
The effects will not be restricted to crop quantities. The ensuing
qualitative deterioration of domestic feedstuffs will add to the difficulties
facing the livestock economy, and further aggravate the fat situation, the most
vulnerable factor in German war-time agriculture.
Deficiencies in phosphoric acid fertilization lead inevitably to re-
duction in the protein content of the green feed, and it is belived that the
mutrient content of feedstuffs may go below the norms necessary for adequate
61) Hiller, Wie ist die Duengung sur Ernte 1940 vorsunchmen, in Vochenblatt der
Landesbauernschaft Schlesien, Dec. 16, 1939.
Regraded Unclassified
119
- 39 -
62)
livestock nutrition,
The livestock situation 1a further complicated by the effects of disease.
"By the beginning of 1939, 35 percent of the German cattle had suffered from
hoof-and-mouth disease. Past experience has proven that the damage caused by
this disease will be noticed only in months and years to come, Maintenance of
milk production will be possible only if more care can be devoted to the cattle,
63)
and pastures and green land can be brought into better shape." In the face of
such conditions, the potential decrease in both quantity and quality of protein
feed will seriously affect the output of animal products,
The problem of distribution should not be omitted in appraising the
war's effect on available domestic supplies, During the first world war, the
sharply curtailed domestic food supplies did not all get to the ultimate con-
64)
sumers, owing to lack of transportation facilities. And during the winter of
1939-40, difficulties in transportation, partly caused by the freezing of the
water routes, resulted in shortages even in such foodstuffe as potatoes, which
would otherwise have been accessible in ample quantity, As during the unusually
63) Prof. K. Scharrer, Die Bedeutung von Kalk und Phosphorsasure fuer die Ernae-
hrung unserer landwirtechaftlichen Nutztiere, in Die Phosphoreasure, Vol. 8, 1938,
p. 382, also, L. Schmitt, Zeitgensesse Duengungsfragen, in Die Phosphorsseure,
Vol, 6, 1938, D. 382, also, L. Schmitt, Zeitgemaesse Duengungsfragen, in Die
Phosphoraseure, Vol. 6, 1937, To grasp the implications of this particular factor,
it is necessary to keep in mind that "to produce one quart of milk, the milk cows
need 50 grams (about 1-1/2 ounces) of protein. If the fodder contains less pro-
tein, the animal can draw the needed portein out of its body; but this is possible
only for a limited time, after which the volume of milk production must decline."
(Bachner, Sparsamere Verwendung von Eiweissfutter, Wochenblatt der Landesbauer-
neschaft Muerttenberg, Oct. 21, 1939).
63) Lage und Aussichten der Buttererzeugung, Deutsche Landwirtschaftlich Presse,
Jan. 7, 1939.
64) In the autumn of 1916, for instance, the organization of the potato distri-
bution functioned flawlessly. But when the Rumanian offensive took place and
Rumania entered the war, all railroad cars were needed for military operations.
Heavy frosts added to the calamity that led to the unfortunate "turnin-winter"
of 1916-17. (of, A. Skalweit, Die deutsche Kriegsernaehrungewirtschaft, Publi-
cation of the Carnegie Foundation, 1927, p.192).
Regraded Unclassified
120
- 40 -
severe winter of 1916-17, the population was faced with hardships beyond any-
thing that could have been expected on the basis of the food supply situation
proper.
German transportation facilities are decidedly less adequate than they
were during the world war. Às early as 1936, when freight traffic was 10 per-
cent higher than in the previous record year of 1929, there were 4000 fewer
locomotives and 80,000 fewer railroad cars than in 1929. And the rolling stock
65)
was generally in bad condition. Even at that time special transportation re-
quirements could be met only by curtailing normal freight traffic, For instance,
the construction of the Vestern fortifications required a daily average of
6,400 freight cars; this was made possible only by reducing the Ruhr coal
66)
freight traffic by from 6,300 to 6,800 cars a day. The séizure of Austria
and Czechoslovakia made conditions worse, Meanwhile the demands on the rail-
ways have increased greatly as a result of the war and the reduction in
motorized transportation.
b) Germany's Potential Food Imports in War-time.
The Effect of the Blockade.
Contrary to the German claims, the blockade had serious effects from
the start. These effects are now beginning to be visible. Domestic farm
production is unable to meet current requirements of the rationing system for
any kind of food except potatoes and sugar,
Even before the war, then, Germany tried to monopolize the food sur-
pluses from neighboring countries which would not be exposed to the British
blockade. Most of the countries of continental Europe, however, do no pro-
duce food beyond their own requirements. The following discussion surveys
65) Deutscher Volkswirt, Nov. 18, 1938,
66) Deutscher Volkswirt, Jan. 27, 1939,
Regraded Unclassified
121
- 41 -
the potential food exports of those countries/ which do /
Great promises were held out to the German people at the signing of
the first Russo-German trade agreement, and the expectations run even higher
for the trade treaty of Jamuary, 1941. It 1s not likely, however, that the
Soviet Union can offer much support in the near future, unless for political
considerations she is willing to ship food which ehe very much needs at home.
According to all indications, the increase in domestic food needs of the Soviet
Union -- resulting from the expansion of the armed forces -- will hardly leave
food surpluses. And the strain on the notoriously weak Russian transportation
system has become more serious with increased military requirements. The
difficulty of shipping to Germany from the Black Sea ports, (even via the
Danube) from which practically all Russian grain exports originated before this
var, makes it even more improbable that Germany can obtain appreciable quantities c
of grains, oilseeds, or phosphates. In this connection the experience during
1940 may shed light on the 1941 potentialities: When the reduction in phosphoric
acid fertilizer allotments for 1940 was announced, the German authorities stated
that Russian Phosphate deliveries during 1940 would improve the situation for
67)
1941, Actually the allotment for 1941 was further diminished,
20 appreciable grain or other surpluses are likely to be extracted now
from the enslaved peasantry of German-occupied Poland. Whatever quantities
may be forcibly taken, will be at the expense of the starving Polish popula-
tion. Direct economic relations of the Baltic countries with Central Europe
have largely ceased, owing to the Russian influence.
67) Of., for instance, J. Diekman, Unsere Versorgung mit Duengemitteln,
Mitteilungen fuer die Landwirtschaft, Sept. 1939.
122
- 42 M
Today only the Danube Basin can furnish, under normal or better than
normal crop conditions, appreciable quantities of bread and feedgrains, and
small quantities of animal products and fruits. Denmark and the Netherlands
have normally been able to export large amounts of animal products to Great
Britain and continental Europe: but they will not, after 1941, have any sur-
pluses during this war,
68)
1) The Danube Basin
The Kazi efforts to obtain economic control over Rumania, Hungary,
Tugoslavia and Bulgaria were only partly successful before the outbreak of
var, since they attempted to maintain trade relations with free exchange
countries. The bulk of their pre-war grain surpluses was shipped to such
countries. Germany, including former Austria and Czechoslovakia, received
only 27 percent of the Danubian wheat exports, and 47 percent of the total
corn exports, between 1935 and 1939. During the same period the Old Reich
obtained only 15 percent of the Rumanian, 49 percent of the Yugoslavian,
and 14 percent of the Bulgarian wheat exports. The Old Reich took only
4 percent of the Hungarian wheat exports in 1937, and 32 percent in 1938.
Only 25 percent of the Rumanian, 17 percent of the Yugoslavian and 2 percent
of the Bulgarian corn exports found their market in Germany proper. By far
the larger part of the German pre-war imports of breadgrains and feedgrains
came from countries from which Germany is now cut off by the blockade.
68) A detailed analysis of the food export potentialities can be found in an
article by this writer on "Wartime agricultural Surpluses of the Danube Basin,"
in Foreign Agriculture, December, 1940.
Regraded Unclassified
123
-
It is significant that even if Certiany had subceeded in monopolising
the pre-war Danubian surpluses, they would have fully met peace-time import
needs only in breadgrains and dry beans, Total Danubien exports would have
net only 74 percent of German import needs in feedgrains, 5 percent in butter,
52 percent in 0680, 8 percent in oilseeds and 3 percent in oilcake.
Reich Food Estate experts had no illusions regarding the potential sup-
port of the Danubian countries in wer-time. Well aware of the instability of
crop yields and the insufficient feedstuff basis in these countries, they
warned shortly before the war that "such factors should silence all those
who hold out hope that the cooperation with Southeastern Europe, desirable
though it 1s, may appreciably improve our food balance. Despite increased
trade relations it would be dangerous to overestimate the potentialities of
69)
their food exports."
These apprehensions were only too well justified by the 1940 Danubian
crops. Surplusse were sharply diminished by adverse weather conditions. The
unusually severe winter of 1939-40 affected most crops, greatly reducing yields.
In addition, the late spring and the extensive floods retarded and curtailed
spring sowing. Large scale mobilization, particularly in Rumanie, led to a
sizeable reduction of the winter grain acreage. To these handicaps must be
added the effect of the territorial changes in Rumania. Bessarabia, now ceded
to he Soviet Union, normally produced one-fifth of the Rumanian wheat and
dorn corps and three-fourths of the oilseeds. The grain loss this year will
be even more serious, since, while Besserabia enjoyed favorable crop conditions,
crops in the rest of Rumania were short.
69) Keine Usbertriebenen Erwartungen. Der Ausbau des Suedosthandels und die
Ernachrungsbilanz, in Hationalsosialistische Landpost, May 26, 1939.
Regraded Unclassified
124
- 44 -
Unless the Danubian countries are deprived, by pressure, of part of
their own urgent requirements, exports of wheat will hardly exceed 10 million
bushels, and those of corn 5 million bushels. The 1940-42 Dahubian wheat 02-
porte will this amount to only one-sixth, and those of corn to one-eighth, of
the 1935-39 exports. The total exports will meet only 40 percent of the German
pre-war wheat imports and less than 3 percent of the pre-war German corn
imports.
This is a serious blow to the German food balance. Import conditions
during the first two years of the first world war were incomparably more 18-
vorable. Total food imports during the first year were still about two-thirds,
and in the second year one-half, of peace-time imports. Even in 1916, before
Rumania entered the war, it sent Germany 2.5 million tons of wheat. From Bu-
mania alone, therefore, Germany received 9 times as much wheat as she can at
best receive in 1940-41 from the whole Danubian Basin.
Analysis of the social and economic structure of the Danubian countries
reveals that there is little likelihood of an expansion in farm production and
surpluses in the next few years. Peculiarities of peasant attitudes, national
habits, and a high degree of illiteracy make it improbable that education can
succeed in expanding production in B. few years. Traditions and customs will
prevent the ready adoption of new modes of living and progressive farming
methods, even under German supervision and pressure. The uneconomic size of
farm holdings in Rumania, Bulgaria and Yugoslavia hampers rapid improvement in
farm conditions.
With the cession of Bessarabia, any prospects for large deliveries of
oilseeds to Germany have virtually disappeared. Even more than before the out-
break of war, German apprehension regarding the limited potentialities of fat
Regraded Unclassified
125
- 45 -
and fat raw material exports are warranted. Minister of Agriculture Darré
warned, in 1939, that "in case of decreasing German fat production, South-
eastern Europe vill not be able to offset shortages in Germany. These coun-
tries vill not be in a position during the next decade to alleviate our fat
deficit. Despite the greatest efforts, they pannot furnish more than a or 3
70)
percent of the German import neede of cilseeds."
The Danubian countries cannot possibly overcome the food deficiencies
which must arise in, Germany once the reserves are depleted and the current
crops diminish. Even if the 1943 Denubian crops should be of average condi-
tion, there would be a total breadgrain surplus of 1.5 million tons, if no
Danubian grain goes to Austria, Csechoslovakie, Italy or Greece. This would
barely meet the German breadgrain deficit. A corn surplus of 1 million tons
could satisfy only a fraction of the urgent German feedgrain needs,
2, Denmark and Netherlands.
The combined peace-time butter export surpluses of Denmark and Holland,
200,000 tons, amounted to nearly 15 percent of the total German peace-time fat
requirements, and to nearly 20 percent of present fat requirements. But, during
1935-38, Germany obtained only one-fifth of these exports. In view of the
seriousness of the German fat situation, political and economic domination of
both countries is a desirable and effective way, from the German point of view,
to monopolize not only the surpluses but also part of current production needed
in these countries.
71)
Germany may receive, during 1940-41, 70,000 tons of butter. This is
about 6 percent of her entire fat requirements, or enough to meet the rations for
70) V. Darré, in Die deutsche Fettwirtscheft, July 21, 1939.
71) These estimatos are explained in the next section of this report.
Regraded Unclassified
126
- 46
3 weeks, She may also obtain about 250,000 tone of pork and beef, equalling
10 percent of present meat needs, or 5 weeks' rations. Such relatively large
exports can be furnished only at the cost of sharply diminished supplies in
the future, and at the cost of present consumption in Denmark and Holland,
c) Germany's War-time Food Outlook.
Exact data are not available on crop acreage, output of crops and animal
products, and stored food reserves. The following summary is derived from the
preceding analysis, from scattered information found in numerous farmers' bulle-
tins issued by the Reich Food Estate (which appears more reliable than releases
by the Ministry of Agriculture or of Propaganda), and from reports of neutral
observers,
Up to the present, at least, the food reserves assembled before the out-
break of var have helped greatly, and supplies obtained in the conquered nations
have assisted, in maintaining rations. They may make it possible to sustain the
current rations for most foods even until the end of the crop year 1940-41, This
despite the unfavorable 1940 crops, which with the exception of potatoes and
beets were much below those of the preceding years, and despite the sharply
diminished surpluses of the Danube Basin. Prospects differ greatly for the va-
rious foods, so it 10 necessary to look at breadgrains, animal products and other
foods separately, It should be emphasised that the following survey does not
account for such quantities of food as Germany may have extracted from the con-
quered nations (except the meat and fat supplies from Danish and Dutch emergency
slaughter.)
Breadgrains: It is certain that the 1940 winter grain acreage was well
below 1939, and that acreage reduction and winter kill could not nearly be offeet
by increased spring plantings, The total acreage reduction was probably between
Regraded Unclassified
127
- -
10 and 20 percent. Inclement weather conditions contributed aven more to yield
reduction than did fertilizer shortage. Most likely, the 1940 breadgrain crop
did not exceed 11 million tons, the size of the 1937 crop. Since it is known
that rye is increasingly being fed to livestock, in spite of severe penalties,
the 1940 breadgrain crop may leave not more than 8.5 million tons for human
consumption, as against requirements of at least 11 million tons. To the
German deficit of 2,5 million tons must be added the Austrian deficit of 0.5
million tons. The total shortage of 3 million tons will be alleviated only
slightly by Danubian supplies of about 0.3 million tons. The German claims
that more than 7 million tons of breadgrains are still kept as reserves are
not fully warranted, but it is possible that stocks of 5 million tons were
available at the beginning of the 1940-41 crop year. This would mean that the
1940-41 deficit of about 2.5 million tons could be met easily, and there would
still be available a reserve of 2.5 million tons, or nearly 3 months' require-
ments, by the middle of 1941. These reserves may not offset the breadgrain
deficit in 1941-42, unless favorable Danubian crops enable larger imports.
Thus, the total available breadgrain supplies will meet the German
needs at least until the end of 1941, and possibly until the middle of 1942.
"xpansion of the armed forces, or increased demands on working efficiency in
the armament industries, would deplete the reserves at an earlier date.
It should be emphasised that, long before the outbreak of war, such de-
vices for saving breadgrain as a higher milling ration and admixture of corn or
potatoes had been fully utilized, A further deterioration of the quality of
bread is hardly feasible, With the prolongation of war beyond 1942, an annual
deficit of 2-4 million tons appears likely. Only half of this, at the most,
could be made up by imports from Southeastern Europe.
Regraded Unclassified
128
- 48 -
Potatoes and Meat: Nasi authorities have insisted that adequate supplies
of breadgrains and potatoes for human consumption take precedence over the
needs of the livestock economy. Since human requirements have increased at
least 40 percent, even a record potatot crop would diminish the quantity of
potatoes available for feeding by 5 million tons. After the outbreak of var,
the Reich Food Estate was forced, therefore to recommend B. reduction in hog
72)
numbers and in slaughter weights.
Evidently the 1940 potato crop was favorable and made it possible to
maintain 8. larger hog population than originally contemplated. Yet, consider-
ing that before the war roughly 10 percent of the feed carbohydrates were 1m-
ported and that the potato yield must decrease in a prolonged war, it io prob-
able that hog numbers will be reduced by the middle of 1941, and domestic meat
and lard production will decrease continuously. The windfall supplies from
Denmark and the Netherlands may enable 8. continuation of the present meat ra-
tions at least until the middle of 1941. Decreasing domestic output and cessa-
tion of supplies from Denmark and the Netherlands in 1941-42 will then impose
unavoidable strains upon the meat supply.
Fat: Most serious is the fat situation. Before the war, about one half
of the total requirements had been imported, in the form of lard, butter, whale
oil and oilseeds, Only an insignificant part of these imports are now available,
yet rationing has decreased total needs by not more than 20 percent. Domestic
supplies of feedgrains and green feed will decline in the face of increased
army needs. The former imports of oilcake and oilseeds and the bulk of corn
importe are cut off by the British blockade.
72) State Secretary E. Backe, Schweinebestand und Marktordnung, Nationalsozial-
istische Landpost, February 16, 1940, also M. Kisch, Der sukuenftige Umfang der
Schweinesuchtund Mast in der Ostmark, in Zeitschrift fuer Schweinesucht,
February 11, 1940.
129
- 49 -
At the outbreak of war, the Minister of Agriculture claimed that the
reserves of oilseeds and whale oil were equivalent to one year's peace-time
consumption of margarine, This would correspond to about 5 months' total war-
time fat requirements. A large part of this reserve must have disappeared
during the first year and a half of the var. These reserves, and the windfall
butter supplies from Denmark and the Netherlands, largely explain the mainten-
ance of the current fat rations. By the middle of 1941, most of the fat re-
serves should be used up, and no appreciable supplies can be expected from
Denmark or the Netherlands.
The domestically produced fat supplies were derived about 45 percent
from butter, 40 percent from lard, 10 percent from whale oil and 5 percent from
tallow and vegetable oil, The enforced idleness of the German whaling fleet
alone cuts off 10 percent of these supplies. The decrease in hog numbers and
slaughter weights will diminish supplies by at least another 10 percent. Al-
though the Reich Food Estate has taken vigorous steps to maintain milk output
and to increase butter production by sharply curtailing the consumption of milk,
the great deficiency in protein feed must result in a sizeable decline in butter
73)
production during 1941-42 and even greater reductions later. It is not known
to what extent it 16 possible to curtail fat consumption for industrial pur-
poses, but such savings would be too small to alter the situation materially.
Current fat supplies, i.o., current domestic production plus current
imports, will be at least 50 percent below pre-war.
73) During the first year of the war, milk production decreased by at least 10
percent. Reich Food Estate officials claim that milk deliveries to dairies
have increased 10 percent. But since the average savings resulting from the
rationing of fresh milk should increase butter production by more than 20 per-
cent, milk output must have declined. (Ein Jahr Kriegsernashrungswirtschaft,
in Molkerei Zeitung, Sept. 9, 1940).
Regraded Unclassified
130
- 50 -
Other Foods: Even the restricted German diet before this var contained
a great many foods which, though of minor importance individually, contributed
to variety and palatability. Before the outbreak of war, Germany imported
250,000 tone of rice and 100,000 tons of legumes. Rice and legumes are now
virtually unobtainable. Of the nearly one million tons of fruit imports, only
a fraction can be supplied by Italy and other neighboring countries.
The scarcity of these foods 1s felt with much concern by the population.
Nor can the demand for fresh vegetables be even nearly met, Throughout this
var, egg supplies allowed a ration of only one egg per week. It is doubtful
whether declining domestic supplies, and dwindling production in Denmark and
the Netherlands (on account of feed shortage), will make it possible to main-
tain even the one-egg-a-week ration for any length of time.
Breadgrains and potatoes in sufficiency will not solve the German prob-
lem, Once the fat and meat rations have to be further curtailed, their short-
age, and the complete lack of stimuli like coffee and tea, must be felt in-
creasingly.
It is increasingly difficult to provide the minimum needs of vitamins
and minerals. Synthetic vitamins, DO far, have been distributed only to the
armed forces and to children. Deficiency of vitamins and minerals may not
have immediate and visible effects on the health of the population. But even
now it taxes the nervous system of the workers, who have to endure lack of
proper clothing, insufficient heat, and all the nervous strains that go with
var itself.
The typical effects of melnutrition may be avoided for some time, but
efficiency and staying power must decline gradually or perhaps even rapidly.
Regraded Unclassified
131
du
III. The War-time Food Problem in the Resourced Nations
Prospects of a prolonged ver pose to the German economy the difficult
problem of allotting at least the prevailing rations to the armed forces, the
heavy manual workers and the population at large in the face of continuously
decreasing domestic food output, dwindling imports, and depletion of emergency
stocks.
The preceding discussion should have left little doubt that this problem
cannot be solved adequately during a war of long duration. The task has become
even more difficult with the course of events in Italy. Germany may eventually
be forced to assist her Axis partner, not only with military force and with
armaments, coal and industrial materials, but also with large quantities of
74)
food. Even military and industrial assistance, has, of course, the same ef-
fect on the Germen food situation as an expansion of the German armed forces
or an increase in the number of heavy manual workers for the German war effort
itself.
Nazi efficiency and the ruthless Nasi determination in the preparation
and execution of the war indicate clearly that the Reich will employ every
means to avert, or at least postpone, the serious food difficulties to be an-
75)
ticipated. Under the circumstances, the conquered nations remain the most con-
venient, and possibly the only, source of the needed supplies. This source
has been exploited in 1940-41 and will be exploited increasingly as the var
goes on.
It will be shown that the countries subjugated by Germany- Denmark,
Norway, the Netherlands, Belgium, and France - might be able to solve their
74) For a detailed account see N. William Hazen, Italian Agriculture under
Fascian and War, in Foreign Agriculture, Nov. 1940.
75) Rumania and Hungary belong in the same category.
Regraded Unclassified
132
- 52 M
var-time food problem despite the British blockade, if Germany vere not adjust-
ing their agriculturel economies to her own growing food needs, and mbordinat-
ing their industrial machinery and all their resources to the immediate require-
ments of her war effort,
Actually, however, the food situation at the present time 18 serious in
most countries of continental Europe. This conclusion is inscapable if one
76)
pieces together such information as is available from official American sources,
from statements of various European government spokesman and particularly from
the scant rations known to prevail in most of these countries, Still their
present food shortages are not primarily B. result of reduced crops in 1940 or
the British blockade, as the following discussion will prove.
1. Apparent Food Import Requirements of the Conquered Nations.
The national economies and the farm systems in most of the German-domin-
ated countries had been developed on the basis of close international coopera-
tion and interchange.
Denmark and the Netherlands, in particular, had built up intensive live-
stock industries, which allowed huge export surpluses only by means of large in-
ports of feedgrain and concentrates. The high pre-war ratio of imports of
grains to domestic production of such fara products was the expression of this
structural peculiarity.
76) Of. for instance, Review of the Food and Feed Situation in Continental Europe,
1940-41, in U. S, Department of Agriculture, Foreign Crops and Markets, October 7.
1940, also Foreign Crops and Markets, Jan. 6, 1941, and January 13, 1941. The
discussion in this section will be limited to the German-dominated countries,
Denmark, Norway, the Netherlands, Belgium and France, since their food situation
is closely connected with the food situation and the general war effort of Ger-
many. Austria, Czechoslovakia, and Poland are fully integrated with the German
economy; the food shortages in Poland are largely a direct result of German re-
quisitions of staple foods. Spain's food problem is to a large extent an out-
growth of the civil war, Sweden, Portugal end Switzerland are believed to possess
siseable food reserves and the food si tuation in these countries is incomparably
better than in the German-dominated regions.
Regraded Unclassified
2
Apperent Dogroe of Food Self-Sufficioncy in the Conquered Countries, 1935-38
Denmark
Norway
Nothorlands
Bolgium
Frenco
Total of
5
Countrios
Brondgrains: 1)
Domostic supplics 2) ) Thousand
550
70
780
730
7,360
9,490
Not imports
) Motric
330
350
670
1,200
180
2,730
Apparent consumption )
Tons
380
420
1,450
1,930
7,540
12,220
Imports as be of apparent
consumption
37
04
46
62
2.5
22
Foodgrains: 3)
Domostic supplios 2) ) Thousand
1,840
270
420
610
5,400
0,540
Not Imports
) Motric
350
160
1,170
1,200
910
3,370
Apparont consumption
)
Tons
2,190
430
1,590
1,590
6,310
12,410
Imports C.S % of epperont
52
consumption
16
30
74
68
15
31
a
Imports:
Oilsoods
)
90
5
65
60
400
640
Oilcoko
) Thousand
740
40
500
160
GOO
2,040
Phosphrto
) Motric
200
25
410
325
540
1,540
Exports:
)
Tons
Buttor
)
150
0
50
3
4
201
Eggs
)
35
1
75
10
11
160
Hem, bacon and pork
)
185
0
30
3
1
211
1) Ryo end Thont.
2) Domostic production minus amounts noodod for sood and falling to wasto.
3) Barloy, onts, and corn.
4) Oilsoods are in torms of oil oquivalont.
133
Regraded Unclassified
134
Only France, among the conquered nations, had been able to produce nearly
enough breadgrains to meet her apparent peace-time requirements. All the other
countries had imported large quantities, verying from 37 percent of apparent
consumption in the case of Denmark to 84 percent in the case of Norway. The 5
countries combined not more than one-fifth of their total apparent breadgrain
requirements by imports.
(See Table 2). It should be emphasized, however, that these figures do
not express the actual dependence on foreign supplies, since these breadgrain
imports were not used merely for human consumption, In all the countries, ap-
oilseeds and
preciable quantities of rye and wheat,/oilcakes were normally imported, in order
to sustain livestock herds, and to produce the large output of meat, milk and
eggs on which the economies of Denmark and the Netherlands depended in peace-
time. Furthermore, domestic crop yields had been assisted by appreciable in-
ports of fertilizer,
The large net exports of pork products, butter, and 0ggs indicate that
much of the breadgrain and feedstuffs imports were actually converted into animal
product surpluses. Peace-time imports were by no means an outgrowth of domestic
needs; they cannot serve as a yardstick for the real needs of the population of
the conquered countries at the present time.
2. Could the Conquered Nations Feed Themselves without German Interference?
The outbreak of war made it impossible for the surplus-producing countries
to continue their pre-war policy. The British blockade and difficulties of trade
with other European countries would have forced them to rearrange not only their
foreign commercial relations, but also their domestic economy, and their farm
economy and food consumption in particular, even if their neutrality had been
respected by Germany, The utch authorities, for example, figured that impos-
sibility of obtaining feedstuffs from overseas in war-time would force them to
Regraded Unclassified
135
- 04
reduce the hards 77) by about 10 percent, hoge by 65 percent and poultry flocks by
shout 90 percent, and they had storage facilities prepared for the products of
such emergency slaughter.
War conditions would of course have made it impossible to continue the
high peace-time consumption level in all 5 countries. Unlike Germany, none of
them had made organized efforts before the outbreak of war to change food habite
or domestic food production according to war-time needs. Virtually the only
preparation for eventual emergencies consisted in storing varying quantities of
food reserves. But these unavoidable consequences of the war would not neces-
earily endanger domestic food supplies in the German-dominated countries if they
were able to make adjustments in accordance with their own needs.
German political and economic domination and the German occupation, how-
ever, have completely upset the possibility of such orderly readjustment.
Current information on existing supplies in these countries is scant and
often unreliable. But the purpose of this article is not BO much to give a pre-
cise and detailed account of the present food situation, as to point out its
connection with the German war economy,
To appraise the adequacy of potential war-time food supplies, it is nec-
essary first to estimate war-time requirements. We assume that the 5 countries
had gone through the war as they actually did during the past 20 months, but that
they are free to adjust their economic life without German direction. In other
words, although defeated, they are not pert of the German war-time "New Order"
and are not forced to deprive themselves of urgently needed materials, and to
organize industry and transportation to suit German needs.
In view of the innumerable immediate war-time impediments, it can then
77) Algemeen Handelsblad (Rotterdam), Nov. 18, 1939.
Regraded Unclassified
136
be assumed that industrial activity in all these countries would be reduced be-
low peace-time. As a result, less work would be demanded from the population,
workers would be able to adjust their activities to reduced food consumption.
Under such circumstances - which are not far fetched in a civilized world -
people would get along on less food than in peace-time without endangering health
or staying power, The type of economy which would erist in these countries if
it vere not for t the German interference, would, of course, have no resemblance
to war economy.
In a war economy, the food problem is one of sustaining a high efficiency
of the armed forces and the war industries; in a war-time economy which is not
concerned with the maintenance of a war effort, however, it is merely a problem
of averting malnutrition. The special food allotments to heavy manual workers
in Germany are designed to sustain the efficiency of workers in war industries.
If the conquered countries could provide their population with such quantities
of food as the average adult is receiving in Germany, their war-time food prob-
lem would be solved. For, as was shown, the German rations are above the danger
sone for moderate work.
Their "war-time food balance" may conveniently be condensed, as in Table
3, into a discussion of requirements and supplies.
Contrary to & widespread impression, even such important basic foods as
breadgrains, potatoes and sugar could be adequately supplied. A simple compu-
tation, the results of which are given in Table 3, will bear out this statement.
To arrive at an approximation of the present food requirements, we allot
the German rations for "normal adults" to each inhabitant of the 5 countries.
The inclusion of children, who receive smaller rations in Germany, would make
it possible to grant bigger rations to heavy manual workers or to offset
Regraded Unclassified
TABLE 3
Wer-timo Roquiromonts and Domostic Supplios of Conrse Foods
in tho Conquored Nations
Donmark
Norway
Nothorlends
30lgium
Franco
Total of
5
Countrics
Population
Millions
3.6
2.9
8.7
8.4
42.0
65.6
Broodgreins:
Gormen ration for adult : )
Kilograms
125
125
125
125
125
125
normal consumors
)
por cnnun
Corrosponding roquirements)
0.5
0.4
1.1
1.0
5.2
6.2
Avorago poace-tino production
)
Million
ninus sood and waste
)
Tons
0.6
0.1
0.6
0.5
7.5
9.8
Apparent surplus (+) or
)
deficit (-)
)
+0.1
-0.3
-0.3
-0.2
-2.3
+1.6
55
a
Potntoos:
Pocco-tino consumption of
3
Kilogrons
165
165
165
165
165
165
Gormen adults
por cruws
Corresponding roquiroments
)
0.6
0.5
1.4
1.4
6.9
10.6
Avorage poaco-tino production
)
Million
minus sood and wasto
)
Tons
1.2
0.5
2.5
3.0
15.0
22.5
Apparent surplus (+)
)
+0.6
+0.3
+1.1
+1.6
+6.1
+11.7
Sugar:
Gornan ration for adult
)
Kilogrons
13
13
13
13
13
13
normal consumors
)
por annun
Corrosponding roquirements
)
0.050
0.040
0.110
0.105
0.500
.005
Average porco-tino production
)
Million
0.210
o
0.210
0.200
0.650
1.470
Apparent surplus (+) or
)
Tons
deficit (-)
)
+0.160
-0.040
+0.100
+0.095
+0.350
+0.665
137
Regraded Unclassi
138
periodical shortages is other less Roods, by more generous rations of
the basic foods to the total adult population.
