Volume 506, March 9 – March 10, 1942

DIARY Book 506 March 9 and 10, 1942 Regraded Unclassified - A - Book Page Abbott (Bud) and Costello (Lou) Purchase of bomber by earmarking salaries earned on tour of Nation's theatres discussed in White House-- Treasury correspondence - 3/10/42 506 264 Alien Property Custodian Executive Order setting up office discussed by Smith and Bill; Crowley to be head - 3/10/42, 221 (See also Book 507. page 51) a) Conversation with FDR discussed by Treasury group 224 b) Amendment to Executive Order covering Frozen Funds - HMJramemorandum to Foley - 3/13/42: Book 507, page 170 c) Press release: Book 507, page 171 - de - British Empire See Lend-Lease British Purchasing Mission Vesting order sales - 3/9-10/42 134-137, 309,310 Federal Reserve Bank of New York statement showing dollar disbursements, week ending February 25, 1942 - 3/10/42 311 Business Conditions Hass memorandum on situation, week ending March 7. 1942.. 113 - C - Congress of Industrial Organizations See Financing, Government: Defense Savings Bonds - D - Defense Savings Bonds See Financing, Government - E - Exchange Market Resumes - 3/9-10/42 147,348 - F - Federal Reserve System See Financing, Government Regraded Unclassified - , - (Continued) Book Page Financing, Government Excess earning power discussed by Treasury group; present: HMJr, Stewart, Viner, Suffington, Sullivan, Bell, Haas, Murphy, and Lindow - 3/9/42 506 49,179 a) Charts 77 b) Eccles-Bell conversation reported 179 c) Eccles-HMJr conversation 200 d) Excess reserves - alternative bases for agreement 210 Federal Reserve Bank presidents endorse Board of Governors plans for financing war effort through special types of securities, etc. - 3/10/42. 260 a) Burgess-HMJr conversation - 3/12/42: See Book 507, page 124 Federal Reserve--Treasury conference on "proposed basis of agreement on financing policy" - 3/12/42: Book 507, page 146 a) Memorandum: Book 507, page 166 Purchasers of Tax Certificates - classification by type - 3/10/42 298 Defense Savings Bonds: Congress of Industrial Organizations participation - HMJr-Murray correspondence - 3/9/42. 99 Jolson, Al: Duffus asked 8.8 to ability as song leader - 3/10/42 160 Forand, Aime J, (Congressman, Rhode Island): Defense Savings Stamp - purchase and cancellation: Suggestion covered in Treasury--White House correspondence - 3/10/42 270 Federal Reserve Bank representatives to discuss mechanics of campaign with Treasury representatives - 3/10/42 276 College presidents informed of Treasury plan - 3/10/42 279 Outstanding volunteer workers: Presentation of certificate discussed - 3/10/42 288 Daily changes in stock of Series x Bonds - 3/10/42 295 Forand, Aime J. (Congressman, Rhode Island) See Financing, Government: Defense Savings Bonds Foreign Funds Control Matthiessen and Regeler Zinc Company - LaSalle, Illinois: Secretary of War given information on possible pro-Nazi tendencies - 3/10/42 252 - J - Jolson, Al See Financing, Government: Defense Savings Bond* ad , I Krock, Arthur Vichy connectione discussed in PM - 3/9/42 91 Regraded Unclassified - L - Book Page Lend-Lease U.S.S.R.: Ships loading at Philadelphia - Gaston report - 3/10/42 506 300 (See also Book 507, pages 21 and 325) Vensels in American ports loading materials for United Kingdom and British Empire excluding United Kingdom - 3/10/42 301,303 Payment in cash or in kind for materials diverted from British dollar contracts discussed in Lend-Lease-- Treasury correspondence - 3/10/42 305 Liberia Currency discussed in State-Treasury correspondence - 3/10/42 326 (See also Book 507, page 385 - 3/14/42) - M - Matthiessen and Hegeler Zinc Company - LaSalle, Illinois See Foreign Funds Control Military Reports British operations reports - 3/9-10/42 148,349 Coordinator of Information reports: France - 3/9/42 150 German Home Propaganda - 3/9/42 152 British Home Intelligence report - 3/10/42 350 Kamarck summary - 3/9/42 155 Morgenthau, Henry, III HMJr discusses enlistment with Patterson (Under Secretary of War) - 3/9/42 36 (See also Book 507, page 1) a) Patterson memorandum 41 b) Additional information: Book 507, page 185 - R - Revenue Revision See Financing, Government Federal, State, and local tax burden (estimated average) on single person with $750 income and married couple with $1500 income - 3/9/42 85 a) Discussion with Henderson 89 Vandenberg, Arthur H. (Senator, Michigan): To be provided with sales tax information - 3/10/42 257 - S - Shipping See Land-Lease Silver Legislation authorizing cessation of purchases and permitting Treasury to sell at not less than 35 / an ounce - White memorandum - 3/9/42 27 a) Copy of bill 31 Regraded Unclassified - T - Book Page Taylor, Wayne Chatfield Present with Krock (Arthur) at Vichy dinner - PM article - - 3/9/42 506 91 - U - U.S.S.R. See Lend-Lease United Kingdom See Lend-Lease - V - Vandenberg, Arthur H. (Senator, Michigan) See Revenue Revision Regraded Unclassified 1 March 9, 1942 9:30 a.m. GROUP MEETING Present: Mr. Gaston Mr. Paul Mr. Buffington Mr. Graves Mr. Bell Mr. Charles Bell Mr. Kuhn Mr. Viner Mr. Blough Mr. Kuhn Mr. Foley Mr. White Mr. Stewart Mr. Haas Mrs. Klotz H.M.JR: I thought we might have a class reunion. MRS. KLOTZ: Where is everybody? MR. BELL: It has been a. long time. H.M.JR: Yes. I guess they didn't expect one. Mr. Gaston? MR. GASTON: The matter George spoke to me about on Saturday, we are getting out some instructions to Collectors on those statistics. It is mainly & matter of Philadelphia - the Philadelphia man was down here during the week on that very topic. The matter is a delay on Lend-Lease cargos, and we are going to have somebody from New York and probably Regraded Unclassified 2 - 2 - from Boston come in also to get-- (Mr. Sullivan entered the conference.) H.M.JR: When can I begin to get those? MR. GASTON: You will begin to get those within the next day or two. The order is going out today. H.M.JR: I would like very much to have them - could I have something tomorrow from Philadelphia? MR. GASTON: I think so, Tickton is going to Philadelphia today. The man was down from Philadelphia last week reporting. The Army had made a complaint and, according to his report, the main difficulty in Phila- delphia-- (Mr. Haas entered the conference.) H.M.JR: Tell them what it is. MR. GASTON: Well, it is a question in the delay in loading the - dispatching the Lend-Lease cargos, and our Assistant Collector in Philadelphia reported last week after the Army had complained to us - he came down here and reported that the main difficulty in Philadelphia has been a row between McCormack and the Pemsylvania Railroad. (Mr. Foley entered the conference.) H.M.JR: Would you make a note and tell Philadelphia I want my first report tomorrow morning. MR. GASTON: Yes, I will get a report tomorrow morning. H.M.JR: Now, what I want is, I want the percentage of how much is loaded, and when the ships first arrive. MR. GASTON: That is all in the memorandum that I gave you. Regraded Unclassified 3 - 3 - H.M.JR: But the first thing tomorrow morning, I want it. (Mr. White entered the conference.) MR. GASTON: That will be very easy because he has already been down here talking about that situation. H.M.JR: What are the ones? MR. GASTON: A petroleum car is going out of Port Arthur. There is some occasional stuff from New York, and there may be some from Boston. There is a little going from the West Coast, too. There is stuff going from Seattle and some oil cargos going from Southern California. H.M.JR: But in Philadelphia, there were supposed to be seven vessels. MR. GASTON: The bulk of the miscellaneous cargo, machinery and all that stuff, is going from Philadelphia. H.M.JR: And I will have that, and George, you will whip that into shape so I can have something by noon tomorrow? MR. HAAS: Yes, sir. MR. GASTON: We will get your report from Philadelphia today. le are going to handle this thing over the ticker. I think that is reasonably safe. Of course this data is all dynamite as far as open telegraph is concerned. H.M.JR: You can't break teletype. MR. GASTON: No. We have got a machine right across from my office there. Harney is 271. H.M.JR: Who is Harney? MR. GASTON: He is assistant to Elmer on coordination. Regraded Unclassified - - 4 - H.M.JR: You have your own man? MR. GASTON: Right across the hall from me. H.M.JR: Do you have your own number? MR. GASTON: Yes. H.M.JR: What is your number? MR. GASTON: I don't know the number of that machine. He and Peabody are in that office. Peabody is an Intelligence man, and they handle that machine. H.M.JR: Is that separate from ours? MR. CHARLES BELL: Yes, sir. H.M.JR: I think ours upstairs is 288, isn't it Charles? MR. CHARLES BELL: Yes, sir. MR. GASTON: This machine was put in particularly for the Coordinator on this guard business. H.M.JR: Mine is 288, I think. That is all right to have it on the teletype? MR. GASTON: Yes. There is a new Executive Order on harbor security placing it exclusively - giving the Secretary of the Navy new authority, and he has turned that all over to Coast Guard. H.M.JR: Herbert, who delegated the fifteen or twenty men that were assigned to be investigators in Aniline and Dye? Who assigned those men? Who says which men should do what? I mean, they have got, I don't know, fifteen or twenty men up there. MR. FOLEY: About twenty. MR. GASTON: The men that are doing the investigation? Regraded Unclassified 5 - 5 - Well, those men were originally in the group - nearly all of them were originally in the group assigned for guarding by Maloney who is the Coordinator in New York and different ones that they considered good investigators. It is an arrangement between-- H.M.JR: But I mean, who-- MR. GASTON: Between Federal Reserve Bank and Maloney. H.M.JR: But there must be somebody in my staff who is responsible for the fact that there are fifteen or twenty men there in