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OCR Page 1 of 2Book No. - 377
continued
from
Page - 79
79
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Yields
Number of
Yield during remainder
Redemption value
Tield during period held
of 10-year period
sent-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yielde
yields
yields
o
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77-00
76.00
1.76
.88
3.10
3.25
&
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
80.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
81.00
2.26
1.72
3.42
3.87
10
84.00
82.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
I
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded emiennually.
Regraded Uclassified
2.
80
United States Savings Bonds
Comparison of Proposed 2 and 24 Percent Appreciation Plans
Number of
Redemption value
Yield during remainder
semi-annual
Yield during period held
of 10-year period
periods held
2% plan
24% plan
2% plan
24% plan
2% plan
24% plan
o
$82.00
$80.00
.00%
.00%
1.99%
2.24%
1
82.00
80.00
.00
.00
2.10
2.36
2
82.20
80.20
.24
.25
2.19
2.47
3
82.40
80.40
.32
.33
2.29
2.58
4
82.60
80.80
.36
.50
2.40
2.68
5
83.00
81.20
.49
.60
2.50
2.80
6
83.40
81.80
.57
.74
2.61
2.89
7
84.00
82.40
.69
.85
2.70
3.00
OR
84.60
83.20
.78
.98
2.81
3.09
9
85.40
84.20
.90
1.14
2.89
3.15
10
86.20
85.20
1.00
1.26
2.99
3.23
11
87.20
86.20
1.12
1.36
3.07
3.33
12
88.20
87.20
1.22
1.44
3.16
3.45
13
89.20
88.40
1.30
1.54
3.29
3.55
14
90.40
89.80
1.40
1.66
3.39
3.62
15
91.60
91.20
1.48
1.75
3.54
3.72
16
93.00
92.60
1.58
1.84
3.66
3.88
17
94.40
94.20
1.66
1.93
3.88
4.02
18
96.00
96.00
1.76
2.04
4.12
4.12
19
97.80
97.80
1.86
2.13
4.50
4.50
20
100.00
100.00
1.99
2.24
I
-
Treasury Department, Division of Research and Statistics.
Regraded Uclassified
elds are nominal annual rates compound
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Yields
Number of
Redemution value
Yield during period held
Yield during remainder
of 10-year period
semi-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yields
yields
yields
0
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77.00
76.00
1.76
.88
3.10
3.25
4
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
50.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
51.00
2.26
1.72
3.42
3.87
10
84.00
52.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
-
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded semiannually.
81
Regraded Uclassified
United States Savings Bonds
Comparison of Proposed 2 and 2% Percent Income Plans
Number of
semi-annual
Redemption value
Yield during period held
Yield during remainder
of 10-year period
periods held
2% plan
21% plan
2% plan
21% plan
2% plan
21% plan
O
$100.00
$100.00
.00%
.00%
2.00%
2.25%
1
99.00
98.90
.00
.05
2.12
2.38
2
98.20
98.00
.20
.25
2.22
2.50
3
97.40
97.20
.27
.39
2.34
2.62
FV
96.80
96.50
.40
.51
2.44
2.74
5
96.20
95.90
.49
.62
2.56
2.86
6
95.80
95.50
.61
.76
2.66
2.97
7
95.40
95.10
.70
.87
2.78
3.09
OR
95.10
94.90
.79
1.00
2.90
3.19
9
95.00
94.80
.91
1.12
2.99
3.29
10
94.90
94.80
1.00
1.24
3.11
3.39
11
94.90
94.90
1.10
1.35
3.23
3.48
12
95.00
95.00
1.19
1.45
3.35
3.60
13
95.30
95.20
1.30
1.55
3.44
14
3.73
95.60
95.60
1.40
1.65
3.56
3.82
15
96.00
96.00
1.49
1.75
3.69
3.95
16
96.50
96.60
1.59
1.85
3.83
4.04
17
97.10
97.20
1.68
1.95
4.01
4.20
18
97.90
98.00
1.78
2.05
4.17
4.31
19
98.80
98.90
1.88
2.15
4.45
4.50
20
100.00
100.00
2.00
2.25
-
-
Treasury Department, Division of Research and Statistics.
Vields are nominal annual rates compounded semiannually.
Regraded Uclas
83
Reen 278
>
Unior Secretary
by. Seese
February 26, 1941
To Presidents, Federal Reserve Banks.
Boston, Mass.
Chicago, Ill.
Burgess - New York, N. Y.
St. Louis, Mo.
Philadelphia, Pa.
Minneapolis, Minn.
Cleveland, Ohio.
Kansas City, No.
Richmond, Va.
Dallas, Texas.
Atlanta, Ga.
San Francisco, Calif.
in mailing you tenight ea propesed savings bead program
of the Treasury. Vould appreciate it if you and your staff would
carefully study this program on Monday and Tessday and let as have
year critisisms and suggestions late Tessday ovening by vire.
il
Regraded Uclassified
84
COPY
February 28, 1941
Dear Mr. Martin:
By direction of the Secretary, I am transmitting herewith
a copy of & memorandum covering a proposed savings bond program
which the Treasury now has under consideration. I would appreciate
it if you and your staff would carefully review this proposed program
and let me have your criticisms and suggestions by wire Tuesday
evening so that we can have them here for study early Wednesday
morning. If it would be helpful to you, you are free to call in any
outside people you may deem advisable for consultation.
Very truly yours,
(s) D. W. Bell
Under Secretary of the Treasury
Mr. William McC. Martin,
President,
Federal Reserve Bank,
St. Louis, Mo.
Same letter sent to all
Presidents of the Federal
Reserve Banks
DWB:ce
Regraded Uclassified
85
Proposed Savings Bond Program
Three series of United States savings bonds are under
consideration for use in connection with the forthooming
savings bond program. Each of these is designed to tap a
different sector of investment demand, and it is proposed
that all three be offered simultansously. The first 1a &
modification of the present form of savings bond, and is
intended primarily for small investors. The other two
are designed primarily for large individual investors and
for banks. limited purchase by institutions other than commercial
The three proposed types are described in more detail
in the remainder of this memorandum.
I. Savings Bond Offered
Primarily for Small Investors
It is proposed that the present type of savings bond
be retained, with one relatively minor modification. The
modification relates to the yield allowed on the bonds if
redeemed prior to maturity. The yield if held to final
maturity would continue to be 2.90 percent. It is pro-
posed, however, that the yields allowed in the event of
intermediate redemption should be reduced substantially.
The proposed reductions are shown in Table I, which 005-
pares the intermediate yields allowed under the present
plan with those proposed for the new series. The primary
purpose of this modification is to build up the yield
during the remainder of the ten-year period if held to
maturity as rapidly as possible. It is this yield (which
is shown in the last column of the table) which determines
the decision of & holder of the bonds whether to redeem
them or hold them to final maturity. It is felt that this
yield should be built up as rapidly as possible, thus pro-
viding & substantial inducement to holders of the bonds to
retain them to final maturity.
It 1s proposed that the limit on the maximum amount
of the bonds of this type which may be purchased by any
one individual in any one year be fixed at $5,000 matu-
rity value, as compared with $10,000 for the presen^ type
of savings bond. Sales would continue to be restricted to
natural persons.
Regraded Uclassified
86
2 - I
II. Savings Bonde Designed
Primarily for Larger Investors
It 18 proposed that two types of savings bonde be of-
fered primarily for larger investore. These bonds would
be eligible for purchase by any class of investor except
commercial banks, and could be purchased up to & total
amount of $50,000 original issue price by any investor in
any one year. This limit could be taken in either type of
bond or divided between the two in any way desired by the
investor, and would be in addition to the $5,000 maturity
value permitted to be purchased of the bond described in
the first section of this memorandum.
One of the proposed new series would be an appreci-
ation-type security similar to the existing savings bonds,
while the other would provide a current income. Both se-
curities would yield & return of approximately 2-1/4 per-
cent if held to final maturity. Their yield for the
period held if redeemed prior to maturity would also be
approximately the same. The two securities are compared
in this respect, and their intermediate redemption values
are shown in Table II. Both types would be redeemable
only on semiannual dates and on-thirty days' written notice,
such notice to be irrevocable when once given.
The appreciation-type security would be the same as
the existing series of savings bonds, except that it would
have an issue price of 80, rather than 75, thereby reduc-
ing the yield to maturity from 2.90 percent to 2.24 per-
cent. The intermediate redemption values would also be
reduced more sharply than is proposed in the case of the
bond described in the first section of the memorandum.
These values would still be generous, however, as compared
with open market yields for corresponding periods.
The income-type of security presente a somewhat more
difficult technical problem. It would bear & current re-
turn at a level rate of 2-1/4 percent per annum, payable
semiannually throughout the period. In order to compen-
sate for the high current return in early years, it has
been considered necessary to reduce the intermediate re-
demption values below the original sales price by an
Amount sufficient to out intermediate yields to the same
Regraded Uclassified
87
- 3 -
level as those on the appreciation-type security. The re-
duced intermediate redemption values thus arrived at would
reach a minimum of $94.80 per $100 of original issue price
after the bond has been held 4-1/2 years.
This scale of intermediate redemption values is that
which would be available to the original purchaser should
he desire to redeem the security prior to maturity. It is
proposed, however, that in the event of the death of the
original purchaser during the ten-year period, his suo-
cessor in interest should have the right for a reasonable
period after the death of the original purchaser to obtain
the full purchase price of the bond, rather than the re-
duced intermediate redemption value named in the instrument.
This provision is proposed primarily in order to make the
securities attractive to life tenant and remainderman
trusts.
Regraded Uclassified
Thole I
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Tields
Number of
Redemption value
Tield during period held
Tield during remainder
of 10-year period
semi-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yields
yields
yields
0
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77.00
76.00
1.76
.88
3.10
3.25
4
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
80.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
81.00
2.26
1.72
3.42
3.87
10
84.00
52.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
-
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded semiannually.
88
Regraded Uclassified
Comparison of Proposed Appreciation and Income Plane for New
Series of United States Savings Bonds Yielding
2-1/4 Percent if Held to Final Maturity
Number of
Redemption value
Yield during period held
Yield during remainder
semi-annual
of 10-year period
periods held
Appreciation
Income
Appreciation
Income
Appreciation
Income
plan
plan
plan
plan
plan
plan
0
$ 80.00
$100.00
.00%
.00%
2.24%
2.25%
1
80.00
98.90
.00
.05
2.36
2.38
2
80.20
98.00
.25
.25
2.47
2.50
3
80.40
97.20
.33
-39
2.58
2.62
4
80.80
96.50
.50
.51
2.68
2.74
5
81.20
95.90
.60
.62
2.80
2.86
6
81.80
95.50
.74
.76
2.89
2.97
7
82.40
95.10
.85
.87
3.00
3.09
8
83.20
94.90
.98
1.00
3.09
3.19
9
84.20
94.80
1.14
1.12
3.15
3.29
10
85.20
94.80
1.26
1.24
3.23
3.39
11
86.20
94.90
1.36
1.35
3.33
3.48
12
87.20
95.00
1.44
1.45
3.45
3.60
13
88.40
95.20
1.54
1.55
3.55
14
89.80
95.60
1.66
3.73
1.65
3.62
3.82
15
91.20
96.00
1.75
1.75
3.72
3.95
16
92.60
96.60
1.84
1.85
3.88
4.04
17
94.20
97.20
1.93
1.95
4.02
4.20
18
96.00
98.00
2.04
2.05
4.12
4.31
19
97.80
98.90
2.13
2.15
4.50
4.50
20
100.00
100.00
2.24
2.25
-
-
Treasury Department, Division of Research and Statistics.
89
Yields are nominal annual rates compounded semiannually.
Regraded Uclas
90
February 28, 1941
11:16 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Harriman 18 expected back about 11:30
or quarter of 12:00.
H.M.Jr:
Well, is there anybody there in his office?
Operator:
I'll see. (Pause). I have his secretary.
H.M.Jr:
Hello.
Robt. P.
Meiklejohn:
This 1e Mr. Meiklejohn, Mr. Harriman's
assistant. Can I help you?
H.M.Jr:
Yes. This 18 Mr. Morgenthau. Will you tell
Mr. Harriman that I've been thinking over very
carefully his request to let him have some of
my statisticians to go with him to London and
in view of the shape this whole thing is taking
in the last few days, I think that the Treasury
should contract its activities with regard to
that sort of thing rather than expand, and I
wish Mr. Harriman would see if he can't t get
somebody from the Statistical Section of O.P.M.
rather than the Treasury.
M:
All right. I'll tell him that.
H.M.Jr:
Because I want to contract our activities
rather than expand.
M:
I'll tell him that.
H.M.Jr:
Thank you.
M:
You're welcome.
Regraded Uclassified
3/1/41
91 :
HM JR took this to the White House
with him today at 11:30.
92
February 28, 1941.
Dear Mr. President:
The Coast Cuard vessels which seam most suitable
for convoy work are the ten outters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1028
ITASCA - 1930
P INTCHARTRAIN - 1928
SARANAC - 1930
TAKOE
- 1928
SEBAGO - 1930
CHAMPLAIN
- 1929
SHOSHONE - 1930
MENDOTA
- 1929
CAYUGA - 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 foot, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, la
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immadiately. Consideration has to be given,
however, to the areament and other equipment they would
need for convoy service. Although & program of arming
and equipping all ten for service with our Navy has been
in progress, It scons far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done In American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
93
- 2 -
convey work will of course depend upon the extent of the
changes and additions desired sad the speed with which
DE can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising outters end the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the now 327-foot
type and four 240-foot ships that are now twenty years
old. of the seven 327-footers one, the CAMPBELL, is now
on Savy service In Portugal.
The following steps appear to be necessary to
adjust this year's program to the equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Tes Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time mould be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are 111 suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
cutter COMANCHE, and a vessel of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarotic, about May 1. This is not quite as extensive
patrol of Greenland as had been planned for the coming sug-
mer, but it may be sufficient.
(c) Atlantic Weather Stations - To maintain a two-
station patrol In the North ADENTO will require five
vessels of the 327-foot class. This will be 8 full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
HA
- 8 -
a third station on this Atlantic Weather Patrol, which
moulo require at least two more vessels. These are not
available. It is recommended that Immediate stops be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot outters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Quard crows.
(d) Cadet Practice Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This crulse is & very
important part of a. cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilised at Jackson-
ville, Florida. Prellminary negotiations have been under-
taken through the State Department.
(a) Bering Sea Fatrol - Two of the 250-foot outters
were scheduled for Bering Sea Patrol during the coming
suster. The Coast Guard has no replacements for these
vensels and, consequently, the activities of the Cosst
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only " long as the TANEY remains available
for Coast Guard activities.
(E) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distross, towing of vessels for the
Maritime Commission, and other emergency taske, will have
Regraded Uclassified
95
to be ourtailed.
For some time we have felt the need of additional
and better equipment to take care adequately of lee con-
ditions on our Bastern coast, in the rivers, the Great
Lakes and on the Alaskan coast. We lack also vessels
entirely suitable for coping with ice conditions in the
harbors of Newfoundland and Greenland and Iceland; nor
do Canada or Great Britain have sultable vessels for this
purpose, which may continue for some time to come to be
of great importance.
The replacement of the ten cutters to be trans-
ferred will give us an opportunity to remody this lack.
As a part of our National defense needs it would seem
prudent to equip the Coast Guard with ships specially
constructed to overcome difficult ise conditions wherever
they are called upon to perform service.
I an therefore suggesting & program for the con-
struction of ten dual purpose ships at an estimated cost
of $22,500,000 ($2,250,000 each), and respectfully ask
your permission to submit & deficiency estimate in that
amount. These would be combination loe-breakers and
cruising cutters, 250 feet in over-all length and approxi-
mately 42 feet beam, similar to the ten outters to be
transferred except that the bow characteristics would be
materially different and the vessels would be more steunchly
constructed, in order to break ice and to penetrate ice-
fields. Perhaps a half-knot of speed (of the 16 knots of
the present cutters) would be sacrificed for more rugged
construction and better ice-breaking qualities. In addition
to their value for working through 100 the vessels would
also have all necessary useful qualities for towing, render-
ing assistance at sea and other varied Coast Guard work.
To summarise, the program I desire to suggest for
your approval is as follows:
(1) Submit deficiency estimates In the amount of
$22,500,000 for ten dual-purpose cutters.
Regraded Uclassified
mix. 96
- 5 -
(2) Undertake negotiations to obtain and equip
seven merchant ships for weather patrol
purposes, to be manned by Coast Guard crews.
(3) Negotiate for the purchase of the Danish
training vessel DANMARK for Coast Guard
cadet training.
Faithfully,
Secretary of the Treasury.
The President,
The White House.
Regraded Uclassified
97
- THE U.S. court NMD
MD - to -
CR-21
TREASURY DEPARTMENT
311
46
UNITED STATES COAST GUARD
RESTRICTED
HEADQUARTERS
SECRET
WASHINGTON
27 February, 1941
MEMORANDUM FOR SECRETARY OF THE TREASURY:
Subject:
250-foot Class Coast Guard Cutters; rearmament
conversion; estimated completion dates
Inclosure: 1. Schedule of 250-foot Class Rearmament Con-
version; equipment required for Completion
1. The subject class of Coast Guard outters now in
the process of being converted to Gunboats (XPG) for national
defense under general specifications prepared by the Navy
Department includes the following vessels permanently eta-
tioned at the ports noted:
CAYUGA
Boston, Massachusetts
CHAMPLAIN
Stapleton, Staten Island, New York
CHELAN
Boston, Massachusette
ITASCA
San Diego, California
MENDOTA
Norfolk, Virginia
PONTCHARTRAIN
Stapleton, Staten Island, New York
SARANAC
Galveston, Texas
SEBAGO
Norfolk, Virginia
SHOSHONE
Alameda, California
TAHOE
New Bedford, Massachusetts
2. In general, the rearmament of vessels of this
class provides for the following ordnance equipment and re-
lated alterations and modifications:
Install two 5"/51 Cal. guns
Install three 3"/50 Cal. antiaircraft guns
Install four .50 Cal. antiaircraft machine guns
Install one Y-gun with six depth charges
Install two 5-charged depth charge tracks
Install echo ranging equipment (underwater listening device)
Provide signalling searchlights
Provide two 24" high intensity searchlights
Install altimeter range finder and 21 meter range finders
Install fire control telephone systems
Provide magnetic mine protection
Modify magazines for war-time ammunition allowance
Revise accommodations and facilities to provide for 150
enlisted men and 12 officers
Regraded Uclassified
98
CR-21-311-46-RESTRICTED
Memorandum for Secretary of Treasury
27 February, 1941
Provide chemical warfare defense equipment
Furnish steel helmets
Install various alarms, light dimming and control switches
Provide electric lanterns
3. The first phase of the conversion of vessels of
this class has been completed on all vessele except the
SHOSHONE and B. schedule has been prepared for their return
to various shipyards and Navy yards beginning 1 March, 1941,
at which time all equipment which has been accumulated since
completing the first part of the work will be installed and
every effort made to finish the conversions to the extent
available material and equipment will permit. Items such
as, range finders, searchlights, .50 Cal. machine guns, B
limited number of 3"/50 Cal. A.A. guns and hydraulic depth
charge controls have been ordered since early in the con-
version program, but excessive delay has occurred in their
deliveries, and in the case of several items, deliveries are
not anticipated during the forthcoming visits of the vessels
to the shipyards. This delay is due to the length of time
required for the manufacture of the fire control and ordnance
equipment and also to the deferred priority assigned the
Coast Guard in the receipt of defense material and equipment.
In the case of four of the outters, the MENDOTA, PONTCHARTRAIN,
SARANAC and TAHOE, scheduled to proceed to the Navy Yard, New
York, for conversion completions, the lack of equipment was
brought to the attention of the Navy Department, and I an
advised that department has arranged to furnish the missing
items of equipment which will permit approximately 100 per
cent completion of the conversion work.
4. Satisfactory completion of the remaining six vea-
sele of the class ie dependent on the receipt of the items of
equipment mentioned above, deliveries of which have been sub-
ject to extraordinary delay. The only possibility which
would allow these six vessels to be completed during the
proposed overhaul period would be the Navy Department sup-
plying the wissing equipments by granting earlier priority
to equipment now under manufacture or diverting that now de-
livered and earmarked for Navel units under construction or
conversion.
5.
The present schedule for the return of vessels of
the 250-foot Class for conversion completions 1a:
CAYUGA
17 March - 15 April - Navy Yard, Boston
CHAMPLAIN
1 - 21 March - Coast Guard Depot
- 2 -
Regraded Uclassified
99
CR-21-311-46-RESTRICTED
Memorandum for Secretary of Treasury
27 February, 1941
CHELAN
15 - 30 March - Coast Guard Depot
ITASCA
21 January to 11 March - Coast Guard Depot
MENDOTA
15 - 31 March - Navy Yard, New York
PONTCHARTRAIN
1 - 31 March - Navy Yard, New York
SARANAC
3 - 31 March - Navy Yard, New York
SEBAGO
1 - 21 May - Coast Guard Depot
SHOSHONE
25 March - 25 May - Coast Guard Depot
TAHOE
15 - 31 March - Navy Yard, New York
6. To expedite the completion of the conversion on
the ten vessels of the 250-foot Class, the following alternate
schedule 1s recommended providing the work on the vessels can
be given priority at the Boston and New York Navy yards. Four
of the vessels, the MENDOTA, PONTCHARTRAIN, BARANAC and TAHOE,
as noted above, are scheduled to proceed to the Navy Yard, New
York, during March, and preliminary work in connection with
their completion has been initiated and no change in this
schedule 1s recommended. As noted above, the missing equip-
ment for these four vessels will be furnished by the Navy De-
partment and their requirements are not included in the tabu-
lation inclosed which liste the material and equipment required
to permit completion of the remaining six vessels of the class.
The modified schedule which will provide for completion of the
conversione on all vessels of the class by 15 April, 1941, 1s
as follows:
CAYUGA
17 March - 15 April - Navy Yard, Boston
CHELAN
15 March - 15 April - Navy Yard, Boston
CHAMPLAIN
1 - 21 March - Coast Guard Depot
ITASCA
21 January - 11 March - Coast Guard Depot
SEBAGO
24 March - 15 April - Coast Guard Depot
SHOSHONE
15 March - 15 April - Coast Guard Depot
MENDOTA
15 - 31 March - Navy Yard, New York
PONTCHARTRAIN
1 - 31 March - Navy Yard, New York
SARANAC
3 - 31 March - Navy Yard, New York
TAHOE
15 - 31 March - Navy Yard, New York
7.
It 1s urgently recommended that it be arranged by
the Navy Department to furnish either by granting higher priorities
or diverting from vessels now under construction or conversion 7
3"/50 Cal. antiaircraft gune, 24 .50 Cal. machine guns, 12 24"
high intensity searchlights, six 2% meter range finders, 12 hydrau-
lio depth charge release controls, 300 sound powered telephone
Jack boxes and 150 sound powered telephone plugs for installation
on the six vessels of the 250-foot Class for which previous ar-
rangements to obtain this equipment have not been completed.
R. R. WAESCHE
- 3 - Commandant
Regraded Uclassified
100
se/c
MEMORANDUM TO THE PRESIDENT
There has been an amendment proposed
to H.R. 1776 by Senators Taft and Byrd which
Senator Byrnes has indicated he is willing to
accept in substance. Its implications are 80
serious we think it ought to be called to your
attention.
This amendment provides that no defense
articles procured out of appropriations made to
the War and Navy Departments after the effective
date of H.R. 1776 can be transferred under the
bill without the consent of Congress.
This amendment would seriously cripple
the contemplated operations under the bill. It
would make it impossible effectively to carry out
a joint procurement program. It would mean practically
that We would have to have a separate Army, Navy and
foreign aid program. It would also take away the
flexibility that is necessary in disposing of defense
articles.
Regraded Uclassified
101
- 2 -
We have felt justified in bringing this
to your attention because no amendment to which
administration Senators have been receptive cuts
so close to the heart of the bill.
Do you have any suggestions for us?
Henry L Stinson
Secretary of War
Herry Mayonthan Ir.
Secretary of the Treasury
Forestal
Acting Secretary of the Navy
February 28, 1941
Regraded Uclassified
102
February 28, 1941
My dear Mr. Smith:
For your information, I am send-
ing you copy of a memorandum signed by
Secretaries Stimson, Forrestal and myself,
which was transmitted to the President to-
day.
Yours sincerely,
(Signed) 1 Mangenthan, st.
Honorable Harold D. Smith,
Director of the Budget.
Rv Measons 241
Regraded Uclassified
103
February 28, 1941
Ity dear Harry:
For your information, I am send-
ing you copy of a memorandum signed by
Secretaries Stimson, Forrestal and myself,
which was transmitted to the President to-
day.
Yours sincerely,
(Signed) E Mongesthau, Jr.
Honorable Harry Hopkins,
The White House.
By Measenger 241
Regraded Uclassified
104
February 28, 1941
My dear Mr. Secretary:
For your files, I am sending you
& copy of the memorandum which we
sent to the President today.
Sincerely yours,
(Signed) E. Morgenthan, &
Honorable Henry L. Stimson,
Secretary of War,
Washington, D.C.
By Momenager 241
Regraded Uclassified
105
February 28, 1941
My dear Mr. Forrestal:
For your files, I am sending you
a copy of the memorandum which we
sent to the President today.
Yours sincerely,
(Signed) E. Mergenthau, Jr.
Honorable James Forrestal,
Under Secretary of the Navy,
Navy Department,
Washington, D.C.
By Memenager 2ᵗʰ
Regraded Uclassified
106
TTH CONGRESS
1st SESSION
H. R. 1776
IN THE SENATE OF THE UNITED STATES
FEBRUARY 26 (legislative day, FEBRUARY 13), 1941
Ordered to lie on the table and to be printed
AMENDMENT
Intended to be proposed by Mr. BYRD to the bill (H. R. 1776)
further to promote the defense of the United States, and
for other purposes, viz:
1
On page 3, line 10, after the period, insert the follow-
2 ing new sentence: "Defense articles procured from funds
3 hereafter appropriated shall not be disposed of in any way
4 under authority of this paragraph except to the extent
5 hereafter specifically authorized by the Congress in the Acts
6 appropriating such funds or otherwise."
2-26-41-A
107
February M. 1941
Under Secretary Boll
Mr. Cechran
40 11:30 this morning Mr. Mazwell Namilton, Chief of the Far Nastern Division
of the Department of State, telephoned se to ask for an appointment for his
Mr. Jenes, to present a nenerandum to the Treasury Department setting forth State
Department views on the Chinese stabilization arrangement. I explained to Mr. Kanilton
that pressure of financing had prevented the Treasury from calling any joint meeting
is this question the past two or three days, but that w hoped to get on 10 again 1002.
b. Familton stressed the urgency of the matter insefar as the Department of State Vid
conserned.
At 2140 this afternoon I received Mr. James, who handed to se the atteshed
informal neuorandum. No said that this had been cleared with the appropriate efficials
is the Department of State, including Secretary Ball.
I reminded Mr. Jenes of our conversation come days age with Dr. Seeng
and let his know that the British Treasury people had provided us with a copy of a
Acorgo cost free Lendon to Cheagking, but that ve had received since that meeting
9 other documents which night have served as & basis for the remarks which Dr. Seong
mis from a pencil monorandum. Mr. Jenes confirmed that he likevise had received
nothing other then the Lendon-Chungking tolegram which had been handed to W. I -
unsertain, therefore, whether the message from Lendon which Phillips had used as a
basic for his to the Treasury had also served as the basic of Dr. Seorg's
or whether some later message is invelved. Ve should clarify this with
the British when they next meet with M.
HNC:dM:2.28.41
Regraded Uclassified
COPY
108
February 12, 1941
INFORMAL MEMORANDUM IN REGARD TO
THE CURRENCY SITUATION
IN CHINA
Officers of the Department understand that Sir
Frederick Phillips has presented to the Treasury De-
partment on behalf of the British Government a plan for
dealing with the Chinese currency situation which, if
accepted, would serve as B. substitute for the draft
agreement which has been tentatively worked out between
the Treasury and Mr. T. V. Soong in Washington. The
draft as agreed upon between the Treasury Department
and Mr. Soong provides certain procedures whereby this
Government would aid the Chinese Government in stabiliz-
ing the exchange value of the Chinese yuan with respect
to the United States dollar and other foreign currencies,
procedures which allow a continuation of the present
policy of maintaining a free market for Chinese cur-
rency. Conversations which have thus far been had with
Mr. Soong have assumed that a free market for Chinese
currency would be continued.
According to our understanding of the matter, the
British plan to conclude at an early date a payments agree-
ment between the British Empire and Japan and between the
British Empire and China. These two steps would result in
the disappearance of the free market for sterling in China.
We
Regraded Uclassified
109
- 2 -
We understand that the British plan calls further for the
establishment of external exchange control by the Chinese
Government, the freezing of Chinese balances in the British
Empire and in the United States, and the operation of ex-
change controls in the British Empire and in the United
States to the advantage of the Chinese National Government,
1.e., the Government of the United States and the govern-
ments of the various areas of the British Empire would
provide that exchange accruing from current Chinese exports
from occupied areas must be turned over to the Chinese
National Government if the commodities concerned are to
be accepted in the British Emmire or in the United States.
The British Empire and the United States would therefore
be helping China enforce exchange control in the occupied
areas. The free market for Chinese currency would, of
course, largely disappear and presumably the Chinese
National Government would fix an exchange rate for future
transactions.
There is reason to believe that if the preceding
measures were taken, the following developments would have
to be taken into account:
(1) The Japanese would probably decline to allow
exchange accruing from exports from Shanghai and
Tientsin
Regraded Uclassified
110
- 3 -
Tientsin and other occupied ports to be made available
to the Chinese National Government. There is little
doubt that they would promptly declare the currency of
the Chinese National Government invalid in the occupied
areas and substitute the currency of their own puppet
banks therefor, instituting at the same time full ex-
port and import control providing that no exports could
take place until the exchange involved should accrue to
the puppet banks. The result of conflicting Japanese
and British policies would be a stalemate in which
trade between the occupied areas and countries other
than Japan would be cut off, except for the export and
import trade with occupied Chine which would probably be
carried on through Japan, and the occupied areas would
be thrown largely upon Japan for both imports and exports.
Any hope, therefore, that the Chinese Government would
under the British plan derive foreign exchange from the
trade of the occupied areas would seem to be wholly 11-
lusory. Moreover, the Japaness could argue with con-
siderable reason, if the foregoing should transpire,
that China, Great Britain, and the United States had
destroyed the free market for China's currency and that
they had no alternative but to put their own currency
and trade measures into
operation.
Regraded Uclassified
111
4
operation. The adverse effect of these developments
not only on Shanghai but on the large guerrilla-controlled
hinterland and upon the resistance to Japanese policies
which is maintained in those areas would probably be
great. The circulation of the Chinese currency through-
out China, including the occupied areas, tends to cause
the Chinese to continue to regard Chungking as their
legitimate government, and is therefore an important
unifying factor.