La a first but realistic approach, we contrast pre-war (1935-88) domestic
'production available for consumption with present requirements. Dath rye and
wheat would be used only for human consumption. - an assimption which is borns
out by the fact that all these countries have prohibited the fording of bread-
78)
grains. Then average pre-var production would have not present requirements
fully for Denmark, and more than adequately for France, where a surplus of more
than 2 million tons (or over 40 percent of production) would remain, The Nether-
lands and Norway would face a deficit of 300,000 tons each and Belgium of 200,000
tons, but the 800,000 ton deficit of these three countries could easily be net
by the Danish and French surplus of 2.4 million tons.
Even the allotment of the high German peace-time potato ration would re-
quire not more than half the production of these countries; each country would
have appreciable quantities available for their livestock.
The sugar problem could also be met without any difficulty. Denmark pro-
duced four times the amount it now needs, and would be able to supply Norway,
and still keep & surplus of 100,000 tone. The Netherlands and Belgium would
need only half as much as they produced, and France too would have enough and
to spare. In all countries, except Norway, large quantities of sugarbeets could
be fed to livestock.
This computation may raise the objection that pre-war production 10 hardly
& measuring rod for war-time conditions, the more BO since vo have shown that
Germany's domestic production must decrease in 8 protracted var. However, farming
78) This may necessitate increased admixture of rye. Belgium, for instance, used
no rye before the war, but decreed recently that the bread must contain 30 per-
cent of rye.
139
89
conditions in these countries cannot be likened to those in Germany. Whereas
Germany largely exhausted the potentialities of production expansion between
1933 and 1939, they did not apply my emergency farm neasures before the var.
Fertiliser shortage may decrease average yields for more orops, but acreage in
breadgrains, potatoes, sugarbeets and vegetables can be expended DO that total
output will be greatly increased. This is particularly true for the Netherlands
and Denmerk, which can reduce their acreage in roughage crops in favor of bread-
grains. They did exactly that during the first world war,
Pre-war livestock numbers, as vas indicated previously, have to be re-
duced in accordance with domestically available feed supplies. Since the re-
quirements for meat and fat will be only about half of pre-war, such adjustment
would still leave enough supplies to honor the rations. Denmark and the Nether-
lands might still be able to furnish mall surpluses to Norway or Belgium, The
reduced Belgian and French requirements could be filled by butter and lard.
Aventual seasonal shortages could be kept within the margin of safety.
In all countries there still exist possibilities of saving breadgrains and
other foods by such typical emergency measures as were introduced in Germany long
before the war, Breadgrain supplies, for instance, may be stretched 20 percent
by increasing the milling ratio and by admixing potatoes, supplies of which are
ample.
It is fairly certain that domestic farm production of these countries in
var time could furnish somewhat better han minimum food requirements for moder-
ate work.
Not all these changes, it is true, could have been undertaken prior to
the 1941 harvests. But it can be shown that, without German interference, the
conquered nations could have managed to get along with diminished but still safe
140
58 -
rations with their 1940 crops and anfmal products, since they all had stored
large emergency reserves before the outbreak of var.
It 16 known that Norway possessed, at the time of the Gorman invasion,
more than B. year's stocks of the foods and other necessities that would be cut
79)
80)
off in war-time, The official German Institute for Business Research stated as
late as December, 1940, that Denmark and the Netherlands had large quantities of
grains and feedstuffe in storage, According to Count Grote, chief of the agri-
cultural and food section of the Reich Commissioner for the Eetherlands, "Dutch
bread supplies are guaranteed until the 1941 harvest, since large reserves can
81)
be drawn upon." Belgium had prepared herself adequately to avert the bitter
food shortage of the first world war, France had made it part of her policy for
some years to build up emergency food reserves.
Despite the fact that the grain harvests of 1940 were between 10 and 40
percent below normal, these reserves would undoubtedly have carried all these
countries through the crucial period before the 1941 crops. However, potato
crops were favorable everywhere, so that admixture of potatoes to grain and a
higher milling ratio would have provided breadgrains and potatoes for adequate
rations.
As to meat and fat during the critical period 1940-41: Denmark, for
which reliable data are available in a report of the Danish Agricultural Board,
exemplifies how meat supplies from emergency slaughter would have sustained ade-
quate rations in all the conquered nations. Since the Danish herds had to be
reduced from 3.3 to 2.6 million cattle, and hoge from 4 million to 2 million, at
least 200,000 tons of beef and 100,00 tons of hog products resulted, These
79) Information released by the Norwagian Embassy.
80) Weekly report of Dec. 9, 1940.
81) 1940, Kann man Europa aushungern? Deutsche Lendwirtschaftliche Presse, August 10,
Regraded Unclassified
141
- 00 -
windfall supplies correspond to 2 years' heeds (measured in terms of German The
tions) for Denmark and Norway combined. Idkewise from emergency alsughter, the
Netherlands obtained approximately 100,000 tone of beef and pork, Since current
slaughter meets Dutch needs, this emergency slaughter could have filled Belgium's
requirements for fully 6 months. Similar results could have been expected from
emergency slaughter in France.
The Danish Agricultural Board estimates that the 1940-41 butter produc-
tion from the reduced herds may amount to 110-120,000 tons, as against total
Danish fat needs of 50,000 tons. Holland too is still able to produce somewhat
more than her own requirements. According to Germen statements, "the war TO-
duced Belgian butter production only 10-15 percent as compared to the high level
82)
of 1939."
Temporary disruption of transportation and the massing of refugees in
some centers would have caused local difficulties during the first few months
after the German invasion. But the organizational problems of distribution
would not have been insurmountable. Without German interference, these countries
would have transported food in preference to other materials. It is safe to say
that the food supply itself in all the conquered nations was such that no danger
of malnutrition need have arisen during the critical period of 1940-41.
3. The Conquered Nations in the German War-time "New Order."
thy then do food conditions in the conquered nations present so far dif-
ferent a picture? -
Fazi officials give a complete answer to this question. The chief econ-
onic administrator for occupied France stated plainly the German policy towards
the occupied countries: "I wish to emphasize in unequivocal terms that the
62) Rolkerei Zeitung, August 23, 1940.
Regraded Unclassified
142
- 60 -
interests of the German army and of the Vhr effort are pre-eminent to us; all
88)
our dessures are diotated by this air,"
What are these measures? - They are, of course, not restricted to food,
although the food question is involved, directly or indirectly, in the execution
of virtually all these measures. The economic general staff and its officers,
who accompanied the German army during the invasions, admittedly worked according
to preconceived plans in integrating the economies of the conquered nations into
84)
the German war efforts. This integration veries from country to country.
In Poland, no attempt is even made to claim that the forthright exploite-
tion is in the interest of the Polish population. The only justification is,
according to Dr. Ley, that a "lower race needs less room, less clothing, less
85)
food and less culture."
In Denmark, "one tries to show the population what a tremendous advantage
it is that their southern neighbor is able to take over, without hesitation, the
great quantities of perishable products which form the largest part of Danish
86)
agriculture."
In Norway "Germany successfully endeavored to offset the consequences of
the Norwegian war-time isolation, by taking the place of former customers. Ger-
many contracted not only for goods it took before the war, but also for products
87)
which formerly were not exported to Germany."
83) Minister Dr. Schmidt Chef des Verwaltungsstabes der kilitaarvervaltung in
Frankreich, Deutsche Verwaltung in Frankreich, in Koelnische Zeitung, November 1,
1940.
84) Wehrwirtschaft schon bei den Kaempfenden Truppen, in Voelkischer Beobachter,
Nov. 24, 1940.
85) in Der Angriff, January 13, 1940.
86) Das "eich ist Daenemarks bester Kunde, in Voelkischer Beobachter, Nov. 17,
1940.
87) Dr. Landfried, Norwegens Wirtschaft in neuen Europa, in Voelkischer Beobach-
ter, Nove. 20, 1940.
Regraded Unclassified
143
- 61 - -
The Netherlands seem to have called for even greater attention, according
to Dr. Seyse-Inquart. "Dutch agriculture is already enjoying the security of
wide market in the greater German 'Wirtschaftersum.' Her unemployed are finding
remunerative work 88) in Germany. Moreover, we intend to place German orders with
Dutch industries."
The integration of Belgium and France presents greater difficulties than
that of Luxemburg, where "the whole country was reconstructed according to the
needs of the German war economy within 10 days, from cows' milk to foreign ex-
change, (von der Kuhmilch bis sur Devise) as a high economic officer jokingly
89)
put it."
Thus far, Belgium and France give to the German economic general staff
somewhat more limited tasks, namely, "securing and transporting to Germany such
existing stocks, machinery, etc., as are important to the German economy; and
90)
controlling establishments which can assist the German effort." "Many French
plants can resume the output of essential war instruments or they can produce
91)
parts for German firms."
Of course, these German plans make it absolutely impossible for the con-
quered nations to adapt their economy to their own needs. The food situation,
in particular, is affected.
Food requisitioning for the German armed forces quartered there is the
most obvious drain. It is not the most harmful factor, but in the food deficit
countries, Norway and Belgium, its effect should not be underrated. The army
88) Dr. Seyss-Inquart, Ueber den Auf bau in Holland, Koelnische Zeitung, October
29, 1940.
89) Waffe und Wirtschaft, Koelnische Zeitung, November 1, 1940.
90) Ibid, A detailed account of the "Economic Control of Belgium under the
German occupation" can be found in Foreign Commerce Weekly, January 18, 1940,
91) kinister Dr. Schmidt, 1. C.
Regraded Unclassified
144
- 62 -
of occupation in 92) Norway, for instance, corresponde to at least 10 percent of
the population. In View of the large food rations for moldiers, the total food
consumed by the occupying forces could probably provide a fourth of the entire
Norwegian population with a diet that would avert malmutrition,
Far more damaging is the German endeavor to give the farm surplus coun-
tries, Denmark and the Netherlands, "a secure market for their perishable prod-
ucts in the Greater German Wirtschafteraum." We have seen how the surplus from
emergency slaughter would have solved the meat and fat problem in all conquered
nations during the most critical period.
Yet despite the large temporary surpluses, the Dutch population faced
"temporary difficulties" in obtaining meat, as Nazi officials admit. These of-
ficials attempt to refute the "wild rumors concerning the cause of shortages,
93)
circulated by non-experts" by pointing out that only 15,000 live cattle were
shipped to Germany, forgetting the statement of a week earlier that "the meat
94)
and fat surpluses in their entirety benefited Germany." Much to the Germans'
surprise, "farmers delivered only 1600 cattle instead of the previous 16,000 per
week, because they fear, without any foundation, a devaluation of the guilder or
95)
a confiscation of part ftheir herds.'
Of course, the German policy need not resort to outright confiscation.
Paying in Reich Credit Notes (Reichskreditkassenscheine) is much more "business-
like" and serves the same purpose. It is known, for instance, that the German
clearing debt to Denmark, resulting from imports of foodstuffs, increased 1.5
92) Norwegens Aussenhandel, in Neue Zuercher Zeitung, Nov. 4, 1940,
93) See Deutsche Zeitung in den Niederlanden, Dec, 9, 1940.
94) Wo bleibt das Fleisch, in Deutsche Zeitung in den Fiederlanden, Dec. 7, 1940,
Gernany also obtained, between July and December 1940, the meat from the emer-
gency slaughter of 13 million chickens, corresponding to another 20,000 tons.
95) Deutsche Zeitung in den Niederlanden, Nov. 30, 1940,
Regraded Unclassified
145
- 63 - -
billion kronors between the invasi on and the and of 1940, This movel is equal
to the value of the total annual peace-time exports of Denmark. 96) This the con-
quered nations are exchanging food for Germen clearing balances, instead of
being able to barter foodstuffs for industrial products among themselves.
This form of trade is not restricted to 'surplus' products. From Norway,
under such terms, the Germans bought large quantities of fish, butter and even
97)
potatoes. Despite official denials, the fact remains that an appreciable part
of French livestock from both the occupied and unoccupied sones had to be "sold"
to Germany, together with sizeable quantities of virtually every kind of food,
From Holland, "hundreds of carloads of fresh vegetables have been transported
into the Reich each week. This gives the Dutch vegetable grower a secure market
98)
and financial compensation for his work."
Aside from the immediate shortages in the conquered countries resulting
from such purchase, this form on integration into the New Order has another
serious effect. At the end of 1940 the Nasi economic supervisors had already
found that "the current practice of requisitioning, marketing and price deter-
99)
mination has not increased eagerness of the peasants to deliver their products."
Likewise, it may be hard to convince the Belgian farmer that "the serious butter
shortages in Brussels and other large cities are due solely to illicit Jewish
100)
trading, but that Germany is in no way responsible for such shortages."
Farmers in the occupied countries will have little incentive to adjust
their operations to suit German needs. They know that their remuneration will
96) Daenischer Ausverkauf, in Neus Zuercher Zeitung, Nov. 7, 1940, also Henry
Chalmers, The impact of war upon the trade policy of foreign countries, in Foreign
Commerce Weekly, Febr. 1, 1941.
97) Forwegens Aussenhandel, in Neue Zuercher Zeitung, Nov. 4, 1940.
98) Graf Grote, Kann man Europa aushungern, in Deutsche Landwirtschaftliche
Presse, August 10, 1940.
99) Wo bleist das Fleisch, Deutsche Zeitung in den Widerlanden, Dec. 7, 1940.
100) Deutsche Molkerei Seitung, August 23, 1940,
Regraded Unclassified
146
as
be devalued whenever Germany BOOK fit to increase the purchasing power of the
*occupation will by reducing the exchange rate of the occupied countries' money, 101)
This will jeopardize farm production in = prolenged war despite German efforts
to "de-industrialise" the conquered nations.
So far, we have considered only the direct consequences of the New Order*
on food supplies in the occupied countries, 1,0, the direct drain on their food
supplies b. Germany. The indirect effects are no less serious.
Sven the reduced food supplies cannot be distributed adequately because
of German interference with transportation. In occupied France, Germany confis-
cated at least one third of the rolling stock, a sizeable proportion of the
102)
inland tuge and barges and of motorised transportation facilities. Much of the
food shortage in unoccupied France is due to the deliberate German policy of
cutting off unoccupied France from the occupied food producing areas. Germany
exercises complete control over transportation in all occupied countries, with
the effect that the transport requirements of the armed forces leave little
for the civilian needs of the conquered people. This German policy contributes
as much to the prevailing food shortages in German-dominated countries as lack
of foodstuffs.
Transportation restrictions affect equally seriously the available sup-
plies of coal and industrial raw materials and finished products. They make it
impossible to reorganize industrial life except in those industries which Germany
needs for her own war effort. So far, little is known concerning German plans
for the workers in such industries. But the German authorities will probably
follow their practice in Poland, and give the workers engaged in essential war
industries adequate rations at the cost of the rest of the population.
101) The rate of the Belgian franc, for instance, was reduced another 20 percent
on July 22, 1940 (see Foreign Commerce Weekly, January 18, 1940).
102) Das Transportproblem in der fransoesichen Wirtschaft, Beus Zuercher Zeitung,
Nov. 5, 1940, also Binnenwasser Strassen in Frankreich, ibid,. Nov, 21, 1940.
147
- 66 -
This policy creates another dilemse for the conquered nations, They
vill not be able to give remunerative work do large groups of the population,
who will then lack the means of buying even the reduced quantities of food,
This vill again play into the hands of the Nasi authorities, who make registra-
tion for employment in Germany compulsory for all unemployed workmen, by taking
away their dole cards, This registration has been enforced on a large scale
103)
in Belgium, and in the Netherlands, From the Netherlands, alone, 50,000 workers
104)
had been sent to Germany by the middle of November, 1940,
It is hardly necessary to complete the picture by discussing other rami-
fications of the food problem in the occupied countries as it is affected, di-
rectly or indirectly, by the German efforts at integrating these countries into
the "New Order." As in Austria and Czechoslovakia, whose war industries have
contributed much to the German economy throughout the war, the occupied coun-
tries are in the process of becoming part of the Greater German Wirtschaftsraum.
By the same token, the food problem in these countries is becoming an integral
part of the total German war effort.
103) Foreign Commerce Weekly, Jan. 18, 1940.
104) Veue Zuercher Zeitung, Nov. 19, 1940.
Regraded Unclassified
148
BRITISH EMBASSY,
WASHINGTON.
PERSONAL AND
20th February, 1941
SECRET
Dear Mr. Secretary,
I enclose herein for your
-
personal and secret information a
copy of the latest report received
from London on the military situa-
tion.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Helifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
149
TELEGRAM RECEIVED FROM LONDON
DATED T FEBRUARY 19th, 1941
NAVAL
Benghasi expected to be clear of
mines by s.m. February 18th.
of
Malta raided by enemy aircraft 11
nights in succession no bombs dropped but gine
laying was carried out. On February 17th one
mine was exploded in Valletta harbour.
3.
Convoy of 16 ships totalling 147,000
tons G.R.T. with troops and supplies arrived at
Sues February 16th.
4.
Attack on convoy S.L. 64 off the
Asores. The a ituation now, 7 ships totalling
twenty-one thousand eight hundred and six G.R.T.
believed lost, 8 have arrived in harbour, 4 un-
known but thought that these may yet turn up.
Survivors state that the raider cemouflaged and
reports indicate that she was Hipper class cruiser.
5.
A.M. February 17th coastal aircraft
sighted off Jaederens Point 17 small vessels be
lieved torpedo boats and E-beats apparently
exercising at high speed close in shore. Later
12 similar craft sighted off Haugesund, Fighters
drove our aircraft off. P.M. February 17th one
coastal aircraft sighted convoy of about 9 merchant
vessels off Obrested, attacked lergest unsuccessfully.
Two M.E.'s attacked, pilot wounded and wireless put
out of action.
6.
NAVAL
Two homeward bound British ships to.
Regraded Unclassified
150
14,000, tons one carrying war material are
reported torpedeed in the North Western
approaches. Tuge and destroyers have been sent.
7.
A British tanker (4700 tons) mined
in the Bristol Channel on February 16th has now
sunk.
8.
The Navel oil depot at Invergordon
and the training depot et Skegness were attacked
by enemy aircraft yesterday. One oil cistern
at Invergorden was demolished, there were no
casualties. At Skegness damage was fairly 0%=
tensive and there were a few casualties.
:
MILITARY. ITALIAN SOMALILAND
Jetties at Kismayu are intact and
a number of coast defence guns appear to be 802-
viceable.
10.
ROYAL A IR FORCE
February 17th and February 18th.
No operations of importance; night operations
cancelled.
11.
EAST AFRICA
Operations in support of our troops
were conducted in Keren and Kismayu areas.
One Itelian fighter was destroyed and
another damaged.
12.
During a further attack on Caproni
workshops on the 16th all hangars were hit and
other buildings were demolished.
13.
Brindisi aerodrome was bombed by four
Wellingtons on the night of February 15/16th,
hangare and a seaplane were set on fire. One
aircraft 1a wissing.
14/
Regraded Inclassified
151
14.
GERMAN AIR FORCE. pob. 17th,
Enemy activity slight only 9 sireraft
penetrated a short distance, One bomber was
destroyed by our fighters another probably destroy-
ed and e third damaged.
18.
Eight of Feb.17/18th. Enemy operations
on a moderate scale consisting of two main attacks
the first on South East England including London
the second on East Anglien scrodromes. Much mine-
laying 18 reported. One bomber was shot down by &
night fighter.
16.
LIBYA
On February 14th aircraft attacked our
forces in Benghasi area and before dawn on February
15th heavy bombing of Benghasi took place during
which 93 civilians were killed. Two enemy aircraft
were destroyed and one probably destroyed by ground
defences and one German bomber was shot down by our
fighters.
17.
MALTA
Twelve enemy aircraft were mine-laying
on the night of Feb. 16th/17th.
18.
Aircraft casualties over and from the
British Isles. Germans 2 destroyed, one probable,
one damaged. British, nil.
19.
HOME SECURITY. Wight of Feb. 17th/18th.
In the London area several fires were
started including two in the Docks. All were quickly
under control and little damage of military importance
reported. Casualties were small except in one case
where a bomb struck a railway srch shelter under London
Bridge Station and caused estimated casualties of over
70 killed and 46 seriously injured.
Unclassified
CONFIDENTIAL
152
Persphrace of Code
Received at the Ver Department
at 8:36, February 90, 1941.
London, filed 14:00, February no, 1941.
1. On Velnesday, February 19, and during the proceding day
adverse venther emitions cannot the of all flights of
British planse over the Contract.
2. During the night of February 19-20, 22 Gerena planse
attacked London and the visimity in a 5-hour raid beginning at 7 o'closk.
Cardigan by and the city of Decases, Wales, vore attached w 50 Games
benbers during the - night. During the proceding day small forces of
German planse were plotted over the southeactern coasts, esst Torkshire,
Borfolk and Suffelk, and - the Bootch ports of Arbrestia and Invernoss.
In addition, chipping along the east coset of Britain wes attacked
by Germa planes. The extent of aircraft leases and of military damage
4ame during this by and night has not been determined.
3. British sir activity in the Middle But we as follows:
Italian land foress, motor transport consentrations and 4 - in the
Tepeleni area vare attached by British beabere; air fields, troop -
trations and as Italian - in the Chisinise and Barders regions we
bended; and British benbers attached the harber at Thotos. The British
loot a please as a recult of these activities and Aria plane leases were
fear confirmed, - probable and four damged.
4. Aircraft being employed in the Imp theater w the Bouth
African Air Force with each / are obsolete Eartobesste and Patroy
Battle light bookers.
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
153
5. the Base will protobly be closet for ⑉ vosit - a
result of its having been mined. on February 18 w five Anis please.
6. During the British servit a Bengnat the hurber -
THE x 1 I 3 I I
10 to its full neefullmes.
T. A british W-beat ask - esserbed. Italian - beat in a
attack a a cerry outbound from Italy ml mother U-beat mak ⑉ occurted
Italian vessel and damaged - others bound for Tripoli. off the Twisian
const at Star a 5,000-tem Italian vessel. - - w British planse of the
Flest Air Am.
s. dair three ships from the British ourrey attached mer the
Assues on February 18 are still unnecrunted for as - - has arrived
earoly in Ingland.
I
Distribution:
Secretary of Ver
State Department
Secretary of Treasury
Asst. Secretary of the
Chief of Staff
Ver Plans Division
Office of level Intelligence
Air Cargo
0-5
CONFIDENTIAL
Regraded Unclassified
154
RESTRICTED
G-2/2657-220
H.I.D., W.D.
No. 321
February 20, 1941
12:00 L.
SITUATION REPORT
I. Western Theater of War.
Air: German. Last night activity over Great Britain was
on an increased scale, Widespread attacks on ports included & fairly
heavy raid on London and a very destructive attack on Swansea, South
Vales.
British. On the night of the 19th-20th attacks were
made on Brest and Calais.
II. Greek Theater of Tar.
Ground: Attacks by the Greeks and counterattacks by the
Italians took place in the southwest sector.
Air: No reports of air activity.
III. Moditerranean and African Theaters of War.
Ground: Abyssinia (Ithiopia). In the Gojjam (south of
Lake Tana) Enjabara has been captured by the British. In the south
the town of Mega, about 60 miles northwest of 'loyale, has been cap-
tured by the Eritish.
Italian Somaliland. The British report progress
in their operations on the Juba River line.
Libya. The Eritish are putting more pressure on
the Jarabub and Kufra cases.
Eritrea. No change.
Air: German bombers continued active over Libya and the
Mediterranean.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasional in-
clusion of political information and of opinion it is classified as
Restricted.
RESTRICTED
Regraded Unclassified
155
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
February 20th, 1941.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Halifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
Telegram received from London
156
dated February 19th, 1941.
Naval. Pour or five enemy aircraft dropped
mines and bombs in Sues Canal area early morning of
February 18th. No report of damage but some mines
fell in the canal which will probably be closed one
week.
2. Two mines were exploded on February 18th,
off Saint Elmo light Malta.
3. P.M. on February 18th. stella Rigel,
mine sweeping trawler, shot down enemy aircraft off
Harwich and Saronta a/s trawler off Lowestoft damaged
by two near miss bombs. This aircraft believed hit by
Lowestoft anti-siroraft guns.
4. Eight of February 15th/16th. Pour
Swordfish bagged escorted merchant vessel 30 miles East
of sfax. Ship believed Juventus Italian 4930 Or. T.
5. P.M. February 11th. Truent attacked with
gunfire two escorted ships off Tripoli. She scored
hits then foreed to dive. Later convoy sighted returning
to Tripoli and she torpedoed and sank biggest ship
3500 Gr. T.
6. On February 12th Utmost attacked restbound
escorted convoy of 3 merchant vessels and scored one
hit on ship of 8000 Or. T. Heavy counter-attack made
with bombe depth charges. Four hours leter ship
sighted with after part awash and escort had left her.
7. Reported that at Benghazi extensive
salvage operations required before harbour can be fully
utilized and breach in breakwater lets in the swell
and requires repair.
Regraded Unclassified
157
+
8. One ship of four from convoy aL 64
whose fate was unknown has now arrived in harbour.
9. Royal Air Foree. February 18th/19th.
No operations home front.
10. German Air Force. About 15 enemy
aircraft reported over Great Britain on February 18th.
Ineffective attacks were made on a number of aerodromes
in East Anglia, and elsewhere two aircraft and five
hangers were damaged at Royal Air Force station. The
night of February 18th/19th, no enemy aircraft reported.
Night of February 17th/18th. In addition to
the bomber reported destroyed in yesterday's summary,
three more enemy bombers were shot down by anti-aircraft
and ground defences.
11. Aircraft casualties in operations over
and from British Isles. Germans 4. destroyed.
British nil.
Regraded Unclassified
158
February 21, 1941
9 a.m.
Present: Mr. Graves.
HM,Jr: Listen, young fellow, I am not going to
wait two months to start my drive. I want to start this
thing -- well, I think we ought to get something started
by the first of March. We just can't wait two months.
Mr. Graves: I did not want to give you the im-
pression that we would wait two months to start the drive.
HM, Jr: We have got to start something. We can
not wait. We lose the whole public psychology on the thing.
lie have just got to get started. I don't care whether it's --
begging Miss Chauncey's pardon -- to hell with the post office
with their thing. The fact they are unattractive, hell with
it. You have the public all worked up. I got a good press
this morning. Swell editorial in the Wall Street Journal.
The public is ready for this thing and I am not going to miss
the boat. I am not just going to sit around until somebody
makes up his mind what kind of a symbol on the stamp. We
have the stamps. We could sell them now, because the public
is waiting for them and then later on, when interest begins
to wane, we will come along with some pretty pictures.
I
want to go to town on the first of March, but I want to get
going, Harold.
Mr. Graves: Is there anything wrong with this?
We have in all post offices our present Treasury Savings
Bonds. Why shouldn't we go ahead on that basis and as
soon as our new bonds are out, substitute them?
HM,Jr: What's the matter with the savings stamps?
Bond." "Buy savings stamps and when you get $18.75, buy a Savings
Mr. Graves: Nothing the matter at all. We think
Regraded Unclassified
159
-2-
the preferable psychology would be to wait for the drive
until you have the new form of security.
HM,Jr: I can't wait. I am going to miss the
whole thing.
I sent a memorandum to Bell this morning "where
is that $3,000,000? I am not going to wait for it to go
through with the regular Deficiency Bill. I want it
picked up separately and I can get it through Congress the
next week. Congress is ready. The people are ready.
I can get my $3,000,000. But to sit here and not do any-
thing until the first of May, I am not going to sit! God!
We can do the regular savings bonds.
Mr. Graves: Yes. We have that, and we can start
our publicity on the present Savings Bonds.
HM,Jr: You don't want to start on regular Post
Office stamps?
Mr. Graves: Well, that too. That's an adjunct
to the present Savings Bond. We could begin on the basis
of what we have on the counter today. I would like to talk
that over with Odegard and Kuhn.
HM,Jr: That's all right.
Mr. Graves: Because all of our thinking has been
it would be best to start the thing with the new package we
are going to have the first of May.
IM,Jr; I won't wait beyond the first of March.
You have your mailing lists?
Mr. Graves: We are using them. We are sending
out 2,000 pieces of literature a day.
HM,Jr: Not enough. Not enough.
Regraded Unclassified
160
-3-
Mr. Graves: That's pretty fast. We are dis-
tributing literature right now through the Post Office
and carriers.
HM,Jr: Well, Harold, get together with the
crowd and instead of thinking in terms of the first of
May, think in terms of the first of March. But mind,
I want something on the first of March. I know if we
get the $3,000,000 out you can get it through Congress.
Mr. Graves: Certainly we can have by the first
of March, regardless of what should happen to that $3,000,000,
we can have a full announcement of this program. We can
have it in all the newspapers and we can, in that, say that
we have these Treasury Savings Bonds on sale now at all post
offices.
HM,Jr: And that it will be followed by others
as fast as we can move them. We can also draw the pub-
lic's attention, which the Post Office has been afraid to,
to these savings stamps and savings certificates.
Mr. Graves: We can announce all of the details
of this plan.
HM,Jr: Harold, the first of March!
Mr. Graves: Yes.
HM,Jr: 0. K?
Mr. Graves: Yes, sir.
HM,Jr: Just step on it. You are sitting around
arguing about unimportant things and with your help I am
going to town the first of March, and no fooling, Harold.
o0o-o0o
Regraded Unclassified
WALL STREET JOURNAL - February 21, 1941.
161
The Test Is Coming
With the President's signature
upon a bill the legal limit of the na-
tional debt has been pushed up from
49 to 65 billions, all future issues of
Treasury obligations have been ren-
dered taxable and the Treasury has
been enabled to give them the char-
acter and denominations it considers
expedient.