Aniline and Dye. MR. GASTON: For the fact there are that many men? H.M.JR: Yes. MR. GASTON: Well, because the Foreign Funds asked for them and Maloney, the Coordinator in New York who is the Secret Service Agent in charge, is the man who has assigned the men to that work. H.M.JR: Is it Maloney? MR. GASTON: Yes. H.M.JR: Have you seen the report on it? MR. GASTON: I have not seen the report. H.M.JR: Well, Maloney comes under Wilson and then under you, doesn't he? MR. GASTON: Maloney, on this work, comes under Irey, and then under me. H.M.JR: Well, Herbert, it eventually comes up to you, doesn't it? MR. GASTON: That is right. H.M.JR: Take a look at the report that Foley made Regraded Unclassified 6 - 6 - to me on these men and the quality of them. I mean, the fact that they suddenly became investigators on one of the most difficult jobs we have, I think the whole thing is a reflection on our own organization. MRS. KLOTZ: I understood they were assigned as guards, and then were just taken on as investagors without Mr. Irey knowing anything about it. H.M.JR: Well, I don't see how Trey can escape that, I mean, the fact that they stay there. Somebody, some- where along the line, is responsible. The fact that we had men who are qualified as guards doing the most intricate investigation, I think it is - I mean, start- ing with you and Foley, I think the whole thing is - thet a thing like that can happen in the Treasury is terrible. MR. GASTON: Well, I just haven't seen that report. I haven't been able to keep - I haven't had reports on what those men are doing. They have been working very closely under Ed's men up there in New York, and I am quite ignorant of what the men have been doing. H.M.JR: Well-- MR. GASTON: We have tried to set up an arrangement under which the coordinators would furnish the men, but it hasn't always worked out. H.M.JR: Well, supposing Norman Thompson takes 8 look into that whole thing for me with Gaston. Is that what you wanted to talk to me about? MR. GASTON: No. H.M.JR: Well, supposing he does that. I mean, the fact that a thing like that can happen. Each person says that it is somebody else's fault, but you have got a lot of guards doing the most intricate investigating and they stick there. It is 8 reflection on the Treasury. I don't want it to happen again, that is the whole point of the investigation. If it could happen once, it is bad enough, but nobody will take the responsibility that Regraded Unclassified ? - 7 - they are there, and that we have a lot of men of guard mentality supposed to - up against some of the cleverest people in the world. I think - I say it could happen once, but it can't happen twice. MR. GASTON: Well, these men are not - these men that they have held are investigators. They have also got guards who have been independently hired. H.M.JR: Well, Herbert, take a look at the report. Everybody says it is somebody else's responsibility. I am not saying it is yours, but I want to know whose responsibility it is. I don't know whether Foley claims it is his responsibility or not. MR. FOLEY: No, Mr. Secretary, I think I made my position perfectly clear. These men are investigators, and they are doing investigating work, and we asked the Treasury Investigating Service to provide us with men. Now, the caliber of the men that they provide us with is not our responsibility and, as I understand it, that iE the thing that you are questioning. H.M.JR: Now, wait a minute. Who did you ask? MR. FOLEY: We asked Maloney up in New York. MRS. KLOTZ: Mr. Irey says they are not investigators. He says they were assigned as guards. MR. FOLEY: No, not these men, MR. CHARLES BELL: I think that question goes right to Mr. Irey. Maloney only-- H.M.JR: Well, It is Irey's responsibility, and the fact remains, you have got a lot of men who haven't even R mediocre education doing this intricate work, and the fact that Irey - I don't know what it is, but I would like to run it down so it can't happen again. Now, if Irey sent them in as guards, as Mrs. Klotz said, and then they became investigators, he should have pulled them out. The fact that Joe O'Connell will work with Regraded Unclassified 8 - 8 - people like that is a reflection on him, the fact that he didn't kick them out or register a complaint. The whole thing - look here, Ed-- MR. FOLEY: Beggars can't be choosers, Mr. Secretary. H.M.JR: Now wait a minute. If I send you ten lawyers and all of them are in the bottom of their class, are you just going to take them? MR. FOLEY: No, certainly not. H.M.JR: Then why should O'Connell take the responsi- bility for these investigators? MR. GASTON: We would like to take the responsibility on this thing if we can get some figures. I have never heard any complaint on this or had any requests for men. Men who were put on guarding - we were endeavoring to relieve all the Treasury men on guarding in this Foreign Funds and replace them with hired men so long as they were doing guarding, and then I found in New York and other places they diân't want to let them go because they were using them on investigating work. If we get the requests here for the kind of men they want, we try to get them good men and take full responsibility on it. I have had no report on what these men were doing. H.M.JR: Elmer is under a cloud, as far as I am con- cerned, on this thing until he can prove otherwise, so I am asking Norman to do this thing. I mean, you send me - if you send Mrs. Klotz down some stenographer from the Pool to help here, and Mrs. Klotz sends in some letters which are badly written, I would say, "May do you do this?" Well, she would send the person back until she got a good person. She wouldn't accept 8. person who was & poor typist and so forth. She would send it back. Then the attitude, "Well, that is what they sent me, so I can't do anything." Now, to get that attitude in the Treasury in these times, I think it is terrible, and I want to dynamite it. MR. CHARLES BELL: We recruited about two hundred Regraded Unclassified 9 - 9 - college graduates as investigators since last June. They are high-class men who have had some training in foreign exchange and who would understand this situation perfectly. Funds. Those men are under me primarily on Foreign MR. FOLEY: These aren't Foreign Funds men he is talking about. MR. GASTON: I don't think Irey has had any complaint about this. I haven't heard anything about this at all. H.M.JR: I am the man who is complaining. MR. GASTON: Well, if there is something wrong, I would like to know about it myself. I haven't had any report on this. MR. FOLEY: A copy of Bernard's report has been given to Irey, and Irey is taking steps now to replace the people that we found were not up to standard with good people. H.M.JR: Well, I still say that if I send Harry White back three or four economists and they are no good, and they do a lot of bad work, and he comes in and says, "Well, I am sorry, Mr. Morgenthau, the men you sent me were no good" - that wouldn't happen in this shop. There is something wrong, Ed, somewhere, and I want to find out where it is, MR. GASTON: I would like to have a chance to look into this myself. H.M.JR: O.K. MR. GASTON: Because I have heard nothing about this. It doesn't come to me. H.M.JR: I don't know how many other places we have got policemen doing investigating work. I have prided myself on our investigators, but I can't at this moment. Regraded Unclassified 10 - 10 - MRS. KLOTZ: There are a lot of the best men that have been taken away, and there is going to be 8. shortage of investigators. H.M.JR: Well, did you see a copy of this report on these men? Let Mr. Gaston have 8 copy of it. You will look into it also? MR. GASTON: Yes. If we are going to be responsibile for furnishing these men, I would like to know something about what they want. I am trying my best to get this thing centralized SO we can be responsible instead of having the men simply grabbed without consultation. The thing was done in a great hurry at the start, and on the night of December 7 - and orders were sent out whereby the Federal Reserve banks just went out and got men without even consulting the Coordinators. I got Ed and Bernie and so on together to try to get this thing regu- larized so that the requests would be made through the Coordinators, and so that we could handle it in some sort of way. H.M.JR: Well, it is evident, Herbert, that We have to have some kind of a change. I mean, somebody, somewhere, has to be responsible, so if I say, "Well, these men are no good,' somebody can say, "Well, that is my fault." MR. GASTON: Well, I am perfectly willing to take the responsibility if I can get some information, but it is an illustration of how this thing comes up. I learned nothing about it. I don't know when Irey heard anything about it. H.M.JR: Well, he must have had - how long has Irey had it? MR. FOLEY: Well, Irey knew about it when you asked me to have somebody check them. H.M.JR: That is ten days ago, MR. FOLEY: That was ten days or two weeks ago, and then Irey was furnished with a copy of the report after Larry Bernard checked them. Regraded Unclassified 11 - 11 - H.M.JR: Well, Irey should have told you (Gaston) at once. He is your subordinate, isn't he? MR. GASTON: That is right, on this sort of work. H.M.JR: Well, he should have reported to you at once. MRS. KLOTZ: The men were taken from Alcohol Tax. MR. GASTON: There were a great many men taken directly without consultation with us at all. Men who were on-- MR. FOLEY: These fellows were never guards, Herbert, They were taken as investigators. We asked for 8. certain number of investigators in New York, and these were the fellows that were assigned to us. The Secretary asked me to check them and see whether or not from 8 standpoint of competence they were up to par, and Larry Bernard checked them and talked