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    "title": "Volume 426, July 30 – July 31, 1941",
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        "Henry Morgenthau, Jr. Papers",
        "Diaries of Henry Morgenthau, Jr."
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    "ocrText": "DIARY\nBook 426\nJuly 30 and 31, 1941\nRegraded Unclassified\n- A -\nBook Page\nAustralia\nSee War Conditions\n- B -\nBolivia\nSee Latin America\nButcher Workmen, International Union of\nSee Financing, Government: Defense Savings Bonds\n- C -\nChautemps, Camille\nSee War Conditions: France\nCotton\nSee War Conditions: Price Control\n- D -\nDefense Savings Bonds\nSee Financing, Government\n- I -\nFinancing, Government\nDefense Savings Bonds:\nSales of savings bonds, first twenty-four days,\nJune and July - 7/30/41\n426\n32\nInternational Union of Butcher Workmen: Gardner\nJackson tells HMJr they are prepared to buy\n$1,100,000 worth of bonds - 7/31/41\n245\nFrance\nSee War Conditions\n= , #\nHenri-Haye, Gaston\nSee War Conditions: France\n- I -\nInternational Union of Butcher Workmen\nSee Financing, Government: Defense Savings Bonds\nRegraded Unclassified\n- 1 -\nBook\nPage\nLash, Joseph P.\nPrivate life as given by Westbrook Pegler -\n7/31/41\n426\n265\nLatin America\nBolivia:\nProposed State Department draft \"giving concrete\nevidence of United States Government's desire\nto back Bolivia in present situation of Nazi\nagitation and plotting\" - 7/30/41\n267\na) Bell memorandum concerning - 7/31/41\n266\n- P -\nPrice Control\nSee War Conditions\n- Q -\nQueensland\nSee War Conditions: Australia\n- R - -\nRevenue Revision\nJoint returns discussed by FDR, Bell, Sullivan,\nand Foley - 7/30/41\n16\na) Possible letter to Doughton and Rayburn;\nmay also comment on excess profits tax\n1) Tentative draft of letter to FDR\nstating Treasury position - 7/30/41\n83,118,123,137\na) Discussion of FDR's corrections\n108,126\n2) FDR's actual letter to Doughton\n141\na) Doughton's answer\n146\n3) Rayburn-HMJr conversation\n90\n4) Miss Tully gives HMJr background\n96\n5) Doughton-HMJr conversation\n113\n(See also Book 427, pages 71 and 83)\n- 8 -\nSocony Vacuum 011 Company\nSee War Conditions: Japan\n- T -\nTaxation\nSee Revenue Revision\nRegraded Unclassified\n- U -\nBook\nPage\nUnited Kingdom\nSee War Conditions: Military Planning\n- V -\nWar Conditions\nAirplanes:\nShipmente to the British, by air and sea - Kamarck report\n7/30/41\n426\n34\nAustralia:\nQueensland loan: Memorandum addressed to Cochran\nfrom Australian Legation, Washington -\n7/30/41\n42\nExchange market resume' - 7/31/41\n256\nFrance:\nHenri-Haye (Gaston) and Chautemps (Camille):\nWiley memorandum concerning activities -\n7/31/41\n261\nJapan:\nSocony Vacuum chairman G. S. Walden discusses\npetroleum supplies in Japan - 7/31/41\n268\nMilitary Planning\nReport from London transmitted by Halifax -\n7/30/41\n71\nWar Department bulletin:\nItalian chemical warfare - notes on - 7/30/41\n73\nPrice Control:\nReport of meeting - O'Connell memorandum - 7/30/41\n11\n(See also Book 428, page 162)\na) Discussion of\n1) Silk\n2) Automobiles\n3) Cotton\na) HMJr's resume' of situation for\nFDR - 8/1/41: Book 427, page 88\nb) Vickard-HMJr conversation -\n8/4/41: Book 427, page 300\n4) Price legislation\nRegraded Unclassified\nJuly 30, 1941\nFiles\nMr. Codtras\nAt 2:15 yesterday afternoon Mr. Brown of Oscar Cox's office telephoned BO,\n10 said a policy question had arisem is commection with Lend-Lease operations,\nnamely, as to whether ve should permit Great Britain to lond-lease through us 200\ntraining planes masufactured is and to be bought from Camada. In assver to Mr.\nBrown's inquiry, I told him that there had been some conferences with Conadian\nofficials in the Treasury before and after the Hyde Park conference between the\nPresident and the Prime Minister of Canada at which Lond-Lease policy was discussed.\nIt vse ay recellection that there had been - reference to the particular question\nwhich Mr. Brown raised, as well as rather lengthy discussion of the earlier problem\nas to whether Lond-Lease would cover engines manufactured is the United States and\nsent to Camada for plasing there is airplanes which Great Britain vas purchasing\ndirectly from Canada. I promised Mr. Brown to leek into the matter and let his\nhear from the Treasury. No asked that this be done yesterday evening or this more-\ning. einee the matter was urgent.\nAfter looking ever with Miss Channesy the simtes in her room of a few of\nthe conferences with Canadian officials, ye found and took to Acting Secretary Doll\nthe record of the conference hold in the Secretary's office on April 18 and attended\nby Heaurs. Clark and Coyse for Canada and the usual Treasury droup. After reading\nthe record on page 9. Mr. Bell telephoned Mr. Drown at 5115 yesterday ovening. with\nNice Channesy and Mr. Cechram present.\nMr. Bell referred to Mr. Brova's inquiry of Mr. Cookram. Mr. Bell told Mr.\nBrown that when Mr. Olark, Deputy Minister of Please of Camada, had raised she\nquestion with Secretary Morgenthan on April 18, just two days before the Myde Park\nmeeting, Secretary Morgesthan had expressed the strong hope that the Lond-Lease\npolicy would permit the to lend-lease to Great Britain articles which Canada 10 in\na position to produce beyond her own noods. This would be is addition to the\nAmerican policy of purchasing for 11:01f each products of Canada's excess capacity.\nIn the comversation which envast Mr. Bell pointed out to Mr. Brova the dual\nadventage of such as arrangement, that is, first, the prevision of model supplies\nto our friends the British, and secondly, the provision of mooded dollar exchange\nto Genada which will postpose the day on which Canada might be obliged to come to\nthe United States directly for Land-Lease facilities.\n110\nHMC: 8/1/41\nRegraded Unclassified\nRegraded Unclassified\ndaily 30. 1941\nPilse\nKr. Cookran\nAS one e'cleak yesterday Mr. Fordinand Inha asked that I speak with his friend,\nMr. Den Maisdell in the Department of State, who wanted certain information is\nregard to Land-Lease policy. I called Mr. Blaisdell (Dreach 462, Department of\nState) but did not get communication with him until 2:30 yesterday afternoon. Is\ntold me that a cablegram had been received from the American Gonsul General at\nCalcutta requesting information is regard to the Lend-Lease arrangement which vas\nunderstood to have been made to cover Indian purchases in the United States.\nMr. Blaisdell was drafting a reply. In our conversation Mr. Blaisdell mentioned a\npurported agreement between the Treasury, Lend Lease and British efficials with\nrespect to India. the details of which I could not confirm. I suggested to\nMr. Blaisdell that a espy of the incoming message and of the draft reply be provided\nActing Secretary Bell before the instruction to the Geneal General at Calcutta 10\ndispatched. Mr. Blaisdell mentioned that there had been conversations between\nMr. Adminster's office in the State Department and Dr. Barry White in the Treasury\nand Mr. Philip Young is the Land-Lease office. I told Mr. Blaisdell that Mosure.\nwhite and Young vore, of course, entirely familiar with the conversations which\nhave been held with the British insefar as these two offices are concerned.\nAt 10:30 this morning Mr. Mainster telephoned me from the Department of State.\nreferring to Mr. Blaimdell's conversation with no. Mr. Adminator teld as that be\nhad drawn up a memorandum on the subject. setting forth certain questions as to\nAmerican trade policy which wight be involved if all Indian purchases on this market\nare put under Land-Lease. Be had submitted this memorandes to Assistant Secretary\nof State Achoson, who had, in turn, asked for certain further details of the arrange-\nment under reference, as well as date with respect to British balances. etc. Is\nVAE agreed that Mr. Mainster would send me, personally and confidentially. a 1057\nof his memorandum, as well as a copy of Mr. Acheson's note, in order that the\nTreasury say have full information as to how the State Department officials are\nthinking, and with the hope that the Treasury will mosist in providing information\nnecessary to the preparation of a reply to the American Censul General at Calcutis.\nMr. Edminster reminded se that his assorandus is only his personal thought. and\nrequested that this should not be taken as approved State Department policy.\nJuly 31. 1941\nThere are attached hereto copies of the memoranda which Mr. Beninster ent M\nlast night.\nNo\nEMC:lap-7/30/41\n3\nDEPARTMENT OF STATE\nSpecial Assistant to the Secretary\n7/30/41\nRr. Cochrance:\nThis 10 the material I promised\nto send you is the light of w tolephone on-\nversation this seraing.\n(Signed) Edminater\nCOPT - in - 7/31/41\nRegraded Unclassified\nJuly 30. 1941\nNate\nwith regard to the attached, I doctro to call attention to the\nfollowing:\n1. 19 vas written on the basis of reported facts which. bevover,\nmay not be wholly accurate OF which may have important emissions.\nSpecifically, more information is needed with respect to the points\nto which Rr. Ashwoon salls attention is his appended commons.\n2. The observations made is this newersetun are is no var\nintended to question the ased for effective steares of collaboration\nbetween Great Britain and the United States for the protection of\nBritish dellar balances and, is general, for maintaining the vartine\nand post-var financial solvency of the British Septre, There are two\npoints in particular that I - emphasising:\nThe first to that the particular methods reserted so, as referred\nto is the attached memorander, are leaded with \"pelitical dynamite\",\nfor reasons 001 forth. If, notvithstanding this, there are se salis-\nfastory alternatives, then 11 comes obvious that what we are doing\nshould be increased with every possible enfoguard against the manifect\nabsors be which this arrangment se readily lends itself. It would be\nextremely helpful is this commection if I sould be advised of any\nspecific stops that are being taken to safeguard our interests.\nthe second point is that asquiescence by our Government to the\ntype of sollaboration hereis referred to reinferces and makes import-\ntive the taking of - strong position at this time with respect to\nemeting explisit accurance from the British that they will collaberate\nvholehoartedly with this country is the post-var period is support of\npelicies and which vil) eliminate AS repidly as possible British\ndiscriminations against American trade. the dangerous attitude taken\nby Mr. Keynee this matter should be emple varateg on this MIN.\nLynn 1. Edminster\nCOPT - is - 7/31/41\nRegraded Unclassified\n0\n5\nY\nJuly 30. 1941\nMr. Edminster:\nWe need more fasts on\n1) The present status of British balances.\n2) British dollar obligations.\n3) the actual arrangements between the United\nKingdom and the Decisions referred to.\nb) then ve can reach a understanding with the\nBrittsh.\nDean Achosen\nCOPT - in - 7/31/41\nRegraded Unclassified\n6\n0\nInformation has recently - so hand, and has been\nverified, that the United Kingdom representatives ⑉ the\nBrittsh Supply Council recently informed the represents-\ngives of India, Australia, New Sealed and South Africa\nthat, es the suggestion of the American authorities, 11\nhad been decided is the fatraire that purchases in the\nUnited States by these Deminious and India would be\nlimited to purchases obtainable under the Lond-Lease son,\nwith the exception that all these Governments combined\nwould be allowed, as a suchies, to eyend $2,500,000 a\nyear is the United States for goods not covered w the\nhead-Lease Act. the central objective being the conserve-\ntiem of the dollar recources of the storling area.\nThis decision raises questions of carious urgeney\nfor our government, as regards both 190 impliate and\nlong-range implications.\nthe first and more invediate result vill be the heavy\nNew that will be dealt to American foreign trade inter-\neats. American middlests will presumably be virtually\neliminated from - emport trade with the Dominions, elsee\npractically all orders for American emporte will have to\nbe placed directly w the British Dayply Commoil with -\nRegraded Unclassified\n7\n-2-\nlond-lence authorities. Purtherners, is the absence of\nnew commercial leans w this country to the Resisions.\nnado - the understanding that the processing would be need\nto enhance normal commercial purchases from the United\nStates beyond the procent $2,500,000 limit now enther-\nined for non-lend-lesse purchases. there will inevitably\nbe a marked reduction is Deminion purchases of non-co-\nfease goods. Discussion of this matter with efficials\nof the Mvision of Beforee Are Reports indicates that\nthere will be m dispecition in that quarter to stretch\nthe Lond-Lease Act to the numest limite to cover goods\nnet really assential for dafence. Bease there will is-\ncritably be a virtual constion of exporte of may types\nof goods to these Decinions. the deficiency either not\nbeing not at all or being met through imports from -\ntrice in the sterling area.\nis illustration of this last point will be in order.\nLet \" take cash registers. Amstralia needs them. Seving\nas demostic ansh-register industry and being unable to\ndisponse with imports, the meet make her cartine your\nchases from, say. Canada (where there is. is fees, some\nproduction). that is the result? American firms Loss\nthis business: a now and artificial channel of trade is\nest 10. hased upon martine financial bi-lateralism; and\nRegraded Unclassified\n8\n- 3 -\nthe deliberate policy of discrimination and comalization\nof trade which Keyaes contends the British mut and will\nfellow after the var is on tep. to course that the var-\ntime canalisation is carried ever into the post-war\nperiod.\nThe vartins discrimination time set up against\nAmerican export trade, with the danger of its continu-\nanso and possible intensification after the war, becomes\nall the more serious in view of the following facts:\nUnder the present set-up. the not result will be\nthis: that the British will be emabled not ealy to\nmaintain a sisime reserve of dollar assets but continu-\nonely to increase that reserve throughout the var period.\nvia the Lond-Lease set, and at the expense of American\ntampayers. m time utilising the balk of their dollar\nIncome to increase dollar assets rether than to pay for\nimporte from the United States, the British will be using\nthe Lend-Lease Act as a means of siphoning into their\nseffers, 0200 payment has been made for pre-lend-lease\npurchases of goods from this country, increasingly large\nholdings of American dollars which they would otherwise\nbe unable to sequire. In effect, the Lend-Lease set\nvould be utilized is this devious very usd to this extent\nas as instrumentality for securing large \"leans\" BEE for\npost-var purposes and is place of pest-ver lease, rather\nRegraded Unclassified\n9\n4 -\nthen for the purposes for which the law we emasted.\n20 permit such use to w made of the Lond-Lease\nAct comes 2017 to being a since of 10, and will give\nthe isolationists and the Anglophobee & nov handle with\nwhich to earry es their poisenous propaganda against\neffective Angle-American collaboration. This is true,\nnotwithstanding the bread fast--vhish the public, how-\never, night not readily understand-that 11 is emphati-\ncally not is our interest that the British Empire should\nbe bankrupt at the close of the war and unable to buy\nthe surplus of our farms and factories which ve will ⑉\ngreatly need to export. For 10 is obvieus that the\ndollar assets asquired by the British--vhether is this\ndubious names? on in any other ver-cast eventually\nresult is greater purchases of goods and services from\nthe United States than would otherwise take place.\nFor our government to allow the present situation\nto stand without further stops to enfeguerd our legitimate\ninterests would ROOM unvise is the extreme, for the fel-\nloving reasons:\n1. The control measures adopted w the British\ncreate a situation which constitutes an abuse of the\nprevisions and purposes of the Land-Lease set, with\nthe danger of seriens repersensions upon public opinion\nsace the fasts because have.\nRegraded Unclassified\n-5-\n10\n2. While this 10 being dame, Britich discrimina-\ntiem against American conserce, net only in the Impire\nbut is other countries. make \" Argentina, continues:\nand Mr. Keynes beldly security that 10 will continue per-\nforce after the was as & widespread and wholesale scale.\nTime, at the case time that - are taking far-renching\nseasures at the expense of our texpayers to misteds\nBritish wartine financial selvency and to sustain British\nwar effert is the interest of both countries, $9 face the\nprospect of continued British discrimination against our\nCOMMITS after the var on the plea that the financial\nposition of the Impire will necossitate 10. In shert,\n99 are to pay twice for the une thing. That is as is-\ntolerable situation. To permit the Lond-Lease Act to be\nexploited is the manner above described, and to take me\npositive and immediate stops meanshile to incare against\nthe persuit by the British of a deliberate and wholesale\npolicy of trade distrimination against us after the war.\nseems uhally indefensible.\n3. Finally, there is the problem of alleviating -\nfor as pessible the imediately unformable effects of\nthe British control herein deceribed upon\nAmerican foreign trade interests. To what extent these\nresults are to be regarded as unavoidable hy-gesensts\nof the our mergonsy and to what extent stops can be\ntaken to sefter then, IN matters that require further\nconsideration.\nRegraded Unclassified\n11\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE\nTO Secretary Morgenthau\nJuly 30, 1941.\nFROM J. J. O'Connell, Jr.\nFor your information\nThe regular weekly meeting of the Price Administra-\ntion Committee was held in Mr. Henderson's office this\nmorning at 11 o'clock. The matters of general interest\nwhich were the subject of discussion follow:\n1. Silk. Representatives of OPACS are discussing\nthe raw silk situation with representatives of the in-\ndustry. Their primary purpose is to develop the facts\nwith regard to the existing supply of raw silk in this\ncountry and the extent to which dislocation of industry\nand displacement of labor will result from a cessation of\nthe importation of raw silk from Japan. It is too early\nto know with certainty what the facts are in this regard,\nbut I am advised by OPACS' representatives that the dis-\nlocation and displacement of labor will not be anything\nlike as great as interested groups would have us believe.\nThere are several factors which should tend to minimize\nthe dislocation. The mills will be able to some extent\nto change over to a use of substitutes such 8.8 rayon, nylon\nor cotton. Many of the mills have apparently been experi-\nmenting in this regard for sometime as the view has been\nprevalent in the industry for several years that these\nsynthetic fibres will ultimately almost completely displace\nraw silk in this country. Admittedly, in the present state\nof the art, no substitute is available which will be entirely\nsatisfactory from the point of view of the consumer or\nentirely usable by the mills. However, in this respect\na complete cessation of the importation of raw silk\nmerely accelerates a change-over process which has been\ngoing on for some years (now about 90 per cent of all raw\nsilk goes into women's hosiery). Another possibility\nRegraded Unclassified\n12\nSecretary Morgenthau,\n2.\nto minimize the repercussions of cutting off the supply\nof raw silk is the importation of 8 type of machine\nwhich will process rayona and cotton to a much finer\nstate than can be done by machines presently available\nin this country. Donald Nelson stated that there are\nquantities of machines of this type available in Great\nBritain which are not now being used at all. Another\nfactor which, of course, must not be forgotten, is the\npossibility of transfer of skilled workers from the\nsilk mills to other types of work. This is difficult\nto evaluate at this time but it is the fact that bottle-\nnecks in skilled workers are appearing in any number of\nindustries at the present time. The picture I get\nfrom OPACS is that with intelligent cooperation the\nsilk industry should be able to meet the problem created\nby the complete cutting off of silk supplies without any\nvery great hardship either to labor employed in the\nindustry or to its capital. I expect to keep current\non the discussions between OPACS and the representatives\nof the silk industry and to make periodic reports thereon\nto you, and also to Mr. Foley and to Dr. White.\n2. Automobiles. Mr. Henderson announced that\nhe had 8. meeting yesterday with Mr. Knudsen and Mr. Hillman\nin connection with the problem of cutting down the manu-\nfacture of passenger cars and light trucks for the pur-\npose of conserving scarce materials and for a better\nutilization of skilled workers for defense. OPACS and\nOPM have up until now been working very much at cross\npurposes in this regard, but Mr. Henderson indicated\nthat he thought that as 8. result of the meeting yesterday\nthe two organizations would be able to come to an agreement\nbetween themselves and with the industry as to the number\nof passenger cars and light trucks that may be produced\nduring the coming year. He stated, however, that the\ngeneral question as to which organization has the ultimate\nauthority and responsibility in allocating civilian supply\nremains undetermined, and he was unable to make any\ndefinite assertion as to when or how that question will\nbe settled.\nRegraded-Unclassified\n13\nSecretary Morgenthau,\n3.\nIt seems to me that the issue is much deeper than\nmerely a struggle between the two organizations for power,\ninasmuch as on practically all questions the approach of\nthe two agencies is entirely different. As in the case\nof silk, interested parties tend to over-emphasize the\neffect on labor and capital of a reduction in civilian\nproduction or an allocation to them of smaller supplies\nof raw materials. For example, both Messrs. Knudsen\nand Hillman seem to believe that any reduction in production\nof passenger cars and light trucks will automatically\nresult in an equivalent amount of displacement of labor and\nof loss to capital. On the other hand, OPACS is inclined\nto go a little deeper and to analyze the situation de novo.\nAs a result of their analysis of the automobile industry\nOPACS representatives believe that a 50 per cent reduction\nin the production of passenger cars and light trucks (or even\nthe complete elimination of their production during the\nnext year) can be had without the dire results forecast by\nOPM. In support of this position they can point to the\nfact that the industry now has over $2 billion in defense\norders, that the needed production of heavy trucks during\nthe next year will be more than 50 per cent in excess of\nthat produced during the past year (they are already\nexperiencing difficulties in getting steel and other\nmaterials needed for truck production), and that defense\norders still awaiting allocation which must be shouldered\nby the automobile industry will give them a scale of opera-\ntions in terms of dollar volume, in excess of anything\never experienced by the industry. Of course this takes\nlittle or no account of distributors and dealers, but most\nof the OPM argument seems addressed to manufacturers and\nfactory workers.\n3. Cotton. The rising price of cotton was the\nsubject of a substantial amount of discussion, largely\nbetween Secretary Wickard and Mr. Henderson and members\nof his staff who have been dealing with the cotton textile\npeople. OPACS staff members pointed out that they are\nRegraded Unclassified\n1.)\nSecretary Morgenthau,\n4.\nbeing caught in a \"squeeze\" between the cotton textile\nmanufacturers and the cotten people. The recent revision\nof the price schedule for cotton textiles was made in the\nlight of the then existing price of cotton, although with\nsome leeway. The price of cotton has been steadily\nadvancing ever since and is now above parity. The existing\nlevel of textile prices can be maintained only if cotton\nprices do not advance substantially above parity, and in\nview of the fact that cotton prices are already above\nparity and are showing no signs of stopping it will be\nnecessary to revise cotton textile prices upwards again\nunless something is done about cotton prices.\nAt B. meeting of the Committee held several weeks ago\nSecretary Wickard stated that he and Mr. Henderson had\nreached 8. general understanding that Agriculture would\nsell Government owned cotton when, as and if the price\nreached parity. The purpose of this, of course, would\nbe to keep cotton prices from going substantially above\nparity. Despite the fact that cotton prices have gone\nabove parity Agriculture has not yet sold any, and Secretary\nwickard was somewhat hard-put to explain why none has been\nsold. His apparent reason is fear of what the cotton block\nin Congress will do to him if he sells any. He stated that\nhe didn't know what they would do, but that they might\nrestrict further his right to sell cotton. His reasoning\ndid not seem to me particularly persuasive, at least in BO\nfar as the results of his inactivity are concerned, inasmuch\nas the Senate tacked a rider on to an Agriculture bill\nyesterday the effect of which is completely to freeze all\nGovernment stocks of cotton. The bill is now in conference\nand may quite possibly go to the President in that form.\nSecretary Wickard indicated that he was undecided as to\nwhether to go to the Senators responsible for the amendment\nand suggest 8. compromise or whether it would be better\nto let the bill take its course without any comment from\nhim with the thought that the President might veto the\n6111 if it becomes law.\nRegraded Unclassified\n15\nSecretary Morgenthau,\n5.\nI ventured the suggestion that there is another\nalternative which does not seem to have been considered\nby him or anyone else opposed to the bill. That is\nthat if the bill is 8. bad bill, and everyone but the\ncotton block seemed convinced of that, it might be a\ngood time for the Secretary of Agriculture and others\nin the Administration to speak up and create a little\narticulate opposition to the bill without waiting for\nit to be sent to the President for his approval or veto.\nI am not sure Secretary Wickard thought very highly\nof my suggestion, although he stated that he has\nindicated to Senator Barkley that he is not in favor of\nthe bill. It was my point and I believe it to be &\nvalid one, that it might be helpful for the Secretary\nof Agriculture to take the lead in opposing legislation\nof this character rather than to sit silently by and\nexpect the President to veto a bill as to which neither\nhe nor any members of his Administration have given\nany affirmative indication of opposition. As is often\nthe case, the subject was left hanging in the air and\nMr. Henderson is to discuss it further with Secretary\nWickard with 8 view to taking it up with the President.\n4. Price Legislation. The message on the long-\nawaited price legislation is to be sent to the Congress\ntoday by the President and bills are to be introduced\nin the Senate and the House today or tomorrow. Mr.\nHenderson reported that general agreement has been\nreached with the legislative leaders and with the\nlegislative counsel of both Houses as to the form and\ncontent of the bill, and that there is general agreement\nbetween his office and the legislative leaders 8.8 to the\nnecessity for it. The bill is to be introduced in the\nSenate by Senator Glass and in the House by Congressman\nSteagall.\nThe meeting adjourned at 12.45.\nJoyn of\nRegraded Unclassified\n16\nMEMORANDUM\nJuly 30, 1941.\nTO:\nThe Secretary\nFROM:\nMr. Sullivan\nTLS\nAbout 3:15 at the House Ways and Means Committee room in\nthe Capitol, I was advised by Mr. Bell that he, Mr. Foley and I were\nto be at the White House at 4 o'clock. I returned to the Treasury\nand neither Mr. Bell nor Mr. Foley could imagine the reason for the\nsummons. Shortly before we left the Treasury we were advised we\nshould come in by the front door.\nThe President said he had a call from Speaker Rayburn and\nhad discussed with hdm mandatory joint returns which the President\ncontended should be eliminated from the 3111. He spoke about the\nnumber of divorces it would cause, the opposition of the churches,\nand the united opposition of the women of the country. I advised\nthe President that we had had opposition from members of the Episcopal\nclergy and the President interrupted to say there had been opposition\nfrom all the churches. He added that a Catholic archbishop had seriously\nprotested to him. I advised the President that the original vote on\njoint tax returns was 16 to 9 in favor of the proposal; that later the\nsentiment shifted until 13 of the Committee were opposed to the proposal;\nand that finally what swung the Senate and the Committee back to favor-\nable consideration of the proposal by a vote of 15 to 10 was the letter\nfrom Bishop Manning. Someone recalled that Bishop Vanning was America's\nleading Anglophile and spread the word that although England had had\nmandatory joint returns for twenty-five years, the divorce rate was\nlower there than anywhere else in the world. The President said, \"Well\nI went this out of the Bill, and for political considerations it must\ncome out of the Bill.\"\nHe then stated that in order to make known his opposition\nto mandatory joint returns he was going to write a letter to Chairman\nDoughton and then write to the Speaker enclosing a copy of his letter\nto Chairman Doughton, and he asked Vr. Bell as Acting Secretary to write\nA\nletter to him advising him that the Treasury had opposed mandatory\njoint returns. At this point I interrupted to advise the President\nRegraded Unclassified\n17\n- 2 -\nthat this was not true, - that after two weeks of deliberation and\njust 10 few minutes before the vote, I had told the Committee that\nthe Secretary had asked me to advise them that be favored mandatory\njoint returns if there was relief for earned incomes. The President\nreplied that I was playing both ends against the middle and I stated\nthat 1 was definitely in one corner. Mr. Voley said that be thought\nwe should review the record to see what position the Treasury had\ntaken in the past and he advised the President there had been times\nwhen the Treasury had definitely favored mandatory joint tax returns.\nHe then went on to discuss the unnecessary complications of\nthe income tax and said that he would like to have everybody who\nearned 750 pay BO much tax, those who earned 850 pay so much, those\nwho earned 950 pay so much. \"In other words, he said, a separate,\ndistinct amount that everybody would know in advance was due. The\ntrouble today is that too many people are earning money and not con-\ntributing to the Government.\" I then said that what he really wanted\nwas a gross income tax. After a moment's hesitation he said, \"That is\njust it.\" I then advised him that if he was interested in taking more\npeople on the tax rolls this could be accomplished by lowering personal\nexemptions, but I was sure he didn't want that. He replied, \"Of course\nwant that. I have been trying to get it for years but nobody will\nhelp me do it.\" I then stated that we had been battling for three\nmonths to prevent a lowering of personal exemptions and we had been\ndoing so because I understood that was his position. He then said we\ndid not understand his position. I advised him that it would be poss-\nible in the present bill to reduce personal exemptions but that it\nwould not be possible to effect a gross income tax.\nHe reluctantly agreed to my suggestion and I asked if he wanted\nthe amount by which personal exemptions would have to be reduced to\nraise the three hundred million we would have on mandatory joint returns.\nPle replied that he did. He then went into a discussion of excess profits,\nwhich he intended to open up again. Mr. Pell inquired if the President\nhad any notion that he was going to be able to change excess profits at\nthis session and the President replied, \"No, but I am a woodchuck and 1\nkeep digging when there is a chance to dig, and since I have to write a\nletter on one phase of the tax bill I might just as well comment again\non excess profits.\" He then went on to speak of the additional money\nthat would be collected through a change in excess profits. I advised\nhim that the change in excess profits could not be defended on that\nground because the present system was capable of raising an incressed\namount of revenue.\nRegraded Unclassified\n18\n- 3 -\nThe President then stated that he would like to see a tax\nwhich would tax all income above $100,000 at the rate of 995 per\ncent. When Mr. Bell expressed his astonishment the President\njoldngly said, \"Why not? None of us is ever going to make 100,000\na year. How many people report on that much income?\" I replied\nthat I thought about 1100 taxpayers reported income in excess of\n$100,000 a year.\nHe then discussed the form of the letter he desired and\nhe asked that we write stating the opposition on mandatory joint\nreturns and excess profits, omitting from the letter any reference\nto the position the Treasury had taken on lowering personal exemp-\ntions. He stated that he would also like some material on excess\nprofits which would not be included in our letter but enclosed for\nuse in his letter to Chairman Doughton. Wr. Bell said, \"This is\ncertainly going to be 8 bombshell.\" The President made no comment.\nOn our return to the Treasury Messrs. Bell, Foley, Kades,\nBlough and Sullivan worked on the composition of the letter until\n6:30 p.m. Mr. Bell phoned the Secretary and advised him of the\nsituation, expressed his anxiety, and urged the Secretary to return.\nThis the Secretary readily agreed to after calling the White House,\nasking for a postponement 60 he could have his day in court, and\nlearning that he would have to be here by 9:30 tomorrow morning in\norder to see the President about this matter. Messrs. Sullivan,\nTarleau and Blough went to the dinner being tendered by the members\nof the House Ways and Means Committee. We returned from this dinner\nlater in the evening and the group worked until about 12:30 s.m.\nThe next morning, July 31st, Messrs. Bell, Foley and\nSullivan met the Secretary at the airport and discussed this matter\nriding to the office where Mesars. Gaston and Blough joined the\ngroup. Mr. O'Donnell furnished us with the estimate that to raise\nthree hundred million dollars additional by lowering personal exemp-\ntions the married couples exemption of $2000 should be reduced to\n1600 and the single persons exemption of $800 should be reduced to\n3650. At 9:30 a.m. the Secretary, Mr. Blough and Mr. Sullivan went\nto the White House where the Secretary conferred with the President\nfor one-half an hour and Messrs. Blough and Sullivan waited outside.\nAt the conference the President asked the Secretary for some slight\nchanges in the Treasury letter and on our return to the Treasury the\nSecretary asked Mesars. Blough and Kuhn to make these changes.\nRegraded Unclassified\nJuly 30, 1941\n19\nEMORICEDURE FOR THE SECRETARY'S FILES:\nA meeting relative to the administration of Executive Order\nwas neld in Mr. Foley's office ct 4:30 p.m., July 29, 1941,\nattended from time to time by the following:\nMessrs. Foley (Chairman), Gaston, Cochran, Pehle, B. Bernstein,\nWhite, Viner, E. V. Bernstein, Ullman and Timmons for the Treasury;\nDessrs. Acheson, Luthringer and Miller for State; Messrs. Shea,\nand Kreeger for Justice.\nIr. Acheson said it would be desirable for him to receive some\nsort 32 E record of the decisions taken by the committee. It was\nagreed that copies of the minutes of the meeting should be sent to\nsssre. Acheson and Shea.\nDr. Foley referred to the desirebility of keeping the British,\nSanadian, Australian, and Dutch Governments in touch with the\nocisions taken with respect to the administration of the freezing\ncontrol in order that, on the basis of such knowledge, parallel\naction be taken be all overmients concerned. This is particu-\nLarl, true ..ith res ect to the policy to be followed toward Japan.\nlr. Pehle read a telegram received from the Federal Reserve\nTANE of Dallas, relative to application No. Dallas 423, involving\nLice export of approximately $1,000,000 worth of cotton to Shanghai,\nChine, by order O₂ Missho Cotton Co., Osaka, Japan. The telegram\nstated that Missho in Osaka is the consignee of such cotton but that\nL.E cotton will be delivered to Shanghai and will not be trans-shipped\nto Japan. Missho is Apparently L Japanese firm in Japan with an\nin Coine. Mr. Pehle stated that the transfer might con-\nceivably come under the General License No. 58, but that if it did\nat 40 so, the General License should not be stretched to include\nsuch D. transaction. Mr. Acheson remarked at this point that he had\nValized with Under Secretary of State Welles, who thought that for\nnext week or SO the happiest solution with respect to Japanese\nwith would be for the Forei Funds Control to take no action on\nManagese applications.\nwith respect to the several Jepanese ships that are now\noverin_ off the Pacific coast, .r. Welles had told the Japanese\n_ bassader that specific licenses were necessary to fuel such boats,\n18 put into port. There is, however, Mr. Welles said, no intention\non the part of this Government to refuse such licenses at the\nresent time. Mr. Foley interpreted this to mean that ship control\nRegraded Unclassified\n20\n2 -\ndeparture permits would be granted, but that other transactions,\nespecially those involving the freezing control, would be subject to\nspecial licenses, application for which would be given consideration.\nIr. Bernstein then raised the question whether action was to be\nwithheld on such applications as part of the general delaying\nprogram. Mr. Gaston stated that a representative of NYK Line had\nasked the Collector of Customs at San Francisco whether the Tatuta\nJaru could come in and depart without hindrance; also, whether she\nwould be permitted to discharge and load cargo. Mr. Gaston had\nadvised the Collector that there had been no change in the policy\nof the merchant ship control with respect to the granting of permits.\nThe NYK representative had repeatedly inquired of the Collector\nwhether the boat will be permitted to dispose of her cargo and, if\nthe Tatuta Maru discharged her passengers in port, whether she could\nclear for Japan without discharging cargo. It was pointed out here\nthat the cargo of silk on board would, if the boat put into port,\nbecome subject to Export Control. Mr. Pehle called attention to\nthe fact that many American importers have opened letters of credit\navailable to Japanese exporters of the silk on board the Tatuta Maru\nand that drafts may have already been drawn and paid under such\nletters of credit. Such American importers would, if the boat were\nallowed to clear with the cargo of silk still on board, probably\nsubject this Government to strenuous criticism. It was generally\nagreed that the basic decision involved in this question is whether\nthis Government is to relax the newly-applied economic controls.\n1r. Foley remarked that a solution could only be reached by this\ncommittee if it is known what Mr. Welles wants done in the premises.\nMr. Foley suggested to Mr. Acheson that he mention the matter\nimmediately to Mr. Welles, find out what Mr. Welles had told the\nJapanese Ambassador, and relate this conversation to this specific\ncase. Mr. Acheson, after a telephone conversation with Mr. Welles,\nreported that the latter had stated that the Tatuta Maru could come\nin, take on fuel and supplies and depart. In that conversation,\nthe question of cargo of silk was not mentioned. It had suddenly\nbeen remembered, however, and an official of the Japanese Embassy\nwas at that moment waiting to see Mr. Welles. Mr. Welles had\nindicated to Mr. Acheson that he had not made a final decision with\nrespect to the cargo. It was agreed that Mr. Gaston should inform\nthe Collector of Customs that the whole matter is being discussed\nbetween the Japanese Ambassador and Mr. Welles. Later in the\nmeeting, Mr. Acheson reported that Mr. Welles' present inclination\nHas to tell the Japanese that the boat could put in and unload cargo.\nThe cargo would then be subject to license but could be taken out\nagain if the Japanese so wished.\nMr. Cochran read a telegram from Wellington, New Zealand,\nstating that the New Zealand Government has taken parallel action\nwith our Government and frozen Japanese funds in that Dominion.\nRegraded Unclassified\n. 3 -\n21\nMr. Bernstein read EL telegram just received from Mr. Frank\nCoe, Treasury attache in London. Mr. Coe reported B. conference\nattended by officials of the British Treasury and the Bank of\nEngland, and the Chinese Ambassador. The Ambassador was informed\nat such meeting Chinese Assets in the sterling area had been frozen\nand that the British Government would look to the Chinese Government\nfor advice as to what accounts should be freed. The British also\nindicated that they were prepared immediately to free all official\naccounts of the Chinese Government, certain Chinese banks, and\nBritish and American banks in China.\nMr. Bernstein informed the meeting that a conference was\nbeing held at that time with the object of coordinating the actions\nof the Foreign Funds Control, Customs and Merchant Ship Control,\nwith respect to imports from and exports to Japan or Manchuria.\nMr. Bernstein inquired of Mr. Pehle whether any applications\nhad been filed to pay interest on Japanese bonds due August l. Mr.\nPehle reported that no such applications had been filed nor had the\nJapanese Embassy requested that any diplomatic or governmental\naccounts be released.\nReference made to the Special Accounts \"A\" and \"B\" of the Bank\nof Indo-China, Saigon. The balances in such accounts as of July 29\nwere as follows:\nA account\n---\n$343,000\nI account --- $120,000\nThe question whether licenses allowing payments and transfers from\nsuch accounts should be revoked obviously raises several delicate\nproblems, inasmuch as these accounts were originally set up to\nsecure for this Government certain necessary strategic materials\nand that an explicit commitment to allow the free utilization of\nsuch accounts has been made. With respect to the possibility that\noil will be purchased out of such accounts, Mr. Acheson remarked\nthat the general export license covering oil shipments to the Far\nEast could be revoked if nocessary. Mr. Pehle stated that the\nfreezing control license could not, for several reasons, be revoked\nbut that the export control licenses could be, in view of the fact\nthat no commitments with respect thereto had been made.\nMr. Pehle discussed briefly a proposed transaction in which\nthe Brazilian Government would buy with milreis Brazilian bonds\nheld in France and the French Government would use such local\ncurrency balances to purchase Brazilian cotton, to be stored in\nTrazil until the end of the war. Anderson, Clayton and Company\nis interested in this transaction because their Brazilian affiliate\nRegraded Unclassified\n22\nwould presumably sell part of the cotton to be 80 purchased. The\nLegal Department is to consider whether Anderson, Clayton and Company\ncan be advised that a license must be obtained for the Brazilian\naffiliate to sell cotton to the French Government. Mr. Acheson\nstated that the State Department desires to see such transaction\nstopped if possible.\nMr. Bernstein read to the meeting & draft of a reply to 8 letter\nreceived from Mr. Noel Hall of the British Embassy relative to the\nlitigating of British claims against the German and Italian debtors,\nby attaching their assets in the United States. Reply is to be\nmade to the effect that it is believed that in view of all the\ncircumstances there might be some objection to such cases and that\nit would be premature for this Government to agree to issue appro-\npriate licenses covering payment of such German and Italian assets in\nsettlement of court judgments obtained by British creditors.\nMr. Pehle referred to an application that had been filed in\nDecember last by the Chase National Bank to transfer some $500,000\nfrom the Rumanian National Bank to Russia. At that time the State\nDepartment had indicated that it could not give its approval of\nsuch transaction. A new application was subsequently filed raising\nthe amount to approximately $600,000. The Treasury addressed a letter\nconcerning this application to State, to which State replied there\nhad been no change in its previous attitude. It was agreed that if\na license is granted the Chase Bank would probably not pay out unless\nnew instructions are obtained. Mr. Acheson stated that the State\nDepartment had no objection to approval and it was unanimously\nagreed that such action should be taken immediately.