In the fiscal year to begin July 1
next, the Treasury will incur a deficit
probably not less than seven billions,
even after new taxes soon to be laid
plus more active business have in-
creased annual Treasury income from
roughly seven billions to nine or. 10.
The deficit-to be borrowed-may
easily go above that minimum esti-
mate, depending on defense program
speed-up and aid to Britain.
The Treasury will offer stamp
books and bonds in small pieces to
enlist for the government the financial
backing of many millions of "little
fellows" and their wives. That is, the
government will ask the country to
buy "guns" instead of "butter." It
will offer as a material inducement-
in addition to the moral obligation on
every citizen to help make his coun-
try secure-its promise to repay him
hereafter for what he presently spends
for "guns," with & modest accretion
of interest.
When the Treasury begins to offer
these "popular" loans, we Americans
will begin to decide just how much
sacrifice of comfort or luxury we are
willing to make for our security as a
nation in A world of frantic wars.
This or that authority may meanwhile
decree priorities in manufacturing but
these orders are likely to prove only
piecemeal expedients. Our coming
bond subscriptions will test our real
willingness to give the government
the right-of-way at mine, mill and
factory.
There will be our opportunity to
do It voluntarily and 80 avoid the ne-
censity of compulsion. The principle
of freedom under law will be at staker
162
is
February 21, 1941
D. W. Bell
Secretary Morgenthau
Isn't it possible to get our $3,000,000
request for money to pay for the advertising of our savings
defense notes before Congress as a special bill? I don't
think we would have any trouble to get it through at once
if we could only get it before them now. Please talk to
no about it today.
Regraded Unclassified
163
February 21, 1941
9:10 a.m.
H.M.Jr:
I hope in the excitement you didn't cut
yourself.
Tom
Corcoran:
(Laughs). I almost did.
H.M.Jr:
I got your message through Ed and I'm up
to my ears; I'm trying to borrow a little
money.
C:
I understand there 18 a March 15th financing.
H.M.Jr:
And if you would tell me how urgent it 1s
C:
Well, I can tell you what it's about.
H.M.Jr:
But I've always got time to see you.
C:
No, I can tell you what it's about. Soong
has asked my brother, who used to live in the
East, and pending the time when my brother
gete back in this country and will look at it,
has asked me to represent him in some things.
I have had talks with him about the fact that
if I were going into the Chinese situation I
would want to go into it through your Universal
Trading Company. He said that this is not a
trading business, this has to do with things
after you get the planes and because I wanted
to be sure that there was no objection by the
Treasury and 80 the Treasury would know what I
was doing, I carefully took it up with Harry
White yesterday and with Ed Foley and last
night with Larry Morris and they all agreed
that if Soong didn't want to use the Universal
Trading Corporation the thing to do was to let
him form another corporation, and that it was
better for me to go in and take it for him than
to have someone else through whom he'd try to
bring all kinds of influence to bear and who
might not play ball.
H.M.Jr:
Well, all those things are true, Tom, but you
don't know what the nature of it 18?
C:
Well, may I talk on this line?
Regraded Unclassified
164
- 2 -
H:M.Jr:
Yes, you can.
C:
What Boong wants me to do is to help him
recruit pilots. What he really wants me to
do is to go over and wrangle for him with the
Army and with the Navy to have them practically
order certain men to enlist in the Chinese
Air Force.
H.M.Jr:
Well, that has nothing to do with the
Universal.
C:
Well, I should assume that.
H.M.Jr:
No. As a matter of fact, they ought not to
get mixed up in that.
C:
Well then it's all right if it 1sn't done
through Universal as far as you're concerned?
H.M.Jr:
Oh, surely.
C:
Now I want you perfectly to understand that I
may go in with Soong.
H.M.Jr:
Go in what?
C:
I may go to work for Soong.
H.M.Jr:
That's all right. I just want to make one
other suggestion for your own sake.
C:
Yes.
H.M.Jr:
I think you ought to talk to Hu Shih about it
and make sure he's satisfied - the ambassador.
0:
Yes. I understand the relationship between
Hu Shih and Soong are bad.
H.M.Jr:
Well, I don't know but just for your own sake
C:
Yes, I understand that and I know Hu Shih
very well.
H.M.Jr:
Don't you think that is a very good idea?
Regraded Unclassified
165
- 3 -
C:
I think that's a very good idea.
H.M.Jr:
Just BO that he doesn't out the ground out
from under you.
C:
That's right. Now I may only be available
to Soong for about a month if certain plans
that the President has come off.
H.M.Jr:
For the Navy.
C:
Yes, for the Aeronautics job in the Navy.
I think in that event, of course, by that
time my brother will be back and I'd frankly
turn it over to him.
H.M.Jr:
Well, I think as far as I'm concerned your
going to work for Soong is absolutely O.K. and
I just make the suggestion that
......
C:
I clear all the way around.
H.M.Jr:
That you clear with Hu Shih.
C:
All right. I shall do that, Mr. Secretary.
H.M.Jr:
Good luck!
C:
Thank you.
Regraded Unclassified
166
February 21, 1941
10:18 a.m.
H.M.Jr:
Hello.
Operator:
Congressman Doughton.
Robert
Doughton:
Hello, Henry. How're you feeling?
H.M.Jr:
Oh, I'm all right. How are you?
D:
Oh, I don't know; I'm going along some way -
still down here.
H.M.Jr;
And going strong by all accounts.
D:
I have a letter here - I thought I could speak
to you about it over the phone without coming
down and taking up your time - from 0. K.
LaRoque, President of the Federal Farm Loan
Bank, Winston-Salem. They're going to have a
stockholders meeting down there the last of
March and they want you to come down and talk
to them. They think it'll be & wonderful
opportunity for a real national service, with
which statement I fully concur.
H.M.Jr:
Well, that's very nice. Well, he had -
Mr. Reynolds had already sent over
D:
Dick Reynolds. Yeah.
H.M.Jr:
And I told him I just couldn't do it. The
day isn't long enough, Bob.
D:
How's that?
H.M.Jr:
My day isn't long enough.
D:
I was fearful that you wouldn't have much time
for out-of-town speaking unless it was some
social function or something of that kind
which, of course, you can't overlook.
H.M.Jr:
Well, I'd love to do it for you, but you'll
have to excuse me.
167
- 2 -
D:
Well, understand it wouldn't be primarily
for me; it's not in my District. It's Lon
Folger's District, but I'd be mighty glad if
you could because it's an institution you
know that serves the state. I'll have to
tell them - shall I send a letter down or
just tell them what you said.
H.M.Jr:
Just tell them you talked to me and if I'd
do it for anybody, I'd do it for you.
D:
Well, thank you very much. I was fearful you
couldn't go, Henry. How're you getting along?
All right?
H.M.Jr:
I'm getting along all right; I want to see you
soon.
D:
Well, I'll come down any time you say.
H.M.Jr:
Well, I want
.....
D:
I think we'll get up our bill and introduce
it on Monday - - it's been taking a long time
to draft it - about amendments to the excess
profits tax. I hope to bring it up on Monday
- bring it up on the House - and pass it
Tuesday.
H.M.Jr:
Then we want to do something about these state
exempt bonds, you know. I want to talk to you
about that.
D:
Think we'd better get on that before we get on
a general tax bill?
H.M.Jr:
I think 80,
D:
Or would it all come in together?
H.M.Jr:
Well, I'd like to talk to you about it.
D:
Be glad to do it any time that I'm not tied
up here with a bill.
H.M.Jr:
I'll get in touch with you early next week.
D:
Thank you very kindly.
168
February 21, 1941
11:00 a.m.
RE FINANCING
Present:
Mr. Bell
Mr. Hadley
Mr. Haas
Mr. Murphy
Dr. Goldenweiser
Mr. Eccles
Mr. Ransom
Mr. Piser
Mr. Szymczak
H.M.Jr:
This isn't the easiest one in the world to price,
but I would rather price it on the market than
have it be on the bottom.
Eccles:
Well, there isn't any question, as I said the
other day, that it is much easier to price it
with the adjustment that has been going on than
it would have been if you had been - if it had
been up at the top of the market. It does look
like it has made a bottom.
H.M.Jr:
It looks that way. Well, I called you gentlemen
up last night to tell you the way the thing
looked; and, as far as I am concerned, the people
that I have seen this morning, they are still
talking the same way, and two and three quarters
is what they would like, and they all agree.
They don't all agree that a bond, 8. short bond--
Regraded Unclassified
169
- 2 -
Eccles:
Has the option.
H.M.Jr:
Yes.
Eccles:
Two issues?
H.M.Jr:
Two issues. I haven't talked to New York. I
haven't talked to Rouse.
Eccles:
I have talked to him.
H.M.Jr:
Well, I haven't.
Ransom:
It is obviously more difficult to price two
issues at this time than one, however.
H.M.Jr:
I don't see why.
Eccles:
Well, we discussed this this morning. We haven't
had & lot of time, of course, aft I talked to
you last night. I asked the comm ttee to meet
this morning at 10, and we had this memorandum
prepared here on - maybe you would be interested
in reading it.
H.M.Jr:
Yes. I will read it out loud.
"Strictly confidential," from Piser.
Ecoles:
Last evening we discussed in a general way this
picture and asked Piser to put it down, the
general points of view.
Szymozak:
It is just on the basis of rates.
Eccles:
Pretty largely.
H.M.Jr:
Oh, shall I read it?
Eccles:
Possibly we could discuss the various aspects.
Well, we are still somewhat of the same opinion
170
- 3 -
that we had the other day, that one issue,
two and a quarter .... In talking to Rouse,
he felt the same way about it. He was of the
opinion that most of the securities or at least -
were held by the banks, especially the notes and
a good many bonds, that the insurance companies
didn't hold many of them, that the insurance
companies are the ones that wanted the two and
three quarters percent bonds, that the banks
were not the ones that were particularly strong
for that bond, that if a two and three quarters
was put out as well as the two percent bond,
there would be a good deal of milling around
in the market, a good deal of shifting, that
the job of pricing the long bond would be much
more difficult than the job of pricing the shorter
bond, that there would be the - not only the
difficultyof pricing the long bond but the rela-
tive pricing, that is, the relationship between
thepricing of the shorter bond and the longer
bond. The two and three quarters, of course,
seems to me somewhat of a drive to get the high-
est rate that they can - that can be gotten at
this time. I would personally, the way I feel
today about it, like to see the rate kept lower
than the two and three quarters. I think the
putting out of a two and three quarters percent
bond may have to be done at some time, but cer-
tainly doesn't - I doubt if at the present time
that is going to be necessary. I think the
insurance companies are the ones that are mak-
ing the drive to try to get the two and three
quarters rate established for long bonds.
H.M.Jr:
Well, all this talk about getting away from the
banks, don't we want to get the money from the
insurance companies?
Eccles:
Well, that may be. The banks, however, own -
if it was new money, I would think quite differently
Regraded Unclassified
171
- 4 -
than on the refunding operation. I would like to
see the one issue in the refunding put out at
this time, and then when it comes to getting new
money, it would be easier to price the issue.
You would be able to establish what the relation-
ship was likely to be between the taxable and
the non-taxable, and I am - it would be my
personal view that you are going to be able to
get two and a half percent money. Maybe not
quite so long, but I think that you can get two
and & half percent money from the insurance
companies and from the Mutual Savings Bank,
particularly where they don't pay taxes. The
two and a half is going to look all right to
them. If that is true, you won't likely have
to price your savings securities on quite as
high & basis as you might otherwise have to.
I don't mean that - as I said, we haven't had a
lot of time to think about it, and after we dis-
cuss it more and we get some different pointsof
view, we might change, but this morning that is
the - as I interpret the discussion, it is the
general feeling of the committee.
Piser:
In regard to issues also, the market may put a
very different value on one issue than the
other; and, if that is the long-term bond, you
would find practically all of the exchanges
going into that issue which might prove more
than the long-term market could stand at this
time.
Bell:
There is an awful lot of insurance money hanging
around to grab up the long term bond, they told
us.
Eccles:
I think you are right. I think if you put out
the long bond, the insurance companies would
grab it in a hurry.
Regraded Unclassified
172
- 5 -
Bell:
It hasn't been only the insurance companies that
have recommended this long bond,
Eccles:
Mutual Savings would take it.
Bell:
I don't think we have had anybody in here except
one man that has recommended an intermediate
bond and an intermediate only. We had one man
from a bank who recommended a long bond as one
issue.
Eccles:
Savings or commercial?
Bell:
Trust.
Eccles:
Yes. You see, that is savings funds.
Bell:
But he is a dealer in general bonds.
Eccles:
Your commercial banks wouldn't take it.
H.M.Jr:
I thought that was what all you Federal Reserve
fellows wanted.
Szymczak:
But that was on the basis of new money, Mr.
Secretary. You have gotten some bills out and
you have gotten some notes out. Now it would
seem logical to get out an intermediate bond and
then go out into a long bond, especially when you
are going in for new money.
H.M.Jr:
Not a single person has come in here and sug-
gested two and a quarter. But not one.
Bell:
We had one man that recommended two, that is on
the single issue. He was a dealer.
Eccles:
I am thinking of it from the Government's stand-
point and not the bankers.
Szymczak:
Sixty-two, that would be below sixty-sixty five
Regraded Unclassified
173
- 6 -
for a two and three quarter bond, and I take
it the thinking has been to go into 30 years
on two and three quarters.
H.M.Jr:
If you wanted to do it as economically as pos-
sible, I would rather do a two.
Szymczak:
Two about that--
Eccles:
I wouldn't object to a two. The only reason for
the two--
H.M.Jr:
I don't see the sense of two and a quarter if it
is a question of economy.
Eccles:
The only argument for the two and a quarter, I
wouldn't feel very strongly between the two and
a two and & quarter, personally, but there would
be some insurance demand for it because it
yields, in the case of those concerns not paying
taxes, the same as the - well, let's see. In
the case of the two and & quarter where a con-
cern is paying taxes, it yields the same as a
two and three quarters.
Szymczak:
And that single bond was proposed on the basis
that it would appeal to both insurance companies
and banks. However, you can reverse that and
say it is just in between where it won't appeal
to either. I mean, you just reverse the same
thing.
Eccles:
If the insurance companies buy two and three
quarters percent bonds today, they will yield
two and a quarter. The premium will figure two
and a quarter on the two and three quarters
percent bond today, so that a two and 8. quarter
percent taxable bond would give them the same
return that the two and three quarters percent
bond would if they buy it on the market today
with the present premium.
Regraded Unclassified
174
- 7 -
Murphy:
And if they get the two and a quarter percent
bond at par in the secondary distribution, but
they? they don't unless the issue is B. failure, do
Ecoles:
Well, I - - if they paid some premium, it would
vary to that extent, whatever the premium is.
H.M.Jr:
Have you got any ideas, Goldenweiser?
Goldenweiser: Well, I have B. - yes, I have. They are not
awfully firm but I don't feel inclined toward
& two and three quarter bond this early in the
game. You haven't issued a two and three
quarters for three years, and I think that it is
a little early to start the two and three quarter
financing. I think you can still do it easier.
I think this situation is one where you might
better try out one that is two or two and a
quarter and not go up as high as two and three
quarters, and see how the market does price it
in the course of a few weeks before you start
on a higher basis if you have to.
Szymczak:
As a matter of fact, we seem to feel just a
little more cautious here on this thing and
that is the reason we suggested the one bond.
On the other hand, we may be entirely wrong in
making the suggestion.
H.M.Jr:
Well, I gather from what you said, you people
haven't had time enought to think about it.
Eccles:
Well, we had the discussion this morning. We
haven't had the time that you have. I mean,
you people--
H.M.Jr:
I have done nothing else.
Eccles:
That is right, you spent all day yesterday, and
175
- 8 -
you talked with & lot of people, and you got the
point of view of - I can see why the market, the
banker, would have just that point of view, but
in the past a good many times we haven't fol-
lowed it. I don't feel that they are always
right at all. I think that they are looking at
it purely from their own selfish point of view,
naturally, and that is what you would expect.
Bell:
They are our customers.
Szymczak:
Yes.
Eccles:
But you haven't always--
Bell:
We always satisfy our customers.
Eccles:
No you don't. I think they think this, that
here the Treasury is in a difficult spot here
at this time, and I don't think there is any
such a situation at all. I think that the only
problem is purely a technical problem of pricing,
and I just don't personally like the attitude
that some of the people have taken, the bankers,
in trying to capitalize on the situation and
give an impression that the Treasury financing
is going to be a difficult job, because I don't
agree with them at all on it, and--
Szymozak:
You have a lot of that two and three quarter bond
taken by banks because they are the people that
have the money on this refunding. Most of the
holdings are in the banks. The insurance com-
panies would take a small portion, and you would
have a secondary market on your two and three
quarter bond.
H.M.Jr:
Well, as far as letting the bankers dictate,
they have never done it since I have been here,
so I am not going to start at this time, but it
is only sensible to listen to them.
Regraded Unclassified
176
- 9 -
Eccles:
Of course.
H.M.Jr:
And after all, we are getting our new money
temporarily through bills and it doesn't please
them, but thiswhole drive for higher interest
rates is one that the bankers want, and it is
the one that I am trying to forestall.
Eccles:
Well, you are getting 8. two and a half percent
bond, and I don't say that a two and three
quarters percent bond isn't a long - a long
bond isn't all right if you are going into long
bonds 8. little later on after this bond - after
you find out what the relative relationship is
going to be between the taxable and the non-
taxable security. And I would think that it may
be desirable to put out a long bond, wherever
you could properly price it, that would tap the
insurance companies, and if you had to go to
two and three quarters in order to do it, I would
say that we possibly shouldn't do that.
H.M.Jr:
Let's let the thing cook over the weekend and
see where we are at and just as soon as this is
over, which will be Monday night, if you people -
I would like to get your suggestions on .these.
Szymezak:
Same people?
H.M.Jr:
Yes. I would like to wait until this is out of
the way. I don't want to start two discussions
at the same time.
Szymczak:
Mr. Secretary, you are going to call them Monday
morning. Is there anything particular you are
going to ask them about?
H.M.Jr:
Yes. I am going to ask them from their contacts
with the banks in their district what they think
would go the best.
177
- 10 -
Eccles:
Wouldn't it be well then in your wires to
indicate the questions that you will ask?
H.M.Jr:
Yes. I just want to ask them in their communi-
ties what securities do they thing the Govern-
ment could offer.
Szymczak:
Would you say as between these two bonds?
H.M.Jr:
I wouldn't like to put any suggestion in there.
I would just say, "What securities does your
community think - If
Szymczak:
And at what rate?
H.M.Jr:
"And at what rate?"
Eccles:
You said day before yesterday to wire them and
say you were going to call them, but you didn't
indicate. We assumed it was with reference to
the financing, but I wondered if we shouldn't be
more specific and say, "It is with reference
to the financing. The Secretary would like to
know, in your opinion, what would go the best
in the market at this time," 80 they can be pre-
pared to answer.
H.M.Jr:
If you would do that.
Eccles:
Well, we will include that in the wire.
Ransom:
Mr. Secretary, may I ask you this: when we
were over here last, your group and ours seemed
to have a meeting of minds as to what was indi-
cated. I take it from what has been said this
morning that the faith of your own boys in that
particular plan has been somewhat shaken by your
subsequent conversations with the market.
Is that the case?
H.M.Jr:
They can talk for themselves. Bell, you talk.
178
- 11 -
Bell:
Well, I have some feeling about this single
issue. It has worried me right along as to
whether we should attempt here to put this bil-
lion and a quarter in one issue. We have never
done it before and the market was good. We
have always split 8. billion dollar issue one
way or the other, and that has worried me since
last week when it was suggested here.
Szymczak:
Because it is a billion, more than a billion,
or is it because there are two kinds of securi-
ties?
Bell:
Because it is more than a billion.
Szymczak:
Not because of the fact that you have got notes
and bonds?
Bell:
We never have in the past, as I remember, put
over a billion dollars into a single issue,
just because we said that you are getting into
one spot where the market might not like it,
and there would be all of that churning and
80 forth around here, that you would throw all
the rest of the market out of line. I am not
satisfied that we ought to do that.
Eccles:
Isn't it one thing where you have got a total of
45 or six or seven billion, 45 billion outstand-
ing, and where you are going out to 65 billion,
it seems to me that you have got to increase the
size of your issues in relation, possibly to
your total size of the--
Bell:
Should we do that in a market that isn't very
good? It may be all right a little later, if
the market settles down pretty steady, but it
hasn't been steady.
Eccles:
Isn't this true? You have usually gotten some
new money along with your refunding. You haven't
179
- 12 -
had occasion to do any very large amount of
refunding and not new money. Always you have
refunding. been in for new money when you have got your
Bell:
Not always. We have had some pretty large re-
fundings alone. I don't know how George and
Murphy feel about it. They are the ones that
recommended the last time the one issue. I
don't know whether they have changed or not in
view of their conference.
H.M.Jr:
George?
Haas:
I look at it this way. We are doing - it is a
refunding job, and I have my eye - my thoughts
are on the market after this job is done, because.
you have got - you are not going into the market
and leaving it stand for a long time, and al-
though I am not very firm in my thoughts this
morning, my thoughts are running toward one issue
of about a two as being a safe proposition and
the other - I am & little afraid of the long,
that you are going to have a lot of churning in
the market just because you are putting out new
types of bonds, all taxable, and the market has
got to absorb that sort of thing in addition.
I am afraid if you get a long one and an inter-
mediate one, you will add churning to it, par-
ticularly because to reach the insurance com-
panies to any degree you have to go through the
right market, through the banks.
Eccles:
The insurance companies hold so few today, you
mean?
Haas:
That is right, and I think some people are over-
estimating the cash available to insurance
companies and in Mutual Savings Banks, available
for investment.
180
- 13 -
Bell:
I don't know about that. We have had three
insurance companies in here and two of them had
just a little under a hundred million and the
other one said, "Well, I could dig up 300 mil-
lion in cash." He has got cash and short term
securities.
Eccles:
I think they hold over a billion dollars.
Goldenweiser: Half 8. billion in those three.
Haas:
A billion dollars in the whole outfit, I think,
but you can't figure they would clean that all
out, you see; and another thing I think about
the insurance companies, if the market isn't
nursed right, the insurance companies - you
see, the banks will buy these two and three
quarters with the idea of getting them over on
secondary distribution and the market isn't
acting right and the insurance companies will
still hold back and say, "Wait until we get
something even better than that."
H.M.Jr:
But they are not talking that way this time.
Haas:
No, you have got the market churning, Mr. Secre-
tary. That makes a lot of difference.
H.M.Jr:
I think last week the Treasury was really in a
spot on this thing, but I think this week is
much encouraging.
Ransom:
I think, as the Secretary says, he has never
allowed the market to dictate to him. In this
particular instance, I think you are in 8. much
stronger position than perhaps the market thinks
you are, 80 that there would be even more reason
for guiding the market by the security you were
issuing than to let the market dictate the terms,
which I think they would be vcry glad to do if
181
- 14 -
they could. I think George has expressed my
views almost exactly as to the present situa-
tion. They are certainly subject to change,
Mr. plexing. Secretary, and the thing is a little per-
Szymozak:
I am afraid we are making this too strong this
morning, but that is the way we still feel.
H.M.Jr:
All right.
Ransom:
We are still open to argument.
H.M.Jr:
All right.
Eccles:
How do you feel about it?
Murphy:
I concur very much in what Mr. Haas said. I
would prefer a single, two.
Eccles:
Do you feel the same way, Mr. Hadley?
Hadley:
No, I don't.
Eccles:
I wanted the other side.
Hadley:
My opinion is that if you put out a two percent
issue, you are not going to help yourself to
gauge a longer term issue later. I think it
would be better to put the two out now and give
them both an even start. If you put out a two
percent, eight year, something like that at this
time, it is going to gauge that section of the
market, but you have a different type of market
out at the other end, and I would rather do the
two together.
Bell:
Of course, if we put out a short one that way,
they are all going to lodge in the banks. You
don't know what insurance companies will do or
the real investors.
Regraded Unclassified
182
- 15 -
Murphy:
Of course they are there already. This isn't
a question of promoting a further increase in
bank deposits.
Szymczak:
That is right.
Murphy:
The banks have them.
Szymczak:
It is entirely different when you go into new
money.
Murphy:
I don't think we have ever taken the position
that we want to disgorge the present bank hold-
ings of Government securities, and that is what
it would amount to. If we are attempting to get
the banks to redistribute a portion of their
present holdings to insurance companies, and
we know that the insurance companies are skittish,
they will buy them on & rising market, but if
the market stops going down, they will wait and
they won't support you.
Bell:
The insurance companies have some of these three
and three eighths. The three insurance companies
that we talked to had about 50 million dollars
of the bonds.
Eccles:
We have got about 75 million of the two and the
insurance companies, I think, a year ago, you
said, Piser, when I asked you this morning,
that the last figures that you had on it, that
the insurance companies had about - you thought
about 75 million.
Bell:
Of what, the bonds?
Piser:
Of the two together, just as an estimate.
Bell:
Well, we know three insurance companies that have
50 million in bonds and they are not the big
ones.
183
- 16 -
Ransom:
Mr. Secretary, after you have talked to the
presidents of the Federal Reserve banks, would
you have someone tell us in a general way what
their thoughts are?
H.M.Jr:
Yes, Mr. Bell can do that.
Ranson:
I think that would be interesting to us.
H.M.Jr:
Sure, we can do that.
Eccles:
I am going to talk to Rouse. I told him to
talk to Allen about this and to consider it
from every aspect, and that I would talk to
him again this afternoon. They felt the other
day a good deal like we do. Now, I would like
to see whether they have had some reason to
change after they have discussed the matter and
considered it and, if so, what the reason may
be.
H.M.Jr:
O.K.
184
February 21, 1941
11:40 a.m.
RE FINANCING
Present:
Mr. Bell
Mr. Hadley
Mr. Haas
Mr. Murphy
H.M.Jr:
Hadley, you are on which front?
Hadley:
I want the two issues, a bank issue and a
long issue.
H.M.Jr:
You see, these babies are always willing to have
me take the risk and they know if it goes wrong,
it is me, and here I didn't know that the great
Morgan Stanley firm had two issues go sour.
Chesapeake and Ohio Railroad, certainly - it
is & Triple A bond, isn't it? It went sour
on them. And then they have the Monongahela.
That went sour. And here is Republic Steel
went sour, and all of these sour issues are
around, and these fellows are perfectly
willing for me to take the risk.
Bell:
Republic isn't out, is it?
Hadley:
Well, they held it up.
H.M.Jr:
But it just burned me up to hear Eccles
talking about not listening to the bankers.
Bell:
That was 8. little unnecessary.
Regraded Unclassified
185
- 2 -
H.M.Jr:
I was awfully good this morning. I could
say, "well, what about reading Aldrich's
speech and then yours?"
Bell:
And then the statement.
Haas:
And the year-end statement.
H.M.Jr:
I was awfully good this morning. He put
me in a bad humor.
Bell:
He can't help saying something that comes
right back to that year-end statement. He
almost got back on it this morning.
Haas:
He was justifying the market. It makes it
much easier now because it has gone down.
Bell:
Well, this is a hard one to price.
H.M.Jr:
We haven't priced it yet.
Bell:
It is & hard one.
(Telephone conversation with Mr. Devine
follows.)
Deerede
186
February 21, 1941
11:43 a.m.
H.M.Jr:
Hello.
Operator:
C. J. Devine.
Mr. Devine: Hello, Mr. Secretary,
H.M.Jr:
How are you?
D:
Fine, thank you. How are you today?
H.M.Jr:
Oh, wonderful. Well, after you get back in
that rarified Wall Street atmosphere - how
does it look to you today?
D:
Well, I don't have any doubt in my mind that
you can't sell a long bond. I absolutely
think you can sell a long bond but there is
no two ways about it, it is going to cause -
of course, you've got to try it sometime
there's no doubt about it - but it 1s going
to cause some switching.
H.M.Jr:
Well, 80 what, as they say.
D:
Well, 80 what? It will mean this, and it
isn't that I don't want to see you try it,
I do. I think the issue will go and go out
the window and I'd have no worry about it at
all.
H.M.Jr:
Yeah, but if you were writing the ticket,
what would you write? Never mind about me.
D:
I'd sell my 2, a '48-50.
H.M.Jr:
Do you think it'll go?
D:
Oh, sure, it'll go! My goodness yes! No
doubt about it any more than I have any doubt
about your '65 combination with it but yet you
see that if you sell '65 or '62-67, a long bond,
there are going to be insurance companies and
there are going to be savings banks who are
going to sell your outstanding '60-65 to buy
this new bond because exemption means nothing
to them. Now, if they can get 107 or 1071
for an outstanding non-taxable bond, which
187
- 2 -
means nothing to them, and can buy your new
bond at 101, 1011 or 102, they're going to do
it, particularly the savings banks, because
they pick up 5 points in price and they get
of course, that is going to have to happen
a better return. The exemption means nothing.
some day; it's gotto happen some day because
there 18 always going to be a spread but how
much I don't know.
H.M.Jr:
Well, Devine, how much do you - how much value
18 there in having two pieces of paper inetead
of one?
D:
Well, I'll say this, if you sell a longer bond
that bond will go to insurance companies, there's
no doubt about it. You take your '60-65 today,
I know that if we were to check up to find out
where those '60-65'e lie, I would eay offhand
that 60 to 70% of those '60-65'e are in the
hands of insurance companies.
H.M.Jr:
Well, there isn't much argument about that.
D:
Which is good, I think.
H.M.Jr:
Yeah, Well, in other words, you're right where
you were yesterday.
D:
No different.
H.M.Jr:
That's all right.
D:
But you understand I'm not saying that a 60-65
won't go because I'd like to buy the issue.
H.M.Jr:
Yeah. Well, I'll be talking to you again
Monday.
D:
All right, sir. If I get any different ideae
or anything happens, would you want me to call
you? Or call Danny?
H.M.Jr:
Well, Monday call me.
D:
Well, you'll probably be busy so I'll wait until
you're available.
H.M.Jr:
That's right. Thank you.
D:
All right. Good-bye.
Regraded Unclassified
188
- 3 -
H.M.Jr:
Well, at least he sticks by his guns. That
is something, you know.
You know, what they wanted this morning was
somebody to tell them what I say when I
talk to all of these presidents. Well, if
there was anybody on the Federal Reserve
Board that I felt friendly with, I would
ask them to come over and sit at my elbow.