to each one of them and said that they were all loyal, and he had no question as to their honesty or their integrity. He did have some question as to the competency of about ten or eleven of them. (Mr. Stewart enters the conference.) MR. GASTON: I knew nothing about this. No request was ever made to me for these people or hasn't been yet. MR. FOLEY: That information was given to Elmer before the check was made, and the report after the check was given to Elmer, and Elmer told Larry Bernard that he was taking steps to see that they were replaced and competent people were put there. H.M.JR: I would send for Elmer and ask him why he doesn't let you know what is going on. MR. GASTON: Well, I think that Mr. Foley's office should let me know a little bit about what is going on. Regraded Unclassified 12 - 12 - MR. PAUL: May I interrupt you just 8. moment, Mr. Morgenthau? I think Mr. Blough and I had better get up on the Hill. This is the first day, and we have to be up there at ten o'clock. H.M.JR: All right. Good luck. (Mr. Paul and Mr. Blough leave the conference.) H.M.JR: John? M.. SULLIVAN: You sent me a memo about the discus- sion in Cabinet on mash, industrial alcohol. H.M.JR: Yes. MR. SULLIVAN: I will have a complete memo on that for you by noon. H.M.JR: Good. MR. SULLIVAN: I think they are wrong. I think this was picked up in small quantities through the hills. H.M.JR: Well, the Attorney General was very positive about it. MR. SULLIVAN: Well, you would have to have 8 tank car of mash to get a few gallons of alcohol. H.M.JR: Is it in his custody? MR. SULLIVAN: After it is seasoned? Yes. But I will have a complete memo on that. I saw the Commissioner Thursday afternoon, and you wanted me to get in touch with you afterward. H.M.JR: Yes. MR. SULLIVAN: Doughton sent for me yesterday morning. There was something else he wanted me to tell you, 60 whenever you are free today, I will be glad to see you. That is all I have. Regraded Unclassified 13 - 13 - MR. BUFFINGTON: I have nothing. II JR: Ferdie? MR. KUHN: I have only some background on the Disney matter. I mentioned it to you. H.M.JR: I will read it. Then you let me know. But I am not going to try to sell Disney. MR. KUHN: You want to see him, though? H.M.JR: Only after he is ready to do the picture. When he has made up his mind to do the picture. MR. KUHN: I have nothing else. H.M.JR: George? MR. HAAS: Here is the Nelson report. That explains why the situation is as it is. We are moving right along on that. The main thing there is that he said the Russians were slow in specifying what they wanted. Then, when the specifications did come in, they were non-standard, so it required practically a custom job for each item. We are moving along. The position of the goods at shipside from there on is very vague. I hope to get some information from Philadelphia today on that. H.M.JR: All right. Anything else? MR. HAAS: That is all. H.M.JR: Walter? You get in a conference with Bell, will you? MR. STEWART: I will. H.M.JR: They seem to think they have to have B. dress rehearsel before they see me at three. Harry? MR. WHITE: Will you want to set aside some time this week to meet the same group that you had here twice Regraded Unclassified 14 - 14 - in considering what items you expect the British to let you have, what payments you wish to make for British expenditures? H.M.JR: Yes. MR. WHITE: Dean Acheson sent you his suggestion, how to handle the situation. You remember that you were going to wait until he had let you know. Well, he has let you know in this memorandum which-- H.M.JR: You had better send that in and let me read it. MR. WHITE: Well, there is an answer going through to him which merely-- H.M.JR: When will I get-- MR. WHITE: says that you will be ready today, that you expect soon to call a meeting. H.M.JR: Oh. Could we have it while Stewart is here? MR. WHITE: You wanted him in on that, yes. I should think SO. You (Stewart) are here for two days? MR. STEWART: Today and tomorrow. H.M.JR: I could do it at three tomorrow. MR. WHITE: You will have the large group in tomorrow, the State Department and Army and Navy? If so, you had better have a prior time. H.M.JR: Well, I can do ours in the morning and these others in the afternoon. MR. WHITE: It is quite all right. H.M.JR: Supposing I put you down for eleven o'clock tomorrow morning and then the big group at three? Regraded Unclassified 15 - 15 - MR. WHITE: Then you had better notify the large group this morning. H.M.JR: Well, will you tell Stephens? MR. WHITE: Yes. Do you want the same people here who were here last time? There was 8. large representa- tion, Agriculture, Army, Navy, Lend-Lease. H.M.JR: I think SO, MR. WHITE: And Economic Warfare? H.M.JR: I think so. Anybody who is interested in the Treasury can meet here at eleven tomorrow. We will take full advantage of Stewart being here. We will work him. You had better let me take that letter home to read it tonight, the letter, Harry, that Acheson wrote me and then circulate it amongst our own group. MR. WHITE: It already has been. H.M.JR: Has Stewart seen it? MR. WHITE: He hasn't seen it, sir. H.M.JR: No. Harry, what about this price of silver in Bombay? MR. WHITE: Well, you have got the answer before you. The answer is very simple. H.M.JR: No, I have just got the question. MR. WHITE: Well, the answer was very simple. I can give it to you orally. The answer was routed to you. The reason there is an increase in demand for silver is rather the simple one that owing to the increasingly grave political and military situation, many Indians seem to prefer silver to rupee currency, paper currency, which is a natural outgrowth of the victories the Japanese are Regraded Unclassified 16 - 16 - having. Then, there has always been 8. big spread between their price and the New York price, which has been increased by virtue of the cessation of the granting of permits for the importation of silver. In other words, there is still less silver coming on the market now. The spread between the future and the present prices is also a reflection of the fact that they are so disturbed about the future prospects of Indian independence that a lot of them don't want to enter any future commitments for the sale of silver. There is nothing unusual about the situation beyond that. H.M.JR: Ed? MR. FOLEY: Here is this letter about Larry Bernard. If you could give us & few minutes this morning around eleven thirty. H.M.JR: Yes. What else? MR. FOLEY: Nothing. H.M.JR: I sent you a suggestion. I don't know whether you have got it yet. MR. FOLEY: Not yet. H.M.JR: Should we let the Tolan Committee on the West Coast know what we are doing? What? MR. FOLEY: By all means. H.M.JR: I sent you a memo on it. MR. FOLEY: By all means. I talked with John Pehle - yes, that is a good idea. H.M.JR: Don't you think that is a good idea? They are still there, you see. MR. FOLEY: That is right. They are in San Francisco now. Regraded Unclassified 17 - 17 - H.M.JR: You might be drafting B telegram to them. Ed, don't you think that is a good idea. MR. FOLEY: Yes, it is. We could either do it by sending them a copy of the instructions that we have given to the - I mean the program we worked out, and the instructions that have been given to the Federal Reserve in San Francisco, or we could have John Pehle go around and see them, and tell them orally what we have done. H.M.JR: I think you ought to have a written record. MR. FOLEY: All right. They - the boys didn't get to Los Angeles until about eleven o'clock Pacific Time Saturday night. They had a head-wind all the way out and had pretty hard sledding, and Pehle called me yester- day about three o'clock. It was around twelve out there, eleven or twelve. They had spent the night in Los Angeles, and they were going on up to San Francisco in the after- noon, yesterday afternoon. They expected to spend & couple of days there, and McCloy was going on up to Portland and Seattle and wanted Pehle to go along with him, and Mr. Eisenhauer was on the plane along with Ssymezak, so they are all together. H.M.JR: That is grand. Anything else? MR. FOLEY: Nothing else. H.M.JR: Harold? MR. GRAVES: Nothing. H.M.JR: Just as a reminder, I spoke yesterday on the phone to the man that handles that. What's his name? MR. GRAVES: Duffus. H.M.JR: He hadn't got anywhere on it yet. You might give him a little push. He is sick, though. MR. GRAVES: He will, he is on the job this morning. Regraded Unclassified 18 - 18 - H.M.JR: All right. MR. GRAVES: He had been away ever since the last meeting. He is back this morning. H.M.JR: Dan? MR, BELL: Did somebody prepare an answer to Henderson's letter? H.M.JR: No. MR. BELL: Should it be answered? H.M.JR: Yes. MR. BELL: I think it should. H.M.JR: Anything else? MR. BELL: Would you want to sign the China agreement tomorrow if we are able to get everything ready? H.M.JR: Oh, I called up Mr. Wells around one o'clock Saturday, and he said he would clear it the same day. MR. BELL: I didn't hear. H.M.JR: He said he would. MR. BELL: I will give him a ring this morning, then. H.M.JR: He said he would clear it. MR. BELL: Well, if they clear it and if you can get Soong to clear it, we might De able to do it this evening. H.M.JR: What is that? MR. BELL: I say if they clear it in the State Department and we can get Soong to clear it without further cables to China, we might be able to sign it this evening. Regraded Unclassified 19 - 19 - H.M.JR: Well, the only time I can do it would be at two forty-five. MR. BELL: Otherwise it will have to be tomorrow? H.M.JR: Yes, but I would like to do it today if possible. MR. BELL: I will see what can be done? H.M.JR: All right? MR. BELL: Yes. H.M.JR: Anything else? MR. BELL: That is all. MR. WHITE: Henderson, at the meeting of the Price Committee, spoke very highly of the cooperation which the Treasury is giving him, and