\nDr. White said that the Sooony Vacuum Oil Company had inquired\nwhether to reply to an inquiry from the Japanese Government relative\nto 8 shipment of oil from the Netherlands East Indies on a boat\narriving there tomorrow. If they are to be requested not to send such\nshipment, they are anxious that parallel action be taken by British\nand Dutoh firms as well. It was pointed out that such & shipment\ninvolves two licenses, one from the Dutoh export control and one from\nthe freezing control, as payment for the oil is to be made from c.\nblocked Japanese account in New York. Mr. Acheson has suggested to\nMr. Welles that pressure be applied to Japan through the medium of\nthe freezing control licenses. It may be possible to leave out-\nstanding export licenses unrevoked, but to limit types and quantity\nof merchandise that is to be allowed to be exported to Japan. For\ncrample, exports to Japan in an average year, say 1935-1936, might\nse taken as a standard end exports of high octane-rating gasoline\nRegraded Unclassified\n23\n- 5 -\nand lubricating oils be cut to such average amount. Mr. Bernstein\nsuggested that a workable plan might be developed along the lines\nof limiting to Japan to her needs for a normal, peaceful life,\nexcluding her war needs. It was agreed that the techniques involved\ncan be worked out once the final line of policy is formulated.\nMr. Acheson stated that he had been requested by Export Control\nto initial an Executive Order to be signed by the President, which\nwould have required that the ultimate consignee of all exports be\nnamed. lle had not done 50 in view of the fact that the questions\nraised by such Order cut across the problems of several departments,\nincluding the Treasury. Mr. Pehle said that members of the Treasury\nLegal Department were developing workable definition of the term\n\"ultimate consignee.\"\nMr. Shea said that he had recently a note from Mr. Francis\nBiddle to the effect that certain \"Free Frenchmen\" in the United\nStates are worried over the filing of TFR-300 reperts, for fear that\nthe information contained therein will be disclosed to the Vichy\ngovernment. Mr. Foley said that this material would obviously be\ntreated as confidential and handled in the same way as any other\nconfidential information received by the department.\nRegraded Unclassified\n21\n7/30/41\n1888\nEXECUTIVE ORDER\n8839\nESTABLISHING THE ECONOMIC DEFENSE BOARD\nBy virtue of the authority vested in ne by the Consti-\ntubion and statutos of the United States, by virtue of the exist-\nence of an unlimited national emergency, and for the purpose of\ndeveloping and coordinating policies, plans, and programs designed\nto protect and strengthen the international economic relations of\nthe United States in the interest of national defense, it is hereby\nordered as follows:\n1. The term \"economic defence, whenever used in this\nOrder, means the conduct, in the interest of national defense, of\ninternational economic activition including those relating to\nexporto, imports, the acquisition and disposition of materials and\ncommodities from foreign countries including preclusive buying,\ntransactions in foreign exchange and foreign-owned or foreign-con-\ntrolled property, international investments and extensions of credit,\nshipping and transportation of goods among countries, the international\naspects of patents, international communications portaining to com-\nmerce, and other foreign coonomic matters.\n2, There is hereby established an Economic Defense Board\n(horeinofter reforred to as the \"Board\"). The Board shall consist\nof the Vice Progident of the United States, who shall serve as Chair-\nman, the Secretary of State, the Secretary of the Treasury, the Sec-\nretary of yes, the Attorney General, the Secretary of the Navy, the\nSecretary of Agriculture, and the Secretary of Cormerco. The Chair-\nman may, with the approval of the President, expoint additional mom-\nnors to the Board. Each member of the Board, other than the Chairman,\nmay designate on alternate from among the officials of his Department,\nsubject to the continuing spyroval of the Chairman, and such alternate\nday act for such camber in all matters relating to the Board.\n3. In furtherance of such polician and objectives as the\nPresident noy irom time to time determine, the Board shall perform\nfollowing functions and Oution:\nN. Advise the President as to economic defense mma-\nsurea to be taken or functions to be performed\nwhich are essential to the effective defense of\nthe Nation.\nas Courdinate the policies and actions of the several\ndepartments and agencies carrying on activities\nrelating to conomic defense in order to assure\nunity and balance in the application of such meas-\nures.\nc. Develop integrated economic defense plans and pro-\ngrans for coordinated action by the departments and\nagencies concerned and use all appropriate means to\nassure that such plans and programs are carried into\neffect by such departments and agencies.\nd. Make investigations and advise the President on the\nrelationship of economic defense (as defined in\nparagraph 1) measures to post-war economic recon-\nstruction and on the steps to be taken to protect\nthe trade position of the United States and to ex-\npedito the establishment of sound, peace-time inter-\nnational economic relationships.\nRegraded Unclassified\n25\n4, Adview proposed or saleting Regislation relating\nto or affecting economic defense and, with the\napproval of the Prosident, recommend such 4001-\ntional legislation GS may bd nicessary or dosir-\nable.\n4. The administration of the vorious activities relating\nto oconomic defense shall ramain with the several departments and\nagencive now charged with such duties but such administration shall\nnonform to the policies formulated or approved by the Board.\n5. In the study of problems and in the formulation of\nprograms, it shall be the policy of the Board to collaborate with\nstisting departments and agencies which perform functions and ac-\ntivities portaining to economic defense and to utilizo their\nscrvices and facilities to the muximum. Such departments and agen-\nniva shall cooporato with the Board in clearing proposed policios\nnnd measures involving oconomic defense considerations and shall\nmpply such information and data as the Board may require in per-\nforming its functions. The Board may arrango for the estoblishment\nof committees of groups of advisers, rupresenting two or more de-\npartments and agencies as the case pay require, to study and develop\nnennomic defense plans and programs in respect to particular commo-\ndities or services, geographical areas, types of measures that might\nbi exercised, and other related matters.\n6. To facilitato unity of action and the maximum use of\nutisting services and facilities, each of the following departments\nand agencies, in addition to the departments and agencies represented\nen the Board, shall designate a responsible officer or officers, sub-\nfoot to the approval of the Chairman, to represent the department or\nagency in its continuing relationships with the Board: The Depart-\nments of the Post Office, the Interior, and Labor, the Federal Loan\nAgency, the United States Maritime Commission, the United States\nTeriff Commission, the Foderal Trade Commission, the Board of Gov-\nernors of the Federal Reserve System, the Securities and Exchange\nCommission, the National Resources Planning goard, the Dofense Com-\nmunications Board, the Office of Production Management, the Office\nof Price Administration and Civilian Supply, the Office for Goordi-\nnetion of Commercial and Cultural Relations Between the American\nRepublics, the Purmanent Joint Board on Defenne, the Administrator\nx Export Control, the Division of Defense Aid Reports, the Coordit-\nAtor of Information, and such additional departments and agencies\nAT the Chairman any from time to time determine, The Choirman shall\nprovide for the systematic conduct of business with the foregoing\ndepartments and apencios.\n7. The Chairman is authorized to make all necessary ar-\nrangerents, with the advice and assistance of the Board, for dia-\ncharging and oerforming the responsibilities and duties required to\ncarry out the functions and authorities set forth in this Order,\nand to make final decisions when necessary to expedite the work of\nthe Soard. Fe is further authorized, within the limits of such\nfunds-as may be allocated to the Board by the President, to employ\nnecessary personnel and take provision for the necessary supplies,\nfacilities, and services. The Chairmen =/, with tire approval of\nthe President, appoint an executive officur.\nFRANKLIN D. ROOSEVELT\nTHE WHITE HOUSE,\nJuly 30, 1941.\nRegraded Unclassified\n26\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nCONFIDENTIAL: To be held in STRICT\nCONFIDENCE and no portion, synopets,\nor intimation to be published or\ngiven out until the READING of the\nPresident's Message has begun in the\nSenate. Extreme care must therefore\nbe exercised to avoid premature\npublication.\nSTEPHEN EARLY\nSecretary to the President\nTO ThE SENATE:\nI return herewith, without my approval, S. 1200, a bill\n\"To authorize additional appropriations to provide for the further\ndevelopment of cooporative agricultural extension work.\"\nThe basic acts authorizing grants to States and Territories\nfor agricultural extension work set un a formula under which the\nfunds appropriated are largely apportioned among the States and\n[erritorios in the proportion which the rural or farm population of\nthe State or Territory bears to our total rural or farm population\n35 determined by the lost preceding decennial census.\nThe 1940 census reveals that important shifts have occurred\nin farm population since 1930, and, an one consequence, redistribu-\ntion of Federal funds contributed to the agricultural extension\nprogram in accordance with the basic nots would entitle twenty-four\nStates and Puerto Rico to increased shares aggregating approximately\n$340,000, while the sharea in twenty-four States and Hawaii would\nbe decreased in a total amount of approximately $555,000.\nS. 1200 would authorize annual appropriations of $555,000\nwith which to continue at the present level the annual grants to these\nlatter twenty-four States and Hawaii. In effect, the bill rendero\nmaningless the apportionment formula of the basic acts, which WELD\nMioughtfully written by Congress, and which must have contemplated\nthe possible necessity of adjustments in apportionments thereunder\nas shifts in population occur.\nIf that formula is now considered unsount, it would seem\nto me that the proper corrective is to replace it with a new and\nbetter one, rather than timply make offsetting special appropriations\nwhenever the operation of the formula decreases the chares of one or\n% group of Statis and Territories.\nThe enactment of the Bankhead-Jones Act in 1935 greatly\nstrengthened the participation by the Federal Government in the\ngeneral agricultural extension program. I de not feel that there\nis sufficient warrant for further increasing at this time the\ncontinuing annual appropriations provided By that Act and earlier\nrelated legislation.\nFRANKLIN D. ROOSEVELT\nTHE WHITE HOUSE,\nJuly 31, 1941.\nRegraded Unclassified\n27\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nJULY 30, 1941\n1385\nCONFIDENTIAL: To be held in STRICT CONFIDENCE and no\nportion, synopsis or intimation to be published or\ngiven out witil the READING of the President's Mesange\nhas begun in the Senate or the House of Representa-\ntives. Extreme care must therefore be exercised to\navoid premature publication.\nSTEPHEN EARLY\nSecretary to the President\nTO THE CONGRESS CF TIC UNITED STATES:\nInflationery price rinco and incrusses in the cost of living an\ntoday threatening to undermine our defenso effort. I Em, therefore, recom-\nmanding to the Congress the adoption of meaduran to deal with this threat.\nWe are now spending more than $30,000,000 a day on defense. This rate\nmust and will increase. In June of this year We opent about $808,000,000 -\nmore than five times the 1158,000,000 WL spent In June 1940. Every dollar\nspent for defonse presses against an already limited supply of materials,\nThis pressure is onerply accentuated by no ever-increasing civilian\ndecand. For the first time in years many of our workers are in the market\nfor the goods they have always wanted. This means more buyers for more\nproducts which contain steel and aluminum arto other materials noeded for\ndefense, Thus a rapidly expanding civilian demand has been added to a vast\nand insistent dewand by the Government.\nThose who have money to spend are willing to bid for the goods. The\nGovernment cust and mill satisfy its defense needs. In such a situation,\nprice advances mercly determine who gota the scarce materials, without 1n-\ncreasin; the available supply. We face inflation, unless we act decisively\nand without dolay.\nThe conséquences of inflation are well known We have seon them\nbefore.\nProducers, unable to obtermine what thoir costs will be, hositate to\nenter into defonse contracts or otherwise to commit themselves to ventures\nwhose outeo/s they cannot foregot, Time whole production machinery falters.\nSpeculators anticipating successive price advances, withhold commodi-\nties from essential military production.\nCosts to the Covernment increase, and with it the public debt.\nIncreases in the workors' cost of living, on the one hand, and EXCES-\nsive profits for the manufacturer, on the other, lead to spiraling demands\nfor higher wages. Chic means friction between employer and employed.\nGreat profits are reaped by some, while others, with fixed and low\nincomes, find their living standards drastically reduced and their 11ft-\nlong savings chrunken. The unskilled worker, the white-collar morker, the\nfarmer, the small businessman and the small investor all find that their\ndollar buys ever loss and less.\nRegraded Unclassified\n28\n- 2 -\nThe burden of defense is thrown haphasarily and inequitably\non those with fixed income or whome bargaining power La too weak to\nsecure increases in income commensurate with the rize in the cost of\nliving.\nAnd over all hovers the specter of future deflation and depres-\nsion, to confuse and retard the defense effort and inevitably to agra-\nvate the dangers and difficulties of a return to a normal peacetime basis.\nEconomic sacrifices there will be and we shall bear them chest-\nfully, But we are determined that the satrifice of one shall not be the\nprofit of another. Nothing will sap the morale of this Nation more\nquickly or ruinously than ponalizing its sweat and skill and thrift by\nthe individually undeserved and uncontrollable poverty of Inflation.\nOur objective, therefore, must ba to seu that inflation, aris-\ning from the abuse of power to increase prices because the supply is\nlimited and the demand influxible, does not occur during the present\nemergency.\nToday We stand, an TO did in the closing months of 1915, at\nthe beginning of an upward swe/p of the whole price structure. Then, too,\nwes enjoyed relative stability in prices for almost a year and a half After\nthe outbreak of var abroad. In October 1915, however, prices turned\nsharply upward. wordbox April 1917 the wholesale price 1ndox had jumped 63%:\nby June 1917, 7451 and by June 1920 it was nearly 140% over the October\n1915 mark.\nThe facts today are frighteningly similar.\nThe Bureau of Labor Statistics Indox of 28 basic commodities,\nby the end of June, had Advanced 50% beyond its August 1939 level. It\nhas increased 24% since January of this year.\nSince August 1939 the Bureau of Labor Statistics Index of 900\nwholesale prices has advanced 17.3. It has increased 10% sinco January\nof this year, In the past 60 days wholemale prices have rison more than\nfive times an fast 68 during the proceding period since the outbronk of\nthe war abroad.\nSince August 1939 the Burezu of Labor Statistics Indox of the\ncost-of-living has advanced 5 1/2%. It has increased 3 1/2% sinco the\nbeginning of this year, and the upward prossure is now intenso. In a\nsingle month, from the mare of May to the middle of June, the cost-of-\nliving jumped 25. During the last quarter the increase in the cost-of-\nliving was greater than during any similar period since the World War.\nBut. even yet the indox does not fully refluct past increases, and only in\nn faw months will It respond to current increases,\nIn 1915 the upward price movement procueded unchocked so that when\nregulation was fimily bogun it wis alroady too Into. Now wa have an op-\nportunity to Act. before disastrous inflation in upon us. The choice is\noura to make; but With munt act speedily.\nFor twelve months TV have triad to maintain n stable levol of\nprices by anlisting the voluntary cooperation of business, and through in-\nformal persuasive control. The effort hrs boan widaly supported bacauso\nfur-sighted business leadors realize that their own true inturost would be\njuopardised by runnway inflation. But the existing authority over prices\nLa indirect and circumscribed, and operates through measures which are not\nappropriate or applicable in all circumstances. It has further been weak-\nened by those who purport to recognize need for price stabilization yet\nchallenge the existence of any effective power. In some cases, moreover,\nthere has been evasion and bootleg ing; in other cases the Office of Price\nAdministration and Civilian Supply has been openly defied,\nFaced now with the prompect of inflationary price advances, 1sg-\nislative action can no longer prudently be postponed. Our national safety\ndamands that We take steps at once to extend, clarify and strengthen the\nauthority of the Government to not in the interest of the general wolfare.\nRegraded Unclassified\n3 -\n29\nLegislation should include authority to establish collings\nfor prices and rents, to purchase materials and commodities when\nnecessary, to assure price atability, and to deal more extensively\nwith excesses in the field or installment credit. To be effective,\nsuch authority must be flexible and subject to exercise through\nItcense or regulations under expeditious and workable administrative\nprocedures. Liko other dofense legislation, it should expire with\nthe passing of the need, within B limited time after the end of the\nemergency.\nThe concept of B. price ceiling 18 already familiar to us\nЦЕ u result of our can World Wer experience. Prices are not fixed\nor frozen; an upper limit alone is set. Prices may fluctuate below\nthis 21015, but they cunnot go above it.\nTo meke ceiling prices offective it will often be necessary,\nunone other things, for the Government to increase the evailable\nsupply of a commodity by purchases in this country or abroad. In\nother change it will be essential to stabilize the market by buying and\nsetting as the oxigencies of price any require.\nHousing 18 43. commodity or universal use, the supply of\nwhich cannot spoudily be increased. Duspita the stops taken to assure\nadequato housing for defende, we 021 already confronted with rent\nincremation oninously reminiecent of thos) which provailed during the\nWorld War. This is e development that must De strusted before rent\nprofiteering van develop to increase the cont of living and to damage\nthe Givilian morelo.\nor course there cannot du price stability if labor costs\nrios abnormally. Lobor hud for aore to gain from price stability\nthan from obnermal wege increases. For theat are likely to be\nillusory, and quickly overtaken by sharp rinea in living costs which\nfall with particular hardship on thu least fortunate of our workers\nand our old people.\nThere will always be nued for wage adjustments from time\nto time to rectify inuquituble situations. But Inbor na u whole will\nfaro buat from o letor policy which recognizes that wages 10 the\ndefenso industries should not substantially exceed the provilling\nwage rates in compurable non-defense industries Where fair lobor\npolicies have bown mointained. Alfundy through the efforts of the\nNational Defonse Medintion Bourd cac wage stubilization committees\nwago standards are heing ustablishud and u McCoure of wage stability\nis being brought to particular industrios. It ia expocted that such\nactivitive will be continued, extended, und auto incruesingly\naffective,\nI recognize that the obligation not to work as EXCESSIVE\nprofit from the defunce amergency roots with oqual force on Inbor\nend on industry, und that both must assume thoir responsibilities\nIf We who to avoid inflotion.\nI elso recognize that we my expect the wholehearted und\nvoluntury corporation of Lubor only Which it has buth ossured to rouson-\nable and etable incomo in torma of the things money will buy, and\nequal restroint or sacrifico on the part of all others who participate\nin the defense program. This means not only u rensonable stobiliza-\ntion of prices und the cost of living but the affective texation of\nexcess profits and purchasing power. In this way alonu cun the Nation\nbe protected from the uvil consequences of u chootic struggle for\ngim which must provo oithor illusory or unjust, und which must lead\nto the disbuter of unchocked inflution.\nFRANKLIN D. ROOSEVELT\nTHE WHITE HOUSE,\nJuly 30, 1941.\nRegraded Unclassified\n30\nTREASURY DEPARTMENT\nWASHINGTON\nJuly 30, 1941\nMemorandum for THE SECRETARY\nThe following report is made of requests received\nfor \"Any Bonds Today?\" from the experimental mailing of\n10,000 cards:\nNo. Requests\nNo. Copies\nJuly 1 - 29\n1099\n6369\nJuly 30\n24\n203\nTotal\n1123\n6572\nGRAVES\nRegraded Unclassified\n31\nTREASURY DEPARTMENT\nWASHINGTON\nJuly 30, 1941\nMemorandum for THE SECRETARY:\nThe following report is made of Stamp sales at\n\"Treasury House\":\nJuly 1-28\n$21,050.15\nJuly 29\n996.90\nTotal\n$22,047.05\nGRAVES\nRegraded Unclassified\n32\nCONFIDENTIAL\nUNITED STATES SAVINGS BONDS\nH\nSales in July Compared with June, 1941\nOn Basis of Issue Price\nFirst Twenty-four Business Days\n(June 1-28, July 1-29)\n(Amounts in thousands of dollars)\n:\nSales\n: Increase or Decrease (-)\n:\n: in July Compared with June\nItem\n:\n:\n:\n:\nI\nJuly\nJune\nAmount\nPercent\n:\n:\n#\nSeries E - Post Offices\n$ 47.385\n$ 38,139\n$ 9,246\n24.2%\nSeries E - Banks\n87,997\n58,723\n29,274\n49.9\nSeries E - Total\n135,382\n96,862\n38,520\n39.8\nSeries 7 - Banks\n24,420\n27,530\n- 3,110\n- 11.3\nSeries G - Banks\n150,636\n177,025\n- 26,389\n- 14.9\nTotal\n$310,437\n$301,417\n$ 9,020\n3.06\nOffice of the Secretary of the Treasury,\nJuly 30. 1941.\nDivision of Research and Statistics.\nSource: All figures are deposits with the Treasurer of the United States\non account of proceeds of sales of United States Savings Bonds.\nNote: Figures have been rounded to nearest thousand and will not\nnecessarily add to totals.\nRegraded Unclassified\nDaily Sales - July 1941\nOn Basis of Issue Price\n(In thousands of dollars)\nPost Office\nAll Bond Sales\nBank Bond Sales\nDate\nBond Sales\nTotal\nSeries E\nSaries 7\nSeries G\nSeries E\nTotal\nSeries E\nSeries ?\nSeries G\nJuly 1941\n1\n$ 9,505\n$ 2,387\n$\n957\n$ 6,160\n$\n595\n$ 8,910\n$ 1,793\n$\n957\n$ 6,160\n2\n11,612\n4,066\n845\n6,701\n1,735\n9,877\n2,331\n845\n6,701\n3\n15,045\n4,903\n843\n9,299\n2,077\n12,969\n2,827\n843\n9,299\n5\n22,900\n9.589\n2,437\n10,875\n3,191\n19,709\n6,397\n2,437\n10,875\n7\n11,028\n6,315\n472\n4,242\n3,908\n7,120\n2,407\n472\n4,242\n8\n11,226\n4,867\n1,197\n5,162\n1,346\n9,881\n3,522\n1,197\n5,162\n9\n16,570\n6,277\n880\n9,413\n2,229\n14,341\n4,048\n880\n9,413\n10\n11,430\n6,013\n605\n4,805\n2,459\n8,972\n3.559\n605\n4,808\n11\n16,311\n5,504\n1,197\n6,610\n2,405\n13,905\n6,098\n1,197\n6,610\n12\n12,689\n4,482\n860\n7.347\n1,672\n11,017\n2,810\n860\n7,347\n14\n13,435\n7.754\n1,046\n4,636\n3,060\n10,375\n4,693\n1,046\n4,636\n15\n10,083\n4.754\n602\n4,728\n1,458\n8,625\n3,296\n602\n4,728\n16\n11,994\n5.541\n808\n5.645\n1,645\n10,349\n3,896\n808\n5.645\n17\n15,332\n6,213\n1,189\n7.930\n1,799\n13,533\n4,414\n1,189\n7,930\n18\n12,404\n6,730\n836\n4,837\n2,042\n10,362\n4,689\n836\n4,837\n19\n7,553\n4,513\n926\n2,114\n1,505\n6,048\n3,007\n926\n2,114\n21\n14,136\n7,105\n1,015\n6,016\n3,060\n11,076\n4,046\n1,015\n6,016\n22\n12,191\n3,820\n1,208\n7,164\n1,001\n11,191\n2,819\n1,208\n7,164\n23\n14,677\n5.018\n1,208\n8,451\n1,514\n13,163\n3,505\n1,208\n8,451\n24\n11,634\n5,382\n959\n5,293\n1,623\n10,011\n3.759\n959\n5,293\n25\n10,589\n5,828\n904\n3.857\n1,670\n8,919\n4,158\n904\n3,857\n26\n11,149\n4,420\n474\n6,256\n1,303\n9,846\n3,117\n474\n6,256\n28\n15,050\n6,986\n1,109\n6,954\n2,983\n12,067\n4,003\n1,109\n6,954\n29\n11,892\n3,910\n1,844\n6,138\n1,106\n10,787\n2,805\n1,844\n6,138\nTotal,\n$310,437\n$135,382\n$ 24,420\n$150,636\n$ 47,385\n$263,052\n$ 87,997\n$ 24,420\n$150,636\nOffice of the Secretary of the Treasury, Division of Research and Statistics.\nJuly 30. 1941.\nSource: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of\n3\nUnited States Savings Bonds.\nNote: Figures have been rounded to nearest thousand and will not necessarily add to totals.\nRegraded Unclassified\n34\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 30, 1941\nTO\nSecretary Morgenthau\nFROM\nMr. Kamarok\nSubject: Airplane Deliveries to the British\nSummary\n1. A total of 69 planes shipped is reported in the\nlatest statement received. Except for the delivery of 20\nTomahawks to the Middle East, all the planes were shipped to\nEngland.\n2. The delivery of Curtise Tomahawks to the Middle\nEast is in a fairly consistent flow. The following are the\nweekly shipments reported in the last six weeks: 46, 50, 20,\n40, 30, 20.\nRegraded Unclassified\n35\n- 2 -\nDivision of Monetary\nResearch\nAirplane Shipments to the British\n(From February 1 to July 27 by air\nJanuary 11 to July 5 by sea)\nTable A. - Shipments by Area\nTotal\nLatest\nReported\nWeek\nTo Date\nTo the United Kingdom\nLight and medium bombers\n45\n607\nHeavy bombers\no\n41\nNaval patrol bombers\no\n72\nPursuit\n4\n17\nTotal to United Kingdom\n49\n737\nTo the Middle East\nLight and medium bombers\n0\n150\nPursuit\n20\n481\nTotal to Middle East\n20\n631\nTo the Far East\nLight and medium bombers\n0\n6\nNaval patrol bombers\n0\n9\nPursuit\n0\n145\nTrainers\no\n55\nTotal to Far East\n0\n215\nTotals\nLight and medium bombers\n45\n763\nHeavy bombers\n0\n41\nNaval patrol bombers\n0\n81\nPursuit\n24\n643\nTrainers\n0\n55\nGrand Total\n69\n1,583\nRegraded Unclassified\n36\n- 3 -\nDivision of Monetary\nResearch\nTable B. - Shipments by Types\nTotal\nLatest\nReported\nWeek\nTo Date\nBell Airacobra (P-39)\n4\n8\nBoeing B-17\no\n21\nBrewster Buffalo\n0\n145\nConsolidated Catalina\no\n81\nLiberator\nO\n20\nCurtise Tomahawk\n20\n481\nDouglas Boston I\n0\n1\nBoston II\no\n72\nBoston III\n18\n107\nGlenn Martin Maryland\no\n150\nGrumman Martlet II\no\n9\nLookheed Hudson I\no\n1\nHudson III\no\n57\nHudson IV\n0\n18\nHudson V\n27\n324\nNorth American Harvard II\n0\n55\nUnited Chesapeake\n0\n33\nGrand Total - All Types\n69\n1,583\nRegraded Unclassified\n37\n- 4 -\nDivision of Monetary\nResearch\nTable C. - Plane Deliveries to the British by Weeks\nLight\nNaval\nWeek\nand Medium\nHeavy\nPatrol\nEnded\nBombers\nBombers\nBombers\nPursuit\nTrainers\nTotal\nFeb. 8\n-\n22\n-\n3\n-\n-\n25\nFeb. 15\n-\n39\n-\n-\n100\n-\n139\nFeb. 22\n#\n35\n-\n-\n27\n-\n62\nMar. 1\n7\n-\n5\n25\n-\n37\nMar. 8\n16\n-\n3\n10\n-\n29\nMar. 15\n26\n1\n4\n-\n-\n31\nMar. 22\n#\n17\n-\n2\n22\n-\n41\nMar. 29\n-\n25\n-\n3\n18\n-\n46\nApr. 5\n21\n-\n7\n73\n*\n101\nApr. 12\n21\n2\n2\n27\n-\n52\nApr. 19\n20\n3\n4\n5\n-\n32\nApr. 26\n23\n2\n3\n-\n28\n56\nMay\n3\n61\n1\n2\n15\n27\n106\nMay 10\n36\n1\n8\n10\n-\n55\nMay 17\n61\n13\n7\n19\n-\n100\nMay 25\n30\n10\n-\n25\n-\n65\nJune 1\n28\n5\n5\n21\n-\n59\nJune 8\n37\n2\n7\n-\n-\n46\nJune 15\n#\n26\n1\n4\n20\n-\n51\nJune 22\n*\n28\n-\n4\n52\n-\n84\nJune 29\n*\n45\n-\n1\n50\n-\n96\nJuly 6\n#\n19\n-\n3\n20\n#\n42\nJuly 13\n*\n34\n-\n3\n48\n-\n85\nJuly 20\n4\n41\n-\n1\n32\n-\n74\nJuly 27\n+\n45\n-\n-\n24\n-\n69\n763\n41\n81\n643\n55\n1,583\nThe date given is for shipments by air. Shipments by\nwater start three weeke earlier. That is, the statement\nreporting the shipment of planes by air for the week end-\ning July 27 would report the shipment of planes by water\nfor the week ending July 5.\nRegraded Unclassified\n1,\n38\nJuly 30. 1948\nN. Fels\nMr. Gechrem\nwill you kindly, with the approval of your Division and as Treasury\nStabilization Fund empense, send the attached callegram.\n(Init.) H. M. C.\nHMG:1ap-7/30/41\nRegraded Unclassified\n39\nTHE WISH SECRETARY OF YES TREASURY\nVashington\nJuly 30, 1941\n20 MR. COCHEANS\n8 just talked with Mr. Devilop 42 the tolephone is\nthe absence of sir Frederick from the city. about the\nattached tolegram. Be = se objection to 10 but hopes\nthat we will cenfer with his again if w get a regly free\nYes to the effect that 10 is important to proceed im-\ndiately se not - the Beard.\nBe also told se that he had received a cable from\nLeader advising that the British deverament had enggested\nto the Chinese Government the temperary appointment of\nHall-Patch. they have not yet reseived 6 reply to this\nsuggestion. Be thought that the few days to\nsend our cable and ⑉ a reply from Yes would give time\nto solve their problem also.\nThe attached cable cas, therefore, - out after you\nand White have initialed 10.\n(Init.) D.V.B.\nCopyroln 7-30-41\nRegraded Unclassified\n40\n0\no\nI\nGABLE\nAMERICAN EMBASSY, OHUNGKING,\nFor Fox from Acting Secretary of Treasury.\nReference your cablegram of June 27 - through Spagest, Shanghai,\nand your 752 ceat through Lockhart June 28.\nTeam were provided with copies of all documents pertinent to American\nand British Stabilisation Agreements with Chim. Letters apparently N-\nforred to are those dated April 25, 1941, emchanged between Secretary of\nTreasury and Sir Frederick Phillips and containing three pointe. Addi-\ntional copies of these letters are being formaried to you by pouch.\nNothing in such letters provent the eetting up of a four-man\nStabilization Board, including the American member, and net including\nthe British smber, for the purpose of menaging the United States dollar -\nChinese Year Stabilisation Fund. If you think It important to proceed\nimmediately to set w the Beard please advice, and instructions to you\nthe words deleted in\nwill be sent prosptly.\nfinal message.\nThe Treasury is informed that Sir Otte Nieneyer will leave Lendon\nwithin the next fortnight for makington. No is exposted to disease\nChinage problems with this deverament before proceeding to China. It is\nanticipated that his visit to China will be of only a few month's dura-\ntiem and that be will devote his attention to broad lines of commis and\nfinancial policy. It is not exposted that he will serve on the Stabilism-\ntion Heard.\n33:hug\nInitialed:\nEMO\nB\nDWB\nEN\nCopy:lg 7/30/42\nRegraded Unclassified\n41\nJuly 30, 1941\nDr. Feis\nMr. Cochran\nwill you kindly, with the approval of your Far Bastera Division and of\nMr. Currie, (who suggested this draft) sond a cablegram, at Treasury Stabilization\nFund expense, along the fellowing lines:\n\"American Fabruary,\nChungking, China.\nFor Yes free Acting Secretary of Treasury.\nWhat progress is being mão is the rehabilitation of China's internal\nfinancel In this connection we should like to have your comments on the\nAmbassader's despatch No. 21, of June 20, on China's general economic com-\ndition. Ve assume that each reports are más available to you.\"\nHNC:10>7/30/41\nRegraded Unclassified\n42\nC\n0\nP\nY\nAustralian Legation,\nWashington, D. C.\nJuly 30th, 1941\nDear Mr. Cochran,\nWith reference to our telephone conversation\ntoday, concerning the State of Queensland Loan, I enclose\nherewith the original and one copy of an opinion on this\nsubject supplied by Davis Polk Wardwell Gardiner & Reed.\nYours sincerely,\n(Signed) A. S. Watt\nMr. Merle Cochran,\nRoom 279, Treasury Building,\nU.S. Department of the Treasury,\nWashington, D.C.\nCopy:1g 8/1/41\nRegraded Unclassified\n43\nC\nDavis Polk Wardwell Gardiner & Reed\no\n(Statson Jennings & Russell)\nP\n15 Broad Street\nY\nNew York\nJuly 28, 1941\nThe Honorable L. R. Macgregor,\nAustralian Government Trade Commission,\n630 Fifth Avenue,\nNew York City.\nDear Sir:\nWe understand that the State of Queensland has out-\nstanding approximately $7,200,000 principal amount of its\nTwenty-Year 7% Sinking Fund External Loan Gold Bonde dated\nOctober 1, 1921, due October 1, 1941. We also understand\nfrom you that under the Financial Agreements (Commonwealth\nLiability) Act of the Commonwealth of Australia, assented to\nMarch 12, 1932, the Commonwealth of Australia expressly under-\ntook to pay from time to time to the bondholders principal and\ninterest of certain state obligations and that among such\nobligations were the State of Queensland Bonds above referred\nto. An opinion in our files dated April 12, 1932, from Messrs.\nBlake & Riggall, of Melbourne, states that the aforesaid Act.\namongst others, was upheld as valid in 1932 by the High Court\nof Australia. We assume that there has been no change since\nthen in the text or construction of the Act and that under the\nlaw of Australia the obligation of the Commonwealth to the bond-\nRegraded Unclassified\n- 2 -\nholders atill continues.\nYou have asked our opinion whether so exchange by\nthe Commonwealth of Australia of its own bondo for the above\nmentioned State of Queensland Bonds (such exchange to be directly\nwith the present bondholders) would constitute a violation of the\nUnited States Neutrality Act of 1939.\nThe applicable provision of the Neutrality Act of 1939\nis Section 7 (Financial Transactions), which reads as followst\n\"Sec. 7. (a) Whenever the President shall\nhave issued a proclamation under the authority of\nsection 1 (a), it shall thereafter be unlavful for\nany person within the United States to purchase,\nsell, or exchange bonds, securities, or other obli-\ngations of the government of any state named in such\nproclamation, or of any polition] subdivision of any\nsuch state, or of any person acting for or on behalf\nof the government of any such state, or political\nsubdivision thereof, issued after the date of such\nproclamation, or to naice any loan or extend any credit\n(other than necessary credits accruing in connection\nwith the transmission of telegraph, cable, vircless\nand telephone services) to any such government, 9°\nlitical subdivision, or person. The provisions of\nthis subsection shell also apply to the sale by any\nperson within the United States to any person in A\nstate named in any such proclamation of any articles\nor materials listed in a proclamation referred se in\nor issued under the authority of section 12 (1).\n(b) The provisions of this section shall not\napply to B. renewal or adjustment of such indebtedness\nas may exist on the date of such proclamation.\n(c) Whoever shall knowingly violate any of the\nprovisions of this section or of any regulations issued\nthereunder shall, upon conviction thersof. he fined not\nmore than $50,000 or imprisoned for not more than five\nyears, or both. Should theviolation be by a corpora-\ntion, organization, or association, each officer or\ndirector thereof participating in the violation shall\nbe liable to the penalty herein prescribed.\nRegraded Unclassified\n45\n- 3 -\n(d) Whenever any proclamation issued under\nthe authority of suction 1 (a) shall have been\nrevoked with respect to any state the provisions\nof this section shall thereupon cease to apply\nwith respect to such state, except as to offenses\ncommitted prior to such revocation.\"\nIn Proclamation No. 2348 of the President of the\nUnited States dated September 5. 1939. the President found\nthere existed a etate of war between the Commonwealth of\nAustralia and Germany which Proclamation is still in force\nso that the exchange is prohibited under the provisions of\nsubsection (a) of Section 7 unless the proposed transaction\ncan be excluded under the exception provided in subsection\n(b). This subsection (b) provides that Section 7 shall not\napply to a \"renewal or adjustment of euch indebtedness\" as\nmay exist on the date of the Proclamation. We understand\nthat all the State of Queenaland Bonda now outstanding were\noutstanding on September 5. 1939. so that the only question\nremaining 10 whether the above-mentionsd exchange of Common-\nwealth of Australia bonds for the State of Queensland Bonds\nconstitutes a \"renswal or adjustment\" of the bonded indebted-\nDOBS represented by the Queenaland Bonds,\nWhether or not the proposed exchange would constitute\nsuch a renewal or adjustment if the Commonwealth of Australia\nwere not itself obligated upon the existing bonds (so that the\nexchange would be the issuance of indobtedness of the Common-\nwealth in exchange for cancellation of indebtedness of the\nRegraded Unclassified\n4\n46\nState of Queenaland only) we need not now consider since in this\ncase, on the basis above stated, we understand the Commonwealth\nis itself directly obligated to the holders of the Queenaland\nBonds and the new bonds of the Commonwealth of Australia would be\nissued directly to such holders.\nThe are of the opinion that much emhange of Commonwealth\nBonds for Queensland Bonds where the Commonwealth is already liable\nto the holders of the latter would constitute a \"renewal or adjust-\nment\" of the indebtedness represented by the State of Queensland\nBonds and existing September 5. 1939, and 1e therefore not pro-\nhibited by the provisions of the Neutrality Act of 1939.\nWhile there has been no court decision construing sub-\nsection (b) of Section 7 of the Neutrality Act of 1939. our con-\nclusion is we think the same ae that indicated by the then Attorney\nGeneral of the United States in his opinion dated May 5. 1934, dis-\ncussing the question of the meaning of \"renewal or adjustment\" of\nexisting indebtedness as those terms are used in the \"Johnson Act\n(Approved April 13, 1934)\", which also excepts from its provisions\na \"renewal or adjustment of existing indebtedness\". The pertinent\nparts of this opinion are as follows:\n\"¹(3). What constitutes a renewal of an existing\ncredit?'\nYour legal adviser has concluded, in the memoran-\ndum transmitted with your letter of April 23. that:\n'It would seem that any instrument which would be\nissued for the purpose of replacing the evidence of any\nexisting indebtedness would constitute a renewal or an\nadjustment of an existing indebtedness. If new bonds\nwere issued to replace old ones, it would seem that\nRegraded Unclassified\n47\n- 5 -\nsuch a transaction would be permissible, Any instrument\ngiven in antiefaction or extension of an existing indebt-\nedness would, it is believed, come within this exception.'\nIn general, I approve this statement, but obviously\nit will be a question of fact in each case whether or not\nwhat is done amounts in good faith to the mere 'renewal\n... of existing indebtedness.'\nIt 1e made unlawful, AS I have said, 'to purchase\nor sell the bonds, securities, or other (similar) obliga-\ntions of any foreign government ... issued after the\npassage of this act, or to make any loan to such foreign\ngovernment ... except a renewal or adjustment of exist-\ning indebtedness.' The word 'renewal' needs no defini-\ntion by me - it is frequently used and commonly under-\nstood in banking business and commercial transactions --\nand the word 'adjustment', relating to accounts or claims,\nhas been used in our statutes since the formation of the\ngovernment. (See the Act of Sept. 2, 1789, 1 Stat. 65.\nand the Act of March 3. 1817. 3 Stat. 366.)\nIt is used, I think, in the sense of compromising\nor determining how much ie to be paid, when and where,\nupon what terms and the like. Thus an adjustment of an\nexisting indebtedness within the meaning of the act is\nany lawful arrangement entered into in good faith be-\ntween the debtor and the creditor which compromises or\ndetermines the amount to be paid by the debtor to the\ncreditor and it may include other details of composition\nor settlement.\"\nWhile the opinion of the Attorney General is not binding\non our courts, it is at the least very persuasive with them, and\nthe Attorney General's views above quoted appear in accord with our\nopinion as herein get forth.\nVery truly yours,\nDAVIS POLK WARDWELL GARDINER & REED\nEDMac V:MF\nCopy:alm: 1g 8/1/41\nRegraded Unclassified\nC\n48\no\nP\ny\nDEPARTMENT OF STATE\nWashington\nIn reply refer to\nEA 840.51 Frozen Credits/2735\nJuly 30, 1941.\nThe Secretary of State presente his complimente to\nthe Honorable the Secretary of the Treasury and encloses\nsix copies of a peraphrase of telegrem No. 318, dated\nJuly 29, 1941, from the American Embassy at Chungking,\nChina, transmitting a message from Mr. A. Manuel Fox for\nthe Secretary of the Treasury.\nEnclosure:\nFrom Embassy, Chungking,\nNo. 318, July 29, 1941.\n(Six copies)\nRegraded Unclassified\n49\nC\no\nDe\nY\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy. Chungking, China, via N.R.\nDATE: July 29, 1941, 8 p.m.\nNO.: 318\nTHE FOLLOWING IS FROM FOX FOR THE SECRETARY OF THE TREASURY,\nCONFIDENTIAL.\nBecause of continual air raids, the messages in regard to\nfreezing are slow in arriving. Fox and the Board are handicapped in\ntheir observations with respect to the operations of freezing order.\nUnder my instructions, (1) is proceeding at once to Hong Kong.\nI would like to send him on to Shanghai unless the Department ad-\nvises as of a compelling reason for his not going at this particular\ntime. He has been instructed to make a report regularly to Fox of\nhis observations in regard to the working of the freezing ordere\nand also, if necessary. to the Treasury Department.\nPlans of organization are being made by the Board. It is\nnecessary that I stay in Chungking. (?) is returning at the earli-\nest opportunity possible. Concern over the freezing of funds of\nthe Chinese Government has been shown by Dr. Kung.\nFortunately, immediately upon the receipt of the press release\nreports in regard to freezing, I had & long conference with the\nMinister of Finance. At this conference, I stated that, although\nRegraded Unclassified\n50\n- 2 -\nI did not have any definite information, I could assure him that the\nGovernment would not be handicapped by the freesing order. During\nthe conference it was evident that the Minister for Foreign Affairs\nand Dr. Kung had discussed this subject. In order that the misunder-\nstanding might be cleared up, K. P. Chen is seeing the Foreign\nMinister.\nShould it be found necessary, would it be possible for the\nDepartment to send competent observers who are familiar with freezing\noperations 80 that they could be stationed in Shanghai and Hong Kong?\nAt five o'clock on Wednesday, I am to meet with General Chiang.\nGAUSS\nEA:PAK\nCopy:lg 7/31/41\nRegraded Unclassified\n51\nKD\nPLAIN\nShanghai via N. R.\nDated July 30, 1941\nREC'd. 4:01 a.m.,31st\nSecretary of State,\nWashington.\n976, Thirtisth.\nFollowing from Chefoo,\n\"Twenty-ninth. No business operations possible\nwith freezing of British and American assets.\nChinese and foreign firms unable to obtain Federal\nRESErVE currency pending more definite information\nabout control policy. Roberts\".\nSent to the Department. Repeated to Chungking,\nPriping. Copy to Tokyo by air mail,\nLOCKHART.\nNK\nRegraded Unclassified\n52\nKD\nPLAIN\nShanghai via N. R.\nDated July 30, 1941\nREC'd. 4:20 a.m.,31st\nSecretary of State,\nWashington.\n981, Thirtisth (SECTION ONE)\nREference my 963, Twenty-ninth quoting notification\nissued by the Japanese Consul General regarding trans=\nactions undertaken by Japanese with foreign nationals.\nFollowing is Dome1 translation of full text of\nnotices No. 19, 20 and 21 issued by Japanest Consul\nGeneral:\n\"Japanese Consul General notice No. 19.\nOne. The acquirement or disposal of the following,\nby those parties hereby prescribed by the Japanese\nConsul General, or by those who transact on behalf of\nsuch partits, shall bE required to obtain the per-\nmission of the Japanese Consul General. (A). Sights\nregard immovable property; (B). Enterrists, business\nund funds usable in enterprists or business; (c).\nSecurities valued at more than yen twenty; (D). Fortign\nand domestic Exchange; and (E) Japanese military notes\nor their equivalent in Chinese currency amounting to\nmore than yen five hundred monthly. (Amounts of more\nthan\nRegraded Unclassified\n53\n-2- #981, Thirtisth (SECTION ONE), from Shanghai.\nthan yen five hundred per housthold, including postal\nmoney orders which may bE used as a means of payment\nin China); (F). Foreign currencies other than those\nmentioned in (E); (G). Movable properties other than\nthose mentioned in (c) and (F) and amounting to more\nthan yen one hundred.