(2) Perhaps the most important immediate effect to
the United States of putting the British plan into ef-
fect would be that the large quantities of Chinese Na-
tional currency at present circulating end hoarded at
Shanghai and in the central and north China hinterland
emounting to between three or four billion yuan or more
would be pushed back into the interior where the Chi-
nese National Government is endeavoring at the present
time to prevent a runaway inflation. Either the owners
of Chinese National currency would take that currency
from Shanghai into the interior or the Japanese would
collect it, in exchange for puppet currencies, and
smuggle it into the interior. The result of a great
addition of the circulating medium in free China, where
investment opportunities for private capital are meager,
would be probably to cause inflationary forces operating
there
Regraded Uclassified
112
- 5 -
there to get out of hand and thereby underwine the all-
thority of the Chinese National Government,
Both this Government and the British Government are
concerned that the strength end authority of the Chinese
National Government be maintained. We feel that the no-
ceptance of the British plan would not be in accord with
that general policy. If the preceding developments took
place they would appear to be working in the opposite
direction. This Government is carrying out as a measure
of self-defense a. broad policy of aid to countries resist-
ing aggression and, as part of that policy, recently an-
nounced the extension of a loan of $100,000,000 to the
Chinese Government. Shortly after that announcement, the
British Government announced that it was similarly making
a. large sum available to the Chinese Government, partly
for currency stabilization purposes and partly for in-
creased purchases within the British Empire. The effect
of the proposed British plan would seem to be not only not
to make a material contribution to the support of the Chi-
nese currency, but to make difficult American efforts to
support that currency. Should the British Government pro-
ceed to negotiate a payments agreement with China, the
inability of China to sell her surplus of sterling in the
open market and to obtain therefor gold dollars would exert
additional pressure on the Chinese currency.
It
Regraded Uclassified
113
- 6 -
It would 000m to be preferable as a matter of
policy to keep the situation in China on as even e keel
as possible during the coming months and to avoid, if
possible, drastic measure, exfecting China's economy.
If China can be tided over during the next few months a
new and more hopeful situation may present itself. It
would seem to be useful to have a plan such as the
British have in mind thoroughly discussed and worked
out as between the British and ourselves as a necessary
emergency measure to be put into operation if the Japa-
nese seize Shanghai and establish full trade and ex-
change controls or if the further maintenance of a free
market for the Chinese currency should otherwise seem
to be completely untenable. However, it is suggested
that it is highly desirable to continue for a while
longer the policy which this Government and the British
Government have followed since the beginning of hostili-
ties in the Far East, namely. that of holding our ground
as long as possible and of retreating only when obliged
to do BO. Such a course of action may require & greater
expenditure of funds but in our opinion the returns for
that expenditure would be substantial.
copy:kma
2/28/41
114
TREASURY DEPARTMENT
with
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
At 11:45 on February 21 Mr. Dave Schenker of Securities and Exchange telephoned
SF. He said that Mr. Quian, representing an investment trust group in New Tork
which had been in touch with S. B. C., had heard rumers that the British were nago-
tisting directly with various firms "on the Street" in regard to sale of direct
investments in this country. He wanted to know how 8. E. C. should & about effect-
ing liaison between Quinn and Sir Edward Peaceck.
I told Mr. Schenker that I could only renew the advice which I had given his
office after & personal conversation with Sir Edward Peacock, assely, that all parties
applying to our Government offices here in Washington for information about or con-
lact with Sir Edward Peaceck's office and his functions should be referred directly to
his at 15 Broad Street, New York, is care of the British Purchasing Commission.
Schenker said that he reaclled this nessage from me, but that Quian seemed hesitant
is taking such & forward stop. I assured Mr. Schenker that Sir Mward's reports of
vallers and their efforts to interest his in their propositions indicated no excessive
solesty an the part of New York speraters, and again told him the Treasury vas
infinitely following the policy suggested by Peacock, without making any exceptions
in behalf of special pleaders.
When Mr. White and I were with the Secretary on February 24 I mentioned the
stove conversation. Mr. White stated that Mr. Schenker had spoken with his on the
and was sending over a nemorandum to the Secretary indicating the people who
W been in touch with him conserning British direct investments, and asking advice
la the premisss. The Secretary took the position that the policy of referring every-
use directly to Sir Edward Peacock should be followed by the S. 1. C. as well as by
the Treasury, and that there should not be any comfusing of this pelicy through
8. 1. c. approaching more than one efficer in the Treasury. The Secretary said he wanted
this handled through no. At the Steff meeting of February 25 the Secretary reminded
the group that he desired that Mr. Young be his contact with the British Purchasing
Commission and that I be the contact with the British When he asked whether
any of the other officers had direct contact with the Embasay, Nessre. Gaston and
Pable stated that they sometimes saw Stepford. I remarked that this had been agreed
un, since Stopford dealt with certain shipping matters which Mr. Gasten comtrolled.
at occasionally went on to ... Mr. Pehle on Foreign Funds matters after he had filed
de nemoranda on this subject with no.
H.M.R.
Regraded Uclassified
115
February 28, 1941
11:45 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Schenker.
David
Schenker:
Hello, Mr. Secretary.
H.M.Jr:
Hello.
S:
I'm sorry to bother you but Mr. Quinn has
come to Washington and my phone literally has
been ringing innumerable times every day with
respect to that British ai tuation.
H.M.Jr:
I'm going to be available at 3:00.
S:
Well, may we come over for 5 minutes?
H.M.Jr:
Who is we?
S:
Just Frank Quinn and myself.
H.M.Jr:
Sure.
S:
Fine.
Thank you.
116
February 28, 1941
11:50 a.m.
RE AID TO BRITAIN
Present:
Mr. Gaston
Admiral Waesche
Mrs. Klotz
Gaston:
Mrs. Herbert is typing the last few lines of
a letter to the President for your signature.
H.M.Jr:
What do I do, read this?
Gaston:
There is & memorandum that was really prepared
before the discussion with the Navy Department
on the status of these cutters.
H.M.Jr:
Should I read this? Have you got a copy of
this?
Gaston:
No, I haven't a copy of that.
Waesche:
I don't think it is necessary for you to read
that, Mr. Secretary. I can just tell you in
a very few words what it contains.
H.M.Jr:
Please.
Waesche:
That simply gives you the present state of
conversion of these ships for Navy use, and it
runs all the way from the Shoshone, which hasn't
been touched, to one of the other vessels,
which is almost completed. Under the present
plans, the Navy of course have not given pri-
ority to all of those ships. They have been
Regraded Uclassified
117
- 2 -
given priority before which they expect to
use on the ones in the Caribbean Sea. In the
present setup those ships would not be ready
until April or May with those particular type
of guns. When I took it up with the Navy
yesterday, there was no question in their
mind that the British would not want that arma-
ment, and they simply said, "We are not going
to send these guns over on these ships for the
British to take off and use them for something
else." They were very positive those were not
the guns which the British would use. Then
we cabled London yesterday to find out what
armament the British would want on these ships,
so that practically scraps that whole conver-
sion program. As far as the material already
in the ships are concerned, the machinery and
the hull are in the pink of condition, all ten
of them, and it is only a question now of find-
out what the British want put on there, and as
soon as we get that word, the Navy have told
me they would give me an estimated date--
H.M.Jr:
Let me interruptyou. I hope you didn't con-
sider just the armament. Let me tell you what
happened in the case of the destroyers. My
informant is the President of the United
States. One of the many reason why there was
such delay in putting these destroyers in the
service, I understand they have four boilers
each, and the English took one boiler out in
order to make room for more full capacity.
They said they could get along with less speed,
but they wanted them to stay out longer. And
then on the bridge of our destroyers, it is
covered with steel, and they find that they
have lost more men from broken necks because
when they dropped these bombs the concussion
throws the men up, and they hit their heads
on the top of these steel roofs, and they
break their necks. Furthermore, they want to
Regraded Uclassified
118
- 3 -
be able to see the planes when they come.
Therefore, they removed the top of all these
bridges. Now, the point of the story is,
the bridge is open, there is no protection,
80 - if we are going to do this thing so they
will be able to use them this spring, the
English ought to be able to see them or have
a plan of them and say, "To put them into
service, this is what we need. So when they
leave and are delivered up to Halifax, these
things are in the condition they want, not
just as to guns, but everything. So if you
could - if you didn't make it all inclusive,
I would ask the British - - here is the type of
ship we are thinking of letting them have under
the Lend-Lease. "What would you want done to
this ship 80 that when it is delivered to Hali-
fax, the next day it goes into service with the
first convoy that goes out," you see.
Waesche:
Yes, sir.
H.M.Jr:
Or if this ship is of no use, all right. Now,
I should think one of the things which would
help them would be, if you haven't got a man
in Halifax, send one up there and let him take
a look at these ones the Canadians are building,
how are they equipped.
These new Corvettes which they are building -
but it would be better, I think, to let the
British say, "Here, now this is fine and wonder-
ful, but we want the following things done to
these ships before we can use them under our
ideas." There is no use arguing with them.
Unless they were in condition so that they can
be used this spring, I would lose most of my
interest. Now, is that plain what I am saying?
Waesche:
Yes, sir.
Regraded Uclassified
119
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Gaston:
Of course the ships themselves can all be
delivered right now.
H.M.Jr:
I know, Herbert, but if you send them over to
England and they go through the thing, it is
another three months, and the whole idea is
lost, but if they have - as I understand it,
these convoys go over of from 40 to 60 ships,
and they are having one, two, or three destroy-
ers, that is all, for the whole thing. I mean,
and that is why they are losing so many. They
only have, I understand, sometimes as few as
two. Have you heard that?
Waesche:
Yes, yesterday. sir, I have. I was talking to the Navy
H.M.Jr:
Am I right?
Waesche:
Yes, sir, and also they were saying - they
talked about those convoys over there yesterday.
They were saying that the guns that we have on
these ships would not stop those German planes,
that they usually report those German bombers
come down there and shoot over those convoys
about two hundred feet up in the air and one
bomb to each merchant ship.
H.M.Jr:
But the point I am getting at is, from their
daily experience there are undoubtedly things
that they want. We can do those things very,
very rapidly here, 80 that they get them in
the spring, and I don't want them to leave
here and have them lie over in some port in
England for three months.
Waesche:
The only question in my mind is, of course,
whether the Navy is to make these arrangements
with the British by putting the Navy in there,
Regraded Uclassified
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- 5 -
which, of course, I think it is 8. Navy job,
but I am not in a position to go over and tell
the Navy I want them to do this, that, and the
other thing.
H.M.Jr:
Well, I am, and so is the President. Don't
hesitate about that. I will drive it home.
Waesche:
To my mind, just as you say, there should be
somebody from the British authorities who knows
what they want come down here with the Navy and
Coast Guard and say, "Here is the ship. Now
what do you want done to it?"
Gaston:
Yes. The final thing is to find out what the
British want done.
H.M.Jr:
They have got the people here.
Make a note, Herbert, please, gross tonnage of
the earlier five, I would like to have you give
the date of when those are available. The
meeting is tomorrow morning. I just got word.
Gaston:
Twenty-eight and twenty-nine the first five,
and thirty-one and thirty-two the second five.
H.M.Jr:
Now, if you don't mind, I would change this
letter. It isn't what I want. I would simply
put in here, "We have asked the Navy to ascer-
tain from the British what will be necessary
to convert these ships so that they would be
ready to be put to the use that they want and
depending upon what we hear from the British
and depending upon the speed with which the
Navy will make it available, we are unable to
tell you, you see.
Gaston:
Yes.
H.M.Jr:
In other words, there are two factors, one,
Regraded Uclassified
121
- 6 -
how quickly the British can get them; and, two,
how quickly our own Navy can act on them.
Gaston:
That is just listing what is being done now,
and then I say in the last paragraph--
H.M.Jr:
I think it is confusing, if you don't mind,
all that stuff may come off.
Gaston:
Yes.
H.M.Jr:
I would simply, after the first paragraph, in-
troduce a new paragraph in place of this one.
Gaston:
The second paragraph there is descriptive of the
boats, I think.
H.M.Jr:
No.
Gaston:
Isn't it?
H.M.Jr:
No. I would cut this out because what we are
doing now may be of no use to the British.
Gaston:
Yes, we realize that.
H.M.Jr:
So I would just say with the exception of one -
then I would say we are asking the English and
when we hear from that, We will put it up to
the Navy and it will depend on how quickly the
Navy will do it. We can then tell you.
Gaston:
It is really the Navy that has asked the British.
H.M.Jr:
Well, say 80.
Gaston:
Yes.
H.M.Jr:
You say they could probably all be completed by
March 15.
Gaston:
That was the old changes.
122
- 7 -
H.M.Jr:
Well, you have got this time limit here.
Gaston:
Yes.
H.M.Jr:
I just think you could say, with the exception
of one, they are all on the West Coast; and
then, however, we do not know what armament
the British will desire, and the Navy Depart-
ment has asked and 80 forth. Time of delivery
would therefore depend on that. Now, if you
will fix that up and get it back to me this
afternoon.
Gaston:
Yes. Now, we have--
H.M.Jr:
Now, there should be a companion letter which
would go with it - oh, I think I would put it
on the same thing. "Now, Mr. President, if we
do this, the Coast Guard needs the following
in exchange." I would put it right in the same
letter.
Gaston:
Well, there is the other thing too, of what
this is going to do to our present set-up.
We can't get ships immediately. What this is
going to mean to us, and what help we will
have to have in being able to cover our -
there is a memorandum on that.
H.M.Jr:
Do you understand what I want on this letter?
Gaston:
Yes.
H.M.Jr:
Don't say the President's emergency fund, be-
cause he always hits the ceiling on that. Say
the deficiency appropriation. He says there is
no emergency fund. He says that consistently,
so say deficiency appropriation.
Gaston:
Should we cover this in the same letter?
Regraded Uclassified
123
- 8 -
H.M.Jr:
Yes, I would.
Gaston:
And summarize that whole situation in the same
letter.
H.M.Jr:
Yes, I would.
Gaston:
The International Ice Patrol is rather an in-
volved subject.
H.M.Jr:
But it is brief and short. I would put it all
home. in one letter so I can have it before I go
Gaston:
Now, on the type of ships--
H.M.Jr:
Oh, yes.
Gaston:
The Admiral had a memorandum here suggesting
initially what the Navy would undoubtedly want
is the 327 footers, but adding to that what he
wants and the service men want would be an
alternate, and I think we had better turn that
around and say nothing about the 327 footers,
and say what we really want. What we really
want in the Admiral's opinion, the opinion over
there, is a vessel of the Cayuga-Champlain type
but lengthened to 210 feet and with more power
so as to give her 20 knots speed and still make
here 8. usable boat for Coast Guard purposes.
Waesche:
In other words, speed is determinate. We feel
our seagoing vessels should have 20 knots speed.
Then when you start with the speed, that de-
termines the length and the power and to get
20 knots you have got to have a vessel about
310 feet long.
Gaston:
It costs about a half million less per vessel
than the Bibb type.
124
- 9 -
H.M.Jr:
Do you mind if I differ with you? What I would
ask, and I think from the standpoint of national
defense, looking after everything else, I would
like you to tell me, in order to keep free of
ice, all of the Atlantic ports, to keep free of
ice our base at Newfoundland, to have enough
ships to send up to Greenland and to Iceland,
I would put that in first because I think it
comes first, and I think, in the long run, that
Coast Guard has a - has more justification for
its existence, it is more popular with the
Congressmen, more political appeal in the broader
sense, than if you get into this other thing,
this deep seagoing stuff, which, with the Navy
so big anyway - I don't know.
Waesche:
I follow you very closely. The only reason we
need the seagoing ships at all is for these
special cruises and--
H.M.Jr:
Now, look, Admiral, you are not going to be
doing those. Let's be frank. You are not going
to be doing those, but if I can say and you can
say to the Congressmen, "After all, here are so
many harbors that we cannot keep open, 80 many
inland lakes where they can't bring the iron
ore down, and if you are going to expect us to
keep Halifax open, because the Canadians don't
have any ice breakers, I take it--"
Waesche:
That is right.
H.M.Jr:
"And if you expect us to go to Greenland or
Iceland - now there is the talk, you know, of
shipping to Iceland and then trans-shipping
from there to England. There is 8 job for
Coast Guard to do."
Waesche:
Of course the type of ship which is best suited
for that sort of work is this type that We are
planning to use, the type of the Cayuga.
Regraded Uclassified
125
- 10 -
Gaston:
The large 310 boat is what he is talking
about. If you are going to do deep sea work,
and after all, the Coast Guard can't abandon
its function of rescue at sea, and if you are
going to do that type of work, you have to have
a ship that is workable in heavy seas, You
can't have these small ships that pitch all
over and stand on their noses in heavy seas.
H.M.Jr:
Now, Herbert, let's be practical. Would you
please give me & list, what - this ship, for
instance, the one like you had in Cleveland,
it is a--
Waesche:
A hundred and sixty-five feet long.
H.M.Jr:
That is an ice breaker, isn't it?
Waesche:
Yes, sir,
H.M.Jr:
What I want to know is, whatever that one is,
that type of ship, how many do you need of
those and how many smaller ones do you want
and what would they cost, and I certainly would
give those priority over deep sea rescue work.
Waesche:
I agree, Mr. Secretary, but I think you will
find that - well, 225 to 250 foot is the type
of ship we want. For example, we got appro-
priations from Congress to build a Greenland
cutter to break the ice up there. We studied
the ships around Greenland. We had boys in
Washington who had been aboard all these ships.
We started out with e 200-foot ship, and Smith
and all the people who were up there in Green-
land came down and said it was too short, so
we have now raised it to 230 feet. Now then,
from 230 feet - as a matter of fact, Smith,
Iceberg Smith, wanted a 250-foot ship for the
Greenland cutter to go up there and work in the
ice, to be able to take care of herself in
Regraded Uclassified
126
- 11 -
heavy seas and heavy gales that are going
around the south coast of Greenland, and going
into Newfoundland and so forth, and when you
get below 250 foot - you take the Escanaba--
H.M.Jr:
Now look, I want two different things. One
that can go up to Greenland and Iceland or
whatever is necessary and whatever is the most
efficient ship. They keep getting bigger and
bigger all the time. These Corvettes that
they have are much smaller than your boats,
that they are building in Canada. They are
what, 250 feet?
Waesche:
I think they are, yes, sir.
H.M.Jr:
I want to know how many - don't blow it up -
of the big ones do you need, seagoing ice
breakers, see, and what will they cost and
how many do you need for the harbor work that
won't go to sea? Now, can I get a list of that?
Waesche:
Yes, sir.
H.M.Jr:
And see how much they cost.
Waesche:
Yes, sir.
H.M.Jr:
And if you gentlemen will be back here again
at four o'clock, I will see you at four o'clock.
Waesche:
I will be back at four.
H.M.Jr:
And then after you have got that and totaled
that, then we will talk last about the thing
that Herbert Gaston is talking about.
Gaston:
Well, you are talking about the same thing. If
you get a heavy ice breaker type of around 250
feet, you have got an all-purpose boat that can
go out to sea and work, but these - this Itasca
Regraded Uclassified
127
- 12 -
type is 8. compromise vessel. She is not a
good ice breaker or sea boat, either one.
H.M.Jr:
What I am asking for is from your experience
what is the best type of thing that will work
in heavy ice and can go - clean out Halifax
or clean out the Newfoundland base or can go
to Greenland or Iceland, and then I know what
I am talking about. That is a function that
the Coast Guard should have and you can defend,
but as soon as you get into the other thing,
wants. you are going to be in something that the Navy
Waesche:
I follow you, and I agree with you 100 percent.
H.M.Jr:
If you don't, don't say so, but be back here at
four o'clock with Mr. Gaston, how many of these
big fellows do you want and how many do you
need, how many more do you need to do the harbor
work, which is a different type of thing, isn't
it.
Waesche:
Yes.
H.M.Jr:
Running from here - the Hudson up to Albany,
you don't need that type of boat, do you?
Waesche:
No, sir.
Gaston:
One hundred twenty-five foot.
Waesche:
We have given that considerable thought in the
Coast Guard, and we feel we can consolidate
our needs into about three classes of ships.
One would be of the Cayuga class, 250 feet.
The only reason we shot it up to 300 feet, we
did feel that we should have more speed in it.
H.M.Jr:
That is where you and I differ. You are think-
ing of 20 knots and I am thinking of the best
Regraded Uclassified
128
- 13 -
ship to break ice. You can't get an ice
breaker with a beem that is going to go 20
knots. Am I right?
Waesche:
That is true, and of course the second type
was this intermediate type of around 175 feet,
and the third type was around a small 80-foot
boat for the harbors.
H.M.Jr:
Come back thinking in terms of ice.
Gaston:
Then maybe we want to go into the question of
whether we want a big ice cutter that can
actually break heavy ice. This country has
none except the car ferry up on Lake Michigan.
The Russians have them.
H.M.Jr:
I think we should have them.
Gaston:
We have never had anything that will really
break any ice.
H.M.Jr:
I was talking about something like the Russians
have that will break ice up in Greenland and
Newfoundland.
Gaston:
That is a different ship.
Waesche:
That is a much different ship, and of course
it is a large ship. They have got to get weight.
These two ice breakers up on the lakes are three
thousand-ton ships, over 300 feet long.
H.M.Jr:
Do you know how to build one?
Waesche:
Oh, yes. As a matter of fact, we have the plans
of the Russian ice breakers over there.
H.M.Jr:
But will you think of ice breakers and not in
terms of speed?
129
- 14 -
Waesche:
Yes, sir.
H.M.Jr:
Because you can't get an ice breaker with
speed.
Waesche:
No, the two don't go together.
H.M.Jr:
Then think about it, and then say, "Mr. Morgen-
thau, we will want this kind of ship."
If I talked to him, "Mr. President, I want the
Coast Guard - and it-is the place for Coast
Guard to keep this thing open, Greenland, New-
foundland, Iceland," he is going to like it,
and I think I am going to get somewhere. I
have failed every time up to now, and we have
failed because the Navy sticks a dagger in our
back on this thing. I don't think they want to
get in this ice breaking business. I think it
is a function, and I think it is a chance of
keeping Coast Guard going, 80 please don't try
to jam that 20-knot thing down me because I
can't - I have been unsuccessful with the
President now for seven years.
Waesche:
All right, sir, I realize your position.
H.M.Jr:
Think it over, Herbert.
Gaston:
All right.
H.M.Jr:
Four o'clock
130
1st Draft
February 28, 1941
Dear Mr. President:
The Coast Guard cutters which seem most suitable
for convoy work are the ten vessels of the 250 foot class
built between 1928 and 1932. The vessels are the CAYUGA,
CHAMPLAIN, CHELAN, ITASCA, MENDOTA, PONTCHARTRAIN,
SARANAC, SEBAGO, SHOSHONE, and TAHOE. The over-all
length of each is 250 feet, molded beam 42 feet, maximum
draft 16 feet, displacement 1,979 tons, speed 16 knots.
The gross tonnage of the earlier five built is 1,632 and
of the later five, because of minor changes in internal
arrangement, is 1,573. All are oil burning turbo-
electric. The earlier five develop 3,000 horse power and
the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. We are, however, in process of
adding additional armament to all of them to put them on
a war basis. This work includes degaussing, under water
sound equipment, addition of searchlights, depth charge
racks, range finders and additional guns. Armament as
agreed to with the Navy would include two 5 inch broad-
side guns, three 3 inch, 50 caliber anti-aircraft guns,
four 50 caliber machine guns and one Y gun for depth
charges.
The Navy has agreed to give, at your direction,
urgent priority to completing these changes and they
could probably all be completed by March 15, with the ex-
ception of one vessel, the SHOSHONE, which is enroute from
the Pacific Coast. With respect to this vessel, it would
probably take about two weeks longer.
Regraded Uclassified
131
- 2 -
However, we do not know what armament the British
would desire and the Navy Department has asked the British
to cable advice on this point. Time of delivery would
therefore depend on what reply we get from the British.
Respectfully,
Secretary of the Treasury.
The President,
The White House.
132
w
TREASURY DEPARTMENT
Regraded Uclas
INTER OFFICE COMMUNICATION
DATE February 28, 1941
10 Marchary Margenthen
FROM Mr. Cechran
STRICTLY CONFIDENTIAL
At 12:15 today. lb. Pinsent, Financial Counseler of the British Interny, called
as 26. Be said that Sir Frederick Phillips wated M to have that the nagotiations
of the British Government with Finance Minister Outt of Belgium, a nember of the
Belgian Government set up in London, terant the berrowing of Bolgian gold by Great
Britain had net succeeded. It appears that Outt will ast take an independent deci-
den toward the end desired by the British, but is in consultation with Special dates-
under Thounis in this country in the premises. Phillips stated that the British
Treasury efficials here in Washington have net been in teach with Thounds and do not
contemplate contact with his. I stated that I had net seen Themis for several months
and thought he spent most of his time la New York, I asked Phillips whether ha had
usy information as to a probable early visit to the United States by Minister Gutt.
He replied is the negative, (It will be recalled that I recently learned that
Minister Outt night be coming to the United States, and had been told by the State
Department that he had applied for a. diplomatic visa to caable Ma to make this trip.)
Pinsent told me that Deputy Finance Minister Clark of Ottawn is accompanied to
Mahington this time by Mr. Wrong, who has been connected with the Dominion Government
for some years, and who usy remain in Mashington for seae time at lisison afficer on
financial subjects.
The British Treasury efficials had cabled to Lendon after Sir Proderick Phillips'
conversation with Secretary Margenthan yesterday morning. A wire from Lenden had
crossed this workge. the British are endervering to fellow Secretary Mergenthau's
sivice that they take care of their own financial position pending the passage of the
Lease-Lond Bill. Toward this end the British will send deem ima more gold from
Canada, possibly as such as $25,000,000, representing the balance that the British
will hold is Canada, together with certain accretions from new shipments to Canada
free Australia and elsewhere. The British are also prepared to "switch" Franch gold
is Canada against gold held scattered throughout the world by the British. The
British efficials here are cabling Londen today for details as to their gold and
dollar position as of February 28. They are seeking information particularly in re-
and to $40,000,000 which has been reported as hold in instralia by the Exchange
Apalisation Account of Great Britain. Pinsent is not sure whether there is still
this such is Anstralia, er whother this was a figure of some weeks & that has been
disistabed by shipments of gold free Australia to America.
Pinsent asked as to let his know whenever we have word of shipments of gold from
Canada, in order that their figures my be coordinated. I premised this and gave his
certain data which we had received the past two days.
P.Z.
133
- 2 -
Pinsent read to no extracts from a message which the lisbasay had received from
London reporting that the American Imbassy there vas making vigorous protest against
the British rules requiring payments of legacies into blocked accounts. The British
Government did not contemplate replying to such pretest until the Babasay in
Washington might ascertain whether the American Treasury had any feelings en this
subject. That is, the British authorities are appreciative of the immense assistance
which the United States is arranging to grant Great Britain. They do not know, how-
ever, whether the American Treasury would desire that dellar resources of Great
Britain be diminished through exceptional release of dellar exchange to pay off
legacies due American citizens, or whether we would prefer that the rule be rigidly
enforced and dollar assets conserved.
BMS.
134
TREASURY DEPARTMENT
put Rico -
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
When Mr. Pinsent vas with me at 12:15 this noon, I told him that I was still
receiving inquiries from various individuals and concerns who desire to acquire
British direct investments in this country. Likewise Mr. Schenker of the 8. I. c.
was being approached by such parties. I vas following the practice unifersly of
referring such inquirers directly to Sir Edward Peacook in New York, and had advised
Mr. Schenker's office to do likewise. Pinsent agreed that this was the proper pro-
reture. I told him, however, that state of these people had not obtained entisfaction
des they had endoavered to contact Sir Edward Peaceck directly, and that the B. 1. c.
had received complaints en this ground.
At 3 e'cleck this afterneen the Secretary received Mr. David Schemker of 5. I. c.
and Mr. Qrill Quinn of the Tri-Centinental Corporation. Measrs. White and Cechran.
tegether with the stemotypist, were present. Mr. Schenker teld the Secretary of his
unsuccessful efferts in placing directly is tench with Sir Mivard Peaceck a number
of parties who had indicated a desire to acquire particular British investments in
this country. Furthermore, Mr. Quinn, with whom the 8. 1. c. had worked directly in
sivancing the plan for investment trasts to take over British investments, had net
tem invited to call as Sir Mivard Peaceck. Mr. Quinn stated that he had refrained
from naking a direct approach, but had heard gossip to the effect that the British
are already dealing with certain concerns 02 the "Street" After a considerable con-
vereation, which continued after Mr. Quinn had left the meeting, and which the stemo-
typist has reported, I case to w effice and telephoned Hr Frederick Phillips. re-
questing that be and Mr. Pineent come to ⑉ no at 5 o'oleck this aftermoon. then
those gentlemen appeared I teld them that I had been present when the Secretary had
telephoned 8ir Prederick from the meeting above mentioned. The Secretary had vanted
Be to give Sir Frederick and Hr. Pinsent, for the Ambassader's information. a definite
explanation of his position in the premises. Xe VSA much that the 1. 3. c.
was able to report that the individuals who had been referred to Sir Rivard Panceek
by it had not been received by his and ware not able to present their propositions.
The Secretary desired that Sir Mari Peacock invite Mr. Quinn to come to his
office for a meeting 4a Monday sext. I presented to Phillips a. copy of the attached
which Mr. Schenker had sent to no after the conference this afternoon.
I told Sir Frederick that is addition to inviting Quinn to his office, Peaseck should
also address a letter to Mr. Schenker stating that be had received by reference from
the Secretary of the Treasury the list of inquiries with respect to British direct
investments which Mr. Schenker had submitted, and ask that these inquirers be
recommended to get directly la touch with him, Sir Mivard Peacock. I stressed upon
4 visitors the importance of these listed inquirers, in particular, being received
by Sir Blward, or at least semeone definitely in authority. whenever they wight call.
Phillips appreciated the position of the Secretary, especially considering the
fact that Peacock had not yet been able to sell any direct investments and that this
135
- 2 -
argument night be raised at any mement while Congress is debating the Lease-Lend
Bill and its supplementary appropriation measure.
Phillips and Pinsent both promised to cooperate with us theroughly. Since
Peaceck will be in Canada temorrow and Sunday, Phillips may request Gifford to get
directly in touch with Quinn temerrow and either effer to receive him or make the
appointment for him with Peaceek for Menday.
H M.S.
136
MEMORANDUM
DATE
February 28, 1941.
TO:
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
FROM: David Schenker.
SUBJECT:
I am herewith sending you an itemized list of the inquiries
I have received with respect to the British direct investments in
this country.
1. Cyril Quinn, of Tri-Continental Corporation, New York, N. Y.,
who represents a substantial group of investment companies.
2. Arthur Bunker, of Lehman Corporation.
3. Wilder Bellamy, of the National Bond and Share Corporation,
New York, N. Y.
4. Raymond McGrath, of American General Corporation and a
representative of the United States & Foreign Securities
Corporation.
5. Frank Ryan, of John J. Ryan & Sons, 40 Worth Street,
New York, N. Y., Worth 2-3423, who represents a group
interested in purchasing American Viscose Co.
6. Carl M. Loeb, of Rhoades & Co., 61 Broadway, New York,
N. Y., who are interested in the purchase of
Oxo, Ltd., Boston;
Bovril of America, Inc., Philadelphia;
Hartley's Marmalade Co.;
R. T. French Co., Rochester, N. Y.
7. Prentiss L. Coonley, Washington Building, Washington, D. C.,
Republic 6016, of Freeport Sulphur Co., who represents a
group who are interested in purchasing any chemical or
mining properties of the British.