the opportunities that the Treasury is providing his organization to comment on the tax program. H.M.JR: Ferdie, before my press conference this afternoon - somebody in Chick's family was sick. He called me up. I have not seen in the press, and I would like to know. There are two things I would like to get for this afternoon. One is the table on the indirect taxes that the man - married man and single man pay, and then that tax - the other table which shows how much they save up to fifteen hundred dollars. MR. KUHN: Would you like to give that to them this afternoon? H.M.JR: Yes. MR. SULLIVAN: It is in the hearings, Ferdie. H.M.JR: But it is not in the press. MR. KUHN: It is very interesting that the press editorially has been swell about the tax program, I think, Regraded Unclassified 20 - 20 - on the whole, but today for the first time, the financial editors got to work and that is just what you might of expected. H.M.JR: Have you seen it in the press, this table? MR. SULLIVAN: No, I have not, sir. H.M.JR: I don't think they ran it. MR. WHITE: There was an article in the Times- Herald, in the gossip column, about you and Frankfurter. Was it called to your attention? H.M.JR: No. MR. WHITE: Well, I think you would want to read it. I got it second-hand. H.M.JR: Give it to me third-hand. MR. WHITE: Well, you will be able to see it in the article. I can tell you what was reported to me, as being that Frankfurter and yourself were very much disturbed about the possibility of Cripps supplanting Churchill, and rushed to the President to urge him to prevent it, if possible. (Laughter) H.M.JR: Cissie knows more about it than I do. It is news to me. I would like to see it. MR. WHITE: I was hoping it would be news to you. H.M.JR: It is news to me. John, you might stay 8 minute. MR. SULLIVAN: Yes, sir. Regraded Unclassified 21 March 9, 1942 Ed. Foley Secretary Morgenthau Please talk over with me this morning the ad- visability of letting the Tolan Committee on the West Coast know just what steps we have taken during the last few days. of 9:30 meeting 3/9/42- Regraded Unclassified 22 Salaries & Expenses - Foreign Exchange Control-1942 MAR 8- 1942 HONORABLE JCB R. TOLAN, CHAIRMAN HOUSE CONNITTEE INVESTIGATING BATIONAL DEFENSE MIGRATION SAN FRANCISCO, CALIFORNIA THE FEDERAL RESERVE DARK OF SAM FRANCISCO IS WORKING OUT A PROGRAM TO DEAL WITH THE PROPERTY or EVACUEES FROM THE PACIFIC COAST MILITARY AREAS substantially AS GUTLIMED BELOW: [HERE TAXIS IN ATTACHED) THIS PROGRAM IS BRING PUT INTO EFFROT AT THE REQUEST of THE SECURTARY or WAR AND WILL X CARRIED OUT UNDER THE GENERAL DIRECTION OF THE LOGAL MILITARY AUTHORITINS. FULL AUTHORITY - MIXI DELIGATED TO THE FEDERAL RESERVE DANK OF SAN PRANCISCO N CARRY OUT SUCH A PROGRAM. I All ASKING JOHN W. PENIS, ASSISTANT TO THE SEGENTARY, WHO IS IS SAN FRANCISCO FOR THE PURPOSE OF HELPING THE FEDERAL RESERVE BANK TO PUT THIS PROGRAM INTO EFFICT, TO COMMUNICATE WITH YOU AND RESP YOU ANISED AS TO THE PROURESS OF THE PROGRAM. (signed) H. Morgenthau, Je. secretary or THE TREASURY. BBinrd - 3/9/112. - Regraded Unclassified 3/9/42 23 Miss Chauncey: This is the attachment referred to in the Tolan wire of today. Sent teletype - to be delivered to Tolan at 1749 Pleasant Valley Avenue, Oakland, Calif. Copy to be sent to Pehle at Federal Reserve Bank, San Francisco, by teletype. 12:50 p.m., March 9, 1942. Regraded Unclassified SUCGASTED PROGRAM POS THE FEDERAL NENERVE NANK 24 OF SAN FRANCISCO AND STEER PUBLIC AGENCIES TO DEAL WITH PROPERTY OF EVACUEES FRZM PACIFIC COAST MILITARY AREAS. The success of the proposed program will depend upon placing complete responsibility for its execution in a responsible West Coast agency acting under the general direction of the local military authorities. I - Soope of Problem: The evacuation on short notice of tens of thousands of persons from Wilitary Areas on the Pacific Coust raisen serious problems in con- nection with the liquidation of their property holdings and the protection of the property of such persons against fraud, forced sales, and unscrupu- lous creditors. Obviously the emergency will cause financial loss to the roup involved. However, the following program is intended to accord to this group reasonable protection of their property interests consistent with the war effort. II - Legal Authority: Since the program is one besically to assist the evacuee in the liquidation of his property, it is expected that in most instances the evacuee will voluntarily avail himself of the facilities afforded by this program. Governmental sanctions will be necessary to deal with creditors and others who seek unfair advantage of the evacuees. There is ample legal authority now vested in the military authorities and in the Treasury Department which can be delegated to such West Coast agency to deal with this problem without necessity of obtaining further legislation or new executive orders. III - Administration of Program: The nature and urgency of the situation, coupled with the large volume of transactions that will require prompt handling, necessitates the program's being administered by an agency on the West Coast cloaked with full authority to not without reference to Washington. The over-all con- trol of all aspects of the evacuation must obviously rest in the military authorities. Subject to this over-all control by the Army, the direct responsibility for the execution of the property aspects of the program should be placed in the Federal Reserve Bank of San Francisco, which has branch offices in Los Angeles, Seattle, and Portland. The Federal Reserve Regraded Unclassified - 2 - 25 tank will be in & position to obtain the cooperation of other Government encies, and of well-known and experienced Individuals and institutions in the various communities throughout the West Coast area. This coopera- tion, together with the established integrity and ability of the Federal Reserve Bank, will enlist the confidence of all of the affocted groups and discourage gouging by creditors or other self-seeking interests. The Federal Reserve Bank will also work in close liaison with the Federal Security Agency, the United States Department of Agriculture, and other Federal, State, and local public agencies that can be of assistance in dealing with the property during the course of its liquida- tion. These & rencies will undoubtedly be called upon by the military authorities to handle other aspects of the evacuation problem, such as the transportation and resettlement of the evacuees, and their reemploy- ment in new areas. The Federal Reserve Bank of San Francisco, which is the fiscal agent of the Treasury Department, will be clothed with ample authority to execute the program. The Treasury Department will lay down the broad principles and objectives of such program as well as the general procedur to be followed. The Department will also furnish the San Francisco Bank by airplane with the requisite number of trained experts to assist in working out the details of the program in the field and to partifipate 7 its execution. If need be the Department is in a position to provide the Ean Francisco Federal at unee with 100 or more THERE for this purpose. The keynote of this program is speed. It Is believed that it can be put in operation by Monday, March 2, 1942. IV - Outline of Program. A. Properly staffed offices under the direction of the San Francisco Federal Reserve Bank will be opened at once in the local communities from which evacuees will be moved. B. Announcement will be made throughout the area by the Federal Reserve Bank of San Francisco that its representatives in these offices are prepared to assist evacuees with the problem of liquidating their property and protecting them against those seeking to take unfair advan- tage of their plight. C. These representatives will assist in putting the evacuees in a position to obtain buyers, lessees, and other users of their property on fair terms. In cases where the evacuee is unable to select his own agent to dispose of his property, the Federal will be prepared to not M agent for the evacues under a power of attorney or similar arran ement and ke steps to liquidate the property on fair terms. Regraded Unclassified 26 - 3 - D. Evacuees threatened by creditors will be encouraged to come to the representatives of the Federal for advice and guidance. The Federal representative will also discuss the matter with the creditor with the view to working out of fair settlement and limiting the remedies that may be pursued by the creditor who threatens un- fair action. By and large the mere existence of this program of help- ing evacuees will eliminate or forestall most of the sharp practices that are now feared. B. In some cases the property of the evacuee may De such that Itz real value can only be realized at a future time, e.c., Jap- anese novelties. In such cases the Bank's representative will assist the evacuee in arranging for the storage of Buch property if that is the wish of the evacues. F. On a ricultural properties the ank's representative, with the assistance of representatives of the U. B. Department of Agriculture, will attempt to arrange for the leaster or sale of such propert, or if need be for the growing of the crops, with a view to preventing their loss through insttention. G. The Federal Reserve bank of Sun Trancisco and its representatives will be cloaked with adequate authority to cope with problems arising on the basis of existing circumstances. The program will be flexible and at all times the Bank will attempt to keep matters on 8. voluntary basis, satisfactory to the evacuee. where these af- forts fail it may be necessary for the Bank's representative to step in and take the property over for the purpose of obtaining a fair and reasonable liquidation. It is expected that the setting up of this program and the accordance to the evacuees of facilities for the liquidation of their property should greatly expedite the departure on a voluntary basis of the avacuees from the allitary area. 3/4/42 Regraded Unclassified TREASURY DEPARTMENT 27 INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Secretary Morgenthau FROM Mr. White HDW gr Subject: Silver Legislation We are submitting a draft of the silver bill which, during the period of emergency, directs the cessation of silver purchases and authorizes the sale of Treasury silver at not less than thirty-five cents an ounce. We believe that it would be preferable to suspend silver purchases during the emergency rather than to seek permanent vlimination of such purchases because: 1. It will call forth less opposition on the part of silver interests. 