\n\"Two. The following, by parties prescribed by\nthe Japanese Consul General or by others who transact\nfor those prescribed by the Japanese Consul General,\nshall require the permission of the Japanese Consul\nGeneral, excepting those CASES wherein permission al-\nready has been obtained in accordance with regulations\nset forth in the preceding Article One.\nLOCKHART.\nNK\nRegraded Unclassified\n54\nEJ\nPLAIN\nShanghoi vic N. R.\nDated July 30, 1941\nRec'd 4:25 a.m., 31st\nSecretary of Stote,\nWashington.\n981, Thirtisth, (SECTION TWO).\nA, To make or recover D. loan; B. To contract\nor return C. debt; C. To make or withdrew n monetery\ndeposit; D. To , CCEPT or to pay a monetery deposit;\nE. To belonce credit and debts; F. To underwrite or\naccept a debt; G. To ocquire or dispose of credits or\ndebts not mentioned in the preceding subarticles..\n\"Three. The following, by parties prescribed by\nthe Jrponese Consul General, or by others who transcct\nfor those prescribed by the Japanese Consul General,\nand regarding prosperity mentioned in articles One,\nsuborticles A C E F G, shrll require the permission of\nthe Jepanese Consul General, except in those COSES\nwherein permission already has been obtained in 00-\n-\ncordance with regula tions set forth in the preceding\norticle One and Two. A. To make or accept C. deposit;\nB. To accept the return of c. deposit; C. To return\nany\n55\n-2- 981, July 30, 4:25 n.m., from Shenghoi\nany accepted deposit; D. Lending or borrowing for use;\nE. Lending or hiring; F. LENDING OR HIRING; F. Lending\nor borrowing for consumption; G. Subletting or sub-\nleosing.\n\"Four, The provisions of rrticles one two and\nthree shall not be applicable to the following CASES:\nA. Receiving of payment C.8 public trxes or rates; B.\nReceiving of solories, r.llowences, or the like by Em-\nployees or other workers of those who have been pre-\nscribed by the Jepenese Consul General.\n\"The above is so notified: by Tateki Horiuchi\nJepanese Consul General in Shanghei July 28, 1941.'\nLOCKHART\nHTM\nRegraded Unclassified\n56\nEJ\nPLAIN\nShonghei via N. R,\nDated July 30, 1941\nRec'd 7:30 D. E., 31st\nSecretary of State,\nWashington.\n981, thirtisth, (section three)\nJopanese Consul Generals number twenty worn\n\"in relation to notice number nineteen 'control of\ntransactions by Japenese with forign nationals'\ndated July 28, 1941, the following is prescribed:\n\"United States nationals, including citizens of\nUnited States territories and the Philippine Common-\nwealth, United States corporations, United States\ncontrolled corporations end residents in territories\nof the United Stotes.\nThe above is 80 notified by Trteki Soriuchi\nJapantst Consul General in Shanghri July 28, 1941.\nJapanese Consul Generals notice number twenty-\none supplement and amendment to notice number twenty\nJuly 28, 1941.\nOne. A. United States of America.\nB. All territories and possessions of the\nUnited States of America.\nC\nRegraded Unclassified\n57\n-2- 981, July 30, 7:30 c.m., from Shrnghni\nC. Philippine Commonwerlth.\nD. Conrdo.\nE. The United Kingdom of Grert Britcin and\nNorthern Ireland.\nTwo. A. All designated countries and their admin-\nistrative districts or those under the similar category.\nB. Legal persons other then those in the\ncountries designated in h.\nC. Legal. Actually coming under notice B.\nD. Branch offices and other offices of lt-\ngal persons loonted in the designated countries.\n(Notice: this rule rpplies only to legal persons\nother then the designated countrits or to those owned\nby the designated countries. And)\nE. Persons holding citizenship of designated\ncountries and those who have their domicile in the desig-\nE\nnoted countries,\nEnd of message . Sent to the Department. Reperted\nto Chungking, Priping. By cirmail to Tokyo.\nLOCKHART\nRR\n58\nPARAFERATE OF TELEGRAM RESERVED\nFROM American Consulate, Charee, China.\nDATES duly 30, 1941, 11 Date\nNO. I 12.\nis male to telegram no. 9 which I cent on\nthe 19th day of July, 1941 at 11 D.\nAlthough no business netivities are allowed, police\nguards have been withirm from all American and British\nbusiness premises, with the exception of oil companies.\nChinese bankers have resumed limited trading operations\nIn exchange ON shanghai, purchasing changhal orders from\nAmerican and Brittsh firms (1), and paying therefor Federal\nReceive Bank currency. The Hong Kong and thanghal Bank is\nnot (repent not) purchasing foreign emchange and only small\namounts for living expenses will be paid against Federal\nReceive Bank currency accounts.\nTravel of all Americans and British has been stopped by\nthe anthorities of Japes. Ten American missionaries and\nschool children atthoduled to sail on August third for thanghad\nby coastal steamer and so sail for the United States or the\nsa PRESIDENT COOLIDGE are unable to present.\nMail too Americans and Britten, including ELVBA consulates,\nLe stall being held, and ealy LEOHNICYE a fer business telegrams have\nbeen released w the conser.\nB71 vne PROVIDE\nMPL\nBECEMED\nEASVOL\nRegraded Unclassified\n59\nTEM\nGRAY\nTokyo\nDated July 30, 1941\nRec'd 9:30 a.m.\nSecretary of State,\nWashington.\nRUSH\n1130, July 30, 9 p.m.\nThe chief of the Foreign Exchange Bureau of the\nMinistry of Finance advised a member of my staff that\nthe Japanese Government has made no provision for ex-\ntending any special banking privileges to this Embassy\nor American Consulates in Japan for official or per-\nsonal money requirements. He stated that the Japanese\nGovernment would extend precisely the same treatment\nto the American Embassy and Consulates and their per-\nsonnel that the American Government is extending or\n18 prepared to extend to the Japanese Embassy and Con-\nsulates and their personnel in the United States, but\nthat no information with regard to the latter point has\nas yet been received.\nI would appreciate the Department sending me ur-\ngently information regarding the treatment of Japanese\nofficials\nRegraded Unclassified\n60\n-2- 1130, July 30, 9 p.m. from Tokyo.\nofficials and their accounts in the United States.\nHe also stated that a general license is to be\ngranted the National City Bank of New York on July 31.\nSent to the Department only.\nGREW\nWSB\nRegraded Unclassified\n61\nDEPARTMENT OF STATE\n0\nWASHINGTON\nP Y\nIn reply refer to\nJuly 30, 1941\nRA\nThe Secretary of State presents his compliments to the\nHonorable the Secretary of the Treasury and encloses six\ncopies of a paraphrase of telegram No. 963, dated July 30,\n1941, from the American Embassy at Rio de Janeiro, Brazil,\nin regard to a request which the Director of Exchange of\nthe Bank of Brazil has received from the Yokohama Specie\nBank, decision of which must be made tomorrow.\nEnclosure:\nFrom Embassy, Rio de Janeiro,\nNo. 963, July 30, 1941.\nCOPY:lap-7/30/41\n62\nC\no\nP\nY\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embasey, Rio de Janeiro, Brazil\nDATE: July 30. 1941, 1 p.a.\nNO.: 963\nThe Director of Exchange of the Bank of Brazil has asked\nwhether the Department has any objection to the following request\nwhich he has received from the Yokohama Specie Bank, and on which\nhe must decide tomorrow.\nThe request of the Yokohama Specie Bank concerns the liquida-\ntion of the Japanese dollar credits with the Bank of Brazil:\n1. Transfer $1,000,000 to Banco da Provincia, Buenos Aires:\n2. Transfer $1,000,000 to the Banco da Chile in Santiago:\n3. $815,000 should be allocated for payment of drafts of the\nYokohama Specie Bank on New York banks for products of Brazil which\nhave already been shipped to Japan and for which exchange has been\nclosed;\n4. $300,000 should be allocated to guarantee payment of thirty\npercent of official exchange which Japanese interests owe to the\nBank of Brazil:\n5. The balance of $1,800,000 should be purchased by the Bank\nof Brazil which should credit the milreis proceeds for Brasilian\nproducts to be shipped to Japan in the future. The Director of\nExchange says that the Japanese dollar balances would be fully\nliquidated by these operations.\nCAFFERY\nEA:FL:PAX\nCopy:lg 7/31/41\nRegraded Unclassified\n63\nLET\nGRAY\nRio de Janeiro\nDated July 30, 1941\nRec'd. 2:45 p.m.\nSecretary of State,\nWashington.\n971, July 30, 5 p.m.\nD. Duarte Atalaya, Portuguese citizen, Director\nof Copacabana Palace Casino here, has $30,000 on\ndeposit in Chemical Bank and Trust Company, New York,\nfor payment of contract with Eddie Duchine orchestra\nfor 10 weeks at $3,000 weekly. The bank has informed\nhim the fund is blocked by executive order 8785.\nHe has already given Duchin four checks of 3,000\neach.\nDuarte 1s well regarded and 18 friendly to the\nUnited States. I recommend release of fund. STCOR\nCAFFERY\nJRL\nRegraded Unclassified\n64\nPARAPHRASE OF TELEGRAM SENT\nTO: American Embassy, Panamá, Panama.\nDATE: July 30, 1941, 7 p.m.\nNO.: 161\nThe authorities of Panama may be informed that the\nDepartment of State will not interpose objections or\nobstacles to the Panamanian Government's requisitioning of\nthe Santa Helena even though this ship is now in & port of\nthe United States.\nThe Department recommends the following procedure\nas regards the question of whether the United States would\nrender assistance to Panama in resisting any claims which\nmight be made because of the requisitioning of the\nSanta Helena:\nfirst) That the payment of a fair compensa-\ntion accompany the requisitioning.\nsecond) That the Government of Panama confer\nwith the United States Government to determine\nwhat the amount of this compensation should be.\nthird) That the United States Government pur-\nchase the ship, if the Panamanian Government\n60 desires, and that it be allowed to remain\nfor the present time under Panamanian registry,\nand that Panama be reimbursed for all expenses\ninsident to the requisitioning, such expenses\nhaving previously been determined.\nAssurances have been given by the Maritime Commission\nthat it will give its full ocoperation in meeting any pro-\nblems brought about by this action.\nIn connection\nRegraded Unclassified\n65\n÷\nIn connection with Government requisitioning of\nvessels not in the home waters of the requisitioning\ncountry, it can be said presedents exist.\nWELLES\nActing\nDA\n819.852/38\nMCYF\nDELICE OL THE\nRA:JOC\nIN:VAW:JDG\nlavreb SA ЫМ IS :2\nEA:VGL\n(mse)\nIBEVENBA DEbVanment\nBECEINED\n66%\nPARAPHRASE OF TELEGRAM SENT\nTO I American Embasey, Rite do Janeiro.\nDATES July 30, 1941, 11 p.m.\nNO. I 603.\nTRIPLE PRIORETE\nThis is in reference to telegram no. 963 which you\nsent on the 30th of July, 1941, at 1 pom.\nYour telegram has been, the subject of discussion between\nthe Department and Treasury. You are requested to inform\nthe Director of Exchange of the Bank of Brazil that the\ninformation received conserning the proposed transactions\nof the Tokohama Specie Bank As approciated by this Government.\nAs regards transactions nás. 1 and 2 the Director of\nExchange should be Informed that the Bank of Brazil should\npoint out to its correspendent bank in the United States\nwhich is ordered to make the payment that the transfer is\nfor the account of the Yokohama Specia Bank and that applica-\ntions for the necessary licenses should be fibed.\nTreasury has no objections to the transfers described\nin transsetions no, 8 and no. 4. The Bank of Brasil should\nbe no advised.\nBefore reashing a conclusion on transaction no. a the\nDirector of Exchange should be informed that the Treasury\nDepartment and the Department of State would like to receive\ninformation conserning the views of the Bank of Brazil and\nthe Braxiliar Finance Ministry, especially how important\nthey\nRegraded Unclassified\n67\nthey feel the final conclusion of the transaction to be\nfrom Brasil's point of view.\nWELLES, Acting\n(DA)\nA-AtDA:NOL$SS\n03/12/19\ne0 04 EASTEL 4 DUA 1A9\nLECHNICYC 10 mare, It 111\nTHE 26 2604 IVBA\nRegraded Unclassified\n68\nC\no\nDEPARTMENT OF STATE\nP\nWASHINGTON\nY\nIn reply refer to\nJuly 30, 1941.\nEA 840.51 Frozen Credits/2703\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\nsix copies of a paraphrase of telegram No. 90, dated July\n28, 1941, from the American Consulate General at Batavia,\nJava, concerning the freezing of Japanese assets by the\nGovernment of the Netherlands Indies.\nEnclosure:\nFrom Consulate General,\nBatavia, No. 90, July 28,\n1941. (Six copies.)\nRegraded Unclassified\n69\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Consulate General, Batavia, Java\nDATE: July 28, 1941, 2 p.m.\nNO. : 90\n1. The Government of the Netherlands Indies, after\nremaining in conference all day yesterday and nearly all\nlast night, reached & decision with regard to the freezing\nof assets owned by the Japanese. Ven Nook sent for ne and\ngave me the following information as soon as this decision\nhad been reached.\n2. All foreign exchange transactions between Japan\nand the Netherlands Indies are suspended temporarily,\nbeginning today.\n3. Exports of everything from the Netherlands Indies\nto the following countries are subject to special permite:\n(1) Indochina: (2) the Japanese Empire: (3) Manchukuo China.\n4. Payment to and receipt of money from Japanese\nsubjects cannot be made by the Banks unless they have\nspecial permits from the Director of Economic Affairs to\nperform such services.\n5. Money and goods traffic with Janen are frozen as\na result of these measures. This is not intended to place\nany obstacles in the way of domestic operations of Japanese\nconcerns in the Netherlands Indies, according to Van Nook.\n6. I was then informed by Van Nook that the new\nexport restrictions promulgated by the Government of Japan\nRegraded Unclassified\n70\n-2-\non July 7, 1941 caused imports from Japan practically to\ncease by July 20 even though the Netherlands buyers in\nJapan were required to take delivery of and pay for the\ngoods when delivery was made in Japan to the warehouses.\nThen the Japanese Government refused to grant export\npermits. However, they offered to buy back such goods at\neighty percent of the price which had been paid for them:\npayment would be made only in yen then.\nIn view of Japan's actions in this respect (described\nabove) this Government, prior to July 25, took steps to\nensure that the Japanese guilder balances in this country\nbe retained so that they might be used to counterbalance\nlosses of Netherlands in Japan. Moreover, the agreement\nbetween the Yokohama Specie Bank and the Java Bank has been\nsuspended; yen quotations can no longer be made.\nThe Foreign Exchange Control Office is at present\nholding about eighteen million Netherlands Indies guilders\nwhich represent the favorable trade balance of Japan.\nPrivate bank accounts and investments are not included in\nthis amount.\nThis message was repeated to Tokyo.\nThis is the end of the message.\nFOOTE\nEA:PAK\n840.51 Frozen Credits/2703\nCopy:bj:7-31-41\nRegraded Unclassified\n71\nBRITISH EMBASSY,\nWASHINGTON, D.C.\nPERSONAL AND\nSECRET\nJuly 30th, 1941\nDear Mr. Secretary,\nI enclose herein for your\n-\npersonal and secret information a\ncopy of the latest report received\nfrom London on the military situation.\nBelieve me,\nDear Mr. Secretary,\nVery sincerely yours,\nHalfax\nThe Honourable\nHenry Morgenthau, Jr.,\nUnited States Treasury,\nWashington, D.C.\n72\nTELEGRAM RECEIVED FROM LONDON\nDATED NIX 32%. 1941.\nNAVAL\nOn the 24th floating deck towed by two\ntuge and escorted by one destroyer and two\ntorpedo boats was hit with two torpedoes off\nCaps Spartivento (Italy).\n2.\n28th Italian eruiser, Emanuele Filiberte\nclass, hit with two torpedoes from submarine\nso miles west of Traplet.\n3,\nROYAL AIR FORCE.\n28th bad weather curtailed operations\nfrom United Kingdom and trawler off Dieppe net\non fire by British fighter, Wight of the 28th/\n29th the Royal Air Force operations confined to\nmine-laying in enemy waters. One aircraft missing.\n4.\nBenghasi again bombed night of 26th/27th.\n8.\nIn enemy air attack on Port Said night of\n26th/27th mest bombs fell outside the harbour and\nfear large basbs dropped cast of El Kantare, No\ndamage,\n6,\nMILITARY. RUSSIA.\nOnly appreciable change is in Balta area\nUkraine and at where energy thrust probably aim\nat encireling Odosse and perhaps Nikolaev. Germans\napparently matering the situation west of\nFinish advance en Petrosavodak making progress.\nGerman drive on Leningred still apparently halted.\n90\nTOERUE,\n87th ensay aircraft damaged lighting system,\nThree half=bearted Italian patrols attempting ruide\nwise repulsed, Our casualties mills\nRegraded Unclassified\n73\nCONFIDENTIAL\nMILITARY intelligence DIVISION\nTENTATIVE LESSONS BULLETIN\nWAR DEPARTMENT\nNo. 138\nWashington, July 30, 1941\n0-2/2657-235\nNOTICE\nThe information contained in this series of bulletins\nwill be restricted to items from official sources which are\nreasonably confirmed. The lessons necessarily are tentative\nand in no sense mature studies.\nThis document is being given an approved distribution,\nand no additional copies are available in the Military Intel-\nligence Division. For provisions governing its reproduction\nsee Letter TAG 350.05 (9-19-40) H-B-M.\nNOTES ON ITALIAN CHEMICAL WARFARE\nSOURCE\nThese notes are based upon information compiled by the\nBritish War Office in March, 1941.\nCONTENTS\n1. ORGANIZATION\na. General\nb. The Chemical Regiment\nC. The GHQ Mixed Chemical Group\n2. WAR GASES\n3. WEAPONS AND EQUIPMENT\na. General\nb. Defense Equipment\nCONFIDENTIAL\n- 1 -\nRegraded Unclassified\n74\nCONFIDENTIAL\nNOTES ON ITALIAN CHEMICAL WARFARE\n1. ORGANIZATION\na. General\nIt must be realized that in many branches of the Italian\nArmy, theory and practice are far apart. and in no case is this\nmore apparent than in the organisation of chemical troops. The\norganization set out below is largely based on theory. as revealed\nin Italian military publications and in reports recently received,\nbut it may be found that the full theoretical establishment has not\nbeen reached.\nChemical warfare in all its forms is the responsibility of\nthe Military Chemical Service, which serves the Navy and the Air\nForce, as well as the Army. Its organization 1s as follows:\n(1) A directorate at the Ministry of War;\n(2) A chemical regiment;\n(3) Experimental centers;\n(4) GHQ Mixed Chemical Group.\nb. The Chemical Regiment\nThe chemical regiment, commanded in peace by a colonel,\nconsisted of the following:\nOne Headquarters; chemical battalion composed of three chemical companies;\nOne mixed battalion composed of\nTwo chemical companies,\nOne company of cadet complement officers,\nOne company of NCO pupils;\nOne flame-throwing battalion composed of two companies;\nOne depot.\nSince 1938, the chemical regiment has assumed the functions\nof a central training school for chemical troops. In war, the\nregiment, or parts of it, would probably operate as GHQ or army\ntroops. and it might provide the GHQ \"Nebu\" Chemical Battalion.\n*The significance of the term \"Nebu\" 1a not clear. Apparently it is\nused to describe B. light truck carrying gas equipment; but judging\nfrom the types of gases and equipment with which the \"Nebu\" battalion\nla issued, it seems unsafe to assume that the word is an abbreviation\nof Nebbiogena, or in any other way is particularly connected with\nsmoke. G-2\nCONFIDENTIAL\n- 2 -\nRegraded Unclassified\n75\nCONFIDENTIAL\nc. The GHQ Mixed Chemical Group\nFunctions of the GHQ Mixed Chemical Group are not clear.\nIt probably contains B. \"Nebu\" battalion and chemical and flame-\nthrowing battalions and mortar groups. Its theoretical war time\norganization may be as follows:\n(1) Headquarters at GHQ - in theory there should be one\nmixed chemical group for the GHQ on every front;\n(2) \"Nebu\" chemical battalion;\n(3) Headquarters chemical battalion;\n(4) Headquarters flame-throwing battalion;\n(5) Headquarters mortar group.\nThe \"Nebu\" battalion does not appear to have existed in\npeace, but it may be formed in war from the chemical regiment. The\nbattalion consists of two heavy companies and one light company.\nThe heavy companies have the following stocks of chemical warfare\nagents:\n20 tons of chloropicrin;\n4 tons of D.A. - diphenylchlorarsine;\n6 tons of 0.11. - tear gas;\n12% tons of H.A. - phenyldichlorarsine, a mixed blister\ngas and toxic smoke.\nThe remainder of the equipment consists of:\nTechnical equipment and protective clothing for handling gases;\n32 sets of spraying apparatus for producing cloud;\n16 sets of spraying apparatus for use in light trucks;\nNeteorological equipment.\nThe light company has the following stock of generators:\n3 tons of 2 kilogram D.A. generators;\n1 ton of 5 kilogram D.A. generators;\n3 tone of 2 kilogram tear gas generators;\n1 ton of 5 kilogram tear gas generators.\nThe function of this battalion could be either that of an\noffensive unit under GHQ command, or that of a depot for issuing\nand charging chemical weapons. Since neither mustard nor lewisite\nis issued to the unit, the battalion's use as & depot seem less\nprobable, and the spraying apparatus of the heavy companies support\nthe view that it is an offensive unit.\nThe chemical battalion, flame-throwing battalion, and mortar\ngroup form part of the mixed chemical group and have their head-\nquarters at GHQ. The chemical and flame-throwing battalions provide\nCONFIDENTIAL\n- 3 -\nRegraded Unclassified\n76\nCONFIDENTIAL\ncompanies, and the mortar group provides batteries, on a scale of\none for each army corps. Whereas in peace each army corps pos-\nsessed 8 mixed chemical company composed of chemical, smoke, mortar,\nand flame-throwing sections, in war each corps possesses one\nchemical company, one flame-throwing company, and one morter\nbattery. Presumably, these units can be sub-allotted to divisions\nas required.\nThe corps chemical company may have two platoons: it is\nissued smoke apparatus and stores for contamination and decontamina-\ntion. The following are the chief items of its equipment:\n6 tons of H.S. - mistard gas - in drums;\n6 tons of bleach;\n9 tons of smoke liquid - probably C.S.A. - chlorsulphonic\nacid;\n200 chemical mines filled with mustard gas;\nApparatus for spraying smoke liquid, mistard gas, and bleach\nfrom trucks;\n1,000 two-kilogram smoke generators.\nThe corps flame-throwing company has three platoons, each\nconsisting of three squadrons of six sections each. There are two\nequipments - knapsack flame throwers, model 35 - per section, or\n108 per company. Four tons of liquid are carried in the company.\nB. sufficient supply to refill each flame thrower three times,\nThe corps mortar battery, which may have four 81-mm.\nmortars, carries ten sete of protective clothing, and 200 rounds\nof chemical and 50 rounds of ordinary ammunition for each mortar.\nThe Alpine divisional chemical company - one platoon in\npeace - has four platoons with B total strength of five officers,\neleven NCO's and 212 men. It carries 11} tons of H.S. and 900\nchemical mines, a larger stock than the chemical company ordinarily\nhas. Its transport consists of four cars and twenty trucks.\nEach of the three fast-moving - Celeri - divisions has\none chemical platoon in peace time. It 1s not known whether or not\nadditional chemical platoons are assigned in the war time organization,\nThese are all of the offensive gas units thought to exist\nin the Italian Army, though there are alm antigas and decontamina-\ntion units, and smoke screen companies.\n2. WAR GASES\nA report recently received confirms information concerning\nthe use of gas by the Italians in the Abyssinian War. It states\nCONFIDENTIAL\n- 4\nRegraded Unclassified\n77\nCONFIDENTIAL\nthat the only gas used by the army was D.A. in 105-mm. artillery\nshells, and that the effects were above expectations. It also says\nthat 4,336 mustard gas bombs end 540 D.A. bomba were dropped by\naircraft, but it does not mention the use of spray from aircraft,\nwhich verifies advices from another source that this form of\nattack was not used at all.\nAn undated report, evidently after 1937, states that the\nproduction capacity for war gases in Italy had then considerably\nincreased. At that time the daily production of mustard had been\nraised from three to 18 tone daily, of chloropicrin from zero to\nat least four tons, of D.A. from 1/2 tons to 20 tons of a purer\nproduct, and of smoke producing liquid from three to about 20 tons.\nAs these quantities are within limite set out in a recent reliable\nBritish report on Italian capacity for production of war chemicals,\nthere is no reason to doubt their accuracy.\nA further report states that in November, 1937, orders\nwere given directing the formation of B. chemical warfare depot for\nLibya. The depot, which was to be in two sections, one at Tripoli\nand the other at Benghazi, was to be provided with the following\nmaterials:\n50 tons of mistard gas mixture;\n25,000 small bombe filled with mustard gas:\n25,000 double bombs filled with D.A.:\nA quantity of artillery shell filled with mustard gas\nand D.A.\nIt has been reported that 25 drums of mustard gas, approxi-\nmately five tons, were discovered in recently dug caves at Bardia.\nSamples from this batch have been analysed and found to consist\nof very good quality mustard gas, with B. melting point of 12.5°C.\nThe gas was probably made by the thiodiglycol process and distilled\nbefore storage. It had obviously not been stored for long in\nLibya, and there can be no doubt that it is a remnant from the\nAbyssinian campaign.\nSince the total quantity discovered at Bardia was too\nsmall to suggest offensive chemical warfare intentions, it was\nthought that that cache had been intended merely for research and\nexperimental purposes. However, the capture of a further and\nconsiderably larger dump of chemical warfare material at Benina,\nnear Benghasi, has somewhat altered this idea. The dump there\ncontained the following:\n96 drums of blister gas, probably mustard gas;\n36 empty drums, which had contained blieter gas;\n93 drums of chlorsulphonic acid, or smoke liquid;\nCONFIDENTIAL\n- 5 -\n78\nCONFIDENTIAL\n100 drums of liquid, probably a flame-thrower v.xture:\n3,030 lachrymatory generators:\n165 toxic smoke generators.\nA great may drums of blister gas had been dumped in Benghari\nharbor, and gas aball and gas bombs had been stored outside the city.\nFrom 100 to 200 o', the drume have already been located, but the shells\nand bombs are e)leved to have been shipped away,\nThese quantities are far greater than would be required for\nexperimental purposes, and it is probable that further stocks will\nbe discovered. Until the full disposition is known, it 1a impossible\nto ASSOSS the scale of chemical warfare attacks which the Italians\ncould have launched.\n3. WEAPONS AND EQUIPMENT\na. General\nIn an undated report, written subsequent to 1937, it vas\nstated that mustard bombs of the 0-500 type, which explode from\n200 to 300 meters above the ground, had not given satisfactory\nresults because of the irregular action of their fuses.\nIt was said further, that very satisfactory serial ground\ncontamination had been obtained by dropping bombs of the Spezzoni\ntype. The Spezzoni bombs weigh about three pounds and contain\none and two-fifths grans of D.A. in two and nine-tenths (rans of\nexplosive; the Boppio or double Spezzoni weigh about six pounds,\nand contain three and three-tenths grams of D.A. in six and seven-\ntenths grams of explosive; the Puretto, which weighs 25 kilograme.\nis a 0.17. generator, and contains ten kilograma of C.H.\nThe agents and weapons used by chemical warfare troops are\nof the usual well known types. It is interesting to note that the\nartillery uses smoke shells of two types, one filled with white\nphosphorus and the other with a smoke mixture, probably oleum and\nsulphur trioxide. Tear @as shells are filled with a mixture of 20%\nC.F. in 80% chloropicrin, and lethal shells contain either mustard\ngas, phosgene, or D.A. Air bombs include the C-500 time bomb filled\nwith mustard, the C-100P, 0-40P, and C-15P filled with D.A. in high\nexplosive, the small Spezzoni bomb, and the Furetto, as well as\nIrroratore bombs* for anoke liquid and mustard products.\nb. Defense Equipment\nA list of the authorised issue of antigas equipment besides\n*Smoke curtain installation. G-3\nCONFIDENTIAL\n- 6 -\nRegraded Unclassified\n79\nCONFIDENTIAL\nshowing the personal issue of a respirator to every individual, shows\nissues to various types of units. The materials consist of dry\nbleach, liver of sulphur, formalin, potassium permanganate, soda,\nantigas suits and gloves. The one notable point about the list\nis the very small issue of dry bleach, only 300 pounds per infantry\nbattalion, or equivalent unit of other arms, which may be a con-\nfirmation of prior indications that supplies of bleach may be\nlimited by the chlorine situation. It is possible that this is\nthe reason why Italian antigas instructions lay emphasis on using\nsand, gravel, sawdust, leaves, dry gas, etc., for decontamination\nof ground.\nCONFIDENTIAL\n- 7 -\n80\nRESTRICTED\n0-2/2657-220: No. 454\nM.I.D., W.D.\n12:00 M., July 30, 1941\nSITUATION REPORT\nI, Eastern Theater.\nGround: No further information has been received from\nthe Finnish or Leningrad front.\nFighting continues in the area to the north of\nVitebsk centering around the towns of Velikiyeluki and Wovorshew.\nThe major battle between Smolensk and Vyasma continues without &\ndecision having as yet been reached.\nIn the southern Ukraine, Axis troops have ad-\nvanced about twenty miles east of Balta.\nAir: No change in the general situation.\nII. Western Theater.\nAir: Limited activity on both sides.\nIII. Mediterranean Theater.\nNo important ground or aerial activity. Normal\nharassing air raids continued,\nRESTRICTED\nRegraded Unclassified\n81\nSECRET\nBy authority A.C. of S., G-\nPurchase of Date Cablegges\nDate AUG 2 1941\nReceived at the Ver Department\nInitials\nat 13:93, July 30, 1941.\nDairo, filed 13:36, July 19, 1941.\nThe following recommendations are male:\n1. That in the construction plans for temporary housing, be to\nused in the theater of operations, the 1 of glass should be relassed\nto a ataims, because of personnel and the necessity for black out. the\n- of air-conditioning to provide sustraless heat and light-tight vustilation\nmet be considered.\n2. That a eystem of military police be initiated to provide -\nadoguate gurd over a airplance, within - hour after falling bohind\nour lines. A great doal of very valuable information regarding Free French\nand Come and Italian equipment has been Loob to the British because of the\nlooting of these airplanes.\n3. that there be at least - , to mobile creas, six trailers\nand about two Instred - with tracks and meterapoles, to form six mbile\nworking parties, as & salvage unit for vrosked planse. Dash combut (no\nshould be assigned - of these mite and the trailers of the 6 mildle\nparties should be able to transport - completely discumbled airplane of\nthe type essigned to the group. the mit should also be able to make\nrepairs on large airplance while in the field.\n4. Purmit equalvans should be increased to thirty airplance no\nthat eighteen will alseys be available for each niecion. the allowed of\nairplance in benhardment and atteck aqualress should be increased proportion-\nstaly so that twelve airplance my be available for each mission.\nSECRET\nRegraded Unclassified\n82\nSECRET\ngo that there should be obtached to each division, too\npersuit agenávous and - attack oristies operations.\n6. That experiments be to Cobernine the volue of\nusing nissr's type hord Jamps W stryless - for night -\n1 : il I I I I 2 s 1 2 I I\ngraphol, 00 that advantage my be - of the entering ground from\nin the name one disporsed of sosh treeps.\nDistribution:\nState Department\nAccistant Chief of study, 6-2\nthe Plane Division\nOffice of Noral Intelligues\nof s s\nUnited of the - Alr Purcess\nValue Becretary of for\nI I r\nDeputy thist of staff\nAtr Garge\nAssistant Ghief of Staff, 6-3\nSECRET\nRegraded Unclassified\n83\nTHE UNDER SECRETARY OF THE TREASURY\nWASHINGTON\nJuly 30, 1941\nMy dear Mr. President:\nThere are attached tentative draft\nof a letter from the Treasury to you, draft\nof a paragraph to go in your letter to\nChairman Doughton, and a memorandum of the\nexamples of corporations escaping excess profits\ntaxes. We will continue to work on this tonight\nand will have a finished letter tomorrow morning\nwhen the Secretary sees you.\nFaithfully yours,\nswBree\nThe President,\nThe White House.\nHis went to President 9.30 P.M.\nRegraded Unclassified\n84\nanginal with\nPreis papers\nDEAFT\nJuly 30, 19:41\nMy dear Kr. President:\nYou have asked no to indicate the position taken by the\nTreasury Department during the consideration of the present tax\nbill with regard to mandatory joint returns and the excess profits\ntax provision.\n1, Mandatory joint tax returns. The Treasury indicated\nto the Ways and Means Committee its approval of mandatory joint\nthe impolition.\ntax returns but only H substantial relief is granted to earned\nnd with\nincome, 1 No relief is afforded by the provisions of this bill from\nthe resulting increased tax in those cases where husband or wife\ncontributes through his or her labor to the family income.\n2. Excess profits tax. The Treasury has consistently taken\nthe position that the excess profits tax should apply to profits\nin excess of a reasonable return on invested capital regardless of\nwhether those profits are also greater than the profits of the pre-\noeding base period years. The pending bill exempts from the excess\nprofits tax an amount of profit equal to the average profits of the\nbase period years notwithstanding the fact that such profits may\nhave been excessive.\nFailure to epply the ------------------------- profile texation to profite La\nof - ressonable return on invested capital is\nRegraded Unclassified\n85\n- 2 -\nSome of the reasons for the Treasury's position are:\n(a) The highly prosperous, well established corporation\nwhich has been making 30. 40, 50 per cent or more on its invested\ncapital has & greater ability to pay taxes than a corporation\nwhich has been earning only 3. 4. or 5 per cent on its invested\ncapital, even though the dollar incomes of the two companies are\nthe same, Congress has established the principle of taxation in\naccordance with ability to pay in respect of individual incomes.\nThe Treasury advocates the application of this principle to corpora-\ntione as well as individuals. Taxation of corporations in accordance\nwith ability to pay calls for higher taxes on the profits of those\ncorporations which have the higher rates of return.\n(b) The corporation which has been making high returns in\nthe base period years is given a competitive advantage over newly\norganized concerns or concerns which have been struggling to establish\nthomselves. The latter corporations are limited to & much smaller\nrate of return free of excess profits tax than are the former. The\neffect is to confirm monopolies and to protect well established\nprosperous businesses against competition.\n(e) If we are to expect all classes of society, including\nlaborers and farmers, to accept the sacrifices of the emergency\nperiod and not to press for every possible dollar of advantage,\n86\n- 3 -\nthey must be convinced that burdens are being distributed\naccording to ability to bear them and that no one is making\nunreasonably large profits. The imposition and enforcement\nof a true excess profits tax will help to prevent inflation.\nFaithfully yours,\nActing Secretary of the Treasury\n87\nDRAFT OF PARAGRAPH TO GO IN THE PRESIDENT'S LETTER\nThe elimination of the provision for mandatory joint\ntax returns from the present bill would result in a loss of\nrevenue of approximately $\neach year. In order\nto restore this loss of revenue through a reduction in the\npersonal exemption it would be necessary to reduce the exemption\nof a married couple from the present $2,000 to $1,600 and that\nof a single person from the present $800 to $650,1f no other\nchanges are made in the bill.\nIn view of the additional number of returns which would\nbe filed as a result of lowering these exemptions, taxpayers\nshould be afforded the opportunity of filing a simple return with\nthe local postmaster, who could be authorized by law to administer\nthe necessary oath.\nJuly 30, 1941.\nC\n88\no\n?\nI\nEXAMPLES OF CORPORATIONS ESCAPING\nEXCESS PROFITS TAXES\nThe way in which the present law and the Committee's\ntentative plan leave exempt large amounts of excess profite is\nillustrated by the following actual examples.\nL. After paying all taxes an automobile company made during\nthe base period years of 1936 through 1939 approximately 25 per cent.\nPracticallyall (95 per cent) of this amount can be earned and yet\nbe free from excess profits tax under the present law and under the\nCommittee plan. In 1940 the earnings of this concern, after the\npayment of taxes, will be approximately 26 per cent of its invested\ncapital, under the present law.\nB. The earnings of & manufacturer of tractors with nearly\n$50 million of invested capital averaged, after all taxes, approxi-\nmately 18 per cent of invested capital during 1936-1939. which amount\nwill be free of SICORS profits tax under the present law and the\nCommittee's tentative plan.\nc. Similarly a company which has practically a monopoly on\none of the important Defanse materials had earnings after taxes during\nthe base period years averaging approximately 19 per cent of its 1940\ninvested capital, which it can continue to earn free of excess profits\ntax.\nD. A large manufacturer of beverages can continue to earn\nC\n89\n0\nP\nY\n- 2 -\nfree of excess profits tax over 25 per cent of its 1940 reported\nequity capital.\nThus, large amounts of the kind of profite which are commonly\ndefined as excess profits and were taxed as such under the 1918 Act\nare free from excess profits tax under the present law and the\nCommittee plan.\nJuly 30, 1941\nRegraded Unclassified\n90\nJuly 31, 1941\n8:44 a.m.\nSpeaker\nRayburn:\nHello.\nHMJr:\nWell, I left Malone, New York, this\nmorning at five-thirty.\nR:\nYes.\nHMJr:\nI think I'm down to see the President\n*\nat nine-thirty, follow in your footsteps.\nR:\n(Laughs.)\nHMJr:\nWhat have you been up to, you rascal?\nR:\nWell, I just - well, all I went down\nthere and told the President was this. I\nthink this thing's got family and political\nimplications in it and everything like that.\nIt's a damn dangerous thing.\nHMJr:\nYeah.\nR:\nAnd all the married women and all the working\nwomen and all the Catholic priests and the\nEpiscopalians\nHMJr:\nYeah.\nR:\nthey're all out against this thing.\nHMJr:\nI see.\nR:\nAnd I think it's going to raise hell if\nits put into the law; and if we knock it\nout now, there won't be a damn thing to\nit in the Senate. They'll never take it\nup over there. They'll go searching some\nplace else and get the money.\nHMJr:\nWell now, last time I talked to you about\ntaxes in November, you gave me good advice\nand I followed it.\nR:\nYeah.\n91\n- 2 -\nHMJr:\nNow\nR:\nWell, I don't know it was his suggestion\nabout making a suggestion to you about\nwriting him a letter. I - my approach was\nin that he felt like making a statement\nhimself or Steve making a statement. See?\nHMJr:\nYeah.\nR:\nAnd he thought it better be dropped out\nand got somewhere else. And then he said,\n\"Well, let's do it this way. I'll suggest\nthat Henry write me a letter and then I'll\ntransmit that to Bob Doughton with a letter.\"\nNow, I don't know whether that's the way to\ndo it or not, but that was his suggestion.\nHMJr:\nWell, you remember last time whether he\nwanted to do that, I spoke to you and you\nsaid that he just had to see Doughton and\nCooper first, and I told him that and he\ndid it.\nR:\nYeah.\nHMJr:\nNow, if he drops a letter into the lap of\nthese fellows at noon today, what's going\nto happen?\nR:\nWell, it may raise a little hell.\nHMJr:\nWhat?\nR:\nIt might raise a little hell.\nHMJr:\nYeah. I hear that Doughton made a regular\ntorch speech yesterday on this thing.\nR:\nI didn't hear him. I was on the Chair, of\ncourse, and I had to be away.\nHMJr:\nYeah.\nR:\nMade what kind of a speech?\nRegraded Unclassified\n92\n- 3 -\nHMJr:\nWell, I mean, you know - carrying the torch,\nthey say.\nR:\nOh yeah.\nHMJr:\nHe was all\nR:\nYeah.\nHMJr:\nWell\nR:\nWell, you talk it over with him and 888\nHMJr:\nI\nR:\nIt's perfectly satisfactory to me now any\nway he does it. I just - I.....\nHMJr:\nYou just wanted him to\nR:\nI just wanted him to know what I thought\nabout it, politically and otherwise.\nHMJr:\nYou want it knocked out, huh?\nR:\nI certainly do.\nHMJr:\nDo you care what the substitute 18?\nR:\nNo. I don't care whether there is any or\nnot in the House bill. Let it go to the\nSenate. The Senate will never take this\nup. They can find it on lowering the base\nand they can find it on a little bit more\nexcess profite on some of these guys that\naren't paying much.\nHMJr:\nI see.\nR:\nThat's the way I feel about it.\nHMJr:\nUh huh. Well\nR:\nWell, you - now I tell you\nHMJr:\nYeah.\n93\n- 4 -\nR:\nI just told him that\nHMJr:\nYeah.\nR:\nHe feels the same way I do about it - about\nthis community thing.\nHMJr:\nThen why the hell didn't he say 80 a long\ntime ago that the boys could.\nR:\nGod damned if I know where the thing - he\nraised the question - he said something\nabout it last Monday morning.\nHMJr:\nYeah.\nR:\nAnd I said nothing at the time - well, I\nmight have said a little something and then\nI was sitting in here talking to a fellow\nthe other night - grest friend of mine -\nex-member of Congress - and I called him\nuo and went down there and he said, yes,\nhe'd agree to that all over.\nBut now if he doesn't want to bombshell it\nor anything like that, why all right with\nme, but the only thing I can do 18 to make\na statement and I made it. Then he said\nthe - about the best way to do was to make\nan inquiry of you.\nHMJr:\nYeah.\nR:\nAnd here's what Milton West just carried\naround there that - and he's got a case\njoint returners have got enough to make\nthem mad because Treasury, you know, indicated\nvery strongly that they weren't going to\nrecommend this at this time, and they didn't\neven have a hearing.\nHMJr:\nWho's that?\nR:\nThis fellow didn't bring anybody here that\nwas opposed to this.\nRegraded Unclassified\n94\n- 5 -\nHMJr:\nI Bee.\nR:\nAnd because you either said somebody feels\nthat there wasn't going to be advocated ae far as\nthis bill 1s concerned that probably would\nbe taken up later.\nHMJr:\nNo. I'll tell you exactly what we did, Sam.\nAbout right at the end there, we said that\nthe Treasury favored thie provided there were\nexemptions for women who worked for a living,\nand that's all we did say.\nR:\nUh huh. Well, anyhow, they - Milton West and\nthose fellows claim there's a plain indication\nthat the committee wasn't going to take it up\nat all and they told their folks not to come\nHMJr:\nYeah.\nR:\nand then when they got through with the\nhearings and went in Executive Seasion, why\nthey socked them with this thing.\nHMJr:\nYeah. Well, I think that this justification -\nwhile they were voting and everything else,\nwe just said the Treasury took no position.\nR:\nYeah.\nHMJr:\nYou see?\nR:\non sure.\nHMJr:\nAnd then at the end they were kind of crowding\nus to say something, 80 right at the end.\nR:\nWell, you took no position. They didn't\nsay that, that you took any position during\nthe consideration of the amendmentsand so\nforth.\nHMJr:\nWell, we didn't.\nR:\nYeah.\nHMJr:\nAnd we stayed on the sidelines.\nRegraded Unclassified\n95\n- 6 -\nR:\nYeah.\nHMJr:\nBut - well, I just wanted to know how the\nground lay. I knew you'd tell me and\nR:\nWell, that's exactly how it was, I went\ndown there to talk to the President. I\nthought he ought to say something about it.\nI think it's a bad\nHMJr:\nWell, I wish to hell - this has been in the\npapers for months, and I think it's just\ngoing to kill poor old Bob Doughton.\nR:\nWell, don't do it that way then.\nHMJr:\nAnd\nR:\nYou can call him and tell him he's sending\nhim a letter or something.\nHMJr:\nWell, if you could somehow soften the blow.\nR:\nWhat?\nHMJr:\nI say if the President could somehow soften\nR:\nSure, sure. I think you're right.\nHMJr:\nOkay, Sam\nR:\nYou're a hundred percent right on that.\nHMJr:\nI may want to see you later.\nR:\nOh, I get it.\nHMJr:\nThank you.\nRegraded Unclassified\n96\nAugust 1, 1941\n9:13 s.m.\nHMJr:\nHello.\nGrace\nTully:\nGood morning, sir.\nHMJr:\nHow are you?\nT:\nAs I don't write notes to married men,\nI thought I'd telephone you, by gosh.\nHMJr:\nOh, you're careful, huh?\nT:\n(Laughs)\nHMJr:\nWhat?\nT:\nYes, sir.\nHMJr:\nI hope you haven't learned from experience.\nT:\nNo, not - not very serious.\nHMJr:\n(Laughs)\nT:\n(Laughs) Look, I - on the Doughton thing,\ndo you want to get the background of what\nhappened?\nHMJr:\nYes, because he's calling me every five\nminutes.\nT:\nWell, he said he was going to have 8 conference\nwith you this morning, he told me.\nHMJr:\nYes.\nT:\nWhat happened was, he called last night and\nhe wanted to talk to the General, and the\nGeneral was gone and Steve was not there;\n80 I talked with him.