8. Donald MacCrudden, vice president of Moody's Investors
Service, New York, N. Y. who is interested in the Oxford
University Press or any other publishing companies owned
by the British.
9. Ernest Kuneo, 40 Wall Street, New York, N. I., Whitehall
3-5038, who represents a group who is interested in
purchasing Dunlap Tires.
137
2.
10. Arthur Ross, of the Central National Corp., 22 East 40th
Street, New York, N. Y., Ledington 2-7300, who is interested
in H. Reeve Angel Co., Biwater Sales Corporation, and
New York Real Estate properties.
11. Mr. Waddell, of Barret, Herrick & Co., 60 William Street,
New York, N. Y., who represents a group who is interested
in New York real estate and dock properties of the
British in New York City.
12. Walter H. Merritt, of Merritt and Bangs, 36 West 44th
Street, New York, N. Y., Murray Hill 2-0320, who represents
a group interested in
Burroughs Wellcome & Co., Inc., Tuckahoe, N.Y.;
Cyclox Ltd.;
Yardley & Co.;
Brown & Williamson Tobacco Co.; and
small drugs and cosmetics companies.
13. Floyd B. Odlum, of Atlas Corporation, which is interested
in Burroughs Wellcome & Co., Inc., Tuckahoe, N. Y.,
and other situations.
14. Norman L. Myers, Washington Building, Washington, D, C.,
District 0637, who represents a group interested in
purchasing the National Portland Cement.
15. Serge Rubenstein, 63 Wall Street, Whitehall 3-3833,
who is interested in purchasing the English minority
interest in the Chosen Corporation, the English company,
or the English minority interest in the British-American
Securities Co., an American company.
16. Edward J. Dimock, 49 Wall Street, New York, N.Y.,
Hanover 2-5141.
17. James Ryan, Bingham, Inglar, Jones & Houston,
99 John Street, New York, N. Y., Rector 2-4646.
18. Frank H. Barnett, Henderson & Co., 340 Pine Street,
San Francisco, California, Douglas 1303.
19. W, R. Dameron, Dover, Delaware, Phone Dover 1032.
20. Benjamin Becker, Levinson, Becker, Peebles & Swiren, 1 North
La Salle Street, Chicago, Illinois. Central 8130.
138
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM
E. H. Foley, Jr.
At 2:30 o'clock this afternoon Mr. Sullivan and I attended 8.
conference at the office of Solicitor General Biddle. With us
were Messrs. Wenchel and Kades.
Representing the Department of Justice in addition to Solicitor
General Biddle were Assistant Attorneys General Clark and Shea,
Special Assistants to the Attorney General Gardner, Key, Raum and
Tweedy, and Mr. Sidney Kaplan, one of Mr. Shea's principal assistants.
The first question discussed was whether or not the Government
should ask the United States Supreme Court to review the case of
Standard Oil Co. V. Lee, decided by the Supreme Court of Florida on
December 20, 1940 [199 So. 325]. This case involves the question
whether sales of gasoline, by the Standard Oil Company to contractors
for use in the construction of the Naval Air Station at Jacksonville
which is being built by the United States on 8 cost plus basis, are
taxable under the Florida Gasoline Tax Act. The Court held that al-
though the tax falls ultimately upon the Federal Government and in-
creases the cost to the Government, the burden was consequential and
remote and that the tax was therefore constitutional.
I stated that I thought the Government should ask for B. review
of the case and argue in the Supreme Court that the tax was consti-
tutional urging the Court to overrule earlier cases to the contrary.
[Panhandle Oil Co. V. Mississippi, (1928) 277 U. S. 218; Indiana
Motocycle Co. V. United States, (1931) 283 U. S. 570]
Mr. Shea stated that he took 8. contrary view of the case; i.e.,
that he wanted the Department of Justice to ask for certiorari and
argue in the Supreme Court that the tax was unconstitutional. Al-
though Solicitor General Biddle did not express himself, it was clear
that none of the other representatives of the Department of Justice,
except possibly Mr. Kaplan, agreed with Mr. Shea. Mr. Shea then
stated that he thought that, if the Supreme Court was asked to review
the case on this basis, the Department of Justice should recommend
legislation prohibiting the imposition of sales, gross receipts, and
similar taxes upon transactions involving national defense matters.
Regraded Uclassified
139
- 2 -
Mr. Sullivan stated that introduction of such legislation, even
if it did not pass, would kill any chance of enacting a statute at
this session subjecting future issues of state and municipal securi-
ties to the Federal income tax. I took the same position and stated
that I felt that the Treasury's position was the same as that taken
by the Attorney General in a letter to you dated April 17, 1939 re-
lating to a proposal that the California Retail Sales Tax be chal-
lenged with respect to Government purchases, in which the Attorney
General had said:
"Resistance to the tax coming from the Federal Government
would be inconsistent with the position of the Government
generally taxation. in cases involving constitutional immunity from
This is consistent with the position which Solicitor General
Reed took when he appeared before the Court in James V. Dravo Contract-
ing Co., [(1937) 302 U. S. 134], and which has been the Administration
policy since that time. Mr. Clark agreed with me that but for this
policy we would not have progressed toward eliminating tax-exempt
securities and salaries.
The Solicitor General then expressed the opinion that he felt
the proper course was to go before the Supreme Court in the Standard
Oil case, presenting in 8. neutral fashion, both sides of the contro-
versy, with a view to getting a final determination by the Supreme
Court of the validity of nondiscriminatory taxes applicable to sales
to the United States, or its agencies, and not to ask for legislation
at this session, but that he would submit the entire matter to the
Attorney General for his decision.
After A rather desultory discussion concerning the applicability
of state price fixing (fair trade) laws to sales and deliveries to
the Federal Government, I pointed out that Mr. Oliphant in 1937 had
ruled that the Treasury's contract with Sears Robuck for tires to be
delivered in Colorado was enforceable notwithstanding the fact that
Sears Robuck may have violated the Colorado statute forbidding sales
below cost; and, further, that the Comptroller General had advised
the Treasury that state sales taxes could be paid as part of the cost
of goods purchased for the Government, whenever it was necessary under
state judicial decisions to pay the tax. Mr. Gardner asked for a copy
of the opinion of Mr. Oliphant and references to the Comptroller
General's decision, which we are sending to the Department of Justice.
Regraded Uclassified
140
- 3 -
I then asked for an expression of opinion from those present
upon the desirability of proceeding against bondholders of the Port
of New York Authority, as recommended in my memorandum to you of
February 21, 1941. Every one agreed that it ought to be done prompt-
ly except Mr. Raum who did not feel that the constitutional issue
would be settled in the case. In view of Mr. Raum's reluctance,
the Solicitor General said he would like to consider the matter for
a few days and asked me to give Mr. Raum a memorandum. I gave him
a copy of my memorandum to you.
As a result of the conference Mr. Sullivan and I both feel that
it would be extremely bad policy for the Administration to ask for
legislation of the character suggested by the Department of Justice
which would grant state tax immunity to defense contractors. We also
feel that the fact that there was only one dissent expressed against
our instituting a test case in connection with Port Authority bonds
confirms our view that this is sound policy and will aid materially
in securing ultimately a statute eliminating future issues of tax-
exempt securities.
E.18.7h.
Regraded Uclassified
141
é in $
Doo. 24, 1937.
w dear Metral Peoples:
& question has boon relead 60 to the possible effect of the
Vafair Practices Act of the State of Colorado (Seesten love, 1937.
on. 261, approved May 6, 1937) upon the Repartment's contract with
Sear Resbuck a Company for tires and tabes under Classes 6 and X
of the General Schodule of Supplice, with perticular reference to
Section 3 of the see, which makes 19 walawful for any corporation
engaged in business is Colorado to cell, effer for sale, of stres-
tise for sale any article or product ofer loss than the cost thereof
10 each vender", the term cooste being further defined is embusations
(a) and (b) of Section 3.
20 appears extressly doubtful that this Act would be cea-
street as applicable to a contract entered tate with the United States
is Vachington. But oven If 10 be assened that the Act might be se
construed, in my opinion 19 would not affect the validity of the -
tract with respect to orders of tires atd tubes for delivery in
Colorado, notwithstending the prevision of Section 9 that any contract
use in violation of the Act is an illegal contract. Mate laws my
not be as applied as to exert centrol over efficers of the United
States to the performance of their datise, of - - to interfore with
the exercise of Federal functions (Artness 1. California. (1931) ass
U.S. has. 45311 Maryland. (1920) 29% U.S. 52. 551
Regraded Uclassified
141
op. No. 291.
Dee. 14, 1937.
By dear Matral Peopless
A question has been raiced - to the possible effect of the
Unfair Practices Act of the State of Colorado (Seesion have, 1937,
on. 261, approved May 6. 1937) upon the Department's contract with
sear Roobusk & Company for tires and tabes under Classes 6 and 49
of the General Schedule of Supplies, with particular reference to
Section 3 of the 200, which makes 10 unlavful for any corporation
engaged is business is Colorado to sell, offer for sale, or néver-
time for sale any article or product "for less them the cost thereof
to such vendor". the term "cost" being further defined in subsections
(a) and (b) of Section 3.
It appears extremely doubtful that this Act would be con-
strued as applicable to a contract entered into with the United States
in Washington. At OTHER If 10 be accumed that the Aot night be no
construed, in my opinion 10 would not affect the validity of the 000-
tract with respect to ordere of tires and tubes for delivery is
Colorade, notwithstanding the prevision of Section 9 that any contract
made in violation of the Act is an illegal contract. State laws may
not be 60 applied as to exert control over officers of the United
States in the performance of their dubjee, or 60 $ to interfore with
the exercise of Federal functions (Arisona " California. (1931) 283
U.S. 423, 4511 Johnson 1. Maryland, (1920) 20/4 U.S. 51, 551 Cate T.
Regraded Uclassified
142
- 2 -
I (1899) 173 U.S. 276. 2631 and - Perform41- ORL
(1925) 277 U.S. 215, 222), and I feel that this rule clearly frees Gen-
evenent officers from the necessity of accortaining is cash case, is
order to insure the complete validity of empply contracts, whether the
prices effered w a badder comply with the laws of all states where
deliveries my be destrod. See, also (1937) 17 Comp. Gen. 257, 209:
(1936) 16 Coup. 6am, 348, 350; (1936) 16 Coup. Gon. 97. 98; and (1935)
15 deep. 6am. 425. Na6.
I all than of the opinion that the contract 10 valid and that
the contractor my legally be required to furnish tires and tubes in
Colorado at the prices provided by the contract. See (1909) 26 Op.
Atty. Ges. 127. 128. Purther, 16 my well be that under such circus-
stances the contractor could net be subjected to the oriminal penalties
provided by Section 11 of the Ast. In Oabera V. Bank of United Males,
(U.S. 1624) 9 Wheat. 738. the following distus appeare (as 867):
"Can a contractor for supplying a military post with
provisions, be restrained from noting purchases
within - state, or from transporting the provisions
to the place at which the treeps valid stationed?
or could he be fined of taxed for doing est No have
not yet heard these questions answered is the at-
firmative. It is true, that the property of the
contractor my be taxed, as the property of other
citizens; and $0 my the leeal property of the bank.
Det we de not admit, that the ast of purchasing. or
of conveying the articles purchased, can be under
state control."
Regraded Uclassified
143
- 3 -
the above statement - cited with approval and the first two contrasce
thereof were quesca in & disten in & Harring. (1920) 15%
U.S. 52. 56. x Faited Mates 1. farter. (1093) 149 U.S. 2101 Shis
Thomas. (1899) 173 U.S. 876, Ambresist V. United States. (1902)
157 U.S. 1. Date st. Fidelity a Reposit Co. 1. Pennsylvania. (1916)
240 U.S. 3191 Metcolf & May , Nitchell, (1986) 269 U.S. 514. Dut
whatever the situation my be with respect to the contracter's orin-
isal liability. the Department 10, of course, wher as obligation to
not as its legal advicer. the contractor check be required to sale
deliveries is Colorado in accordance with the contract, and to cettle
with the State authorities my question which my be raised as to the
legality of such action.
Very truly yours,
(Signed) Bernan Olighant.
General Gouncel.
Non. 0. s. Peoples.
Director of Procurement.
TND:TAM:hbk 12/8/37
Copiedings
2/28/41
Regraded Uclassified
144
February 28, 1941
2:37 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Wickard.
Secy.
Wickard:
Hello. I Just had a call from Pa Watson saying
that our friend, Campbell, 1s going to Europe
because the British want him, and he's not
going officially - he's just going. Do you
know anything about that?
H.M.Jr:
I don't know a damn thing about it. I was at
the White House for supper last night and he
was there. It's the first time I ever met him,
and I was amazed to learn that he was going
to go. That was the first that I knew about
it. I thought the matter was dead because
Purvis never mentioned it to me again.
W:
Yes. Well, I didn't know whether you knew that
he was going at all or not and that's the reason
I called you.
H.M.Jr:
No, I only learned of it there and I met him,
but what has happened I don't know.
W:
Well, I understand he's not going officially,
but I understand that the British have requested
him to come according to the information that the
President has had. Now, I know what kind of an
inside worker he is and he's build up his own
case, as I told Pa Watson, but Pa told me that
the Boss has said he may go if he wishes and
if they want him to come 80 I think the thing
is a closed issue.
H.M.Jr:
I think 80.
W:
Now, one other thing I want to talk to you about.
Have you heard anything about whether Mr. Purvis
has some breakdown of the British fruit requirements?
H.M.Jr:
Not that I know of.
W:
We get that from some other sources. One thing
that gives us trouble all the time 1e that we
hear from two different sources concerning the
British requirements. Apparently they have a
Regraded Uclassified
145
- 2 -
Food Ministry that gets one set of figures
together and communicates with us over here
and then some of it comes through Purvis. We
don't know which one we should give our
attention to.
H.M.Jr:
Why don't you send for Purvis and have a heart-
to-heart talk with him.
W:
Have Purvis come over.
H.M.Jr:
I would.
W:
Well, I expect that's a good idea.
H.M.Jr:
I'd send for him.
W:
I tell you what we were doing. You remember
the President asked me to make some study of
the refrigerated space and we're working on
that. Of course if we knew about what they
wanted why we could come a little more nearly
satiefying the query as to whether the space
would be adequate or not.
H.M.Jr:
Well, Claude, I would send for him, and just
tell him what you told me.
W:
Yes.
H.M.Jr:
O.K.?
W:
Yeah.
H.M.Jr:
Thank you.
W:
Should I - - if the President says anything about
my getting in touch with Purvis through you -
that is not necessary?
H.M.Jr:
Oh, no. Just call him up - don't bother -
you and I know each other well enough.
W:
All right.
H.M.Jr:
You won't have any trouble with me.
W:
All right. How is this thing shaping up?
Like we talked about the first of the week as
far 8.8 .....
Regraded Uclassified
146
- 3 -
H.M.Jr:
Yeah, I think 80.
W:
..... R.8 far as the purchasing of
H.M.Jr:
You see I don't know how Harry will feel about
the whole thing but as far as I'm concerned
until it crystallizes I'd certainly call up
Purvis. Later on maybe Harry will want you
to do it through him.
W:
I see. Well, I didn't know whether there had
been any further discussion along this line or
not. I hadn't heard anything from the White
House and I didn't know whether you had any
more information on it or not.
H.M.Jr:
No, not now, and I'm not trying to be
either. There's just nothing to tell.
B:
All right.
H.M.Jr:
Right?
W:
O.K.
147
February 28, 1941
2:41 p.m.
H.M.Jr:
Hello.
Wm. S.
Knudsen:
This is Bill.
H.M.Jr:
Hello, Bill.
K:
When you had us for lunch yesterday, I
didn't know the numbers of the planes that
are coming through that carry the 2 3350
engines, and there are four of them. There
are two 4-motor bombers, B-29 and B-32; there
is a 2-motor bomber, B-33 and there is a Bell
pursuit plane, P-62. They are all due in
October of this year.
H.M.Jr:
Now those planes are going to have what kind
of an engine?
K:
The big motor - the 2200 h.p. you were talking
about, the 3350.
H.M.Jr;
Oh, they re going to take - did they take
the Wright or the Pratt-Whitney?
K:
No, they're taking the Wright.
H.M.Jr:
And those planes will take the big engine.
K:
That's right. I knew that they were in
development but I didn't know the numbers of
them when I spoke to you so I thought I'd call
you and tell you.
H.M.Jr:
But the Army has no orders for those big
engines.
K:
Well, they have now in the 12,000 program,
you see - in the program that follows this
they have these engines.
H.M.Jr:
Oh, that's in the program which 16 yet to come.
K:
That's right.
H.M.Jr:
Of course I didn't know that.
148
- 2 -
K:
No. That's the reason I called you up to
tell you that I knew these planes were coming
through and the main part of the engines you
showed me yesterday of course were for the
stratosphere planes. You remember that.
H.M.Jr:
That's right.
K:
But here are four new developments.
H.M.Jr:
That's a 4-engine ......
K:
Two 4-engines, a 2-engine and a pursuit.
H.M.Jr:
Yeah, 80 there is something coming along.
K:
Yes, sir.
H.M.Jr:
And the engines will be included in this next
program.
K:
Yes, sir.
H.M.Jr:
Well, that's encouraging.
K:
All right.
H.M.Jr:
Thank you.
149
February 28, 1941
3:00 p.m.
RE AID TO BRITAIN
Present:
Mr. Cochran
Mr. White
Mr. Quinn
Mr. Schenker
Schenker:
Mr. Secretary, I have had quite a few requests
from people who are ostensibly reputable --
H.M.Jr:
Like Mr. Quinn?
(Laughter.)
Schenker:
He is superficial.
H.M.Jr:
I see. I just wanted to be sure.
Schenker:
And of course these people keep calling me, as
Mr. Quinn has been calling me. Now, I feel
that I am in this position. If I tell these
people I have nothing to do with it, I have no
contact with the British themselves, that is
all right with me, see. Somehow or other when
I implicate that, they don't believe that, so
they persist in calling me. Now, Mr. Quinn
finds himself in this position, that he has
got this group and they have made fairly exten-
sive plans and he hasn't heard from them.
I also understand, although I am not sure of
this, that Bobby Lehman wrote to the British
and said he was ready to talk to them, and I
Regraded Uclassified
150
- 2 -
think they didn't even acknowledge his letter.
So what I would like to find out for myself,
is whether I should just drop the whole busi-
ness and tell these people, as far as I am
concerned it is all off, and just call the
British or what.
Mr. Quinn has a little different angle. He
feels that he would like to be helpful in the
picture and that he has got an idea that he
would like to formulate & plan that may be of
some help.
H.M.Jr:
Have you seen Sir Edward Peacock?
Quinn:
I haven't gone to see him, Mr. Secretary, be-
cause I followed - talking with Dave, I followed
the policy of having - - this thing having been
mentioned to them and just waiting until they
were ready to talk. I had the feeling that
they probably were busy and that I didn't know
whether I was to move or not. In the meantime,
there have been all these stories, which I don't
know how accurate they are, saying that there
is a change in plan; and I didn't want to move
until I got worrying a little bit.
H.M.Jr:
No, there is no change in plan.
Quinn:
I appreciate they must have quite & job getting
this stuff assembled and getting their own
figures on it.
Schenker:
Why don't you give the Secretary your idea with
respect to one operation?
Quinn:
Here is the thing that has been running through
my mind, and I will just broach it. It seemed
to me that this group of investment companies,
Regraded Uclassified
151
- 3 -
we are in a position where if they did -
did want to buy and the price was attractive
and business seemed good, that they would be
able to move without the 20-day waiting
period, because they would be, in effect, buy-
ing for investment, and that under those cir-
cumstances, you had, it seemed to me, this
desirable thing. I am speaking now from the
British point of view. You had this thing
that if you picked out something that was
doable and could be done relatively easy, they
would be doing something.
At the same time, I counted up the number of
shareholders roughly represented in that group,
and there is something like 500,000 shareholders.
H.M.Jr:
In what group?
Quinn:
In that group of investment companies, so that
if the transaction were profitable from the
point of view of the investment companies,
that profit would go to a large number of share-
holders scattered all over the country, and I
would think that from their point of view they
would get the maximum of psychological benefit
out of that transaction, and then I think it
would be very unfair to push them into a lot of
transactions now, even if that were the de-
sirable thing to do, because you can't move
too fast on it.
H.M.Jr:
But haven't they sent for you or anything?
Quinn:
No, sir, they haven't. I talked to Dave about
it for & minute, and my feeling was that I
didn't know quite - I had the feeling that I
ought to sit quiet and wait.
Schenker:
The impression I got, Mr. Secretary, the last
time I saw Mr. Peacock over at Chairman Frank's
Regraded Uclassified
152
- 4 -
W&S that they would let me know, and he clearly
indicated that it would be no useful purpose
served in anybody calling him because they had
a routine answer, "We are working on it, and
we are not prepared to talk," and that is the
answer to all these people. Virtually all of
them have gotten the answer I suggested. "Don't
prejudice yourself by relying on me, and you
call up, yourself.' That was the answer they
received in almost every instance.
Cochran:
Have they received that recently, too?
Schenker:
As recently as three days ago.
Cochran:
Because for a while they told me that, and then
they said they were in shape to receive the people.
Quinn:
I have heard rumors that there were negotiations
with people, but two of the rumors I checked up
myself and were not correct.
H.M.Jr:
They haven't sold anything yet?
Schenker:
They haven't even carried on negotiations.
H.M.Jr:
Yes, they have been carrying on negotiations, but
they haven't made any sales. How many can I tell
them you have got? Have you got a dozen?
Schenker:
I have got 20 requests and these are for virtu-
ally specific properties. One is the Oxford
Press, one fellow wants the New York Real
Estate, the Freeport Sulphur Company, the R.B.
French Company, and these people are interested
in specific companies; and one of the biggest
ones is a fellow who represents a group and is
interested in buying Viscose and told me his
idea was 60 to 100 million dollars and they
would pay cash right on the barrel head. These
Regraded Uclassified
153
- 5 -
people are different people. He called up,
and he was one of them who called up
recently. He said that at that time.
My only concern, Mr. Secretary, is that I
don't want them to say to me, You prejudiced
me, I relied upon you, or I would have done
business with them directly." I tell them to
do that, but somehow or other --
(Telephone conversation with Mr. Phillips
follows.)
154
February 28, 1941
3:10 p.m.
H.M.Jr:
Hello.
Operator:
Sir Frederick Phillips.
H.M.Jr:
Hello.
Phillips:
Hello.
H.M.Jr:
Phillips, Morgenthau. I have here with me
Mr. Schenker of the Securities and Exchange
Commission and Mr. Quinn, who got together
that investment trust group.
P:
I see.
H.M.Jr:
Now they say they haven't heard a thing from
anybody and they want to know if the English
are interested in selling. Mr. Schenker here
has 20 separate requests from 20 people who
want to buy 20 different English properties and
he says he doesn't know what to do. He said
nobody representing the British Government
seems to be interested.
P:
Well, I had a talk with Peacock when he was
here and he told me he was going to get in
touch with Mr. Schenker on this at once. I
don't know whether he has done so; I suppose
he hasn't.
H.M.Jr:
Well, to put it mildly, it's very embarrassing
for me to be apologizing all the time.
P:
Yes, I know. I thought Peacock was actually
getting in touch with him. It was only two or
three days ago.
H.M.Jr:
Well, evidently he didn't.
P:
Evidently he didn't. I'll get in touch with
him to make sure he does.
H.M.Jr:
Well, something ought to happen.
P:
Yes, I think.
H.M.Jr:
Neither the Securities and Exchange or myself
know what to answer these people.
Regraded Uclassified
155
- 2 -
P:
Yes, I agree. I'll get in touch with Peacock
at once on that.
H.M.Jr:
And why can't he send for Mr. Quinn. He's
in New York, but he's here sitting here now.
P:
Yes.
H.M.Jr:
And what I'm going to do 18 I'm going to ask
Mr. Schenker if he'll send you the list that
he has.
P:
Yes, all right. I'm quite glad.
H.M.Jr:
He'll send you the list and if Mr. Peacock
could send for Mr. Quinn why I'm sure he'd be
glad to come around and see him Monday.
P:
Right. If Mr. Schenker will do that I'll see
that it 18 got on with at once.
H.M.Jr:
And I'm preparing a formal memorandum in answer
to the one that I received from the Ambassador.
I hope to have it Monday.
P:
Right-o.
H.M.Jr:
Thank you.
156
- 6 -
H.M.Jr:
Is that plain enough?
Quinn:
Quite.
H.M.Jr:
He said that Peacock was supposed to have gotten
in touch with you (Schenker) in the last couple
know. of days. You can lead a horse to water, you
Quinn:
Well, I felt I didn't want to move, Mr. Secre-
tary, until I got oriented.
H.M.Jr:
I am glad you came in, and I have got nothing up
my sleeve, but all I hope is that somebody on
the Hill doesn't send for me and ask me the same
question.
Quinn:
I think you get a little of that impression talk-
ing to some of the various people. They say
that -- well, we don't think anything will
happen.
Schenker:
Just stalling until the Lease-Lend Bill passes.
H.M.Jr:
I would like you (Schenker) to stay, if you
don't mind. I am glad you came in, Mr. Quinn.
Quinn:
Right, sir, thank you, Mr. Secretary.
(Mr. Quinn left the conference.)
H.M.Jr:
Now, let me tell you something you can repeat to
Jerome, but I don't want it to go to your Board.
I got this memorandum from the British, you see,
and I am talking as much for the benefit of
Cochran and White as for yourself. Have you
(Cochran) got copies of it?
Cochran:
No, not of the memorandum.
157
7
H.M.Jr:
In this thing, what they have done is, they
say they will turn over all their direct invest-
ments to the President and he should go ahead
and tell them when to sell and when not to sell.
Now, I told - it was brought in by Halifax and
I told him my first reaction. I said, "I am
not going to let the President be put in that
position, if the British investors get sore,
they can be sore at Sir Edward Peacock but not
at my President."
He asked me to take this thing, and I wouldn't
take it, and I said furthermore, "I don't want
to get in the business of selling properties
and be stuck with that kind of tar." I said,
"I have got a clean organization, and I don't
want to get mixed up.
Well, I went over to see the President and his
immediate reaction was the same as mine, that
they were dumping it all in our laps.
Now, I haven't answered them yet formally, but
they say that the trouble is that they are
having great, great difficulty in making sales.
Now, the first thing that they tried to put
through was the sale of this --
Cochran:
Viscose.
H.M.Jr:
Viscose. How did they try to do it? They went
to J.P. Morgan to get a loan, you see, and no
passing of title. I told them absolutely no.
I said, "They want title to pass, but they cer-
tainly don't want J.P. Morgan to do it." I
think they brought it in here three times,
always a little bit different, and we always
said "no." I am talking in the room here.
Schenker:
I understand.
Regraded Uclassified
158
8 -
H.M.Jr:
The understanding is that before anything passes,
they will lot us take a look si it and 88e that
there is nothing that any Trust or anything
which is - which we think is contrary to what
the administration would like to have, and it is
the only thing that they have brought in here.
Schenker:
I am convinced, Mr. Secretary, that this group
could handle Brown and Williamson, possibly
American Viscose. They could do it expeditiously,
fast, paying the money, and not disrupting the
market because they would hold substantially all
of it in their portfolios and possibly at some
subsequent date undertake a secondary distribu-
tion when they had the chance to effect the
registration.
Now, American Viscose, I have got these people
who have been on me. They say, "Mr. Schenker,
I am not kidding, those people are prepared to
buy that and we are prepared to pay 60 to 100
million dollars depending on what the income is,
and we will give them a cashier's check."
H.M.Jr:
Now, I have got to talk to you. This is terribly
confidential, you see.
Schenker:
I will forget it as soon as you tell me.
H.M.Jr:
I mean you have just got to be - you just can't
even - some things are confidential and some
things are extra-confidential.
Schenker:
Sacred.
H.M.Jr:
Well, they are, because this whole bill is tied
up in this thing, and these fellows, you see,
tell us how much money they have got. They don't
know whether they can last until the bill is
passed, and I have told them they had to, not
to come around and bother me, because there is
nothing that I can do for them until the bill
159
- 9 -
passes, but then If the bill passes, I might
consider - I haven't told them yet - that We
might go up to the Hill and say, "Now, look,
gentlemen, here is 900 million dollars worth
of direct investments, and we would like a
vote of confidence or approval from Congress
that we can advance against that from the
Stabilization Fund 75 per cent of what we
think is the value;" but the English are
going to have to do the selling, we are not
going to sell it. If they come to us and
say, "Is it a satisfactory price?", we will
say, "Yes" or "No" but they have got to do the
negotiating, you see, we don't want to get
in on it. I would want the help of the S.E.C.,
the Evaluation Section, and 80 forth and 50 on,
because we haven't got it and you fellows have.
Schenker:
We have a big staff.
H.M.Jr:
And the President said, well, he thought
that sounded all right and Jones hoped to get
a bill. He wants to do the business. You saw
that story in the Wall Street Journal of all
the stuff Jones had been giving out. He is
crazy to get his finger in this thing. What
is going through my head is this. I am think-
ing of calling up the British Ambassador in view
of this thing and ask him when he can come down
with Phillips and just give them - read them
the riot act and simply say, "A representative
of the S.E.C. has 20 different business men, and
they can't even get into see this fellow Peacock."
Schenker:
They haven't sent for Quinn, and Quinn can get
together 50 or 60 million dollars just like
that.
H.M.Jr:
And here is Phillips, says he hasn't got the
money.
Regraded Uclassified
160
- 10 -
White:
Don't you think your last telephone conver-
sation will stir them up?
H.M.Jr:
No. Halifax came to see me. I would like
to give it back to him. He brought me a
message for the President from the Prime
Minister.
Schenker:
I think the most unfortunate thing that can
happen, Mr. Secretary, is for the American
Government to handle that.
H.M.Jr:
You agree with me?
Schenker:
Oh, there is no doubt about it. With all the
rumblings that you get about Ed Flynn being
at the Mayflower and everything else, I wouldn't
get within 50 miles of him, because as soon as
you suggest the name and if you ever sold them
the property, three weeks later I would be up
on the Hill with a subpoena, where did I get
this fellow's name?
H.M.Jr:
You are with me a hundred per cent, but I
couldn t get that over with Purvis, he couldn't
understand that. I could, for instance, get
the evaluation section over there to give me
some idea of what the property is worth, if we
made a loan, but we haven't arrived at that
point yet. I could get that and keep it be-
tween the S.E.C. and the Treasury. There is
no reason why Jesse should get into this. Do
you see any reason why?
Schenker:
No. But I think Mr. Jones is making prepara-
tions to go ahead, because I got some phone
calls and I called Wright over there and he
referred me to Mr. Johnston, and Mr. Johnston
said he was in the throes of preparing the
form of procedure that will have to be followed
with individuals who desire to make loans against
these investments and they haven't abandoned them,
Regraded Uclassified
161
- 11 -
I don't think, and they said they would be
prepared in the early part of March.