2. It will justify your raising the problem at this time purely SB a measure for diverting labor and equipment to war uses. 3. It will not directly raise the question of the desir- ability of our silver policy in the past. 4- It will not prevent Congress from going farther and eliminating entirely all silver purchases, but the responsibility will be theirs and not yours. If you agree with the foregoing, the following steps are sug- veted: 1. Have the President indicate whether he wants the silver question reised at this time. He may prefer not to stir up oppo- sition in Congress on 8. matter of relatively small importance. 2. Get E. statement from the Tar Production Board that (a) more silver on the market at current prices would help the war effort and (b) that silver mining 18 absorbing labor and equipment which could be more profitably used in the war effort. 3. Secure the support and acquiescence of Jesse Jones to the purchase by the Metals Reserve Corporation of high-cost copper, lead, end zine from mines tratdepend on high silver prices to maintain production of these essential materials. When these three steps are satisfactorily completed, you will arobably want to discuss the problem with leaders in the Senate no the House before having the bill presented. You may wish to read the appended memorandum setting forth in were detail the emergency silver program. Regraded Unclassified 28 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Secretary Morgenthau Mr. White FROM Bubject: Silver Legislation We are ready to submit for your approval 8. draft of A bill providing for suspension of silver purchases and authorizing the Treasury to sell silver at not less than 35 cents an ounce during the period of emergency. The bill does not effect the Treasury's power to purchase silver for coinage or to 18sue silver certifi- cates. We feel it would be a mistake to include in the bill authority to sell Treasury silver except with 8. stipulated minimum price. The threat of the enormous Treasury supply of silver hanging over line market without & minimum price at which it could be sold would Arouse much greater opposition to the 6111 by the silver interests, nnd might make passage of the bill uncertain. Moreover, we do not welieve that the authority to sell silver 18 of immediate 1m- portance because with the entire domestic output offered in the market it 1e very doubtful whe ther there would be any substantial demand for Treasury silver at anything like current prices. The addition to the market of domestic output of possibly 50 to 60 million ounces (output for 1942 at 71 cents will be about 70 million ounces) should prevent the price of silver from rising above 35 cents for some time, and might well drive the price Town to 30 cents. If, in addition, en attempt were made to sell substantial quantities of Treasury silver in competition with domestic and imported silver, the price would be still further depressed-- not much, of course, would depend on the quantity of silver the Treasury tried to sell. Furthermore, the amount of silver offered on the market would very likely be further increased by the fact that such legislation would encourage countries to sell some of the silver they now hold as monetary reserves. Should the expension in the industrial uses of silver prove to De so great that D. shortage appears notwithstending the added supply from domestic output, the Treasury could, under the terms of the bill drafted, sell some of ite silver. The drafted 6111 also contains a provision for the con- tinued purchase of domestic silver at the 71-cent price for n period of three months after the enactment of the bill. Regraded Unclassified 29 - 2 - AF the mearings and discussions on the bill will certainly last many n, the silver producers will have B period of at least four to rive nonths in which to make whatever adjustments may be necessary. Filver wined during the period of suspension would not be eligible Mr purchase by the Treasury as newly-mined domestic silver when THE emergency 18 terminated. A9 the supply of silver available for industry will be increased F full amount of the domestic output, and B.B. the Treasury will bis to sell silver at 33 cents an ounce or more, it is not re- 98 necessary to provide for lending Treasury silver for pe- vershle industrial uses. TOA odvantages of suspending silver purchases at this time are They are as followe: 2. The labor, equipment, and waterials released from mines reduce predominantly silver can be utilized in the war accept. The increased supply of silver in the domestic warket will ly drive down somewhat the price of silver but with a lower vice of Filver more will be used in industry and more of the cow- peting notels will De free for defense use. The South American countries producing silver are eccilmi- sting old and dollar balances now. Therefore, 8. slightly reduced rice of gilver will not significantly impair their exchange beition particularly 68 the principal effect of the lower price 112 de to reduce profits withdrawn in dollar exchange by American dne owners. Though It 1s true that our silver purchases are inflationary ná though much can be made of that in public discussion, actually extent to which the coinage of silver adds to the money supply of e country is so negligible as to warrant little emphasis on the aspect of the problem. The objef objection to suspending the purchase of silver is t it will reduce the receipts and hence the output of mines producing copper, lead, end zinc along with silver. T:18 is a verious objection in view of the need for these materials for Latense, but it cen be met very simply by the Metals Reserve Corporation which already has the a thority and pursues the Colloy of paying higher prices for higher-cost output. The application of this policy to the silver problem needs (12) new legislation but morely requires B. prior understanding Secretary Jones that he will take care of such contingencies, to st. when appearing before the Congressional Committees you 11) be able successfully to meet any objection that cessation e Anmestic silver purchased by the Treasury will reduce the Regraded Unclassified 30 - 3 - supply of domestically-mined copper, lead, and zine. With regard to foreign copper, lead, and zinc, produced along with silver, the etale Regerve Corporation can, in exceptional cases, also pay eligitly more for such metals. In any case, the decrease in price to foreign silver producers will probably not be large enough to shriously curtail production abroad during war time. Two disadvantages in suspending the silver purchase program are: 1, It will De interpreted as e confession by the Adminis- tration that its silver purchase program was & mistake. I think 1% mint be Justly said, however, that the silver purchase program untle not suited to a country at war was well suited to a country in depression. Nonetheless, the step will be heralded by the press and commentators as the "deserved end of E ridiculous policy instituted by the present administration." 2. If the suspension of silver purchases were to reduce the Jorket price of silver below 35 cents an ounce, it would show an even reater disparity between the market price of silver and the value of silver bullion on the books of the Treasury. However, nless very considerable quantities of silver are sold at 35 cents D. bunde, there will be no bookkeeping loss. Regraded Unclassified 31 BILL To suspend certain provisions of the Silver Purchase Act of 1934 and of the Act of July 6, 1939, to provide for the sale of silver, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That Section 3 of the Silver Purchase Act of 1934, 48 Stat. 1178 (U.S.C., title 31, 600. 