\nHMJr:\nYeah.\nT:\nAnd he said that he wants me to tell the\nRegraded Unclassified\n97\n- 2 -\nPresident that he had had his letter\nHMJr:\nYeah.\nT:\nand with the - your letter, et cetera,\nand I said, \"Yes, sir.\" And he said, \"Well\nnow, we - it's too late to do anything about\ntwo of those things\nHMJr:\nYeah.\nT:\n!!\nand the bill 18 all ready to come out\nand under the rules we operate under, we\ncouldn't include them anyway.'\nHMJr:\nYeah.\nT:\nAnd 80 I told the President that, and he seld,\n\"Well now, I don't know about this,\" and what\nI was trying to get out of him was whether he\nwas going to release it or not.\nHMJr:\nYeah.\nT:\nAnd so I said, he said, \"Well, I don't know\nabout this letter, et cetera.\" And I said,\n\"Well, I tell you, Mr. Congressman, there are\nsome people have copies of that letter.\"\nHMJr:\nYeah.\nT:\nAnd he said, \"Oh, who?\"\nHMJr:\nYeah.\nT:\nAnd I said, \"Oh, well I know a few.'\nHMJr:\nYeah.\nT:\nI said, \"The Speaker and Congressman Cooper\nand Senator George and there's a couple of\nothers I don't remember.\"\nHMJr:\nYeah.\nT:\nAnd there aren't any others at all, but if\nRegraded Unclassified\n98\n- 3 -\nhe thought somebody on the outside besides\nthe Congress had 1t, he might let it go\nbefore they did.\nHMJr:\nYeah.\nT:\nAnd I said, \"It's just a possibility that\nit might come out\nHMJr:\nYeah. Well, my\nT:\nIf\nsince there are 80 many copies around.\"\nHMJr:\nmy hunch when I called you that he wouldn't\nlet it aut.\nT:\nWell, I gathered very definitely he didn't\nwant to.\nHMJr:\nNo. It was correct.\nT:\nYes. Oh, yes.\nHMJr:\nNow, the thing that t he's shunning for me to\ncome this morning is\nT:\nYes.\nHMJr:\nhe wants me to tell them what to do\nwith the letter.\nT:\nWell, the President wants it out.\nHMJr:\nWell, then it's perfectly safe for me to\ntell him to give it out.\nT:\nWell, I tell you what the President now means -\nhe doesn't seem to want to - he could give it\nout himself. He said, \"Well -\" Oh, I know\nwhat he asked me. That's how we got on the\nsubject - \"Did the White House release this\nletter?\"\nHMJr:\nYeah.\nT:\nAnd I said, \"No, sir. We don't release letters\naddressed to you.\"\nRegraded Unclassified\n99\n- 4 -\nHMJr:\nYeah.\nT:\nIn other words, it's up to you to release it.\nHMJr:\nYeah.\nT:\nAnd then he came back and he said, \"Well,\nI'm going to talk to Secretary Morgenthau.\nI'm going to have a conference with Secretary\nMorgenthau in the morning.\"\nHMJr:\nYeah.\nT:\nAnd then I thought, well, maybe he's going\nto take it up then. But I tell you what -\nI told the President I got the very definite\nfeeling, A8 you did, that he was going to\nbury it if he could.\nHMJr:\nYeah.\nT:\nAnd he eaid, \"Well, remind me to talk to\nSam Rayburn tonight\" - of course he had a copy\nHMJr:\nYeah.\nT:\nH\nand in some way get it out.\"\nHMJr:\nI\nT:\nSo I think the President did talk to Sam\nRayburn, and perhaps Rayburn got ahold of\nDoughton last night and he may say that he's\ngiving it out, I don't know what happened\nafter that conversation.\nHMJr:\nWell, would it do any harm for me to call\nup Sam?\nT:\nNo, if the President actually did\nHMJr:\nWell\nT:\nI haven't checked on that, but I can do that\nthrough my board. If the President spoke to\nhim lest night, it was about that.\nRegraded Unclassified\n100\n- 5 -\nHMJr:\nOh, I see.\nT:\nAnd then I'm sure that's what he told him.\nHMJr:\nRight.\nT:\nSo do you want me to check that?\nHMJr:\nDo you mind?\nT:\nNo.\nHMJr:\nAll right.\nT:\nThen if you want to, you could call Sam\nRayburn.\nHMJr:\nThat's right.\nT:\nAll right. Grand, Mr. Secretary.\nHMJr:\nDo you want me to hold on?\nT:\nYeah. Will you flash your - will you flash\nmy operator there?\nHMJr:\nYeah.\nOperator: Yes, sir.\nHMJr:\nMiss Tully wants her operator.\nOperator: All right.\nHello.\nHMJr:\nYes.\nOperator:\nI have Mr. Kelly here for you.\nHMJr:\nWell, keep off. I'm waiting for Miss Tully.\nOperator:\nAll right, sir.\nHMJr:\nShe wants to talk to the White House, then\nspeak to me again.\nRegraded Unclassified\n101\n- 6 -\nOperator: All right.\nHMJr:\nHello. Hello.\nOperator: Did the White House Operator come in?\nHMJr:\nNo. Do they want me? She said she'd talk\nto me again.\nHello.\nOperator:* Yes.\nHMJr:\nI'll hang up now. I'll wait till Miss Tully\ncalls.\nOperator: All right, I'll ring you back.\nRegraded Unclassified\n102\nJuly 31, 1941\n9:20 a.m.\nHMJr:\nHello. Bob?\nRobert\nPatterson:\nHenry?\nHMJr:\nHow are you?\nP:\nI'm fine. How are you?\nHMJr:\nGood. Bob, I tried to get Mr. Stimson,\nbut he's not available. What 18 the\nsituation on your bill about the draftees?\nWhere does it stand in Congress?\nP:\nIt 1s on the Floor of the Senate. You\nmean the one year limit?\nHMJr:\nYes.\nP:\nIt's on the Floor of the Senate, and has\nbeen approved by both Senate and House\nMilitary Affairs Committees and is now in\ndebate in the Senate.\nHMJr:\nIt has not passed the House?\nP:\nNot passed either.\nHMJr:\nIs there any\nP:\nA Congressman was just in and told me that\nit would receive quite a hot fight on the\nHouse.\nHMJr:\nA hot fight?\nP:\nFrom the Republicans. He said the Republicans\nin the House Military Affairs Committee voted\nalmost solid against it. The vote was fifteen\nto seven, which was pretty much a party vote.\nHMJr:\nBob, is there any particular significance in\nAugust 1? I mean, if you don't get your bill\nup?\nP:\nNo. No. That was a date selected, and it merely\nRegraded Unclassified\n103\n- 2 -\nmeant based, that's all.\nHMJr:\nOh, I mean when\nP:\nThere isn't any - nothing will happen on\nAugust 1.\nHMJr:\nWell, when will it - supposing Congress\ndoesn't move. When do you have to begin\nto let the first draftees out?\nP:\nAbout - the first draftees about November.\nHMJr:\noh, not till November?\nP:\nNo. And the first National Guard in\nSeptember.\nHMJr:\nIn Sentember.\nP:\nYes.\nHMJr:\nWell, when\nP:\nNational Guard in September.\nHMJr:\nWell, why has everybody been eaying you\nhad to get the bill passed by August 1?\nP:\nWell, they've got to know where they stand,\nHenry. You take, they've got National Guard\nfellowe out in Hawaii.\nHMJr:\nYeah.\nP:\nWell now, you've got to arrange for transporte\nto go out there and bring them back.\nHMJr:\nI see.\nP:\nAnd new troops to go and take their place.\nHMJr:\nYeah.\nP:\nIt's just the uncertainty of it\nHMJr:\nI see.\nRegraded Unclassified\n104\n- 3 -\nP:\nwhich 1s damaging to the morale and\n80 on.\nHMJr:\nI see.\nP:\nThere is no significance in the very day\nAugust 1.\nHMJr:\nWell, that's what I wanted to find out.\nP:\nNo. They - I think General Marshall said\nAugust 1 just as a convenient day - quick -\nhe meant we must have speed in this.\nHMJr:\nHow do you stand in the House on your bill?\nP:\nOn that bill?\nHMJr:\nYeah.\nP:\nWell, I had thought that it was going to\nhave clear sailing.\nHMJr:\nI see.\nP:\nMcCormack and Rayburn got off poorly at\nfirst, you know.\nHMJr:\nYeah.\nP:\nBut they're all right now and they're going\nto make a good speech, I understand.\nHMJr:\nI Bee.\nP:\nI think that - I think we're all right in\nthe main. The only trouble will be the\nRepublican votes which - of course, Jim\nWadsworth will carry probably twenty or\nthirty Republican votes for the bill.\nHMJr:\nYeah.\nP:\nBut otherwise, they're just hopeless.\nHMJr:\nOkay.\nRegraded Unclassified\n105\n- 4 -\nP:\nAll right.\nHMJr:\nThank you.\nP:\nHow are you?\nHMJr:\nI'm fine. I just got in.\nP:\nWhere you been?\nHMJr:\nI've been up at Malone. I left there at\nfour-thirty this morning.\nP:\nMalone, New York?\nHMJr:\nYeah.\nP:\nWhat, fishing?\nHMJr:\nYeah.\nP:\nYeah. Good country.\nHMJr:\nYes. It's nice country.\nP:\nAll right. I hope to see you soon.\nHMJr:\nYes. That's mutual.\nP:\nI called you up last Sunday up in Fishkill,\nbut no answer.\nHMJr:\nWe were up at Malone.\nP:\nYeah. Well, I only called up to ask you to\ncome down, but that was all.\nHMJr:\nOh.\nP:\nTo see a good county.\nHMJr:\nDo it again.\nP:\nAll right, I will.\nHMJr:\nAll right.\nP:\nGood-bye.\nRegraded Unclassified\n106\nJuly 31, 1941\n10:37 a.m.\nFrank\nKnox:\nHello.\nHMJr:\nFrank?\nK:\nYes, Henry.\nHMJr:\nHow are you?\nK:\nFine.\nHMJr:\nCould I give you a little Treasury chow\nfor lunch?\nK:\nI've got a luncheon at the Willard, with\nall the Public Relations officers from all\nover the country coming in.\nHMJr:\nOh, I'm sorry.\nK:\nSo I'm going to be tied up. Sorry, Henry.\nHMJr:\nOkay.\nK:\nHow about you coming down and having dinner\nwith me on the Sequoia tonight?\nHMJr:\nWell, I've got a couple of people that I\ninvited for tonight. That's my trouble.\nK:\nWho are they? Somebody I could entertain\nwith you?\nHMJr:\nA couple - they're Treasury boys, that's\nwho they were. I mean, I've invited Foley\nand White, but I can put them off.\nK:\nWell, why don't you do that. I'm free\ntonight and\nHMJr:\nAll right.\nK:\nif you can get free, we'll have a nice,\nquiet dinner, just the two of us.\nRegraded Unclassified\n107\n- 2 -\nHMJr:\nI'd love to do that.\nK:\nAll right, then. We'll say come down there\nthen about six-thirty?\nHMJr:\nAll right. I'll postpone them.....\nK:\nAll right, fine. Do that.\nHMJr:\n.....and be down at your place about six-\nthirty.\nK:\nDown at the Navy Yard, you know.\nHMJr:\nI know.\nK:\nYeah. All right.\nHMJr:\nI'd like to do that.\nK:\nAll right. Fine, Henry.\nHMJr:\nThank you.\nK:\nGood-bye.\nHMJr:\nGood-bye.\n108\nJuly 31, 1941\n10:45 a.m.\nRE EXCESS PROFITS TAX\nPresent:\nMr. Brown\nMr. Kuhn\nMr. Sullivan\nMr. Foley\nMr. Blough\nMr. Bell\nH.M.Jr:\nThis part here, part two, in his own handwriting\nwhich I want back - you two men make notes\n(Mr. Kuhn and Mr. Blough). He has corrected\nnumber one. He says, The Treasury indicated\nto the Ways and Means Committee its conditional\napproval of mandatory joint tax returns, the\nconditions being that substantial relief is\nsimultaneously granted to earned income of\nboth husband and wife.\"\nHe thinks that that is bad.\nNow, on the excess profits on paragraph two,\nhe said, \"Try and simplify it and make it\nEnglish,\" and what he means is this: \"The\nTreasury has consistently taken the position\nthat the excess profits tax should apply to\nprofits in excess of reasonable returns on\ninvested capital regardless of whether those\nprofits also exceed the profits of the base\nperiod years. He says, \"Nobody that doesn't\nsit on the Committee knows what base period\nyears is.\"\nRegraded Unclassified\n109\n- 2 -\nBlough:\n'36 to '39.\nH.M.Jr:\nWell, he said, \"Spell it out,\" just like I said -\nif you are talking about parity payments, no\none knows what parity payments are, but he\nwants that part spelled out so that the man\nwho doesn't sit on the Committee and the man\non the street knows what you are talking about,\nyou see.\nHe made one other correction here. Now, that\nis all. I will give you this. lie has written\n8. letter in which he says that he - that inas-\nmuch as the Treasury's position is this in\nregard to this joint return business, the\nCommittee has not taken our suggestion, you\nsee, and therefore he is opposed to it as it\nis in the bill. It is all right. He is\nplaying ball with us. You can't ask for any-\nthing fairer, as long as he has made up his\nmind. Then he is going to say about - that he\ntalked with Doughton about excess profits, and\nthey haven't followed his advice and our ad-\nvice on that and therefore the companies are\ngetting away and making profits in times like\nthis when they shouldn't and then he says,\n\"Third and last, I did not - \" this is his\nletter to Doughton. I haven't seen it. It\nwasn't written. He says, \"I have not discussed\nwith you the question of lowering exemptions, but\nI feel that every man would be glad to make &\ncontribution, a direct contribution toward\nnational defense.\" Now he says, \"You fellows\ncan't understand simple arithmetic,\" and he\nsays, \"By dropping the thing from eight hundred\nto seven fifty _\" then he is going to double\nit for the married man to fifteen hundred.\nHe says, \"After all, the married man, it\noughtn't to cost him more than twice as much as\nfor a single man to live.\" He would like\nseven fifty and fifteen hundred, but he is\nleaving us entirely out of the picture.\nRegraded Unclassified\n110\n- 3 -\nHe is saying to Doughton, \"I did not discuss\nthis with you before.\" He is playing one\nhundred and one percent with the Treasury.\nYou can't ask for anything better than that.\nHe is determined. There is no use arguing\nwith him. This is what he wants. He has changed\nsince last night, you see. He is only against\nthis joint return business because they haven't\nfollowed the Treasury's position.\nHave you (Mr. Kuhn) been in on this?\nKuhn:\nNo.\nH.M.Jr:\nNow, in order not to waste any time, because\nhe is going to call me, and I am not going\nto be - you two men (Mr. Kuhn and Mr. Blough)\ngo and take this copy, which I would like to\nhave back, and in this case - who is going to\ndo the typing?\nBlough:\nI can have it done in my office.\nH.M.Jr:\nAll right. There is the whole business.\nBell:\nYou see there were two drafts. I am afraid\nhe got the wrong one.\nH.M.Jr:\nHere is my draft. I will put \"H.M.Jr.\" on this.\nHe is in a grand humor.\nBell:\nHe didn't read this one.\nH.M.Jr:\nHe said send you all his love and he is sorry \"\nhe can't see you, and he said, \"All right -\nwhat?\nBell:\nThis letter was much improved over the one he\nhad.\nH.M.Jr:\nHe won't care. He wants it improved. The\nRegraded Unclassified\n111\n- 4 -\nTreasury letter?\nBell:\nOur letter that you had was much improved.\nH.M.Jr:\nThat is all right. The two of you go to work\nand make it - listen, 80 the newspaper reader\ncan understand what it is all about. Just as\nsoon as you are ready, the two of you come back\nand the jury of Bell, Foley, and Sullivan and\nMorgenthau will be waiting, but please hurry.\nI am glad to have seen you. Oh, and the Presi-\ndent wants & poem. I will tell you about it.\nI promised to have it read next week. It is\n8. thing called \"Islanders.\" Send for it. It\nwas written in 1900.\nKuhn:\nYou don't know by whom, do you?\nH.M.Jr:\nHe didn't know, but I have got the quotations.\nIt is a British book, \"The Islanders.\"\nHe is in a wonderful mood. The fellow is the\nPresident of the United States and he wants to\ndo it this way.\nFoley:\nHe is determined all right, there is no doubt\nabout that.\nBell:\nYes, I guess you found that out, that he was\ndetermined.\nH.M.Jr:\nAnd he is absolutely playing fair with us in\nthe sense that he isn't coming out point blank.\nHe is simply saying he is opposed to the\nthing because the Congress didn't follow us.\n(Laughter) He is saying in his letter that\nhe didn't discuss the other proposal with\nDoughton.\nFoley:\nThat is right. He says we don't have to put\nit in our letter to him.\nRegraded Unclassified\n112\n- 5 -\nH.M.Jr:\nNo.\nFoley:\nAnd our letter to him is consistent with the\nposition we have taken and all we are doing is\nreporting what we have said on the two matters\nbefore the Committee.\nH.M.Jr:\nAre you going to use the example? I think\nwe are in a perfect position. Now, Doughton\nwants to talk to me.\nFoley:\nHe isn't going to call him?\nH.M.Jr:\nOh, no, he is on the wire.\nFoley:\nNo, the President. He isn't going to talk to\nDoughton?\nH.M.Jr:\nI don't know what I am going to say.\nBell:\nHe knows you are in town, and he knows you came\nback for a purpose.\nFoley:\nHow does he know?\nH.M.Jr:\nThe newspapers had it.\nRegraded Unclassified\n113\nJuly 31, 1941\n10:55 a.m.\nHMJr:\nHello.\nRobert\nDoughton:\nHello, Henry.\nHMJr:\nHow are you?\nD:\nThis 18 your honorable, obedient, obstreperous\nservant.\nHMJr:\nWell, the same to you. Ditto.\nD:\nThank you. How are you feeling?\nHMJr:\nWell, I feel all right. I had a week's\nrest and I feel like a new man.\nD:\nWell, that's fine. I know you deserve it -\nI know you were entitled to it, and I'm glad\nyou got it and got the benefit of it.\nHMJr:\nYeah.\nD:\nWe down here have so little to do we never\nneed any rest, you know.\nHMJr:\nI know, you're hard working fellows.\nD:\nWe need more work.\nHMJr:\nYou need more work?\nD:\nYeah. (Laughs) Yeah.\nWhat I called you about - I know you'll\npardon me - about the situation with respect\nto this provision of bill 1011, the section\ndealing with mandatory joint returns.\nHMJr:\nYes.\nD:\nNow, you, of course, have kept up with and\nknow that we had agreed to modify our rule\nso as to give them 8. separate vote in the\ncommittee on that section.\nRegraded Unclassified\n114\n- 2 -\nHMJr:\nYeah.\nD:\nAnd that'll come up Monday.\nHMJr:\nI see.\nD:\nNow you - when you - Sullivan came down\nfinally and made a statement presenting\nthe views of the Treasury\nHMJr:\nYeah.\nD:\nyou gave us an endorsement with a\ncondition.\nHMJr:\nThat's right.\nD:\nAnd your condition was not approved by the\ncommittee. You know that.\nHMJr:\nSullivan so reported.\nD:\nWhat's that?\nHMJr:\nSullivan reported that.\nD:\nYeah. Now, I was wondering what was the\nposition of the Treasury as the matter now\nstands. We're going to have a devil of a\nfight on that.\nHMJr:\nWell, we haven't changed any.\nD:\nYou haven't changed any?\nHMJr:\nNo.\nD:\nYou're still for it?\nHMJr:\nWith the condition.\nD:\nWell, the condition's not in it.\nHMJr:\nWell.....\nD:\nAnd we can't get any members. Now what\nRegraded Unclassified\n115\n- 3 -\nabout the position on taking care of it\nin the Senate? I just wanted to know\nHMJr:\nOh.\nD:\nwhether or not we were going to get\nany help from you people as it now stands.\nHMJr:\nWell, you're asking me a pretty important\nouestion and I'll have to think it over.\nDI\nWell, that's - you see, here's the situation.\nIf you put that out, we're three hundred and\ntwenty-nine million dollars short.\nHMJr:\nYeah.\nD:\nAnd I don't know whether it will go through\nthe Senate. Of course, in my opinion, I\ndon't know of any other way that we could\nagree on. Of course, we couldn't get out,\nbecause if it was re-referred to the committee,\nwhy there we'd be maybe a week trying to agree\non something, I think it'll go there that\nmuch short. I don't see any chance at all\nto make it uo in the House. I don't know\nwhat they'd do in the Senate. It's what\nthey did do whether or not we'd ever agree\nto it, you know.\nHMJr:\nWell\nD:\nIf we could keep it in there, it would\nsimplify our situation if we'd raise\nthree and a half billion dollars which\nwould build out the margin a little more -\nkeep that in there.\nHMJr:\nYeah.\nD:\nAnd, of course, I can't advise you about\nyour position.\nHMJr:\nYeah.\nRegraded Unclassified\n116\n- 4 -\nD:\nBut we're picking a desperate fight trying\nto give him three and a half billion dollars,\nand we think we can get the three hundred\nand twenty-nine million there easier and\nless burden and less injustice to anybody\nthan any other place under the sun we can\nget it. That's our conviction - not only\nour opinion, but our conviction. And I\nwish you'd think it over; and if you can\ngive us some help, we'd greatly appreciate\n1t.\nHMJr:\nWell, I'll think it over; and if I can be\nof any help, I'll call you. But, I'm\nafraid I'm not going to be of any help.\nD:\nUh huh.\nHMJr:\nBut, let me think it over.\nD:\nAll right. Well, if you don't, why it'll\nbe construed that you aren't against it;\nbut that's your responsibility. That's\nnot for me to suggest what you do about\nit.\nHMJr:\nWell, I appreciate your courtesy and\nfriendship in calling, and\nD:\nYes.\nHMJr:\nand don't forget, no matter what\nhappens, I'm your friend.\nD:\nWell, I'll be your friend forever; there's\nno question about that. No separating our\nfriendship. We may not just agree about\nsome detailed legislation. We're trying -\nwe're both striving for the same goal\nHMJr:\nYeah.\nD:\nand our friendship is unbreakable.\nHMJr:\nYeah. Well, that's the way I feel, Bob.\nRegraded Unclassified\n117\n- 5 -\nD:\nAll right. Thank you, Henry.\nHMJr:\nGood-bye.\nRegraded Unclassified\n118\n0\n0\nP\nY\nJuly 31. 1941\nMy dear Mr. President:\nYou have asked as to indicate the position taken\nby the Treasury Department during the consideration of the\npresent tax bill with regard to (1) the mandatory joint tax\nreturns provision, and (2) the excess profite tax provision.\n1. Mandatory joint tax returns. The Treasury indi-\ncated to the Ways and Means Committee, that it would approve\nthe provision for mandatory joint tax returns if substantial\nrelief was granted to earned income. No substantial relief\nis afforded by the provisions of the pending bill from the\nresulting increased tax in those cases where husband and wife\ncontribute through their labor to the family income. Therefore,\nin this important respect the pending bill is inconsistent with\nthe Treasury's suggestion.\n2. Excess profits tax. The Treasury has consistently\nadhered to the position that the excess profite tax should\napply to profits in excess of a reasonable return on invested\ncapital. In general, the pending bill exempts from the excess\nprofits tax an amount of profit equal to 95 per cent of the\naverage prefite of the base period notwithstanding the fact\nthat such profits my be in excess of a reasonable return.\n(This draft went to the Secretary 7/31/41 morning--using it, with\npencilled corrections,-final was typed. ) This draft prepared by\nMessrs. Bell, Foley, Blough. Sullivan and Kades.\nRegraded Unclassified\n119\n(\n- 2 -\nSome of the reasons for the Treasury's position are:\n(a) The highly prosperous, well established corpora-\ntion which has been making 30, 40, 50 per cent or more on its\ninvested capital has a greater ability to pay taxes than a\ncorporation which has been earning only 3. 4, or 5 per cent\non its invested capital, even though the dollar incomes of the\ntwo companies are the same. Congress has established the prin-\nciple of taxation in accordance with ability to pay so far as\nindividual income, estate and gift taxes are concerned. The\nTreasury advocates the application of this principle also to\ncorporation taxes. Taxation of corporations in accordance with\nability to pay calls for higher taxes on the profits of those\ncorporations which have the higher rates of return on invested\ncapital.\n(b) The corporation which has been making & high rate\nof return in the base period is given, by the existing law, a\ncompetitive advantage over newly organized concerns or those\nstruggling to establish themselves. The former corporations\nare given & such greater rate of return free of excess profite\ntax than are the latter. The effect is to confirm monopolies\nand to protect well established prosperous businesses against\ncompetition.\nRegraded Unclassified\n120\n- 3 -\n(e) If we are to avoid those cenditions which lead\nto inflationary price rises, all must make sacrifices during\nthis emergency, and none should be allowed to take advantage\nof the situation. With this in mind we should endeavor to\ndistribute burdens according to the ability to bear them and\nve should prevent unreasonably large profits.\nFaithfully yours,\nThe President,\nThe White House.\n121\nDRAFT OF PARAGRAPH TO GO IN THE PRESIDENT'S LETTER\nThe elimination of the provision for mandatory joint\ntax returns from the present bill would result in an snnual\nloss of revenue of approximately $300 million. In order to\nrestore this loss of revenue through a reduction in the personal\nexemption it would be necessary to reduce the exemption of a\nmarried couple from the present $2,000 to $1,600 and that of\na single person from the present $800 to #650 if no other\nchanges are made in the bill.\nIn view of the additional number of returns which would\nbe filed as a result of lewering these exemptions, taxpayers\nwith small incomes and simple returns might be afforded the\nopportunity of filing their returns with the local postmaster,\nwho could be authorized by law to administer the required oath.\nJuly 31. 1941\nRegraded Unclassified\nEXAMPLES OF CORPORATIONS ESCAPING\n122\nEXCESS PROFITS TAXES\nRegraded Unclas\nThe vay in which the present law and the Committee's tentative\nplan leave exempt large amounts of excess profits is illustrated by\nthe following actual exemples.\n1. After paying all taxes an automobile company made during\nthe base period years of 1936 through 1939 approximately 25 per cent.\nPractically all (95 par cent) of this amount can be earned and yet be\nfree from excess profits tax under the present law and under the\nCommittee plan. In 1940 the earnings of this concern, after the pay-\nment of taxes, will be approximately 26 per cant of its invested capital,\nunder the present law.\nB. The earnings of a manufacturer of tractors with nearly $50\nmillion of invested capital averaged, after all taxes, approximately\n18 per cent of invested capital during 1936-1939, which amount vill be\nfree of excess profits tax under the present law and the Committee's\ntentative plan.\nC. Similarly a company which has practically a monopoly on one\nof the important Defense materials had earnings after taxes during the\nbase period years averaging approximately 19 per cent of its 1940\ninvested capital, which it can continue to earn free of excess profits\ntax,\nD. A large manufacturer of beverages can continue to earn free of\nexcess profits tax over 25 par cent of its 1940 reported equity capital.\nThus, large amounts of the kind of profits which are commonly\ndefined as excess profits and were taxed as such under the 1918 Act are\nfree from excess profits tax under the present law and the Committee plan.\n123\nJuly 31. 1942\nMy door Mr. President:\nYou have asked me to inficate the position taken w the\nTreasury Department during the consideration of the present\nlas bill with regard to (1) the malatery joint tax returns\nprovision, and (2) the - profite M provision.\n1. the Pressury indicated\nto the Wage and Besse Committee its conditional approval of\nmatatory joint tax returns, the condition being that mb-\nstantial relief is similteneously greated to carned income of\nboth busbend and wife. the embetantial relief to afforted w\nthe provisions of the pending MII from the resulting increased\nlas is these cases where Instand and wife contribute through\ntheir labor to the family Income. Therefore, in this important\nrespect the pending will is with the Treasury's\nsuggestion.\na. the Treasury has consistently\nadhered no the position that the - profite tax shrald upply\nto profite is - of 6 recomeble return # invested expital.\nMany corporations between 1936 and 1939 (the base pariod)\ncarned average profite for sa - of a reasonable normal\n7/31 frial return. - the revised pending will (ey emagle Knlen all and Blough) took to\nfrom the 8:30 due seey\nFILE COPY white House at 2 P.m.\nRegraded Unclassified\n124\nof 6 8\nearnings from - prefite termitten unless they are more\nthen 95 percent of the average profits enrast in the 1936\nto 1939 parted. therefore, is another Emportant respect\nthe penting Mill is inconsistent with the Treasury's clearly\nnamember yargese.\nloss of the reasons for the Pressury's position are:\n(a) the highly prosperves, will ostablished corpora-\ntiem which has been midng 30, no. 90 persent or nore on its\ninvested capital has . greater ability to pay taxes then s\ncorporation which has been carning only 3. n, or 5 persont\non its invested capital, - though the dellar income of\nthe two evapanies are the - Congrass has outsblished\nthe principle of tasation is accordance with ability be my\n- for as individual Income, estate and an taxes are -\ncorned. the Treasury advocates the application of this\nprinciple to corporations as will as to individuals. fan-\natten of corporablems is nacestance with ability to my\ncalls for higher tasse ⑉ the profite of those corporations\nwhich have the higher rates of return on invested empital.\n(b) the corporation which has been making 6 high rate\nof return is the period from 1936 to 1939 is given, w the\nexisting 100, a competitive advantage one souly organized\nconserno or these struggling to establish themselves. the\nFILE COPY\nRegraded Unclassified\n125\n- 3 -\nolder corporations which have been carning high profite are\ngiven a such greater rate of return free of ...... profits\ntax then are their - competitors. the offect is to\nconfirm menspolies and to protect will octablished prosper-\nas businesses against competition.\n(e) If we are to expect all classes of seciety, is-\ncluding laborere and formers, to assept the sacrifices of\nthe energency period and not to press for every possible\ndollar of advantage, they met be convinced that burdens\nare being distributed according to ability so hear them\nand that as cas is making unreasenably large profite. the\nimposition and enforcement of a true @@@@@@ profite tax\nvill time help to prevent inflation.\nFaithfully years,\nDecretary of the Treasury\nThe President\nthe White House\nFILE COPY\nRegraded Unclassified\n126\nJuly 31, 1941\n11:45 a.m.\nRE EXCESS PROFITS TAX\nPresent:\nMr. Bell\nMr. Foley\nMr. Sullivan\nMr. Blough\nMr. Kuhn\nH.M.Jr:\nShould I read this?\nKuhn:\nIt is all the same except - it is all the same,\nRoy, isn't it, from there down?\nBlough:\nWell, we went back --\nFoley:\nBase period, where is that?\nKuhn:\nWe changed the base period at the end of page\ntwo.\nBell:\nWhy shouldn't we put in parentheses, \"after\nthirty-nine\", the base period, from thirty-\nsix to thirty-nine?\nH.M.Jr:\nWhere is that, Dan?\nBell:\nAt the bottom of page one.\nH.M.Jr:\nYou would say what?\nBell:\n\"Many corporations\", the preceding sentence,\n\"between 1936 and 1939\", and then in parentheses,\n\"base period\".\nRegraded Unclassified\n127\n- 2 -\nH.M.Jr:\nI think that would be good if we had time to\ndo it over. Why can't I just put this in\nin ink?\nBell:\nWhat is your deadline?\nH.M.Jr:\nIn brackets?\nBlough:\nIn parentheses, yes.\nH.M.Jr:\nThe 1936 to 1939 --\nBell:\nParentheses, the base period.\nH.M.Jr:\nNow, if we have time, we can do that one page\nover. I don't know what is the matter with\nthe ink?\nBell:\nIt is all right.\nBlough:\nIf there is no more than that, I should think\nit would be all right.\nBell:\nThe chances are he won't send the original\nanyway. He will send a copy.\nH.M.Jr:\nWhat else is there? I just want to read this\nover. \"Not to press for every possible dollar\nof advantage\".\nKuhn:\nThat was in the part the President approved.\nBlough:\nWe went back from the second paragraph to the\nfirst one. I think it was eliminated as\nstronger than the President would take, and\nhe took it, so we thought we would go back to\nit.\nH.M.Jr:\nYou kind of throw that in as an after thought,\n\"will help to prevent inflation\".\nRegraded Unclassified\n128\n- 3 -\nKuhn:\n\"Would thus help to prevent inflation.\"\nBell:\nThat is what bothered us last night. Two\nthings bothered us. One was the last sentence.\nWe re-wrote that whole sentence. He approved\nthat, you think?\nBlough:\nHe didn't change it.\nH.M.Jr:\nI like that farmers business but I just question\nthat last sentence.\nSupposing we put the last sentence at t he be-\nginning of C.\nWell, Texcess profits is going to prevent infla-\ntion,\" that alone --\nBell:\nGoing to help, that is what we had in there.\nKuhn:\nIsn't that the real argument for 8. true excess\nprofits tax now, that it will induce labor and\nfarmers to accept whatever limitations you\nwant to put on them?\nH.M.Jr:\nThen if you do, I would put the sentence up\nat the beginning of this paragraph. What?\nSullivan:\nI like it where it is, sir. I hadn't seen\nthis before.\nH.M.Jr:\nNo. You haven't seen it?\nSullivan:\nNo, I mean this new draft.\nH.M.Jr:\nThere is nothing new about this, is there?\nBell:\nYes.\nSullivan:\nThis last sentence.\nBell:\nThis was the first draft last night that Foley\ndrew up.\nRegraded Unclassified\n129\n- 4 -\nH.M.Jr:\nBut these boys didn't throw that sentence in, did\nthey?\nKuhn:\nOnly the word \"thus\".\nBell:\nJohn didn't see the draft last night. When\nhe got back it was entirely different.\nBlough:\nThat last paragraph, except for the word \"thus\"\nis the paragraph that went to the President and\nwhich he read.\nH.M.Jr:\nAll except the la st paragraph?\nBlough:\nExcept the word \"thus\".\nH.M.Jr:\nWell, I would personally like to see that sen-\ntence up at the beginning of (c).\nBell:\nI am afraid there will be some criticism on\nthe farmers because I don't think there is any\ninclination to ask or expect the laborers and\nfarmers to go along.\nH.M.Jr:\nI am glad to see it.\nKuhn:\nDan, the President said 30 in his message\nyesterday.\nBell:\nBut we have allowed a lot of wage increases, and\nallowed them to run wild, and the farmers\nonly now have passed a bill that they can't\nsell surplus crops.\nH.M.Jr:\nWill you make it a (d) and make it B. separate\nparagraph?\nBlough:\nThat is the heart of (c), Mr. Secretary.\nH.M.Jr:\nDo you agree to that?\nRegraded Unclassified\n130\n- 5 -\nKuhn:\nYes, I think that sentence about inflation\nis your whip at the end of the letter which\ngives a bigger justification for what you\nare doing.\nH.M.Jr:\nAll right. They are all inflation minded around\nhere. Now what we do is, I will keep this bird\nin hand. Now, you can do this base period\nthing over. Good. Now, where is the examples\nand all that? He gave me everything back, you\nsee.\nBlough:\nRight here, sir. Here is the - what went to\nthe President last night, and here is his hand-\nwriting. That includes the examples.\nH.M.Jr:\nThis went to the President last night?\nBlough:\nYes.\nBell:\nDoes that include the examples, Roy, did you\nsay?\nBlough:\nYes. In addition, you have another sheet\ntyped.\nH.M.Jr:\nThis is dated the thirtieth, so that is clear\nenough, isn't it? What time did this go to\nthe President?\nBell:\nNine thirty, wasn't it?\nFoley:\nAbout nine thirty.\nBell:\nNine fifteen or nine thirty, something like\nthat.\nBlough:\nThis went to the Secretary this morning.\nH.M.Jr:\nNow, what else?\nBlough:\nThat is all that went to him.\nRegraded Unclassified\n131\n- 6 -\nH.M.Jr:\nCouldn't I have an extra set of examples?\nBell:\nThat, you mean, noy, that is the way it went\nto him?\nBlough:\nYes. Here is a carbon copy. We had an original\ncopy, but we will do that over.\nH.M.Jr:\nWhat is that?\nBlough:\nThis is a set of examples.\nH.M.Jr:\nWhat you can do, I will try to find out when\nhe is going to want to see me, before lunch\nor after lunch.\n(Secretary on White House phone.)\nI hear if you want to get to the President in\n\"Look\" you have got to know the voice. Have\nyou seen that?\nYou have got to know the business\nIs Grace busy, the voice that knows him\n.....\nGrace, according to \"Look\" it says that Miss\nLeHand doesn't go out nights. Does that\napply to you, too? (Laughter)\n.....\nWell, I just wanted to know where I\nNo, it talks about Miss LeHand, but it doesn't\nsay anything about you. All right\n.....\nYes\nNo\n.....\nI saw the President this morning\n.....\nRegraded Unclassified\n132\n- 7 -\nI got left up - left up there at five twenty-\nfive this morning. I got up at four, just as\nyou were going to bed\nAnd he said that you were to type that thing\nthis morning and he said when he had that I\nwas to come over with a re-draft of the one\nthat we had done\nWell, what I wondered was if he wouldn't want\nto see me right after lunch, or does he\nrest\nWell, would you mind finding out and letting\nme\nJust before lunch\nRight, and you let me know. Thank you\nH.M.Jr:\nShe gave it to him just a little while ago\nand he said he wanted to see me. He didn't\nsay when, but she will now ask him.\nWell, there we are. I will keep this on my\ndesk, and as long as you have got it typed\nI think it would be nice to sort of keep this\nset together, you see, and I will have them\nboth like this. You get busy, you see, giving\nme the complete set to take to him.\nBell:\nDo you want the letter we gave you this morning,\nthe one that went to the White House, for your\nfiles?\nH.M.Jr:\nFor the files, yes. I will say to the President,\n\"Here is what we gave you last night, here is\nthe re-draft, and here is the complete,\" you\nsee.\nBlough:\nThen you want another ribbon run so that you\nwill also have the complete set of those\npapers?\nRegraded Unclassified\n133\n- 8 -\nH.M.Jr:\nThat is right.\nBlough:\nAnd do you wish also - well, you will wish\nthat for the files, but for now this is all\nyou want?\nthe\nH.M.Jr:\nFor now goodbye.\nBell:\nWhen do you want the first sheet re-written?\nH.M.Jr:\nNow. But I am keeping it here. Blough will\ndo it from the copy.\n134\nJuly 30. 1942\nmy door Mr. Presidemb:\nTom have asked se to indicate the position taken w\nthe Treasury Department during the consideration of the\npresent tax will with regard be (1) the maniatory joint\ntax returns provision, and (2) the - profite tot\nprovision.\n1. the Treasury incl-\nented to the Vegre and Homes Committee the conditional\napproval of maniatory joint tax returns, the condition\nbeing that embetential relief is similtenevely grasted\nto caraol Isseme of both Instruct and wife. no\ntial relief to afferial w the previsions of the pending\nMill from the resulting increased tax is these - where\nInstand and wife contribute through their labor to the\nfamily income. Therefore, is this important respect the\nyealing will to insensivient with the Treasury's suggestion.\na. the Treasury has consistently\nadhered to the position that the - prefite tax should\neagly to profits is - of a reasonable return on 10-\nvested cepital. Many corporations between 1936 and 1939\ncarned average profite for is - of a reseonable some)\nreturn. the penting bill anamyto all mah\n40\nRegraded Unclassified\n135\n- 2 -\ncaraings from - profits termien unless they are -\nthen 95 persent of the average prefite ourset is the 1936\nto 1939 period. Therefore, is emother important respect\nthe pending will is inconsiates) with the Treasury's clearly\nassoussed purpose.\nSome of the for the Treasury's position arel\n(a) The highly prosperate, will ostablished corpora-\ntion which has been making 30. no. 50 persont or note 48 its\ninvested capital has a greater ability to pay taxes than &\ncorporation which has been carning only 3. 4. or 5 persont\non its invested capital, - though the dollar Incomes of\nthe two companies are the - Compress has octablished\nthe principle of tamition in asseriance with ability to my\n- for as individual issue, estabe and gift taxes are -\ncarned, the Treasury alvortes the application of this\nprinciple to corporations M will as to individuals. Tas-\natten of corporations is acceptance with ability to pay\ncalls for higher bases a the profite of these corporations\nwhich have the higher rates of return on Invested empital.\n(b) The enrporabien which has been mides a high rate\nof return is the period from 1936 to 1939 is given. w the\noristing law. a competitive simntage over sevly organized\nor these struggling to establish themselves. The\nRegraded Unclassified\n136\n- 3 -\nclder corporations which have been caraing high profite are\ngiven a make greater rate of return free of emerge profite\ntas than are their new competitors. the effect to to\nconfirm menspolies and to protest will established prosper-\nass businesses against competition.\n(a) If wo are to expect all classes of society. is-\ncluding laborere and furners, be assept the exerifices of\nthe energency povied and net to pross for every possible\ndollar of alventage, they must be convinced that burdene\nare being distributed according to ability to bear them\nand that w ⑉ is making unreasenably large profite. the\nimposition me informement of a true - prefite tax\n1 into s I 1111\nFaithfully yours,\nSecretary of the Treasury\nThe President\nthe White livese\nRegraded Unclassified\n137\nJuly 31, 1941\nThe President gave this to me, when I saw him for\nthe second time today at 2 o'clock. I was there for\nhalf an hour. He read me his letter he is sending to\nCongress. He is making a few changes. I thought it\nwas a very good letter.\n138\nC\nJuly 31,1941\n0\nP\nY\nMy dear Mr. President:\nYou have asked me to indicate the position taken by the\nTreasury Department during the consideration of the present\ntax bill with regard to (1) the mandatory joint tax returns\nprovision, and (2) the excess profits tax provision.\n1. Mandatory joint tax returns. The Treasury indicated\nto the Waye and Means Committee its conditional approval of\nmandatory joint tax returns, the condition being that sub-\nstantial relief ie simultaneously granted to earned income of\nboth husband and wife, No substantial relief is afforded by\nthe provisions of the pending bill from the resulting increased\ntax in those cases where husband and wife contribute through\ntheir labor to the family income. Therefore, in this important\nrespect the pending bill is inconsistent with the Treasury's\nsuggestion.\n2. Excess profits tax. The Treasury has consistently\nadhered to the position that the excess profits tax should apply\nto profits in excess of a reasonable return on invested capital.\nMany corporations between 1936 and 1939 (the base period)\nearned average profits far in excess of a reasonable normal\nreturn. Nevertheless, the pending bill exempts all such\nFinal draft-used at 2 PM-7/31/41\nRegraded Unclassified\n139\n- 2 -\nearnings from excess profite taxation unless they are more\nthan 95 percent of the average profits earned in the 1936\nto 1939 period. Therefore, in another important respect\nthe pending bill is inconsistent with the 1 reasury's clearly\nannounced purpose.\nSome of the reasons for the Treasury's position are:\n(a) The highly prosperous, well established corpora-\ntion which has been making 30, 40, 50 percent or more on its\ninvested capital has a greater ability to pay taxes than B.\ncorporation which has been earning only 3.4, or 5 percent\non its invested capital, even though the dollar incomes of\nthe two companies are the same. Congress has established\nthe principle of taxation in accordance with ability to pay\nBO far as individual income, estate and gift taxes are con-\ncerned. The Treasury advocates the application of this\nprinciple to corporations as well as to individuals. Tax-\nation of corporations in accordance with ability to pay\ncalls for higher taxes on the profits of those corporations\nwhich have the higher rates of return on invested capital.\n(b) The corporation which has been making a high rate\nof return in the period from 1936 to 1939 1e given, by the\nexisting law, a competitive advantage over newly organised\nconcerns or those struggling to establish themselves. The\nRegraded Unclassified\n140\n- 3 -\nolder corporations which have been earning high profits are\ngiven & much greater rate of return free of excess profits\ntax than are their newer competitors. The effect is to\nconfirm monopolies and to protect well established prosper-\nous businesses against competition.\n(o) If we are to expect all classes of society, in-\ncluding laborers and farmers, to accept the sacrifices of\nthe emergency period and not to press for every possible\ndollar of advantage, they must be convinced that burdens\nare being distributed according to ability to bear them\nand that no one is making unreasonably large profits. The\nimposition and enforcement of a true excess profits tax\nwill thus help to prevent inflation.\nFaithfully yours,\nSecretary of the Treasury\nThe President\nThe White House\nRegraded Unclassified\nsee 8/2/41 141\nJuly 32, 1941.\nMy dear Bobi-\nBecause of some uncertainties which seen to have\ndeveloped in regard to the position of the Treasury Depart-\nnext in regard to some provisions in the Tax Bill as reported\nout by the Ways end Means Committee, I asked the Treasury\nDepartment for 8 slerifying letter, and I think it is only\nfair to send this to you. I enclose a copy of Secretary\nMorgenthau's letter to at and also an appendix showing\nexamples of corporations which would largely escape ******\nprofits taxes under the bill.\nI an sure that I make it clear that the Treasury\nDepartment does not approve of mandatory joint tax returns\nexcept on the condition of granting substantial relief to\nearned income of the husband and wife. In this I heartily\nconour. But the Committee draft leaves out the proviso\naltogether.\nYou and Jere Cooper have talked over the problem\nof the profits tax in its relationship to the\nomission in the bill of application of this tax to certain\ntypes of corporations. These corporations may be making\n20 or 30 or 50% on their equity capital. It is my definite\nopinion that they ought to contribute to the cost of our\ngreat defense program far more heavily this year than last\nyear or the year before. But just because they happened to\nhave made equally large profits in recent years, they are\ncolled on to contribute no more to the national defense\nunder the proposed bill than they did before. That seems\nto no clearly a discrimination in their favor.