H.M.Jr:
Who is this fellow?
Schenker:
Costello. That is the individual I spoke to.
White:
Well, something will be done. It depends -
if nothing is done they will have a stronger
case to come before Congress, particularly if
they are able to say that nothing has been
taking place.
H.M.Jr:
Well, he has got to get legislation. Mind
you, Jones is talking to the President. He
has got to get the Johnson Act knocked out,
before he can do it, although Jones claims,
and you (Schenker) are an attorney, the
Johnson Act does not include a government
corporation.
White:
Well, that is what your legal staff claims,
too.
Schenker:
Well, the only thing I want to do, Mr. Secre-
tary, is to get myself out of this position.
I knew that you were anxious to know whether there
was any --
H.M.Jr:
Well, can you see now? I can't give you a yes
or no.
Schenker:
Well, I will stay with it as long as you want
me to. I think maybe I should.
H.M.Jr:
I would stay with it this way and see what
happens, and I would tell anybody to get in
direct touch with Sir Edward Peacock and tell
them if they can't get in to see him, within
twenty-four hours from the time they get the
refusal, to let you know, that they are to see
Sir Edward Peacock, and if they can't get in
162
- 12 -
within twenty-four hours you tell them to
let you know and you bring it to my atten-
tion. How is that?
Schenker:
All right, I will.
H.M.Jr:
Do you think, Harry, I should try to get Hali-
fax down here and make a big thing out of it?
White:
I would be inclined to wait and see --
Schenker:
Wait until Monday in the light of the conver-
sation.
White:
See what they do with Quinn and the others and
until you have also finished your memorandum
and had a chance to suggest what you are --
H.M.Jr:
What do you think, Merle?
Cochran:
Exactly the same.
H.M.Jr:
I didn't mince matters any, did I?
White:
He got it. Phillips gets that kind of thing.
It was very clear.
H.M.Jr:
Now, Phillips told me when he was in here -
you (Cochran) check my memory. I didn't see
him alone, did I?
Cochran:
I was with you.
H.M.Jr:
Didn't he say he was absolutely opposed to doing
this thing through a mortgage.
Cochran:
Yes, sir. He said he wanted an out and out sale.
You said, "I agree with you. We have the same
principle but for different reasons."
Schenker:
I am surprised they haven't taken this approach.
163
- 13 -
I don't know how expeditious it is. I thought
what they were going to do is probably take a
company like American Viscose and give out a
50 million dollar debenture issue and they
stay with the equity stock and control the
company. I am surprised they haven't broached
that. Have they?
White:
I doubt whether that would be legal, would it?
Schenker:
Why?
White:
Well, wouldn't that run into both the Johnson
and Neutrality Acts?
Schenker:
Well, it is & private company.
White:
Yes, but they are agents of the Government. But
Mr. Secretary, there is one point you stated.
I wonder if it is correct. If it isn't correct
you may want to correct it. As I understood it,
you told Mr. Schenker, and he would pass it on
to his chairman, that Halifax stated they were
going to turn these properties over to the Presi-
dent. It was my understanding that what they
were going to do was, they wanted to turn the
problem over to you and they will do whatever
you say. I don't think they were going to turn
the properties over.
Cochran:
In one of these - there were two memos, the first
and the second one. I have & copy of the first
and not the second. In that second one, as I
recall it, they included that vesting of title
in the United States also.
H.M.Jr:
That is right.
Schenker:
The only thing I would like to tell the chairman,
if I may, Mr. Secretary, is - I don't know whether
you want him or anybody to know - I think he may
164
- 14 -
feel there is some compulsion to tell the rest
of the Commission. I think I would only like
to tell him that - ask him whether the Commission
would be prepared if at some time it becomes
necessary to assist the Treasury in the evalua-
tion of these properties and nothing about whether
title should be turned over or a loan, because
if it ever leaks out I don't want to be --
H.M.Jr:
And tell him nothing else.
Schenker:
Because I think he would be duty bound to tell
the Commission.
H.M.Jr:
That has happened before.
Schenker:
Not that I am casting anything on Jerry. He would
be bound to tell the rest of the Commission and
the stenographers and all of that.
H.M.Jr:
Let me tell you what he did once before. We got
these daily figures on the sales of English
stock. I said, "Do you want these?" and he
said, "No." Isn't that right? Or was it the
list of - no, it was the list of the stocks, and
he said, "No," because he says, "I can't guarantee
you secrecy. It was the list. Wasn't it?
White:
It was the list.
H.M.Jr:
He said, "I don't want it."
Cochran:
Well, we had the talk also on the daily sales,
because he had us put it up to him in such a
way that he wasn't permitted to pass it on. He
said if it were on his own responsibility, he
would feel obliged to.
Schenker:
Well, the only thing I will tell him is that I
talked to you and that you talked to the British
and told them to get moving and 80 forth and
165
- 15 -
you also asked whether the Commission would
be in the position to assist the Treasury if
at some time they wanted our assistance in
connection with the evaluation of these
properties.
H.M.Jr:
Yes, and then I think you (Cochran) might send
for Phillips and tell him I am very much upset
over this thing, you see, and for him to come
in one day and say he is broke and the next day
I hear that there are twenty people who want to
buy businesses. The two and two just don't add
together, and I am very much upset.
Cochran:
As a matter of fact, I spoke to Pinsent this noon
on it. He was in to see me at 12:00 o'clock on
some other things I would like to mention after
awhile, and I said, "I am still referring people
up there and the S.E.C. definitely has & problem
because people are looking to the S.E.C., and
they haven't had any answers," and I said, "I
don't know how my people have fared, I haven't
had any comebacks.
H.M.Jr:
Why don't you send for them, Phillips and Pin-
sent both, and Phillips will repeat it to the
Ambassador, and you tell them I am really not
only embarrassed, I am very much upset, that
here are the people, they say they are here as
a group with a hundred million dollars, who want
to do business and they can't do it, and on the
one hand he says he is going to go broke and on
the other hand here are people with their tongues
hanging out trying to get this business.
Cochran:
Did you want Mr. Schenker to give that list by
mail to them?
Schenker:
No, I will give it to you.
Cochran:
I could give them this list when they come in.
Regraded Uclassified
166
- 16 -
H.M.Jr:
He has got a copy there.
Schenker:
I will get it with the names and addresses and
have it over before 4:30.
Cochran:
All then. right, I will try to get them here at 5:00
H.M.Jr:
Is that agreeable to you, Mr. Schenker?
Schenker:
Yes.
Cochran:
It is direct evidence that we have this problem.
H.M.Jr:
And Merle, bear down on them.
Cochran:
I will.
H.M.Jr:
Bear down on them and tell them that - was it
yesterday they were in here?
Cochran:
Yes, yesterday morning.
H.M.Jr:
Yesterday they were in here in the morning doing
the pauper's act, and then the next day I get
this, and I am getting very much upset and dis-
pleased.
Cochran:
I will get them both 80 it will get to the
Ambassador.
H.M.Jr:
Get them both and tell them that - well, I am.
I am not bluffing. And then you (Schenker) see
when you send these messages to me, I have got
no answer. But if you tell these business men,
now go and see this fellow Peacock, if they
can't get in to see him in twenty-four hours,
tell them to let you know and you let me know.
Schenker:
All right, thank you, Mr. Secretary.
167
- 17 -
H.M.Jr:
you for that reason.
Now, do you see why? I haven't been answering
Schenker:
And with respect to Mr. Frank, I forgot what
you told me about this other thing. I will just
confine it to that.
H.M.Jr:
That would be terrible if it got out.
Schenker:
I forgot it.
168
February 28, 1.41
4:00 p.m.
Cost Juard Cutters
RE AID TO BRITAIN
Present:
Mr. Gaston
Mr. Waesche
H.M.Jr:
How are you coming?
Gaston:
All right. I wrote a letter. I did not incor-
porate recommendations for new instructions in
the letter and simply said that you expected to
submit a program next week with estimates on the
construction.
H.M.Jr:
Oh, you are not ready?
Gaston:
Well, I didn't know that the program - it could
easily be added on the last page, but I wasn't
quite sure.
H.M.Jr:
You didn't put the date of these things in? Oh,
yes, you did.
Gaston:
Yes, there are groups of five.
H.M.Jr:
I would like to put in the whole --
Gaston:
Well now, as the Admiral and the officers have
agreed upon it, it is rather short and sweet and
it could be put in.
H.M.Jr:
I hate to do it in two bites.
Regraded Uclassified
169
- 2 -
Gaston:
We could just put it in on the last page, those
two paragraphs.
Waesche:
Part of this is already incorporated. You begin
in the middle.
H.M.Jr:
Well, you can't put it that way. You will have
to say, if it meets with his approval.
Waesche:
Yes.
H.M.Jr:
Well, I mean it is essential. "With your approval
this would be included." That is all right. It
is a little bit too snappy, a little bit too
terse.
Gaston:
Yes, I will word it that way.
H.M.Jr:
Now, let me just talk to you. This isn't the way
to present it, you see. I would say something
like this, Herbert. "For some time we have felt
that we have not been able to adequately take
care of ice conditions in our - ice conditions
along the coast, in our harbors and rivers and
lakes."
Waesche:
"And in Alaska."
H.M.Jr:
"And in Alaska," yes. "We do not have the ade-
quate equipment for ice breaking to get into
harbors in Newfoundland and Greenland, and if
the world conditions continue as they are at
present, neither Canada or England or ourselves
are equipped with the necessary ice-breaking
vessels.
"Therefore, as a part of our national defense
needs, it would seem prudent to equip Coast
Guard with the ships especially constructed
to do an ice-breaking job wherever they may be
170
- 3 -
called upon to do so."
Waesche:
Wouldn't you want to bring out the point that
this is a dual-purpose vessel, that in addition
to doing that, we will 80 equip these vessels
so they can, carry on their off-shore patrol?
H.M.Jr:
What I want to say is, "In view of this situa-
tion, we present to you a request for money to
build ten dual-purpose ships." But I wanted
to lay the foundation. You just - "Which can
both do the ice-breaking job and off-shore
patrol," see?
Waesche:
Yes.
H.M.Jr:
And then I will again say, "These ships will be
of unique character," or something. I don't
think that is necessary. But the point that I
want to catch in the beginning is, 80 he won't
say, "Oh, I don't want any more for Coast Guard,
Newfoundland, Greenland, and so forth." But
if you just say it like this, it is no good.
Do you get it, Herbert?
Gaston:
Yes, I do. Of course, it will further strengthen
the argument. Of course he ought to see that
he is taking away ten of the best ships we have
and that we have asked for more ships before
losing those ten, but this will strengthen the
argument.
H.M.Jr:
Well just to say you are taking away ten - he
said, "I will give you the ten, but I have said
that this is going to do the thing and --
Waesche:
Here we are getting ten ships which will do
not only the work that those ten did before,
but they do the ice-breaking job as well.
Gaston:
The danger of pressing that too much is that
Regraded Uclassified
171
-4-
they will say, "Now, you will get these ten
and they are all ice-breakers. You won't
need any more ice-breaking equipment." But
we will.
H.M.Jr:
Well, I am surprised you don't ask for some of
these smaller ones for the harbors.
Waesche:
We did ask for four in our last budget, and
they cut out two, and those again are dual-purpose
vessels. They do all this harbor work of carry-
ing customs inspectors and harbor patrol and
supervising of anchorage and all of that, but
at the same time, when winter comes along they
are needed for ice.
Gaston:
Well, Admiral, we didn't ask for four, we asked
for twelve.
Waesche:
We started on a program of two a year and this
last budget we asked only for four to bring us
up to this program of two a year, and they gave
us two. We asked for ten altogether, and we so
far have gotten four out of the ten.
Gaston:
Yes, I will do that.
H.M.Jr:
If you could work that up, Herbert, and get it
to my house tonight.
Gaston:
You would like it up there tonight?
H.M.Jr:
Yes, just so it is up there tonight. All you
have got to do is change the last page. But
you get the idea. And I think this is a little
bit too wordy. I think you have got enough,
and then he is taking away ten and we come in
and say --
Gaston:
Yes, I will condense that.
172
- 5 -
H.M.Jr:
Are you with me on that?
Gaston:
Oh, yes. I think it will be of double value.
H.M.Jr:
I don't know that --
Gaston:
This will give us an opportunity to build the
ships that are specially designed for ice work.
You see Greenland is not so much ice-breaking
as it is for ice work. They need a bow for
forcing their way through a field of ice. It
ice. is very different from the lake job of breaking
H.M.Jr:
I don't say that We have got to go into Hali-
fax, but I do point out that neither England
nor Canada has any of this equipment, if I am.
right.
Waesche:
Yes, sir.
H.M.Jr:
Canada and England have nothing like this?
Waesche:
No, sir. They have a few sealers up there.
They don't belong to the ships, but there are
& few sealers that work in the ice.
H.M.Jr:
But Government?
Waesche:
No government ships. And of course these
sealers have little power to stand the ice
pressure.
H.M.Jr:
How do you feel after working this this way?
Waesche:
Oh, I think we can prove our point, Mr. Secre-
tary, and this will meet our purposes very
nicely. There is one other point I wanted to
make which I told Herbert outside.
H.M.Jr:
How much beam would these have?
173
- 6 -
Waesche:
About 42 or 43 feet, I think.
H.M.Jr:
I think I would put that in the letter.
Gaston:
Yes. I think it is in this draft here. I will
work it in. The keel would be 42 feet.
Waesche:
There is some question as to whether there is
any need for a high-powered heavy ice-breaker
such as the Russians have in the Arctic up in
the northern Greenland waters. We discussed
that a little today, but I stayed off that at
the present time, but I am going to get Iceberg
Smith on this coming Greenland cruise which is
going up there very soon.
By the way, I have a memorandum from the State
Department, from Penfield, whereby there is
only a little snow on the ground up there now,
and they could come up any time. So I am
going to have Smith this summer when he is up
there go into thoroughly a study as to whether
there is any need for this Government to have
a four-or five-thousand ton ice-breaker such as
the Russians have for that Arctic ice, but that
is too big a problem for us to decide down here
in such a short space of time.
Gaston:
It would cost about five million, wouldn't it?
Waesche:
Yes. It would be about a four- or five-thousand
ton ship, 350 feet long, with propellers on bow
and stern and a regular ice-breaker such as the
Russians have up in the Arctic..
H.M.Jr:
Where would we use such e. ship?
Waesche:
The only place we would need it would be if - on
the east coast of Greenland. If we want to get
into the east coast of Greenland almost any time
of year or even in the summertime, to be sure of
174
7
getting in then you have got to get one of
those Arctic ice-breakers.
H.M.Jr:
How about if we wanted to get into Halifax?
Waesche:
We don't need anything like that for Halifax.
H.M.Jr:
O.K. I am satisfied with this. I am willing
to go to town on it. I think he will get this.
Are there yards where these could be built?
Waesche:
Yes, sir, I won't say we won't have any diffi-
culty, but we do know - when we get ten of these
we will have a lot of people interested in it.
When we have one ship they are not bothered so
much.
H.M.Jr:
How long before you can get the first one? I
mean how long before they will be commissioned?
Gaston:
Can you have one in a year?
Waesche:
I would say a year and a half. It would be a
year to a year and a half. Not more than a
year and a half, because it would just be a
modification --
H.M.Jr:
And the last one?
Waesche:
Oh, they would come along within a month or two
of each other. We ought to get them all in
two to two and a half years.
H.M.Jr:
What would you do with the personnel on these
ten ships, how would you occupy them?
Waesche:
You mean for the time being? Well, we have need
right today, urgent need, for over half of them,
and the rest we will be able to find - we will
find jobs for them. As a matter of fact, we
will use them all on getting this Coast Guard
Regraded UIclassified
175
- 8 -
reserve started. We have got this reserve
going through, and we can use most of those
people on the reserve problem.
H.M.Jr:
You know the President approved this letter?
Gaston:
Yes, I haven't had a chance to tell the Admiral.
He has approved the contract thing, 80 we can
do the 10 per cent contract thing.
Waesche:
That is good.
H.M.Jr:
He approved it, and I forgot to sign mine. I
sent it over without signing it, and he signed
it and Forster over there said, "It is all
right, the President signed it, but for heaven's
sake, get the Secretary to sign it too." So
we got it this time. I think you have got two
out of three chances of getting the ten when
we give up the other ten.
Gaston:
My gosh, we ought to have.
Waesche:
We would be very much up against it without them.
H.M.Jr:
Anyway, on that appeal, that basis, and not on
the speed basis. This is & useful ship.
Waesche:
It is. These ten ships they are taking away are
really all-round purpose ships. They are our
most valuable ships.
H.M.Jr:
These ten replacements would be valuable ships.
Gaston:
What did you say, 14 and a half knots?
Waesche:
About 15 and a half knots.
Gaston:
Power plants are a little better now. You ought
to get pretty close to what you do now.
176
- 9 -
H.M.Jr:
What do you call economy speed on this?
Waesche:
About 11 or 12 knots.
H.M.Jr:
It would be a swell ship not to get sea-sick
in, wouldn't it? They won't roll with that
beam, would they?
Waesche:
No, they would be very stable in & sea.
Gaston:
If you want & real ride you ought to take one
of those 165-footers. You haven't been out
on one of those, have you?
H.M.Jr:
No.
Gaston:
Or take one of the Comanche type for some nice
pitching.
H.M.Jr:
O.K., gents. Say, you don't have to give me
anything. I came back on the Campbell.
Gaston:
I don't think I told you - about this Danmark
thing. We have been working on this Danmark
thing to buy that for 365 thousand dollars.
That Danish training ship. We haven't the
money and have to get the appropriations.
177
2nd Draft
February 28, 1941.
Dear Mr. President:
The Coast Guard vessels which seem most suitable
for convoy work are the ten cutters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1928
ITASCA
- 1930
PONTCHARTRAIN
- 1928
SARANAC
- 1930
TAHOE
- 1928
SEBAGO
- 1930
CHAMPLAIN
- 1929
SHOSHONE
- 1930
MENDOTA
- 1929
CAYUGA
- 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 feet, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, is
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. Consideration has to be given,
however, to the armament and other equipment they would
need for convoy service. Although & program of arming
and equipping all ten for service with our Navy has been
in progress, it seems far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done in American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
178
- 2
convoy work will of course depend upon the extent of the
changes and additions desired and the speed with which
we can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising cutters and the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the new 327-foot
type and four 240-foot ships that are now twenty years
old. Of the seven 327-footers one, the CAMPBELL, is now
on Navy service in Portugal.
The following steps appear to be necessary to
adjust this year's program to he equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Ice Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time would be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are ill suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
outter COMANCHE, and & vessel of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarotic, about May 1. This is not quite as extensive
patrol of Greenland 8.5 had been planned for the coming sum-
mer, but it may be sufficient.
(c) Atlantic Weather Stations. To maintain a two-
station patrol in the North Atlantic will require five
vessels of the 327-foot class. This will be a full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
179
- 3 -
a third station on this Atlantic Weather Patrol, which
would require at least two more vessels. These are not
available. It is recommended that immediate steps be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot cutters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Guard crews.
(a) Cadet Practice Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This cruise is a very
important part of a cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilized at Jackson-
ville, Florida. Preliminary negotiations have been under-
taken through the State Department.
(e) Bering Sea Patrol - Two of the 250-foot cutters
were scheduled for Bering Sea Patrol during the coming
summer. The Coast Guard has no replacements for these
vessels and, consequently, the activities of the Coast
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only as long as the TANEY remains available
for Coast Guard activities.
(g) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distress, towing of vessels for the
Maritime Commission, and other emergency tasks, will have
Regraded Uclassified
180
- 4 -
to be curtailed.
I expect to be able to lay before you for your
approval early next week a program, with estimates, for
new vessels to be constructed to replace the ten vessels
to be transferred and to give you further information as
to the time schedule for delivery of the ten vessels to
the British.
Faithfully,
3rd Draft
(Final)
181
February 28, 1941
Dear Mr. President:
The Coast Guard vessels which seem most suitable
for convoy work are the ten cutters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1928
ITASCA
- 1930
PONTCHARTRAIN - 1928
SARANAC
- 1930
TAHOE
- 1928
SEBAGO
- 1930
CHAMPLAIN
- 1929
SHOSHONE
- 1930
MENDOTA
- 1929
CAYUGA
- 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 feet, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, is
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. Consideration has to be given,
however, to the armament and other equipment they would
need for convoy service. Although a program of arming
and equipping all ten for service with our Navy has been
in progress, it seems far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done in American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
182
- 2 -
convoy work will of course depend upon the extent of the
changes and additions desired and the speed with which
we can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising cutters and the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the new 327-foot
type and four 240-foot ships that are now twenty years
old. Of the seven 327-footers one, the CAMPBELL, is now
on Navy service in Portugal.
The following steps appear to be necessary to
adjust this year's program to the equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Ice Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time would be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are ill suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
cutter COMANCHE, and & vessle of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarctic, about May 1. This is not quite as extensive
patrol of Greenland as had been planned for the coming sum-
mer, but it may be sufficient.
(c) Atlantic Weather Stations - To maintain a two-
station patrol in the North Atlantic will require five
vessels of the 327-foot class. This will be a full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
183
- 3 -
a third station on this Atlantic Weather Patrol, which
would require at least two more vessels. These are not
available. It is recommended that immediate steps be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot cutters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Guard crews.
(d) Cadet Practic Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This cruise is a very
important part of a cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilized at Jackson-
ville, Florida. Preliminary negotiations have been under-
taken through the State Department.
(e) Bering Sea Patrol - Two of the 250-foot cutters
were scheduled for Bering Sea Patrol during the coming
summer. The Coast Guard has no replacements for these
vessels and, consequently, the activities of the Coast
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only as long as the TANEY remains available
for Coast Guard activities.
(g) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distress, towing of vessels for the
Maritime Commission, and other emergency tasks, will have
Regraded Uclassified
184
- 4 -
to be curtailed.
For some time we have felt the need of additional
and better equipment to take care adequately of ice con-
ditions on our Eastern coast, in the rivers, the Great
Lakes and on the Alaskan coast. We lack also vessels
entirely suitable for coping with ice conditions in the
harbors of Newfoundland and Greenland and Iceland; nor
do Canada or Great Britain have suitable vessels for this
purpose, which may continue for some time to come to be
of great importance.
The replacement of the ten cutters to be trans-
ferred will give us an opportunity to remedy this lack,
As a part of our National defense needs it would seem
prudent to equip the Coast Guard with ships specially
constructed to overcome difficult ice conditions wherever
they are called upon to perform service.
I am therefore suggesting 8. program for the con-
struction of ten dual purpose ships at an estimated cost
of $22,500,000 ($2,250,000 each), and respectfully ask
your permission to submit a deficiency estimate in that
amount. These would be combination ice-breakers and
cruising cutters, 250 feet in over-all length and approxi-
mately 42 feet beam, similar to the ten cutters to be
transferred except that the bow characteristics would be
materially different and the vessels would be more staunchly
constructed, in order to break ice and to penetrate ice-
fields. Perhaps a half-knot of speed (of the 16 knots of
the present outters) would be sacrificed for more rugged
construction and better ice-breaking qualities. In addition
to their value for working through ice the vessels would
also have all necessary useful qualities for towing, render-
ing assistance at sea, and other varied Coast Guard work.
To summarize, the program I desire to suggest for
your approval is as follows:
(1) Submit deficiency estimates in the amount of
$22,500,000 for ten dual-purpose cutters.
Regraded Uclassified
185
- 5 -
(2) Undertake negotiations to obtain and equip
seven merchant ships for weather patrol
purposes, to be manned by Coast Guard crews.
(3) Negotiate for the purchase of the Danish
training vessel DANMARK for Coast Guard
cadet training.
Faithfully,
Secretary of the Treasury.
The President,
The White House.
186
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary of the Treasury
FROM Alan Barth
The Senators opposing H. R. 1776 have refrained with ostentations
virtue from embarking on a formal filibuster. Yet, in effect, they have
been engaged in a filibuster - deliberately delaying action on the bill -
ever since it moved over from the House to the Senate,
The plea of the isolationists is that they need more time in which
to prepare and present their case. It seems worthwhile, therefore, to
take a glance at the time which has already been accorded them and the use
which has been made of it,
H. R. 1776 was introduced in Congress on January 10. For a period of
two weeks, the House Committee on Foreign Affairs listened patiently and
courteously to the opinions of 15 opposition witnesses, ranging in expert-
ness and erudition from the Reverend Gerald L. K. Smith who represented
the Committee of One Million to Mr. George H. Cless, Jr., of Glens Falls,
N. Y., who confessed with disarming candor that "I do not represent my
group, organization, or association of any kind. I an here today to
speak for only one person - myself
When the Senate Foreign Relations Committee undertook consideration of
the measure, it heard a total of 41 witnesses. Well over half of these -
2) in fact - registered opposition arguments. Five of the 29 had already
expressed their views at considerable length before the House Committee,
The bill went to the floor of the House on February 3, and was debated
there through February 8. It has been before the Senate for consideration
on the floor ever since the Foreign Relations Committee reported it out on
February 13. Every Senator opposed to it has had full opportunity to
express his point of view. Proponents of the bill, indeed, have kept their
advocacy of it to a minimum in the hope of exhausting the rhetoric of the
opposition as speedily as possible.
But the Senators opposing H. R. 1776 by no means confined their fore-
casting of doom to the Senate floor. One reason why they may have felt a
reluctance to participate in night sessions on the bill was that they pre-
ferred to devote this time to broadcasting their message to the people at
large via the radio. The patience of attentive members of Congress during
the long debate was exceeded only by that of the general public whose radio
loudspeakers for more than an entire month have blared repetitious warnings
of death and dissolution for the Republic.
Regraded Uclassified
187
- 2
Senators Wheeler, Walsh and Taft have each indulged themselves in two
radio outbursts against the Lend-Lease measure within the past week..
Senators of Hiram Johnson, Nye, LaFollette, Reynolds, Lodge, Denaher, Capper,
Johnson Colorado, Chavez, Tobey, Clark of Missouri and Clark of Idaho
have confined themselves to a single oratorical effort apiece on the air.
They have been bolstered to be sure, by the eloquence of others, such as
Alf Landon, John T. Flynn, General Hugh Johnson, General Robert Wood,
Norman Thomas, Hamilton Fish, and lesser lights who have availed themselves
of the free time put at their disposal to discuss the issue by the major
radio networks. The number of speeches and the quantity of time allotted
to fulminations on the bill over local stations are incalculable.
Despite the flow of words which has fattened the Congressional Record
and titillated the air waves, the isolationists have succeeded in making
converts neither among the people nor among their colleagues who will vote
on the question in the Senate. But the winning of support by persuasion is
no part of their program. Their plain strategy is to compound delay until
an explosion in the Pacific makes the public unwilling to release any part
of our defense equipment, or until a disaster in Europe makes release of
the equipment too late to be of service. A filibuster in the ordinary
sense is obviously hopeless. The opposition cannot continue to talk until
the Senate adjourns. It may, however, be able to talk until time itself
defeats the very purpose of the bill. Its method of keeping this country
from involvement in war is to court the very conditions which make involve-
sent inevitable.
Regraded Uclassified
188
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941.
TO Secretary of the Treasury
FROM Alan Barth
THE PRESS AND PUBLIC OPINION ON H. R. 1776
Since current editorial comment continues to pursue the trend
previously reported toward acceptance of H. R. 1776, it seems useful at
this time to examine its relationship to public opinion. Newspapers, in
the recent past, have revealed themselves as markedly antipathetic to the
political judgments of their readers.
A rather curious parallel is apparent, however, between the geo-
graphical distribution of editorial opinion on H. R. 1776 and the election
returns of November, 1940. On the current foreign policy issue, news-
papers divided, at the outset, not at all as they divided during the fall
campaign, but rather as their readers divided when they went to the polls
on November 5.
GEOGRAPHICAL DISTRIBUTION
Southern newspapers solidly support the Administration position on
foreign policy. With few exceptions, they endorsed the original version
of H. R. 1776, encouraging amendment of it only as a form of enlisting
northern support for a basic program which they regarded as their own.
Regraded Uclassified
Press and Public Opinion
189
- 2 -
Conversely, the editorial opposition to the bill has been strongest
in the middle western farm belt - in those vary states, indeed, which
by fairly narrow margins recorded their electoral votes in November for
Wendell Willkie. Newspapers in this section are by no means preponder-
antly against the measure; they merely exhibit more antipathy toward it
than is apparent elsewhere.
Contrary to a rather widespread assumption, newspapers in the far
west are not inimical to the Lend-Lease proposal. The majority are sup-
porting the President, just as their readers supported him, despite
editorial fulminations, in November.
A considerable scattering of opposition is to be found among New
England newspapers. Here, too, it is certainly not in the majority; yet,
as among the people of this region during the campaign, it is sufficient
to be formidable.
These findings conform closely with the Gallup Poll analysis of
sectional differences of opinion on the Lend-Lease proposal. Gallup
showed, on February 11, in favor of the bill: South, 77 per cent; far
west, 55 per cent; New England and middle Atlantic states, 54 per cent;
west central states, 53 per cent.
In addition, Gallup showed a single section, composed of the east
central states of Ohio, Michigan, Illinois and Indiana, in which the
opinion favorable to the measure was only 39 per cent, with 35 per cent op-
posed. Chicago, he reported, is the hub" of the sentiment against aid to
Britain. It is also, through the headquarters of the America First Com-
mittee, the American Peace Mobilization and the Chicago Tribune, the hub
Regraded Uclassified
Press and Public Opinion
190
of the propaganda drive against H.R. 1776. Almost exclusively from this
source emanate such artificial protests as the mothers' march on Washing-
ton or resolutions by the D. A. R. and the Daughters of 1812.
TREND
In every sector, according to the Gallup reports, sentiment for the
bill has risen steadily since its introduction. The lag between Gallup
samplings of public opinion and publication of the results makes it dif-
ficult to gauge popular reaction to the more recent amendments proposed in
the Senate. But these amendments undoubtedly leveled a large measure of
the remaining opposition.
Newspaper support of the bill has grown similarly, as the Administra-
tion has accepted revisions of the bill's original form. But the growth
of this support has merely kept abreast of the published Gallup reports.
This seems to indicate that the newspapers are expressing what their readers
thought some time in the past and lag behind the swifter evolution of
popular opinion. Newspapers, in short, have reflected, more than they have
affected, public thinking.
One other inference seens warranted from these observations: The con-
sideration which basically motivates public opinion on H. R. 1776 is trust
or distrust of President Roosevelt. The arguments as to the dictatorial
possibilities or the dangers of war involvement inherent in the bill are the
rationalizations of editorial writers. A majority of the public backed the
President in November in large measure because it had confidence in his con-
duct of foreign affairs. A similar majority backed him when the Lend-Lease
issue was first broached. That majority has been increasing steadily in
direct ratio to the growing sense of national unity under the President's
leadership.
Regraded Uclassified
191
February 28, 1941
4:21 p.m.
Cordell
Hull:
Hello, Henry?
H.M.Jr:
Hello. How are you?
H:
All right. Secretary Stimson called me up
about that Jim Byrnes amendment and it's a
little bit hard for me to get my teeth in it.
I wanted to Bee what your slant is on it.
H.M.Jr:
Well, we got up this little memo which War
and Navy and we signed and then sent it over.