Bell:
They would like to know everything that goes
on in the banks and every conversation that
is carried on by the presidents of the banks.
I understand they get copies of all the
things that come here, fiscal agency.
H.M.Jr:
Well, they have got to keep busy.
(Telephone conversation with Mr. Sproul and
Mr. Rouse follows.)
189
February 21, 1941
11:47 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Sproul.
Allan
Sproul:
Hello, Mr. Secretary.
H.M.Jr:
Good morning. Have you been in touch with
the market today, Allan?
S:
I haven't been myself. Bob Rouse has been
seeing & number of people. I had to be out
this morning.
H.M.Jr:
Where 1e he?
S:
He's right here.
H.M.Jr:
Well, can I talk to him.
S:
I'll get you a transfer to him right away.
(Aside - will you transfer Mr. Morgenthau to
Mr. Rouse right away, please.)
Robert
Rouse:
Hello.
H.M.Jr:
Bob Rouse?
R:
Good morning, sir.
H.M.Jr:
How are you?
R:
First rate.
H.M.Jr:
What's the temperature today in New York?
R:
Well, it's a little chilly.
H.M.Jr:
Well, how about the bond market?
R:
The bond market seeme to be very quiet and
not much going on. It's a shade easier than
it closed last night but there's very little
going on from our reports. I've been spending
most of the morning interviewing a few people
and getting their ideas.
190
- 2 -
H.M.Jr:
Yeah. Well, let me have your ideas.
R:
Well, I'd rather, if you could give me some
time, call you back.
H.M.Jr:
Oh, come on. Come on.
R:
No, let me put it - give you my judgment on
it. I've been listening to about eight or
ten people talking this thing and I heard 80
many darn suggestions that I really am a little
confused at the moment and I was Just sitting
down now to dictate some reports of these
interviews which I was going to send on to
you at lunch time and then I'd just like to
take a little time and do my own thinking and
get these things out of my head.
H.M.Jr:
Well, that's fair. When do you think your
head will be clear?
R:
Well, it'll take about half an hour to dictate
these and about an hour thereafter, about half
past one, I'd figure.
H.M.Jr:
I'm leaving - well, I'll be ready to talk to
you at 2:00; I'll give you an extra half hour.
R:
That's swell.
H.M.Jr:
Will you be at your desk at 2:00?
H:
Yes, sir. Shall I call you?
H.M.Jr:
I'll call you.
R:
All right, fine.
H.M.Jr:
Thank you very much.
R:
Thank you, sir.
191
- 4 -
H.M.Jr:
There is a fellow with a nice personality.
Bell:
I it. take it that he is at least thinking about
H.M.Jr:
There is a man with & pleasant personality
and I think smart.
Bell:
I think he is smart, too, and I think he
is the best bond man they have ever had in
the Fed.
H.M.Jr:
Well, he is the only bond man that really is
& bond man.
Bell:
He is the only fellow they have really had
that has worked on the desk.
H.M.Jr:
Burgess's recommendations to me have not
always been very good. That is in the
room here.
Gentlemen, you are all invited back at 2:00.
192
February 21, 1941
11:57 a.m.
H.M.Jr:
Now wait a minute - say it again.
Colonel
Greenbaum:
"We can always recover lost ground, but never
lost time."
H.M.Jr:
Very good.
G:
There's only one trouble: it comes from a
German general in an "Art of Modern Warfare"
book by the German General Staff - but no
one will know that. (Laughs).
H.M.Jr:
Are you sure?
G:
Yeah, that's where I got it.
H.M.Jr:
Yeah, but I don't think that's 80 good then.
G:
Well, we can paraphrase it, using it differently -
don't use it as a quote. Somebody can work it
up. Freddie can take a crack at it - like
"Lost ground can
193
February 21, 1941
11:59 a.m.
H.M.Jr:
Hello, Mac?
W.H.
McReynolds: How are you?
H.M.Jr:
How's the Chief Pooh-Bah, of Pooh-Bahville?
McR:
(Laughs). Pooh-bahing to beat the band.
H.M.Jr:
What?
McR:
Do you suppose you could chisel five minutes
away? for me sometime today? When are you going
H.M.Jr:
2:30.
McR:
I'll see you next - when are you coming back,
Tuesday?
H.M.Jr:
Monday. What's on your mind?
McR:
Well, I want to talk to you about investigations.
H.M.Jr:
Oh.
McR:
Oh! (Laughs). Then you don't want to see me,
do you?
H.M.Jr:
Well, why not get down a couple of hundred
more dollar-a-year men and put them to work?
McR:
(Laughs). They can't investigate.
H.M.Jr:
What?
McR:
They can't investigate.
H.M.Jr:
Well, how do I know that you won't be investi-
gating Miss LeHand next or General Watson or
Steve Early or somebody like that.
McR:
Well, maybe we ought to.
H.M.Jr:
No, I don't think 80.
McR:
No, I don't think so either.
Regraded Unclassified
194
- 2 -
H.M.Jr:
I don't want to get into that hot water.
McR:
No, I know, but I'd like to talk to you about
it sometime. Bob Jackson threw back everything
that he had.
H.M.Jr:
What?
McR:
Bob Jackson threw back everything he had;
he wouldn't hear to it. As a matter of fact
his boys weren't getting any place.
H.M.Jr:
Well, they must have fifteen or twenty times
the appropriation we have.
McR:
Yeah, I know, but we'll pay for what you do
for us.
H.M.Jr:
Can't bribe me.
McR:
(Laughs). We'll do it under Section 6 of the
Economy Act; we'll let you bill us for all you
spend on us.
H.M.Jr:
Well, no, that 1en't it; I don't want to get
into hot water. What are you - are you talking
to me - I see the chart in the Post this morning.
Are you director of the Emergency
......
McR:
Emergency Management Office.
H.M.Jr:
Yeah. Is that you?
McR:
No, the President of the United States 1s
director of that.
H.M.Jr:
Is he director of that?
McR:
Oh, yeah. I'm merely the liaison officer and
my duties are to assist him in carrying it on.
H.M.J.:
Well, you get me about $1 million more for
Secret Service and I'll talk to you.
McR:
Um-m-m.
H.M.Jr:
I don't see why I should take F.B.I. leavings,
but I'm always glad to see you, Mac. You
know that and I'll talk to you about anything -
195
- 3 -
about my rose garden or anything.
McR:
Yeah, I know.
H.M.Jr:
I tell you: come around Tuesday - - give me &
ring Tuesday morning when my finanoing will be
out of the way and I'll be glad to see you.
McR:
Swell, I'll call you up. But there really is
a problem here because
H.M.Jr:
I've got an idea: Harold Ickes used to have
a wonderful investigation
.......
McR:
Oh, the devil with Harold Ickes! (Laughs).
Well, I tell you. We've got to have somebody
that's got divisions scattered all over the
country.
H.M.Jr:
What's Glavis doing?
McR:
Oh, he doesn't work for them any more?
H.M.Jr:
Maybe you could hire him.
McR:
The hell I could. We've got to have somebody
that has field service scattered over the
country or else we've got to send people all
over the country and of course it's ridioulous
to do that sort of thing.
H.M.Jr:
Well, if you'd send about a hundred of your
dollar-a-year men out in the field, it'd be
wonderful.
McR:
Well, I'm just making rules to keep them from
going out in the field because they send in
expense accounts which I don't like to pay
and these fellows - I can't sit quietly by -
you know these boys over in F.B.I. sent back
1400 cases back to me the other day. They've
had them now for a period of six months
accumulating during that period. They had
completed less than 50, they got about 200
partially completed and sent back the partial
reports, and over 800 of them they hadn't
even touched.
196
4
H.M.Jr:
Well, did you tell that to Mr. Roosevelt?
McR:
No, I haven't told him.
H.M.Jr:
No, of course you don't. Nobody will tell
him that.
McR:
Sure I'll tell him that. I expect to, but
H.M.Jr:
Well, Mac, to be serious a minute: I won't
do it unless the President of the United
States asks me to do it.
McR:
O.K. Well, I didn't want to ask the President
to ask you to do it.
H.M.Jr:
What?
McR:
I didn't want to ask the President to ask
you to do it unless I had first talked to
you about it because after all I consider that
you're - I'd talk to you about anything that
I'd talk to anybody about and I would want
your advice and I wouldn't want you to think
ever that I was going and trying to get the
Boss of both of us to ask you to do something
that you didn't want to do.
H.M.Jr:
That's right. Well, now, look. The President
wouldn't touch this before Tuesday anyway, 80
come in Tuesday and see me.
McR:
I will. I'll give you a call Tuesday morning.
Thank you.
H.M.Jr:
O. K.
197
February 21, 1941
2:00 p.m.
RE FINANCING
Present:
Mr. Haas
Mr. Murphy
Mr. Hadley
Mr. Bell
Mrs. Klotz
H.M.Jr:
Do you want to talk, Dan?
Bell:
On the three million dollar appropriation?
H.M.Jr:
Yes.
Bell:
It probably won't get through before March 15
in the regular, orderly procedure. It will be
in the next deficiency bill, which won't be
reported until week after next. I believe that
you will do better just to let it go, and we
will use our present money by having it reap-
portioned. I will talk with Woodrum on Tuesday
and tell him that is what we want to do, if he
has no objection. To put it out, you have to
have a rule by the committee, and it takes time
to do that, and we have already had Crawford
making a speech on the debt bill in which he
said you were coming up for a lot of money to
advertise these bonds whereas if it is in a
regular deficiency bill they never notice it.
Regraded Unclassified
198
2 -
H.M.Jr:
I accept your recommendation.
Bell:
Lew Douglas called me over this morning and said
that over the night he thought he might be help-
ful, and he would be glad to try it if you wanted
him to, and he would contact all the other mem-
bers to see what their reactions would be. I
told him to wait until we gave him the word.
H.M.Jr:
I don't want anybody as my mouthpiece.
Bell:
He told you what he would do on the long one,
and he said he might get some indication what
they would do. Burgess called and he said he
thought it was important that you or I talk to
the other insurance companies, such as Metro-
politan, Credential, Penn Mutual, and so forth.
H.M.Jr:
Why?
Bell:
Well, to get their attitude.
H.M.Jr:
Well, if you have the time, it is absolutely all
right. That is purely optional.
Bell:
I thought I might call at least the larger ones.
H.M.Jr:
All right.
Bell:
See if they are thinking along the lines--
H.M.Jr:
If you have the time, it would be very nice.
Bell:
Well, I will do some of them any how. I will
do the larger ones.
H.M.Jr:
What else?
Bell:
That is all.
H.M.Jr:
George, will you read this over the weekend and
Regraded Unclassified
199
- 8 -
800 if there is anything in it?
Bell:
The market is a little better.
H.M.Jr:
Is it?
Hadley:
One dealer got an order for 8. millión bonds and
turned the market right around.
H.M.Jr:
Just one million?
Hadley:
Yes.
(Telephone conversation with Mr. Rouse follows:)
200
February 21, 1941
2:05 p.m.
Operator:
Mr. Rouse.
H.M.Jr:
Hello, Rouse.
Robert
Rouse:
Yes, sir.
H.M.Jr:
Have you had time for the old bean to clear?
R:
Yeah, the bean 18 cleared I think. It looks
this way to me - I'll start right from the
beginning and repeat some of the ground we've
been over but it helps my follow through and
I hope it won't bother you.
H.M.Jr:
Go ahead.
R:
First that the deal has to be a successful
one, in view of the failure of the - not the
failure, but the experience with the Defense
Notes. We've got to consider the market and
it has got to be successful. In the background
the people feel that there isn't any hurry
about buying securities at this time in view
of the probably supply and in a sense the
burden is on the Treasury to make it attractive.
The pricing of any issues that are made has
got to be such that there'll be a secondary
market at a premium and to my mind a 2*% bond,
such as we were discussing the other afternoon,
seems to be the best suited for that purpose.
H.M.Jr:
What percent?
R:
The 21% coupons, but after the discussions
I've had here and thinking it over, I think we
were a little too cheerful as far as maturity
was concerned because I think it leaves B.
little doubt in your mind as to the secondary
market, and I think that would have to be
brought back to a 1950-52. However, the
market with only minor exceptions recommend
either a two or three way offer. They all
seem to feel quite strongly it should be 2-way
and I don't know that that should be disregarded.
H.M.Jr:
Yeah.
Regraded Unclassified
201
- 2 -
R:
And a 21% coupon does not fit well with any
other combination - in combination with another
coupon. If you are going to do & 2-way, and
I would recommend against a note, it would
seem to me that the best thing to do would be
a 2% bond of 1948-50, combined with a 2-3/4%
bond in the 1960's. I haven't talked myself
with the insurance companies because I know
you've been seeing them down there and I
think probably in the light of what you've
learned from them you can set the actual dating
better than I.
H.M.Jr:
Yeah.
R:
That's the conclusion that I've come to.
H.M.Jr:
Good. Well, as far as I'm concerned I'll let
it rest now until Monday and I'll pick it up
then again.
R:
I'm going to do one more thing: to try and
get a little check on our judgment. I'm asking
one of the big corporate underwriters to tell
me how he would price the best grade corporate
issue of unusual size in this market for 10
and 20 years, and I think that 18 the point of
view from which we've got to look at this thing
rather than attempt a mechanical formula
having to do with corporate tax equivalents.
H.M.Jr:
o. K.
R:
Thank you, sir.
H.M.Jr:
Thank you very much. Mr. Bell may talk to you
later.
R:
I hope 80. Thank you.
202
- 4 -
H.M.Jr:
Well, let's leave it just like that. All right,
morning. Dan? I will be back Sunday night or Monday
Bell:
O.K.
203
February 21, 1941
Ferdinand Kuhn
Secretary Morgenthau
Please look up the speeches of Woodrow Wilson. He
is supposed to have made one in October, 1916, when
he accepted the gift of a log cabin in Kentucky.
Regraded Unclassified
204
per mem from
mm young 2124
February 21, 1941
Mr. Young
Secretary Morgenthau
Two or three days ago I asked you to have the British
Air Mission - I think it was as far back as Monday that I
asked this of you - to interpret Air Marshall Dowding's
report on the Grumman plane. (at to youngs meno of 2/24)
It seems to me that when I make a simple request on
Monday the Air Mission ought to be able to give me the
answer the same day.
Regraded Unclassified
205
Ree memo from
70lay 3 2/2/
February 21, 1941
Mr. Foley and Mr. Pehle
Secretary Morgenthau
I met Norman Davis out at dinner last night and, to by
surprise, I learned that Cordell Hull has been discussing
with him the question of freezing of foreign funds. At
first Norman Davis took the same attitude that Hull has;
namely, that we should register all foreign companies;
but then when we got along in the discussion he said what
he really believed in was that we should freeze all
countries and then exempt our friends. In other words,
he claimed to agree with the exact position which I have
taken from the beginning.
I don't really know what he thinks but, at any rate,
I said that I would have Foley and Pehle call on him,
and give him the Treasury's position. He said he would
like very much to have that happen.
Regraded Unclassified
206
MEMORANDUM
TO: Secretary Morgenthau
DATE: February 21, 1941
FROM: Messrs. Foley and Pehle
We went over to see Norman Davis at 3 p.m.
today and discussed the freezing question with him for
about & half hour.
He told us of his conferences with Mr. Hull
relative to this matter. As you know, he feels that
freezing should be effected covering the entire remain-
ing areas and then, by a system of general licenses,
lifted in the case of certain countries. We explained
to him the developments which have occurred to date in
the matter and the reluctance of the State Department to
proceed, except in the case of selective freezing, which
he heartily agreed would be unworkable and objectionable.
He said that he had suggested to Mr. Hull that Mr. Acheson
be assigned the task of working the matter out with the
Treasury and he was happy that Mr. Acheson was taking the
matter in hand.
Mr. Davis said that our discussion with him had
clarified the matter for him and that he was going to
take the matter up again with Mr. Hull in the near future.
9117h
got.
Regraded Unclassified
207
February 21, 1941
Rd Foley
Secretary Morgenthau
Next Tuesday, please talk to me about the Bank Holding
Company Bill as I would like to make plans to get started
on it.
Regraded Unclassified
208
February 21, 1941
MEMORANDUM
To:
Secretary Morgenthau
From:
Mr. Delano
Following the receipt of your memorandum of
January 10th with respect to the effect of bank holding
companies upon the number of banking institutions in
the areas where the holding companies operate, we ar-
ranged for & comprehensive statistical analysis of the
situation. The results of that analysis are included
in the attached memorandum.
There is no statistical proof and almost no statis-
tical evidence that bank holding company development has
been a cause of the decline in number of banks and banking
offices since 1933 or that the decline has been any greater
in holding company communities than in others. In this
respect, the statistics support the conclusion we would
have drawn from general knowledge and observation of the
banking field.
209
- 2 -
For illustrative purposes here, we compare Minnesota,
& holding company state, with Illinois, with no holding
companies. Neither state has branches. In Minnesota,
banks declined from 1036 in 1930 to 678 in 1940, or by
one third. In Illinois, banks declined from 1735 in 1930
to 853 in 1940, or by over one half.
The effect of branch banking on number of banks has
been significant in some areas, but if number of banking
offices is considered, it has caused no real reduction in
numbers either, and in some communities the trend has been
in the other direction.
Preston Delano
210
THE EFFECT OF GROUP BANKING UPON THE AVAILABILITY
OF BANK FACILITIES
The evidence does not indicate that group banking per se has
affected the availability of banking facilities. Conclusions reached
with respect to changes occurring in the country as 8 whole are, in the
main, supported by B more detailed analysis of selected geographic
regions.
The fact should be stressed that this survey covers only one
point concerning bank holding companies. It 18 intended to show the BI-
tent to which the amount and distribution of banking facilities 18
affected by group banking. The question as to whether or not group con-
trol of several banks in an area affects the competitive allocation of
bank credit within that area has not been touched.
Data for 1929 and 1940, relating only to non-branch operating
banks, show the following:
1. The number of banking offices (both group and non-group banks)
was reduced during the period but total deposits increased and
the average size of banking offices increased substantially.
2. In general, the increase in total deposits and the increase
in the size of banks were greater in the larger cities.
3. The increase in size was greater in the case of those banks
members of a group than in the independent banks. For both
dates group banks averaged larger than the independent banks.
4. The reduction in the number of offices resulted in a ten
percent increase in the proportion of centers with only one
or two banking offices.
5. The proportion of unit banks in centers with only one office
was greater among the independent banks than among the group
banks both in 1929 and in 1940.
6. The proportion of independent banks in centers with only one
office increased, whereas for group banks the proportion
decreased slightly.
The concentration of group banks in the larger centers does
not indicate that the sequisition of a bank in a small center by a
holding company tends to result in the discontinuance of its operation.
Presumably the bank would be acquired because it is profitable and
strategically located.
Regraded Unclassified
211
- 2 -
Table I
PERCENTAGE DISTRIBUTION OF THE NUMBER OF BANKS
According to Population of Center
Selected regions
Selected regions
Population of center
with group banking
without group banking
1929
1940
1929
1940
Less than 250
17.3
9.1
17.2
12.0
250 to 500
20.0
16.7
19.4
17.2
500 to 1,000
19.4
21.8
19.9
21.1
1,000 to 2,500
17.8
21.2
19.1
21.7
2,500 to 5,000
8.4
10.7
9.0
11.1
5,000 to 10,000
6.0
7.7
4.7
6.4
10,000 to 25,000
3.9
5.2
4.9
5.3
25,000 to 50,000
2.2
2.5
1.8
1.3
50,000 and over
5.0
5.1
4.0
3.9
Total
100.0
100.0
100.0
100.0
Note: Data relate only to banks not operating branches and to
regions where branch banking is nonexistent or of negligible proportions.
1/ Selected regions with group banking include: Minnesota, Wisconsin,
North Dakota, South Dakota, Montana, Florida, Tennessee, and Georgia.
Selected regions without group banking include: Iowa, Kansas,
Nebraska, Wyoming, Alabama, North Carolina, and South Carolina.
212
- 3 -
Table II
PERCENTAGE DISTRIBUTION OF THE NUMBER OF BANKS
According to the Number of Banking Offices in the Center
Selected regions
Number of banking
Selected regions
with group banking
offices in center
without group banking?
1929
1940
1929
1940
1
48.2
60.5
42.3
60.5
2
31.6
25.5
33.8
27.2
3
9.6
6.5
11.4
6.5
4
3.5
1.6
4.4
1.9
5
0.7
0.9
2.5
0.6
6
0.7
0.6
0.9
0.5
7 or 8
1.1
0.8
1.0
1.2
9 or more
4.6
3.6
3.7
1.6
Total
100.0
100.0
100.0
100.0
Note: Data relate only to banks not operating branches and to
regions where branch banking is nonexistent or of negligible proportions.
1 For a list of the States included see footnote 16 Table I.
For a list of the States included see footnote 2/, Table I.
Regraded Unclassified
213
- 4 -
Table III
PERCENTAGE DISTRIBUTION OF THE NUMBER OF BANKS
IN SELECTED REGIONS WITH GROUP BANKING
According to Size of Center
Independent banks
Population of center
Group banks
1929
1940
1929
1940
Less than 250
18.7
10.0
10.1
-
250 to 500
21.0
18.2
14.2
1.4
500 to 1,000
20.1
23.3
15.7
7.6
1,000 to 2,500
17.7
21.3
18.0
20.0
2,500 to 5,000
8.1
10.3
10.0
15.2
5,000 to 10,000
5.3
6.6
9.3
18.0
10,000 to 25,000
3.2
4.1
7.9
15.6
25,000 to 50,000
2.1
2.1
3.0
6.6
50,000 and over
3.8
4.1
11.8
15.6
Total
100,0
100.0
100.0
100.0
Note: Data relate only to banks not operating branches and to
regions where branch banking is nonexistent or of negligible proportions.
1/ For a list of the States included see footnote 1/, Table I.
214
- 5 - -
Table IV
PERCENTAGE DISTRIBUTION OF THE NUMBER OF BANKS
IN SELECTED REGIONS WITH GROUP BANKING
According to the Number of Banking Offices in the Center
Number of banking
Independent banks
Group banks
offices in center
1929
1940
1929
1940
1
50.1
63.6
37.5
31.3
2
31.3
24.2
33.1
37.9
3
9.4
5.9
10.7
12.3
4
3.4
115
4.2
2.4
5
0.6
0.8
1.6
1.4
6
0.7
0.3
0.9
3.3
7 or 8
1.1
0.8
1.1
0.5
9 or more
3.4
2.9
10.9
10.9
Total
100.0
100.0
100.0
100.0
Note: Data relate only to banks not operating branches and to
regions where branch banking is nonexistent or of negligible proportions.
1/ For a list of the States included see footnote 1/, Table I.
215
- 6 -
Table V
AVERAGE DEPOSITS HELD BY BANKS IN SELECTED REGIONS
1929
1940
Regions with group banking
$673,000
$1,090,000
Regions without group banking2/
543,000
890,000
Independent banks
519,000
810,000
Group banks
1,487,000
3,928,000
Note: Data relate only to banks not operating branches and to
regions where branch banking is nonexistent or of negligible proportions.
1/
For a list of the States included see footnote 1/, Table I.
2/
For a list of the States included see footnote 2/, Table I.
Regraded Unclassified
216
- 7
Availability of banking facilities in selected areas. The
evidence substantiatos the conclusions reached for the country as a whole.
In selected States in the Central Northwest where group banking is pre-
valent the following shifts from 1929 to 1940 are revealed:
1. The shift to centers with a larger population was apparent
among both the group and the non-group banks but was much
more marked in the case of the group banks.
2. There was a five percent increase in the proportion of centers
with not more than two banking offices. This shift occurred
entirely with respect to the non-group banks, there being no
shift among the group banks.
3. During the period there was a substantial increase in the
amount of deposits held. This increase was greater pro-
portionately among the group banks than the independent
banks.
In other economically comparable States in the same area,
where group banking is either non-existent or insignificant the
following shifts from 1929 to 1940 are revealed:
1. The shift was toward centers with a larger population.
2. The proportion of centers with not more than two banking
offices showed a ten percent increase, or more than that
in comparable States with group banks.
3. The average size of the banking offices experienced a
fifty percent increase as was the case in the States in
which group banking is prevalent.
In selected States in the Southeast where group banking
exists the shifts were as follows:
1. The shift to centers with a larger population was consider-
ably more noticeable among group banks than among non-group
banks.
2. A ten percent increase in the proportion of banking centers
with not more than two offices in the case of the non-group
banks was partially offset by e. decrease in the case of the
group banks.
Regraded Unclassified
217
- 8 -
3. The increase in the average size of the banks was much
greater in the case of the group banks.
In other economically comparable States of the same area
where group banking is insignificant the following shifts occurred:
1. There was a relatively slight shift toward centers with a
larger population.
2. The proportion of banks in centers with not more than two
offices increased approximately fifteen percent.
3. The increase in the average size of the banks was almost
identical with that in the comparable States in which
group banking was a major factor.
With regard to the distribution of branch banking offices the
presence of group systems has had no observable effect. There is no
significant difference in the distribution of branch banks either
according to the size of the center or according to the number of
offices within the center. These observations are based upon data
for the entire country, since no detailed analysis was made of this
problem.
The data show that the presence of group banking has not
changed the distribution of banking facilities from what it would have
been in the absence of bank groups.
Tynan Smith
February 14, 1941
Regraded Unclassified
218
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 10, 1941
TO
Mr. Preston Delano
FROM
Secretary Morgenthau
I wish you would begin to prepare arguments why
Senator Glass' bank holding company bill should go
through. One of the suggestions I would like to make
is for you to go back five years or ten years in each
community where bank holding company banks operate,
and find out just how many banks are in each
community. My impression is that where the bank
holding company banks operate there are less banks
serving the community than there would be if there
were not bank holding companies.
I would like you to make this study just as soon
as possible, and see whether the argument will or will
not hold water.
Regraded Unclassified
219
February д, 1941
Herbert Gaston
Secretary Morgenthau
Would you please inquire of our Collector of Internal
Revenue and Collector of Customs in Philadelphia what
they know about Mr. Sinclair, President of the Federal
Reserve Bank of Philadelphia. Try to find out from them
as to whether he is taking any part in politics one way
or the other. Also ask Elmer Irey to look up his income
tax and see if everything is all right. I would like a
report on Sinclair by Monday please.
220
C
0
P
Y
February 24, 1941.
To:
Secretary Morgenthau
From: Mr. Gaston
There is attached a summary of the personal in-
come tax returns of John S. Sinclair from 1933 to 1939,
inclusive. There is nothing irregular on the face of
the returns and there is no record of any controversy
between this tax payer and the Bureau.
Walter J. Rothensies, Collector of Internal
Revenue at Philadelphia, and A. Raymond Raff, Collector
of Customs, have been interviewed. Neither knows of
any political activity on the part of Sinclair. Raff
feels certain that if Sinclair had been at all
politically active in recent years, he would have
known of it.
Gabriel J. Wilson, Internal Revenue Agent in
Charge, says that Kelly, Democratic District Leader,
is "strongly opposed" to Sinclair, but he does not
know the reason. Kelly is in Florida and we have not
attempted to get in touch with him. Wilson was pro-
moted from Revenue Agent to Revenue Agent in Charge
largely through the influence of Kelly.
Enclosure.
HEG:ds
Regraded Unclassified
221
FEB $1 1941
Dear Mr. Frenks
In commestion with our interest is the British
financial pasition, 10 should like to have the Came
nission designate too exports to staty the question
of the valuation of insurance direct investments.
Your cooperation in this matter will be
heartily appreciated.
Sincerely,
(Signed) E Merganthan, Jr.
Secretary of the Treasury.
The Renerable Increase Fronk,
Securities Chairman, & Rechange Commission,
Washington, De Go
File to Mr. Thompson
2/17/41
Regraded Unclassified
it white
222
THE AMERICAN METAL COMPANY. LIMITED
61 BROADWAY
NEW YORK
HKH: AA
TELEPHONE BOWLING GREEN 9-1800
CABLE ADDRESS: EFFLUX. NEW YORK
February 21,1941
Honorable Henry Morgenthau,
Secretary of the Treasury,
Washington, D. C.
Dear Henry:
In case it is of interest to the Treasury
Department, I enclose copy of letter just received
from the head office of our Mexican Company regarding
reported proposals to stabilize the Mexican peso.
Sincerely,
Harold
Enc
THE
w
223
February 17, 1041
According to a radio report two experts from the Treasury
Department of the United States Government have returned to Washington
after making a study of the financial situation in Mexico, apparently
with the purpose of attempting to stahilize the peso.
While we presume that the Treasury experts will make at
thorough study of the matter from all angles before arriving at 8
conclusion, nevertheless we wish to point out that should the Mexican
peso be stabilized at a lower exchange rate than at present, 1e. 4,85,
and metal prices remain at their present level, it would be very
disastrous, if not fatal to the mining and smelting industry, which 16
not only producing the greater portion of the Government's revenue
at the present time, but also serves as a base for profitable operations
for other industries and commercial enterprises. In fact, it would
call for a completo readjustment of the economic situation of the
country. As the wage scales of practically all mining and industrial
workers have been adjusted to an exchange rate of from 5 to 6xl, it
would mean that these wage scales would have to be greatly lowered,
which would result, of course, in serious unrest among the laboring
class.
While the average wage scale 1a rico, when converted into
dollars, may seem low as compared to the iverage wage scale in the
United States, when the efficiency of the labor is taken into considera-
tion, the picture is quite different. You will recall that in one of
our recent memorandums we mentioned that Lombardo Toledano, the head
of the Confederation of Mexican Laborers, had stated before a meeting
of laborers that the various classes of cooperative societies which
had been formed in the last few years had been a failure, principally
due to the inefficiency of the laborers.
We believe that the Mexican officials realize that, to prevent
a complete upset in their economic situation, a 4.85 to 5x1 exchange
rate is necessary at the present time; but should the United States
Government favor a lower exchange rate and offer the necessary funds
for the stabilization at a lower rate, the Mexican Government may be
tempted to acquiesce, which would certainly be unfortunate for all
concerned.
While a reduction in the exchange rate, no doubt, would
result in some increase in imports of American goods, it would work
against Nexico's export business, and in the long run, we believe,
would be against the best interests of both countries. Mexico, in 8.
prosperous condition, will purchase much more from the United States
at around a 5x1 exchange rate, than they would purchase in a depressed
condition at a 3.60 exchange rate, and there would certainly be a
depression in Mexico at the present time, should the exchange rate
be lowered to 3.60 and metal prices remain at their present level.