\nThere is one other subject which I did not have\n& chance to talk with you about. It relates to lowering\nthe exemptions in the lower brackets. I know that very\nfew tax experts agree with no but I still think that some\nway ought to be found by which the exemption of e single\nperson should be reduced to $750.00, with a provision\nfor 8. straight simple payment of some small contribution\nto the national ter income through some simple agency\nand on some simple form.\nRegraded Unclassified\n142\n+\nIn the some way I think that the married exemption\nshould be reduced to $1,500.00, again with a simple method\nof paying the tax through & simple agency and on a simple\nform.\nFurther, I an convinced that the overwhehming\nmajority of our citizens want to contribute something\ndirectly to our defense and that most of them would rather\ndo it with their eyes open than do it through a general\nsales tax or through a multiplication of what we have\nknown as \"nuisance taxes\". In other words, most Americans\nwho are in the lowest income brackets are willing and\nproud to ship in directly oven if their individual con-\ntributions are very small in terms of dollars. After all,\nthe majority of all Americans are in these lowest brackets.\nOne other thought. Perhaps your Committee will\nthink it worthwhile to study the filing of low income\nreturns through the machinery of the Post Offices. This\nwill undaubtedly seve a good deal of the cost of collection\nunder the present system. These simple returns could be\nsworn to before the local Postmaster who, of course, would\nhave to be authorised to administer the necessary oath.\nVery sincerely yours,\nHonorable Robert L. Doughton,\nChairman, Ways and Means Committee,\nHouse of Representatives,\nWashington, D. C.\nRegraded Unclassified\n143\nTHE SECRETARY OF THE TREASURY\nWASHIMOTON\nJuly 31, 1941\nMy dear Mr. President:\nYou have asked ne to indicate the position taken\nby the Treasury Department during the consideration of the\npresent tax bill with regard to (1) the mandatory Joint tax\nreturns provision, and (2) the excess profits tax provision.\n1. Mandatory joint tex returns. The Treasury in-\ndicated to the Ways and Meana Committee its conditional\napproval of mandatory joint tax returns, the condition being\nthat substantial relief is simultaneously granted to earned\nincome of both husband and wife. No substantial relief is\nafforded by the provisions of the pending bill from the\nresulting increased tax in those 06888 where husband and\nwife contribute through their labor to the family income.\nTherefore, in this important respect the pending bill is\ninconsistent with the Treasury's suggestion.\n2. Excess Profits Tax. The Treasury has consistently\nadhered to the position that the excess profite tex should\napply to profits in exoess of & reasonable return on invested\ncapital. Many corporations between 1936 and 1939 ( the base\nperiod) earned average profite far in excess of a reasonable\nnormal return. Nevertheless, the pending bill exempts ell\nsuch earnings from excess profits taxation unless they are\nmore than 95 percent of the average profits earned in the\n1936 to 1939 period. Therefore, in another important respect\nthe pending bill is inconsistent with the Treasury's clearly\nannounced purpose.\nSome of the reasons for the Treasury's position are:\n(a) The highly prosperous, well established corpora-\ntion which has been making 30, 40, 50 percent or more on its\ninvested capital has E greater ability to pay taxes than a\ncorporation which has been earning only 3, 4, or 5 percent\non its invested capital, even though the dollar incomes of\nthe two companies are the same. Congress has established\nthe principle of taxation in accordance with ability to pay\nBO far as individual income, estate and gift taxes are con-\ncorned. The Treasury advocates the application of this\nprinciple to corporations as well 08 to individuals. Taxs-\ntion of corporations in accordance with ability to pay calls\nfor higher texes on the profits of those corporations which\nhave the higher rates of return on invested capital.\nRegraded Unclassified\n144\n- 2 -\n(b) The corporation which has been making a high\nrate of return in the period from 1936 to 1939 1a given,\nby the existing law, a competitive advantage over newly\norganized concerns or those struggling to establish them-\nselves. The older corporations which have been eerning\nhigh profits are given a much greater rate of return free\nof excess profits tax than are their newer competitors.\nThe effect is to confirm monopolies and to protect well\nestablished prosperous businesses against competition.\n(c) If we are to expect all classes of society,\nincluding laborers and farmers, to accept the secrifices\nof the emergency period and not to press for every possible\ndollar of advantage, they must be convinced that burdens\nare being distributed according to ability to bear them and\nthat no one is making unreasonably large profits. The in-\nposition and enforcement of a true excess profits tax will\nthus help to prevent inflation.\nFaithfully yours,\ns/ Henry Morgenthau, Jr.\nSecretary of the Treasury\nThe President\nThe White House\nRegraded Unclassified\n145\nEXAMPLES OF CORPORATIONS ESCAPING\nEXCESS PROFITS TAXES\nThe way in which the present law and the Committee's\ntentative plan leave exempt large amounts of excess profits\nis illustrated by the following actual examples.\nA. After paying all taxes an automobile company made\nduring the base period years of 1936 through 1939 approxi-\nmately 25 per cent. Practically all (95 percent) of this\namount can be earned and yet be free from excess profits\ntax under the present law and under the Committee plan.\nIn 1940 the earnings of this concern, after the payment\nof taxes, will be approximately 26 percent of its invested\ncapital, under the present law.\nB. The earnings of a manufacturer of tractors with\nnearly $50 million of invested capital averaged, after all\ntaxes, approximately 18 percent of invested capital during\n1936-1939, which amount will be free of excess profits\ntax under the present law and the Committee's tentative plan.\nC. Similarly a company which has practically a monopoly\non one of the important Defense materials had earnings after\ntaxes during the base period years averaging approximately\n19 percent of its 1940 invested capital, which it can\ncontinue to earn free of excess profits tax.\nD. A large manufacturer of beverages can continue to\nearn free of excess profits tax over 25 percent of its\n1940 reported equity capital.\nThus, large amounts of the kind of profits which are\ncommonly defined as excess profits and were taxed as such\nunder the 1918 Act are free from excess profits tax under\nthe present law and the Committee plan.\nJuly 30, 1941\nRegraded Unclassified\nCOMMITTEE ON MAYS 4ND MEANS\n146\nHOUSE OF REPRESENTATIVES\nWASHINOTON, D. c,\nAugust 2, 1941\nNy dear Mr. President:\nI wes very greatly surprised to receive your latter of July 31,\ncriticising certain features of the pending tax 0111, which our\nCommittee has recently reported to the House after more than three\nponths of most careful deliberation and study. The matters discussed\nIA your letter have all received our most careful consideration.\nAfter receiving your letter, I called a meeting of the Committee\nfor ten c'clock this morning and at that time I lold before it the\ncontents of your letter. Each of the three items mentioned by you ware\nagain discussed. Then, by decisive majorities the Committee voted to\nreaffirm the action previously taken with respect to each of them and\ninstructed me to BO advise you with the reasona therefor.\nAs to mandatory joint returns, WG are pleased to learn that you,\n0.0 well no the Treasury, approve of it in principle. Our whole desire\nWESS to place the family upon an equitable basis from e tax standpoint\nand remove the admitted evil of tax avoidance. The eristing law permite\na rank discrimination in levying different taxes upon two married couples\nenjoying equal incomes, marely because in one case the income belonged\nwholly to one spouse and in the other, to both. This has been recognized\nby the Treasury as an evil for many years and mandatory Joint returns\nhave been suggested by the Treasury on many occasions, without qualifi-\ncation, to remedy this situation.\nWhile the Treasury gave belated approval to mandatory joint returns\nin the pending bill, such approval was qualified upon the condition that\nwe continue this inequitable festure of existing law us to earned income.\nAfter careful consideration of the Treasury qualification, the Committee\nwas unable to see any logic in fevoring a family in which both spouses\nearned the income, as against e family where one spouse carned the entire\nresount for the support of the family. That was the controlling reason\nany the Committee almost unanimously rejected the Treasury qualification.\nIt was aguinst extending special earned income relief to a family in which\nboth spouses contributed to the income. I would be surprised if anyone\nwould be In favor of penalizing the femily in which the husband 1a the\nsole bread-winner in fevor of the family where the wife also draws a gal-\nary. Yet this is exactly what the Treasury qualification would have\naccomplished if we had permitted it to be incorporated in our bill, The\nmandatory joint return proposal of the pending bill will not only remove\nthe inequities and close some of the most glaring income tax loopholes\nof eristing law which are especially pronounced in the community property\nstates, but 18 will also result in the Government securing additional\nrevenue of more than $300,000,000, which in our judgment could not be\nreised from any other source with 50 little burden or hardship.\nReferring to the excess profits tax proposal of your letter, our\nCommittee recognized that there are differences of opinion as to the\nproper base for messuring excess profits. This question was thoroughly\ndiscussed before the excess profits tal was enmoted last year by the\nCommittee on Ways and Means, the Committee on Finance, and the Congress.\nIt me again fully discussed this year, when the Treasury urged the same\nproposel, which the Congress had decisively rejected in 1940, and arten-\nvive hearings were again held on this subject. Following the bearlogs,\nour Committee again refused to adopt this proposal of the Treasury. As\na result of your recent conference with Mr. Cooper and myself, I again\nbrought the matter before the Committee. After carefully reviewing the\nsubject in the light of our discussion with you, which was fully reported\nby us to our colleugues, the Committee again overwhelmingly rejected the\nTreasury proposal.\nRegraded Unclassified\n147\nWhile 3 corporation's return on invested cepital may som large in\nIN instances, and this is especially true Ln the case of a business,\nwhich nas grown from e Dumble beginning, 1% does not follow that such .\ncorporation has realized excess profits. The difficulty is that expert-\nagee has shown that invested capital La not a proper base for memeuring\nprofite in many cases. Our studies and the overwhelming tentimony\nof witnesses before our Committee has convinced us of the undesirability\nand inequity of measuring excess profits by the sole standard of invested\ncapital, The experience of this method in the last World War and its\nabandonment by foreign countries show that 11 doos not determine the OX-\nmasivencess of profits even reasonably well,\nThe major objections to this form of taxation are set forth on pages\n85 and 84 of our Committee Report.\nI feel that no one would be inclined to favor the corporation which\nhad retained its earnings over a long period of time, as against the\ncorporation which distributed its earnings and thereby permitted the\nGovernment to secure the individual normal and aurtaxes on such cornings.\nOF to ravor the company which by chance was incorporated in a year of\nbigh values, as compared with 8 company organized in e year of low values.\nor to conclude that the present abareholders of n corporation have realized\nan excess profite on what the original shareholders paid for their stook.\nOr not to Cive recognition to factors of personal erficiency 86 well A8\ncapital in determining the measure of excess profits. Yet it was demon-\nstrated to our Committee that not only these but other inaquities existed\nunder a straight invested capital mothod, which would prevent such en ex-\n0085 profits tax from operuting fairly on the bosis of ability to pay.\nTo punish the small corporation in [avor of the heavy or overcepitelized\n@orporations would punish conservative corporation finance and reward\nstock-watering, It would put & penalty on bruins, energy and enterprise,\ndod confirm old ventures in their monopolies.\nOur Committee believes that the A20088 profits tax plan in the pend-\ning bill is the fairest which could be devised. Under the existing law,\nthe oxcess profits tax was estimated to yield for the calender year 1941,\nthe amount of 51,025,400,000. An additional smount of $1,199,300,000 is\nestimated from this source under the bill, making a total yield of\n$2,224,700,000 from the excess profits tax, When it La considered that\nthis is the first your to which the defense program has been in full oper-\natton, it 1s believed that we have provided o very effective excess profits\nfox for preventing the retention of unreasonable profits from the defense\nprogram. In fact, If we had followed the original recommendations of the\nTreasury, we would have secured only $400,000,000 additional revenue from\nthe excess profits tax, end if we had followed their revised proposal, WII\nwould have secured only $716,800,000 from the excess profits tax.\nIn regard to personal exemptions, there were several members of the\nCommittee, including myself, who were inclined to look with fevor on\nbroadening the tax base by reducing the personal exemptions ellowed single\nand married persons. However, the Treasury representatives in their\nappearance before our Committee were strenuously opposed to any reduction\nin personal examptions, citing the rising cost of living and the burden of\nhidden taxes on persons in the low income groups to justify their view.\nUndoubtedly, this position of the Treasury had some influence upon our\naction. I en surprised to learn that your views are antagonistic to those\nexpressed so emphatically by the Trunsury ne the representative of the\nadministration. The Committee st times found it impossible during the\nsourse or Its beerings to reconcile the testimony of different officials\nrepresenting the administration.\nwith respect to thet part of your letter relating to nidden taxes,\nthe Committee bill more nearly conforms to the views expressed by you\nthan the recontondation made by the Treasury Department to our Comittee.\nThe Treasury recomended that the Committon Levy $1,248,900,000 from\nthis source. The bill, as reported by our Committee recommende only\n$850,100,000 be collected from exclada and other miscelleneous sources,\n401 $160,200,000 of that amount can in no way be termed or classed as I\nkidden tax,\nRegraded Unclassified\n148\nI submit to you, Mr. President, the record of our Committee, as\nwell as that of myself, for the past eight years as evidence of our desire\nto cooperate with you and the representatives of your administration to\nthe fullest extent consistent with the proper discharge of our solemn obli-\ngations.\nNothing in this letter is intended as a defense of or an apology for\nthe action, which we have taken, but only as an explanation, so that you\nand the Country may understand some of the reasons for our conclusions.\nWith great respect, I am\nSincerely yours,\nR. L. Doughton.\nThe President,\nThe White House.\n149\nOFFICE OF GOVERNMENT REPORTS\nJuly 31, 1941\nNo. 262\nINFORMATION DIGEST\nTHE PRESIDENT\nPresident Roosevelt, by Executive Order, established an Economic\nDefense Board consisting of Vice President Wallace, as Chairman, the\nSecretary of State, Secretary of the Treasury, Secretary of Mar, the\nAttorney General, Secretary of the Navy, Secretary of Agriculture, Secretary\nof Commerce, and such additional members sa the Chairman, with the approval\nof the President, shall appoint.\nThe President said the Board shall be concerned with \"the conduct,\nin the interest of national defense, of international economic activities\nincluding those relating to exports, imports, the acquisition and disposition\nof materials and commodities from foreign countries including preclusive\nbuying, transactions in foreign exchange and foreign-owned or foreign-\ncontrolled property, international investments and extensions of credit,\nshipping and transportation of goods among countries, the international\naspecte of patents, international communications pertaining to commerce, and\nother foreign economic matters.\" The Board shall perform the following\nduties and functions:\n\"(A) Advise the President as to economic defense measures to be\ntaken or functions to be performed which are essential to the effective\ndefense of the Nations (B) Coordinate the policies and actions of the\nseveral departments and agencies carrying on activities relating to economic\ndefense...; (c) Develop integrated economic defense plans and programs for\ncoordinate action by the departments and agencies concerned...; (D) Make\ninvestigations and advise the President on the relationship of economic\ndefense. neasures to post-war economic reconstruction and on the steps\nto be taken to protect the trade position of the United States and to expedite\nthe establishment of sound, peace-time international economic relationships;\n(E) Review proposed or existing legislation relating to or affecting economic\ndefense and.,. recommend such additional legislation as may be necessary or\ndesirable.\"\nThe Order states \"The administration of the various activities\nrelating to economic defense shall remain with the several departments and\nagencies now charged with such duties but such administration shall con-\nform to the policies formulated or approved by the Board.\" In addition\nto the departments and agencies represented on the Board, the following\nshall designate officers \"to represent the department or agency in its\ncontinuing relationships with the Board...to facilitate unity of action\nand the meximum use of existing services and facilities\":\nThe Departments of the Post Office, Interior, and Labor, the\nFederal Loan Agency, the Maritime Commission, the Tariff Commission,\nFederal Trade Commission, Board of Governors of the Federal Reserve System,\nSecurities and Exchange Commission, National Resources Planning Board,\nDefense Communications Board, OPM, OPACS, Office for Coordination of Com-\nmercial and Cultural Relations Between the American Republics, Permanent\nDefense Aid Reports, the Coordinator of Information, and such additional\nJoint Board on Defense, the Administrator of Export Control, Division of\nagencies as the Chairman may determine.\nRegraded Unclassified\n8/1'41\nMiss Chauncey\n150\nThis is the letter which\nthe President approved as the\npolicy to be followed in\nconnection with exports and\nimports from Japan.\nMr. Acheson made copy\nof this available to Mr. Foley\nand I have given copy to you;\nBell; White and Bernstein.\nMcGuire\nSTRICTLY CONFIDENTIAL\nMR. FOLEY\nRegraded Unclassified\nSW\n151\nTHE UNDER SECRETARY OF STATE\nWASHINGTON\nOK\nKIR\nJuly 31, 1941.\nMy dear Mr. President:\nA few applications to license exports from the\nUnited States to Japan have been made under the Japanese\nfreezing order. A few inquiries have been made regard-\ning imports from Japan. For the time being, the Foreign\nFunds Control Committee is holding these applications\nwithout action. It seems desirable that the Committee\nand also the export control authorities be given instruc-\ntions as to the policy which you desire it to follow.\nI submit for your consideration the following statement\nof policy.\n1. Exports to Japan. Many categories of exports\nare already forbidden by the export control regulations.\nIt is recommended that the Foreign Funds Control Commit-\ntee deny all applications for:\nAll articles the exportation of which is now\nprohibited by the existing export controls and\nsuch of the following products (or grades or types)\nas are not already prohibited by those controls:\nWood\nThe President,\nThe White House.\nRegraded Unclassified\n152\n-2-\nWood pulp;\nMetals and manufactures;\nMachinery and vehicles;\nRubber and manufactures;\nChemicals and related products except\ncertain products such as some pharmaceutical\npreparations, et cetera, to be specified\nafter further study.\nThe above list includes all commodities in which\nthere is any substantial trade except cotton and petro-\nleum products (the latter being dealt with below). In\nnone of the items in the list is there any large export\nat present. Raw cotton exports have averaged about\n$600,000 per month in the first six months of 1941 as\nagainst slightly over $4,000,000 per month average in\n1938.\nIt is recommended also that action similar to that\noutlined above be taken at once by the export control\nadministration, so that its action may conform to action\ntaken under the freezing order.\n2. Imports from Japan. It is recommended that no\nlicenses be granted for importation of silk or silk\nproducts. The military authorities inform me that they\nhave no need for further silk imports. Should that\nsituation alter, policy can be changed immediately to\nmeet suoh an altered situation.\nIt\nRegraded Unclassified\n153\n-3-\nIt is also recommended that purchase of gold from\nJapan be discontinued.\nIt is doubtful whether application will be made for\nany substantial imports from Japan other than silk.\nShould such applications be made, it is recommended that\nthey be acted upon depending upon the estimated need for\nthe products involved in the United States. Proceeds\nfrom such imports, if any, can be made available for the\npayment of such exports as are permitted.\n3. Petroleum Products. It is recommended that action\nhere issue from the export control authorities on the\nbasis of national defense needs. The action recommended\nis the issuance of appropriate directives and the revoca-\ntion of outstanding specific and general licenses to pro-\nhibit the exportation, except to the British Empire, the\nWestern Hemisphere and to nations resisting aggression,\nof\nGasoline above a specified quality and beyond\na specified quantity (normal 1935-36 amount);\nLubricating oils above a specified quality and\nbeyond a specified quantity (normal 1935-36 amount);\nOther petroleum products above a specified\nquality and beyond a specified amount (normal\n1935-36 amount).\n(Specifications to be such as will preclude\nshipment of gasoline or oils capable of use for\naviation gasoline and the high grade raw stocks\nsuitable for their manufacture.)\nThe\nRegraded Unclassified\n154\n-4-\nThe Foreign Funds Control Committee will continue\nto hold without action applications relating to petro-\nleum exports from the United States and subsequently\ngrant licenses under the freezing order only in accord-\nance with the policy to be initiated by export control.\nBelieve me\nFaithfully yours,\n1\nRegraded Unclassified\n155\nJuly 31, 1941\n10:30 a.m.\nRE AID TO BRITAIN\n(Conference held in Mr. Bell's office)\nPresent:\nMr. Kades\nMr. Brown\nMr. Cochran\nMiss Kistler\nMr. Chance\nMr. Childs\nMr. Keyes\nMr. White\nMr. Bewley\nMr. Archer\nMr. Robinson\nMr. Hicks\nMR. BELL:\nI thought possibly we might have 8. meeting the\nfirst of the week with the Secretary. Maybe\nwe had better discuss for a moment the agenda\nof that meeting.\nOne would be payment for U.S. purchases of raw\nmaterials from sterling area in advance of\nshipment. I would like to have you gentlemen\ncomment on this agenda and add anything to it\nfor discussion that you can.\nBewley:\nI don't know whether the Secretary would be in\n8. position to say much about that.\nWhite:\nWell, we have got a little. You remember,\nthis was in the memorandum you left with us\nlast week. We have explored the matter a\nRegraded Unclassified\n156\n- 2 -\nlittle with the head of the Metal Reserve\nand the others, and Mr. Clayton would be very\nglad to sit down with you gentlemen and to\nre-examine the situation and see what can be\ndone with mica and other things.\nHe is a little bit dubious about the rubber\nbecause they are doing, they think, as much as\nthey can, but they are not sure, and they are\nwilling to re-examine it.\nNow, with respect to wool, which we can lump\nin to that, al though it is a separate item,\nhe thinks that there might well be & proba-\nbility - 8. possibility of their making some\nsubstantial advances against cotton which you\nhave here --\nBewley:\nWool.\nWhite:\nExcuse me. That is, it wouldn't be a purchase\nbut for your purpose it might be equally satis-\nfactory. I don't know that the terms are set,\nbut he would be prepared to discuss that.\nNow, he seemed to think that you had only\nabout - he was speaking offhand, but he\nthought it was only about twenty-five million.\nIt was our impression it was something closer\nto forty million, either there or on the water.\nNow, maybe you can find out approximately be-\nfore you see him what it is, and it would\nbe - it might be helpful if you could see\nhim before the meeting with the Secretary.\nHe said if you would call him up he would be\nvery glad to go over the matter with you.\nBewley:\nWhere is he?\nWhite:\nHe is in the Department of Commerce. You have\nnever done business with him?\nRegraded Unclassified\n157\n- 3 -\nBell:\nAt Fifteenth and H.\nWhite:\nSuppose I make an appointment for you with\nhim and call you up, just the first time.\nAt that time you will discuss both the\npossibility of extending purchases f.o.b.\nand the possibility of getting some form\nof a loan on the wool that is here and maybe\nthat would make 8 fairly substantial amount.\nBell:\nProposal to Lend-Lease Caribbean sugar.\nWhite:\nWell, that is another item which\nwas left here, and I take it that Mr. Brown\nmight want to discuss that further. Have you\ngiven that consideration?\nBrown:\nYes, sir, we have, and we have talked to the\nDepartment of Agriculture about it, and\nI understand Mr. Wheeler has talked to the\nBureau representatives in the Food Commission,\nand it was pointed out to them that sugar\nis a very touchy item in our economy. It\nmight be a wise thing if any requisition\nfor Caribbean sugar would be held in the\nbanks until after this appropriation bill.\nWhite:\nWell, I can see where sugar is a touchy sub-\nject when it comes to a question of lowering\nduties, but we are importers of sugar.\nBrown:\nThat is perfectly true, sir, but --\nWhite:\nAnd I can't quite see why Agriculture is con-\ncerned with the problem from their angle. I\ncan definitely see why your group might be.\nThat is, it might be 8 question of establishing\n8. new --\n(Mr. Bell and the reporter were called to the\nSecretary's office).\nRegraded Unclassified\n158\n- 4 -\nChilds:\nAnother item we have been leaning very heavily\nupon is the capital facilities which you\n(Robinson) will report on this morning. Are\nyou getting stuck again?\nRobinson:\nJust getting bogged down.\nWhite:\nWhich one is that?\nChilds:\nCapital facilities.\nKistler:\nThe fifty-two million, is that the one?\nWhite:\nNo, this twenty-one of plants taken over, twenty-\none and twenty-two and--\nChilds:\nThat is the one that is bogged.\nKistler:\nFifty-two.\nWhite:\nWhy is it bogged now?\nRobinson:\nI think the difficulty at the moment is that\nthe Defense Plant Corporation can't work out any\narrangements with the War Department for a take-\nout. That is what I gathered at the Defense\nPlant Corporation this morning. The difficulty\nis that Mr. Jones and his people are not sure\nthat they will take an agreement by the Army to\ntake out defense plants when, as, and if they\nget appropriations. They may be wanting the\nArmy to agree to take out some of it, at least\nout of existing appropriations which the Army\nsay they haven't got it. That is as nearly\nas I can arrive at it. Apparently the other\ndifficulty is that - I think the other diffi-\nculty is that nobody in the Army - the same\nthing Mr. Brown mentioned, they are not push-\ning it.\nChilds:\nIt was really Army and not Defense Plant then?\nRegraded Unclassified\n159\n- 5 -\nRobinson:\nI think the Defense Plant is going as fast as\nthey can subject to whether Mr. Jones will be\nwilling to accept this contingent take-out.\nWhite:\nThat it? applies to the item of fifty-two, does\nRobinson:\nThat is right. That group of eleven. It may\nbe all lumped together.\nWhite:\nEleven items totalling fifty-two.\nRobinson:\nThey total about seventy-eight or seventy-nine,\nbut we put down fifty-two as being the probable\ncoverage value.\nWhite:\nThat is fifty-two left, with the understanding\ntwenty-one has already been provided and twenty-\ntwo is about to be provided.\nChilds:\nThat is machine guns.\nWhite:\nNo, eight is machine guns.\nRobinson:\nI think that your item--\nWhite:\nYou see, it was ninety-five altogether. There\nis twenty-one which was provided, and then the\nbreak-down we have here is that twenty-two was\nabout to be provided and fifty-two was likely\nto be provided.\nRobinson:\nWell, the fifty-two that is likely to be pro-\nvided is a net figure, I believe, after taking\nout probable deductions, the actual cost being\nsomewhere around seventy-five.\nWhite:\nThen the twenty-two is really part of the\nfifty-two?\nRobinson:\nNo.\nRegraded Unclassified\n160\n- 6 -\nChilds:\nThe twenty-two is machine guns, isn't it?\nRobinson:\nI think 80. I don't know what that is because\nwe have got--\nKistler:\nTwenty-one is the twenty-six minus five.\nRobinson:\nYes.\nChilds:\nTwenty-one is Tennessee.\nKistler:\nWhat about New Jersey powder?\nChilds:\nThat is fifty-two.\nWhite:\nThen you think the twenty-two is machine guns?\nRobinson:\nThat is right. It has come back.\nWhite:\nThen twenty-two is machine guns, and it is\nproper to say it is about to be provided.\nRobinson:\nThat is right.\nWhite:\nThen the item you are now speaking of is the\nfifty-two million which is bogged down, and\nyou say it depends on Jones or on the Army?\nRobinson:\nI think it depends on Jones and the Army getting\ntogether.\nWhite:\nWell, if Jones is financing it, why should the\nArmy be concerned?\nRobinson:\nBecause Jones is only financing it - this is\nall indirect from what they tell me - but he\nis only financing it provided he can get B.\nproper agreement from the Army to take them\nout of Army appropriations when they get it.\nMaybe he won't take it on such a contingency\nbut only on the contingency that part of it\nthey will agree to take out.\nRegraded Unclassified\n161\n- 7 -\nWhite:\nI see, and that is why they are reluctant to\ncome together.\nRobinson:\nYes.\nKades:\nOf course, I think that is understandable on\nthe part of the War Department. Why should\nthere - their position is, why should they have\nto bail out the Defense Plant Corporation.\nThey have got funds.\nChilds:\nThe Defense Plant Corporation does this as 8.\nmatter of habit, I understand.\nKades:\nBut it seems the War Department is reasonable.\nWhite:\nWhich means that the other is not quite as\nreasonable.\nKades:\nYes.\nWhite:\nThen it is a question of working on Jones.\nKades:\nI think SO.\nBrown:\nI didn't understand the Defense Plant Corpora-\ntion finances any plants without a commitment.\nKades:\nThat is right, which seems to be some reason\nfor it.\nBrown:\nThey are a financing agency rather than one\nactually buying plants to keep.\nKades:\nThat is the way it has been set up, but you\nwould never guess that from looking at the\nstatute.\nWhite:\nThey have so interpreted the statute, but the\nstatute is susceptible of other interpretations?\nKades:\nNo, it is merely a policy by Jones.\nRegraded Unclassified\n162\n- 8 -\nWhite:\nWhich seems to be contrary to the statute?\nKades:\nSure, but it is his policy and it seems to\nme the War Department has cooperated with it\na long way in the past in being willing to bail\nhim out.\nWhite:\nWho is it that you talk with that --\nKades:\nJones.\nWhite:\nJones himself?\nKades:\nOn this one.\nWhite:\nWell, then we will so report that to the Secre-\ntary and see what happens.\nKistler:\nMr. White, going through the rest of these\nfigures, did someone say forty-one million of\nthe contract subsequent to March 11 is uncertain?\nChilds:\nMost uncertain of the lot, I think.\nWhite:\nSometime earlier, Mr. Brown, did you say you\nwould ascertain part of that forty-one?\nBrown:\nThe list I had included some for airplane train-\ning in private schools, but Miss Kistler tells\nme that - there was a revised list later\nwhich we do not have.\nWhite:\nSo that forty-one then is all right.\nKistler:\nWe checked yesterday and the forty-one is B.\ncorrect figure.\nWhite:\nThen what about the thirty?\n(Mr. Bell returned to the conference).\nBell:\nThat is definitely settled, is it?\nWhite:\nSo their suggestion is to postpone this until\nRegraded Unclassified\n163\n- 9 -\nafter the appropriation.\nBell:\nThen it ought to come off the agenda for Monday.\nMite:\nI thought it was something you might want to\nreport on.\nSell:\nO.K.\nWhite:\nNow we are discussing this question and to\nsummarize briefly what Mr. Brown had to report,\nit was that they now are B. little bit more\nhopeful about some portion of the items which\nthey had considered originally. They are hope-\nful now of about forty-five million on tanks\nand forty million on airplanes. They think\nthey might be able to take it out. But the\nArmy is reluctant to do so without 8. directive\nfrom the President, and they are going to re-\nquest the President for a directive.\nBell:\nThat is about in line with your conversation\nwith McCloy.\nBrown:\nYes, I checked that again this morning.\nWhiter\nAnd we were just--\nKades:\nWe were talking about that Defense Plant, the\ncapital facilities.\nWhite:\nYes, and there is this other point. This item\nof fifty-two million dollars which remains on\npossible take-out of plant facilities has sim-\nmered down to a question between Jones and the\nArmy. Jones doesn't want to finance those\nplants unless the Army will buy them back\nfrom him out of their appropriation. The\nArmy is reluctant to allocate any of their\nappropriations for such a purpose. Mr. Kades\nsuggested that that policy which Mr. Jones\nRegraded Unclassified\n164\n- 10 -\nhas decided upon of not acquiring plants unless\nthey are going to be repurchased is his own\npolicy which he has established which seems to\nbe contrary to the intent of the act under\nwhich he is operating.\nBell:\nWith a definite commitment from the Army on the\nplants that he has taken over.\nKades:\nHe gets 8. regular contract from the Army as\nthough it were an outside organization.\nBell:\nHe did that with the Tennessee powder and all\nthose other things?\nKades:\nThat is the general policy, is to get a firm\ncommitment. In fact, he requires that the\nArmy place orders in the amount of two-fifths,\nI think. Originally it was three-fifths, and\nit was later reduced to two-fifths of the\namount that he is advancing for the construc-\ntion of the plant 50 that he is sure of getting\ntwo fifths back; and, if there are any orders\nlater placed, he is sure of getting whatever\nadditional orders are placed back. Now, in\nso far as these plants are concerned, he is\napplying the same standard, and I suppose the\nWar Department is reluctant to go along with\nthe feeling here that the War Department\nprobably was being stubborn about it, but it\nseems to me they are justified in being stub-\nborn.\nWhen Congress makes an appropriation to the\nWar Department for the acquisition of capital\nfacilities, it doesn't intend the War Depart-\nment to use that appropriation to reimburse\nthe Defense Plant Corporation's expenditures,\nbut that is the policy that has been estab-\nlished.\nWhite:\nBut Jones doesn't want--\nRegraded Unclassified\n165\n- 11 -\nKades:\nThey did do that very thing because Jesse was\nholding the bag before Congress ever appropriated\nthe money for the plant facilities, and they\ndid it with the understanding that he would be\nreimbursed when he got the - when the War\nDepartment got the money.\nBell:\nHe is 8. banker and that is all.\nKades:\nBut the Defense Plant Corporation isn't the\nRFC. He is treating the Defense Plant Corporation\nas though it were a banking organization\nrather than an organization to construct and\nlease plants.\nBell:\nWell, they are one and the same organization.\nKades:\nHe could have done everything that he is doing\nwithout powers - without the Defense Plant\nCorporation, and I think when they created the\nDefense Plant Corporation it was thought that\nhe was going to acquire capital facilities.\nThe Government was going to own armament plants\nand lease them to private concerns to operate\nfor the benefit of the War and Navy Departments.\nWhite:\nHe takes the position that he doesn't want to\nacquire any plants if the War Department won't\npay him back for them.\nKades:\nThat is right.\nWhite:\nHe may take that position on the grounds that\nif the War Department doesn't want it, then\nthey are of no use to him, but that would seem\nto be contrary to the view that the War Depart-\nment is merely taking the position that it\ndeesn't want to use funds which are appropria-\nted to it, that the plants may be perfectly\ndesirable for America to have, but that is no\nreason why they should take it out of their appro-\npriation.\nRegraded Unclassified\n166\n- 12 -\nKades:\nBecause they don't want the plants.\nWhite:\nIf they don't want the plants, why should they\nbe built, on grounds of general emergency and\nso forth, which is where the Defense Plant\nCorporation steps in and says, \"We will take\nthe rap. Congress has given us that function.\"\nRobinson:\nOf course the War Department has to certify\nbefore Jones will agree to any of these things\nthat these plants are necessary for the national\ndefense, which, in effect, leaves the Army\nholding the bag on the thing because they\nhave said, \"We need them, and the Defense\nPlant says, \"If you need them, you can take\nthem over.\nWhite:\nAnd the Army says, \"Well, but we don't want\nto use our appropriated funds. We have got\nother purposes for them.\nBell:\nAre you using the full capacity of these\nfacilities?\nChilds:\nNo question about it.\nKades:\nI was simply saying I thought the War Depart-\nment's position was not unreasonable because\nof the general feeling that it was the War\nDepartment being unreasonable. It seems to\nme there is something to be said on both sides.\nChilds:\nSo far as that part is concerned, these orders\nwe have will be running out from time to time\nand undoubtedly will be replaced in many cases,\nif not all, by Lend-Lease orders.\nBell:\nSo it will have to go through the War Depart-\nment then.\nChilds:\nYes.\nRegraded Unclassified\n167\n- 13 -\nWhite:\nTo digress for a second, the Secretary sent\nback 8. message - he has been away and just\nreturned, and he wants to send his regards\nto all those in this meeting. Well, is there\nanything further you want to add to that?\nChilds:\nNo, just the idea which I expressed first.\nIf you are going to put this up to the Secretary,\nI think it would be better to get this ironed\nout in the meantime.\nWhite:\nCan we do that right here? Do you have the\ninformation?\nBewley:\nI don't know quite what the figures and pros-\npects are.\nChilds:\nI wanted to get them and then balance them off\nagainst Purvis' needs, you see, the way we do\nwith Brown.\nWhite:\nWould you have that ready on a single sheet if\npossible, what the specific situation is, if\nyou could get that to us as soon as you get it\ncompleted.\nChilds:\nAll right.\nBell:\nThey ought to add to this title too that facil-\nities item.\nKistler:\nDefense plant.\nBell:\nAnd facilities.\nKades:\nIsn't some of the appropriation appropriated to\nexpedite production, including the facilities\nused, to bail out the Defense Plant Corporation?\nBrown:\nI don't know.\nRegraded Unclassified\n168\n- 14 -\nKades:\nIt would be interesting if we could get the\nfigures on the amount of the appropriation\nmade to facilitate increased production.\nYou are familiar with that appropriation\nwhich was made in the War Department of 80\nmany million dollars to facilitate increased\nproduction, including the acquisition of\nfacilities. How much of that is earmarked\nto bail out the Defense Plant Corporation?\nWhite:\nWell, we wouldn't know.\nKades:\nWell, that would be in Accounts and Deposits,\nwouldn't it?\nBell:\nNo.\nKades:\nBecause that would --\nBell:\nNot if --\nKades:\nThat would show the picture.\nBell:\nIf that authority is given to the Secretary\nof War and Secretary of Navy, it wouldn't be\nupstairs at all. It would be in & lump sum\nappropriation, and they would do it on their\nown books, but if the President had it allocated,\nthen we would get it.\nKades:\nThe Bureau of the Budget would know, wouldn't\nit?\nBell:\nYes.\nWhite:\nCouldn't we find out from somebody?\nBell:\nYes, just ask Lee Martin. All right?\nTransfers of Lend-Lease goods to commercial\ndistributors.\nRegraded Unclassified\n169\n- 15 -\nWhite:\nWell, you are going to have & meeting on that.\nThat came up in another connection.\nBell:\nWe are having a meeting this afternoon with\nCox and Philip Young and Mack on that.\nBewley:\nMy preliminary impression is if he had any\npoints it would be on the one, two, three,\nfour, and five on page two.\nBell:\nHave you got 8 copy of that draft letter?\nBewley:\nYes. It was sent to Mr. Purvis.\nBell:\nI see. We haven't got the draft here, have\nwe? We have & copy, but it is in the office\ngetting typed or duplicated. What page - here\nis one.\nBewley:\nTwo. My preliminary impression is that it\nmight be if one or two of these one, two, or\nthree, or four, or five might possibly give\nrise to some difficulties. I don't know what\nthe details are at the present stage.\nChilds:\nIt is a primary operation.\nBewley:\nIt is just & question whether Number four, for\ninstance - the extent which the Government has\nexercised its authority over purchasers and\nthe price of - just points of that sort.\nBrown:\nI think what was intended by that is more or\nless what kind of regulatory statutes should\nbe adopted.\nBewley:\nYes, it was. I don't imagine there is anything\nreally between us. It is rather a question of\nputting it into words.\nWhite:\nI understand there is some discussion of this\nalso going forward right now in London.\nRegraded Unclassified\n170\n- 16 -\nBell:\nIt has been sent over there, has it? Or you\nmean just the matter?\nWhite:\nJust the matter, not this particular draft.\nBewley:\nOh, yes, I see.\nChilds:\nThompson and Keynes, you remember, have gone\nback now.\nKades:\nI understand in connection with that distribut-\ning thing that some conversations had been pro-\nceeding between the Federal Surplus Commodities\nCorporation and the Food Commission, and I won-\ndered whether those resulted in any kind of\n8 memorandum or --\nBewley:\nAbout methods of distribution?\nKades:\nYes.\nBewley:\nI didn't know that. I know that this letter\nis being considered. I didn't hear about the\nmeeting.\nKades:\nIf you mention a few of the names I could\nremember them.\nBewley:\nHuttendon is one.\nKades:\nYes. I just thought that some memorandum or\nsome determination had been arrived at which\nmight be useful to us.\nBell:\nYou mean on distribution?\nKades:\nI just heard about it in an unofficial way,\nand it may not be true.\nWhite:\nYou mean with Milo Perkins?\nKades:\nYes. I thought it might be helpful here, but\nthis is pure rumor.\nRegraded Unclassified\n171\n- 17 -\nBewley:\nI am completely ignorant of any memorandum\nof the sort.\nChilds:\nThis is generally the lines we have been fol-\nlowing heretofore, fortunately, and does follow\ninstructions which we have ourselves issued\nto the Commission, 80 very closely that there\nis no substantial difference. We are not\ngoing to have to be revolutionizing the\nthing.\nArcher:\nCan anything be done to unfreeze that position,\nbecause we are in the unfortunate position\nthat there is a lot of shipping becoming avail-\nable in August and valuable time is being lost\nin Procurement on these things in the time\nof getting that stuff aboard the ships.\nBell:\nThat is what we are trying to do this afternoon.\nArcher:\nI would be very grateful if something could\nbe done.\nChance:\nThese particular cases of the agricultural im-\nplements and timber?\nArcher:\nYes, and a number of others that have gone in\nsince those.\nWhite:\nI should like to return for a moment to the\nsugar thing to clear up what I think is possibly\n8. misunderstanding of the Canadian-American\nagreement. There was some mention in your\nmemoramdum that you felt that part of that\nsugar which goes to Canada might be under that\nhundred million dollar allocation of funds.\nI think if you will read your own memorandum\nthat accompanies it, which is a description\nof the Hyde Park arrangement, that it would be\nvery doubtful whether that was intended to\napply to that category of goods at all.