734a), is hereby suspended: Provided, That nothing in this Act shall be construed to limit the authority of the Secretary of the Treasury to carry out the provisions of any contract or agreement made pursuant to said section prior to the enactment of this Act, or to acquire and make payment for silver pursuant to any such con- tract or agreement. Sec. 2. Section 4 of the Act of July 6, 1939, 53 Stat. 998 (U.S.C., title 31, BAC, 316c), is hereby suspended, such suspension to become effective on the ninetieth day following the date of enact- ment of this Act, and no silver mined during the period of suspension shall be eligible for deposit pursuant to the provisions of said section 4: Provided, That within such reasonable time after the effective date of such suspension as the Secretary of the Treasury shall determine, the coinage mints shall, in accordance with the pro- visions of said section 4 of the Act of July 6, 1939, and the Regu- lations of the Secretary of the Treasury issued thersunder, receive and settle for deposite of silver mined prior to the effective date of such suspension. Regraded Unclassified 32 - 2 - Seo. 3. The Secretary of the Treasury, without regard to any other provision of law, 1s heroby authorized to sell at home or abroad, in such amounts, at such rates in excess of thiry-five cents per troy ounce .999 fine, at such times, and upon such terms and con- ditions as he may deem reasonable and most advantageous to the public interest, any silver bullion in the monetary stocks of the United States not then hold for redemption of any outstanding silver certifi- eates. Sec. 4. Sections 1 to 3, inclusive, shall remain in force only until December 31, 1944, and after such sections coase to be in force, any provisions of law amended or suspended thereby shall be in full force and effect as though this Act had not been enacted. Regraded Unclassified 33 BILL To suspend certain previsions of the Silver Purchase Act of 1934 and of the Act of July 6, 1939, to provide for the sale of silver, and for other purposes. is it masted by the Emate and House of Representatives of the United States of America in Congress assembled, That Section 3 of the Silver Purchase Aot of 1934, 48 Stat. 1178 (U.S.C., title 31, DOC. 734a), is hereby suspended: Provided. That nothing in this Act shall be construed to limit the authority of the Secretary of the Treasury to carry out the provisions of any contract or agreement made pursuant to said section prior to the enactment of this lot, or to acquire and make payment for silver pursuant to may such oon- tract or agreement. See. 2. Section 4 of the Act of July 6, 1939, 53 Stat. 998 (U.S.C., title 31, seap 3160), is hereby suspended, such suspension to bacome effective on the ninetieth day following the date of mast- ment of this not, and no silver wined during the period of suspension shall be eligible for deposit pursuant to the provisions of said section 4: Provided That within such reasonable time after the effective date of such suspension as the Secretary of the Treasury shall determine, the coinage sints shall, in accordance with the pro- visions of said section 4 of the Act of July 6, 1939, and the Regu- lations of the Secretary of the Treasury issued thereunder, receive and settle for deposits of silver mined prior to the effective date of such suspension. Regraded Unclassified 34 - 2 - Sec. 3. The Secretary of the Treasury, without regard to any other provision of law, is hereby authorized to sell at home or shroad, in such amounts, at such rates in excess of thiry-five cente par troy ounoe .999 fine, at such times, and upon such terms and oon- ditions as he may deem reasonable and most advantageous to the public interest, any silver bullion in the monetary stocks of the United States not then held for redemption of any outstanding silver certifi- cates. Sec. 4. Sections 1 to 3, inclusive, shell remain in force only until December 31, 1944, and after such sections coase to be in force, any provisions of law amended or suspended thereby shall be in full force and effect as though this Act had not been enacted. S.J.S.S.U+h ZZH XR BB yr wit Regraded Unclassified 35 MILORANDUM March 9, 1942. M: The Secretary ILS TOM Mr. Sulliver I understand that the Attorney General has stated that there vill be dectroyed 567,000,000 gallons of bootleg mash and that he has inquired why this could not be converted into distilled alcohol. During the fincal year 1941, the following quantities of alcohol, distilled spirite and mash were seized: Alcohol 40,449 callons Low-proof moonshine spirits - - 234,947 II Mash 6,866,078 11 It is the policy of the Alcohol Tax Unit to remove all Astilline equipment and materials having a tangible value to a place X storage whenever the cost of removal is not out of proportion to the value of the property. All alcohol seized at. illicit distilleries 18 removed, forfeited and cloared for disposition through the Fro- curement Division except in those instances where the distillery id in such an inaccessible place that the cost of removal exceeds the value of the alcohol. The cost of removal and re-distillation of low-proof moonshine spirite exceeds its value at the time of seizure and hence is destroyed on the prenises. The same procedure la followed with the mash. The 6,868,078 gallons of mash seized in 1941 was taken from 11,000 different illicit distilleries, almost all of which were in inaccessible locations. Mr. Serkshire reports to me that he knows of no alcohol, low-proof moonshine spirits or mash in the custody of the Department of Justice and that the Treasury Department not only has no quantity of low-proof moonshine spirits or mash but does not contemplate any change in its policy to retain rather than to destroy either of these two commodities. Regraded Unclassified 36 March 9, 1942 10:31 a.m. HMJr: Hello. Operator: Mr. Patterson. HMJr: Hello. Hello, Bob. Robert Patterson: Hello, Henry. HMJr: How are you? P: Fine. HMJr: Bob, I'd like if you could clear up something for me. P: Yes. HMJr: Is it correct or incorrect that the Army no longer accepts volunteers except for the Air Corps. P: No, it accepts them for all. HMJr: It does. P: Yes. In two ways. HMJr: Yes. P: A man can go to a regular recruiting station, or he can go to his local draft board and stand forth as a volunteer and be sent in by them. HMJr: Is that - that still 1s true? P: That still is true. HMJr: Because I was told yesterday by a General, who shall be nameless, that they no longer took them other than for the Air Corps. P: Well - no, they'll take any recruits. They no longer can specify their branch of service, like infantry or cavalry or field artillery or some- thing. They Just are taken into the Army at the Regraded Unclassified 37 - 2 - recruiting station, sent to a reception center, and are there assigned to a. branch, and they have no right to take their own. HMJr: Yes. P: But they'll take recruits. HMJr: But during that P: I made inquiry on it within the last week. HMJr: You did. P: Yes. HMJr: But once they get in there, if this man wants to be a candidate for the officers' training school once he gets in after his three months, he can become a candidate, can't he? P: Yes. HMJr: What? P: Yes. HMJr: Is that correct? P: Yes. That 1s right. HMJr: But let me just go through - if & man wants to volunteer, he goes to his - he goes where? P: He can either go to an Army recruiting station HMJr: Yes. P: as in Boston or New York; or he can go to his local draft board. HMJr: I see. And say he wants to volunteer. Would it be an awful lot of bother to have one of your people just give me the thing in Army language? P: I'll send 8. little memo over to you. Regraded Unclassified 38 - 3 - HMJr: Just have somebody write it out. P: I'll send a little memo over to you. HMJr: Just if a person wanted to - a boy wanted to volunteer, how would he do it. P: Yeah. HMJr: And then P: I've got the thing up because it affects - my own boy 18 going to do it. HMJr: Well P: And he - I told him to go to the Army recruiting station in Boston. HMJr: Your own boy's going to do it. P: Yeah. HMJr: And then - did you work it out from them - I mean, how he can become 8. candidate for officers' training? P: He - yes, he can - he'll be taken in and sent to one of what they call the replacement training centere. HMJr: Yes. P: Infantry or artillery or cavalry or anything else, and he makes application to go to an officers' candidate school and is eligible to go after four months. HMJr: I 800. Well, does it P: He will have to serve in the ranke four months. HMJr: Does it make a difference what reception center he goes to as to what branch of the service he wants to go to? P: Yes. The reception - oh, no, not reception center. Regraded Unclassified 39 - 4 - HMJr: Well, what's the next thing where he P: Replacement training center. HMJr: Does it make 8. difference? P: Well, he - the replacement training center will, when he gets into one of those - that's for infantry, say, that pretty much sete what branch of the service he's going to be assigned to. HMJr: So if he wante to go into infantry or cavalry, he's got to make up his mind at the time he goes in. P: Well, yes, and he could only state his preference and he may not get sent to it. HMJr: I see. P: In the old days, & year ago, a man who volunteered for the regular Army could say, "I want to serve in the infantry." HMJr: Yeah. P: And that would be the term of his enlistment. HMJr: Yeah. P: ne can't do that any more. HMJr: Yeah. P: All he can say 18, "I would prefer to serve in the infantry." Maybe he gets 1t, and mybe he's sent to the Quartermaster Corps. HMJr: I 800. P: But I'll send you a little memo over. HMJr: Would you? P: You bet. HMJr: I mean, just the way you'd do it for your boy; because I have my boy in mind also. Regraded Unclassified 40 - 5 - P: Yeah. HMJr: You see? P: Yeah. HMJr: And he's interested. P: Yeah. The Air Corps, of course, 18 a separate thing. You can volunteer direct for the Air Corps. HMJr: No, he isn't thinking of the Air Corps. P: That's that Flying Cadet Course, and 80 on. HMJr: Yes. P: That's a different thing. HMJr: And is there anything over there that you've got which describes each of the services? P: Yes. HMJr: There is. P: Yes, HMJr: Could that be sent over, too? P: Yes. I can do it. HMJr: Thank you BO much. P: Right. Good-bye. Regraded Unclassified WAR DEPARTMENT 41 OFFICE OF THE UNDER SECRETARY WASHINGTON, D.C. March 9, 1942 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. 