Regraded Unclassified
224
-2-
We made an endeavor to secure from the American Consul
at Monterrey statistics showing the amount of imports into Mexico
from the United States for the years 1938, '39, and 140, when
exchange varied from 3.60 to 6xl, but they did not have the informa-
tion available for '39 and '40, which we regret, as we believe it
would have given some very interesting facts.
The Bank of Mexico, for reasons unknown to us, have dis-
continued the publication of their ten-day and monthly balance sheets,
and we therefore have no way of knowing their present financial
condition, but we have every reason to believe there has been no
appreciable decrease in the amount due the Bank by the Government,
nor do we believe their metallic reserve has been materially increased.
225
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 21, 1941
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Extracts from the records of the Federal Reserve Bank of New York show the fol-
lowing debits to the Bank of England account:
DEBITS
Veek Ended
Total Debits
Government Expenditures
Other Debits
(a)
January 15
$56,900,000
$49,900,000
$ 7,000,000
January 22
37,800,000
31,900,000
5,900,000
January 29
41,800,000
37,000,000
4,800,000
February 5
46,500,000
40,700,000
5,800,000
February 11
37,400,000
31,900,000
5,500,000
The Federal Reserve Bank has calculated average weekly expenditures of the
British, through the Federal Reserve Bank account, at $27,600,000 from the outbreak
of the var through June 19, 1940, and at $56,000,000 from June 19, 1940 through
February 11, 1941.
(a) Includes payments for account of British Purchasing Commission, British Air
Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry
of Shipping.
2MS
or Wiss Chauncey
226
February n, 1941
CONFIRMITIAL
Dear b.
Permit - to acknowledge: - bahalf of
Secretary Margmthou, the receipt of your letter
of February 20, enclosing year compilation for
the week ended February 11, 1941, cheeting dollar
disburcements est of the British Empire and Franch
accounts at the Federal and the neens w which
these expenditures were financed.
Paithfully.
(Signed) H. Marle Cochran
8. Morlo Cookren
Technical Accistant to the Secretary
b. V. Kaske, Require.
Vice-Procidens,
Federal Reserve Bank of New York,
New York, New York.
HMC:Lep-2/21/41
Regraded Unclassified
227
FEDERAL RESERVE BANK
OF NEW YORK
BECHINED
THE pess
SA 11 MA IS 839 INS
370 40 308 1992 30392
THATEISEA JAQIMHOST
10 THE PROSELVBX
February 20, 1941.
CONFIDENTIAL
Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
I am enclosing herewith our compilation for the
week ended February 11, 1940, showing dollar disbursements
out of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.
FaAthfully yours,
Bo
L. W. Knoke,
Vice President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
law B SI Vii 23
Enclosure
Strictly
ANALYSIS 07 BRITISH AND FRENCH ACCOUNTS
Feak
Ended
Parts
11,
1941.
Confidential
(In Millions of Dollars)
BANK
of
EMILAND
(BRITISH GOVERNMENT)
BANK
OF
FRANCE
DEBITS
CREDITS
DEBITS
CREDITS
Proceeds of
Set Inor,
Net Incr.
Dov't
Sales of
(+) or
Gov't
Proceeds
(*) or
Total
Expendi-
Other
Total
Securities
Other
Decr. (-)
Total
Expending
Other
Total
of Gold
Other
Deor. (-)
Tabita
tures(a)
Debits
Credite
Gold
proviol) (b)
Credita(s)
in Balance
Debits
tures (4)
Debite
Credita
Sales
Credita
in Balance
1956
RID 1. 254 IN
94.3
3.6
90.7
207.8
185.4
-
22.4
+113.5
19.4
6.0
13.4
11,3
1
11.3
- 8.1
- m. 1
100.7
5.8
100.9
142.0
3.2
-
138.8
- 35,3
88.6
)
76.2
35.0
41.2
- 12.4
BY, 1 - 79
191.9
8,9
182.8
105.8
57.8
61.8
105.4
-
48.0
- 85.9
78.6
1
62.9
55.1
27.8
. 4.3
By, 30 - The a
97.7
8,9
89.0
75.2
50.6
-
24.6
- 22,5
86.8
28.1
58.7
109.2
93.9
15,3
+ 22.4
1545
Jan. +- 22.
54.6
16.6
38.0
45,4
20.6
-
22.8
- 11.4
51.5
31.5
30.0
55,9
50.1
5.8
- 5.6
1- 28
124,8
15,4
108.8
108.3
56.7
-
51,6
- 15.9
72.7
32.8
39.9
71.5
54.8
16.7
- 1.2
No. 29 - Aen 3
115,5
14.5
101.0
94.0
60.9
14.0
19.1
- 21.5
99.6
35.9
63.7
105.0
75.4
29.6
+ 5.4
4pm - May
1
113.4
26.1
87,3
86.4
46.8
20.0
19.6
- 27.0
84.8
29.4
55.4
76,7
60.7
18.0
- 6.1
May E- DD
100.9
15.6
77.5
126.2
93.2
12.0
21.0
+ 25.3
101.4
57.0
44.4
145.4
126.2
19.2
. 44.0
EXI X - DUE 2
235.2
145,3
137.9
319.3
301.3
3.0
15.0
$ 36,1
1567(s)
127.3 (e)
29.4
345.1(e)
335.6
9.5(e)
+188.4
July 5 - an
147.7
156.7
93.0
225,0
212.2
2,0
10.8
- 24.7
7.3
6.3
1.0
3.2
S.O
0.2
- 4.1
Lega 1 28
2011
180,2
80,9
294.8
267.4
1.0
26.4
+ 33.7
8.9
0.5
8.4
10.9
10.4
0.5
+ 2.0
First pater 8 my
1,191.2
605.6
1,187.6
1,628.2
1,358.2
5800
420.1
35.0
866.3
416,0
449.7
1,95.3
900.2
195.1
+229.0
440 19 - one
1
310,8
244,5
72.5
308.9
271.5
6.0
31.4
- 7.9
8.6
4.4
4,2
1,3
-
1.3
- 7.3
Date 3/4 30
CT
167.8
18.2
198.5
160,5
6.0
32.0
+ 1,8
0.5
0.3
0,2
0,5
-
0.5
-
Cells 31- Not. 27
241.0
201.1
39.9
259.5
210,0
18.0
31.5
+ 18,5
0,8
0,1
0.7
0.7
-
0.7
- 0,1
Set. 28 - 200. I
23415
295.8
27.8
198.0
111.4
28.0
60.6
36.6
2.1
(4)
211
DUE
If
0.6
- 1,5
We nebó toogh
1,425.6
156.9
3,793.1
2,109.5
108.0
575.6
10,8
878.3
421.4
456.9
1008.4
900,8
JUNE REV NO
198.2
+220.1
name
362
259.9
196.2
52.0
31.7
+62.5
Ask
O.D.
-
Jkm 30 100, X
- 1.2
Feb. 27 . Apr. 2
EX
22
DATE
31.9
28.6
5.8
12.0
10.0
9.2
0.5
0.5
-
- 0.5
29
E
17.0
19.6
1:0
12.0
4.6
-22.2
0.6
I
0.4
0.3
-
0.1
- 0.3
(
46.5
40.7
5.8
23.2
-
10.0
11.2
0.1
-
10.1
-
N
#
- 0.1
11
39.4
37.4
5.5
14.1
-
bel
8.2(f) -23.3
-
-
-
0.3
-
I
+ 0.1
image Weekly Expenditures Since Outbreak of Yor
Transfers from British Purchasing Commission to
(See footnotes on reverse side)
Prono (through June 19)
$19.6 million
Bank of Canada for French Account
England June 39)
27.6 million
Hook ended Feb. 11
a 4+3
million
England (sime Jude 19)
56.0 million
Cumulation from July 6 $132.3
million
Regraded Unclassified
(a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of
Supply Timber Control, and Ministry of Shipping.
(b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
proceeds of official British sales of American securities, including those effected through direct negotiation. In addition
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the
early months of the war, although the receipt of the proceeds at this-Bank cannot be identified with any accuracy. According
to date supplied by the Britfah Treadury and released by Secretary Morgenthau, total official and private British liquidation-
of our securities through December 1940 amounted to $334 million.
(e) Includes about $85 million received during October from the accounts of British authorized banks with New York banks, presumably
reflecting the requisitioning of private dollar balances. Other large transfers from such accounts during more recent months
apparently represent the acquisition of proceeds of exports from the sterling area and other currently socruing dollar receipts.
(4) Includes payments for account of French Air Commission and French Purchasing Commission.
(e) Adjusted to eliminate the effect of $20 million paid out on June 26 and returned the following day.
(f) Includes about $2.5 million transferred for account of Courtlauld's Ltd., by order of American Viscose Corp.,
and about $1.1 million transferred from the accounts of British authorised banks with New York banks.
TO THE SEC TARY
TECHNICAL ASSISTANT
OFFICE OF THE
1941 FEB 21 AM 11:42
TRE 100% DEPARTMENT
RECEIVED
Regraded Unclassified
Strictly
ANALYSIS OF CANADIAN AND AUSI
N ACCOUNTS
Week Ended Pob. 11, 1941.
Confidential
(In Millions of
o)
BANK
OF
CANADA
COMMINWEALTH BANK OF AUSTRALIA
DEBITS
CREDITS
DEBITS
CREDITS
Transfers
Transfers
to
Proceeds
Transfers from Official
Net Incr.
to
Proceeds
Net Incr.
Total
Official
Other
Total
of
British A/C
Other
(+) or
Total
Official
Other
Total
of
Other
(+) or
Debite
Britlah
Debite
Credits
Gold
For Own
For French
Crodits Decn (-)
Debite
British
Debits
Credita
Cold
Credita
Door. (-)
PERIOD
A/C
Sales
A/C
A/C
in Balance
A/C
Sales
in Balance
1939
Aug, 32 - Sept. 27
17.5
0.6
16.9
81.8
15.1
0,8
-
5,9
+ 4.3
a
-
-
,
-
-
-
Sept.38 (DT. 1
9.6
0.3
9.3
16.7
7.3
2.1
-
7.3
+ 7.1
-
-
-
I
-
,
-
Nov. 2 29
9.9
0.7
9.2
14.4
13.3
-
-
1.1
+ 4.5
-
-
-
1.9
1.9
-
+ 1.9
Nov, 30 - Jan. 3
30.0
5.8
5.8
-
30.0
22.B
13.3
3.0
"
6.5
- 7.2
2.5
-
2,5
-
+ 3.5
1940
Jan. 4- 31
23.5
23.5
25.7
21.1
-
-
4.6
+ 2.2
5,2
0.3
4.9
3.3
3.0
0.5
- 1.9
-
30b, 1- 28.
23.1
-
23.1
17.0
16,1
-
,
0.9
- 5.1
3.3
0,1
3.2
2.4
2.2
0.2
- 0,9
Fob. 29 - Apr. 3
42,3
-
42.3
29.5
29.3
0.2
- 12.8
3.0
0.3
2.7
2.2
1.6
0.6
- 0,8
,
-
Apr. 4- May
1
38.2
-
25.2
42.9
24.8
15.0
-
3.1
+ 4.7
2.3
-
2.3
2.0
1.8
0.2
- 0.3
MAY 2 - 29
37.9
15.0
37.9
50.2
50,0
-
-
0.2
+ 12.3
1.2
0,2
1.0
2.6
1.7
0.9
+ 1.4
-
44.1
72.5
75.5
0,3
+ 28,4
2.3
-
2.3
5.9
4.4
1.5
+ 3,6
Mas 30 July 3.
44.1
-
#
July 1- 31
28,2
,
28.2
117.6
96.3
-
19.2
2.1
+ 89.4
4.6
I
4.6
5.0
4.2
0,8
+ 0.4
Azige 1- 38
18,7
18.7
73.6
53.9
-
19.5
0.8
+ 54.9
6.8
3.0
3.8
5.0
3.4
1.6
- 1.8
-
First year of war
525.0
16.6
306.4
504.7
412.7
20.9
38.7
32.4
+181.7
31.2
3.9
27.3
36.1
30.0
6,1
+ 4,9
- 0.4
6.7
2.5
5.2
B.O
6.7
1.3
- 0,7
has, 29 - 29 - Oct, 2
44.3
-
44.3
43.9
16.4
-
27.3
0.2
Date 3 - 30
26.7
-
26.7
28.6
14.0
14.3
0.3
+ 1,9
10.1
7,5
2.6
7.9
6.5
1.4
- 8.2
-
Date 31 - HOTE 27
35,2
-
35,2
69.6
49.2
-
16.7
3.7
+ 34.4
3.1
0,6
2.5
3.6
2.1
1,5
+ 0,5
Nov. 29 Dec. 31
48.0
48.0
60,6
42.5
-
13.7
4.4
+ 12.6
4.8
1
4.8
6.8
4,8
2,0
- 2.0
-
be priod through Dec:
477.2
16.6
460.6
707.4
554.8
20.9
110.7
41.0
+230.2
57.9
14.5
43.4
62.4
50.1
12.3
* 1.5
Jan. 2 - 29
33.7
33.7
33.9
16.9
-
15.0
2,0
+ 0.2
6,8
-
4.8
6.8
5.1
1.7
+ 2.0
-
Jan. 30 - Feb, 26
Pobe 27 ADT. 2
WEEK DITED;
7s. 28
9,0
-
9.0
9.7
4.5
4.8
0,4
+ 0.7
0.8
-
0.2
5.4
5.1
0,3
+ 5.2
-
0,9
0.9
0,9
-
19
18,9
13.9
15,4
5,2
-
10.2
-
+ 1.5
0.9
-
-
-
Feb. 5
8.4
-
7.1
4.6
2.3
0.2
- 1.3
2.6
1.7
0,9
2.2
0,6
1,6
- 0.4
8.4
-
11
1.9
-
1.9
9.7
3.4
4.5
2.0
+.7.8
1.0
a
1.0
0.5
E
0.5
- 0.5
-
Weekly Average of Total Debite Since Outbreak of Mar
Through Feb. 11
$ 6.9
million
Regraded Unclassified
230
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
/
DATE February 21, 1941
TO
Secretary Morgenthau
confidential
FROM Mr. Cochran
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£35,000
Purchased from commercial concerns £12,000
Open market sterling was first quoted at 4.02-3/4. Early in the afternoon
it noved up to 4.03 and closed at that level. Transactions of the reporting banks
vere as follows:
Sold to commercial concerns
£13,000
Purchased from commercial concerns £ 5,000
In Shanghai the United States dollar vas higher against both the Chinese yuan
and sterling. The yuan was quoted at 5-21/324. off 1/32# and sterling was 3.92, off
In Hong Kong the H.K. dollar was quoted at 24-3/8#, off 1/8¢ and sterling vas
3.90, off 20.
In New York the closing rates for foreign exchange were as follows:
Canadian dollar
15-1/8% discount
Swiss franc (commercial)
.2323-1/2
Swedish krona
.2385
Reichsmark
.4005
Lira
.0505
Argentine peso (free)
.2370
Brasilian milrois (free)
.0505
Mexican peso
.2066
Cuban peso
7-1/32% discount
There were no purchases of gold consummated by 126 today.
The London prices for silver were unchanged at 23-3/8d for spot and 23-5/16d
for forward. The United States equivalents of these prices are 42.444 and 42.33#
respectively.
Handy and Harman's settlement price for foreign milver was unchanged at 34-3/40-
The Treasury's purchase price for foreign silver vas also unchanged at 35#.
We nade three purchases of silver totaling 180,000 ounces under the Silver
Purchase Act. Of this amount 125,000 ounces consisted of new production from foreign
vintries, for forward delivery. The balance of 55,000 ounces was the final sale of
shipment of 822,000 ounces sent to this country by the Central Bank of China. The
Treasury purchased a total of 805,000 BMR ounces of this shipment.
Regraded Unclassified
-
231
Prepared byr Mr. Turner
Mr. Murphy
Mr. Hass
RTMENT
INTER-OFFICE COMMUNICATION
DATE February 21, 1941
TO
Secretary Morgenthau
FROM
Mr. Haas M
Subject:
Markets Current Developments in the High-grade Security
SUMMARY
(1) Treasury securities have risen in price this week, re-
covering part of last week's losses (Chart I). High-
grade corporate and municipal bonds have suffered net
price declines in the past week. Both classes of Be-
curities firmed yesterday (Charts II and III).
(2) The corporate market's diminished receptivity to new
issues is probably due in large part to the prospect
that the issuance of taxable Treasury securities will
create a competing supply for those investors to whom
tax exemption means nothing, but who desire the maxi-
mum of safety.
(3) While the yield basis for & 20-year bond 1s not greatly
different from what it was when long-term Treasury bonds
were at their pre-war price peak, on June 5, 1939, the
yield basis for a 10-year bond is about 20 basis points
higher than in June 1939 (Chart V). The yields of
Treasury notes are shown for comparison in Chart VI.
(4) The average dividend rate on mutual savings deposite
fell below 2 percent during the last six months of
1940.
I. Current Price and Yield Movements of
High-grade Securities
Treasury securities have risen in price this week, notes
more than recovering their losses of last week and bonds re-
covering most of such losses. Price changes are shown, by
maturity classes, in Chart I and in the following table:
232
Secretary Morgenthau. - 2
1 : Average price change
: February : February
:
10-15
:
15-20
(In thirty-seconds)
Notes
1 to 3 years
-8
+9
3 to 5 years
-8
+10
Bonds
5 to 15 years to call
-20
+15
15 years and over to call
-23
+16
The longest Treasury bonds have declined on net balance
by almost 4 points since December 30, 1940 (Chart I). This
has been reflected in an increase of the average yield of long-
term Treasury bonds by 25 basis points (Chart II).
High-grade corporate bonds held steady during most of
last week, but have dropped in price rather sharply since
Friday (Chart II). The net decline in price since the end
of December is reflected in an increase in yield of 19 basis
points. Municipal bonds also continued to decline in price
last week (Chart III). Both classes of securities firmed
yesterday.
II. Comparative Movements of Treasury
and Corporate Bonds
Except for the improved market this week, prices of
Treasury bonds have declined fairly steadily since December
30, 1940. High-grade corporate bonds, on the other hand,
rose in price for about three weeks following December 30,
but have since declined sharply. Second-grade corporate
bonds (represented by Moody's Baa bonds) also rose in Jan-
uary and declined in February but their movements have tend-
ed to parallel those of the stock market. The details of
these movements are shown in Charts II and IV.
The situation in the market for high-grade corporate
bonds at the present time is particularly interesting. The
recent price decline doubtless reflects the anticipation of
Regraded Unclassified
233
Secretary Morgenthau - 3
generally higher interest rates, an anticipation aroused
largely as the result of the Federal Reserve statement on
January 1, 1941. Of great importance for the future, however,
18 the prospect of the issuance of Treasury securities subject
to the Federal income tax. Hitherto investors who desired
the maximum of security, but whose tax position was such that
there was no reason for them to pay a premium for tax exemption,
were restricted in their choice to corporates of the highest
grade. Actually, Treasury securities would have been better
suited to their needs had it not been for their partial or
complete tax exemption. The enactment of legislation to tax
the income from Treasury securities promises to create a
competing supply of securities for the class of investors
who have hitherto been the mainstay of the high-grade corporate
market.
It 18 probably this new factor in the market which more
than any other accounts for the weakness of high-grade
corporate securities, and for the market's inability or un-
willingness to absorb new corporate offerings. There have
been no important new bond offerings to the public since
February 6 when $11.0 millions of serial bonds of the
Chesapeake and Ohio Railway Company were offered to the public
(out of a total issue of $24.8 millions). According to the
latest available information, these bonds remain about
50 percent unsold.
III. Changes in Levels of Yields of Government
Securities since April 1, 1937
The yield basis for a 20-year bond of corresponding tax-
exemption privileges is not greatly different today from what
it was when long-term Treasury bonds were at their pre-war
price peak on June 5, 1939. The yield basis for a 10-year
bond, however, is about 20 basis points higher than on June 5,
1939. This 18 shown in Chart V which compares the yields of
Treasury bonds on February 19, 1941; on June 5, 1939, the
date of the pre-war price peak; and, for perspective, April 1,
1937, the date on which long-term Treasury bonds reached the
lowest prices in the past five years, following the increase
in reserve requirements announced on January 30, 1937.
Regraded Unclassified
234
Secretary Morgenthau - 4
The net movements in the yields of Treasury notes since
April 1, 1937 have covered a wider range than have those of
Treasury bonds. Yields of Treasury notes on the three dates
listed above are shown in Chart VI.
IV. Mutual Savings Bank Dividends
During the last six months of 1940 the average dividend
rate on all mutual savings deposits fell below 2 percent. On
January 1, 1941 the average dividend rate on all savings
accounts in the 540 mutual savings banks was 1.97 percent as
compared with about 2.04 percent on July 1, 1940. The volume
of deposits receiving a rate of 2-1/2 percent or better
dropped from nearly 20 percent to about 16 percent of the
total. This is indicated by the following table:
Percent of Total Mutual Savings
Deposits Drawing Dividends at Various Rates
:
July 1,
:
Dividend
July 1,
July 1,
January 1,
rate
1938
1939
1940
1941
3-1/2%
.3
.3
.3
.3
3
%
6.7
3.9
1.8
1.2
2-1/2%
30.2
27.1
17.6
14.8
2
%
61.8
67.4
69.7
62.6
1-1/2%
.9
1.1
7.7
18.0
1
%
.1
.2
2.9
3.1
The accelerated decline in interest rates is well
illustrated in the table. Leaving out of account the very
small volume of deposits receiving 3-1/2 percent (a single
bank on January 1, 1941), it will be seen that the percentages
of all deposits in the 3 percent and 2-1/2 percent classes
have declined continuously while the percentages in the
1-1/2 percent and 1 percent classes have increased. The
Regraded Unclassified
235
Secretary Morgenthau - 5
2 percent class, meanwhile, gained in proportionate size
up to July 1, 1940 as the volume of deposits falling from
higher dividend classes into the 2 percent class exceeded
the volume falling from 2 percent into lower classes. In
the last six months of 1940, however, as a number of
New York City banks reduced their rates, more deposits fell
into lower classes than were gained by the 2 percent class
from higher dividend classes.
It should be noted, also, that mutual savings deposits
have increased by only $700 millions in the past five years,
and by only $137 millions in 1940, to $10,618 millions on
January 1, 1941. This represents an average annual increase
of only about 1.4 percent which 18 less than the annual
interest accrual. Hence it would not appear that mutual
savings deposits are likely to be an important source of
funds for the defense financing program.
Attachments.
236
Chart I
ORANGES IN THE PRICES 07 U.S. OBCURITING
Points Plotted Registrations the Difference tra April 6, 1040 Price of Nech Naturity Class
1940
1940
1941
1941
MAY
SEPT.
NOV.
DECEMBER
JULY
dM.
MAR.
JANUARY
MAY
7
14
FEBRUARY
POINTS
21
POINTS
28
4
11
18
25.
a
15
22
(NET CHARGE)
GET CHANGE)
LF PRINTS
Saturday Quotations
+3)
Daily
(RET CHANGE)
+26
=
+4
43
43
+3
+3
*21
+21
+2)
+2)
+2
+2
+2%
+25
Bowds
7
OVER 15 Yes,
+1
#1
TO CALL
+2
NOTES
MOTES
+18
(-) Yes.
3-5 Yes.
+18
0
0
+1+
+1)
+15
418
+1
-1
Borps
5-15 Yes.
=
TO CALL
±
4
7
+1
+1
+1
+1
4
7.
Bomes,
+1
+1
5-15 Yes.
NOTES
TO CALL
3-5 Yes,
1
D
0
T
,
-1
Bomps,
&
OVER 15 Yes.
TO CALL
-5
- +
NOTES
1-3 Yes,
-1
-1
&
-6
-1
-1
+7
-7
-11
÷
+11
-1)
+
&
-11
-11
de
4
4
6
de
&
-10
I
MAY
JULY
MPT.
-10
NOV.
&
4
JAM.
à
SAY
1940
7
H
21
28
4
II
18
25
-
8
15
22
1941
DECEMBER
JANUARY
FEBRUARY
1940
1941
Mas of the Servery of the Treasury
- a - and
F - 153 - 8 - 5
oney
MAY
Chart II
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1940
1941
PER
MAR
APR.
MAY
JUNE
AUG.
SEPT.
1940
JULY
OCT.
NOV
DEC
JAN
JAN
FEB.
1941
MAR
APR.
MAY
-
as
-
JUNE
JULY
AUG
17
SAFT
=
.
1
-
-
=
=
#
-
14
oct
-
-
NOV
4
#
DEC
DEC
-
a
JAN
PER
-
à
-
If
18
as
-
"
RI
n
-
a
:
II
-
.
is
-
is
inversed Scale
Inverted Scale
Incerted
Scele
PER CENT
PER CENT
FEA CENT
WEEKLY. Saturday Quotations
DAILY
1.6
1.8
1.8
20
20
2.0
Long Term
Treasury
2.2
22
22
I
Long Term Treasury
are years or more to earliest mail details)
24
-
24
2.4
26
2.6
26
Corporate
20
2.8
28
Corporate
3.0
30
3.0
12
32
12
14
3.4
34
36
3.6
36
PER
PER
PER
CENT
CENT
CENT
1,00
1.00
100
Spread Between Long Term
Treasury and Corporate
50
60
80
so
60
60
Spread
40
40
40
20
20
20
o
o
=
o
+ JAN - , FEB - . MAR . N APR " MAY " JUNE JULY H AUG BI BEPT. - OCT NOV beE JAN FES MAR - - APR 4 as MAY - JUNE 4d JULY AUG 18 - SEPT. IN OCT - NOV . DEC. -
at
-
4
"
f
=
.
is
=
DEC
JAN
FEB
1940
1941
1940
1941
. Change in composition of leng Term treasury average
Pho of the Incretary - N Treasury
# - - -
F-M-G-A
6.
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND Dow-JONES AVERAGE OF MUNICIPAL BONDS
Yields Based on Saturday Quotations
1940
1941
JAN I rea if à MAR is 30 APR 13 ET MAY " ** - JUNE # . JULY ++ # AUG - " SEPT - H OCT a " , NOV as , DEC " 4 JAN. - I FEB a . MAR 18 " APR H MAY JUNE JULY AUG SEPT OCT NOV DEC
"
e
14
P
&
.
=
.
a
30
a
at
#
inverted Scale
:
.
2
PER CENT
inverted Scale
PER CENT
1.8
Long Term Treasury (12 years or more to corlieit call date)
1.8
2.0
2.0
2.2
2.2
2.4
2.4
2.6
2.4
Twenty 20-Year Municipal Bonds
2.8
2.8
3.0
3.0
1.2
1.2
PER
PER
CENT
CENT
60
60
Differential
40
40
20
20
o
&
H
I
DE
.
-
H
18
BY
#
19
-
.
6
H
If
of
-
EN
or
se
.
n
II
.
is
15
15
-
=
-
.
1
-
-
a
-
#
и
a
If
.
If
4
o
JAN
PEB
MAR
$
MAY
AMT
A/LY
AUG
SEPT
OCT
NOV
DEC
JAM
FEB
MAR
AML
a
5
a
MAY
AND
NO
1940
AUG.
SEPT.
OCT
NOV
DEC.
1941
238
"freet - Ane indicates change in companism of larg hrs Preesury overage
Other of the Secretary of the Treasury
- of - el -
F-134-1
Regraded Unclas
Chart IV
COMPARATIVE YIELDS OF AVERAGE OF HIGH GRADE CORPORATE BONDS
AND MOODY'S BAA BONDS
PERCENT
PERCENT
(INVERTED)
(INVERTED)
Daily
2.4
2.4
HIGH GRADE CORPORATE
2.6
2.6
2.8
2.0
4.4
4.4
MOODY'S BAA
4,6
4.6
239
4.5
4.8
21
28
4
11
18
25
1
8
15
22
1
8
15
22
29
DECEMBER
JANUARY
FEBRUARY
MARCH
PERCENT
PERCENT
1.8
1.8
SPREAD BETWEEN MOODY'S BAA
AND High GRADE CORPORATE
1.6
1.6
1.4
1.4
o
o
21
28
4
11
18
25
I
8
15
22
1
8
15
22
29
DECEMBER
JANUARY
FEBRUARY
MARCH
1940
1941
of
YIELDS OF TREASURY BONDS
YEARS TO MATURITY OR CALL
5
10
15
20
25
PER
PCR
CENT
CENT
3.2
3.2
APRIL 1, 1937
2.8
2.8
2.4
2.4
FEBRUARY 19, 1941
2.0
2.0
1.6
1.6
JUNE 5, 1939
1.2
1.2
.8
.8
.4
A
0
o
5
10
15
20
25
YEARS TO MATURITY OR CALL
240
Office of the Secretary of the Transary
Ship of - -
F - 118 - F
Regraded Unclas
241
Chart VI
YIELDS OF TREASURY NOTES
Excluding Defense Notes
YEARS TO MATURITY
2
3
PERCENT
4
5
PERCENT
1,6
1,6
1.4
1.4
APRIL 1, 1937
1.2
1.2
1.0
1.0
.8
.8
.6
.6
FEBRUARY 19, 1941
.4
4
.2
s2
JUNE 5, 1939
o
0
I
2
3
4
5
YEARS TO MATURITY
Office of the Secretary of the Treasury
F - 198 - A
/ % 1 I 1
242
High-Grade Corporate Bond Issues
February 21, 1941
:
No.
: Price : Yield,Bating
1 Bell Telephone, Pennsylvania
5's 1-1-1944
113-1/4
.67 Aa
2 Union Pacific
4's 7-1-1947
112-1/4
1.94
Ana
3 United States Steel
2.10's 11-1-1949
101-1/4
1.94
A
4 United States Steel
2.20's 11-1-1950
100-1/2
2.14
A
5 Liggett & Myers
5's 8-1-1951
126-1/2
2.15
Aaa
6 Standard 011, New Jersey
2-3/4's 7-1-1953
104
2.37
las
7 Bell Telephone, Pennsylvania
5's 10-1-1957
130-1/4
2.72
An
8 New England Tel. & Tel.
4-1/2's 5-1-1958
125-1/8
2.67
la
9 Union 011, California
3's 8-1-1959
103-1/8
2.78 A
10 Pennsylvania Railroad
4-1/2's 8-1-1960
121-3/4
3.01
An
11 Inland Steel
3's 4-1-1961
105-7/8
2.62 A
12 National Steel
3's 4-1-1965
104
2.77
A
13 Brooklyn Edison
3-1/4's 5-15-1966
109
2.75
Ana
14 Cleveland Electric,Ill.
3's 7-1-1970
106-3/4
2.67
ARB
Treasury Department, Division of Research and Statistics.