\nRegraded Unclassified\n172\n- 18 -\nWhat it referred to was that the hundred\nmillion dollars might be expended on goods\ngoing from the United States to Canada for\nmaterials entering items shipped to Britain\nwhen the material was not identified. I don't\nthink you would include sugar under that cate-\ngory at all. In other words, it intended to\napply to items which were either such small\nparts or which through the processing lose\ntheir identity, but which was known that it\nwent to the U.K., whereas that sugar that would\nbe going from Cuba to U.K., if some such\narrangement were made, would not be of that\ncharacter at all.\nBewley:\nBut there were two classes in the Hyde Park\nagreement, as I understand it. There were\nfirst, the identified blocks and then there\nwere a hundred millions of unidentifiable stuff\nwhich does go to the U.K., but which you can't\nfind out what they are, and as I understand\nit, they were not to be brought under Lend-\nLease, but 8. hundred millions dollars of other\nstuff used in Canada was to be substituted\nfor it.\nKistler:\nThat is correct.\nWhite:\nYes, what Canada would have to buy from us\nfor her own war effort - well, whether it\nwould apply to foodstuffs is what I am raising.\nI thought it would apply to her own armaments,\nand so forth. I thought that was the interpre-\ntation. But if you are correctly assuming\nthat it would apply to anything that she buys\nfrom us --\nBewley:\nI thought it was intended to apply to defense\narticles, and I thought sugar was a defense\narticle.\nWhite:\nI see. Well, maybe. Then that can be dis-\ncussed later.\nRegraded Unclassified\n173\n- 19 -\nBewley:\nAnyhow, that is --\nWhite:\nYes, for the moment it is gone.\nBewley:\nBut this point of Mr. Archer's, you say you\nare going to discuss that this afternoon?\nBell:\nWe are going to talk with Young and Cox this\nafternoon on the matter,\nBase costs in Iceland. Anything new on that?\nBrown:\nWell, we tried to get the Chief of Naval\nOperations to ask the President for an alloca-\ntion of two million four out of his emergency\nfund to take care of that item. The Chief\nof Naval Operations says he doesn't want\nto do it. However, it seems to us that that\nis an item which would come under the Lease-\nLend. Assuming that you have got room for it\nin your - you would rather have gotten some-\nthing else and that we can probably take care\nof it. Whether we do it --\nChilds:\nAs a Lend-Lease item.\nWhite:\nThen that is a decision --\nBrown:\nThe Chief of Naval Operations says that the\nfacilities which are being constructed in\nIceland are very much greater than we can\never want, and that they are primarily\ndesigned for you, and that therefore he\ndoesn't want to use his funds for that.\nWe can Lease-Lend them all right if the\nBritish want to.\nBell:\nis that something that is being done, or is\nthat money that has already been spent?\nRegraded Unclassified\n174\n- 20 -\nBrown:\nWell, the British had sent a check to the\nNavy for two million four which is still being\nheld, and our thought was to see if we couldn't\ngive it back to them.\nChilds:\nThat was only part of the over-all cost. That\nwas labor.\nBrown:\nWell, we have already given you ten million\nfive of Lend-Lease funds.\nChilds:\nThe two million four is the only item in\nquestion?\nBrown:\nThat is right.\nWhite:\nAnd that is a decision which they will have\nto make?\nBrown:\nIf they want to put in a requisition for that,\nwe don't see why we can't take care of it.\nKistler:\nWasn't that requisitioned once?\nBrown:\nIt was turned down before the occupation of\nIceland on a policy question.\nWhite:\nThen you might have an answer to that either\none way or the other before the meeting, 80\nif you don't want to include it --\nChilds:\nYes, I hope to answer it.\nBell:\nWe have got on this agenda, the deferment of\npayments due France. We will have to do some\nmore work on that. We may be able to discuss\nit a little later.\nRequisition progress during the week. Anything\non that?\nWhite:\nDo you have any of the requisitions?\nRegraded Unclassified\n175\n- 21 -\nKeyes:\nI have some sheets to submit here.\nBell:\nBefore we go into the requisitions, have you\ngentlemen anything to suggest for this next\nmeeting with the Secretary in addition to\nwhat we have?\nBewley:\nI can't think of anything. I was going to\nsuggest the payments to France, but you say\nyou have it on there.\nBell:\nYes, but we have to do some work on it over\nthe week-end.\nChilds:\nIt all depends on certain developments.\nBell:\nGive us a ring Monday morning as to whether\nyou have anything additional to go on the\nagenda.\nCochran:\nMr. Bewley, I have already taken up the question\nof the French ships which you mentioned to\nme.\nBewley:\nOh, yes. That isn't necessary to bring up\nnow.\nKades:\nMay I ask one question before we go into the\nrequisitions?\nBell:\nSure.\nKades:\nIn connection with the transfers of Lend-\nLease goods for commercial distributors,\nyour question, Mr. Archer, related to the\nLend-Lease Administration, 88 I understand it,\nand not to the Procurement Division, is that\ncorrect? I mean, we haven't any requisitions,\nhave we, which haven't --\nArcher:\nThey were sent down to the Treasury Procurement\nDivision for distribution on them and then\nRegraded Unclassified\n176\n- 22 -\nthey were sent back to the Lend-Lease adminis-\ntration because some of them were questions of\npolicy. They wouldn't proceed to procure them.\nKades:\nWithout a clearance from Lend-Lease?\nArcher:\nThat is the whole point.\nChance:\nWe were notified of their being turned back\nbut the discussions would proceed to see if\nit was possible to find a way out.\nArcher:\nThe whole point is that the shipping is becom-\ning available in August and it is very necessary\nto get the goods for them.\nKades:\nAnd they were put through in the groove which\nwe understood it was the way --\nArcher:\nAs we understand it, and it was substantially\nthis detail on here.\nChance:\nJust this other point of agricultural imple-\nments, that they have got to be got there for\nthe fall work.\nBell:\nThat is right.\nChance:\nOtherwise they are not much good until spring.\nBell:\nThat is right. We will see if we can get\na decision on that. As 8. matter of interest,\nare there a lot more ships available in August\nthan you first anticipated?\nArcher:\nYes.\nBell:\nOr are you replacing some other material?\nArcher:\nNo, the - a large tonnage is becoming available\nthrough Maritime Commission taking over B. lot\nof these French and Italian and Danish ships,\nwhich had been interned in U.S. ports.\nRegraded Unclassified\n177\n- 23 -\nBell:\nThe reason I asked, the Secretary of Agricul-\nture told me the other day that you had in-\ncreased your requests for agricultural products\nfrom about a hundred thousand tons to three\nhundred thousand tons..\nArcher:\nAbout two or three hundred thousand tons of\nshipping have become available.\nBell:\nI see.\nArcher:\nWhich we didn't know about until just a week\nor so ago.\nChance:\nThere has also --\nBell:\nThat is good news.\nChance:\nThere is also at least temporarily a rather more\nfavorable situation in the matter of handling\nthem.\nBell:\nI see. Yes, the sinkings have gone down in\nthe last few months.\nChance:\nIt is an improving picture, but it is still grave.\nArcher:\nAnd you can work your docks eighteen hours of\nthe day, almost. You can get & quicker turn-\naround. When winter comes around we shall have\nto slow up, because there will be less daylight.\nBell:\nYou make hay while the sun shines.\nChance:\nHitler has apparently got all his bombers\nbombing the Russians.\nBell:\nThat is pretty good news. If he can't bomb\ntwo fronts at once, he must be either short of\nplanes or men.\nChance:\nThey are spread out so greatly.\nRegraded Unclassified\n178\n- 24 -\nBell:\nYes. now? All right, do you want to go over these\nI don't think we ought to go over them unless\nthere is some question.\nBewley:\nThere are two I would like to ask about to\nmake sure. They are on page two. They are\nthe only two big ones. The first one is the\nferrying. There is two million eight hundred\nthousand dollars which was suggested for that.\nThe position, as I understand it, is that you\nwere going to provide us dollars for these\nferries as far as you could, but the decision\nwas that you could only do 50 properly for\nAmerican plants and not for British plants.\nBrown:\nThat is right, and anything connected with\nAmerican plants like personnel, maintenance,\nsupplies, and so forth.\nBewley:\nI can take that as a definite decision? You\ndo draw the line on that?\nBrown:\nYou see, under the statute we have got to have\n& defense article.\nBewley:\nI see.\nBrown:\nThe way the statute is set up, it has got to\ncome through our Government.\nBell:\nIs this two million eight --\nBrown:\nWe can give you the freight on something bought\nhere.\nBewley:\nTwo million eight is the cost of ferrying\nBritish planes, and the rest is the cost of\nferrying American planes.\nBrown:\nThat is right.\nRegraded Unclassified\n179\n- 25 -\nWhite:\nWasn't there some question that that might\nbe - if they wanted to transfer the title\nto that it could be regarded 8.8 American\nplanes? Does that apply in this too?\nBrown:\nNo.\nWhite:\nThat related merely to the taxes?\nChilds:\nWe were talking about transfer of title for\nflying out of California. That matter has\nsince been adjusted.\nBell:\nYou mean you are not going to transfer title?\nChilds:\nNo, that was to avoid sales tax, you see.\nBell:\nYou might use it for this too.\nChilds:\nSure, it would be fine for this if a gratuity\ncame to it, but the company decided that they\nwould be taxable.\nChancer\nWho decided?\nChilds:\nAll the companies. Still, if we could work\nout a system of transfering title in Califor-\nnia it could be transferred back later.\nBrown:\nWe were considerably reluctant to go as far\nas we did on the California situation because\nour desire here is not to stretch these things\nunless we have to, naturally, because of the\nfact that we want to be able to say that in\nevery respect we have only done exactly what\nthe Lend-Lease says we could do, and in con-\nnection with the California proposition, we\nhave the question of transporting them via\nthe South Atlantic route to Brazil, and also\nwe were going to keep some for our Army train-\ning. There were & whole lot of reasons that\nRegraded Unclassified\n180\n- 26 -\nwe can justify pretty well, and in addition\nthere was & very large amount involved, but I\nthink we would be very reluctant just to have\na transfer of title of British planes, not\neven made in this country, and which never would\nget to this country, just for the purpose of\nproviding & few million dollars cost of fer-\nrying.\nWhite:\nYou say they weren't made here?\nBrown:\nThey are talking about British planes not ever\nproduced here.\nBewley:\nI am not questioning this. I only raised the\npoint because I wasn't clear what the position\nwas.\nBell:\nI don't understand that.\nBrown:\nWe have put up 8. - facilities for ferrying\naircraft from Takoradi to Khartoum, and we are\nprepared to pay the e xpenses of establishing\nthe ferry and ferrying any Lend-Lease planes\nwhich are being sent by that route, but it is\nalso proposed that that route will be used to\ncarry British personnel, passengers, and also\nto ferry British built planes.\nWhite:\nWhere are they built, Canada?\nKeyes:\nNo, I think they are built in this country,\nBob.\nBrown:\nThey are?\nChilds:\nThey are British contract planes in this country,\nmust be, because they come across the South\nAtlantic first. They are not going to take\nanything out of the U.K. up there. It would\nbe simply taking the same planes we are talking\nabout from California.\nRegraded Unclassified\n181\n- 27 -\nBrown:\nAre Command? these to be ferried by the Army Ferry\nChilds:\nYes. You see, you get the training in them\njust the same.\nBrown:\nThen maybe we can work out something on that.\nI didn't understand that was the kind of planes\nthey were.\nChilds:\nYes, I am pretty sure of it.\nBell:\nMaybe you can reconsider that and get something\nout of it.\nWhite:\nAnd you want to withdraw this and reconsider it?\nBewley:\nWhat about the following one? I just want to\nget it clear in my own head what could be\nbrought under Lend-Lease and what couldn't.\nBrown:\nOn that, those are the payments for - made for\nthe medical attention and transportation of\nRAF students.\nBewley:\nBritish students?\nBrown:\nYes. We are Lend-Leasing you the planes to\ndo the training and their maintenance and tuition,\nall of which we have classified as a defense\narticle or information pertaining to a defense\narticle, which comes under the statute.\nHowever, when it comes to their pay and trans-\nportation facilities for themselves, we would\nbe hardly justified in doing that.\nBewley:\nYes. I just saw that you said dollars, possibly.\nBrown:\nIf there was any substantial item of goggles\nor flying suits or something like that, we could\nconsider those defense articles.\nRegraded Unclassified\n182\n- 28 -\nBell:\nO.K.? What else?\nBewley:\nI have nothing else.\nBell:\nAny others? What else?\nChilds:\nWe have nothing else, have we?\nBewley:\nI think there is nothing else.\nBell:\nThen we will hope to have & meeting next week\nwith the Secretary.\n183\nAGENDA FOR MEETING WITH SECRETARY\nMORGENTHAU (POSSIBLY MONDAY)\n1. DEFERMENT OF PAYMENTS DUE FRANCE.\n2. PAYMENT FOR U.S. PURCHASES OF RAW MATERIALS FROM\nSTERLING AREA IN ADVANCE OF SHIPMENT.\n3. PROPOSAL TO LEASE-LEND CARIBBEAN SUGAR.\n4. TRANSFER OF CERTAIN LARGE BRITISH CONTRACTS TO THE\nARMY - SIR FREDERICK PHILLIPS AND MR. COX.\n5. TRANSFERS OF LEND-LEASE GOODS TO COMMERCIAL DISTRI-\nBUTORS.\n6. BASE COSTS IN ICELAND - MR. COX\n7. REQUISITION PROGRESS DURING WEEK - MR. BROWN AND MR.\nKEYES.\nRegraded Unclassified\nC\n0\n184\nP\nEXECUTIVE OFFICE OF THE PRESIDENT\nY\nOFFICE FOR EMERGENCY MANAGEMENT\nOFFICE MEMORANDUM\nTo:\nMr. Daniel Bell\nDate: July 31, 1941\nFrom:\nW. G. Brown\nSubject:\nAttached are three copies of the revised\nform of suggested letters to Mr. Purvis discussed\nat this afternoon's conference.\nC\no\n185\nP\nY\nOFFICE FOR EMERGENCY MANAGEMENT\nDIVISION OF DEFENSE AID REPORTS\nWASHINGTON, D. C.\nAugust 1, 1941\nDear Mr. Purvis:\nSection 4 of the Lend-Lease Act requires the consent of the\nPresident to any retransfers of lend-lease articles by His Majesty's\nGovernment. Distribution through commercial channels in the United\nKingdom and in other parts of the Empire of necessity involves a re-\ntransfer and Presidential consent.\nBefore granting such consent, it has been the President's\npolicy in the administration of the Lend-Lease Act to require assur-\nances that:\n(a) The articles to be distributed commercially, and\nthose into which they are incorporated, are essen-\ntial to the British war effort.\n(b) The commercial channels of distribution to be used\nare the most effective and economical means of\nassuring the efficient use of the articles or their\nprompt delivery to the places where they are needed,\nand\n(c) No profiteering by commercial distributors of the\narticles will be permitted.\nRegraded Unclassified\n186\n- 2 -\nSince the nature of distribution and ultimate destination\nof the various articles to be commercially distributed either in their\noriginal or in an advanced form naturally varies widely with a partic-\nular article, it is impossible for any blanket consent to retransfer\nto be given and each case must be determined on its own facts. The\nfollowing, however, are suggested as items of information which would\nassist the President in determining whether the three basic criteria\nset forth above have been met.\n(1) Destination of articles - in original and advanced\nform, e. so United Kingdom, Dominions, colonies, etc.\n(2) Intended use of articles and those into which they\nare to be incorporated, e. B.. military, civilian, etc.\n(3) Method of distribution to be adopted, showing the\nchannels through which the materials pass to the user.\n(4) The status of the distributors, 1. 0. whether they\nare acting as agents of the distributing Government\nor as principals purchasing to re-sell to consumers.\n(5) The extent to which Government supervision is exer-\ncised over distributors to insure that the prices and\nfees charged by them will be limited to a minimum\nreasonable remuneration for services actually performed.\n(6) Details of distribution, e. ... will the recipient\nGovernment sell the articles to a manufacturer, or will\nit deliver them to him gratis for incorporation in 8\ncompleted article.\nRegraded Unclassified\n187\n- 3 -\nMore detailed information will be expected in case of dis-\ntributions in the Dominions and other parts of the Empire than in the\nUnited Kingdon in view of the strict controls known to be in force in\nthe United Kingdom.\nThe foregoing are suggestions only and are not intended to\nbe all-inclusive, as the necessity for further and different informa-\ntion will undoubtedly become apparent in particular cases. I am\nconfident that most cases will fall into more or less standardized\npatterns, 80 that a method of presenting the necessary information can\nbe worked out which will avoid useless repetition and complication of\nrequisitions.\nVery truly yours,\nJ. H. BURNS\nMajor General, U. S. Army,\nExecutive Officer\nHon. Arthur B. Purvis,\nChairman, British Supply Council\nin North America,\nWillard Hotel,\nWashington, D. C.\nCopy:dtg:8-2-41\nRegraded Unclassified\n188\nJuly 31, 1941\nDear Mr. Purvis:\nIn view of current public discussions of British export\npolicy and its relation to the administration of the Lend-Lease\nAct, it seems timely to set forth in concrete form certain of the\nprinciples which have guided this Division in the administration\nof the Land-Lease Act and will continue to do 80 in the future.\nAs you know, it has been the policy of this Division\nfrom the ontset to limit the aid rendered under the Lend-Lease\nAct to that which is essential to the maintenance of the war\neffort and to refuse consent under Section 4 of the Act to the\nuse of Lend-Lease articles for re-export in commercial trade.\nTo execute this policy we have required a stipulation in the\nrequisitions that Lend-Lease articles which might be available\nfor such export be used in the United Kingdom or in other parts\nof the Empire for needs essential to the maintenance of the war\neffort.\nWe appreciate that Great Britain must continue exports\nin order to obtain imports. However, this Division has urged and will\ncontinue to urge upon His Majesty's Government the importance of\nGreat Britain's making every effort to concentrate her exports in the\nfield of traditional articles, such as Scotch Whiskey, fine textiles,\netc., and other similar articles, and cutting down exportation of\narticles similar to those being provided through Lend-Lease funds to\nthe irreducible minimum necessary to supply or obtain materials\nessential to the war effort.\nI would appreciate your confirming that the foregoing\nconforms to your understanding of the basis upon which Lend-Lease\narticles are being provided and receiving your assurance that every\neffort will be made to carry out the foregoing policy to the fullest\nextent.\nSincerely yours,\nJ. H. Burns\nMajor General, U. S. Army\nArthur B. Purvis, Esq.\nExecutive Officer\nChairman, British Supply\nCouncil in North America\nWillard Hotel\nWashington, D. C.\nRegraded Unclassified\n189\nC\n0\n?\nY\nDEPARTMENT OF STATE\nWashington\nJuly 31, 1941.\nMy dear Mr. Secretary:\nI enclose the first section of telegram no. 3310 of July\n31 from London, containing a personal and strictly confidential\nmessage for you from Ambassador Winant. The remaining sections\nof the telegram have not yet been received.\nSincerely yours,\n(Signed) Herbert Feis\nAdviser on International\nEconomic Affairs\nEnclosure:\nNo. 3310 of July 31\nfrom London, sec. 1.\nThe Honorable\nHenry Morgenthau, jr.,\nSecretary of the Treasury.\nCOPY - dm - - 7/31/41\nRegraded Unclassified\nC\no\n190\nP\nGRAY\nY\nLondon\nDated July 31, 1941\nRec'd 7:35 a.m.\nSecretary of State,\nWashington.\n3310, July 31, noon (SECTION ONE)\nPERSONAL AND STRICTLY CONFIDENTIAL FOR THE\nACTING SECRETARY FOR THE SECRETARY OF THE TREASURY\nIn Mr. Hopkins' message to me 2483, July 9. and\nin Secretary Morgenthau's message to Coe 2657, July\n18, in which I was asked to collaborate and also in\na section of Secretary Wickard's message 2761, July\n24, inquiries were made as to the distribution of\narticles under the Lend-Lease Bill. I have made re-\nplies to these messages in my messages 3189 July 24;\n3251, July 28; and 3278, July 29, to the Secretary\nof the Treasury and also in my message 3229, July 26,\nto the Secretary of Agriculture.\nMr. Hopkins asked me to follow this matter up\nfor him as he did not have time to press the impor-\ntance of the issue himself. Since there seems to be\nno agreement in principle, I asked the Chancellor of\nthe Exchequer for & statement as I explained in my\nRegraded Unclassified\n191\n- 2 -\nmessage 3251, June 28.\nThe statement handed to me this evening by the\nChancellor is as follows:\n\"One. All materials which we obtain under the\nLend-Lease Act are required for the prosecution of\nthe war effort. This principle governs all questions\nof the distribution and use of such goods and His\nMajesty's Government have taken and will continue to\ntake action to see that these goods are not in any\ncase diverted to the furtherance of private interests.\nWINANT\nWSB\nCopy:dtg:7-31-41\n192\nC\n0\nP\nY\nTEM\nGRAY\nLondon\nDated July 31, 1941\nRec'd 10:45 a.m.\nSecretary of State,\nWashington.\n3310, July 31, noon. (SECTION TWO)\nexport policy.\nTwo. No lend-lease materials sent to this\ncountry have been used for export.\nThree. For some time past exports from the\nUnited Kingdom have been more and more confined\nto those essentials (1) for the supply of vital\nrequirements of overseas countries, particularly\nin the sterling Empire: (1.1) for the acquisition\nof foreign exchange particularly in the Western\nHemisphere. His Majesty's Government will not\nadept the policy summarized below:\n(1) In the future no materials on which the\nuse is being restricted in the United States on the\ngrounds of short supply and of which ve obtain\nsupplies from the United States either by payment\nor on lend-lease terms will be used in exports with\nthe exception of the following special cases:\n(A) Material\n193\n-2- 3310, July 31. noon. (SECTION TWO) from London.\n(A) Material which is needed overseas in con-\nnection with supplies essential to the war effort\nfor ourselves and our allies, and which cannot be\nobtained from the United States. This would enable\nus (1) to export supplies essential to the var effort\nto countries within the Empire and to our allies, and\n(1.1.) to export such articles as tinplate for canning\nto Portugal and the Argentine for our food require-\nments, if such tinplate could not be supplied by the\nUnited States of America.\n(B) Small quantities of such materials needed\nas minor though essential components of exports which\notherwise are composed of materials not in short\nsupply in the United States.\n(c) Repair parts for British machinery and plant\nnow in use, and machinery sea plant needed to complete\ninstallations now under construction so long as they\nhave already been contracted for.\nSteps will be taken forthwith to prevent the\nexecution of existing contracts for the export (ex-\ncept to Empire and allied territories) of such goods which\ndo not come within the exceptions referred to in\n(A), (B) and (c) above. (1.a.) Materials which\nare not\nRegraded Unclassified\n194\n- 3 -\nare not in short supply in the United States but\nwhich we obtain on lend-lease terms will not be\nused for export in quantities greater than those\nwhich we ourselves produce or buy from any source.\nDistribution in the United Kingdom chancell-\neries lend-lease goods.\nFour. The general principle followed in this\nmatter is that the remuneration received by the dis-\ntributors, whatever the method of distribution, is\ncontrolled and will be no more than a fair return\nfor the services rendered in the work of distribution.\nThe arrangements rigorously exclude any opportunity\nfor a speculative profit by private interests from\ndealing in lend-lease goods. In most cases lend-\nlease supplies will be distributed through organi-\nzations acting as agents of His Majesty's Government\nin the strict sense of the term and not as principals.\nWhere, for strong practical reasons, this cannot be\ndone & full explanation will be supplied to the\nUnited States administration and their concurrence\nsought before hand in any alternative arrangements\nproposed. The justification for retaining existing\nRegraded Unclassified\n195\n- 4 -\nchannels of distribution operating under strict\ngovernment control is that the creation of elaborate\nnew organizations in their place would inevitably\nresult in loss of efficiency and the wasteful use\nof manpower, and retard the war effort.\nWINANT\nPEG\nCopy:8-1-41\nRegraded Unclassified\n196\nC\n0\nP\nGRAY\nY\nLondon\nKD\nDated July 31, 1941\nRec'd. 9:32 a.m.\nSecretary of State,\nWashington.\n3310, July 31, noon (SECTION THREE)\nFive. Food is a special case. Only some five\nor six percent of the total British food supply will\ncome from the United States and without great practical\ncomplications it would be impossible to have 8 separate\nsystem for the distribution of lend-leased food. Food\ndistribution is carried out in the United Kingdom by\nwholesalers to whom the Government sells food as\nprincipals. In fact the Ministry of Food has established\na close control over all district margins so that neither\nthe wholesalers nor the retailers receive any greater\nremuneration than is adequate to cover the cost of the\nservices performed. No food obtained on lend-lease\nterms is or will be sold at uncontrolled prices. Thus,\nthe general arrangements as regards the issue of lend-\nleased food fit into His Majesty's Government's policy\nof stabilising the whole price level of foodstuffs,\na. policy to which the Government contributes pounds\nRegraded Unclassified\n197\n- 2 -\none hundred millions & year.\nSix. In some cases direct free distribution is\npracticable and will be adopted. For example, some\nmilk products (including lend-leased supplies from\nthe United States) are distributed direct and free of\ncharge to children and others in need through schools,\nclinics and hospitals. The distribution is undertaken\nby state agencies and the cost of the distribution is\nborne by the Government.\"\nThe statement handed me by the Chancellor should\nbe read in connection with the public announcement\nmade in the House by the Prime Minister in his address\nof Tuesday (see message 3278, July 29).\nCoe is preparing, with the cooperation of British\nTreasury officials an exact description of the methods\nof distribution of all articles under the lend-lease\nbill which will be forwarded on completion.\nI would appreciate your informing the President\non this matter as I understand from Mr. Hopkins that he\nis interested in this situation. It would also be help-\nful if you would let General Burns have copies of this\nentire correspondence for his own information and for\nMr. Hopkins on his return.\nI explained to the Chancellor that I was forward-\ning this statement to you. An early answer would be\ngreatly appreciated. (END OF MESSAGE)\nWINANT.\nPEG\nCopy:1g 8/1/41\nC\n0\n198\nP\nY\nDepartment of State\nAdviser on\nInternational Economic Affairs\nJuly 31, 1941.\nTo: Mr. Cochran\nFrom: Mr. Feis\nWith regard to your request for the confidential\nreport mentioned by Ambassador Winant in his telegram\nto Secretary Morgenthau, I enclose a confidential\nreport dated July 8, 1941 which was submitted by the\nActing Agricultural Attache, London. I believe this\nmight be the report to which the Ambassador referred.\nSince this is our only record copy, will you please\nreturn it when you have read it?\n/=/ Herbert Feis\nCOPY:mew 8/2/41\nRegraded Unclassified\nC\n0\n198\nP\nY\nDepartment of State\nAdviser on\nInternational Economic Affairs\nJuly 31, 1941.\nTo:\nMr. Cochran\nFrom: Mr. Feis\nWith regard to your request for the confidential\nreport mentioned by Ambassador Winant in his telegram\nto Secretary Morgenthau, I enclose a confidential\nreport dated July 8, 1941 which was submitted by the\nActing Agricultural Attache, London. I believe this\nmight be the report to which the Ambassador referred.\nSince this is our only record copy, will you please\nreturn it when you have read it?\n/-/ Herbert Feis\nCOPY:mew 8/2/41\nRegraded Unclassified\n199\n0\n0\nP\nI\nVOLUNTARY REPORT NO. 341\n(For Department of Agriculture)\nCONFIDENTIAL - NOT FOR PUBLICATION\nBRITISH RATIONING PROBLEMS\nAND\nFOOD SHIPMENTS UNDER LEASE-LEND\nFrom:\nAlton T. Murray,\nActing Agricultural Attache.\nAmerican Embassy, London, England.\nDate of Completion: July 8, 1941.\nDate of Mailing:\nJuly 8, 1941.\nRegraded Unclassified\n200\nI\nBRITISH RATIONING PROBLEMS\nAND FOOD SHIPMENTS UNDER LEASE-LEND\nBritish Food Rationing Problems\nDuring the past six months the British food situation has de-\nteriorated. Qualified only by some mild variations in the stock\nposition of the miscellaneous commodities composing the aggregate\nfood supply, the deterioration has been progressive.\nCo-extensive with the diminution of supplies of individual\nfoods, the Ministry of Food has extended the acope of the food\nretioning. More foods were edded to the list of those subject to the\ncoupon system, some further restrictions were placed upon commodities\nalready rationed, and further reductions were made in the alloca-\ntious of Government-controlled foods to retailers.\nCurrently, the sole purpose of rationing is to share food sup-\nplies equitably. Earlier in the war, food rationing served an ad-\nditional purpose: to implement the Government's policy of reducing\nthe standard of living. No such viewa are entertained in official\ncircles now. On the contrary, the Ministry's efforts are directed\ntoward raising the standard of living (insofer as food is concerned)\nup to some as yet unspecified level compatible with the neede of B.\nseximum war effort.\nDespite the general movement toward subjecting more foods to\nofficial rationing restrictions, a very large number of foods are\nas yet not officially rationed. This situation is the fountain-head\nfor many distribution difficulties. Obviously the mere fact that\none set of foods is restricted diverts consumption to unrationed\nfoods. To some extent, therefore, the general principle of fair\ndistribution of food is defeated.\nRetailers have long since devised informal rationing systems\nof their own, limiting quantities customers may obtain at one time\nor during 8 given period. Nevertheless, informal rationing is not\naltogether satiafactory. In the first place, in the nature of\nthings, retailers are not in the position to enforce absolute 1m-\npartiality. Favored customers develop and business tends to function\non an \"under-the-counter\" basis. Secondly, retailers have no sure\nmethod of determining the amount of their unofficial ration. By\nmerely noting a diminution in stocks of some particular product on\ntheir shelves, retailers may decide to restrict customers hence-\nforth to a fraction of the quantity given to shoppers earlier in\nthe week, establishing thereby a premium upon customers getting\nRegraded Unclassified\n201\n- 2 -\nthere first. Moreover, the mere fact that quantities obtainable are\ndependent upon such uncertain factors leads the public to hoard\nfood suspected of becoming short in the near future. One of the\nvisible results of this situation is the practice of shoppers forming\nin line to purchase some particular product under suspicion of\ndisappearing from the market. Under such conditions shopping takes\non almost professional attributes. Many housewives visit & large\nnumber of shops in order to track down some product unobtainable\nlocally. To combat this practice, retailers frequently specify\ncertain products can be purchased by customers registered for of-\nficially rationed foods only. Unfortunately, this restriction is\nnot 8. complete answer since few grocers are in 8. position to assure\ncustomers that an assortment of products to meet general household\nrequirements will at all times be available.\nThe control of food prices 1s intimately connected with food\nrationing. Maximum retail prices are now officially specified for\nmost foods and for & large number prices are controlled through all\nstages of distribution. Generally speaking, of course, it is far\nsimpler from an administrative standpoint to apply price controls\nthan devise means to ration the physical distribution of food.\nMaximum retail price control is no solution to the equitable\ndistribution of food at 8 fair price. Unfortunately, a considerable\nsection of the public believe it 1e. Indeed the illusion that\nequitable distribution of food may be established by price controls\nhas been substantially fostered by & naive public. If any confirms-\ntion of this statement is necessary, one has merely to witness the\nreaction to the introduction of price controls to some seasonal\nfruit or vegetable. The pattern is about as follows:-\n1. Small supplies appear in the markets.\n2. Prices are extremely high and few can afford\nto buy.\n3. Under public pressure the Ministry of Food\nintroduces naximum price controls at sub-\nstantially lower levels.\n4. Supplies \"disappear\" from the market when more\npeople can afford it.\n5. The Ministry of Food is blamed for creating\nshortages, or the trade 18 accused of unfair\npractices.\nThe inadequacy of price control without physical control by\nrationing 1s, of course, also generally apparent among many hundreds\nof food items which have long since been subject to fixed retail\nRegraded Unclassified\n202\n-\nprices. The Ministry of Food's announcement of the introduction of\nprice control to any unrationed food 1a in effect merely a warning\nto the public to buy as quickly B.O. possible and as much of the food\nas circumstances permit.\nInequality of income overshadows the food rationing system.\nObviously, 80 long as & large proportion of all British vage carnere\nhave an income insufficient to maintain themselves and their depend-\nants upon an adequate diet, there 18 little hope of rationing food\nin the absolute sense. The fact that B. considerable section of the\npopulation, therefore, do not have the money to buy their rations\nprovides B. serious leak in the rationing system since it leads to\nthe ostablishment of a \"black market\" which is most difficult to\nstop. When registered customers do not take up their rations,\nshopkeepers and their employees are in a position to cell extra\nquantities to favored customers for a special consideration.\nA miscellaneous assortment of unrationed foods also find their\nway into the \"black market\" in varying degrees, largely for the\nsome reason. Foods in short supply, for which the Ministry of Food\nhas established meximum prices, are particularly susceptible. Re-\ntailers conducting part of their business on an \"under-the-counter\"\nbasis in effect constitute B. \"black market\". Maximum prices are not\nexceeded in all cases, but supplies of these foods are conveniently\ndiscovered only for favored customers.\nThe foregoing comments are confined, of course, to some of the\nsub rosa aspects of the inequality of consumer income as it relates\nto food retioning. The inequities of food distribution have almost\nofficial recognition, however, since it is quite possible to live on\nB. fairly opulent scale in the more expensive hotels. restaurants and\nhealth resorts in sharp contrast to the bread-potatoes-and occasional\nprotein diet of the poorest consumers.\nIt would seem apparent that a more satisfactory distribution\nof food could be obtained by rationing more foods, if not all foods.\nThe short answer as to why 5. more comprehensive rationing policy\nhas not been adopted 10 that the Ministry of Food does not know how\nto 60 about it. A large number of miscellaneous foods. which vary\n88 to quality, quantity, type of preparation, flavor, seasonality,\nend many other factors, cannot be rationed under the present ration-\ning methods for administrative reasons. As the Minister of Food\nsaid recently in Parliament: \"I have reached the end of the com-\nmodities I can ration on this basis (conventional methods now in\nuse) with the exception of bread, which I hope I never shall have\nto ration, and milk, which I believe I shell ration, whether I have\nto by force of necessity or not.\" At the same time the Minister\nannounced the determination to deal with the problem of unrationed\nRegraded Unclassified\n203\nfoods by wider extension of food control. A new system of rationing\nwas to be introduced of an experimental nature admittedly \"full of\nadministrative pitfalls\". Among other commodities egge were to be\nrationed under the new system.\nWhen the nev \"EE rationing system was introduced, the Minister\nvas immediately revealed as & prophet of some stature. The \"admin-\nistrative pitfalls\" presumably were all too apparent to the general\npublic, and a storm of criticiem arose. Some immediate changes were\nannounced, although the echeme is still undergoing repairs.\nPending the time when the Ministry of Food discovers some method\nor methods to ration foods more generally, it may be assumed that the\ndifficulties indicated above will continue. This assumption carries\nconsiderable significance as it relates to the prospective shipments\nof foods obtained from the United States under the Lesse-Lend Act.\nRationing Problems arising from American\nFood Shipments\nFrom about the fall of France until the enactment of the Lease-\nLend Act, the food policy of the Ministry of Food has been largely\npredicated upon (1) the supply of food available from domestic agri-\nculture, (2) the possibility of obtaining supplies from (a) the\nDominions and (b) the Plate, and (3) failing the foregoing sources,\nthe United States, if and when the Treasury released dollar exchange.\nIn other words, as much food as possible should be obtained from\ndomestic sources supplemented by purchases from the Dominione and\nthe Argentine, as shipping conditions permitted. The United States\nvas, therefore, almost out of the picture.\nThis arrangement is significent from the standpoint of ration-\ning problems, since it emphasised the sources with which Britain\nnormally maintained trade relations before the war. Moreover, the\nMinistry was able to deal with a comparatively mall list of foods\nfairly standardised and available in considerable volume which\ntended to minimise distribution problems. Furthermore, the trade\nWEB familier with the physical handling of the commodities, an\nimportant point in war time when trained personnel are reduced to\na minimum.\nSince the passage of the Lease-Lend Act, the position of the\nUnited States as a potential sup lier to the United Kingdom has\nrisen to at least next importance to domestic agriculture. Presum-\nably, the United States will eventually become the chief oversess\nfood supplier, while shipmente from more distant sources will decline.\nRegraded Unclassified\n204\n- 5\nNevertheless, the United States may not be able, for at least\na considerable time, to substitute adequate or similar products\nheretofore obtained from more distant sources. This situation com-\nplicates British rationing problems. For example, for a considerable\ntime United States meat shipments have been confined largely to pork\nproducts because exportable surpluses of other meats cannot be made\nsvailable readily.\nBefore the war, the United States had B. considerable trade with\nthe United Kingdom in pork products. Apart from han and lard,\nhowever, the trade consisted of miscellaneous specialty pork products\nwhich played a emall part in the most diet of British consumers in\ngeneral. The mere réstoration of the pre-war trade, therefore,\nwould contribute very little toward improving the British food\nsituation.\nMeat is rationed by value (1s.2d. per person per week) in order\nto take into account the various cuts of fresh meat. The system\nworks fairly well since consumers are well acquainted with traditional\ncuts. If whole hog carcases arrived, of course the rationing\nproblem would be simplified since present methods could probably be\nadapted. On the other hand, assorted varieties of canned pork,\nespecially if the volume were small, would create rationing dif-\nficulties. Should it be impossible to include pork in the present\nmeat ration, the products could only be added to the miscellaneous\nunrationed foods which have caused the Ministry such grief. However,\nif & sufficient volume of standardized canned pork products were\navailable, supplementary meat rationing system could be introduced.\nThe difficulties experienced by the Ministry of Food arising\nfrom importing some badly needed oranges further illustrate the\nproblema occurring when foods are imported which cannot be retioned\nunder existing methods. Until comparatively recently, citrus fruits\nhad been practically nonexistent. The Ministry, however, bought a\nsmall quantity of Spanish oranges (about three small cargoes). With\nthe arrival of the oranges, well heralded by unfortunate newspaper\npublicity, the Ministry found it had a distribution problem of major\nproportions on its hands. On a strictly arithmetic basis consumers\nwould receive EL fraction of a single orange. To make matters worse,\nthe fruit were not uniform in quality. The Ministry, however,\nallocated the fruit among dealors largely on the basis of their\npre-war volume of sales. An extremely keen demand for the oranges\ncaused many retailers to distribute them largely on an \"under-the-\ncounter\" basis. Considerable public dissatlefaction arose and charges\nwere made that favoritium had been shown in distributing the fruit.\nEventually the Minister had to defend himself in Parliament against\naccusations that his organization had \"muddled\" the whole matter.\nRegraded Unclassified\n205\n- 6 -\nA few small orange shipments subsequently arrived of which the\nMinister tactfully preferred to confine allocations to \"heavily\nbombed\" areas. Obviously, such distribution methods are no adequate\nsolution. The corollary to the distribution of unrationed foods,\nparticularly those. in keen demand, is, unfortunately, that it is\nperfectly obvious to the general public that no absolutely fair\ndistribution can be made. Consequently, mispicions are aroused that\ndistribution 1e intolerably unfair.\nIn regard to the specific problem encountered in the orange\ndistribution example, it cppears quite likely that B. reasonably\nsatisfactory rationing system could be devised provided that (1) a\nfair volume of uniform quality fruit was available (say, one-quarter\nthe pre-var volume) end (2) there vas some assurence that the fruit\ncould be available regularly (even for B. limited period).\nSome rationing problems will arise, and in fact have arisen,\nfrom dissimilarity of domestic products and United States products.\nAmerican bacon, for example, is B. different product from the stand-\npoint of quality, cut, and amount of fat from the English product.\nThe question erises 88 to how to distribute the lens desirable American\nproducts in conjunction with domestic supplies. To consumers receiv-\ning only three or four slices of bacon per week under the present\nration, it makes a considerable difference whether English, American\nor Canadian bacon is obtainable.\nTo some extent the problem may solve itself with English becon\nsupplies declining under the slaughter program, but here again is\na case for maintaining 8. uniform quality of American bacon (also as\nnearly similar to the English product as possible) and in a volume\nat least sufficient to meintain existing rationing methods.\nRecapitulation\nThe British are not concerned with a food shortage in the\naggregate sense. They are seriously pinched, however, by the volume\nof food which can be distributed under the rationing system. In\nother words, the amount of food the individual consumer can obtain\nis limited by the volume of products which lend themselves to the\npresent means of distribution.\nIf American aid in supplying food is to be effective, therefore.\nit must confine its food shipments to commodities which can go \"on\nthe ration\". On the other hand, shipments of American food of a\nmiscellaneous character may actually do more harm than good. Such\nshipments will contribute to the inequities in food distribution\nunfortunately already in existence and create more administrative\nproblems for the Ministry of Food.\nRegraded Unclassified\n206\n-7 -\nThe optimum conditions for rationing food under the British\nsystem are about as follows:-\n1. An adequate volume, so that there is some\nassurance that everybody can get at least\nsome of the product.