0, Dear Mr. Secretary: The following is the information which you requested with respect to enlistment in the Army: Men aged 18 to 36 may enlist at any U.S. Army Re- cruiting Station and men aged 18 to 45 may volunteer for in- Luction at their Selective Service local board. At both the recruiting station and the local. boards men aged 16 to 27 may enlist in the Army Air Force. There are only two choices available, the Army Air Force and the Army of the United States. At the reception centers where the men are sent after induction they are classified and assigned to the various branches of the service. In their classification they may state a preference for a branch of the service, such as the Field Artillery, and 1f there are vacancies in such branch and they possess the requisite qualifications, they are assigned to the branch of their preference. All men in the ranks have an opportunity to qualify for an Officers Candidate School after three months service as an enlisted man. It is expected that in this calendar year there will be approximately 75,000 commissione given to gradu- ates of the Officers Candidate Schoole in the Ground Forces alone, Men who enlist in the Air Force and pase the necessary test for a flying cadet at completion of their training period are commissioned in the Air Force. Most of the flying personnel in the Air Force, such as pilots, navigators and bombardiers are commissioned personnel. The Air Force offers one of the broadest opportunities for a young man to become A commissioned officer. I trust the foregoing information la sufficient for your purposes, If not, I will be glad to furnish you further details. Best wishes. Sincerely yours. ProPPett Robert P. Patterson, Under Secretary of War. Regraded Unclassified 42 March 9, 1942 2:38 p.m. HMJr: Hello. Operator: Miss Tully. HMJr: Hello. Grace Tully: Yes, Mr. Secretary. How are you, sir? HMJr: I'm very fine. T: That's good. HMJr: Physically. T: Good. HMJr: Mentally, I'll let you say. T: (Laughs) You sound all right to me; I think I'll pase you. HMJr: Thank you. If the Presidente 18 free and kindly, I'd like to have a little chin Wednesday morning. T: I see. All right, sir. HMJr: You don't sound very enthusiastic. T: I don't know what's happening Wednesday morning, but I can let you know. I heard 8 story about you. HMJr: What was that? T: Got a minute? HMJr: I've got ten minutes. T: Well, the President's supposed to be driving around - up around Hyde Park..... HMJr: Yes. T: and got into the adjacent county. Regraded Unclassified 43 - 2 - HMJr: Yes. T: And ran out of gas. HMJr: Yes. T: Have you heard it? HMJr: No, no. it T: And 80 he - they wanted to get some gas and they asked him for the money, and he didn't have any money with him. HMJr: Yeah. T: So he decided he'd have to get a check cashed and he went to the bank in this little place and presented the check. HMJr: Uh huh. T: Well, they looked at it, and it was a pretty big check to buy gasoline with. HMJri Yeah. T: So they. decided they'd have to call Secretary Morgenthau and ask him about this check, BO they called you. HMJr: Yeah. T: And you said, well, yes. He told you all about his running out of gas, you Bee, and didn't have any money, and 60 forth and HMJr: Wait a minute. The President called me or the bank called me? T: No, no, the vice president of the bank called you. HMJr: Oh, the vice president of the bank. T: Yes. Because it was BO big & check he wanted your say-so on it, whether it was all right to cash it. Regraded Unclassified 44 - 3 - HMJr: Yeah. T: And so you eaid, "Well, now, you've told me all the circumstances and you told me it's a big check. How big 18 it?" HMJr: Yeah. T: The vice president says, "It's for B million dollars." HMJr: Yeah. T: And you said, "Oh, give him a hundred. He won't know the difference." HMJr: (Laughs) T: I haven't told that to him yet, but I will. (Laughs) HMJr: (Laughs) T: I haven't heard a real good joke in a long time, and I like that one. HMJr: (Laughs) Oh, that's wonderful. T: That's pretty fresh on your part, but still (Laughs) HMJr: Pretty fresh on my part? (Laughs) Oh, that's the first good belly laugh I've had in I don't know when. T: Good. HMJr: Come up and 800 me sometime. T: All right, fine, I will. (Laughs) HMJr: (Laughe) Oh, good. T: I'll call you later on the other. HMJr: All right. T: Good-bye. (Laughs) Regraded Unclassified 45 Maron 9, 1942 FOR THE SECRETARY'S FILES Meeting in the Secretary's Office March 9, 1942 2:30 Dalla Present: Mr. A. Law Mr. a. Morris Mr. T. Helgeson Mr. C. Bland Mrs. Klotz ) Treasury Mr. White Three of these men were from the Pontiac plant in Flint, Michigan. (The fourth was from the C.I.O organization in Washington.) They had telegraphed last week to Secretary Morgenthau asking for an appoint- ment, This conference was in answer to that telegram. Their spokesman stated that the plant normally employed 5,200 persons, but that since January 28 only 500 had been employed (they also had a three-week lay-off during the Christmas season). Of the 500 now in the plant, 250 were tool and dye workers who were doing virtually nothing. These tool and dye workers, though on the pay roll, had requested to be permitted to go to some other plant where they could be helping to produce, but were told they would have to resign to de 50, Inasmuch as that meant loss of seniority, they preferred to stay though they were not engaged in production. The representatives of the men had requested & plant manager to give them some indication of when work might be resumed, but were un- able to get any satisfactory explanation from the plant manager. They hoped that the Secretary would be able to suggest how they might pro- ceed to get some information or assurance that there would be work. They stated that unless the men were promised work soon, some of the men would have to move and try to get work in other parts of the country. They also said that the morale of the men would be seriously effected. The Secretary asked what they thought their plant could produce. They said they thought it could produce ambulances or fire trucks. The Secretary asked whether they thought they could produce "invasion landing" boats. They replied that they had a modern plant with large presser, welders, and other skilled workers and they felt the plant could be adapted to such work. Regraded Unclassified 46 - 2 - The Secretary telephoned Assistant Secretary of the Navy Patterson, and told Patterson that he had this delegation of workers from the Pontiac plant in his office who wanted to obtain some work for their plant. He asked Patterson whether he could give them any time to listen to their story to see whether he (Mr. Patterson) could be of any assistance in getting that idle plant working on some defense needs. Patterson replied that if they would come over at once he would talk with them. They left at once for Mr. Patterson's office. The Secretary asked the men to let him know of the results they obtained. you Regraded Unclassified 47 March 9, 1942 2:56 p.m. HMJr: Hello. Operator: Mr. Patterson. HMJr: Hello. Bob. Robert Patterson: Yes, Henry. HMJr: Henry. I'm back at you again today. P: Yeah. HMJr: Bob, I've got a very fine delegation here of automobile workers from Pontiac. Remember you and I went into that once before? P: Yeah. HMJr: And with your help we were successful. They represent five thousand workers from Pontiac with no work and nothing in sight. Hello. P: Yeah. HMJr: And they want to go to work. P: Yeah. HMJr: I wondered if you could give them enough time to hear their story, because P: I'd be glad to see them. I can see them right now if they can come over. HMJr: That's wonderful. P: I'm in the new War Department building at Twenty-first Street and Virginia Avenue. HMJr: Well, how can I get them into your building? P: Oh, they'll pass them. HMJr: They will be? Regraded Unclassified 48 - 2 - P: Yes. I'll send down word. HMJr: Well..... P: How many? HMJr: There are four of them. P: Yes. HMJr: Mr. Bland - hello. P: Yes. HMJr: Mr. Law. P: Right. HMJr: And Mr. Morris. P: Mr. Bland and party. HMJr: Mr. C. Bland and party. P: Right. HMJr: I'll send - they'll be there in ten minutes. P: Right. HMJr: And, as I say, they want to go to work. P: Yeah, Yeah. I'll be glad to see them. HMJr: It's a General Motors plant. P:. Yeah. HMJr: Let me know if there's anything you can do. P: I will, Henry. Send them over. HMJr: Thank you. P: You bet. Regraded Unclassified 49 March 9, 1942 3:00 p.m. FINANCING Present: Mr. Haas Mr. Buffington- Mr. Murphy Mr. Lindow' Mr. Bell' Mr. Stewart Mr. Viner- Mr. Sullivan H.M.JR: Say, listen, Dan, if you are going to go to War Bonds instead of Defense Bonds, why don't you stop the buying? MR. BELL: We have. H.M.JR: As of when? (Mr. Stewart and Mr. Viner entered the conference.) MR. BELL: Oh, last Friday. H.M.JR: Did you? MR. BELL: Yes. We have got in the mill eighteen million bonds. H.M.JR: Well, you have got twenty-five million on hand. MR. BELL: Yes, and we have got eighteen million more in the mill. That is over forty million bonds we have got on hand that we can't possibly use before July 1. Regraded Unclassified 50 - 2 - H.M.JR: I don't agree with you. I believe you can sell War Bonds and have them stamped Defense Bonds and nobody will know the difference. Walter Stewart wouldn't know the difference. He never looks at a bond. MR. STEWART: I certainly wouldn't know the dif- ference. H.M.JR: Would you look at a bond to see whether it is B. Nar Bond or & Defense Bond? MR. STEWART: No. H.M.JR: There you are. He is just the people. MR. BELL: Well, I am not a promotion man. I would like to do that. You will have to talk to Harold Graves' section. H.M.JR: Well, I don't care, Dan, I am not going to wait after the first of July for anybody. MR. BELL: Well, we are planning to go July 1 to War Bonds and dispose of as many of what we have not in the mill as possible. H.M.JR: Mr. Stacy May - have you got B pencil? MR. BELL: Yes. H.M.JR: says that January - his figures show that there were two and a half billion dollars spent, he figures, on the war. MR. BELL: January? H.M.JR: January. February, his tentative figure is two billion six. We spent four billion in June and five and a half in December. That was as of March 7. I Am planning to see him every two weeks now. MR. BELL: That includes all expenditures? Regraded Unclassified 51 - 3 - H.M.JR: Everything. He says it includes factories which are being started and Lend-Lease and everything for war. MR. BELL: Well, ours