Did you see it?
H:
Yes, I saw - I didn't see whether you signed
it or not.
H.M.Jr:
Yeah, I signed 1t. Would you like me to send
you a photostat of what I sent.
H:
Well, I've got a copy of that. Now, what I'm
trying to get to 1e, first, you think it's a
serious matter, do you?
H.M.Jr:
Yes, because I think it would make it very,
very difficult for the Army and Navy to operate.
H:
Byrnes didn't confer with anybody?
H.M.Jr:
Not in our shop. Well, now, wait B. minute.
He asked one of our men - the way we heard
about it - he asked somebody down here whether
they wouldn't draw it up for him, you see, and
I guess that's the way it came, and we refused
to. We refused to draw it up.
H:
Yes. Well, what I'm trying to get at is to get
enough material here to talk to Byrnes. Stimson
wanted me to talk with him and I'll be glad to
talk to any of those fellows over there but it's,
88 I said, hard for me to get my teeth into the
thing.
H.M.Jr:
Well, would this be helpful? The lawyer here
who has been following it is Oscar Cox. Would
you like him
Regraded Uclassified
192
- 2 -
H:
I think he came over. I think he was with
the War Department man who came into my office.
H.M.Jr:
With McCloy?
H:
Yeah. They gave me some data and I just wanted
to see how you were impressed with this thing.
H.M.Jr:
Well, I think it would make it very, very
difficult for the Army and Navy.
H:
Well, I'll call up two or three of these
fellows and talk with them and see if I can
get anywhere. You haven't heard whether the
President talked to Byrnes or not.
H.M.Jr:
No, I sent it over by letter around 1:30
o'clock and I haven't heard from him since.
In that we asked him to let us know, you see,
in the memorandum whether there was anything
we could do.
H:
You asked the President.
H.M.Jr:
Yes, and I've not heard from the President.
H:
Well, then I think we'd better hear from him
80 we'll know just what - don't want to work
at cross-purposes.
H.M.Jr:
Well, I haven't done anything and my boys
haven't done anything other than to send this
over to the President.
H:
Well, now I don't want to step out in front of
the President on this because these amendments
have generally been considered by you and him
there and Stimson and among them, that is
relating to this part of the bill.
H.M.Jr:
Well, he's been sort of handling it himself
and 80 I didn't want to do anything/he asked
me to.
unless
H:
Yes. Now, I've been spending some little time
in helping fight off the Ellender amendment
and some others that I'm familiar with and I
want to help on this in any way I can if the
President wants to make a fight on it.
Regraded Uclassified
193
- 3 -
H.M.Jr:
Well, I don't know whether he does or he
doesn't but it's in his lap right now. We're
him. doing absolutely nothing until we hear from
H:
Well then there's nothing for me to do.
H.M.Jr:
Well, that's of course up to you but
......
H:
The only thing I could do would be to talk to
some Senators, you know.
H.M.Jr:
Well, as I remember it we say, "Will you advise
us what you'd like us to do," and I haven't
heard from him 80 I'm not going to move.
H:
Yes. I see. All right then. You let me know
any of you. I'll be reading up on this thing
and if and when you want me to protest to a few
of those Senators I'll be mighty glad to do it.
H.M.Jr:
Thank you 80 much.
194
February 28, 1941
4:33 p.m.
H.M.Jr:
Hello.
Wm.
McReynolde: So far we haven't found any more men who were
drawing money from the British Commission and
the Federal Government too. I found that that
fellow had been transferred to Knudsen's rolls
after they moved over to O.P.M. and they were
paying him $22.00 a day as a consultant for
whenever he worked in addition to his drawing -
his firm drawing $2,000 a month from the
British Commission.
H.M.Jr:
Uh-oh.
McR:
Bill is praying over it today. He hasn't
made a report to me on it. I talked to Hervey
Emerick this morning and he said he'd try and
get a report in my hand before the end of the
day but I haven't got it yet. I'm going to
call him again later. But I thought you might
like to know. We haven't found anybody else
in the same category yet and I'm having them
all checked.
H.M.Jr:
O.K., Mac.
McR:
Right.
Regraded Uclassified
195
February 28, 1941
4:38 p.m.
H.M.Jr:
Hello.
Morris
Troper:
This is Troper talking. (Joint Distribution
Committee).
H.M.Jr:
Yes.
T:
Where would that meeting be on Sunday,
Mr. Secretary.
H.M.Jr:
It will be at my home.
T:
At your home, and what 1s the address?
H.M.Jr:
2211 - 30th Street. It's just off Massachusetts
Avenue.
T:
Off Massachusetts Avenue.
H.M.Jr:
That's important because 30th runs down to
Georgetown.
T:
I see. Is there any Northwest or anything
connected with it.
H.M.Jr:
Northwest, yes.
T:
Now, I'm trying to arrange the following:
For what time would you want that?
H.M.Jr:
Well, how many would there be?
T:
Well, I'm trying to arrange for Edward Warburg,
Harold Linder, Harold Ginsberg, Paul Baerwald
and myself. That would be five.
H.M.Jr:
Well, we'd be glad to have them for supper.
T:
Well, what time would that be?
H.M.Jr:
7:30.
T:
May I confirm that to your secretary?
H.M.Jr:
Surely. Well, you'd better send me a telegram
to that address because I - send a telegram to
my address.
196
- 2 -
T:
Now I'll repeat it. 2211 - 30th Street, N.W.
H.M.Jr:
Yes. Off Massachusetts. And that would be
at ......
T:
Yes, you see there 1s a conference going on
down at Princeton today and tomorrow and some
of the people I couldn't reach, but I thought
that that's a varied group and there are at
least three nice young men there and I thought
that - now will you have Ed Greenbaum there?
H.M.Jr:
Yes. I'll get word to him.
T:
having. I see. Anybody else that you were thinking of
H.M.Jr:
Well, if I could get him I'd get Justice
Frankfurter.
T:
I see. Well, then I'll tell these people and
I'll confirm it by telegram for 7:30 Sunday
evening - this Sunday.
H.M.Jr:
When do you think I'd know?
T:
Well, I'll find out in a little while and I'll
send a telegram immediately.
H.M.Jr:
I mean I'd hear still today.
T:
Yes, you'll hear this evening.
H.M.Jr:
And if you don't remind repeat in the telegram
who 18 coming.
T:
Yes.
H.M.Jr:
So I'd have it.
T:
Yes.
H.M.Jr:
Well, that'll be fine.
T:
Well, I'm doing the best I can. All right,
sir. Glad to talk to you. Thank you very much.
H.M.Jr:
Thank you.
197
February 28, 1941
4:45 p.m.
Harry Hopkins just called me up and said that
after checking all over town, he finds that the best
lawyer, the most resourceful lawyer, in town is Oscar
Cox, and he would like to have him. So I said that he
was asking 8 lot but I would give him anything to help
him. Then he said that what he really wanted was me.
I told him that I would be here any time he wanted to
get me on the telephone or see me.
Then Hopkins told me he didn't want to build
up his own statistical organization and could he use Haas?
He said that he would have to be talking to me all the time,
and if he gave me somebody else's figures I would only have
Haas check them any way, and so if he gave me Haas' figures
he said that I would be better satisfied. I told him that
we could try it and see just how much he needed Haas as we
go along.
I asked Hopkins why he didn't speak to the
President and get him to call up Cordell Hull and get Hull
to talk to Byrnes about killing the so-called Byrnes amend-
ment. This is the one we wrote the President about today.
He asked me if I thought it was really important and I said,
"Yes."
It certainly is interesting that the more Hopkins
goes into this job the more he wants the Treasury people,
and I think he had better move over here.
#######
Regraded Uclassified
198
MEMORANDUM TO THE PRESIDENT
There has been an amendment proposed
to H.R. 1776 by Senators Taft and Byrd which
Senator Byrnes has indicated he is willing to
accept in substance. Its implications are 80
serious we think it ought to be called to your
attention.
This amendment provides that no defense
articles procured out of appropriations made to
the War and Navy Departments after the effective
date of H.R. 1776 can be transferred under the
bill without the consent of Congress.
This amendment would seriously cripple
the contemplated operations under the bill. It
would make it impossible effectively to carry out
a joint procurement program. It would mean practically
that we would have to have a separate Army, Navy and
foreign aid program. It would also take away the
flexibility that is necessary in disposing of defense
articles.
Regraded Uclassified
199
- 2- -
We have felt justified in bringing this
to your attention because no amendment to which
administration Senators have been receptive cuts
so close to the heart of the bill.
Do you have any suggestions for us?
Henry L Stinson
Secretary of War
Henry Mayonthan Ir.
Secretary of the Treasury
Fouestal
Acting Secretary of the Navy
February 28, 1941.
Regraded Uclassified
200
February 28, 1941
5:00 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Stimson.
Henry L.
Stimson:
Henry?
H.M.Jr:
Yes, Harry.
S:
I'm a good deal troubled about that Byrnes
amendment to that bill. I think it would Just
take the guts out of the whole thing.
H.M.Jr:
I agree with you.
S:
Now I called up Cordell this morning and I
asked him if he would help in it and I sent
him a set of my own remarks on that subject
and you see he hadn't taken any part in the
analysis of the bill before the committee. I
gave him the points which I thought would show
the important - what we thought was the
important part of the bill and how this thing
would destroy it. I sent him a copy of the
argument that I think has been drawn up between
Cox and McCloy in regard to what the amendment
would do to the proposed system as I had set
it out in my statement to the Senate and the
House both.
H.M.Jr:
Yes.
S:
Well, I called him up again and he has read
them and told me he
H.M.Jr:
I don't hear awfully well.
S:
I say, I called him up again and talked with
him again on the phone and he has prepared
himself and 18 ready to go into action but he
doesn't want to do 80 unless the President
wants him to.
H.M.Jr:
Yeah. Well, he called me - I don't know whether
it was before or after - and he asked what my
position was and I said that in this note which
we all signed, the last sentence, we said we
were all waiting to hear from the President
what he wanted us to do.
Regraded Uclassified
201
- 2 -
S:
Well, now frankly this is the situation. An
soon as I heard of it, which was yesterday
afternoon, I called the President up myself
and told him Just this - told him I thought
this would take the guts right out of the bill
and he told me that he thought 80 too and was
doing - gave me the impression that he was
handling it 60 I told him I was very glad to
hear that and that if there was anything I
could do why to let me know. His voice
sounded very husky - gave me the impression
at once that his cold was worse again and I
thought that it was the part of humanity not to
talk any longer about it and I just hung up.
Now, I've done all that I dare do towards
stirring him up but you as his close personal
friend perhaps now can carry the ball a. little
bit further and pull the string that will
start Cordell going.
H.M.Jr:
Well, that thing undoubtedly got into the
President's hand by 2 o'clook or earlier. I
sent it over by special messenger; I sent a
copy of it to Harry Hopkins and one to the
Director of the Budget and, frankly, with the
man sick I don't like to call him up.
S:
Well, I'm in the same position 88 you with the
addition that I've already called him up once.
This would be 8. second time.
H.M.Jr:
Has that been introduced?
S:
Why no, it's in rumor position. It hasn't been
introduced but it has been talked about - it
may have been introduced but it hasn't been yet
fathered absolutely by Byrnes and the leaders
although the papers reported them as saying
that they didn't Bee any objection to it. That's
what scared me.
H.M.Jr:
Yeah. Well, frankly - you want my straight
answer - in view of the condition of his health
I don't want to call him up. He's got that
memorandum and that was a strong memorandum.
S:
Henry, here's the point: the President's whole
effort may be ditched by the failure to pull the
string on Cordell to get after Byrnes. Now I
Regraded Uclassified
202
3
Would a call to Harry Hopkins help?
don't like to see that rest in that way.
H.M.Jr:
Yes, I think it would.
9:
Because I think someone - I can't sit still
and watch the highwaymen killing a friend.
H.M.Jr:
I tell you what I'll do - let me see if I can
get Harry Hopkins and if I can I'll talk to
him and I'll call you
.....
S:
You can because I've just talked with him
on another matter that the President has given
us - you know that matter of the reconciliation
of the programs - the British programs - and he
is there now. You can get him.
H.M.Jr:
Well, I'll see if I can get him and I'll call
you back and let you know what he says.
S:
Well, I'm at the hospital to see how Palmer
is - he's been very sick.
H.M.Jr:
Well, I'll call him anyway.
S:
You can get me at my house as soon as I get
from the hospital there, or - I don't think
it's necessary for me to wait
H.M.Jr:
No, no, you go ahead and I'll let you know
later tonight.
S:
All right.
203
TREASURY department
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM Mr. Cechran
Mr. Pinsent called on me between 5 and 6 e'sleck on February 20. He said that
rumers were current in New York that the Irish Free State was endeavoring to obtain
& lean there. I told him that the Treasury had absolutely no information with
respect to any attempted or contemplated borrowing by the Irish Free State Government
in the United States. Mr. Pinsent reminded no that the Irish Free State is in the
sterling area and that the British Government is responsible for providing her with
dollars. There would be quite a complication, therefore, if the Irish Free State
should be able to burrow on our market, when Great Britain is ferbidden, while the
latter still has the responsibility of keeping the Irish supplied with dellars.
HMS.
204
Regraded Uclassified
February 28, 1941
MEMORANDUM FOR THE PRESIDENT:
There have just been returned to me by Mr. Hoover, Director
of the Federal Bureau of Investigation, all requests heretofore
made for investigations by his Bureau of individuals proposed for
appointment by the Advisory Commission and other organizations
coming under the general jurisdiction of the Office for Emergenor
Management. In only 73 of the 469 cases referred for investigation
have completed reports been received from the Federal Buresu of
Investigation. In view of the extreme slowness with which the
Bureau was able to furnish service in this matter. I have made no
effort to convince Mr. Hoover that he should reconsider his decision
to discontinue these investigations. However, it seems quite in-
practical to undertake ourselves the work of investigating these
cases, particularly since they require inquiries in all parts of the
country. and without an organization set up with field headquarters
it would be not only difficult. but very expensive to conduct
adequate Investigations. Therefore. I have made a personal request
of the Secretary of the Treasury that he authorise the Treasury's
investigative organization to undertake this work for us. No told
me that he would be willing to have this done only at your direction.
I have, therefore. prepared and attach herebo: a draft to him for
your signature. making such & request. In view of the urgent need
for very prompt and thorough investigations of all major personnel
recruited for the defense agencies. plus the fact that the Treasury's
investigative organization is the largest and most widely distributed
one, I hope you will be willing to make this request.
= signed R. McReynolds
205
February 28, 1941
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:
I have just received a memorandus from Mr. McReynolds to
the effect that investigations of persons proposed for employ-
ment in the several defense organizations which he has requested
of the Federal Bureau of Investigation have been unsatiefactory
because of the slowness with which the Bureau was able to handle
them. I have, therefore, instructed him to turn over to you
all cased requiring investigation and I wish you would have your
investigative service arrange to handle than very promptly and
thoroughly. HoReynolds will make the usual form of request for
this work to be performed by the Treasury under authority of the
provisions of the Economy Act.
Regraded Uclassified
206
THE WHITE HOUSE
WASHINGTON
February 26, 1941
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:
I have just received a memorandum from Mr. McReynolds to
the effect that investigations of persons proposed for employ-
ment in the several defense organizations which he has requested
of the Federal Bureau of Investigation have been unsatisfactory
because of the slowness with which the Bureau was able to handle
them. I have. therefore, instructed him to turn over to you
all cases requiring investigation and I wish you would have your
investigative service arrange to handle them very promptly and
thoroughly. McReynolds will make the usual form of request for
this work to be performed by the Treasury under authority of the
provisions of the Economy Act.
Regraded Uclassified
207
February 20, 1041
My dear General:
I would appreciate it if you
would arrange an appointment for me
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, my
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E Merganihau, Jr.
General Edwin M. Watson,
Secretary to The President,
The White House.
By Musser 535
Regraded Uclassified
208
February 28, 2001
liy dear General:
I would appreciate it if you
would arrange an appointment for no
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, my
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E dr.
General Edwin M. Watson,
Secretary to The President,
The White House.
By Memorager
Regraded Uclassified
209
February 28, 1941
lty dear General:
I would approciate it if you
would arrange an appointment for me
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, 4
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E Jt.
General Edwin M. Watson,
Secretary to The President,
The White House.
m
I
Regraded Uclassified
210
February 29, 1941
My dear Mr. President:
I an sending you herewith, for
your confidential information, a copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
which have been received at the assembly
points listed during this last week.
Yours sincerely,
(Signed) 1 Margenthan, Jr.
The President,
The White House.
& I
520
Regraded Uclassified
211
February 28, 1941
My dear Mr. President:
I an sending you herewith, for
your confidential information, & copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
which have been received at the assembly
points listed during this last week.
Yours sincerely,
(Signed) E Margathan, Jr.
The President,
The White House.
& !
Regraded Uclassified
212
February so, 1941
My dear Mr. President:
I am sending you herewith, for
your confidential information, a copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
points listed during this last week.
which have been received at the assembly
Yours sincerely,
(Signed) E. Merganthau, Jr.
The President,
The White House.
By Measenger
Regraded Uclassified
213
CONFIDENTIAL
(To Keep You Posted)
February 26, 1941
To:
The Secretary
From: Mr. Young
Re: British Aircraft Shipments.
Attached herewith is the latest statement of aircraft
shipped to the United Kingdom and other points. This state-
ment is submitted in the same form as the one which you
received last week. As you will recall, the figures repre-
sent planes which have been received at the assembly points
listed during this last week.
P4.
214
STRICTLY CONFIDENTIAL
STATEMENT OF AIRCRAFT SHIPPED TO U.K.
& OVERSEAS COMMANDS
By Sea
By Air
during week
during week
Assembly
ending
ending
Type
Destination
Point
Feb. 1.41
Feb. 22.41
Douglas
Boston II
U.K.
U.K.
14
-
Lockheed
Hudson III
-
4
Hudson IV
U.K.
U.K.
1
-
Glenn Martin
Maryland
M.E.
Capetown
16
-
Consolidated
PBY
U.K.
via Bermuda
-
-
Brewster
Buffalo
F.E.
Singapore
(via Panama)
27
-
38
4
British Air Commission
February 24th, 1941
STRICTLY CONFIDENTIAL
Regraded Uclassified
215
copy given
to Mr. Jones
Fabruary 28, 1941
3/1/41
My dear Mr. Secretary:
I - attaching herewith for your information
a copy of a memorandum dated February 26th, con-
cerning British requests for clearance pending in
the Var Department.
Sincerely,
(Signed) E Menganthan, Jr.
Secretary of the Treasury
The Menorable,
The Secretary of War.
bj
a %
Regraded Uclassified
A
216
Merusy so, 1941
Dear Harrys
I - conting you herewith a espy of
w/ letter to Secretary Others together
with a copy of the memerandes referred to
concerning British requests for clearance
pending in the Yes Department.
Sincerely,
Honorable Harry Heyking,
the White House.
bj
By Manager
Regraded Uclassified
046
NET
Petruary se, 2941
Dear Marrys
I - conding you herevith a copy of
my letter to Secretary Stinson together
with & espy of the referred to
concerning British requests for elearance
pending in the Yes Department.
Sincerely,
Henry
Honorable Envry Hopkins,
the White House.
by
& I
Regraded Uclassified
00/1
218
25, 1941.
MINORANDOM
201
The Secretary
FROM: Mr. Young
Be: British requests for clearance pending in the
Var Department.
For your information. there is presented below a listing
of requests for elearance filed by the British Furchasing Commission
with the President's Linison Committee through this office and which
at this writing are hold by the Var Department:
Date Filed
Material
P.N.R. No.
Oct. 23. 1940
37 ⑉ A.P. that (Frejectile only)
21-0F-3 Alt.
Nov. 2. 1940
2-Pounder A. P. that
1 Alt.
Dec. 8. 1940
ma-73 Purents Aircraft
370
.
.
e
8-39 Pursuit Aircraft
371
-
.
e
Dector Dembers
372
#
.
.
Benber - Martia 157
373
.
a
.
Madeon Reconnaisence Benhers
374
-
.
.
Bender - Lookhood-37s
375
.
.
.
Estrard Trainer Aircraft
376
. . a
Hands 574 - Aircraft
377
. . .
MA-73 - Pursuit Aircraft
378
.
.
#
Typhoon - Pureuit Aircraft
379
Dec. 9. 1940
Miss. Spare Barrols, Gase One-
plete, Noviteers, etc.
414
Dec. 12. 1940
Fase Be. 253 for 20 IN 1.1.
Shell (Hispano duisa)
192-02-6
Dec. 21, 1940
40 Mark XVI Leese Barrels
A-13-R
Des. 31. 1940
Anti-Pank Carriages for
37 IN Guas
358 Alt.
Jan. 3. 1941
Before A. A. Mounts
501
Jan. 9. 1941
Pratt & Whitney Ingines
563
Jan. 22, 1941
Binsoulars 6 % 30
598
.
e
6
9
...
599
Regraded Uclassified
219
- 2 -
Date Filed
Material
P.K.R. Ze.
Jam. 23. 1941
be Case 50 Gal. U.S. Savel Cartridge
Jam. 27. 1941
602
20 ⑉ Hispane Sulsa Cannoa for
Aircraft Mounting
Jam. 26, 1941
610
Pase Be. 253 for 20 MM R. 1.
Shell (Hispano Suisa)
Feb. 3. 1941
6 = 30 Priematic Discoulare with
192-0F-6 Alt.
Grationles
648
.
.
I
6 a 30 Prienatic Bineoulars with
Orationles
64g Alt.
Feb. 4. 1941
Stool Galv. Sinc Powder Boxes
670
8
9
e
.
e
.
II
e
671
Feb. 7. 1941
Spares for 2. 4 V. Engines
524 Alt.
Feb. 10, 1941
Discoulars 6 = 30
596 Alt.
. # .
6 a 30 Prienatic Bineculare with
Graticules
648 Alt.
Feb. 11, 1941
Bineoulare 6 X 30
598 Alt.
#
.
e
.
...
599 Als.
e a a
6 I 30 Priomatic Bineoulars with
Graticules
as Alt.
Feb. 17. 1941
Nitration Telmel
422-2
Feb. 19. 1941
Steel Galv. Sine Powder Bozes
670 Alt. Lat.
. # a
#
.
.
#
.
672 Alt. Let.
The above listing includes only those requeste which have
been filed by the British Purchasing Commission. to official
notification of Mar Department action with respect to these requests
has been received by this office.
Copies of this liet are being cont to General Durne, Admiral
Spear, and Mr. Imples. These copies are going forward today.
2/26/41.
Regraded Uclassified
220
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 25, 1941
TO
Secretary Morgenthau
FROM
H. D. White
Subject: Changes in U.K. Gold and Dollar Exchange Assets.
On January 8, the British submitted estimates to us that
their "cash" resources--gold and official dollar balances--
would be exhausted by the end of January and that a deficit
of $250 million would be incurred by the close of February.
That 16 to say, the expected drain on their cash assets in
the two months was estimated at $600 million.
There are appended two tables:
1. The first table shows that the United Kingdom had $270
million of gold and official dollar balances on January 31 and
$208 million on February 19. This latter figure excludes re-
ceipts of newly mined gold in February and assumes that the
British have not sold gold outside the U. S. since January 31.
(They have sold less than $150,000 to us in February.)
The drain on dollar exchange assets in January was $134
million and the estimated drain from February 1 to 19 was $78
million, or a total of $212 million since December 31, 1940, &s
compared to British estimate for the 2-month period of $600 million.
Inasmuch as the British direct investments have not been
touched and their securities sales have been about what they
88 to their dollar expenditures or their dollar receipts or both.
anticipated, it 18 evident that the British were in error either
The major source of error seems to have been in the forecast of
expenditures, which included large sums for new program-sume
which were not spent.
2. The second table 18 computed as 8. rough check upon the
drain on assets. It gives estimates, based upon British informa-
tion, of British dollar expenditures and receipts for the to 7-week
period. This shows that if expenditures from January 1
million. year This is $70 million higher than the drain on assets the
for the 19, 1941, the drain on assets would have been $280
February 1941 were at the rate anticipated by the British
most plausible explanation of the difference would be in defer-
shown in table I. If the British estimates are accepted,
ment of payments due Canada or in seasonal movements.
Regraded Uclassified
221
1. Gold and Dollar Exchange Assets of the United Kingdom
(In millions of dollars)
Dec. 31
Jan. 31,
Feb. 19,
Decrease Since
1940
1941
1941
Dec. 31, 1940
Gold
292
154
154 #
138
Official dollar balances
54
116
54
-
Private dollar balances
302
298
299 *
3
Marketable U.S. securities
616
562
545
71
Direct and wiscellaneous
investments
900
900
900
-
Total
2,164
2,030
1,952
212
of which there are avail-
e,according to British 1,811
1,697
1,610
2. Estimated Dollar Expenditures and Receipts of
British Empire, excluding Canada and Newfound-
land, from January 1 to Feb. 19, 1941
(in millions)
Dollar Expenditures
a. Payments of British Purchasing Missions in U. 5.
Jamary, as reported by British
$180
February 1 to 19 (British forecast
for Feb. on a pro-rata basis)
100
$280
b. Deficit with Canada required to be settled in
gold or dollars (British estimate made
early in Jamary; Feb. forecast on a
50
pro-rata basis)
C. Other dollar payments to U. 8. and other countries
(British estimate for 1941 on a pro-rata basis).
110
Total
$440
Dollar Receipts
a. Dollar Receipts for commodity exports and service
transactions (British estimate for 1941 on a
90
b. Newly-mined Australian and South African gold
pro-rata basis)-
70
(British estimate)
160
Net dollar expenditures,Jan. Total 1 to Feb. 19, 1941.....
$280
# This figure is based on the assumption that the U.K. sold 1 to no 19. gold out of
its monetary $142,000 of gold to U.S., January 31 through February this country. 18.
stock to countries other than U.S., Feb.
** Another of British private dollar balances in the January 29,
U.S. sold mall only shipment of $203,000 is reported in transit NoY. to F.R.D. on
This February is the 11 sun ($276 million) and outside the N.Y. F.R.D. on
($23 million).
February 27, 1941
Treasury Department, Division of Monetary Research
Regraded Uclassified
222
February 28, 1041
Dear Helson:
Your letter dated February 14th
is postmarked at 4 Pallies February 27th,
and was received by me on February 28th
at 9:04 Bellie
I have read the contents of your
letter and have brought it to the atten-
tion of Mr. Fehle, who is in charge of
foreign funds.
Yours sincerely,
(Signed) a Morganihan, Jr.
Honorable Nelson As Rockefeller,
Coordinator of Commercial and Cultural
Relations Between the American Republics,
State Department Building,
Washington, D. C.
Copy of this letter + incoming
to mr. Peble 3/4/41
Regraded Uclassified
223
February 28, 1941
Dear Nelson:
Your letter dated February 14th
is postmarked at 4 pomes February 27th,
at 9:04 &.m.
and was received by me on February 28th
I have read the contents of your
letter and have brought it to the atten-
tion of Mr. Fehle, who is in charge of
foreign funds.
Yours sincerely,
(Signed) e Mongrathau, Jr.
Monorable Nelson A. Rockefeller,
Coordinator of Commercial and Cultural
Relations Between the American Republics,
State Department Building,
Washington, D. C.
7y f t ile sent to the Pehle 3/4/41
for his information
Regraded Uclassified
224
COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS
STATE DEPARTMENT BUILDING
WASHINGTON, D. G
February 14, 1941.
My dear Mr. Secretary:
We understand that the extension of the Foreign Funds
Control Regulations to include Central and South America
is being considered. In case this 1s done, I am offering
certain suggestions which I believe may considerably alle-
viate the apprehensions which would be almost certain to
arise.
I feel it would be particularly helpful if the
central banks of the various countries, where they exist,
could be informed of the extension in confidence before
it takes place and be given assurances that would place
them in a more receptive and cooperative spirit.
It also seems important that any publicity or regu-
lations issued at the time of the extension be written 60
as to convince our neighboring countries that no confiscations
or unnecessary impairment of their normal activities need be
feared.
Undoubtedly these thoughts have already occurred to
you and your associates, but in view of the importance of
the matter to our relations with our neighbors, I have taken
the liberty of bringing them to your attention.
Sincerely, When 6. Rochipellor
NELSON A. ROCKEFELLER,
Coordinator
The Secretary of the Treasury
Washington, D. C.
Regraded Uclassified
225
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Mr. White
FROM
Mr. Southard
Subject: Trade Agreements Committee consideration of a flaxseed
concession to Argentina
1. At a meeting on Tuesday, February 25, 1941, the Trade Agreements
Committee again debated this question and finally agreed, only the
Tariff Commission majority dissenting, on a reduction of the tariff from
65 cents to 50 cents per bushel, without quotas. Mr. Wheeler says that
the AAA is prepared to defend this much of the concession (as long as
it is not made responsible for it), on the ground that it will help to
prevent the development of the domestic flaxseed into one more "surplue"
commodity. Any greater concession - even though hodged by a quota -
the Department of Agriculture is not prepared to support,
2. No one can be sure whether the Argentines will regard a reduction
of the duty to 50 cents as worth very much, Mr. Hawkins doubts that they
will and I personally share his doubts. Argentina is worried about its
future prospects for the export of cereals and meat. In the case of
neat, we are apparently going to be able to offer them an important
concession only on canned meat, In the case of cereals, flaxseed is
apparently the only possibility.
3. I realize that our domestic agricultural policy, the present
abnormal state of foreign trade, and the impossibility of forecasting
post-war trade conditions all combine to diminish one's enthusiasm for
a trade agreement as 8 major contribution to Argentine-American relations.
But I think it is worth noting that a few days ago the German Ambassador
to Argentina, on his return from Berlin, warned Argentina that her trade
relations with the United States have no future and that post-war Germany
would become the biggest buyer of Argentine goods. He specifically
asserted that Germany would buy Argentine corn, wheat and meat and that
we would not. He therefore urged the Argentines to maintain "an india-
pensable common respect" for the Germans in Argentina who, be said "have
contributed to the creation of industries and commerce and have given
their active life'to Argentina. This is the sort of appeal that makes
sense to the Argentines and its effectiveness is certainly going to be
increased. if it becomes once more apparent that we are prepared to make
only the most niggardly concession on agricultural products.
Regraded Uclassified
226
TREASURY DEPARTMENT
Country
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
While talking with the Secretary today on various problems, I reminded him that
some days ago I had mentioned the visit of the Spanish Ambassador and our plans to
begin the refining in the Assay Office at New York of the remaining Spanish silver
which had been held up by litigation.
I told the Secretary that in this complicated case there vas some difference of
opinion among his staff as to how much of & fee should be paid the Treasury's special
counsel, Mr. Stimson, and whether this should be deducted from the balance due the
Spanish Government on account of their silver sales to us. I recommended to the
Secretary that this matter was sufficiently important that it should come up to him,
through the usual departmental channels. in written form, recommending specifically
what amount of legal fees should be paid and also setting forth opinions as to the
proper source of the funds for such payment of legal fees. I thought that there
should be no contact with the Spanish Ambassador until a decision on these points is
reached within the Treasury. I felt this matter deserved especially careful review,
.onsidering the possibility of unfortunate reactions either if a fee might be paid
to a Cabinet member or to his firm in an amount which might by some be regarded as
on the generous side, or if the Spanish Government might find ground for a new com-
plaint against this Government, alleging that the latter was withholding from it
funds to pay Treasury counsel without a specific agreement providing therefor.