(Rundan) February 23, 1941.
Used 2/24/41
243
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
February 21, 1941.
FROM
Alan Barth
EDITORIAL OPINION ON H. R. 1776
CURRENT TREND
Ennui has overtaken the editorial writers. Having expressed their thoughts
to the limits of redundancy respecting H, R. 1776, they now show clear signs of
weariness at the reiteration of the same ideas in the Senate.
It is evident from their current comments that they have been glancing at
the front page headlines of their respective papers. The news from the far east
and from the Balkans has made them restive over Senate ritual. Two points have
received dominant stress during the past week: (1) that aid to Britain must be
prompt to be effective; (2) that, since enactment of the bill is certain, an over-
whelming vote in favor of it will contribute to its usefulness.
PRESSURE FOR UNITY
Most critics of the original bill seem to feel that they have now secured
all that they can expect - more than they hoped for - in the way of limitations
on the powers granted to the President. A number of influential Republican papers
chide their party representatives for the partisan division in the House. They
acknowledge that the Administration has contributed generously toward the achieve-
ment of unity and exhort G. 0. P. leaders to go and do likewise.
Similarly, papers which have consistently supported the bill now advocate
the acceptance of amondments in order to enlist the support of doubtful Senate votes.
There is exceedingly strong sentiment for the Dirksen amendment, and particularly
for the improved version of it offered by the Senate committee. Clamor continues
for Congressional specification of the countries to be beneficiaries of lend-lease
aid. But the desire for unity now seems to be the pervading motive.
The revelation of the true faith according to the gospel of Wendell Willkie
has undoubtedly had a potent effect on the newspapers which are normally anti-
Administration. Applause for his testimony before the Senate Foreign Relations
Committee was all but universal, The Daily Worker, The Chicago Tribune and a few
satellites alone screaming "Treason!" Among the newspapers examined, 123 commented
approvingly on his appearance, while only seven registered outright condemnation of
him.
Regraded Unclassified
244
- 2 -
PRESENT DIVISION OF OPINION
It is somewhat difficult to catalogue newspapers rigidly as for or against
H. R. 1776. The bulk of them assail features of the bill, while applauding its basic
purposes. Unquestionably, both the quality and the quantity of the opposition has
diminished steadily as the Administration made concessions, as the genuine eig-
nificance of the measure became understood, as public opinion made itself felt and
as a sense of urgency developed.
Study of the temper of editorials, as distinct from their explicit observa-
tions prompts the following generalization: A five to one ratio now exists between
those newspapers which are prepared to endorse the bill, albeit with misgivings,
and those newspapers which would destroy it entirely or substitute for it some-
thing radically different, such as the Taft proposal.
H. R. 1776 AS A BUSINESS TRANSACTION
H. R. 1776 is variously referred to in news columns and editorials as "The
Lend-Lease bill", "The Anti-Hitler bill", "The Aid-Britain bill", and "The War
Dictatorship bill". Newspapers have presented it to the public sometimes as a
piece of pure philanthropy, more often as a bloodless method of warfare against
the Axim, or, in the case of The Chicago Tribune, as "The Twilight of Free Gov-
ernment".
But implicit in almost all comment concerning it ie the assumption that the
goods to be transferred to Britain will be given away. Virtually no consideration
has been accorded to the "payment or repayment in kind or property, or any other
direct or indirect benefit" which the President is authorized to secure in return
for the assistance rendered. If this aspect of the bill is mentioned at all, it
is generally alluded to as a probable future embarrasament to the United States,
on the assumption that the goods will glut our markets.
The possibilities of repayment in forms that will be economically beneficial
to the United States - and, indeed, to the whole of world trade - are inade-
quately appreciated by newspaper commentators. Access can be secured to raw
material sources now controlled under arbitrary price policies by British cartels.
Compensation can be made, to some degree, through shipment to this country of
strategic materials in which the United States is deficient. Perhaps it will be
possible to cement Good Neighbor relations with Latin America by setting up &
trusteeship over British assets there and giving the other American Republics an
apportunity to free themselves from the burdens of absentee landlordism.
H. R. 1776 is now accepted as a means of combatting the Totalitarian
military menace. It has virtues, also, 38 an instrument with which to relieve
the economic conditions responsible for Totalitarianism.
Regraded Unclassified
245
OFFICE OF PRODUCTION management
SOCIAL SECURITY BUILDING
WASHINGTON, D.C.
February 21, 1941
Dear Henry:
On my return from your
office this morning I found on my desk
your cordial note regarding my trip to
England. Your good wishes mean much to
me.
Sincerely,
The Honorable Henry Morgenthau, Jr
Secretary of the Treasury
Washington, D. C.
BILLS 9 W IN
246
Politicary 19, 1941.
Dear - Services
10 - with a dost of pleasure that
I health of - sclection - "supolitor" is
consetion with the ensuying one of the 1000-
less pregram I mat to emá - my beet wishes
for your mates in this efforme mi Important
and I hope that all will - will
with your approaching trip to - to
your nagotiations there,
I I 1 1
I
(Signed) I Merganthan, St.
I 1 Instrito s
Chief of the Materiale Division,
office of Production
National Defense
I d s
GEF/dbs
Regraded Unclassified
247
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 21, 1941.
TO
Secretary Morgenthau
FROM E. H. Foley, Jr.
The Public Debt Act of 1941 will be effective on March 1,
1941. Thereafter no obligations issued by the United States or
any agency or instrumentality thereof will be exempt from Federal
income tax. The Treasury has shown its good faith in its endeavor
to eliminate tax exempt securities.
I believe that you are now called upon to proceed against
bondholders of the Port of New York Authority for the collection
of taxes on the income derived from the outstanding bonds of the
Authority. Needless to say, I am not recommending any change in
our attitude that only future issues of state and local securities
should be subjected to Federal income taxation. It must also be
emphasized that you will again recommend legislation abating back
income taxes on securities of the character of the Port Authority
bonds as you did when the Supreme Court held that salaries of non-
Federal employees were taxable.
The purpose of this memorandum is (a) to suggest the general
nature of the considerations which lead to the conclusion that you
have no justifiable alternative under the law and the policy of
the Administration, and (b) to submit for your approval a plan of
procedure.
1. On January 13, 1939 I spoke on the telephone to you when
you were at Boca Grande about the necessity for Congress to enact
remedial legislation in order to avoid the collection of taxes from
bondholders of state corporate instrumentalities. You suggested
that in the interests of expedition Mr. Hanes present a letter to
the President at the Cabinet meeting that afternoon, calling his
attention to the fact that the Bureau of Internal Revenue had no
choice but to enforce the income tax law as declared in the latest
decisions of the Supreme Court.
2. The need for such haste arose from the decision of the
Supreme Court in Helvering V. Gerhardt [304 U. S. 405] in which the
Court held the salaries of employees of the Port of New York Auth-
ority subject to Federal income tax. One ground of the decision
was that the Port of New York Authority was "a state-owned corpora-
tion" like the public trustees who operate the Boston street rail-
Regraded Unclassified
248
- 2 -
road business or any other state-owned public service enterprise.
3. After you had called the President's attention to the
practical situation created by this decision, Bob Jackson (who
was then Solicitor General) wrote a note to the President in which
he said he thought that your suggestion that the attention of Con-
gress should be called to the urgent need for legislation to
eliminate the inequities which would flow from the retroactive
application of the decision in Helvering V. Gerhardt was important
and proper.
4. The result of your letter and this note was that on
January 19, 1939 the President sent & message to Congress asking
Congress to enact legislation "to prevent recent judicial decisions
from operating in such a retroactive fashion as to impose tax
liability on * # # income derived from securities heretofore issued."
5. The statutory exemption from the Federal income tax of
interest applies only to obligations of "a State, Territory, or any
political subdivision thereof. Unless the Port of New York Auth-
ority is a political subdivision its obligations are subject to
Federal income tax.
6. The Port of New York Authority is a bi-state corporation,
created by a compact between New York and New Jersey. The compact
was approved by Congress, which declared that the activities of the
Port Authority would facilitate interstate and foreign commerce.
Unlike counties, cities, towns and villages and similar subdivisions
created for political purposes, the Port Authority lacks general
powers of local government. Although it has geographical boundaries,
it has no power to levy or collect taxes and no power to legislate
within such boundaries. It has all the powers which any private
corporation would need to construct and operate bridges, tunnels,
terminals and similar public utilities, including the right of
eminent domain.
7. Because of the hope that the legislation recommended by the
President would be enacted, the Bureau of Internal Revenue has taken
no action to assert a tax against interest on Port of New York Auth-
ority bonds for the last two years. On March 15, 1941, the statute
of limitations will expire on income taxes due March 15, 1938.
Regraded Unclassified
249
- 3 -
8. It is extremely questionable that you should undertake to
exercise any longer administrative discretion not to enforce the
payment of taxes by Port of New York Authority bondholders, even
though the Court has not ruled squarely on the point 8.8 to whether
it is 8. political subdivision. While there is no doubt as to your
authority to approve amendments to Treasury Regulations without
with respect to decisions of the Supreme Court.
retroactive effect, there is doubt that you have the same authority
9. If you approve, I should like to talk the problem over with
Bob Jackson. If he agrees that we should proceed, we would then send
B. notice of deficiency (90 day letter) to an appropriate taxpayer own-
ing Port of New York Authority bonds for failure to include interest
on the bonds in gross income. Simultaneously with sending this
notice we would issue an announcement that the Treasury would con-
tinue to recommend that Congress provide clearly that only the
interest on future issues was subject to taxation, and that interest
on outstanding bonds of all public corporations, whether political
subdivisions or not, was not subject to taxation.
10. The Port Authority is the focal point of opposition to the
elimination of future issues of tax-exempt securities. It provides
the money, writes the speeches, and stimulates the lobbying against
the Administration on this issue. Once it is made clear that the
Port Authority bonds are subject to income taxation, the Authority
will be forced to cooperate with the Treasury in urging upon Congress
the elimination of future tax-exempt securities because as a part of
that legislation Congress will relieve the inequity which would flow
from taxing the interest on outstanding bonds.
This was the strategy which we followed in securing the elimina-
tion of tax-exempt salaries, the opposition to which also came from
the Port Authority and which collapsed when the Court held employees
of the Port Authority subject to Federal income tax on their salaries.
The Public Salary Tax Act of 1939 provided for taxing future salaries
and at the same time it relieved the Treasury from applying the
Supreme Court's decision retroactively.
Regraded Unclassified
250
4 -
11. If the Supreme Court holds that the Port Authority is not
8. political subdivision, but is merely a state agency organized
solely to manage a commercial enterprise in the public interest,
it will then have to decide whether the interest on the bonds is
exempt from income taxation under the Constitution. In the light
of recent decisions of the Court, I have no doubt that the Court
will hold that the interest is not constitutionally immune in the
hands of private owners of the bonds, and will overrule the case of
Pollock V. Farmers Loan & Trust Co. [(1895) 157 U. S. 429; 158 U.
S. 601].
Justices Stone, Frankfurter, Douglas, Black and Reed will be
with the Treasury beyond any question, and I think that Justices
Murphy and Roberts will also be with the majority. Chief Justice
Hughes will probably disqualify himself because, when he was in
private practice, he gave an opinion to the Port Authority that the
interest on its bonds was exempt under the Constitution. With
Justice McReynolds now retired, there is no Justice on whom the
Port Authority can count on its side on the constitutional issue.
If you agree that we should proceed on the basis outlined in
this memorandum, please indicate your approval below.
9.11.7h.
Approved:
251
Regraded Regraded Unclass Unclass
FEB $1 1941
My dear Senator Vandenberg:
Reference is made to your letter of February
15, 1941, in which you inquire whether the old World War
debt stands upon our books against the United Kingdom or
against the entire British Expire.
When the debt-funding arrangement of 1923 was
made, the agreement was made by "His Brittanic Majesty's
Covernment", thereafter referred to in the document as
"Great Britain". The Moratorium Agreement of 1932 was
made on behalf of "the Government of the United Kingdom
of Great Britain and Northern Ireland". It is this 011-
tity which may properly be said to owe us the debt and
not the entire British Empire.
In connection with the application of the
Johnson Act to the British Dominious, you may be inter-
ested in an spinion submitted by Attorney General Cumaings
to the Secretary of State on May 5, 1934 (37 Op. Atty.
Gen. 505), in which the following paragraph appears on
page 512:
"It has also been asked whether or
not Canada, & member of the consonwealth
of nations which compose the British Empire,
252
- 2
is to be regarded as & political sub-
division of Great Britain. The question
should properly be answered in the night
tive, and this conclusion was suggested in
Congress (Cong. Rec. Vol. 78, p. 8052),
but it appears to be immaterial in view of
my conclusion above stated concerning the
intention of Congress as applied to the
obligations of political subdivisions.
Canada, I believe, is not in default."
of course, entirely spart from the terms of
the Johnson Act, extensions of credit to Canada,
Australia, New Zealand, and the Union of South Africa
are governed by the provisions of section 7 of the
Neutrality Act, which deals with the extension of credit
by any person within the United States to the government
of any state named in cortain proclemations of the
President, or any political subdivision thereof, or to
any person acting for or on behalf of such government
or political subdivision. The provisions of section 7
of the Neutrality Act were made applicable to the above-
mentioned countries by the President's Proclamation
No. 2374 of November 4, 1939 (4 Fed. Reg. 4493).
Sencerely yours,
(Signed) E Morgesthau, Jr.
Secretary of the Treasury.
Honorable Arthur H. Vandenberg,
United States Senste.
File to Mr. Thompson
2/20/41
By Memonsor 2
Regraded Unclassified
(COPY)
253
UNITED STATES SENATE
Committee on Foreign Relations
February 15, 1941
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
My dear Mr. Secretary:
You will recall that when you appeared as a witness
before the Senate Foreign Relations Committee I asked
you whether the old World War debt stands upon our books
against the United Kingdom or against the entire British
Empire, and you were unable to give me a conclusive
response.
I am very anxious to have a definite answer and I
shall appreciate it at your earliest convenience. The
point is that if the old World War debt stands in the
name of the United Kingdom, then Canada, Australia, New
Zealand and South Africa are not defaulters under the
terms of the Johnson Act.
I shall welcome official comment upon this proposition.
With warm personal regards and best wishes,
Cordially and faithfully,
/8/ A. H. Vandenberg
254
The following testimony appears on page 23 of the
Hearings before the Committee on Foreign Relations, United
States Senate, on S. 275 (Lease Lend Bill):
SENATOR VANDENBERG. Is the old World War debt a. debt
in the name of the United Kingdom or in the name of the British
Empire?
SECRETARY MORGENTHAU. I shall just have to answer that
"I do not know," Senator; the statement I have here, which is
not an answer to your question, says "Great Britain," but I
will have it looked up and give it to you. I have not got the
answer. This says "Great Britain," which is not an answer
to your question. I shall get it, however.
When the funding arrangement was made it was signed for
His Britannic Majesty's Government, thereafter referred to
in the document as Great Britain. In the moratorium agreement
of 1932 the British representative signed for the Government of
the United Kingdom, and therefore it is this latter entity
which may properly be said to owe us a war debt.
255
SHANGHAI
February 21 1941
Nicholson
Spagent
Washn DC
Fisher Yu states that Admiral Baron Osumis plane in which
he was killed on February 5th with several other high Japan-
ese military men was definitely brought down by Chinese
guerrillas; that plans for taking Singapore base were found
among the papers of Osumi; that these plans were turned over
to the British Ambassador by Chungking officials; and that
this is the reason for Australian troops being sent to
Malaya. Yu also has heard rumors that puppets and Japanese
have been discussing ways and means of seizing Bank of
Communications and new Bank of China buildings and are
planning to open their safe in new Bank of China building
on bund about June let
Jacobson office 1 Treasury attache
Regraded Unclassified
256
KD
GRAY
Berlin
Dated February 21, 1941
Rec'd. 12:44 p.m.
Secretary of State,
Washington,
655, February 21, 9 a.m.
My 342, January 30, 6 p.m.
FOR TREASURY FROM HEATH
According to & statement of the Reich's in-
debtedness at the end of November, which has just
been published, disclosed long and medium term
indeptedness increased during November by 1.42
billion marks which together with the increase
of 1.74 billion marks in short term indebtedness,
reported in my telegram under reference, makes a
total increase of 3.16 billion marks during November
exactly one billion marks less than the October
increase but about the sale as the average
borrowing of the five months preceding October.
Total disclosed indebtedness (including tax
certificates) stood at 76.98 billion warks at the
end of November.
The
257
-2- 655, February 21, 9 a.m., from Berlin.
The principal increases in long and medium term
debt during November WETE 1.06 billion marks in 4%
treasury bonds and 0.4 billion marks in li-loans.
MORRIS.
WSB
258
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 21, 1941
TO Mr. Thompson
FROM Mr. Haas MA.
In further response to your request of December 26, 1939,
there 18 submitted herewith for the Division of Research and
Statistics a memorandum listing, with brief descriptions, the
studies or projects completed or under way, and the names of
persons working on each, for the month of January 1941.
259
DIVISION OF RESEARCH AND STATISTICS
Report of Studies or Projects Completed or Under
Way, and the Names of Persone Working on Each,
for the month of January 1941
For convenience of reference, the studies listed are
grouped under general subject heads.
The names shown for persons working on each project
include only those who participated fairly directly, as
explained in the introductory note to the corresponding
report submitted on December 28, 1939. No attempt has been
made to cover also persons whose responsibility in each
particular case was mainly in planning, supervising, or con-
sulting.
Financial Analysis
I. Projects or studies completed
1. Reviews of current developments in the high-grade B0-
curities markets were prepared, and memoranda were trans-
mitted to the Secretary on January 8 and 28. - Mr. Heae,
Mr. Turner, Mr. Purvis
These reviews contained, in addition to analysis of the
current situation, the following special studies:
(a) Excess reserves (Review of January 8, page 3). -
Mr. Turner
(b) Estimated amount of privately held tax-exempt Be-
curities (Review of January 8, page 4). - Mr. Turner
(c) The new Defense note (Review of January 28, page 2). -
Mr. Turner
(d) Bank holdings of securities of the Federal Govern-
ment (Review of January 28, page 4). - Mr. Turner
2. A memorandum was prepared in connection with the pro-
posed new issue of National Defense notes including
estimated yield bases and probable premiums on three
suggested issues, and was transmitted to the Secretary
on January 21. - Mr. Haas, Mr. Murphy, Mr. Turner,
Mr. Conrad
Regraded Unclassified
260
- 2 -
3. A table was prepared of probable yield bases and premiums
of suggested National Defense notes with three different
maturities, based on closing bids on January 15, and
was completed on January 16. - Mr. Murphy
4. A table was prepared of probable yield bases and premiums
of suggested National Defense notes with three different
maturities, allowing a five basis point leeway over the
estimated bases on the new Defense notes, and was com-
pleted on January 21, - Mr. Conrad
5. A table was prepared of probable yield bases and probable
premiums of suggested National Defense notes, showing
estimated bases on the first two Defense notes if their
maturities are shortened three months, and was completed
on January 21. - Mr. Conrad
6. Yield rates on United States securities, direct and
guaranteed, on the basis of over-the-counter closing
quotations were calculated daily. These were summari zed
each day in a table showing for each issue the closing
price and yield that day, the change in price and yield
from the preceding day, and the price range since date of
issue and also for the years 1940 and 1941 to date. A chart
for each issue was kept up to date showing recent daily
price and yield figures together with comparative monthly
data since 1933 or since date of issue. Similar calculations
are made daily on the basis of New York Stock Exchange clos-
ing quotations on direct and guaranteed bonds of the United
States, for use in preparation of the publication "Market
Prices and Yields of Outstanding Bonds, Notes, and Bills of
the United States", described under Publications in this
report. - Mr. Moody, Miss McCoy, Mr. Kroll
7. At the request of the Secretary, arrangements have been
made to secure periodically from the British Purchasing Com-
mission certain information regarding purchases in the United
States by the British Empire. - Mr. Hass, Mr. Lindow, Mr. March
(a) Weekly statements are received covering the itemi zed
purchases by British Empire Governments through the
Commission, the itemized purchases made by these
Governments with the knowledge of the Commission
but not through its facilities, and inquiries made
by the Commission or with its knowledge for future
purchases. Similar statements are received showing,
by itemized contracts, deliveries made with respect
to orders placed by Great Britain through the Commis-
sion. The details with respect to orders and deliv-
eries are classified by some twenty-five commodity
groups designed especially for the purpose.
261
- 3 -
These data are reviewed and edited in the Divi-
sion each week and & report 18 then prepared
summari zing in dollar volume the information on
orders and deliveries, by commodity groups.
This report consists of eight statements: the
first three summarize orders placed by the
individual governments of the British Empire for
the ourrent week and the totals to date; the next
three statements summarize total orders of the
British Empire on & historical basis; the last
two statements present data on deliveries with
respect to orders placed by Great Britain through
the British Purchasing Commission. These weekly
commodity statements were prepared on January 4,
10, 17, 25, and 31, and were transmitted accord-
ing to instructions by the Secretary.
(b) The Commission also supplies the Division each
week with the data required to prepare statements
giving the details concerning the physical volume
of airplane and airplane engine orders in the United
States by the British Empire. The material for
these statements is contained in & group of work-
sheets prepared by the Commission, but it is
necessary for the Division to consolidate and 00-
ordinate the information contained in the Commission's
statements. The finished tables show, by company
and by type of plane or engine, the following in-
formation: (1) summary of orders, deliveries, and ex-
ports; (2) history of orders; (3) history of de-
liveries; (4) exports, classified by destination;
(5) scheduled deliveries of unfilled.orders;
(6) options: scheduled deliveries; (7) spare parts:
orders, deliveries, unfilled orders, and options;
and (8) secondhand units: orders, deliveries, and
scheduled deliveries of unfilled orders. These air-
craft reports were prepared, and were transmitted
on January 4, 10, 17, 25, and 31, according to in-
structions by the Secretary.
(o) Reports are prepared each week showing commitments
by the British Empire Governments for capital ex-
penditures in the United States and for extra-
ordinary charges designed to expedite deliveries.
The data for these statements are provided by the
Commission but the tables actually are prepared in
the Division. Tables showing capital commitments
were prepared, and were transmitted on January 4, 10,
17, 25, and 31, according to instructions by the
Secretary.
262
4 -
(d) Monthly statements also are prepared with respect
to certain activities of the Commission. One of
these statements shows the physical volume of iron
and steel purchases by, and deliveries to, the
British Government. A revised monthly report,
consisting of nine statements, has been prepared
on a preliminary basis, with certain information
still lacking, with the hope that subsequently
full information will be made available by the
British Iron and Steel Corporation. The new re-
port was transmitted on January 30, 1941, accord-
ing to instructions by the Secretary.
(e) Information 18 being prepared also by the British
Purchasing Commission which will make possible
the regular issuance of similar statements con-
cerning contractual deliveries on orders placed
in the United States by the British Empire for
(1) explosives and propellants, (2) toluol,
(3) shells and bombs, (4) small arms ammunition,
(5) ordnance, (6) automatic small arms, (7) sub-
machine guns, revolvers, and rifles, (8) tanks
and equipment, (9) non-ferrous metals, (1) motor
vehicles, (11) small boats and ships, and (12) marine
engines.
(f) Several special statements were prepared for the
Secretary during January. On January 10, a state-
ment was prepared itemizing orders placed by the
British Government through the British Purchasing
Commission after December 19, 1940, as reported to
December 28, 1940. On January 22, 1941, this state-
ment was brought up to January 16, 1941, and trans-
mitted to the Secretary.
On January 29, & similar statement was prepared
itemizing orders placed by the British Government
through the British Purchasing Commission from
January 1 through January 28, 1941. This was trans-
mitted to the Secretary on January 30, 1941.
A summary of commitments made with respect to orders
placed by the United Kingdom in the United States
up to December 31, 1940 was prepared on January 14,
1941. This statement showed total orders placed,
total payments made thereon, and the balances due, as
of December 31, 1940, and presented a time distribu-
tion of estimated future payments on these commit-
mente. The data were classified by commodity groups.
On January 25, this statement was brought up to
January 16, 1941, and was transmitted according to
instructions by the Secretary.
263
- 5 -
8. At the request of the Secretary on January 17, & letter
was prepared to Mr. Gano Dunn on that date, for signa-
ture of the Secretary, attaching an estimate of require-
ments by the British Government for steel in the United
States. - Mr. Haas, Mr. Lindow
9. At the request of the Secretary, arrangements have been
made to secure periodically certain information regard-
ing purchases in the United States by the Netherlands
Purchasing Commission, and Lindeteves, Inc. - Mr. Haas,
Mr. Lindow, Mr. March
(a) Weekly statements are received covering the itemized
purchases in the United States by the Netherlands
Purchasing Commission, and the volume of deliveries
made thereon. Similar statements are received con-
cerning the activities of Lindeteves, Inc., a large
private commercial organization operating in the
Dutch East Indies. The details with respect to
orders and deliveries for these purchasing agenoies
are classified by the same twenty-five commodity
groups used for reporting orders placed in the
United States by the British Empire.
These data are reviewed and edited in the Division
each week. Reports are then prepared for each of
these agencies summarizing the information on orders
and deliveries, classified by commodity groups.
These reports consist of three statements: the
first shows the history of orders placed; the second
shows the history of deliveries made on these orders;
and the third shows the ourrent delivery status of
orders. These weekly commodity statements covering
orders of the Netherlands Purchasing Commission were
prepared, and were transmitted on January 4, 10, 17,
25, and 31, in accordance with instructions by the
Secretary. Similar statements for Lindeteves, Inc.,
were prepared, and were transmitted on January 9,
14, and 18, also according to instructions by the
Secretary.
(b) Statements summarizing future requirements in the
United States by the Netherlands Government were
begun by the Netherlands Purchasing Commission with
the assistance of the Division, in the latter part of
January. These statements will show in dollar values
estimated future requirements of the Commission with
respect to all commodities, and estimated delivery
requirements in terms of physical quantities for all
important individual products.
264
- 6 -
10. At the request of the Secretary on May 23, arrangemento
were made for securing weekly until September 11, and
after that fortnightly, from more than forty airplane
and airplane engine manufacturere data on deliveries,
new orders, unfilled orders, and estimated deliveries
by months on the unfilled orders. Analytical tables
are prepared every other week showing this information
by type of plane or engine and by class of purchaser.
Reports for the fortnights ended January 4 and 18, were
prepared on January 8 and 22, and Were transmitted ao-
cording to instructions by the Secretary. - Mr. Haas,
Mr. Tickton, Mr. D. J. Leahy
11. At the request of Under Secretary Bell, various memo-
randa and charts were prepared for use in the Friday
discussion group, considering matters of general Inter-
est in connection with defense financing. - Mr. Haas,
Mr. Murphy, Mr. Daggit
The material presented during the month included the
following:
(a) Ananalysis was made of recent price movements,
illustrated by six wall charte and one small
chart: the first showing the movements of an
index of 16 industrial raw materials and of an
index of 12 foodstuffs since August 1939; the
second showing the movements of the NICE cost-of-
living index compared with the BLS index of 863
commodities since 1935, and the BLS index of 28
basic commodities compared with the BLS index of
863 commodities since August 1939, both on the
basis of 1926=100. On the first of these charte
were shown also percentage price changes for 28
individual commodi ties, 16 industrial raw materials,
and 12 foodstuffs, from the August 1940 low to
December 11, 1940, and to January 8, 1941.
On the third and fourth charts were shown percent-
age price increases for the 10 major groups and 26
selected subgroups of the BLS all-commodity index of
wholesale prices, indicating the extent and disper-
sion of price advances in 1940 from the 1940 lows
to the latest available quotations.
265
- 7 -
Two similar charte were presented for B. group of
40 selected industrial materials which had shown
extensive price advances, and for the 44 items
comprising the BLS index of lumber prices.
To illustrate the effect of higher lumber prices
on the cost of residential construction, a small
chart was shown indicating percentage changes from
July to December 1940 in various cost items in the
construction of & standard frame house in the
St. Louis area. This chart 18 described also under
Economic Conditions, I, as item 10. (These seven
charts presented at the meeting on January 10.) -
Mr. Daggit, Mrs. May
(b) An analysis was made of recent price trends 11-
lustrated by two wall charts, described above
under item (a) brought up to date 8.8 of January 15,
and showing for 28 individual commodities: 16 in-
dustrial raw materials and 12 foodstuffs, percentage
price changes from the August 1940 low to January 8
and to January 15. (Chart presented at the meeting
on January 17.) - Mr. Daggit, Mrs. May
(c) A review was presented of the pamphlet entitled
"Fundamental Economic Issues in National Defense"
by Harold G. Moulton, issued by the Brookings
Institution on January 13, and copies were dis-
tributed of a comparative table of the Budget Esti-
mates and the Brookings recommendations of receipts
and expenditures. (Presented at the meeting on
January 17.) - Mr. Murphy
(d) An analysis WAB made of recent price movements 11-
lustrated by the first two wall charts described
above under item (a), brought up to the date of
January 22, and showingfor 28 individual commodities:
16 industrial raw materials and 12 foodstuffs, per-
centage price changes from the August 1940 low to
January 15, and to January 22. A chart was shown to
illustrate the recent price movements of 18 industrial
materials, which in December had shown extensive price
advances from their lowest prices in 1940. Percent-
age increases were shown to December 26 and to
January 15. (This chart 18 described also under
Economic Conditions, I, A.G item 9.)