\n2. A fairly regular flow of supplies, so that a\ndefinite ration may be fixed.\n3. As uniform quality as possible of products\nwith which the public is familiar.\nATH:EWH\n820\nCOPY:mew 8/4/41\n207\nJuly 31, 1941\n3:13 p.m.\nHMJr:\nHello.\nOperator:\nSenator Walsh.\nHMJr:\nHello.\nOperator:\nGo ahead.\nHMJr:\nHello.\nSenator\nWalsh:\nHello, Mr. Secretary.\nHMJr:\nHow are you?\nW:\nVery well, thank you. How are you?\nHMJr:\nI'm very well, Senator. I wondered if\neither this afternoon or the first thing\ntomorrow morning I could come up by myself\nand see you?\nW:\nWell, let me drop around and see you.\nHMJr:\nOh\nW:\nI'll drop in at your office. What time\ndo you get there?\nHMJr:\nOh, early.\nW:\nNine o'clock. How's that? Quarter past\nnine?\nHMJr:\nYes. I'm here at eight-thirty.\nW:\nWell, I'll be there, at nine o'clock.\nHMJr:\nNine o'clock.\nW:\nI'd be glad to.\nHMJr:\nI'd love to come up and Bee you.\nW:\nNo, that's not necessary, Mr. Secretary.\nRegraded Unclassified\n# 208\n- 2 -\nHMJr:\nAbout nine.\nW:\nFine.\nHMJr:\nI'll look forward.\nW:\nFine.\nHMJr:\nThank you.\n209\nJuly 31, 1941\n3:15 p.m.\nGROUP MEETING\nPresent:\nMr. Bell\nMr. Sullivan\nMr. Viner\nMr. Cochran\nMr. Thompson\nMr. Gaston\nMr. Odegard\nMr. Foley\nMr. Blough\nMr. Schwarz\nMr. White\nMr. Kuhn\nMiss Chauncey\nMr. Graves\nH.M.Jr:\nHarry White's prescription, how to keep cool.\nRead the July 8 New Republic, \"The Mirage of\nProduction\".\nWhite:\nHow to keep cool in your feet and hot under\nyour collar.\nH.M.Jr:\nAnd straight.\nNorman, you look as though you had had a little\ngolf.\nThompson:\nI stole some time and played golf.\nH.M.Jr:\nGood for you. Getting sense in your old age?\nRegraded Unclassified\n210\n- 2 -\nThompson:\nI really enjoyed it. It was awfully hot.\nH.M.Jr:\nWhat did they do, get you back this morning?\nThompson:\nYes.\nH.M.Jr:\nTough luck. What do you know, anything?\nThompson:\nNo, I find everything all right in my shop.\nH.M.Jr:\nDan, next to Norman, you look pale.\nBell:\nReally?\nH.M.Jr:\nYes. You had better get sensible like Norman.\nBell:\nHe looks disgustingly healthy.\nThe State Department is rather anxious to\nsend a note this evening to the Bolivian Govern-\nment to show that they are behind the President's\nstatement in connection with this Nazi upris-\ning in Bolivia, and they want to include in\nthat statement a paragraph along these lines:\n\"The Government of the United States is pre-\npared to consider the practicability of measures\nwhich may be suggested for cooperation with\nthe Government of Bolivia in the stabilization\nof the Bolivian currency, and the appropriate\nauthorities of the Government of the United\nStates are undertaking studies with a view\nto formulation of specific suggestions\" --\nH.M.Jr:\nHow many initials are there on it?\nBell:\n\"Which may be made by the Bolivian authorities.\"\nNone. But what I would like to know is if you\nare willing for us to work on a paragraph.\nH.M.Jr:\nGive me a half dozen initials and I will O.K.\nit.\nRegraded Unclassified\n211\n- 3 -\nBell:\nI think I can get the O.K. of the policy, but\nnot of the paragraph.\nH.M.Jr:\nJust give me half a dozen initials. You have\ngot damn. enough talent around here. I don't give EL\nBell:\nI will get the initials. You tell me whether\nyou will go along.\nH.M.Jr:\nIf there are enough initials on it, I will go\nalong.\nBell:\nThat doesn't answer my question. (Laughter)\nH.M.Jr:\nI want six initials, and you can start with\nMiss Chauncey. (Laughter)\nAll right. What else have you got?\nBell:\nWell, can I work it out with the State Depart-\nment?\nH.M.Jr:\nYes, work it out.\nBell:\nThat is all I want to know.\nH.M.Jr:\nHow is the fishing down in Bolivia?\nBell:\nIndeed I don't know.\nH.M.Jr:\nI just came back to sign these blankety-blank\ncommissions and then I can go back and go\nfishing. What else?\nBell:\nAt one of the last meetings with the British,\nyou made some statement about profiteering in\nconnection with the sale of Lend-Lease goods\nin Great Britain, and I think the statement you\nmade was that there should be no profit anywhere\nalong the line.\nRegraded Unclassified\n212\n- 4 -\nH.M.Jr:\nOn material that we bought.\nBell:\nOn material that they buy from us under\nLend-Lease.\nH.M.Jr:\nhat is right.\nBell:\nWell now, that is holding up a number of\nrequisitions until some policy is worked out\nand there has been drafted --\nH.M.Jr:\nDon't hold up any requisitions.\nBell:\nA letter over in the Lend-Lease office and\nsent over for our approval which we have just\ngone over and we think it is a good letter.\nH.M.Jr:\nFrom us?\nBell:\nNo, it isn't from us, it is from General Burns\nto Purvis, and we think that the policy, first,\nwhether or not the commodities can be le gally\nbought and whether or not as a matter of policy\nthey should be bought under Lend-Lease, is &\nmatter for General Burns and the President to\ndecide.\nH.M.Jr:\nThat is right.\nBell:\nAs to whether or not the commodities or articles\ncan be spared is a matter for the President to\ndecide through the OPM.\nH.M.Jr:\nCheck again.\nBell:\nAnd that when Mr. Mack gets the requisitions\nwith those indications on there that everything\nis otherwise clear, that he has nothing to\ndo but go ahead and purchase them, and that he\nshouldn't raise any questions about profits\nand anything else.\nRegraded Unclassified\n213\n- 5 -\nH.M.Jr:\nBut I raised that question.\nBell:\nI know you'did, but because you raised it,\nyou are holding up a lot of requisitions,\nand we think that --\nH.M.Jr:\nWell, I didn't say hold up the requisitions.\nI haven't heard, for instance, from Coe yet.\nCochran:\nWe have the wires in now, three cablegrams\nfrom Coe.\nViner:\nBut Procurement is holding them up because some-\nbody who was doing the distributing gets\na commission or 8 fee, and they are interpreting\nit as not profiteering, but they are looking\nfor a profit, which is a term that covers\nthe ordinary cost of distribution.\nBell:\nThat is right.\nViner:\nAnd Procurement is holding up these shipments\nbecause some private distributing agency\nin England is getting a commission or 8 fee.\nThe fee may be less than their cost and yet\nProcurement would hold it up.\nBell:\nMr. Keynes made the statement at our last\nmeeting that the British Government was paying\nout annually over B hundred million pounds\nin this distribution system, that that was\na subsidy to the distributors.\nH.M.Jr:\nWell, until I have got time to look at it -\nthere you are, right there, Graves. You\ntell Cliff Mack go right ahead today until I\nget a chance to look at it.\nGraves:\nRight.\nH.M.Jr:\nClear things up until I have time to take\na look at it.\nRegraded Unclassified\n214\n- 6 -\nGraves:\nYes, sir.\nBell:\nGo ahead on the requisitions he has got?\nH.M.Jr:\nSure, clear everything today until I get time\nto look at it.\nBell:\nYou ought to have a meeting the first of the\nweek, Monday or Tuesday, with the British,\nat which time this might come up.\nH.M.Jr:\nWell, I have got to first decide before that\nwhich are good songs to go on the next radio\nprogram. That has got to come first, so in\nthe meantime don't hold up any requisitions.\nThen I have got to read Harry White's New\nRepublic. I have got a lot of stuff to do.\nBell:\nIn the III antime, the machinery is stopped.\nH.M.Jr:\nIn the meantime, it is going. A green light,\nHarold. Tonight. Nothing is stopped.\nBell:\nWe have got a. couple of letters to go to Pur-\nvis and he is leaving.\nH.M.Jr:\nHe can clear the stuff two minutes after this\nfellow leaves here. Two minutes after Harold\nGraves leaves here the letters are cleared.\nBell:\nBut these letters are not cleared.\nCochran:\nCould we continue to clear those until we\ndo get the le tters straightened out?\nH.M.Jr:\nClear what?\nCochran:\nThere will be some more of these requisitions,\nabout ten or fifteen a day.\nH.M.Jr:\nClear them every day.\nRegraded Unclassified\n215\n- 7 -\nVinert\nThey item. are holding up sixty requisitions on that\nH.M.Jr:\nI hope I never live to see the day that I am\ncalled the neck of the bottle. What do you\nsay, Viner?\nViner:\nI didn't say anything. On sober second thought,\nI didn't say a word. (Laughter)\nWhite:\nIt is a funny name for sober.\nH.M.Jr:\nHarry's neck is better. What els e, Dan?\nBell:\nCan you have a meeting the first of the week\nwith the British?\nH.M.Jr:\nSure. Wednesday, three o'clock.\nBell:\nIt is a little late.\nH.M.Jr:\nTuesday at three o'clock?\nBell:\nTuesday would be better.\nH.M.Jr:\nSold.\nBell:\nAll right.\nH.M.Jr:\nIn the meantime, the stuff goes through every\nday. What else?\nBell:\nThat is all.\nH.M.Jr:\nIt is all clear at the White House on the tax\nletters. It was & damn good letter, too.\nThe President was very much pleased with our\nletter. He didn't change anything, but fixed\nhis up 8. little.\nAbout tomorrow again, I think you might go\nup on the Hill as long as you put on your armor,\nJohn.\n216\n- 8 -\nSullivan:\nThis letter gets mailed out just before you\nand he leave tomorrow?\nBell:\nThere has been a lot of arranging done this\nweek.\nWhite:\nYou will deliver it by hand.\nH.M.Jr:\nAs you set your foot on the plane, Frank Knox's\nplane to leave town, we deliver the letter.\nSullivan:\nAre those orders?\nH.M.Jr:\nYes.\nSullivan:\nI already have the invitation.\nH.M.Jr:\nYou had better go. You will need the strength\nnext week. I am going down the river with\nhim tonight.\nSullivan:\nIn course of duty. (Laughter)\nFoley:\nCited for bravery.\nH.M.Jr:\nAnything else, Dan?\nBell:\nThat is all.\nH.M.Jr:\nThe President was very complimentary on the\nTreasury letter, and so am I. Certainly\nthere is nothing we have got to apologize for\non that.\nBell:\nOur letter is all right. I don't know what\nhe said in his.\nH.M.Jr:\nHe not only didn't say anything to weaken it,\nbut he strengthened our letter, because the\npart on lowering taxes, lowering the bases,\nI mean, he says that he didn't discuss it,\nyou see, so it leaves us all right.\nRegraded Unclassified\n217\n- 9 -\nSullivan:\nHe never mentioned that at all?\nH.M.Jr:\nHe says, \"I never discussed this with you and\nJere before. I am bringing this to your\nattention for the first time.\"\nBell:\nHe isn't mentioning what the Treasury has said\nabout it?\nH.M.Jr:\nNo, but before that he keeps referring to the\nTreasury letter.\nBell:\nThat is all right.\nH.M.Jr:\nThen he switches. It is three different things\nhe is talking about. One is excess profits,\ntwo is joint returns, and three lowering the\nbase. Now, the first two refer to the Treasury\nletter. Then he goes on to the third and\nsays, \"I have never discussed this before,\"\nand he doesn't refer to the Treasury le tter,\n80 it is obvious that it is his own stuff.\nGaston:\nIn the letters to Doughton?\nH.M.Jr:\nTo Doughton. Needless to say, everybody be\ncareful not to say anything until it is on\nthe ticker.\nBell:\nWhat are we to say after that?\nH.M.Jr:\nWell, Sullivan holds 8. press conference and\nexplains it the way Foley did the other night\non explaining the other thing.\nSchwarz:\nYou will get your picture in Time Magazine.\nSullivan:\nThere is a complete answer..\nH.M.Jr:\nDon't you think a vacation for me is good?\nFrom now on I work one day a week. Harry?\nRegraded Unclassified\n218\n- 10 -\nWhite:\nThe machinery is going forward on getting\ndaily reports of exports of those three\ncountries. I already have some, but I will\nkeep them until --\nH.M.Jr:\nWhat about Professor Hall? Who is contacting\nProfessor Hall and who does he see? Do you\nknow Professor Hall?\nViner:\nNoel Hall?\nH.M.Jrz\nYes.\nViner:\nI have never met him.\nH.M.Jr:\nWho is bringing him into the picture?\nWhite:\nI will get in touch with him and have him\nmeet Foley.\nH.M.Jr:\nMay I remind you again in two weeks?\nWhite:\nIf he is in town I will get him right away.\nH.M.Jr:\nWonderful. What else, Harry?\nWhite:\nYou asked --\nH.M.Jr:\nIt is asinine not to use a man with his infor-\nmation. He has got more information about\nGermany than anybody else in the world, and\nhere he is sitting in Washington and as far\nas I know, nobody uses him. And he has the\nrank of Minister.\nWhite:\nYou asked us to get in touch with the Standard\nOil, Walden of the Dutch East Indies. He is\ndown here and here, I think, is a rather\ninteresting statement. His name is Walden.\nThe other chap was away on vacation and he\ntook his place, but he was thoroughly cogni-\nzant of what is going on there. There have\n219\n- 11 -\nbeen no shipments of oil to Japan. We are\nkeeping daily shipments and so on in the last\nfew days. We have a memorandum, if you are\ninterested, on the impact of prohibition of\nsilk on our economy. I can merely say briefly\nthat the various agencies agree that there\nwould be no harm in stopping all imports of\nsilk, but I will make the memorandum avail-\nable.\nSullivan:\nCould I have a copy of that, Harry?\nWhite:\nRight.\nFoley:\nThe barrage is just beginning to come, Harry,\nbecause on the ticker today & couple of\nmills have been closed and another mill is\ngoing to be closed, and they are going to throw\neight hundred or five hundred additional\nemployees out of work.\nWhite:\nWell, that doesn't check with the data which\nis available.\nFoley:\nAnd those labor organizations are going to\nbe descending on us, and I think we had better\nbe equipped with all the data and material\nand information --\nH.M.Jr:\nI ought to send somebody up to Gotham Hosiery\nand find out why they closed.\nWhite:\nI have got a man who knows a good deal about\ntextile manufacture, from whom we could get\n8. lot of information if you want to send him\naround to examine the hosiery. (Laughter)\nBell:\nWhere is it?\nFoley:\nYou don't want to know yourself, do you,\nHarry?\nWhite:\nI will survey the field after he deletes the\nrayon users. (Laughter)\nRegraded Unclassified\n220\n- 12 -\nH.M.Jr:\nWell, Harry, I really think it would be worth-\nwhile sending somebody up to Philadelphia. The\nstory I saw was about Gotham. Philadelphia\nis the hosiery center. That is where they\nmake them.\nWhite:\nWell, I think somebody from George's shop\nought to go up.\nH.M.Jr:\nWhere is George?\nBell:\nHe stayed away this week. He wasn't feeling\nso well.\nWhite:\nBut I will be glad to send somebody.\nH.M.Jr:\nNo, if it is George - ask somebody, will you,\nDan, from George's shop to go, will you?\nBell:\nYes, sir.\nH.M.Jr:\nThe sooner the better.\nFoley:\nAnd before he goes, Dan, you might have him\ntalk to Joe O'Connell and Harry's man, who have\nattended some meetings with Henderson and OPM\nand some of the other agencies.\nBell:\nAll right.\nH.M.Jr:\nWill you?\nWhite:\nI think what we might do is send one man to\nPhiladelphia and one to the New Jersey area,\nwhich is a big textile center, and see how\ntheir reports are reconciled.\nH.M.Jr:\nLet somebody be on the spot Monday morning.\nBell:\nI will do that.\n221\n- 13 -\nH.M.Jr:\nAnd they might, before they go, also see\nLubin and see whether Lubin has any suggestions.\nSullivan:\nOn the Hill they are talking about B. tax on\nsilk.\nGaston:\nHarry, you were speaking about a daily report\non oil shipments to Japan. You are familiar\nwith that report, aren't you, that George gets\nout that shows daily all shipments of oil to\nJapan?\nWhite:\nI am not familiar with it. We get this from\nour shipping control downstairs.\nGaston:\n¹here is such & report that George is getting\nout daily that we have been getting out for\nsome months. Copies go around to different --\nH.M.Jr:\nI don't get them.\nGaston:\nI think you said it wasn't - I think some\ntime ago you said you didn't want them any\nmore. There is 8 daily report --\nH.M.Jr:\nI get a weekly one.\nGaston:\nWell, this is the daily on which the weekly is\nbased. It gives the name of the ship and the\namount of oil and so on.\nWhite:\nWell, I think we get that from the same place\nGeorge gets it, which is from our shipping\ncontrol. I didn't know he was getting it.\nH.M.Jr:\nGet together with George.\nGaston:\nShipping control? What is that?\nWhite:\nThere is 8 shipping control office downstairs.\nGaston:\nThe Merchant Shipping Control office is not in the\nCoast Guard. It isn't here.\nRegraded Unclassified\n222\n- 14 -\nH.M.Jr:\nIt used to be here. Anyway, it is Coast Guard.\nWhite:\nOur man said he gets it from a downstairs\noffice.\nGaston:\nThe only point is that there is no use duplicat-\ning it.\nViner:\nHarry, that is the White House across the\nstreet.\nWhite:\nYou mean we are on top of the White House in\nmany ways? (Laughter)\nH.M.Jr:\nWhat else have you got, Harry?\nWhite:\nThat is all.\nH.M.Jr:\nWonderful. Chick?\nSchwarz:\nIf you are not having a meeting in the morning\nI would like to check - will I take you or\nyou and Dan tomorrow across the street for &\npicture?\nH.M.Jr:\nThe word I got was Dan and me.\nBell:\nI thought it would just be you and the President.\nH.M.Jr:\nThe word I got was Dan and me.\nChauncey:\nI got that message from General Watson and I\ntold Mr. Bell about it.\nH.M.Jr:\nA quarter of one with Dan and me, and the\nPresident feeds me at one o'clock.\nSchwarz:\nI will check on that.\nChauncey:\nMr. Bell has the check.\nBell:\nYes, sir, and the bonds.\nRegraded Unclassified\n223\n- 15 -\nH.M.Jr:\nAll right. We will have Barry Wood come down\nand sing a song.\nSchwarz:\n\"Any Notes Today\"?\nH.M.Jr:\nYes. Anything else?\nSchwars:\nThat is all.\nH.M.Jr:\nHarold?\nGraves:\nWhile you were away we received addressed to\nyou a very cordial letter from the Secretary\nof the Interior, acceding to our request for\nan indefinite extension on this Treasury House.\nH.M.Jr:\nI see that you are pleasantly disappointed by\nyour figures of July exceeding May. I think\nyou ought to be ashamed of yourself.\nGraves:\nI am. On the basis of our cash deposits, the\nsales of all three bonds through yesterday\nwere nine hundred ninety-two million.\nH.M.Jr:\nNine hundred how much?\nGraves:\nNine ninety-two, and I think it is almost certain\nthat today, the thirty-first, we will go over\nthe billion.\nH.M.Jr:\nWhy not let's have a little something for --\nViner:\nPress release.\nH.M.Jr:\nTo take over and let the President give it\ntomorrow when he signs.\nGraves:\nMr. Kuhn, I think, has a statement ready now.\nWe won't know until about noon tomorrow.\nH.M.Jr:\nWell --\nRegraded Unclassified\n224\n- 16 -\nKuhn:\nWe can take a chance.\nGraves:\nIf that will be too late.\nBell:\nHarold, you could include stamps.\nGraves:\nNo, you can't include stamps, because in the\nfirst place we don't know stamps, and in the\nsecond place, stamps duplicate on the bonds.\nH.M.Jr:\nWell, if worst comes to worst, Dan can shove\nsome of Saturday's in to Friday's. He has\ndone that before. (Laughter) In the good\nold days when Mellon was here.\nBell:\nthe President used to accuse me of having an\nextra pocket.\nGraves:\nI think no doubt, without any fudging, we\nwill have it --\nH.M.Jr:\nOh, Dan can fudge the figures.\nViner:\nHe might make a mistake in addition.\nBell:\nThat is right.\nWhite:\nJake can always give you that.\nBell:\nIt might go the other way, Jake.\nViner:\nThat is subtraction.\nH.M.Jr:\nAnyway, we will take it over and see if we can't\nget the President to give it.\nGraves:\nWhat time do you need it for that?\nH.M.Jr:\nA quarter of one.\nKuhn:\nA little statement for the President to make\nrather than for you?\nRegraded Unclassified\n225\n- 17 -\nH.M.Jr:\nIf he will do it.\nKuhn:\nIf he won't, then will you do it tomorrow?\nH.M.Jr:\nYes.\nWhite:\nI had occasion to see a long letter that had\nMr. Graves' signature to Mr. Studebaker\ndescribing their campaign and the purpose of\nit. I must say it was very excellent.\nI don't know who wrote it. It was an ex-\ncellent job.\nH.M.Jr:\nHarold, will you stand up and take a bow?\nHe can't be & hundred per cent nice. He says\nit was a letter but he doesn't know who wrote\nit.\nGraves:\nAs & matter of fact, that letter was done, as\nI understand, by George Forte Milton and Peter\nOdegard, and it was, I thought, a very excel-\nlent statement of our program in so far as it\naffects the educational institutions, but I\ndecline to take a bow, because all I did to it\nwas sign it.\nH.M.Jr:\nWould you mind asking Mr. White what the hell\nhe is doing putting his nose into Studebaker's\nshop? Why can't he come and see your letters\nin your room?\nWhite:\nIt was Studebaker's foot in my shop, not\nmine in his.\nH.M.Jr:\nWhat else, Harold?\nGraves:\nI have nothing else to bring up here.\nH.M.Jr:\nI thought if we had a few minutes you and Peter\nand Ferdie might stay behind and we will chew\nthe fat a little bit.\nRegraded Unclassified\n226\n- 18 -\nOdegard:\nI have some people waiting in my office\nand I will come back.\nH.M.Jr:\nAll right.\n(Mr. Odegard left the conference).\nDr. Viner, will you be here tomorrow?\nViner:\nYes.\nH.M.Jr:\nWe will get together. Right after the nine\nthirty meeting?\nViner:\nYes.\nH.M.Jr:\nMiss Chauncey, put Dr. Viner down, please.\nDid they treat you all right?\nViner:\nOh, yes, I had a nice vacation.\nH.M.Jr:\nDid you get my message about looking into this\nwhole business?\nViner:\nNo.\nH.M.Jr:\nDo you sit in on this meeting on --\nFoley:\nYes.\nH.M.Jr:\nYou do?\nWhite:\nHe not only sits but participates.\nViner:\nNo.\nFoley:\nYes. (Laughter)\nH.M.Jr:\nAll right. Well, I personally - I mean, I\nthink everything that I heard is grand\n227\n- 19 -\nin the matter of operations, but I am not\nconvinced or sold yet that people like Noel\nHall, and all these people are all tied\nin, and that everything is locked up tight,\nall the loopholes for stuff that gets\nto Germany is tied up in South America.\nWhite:\nWhy don't you tell the Secretary about\nthe suggestion of yours for this coordi-\nnating committee with them, which is\npart of this picture?\nFoley:\nThat is what I started to tell him, and\nyou shut me off. (Laughter)\nWhite:\nDo you remember what I shut you off\nwith?\nWell, go on.\nFoley:\nYes.\nH.M.Jr:\nI am so glad he is feeling well.\nGo on, do some more, Harry.\n228\n- 20 -\nFoley:\nWe made the suggestion to Dean Acheson\nthat he organize a coordinating committee\nover in the State Department so that the\nother governments that have machinery similar\nto ours to handle the Far Eastern situation\noperate in concert. In other words, Aus-\ntralians, Canadians, and the other dominions,\nGreat Britain.\nViner:\nDutch East Indies.\nFoley:\nDutch East Indies ought to - I mean, they want\nto cooperate and they don't have much inter-\nchange of information among themselves. They\nwill give the United States the information,\nbut Canada won't give it to Australia and\nAustralia won't give it to Great Britain, and\nI suggested to Dean that he draw those groups\ntogether and he keep them informed as to what\nwe are doing here 80 that if we grant a license,\nthen they grant the license. If we shut down\non a particular commodity, they shut down too,\nso that we have & united front and we have\nthe most effective control, if possible.\nH.M.Jr:\nAnd I hope from time to time you will tell\nMr. Wallace about it.\nFoley:\nYes, we will let him know once a week.\nH.M.Jr:\nI think it is swell.\nWere you through, Jake?\nViner:\nYes.\nH.M.Jr:\nFerdie?\nKuhn:\nNothing.\nH.M.Jr:\nWhat is that, Merle, some --\nRegraded Unclassified\n229\n- 21 -\nCochran:\nI have all of those.\nH.M.Jr:\nWill you send them up to the house?\nCochran:\nAll right, fine. This is a copy of the message\nthat went to Casa Blanca (July 24, 1941). Mr.\nWelles initialed that personally the other\nnight.\nH.M.Jr:\nOh, yes.\nCochran:\nAnd I wrote Mrs. Lehman and sent her & copy.\nH.M.Jr:\nCan you send a copy to Mrs. Morgenthau at\nHopewell Junction?\nCochran:\nI gave one to Mrs. Klotz. I thought Mrs.\nMcHugh sent it.\nH.M.Jr:\nMrs. Klotz wasn't here Monday.\nChauncey:\nNo, this was Friday before she left.\nH.M.Jr:\nYou haven't heard?\nCochran:\nNo.\nH.M.Jr:\nThank you.\nCochran:\nHere is the plaque. That is a sample of what\nthey are giving the crews of those three de-\nstroyers. They wanted to know whether you\napproved that finish before they go on with\nthe others.\nH.M.Jr:\nYes.\nNow, if I am not mistaken, I think Captain\nBeardall is the President's Naval Aide.\nCochran:\nYes. We have two of those now.\n230\n- 22 -\nH.M.Jr:\nThat is perfect.\nCochran:\nThen I will get the other two finished. I\nwill send these messages to the house.\nH.M.Jr:\nIf you please. Everything else all right?\nCochran:\nWe have one also from Turkey. You remember\nwe sent an inquiry out there about taking\nover French properties and 80 on.\nH.M.Jr:\nYes.\nCochran:\nI will send you that.\nH.M.Jr:\nWhat sort of report did you get over the week-\nend on your Mrs?\nCochran:\nVery good. We went up to New York for two\ndays.\nH.M.Jr:\nYou got a good report?\nCochran:\nVery good, thank you.\nSullivan:\n\"Skeeter\" Johnson is being retained as Clerk\nof the Senate Finance Committee. \"Skeeter\"\nJohnson, who was Clerk of the Senate Finance\nCommittee under Pat Harrison is being retained.\nThey think he is about the only one in the\nstaff who is being retained, and he called\nright after lunch. Senator George expects\nthe bill will be over there by next Wednesday,\nand he would like to spend Wednesday and\nThursday in executive session with Beaman\nand O'Brien and Stam and myself and just\nexplain the bill, not arguing any of the\nmerits of it, to the members of the Committee.\nAnd then go ahead either Friday the eighth\nor Monday the eleventh with you, starting\npublic hearings.\nH.M.Jr:\nWhen?\n231\n- 23 -\nSullivan:\nEither Friday the eighth or Monday the eleventh.\nHe intimated that he thought that the eleventh\nwould self. be preferable, and I didn't commit my-\nH.M.Jr:\nThat would be perfect, because I am planning\nto leave on the fifteenth again, you see.\nSullivan:\nWell, I think in view of certain delays that\nmay occur, I had better tell him that the\neighth would be a little bit too soon.\nH.M.Jr:\nNo, I would tell him the eighth and then let\nhim postpone it. Say I am ready the eighth.\nSullivan:\nWell, they will announce it right off.\nH.M.Jr:\nWell, so much the better. It will go over\nanyway, but--\nSullivan:\nI don't think it will.\nBell:\nWhat is the matter with the eighth?\nSullivan:\nWell, I am not 80 sure that this thing is going\nto get out of the House.\nBell:\nThen it will be postponed.\nSullivan:\nThen in that event it would be postponed.\nFoley:\nBut it won't be the Secretary's fault.\nH.M.Jr:\nI would tell them I will be ready the eighth.\nSullivan:\nThe eighth or which ever date they prefer?\nH.M.Jr:\nNo, I am ready the eighth.\nSullivan:\nYou are ready the eighth?\nH.M.Jr:\nYes.\nRegraded Unclassified\n232\n- 24 -\nSullivan:\nAll right. He asked me to get your preference.\nH.M.Jr:\nI will be ready any time from the eighth on.\nSullivan:\nRight. All right, I will--\nH.M.Jr:\nNow, with that in mind, I would like Roy\nBlough and Ferdie to go to drafting at once.\nSullivan:\nRoy has already started on that.\nH.M.Jr:\nAnd then as soon as we - I would like to have\nsomething Monday, you see, and if you have\nanything before Dr. Viner goes, give him some-\nthing so he can take it, and then he can\ntelephone back his criticisms, you see, but\nI would like very much to use that memorandum\nthat--\nSullivan:\nThe first part.\nH.M.Jr:\nThat we prepared for the President.\nSullivan:\nThat is very good.\nH.M.Jr:\nBringing it up to date simply in view of what\nthe President has said and Henderson and so\nforth. I think that is about as good as any-\nthing. I haven't read it, but Eccles sent\nme this morning his article which is going to\nappear in the August Fortune on, I gather,\ntaxes. Has anybody seen it?\nWhite:\nFor correction before he sends it or merely\nfor information?\nH.M.Jr:\nNo, no, it is all printed. I said it was\nEccles. (Laughter) I won't read it. Why\ndon't you give it to those people? It came\nin this morning, and I said to send it to the\nhouse. Did I give it to you?\nRegraded Unclassified\n233\n- 25 -\nChauncey:\nNo.\nH.M.Jr:\nIt must have been Bob McHugh. He is the only\nother person I have seen. I won't read it\nover the week-end.\nChauncey:\nGive it to who?\nH.M.Jr:\nBlough.\nSullivan:\nAmong your fan mail was a declaration of the\nsecond war between the states. \"Much opposed\nto joint income tax returns. In fact, refuse\nto pay that way. Great majority of Kentucky\nwomen are with me.\"\nBell:\nWomen are women. (Laughter)\nH.M.Jr:\nAsk George Haas' experts who investigate the\nsilk industry, et al., to go down to Kentucky\non it. Maybe White will want that job.\nWhite:\nNot Kentucky.\nViner:\nThat isn't an industry, it is an institution.\nSullivan:\nThat is all sir.\nH.M.Jr:\nI am going to call Senator George to congratu-\nlate him.\nSullivan:\nFine. You are not going to call Doughton?\nH.M.Jr:\nNo.\nSullivan:\nGood.\nH.M.Jr:\nI will take the leaf out of Sullivan's book.\nI will gradually pick up 8. little New Hampshire\npolitics. All right.\nFoley:\nBefore you went away Gordon Rentschler came in\nRegraded Unclassified\n234\n- 26 -\nto see you and mentioned the Silesian-American\nCorporation, a matter that came up before the\npolicy group on Saturday afternoon. After\na good deal of Saturday afternoon--\nH.M.Jr:\nWhen?\nFoley:\nLast Saturday afternoon.\nH.M.Jr:\nWere you there?\nFoley:\nI was there. After a good deal of considera-\ntion and debate back and forth, it was the\nunanimous decision of the three Departments\nthat the license not be granted, and we put\nit out. We expected to have a good deal of\npressure, and we did have some pressure.\nAverill Harriman is interested and a fellow\nby the name of Wolfe who represented the\nAnaconda Kellys. He tried to get through\nto the President on the matter Saturday\nnight.\nH.M.Jr:\nI have heard of the New Hampshire Sullivans,\nbut not the Anaconda Kellys.\nSullivan:\nI am kind of suspicious. This is the high\nbracket for that tribe.\nGaston:\nYou never heard of Kelly, the King of Montana?\nH.M.Jr:\nNo.\nFoley:\nHe got hold of Steve Early, and Steve put him\nin touch with Herbert. They were quite--\nH.M.Jr:\nSteve?\nFoley:\nEarly.\nHe tried to get through to the Presi-\ndent.\nGaston:\nHe just tried to get to the President and was\nRegraded Unclassified\n235\n- 27 -\nreferred to Early, and Early said, \"Well,\ntalk to Gaston about it,\" and he did.\nFoley:\nColonel Donovan got hold of me on Sunday\nmorning, and he wanted to send out a memorandum\nwhich he did and --\nH.M.Jr:\nIn which capacity?\nFoley:\nWell, he said that you had told him that he\nmight bother me from time to time, and he\nwasn't going to take over until Tuesday in\nhis new capacity, and therefore he felt that\nhe could call me up and send out 8 memorandum,\nso I called him back after I got the memorandum\nand I told him that we had turned the thing\nsown and there wasn't anything that could be\ndone about it.\nH.M.Jr:\nHe is doing this as an attorney?\nFoley:\nYes.\nH.M.Jr:\nIt is the damndest thing I ever heard of. I\ntold him he could bother you as working for\nPresident Roosevelt. I am surprised that he\nshould twist a thing like that.\nFoley:\nHe said, \"These fellows are going to put out\na statement, If and I said, \"We are going to\nput out a statement also. We will be on the\nticker before the market opens Monday morning.\"\nSo then he talked about Wiley and some of the\nother things in connection with this new set-up,\nbut I thought you ought to know that there\nwas 8. good deal of commotion because we did\nturn them down.\nH.M.Jr:\nThere was one thing which I am not satisfied\non that Rentschler mentioned, and I want that\nrun down to the bottom. Did you get the\nmessage?\nRegraded Unclassified\n236\n- 28 -\nFoley:\nYes, and Mr. Secretary, the reason that that\nwas held up is just because of the number of\napplications in the New York office.\nH.M.Jr:\nThat isn't what I mean.\nFoley:\nThat Jewish organization?\nH.M.Jr:\nNo.\nFoley:\nOh.\nH.M.Jr:\nWhat I am talking about is that Rentschler\ntold me that the go-between was Lazard Freres\nworking through a Swiss corporation.\nFoley:\nThat is right.\nH.M.Jr:\nNow, what I want to know--\nFoley:\nThat is right. I just got your memorandum\non that a few minutes before I came in here.\nH.M.Jr:\nJust wait a minute, Ed. I happen to know that\na lot of that went on during the last war and\nthe man who is handling it, he mentioned it,\nis this former German banker.\nBell:\nJeidels.\nH.M.Jr:\nWhat I want to know is, and I don't have to be\nknocked over the head twice, is how many other\ndeals has Jeidels got on, and I wouldn't hesi-\ntate, on the part of the United States Govern-\nment, to send for Mr. Jeidels and say, \"Now,\nhere is this deal. How many more have you got\non? We would like to know.\nCochran:\nWe had correspondence yesterday with the\nBritish on Jeidels.\nH.M.Jr:\nYou see, I never forget these things.\nRegraded Unclassified\n237\n- 29 -\nViner:\nMr. Secretary, if anything develops on Jeidels,\ntalk to me. I have got some - I know him, and\nI know something about him.\nH.M.Jr:\nI would like to know it right after this meet-\ning.\nBell:\nJeidels came to see me late last week on this\nvery case at the suggestion of Johnny Hanes,\nand I offered to turn him over to Foley, and\nhe said, \"No, I just want to put in a word\nfor the thing,\" and I passed him on to Foley.\nFoley:\nI cleared with Dan our action before we an-\nnounced that we had rejected the application,\nand Dan said, \"O.K.\"\nPell:\nThat is right.\nH.M.Jr:\nNow let me tell you something. The former\nUndersecretary of the Treasury used to be-\nthe last one under Mills.\nBell:\nBallantyne?\nH.M.Jr:\nArthur Ballantyne. That was Lazard Freres'\npipeline into this Treasury.\nNow, they never could have one as long as I\nwas here, and the Lazard Freres in London -\nwell, I won't go into the whole story, but\nthey have always got their pipelines with the\nGovernment, and this is the only time they\nhave never been able to have a pipeline into\nthe Treasury. Along comes Jeidels. He comes\ndown here and he gets just like that with\nJohnny Hanes. I warned Johnny.\nViner:\nJohnny Hanes? General Wood. That is what I\nknow.\nH.M.Jr:\nJohnny Hanes and General Wood ?\nRegraded Unclassified\n238\n- 30 -\nViner:\nNo, Jeidels.\nH.M.Jr:\nThat I didn't know. But I know this Lazard\nFreres crowd, so when he dropped the word\n\"Lazard Freres,\" I wanted to find out about\nit. I don't see why we don't send for\nJeidels. I don't think he has got his citizen-\nship papers. Simply send for him and say,\n\"What other deals have you got?\"\nGaston:\nDo you want to have a little look into him\nand see what there is down town on him?\nH.M.Jr:\nI sent a message through I wanted Lazard\nFreres.\nChauncey:\nThat went through this morning.\nFoley:\nJake, we didn't - every one of us felt that\nthis Swiss Banking Corporation for which\nLazard Freres was acting as agent in this\ncountry was fronting for a German interest.\nWe didn't have the proof. You can't know those\nthings definitely with documents, but we all\nhad the same impression, and we turned it\ndown. It is very funny that - I mean they\nhave got the property. The American interests\nhaven't had anything to do with the property,\ndon't know what is going on in the property,\nhaven't been near the mines, so that the\nGermans can't get any more control, but it is\nlike all these other deals that are coming\nalong. The I. T. and T. deal, the Standard\nOil in Hungary and the Standard Oil in Germany,\nall of these properties now the Germans want\nto buy and we have turned down all of them\nso far because there is no need of determin-\ning a policy in so far as our property there\nand their property here until an over-all\npolicy can be established.\nH.M.Jr:\nNow, I want to make this suggestion, that we\nRegraded Unclassified\n239\n- 31 -\nconsider sending a group which is comparable\nto the group we sent to the Philippines to\nSwitzerland. I think it is far more important.\nAnd one to Sweden. I think it is far more\nimportant that they go to Sweden and Switzer-\nland than it is that they do to the other\nplace. I would like - because the State Depart-\nment wouldn't go along with me on Sweden and\nSwitzerland that you had to prove your story\nbefore you acted, the burden of proof, but\nonly after. But I would like that committee\nwhen you meet - you meet at four o'clock don't\nyou.\nFoley:\nYes.\nH.M.Jr:\nI suggest that we send comparable experts\nimmediately to Sweden and to Switzerland.\nBell:\nThere will be a handicap that they wouldn't\nget cooperation in those countries.\nFoley:\nThe problem will be different in so far as\nSweden and Switzerland are concerned.\nH.M.Jr:\nNow, look. You have got this Swiss Corporation\nwith two or three million dollars right here\nin New York, and I am sure that - well, look,\nsupposing it costs us twenty-five thousand\ndollars to each place. That would be 8. top\nfigure, wouldn't it, for one year?\nBell:\nI suppose SO.\nH.M.Jr:\nYou might catch - you might lose fifty thousand\nand you might catch--\nFoley:\nFive hundred million.\nH.M.Jr:\nYes.\nWhite:\nI think you might insure their cooperation by\nRegraded Unclassified\n240\n- 32 -\nthe fact that you control whether or not they\nshall have these general licenses, 80 under\nnormal circumstances you might have difficulty\ngetting their cooperation, but under the\npresent circumstances I think they would be\neager to cooperate because if they don't\ncooperate there might be 8. cancellation of\nthe general license.\nFoley:\nThat is right. We would put them on a special\nlicense basis. Both countries are operating\nthat way.\nH.M.Jr:\nWhen I heard Jeidels, Lazard Freres - here is\nBob Brant, a member of Lazard Freres of London,\ncontrolling the food purchases in this country\nfor England. I think it stinks.\nCochran:\nIn a cablegram today Fox is asking for observers\non freezing at Shanghai and Hongkong.\nH.M.Jr:\nGod, I--\nWhite:\nThat is even more important, I think.\nH.M.Jr:\nI would spend the money liberally.\nFoley:\nI think you are right. Of course the problems\nin so far 8.8 Honolulu, Manila, and Fox are con-\ncerned, are operating problems. The problems\nin Sweden and Switzerland are problems of\nobservation and detection, and you require a\ndifferent kind of personnel, but you have to\nhave people who are familiar with our controls.\nH.M.Jr:\nI wouldn't keep any man out too long. I would\nkeep him out and let him get the experience\nand send him back and send somebody else. We\nwill train these fellows.\nCochran:\nI have 8. message today, and I will send it\nalong with these other things tonight.\nRegraded Unclassified\n241\n- 33 -\nH.M.Jr:\nAll right?\nFoley:\nYes.\nH.M.Jr:\nBut that kind of stuff - was there something\nelse about Jeidels you wanted to tell me?\nViner:\nI can tell it here. Jeidels was invited to\ntalk to a small group, of which General Wood\nis chairman, in Chicago, and I was there at\nthat meeting, and it was an argument that\ndemocracy was through and finished and that\nHitler really had the right idea but had\nmade certain mistakes, gone too far in certain\ndirections, and General Wood was saying,\n\"You are right. You are right.\" And I\nprotested a little, and then the meeting\nbroke up, and I walked over to his hotel with\nhim, and I told him, \"You are not doing &\nService to the United States by talking like\nthat in this country, Mr. Jeidels.\" Now,\nI think I have a record on that, because I\nthink the meeting was one in which there was\na secretary that I know--\nH.M.Jr:\nI would like to know, and I would like to\nknow whether he is an American citizen. You\nsay Johnny Hanes got into this?\nBell:\nJohnny Hanes called me up and said he knew\nthis fellow, and he was all right and wondered\nif I would see him. I said, \"Sure, I will see\nhim if he has got business with the Treasury.\"\nHe came in and this was the story he told me\nabout this company, and I said, All I can\ndo is pass it on to the people who are handling\nit, and I am sure they will give it every con-\nsideration.'\nThen Saturday Ed called me up and asked me\nif I was interested in the case, because of\nthis conference I had, and I said, \"No, go\nRegraded Unclassified\n242\n- 34 -\nahead and do what they thought was right.\"\nViner:\nI would like to add this item that just the\nother day the Financial Attache of the Hun-\ngarian Embassy came in to see me and told me\nthat on that deal that so far has not been\napproved--\nH.M.Jr:\nThe Hungarian has not?\nViner:\nHe said he and his Minister hoped we would\ndisapprove it, and it is their impression in\nthe Embassy here that while they can't tell you\nthat, that everybody in Hungary hopes you dis-\napprove it because they think it is being\ndone under coercion.\nFoley:\nYou see, Mr. Secretary, up until the time\nGermany picked up gold and picked up foreign\nexchange in Holland and Belgium and these other\ncountries, she wasn't interested in buying\nany of these properties in Germany. She had\nthe benefit of the use of those properties.\nNow she has got some gold and some exchange,\nand she is coming around and the same deals\nappear in each one of these.\nH.M.Jr:\nShe has got a billion dollars of gold that she\npicked up at Casa Blanca, the French and\nPolish and Belgian gold.\nFoley:\nAne she is trying to buy out American interests\nin German concerns.\nGaston:\nTo alienate them no matter what happens in the\nwar.\nFoley:\nThat is right, no matter what the result of\nthe war may be.\nViner:\nAnd she doesn't care what price she pays, so\nRegraded Unclassified\n243\n- 35 -\nthat these people who owned the property are\nbeing offered much more than the book value\nnow.\nFoley:\nThis Silesian thing was much more than it\nwas worth because the bonds were no good and\nthey were running up an exchange on the antici-\npation we would grant the license and this\nmoney would be made available to this Swiss\nbanking group to be used to pay off these\nbonds here in order that the equity in the\nGerman properties would be repatriated in\nGermany. And that is the only value that the\ndarned bonds had.\nH.M.Jr:\nTalk to me sometime about publicity on that,\nwill you. I have got some ideas.\nFoley:\nYes.\nH.M.Jr:\nO.K.?\nFoley:\nYes.\nH.M.Jr:\nWant to go to your meeting?\nFoley:\nYes.\nViner:\nOn that--\nH.M.Jr:\nWait a minute.\nViner:\nTalk to Miller. You know, \"You Can't Deal\nWith Hitler.\" Douglas Miller. If you want the\nhistory on that, get the lines from him. He\nknows those details. He is still in the State\nDepartment, isn't he?\nWhite:\nNo, he was, but he is no longer. He is a\nfree-lance now.\nViner:\nOh, yes, Rockefeller Foundation.\nRegraded Unclassified\n244\n- 36 -\nWhite:\nMerle problems. said he was mixed up in some exchange\nGaston:\nI had some other things I have been working\non with him that are pretty bad in that\ninvestigative set up.\nH.M.Jr:\nReally.\nGaston:\nI would like to get them straightened out,\nbut this looks a little worse than the rest\nof them.\nH.M.Jr:\nOh!\nThank you all.\nDoaradod\n245\nJuly 31, 1941\n4:15 p.m.\nGardner\nJackson:\nYes.\nHMJr:\nHello.\nJ:\nHow are you?\nHMJr:\nI'm fine. How are you?\nJ:\nAll right, thank you. I have this query.\nHMJr:\nPlease.\nJ:\nA friend of mine, representing the International\nUnion of Butcher Workmen, which are the meat\ncutters and the packing house fellows\nHMJr:\nYeah.\nJ:\nA. F. of L. - they're anxious to plunk\ndown & million and a hundred thousand on\nDefense Bonds.\nHMJr:\nYeah.\nJ:\nThey want to beat the too figure that is now\nexisting, which I think is Amalgamated.\nHMJr:\nYeah.\nJ:\nThey want to extract the most good for your\ncampaign and the labor movement in the process.\nHMJr:\nYes.\nJ:\nThey asked me whether I could possibly talk\nwith you and maybe get them a chance to have\nfive minutes with you if that was advisable\nor not. What do you think?\nHMJr:\nWell, I'll tell you what I'd like to do, Just\n80 to keep my organization line straight\nJ:\nYeah.\nRegraded Unclassified\n246\n- 2 -\nHMJr:\nWhat's-his-name handles these labor things\nfor me.\nJ:\nHoughteling.\nHMJr:\nHoughteling, yes.\nJ:\nWell now, I'll tell you what they did. They\nwent to the man whom Houghteling took on\nHMJr:\nYeah.\nJ:\nwho is a friend of mine - old Gil Hyatt.\nHMJr:\nYeah.\nJ:\nThey went to him\nHMJr:\nYeah.\nJ:\nand he just wanted to be sure that every-\nthing of the most nature could be extracted\nout of this for the campaign\nHMJr:\nWell, Gardner, unless there's something I\ndon't know about, I'd love to have you bring\nthem in. But just let me check through\nHoughteling's office.\nJ:\nOkay.\nHMJr:\nAnd either I or Houghteling will give you a\nring in the morning.\nJ:\nOkay.\nHMJr:\nHow's that?\nJ:\nThat's fine.\nHMJr:\nThank you 80 much. Sounds good.\nJ:\nYes, it 18.\nHMJr:\nAre those the same people who put on that\nswell art exhibit up at New York?\nRegraded Unclassified\n247\n- 3 -\nJ:\nThey're the ones.\nHMJr:\nWell, they're good people.\nJ:\nYou bet.\nHMJr:\nAll right, Gardner.\nJ:\nOkay.\nHMJr:\nTake care of yourself.\nJ:\nThanks.\nHMJr:\nGood-bye.\nRegraded Unclassified\n248\nJuly 31, 1941\n4:39 p.m.