The Secretary agreed with the above suggestions.
Jall
227
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM Mr. Cochran
On February 24 Dr. Amos Tayler telephoned me from the Department of Commerce
that Consul Herace H. Smith from Shanghai had completed his tour of duty in the
Department of Commerce, fellowing a similar one in the Department of Agriculture,
and was now available for two weeks in the Treasury Department before returning to
his post.
Before receiving Mr. Smith in the Treasury that afternoon, I talked with
Messrs. Livesey and Bailey (Assistant Chief of the Division of Foreign Service Per-
sonnel) in the Department of State and with Mr. White in the Treasury. It vas the
understanding that the State Department would like to have Mr. Smith sit with us
here for a couple of weeks, to give us the benefit of such information as he might
have of use on China, and to obtain from us any suggestions which might improve his
reporting work from Shanghai, particularly in view of our contemplated Stabilization
arrangement with China. Mr. Smith accempanied me to Mr. White's office and has been
given a desk in Mr. White's division. It is suggested that he be presented to
Jader Secretary Bell before his fortnight teur of duty expires.
Regraded Uclassified
So. 5416
228
Tokyo, Japan
February 28, 1941
SUBJECT: JAPAN'S GOLD POSITION
CONFIDENTIAL
The Honorable
The Secretary of State
Washington
Sir:-
I have the honor to refer to Department's instruction No. 2098 dated
January 4, 1941, and to the memorandum relative to estimated monetary gold
stocks of Japan, attached thereto.
The Department's attention is invited to this Embassy's despatch No. 5168
dated November 22, 1940, subject: "Japan's Gold Position". The only additional
statistics now available are those covering gold shipments during 1940, which
show that these aggregated 2,239,485.278 troy ounces or 69,648 kilos valued at
Ten 328,953,425.48. Comparative figures for 1939 are 4,819,759.970 ounces,
149,894 kilos, and Ten 660,958,733.81. These data indicate a reduction of 53-1/2%
in volume and 50$ in value.
Our estimates of collection for January-October, 1940 may have been somewhat
low as there are rumors afloat to the effect that, although the Government has
not actually enforced the Gold Compulsory Purchase Law promulgated in October,
1940, & nationwide collection of gold articles is now being meticulously carried
out on the basis of the census of gold holdings taken during 1938, and that this
pseudo collection is actually a confiscation of holdings even though it is cloaked
in patriotic garb. However it is not believed that receipts of exportable gold
from this source during 1940 equalled the estimate for 1939. but they may have
reached something like 8,000 kilos.
Regraded Uclassified
229
- 2 -
By using the figures for total shipments during 1940 of 69,648 kilos and
an estimated 8,000 kilos for collections, the tabulation of stocks at the onl
of October. 1940 on page 2 of our despatch No. 5168 will be changed se follows
to show the position at the cal of 1940.
Kilos
Balance on hand Jan. 1, 1940
62,895
Estimated production 1940
77,000
Estimated gold collections, 1940
5,000
85,000
Total resources Dec. 31, 1940
147,895
Estimated domestic consumption 1940.. 3,600
Exports, 1940
69,648
73,248
Stocks on hand January 1, 1941
74,647
Equivalent to:
$86,000,000
Ten 366,360,000
It is believed that these figures will throw additional light on the
position as viewed by the writer of the memorandum attached to the Department's
instruction No. 2098.
Respectfully yours,
Joseph 0. Grew.
FSW/mp
563.4
Distribution:
Original and 2 copies to Department
0%
VII
De
chicopy
230
FOR THE PRESS
IMMEDIATE RALZASE
FEBRUARY 20, 1941
1931
STYML INDUSTRY REPORT BY JANO DUND
1730
At the request of the President, Mr. Gano Dunn has made
an exhaustive survey of the capacity of the steel industry to
determine whether it has adequate facilities to meat the combined
requirements of the United States and British defense programs and
expanded demands for civilian usea. Mr. Duon is senior consultant
to the Production Division of the Office of Production Management,
but in this instance made ais report direct to the President.
The study WUB requested by the President because of con-
flicting estimates of steol requirements during the next two years
and of the consequent ability of the industry to meet all demends
placed upon it. This question is of such importance to the defense
program and the national aconomy as B whole that the President re-
quested Mr. Dunn, as a qualified authority capable of presenting an
impertial, factual study, to make a special report on the subject.
The investigation on which it was based was carried out
over B. period of six weeks. During the course of his inquiry Mr.
Dunn consulted with e great many oconomists and experts, both in
government and industry, and roprosentatives of organized labor in
the steel industry. He has acknowledged the valuable assistance of
many of these persons.
Mr. Dunn has accepted the ostimates of Melvin de Chazeau,
economist attached to the Materials Branch, Office of Production
Management, on probable requiroments of steel for civilien uses
during 1941 and 1942, These estimatos are based on the assumption
of B. national income of 80 billion dollars in 1941, 90 billion in
1942, and B. greatly increased demand for steel for civilian uses R$
8 result of the rise in national incomo.
Howaver, the Dunn report includes information on actual
capacity for production of steel ingota which has nover been known
before and which demonstrates that that capacity is considerably
higher than was generally realized,
The report concludes that if certain measures are under-
taken there will be an excess of ingot-producing capacity over total
requirements of 10,100,000 tony during the prosent year and
2,100,000 in 1942, These measures that must be taken to attain
capacity production include the olimination of potential bottle-
nocks in output of pig iron and coke, an avon distribution of orders
throughout the industry, and a shortening of the period of time
during which stoel-making fecilities are normally closed down for
ropair work,
Mr. Dunn has arrived at a now measure of steel capacity
which he has called "roliable capacity." The difference between
"reliable capécity" and "roported capacity" is that "reliable
capacity" takes into secount cortain existing facilities for the
production of steel castings which are not included in reported
statistics of the industry and that the poriod of time normally non-
sumed for repairing facilities can be reduced et B. nominal increase
in cost to the stud companies. This increased expenditure in the
interests of time-saving 1a justified by the smergency nature of
demands on the industry,
Regraded Uclassified
231
The report vatimated that, on the basis of existing resilities
at the beginning of the year, E shortage of 1,230,314 tons, or 2,3%,
in capacity for production of pig iron would result If the industry were
to operate at reliable capacity throughout the year, In 1942 e potential
shortage in the production of pig iron of 544,481 tons is anticipated on
the basic of existing facilities if the industry were to operate at
capacity during that year.
Coke shortage during 1941, on the sare banks, 1a estimated at
5,360,315 tono, or 12%, and during 1942 at 2,670,806 cons. Total cost of
removing these deficits by construction of additional facilities would
be $59,545,975 in 1941 and $29,462,964 in 1947. Some of these facilities
820 already under construction.
Mr. Dunn has rocommanded that this increase in facilities be
undertaken and that If it does not occur normally that it be pro-rated
over the industry by the Director General of the Office of Froduction
Management. His recommendation slon. these lines is based on the con-
viction that the normal relationship between pig iron and scrap going into
Inpot stool should be maintained and that Adequate cupplies of coke should
be available both for steel making and for home and commercial heating
purposes. Pending the installation of now fucilities, however, any short-
agos that might arise from three directions could be ant (1) by increasing
the ratio of scrap to pig iron golup Into ingots and (2) by diverting coke
from use in home and commercial heating units to the steol industry. If
such expedients are found necessary it is agreed that they should be made
temporary by the creation of new pig and ooke facilities to maintain normal
balance and practices in the industry and to minimize any disturbance of
civilian consumption of coke,
The Dunn report strongly emphasizes the nucessity of oven
distribution of orders throughout the industry If maximum overall pro-
duction is to be reached and maintained. In other words, one producer
must not be allowed to acquire a large backlor, of orders for delivery
well into the future while another producer is operating at leas-than-
miximum capacity, This might involve a considerable shifting of orders
and require users of steel to deal with different sources of supply than
they have in the peat. Mr. Dunn recommended that unless such di stri-
button takes place by voluntary action of the industry that the Director
of the Division of Priorities saume responsibility for the task,
lisliable capacity for stool ingota at the beginning of this
year, with emple allowances for periodic shut-down for repairs, is reported
in the Durus study 10 57,576,099 tons por year. This is roughly
3,500,000 tons higher than proviously supposed, Completion of additional
91,124,718 tons by the end of the your. It should be clearly understood
facilities. now under pay, will raiso reliable annual capacity to
that those figures on capacity represent the maximum rate of operations
that could be continued over An extended poriod of time. Mr. Dunn has
concluded that the industry could, under proper condi tions, operato indo-
finitely at 5. rato of slightly more than 102% of reported capacity, which
heretofore has boon the normal missure of stuol onpacity.
Ingot production In January was at the highest point in the
history of the country, amounting to 6,943,084 tons. Howover, the Dunn
97.1% of "reported capacity" it is only 94.5% of "reliable empacity".
report make the intoresting observation that while this figure represents
year, January production would represent only 91% of that espacity.
Than compared with roliable capacity that will crist at the and of this
Regraded Uclassified
232
-
Direct defense requirements for steel in 1941 are
estimated in the Dunn report at 5,100,000 tone. There La not
much controversy over this figure. Exports of steel, mostly
to England and Canada, are placed at 13,400,000 tons. Civilian
requirements, based on a national income of eighty billion dol-
lars, are estimated at £1,000,000 tone, making a total of
77,500,000 tons or 10,100,000 less than the reliable capacity
of the industry to produce ingota. Naturally, if the national
income is less than eighty billion dollars, civilian require-
ments will be less and the safety margin correspondingly in-
creased. For instance, 11 the national income in 1941 reaches
only seventy-seven billion dollars, surplus capacity is es-
timated at 14,100,000 tons.
Surplus capacity in 1942, based on 0 national income
of ninety billion dollars, is estimated at 2,100,000 tens.
Again, if the national income in 1942 reaches but 87 billion
dollars, surplus capacity would be 6,100,000 tons.
"hile exact figures in every category cannot be col-
lected, the Durin report finds that capacity for rolled and other
stoel products is generally well in excess of ingot capacity,
ranging from 50% in certain sectors to an average of 15%. The
conclusion is that if orders MY properly distributed, total
requirements for fabricated producto can be net without unusual
delay. This should not be taken to mean that at no time during
the course of the dofense program will any user of any steel
product face difficulty in obtaining prompt deliveries. During
a period of tremandous industrial expansion, with requirements
for specific products undergoing froquent changes, the dovelop-
ment of temporary choke points in certain spota from time to
time appears to be inevitable.
However, the statistics unearthed by Mr. Dunn's
study and the conclusions drawn from them, present an encourag-
ing picture to the directors of tois nation's defense program,
to good neighbor nations, and to usure of steel and stucl products
for civilian consumption.
In viow of the importance of stool capacity and the
necessity of having an up-to-date picture of the situation,
the President has asked Mr. Dunn to make this survey and report
the starting point of a continuing study. Kr. Dunn has accepted
this assignment and will revise his statistics and conclusions
periodically, reporting directly to the President on his find-
ings.
Regraded Uclassified
233
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON
February 28, 1941.
MEMORANDUM FOR SECRETARY MORGENTHAU:
Re: Malcolm Wheeler-Nicholson.
Malcolm Wheeler-Nicholson is a former officer of Cavalry,
Regular Army. He has had some success as a. short story writer,
and in addition to his recent article in Harper's criticizing the
Army, he has written a book, "Battleshield of the Republic", along
the same line, which has recently been published. Some time ago
he submitted a rather lengthy document to the President in criticism
of Army organization, administration and personnel system.
His military record is highly discreditable. In 1920 he
was placed provisionally in Class B (below minimum standard required
for commission in the Army), but was restored to Class A by order
of the President. In 1922 he was again placed provisionally in
Class B, and in the same year he was tried by general court-martial
and found guilty of disorderly and discreditable conduct. He was
finally placed in Class B on September 25, 1922, and the action of
the board was approved by the President.
He was wholly discharged from the service on December 26,
1922, it having been determined that his inefficiency was due to his
own neglect and misconduct.
The records in The Adjutant General's Department indicate
that his difficulties were the result of drinking, bad debts and
false official statements.
He is a good writer and has the faculty of dramatizing dry
facts. His material is readable and some of his criticisms have been
justified, although the weaknesses he emphasizes are thoroughly
appreciated by the War Department.
W. B. S.
Regraded Uclassified
234
For Nice -
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Regraded Uclas
DATE February 28, 1941
TO
Secretary Morgenthan
CONFIDENTIAL
FROM Mr. Cochram
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£53,000
Purchased from commercial concerns & 8,000
Open market sterling opened at 4.03-1/2 and closed at 4.03-3/4. Transactions
of the reporting banks were as follows:
Sold to commercial concerns
£2,000
Purchased from commercial concerns £8,000
In New York the closing rates for the foreign currencies listed below were
as follows:
Canadian dollar
14-1/4% discount
Swies franc (commercial)
.2323
Swedish krona
.2385
Reichamark
.4005
Lira
.0505
Brasilian milrois (free)
.0505
Mexican peso
.2066
Cuban peso
6-27/32% discount
On February 26th the Ministry of Finance in Argentina announced that pending
the organization of corporations to export new commodities, the dollar exchange
resulting from such exports to be used to pay for imports into Argentina (Decree of
November 29, 1940). all dollar exchange derived from exports previously dealt in
in the free market wast be surrendered to the Argentine Control at 4.2182 pases
to the dollar ($.2370). The announcement also stated that all such dollar exchange
surrendered would be auctioned to the highest biddersin order to pay for imports
other than those for which official exchange is provided. These new regulations
tend to restrict the scope of the free market which will now be reduced to financial
transactions, capital repayments and similar operations. As a reflection of the
reduced utility of the free market the free peso declined from .2365 at yesterday's
opening to .2345 at today's close.
In Shanghai, the U. 8. equivalent of the yuan was 5-5/84. up 1/32#. Sterling
was 3.93-1/2, up 2-1/20. In Hong Kong, both the H.E. dollar and sterling were -
changed in terms of United States currency at 24-5/8# and 3.94, respectively.
235
- 2 -
We cold the following amounts of gold to be added to the earmarked accounts
of the banks indicated:
$ 7,500,000 to the Bank of Java
2,550,000 to the National Bank of Ingoslavia
$10,000,000 Total
The Federal Reserve Bank of New York reported that the Bank of Mexico shipped
to it $51,000 in gold, for sale to the Assay Office.
In London the price of spot silver vas off 1/16d at 23-3/8d and forward vas
unchanged 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
34-3/44. The Treasury's purchase price for foreign silver vas also unchanged at 35#.
There were no purchases of silver under the Silver Purchase Act.
During the month of February our purchases of silver were considerably reduced
from the total of 9,149,600 ounces during January. During the current month ve
purchased 3,661,871 ounces, the sources of which were as follows:
Type of Silver
Ounces
New Production
1. From various countries
2,556,871
2. From Canada under agreement
500,000
Inventory
605,000
Total
3,661,871
Jomp
CONFIDENTIAL
Regraded Uclassified
236
February 28, 1941
MEMORANDUM FOR THE SECRETARY:
Attached is & summary report of the projects
which have been worked on in the Division of Tax
Research during February, 1941.
RB
Attachment
237
Monthly Report on Projects in the
Division of Tax Research
February, 1941
I. New projects
1. Tax revision, 1941
A series of brief memoranda concerning certain
possible revisions of the individual surtax,
estate and gift taxes, liquor, wine and beer
taxes, soft drinks tax, tax on passenger
automobiles and motorcycles, check tax, admissions
tax and stock transfer taxes were completed.
(Mr. Ecker-Racz and staff)*
2. Tax-exempt securities
(a) A brief statement was prepared for the use
of Mr. Doughton on H.R. 2959 relating to
tax-exempt securities. (Mr. Ecker-Racz)
(b) A memorandum was prepared relating to tax-
exempt securities of Great Britain and
Canada indicating the issues, tax status,
and amounts outstanding. A memorandum
containing similar data for other countries
1s in process. (Mr. Ecker-Racz and
Mr. Mannen)
Persons listed as working on the different projects do
not include those who acted largely or exclusively in
a consulting or reviewing capacity. In general, the
person, if any, actively in charge of the project is
listed first.
238
- 2 -
(c) A table showing the treatment of interest
from governmental obligations under State
income taxes 1s in process. (Miss Wells)
(d) A memorandum relating to the taxation of
Federal securities under State and local
intangible property taxes was prepared.
(Mr. Ecker-Racz)
(e) A digest of legislative proposals pertaining
to the elimination of tax-exemption of
government securities is in process.
(Mr. Mannen)
3. Prepayment of income taxes
A memorandum is in process analyzing the problems
involved in a system of prepayment of income
taxes and outlining possible plans for prepayment.
(Mr. Atlas)
4. Taxation of banks and insurance companies
A memorandum analyzing statistical information
relating to the profits and income tax payments
of banks has been prepared. A similar memo-
randum on insurance companies is in process.
(Mr. Mills)
5. Taxation and the cost of national defense program
A memorandum on the effect of State and local
taxes on the cost of the national defense program
was prepared. (Mr. Ecker-Racz)
239
- 3 -
6. Social security
An analysis of the Social Security Board's
legislative program for 1941 is in preparation.
(Mr. Ecker-Racz)
7. Income tax
(a) Examples comparing present and proposed
individual income taxes on net incomes of
selected sizes under certain proposed
surtax rate schedules were prepared.
(Mr. Zorach)
(b) An analysis of the personal exemption and
credit for dependents based on data supplied
by the Income Tax Study is in process.
(Mr. Zorach)
8. Excess profits tax
An analysis of the relief provisions of the
excess profits tax law 18 in process. Examples
were prepared of (1) types of situations
affected by the relief provisions and (2)
companies in the munitions business which,
because their last fiscal year ended before
December 31, 1939, were not subject to the excess
profits tax for 1940. (Mr. Campbell)
240
- 4 -
9. Excise taxes
A comparison of the British and United States
excise taxes on selected commodities showing
British rates, Federal rates and highest and
average State rates was prepared. (Mr. Atlas)
10. Tax suggestions
A summary of tax suggestions received in the
Division from October 1, 1940 to February 20,
1941 were classified into those worthy of
study or adoption and those which are apparently
not useful. (Mr. Zorach and Mr. Mills)
11. Intergovernmental fiscal relations
Memoranda have been prepared showing (a) what
the Division of Tax Research has done in the
field of Federal, State and local fiscal
relations, and (b) a possible program for
further research on this subject. (Mr. Ecker-
Racz)
II. Continuing projects
1. Income tax collected at source
A memorandum analyzing the problems involved
in the collection of the individual income
tax at source 18 in process. (Mr. Atlas)
241
- 5 -
2. Excess profits tax
An analysis of special treatment afforded
financial, personal service and public
utility companies, the professions and
agriculture under the World War and present
excess profits taxes of the United States,
Great Britain and Canada, is in preparation.
(Mr. Mills)
3. Federal excise taxes
A memorandum analyzing possible additional
sources of excise tax revenue is in process.
(Mr. Campbell)
4. Federal sales taxes
A memorandum on the value added and other
possible forms of Federal sales taxes 16 in
preparation. (Mr. Farioletti and Mr. Copeland)
5. Foreign taxes
(a) Memoranda on the latest changes in
Canadian and Australian taxes are in
preparation. (Mr. Atlas and Miss Hughes)
(b) In collaboration with the Division of
Monetary Research, a study of the Haitian
fiscal system is in process. (Miss Wells)
Regraded Uclassified
242
- 6 -
6. Amount of surtax net income by brackets
A table showing for 1938 the amount of surtax
net income falling within each surtax bracket
of the surtax rate schedule 1s in process.
(Miss Hughes)
7. Treasury Bulletin
An article for possible publication in the
Treasury Bulletin is in process comparing tax-
payers' reported state of residence in 1936
with the states in which they filed their
income tax returns. (Mise Coyle and Mr. Zorach)
8. Undistributed profits and income taxation
Reports on the following subjects have not
been actively prosecuted during the month:
(1) Analysis in the light of issues raised
by the undistributed profits tax of the
statistics made available from income
tax returns and other sources.
(Mr. Atlas and Mr. Copeland)
(2) Analysis of the proposal to allow corpo-
rations with five or less shareholders
to be treated for tax purposes as
partnerships. (Mr. Mills)
243
7
III. Routine Assignments
1. Technical review of forthcoming Treasury
publications
(a) The work of the Philadelphia project
analyzing income, excess profits and
estate tax returns is in final stages
of completion. Among the portions of
the study reviewed were (1) volume 3
of the Income Tax Study, 1936, (2)
procedures for the analysis of dividends
and (3) table outlines for the excess
profits tax study. (Miss Coyle)
(b) Four press releases for the complete
report "Statistics of Income for 1938,
Part 2," were reviewed. (Miss Hughes)
2. Digests and comments on other studies
The following studies are pending analysis:
(a) A memorandum from the Price Stabilization
Division of the Advisory Commission of
the Council of National Defense entitled
"The Effect of the Tax Structure on
Saving and Consumption." (Mr. Farioletti)
244
- 8 -
(b) The report "Concentration and
Composition of Individual Incomes,
1918-1937" prepared by the Temporary
National Economic Committee. (Miss Coyle)
(e) The report "Million Dollar Incomes"
by L. H. Parker. (Miss Coyle)
(d) The report "Study of the Delaware State
Income Tax Yields" by Walter C. Wilson.
(Miss Coyle)
(e) The article "British War Taxes and
Corporate Earnings" in the National City
Bank Bulletin for December, 1940.
(Mr. Copeland)
3. Statistics
(a) In connection with the supervision of
the statistical work of the Bureau of
Internal Revenue, various proposals for
statistical compilations were examined
including suggested tabulations from the
corporation income and excess profits
tax returns. (Mr. Blough, Mr. Shere
and Miss Coyle)
245
- 9 -
(b) Administrative reports and statistics
of the Bureau of Internal Revenue are
graphed and commented upon for Mr.
Sullivan's information. (Mr. Campbell)
(e) Data relating to different taxes,
digests of tax items, and congressional
activity on tax items of interest to
the Division are currently prepared.
(Staff members)
4. Correspondence
The Division handled correspondence per-
taining to tax matters. (Staff members)
246
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
February 28th, 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.
247
Telegram received from London
dated February 26th.
Havel.
At 21/25 "Exaoor" escorting castern
coast convey off Norfolk coast was torpedoed and
sunk by E-boat and British Minor (CA) 1100 tons in
the same convoy was also torpedoed and at 2.30/26.
8.
"Dainty" sunk by aircraft off Tobruk
p.m. 24th 20 casualties.
5.
In Mediterranean, Kasteloritzo Island
occupied dawn 25th. Enemy air activity caused withdrawal
of Ladybird from harbour and reported permanent garrison
might have to be landed by night.
de
At (words undecypherable) on February 25th
coastal aircraft unsuccessfully attacked four merchant
vessels and escort vessels off Sogne Fiord also without
seeing results (words omitted) bombed two E-boats off
Stadlandet and attacked convoy of merchant vessels off
Optend but scored no hits.
B.
Night of 25/26th small force of aircraft
bombed doeks at Boulogne.
6.
Three merchant vessels bombed or torpodeed
western approach lest few days have arrived safely in
harbour.
7.
R.A.F. night of 24th/25th
Attack on Brest. On account of searchlights
and flares detailed results could not be observed but
over 50 bombers dropped bombs in target area. The
aircreft reported missing has returned safely.
8./
Regraded Uclassified
248
Daylishs 20th One Blenheim attacked
submarine assembly and repair station at Flushing
burste being observed on target. In afternoon six
medium bombers Gecorted by three squadrone of fighters
with a further five aquadrons in support unsuccessfully
bombed enemy shipping off Dunkirk. In course of this
operation our fighters destroyed 3 ME 109's and a
fourth probable. One of our fighters is missing.
9.
Night of 25th/26th
114 bombere despatched. Mein targets:
Dusseldorf industrial area ao aerodromes 17 and
Boulogne 8. One aircraft is missing.
10.
Lybia. Night of 24th/25th
Nine Wellingtons attacked Tripoli, hits
being made on Customs wharf and shipping. Numerous
fires and a violent explosion were caused. One
aircraft 1s missing.
11.
German Air Force. Daylight 25th Enemy
activity mainly confined to ses reconnaissances and
patrols.
12.
Night of 25th/26th
About 100 aircraft operated, activity being
widespread over east Anglie and Lincolnshire. One enemy
aircraft was shot down by a night fighter.
15.
Aircraft casualties in operations over and
from British Isles. German: Fighters - three destroyed,
one probable, Bombers - one destroyed, totals four
destroyed, one probable. British One fighter (bomber
reported missing yesterday has returned safely).
14.
Home Security Night of 25th/26th. Damage
Regraded done Uclassified
249
done negligible except at Hull area where many
fires were started and at Harwich where gas
and water mains were damaged. Very few casualties.
All fires have been extinguished.
Regraded Uclassified
250
BRITISH EMBASSY,
WASHINGTON.
Personal and
Secret
28th February, 1941
Dear Mr. Secretary,
I enclose herein for your personal
and secret information copies of the latest
reports received from London on the military
situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Halifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
251
REPORT RECEIVED FROM LONDON
DATED EBRUARY SATE, 194
HAVAL
MANISTER ocean boarding Vessel torpedoed 500
miles west of Butt of Lewis a.m./23rd.
Three M/G trawlers whilst sweeping off Cardiff
have been damaged by mine explosions - one of these only
elightly damaged.
2.
CUSE while sweeping at Herea Tobruk was sunk by
coast ......
3.
No further news received of pocket battleship sighted
by GLASGOW search continues.
4.
One of the chips bombed on the 22nd by Fokke-Mulf
a/a has been found and taken in tow.
5.
Sues Canal still closed and one mine reported detonated.
6.
Mine destroying home waters continues satisfactorily.
Mines being detonated regularly off manoreus ports.
7.
Four enemy N/O bombed Benghasi a.m./23rd. Six bombe
on the water front and some near; little damage - no
casualties.
:
SHROPSHIRE bombarded Modun hear Brave S.M. 22nd con-
siderable damage caused.
9.
HIPPER class cruiser still at Brest 23rd M/O attacked
this ship night of the 23rd/24th, frustrated by weather.
10. Vilitary. Itelian Someliland
To 8 p.m. 22nd. Our forces have taken Jumbo and
exptured 28 Italian officers 85 other ranks and much material
including arms and ammition. A pontoon bridge has been
completed at Yonte.
Regraded Uclassified
252
11. Royal Air Force Night of 93rd/24th.
Seventy-ore aircraft were sent to dooks at Calais,
Boulogne and Den Holder. Remrous fires were started
at Boulogne but elsewhere results were unobserved.
Two aircraft sere missing.
12. Eritren. on Slst South African Hurricanes des-
troyed six aircraft and six hangare at Hassawa aero-
drome. one Hurricans was loat.
13. Greece on 22nd Blenheimo shot down three enemy
aiscreft.
14. German Air Force During daylight 23rd enemy aircraft
carried out continuous patrols of the Straite and made
one sweep over East Kent Coast.
15. Night of 23rd/24th. A small wcale bombing attack
was made on the Humber area and there was slight activity
over Eastern and South Mastern England and the London area.
16. Aircraft casualties in operations over and from
the British Isles. Germani Hil British - two bombers
missing.
Regraded Uclassified
253
TELEGRAM RECEIVED PROM LONDON
DATED PREDUARY 25th,1941
NAVAL
MANISTRE, having been terpedoed February
24th for the second time presumed sunk. No trace
of her or survivors found yet.
:
Terror sank off Derna Feb. 24th, having
been near missed in two bombing attacks February
22nd and February 23rd. No casualties. Enemy
does not know of this loss.
3.
Situation Bengasi being made difficult for
ships owing to enemy air activity being little
hampered by anti-aircraft and fighters, however
5 or 6 enemy aircraft have been shot down includ-
ing one torpedo aircraft by Peony's enti-aircraft
gun.
4.
Three ships reported torpedoed in outward
convey Some February 24th in N.W. approaches.
Salvage of all three in possible.
5,
Bastbound convey in Streits of Dever was
shelled before dawn February 24th by enemy shore
batteries. No damage reported,
6.
A.M. Feb. 19th. 9 aircraft attacked anti-
stycraft cruiser Voyager and name Corvettes off
Bengasi. No damage caused though there were near
misses,
70
R.A.F. Night of Feb.24th/25th. 63 heavy
and 7 medium bombers attacked Hipper class cruiser
at Breat. All returned safely, except one heavy
bomber.
8,
Preliminary report of reconneissance Bello
February 25th, shows ship still there but photo
Regraded Uclassified
254
photographs not good enough to show if damage caused,
9, ETHIOPIA.
On February 23rd, 7 South African Air Force
Burricanes machine-gunned Makale aerodrome and dos-
troyed 8 enemy aircraft on the ground and one in the
air. One Burricane is missing.
10. Our medium bombers also considerably damaged
aerodrome buildings at Addis Ababa.
11.
GERMAN AIR FORCE.
Yesterday limited also entirely to patrols
in Straits and night of February 24/25, scattered
raide by 28 aircraft in East Anglis and mining by
19 sircraft off Liverpool.
18. Aircraft casualties in operations over and
from British Isles. Germens, nil. British, 1
bomber missing.
Regraded Uclassified
255
RESTRICTED
G-2/2657-220
M.I.D., W.D.
No. 327
February 28, 1941
12:00 M
SITUATION REPORT
I.
Western Theatre of War.
Air: German. The High Command claimed long range
bombers had destroyed 13 ships and damaged 6 others.
British. Bad weather left both British and
German planes grounded during the night.
II. Greek Theatre of War.
Ground: No change.
Air: Nothing to report.
III. Mediterranean and African Theatres of War.
Air: The Italian High Command reported both Italian
and German planes bombed and machine gunned British armored forces
in North Africa.
Ground: Libya. A reconnaissance unit of armored
fighting vehicles, believed to be German, was encountered west
of El Agheila and driven back by British mechanized forces.
Italian Somaliland. Italian forces are
reported demoralized. Many prisoners and much war materiel have
been captured.