The fourth and final chart illustrating price trends
showed for each of the 18 commodi ties monthly prices
from January 1935 to January 15, 1941. (Charts pre-
sented at the meeting on January 24.) - Mr. Daggit,
Mrs. May
Regraded Unclassified
266
- 8 -
(e) A presentation WAS made of the freight car situa-
tion with reference to the prospect of & shortage
next fall. Five wall charts were used. The number
of freight care owned by Class I Railroads, and
the volume of car loadings were shown by months
for the period from 1924 to 1940. Total freight
car loadings were shown by weeks for the years
1938, 1939, and 1940, and for the first three
weeks of 1941. Coal and coke freight car load-
ings were shown by months for the years 1938, 1939,
and 1940. The October freight car surplus was
shown, with the ratio of cars owned to car loadings,
for the period from 1933 through 1940, and projected
for 1941. The final chart showed, on the basis
October 1935-39=100, October freight car loadings
and the FRB index of industrial production 1935-39=100,
adjusted, for the period from 1928 through 1940, and
projected for 1941. This study 1s described also
under Economic Conditions, II, as item 8. (Statement
and charts presented at the meeting on January 24). -
Mr. Daggit, Mrs. May
12. An estimate was completed of the distribution, by classes
of holders, of tax-exempt securities outstanding as of
June 30, 1940, and was transmitted to Mr. Blough on
January 24. - Mr. Lindow, Mr. Conrad, Mr. Purvis,
Mr. Stringham
13. At the request of Mr. Broughton on January 10, a memo-
randum was prepared comparing tables published by the
National City Bank of New York with those in the
Secretary's Annual Report for 1940, on estimates of
holdings and absorption of the public debt and guaranteed
obligations, and was transmitted to him on January 28. -
Mr. Murphy, Mr. Turner, Mr. Barnett
14, Three tables were prepared and were completed on
January 21 and 28, on the basis of certain arbitrary
assumptions, forecasting the amount of tax-exempt
securities which will be outstanding as of June 30,
1941, their distribution by classes of holders, and
their run-off during the next five calendar years. -
Mr. Turner, Mr. Conrad, Mr. Purvis, Mr. Barnett
15. At the request of Under Secretary Bell on November 12,a
study made of the relationship between the amount of
currency in circulation and the volume of bank deposits,
and was transmitted to him in a memorandum on January 2. -
Mr. Turner, Mr. Stringham
Regraded Unclassified
267
16. At the request of the Secretary on January 2, for
point-by-point disoussion of the Joint recommendations a
made to Congress by the Board of Governors of the Federal
Reserve System, the Presidents of the Federal Reserve
Banks, and the Federal Advisory Council, a memorandum
was prepared, and copies were transmitted on January 7.
Mr. Turner, Mr. Purvis
to Under Secretary Bell. - Mr. Hass, Mr. Murphy,
17. At the request of the Secretary on January 2, coopera-
tion was given the Division of Monetary Research in pre-
paring a memorandum on the joint recommendations made to
Congress by the Board of Governors of the Federal Reserve
System, the Presidents of the Federal Reserve Banks, and
the Federal Advisory Council. - Mr. Haas, Mr. Murphy
18. At the request of Under Secretary Bell on December 20,
a memorandum was prepared on the estimated reduction in
excess reserves possible under the existing law, and was
transmitted to him on January 2. - Mr. Murphy, Mr. Turner,
Mr. Stringham
19. At the request of Under Secretary Bell on January 8, a
memorandum was prepared on the reduction in excess re-
serves which might be effected by a reclassification of
cities for reserve purposes, and was transmitted to him
in a memorandum on January 24. - Mr. Murphy, Mr. Purvis,
Mr. Barnett
20. At the request of the Secretary on January 4, a memorandum
was prepared and was transmitted to him on January 6 with
reference to the Post Office's handling checking accounts. -
Mr. Haas, Mr. Murphy
21. At the request of the Secretary on January 7, a memorandum,
and chart were prepared and were transmitted to him on
January 9, on the trends of prices of six individual bank
stocks, in comparison with the market trends of the Dow-
Jones industrial stock index, before and after publication
on January 1, 1941, of the joint recommendations made to
Congress by the Board of Governors of the Federal Reserve
System, the Presidents of the Federal Reserve Banks, and
the Federal Advisory Council. - Mr. Daggit, Mrs. May,
Mr. Smith, Miss Hagedorn
22. At the request of the Secretary on January 15, a memorandum
was transmitted to him on January 16, with respect to
Mr. Haas' conversation with Mr. Leon Henderson concerning
investigation of bank stocks. - Mr. Haas
Regraded Unclassified
268
- 10 -
23. At the request of the Secretary on January 3, a
memorandum and chart were prepared and were transmitted
week of October 1940, of United States securities
to him on January 9, on price trends since the first
over by the British on December 15, 1940, compared taken with
market. Indexes were computed on price movements of
price trends for representative groups in the general
the 42 common stocks, 17 preferred stocks, and 6 bonds
and these were compared with the Dow-Jones averages
included in the British vesting order of December 15,
of 65 common stocks and 40 bonds, and & composite
compiled in the Division from 16 selected stocks. -
Mr. Daggit, Mrs. May, Mr. Smith, Miss Hagedorn
24. At the request of the Secretary on January 6, a
memorandum was prepared, transmitting to him on
January 30, photostats and memorandum prepared by the
SEC on trading in common stock of the International
Telephone and Telegraph Corporation between January 2
and 6, 1941, together with a summary table prepared in
the Division of Research and Statistics. - Mr. Haas,
Mr. Tickton
25. At the request of the Secretary on January 13, 8.
memorandum was prepared on the prices of German munic-
ipal bonds, and was transmitted to him on the same date. -
Mr. Murphy, Mr. Turner, Mr. Purvis, Mr. Barnett
26. At the request of the Secretary on January 27, assist-
ance was given on January 27 and 28, in preparing the
statement made by the Secretary on January 29, before
the Committee on Ways and Means of the House of Repre-
sentatives, on H. R. 2654, a bill to increase the debt
limit of the United States, to provide for the Federal
taxation of future issues of obligations of the United
States, and for other purposes. - Mr. Haas, Mr. Murphy
II. Projects or studies under way
1. Study of the relationship between the yields and
maturities of high-grade securities immediately pre-
ceding major bear markets in such securities. - Mr. Turner
2. Comparison of the relative amplitude of price fluctua-
tions of long-term and short-term securities. - Mr. Lindow,
Mr. Conrad
269
11 -
3. Study of the effect of the maturity, call period, ooupon,
premium, and size of the issue on the prices and yields
of U. 8. securities. - Mr. Conrad
4. Memorandum comparing and contrasting war and depression
deficit-financing. - Mr. Murphy
5. Review of war-financing measures in belligerent countries
in the present war. - Mr. Murphy, Mr. Purvia, Mr. Stringham
D. United States Savings Bonds - An analysis of factors
affecting sales and redemptions of United States savings
bonds, as a guide to future experience. - Mr. Conrad
7. At the request of the Division of Statistical Standards,
Bureau of the Budget, on September 20, a review 18 being
made of the "Base Book of Financial Statistics", to be
issued by the Federal banking authorities. - Mr. Murphy
6. At the request of Under Secretary Bell on October 14, a
memorandum 18 being prepared on a memorandum submitted
by Mr. John Evans, President of the First National Bank
of Denver, Colorado, in reference to United States Govern-
ment bonds now owned by the Federal Reserve System and its
member banks, and suggestions concerning a refunding and
change in form which would accear to be in interest of
the Treasury Department, the Federal Reserve System, the
member banks, the Federal Deposit Insurance Corporation,
and the public generally whose money 18 deposited in
member banks. - Mr. Murphy
9. A memorandum 1a being prepared for Under Secretary Bell
on a new type of investment security proposed by Mr. Rouse.
-
Mr. Murphy, Mr. Turner
10. In response to a request by Under Secretary Bell on
January 27, comments are being prepared on & memorandum
by Mr. George Eddy to Mr. White, in regard to B. plan of
Mr. N. E. Peterson entitled, "A Means of Financing the
Defense Program". - Mr. Turner
11. At the request of Under Secretary Bell replies are being
prepared to certain questions asked by the Wagner Committee
preparatory to its investigation of banking and monetary
conditions pursuant to Senate Resolution 125. - Mr. Hass,
Mr. Murphy, Mr. Turner, Mr. Conrad, Mr. Purvis
Regraded Unclassified
270
12 -
12. Assistance was given the Legal Division and the Divi-
sion of Tax Research in the preparation for the
General Counsel of one group of examples of the pos-
sibilities of tax avoidance by means of tax-exempt
securities (for use of Mr. Walker Stone). These ex-
amples were transmitted under cover of a memorandum of
January 13, addressed to Assistant Secretary Sullivan
and Mr. Foley with letter to Mr. Stone and data at-
tached. Additional instances are in preparation. -
Mr. Murphy
13. At the request of the Secretary on December 1, four
maps were prepared of group banks and their branches,
and were transmitted to the First Deputy Comptroller
of the Currency on January 30. Additional material 1s
in preparation. - Mr. Tickton, Mrs. Wolkind
14. At the request of Mr. Broughton on January 27, a.
memorandum 18 being prepared on the revision of Depart-
ment Circular No. 596 - "United States Savings Bonds -
Series D". - Mr. Tickton
15. A memorandum is being prepared on the relationship be-
tween public debt operations and bank reserves. -
Mr. Turner
Revenue Estimates
I. Projects or studies completed
1. The regular monthly statement was prepared for the
Bureau of Accounts, showing the latest revised esti-
mates of receipts, by months and by principal sources
of revenue, for the period January 1941-June 1942, and
was transmitted on January 3. - Mr. Delcher
2. The regular monthly summary comparison of estimated re-
ceipts and actual receipts in December 1940 on the daily
Treasury statement basis, was prepared. - Mr. Delcher
3. The regular monthly detailed comparison of estimated
and actual receipts in December 1940, and for the
period January-June 1941, based on the collections
classification, was prepared. - Mr. Delcher
Regraded Unclassified
271
- 13 -
4. A forecast W&B completed on the basie of the 1942
Budget of the United States, of the monthly distribu-
tion of estimated revenue for the fiscal years 1941
and 1942. - Mr. O'Donnell, Mr. Daggit, Mr. T. F. Leahey,
Mrs. May, Mr. T. L. Smith, Mr. Bronfenbrenner,
Nr. R. R. Smith, Miss Hagedorn
5. Preliminary revised estimates of the population of the
continental United States, as of the end of each month
from December 1939 through December 1940, based on the
final population figures of the 1940 Census, were pre-
pared, and were transmitted on January 8, to Mr. Bartelt,
Mr. Mulroney, Miss Barr, and Mr. Weber, in memoranda
including, in response to & question, the suggestion
that per capita figures be revised whenever new popula-
tion estimates are released by the Bureau of the Census. -
Mr. Bronfenbrenner
6. Preliminary revised estimates of the population of the
continental United States, by States, as of June 30,
1940, based on the final population figures for the 1940
Census, were transmitted to Mr. Kane on January 16. -
Mr. Bronfenbrenner
7. At the request of Mr. Bartelt on January 21, a review
was made of a memorandum to the Commissioner of Accounts
from the Acting Commissioner of Internal Revenue setting
forth the Bureau of Internal Revenue's method of estimating
the amount of Defense taxes to be collected under Title II
of the Revenue Act of 1940. The review was transmitted
to Mr. Bartelt in a memorandum on January 31. - Mr. Leahey
3. At the request of the Division of Tax Research on
January 24, a review was made of & schedule outlining
the proposed punch card for an advance tabulation from
Form 1121 for 1940, relating to the excess profits tax,
and was transmitted on January 31 in & memorandum to
Mr. Blough. - Mr. Leahey
9. Estimates were prepared of the effects on the revenue of
the Federal Government for (1) the fiscal years 1942,
1943, 1944, and 1945, and (2) when all the present tax-
exempt issues have been retired, if (a) the interest on
all future issues of securities by the Federal Govern-
ment, its agencies and instrumentalities, were made fully
subject to Federal income taxes, with no change in the
taxable status of State and local securities, estimated
on the basis of the shift to tax-exempt securities and
272
- 14 -
on the non-shift basis; and (b) if the interest on
future issues of State and local securities were also
made taxable and State taxation of the interest on
future issues of Federal securities were permitted.
These estimates were transmitted to Assistant Secretary
Sullivan and to Mr. Blough in a memorandum addressed to
Mr. Blough on January 22, and in a table transmitted
to Assistant Secretary Sullivan on January 28. - Mr. Leahey,
Mr. Delcher, Mr. Bronfenbrenner
10. In connection with the probable revision of the revenue
laws in 1941, a number of revenue estimates listed below,
were prepared for use of Assistant Secretary Sullivan
and the Division of Tax Research. - Mr. O'Donnell,
Mr. Leahey, Mr. Smith, Mr. Bronfenbrenner, Mr. Delcher
(a) An estimate was prepared of the revenue effect,
on the basis of forecast income levels for the
calendar year 1941, of increasing the normal
tax rate (including the Defense tax) from 24 to
30 percent for corporations with net incomes
in excess of $25,000, and with proportionate
increases in rates applicable to corporations
with net incomes of $25,000 or less, and was
transmitted in a memorandum to Assistant Secretary
Sullivan on January 2.
(b) An estimate was prepared of the revenue effect,
at forecast business levels for the fiscal year
1942, of imposing a tax on bottled soft drinks
at the rate of one cent per bottle with equivalent
taxes on unbottled drinks and fountain syrups,
and was transmitted in a memorandum to Mr. Blough
on January 31.
(c) Estimates were prepared of the revenue effects,
at the business levels forecast for the fiscal
year 1942, of (1) reenacting the 2-cent check
tax imposed under the Revenue Act of 1932 and re-
pealed January 1, 1935; and of (2) reducing the
exemption under the admissione tax from 20 cents
to 9 cents, and were transmitted in a memorandum
to Mr. Blough on January 22.
Regraded Unclassified
273
- 15 -
(d) An estimate was prepared of the revenue of a
full year's collections in the years following
the first year of tax collections, at the fore-
cast levels of business and incomes for the fis-
cal year 1942, from increasing estate tax rates
upon net estates which, after specific exemption,
are less than $5 million, and increasing gift tax
rates to 3/4 the rates in a proposed estate tax
schedule, and was transmitted in e memorandum to
Mr. Blough on January 22.
(e) Estimates were prepared, based on the forecast
levels of business and incomes for the fiscal
year 1942, and assuming a full year's collections
of the estate and gift taxes in years following
the first year of tax collections under the new
proposals, of the revenue effects of the follow-
ing proposed estate tax and gift tax changes:
(1) reduce specific exemption under the estate
tax and gift tax from $40,000 to $25,000;
(2) adopt a new tax rate schedule increasing rates
upon net estates which, after specific exemption,
are less than $6 million, and increase the gift
tax rates to 3/4 the rates in the proposed estate
tax schedule; and (3) reduce the insurance exclu-
sion under the estate tax from $40,000 to $25,000.
These estimates were transmitted in a memorandum
to Mr. Blough on January 28.
(f) An estimate was prepared of the revenue effect,
if & full year of collections were received at
fiscal year 1942 forecast levels of business, of
an additional 2 percent excise tax on passenger
automobiles, and was transmitted in a memorandum
to Mr. Blough on January 2.
(g) Estimates were prepared of the revenue effects,
at forecast calendar year 1941 income levels, of
(1) increasing the bracket rates of tax up to
$20,000 of surtax net income, and of (2) increasing
the bracket rates of tax on surtax net incomes
under $16,000, and were transmitted in a memorandum
to Mr. Blough on January 7.
Regraded Unclassified
274
- 16 -
II. Projects or studies under way
1. Tentative plans for a WPA statistical project in con-
nection with work on the excess-profits tax, as well
as material proposed to be obtained from the Securities
and Exchange Commission, are being reviewed in accord-
ance with requests by the Division of Tax Research on
July 12 and 17. - Mr. T. F. Leahey
2. At the request of the Division of Tax Research on
July 12, an estimate is being made of the additional
revenue which would be derived if mutual insurance
companies other than life insurance companies taxable
under Section 207 of the Internal Revenue Code were
made taxable in the same manner 8.8 stock insurance
companies other than life insurance companies taxable
under Section 204, and at the same time the exemption
under Section 101(11) were restricted to local mutual
companies of the assessment type, - Mr. T. F. Leahey
3. At the request of the Division of Tax Research on
January 24, a review is being made of table outlines
proposed for tabulation from partnership returns of
income for 1939, submitted by the Statistical section
of the Bureau of Internal Revenue. - Mr. Leahey
4. At the request of the Division of Tax Research on
January 24, & review is being made of table outlines
submitted by the Statistical section of the Bureau of
Internal Revenue for tabulation of interest on Govern-
ment obligations reported on individual and fiduciary
income tax returns for 1938. - Mr. Leahey
5. In connection with the probable revision of the revenue
laws in 1941, at the request of the Division of Tax Re-
search on January 27, estimates are being made of the
revenue effects of adoption of three proposed changes
in the individual income tax surtex rate schedules,
showing separately the amounts attributable to the
Defense tax. - Mr. Bronfenbrenner
6. Projects for revising and improving methods of estimating
revenues from the following taxes: - Mrs. May, Mr. R. R. Smith
(a) Telephone and telegraph, radio and cable facilities,
leased wires, etc.
(b) Automobile trucks.
(c) Tires and inner tubes,
275
- 17 -
(d) Bituminous coal.
(e) Gasoline.
Economic Conditions Related to Fiscal
and Revenue Matters
I. Projects or studies completed
1. Memoranda on the business and price situation were
Mrs. May, Mr. Chevraux, Mr. Smith
January 6, 13, 21, and 27. - Mr. Haas, Mr. Daggit,
prepared and were transmitted to the Secretary on
These memoranda contained in addition to analysis of
the current situation the following special studies:
(a) An analysis of the 13 percent increase from
July to December 1940, in the cost of construct-
ing a standard 6-room frame house in the St. Louis
area. (Chart in memorandum of January 6. Also
described below, under Economic Conditions, I, as
item 10). - Mr. Daggit. Mr. Smith, Miss Hagedorn
(b) A comparison of the unrevised New York Times index
of industrial activity with the index as revised.
(Chart in memorandum of January 13. Also described
below, under Economic Conditions, I, as item 8). -
Mr. Daggit, Mr. Chevraux
(c) A study of the relation of current prices to prices
for the past six years of 18 industrial materials.
(Chart in memorandum of January 21. Also described
below, under Economic Conditions, I, as item 9). -
Mr. Daggit, Mrs. May, Mr. Smith, Mr. Colclough,
Miss Hagedorn
2. Memoranda on employment under the Work Projects Administra-
tion were prepared, and were transmitted on January 6, 13,
21, and 30, to the Secretary. - Miss Hagedorn
3. In accordance with arrangements previously made an esti-
mate of employment in the airplane industry by geographic
areas was prepared for December, and was transmitted on
January 14, according to instructions by the Secretary. -
Mr. Tickton
276
- 18 -
4. At the request of the Secretary, 8 table 1e prepared
each week summarizing exports of petroleum products,
scrap iron, and scrap steel, from the United States to
Japan, the U.S.S.R., Spain, and Great Britain, as in-
dicated by departure permits reported daily by the
Office of Merchant Ship Control. The tables were pre-
pared for the weeks ending January 4, 11, 18, and 25.
On January 6, 13, 21, and 27, the original and 13 photo-
state were transmitted to Assistant Secretary Gaston,
In addition, each week two photostats were transmitted
to Mr. Young, one of which wes for Mr. Purvis. -
Mr. Tickton, Mr. D. J. Leahy
5. At the request of the Secretary on January 22, B.
memorandum and charts were prepared and transmitted
to him on that date, on the export freight situation. -
Mr. Daggit, Mrs. May
6. Compilations were made of daily quotations on selected
commodities and daily and weekly figures on selected
business indexes, foreign and domestic security trans-
actions, security prices, exchange rates, 88 well as
other data for the Secretary's chart book. - Mr. Chevraux
7. Comments were prepared on the commodity situation as of
January 8, 15, and 22, for information in connection with
the Friday meetings of January 10, 17, and 24. - Mr. Daggit,
Mrs. May
8. A chart was prepared comparing the unrevised New York
Times index of business activity with the index as re-
vised from January 1938 through December 1940. This
chart was used in connection with the business memorandum
of January 13, and was listed under Economic Conditions,
I, 8.6 item 1(b). - Mr. Daggit, Mr. Chevraux.
9. A study was made of the relation of current prices to
prices for the past six years of 18 industrial materials
selected from the BLS all-commodity index of wholesale
prices, which in December 1940 had advanced 25 percent
or more from their lowest prices in 1940. This chart
was used in connection with the meeting of the Friday
discussion group on January 24, and was listed under
Financial Analysis, I, as 1tem 11(d), and also in con-
nection with the business memorandum of January 21, and
was listed under Economic Conditions, I, as item 1(c). -
Mr. Daggit, Mrs. May, Mr. Smith, Mr. Colclough,
Miss Hagedorn, Miss Spiegel
Regraded Unclassified
277
- 19 -
10. At the request of the Secretary on January 7, an
analysis was made of the 13 percent increase from
July to November and December 1940, in the 008t of
constructing a standard 6-room frame house in the
St. Louis district, using the monthly estimates
compiled by the Real Estate Analyst, Itemized in-
creases for materials, labor, and general costs were
shown in a chart. A copy of the chart, which had been
included in the business memorandum of January 6, listed
under Economic Conditions, I, as item 1(a), and also was
presented at the meeting of the Friday discussion group
on January 10, listed under Financial Analysis, I, as
item 11(a), was supplied to the Secretary for use by
the President. - Mr. Daggit, Mr. Smith, Miss Hagedorn
11. At the request of the Secretary on January 16, a
memorandum was prepared and was transmitted to him on
that date, containing an explanation of the 50 percent
rise in tallow prices above the price of August 1940. -
Mr.Haas, Mr. Daggit
12. At the request of Assistant Secretary Gaston on
January 17, a telegram was drafted for reply to one
from Mr. F. R. Marshall on the views of the Secretary
as reported by the press on the rise in wool prices,
and the draft was transmitted to the Assistant Secretary
on January 17. - Mr. Haas, Mr. Daggit
13. At the request of the Secretary, a memorandum was pre-
pared and was transmitted to him on January 28, con-
cerning 8. telephone conversation Mr. Haas held with
Mr. Hamm, of Mr. Leon Henderson's office, with regard
to controlling prices in some of the metal markets,
particularly aluminum scrap and zino scrap. - Mr. Hass
14. At the request of the Secretary, memoranda were trans-
mitted to him on January 7, reporting B. conversation with
Mr. Fred H. Sexauer, President, Dairymen's League Coopera-
tive Association, New York City, with respect to recent
developments in the New York Milk Marketing order. -
Mr. Haas
15. At the request of the Secretary, a memorandum was trans-
mitted to him on January 17, reporting a telephone con-
versation with Mr. Sexauer, with respect to recent de-
velopments in the New York milk marketing order. - Kr. Hass
278
20 -
16. memorandum At the request of the Secretary on January
transmitted concerning Dr. Palyi was prepared 27, a was
Mr. Haas
to the Secretary on the same date. and -
17. At memorandum the request of the Secretary on January 23,
Was prepared with three exhibits a
Mr. transmitted Tickton to the Secretary on January 28. - Mr. Haas, was
ing Mr. Thomas D. Campbell of Hardin, Montana, concern- and
16. The project on trends of individual commodity prices
and price factors during the World War period, patterned
1913 to 1922, made in October 1939, but dealing with
after the general study of prices and price factors,
The project was designed to determine the principal
steel, copper, and zino, 16 in abeyance for the present.
six individual basic commodities: whent, cotton, hogs,
price factors associated with the wartime rise and sub-
sequent collapse of prices of these commodities. -
Mr. Daggit, Mrs. May
19. The project designed to develop a composite index of
basic commodity stocks as & measure of one important
factor in the general price level, 16 in abeyance for
the present. Stocks of sixteen important industrial
materials, expressed in terms of their net effect on
prices, were being compiled for this index. - Mrs. May
II. Projects or studies under way
1, An attempt is being made to improve our information on
the volume of unfilled orders by working out a composite
index of unfilled orders based on data from individual
industries. - Mr. Daggit
2. A project 18 under way concerning forces determining
trends of basic commodity prices, which involves a study
of (1) the forces determining general commodity prices
and (2) the forces determining the prices of individual
commodities.
With respect to (1), general commodity prices, an
analysis 18 in process of disparities between demand
and production as a basic price factor which, under ex-
cessive war demand, might lead to inflation. For use in
this analysis two indexes of demand are being constructed:
Regraded Unclassified
279
- 21 -
An index of export demand which expresses the exports
of manufactured goods in physical volume, and the
index of consumer buying in terms of physical volume,
which is part of the project on measures of consumer
buying listed as item 3 below.
With respect to (2), prices of individual commodities,
shipments of a given commodity, or deliveries to con-
sumers, are taken as a measure of demand, to be com-
pared with production. Ten basic commodities have
been selected tentatively for study, and this work 18
in process. - Mr. Daggit, Mrs. May, Mr. Smith,
Miss Hagedorn
3. A project on measures of consumer buying 18 under way,
with the object of developing (1) an index to measure
the buying power of consumers in terms of physical
volume of purchases, after correcting for the effect of
changes in price on the apparent demand; and (2) an in-
dex to measure changes in total consumer expenditures, in
dollar volume. These two indices will supplement our
present "index of sales", which is designed to measure
the "offtake" of manufactured goods into various con-
sumption channels.
Studies on a monthly basis have been nearly completed
on individual components of two physical volume indexes
of consumer buying, one corrected for the effect of
price changes, and the other corrected both for the
effect of price changes and for the effect of changes
in national income. The weighting of the individual
components remains to be done. In addition, with
respect to the index of consumer expenditures in dollar
volume, substantial progress has been made in develop-
ing individual series, in determining their suitability
for inclusion and the necessary adjustments. The pur-
pose 18 to cover as large as possible a proportion of
the purchases of ultimate consumers. - Mr. Daggit,
Mrs. May, Mr. Smith
4. A better index of inventories of finished goods 18 needed
as an indication of business malad, ustments, with a break-
down as between inventories of finished goods held by
manufacturers and those held by others. An attempt to
develop such an index 18 under way. - Mr. Daggit
Regraded Unclassified
280
- 22 -
5. A study of the volume of installment buying and consumer
credit has nearly been completed. This study is de-
signed eventually to provide & monthly index of the
volume of buying on deferred payments, which at times la
an important business factor. It 18 in abeyance at
present, pending publication of & new study by the
Department of Commerce. - Mrs. May
6. A project in process 1s designed to develop an index
of industrial production that will indicate week by
week the approximate level of the FRB index. It will
include a larger number of weekly series than are in-
cluded in any current business indices, with weightings
and seasonal adjustments approximating those in the FRB
index. - Mr. Daggit, Mr. Smith
7. A study is being made of the relationship between the
New York Times revised index of business activity and
the new FRB index of industrial production in an attempt
to forecast the weekly level of the FRB index from the
New York Times index. - Mr. Daggit, Mrs. May, Mr. Cololough
8. At the request of Under Secretary Bell on January 29,
a memorandum for the Secretary 1s being prepared, 11-
lustrated by five charts, on the possibility of a
freight 067 shortage in October 1941, when car loadings
are at their seasonal peak, and containing a forecast
of freight car loadings for October, 8. forecast of the
number of freight care that may be required, and out-
lining steps which would alleviate or prevent such a
shortage. The five charts used at the meeting of the
Friday discussion group on January 24, were described
under Financial Analysis, I, as item 11(e).
Actuarial Problems
I. Projects or studies completed
1. At the request of Under Secretary Bell on January 15,
a schedule WA8 prepared showing the annual amount paid
in equal installments on June 15 and December 15 over
a period of ten years which would be required to amortize
the amount due from Finland on December 15, 1940, with
interest. This schedule was prepared in the manner re-
quested by Mr. Heffelfinger, and in addition an alterna-
tive schedule was prepared. Both schedules were sub-
mitted to the Under Secretary in a memorandum dated
January 22. A supplemental memorandum of the same date
to Mr. Heffelfinger explained the method of constructing
the amortization schedule. - Mr. Reagh, Mr. Brown,
Mr. Kroll
Regraded Unclassified
281
- 23 -
2. At the request of Mr. Broughton on January 18, a table
was prepared and was transmitted to him on January 28,
showing the 1ssue prices of 5-year and 20-year discount
bonds of $100 maturity, to yield, one, two, or three
Mr. Brown
percent, compounded semiannually, if held to maturity. -
3. In accordance with a request contained in & letter of
December 19 from Mr. Warren Wattles, Special Assistant
to the Attorney General, assistance was given in con-
nection with several tax cases of the Department of
Justice, involving life insurance paid in the form of
annuities certain and life annuities. - Mr. Reagh,
Mr. Brown
4. In response to an oral request on January 3, by
Mr. Gilleland and Mr. Pennstone of the Rural Electrifica-
tion Administration, certain calculations Were made with
respect to a loan subject to variable monthly payments.
The results were transmitted in a letter to Mr. Gilleland
dated January 6, and a copy was supplied to Mr. Pennstone. -
Mr. Brown, Mr. Kroll
II. Projects or studies under way
1. The Board of Actuaries of the Civil Service Retirement
and Disability Fund is laying out detailed plans for
tabulating and processing data for use in preparing the
regular five-year valuation of the Civil Service Retire-
ment Fund for the purpose of determining the liabilities
of the Government under the Civil Service Retirement law.
Under the law, such a valuation must be prepared as of
July 1, 1940. - Mr. Reagh, Mr. Brown, Mr. Kroll
2. An actuarial report of the Board of Actuaries of the
Civil Service Retirement and Disability Fund on the
cost of the provisions of the bill S. 4407, a bill to
amend the Civil Service Retirement Act to provide for
certain added benefits, was reviewed, and suggestions
were transmitted in a letter to Mr. G. B. Buck, on
January 29. The report, revised to incorporate the sug-
gestions, was returned for approval on January 30. -
Mr. Reagh, Mr. Brown
282
- 24 -
3. At the request on December 19 of Mr. John P. Kiley
of the Chicago Division Technical Staff of the Bureau
of Internal Revenue, further assistance 1a being given
in preparation of material for use in an income tax case
involving the payment of the proceeds of life insurance
policies in installments. - Mr. Reagh, Mr. Brown
4. In cooperation with the members of the staff of the
Social Security Board, there 1s being prepared a draft
for the first annual report of the Board of Trustees.
of the Federal Old-Age and Survivors Insurance Trust
Fund. - Mr. Reagh, Mr. Murphy, Mr. Brown
5. The Foreign Service Retirement law, as approved
April 24, 1939, Section 26(m), provides that the
"Treasury Department shall prepare the estimates of
the annual appropriations required to be made to the
Foreign Service Retirement and Disability Fund and
shall make actuarial valuations at intervale of five
years, or oftener if deemed necessary by the Secretary
of the Treasury". An outline of the data required for
making an actuarial valuation has been submitted to the
State Department. A preliminary estimate of the ap-
propriation required for the fiscal year 1942 has been
prepared, and has been submitted to the State Department. -
Mr. Reagh, Mr. Brown
6. In response to a request from the Farm Credit Administra-
tion on October 10, assistance 18 being given in devising
& retirement system covering field employees in that
organization. Several conferences have been attended by
a member of the staff, and it is expected that additional
assistance will be requested. - Mr. Reagh
7. A copy of H. R. 1847, a bill relative to certain annuities,
was transmitted by the Office of the General Counsel, for
preparation of a voluntary report if desired. - Mr. Reagh
Other Projects or Studies
1, Publications
(a) Data were prepared for the January issue of the
Treasury Bulletin on average yields of long-term
Treasury bonde and high-grade corporate bonds. -
Miss Eyre
283
- 25 -
All the material submitted for the January issue
was reviewed and edited. Substantial revision was
made in the tables on the balance sheet of the
Exchange Stabilization Fund,
Additional revisions are being considered for
future issues. - Mr. Lindow, Miss Eyre
(b) For the publication Market Prices and Yields of
Outstanding Bonds, Notes, and Bills of the United
States, computations were made and copy was pre-
pared for the issue covering the month of December.