\nHMJr:\nHello.\nOperator:\nSenator George.\nHMJr:\nHello.\nSenator\nGeorge:\nHello.\nHMJr:\nHenry Morgenthau speaking.\nG:\nYes, Henry. This 1s Walter George.\nHMJr:\nWalt, I just wanted to tell you I was delighted\nto read that you accepted the Chairmanship of\nthe Finance Committee and to tell you that\nG:\nWell, Henry, I don't know. Of course, there's\nmore work involved and I'm - I'm not as strong\nas I used to be\nHMJr:\nYeah.\nG:\nbut I want to talk with you because I\nwant to work with you. We have to work to-\ngether on this thing\nHMJr:\nI know.\nG:\nand ain't any use of having contrary\ntheories about things, because what we've\ngot to do 1s get the best program we can.\nYou and I both know that.\nHMJr:\nYeah.\nG:\nAnd work it out.\nHMJr:\nWell\nG:\nI'm at your command any time, and I told\nSkeeter Johnson to confer with the Depart-\nment today and say that I thought that we\nwould begin Wednesday with an informal\nRegraded Unclassified\n249\n- 2 -\nExecutive hearing Just by - - from the experts\nHMJr:\nYeah.\nG:\nand from the draftsmen\nHMJr:\nYeah.\nG:\nto analyze just what has been done by\nthe House bill.\nHMJr:\nYeah.\nG:\nAnd you all could appear Friday, or, if you\npreferred, you could go over to Monday.\nHMJr:\nWell, I - - I'll be ready any time from Friday\non.\nG:\nWell, leave that with you.\nHMJr:\nAt your convenience.\nG:\nBut I'll keep in touch with you.\nHMJr:\nAnd, I Just want to let you know that anything\nI can do to make your job easy, 18 what I'd\nlike to do.\nG:\nWell, it's highly important that every effort\nbe made to have a program that we can all get\nalong with, even if it 1sn't all that anybody\nwants.\nHMJr:\nWell, I\nG:\nAnd you and I know that you are not going to\nget anything that anybody wants in taxes now.\nHMJr:\nThat's right.\nG:\nBecause if we did, we wouldn't get much of a\ntax act at all.\nHMJr:\nWell, all I can ask 18 any time there's any\nmisunderstanding, you give me a ring, and\nRegraded Unclassified\n250\n- 3 -\nI'll come un and see you.\nG:\nWell, I'll certainly confer with you.\nHMJr:\nDon't let the sun set on any misunderstanding.\nG:\nOh no. There'll be no misunderstanding; and\neven if we have honest differences, I think\nthere's some way to harmonize those differences\nin the interests of the country: and we just\nhave to do that, because it's quite impossible\nfor anybody to have a program that involves now\nas much as - money 88 we have to have\nHMJr:\nYeah.\nG:\nthat was going to meet everybody's views.\nI know that, and you do, too.\nHMJr:\nWell, thank you; and I'm here and I'm at your\nservice.\nG:\nAll right, Henry. Thank you very much.\nHMJr:\nYes.\nG:\nThank you very much.\nRegraded Unclassified\n251\nTREASURY DEPARTMENT\nWASHINGTON\nJuly 31, 1941\nMemorandum for THE SECRETARY:\nThe following report is made of Stamp sales\nat \"Treasury House\":\nJuly 1-29\n$22,047.05\nJuly 30\n447.70\nTotal\n$22,494.75\nGRAVES\n252\nTREASURY department\nWASHINGTON\nJuly 31, 1941\nKill\nMemorandum for THE SECRETARY\nThe following report is made of requests received\nfor \"Any Bonds Today?\" from the experimental mailing of\n10,000 cards:\nNo. Requests\nNo. Copies\nJuly 1 - 29\n1123\n6572\nJuly 30\n10\n130\nTotal\n1133\n6702\nGRAVES\nRegraded Unclassified\n253\nJUL 31 1941\nDear Eleanor:\nWe are going to take care of\nMrs. Maidee as seen as We establish\nthe Los Angeles headquarters of the\nDefense Savings Staff, which I hoge\nwill be within the next few welm.\nAffectionately,\n(Signed) Henry\nMrs. Franklin D. Ressevelt,\nthe White House.\n12:15\nHNG/mff\nBy Messenger 17/37/11\nco - Mr. Thompson together with copy\nof incoming letter.\n(See original\nreturned by\nMrs. R. and\nfiled under\n4A\ndate of 8/12/41)\nRegraded Unclassified\n254\nJUL 31 1941\nDear Kleaner:\nWe are going to take care of\nMrs. Medico as coun as - establish\nthe Les Angeles headquarters of the\nDefense Savings Staff, which I hogo\nwill be within the next for wells.\nAffectionately,\n(Signed) Henry\nMrs. Frenklin Do Receivelt,\nthe White House.\n12:15\nHNG/mff\nBy Messenger\n7/31/11\n00 - Mr. Thompson together with copy\nof incoming letter.\nRegraded Unclassified\n255\nTHE WHITE HOUSE\nWASHINGTON\nJuly 25, 1941.\nDear Henry:\nI have just heard from\nHelen Gahagan what has been suggested\nin reference to Eleanor Wilson McAdoo.\nIf such a thing is possible, I shall\nbe deeply grateful as she has been on\nmy mind.\nAffectionately,\n3P\n256\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nChauncey\nDATE July 31. 1941.\nTO\nSequetary Morgenthau\nFROM Mr. Cochran\nconfidential\nRegistered sterling transactions of the reporting banks were as follows:\nSold to commercial concerns\n£60,000\nPurchased from commercial concerns & 1,000\nThe Federal Reserve Bank of New York purchased £26,000 in registered\nsterling from the New York agency of the Swiss Bank Corporation.\nOpen market sterling held steady at 4.03-1/2. Transactions of the re-\nporting banks were as follows:\nSold to commercial concerns\n£2,000\nPurchased from commercial concerns\n£1,000\nThe Canadian dollar has had a fire tendency this week, Today's closing\ndiscount was 11-1/4% as compared with 11-5/8% on July 26.\nThere has also been some improvement in the Cuben peso quotation. Today's\ndiscount who 1-1/16%, as compared with 1-5/16% a week ago.\nIn New York, closing quotations for the foreign currencies listed below\nwere as follows:\nArgentine peso (free)\n.2380\nBrasilian milreis (free)\n.0505\nUruguayan peso (free)\n.4380\nColombian peso\n.5800\nMexican peso\n.2070\nIn Shanghai, the yuan declined 1/164 to 5-3/164. Sterling in that center\nagain moved upward to 4.02-1/2. a gain of 1-1/20.\nThere were no gold transactions consumented by na today.\nNo new gold engagements were reported.\nIn London, spot and forward silver were again fixed at 23-1/2d. equivalent\nto 42.67#.\nThe Treasury's purchase price for foreign silver was unchanged at 35#.\nHandy and Harman's settlement price for foreign silver was also unchanged at\n34-3/44.\nRegraded Unclassified\n257\n- 2 -\nWe made one purchase of silver amounting to 50,000 ounces under the\nSilver Purchase Act. This silver represented new production from various\nforeign countries, and was bought for forward delivery.\nDuring the month of July, our purchases of silver under the Silver Pur-\nchase Act amounted to 4,365,500 ounces, the sources of which were as follows:\nType of Silver\nOunces\nNew production\n1. From various countries\n2,565,500\n2. From Canada under agreement\n1,200,000\nInventory silver\n600,000\nTotal\n4,365,500\npmp\n258\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 31, 1941\nTO\nMr. White\nFROM Mr. Ullmann\nSubject: Interview with Mr. G. 8. Walden (Socony-Vacuum).\nAt the July 28 meeting in your office, Mr. G. S. Walden, Chairman\nof the Board of Socony-Vacuum Company, made the following interesting\ncomments:\n1. His company estimates that Japan has stocks of approximately 35 million\nbarrels of petroleum products, or & year's supply. He claims that this\nestimate 18 made after a detailed and thorough study.\n(A completely independent Treasury estimate places present Japanese\nstocks at 34.5 million barrels.)\n2. The Netherlands East Indies has established the detailed machinery to\ndestroy the islands' refineries, pipe-lines, storage tanks and to blook\nup the wells (with concrete). He says that all this destruction can be\ncompleted in a four-hour period. The destruction plans call for pump-\ning wet concrete into the wells, using the same pipes by which oil is\nnow extracted.\nHe thinks the Japanese would gain almost nothing by an invasion of the\nIndies.\n3. He feels that the Netharlands Government is prepared to stop any\n\"appeasement.\" However, it is also prepared to grant oil export licenses,\nif this Government and the British decide to follow a policy of allowing\noil to Japan.\n4. His company is willing to discontinue sales of oil to Japan, provided\nthat competing companies follow a similar policy.\n5. His company was approached in New York by the U. S. representative of\nMitsui. The latter said that if Japan could only get \"some oil\" from\nU. S. companies, Mitsui wight be able to deter the Japanese Government\nfrom an invasion of the Netherlands East Indies.\nWalden had pointed out to the Mitsui man that the whole world, includ-\ning the U. S. east coast, was now on oil rations; and that the Japanese\nRegraded Unclassified\n259\n- 2 -\nshould be willing to curtail its oil imports--especially in view\nof its large stocks. The Mitsui representative agreed to this line\nof reasoning, and said they would be content if they would receive\n\"some\" oil-even though the quantities be at substantially lower\nlevels.\nJuly 31 - 1941\nTO:\n260\nSECRETARY MORGENTHAU\nThe Colonel telephoned me Sunday,\nsaying he wanted to see me and\nwould be in Washington Tuesday and\ntelephone me then. So far I have\nheard nothing from him, but sup-\npose he will turn up sooner or later.\nJew\nFROM: JOHN C. WILEY\n261\nConfi dential\nJuly 31, 1941\nMEMORANDUM FOR THE SECRETARY:\nIn re: Your inquiry regarding\nHenri Haye and Camille\nChautemps.\nI have collected a great deal of material on both Henri\nHaye and Chautemps from a number of different sources.\nThere are many sidelights and interesting bits of gossip,\nbut the essence is:-\nThe French Ambassador, Henri Haye, according to all re-\nports, is completely committed to the \"collaborationist\"\npolicies of Darlan and Laval. His chief collaborator in the\nEmbassy is M. Brousse, who is described as dangerous and\nmost objectionable. Colonel Bertrand-Vigne, also of the\nEmbassy, works closely with them, but is said to be acti-\nvated by conviction rather than malice. Henri Haye's re-\nports to Marshal Petain and the Vichy Government are said\ncompletely to distort the American picture. Lindbergh,\nWheeler and other isolationists are played up, labor troub-\nles are exaggerated, and the national defense effort is de-\nrided. It is alleged that the Ambassador is giving a free\nhand to Brousse (who is described as \"worse even than Henri\nHaye\") in running the Embassy, the Ambassador being much\npreoccupied with his personal affairs -- one of which is\nsaid to be with Mme. Georges Picot, wife of the Counselor.\nIt appears that nothing really definite is known with\nregard to Chautemps' activities, if any. Pleven suspects\nhe may be behind a quiet movement in the United States to\ndiscredit De Gaulle 88 a \"Fascist\". Pleven has, however,\nnothing to substantiate the suspicion except a conviction\nthat the Petain regime would not be giving Chautemps large\nsums of money for nothing. (Herve Alphand states that he\nreceives $2,000 & month.) In general, however, the impres-\nsion is that Chautemps is chiefly engrossed in his domestic\naffairs, his young wife and infant child, and is biding his\ntime.\nRegraded Unclassified\n262\n- 2 -\nChautemps and Haye are supposed to be at swords' points.\nHenri Haye has allegedly made repeated, determined but un-\nsuccessful efforts to have Vichy recall his rival. The\nChautemps, in private conversations, do everything possible\nto discredit the Ambassador and to suggest that he should\nbe sent back to France as persona non grata, along with\nBrousse and Bertrand-Vigne. Perhaps Chautemps believes\nthat, should Picot be left as Charge d'Affaires, he, Chau-\ntemps, could play an important role in this country.\nMy impression of Chautemps' situation is that he is\nhere as & \"pay-off\" for his part in the conclusion of the\narmistice and facilitating Petain's advent to power. He\nprobably knows & lot and Petain may be somewhat frightened\nof him.\nJohn a. Wiley.\nRegraded Unclassified\n263\nC\no\nP\nY\nDepartment of State\nDIVISION OF THE AMERICAN REPUBLICS\nJuly 31, 1941\nDear Mr. Bernstein:\nHerewith the draft of the note\nCollado and I handed Turbay yester-\nday afternoon for his presentation\nto us.\nWith kindest regards,\nSincerely yours,\n(Signed) Jim Wright\nCopy:1g 7/31/41\nRegraded Unclassified\n264\n0\n0\nP\nY\nDRAFT OF NOTE COLOMBIAN AMBASSADOR WOULD\nADDRESS TO THE SECRETARY OF STATE\nHis Excellency\nThe Secretary of State,\nWashington, D. C.\nSir:\nIn continuation of conversations held with representatives of\nthe Departments of State and Treasury concerning a. stabilization\nloan to Colombia, I now have the honor to confirm the following:\nThe issuance of import licenses or exchange approvals will be\nkept commensurate with exchange availabilities to avoid unpaid\nbackloge and retroactive exchange decrees or regulations detrimental\nto the United States will not be promulgated. Colombia will seek\nto avoid undue delay in the payment of legitimate United States ex-\nchange requirements and recognizing that the stabilization loan\nand credits from other United States governmental agencies have in-\nportant stabilizing influence on Colombian exchange, funds BO pro-\ncured will not be diverted to countries whose interests are inimical\nto those of the United States or to those of Colombia, and there\nwill be consultation on this point when there might be a difference\nof views.\nI take this opportunity to renew to Your Emellency the as-\nsurances of my highest consideration.\nCopy:lg 7/31/41\nRegraded Unclassified\n265\nTye Washington Post\nJuly 31, 1941.\nFair Enough\nBy Westbrook Pegler\nPrivate Life Of Joseph Lash\nA8 SOME may remember, Mrs.\naliss Dediord-Jones declared\nyes that be was a dirty only liar\nFranklin D. Roosevelt, recently\nthat this WM 1 pan name adopted\nthe Was alandering Amizican\nentertained as the summer home\nfor this occusion by her\nSouth and the editor's blurs said\nof the President of the United\nfather, H. Bedford-Jones, e pro-\nManey had been \"forced by her\nStates on Cam-\nfessional Actioner. Nancy said\nfather's lies to denounce him.\"\npobello Island\nShaw's article in Liberty was a\nno\nsomething called\npack of Lies about her, although\nthe Summer Stu-\nher name was not mentioned and\n800N AFTER. on November 28.\ndent Leadership\nthe was not otherwise Identified.\n1935, The Daily Worker, Muscovite\nInstitute Among\nThe Liberty article created an\nthose prominent-\nImpression that young communist\nhouse organ, which does not go\nby present along\nagents Inferted American college\nin very heavily for marriage stuff\nwith Justice Fellx\ncompuses and mixed politics with\noutside the party circle, reported\nFrankfurter of\nsomething which we In the writ-\nthat Nancy had married In Yums,\nthe United States\nIng trade and the moyles have\nAriz, none other than Joseph\nSupreme Court\nagreed to describe #4 remarice\nPEGLER\nMr. Shaw, whoever be may have\nP. Lash, whom we now discover\nand dear old Dr.\nWilliam Allan\nSeen, Dieged that young girls\nsometimes in the White House\nNellson, president emeritus of\nwere seduced not only from the\nand then again of Campobello an\nSmith College, was a veteran\npolitical and religious faith &\na guest of Mrs. Ronsevelt in some-\nmember of the younger genera-\ntheir parents but from their\nthing called a Student Leader-\nHon and coreer man of the youth\nchastity as well, wherein he was\nship Institute.\nbusiness. Joseph Lash. The fre-\nanticipating the revelations set\nThe worker's marriage notice\nquent presence of Mr. Lash In the\ndown by the backalid Comrade\nminitimed Mins Nancy's father\nWhite House surely may be taken\nBenjamin Gitlew, late base-Com-\nis \"% Red-baiting pulp magazine\nas evidence that Mrs. Roosevelt\nmunist of the United States of\nwriter.\" and said the marriage\nregards him as 4. pratty nice\nAmerica. in his book entitled \"I\n\"culminated a friendship which\nsample of and for American youth\nConfess.\"\ngrew out of thair participation in\nand his presence at the Student\npas\nstudent adtiwar and anti-Fascial\nLeadership Institute at Campoballo\nmems equally Indicative that she\nMISS Namey Bedford-Jones ex-\nsetivities.\"\nclaimed, in effect. \"That's my\nZ\nregards him BA one who 18\nequipped, intellectually and moral-\npup!\" And lose into him to the\nMR. LASH is still s youth\nIV, for leadership among Ameri-\nafter . dozen years in the busi-\nexuiting applause of the Com-\ncan students.\nnew, still employed and hustling.\nmunista in the pages of The New\nfirst with one youth or student\nWith this preamble. let us now\nMasses. Incidentally, lest It be\ncouncil, service or Institute, then\ncast aside the bigoted record of\nmid that The New Masses, like\nwith snother, and he is still in\nThe Dies Committee which dis-\nthere, DE therembouts, with his\ncovered Mrs. Roosevelt's young\nMrs Roosevelt's model youth,\npatientes, Mrs. Franklin D. Rbose-\nhims often In the company or\nMr. Lash, was not communistic,\nCommunist youth. Let us con-\nnote should be made of the fact\nvdlt. when the pictures are being\nsider something else in order to\ntallen.\nobtain a fair impression.\nthat the paper listed - its Busi-\nThe institute al Campobello, of\nLet us frink the Ales of Liberty\nnéts Manager William Browder,\ncourse, would have no wish to\nMagazine and the Communist\nthe brother of Ear| Browder.\nconceal from the youth of the\npublication. The New Masses, to\nEarl Browder successed Gltlow\nAmerican camplia, of the parents\nthe sulumn of 1998.\n45 chief of the Communies Party\nof that youth. this pretty little\nstory from the political and love-\nhere, but in now in prison for\nlife of one whom Mrs. Rouevelt\nIN THE Issue of The New Masses\nfreud.\nentertains as a candidate for atu-\ndated September 3, 1635, the lead\n\"The author of there slanderous\ndont leadership.\nstory le 4 charming expression of\nlies La my father, R Bedford-\nan American daughter's devotion,\nJones,\" the way this lively\n7/1/24 \"My Father is 1 Liar!\"\nexample of American youth\nNancy Bedford-Jones\nastuted his daddy. \"Why did\nthe How pu 17.\nmy father write these cold-blooded\nthe very\nlies about his daughter?\" the\nspeed\nthen démanded and proceeded to\ntall you why, according to her\nview of the matter. Her view\nRegraded Unclassified\nC\n0\n266\nP\nThe Under Secretary of The Treasury\nI\nWashington\nJuly 31, 1941\nMEMORANDUM FOR THE FILES:\nI advised Mr. Hooker of Mr. Collado's office in the State Depart-\nment today that the Treasury apparently is not much concerned with the\nfirst five paragraphs of the Bolivian memorandum transmitted with\nMr. Collado's memorandum of July 30. 1941. I told him that ve in the\nTreasury felt that the first sentence of this suggested paragraph was\nsufficient to cover the situation. We have no objection if the State\nDepartment wants to keep in the last sentence, but we do not see that\nit adds very much to the paragraph. I read to him over the telephone\nthe following revised paragraph to take the place of his suggested\nparagraph six.\n\"The Government of the United States 1s prepared to\nconsider the practicability of measures which may be\nsuggested for cooperation with the Government of\nBolivis in the stabilization of the Bolivian currency\nin its relation to the dollar. The appropriate\nauthorities of the Government of the United States\nare also undertaking studies with a view to the\nformulation of suggestions in the monetary field to\nbe jointly considered with any corresponding sugges-\ntions which may be made by the Bolivian authorities.\"\nLater Mr. Hooker called ne back to say that the State Department\nwas in agreement with the Treasury's suggestion that only the first\nsentence of the revised paragraph six be included in the statement to\nbe given to the Bolivian Government with the addition of the last\n\"United States\" before the word \"dollar\" at the end of that sentence.\nThe rest of the paragraph is to be eliminated.\nDWB\nCOPY:mew 8/1/41\nRegraded Unclassified\n267\n0\nDepartment of State\nP\nDivision of the American Republics\nMemorandum\nJuly 30, 1941\nMr. Belli\nThe Department is most anxious to send B. note to the Bolivian\nGovernment which will give some concrete evidence of the desire\nof the Government to back up the President's statement that the\nUnited States io fully behind Bolivia in its present critical\nsituation of Nezi agitation and plotting. It 1a proposing to\nhand the Bolivian Minister tomorrow the attached memorandum\nregarding several forma of technical and financial cooperation.\nThis has been fully cleared with Mr. Jesse Jones.\nThe Department would 11ke to add to this memorandum B. most\ngeneral statement regarding stabilization or sonetary coopera-\ntion. I have taken this up before with Messra. White and Southard.\nThe Department would like to BAY something as follows:\n\"6. The Government of the United States is prepared to con-\nsider the practicability of measures which may be suggested for\ncooperation with the Government of Bolivia in the stabilization\nof the Bolivian currency, and the appropriate authorities of\nthe Government of the United States are undertaking studies with\nB. view to the formulation of specific suggestions to regulared\ncorresponding suggestione which may be made by the Bolivian\nauthorities.\"\nAs I have indicated, the Department must hand the memorandum\nto the Bolivian Minister by tomorrow evening. I should be very\npleased to discuss this matter further with you tomorrow morning\nin person or by phone.\n2. G. Collado\nCOPY:mew 8/1/41\nRegraded Unclassified\nC\n268\n0\nP\nY\nDRAFT\nMEMORANDUM\n1. The Department of State has been considering\nwith other agencies of the Government of the United States\nmeasures which might appropriately be included in a long-\nterm plan of collaboration to foster continued mutually\nbeneficial economic relations between the United States\nand Bolivia and to develop the national economy and\nnational resources of Bolivia.\n2. It 1a believed that the basis of such B. plan must\nbe in the development of communications-largely of highways,\nbut perhaps including certain railway facilities. The\nreport of the United States Army engineers who studied the\nVila Vila-Santa Cruz railway project does not support the\nconstruction of such a railway, but suggests as an alternative\nconsideration of the construction of a highway joining the\ntwo points. It is believed that EL decision regarding a long-\nterm program for the development of communications in Bolivia\ncan best be taken after a general survey by competent\nengineers. The Bolivian Government has recently inquired\nconcerning the possibility of a general survey by highway\nexperts, and there is attached a memorandum outlining the\nstudies which the appropriate officials of this Government\nbelieve may be practicable at this time. The Government\nRegraded Unclassified\n269\n- 2 -\nof the United States is prepared to detail qualified experts\nto Bolivia under the provisions of Public No. 63 (76th\nCongress) to carry out this survey work.\n3- The development of communications should encourage\nan expansion and diversification of aggricultural production\nin Bolivia, involving both an increased degree of self-\nsufficiency and perhaps the development of certain tropical\nproducts for export. It is believed that this development\nmight be advantageously speeded up and assisted by &\ncomprehensive survey of the several potentially important\nagricultural regions of Bolivia, The Government of the\nUnited States is prepared at the request of the Bolivian\nGovernment to detail competent agricultural experts to\ncarry out such a survey in cooperation with the Bolivian\nauthorities.\n4. It has been suggested that it may be feasible\nand desirable to stimulate production of tin, tungsten\nand certain other minerals in Bolivia of small minere by\nassisting them in improving their methods, providing them\nwith appropriate machinery. end possibly erecting a\nreduction plant for the treatment of low-grade tin ores.\nSuch possibilities of course would require cereful study,\nand the Government of the United States would be glad\nRegraded Unclassified\n270\n- 3 -\nto consider any request that may be made by the Government\nof Bolivia for the services of a qualified expert.\n5. The Government of the United States is\nprepared to cooperate in giving effect to the recommenda-\ntions arising out of thorough technical and economic\nsurveys of Bolivian communications needs and agricultural\nand mineral potentialities by the extension of financial\nand technical assistance in appropriate manner and amounts\nfor the execution of individual projects which are\nconsidered desirable, useful, and practicable by both\nthe Bolivian and United States Governments.\nRA:Collado: GRS\nCMS 7/30/41\nCOPY:mew 8/1/41\nRegraded Unclassified\nC\no\n271\nP\nY\nDEPARTMENT OF STATE\nWashington\nIn reply refer to\nJuly 31, 1941.\nZA 840.51 Frozen Credits/2723\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\nsix copies of a paraphrase of telegram No. 3275, dated\nJuly 29, 1941, 6 p.m., from the American Embassy at London,\nin regard to the British Treasury's impression with respect\nto the effects of the freezing order in Japan.\nEnclosure:\nFrom Embassy, London,\nNo. 3275, July 29, 1941.\n(Six copies.)\nRegraded Unclassified\n272\nC\no\nP\nY\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, London\nDATE: July 29, 1941, 6 p.m.\nNO. : 3275\nFOR THE TREASURY DEPARTMENT -- STRICTLY CONFIDENTIAL\nReference is made to the Embassy's telegram No. 3274,\ndated July 29, 1941. This telegram dealt with the comment\nof the British press in regard to the effects of the\nfreezing order in Japan.\nWaley of the British Treasury informed Coe today that\nthe British Treasury's first impression, which it had re-\nceived from its representatives in Washington, was that\nthe freezing control would be very severely applied. How-\never, he said that there was some confusion in regard to the\ncabled report that the United States was granting a general\nlicense for commercial transactions. To Waley, this step\nseemed to indicate that trade with occupied China would be\npermitted and, too, that the American control was to be\nmuch less restrictive than had been contemplated. However,\nhe had not received the text of the general license as yet.\nAccording to Waley, the work required to bring Hong\nKong into the sterling area had not been completed in time.\nHe also said that this step would probably be taken on\nJuly 30.\nWINANT\nEA: PAK\nCopy:bj :7-31-41\nRegraded Unclassified\n273\nAI\n01\nPARAPHRASE or TELEGRAM SENT\nTO:\nAmerican Embassy, Chungking, China, via N.R.\nDATE: July 31, 1941, 7 p.m.\nNO.: 172\nTHE FOLLOWING IS FROM THE ACTING SECRETARY OF THE\nTREASURY FOR FOX.\nThe Treasury Department would appreciate it if you\nwould inform it of the progress which is being made in\nregard to the rehabilitation of internal finance in China.\nIt is assumed that you have access to the report which\npertain to the general economic conditions in China;\nsuch as the Ambassador@s despatch No. 21. The Treasury\nDepartment would appreciate receiving your comments in\nregard to the despatch of the Ambassador. (No. 21.)\nWELLES, ACTING\n(MMH)\nFE:JMJ:MBW n\nEAt PAK\nRegraded Unclassified\n274\nPARAPHRASE OF TELEGRAM SENT\n20: American Embassy, Chungking, China, via N.R.\nDATE: July 31, 1941, a p.m.\nNO.1 175\nTHE FOLLOWING IS FROM THE ACTING SECRETARY OF THE\nTREASURY FOR FOX,\nIt is requested that you refer to your telegram of\nJune 27 which was sent through Spagent, Shanghai. Also\nrefer to your telegram of June 28, No. 752, which was\nsent through Lockhart.\nApparently, the letters which you referred to are\nthose which were exchanged between the Secretary of the\nTreasury and Sir Frederick Phillips and which contained\nthree points, The letters were under date of April 25,\n1941. You were provided with all of the documents which\nwere pertinent to the Stabilization Agreements between\nthe United States Government and the British Government\nand China. Newever, additional copies of the letters in\nquestion are being sent to you by poush,\nMething in the letters in question would prevent the\nestablishment of a Stabilization Board of four men to\nmanage the U.S. dellar-Chinese Yuan Stabilisation Test-\nthe feur nen on this Beard includes the American member\nbut does not include the British members It is requested\nthat you advise the Department immediately should you\nconsider it important that stops be taken to not up the\nBoard without delay,\nWithin\nRegraded Unclassified\n275\nWithin the next two weeks, according to information\nwhich has been received m the Treasury Department, Sir\nOtto Niemeyer will leave the British capital for Vashington.\nIt is expected that he will discuss various Chinese problems\nwith the U.S. Government before he continues his trip to\nChina.\nSir Niemsyer's stay in China is expected to be for\nonly a few months. He is not expected to become a member\nof the Stabilisation Beard. It is expected that broad\npolicy questions of a financial and economic nature will\noccupy mest of his attention while he is in Ohina.\nWELLES, ACTING\n(MH)\nFE:JMJ:MBW\nFE\nKAtPAK\nthe\nevine à WOIS\nABERIVE\nRegraded Unclassified\n276\nDES\nPLAIN\nHONG KONG VIA N.R.\nDated July 31, 1941\nRec'd 6 p.m.\nSecretary of State,\nWashington.\n282, July 31, 10 a.m.\nHong Kong Government has frozen certain Chinese\nassets Effective July 30th. Copy of order forwarded by\nairmail. Colonial Secretary has issued public statement\nto the Effect that action was in common with similar\norders throughout British Empire, made at the request\nof the Chinese Government, and does not prohibit the makin\nor acceptance of payments in Hong Kong to or from persons\nin Hong Kong.\nSENT to the Department, repeated to Chungking,\nPeiping.\nBRUINS\nCSB\nRegraded Unclassified\n277\nPARAPHRAVE OF TELEBAN RESEIVED\nFROM: American Consulate General, Shanghai.\nDATE: July 31, 1941, 1 p.m.\nNO. # 907.\nPiret: One of the results of the freening order w to\nbring to Shanghai, more earlier than was anticipated, an\nexpert eystem such as that which has been used for about the\nyears in North China. This eystem suriously retarded trade\nbetween non-Azis countries and North China and 18 will have\nthe - result in Changhai. by imposing the same restric-\ntions in Shanghai a memogoly on many commedities which favore\nJapan is created just \" in North China. 18 is feared that\nsuch restrictions may also be used in the case of American\nvessols desiring to obtain supplies end stores during their\nstay here. American shipping compenies are concerned about\nthis and they are also conserned about possible interference\nwith the picking up of cargose which have already been\nbecket and cleared through the customs. Virtually all items\nof vital importance, with the exception of you silk\nembroideries, estton piece geods and ootton yarn, sanaage\ncasings and briethes, are already included is the list of\nitems which require export lieunses. 18 to explain that there\nwill be delays and irritation similar to those which conserved\nin North Ohina because the establishing of a consittes to\nadminister the system of expert permits is todious.\nRegraded Unclassified\n278\n+\nDeceme: The economic position of thanghes has perhaps\nnever before been no profoundly affected as it was when the\nfreesing order THE issued. Although the sheek is gradually\nwearing off, may people look to the future with grave fore-\nbedings because they believe that rigit restrictions vill\nfurther reduce the already greatly curtailed shipping\nfacilities available, seriously handisap export trade, pre-\nvent the importation of needed rav materials to neet\nmanufacturing demand, thus contributing to unemployment\nand resulting in diversion of a previously profitable consered\nbetween Ohina and the United States away from American into\nJapanese hands. The posstation prevalent in business circles\nhas recently become slightly relaxed as A result of reports\nthat the freezing rules will be administered more liberally\nthan YEE at first anticipated. At losst (veebel, month-)\nmore will be required before the full uffect of the restrie-\ntions on the port our be ressonably estimated.\nThird: Notwithstanding persistent pross reports from\nWashington and London that one of the retallatory maine\nwhich the Jayanese intend to employ would be that of taking\nover the International Bettlement, there have been as outward\nindications of such e Japanese intention at the present time.\nThe spreading of such rumps does great have and creates\nneedless uncasizess amount the Chiness.\nThis\nRegraded Unclassified\n:- 279\n+\nThis telegram is being sent to the Department and\nrepeated to Peiping and Quanghing. The esde text is being\nB Totyo s * entit s\nLOCKHART\nNPC\n10 THE BACK 1V8A\nEASHINGTOL\nLECHMIGVE 1022 CIVIL\nCHE or THE\nB41 vne 2 bW IS 03\nBECEINED\nRegraded Unclassified\nPM\nPLAIN\n280\nPeiping via NR.\nDated July 31, 1941.\nRec'd 11:50 p.m.\nSecretary of State,\nWashington.\n194, July Thirty-first.\nIt was announced here today that enforcement\nof the retaliatory freezing messures mentioned in the\nEmbassy's 189, July 29, 5 p.m., will be entrusted to a\nnew group of persons known as the \"Central Special\nassets Commission\" composed of North China representa-\ntives of the Japanose Army, the Japanese Imbassy,\nthe China Affairs Boari, the Japanese Ministry of\nFinance and the Federal Reserve Bank. The head office\nof the Commission will be in Peiping; branches will be\nestablishod at other places in North China under\nsupervision of the special affairs section of the\nJapanese Army.\nOther local developments resulting from the\nretaliatory measures which camo into force July 28\ninclude the freezing of substantial Amorican deposite\nhold by Chinese and Japanese banks, the suspension of\nforeign\nRegraded Unclassified\n-2- #194, July 31, 1941, from Peiping via NR.\n281\nforeign exchango transactions for American citizens,\nand the impounding of American travelers baggage at\nthe railway station in Peiping.\nThis office made inquiry of the Japanese Embassy\nyesterday in regard to the impounding of baggage.\nPart of the baggage was roleased this morning.\nSont to the Department, repeated to Chungking,\nShanghai, Tientsin.\nCopy airmailed to Tokyo.\nBUTRICK.\nKLP\n282\nTEM\nFoochow via N. R.\nDated July 31, 1941\nRec'd 10 a.m., August 1.\nSecretary of State,\nWashington.\nJuly 31, 4 p.m.\nReferring to my telegram of July 29, 6 p.m. Japanese authorities\nin Foochow today told the British Consul no further withdrawals may be\nmade from the local Hong Kong and Shanghai Bank, in which many Americans\nhave deposits, except under Japanese permits and subject to regulations\nwhich they have informed me will be made known in a few days. Chinese\npolice have been stationed at the bank's gates. On the request of the\nBritish Consul the bank has suspended operations.\nJapanese are visiting British and American properties for the\nalleged purpose of making an inventory which was ordered begun on or\nbefore July 25.\nSent to Peiping, repeated to the Department and Chungking.\nRICE\nNPL\neht copy\n8-5-41\nRegraded Unclassified\n283\nPARAPHRASE or TELHIRAN RECEIVED\nFROM: American Conculate, Rangoon, home.\nDATE:July 31, 1941, 4 pollo\nPLYAS: Chinese assets in Burnes have been frosen today\nby the Government of Burn. Newsver, the object to not so\ninterfere with the operations of the Chinese Government and\nwith legitimate trade with uneccupied China. The Receive\nBank of India 1s issuing instructions to release from the\neffect of the Order certain accounts belonging to persons and\nfires in thous sections of China not affected by the control\nOF occupation of Japan. It May be added that the order does\nnot affect transmetions carried out by Chinese residents of\nBurna on their private accounts.\nSecond: During the last two days Japanese ships have\narrived at this port for the purpose of loading vice which\nhad already been purchased. One of these is the boat that\nturned back last Friday night at the entrance to the river,\nAn efficial statement indicates that shipments of rise which\nhad been purchased and paid for prior to the date of the from-\nLage order will be allowed. However, no licenses for rice\ncontracted for but umpaid will be granted. Bo fer during 1941\nshipments to Japan of namess riso have been valued at sparent-\nmately 41,000,000 rupees (more than $12,000,000 in United\nAvivne 2 W 11 28\nStates surrency). Payment has not been made for about 20,000\ntons of outstanding Japamese orders.\nCONRITION\nBECOMED\nBRADE\nask\nsaive.\nRegraded Unclassified\nC\no\nP\n284\nY\nDEPARTMENT OF STATE\nWashington\nIn reply refer to\nEA 840.51 Frozen Credits/2728\nJuly 31, 1941\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and transmits\nherewith copies of the paraphrase of telegram no. 1120,\ndated July 29, 1941, from the American Embassy at Tokyo\nconcerning export and import trade between the Japanese\nEmpire and Malaya and the bearing of the Executive Order\nNo. 8389, as amended, thereon.\nEnclosure:\nParaphrase of no. 1120\nfrom Tekyo,\nJuly 29, 1941.\nRegraded Unclassified\nC\n0\n285\nP\nY\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Tokyo, Japan.\nDATE: July 29, 1941, to p.m.\nNO. : 1120\nAccording to a request made by the American Consul\nGeneral at Singapore there is transmitted the following\ntelegram, dated the 28th day of July at 5 p.m.\n\"Refer to my telegram no. 180 dated the 27th day of\nJuly at 1 p.m.\n\"I have been informed by the Foreign Exchange Controller\nthat all export and import trade between the Japanese Empire\nand Malaya, subject to barter arrangements made in cooperation\nwith the United States Government, will be eliminated because\nof the Executive Order freesing Japanese assets.\n\"Further, he said that this would apply to exports of iron\nore which had not yet been paid (at a fixed rate of exchange)\nbefore the 26th day of July. The Government is at present\nconsidering the problem of permitting the exportation of iron\nore for which payment had been made prior to July 26. Ship-\nments of tin and rubber to Japan will not be approved regard-\nless of the date on which payments were made.\n\"It in my understanding that residents of Japan who are\nleaving Malaya will not be permitted to withdraw amounts\nexceeding the equivalent of $100 in currency of the Straits\nsettlements.\"\nThis telegram W&S also sent to Tokyo.\nEDA\nGREEN\nEA:VCL\nCopy:dtg:8-1-41\nRegraded Unclassified\n286\nPARAPERASE OF TELEGRAM RECEIVED\nFROM: American Settlements Consulate General, singapore, straits\nDATE: July 81, 1941, 2 p.m.\nno.: 105\nWW31\n02 MA DUA 1A9\nBETWEED\nSTRICTLY CONFIDENTIAL.\nThe freesing of assets here has been taken mush more\nseriously by the Japanese than by the British.\nIt is assumed by the Japanese that the expertation of\niron ore would be stopped automatically, The Japanese ATPO\nplanning to elese the two largest iron mines, according to\nreports, London has advised the local authorities that\nit was not the intended to stop the movement of iron ore\nat this time. Newever, if the Japanese continued agression\nin other areas, this economic weapon was to be used at a\nlater date.\nIt is the inclination of the authorities here to believe\nthat it is most desirable to withhold for a period of several\nweeks any information that is indicative of any less drastic\nadministration of the freesing order, It is believed that\ndisclosure of any tendency to relax strictures would diminish\nseriously the deterrent effect of this economic seasure upon\nthe Japanese,\nPATTON\nKAIPAK\n840.81 Prosen Gredite/2794\nRegraded Unclassified\n287\n6:15 p.m.\nParaphrace of telegram from Rio de Janeiro, July m, 1941,\nArrangements have been made by the Bank of Bragil\nwith the Tokehama Specie Bank not to transfer the many\nto Argentina and Chile. The Bank of Brasil has placed\nthe dollars in & special ascount where they will remain\nuntil further notice. The $1,000,000 has been purchased\ntoday by the Bank of Branil, which has credited the as-\ncount of the Tokemaha specie Bank in the Bank of Brasil\nwith the milrois preceeds. The Director of the Bank of\nBrasil is of the opinion that the milrois credited to\nthe account of the Tokebane Specie Bonk vill be used to\npay for future exports from Brazil. This, of course,\nappeals to the Brasilian Government. The Director has\npromised to keep me informed of the use of these funds.\nCO or MA - . UA 118\nOD 151\nRA:JSH:LM - 8/1/41\nRegraded Unclassified\nC\n288\no\nP\nY\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nJuly 31, 1941.\nEA 840.51 Frozen Credits/2752\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and encloses\nsix copies of a paraphrase of telegram No. 149, dated\nJuly 29, 1941, 11 a.m., from the American Consulate at\nGodthaab, Greenland, concerning the dollar accounts in\nthe United States of citizens of Greenland.\nEnclosure:\nFrom Consulate,\nGodthaab, No. 149,\nJuly 29, 1941. (6.)\nmb - Copy\nC\n289\no\nP\nY\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Consulate, Godthaab, Greenland\nDATE: July 29, 1941, 11 a.m.\nNO. 149\nGovernor Brun, in recent conversations with repre-\nsentatives of Ivigtut Union, agreed to the opening of\npersonal American dollars accounts in the U.S. by the\nminere. It is understood that these accounts will,\nof course, be blocked in accordance with the regulations\nof the Treasury.\nThe Consulate has been requested by the Governor to\ninform the Government of the United States in regard to\nthe following: The Greenland Administration fully supports\nthe applications for licenses to permit the transfer of\nfunds from the Administration account to personal accounts\nin New York banks to be opened by the individual miners;\nsuch applications are understood to be at present pending\nwith the Treasury Department.\nPENFIELD\nEA:PAK\nmb - Copy\n290\nRESTRICTED\nG-2/2657-220; No. 455 M. I. D., W. D. 12:00 N., July 31, 1941\nSITUATION REPORT\nI. Eastern Theater.\nGround: No important changes in front lines. The great\nbattle in the Vyasma area continues. There is strong German pressure\nto the south of Leningrad.\nAir: No change in the general situation. British carrier-\nbased aviation made a raid on Kirkenes, Norway, and Petsamo, Finland,\nlosing a large proportion of the planes employed.\nII. Western Theater.\nAir: German - Exceedingly light activity.\nBritish - Reduced scale night operations against\nthe Rhineland and Boulogne.\nIII. Mediterranean Theater.\nNo important ground or air activity.\nRESTRI CTED\nCONFIDENTIAL\n291\n3.\nAircraft Lesses Benerted.\na.\nBritish lesses. One bomber was unreported from the\nraid on st. Nassire during the night of July 27-28. One Burricane\nand pilot were lost on July 27.\nb.\nAvia loases. During the day of July 27th 1 Me-109 was\nshot down and 3 Me-109's were probably destroyed. One unidentified\naircraft and one He-lll were shot down by British night fighters\nduring the night of July 27-28.\nThe report to the effect that the Rumanian oil fields at\nPloesti bad been bombed by the Soviet Naval Air Force from the\nCrimes has now been confirmed, according to a statement from the Air\nMinistry.\nDuring the last three days and nights there has been no\nreport of an attack by the German Air Force on shipping in British\nhome waters.\nLEE\nDistribution:\nState Department\nAssistant Chief of Staff, G-2\nWar Plans Division\nOffice of Naval Intelligence (2)\n0. E. Q.\nSecretary of Treasury\nChief of the Army Air Forces\nAssistant Secretary of War for Air\nCONFIDENTIAL\n2 -\nRegraded Unclassified\nCONFIDENTIAL\n292\nof date Othlogen\nReceived at the the Department\nat 6:45, July 31, 1941.\nLanden, filed 18:14, July 31, 2941.\n1.\n2. A early vest of Polvers was atteched w 6\nBlenhoins. Three motor vessels, totaling 3290 teas - damget. Bouth of\nHoligoland mother motor vessel of 1500 bone we attached onl damaged w 6\nBleahrine. Seven Bleakotas are nissing out of 13 dispatched to attack\nshipping. Be activity wes reported by the aireraft as this\nA total of any fighter aircraft ware disputched as follows:\nchipping protection 176, % a interception missions, 17 currying est epecial\nmissions, with 18 a effensive No essualties www expirated from\nthese aparations.\nm. 135 beabers disputched to Colegne to book\nrellway years and infustrial embere. a this niceion there - - Malifor\nand five Stirlings, all of which returned safely. Twelve beahere - -\nto boath et Beulegne, of which , ereched in the United Elagian end ,\nare sureparted. the mjerity of the atrents was able to land at the -\nstrèrement despite the fact that fog was commented - their have bases.\n2.\n1. 15 recommisement and s Long - beabows.\n2. , fighters, 10 Long reage beabere ml 25\nnine laying planse.\n3.\nCONFIDENTIAL\nINFORMATION COPY\nRegraded Unclassified\nCONFIDENTIAL\n293\n4. 7 Bleakstus missing. Hight\nof dair 30, , bonkows crushed out , - unreported.\nin\n, dectroyed at Xime.\ni\n2. The airtrase and\nsemplane base as - obtached w 6 Desefighbers from Malta. b this\natteck GOTOS aireraft were damaged and , was destrayed.\nLES\nDistribution:\nState Department\nAssistent Chief of staff, 6-2\nWes Plane Division\nOffice of Sevel Intelligence\nwith s s\nChief of the Any Air Forces\nI I %\nAlr Garge\nCONFIDENTIAL\nRegraded Unclassified"
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