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
DIARY
Book 378
March 1-4, 1941
- & -
Book Page
Allison Engineering Company
See War Conditions: Airplanes (Engines)
Argentina
See Latin America
- B -
Bulgaria
See War Conditions: Foreign Funds Control
Business Conditions
Hass memorandum on situation for week ending
March 1, 1941
378 207
- C -
Canada
See War Conditions
Clark, H. V. (San Gabriel Concrete Tile Company)
See War Conditions: Price Control (Sand and Gravel)
Coast Guard
For discussion of cutters, see War Conditions:
Lend-Lease Legislation
- 7 -
Federal Reserve System
Chicago bank - new president of discussed by Eccles
and HMJr - 3/3/41
56
a) Jones and Walter Cummings trying to
dominate situation
b) Young's re-election discussed by HMJr and
Eccles - 3/10/41: See Book 380, page 235
Financing. Government
3/15/41:
Federal Reserve Bank of New York reports on
market's reaction to refunding - 3/3/41
180
- G -
Germany
See War Conditions
Gravel and Sand
See War Conditions: Price Control
- I -
Italy
See War Conditions: Foreign Funds Control
Regraded Uclassified
- L -
Book Page
Latin America
Argentina:
Current situation outlined in White memorandum -
3/1/41
378
14
Liaieon Committee (President's)
See War Conditions: Purchasing Mission
- M -
Magill, Roswell
"Financing Defense" to appear in Investor America
March 1941
8
- S -
San Gabriel Concrete Tile Company
See War Conditions: Price Control (Sand and Gravel)
Sand and Gravel
See War Conditions: Price Control
Stewart, Walter
Tells Upham HMJr "1s only man in Washington for
whom he would come down as adviser" - 3/4/41
366
Switzerland
See War Conditions: Foreign Funds Control
- T -
Taxation
War-time increases in taxation in Great Britain -
3/4/41
273
- U -
Underwood-Elliott Fisher Company
Hartford plant strike: Foley memorandum - 3/3/41
193
Unemployment Relief
Work Projects Administration report for week ending
February 19, 1941
201
United Kingdom
See War Conditions: Military Planning: United Kingdom
- V -
Vatican
See War Conditions: Foreign Funds Control
Regraded Uclassified
Y
Book
Page
War Conditions
Airplanes:
Ingines:
Allison Engineering Company: Shipments -
3/3/41
378
186,187
Canada:
See also Var Conditions: Purchasing Mission:
Lend-Lease Legislation
Exchange problem discussed by Phillips and
Pinsent; Clark and Wrong (for Canada); Stowart,
Cochran, White, and Coe - 3/3/41
104
$350 million in United States listed marketable
securities registered with Canadian Government;
Clark and Cochran discuss possible vesting -
3/4/41
258
War effort and budgetary position discussed by
HMJr, Cochran, White, and Clark - 3/4/41
315,323
Exchange market resume' - 3/1/41, etc,
6,205,364
Export Control:
HMJr will refuse to handle; "will handle freezing
and nothing else" - 3/3/41
51
Exports of petroleum products, scrap iron, and
scrap steel from United States to Japan,
U.S.S.R., Spain, and Great Britain, week
ending March 1, 1941
188
Foreign Funds Control:
Freezing of all Europe, with the exception of
Yugoslavia, Greece, Turkey, U.S.S.R., Spain
and Portugal, discussed at 9:30 meeting -
3/3/41
42
a) Bulgaria's freezing requested by State
Department but HMJr wishes to wait for
the larger order
42,102
1) Hull states at prese conference
approval of freezing order against
Bulgaria - 3/3/41
116
2) Conference; present: HMJr, Graves,
Kuhn, and Schwarz
117
3) State Department informs Treasury
time has not arrived to block assets
in United States - 3/4/41
256
b) Vatican not included.
101
Italian and Swiss banks in New York: Foley
memorandum indicating procedure for handling -
3/3/41
178
Executive Order examined word by word by Foley,
Pehle, Bernatein, Shea (Justice), and Acheson
(State) - 3/4/41
250
Movements of United States currency between
United States and foreign countries: Federal
Reserve Board report - 3/4/41
358
Germany:
Cooperatives' property transferred to German Labor
Front - 3/1/41
22
Gold:
Belgian gold located in Canada:
See War Conditions: Purchasing Mission
- W - (Continued)
Book Page
Var Conditions (Continued)
Lend-Lease Legislation:
For "resignation" (end of "cash-on-tho-barrelhead
era") of HMJr as FDR's representative with
foreign purchasing missions, 000 War Conditions:
Purchasing Mission
British aid until Lend-Lease bill passes: Phillips'
talk with HMJr discussed by HMJr, Cairns,
Stewart, White, and Cochran - 3/3/41
378
56
a) HMJr thoroughly undone with British and
"he is telling them, not asking them"
72
b) Securities and Exchange Commission may be
asked to form corporation to buy some of
the direct investments, etc., and advance
50% of purchase price,
80
1) Liquidation of Assets: Securities
and Exchange Commission and Treasury
discuss ways and means - 3/4/41
275
c) Foley memorandum on organization by group
of American bankers of corporation to
purchase American securities now held by
Government of United Kingdom and subjects
thereof
85
Conference: present: HMJr, Stewart, White, Cochran,
Phillips, Wrong, Pinsent, and Clark - 3/3/41
104
Conference: present: HMJr, Foley, Cox, Lockwood,
Hackworth, Harold Smith, and McCloy - 3/3/41
120
Executive Order: Hull's memorandum to FDR
expressing his opinion concerning - 3/3/41
144
Memorandum for Hopkins: "Terms of Disposition of
Defense Articles to Britain" - 3/3/41
224
Memorandum for Hopkins from Cox on need for out-
stripping Axis powers and relationship between
appropriations for expansion of productive
capacity and appropriations to buy finished
defense articles - 3/3/41
231
H.R. 1776 procedure with respect to defense articles
on hand and on order
332
a) HMJr, Foley, and Cox discuse.
330
Byrd amendment (substitute for) discussed by Hull,
HMJr. Stimson, Forrestal, McCloy, Harold Smith,
Barkley, Byrnes, George, and Marshall - 3/4/41:
See Book 379, page 16
Coast Guard:
Cutters (proposed cruising):
Characteristics of - memorandum to Navy -
3/3/41
195
One additional in mid-Atlantic to report
meteorological conditions requested by
Great Britain - HMJr's memorandum to State
Department - 3/5/41: Book 379, page 86
Alternative vessels suggested to FDR by HMJr -
3/7/41: Book 379. page 306
Hopkins-HMJr conversation - 3/11/41: Book 380, pages 449 and 452
Purvis asks for some 20 "knotters": Book 383, page 74
Regraded Uclassified
- Y - (Continued)
Book Page
Var Conditions (Continued)
Limison Committee (President's):
For HMJr's resignation from Committee, see Mar
Conditions: Purchasing Mission
Military Planning:
Reports from London transmitted by Halifax -
3/1/41, etc.
378
24,239,367,369
War Department bulletin: "An R.A.V. Aerial
Gunnery and Bombing School" - 3/4/41
372
Price Control:
Sand and Gravel: Henderson-HMJr answer to Clark
(San Gabriel Concrete Tile Company) - 3/4/41
343
Office of Price Administration: Hamm memorandum -
3/4/41
353
Purchasing Mission:
See also War Conditions: Canada; Lend-Lease Legislation
British Financial Position
"Subrogated" Securities: History of during last
var (White memorandum) - 3/3/41
173
Cochran-Livesey memorandum to Peacock concerning
British proposal for handling of direct
investments in United States - 3/4/41
247
American securities completely liquidated by
British Treasury as of March 3, 1941
255
Belgian gold located in Canada: British may
borrow $100 million, Phillips tells HMJr -
3/3/41
259,260
Liquidation of Assets: Securities and Exchange
Commission and Treasury discuss ways and
means - 3/4/41
275
Federal Reserve Bank of New York statement showing
dollar disbursements for week ending
February 19, 1941 - 3/1/41
2
"Resignation" (end of "cash-on-the-barrelhead era")
of HMJr as FDR's representative with foreign
missions discussed with Young and Kuhn; resume'
of work already done given them by HMJr - 3/3/41
34
a) FDR's letter of instructions 12/6/39
40
b) Conference; present: HMJr, Kuhn, Gaston,
Foley, and Cox - 3/4/41
276,292
1) Draft of letter read
2) Gaston's "re-write",
311
a) As sent to FDR: Book 379, page 90
1) Copies sent to Knox, Stimson,
and Hopkins - 3/10/41: Book 380,
pages 286, 287, 290, and 292
See also letter to FDR 3/12/41: Book 381, page 27
a) All foreign countries outside Lend-Lease
area to be advised to submit needs to
Secretary of State
1) Poland, Iceland, Greenland,
Netherlands, Greece, China,
British Empire, and Norway
within Lend-Lease area -
3/20/41: Book 384, page 44
2) Welles' answer - 3/29/41:
Book 384, page 331
- V - (Continued)
Book Page
War Conditions (Continued)
United Kingdom:
War-time increases in taxation in Great Britain -
3/4/41
378 273
Work Projects Administration
See Unemployment Relief
March 1, 1941
At six o'clock this afternoon, Cordell Hull called
me and said he had arranged a meeting in his Department
for 11:00 Sunday. Hull said he had arranged for Barkley
and Jimmy Byrnes and Senator George to come to his place,
and he wanted to know if I thought it was all right
inasmuch as he still says he doesn't know anything about
this particular amendment although it has been explained
to him carefully.
It was suggested that Colonel Stimson take the
leadership and explain. He said he would most likely
have his experts and he thought that I would want to bring
Oscar Cox. I said, "No, I will bring Oscar Cox's boss,
Ed Foley."
There seems to be a lot of stuff going on behind
the scenes between Hopkins and Hull, who evidently don't
want Foley, but I do, and Foley's done a swell job on this,
and I am not going to let him be sidetracked by either Hull
or Hopkins.
Then Hull said would we check with the Bureau of the
Budget because it seems that Jimmy Byrnes has been talking
to somebody in the Budget. I said that we would be there
at 11:00. I then called up Foley and told him of my conver-
sation. He said that as far as he was concerned, he would
not feel hurt if I took Oscar Cox. I said that it wasn't
a question of feelings but since he had done a perfectly
swell job, there was no reason to take Cox. Furthermore,
I wasn't going to let Hopkins or Hull tell me how to run
my shop. When I told Foley that I wanted him by my side,
he said that that is where he wanted to be.
2
FOR Miss Chaungey
Earuh 1, 1941
CONFIDENTIAL
Bear Mr. Knoker
Permit - to acknowledge, on behalf of Secretary
Norgeathan, the receipt of your letter of February 27,
enclosing your compilation for the week ended February 19.
1941, showing dollar disbursements out of the British
Expire and Fresch accounts at the Federal sad the -
by which these expenditures were financed.
Faithfully.
1. Merlo Cochran
Technical Assistant to the Secretary
b. F. Knobs, Dequire,
Vice-Prosident,
Federal Recerve Bank of New York,
Box Yerk, Now York.
HMC:dm:3.1.41
Regraded Uclassified
3
For Miss Chauncey
Rotod
M. Cochras
FEDERAL RESERVE BANK
OF NEW YORK
February 27, 1941.
CONFIDENTIAL
Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
I am enclosing herewith our compilation for the
week ended February 19, 1941, showing dollar disbursements
out of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.
dale
Faithfully yours,
Whom
10 1HE
THE
LEC LECHNICY MIDYE
BY EEB 58 IS 80
0343038
10
188
L. W. Knoke,
Vice President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
THE w
Washington, D. C.
Missell
1001 58 w
Enclosure
ANALYSIS OF BRITISE AND FRENCH ACCOUNTS
Week Ended Feb. 19, 1941.
(In Millions of Dollars)
Confidential
BANK OF EMIL/ND (BRITISH GOVERNMENT)
BANK
OF
FRANCE
DEBITS
CREDITS
DEBITS
CREDITS
Proceeds of
Not Incr.
Cov't
Sales of
Net Incr.
(+) or
Cov't
(-) or
Total
Expendi-
Other
Total
Securities Other
Dear. (-)
Total
Expendi-
Other
Total
of Gold
Other
PERIOD
Dear. (-)
Debits
tures(a)
Debite
Credits
Gold
Dfficial)(
Credita(o)
in Balance
Debita
tures (a)
Debita
Credits
Sales
Credits
in Balance
1939
Nig. 31 - Sept. 27
94.3
3.6
90.7
207.8
185.4
-
22.4
+113.5
19.4
6.0
13.4
11.5
1
11.3
- 8.1
Sept.28 - Nov. 1
106.7
5.8
100.9
142.0
3.2
-
138.8
* 35.3
88.6
)
76.2
8.9
105.8
57.8
61.8
105.4
35.0
41.2
- 12.4
line. 2 - 29
191.7
182.8
,
48.0
- 85,9
78.6
1
82.9
55.1
27.8
- 4.3
Nov. 30 - Jan. 3
97.7
8.7
as.o
75.2
50,6
I
24.6
- 22.5
86.8
28.1
1940
58,7
109.2
95.9
15,3
- 22,4
Jon. 4 - 31
54.8
16.8
38.0
43.4
20.6
-
22.8
- 11.4
81.5
31.5
30.0
55.9
50.1
5,8
- 5.6
Feb. 1 - 28
124.2
15.4
109.8
108.3
56.7
-
51,6
- 15.9
72.7
32.B
39-9
71.5
54.8
16.7
- 1.2
Feb. 29 - Apr. 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
Apr. 4 - May
1
115.4
26.1
87.3
86.4
46.8
20.0
19.6
- 27.0
84.8
20.4
55.4
78.7
60.7
18,0
- 6.1
May 2- 29
100,9
23.6
77.5
125.2
93.2
12.0
21.0
- 25.3
1014
57.0
44.4
145.4
126,2
19.2
. 44.0
Tay 30 - July 3
283.2
145,3
137.9
319.3
301.3
3.0
15.0
+ 36.1
E67(0)
187.3(e)
6
39.4
345.1(e)
335.6
9.5(a)
-188.4
July 5 - 31
249.7
156.7
93.0
225.0
212.2
2,0
10.8
- 24.7
7.3
6.3
1.0
3.2
3.0
0.2
- 4.1
AUE. 1- - 28
261.1
180.2
BO.9
894,8
207.4
1.0
26.4
+ 33.7
8.9
0.5
8.4
10.9
10.4
0.5
- 2,0
First year of war
1,793.2
605.6
1157.6
1,829.2
1,356.1
52.0
420.1
+ 35.0
B66-3
416.6
449.7
1,095.3
900.2
195.1
-825.0
AUG. 29- Oct. 2
316.8
244.0
99.5
308.9
271.5
6,0
31,4
- 7.9
8.6
4.4
4,2
1.3
-
1.3
- 7.2
Oct, 3 - 30
196.7
167.0
9
198.5
160.5
6.0
32.0
+ 1.8
0.5
0.3
0.2
0.5
-
0,5
,
Oct. 31 - Nov. 27
341.0
201.1
9
259.5
210.0
18.0
31.5
+ 18.5
0.8
0,1
0.7
0.7
1
0.7
- 0,1
Nov. 28 - Dea. 31
234.6
206.8
8
198.0
111.4
25.0
60.6
- 36.6
2.1
-
2.1
0.6
#
0.6
- 1.5
No: pariod through Dec.
2,782.3
1,425,
-0
2,793.1
2,109.5
108.0
575.6
. 10.8
678,3
421.4
456.9
Jan. 2 - PAY
1,098.4
900.2
198,2
1625
+220.1
259.9
176.2
52.0
31.7
+ 62.5
LY
-
1.7
0.5
I
June 30 - Feb. 26
0.5
- LE
Feb. 27 ADD, a
WEEK ZNDED:
Jan. 29
41.8
37.0
8
19.6
1.0
12.0
6.6
- 22,2
0.4
-
0,4
0,1
-
0,1
- 0.3
Feb. 5
46.5
40.9
5.8
23.2
-
10.0
13.2
- 23.3
0.1
-
0.1
-
-
-
- 0.1
11
37.4
31.1
1.5
14.1
-
6.0
8.1
+ 23-3
-
-
NO
0.1
.
-
+ 0.1
19
40+7
38.8
1.5
19.6
-
6,0
13.6(f)
.
21.1
0.1
#
0.1
A1
E
0.1
K
Average Weekly Expenditures Since OF twook of War
Transfers from British Purchasing Commission to
(See footnotes on reverse side]
France (through June 19)
$29.5 million
Bank of Canada for French Account
England (through June 19)
million
Veek ended Poor 19
$ 0,2
million
Bogland (cince June 19)
1866 million
Cumulation from July 6
$132.5
million
Regraded Uclassified
(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 effooted 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 data supplied by the Britfah Treasury 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 aequisition of proceeds of exports from the sterling area and other currently accruing dollar receipts.
(a) 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) Includ " about $4 million of return payments and about $3 million transferred from the accounts of British authorized banks with
New York banks.
TECHNICAL ASSISTANT
TO THE SECRETARY
OFFICE OF THE
10 21 Wd 288 833178
TREASURY DEPARTMENT
Regraded Uclassified
ACCOUNTS
(In Millione of Dollars)
Wook Ended Feb. 19, 1941.
Confidential
BANK
OF
CANADA
DEBITS
COMPLEMEALTH BUX OF AUSTRALIA
CREDITS
DEBITS
Transfers
CREDITS
Transfers
to
Proceeds
Transfers from Official
Not Incr.
to
Total
of
British A/C
Proceeds
Official
Other
Total
Bet Incr,
Other
(+) or
Total
Official
Other
Total
of
Debits
British
Debite
Other
Credita
Gold
(+) or
For Own
For French
Credite
Deen (-)
Debite
British
Debits
Credits
A/C
Gold
PERIOD
Credits
Sales
A/C
A/C
Deer. (-)
in Balance
1939
A/C
Sales
in Balance
Aug. 31 - Sept. 27
17.5
0.6
16.9
21,8
15.1
0,8
1
5,9
+ 4.3
-
#
-
-
Sept.28 Nov. 1
-
9.6
I
0.3
9.3
-
16.7
7.3
2.1
-
7.3
Nov. 2 - 29
+ 7.1
-
9.9
I
-
0.7
9.2
-
14.4
-
13.3
-
-
-
-
1.1
+ 4.5
-
-
-
1,9
Nov. 30 - Jan. 5
1.9
1
30.0
4. 1.9
-
30,0
22.8
13.5
3.0
-
6.5
- 7.2
2.5
1
1940
2.5
5,8
5,8
-
+ 5.3
Jan. 4- 51
23.5
-
23.5
25.7
21,1
-
-
4.6
+ 2.2
5.2
0.3
4.9
Feb, 1- 28
3.3
3.0
0,3
23,1
- 1.9
-
23.1
17.0
16,1
-
-
0,9
Feb, 29 - Apr. 3
- 6,1
3.3
42.3
0,1
3.2
2.4
8,2
42.3
0.2
- 0.9
-
29.5
29.3
-
-
0.2
- 12.8
3.0
0.3
2,7
2.2
1.6
Apr. 4- May
1
0.6
38.2
- 0.8
-
23.2
42.9
24,8
15.0
-
5.1
+ 4.7
2.3
-
2.5
May 2 - 29
2.0
1,8
37,9
15.0
0.2
37,9
- 0,5
50,2
50.0
1
-
0.2
+ 12,3
1.2
0,2
1.0
2.6
May 30 - July 5
1.7
0.9
44.1
. 1.4
-
4421
72.5
72.2
1
-
0,3
-
July 4 - 31
+ 28,4
2,3
2.3
5,9
28,2
4,4
1.5
-
28.2
+ 3,6
117.6
96.3
,
19.2
2.1
+ 89,4
AUE. 1- 28
4,6
-
4,6
5.0
18.7
4,2
0.8
. 0,4
-
18.7
73.6
53.9
,
19,5
0.2
+ 54,9
First year of war
6.8
S.O
3.8
5.0
323,0
3.4
16.6
1.6
- 1.8
306.4
504.7
412,7
20,9
38.7
32.4
+181.7
31.2
Aug. 29 - Oct. 2
3.9
27.3
36.1
30.0
5,1
+ 69
44,3
-
44.3
43.9
15.4
I
27.3
0.2
- 0.4
8.7
2,5
6,2
Oct. 3 - 30
8,0
5,7
1,3
- 0.7
26.7
-
26.7
28,6
14.0
-
14.3
0.3
+ 1,9
10.1
7,5
2.6
7.9
6.5
Oct, 31- Nov, 27
1.4
- 2.2
35,2
-
$5.2
69.6
49,2
-
16.7
Nov. 28 - Dec. 31
3.7
+ 34,4
3,1
0,6
2,5
3,6
2.1
1,5
48.0
- 0,5
-
48.0
60.6
42.5
-
13.7
4.4
+ 12.6
#
is priod through Dec
4,8
4.8
6.8
4.8
20
+ 2.0
477.2
16.6
460.6
707.4
534.8
20.9
110.7
41.0
+230,2
Jan. 2 - 29
57.9
14.5
43.4
62.4
50.1
12.5
. 4,5
35,7
-
33.7
33.9
16.9
-
15,0
2.0
+ 0.2
4.8
-
4,8
6.8
Jan. 30 - Feb. 25
5.1
1.9
+ 2.0
Feb, 27 Apr. 2
WEEK DUED;
Jen. 29
13.9
-
11.9
15.4
5,2
-
10.2
-
+ 1.5
0.9
-
0.9
0.9
-
0,9
-
Feb, 5
8.4
-
9.4
1.1
4.6
I
2.3
0,2
- 1.3
2,6
1.7
0,9
2.2
0,6
166
11
- 0,4
1.9
-
3
9.7
3.4
-
4.3
2.0
+ 7.8
1.0
-
1,0
0,5
I
0,5
- 0.5
19
12.9
-
12.9
4.5
3.9
-
0,2
0.6
- 8.4
0.2
-
0.2
0.3
-
0.3
+ 0.1
Wookly Average of Total Debits Since Qutbreak of Far
Through Feb. 19
- $ 6.9
million
Regraded Uclassified
6
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 1, 1941
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£22,000
Purchased from commercial concerns
£93,000
Open market sterling was steady at 4.03-3/4. Transactions of the reporting
anks were as follows:
Sold to commercial concerns
-0-
Purchased from commercial concerns
£ 2,000
In New York the closing rates for the foreign currencies listed below were
8 follows:
Canadian dollar
143/8% discount
Swiss franc (commercial)
.2323
Swedish krona
.2385
Reichsmark
.4005
Lira
.0505
Argentine peso (free)
.2342
Brasilian milreis (free)
.0505
Mexican peso
.2066
Cuban peso
6-27/32% discount
In Shanghai, the U. S. equivalents of both the yuan and sterling were unchanged
& 5-5/8# and 3.93-1/2, respectively. In Hong Kong, the H.K. dollar expressed in terms
f
U.S. currency was 24-1/24, off 1/8+. Sterling was also lower at 3.92, off 24.
The Federal Reserve Bank of New York reported that the Bank of Canada shipped
to it $4,277.000 in gold for account of the Government of Canada. The gold will be
old to the U.S. Assay Office in New York,
K.M.P.
Regraded Uclassified
7
For Miss Chauncey
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 1, 1941.
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
The Federal Reserve Bank of New York reported the following transactions in
which Hungarian accounts maintained with the National City Bank are involved.
Date
Account Debited
Amount Debited
Paid To
February 28
Central Corporation of Bank-
$150,000
National City Bank of
ing Companies, Budapest
New York for account of
the National Bank of
Hungary, Budapest
National Bank of Hungary,
$164,700
National City Bank of
Budapest
New York for credit of
Spool Cotton by order of
J. and P. Coates, Ltd.,
on behalf of and in favor
of Hungarian Thread
Company, Budapest
pml
3/1/41 8
FINANCING
DEFENSE
By
ROSWELL MAGILL
Professor of Law, Columbia University
Former Under-Secretary of the Treasury
of the United States
Advance copy of an article which will appear in the
March (1941) issue of
INVESTOR AMERICA
Published by
AMERICAN FEDERATION OF INVESTORS
35 East Wacker Drive, Chicago, Illinois
Regraded Uclassified
FINANCING DEFENSE
SOME HIGHLIGHTS
from This Very Clear Statement Regarding Tasation
the heat years 1911 and 1912 present Federal for will
During the baca) years 1941 and 1942, present Fed-
The
nom
profits
ERR
needs careful thought
pay only administ 50 per rem of entionated Federal expend
eral cases will pay only about 50 per cent of estimated
and revision:
the tax Le notably discouraging ta
Federal expenditores
young. rapidly growing businesses.
rurer The prospect is anualls a Hole were
for the proposed expendinures do not fuclude the ul
The Treasury is already a pattner of every individual
In all probability sales and excise taxes 411 in line
by Roswell Magill
and of every business in the land. In many instances
for increases, and punsibly a general manufacturers'
nich aid III Cival Britain un entire country as toxx be
the Treatory is now enitied to more than half of
nairs - might be imposed.
Professor of Law. Columbia University
granted by Congres directly III under the los and
the net income
Sales tases bear with more severity, comparatively,
hill The the deficits may way will W larger chas
upon the post than upon the rich.
Ilvose anticlpased in the hudger
To caise more money requires increases in present
Forwer Under-Sicretary of the Treasury
The President's budget message did not Indicate
TOWER and A reduction in present exemptions.
It should be po ible in times like these to reduce
rependitures for pus le works, public highways, unem-
spécifically luns these budger deficits donld be not In
The major taxes apt to be Increased are the jacame
ployment relief. and agriculture, for example, by a
of the United States
did кодем (hat additional service should for impost
19%, personal and corporate: the entare and gift saxes,
total of one billion dollars.
and the missellanence sales taxes,
war. hait contained no express recommendations Critier
In a time of increasing national income, it would
the furning quadion Inform
of the kind of use 10 In attived ne der amounts and
If the income 14% is to be made to produce consid-
seem wise to cause more than liali of total expenditures
F
the Loovn meeting was whether the Fond money
divid le raivel therriby, In de almonté of other pm
erably mare TEVERNE, the incresses in rates will neces.
to be paid out of thees. We OF our children must foot
any affect the lower income brackets.
the bill tome day, and these years may be better than
advanced he vpwit (II) North Street OF South
vision, the deluirs must (e me), al nurs, BY Invidior
the future.
Stroet: and whether the town should gn into deld
The tax exemption now accorded to the interest on
We face real dangers and should restrict barrowing
in under to TERMS in build a II/W school
some musicipal, State, and Federal securities aught
an for as we can-
BD be aliminated for the future. in order to improve the
building Them www simple, inderstandule
Congress should adopt means for better coordination
equal operation of the 133 and to eliminate that last avenue
of appropriations and revenue legislation.
questions. which citime could delate with in-
of escápio from neuses.
An advisory council on fiscal policy la badly needed.
willigrame and The domocratic prov-
The corporate rate now stands ot twice the Signature
W: have great talem in the business and financial fielde
une With 14 vivy good way to addre them.
employed only ten prats ago, and the EXERIS profits
We need to mubilize the best ul is in the givernental
tax is a still further burden.
arrvice.
Timiay Civ questions hofore Now England town
partings may les similar, find the quetions before
our beger democracion, the states and the nation,
burrowing. Congress has already an in-
the Administration would resulta a gival service las
an complex Shall N/A trade destinyers
time in the debt limit from IS billing in in billims
taking the country into in confidence as 10 in lival
to for naval busins! Stall we grant
dollars, (0 provide Int this posibility. Ii is anticipated.
program: megrative the kinds and of addi-
havever, flut there will be at leas me revenue art of
givel authority hi the President to lease-lived?
tional taxe proposed to be impowed and the answers
1911- There were time in 1940.
10 be raised by bornwing
Stail We proced with a
The Treasury is almady a partner of very untividual
Imiget. and low?
S FARMS: As THE LLAAE-LEND DICE is pending, a may be
and of every business in the land, In many instances.
impractical for the Administration to Inmulate and
The Treasury is now entitled III Hian half of the
THE 18 there AIT big and o dille
MII MANY vers and ser many imployations
annivince more specific plans for fuancing our vast
sure income of the individual and the
defense As LOOK as our obligations under
nien in partiendar fund is increasingly hard in
cub dran at de sight of there sision in agai DE
that will and in the present Grandon become clearer.
ou huiget, IN plan when there - no occuines
dum complexed has the shell of Isis will daily pre-
whanever as tu a major cleum of come
UP lease dein whilly m his repro-
Last your's buiget become (by the supplier and Tall
and sin't expens" as nus present shomch
ul TVIO) simme farmastically as 4 inrecase
No (hr promote demands that Ilw axerage
WELL MAGILL writes authoritatively on subjects
and YOR and have a namily
error finance and taxation. He has had umosual
cober ni receipts OF expenditures. Possibly No confirme
buid understanding of given public questions. and shall
unities to study these problems through intimate
the situation this ITM should
bens with the U. S. Treasury Department doring
(or a yax rate of se (x) rent) (The present faic is 21
Tur propared 10 não no para he decesions One grow
rpublican and Democratic Administrations, and in
per not) Many of them are doing ME Is the
und of is In period was and for
gradice. At the age of 45 years, he has attained a
proble las stated for an increase) How status the siles
presenting por well com at (ssure in modey
repotation through his writings and lectures. Hr
Taxis un antomoldis and uns and gaviline: How
to the
author of several books sin taxation,
about the individual last
The anoth is an attempt DE andime am at if
graduating from Darmouth in (916, be entered
major of public las that furn. It will lie
iversity of Chicago Law School, but Itis studies were
no longo reclusical anieles* un div nram
pied by service in the World War. He received his
W
ALE KNOW CITAR aus is du ready world.
egree from the University of Chicago in 1920, and
Nu plan or proplecy has any guavantee of per
residents If will tac inversimplified. Mr.
instructor in law in that university. Since 1927
Bind artely 60, the penjde, are entirled ⑉ the
ormáke il does objective aml imelligible
been professor of law in Columbia University in
liest of our lucal representatives as to what
ork, and is also engaged in active legal practice as
the luner finilde for - las as they ARE deverument H.
1941 BOWE) presented III
of in income tax and revenue law in the firm of
We will person Uscin il they am wiring Is is hander in
in January. # IM definit ul
gton, Bartholow & Miller-
them il fros leave III in . complete log as DO
4 link- mit is Influm dollars for Hw current was
Magill served as special attorney in the Treasury
what que Invol Senden is like's IN les We should like
and di regulation of " billion 20 milkion dollar- for the
ment under Secretary Andrew W. Mellon in 1921.