This publication shows by securities the rates of
interest, maturities, interest payment dates,
and amounts outstanding; and for each day of the
month, together with a monthly average, closing
market quotations (accrued interest to be added),
and yields. Quotations of closing prices for
Treasury bonds are from the New York Stock Exchange
and are furnished by the Federal Reserve Bank of
New York. Bid and asked prices for Treasury notes
and bid and asked discount for Treasury bills are
received from dealers in New York City. All yields
are calculated to the call and maturity dates. -
Mr. Moody, Miss McCoy
(c) The editing of the Annual Report of the Secretary
of the Treasury for the fiscal year 1940, was
completed, and copy for the extracts was prepared
for the Government Printing Office. - Mr. Tickton,
Miss Westerman
(d) At the request of Under Secretary Bell, on
December 20, a memorandum was completed and was
transmitted to him on January 6, on the background
and results of the statement on prices read by the
President at his press conference on February 18,
1938, in connection with its inclusion in one of
the next four volumes of the Public Papers of the
President. - Mr. Daggit
(e) At the request of Assistant Secretary Gaston on
October 18, an article 18 being prepared on the
operations of the Treasury Department during 1940
to be incorporated in the 1941 Americana Annual. -
Mr. Tickton, Mrs. Wolkind
284
- 26 -
(f) Work has been begun on the preparation of a
cumulative subject index of Treasury publications
since the establishment of the Department, cover-
ing (1) Annual Reports of the Secretary, (2) other
publications issued by the Department, including
annual reports of the bureaus and offices in the
Department, and (3) material prepared in the
Treasury Department which was published in Congres-
sional documents, hearings before Committees of
Congress, or the Congressional Record. -
Miss Westerman
2. Correspondence
Replies were prepared to letters received on subjects
relating to the work of the Division, and letters
drafted elsewhere and submitted to the Division for
that purpose were reviewed. - Miss Michener, Miss Ziegler,
and other members of the staff in appropriate fields of
work.
During January 375 letters were received in the Division
and 370 were handled as required.
3. Charts
Charts are prepared and continually brought up to date
for use in memoranda and in chart books on special
subjects, and corresponding photographic, photostatic,
and multilith work is carried on. This 18 done in the
Graphic Section under the supervision of Mr. Banyas.
A statistical report on the work of the Graphic Section
for the month of January 1s attached.
285
Work completed in the Graphic Section, Division of
Research and Statistics, during January 1941
Type of work
For Division
For
of R&S
Total
Others
No:
charts:
Total charts completed
43
7
50
Bond book charts completed
-
-
-
harts brought up to date:
$ bond chart books brought up to date
26 (times)
-
26(t)
All other charts brought up to date
705
29
734
Escellaneous:
Total jobs
21
14
35
agraphic:
hotographs:
Total jobs
79
26
105
Number of-
Negatives
133
20
153
Contact prints
189
35
224
Enlargements
121
88
209
motostate:
Total jobs
163
4
167
Number of-
Lettersize copies
506
240
746
All other copies
10,803
25
10,828
bitilith:
Total jobs
6
2
8
Number of-
Zino plates
98
2
100
iscellaneous
8
8
16
it
a
Graphic Section, Division of Resea, and Statistics, by months,
beginning January 1941.
:
I
:
Type of work
Jan.
:
Feb.
#
March
$
:
I
:
April
May
June
Total
I
#
1
:
=
4. Graphic:
New charts completed
50
Charts brought up to date
734
Bond book charts completed
-
8 bond books brought up to date 26 (times)
Miscellaneous jobs
35
B. Photographic:
Photographs:
Total jobs
105
Number of-
Negatives
153
Contact prints
224
Enlargements
209
Photostats:
Total jobs
167
Number of-
Lettersize copies
746
All other copies
10,828
Multilith:
Total jobs
8
Number of-
Zimo plates
100
Miscellaneous:
Total jobs
16
286
LBswlt
2-3-41
Regraded Uno
287
RESTRICTED
G-2/2657-220
No, 322
M.I.D., W.D.
February 21, 1941
12:00 M.
SITUATION REPORT
I. Western Theater of War.
Ground: Detachments of German troops are reported to have
entered Spain for relief work in the Santander region (north coast)
following the hurricane there.
Air, German. Minor daylight activity on the 20th. Last
night fairly heavy attacks were made over the Thames Estuary and
Bristol Channel. Swansea was again bombed severely.
II. Greek Theater of War.
Ground: The Greeks claim local gains, probably in the Tepeleni
area.
Air: Close support of the Greek attacks by R.A.F. and Greek
planes continues.
III. Mediterranean and African Theaters of War.
Ground: Italian Somaliland. British troops have crossed the
Juba (Giuba) River, otherwise no change in the situation.
Air: German attacks in Libya renewed. About 50 bombers
appear to be employed daily in these operations.
The British again bombed the German air base at Catania,
Sicily, on the 20th.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasional in-
clusion of political information and of opinion it is classified as
Restricted.
RESTRICTED
CONFIDENTIAL
288
of Code Beliegue
I 1 # a I
1 $ I d M
Leason, filed this, Many si, 2042.
1. During the night of Fobruary 00-01. British night fighter
planse vero a - offensive gatral - northern France. the results of
this operation have not you born determined. 0a Therelay, February so,
fighter planse in - fenations engaged in offensive patrols along the
complet. email w Trease with m aircraft leases. on the - day a
large fire resulted from the besting of humber installations at a part
in Holland by - Bleakets labor. During the proceding night the
Colais hurber and a Greena at the part of Breat - the transporter
of execussful attacks w benbers of the Genetal - Adverse wather
forced the emeellation of all flights of planse of the Butor Commail
that night.
s. During the night of Televery 90-21 - Comp. planes -
plotted over the area between entral Lenton and Chather, 15 others WIN
active in the Tilbury-Sechostor - one G total w 100 - meet against
targets in south Vales in the area. these valide
were followed w an attack in the area benefed w Leases, Wilbury all
thathern w no - please. Reyal Alr Force fighter planos were is the
air but $$ is not - whether they - able to Interespt the attectors
w not. During the proseding m 18 - planse - plotted - But
not, Lineclashire, Hostalk, Suffelk all I fighters - -
and two were 2008. - Leases have met yet boon reported. Bening the
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
289
- up the - mislated affensive getrols - the Streets of
-
2. Brittich ato operations is mails Instem thembere vero w
follows: h Britern the ate fields as Admus ml Regards, Italian post-
time of 8 reilreed vere abteched to British beabere; is continues
Ethiepia the city of Juveile - attached w Brittsh bentere;
is Litya - - gives - shot down w the British; in the fales
theater Italian aircraft Leases - COTOL entimed ml three probuble.
4. Designal, Ithers, we the banget of as attock w two -
please, - of which we shot dom.
5. too - Brittish reasel tree the - which - attached
w a - milm - miles east of the Assures us February 18 has certral
in Regional safely. w the 199 ships in this - 10 have arrived is
London, too others - thought to be safe, five are definitely Issues to
I I 1 1 I 1 I I I
6. A total of 31, - misse have been exploded in the where
surventing Anstralia.
7. A total of an - divisions have MV been definitely
Mustified.
a. Late reports initiate that there ⑉ no durage to my -
facturing plants w military establishmis M a result of the - air
attache a Luin ml - daring the sight of Betweery 19-00. they
amogo, - - inflicted a private property.
-
CONFIDENTIAL
Regraded Unclassified
+
CONFIDENTIAL
291
RDS
GRAY
BUENOS AIRES
Dated February 22, 1941
Rec'd 5:55 p.m.
Secretary of State,
Washington.
150, February 22, 5 p.m.
The Director of the Exchange Control advises that
new Exchange control regulations to become Effective
February 26 will bE announced this evening. They provide
that the exchange received from certain exports and which
since 1933 could bE sold in the free market must now bE
sold to the Central Bank at the rate of 4,2182 per
dollar. The list of Export products allowed this rate
has been considerably increased.
Imports will bE of two categories. Essentials will
continue to receive Exchange permits at the same official
selling rates as now, that is approximately 3.73 and 4.22
pesos per dollar. For imports of other than Essentials
the rate will bE determined by bids made by importers to
the Central Bank, the Exchange going to the highest bidder.
HENCE this rate may vary with each transaction and will
to a considerable degree bE determined by supply and demand.
Imports
292
-2-- #150, February 22, 5 p.m. from Buenos Aires.
Imports of products considered 8,5 luxuries and of others
for which domestic substitutes are readily available will
bE prohibited.
Dr. Louro stated that as a result of this plan it
would bE possible to remove all quotas on Imports of
specific commodities other than those specifically provided
for in trade conventions with other countries. HE added
that while in certain cases Exceptions would continue in
favor of imports from Great Britain both by way of pre-
ference in Exchange rate granted and by allowing the im-
portation from that source of SOME products which from
other countries might bE prohibited, such Exceptions would
bE limited to merchandise predominantly of British origin
EVEN in normal times.
Treatment to bE accorded specific import products
as well as the list of Export products to receive the new
Exchange rates will bE announced on February 26. The
first Exchange auction will occur March 7.
ARMOUR
EMB
(COPT:FE:OJL)
No. 789
293
IDDARST OF -
UNITED STATES or AMERICA
Chungking, February 22, 1941
Subject: China's War Leans.
Air mail
The Honorable
The Secretary of State,
Washington, D. 0,
Sir:
I have the honor to report that up to the end of 1940 the Chinese
Government floated eleven loans totaling $3,430,000,000 in Chinese National
Currency, 100,000,000 in Oustoms Gold Units, £30,000,000 and $100,000,000
in United States currency. These loans do not include the recent $100,000,000
loan from the United States or the 210,000,000 loan from Great Britain.
The following table lists the loans in the currency in which they were
floated with the year of issue.
Loans in Chinese National Currency
Name of Loan
Year of Issue
Value of Loan
National Salvation Loan
1937
$ 500,000,000
National Defense Loan
1938
500,000,000
Relief Loan
1938
30,000,000
Reconstruction Loan
1939
600,000,000
Military Supplies Loan
1939
600,000,000
1940 Military Supplies Loan
1940
1,200,000,000
Total
$3,430,000,000
Customs Gold Units
Name of Loan
Year of Issue
Value of Loan
Gold Loan of May 1938
1938
0.0.U.100,000,000
Pounds Sterling
Name of Loan
Year of Issue
Value of Loan
Gold Loan of May 1938
1938
£10,000,000
Reconstruction Gold Losa of 1940
1940
£10,000,000
Total
£20,000,000
294
a
United States Currency
Name of Loan
Year of Issue
Value of less
Gold Loan of May 1938
1938
Reconstruction Gold Loan of 1940
$ 50,000,000
1940
$ 50,000,000
Total
$100,000,000
The domestic loans were well received and before 1940 all the now issues,
except the Relief Loan of $30,000,000, were subscribed at their full face value.
In 1940, however, there was a change in policy and in order to facilitate the
sale of the two 1940 Reconstruction Gold Loans and the $1,200,000,000 Military
Supplies Loan they were issued at 98 and 94 percent, respectively, of their face
value.
Respectfully yours,
NELSON TRUSLER JOHNSON
Original (by air mail) and
five copies to the Department
Copy to Peiping
Copy to Shanghai
851
JJM:MOL
as I M9 / 168
OLLICE OR THE
THATHERA 1A0IMHOST
YEAR TRA729238 THT 07
ehroopy
295
(Extract from Congrassional Record No. 3½, February 22, 1941)
Mr. TAFT. ..... The other powers given by the bill bafore the DEAM to
ne wholly irvelovant to the quastion of aid to Britain, They 60 beyond
anything justified in the past compaign. If the bill is to be voted upon
in substantially 111 present form, I intend to vote against it, even though
some fectures of it provide for sid to Great Britain. If the pending bill
should be defented, a resolution along the lines of my substitute could be
put through Congress in three days. If the original bill had done no more,
it could have been passed a month ago. Certainly we do not have to vote
for any bill offered to us simply because it aide England, no matter how
unsound its other methods and principles may be,
There has been some charge by violent interventionists, and in inter-
ventionist cartoons, that Congress is fiddling while Rome burns. The truth
is that the British have the funds, if they want to use them, to go on give
ing orders for some months to come. The truth 1a that Secretary Morgenthau
has already used the stabilization fund for loans to China and Argentina
and that he can make loans to the British if he has the right to make loans
to Argentine and China. I do not think he has the power to do 80, but he
says he has the power. He has about $1,900,000,000 with which he could buy
pounds to provide a. eash credit. As a matter of fact, simply making a loan
does not carry through the transfer of materials.
Kr. BARKLEY. Mr. President, will the Senator yield?
Mr. TAFT. I shall be glad to yield in just a moment. Today I obtained
from the Treasury Department and from the Reconstruction Finance Corporation
the figures with respect to the Chinese loan made the first of last December.
There is still $75,000,000 waiting in our Treasury because the Chinese can-
not use it, There WAB a $110,000,000 loan to Argentina back in December,
end there is still $110,000,000 in our Treasury. Not one cent of it has
been used, because, apparently, there has been no requirement for it.
I now yield to the Senator from Kentucky.
Mr. BARKLEY. Mr. President, I do not wish to take the Senator's time or
interfere with the continuity of his thoughts, but it is not accurate to
say that Secretary Morgenthau has made a loan to China out of the stabili-
zation fund. What he has done has been to do what the law authorises him
to do, that is, to purchase currencies for the purpose of stabilizing
Chine's currency. That operation may, incidentally, give China credit in
the United States: but no direct loan has been made out of the stabilisa-
tion fund to China, or to any other country.
Mr, TAFT. Thatis a matter of nomenclature; but in substance it is B loan,
and in substance the purchase of Chinese yuan with gold end the transfer
of the gold to China enables China to use that gold to buy materials in
the United States. In every substantial effect it is a loan. Moreover,
the Chinese Government agrees to buy back those yuan with gold, so that
they also are really obligated to gee that the stabilization fund is
restored.
Regraded Unclassified
296
- 2 -
Mr. BARKLEY, It is a stabilization process which enables Ohina to buy
materials in the United States, but it is not a loan in the ordinary sense
of the word, although it inures to the benefit of China. It stabilizes
Chinese currency and enables the Chinese to purchase articles in the United
States.
Mr. TAFT. I think the Senator is talking about inconsequential matters,
because in every substantial effect it is a loan; and if Secretary Morgen-
thau were to do the same thing with British pounds--and goodness knows they
need support in the exchange market today--he could, in effect, make Britain
8. loan tomorrow of $1,900,000,000.
Mr. BARKLEY. If I am talking about inconsequential matters, it is because
the Senator from Ohio started it.
.....
zamia
COPY:lp
297
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro, Brazil,
DATE: February 22, 1 p.m.
NO: 119
Reference Embassy's 69, January 30, 5 p.m.
Dollar balances of the Yokohama Specie Bank at the
Bank of Brazil were reduced by five million dollars in
order to cover payments due in the United States. Balances
remaining in Bank of Brazil after these withdrawals amount
to three million dollars.
CAFFERY
RA:JSH
COPY:aja
298
RDS
GRAY
(PARIS)
VICHY
Dated February 22, 1941
Rec'd 8 p.m.
Secretary of State,
Washington.
215, February 22, 6 p.m.
FOR THE TREASURY FROM MATTHEWS.
Today's JOURNAL OFFICIEL publishes an arrete of the
Ministry of Finance providing that "provisional adminis-
trators" shall bE placed in charge of 29 listed Jewish
banking houses whose directors, under. the anti-Jewish law
of September 10, 1940, are prohibited from "Exeroising
their functions". The list includes Lazard Freres, Heine
Essam Compagnie, Maurice Rueff Et Compagnie and the several
Dreyfus firms. The decree stipulates that the powers of
the "provisional administrator" shall apply only to that
part of the concern located in the occupied zone. The
system of establishing "provisional administrators" for
these banking houses is similar to that applied to other
Jewish concerns in the occupied zone under the coordina-
tion of former Governor Fournier of the Bank of France.
LEAHY
EMB
299
P.P. 2- 4 E. 10.11.
Speech delivered at the Both
Sholom Congregation Banquet 23.2.41.
by
Hj. J. Procopé
Mr. Chairman, Ladies and Gentlement
I thank you most heartily for having invited my vife and myself
to this Banquet. life enjoy deeply to be here and we thank you for your
charming hospitality. We see in it a renewed sign of your sympathy
and friendship for Finland. I know that I am not called upon to make
a long speech, but just only to greet this distinguished audience. I
am glad of that for your sake -- you will all notice that tonight my
singing voice could be 8. bit better. 8.8 a matter of fact I am rather
hoarse and furthermore I remember an old saying to the effect that
even the best sermen is spoilt after 20 minutes. I for my part should
be happy to talk to you -- or rather with you, answering questions --
for hours, because a representative of e. small nation like mine is
always happy having the opportunity of giving friends information
300
2.
about his country.
I bring you a greeting from Finland -- from a mtion that
in spite of all the ordeals she had to pass through, and perhaps
jub t. thanks to them, still is a free, independent, democratic
y. -- but not occupied by foreign armies and with no foreign
ns within her present frontiers.
I am glad having this opportuni ty of thanking you for the
assistance and support you and other Jewish organizations and
committees in this country and leading representatives of the
Jewry all over the world have given us Finns. I feel a sincere
gratitude for that and also for the fact -- which I will think
is an undeniable one -- that your heart as the heart of all this
great American nation is still open to Finland and her sufferings.
To me personally it is a quite particular privilege to be
with you tonight as to have been invited last year by the Jewish
301
3.
Congress and only B. few days ago by the Service Guild. It has also
been a highly appreciated privilege to me to receive from the B'nai
B'rith and other Jewish organizations the expression of their friend-
ship for my country. All this reminds me of one of the moments in
my work I will never forget. Twelve years ago, being a member of the
League of Nations Council I drew the attention of this high assemb-
lage upon the incidents at the Wailing Wall at Jerusalem. This brought
me in contact with some of the leaders of the Jewish movement; it
brought still closer to me the sufferings of your people.
You all know the story about a man from France, an Irishman
and an American discussing somewhere in Europe the qualities of
different nationalities. Very politely the Frenchman said: "Were I
not French, I should like to be Irish". And the Irishman replied:
"Were I not Irish, I should like to be French". But the American
said:" I am American, and I should be ashamed not to be so."
Regraded Inclassified
302
4.
So I think we all stick to our own particularities, to our
traditions and to our memories. But this does not exclude cooporation.
Daily we meet in this country men and women of different descent,
Finnish, Jewish, Irish and so on; but above all they are Americans,
loyal citizens of this great republic.
I do not at this occasion advocate any particular political
solution for the difficulties of the world. But I urge the necessity
of organized cooperation between all nations -- particularly those
of the western civilization who build their life upon the basic
influences from Juda, from ancient and Christian Rome and from the
deep forests north of the Alps.
I represent a small nation whose only aim always was and always
will be to develop her ovn spiritual and material possibilities liv-
ing as a free nation among other free people and in peaceful coopera-
tion with then.
303
5,
Surrounded by all the uncertainties of the present troubled
international situation Finland faces a tremendous task of recon-
struction and rehabilitation. In the war last year Finland suffered
tremendous losses in lives and in material wealth.
Through the peace we lost 10 percent of our territory. We have
about half a million refugees from the part of the country ceded to
Russia, we have tens of thousands of war orphans and invalids.
We have gone into the work without hesitation and with the same
unanimity as we fought for our existence and liberty. For the ref-
ugees new homes and new farms are created. We are taking land from
the state and from private land-owners. A friend of mine who owns
an estate comprising except vast forest tracts about 1500 acres
of tilled soil cedes of this 1100 acres to the new farmers. Further-
more we are paying compensations to those who have suffered losses,
and in order to do this we have introduced a progressive capital
304
6.
levy to be paid in a short space of time. This levy is rather heavy.
A man who owns a net fortune of $20,000 has to pay about $2,000 and
in the highest bracket a man, whose net fortune is $1,000,000 has
to cede of that $200,000. And please note that I am speaking about
fortune, not about income.
But in spite of all difficulties we feel confident that being
left in peace we will be able to fulfil the task of reconstruction
before us. e have still plenty of arable land; we have the greatest
forests in Europe, outside Russia; we have mineral resources and
waterpower still unutilized. And the development during the 20 years
of peace showed that our economic life is built on a sound basis.
We more than doubled our production in different fields and in the
1930'ies we paid off about 225 million dollars of our country's
foreign indebtedness. Even now our foreign state debt is only about
60 million dollars.
305
7.
But all our efforts in order to reconstruct our country and heal
the wounds of the war cannot save us from the difficulties of the
present moment. All the Finnish nation faces starvation, exposure and
epidemics if help cannot be gotten from abroad. We do not export food-
stuffs and other essential commodities and nothing of that kind has
been brought out from our country. Since the autumn of 1939 not a
single pound of butter or fat has been sold abroad, and still there is
a terrible scarcity of edible fats, as of other foodstuffs and also of
textiles. This is due to different factors outside our control. We
have lost 14 percent of our agricultural output, 8. great part of the
cattle has been slaughtered owing to lack of imported feedstuffs and to
a bad harvest. Imports of foodstuffs, fodder and other commodities are
reduced or completely impossible and our exports, by which we used to
pay for our imports, are only a fraction of what they used to be.
306
8.
The ration of fats is 6 ounces per person B. week. Soon the
meat ration will be reduced to the same level. It is generally
recognized that about 19 ounces a week is a minimum, and in our
cold climate the quantity ought to be higher. The rations of bread
can be maintained only if imports from abroad can be had in the
next future. - The distribution of soap is half & pound every two
months. Of coffee the ration is 13 lbs. in two months - and so on.
However, help can be sent. Ships can go and are going from
here to our port, Petsamo, on the Arotic Sea. As a matter of fact
we send ships over - all our own, and the British allow these ship-
ments through the blockade. The British Government draws a clear
distinction between supplies to Finland and supplies to countries
occupied by Germany. They have declared that they wish to assist
in maintaining our country's economy and in preventing suffering
in our country.
307
9,
Thus imports to Finland are possible; but our funds are run-
ning low.
I state it openly and frankly: Finland as a nation needs help
both in kind and in the financial field. And just therefore we are
so deeply grateful for the assistance we get from our friends in
this country. A year ago, the Federal La n Administrator and the
Export-Import Bank arranged a credit for purchases in this country.
This credit, now completely exhausted, has been of the greatest
help. The American Red Cross, living up to its high humanitarian
ideals, has, under the leadership of Ambassador Norman Davis, since
the autumn sent and is still sending foodstuffs and other commodit-
ies for the destitute people in Finland. This generous help is most
timely and welcome as also contributions we get from private persons
and organizations, continuing the splendid work accomplished last
year by the Hoover Relief Fund and other organizations. For all this
308
10.
we feel deep and sincere gratitude, convinced as we are that still
in our dire need America's heart is open to us.
Few nations have suffered more than the Jewish people. Therefore
you understand us in our difficulties. Few people have had to fight
harder and to take heavier sacrifices to maintain their existence
than Finland. Therefore we understand you, and therefore we have
from the first moment of our freedom in our country applied the
principle of tolerance and freedom of worship. As you know, Finland
was during 110 years up till 1918 under Russian Czarist yoke. In
those days of oppression, 40 years ago, a relative of mine and my
namesake wrote about us Finns a poem, that in my very poor transla-
tion begins:
We are like Juda's oppressed race --
We wait for our freedom's advent.
In sorrow and suffering we now have to face,
We wait for the time when in light and freedam our
life will be spent.
309
11.
I thank you members of the Beth Sholom Congregation for this
evening. Beth Sholom - isn't it the House of Peace. We all hope for
days to come when peace, order and justice will reign among men and
nations.
I thank you.
EN B BAN
LINEN
310
BRITISH EMBASSY,
WASHINGTON.
February 22nd, 1941.
PERSONAL AND
SECRET
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Thank Butter
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
311
TELEORAM RECEIVED PROM LONDON DATED PEBRUARY 20th,1941.
1.
Naval. Pelburn, mined and damaged in the Themes
approaches on the 19th has arrived safely in harbour.
8.
Total of 81 enemy mines have been destroyed in
Australian waters.
3.
Shipping off the east coast of Scotland and England
repeatedly reported enemy aircraft p.m. 19th but only
two ships were attacked. Both safe but one was damaged
by two very heavy near misses.
4.
A Greek ship of 5,000 G.R.T. has arrived in harbour
with only slight damage from convoy S L. 64 S which
raider attached February 18th off the Azores. Situation
now is, safe - ten shipe certain, two probably, sunk -
five ships certain, two probably.
5.
Militery. Germany. Total identified German
divisions is increased by three to two hundred and
twenty one.
6. Ethiopia. On the 16th patriots supported by
British elements captured/ Njabara (15 miles south of
Dengila) taking many prisoners and have surrounded
retreating enemy ten miles north of Burye. They have
also occupied Italian posts on Piccolo Abbai River 20
miles north-east of Dangila, which enemy has evacuated.
7. B.A.E. 19th February. No operations took place.
8. Night 19th/20th. six medium bombers of the
coastal command attacked an enemy cruiser at Brest and
returned safely. Reports not yet available.
9. Eritrea. South African Air Force fighters
attacked Gure aerodrone near Asmara on 18th and destroyed
two enemy bombers on the ground.
Regraded Unclassified
312
10. 9.A.E. 19th. Enemy activity consisted of
patrols in Straits of Dower and a few penstrations
inlend over Eastern England and Scotland.
11. Night of 19th/201h. 70 enemy circraft
operated over Swansea area, a few over Plymouth, 88
over London area.
18. Lybia. Benghasi, Enemy aircraft made two
attempts to lay mines in the harbour on the 16th.
One was shot down, two others probably destroyed and
a further four damaged by our fighters. Another was
destroyed by anti-aircraft.
13. Home Security. Night of 19th/20th. Swansea.
About 100 H.E's and several hundreds of incendiary
bombs were dropped. Several fires were started but
were seen under control. Damage appeared to have
been mainly confined to business and private property.
Regraded Unclassified
CONFIDENTIAL
313
Programs of date
I $
at give, m, was.
19106, I fill si I
1. a Friday, Interney n, planse of the Brittich Fighter -
curried. 010 a offensive - - the region. 6a the
- m a - - book w not w planse of the Constal - off
the Harvagion esset. Abveres mother smithing formal the consollation
of all flights of please of the Subor - during the night of M-
I SHIP.
2. During the night of February 21-02 the - curried. ost
mattered attache en Leadon, Borfelk end Suffelk and engaged in another
mid on Walso. Burding the South Walso attack British fighter
planse - is the air but - moble to interespt the attachers.
Damage resulting true these attache - not yet boom determined. Buring
the proceding wy a small under of - planes were platted - Suffellt,
- Benfolk est - - w the - attachers was shot com. h
addition the - mistsined patrols along the - of England and -
the - Straits. Be Reyal Air Force These - 2006 during the us.
Later reports inticate that a British fighter getrol was attached w six
- fighter planes a Polumny so mer (enterbery. there vero no
Given Lesses ont w Brittish planse - destroyed.
3. Segal Atr Terce activities to the IMAGIO Instem themboro
- - fullows: Brittich benbern is Mm attached Magalia (7),
Alahm, and emply getate and treep ememissions in the
visitity of Beset eat Topolani, Albenta, will attached w
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
314
benbers from Grosso ml eight Anda planse - destruped. in this
I I $ s I I i e I I I
a 1 musber of the - streted and - explosions - canned w
I I z I e I s I 8 1
I I 1
4. 20 is - - that the Was Book lighthouse - attached.
w mektangen fire and pas out of consission.
I is I I I . I r I
I and a I 1 1 1 1 s 2 I
6. Inter reports indicate that the - attack a
during the night of February 20 inflicted - - on the electricity
and yas distributing systems.
I
Distribution:
a I rs
State Department
Secretary of Treasury
I a r
r
Mr
Plans Division
I 1 %
Ate Garge
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
315
of Code
Received at the the Department
as 20:38, February 15, 1941.
London, filed February as, 1941.
I i s I i I I a I y
Command engaged. is the used patrols. Please of the Dember -
vero dispatched against all installations at Le Herve, France, and
thenk, Belgium, but adverse weather - the abondonment of the
nission. Planes of the Fighter Commail engaged in a raid an the
region. No planse vaso lest and there was no apposition
to the Fighter Community eveep. Buring the proceding night planes of
the Constal Comment we active against neval installations at the
harber of Brest. Mines we laid along the coset of France in the
visinity of Prest w planse of the Banber Commat. la addition,
Comman airfields in northern France and in the Notherlands, harber
facilities at Beolegno and industrial plants at Descelderf at
Wilholmsheren - attached w British beaters. As 8 result of these
night activities two British planes failed to return to Regland.
2. Buring the night of February 22-25 6 mall miner of
- planes curried on) a beating attack in the ares of the Ruber
and Hall rivers. During the day before German benbers carried out
mall benking attacks over Bristel Channel, Waymouth Day, Eirten,
Abordesn and Falmouth. During these raide - German plane streek a
balloon barrage cable ml we destroyed. During the preseding day
there was a Large seals - fighter plane every over the Straits of
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
316
a I I I 1 i I a 1 r I 6
I I I 1 1 I s I . I I
5. n all madle Instem themboro Britten planse - active
a - patrol nisstens. Italian tosep
I 1 I # I I I I w I
4. Aste plance corried out - recommationase flights over
the Inlend of Malta the region of the
5. The British Me Office has information inlissting that
- tweeps will probably envive to Sette, Balgaria, a # about the
1st of March. This report indicates further that Field Marchall List
est bis staff efficers will reach there February s w A.
Dictribution:
a r I
State Department
I r I
Asst. Benevery of w
I and r
- Place Division
Office of Novel Intelligance
Alr Gurge
H
CONFIDENTIAL
Regraded Unclassified