$
ou la alife no and up our lain line (lo which
nest Inial will The <000 of from two anticipated
was sent to Puerto Rico by President Cadlidge in
is almost ihe sur a the Intal of the
and again in 1928.29, as adviser to their Tax Com-
Hay and aboved of dia,
In 1938-39 he performed A similar service in
Probable the President and Congress will will in doir
nel compus fur The TWO vals In work. dening
He became assistant PO Secretary Morgenthau in
plan in good time perliages at the time this
and was called back in 1937 as Under-Secretary
article appears In the alisence nl ⑉ ultimat
Treasury to- assist no a proposed revision of the
what not No krope
Regraded Uclassified
to give un evact forecast, but at least the major possi-
3. THE FEDERAL GOVERNMENT already employees a wide
bilities can be explored.
variety of miscellaneous sales and excise taxe the clise
being those on sales of tobacco, liquòr, ano zasoline
T
FEDERAL GOVERNMENT is already employing
In all probability all of these are in line for
nearly all the major forms of taxation. and employ-
and possibly a general manufacturers' sales might
ing them heavily. To raise more money by raxation,
be imposed as well, It would exercise some
therefore, requires intreases in present forms of taxes,
effect upon private purchases, and thus upon Inflation
and a reduction in present exemptions to bring in more
and in both respects might thus indirectly aid ib
taxpayers. The major taxes apt to be increased are the
Federal program for defense expenditures. 11 would
income tax, personal and corporate; the estate and gilt
produce a large return. On the other hand, sales tax()
taxes: and the miscellaneous sales taxes. Let us glance
bear with more severity, comparatively, upon the juxx
at each of these principal sources of revenue.
than upon the rich. They ought not to be increase
unless other taxes are being decidedly increased 100
1. THE INCOME TAX is generally regarded as one of the
and then only after a pretty careful suidy of the probate
faitest forms of taxation, since income is a good register
consequences.
of the ability to pay taxes. Although the income tax
rates were sharply increased just last year on the brackets
I° NATIONAL INCOME shows a marked rise, as store
above $10,000, the rates on inconies below that figure
every reason to believe that it will, Congress rulgly
were not greatly changed. The exemptions were lowered
well decide to limit new or increased taxes for 1941
by 20 per cent. For more revenue, the normal rate
one billion or two billion dollars. We already have
might be decidedly increased; the exemption from sur-
high-powered fiscal engine, which will produce a in
taxes (now $4,000, plus the personal exemption and
mendous amount of revenue, increasing as income an
credit for dependents) might be lowered: and the surtax
employment rise. The ordinary Federal budget comi
rales from $6,000 10 $150,000 OF thereabouts might be
be balanced by taxes now in effect, Nevertheless, in
raised.
time of increasing national income, it would seem wix
to cause mure than hall of total expenditures. has
The rop surtax rates, up to 75 per cent, are already
about as high as they can be made for maximum pro-
emergency and ordinary, to be paid ont of taxes. in
ductivity. Moreover, it has been estimated that if all
or our children must loot the bill sorne day, and the
persons receiving $10,000 or more were allowed in keep
may be better times than the future.
only $10,000, and were required to pay the Treasury
Il the Executive and Congress manifest courage
the balance, a total of only 2 billion 321 million dollars
cutting down present ordinary expenditures, and dem
additional would be raised. Hence, il the income tax
mination in restraining new spending. the problem
is bo be made to produce considerably more revenue,
financing defense can be considerably simplified. Mus
the increases in rates will necessarily affect the lower
greater cuis could and should be made than have so la
income brackers. At the same time, the tax exemption
been proposed. It should be possible in times like the
now accorded to the interest on some municipal, State,
10 reduce the great expenditives for public works, publi
and Federal securities ought to be climinated for the
bigloways, unemployment relief, and agriculture, to
future. in order to improve the equal operation of the
example, by a total of about one billion dollars, with
(ax and 10 climinate that last avenue of escape from
serious impairment of necessary governmental servion
surtaxes.
Emergency expenditures, however, will have (0) la
The corporate tax rate now stands at twice the figure
employed only ten years ago, and the excess profits tax
met by borrowing for the most part, A discussion
is a still further increase in tax burden, of large propor-
the probable effects of a vasi increase in our public del
tions in some cases Nevertheless it is unlikely that the
and the possibilities of rises in price levels or intaire
rates on individuals will be raised without a coincident
would require much more space thau is available has
increase in corporate rates. The excess profits 12% will
All would agree, however, that we face real danger.
no doubt ultimately be sharply increased. Before that
and that we should restrict borrowing so far as
OCCUTS, however, it needs careful thought and revision,
As a corollary, Congress should adopt means for
for it is now highly discriminatory in its actual opera-
coordination of appropriations and revenue legislation
tion, as applied to competitive businesses. There are
-lor a strict adherence to the letter and the spitit W
also 100 many cases of severe inequities under the
the budget.
present provisions. For example, the tax is norably
discouraging to young, rapidly growing businesses.
An advisory council on fiscal policy is bailly notal
We have great talent in the business and huancial fields
We need to mobilize the best of it in the governments
2.
ESTATE TAX AND GIFT TAX exemptions are compara-
service, for in times like these the best advice
lively large, and the rates have not been raised since
country can get is none too good, Our defense purpart
1935, except for the flat 10 per cent increase applied to
tions are now, and probably will continue for
a number of taxes in 1910. Estates under $300,000 are
be, costly, and OUTF normal modes of
still not very heavily taxed Death taxes are a compara-
are borrod 10 be disrupted for a generation.
tively equitable form of raxation, and probably less
(i) make every effort to the end that on fiscal
stilling to business initiative than some other forms of
imposts. Several fundred millions additional could be
may be intelligently directed. that WE may
raised in an emergency in this way,
our forces as effectively as we know liow to de
daugers and difficulties that we Face
9
3/1/41
MEMORANDUM FOR MR. FORRESTAL
The proposed Byrd amendment to the Lease-Lend Bill
operates to retain for Congress control over disposition
of any implements of war paid for out of funds appropriated
after the passage of the bill. It provides as follows:
"Defense articles procured from funds hereafter ap-
propriated shall not be disposed of in any way under
authority of this paragraph except to the extent here-
after specifically authorized by Congress in the acts
appropriating such funds or otherwise"
The production theory underlying the Lease-Lend Bill
is based upon the conception of one large program to
manufacture the required materials for both ourselves
and the British without distinguishing in advance for
whom the production is intended. Under this program
the Navy would undertake to procure the Navy items on
the program without earmarking at the time appropriations
are sought whether the items are for United States or
British account. From this procurement effort 8. pool of
Regraded Uclassified
10
- 2 -
Navy materials would result. This pool would be financed
from one appropriation for the Navy Department divided
among the appropriate bureaus.
Assume that this bill passes as amended. If then
for example the pool acquires five thousand Oerlikon A.A.
guns (and by the time they are manufactured and paid for
as above outlined, the British are still holding out), it
might be considered advisable to transfer say two thousand
of them to the British. Under the Byrd amendment if the
pool was financed as assumed, out of United States Naval
Appropriations, the transfer could not be made without
obtaining congressional authority specifically as to the
items involved. This would be cumbersome and would great-
ly delay the effectiveness of any aid that could be ren-
dered. The other alternative would be to separate the
British and American Programs and have separate appropri-
ations for each and separate procurements for each. This
would destroy the flexibility of the "arsenal for democracy"
philosophy by freezing the program as separate and distinct
with no ability to interchange without going back to Congress
Regraded Uclassified
11
75
- 3 -
for express approval. Likewise It would raise the
difficulty of two procurement programs which in the
past has been shown to be quite considerable.
As has been said, the worst thing that can be done
is to give the British a little aid but not enough to
count. If the programs are handled as separate procure-
ments, in approaching Congress for appropriations there
would be constant political pressure to out down the
amount of British requirements. This can not help but
have a bad effect on real aid to England by attempting
to short change it for political rather than military
reasons. Also if there are two procurement programs,
one labeled United States and the other British, there
will be an inevitable tendency to slow up work on foreign
account by individuals executing the program who happen
to differ with the High Command on the aid-to-Britain
question. This, of course, will result in inefficiant
total procurement, and perhaps even production, for things
which may, in fact, ultimately be used by our Army and
Navy.
Regraded Uclassified
12
4 -
If the amendment is eliminated and the program
handled before Congress as 8. joint appropriation for the
Navy and the British for naval equipment and supplies,
although Congress may ask for a breakdown, it can be
truthfully asserted that all procurement asked for is
for American defense and would be used for our own ser-
vices if England collapses.
The fundamental objections to the amendment there-
fore are that it would require assignment of items in
advance of manufacture at the time of appropriation,
thus destroying flexibility in the program, or in the
alternative it would require going back to Congress for
specific approval of each transfer at the cost of delay
in resulting action.
I have not mentioned the present limitations on the
transfer of implements of war procured from funds appro-
priated prior to the passage of the Lease-Lend Bill. As
you know, the limit on such transfer for the Army and
Navy combined is $1,300,000,000.
Regraded Uclassified
13
- 5 -
Under the Taft Amendment, no defense article can
be disposed of without specific authorization from
Congress, irrespective of whether it was financed from
funds appropriated before or after the passage of H.R.
1776. In addition, no such article can be disposed
of unless Congress has made an appropriation for the
benefit of the receiving Government which has & suffi-
sidnt unexpended balance to reimburse the Navy for the
cost of the article in question.
This would mean that there could be no unrestrained
disposal of existing articles previously financed up to
the $1,300,000,000 limitation in the Act. Likewise,
the Taft Amendment is subject to the objections pre-
viously discussed under the Byrd Amendment.
3-1-41
LBL:djb
Typed: ajb - 3-3-41
Regraded Uclassified
14
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 1, 1941
TO
Secretary Morgenthau
FROM
Mr. White
The appended memorandum on the current Argentine situa-
tion makes the following main points:
1. The Treasury Stabilization loan and the Export-Import
Bank credit to Argentine have been held up. The Argentine Con-
gress, paralyzed by an election dispute between Radicals and
Conservatives, has not acted on these dollar credits. Neither
of these parties 18 pro-Axis or anti-American. Radioals refuse
to permit further legislation until something is done about two
recent, allegedly fraudulent, provincial elections.
2. Since the loan negotiations of last November, Argen-
tine's total gold and foreign exchange holdings have remained
about the same, despite the gloomy predictions of the Prebisch
delegation which forecast gold losses of $10 million monthly or
more. Gold and foreign exchange assets of the Central Bank (at
home and abroad) have fluctuated between $430 and 8445 million
and balances in the United States of private Argentine banks and
individuals between $95 and $100 million. Increased assets of
the Central Bank in New York represently, largely, transfer of
holdings from Buenos Aires.
3. Argentina has recently sold 120,000 bales of cotton
and 50,000 tone of wheat to Spain with British approval.
Rumore of larger deals involving 500,000 tons of wheat and
15,000 tons of meat are persistent. Reports that German firms
have bought up most of the wool clip are not regarded 26 sig-
nificant since the firms involved are old and well-established
dealers who have always bought and sold large amounts of Argen-
tine wool.
4. As predicted by the Prebisch delegation, modifications
in the exchange control system were announced February 22, 1941.
No export exchange is hereafter to be sold in the free market.
Exchange for non-essential imports 1e to be auctioned off to
the highest bidder. Exchange for essential imports will pre-
sumably be allocated at the official selling rates 8.8 before.
Preferences as to exchange rate and volume of imports will
still be granted to England under the new system.
Attachment
Regraded Uclassified
15
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 27, 1941
TO
Mr. White
FROM
Mr. Spiegel
Subject: Current Argentine Situation
1. There has been no legislative action by the Argentine Congress
on the Stabilization Fund and Export-Import Bank credits. La Prensa,
influential Argentine newspaper, insists that Congressional sanction of
these loans is necessary since neither the Executive nor the Central
Bank has the power to borrow funds for purposes of industrial develop-
ment.
During the present session, The Chamber of Deputies has been
paralyzed by a conflict between Conservatives and Radicals, neither of
which can be characterised as anti-American. The Radioals insist that
two recent provincial elections were fraudulent and refuse to permit
passage of further legislation until something 1s done about these
elections.
Finance Minister Pinedo tried to negotiate an agreement that
would permit the Pinedo Plan, passed by the Senate in December, to be
voted on by the Deputies. This Plan calls for purchase of grain sur-
pluses, the financing of housing and manufacturing projects, and increased
member bank reserves with the Central Bank. It contains a clause which
would grant legislative approval for the recent dollar credits. Pinedo
failed and resigned, followed shortly thereafter by Foreign Minister Roca,
the other strong member of the Cabinet. An article in the proposed budget
law can also be construed as granting the Executive power to utilize the
recent dollar credits but action on this is also blocked by the current
dispute.
2. Argentina has recently sold 120,000 bales of cotton to Spain
with British approval. The contract has not yet been signed but agreement
in principle has been reached. (Annual exports 75,000 - 220,000 bales.)
This virtually cleans out Argentina's current exportable surplus of cotton,
Payment is to be made over a two-year period but the currency in which
payment is to be made has not been specified in reports reaching the
United States. There has been conjecture to the effect that blocked ster-
ling is the medium of payment, though Argentine officials have declared
they are not interested in increased holdings of blocked sterling.
Recent reports likewise indicate that Britain has approved
the delivery of 50,000 tons of Argentine wheat to Spain out of British
stocks. (Anmial Argentine exports 2-4.5 million tons.) Here again
Regraded Uclassified
16
Division of Nonstary
Research
the method of financing is not indicated. Cable advices from Buenos
Aires indicate that the wheet transactions may be financed by securi-
ties available to Spain and credit advanced by Argentina, There have
been persistent rumors of larger deals involving sales of as much as
500,000 tons of wheat and 15,000 tons of meat.
3. Reports have recently appeared in the press that two German
fires (Staudt and Lahusen) have bought up four-fifths of Argentina's
wool clip. A Washington Post editorial (February 16, 1941) suggests
that this wool will be shipped to Germany via the Pacific and argues
that the United States should have purchased commodities such an this
instead of lending $110 million, much of which the Editor believes
will be spent on dubious developmental projects.
The firms mentioned are old and well-establiahed firms - one
of them the largest in the business - which would naturally be
expected to continue buying up wool and selling to a varied list of
customers despite the war. The State Department evidently feels
there is nothing unusual in the situation and no cause for alarm.
40 President Ortis, temporarily retired from active duty by
illness, has recently declared to the press that he would in due time
resume office. Meanwhile, Acting President Castillo has shown increas-
ing disregard for the policies of Ortis and is rumored to be engineering
a Conservative-Radical deal. Under this plan the Radicals would be
placated by intervention in one of the two provinces where elections
are disputed but the Conservatives would retain control of Buenos Aires
City and Province. This virtually assures the Conservatives of victory
in the Presidential election two years from now and probably gives the
Presidency to Justo.
5. Argentina's total gold and foreign exchange holdings on both
official and private account increased $45 million in the period
January-June 1940 but have since declined $15 million, The total now
comes to $540 million.
Movements in this total are explained mostly by changes in the
following constituent items. Total gold and foreign exchange holdings of
the Central Bank remained stable during the first six months of 1940 but
since then have declined $20-25 million. On the other hand, balances in
the United States of private Argentine banks and individuals have been in-
creasing steadily since the and of 1939, the increase amounting to 830 mil-
lion in the period Jamary-June 1940 and 85 million since then.
6. Though total gold and foreign exchange holdings of the Argentine
Central Bank have declined, it is true that gold on earmark in New York
has increased by $10 million and that balances at the New York Federal
Reserve Bank and at private commercial banks in New York have increased
by $20 million since the middle of 1940. These recent increases in
New York assets, however, represent transfers of assets from Buenos Aires
to New York and not net increases in total holdings. These shifts are
shown in the balance sheet of the Central Bank where the item "Gold
at home" has declined $50 million and the item "Gold and foreign exchange
abroad" has increased $25-30 million.
Regraded Uclassified
17
Division of Monetary
3
Research
Regraded Uclas
7. The increase in bank balances held in the United States by
Argentine banks and individuals may arise out of the flow of European
capital to Argentina. More specifically, this may represent flow of
Aris or other Diropean funda to Argentine dollar account. To the at
tent to which this has occurred, Argentine bankers have assumed an
equal dollar liability. Nevertheless, these funds are presumably avail-
able to the Argentine Central Bank in case of emergency.
8. Argentina has certain unrecorded foreign currency assets
belonging to the Exchange Control and/or the Treasury. These, however,
are not large enough to change the picture. As of November 15, 1940,
these unreported assets amounted to about $35 million, of which
$30 million may have consisted of blocked foreign currencies.
A clue as to the existence and size of unreported dollar
assets is found in the fact that United States Treasury figures as to
New York assets of the Central Bankhave recently run $5-10 million
higher than the balance sheet figure for assets abroad. A further
indication of unreported assets may possibly be afforded by the fact
that gold shipments from Argentina to the United States since the
summer of 1940 have totalled $60 million, whereas the "Gold at home"
account of the Central Bank has declined only $50 million.
9. The deterioration in Argentina's economic position is caused
by the decline in exports since June, 1940. Immediately prior to
that time Argentine exports were moving well. Average monthly exports
dropped from $46 million in the period January-June, 1940 to $25 million
in the period July-December, 1940. The decline was almost entirely
due to loss of Continental European markets. Average monthly shipments
to Continental Europe were $21 million during the first six months
of the year but since then have ceased almost entirely, dropping to an
average of $1 million monthly.
The net result was an export surplus for the year 1940 of
roughly $50 million. Since Argentina must meet invisible payments
of $100 million annually, this leaves a. considerable foreign exchange
deficiency (excluding consideration of any capital flow to Argentina).
10. Às predicted by the Argentine delegation last November,
modifications in Argentina's exchange control system have recently
been announced,
(a) Exchange from exports hitherto sold in the free market
is to be sold at & new buying rate of 4,218 pesos per dollar. Most
export exchange will still be sold at the old official buying rate
of 3.35 pesos per dollar.
18
Division of Monetary
- 4 -
Research
(b) Importers of non-essential products are hereafter to bid
for exchange at Central Bank suctions. (Essential imports will enter
at the old official selling rates of 3.73 or 4.23 pesos per dollar as
before.) If, as is expected, the auction exchange rate is to be an
effective means of controlling non-essential imports, it must frequently
go considerably above the present free-market rate in order to be a
deterrent.
(c) Apparently trying to meet American objections against
long-continued discriminations, the Argentines say this new plan
will make it possible to remove all import quotas on specific
commodities although certain preferences as to exchange rate and
volume of imports will still be granted to England. But it is
difficult to see how exchange auctions for non-essential imports will
eliminate the necessity for quotas on essential imports.
19
Statistical Appendix
Gold and Foreign Exchange Holdings of the Argentine Central Bank
(Millions of Dollars)
Gold and Foreign
End of
Total
Gold at Home
Exchange Abroad
December, 1939
454
403
51
June, 1940
453
403
50
September, 1940
440
385
55
December 15, 1940
429
353
77
Assets of the Argentine Central Bank in New York
(Millions of Dollars)
Balance at New
Balance at New York
York commer-
Last week of
Total
Earmarked Gold
Federal Reserve Bank
cial banks
December, 1939
62.9
60.3
1.2
1.4
June, 1940
66.6
62.7
2.1
1.8
September, 1940
39.0
27.2
7.6
4.2
December, 1940
88.7
72.8
9.9
6.0
January, 1941
97.7
72.8
10.0
14.9
Argentine Short Term Dollar Assets in the United States
(Millions of Dollars)
Last week of
Total
Central Bank
Private
December, 1939
58
3
55
June, 1940
89
4
85
September, 1940
107
12
95
December, 1940
115
16
99
January, 1941
116
25
91
Gold Movements from Argentina to the United States
(Millions of Dollars)
Monthly Amounts
Cumulative Total
Jan.-June, 1940
-
.030
July
.004
.034
August
.009
.043
September
17.815
18.858
October
19.982
37.840
November
12.983
50.824
December
8.247
59.071
January, 1941
-
59.071
Regraded Uclassified
20
Division of Monetary
- 2 -
Research
Argentina's Trade Position
(Millions of Dollars)
1940
1939
First 6 mos.
Last 6 mos.
First 6 mos.
Last 6 mos.
Exports
278
150
241
231
Imports
208
167
153
182
Balance
470
-17
488
+49
Average Argentine Exports per Month
(Millions of Dollars)
1940
1939
Period
Period
Period
Period
Jan.-June
July-Nov.
Jan.-June
July - Nov.
Total
46
24
40
37
United Kingdom
14
12
14
14
Other Europe
21
1
17
14
U.S.
6
5
4
5
Other Western
Hemisphere
5
5
4
3
Asia, Oceania,
Africa
1
1
1
2
Argentina's Trade Balance with Various Regions
(Millions of Dollars)
1940
1939
Jan.-June
July-Nov.
Jan.-June
July-Nov.
Total
+ 71
- 25
+ 88
- 38
United Kingdom
+ 40
1 34
+ 53
+ 41
Other Europe
+ 73
- 7
+ 40
+ 20
U.S.
- 21
- 20
+ 1
- 2
Other Western
Hemisphere
- 10
- 18
+ 1
- 16
Asia, Oceania,
Africa
- 12
- 14
- 7
- 5
Regraded Uclassified
21
MMV
PLAIN
Calcutta
Dated March 1, 1941
Rec'd 12:01 a.m., 3rd
Secretary of State,
Washington.
First.
Budget proposals raise excess profits tax to two
thirds and surcharge on income taxes to one third.
Excise duties on matches doubled and new excise duty
ten percent ad valorem on pneumatic tires and tubes
introduced. Specific import duty on rayon yarn and
thread increased to five annas per pound. All these
presumably effective April lst.
GROTH
HSM
Copy:bj
5312
22
JR
GRAY
Berlin
Dated March 1, 1941
Rec'd 8:50 p.m., 2nd,
Secretary of State,
Washington.
772, March 1, 3 p.m.
By 8. decree of the Reich Minister of Economics dated
February 18, 1941, and published in the Reichgesetzblatt
number 22 of February 28, 1941, the property of all
Germen co-operative societies including the co-operative
buying organizations in Hamburg and Vienna has been
transferred to the German Labor Front. The decree states
that the interests of the present members of these
co-operatives will bE fully sefeguarded.
According to an article appearing today in the
VOLKISCHER BEOBACHTER the Labor Front proposes to
reorganize Existing co-operative stores into "model
retail stores" which will bE handed over to individual
retailers. Veterens of the present wer will bE given
preference in the distribution of individusl stores and
therefore this part of the proposed messure will not bE
put into Effect until the End of the war. The VOLKISCHER
BEOEACHTER further emphasizes that the present measure
only applies to consumer cooperatives and do es not affect
the
Regraded Uclassified
23
-2- #772, March 1, 3 p.m., from Berlin.
the position of producer, credit and other cooperative
societies.
This transfer of consumer cooperatives to the Labor
Front parallels B similar action taken in 1933 soon after
the assumption of power by the National Socialist Party
when the Labor Front absorbed the former free labor
unions end took over their property and assets without
compensation. The party has always been opposed on
principle to the participation in retail trade of "big
business" whether private in the form of department and
chain stores or cooperative but has until now hesitated
to take decisive steps against consumer cooperatives
probably in view the popularity they enjoy with the
population.
The present transfer of consumer cooperatives to the
Labor Front means E greet increase in wealth and power for
Dr. Leys' organization which hE states now hrs on onnuel
income of about six hundred million marks per annum from
membership fees alone. It is suggested that the
distribution of thousands of retail stores to individual
traders with preference being given to those who have fought
in the present wer may become E powerful instrument
of patronage in Leys' hands rnd rdd to his organizations
financial power.
Inform Commerce, Treasury.
KLP
MORRIS
24
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
March lst, 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,
Hahfax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
25
Telegram received from London
dated February 27th, 1941.
Naval. Outward convoy of 39 ships during
February 26th and early 27th was attacked by U boats
and aircraft.
2. Four ships torpedoed of which one
certain sank, one probably sank, one returning to
herbour. Eight bombed of which one sank, four
burning, three hoped to salve.
3. British ship of 7,764 tone bombed, set
on fire off Cromarty in the s.m. February 26th. Fire
soon controlled and ship towed into harbour.
4. Two British trawlers off Fastnet shot
down Fokke Wulf aircraft, escorted by two fighters
which attacked them on February 23rd.
5. Royal Air Force. Night of February
26th/27th. 145 bombers despatched to attack industrial
areas at Cologne and invasion ports. Four aircraft
have not yet returned to their base.
6. German Air Force. Deylight February 26th.
with the exception of submarine patrols in the Straite
activity consisted mainly of occasional raide over
coastal districts in East Anglia and Kent. Industrial
damage reported is negligible and casualties very few.
7. Night of February 26th/27th. About 150
sircreft operating of which 50 attacked Cardiff-Bristol
area.
8. Halta. On February 26th Luga aerodrome
attacked by about 60 German bombers escorted by 20-30
fighters - 2 Junker 87e were destroyed and 7 others
probably destroyed by our fighters. A.A. fire brought
Regraded Uclassified
26
+
down 5 Junker 870 and probably 4a. more. Three
of our fighters are missing. Damage was caused
to hangare and buildings and aerodrome was rendered
unserviseable but there were only 4 service
casualties. Six of our aireraft on the ground were
burnt and four were badly damaged.
9. Aircraft casualties in operations
over and from British Isles: British: Fighters 5 (two
pilots safe), Bombers 4. Germans: Nil.
Regraded Uclassified
27
RESTRICTED
G-2/2657-220
M.I.D., W.D.
No. 328
March 1, 1941
12:00 M
SITUATION REPORT
I. Western Theater of War.
Air: German. Minor activity over England.
British. Normal offensive activity. Wilhelmshaven,
Emden and Boulogne were bombed, as were several airdromes in northwest
Germany and Holland.
II. Greek Theater of War.
Ground: Local operations.
Air: British made a successful interception of an
escorted bomber group and claim to have inflicted severe losses.
III. Mediterranean and African Theaters of War.
Ground: Eritrea. The British northern column is new
in contact with Italian troops holding covering positions north of
Cleren.
Italian Dodecanese Islands. British forces
have withdrawn from Castellorizzo which has now been reoccupied by
the Italians.
Air: Axis. Attacks on shipping along the Libyan
coast are inflicting steady losses.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasionalin-
clusion of political information and of opinion it is classified as
Restricted.
RESTRICTED
CONFIDENTIAL
28
Persphrase of Code Rediagram
Received at the Var Department
at 0.00, 4 1001.
Sondon, filed 13:56, March 1, 1941.
1. On Friday, February as, please of the Britten Constal
Command engaged in the usual patrols. there - m flights of Bestish
benbere over the Continent an this - w during the presenting night.
2. During the might of Fobruary 25-threb 1 - Greena plane
- plotted over Soufalk and Suffellt, two - - Newthen and Into
and four others were active in the Pertementh wes. no less of sirplance
I 1 lie I I a a s 1 I .
of Comes planse ware an patrol daty and misstons - the
Bever Straits. Only three Comman planse creased the const Line and -
of these was shot down w the British. the Brittish planse - Look.
3. British air activities in the middle Bestom theatere -
as fellows: Brittich planse beard in Hugs oupported the advances of
ground treepe into centhern Bthiepia and Italian Senalized, Multa-based
Brittich planse engaged is flights) the - of
Britren, end Burbown, British Somaltiend, were attached w Britten
bentere from Men) nine Italian plaase - destroyed w British fighters
from Grosse that assurted benbers is a attack w the sirficld at Valous,
Albusta, - the complete from Line is the Albenton theater Italian
aircraft Leases as a result of Brittich fighter plane activities - $
confirmed and nine probable; in the Britrens theeter the operations of
lead foress in the visimity of Account and Earon - oxyported w British
planse from the Sales. the British are experiencing great difficulty in
CONFIDENTIAL
CONFIDENTIAL
&
taking the city of - British recommissence - Meanto, Like,
revents - about 30 - adaplance - Located to the - currenting
this -
4. as currise - February se state - drugget to
Malta humber w to Aste planse. - of the Anto planse we shot down
onl there have been - reporte of the - 4cm to the harber.
á < I to in I I
to be - - cagaged w a British mechanized $ 3000 about 30 siles wast
of Agheila, Likye. the with - stares w retreet is the
direction of Tripeli.
6. the Italian cirfield a listel Gritze, - of the Solectance
Islands, was destrayed w a Destish fores which Initial there. M - as
the sirfield vas weeked the Bettleh degarbed.
7. in amed Italian versel, fiying Britten colors, - attached
and and w the Brittish in the Indian 250 miles of the
Haldive Intents.
8. the British ressel - out all - others - damaged then
a courtry note - of a mall number of Britten chips - atteshed off the
cast compt of Regions w - streraft. & British voccal
is the loss such after striking a stan.
SEASION
Distribution:
Security w Mar
State Department
Secretary of treasury
Asst. Becretary of Yes
thief of Staff
- Plane Division
Office of Navel Intelligence
Air Gorge
0-3
CONFIDENTIAL
Regraded Uclassified
CONFIDENTIAL
30
of Code Bedingen
Reselved as the the Departments
at 10:20, Harch s, 2941.
Emales, filed threh s, 1941.
1. as Saturday, March " planse of the British Constal Commed
I I I 1 6 atf a I I Burtag I I
- m three Gerumn fighter please was shot down during as offensive
- carried out w British fighters over the northwestern acction of
Transe. There was no activities of the Dember Comment planse m this
day. During the proceding night Wilholmshaven one the energes of a large
formation of Britten bonbero and Ime besbers curried out raide
- compled Dateh and north - airficlds. 2a addition a small -
ties of benbere attached harber facilities as Inton and Boulague. 20
wes thought that these night vaide were ouscossful but observation of
results we very difficult. Be British planes - lest during my of
these raids.
di I $ 1 r 8 1 I I E
over the area, 10 others - setive over the ceastal
with must I and s I 1 $ I I
piettes 1 a I addition 1 I = I planse I
artive I I I Buttle 1 I 1
plane taking part in these attache crashed. Import for niner damages to
private property in Landon there have been M reports of the damage dans
3 r liste e Return die Repossed B 1 I of
Comes planse coused nlass damages during attacks an Nortelk,
end Suffelk. Other German planse were as patrol daty over the
CONFIDENTIAL
Regraded Uclassified
CONFIDENTIAL
31
Standie of Davor. the - plance - shot -
she British sir activities in the maile Bastom thembero - as
follows: British planse from the Salan attacked a redired troup transport
1 I 1 a a I I 19 # I $ 5 I
aschinagen fire ml bests and - responsible for the destruction of -
Italian fighter plane; Britten planes from Greese cerried oak & -
attack - Contra and interespted 50 Italian plasse - Tegetoni with
Insure to the Italians of 24 please confirmed, 11 protoble and three -
aged, - - buter wes shot down to Brittish aircraft - Bongast,
Libya: - Italian natur transport at Negbelli to Bihiepia - attached
I IN I I z
4. there are me reports of Anto airereft operations in made
Mastern theaters.
5. in uncondimed report which has been received w the British
Mar Office from a - that to believed to be not entirely reliable w
dientes that - - amered. divisions have curived in the Libyan part
of Tripeli. While - evidence - be femal to confirm this report 10 to
thought w the - Office that - - emergé foress - in Zihra
mer the town of State. n is Inno that the - Air Force has complet
as airficid at this com.
-
Sistribution:
I a 18
State Department
I I x
Asst. Secretary of the
thief of Staff
Ver Place Division
Office of Noval Intelligence
Air Garge
0-3
CONFIDENTIAL
Regraded Uclassified
32
March 2, 1941
Eccles phoned this afternoon and said he would like
to come over to see me Monday morning about the Chicago
Bank Presidency situation. Please give him an appointment
for Monday morning. (appointment given for 10:45.)
Please also see that Monday morning early Eccles is
given a copy of what we asked the 12 bank presidents to do
out of Bell's office Friday night in connection with the
defense savings bonds. I think we sent them a telegram
and a letter, and I would like Eccles to get one copy of
furnished Enles.)
what went out Friday by telegraph and by mail. (cofory
33
March 2, 1941
Spoke to Harry Hopkins at ten minutes to seven.
He said he had not heard a report on this morning's
meeting, and I gave him a very discouraging and gloomy
report because that is the way I felt about it. I said
the trouble was the President had not taken my original
suggestion and ask Cordell to carry this bill.
I suggested that Harry get the President to call
up Hull and ask him how things went this morning. I
said that it is the natural thing for the President to
do. Harry said that maybe Cordell had called the President,
and I said, "I'm sure that he hasn't because they weren't
on that kind of a basis." I also told Harry that after
we found out this morning just what the Budget has told
Senator Byrnes and whether we agreed with the Budget, I
would get in touch with Harry.
Relations
belongs_to
belongs_to