includes Lend-Loase, but they don't include RFC. H.M.JR: Well, he said everything that is for the war. MR. BELL: Does that include private? H.M.JR: No, I don't think so, MR. BELL: Just governmental expenditures? H.M.JR: Yes. Call him up, Haas, and ask Stacy May on that question, will you? Ask him, George, whether that is private or governmental. M. BELL: I think he includes all the Defense Plant and the RFC and those subsidiaries plus the Treasury, and he may put his on his checks-issued basis. H.M.JR: Can I pass along the compliments you gave the boys at lunch? MR. STEWART: Yes, indeed. H.M.JR: Mr. Stewart said that George and you men were doing A better job in this war than was done in the last war in preparing the technical material for financ- ing, which I thought was quite a compliment, coming from Mr. Stewart. MR. HAAS: Thank you. We appreciate it greatly. H.M.JR: He said you didn't look quite as much like cranks as some of the other fellows. All right, Dan, you are licked before you start. (Laughter) Regraded Unclassified 52 4 MR. BELL: I suppose so. What is the use of start- ing then, if we are already licked? H.M.JR: Well, 20 on, let's have the program. MR. BELL: Well, it is quite large, and I suppose the best way to do is just about what we did this morn- ing. Viner and Stewart will take these tables and eliminate some of the detail and let each one of these boys explain what the table means, and we will get at the final problem that way. Lindow, would you give the Secretary that Table 1 and 2 and just hit the high spots? MR. LINDOW: I think you have seen these tables in an earlier draft. The first table shows the flow of goods and services to Government and to private sectors of the economy and compares the application of incomes made available as between these two sectors, putting the savings and taxes against the Government sectors, since we can borrow the savings either directly or indirectly, and it shows that Government will have available through taxes and savings eleven billion dollars less than it will spend for goods and services. Similarly, private persons will have available for spending after their savings eleven billion dollars more for goods and services than there are goods and services available. H.M.JR: It sounds like a phoney to me. (Laughter) I mean, the fact they come out the same isn't an accident? MR. LINDOW: No, that is the mirror of it. The fact that Government doesn't take away that extra eleven billion from individuals leaves it with them and leaves us short. H.M.JR: I see. MR. LINDOW: That is the so-called gan. Now, from this table we have picked un the savings Regraded Unclassified 53 - 5 - figures which add to twenty-six point five billions, and we usually apply them-- (Discussion off the record.) MR. LINDOW: So in the second table we take the amount that we have to finance, which is thirty-nine point eight billions, and we say that there are two sources of funds, two broad sources. The first is the savings and accumulations from current income during the year, which we get from the first table. So much for personal savings, 80 much for business savings, so much for depreciation funds that eren't spent by corporations, those items. We distribute them over the various types of Government securities which we would sell. We would do that by applying some of the savings as direct invest- ments, individuals buying baby bonds, for example, and also the indirect items where they might repay a bank loan or they pay money to insurance companies, and they have a net increase in their assets, and then they can buy ordinary marketable issues, so we do that for each type of Government security, make the best estimates we can. Then we have a residual amount which has to be borrowed as well, but we can't get it from savings because there aren't any left. We have broken the residual amount down into the funds we can get from idle balances. H.M.JR: How much can you get from savings? MR. LINDOW: Twenty-six and a half billions. H.M.JR: And that is what we should get from savings? MR. LINDOW: Yes, sir. No, that wouldn't be in savings bonds, Mr. Secretary, because some of it we would get through banks. If an individual pays off 8 bank loan, then we could borrow the same amount from the bank. H.M.JR: How much are you sure we could get through War Savings Bonds? MR. LINDON: Seven billion two. Regraded Unclassified 54 - 6 - MR. BELL: That is from a non-inflationary source. MR. LINDOW: That is right, that 18 from current incomes. We show some others that would come from idle balances. We have a billion and a half in that, giving us eight points seven altogether, but you see the amounts individuals would pay to banks - a fellow pays on a housing mortgage, for example. If he pays off that loan, then we can borrow from the bank the same, amount, end it is just as good as though we got it directly from the individual, because the bank deposits went down when the fellow paid off his loan, and then the bank can buy a bond from us and the deposits will 70 haci. to just where they were before, and there has been no inflationary effect, so out of the twenty-six and a half billions total savings, we figure we can only get in savings bonds a little over seven billion, but we would get from banks eight billion. (Mr. Sullivan entered the conference.) (The Secretary held a telephone conversation with Alex Budge of Honolulu.) MR. SULLIVAN: I turned this over to Randolph Thurs- day. There was a telegram. H.M.JR: I know. Tell Randolph, and yourself, put n little heart in this. The main thing I am worried about is the interest. MR. SULLIVAN: There is quite a lot to it. H.M.JR: All right, but sometime tomorrow. They are worried over there, and they don't know when they are going to be attacked again. You know. Haven't we got the right to waive interest? MR. SULLIVAN: No. H.M.JR: Have you not to charge six? MR. SULLIVAN: Sure. H.M.JR: Under the law? Regraded Unclassified 55 - 7 - MR. SULLIVAN: If they are financially unable to pay it, you can compromise the principal as well as the interest, but that isn't the situation. There is a great deal more in this thing. H.M.JR: Is there? MR. SULLIVAN: Yes, sir. H.M.JR: He says it is the little fellows. Couldn't the fellow that has to pay five thousand dollars or less get the right to waive interest? MR. SULLIVAN: You can always compromise for inability to pay, sir. H.M.JR: I know, but that keeps them on the-- MR. SULLIVAN: I think it would be very bad to give them a blanket waiver, because there are B. great many of those people who can afford to pay better than most people in this country. H.M.JR: Well, I haven't been in on it, but let's have B. little heart over reason. MR. SULLIVAN: All right. H.M.JR: I mean, I would approach it from that angle, John. MR. SULLIVAN: Well, it is very difficult not to go overboard. I mean, you get enough hard cases to-- H.M.JR: No, h-e-a-r-t. MR. SULLIVAN: I know, but I say it is difficult not to go overboard in the direction in which you are pointing. H.M.JR: Well, I wouldn't mind going overboard on interest. If it was a question of waiving interest, I wouldn't worry about that, even though we favor 8 couple Regraded Unclassified 56 - 8 - of big fellows. MR. SULLIVAN: Well, we will talk with you about it. H.M.JR: I mean, that wouldn't worry me. MR. SULLIVAN: We will talk with you about it. H.M.JR: O.K. MR. LINDOW: I wanted to explain that the twenty- six point five billion that we estimated for savings, 3.5 well as all the other estimates, which make all these parts into a logical whole, is based on existing habit patterns and pressures as We can see them at the time. Now, if you had a lot of rationing and that resulted in sterilizing some of the excess funds, it would result in greater savings. If you stepped up the baby bond program A great deal, that might result in greater sav- ings and further increases, you see. So that the twenty-six five is based on what we could see at the time, rather than allowing for the future steps which were not already in the cards as we could see them. MR. BELL: Even advance of the taxes from last year to this year might have some effect. MR. LINDOW: That is right. Although We did take into account the effect of the new tax bill which had been stated in the President's budget. MR. BELL: But not the withholding end of it? MR. LINDOW: That is right. So adding together, then, the twenty-six five from current savings and thirteen three from what we might call inflationary sources, you get the thirty-nine eight that you have to get, and that includes borrowing from banks of eight point eight that doesn't come from current savings. That is, it isn't offset by reductions in loans or the mere accumulation of bank balances. Regraded Unclassified 57 - 9 - MR. BELL: You will notice, Mr. Secretary, that this provides for seventeen billion dollars borrowing from the banks, in the next to the last column. MR. LINDOW: This figure over here. MR. BELL: Eight two comes from non-inflationary sources, and eight eight comes from inflationary sources. MR. LINDOW: We have the two new proposed securities in here too. The new short-term one which we figure will yield about three point eight billions and the new long- term one which would give about two point six billions. Also tax notes which we figure at 8. billion two. H.M.JR: Well, I will say this, George, this is what I asked for anyway. MR. HAAS: That is right. That is what you have been asking for. H.M.JR: You remember, I said where can we get it from. MR. HAAS: That is right. MR. LINDOW: I might say a word about the estimates. We talked to each of the members of the group that you asked to have a representative appointed from each agency. We went over the general approach and the figures in this table and although there are differences about individual figures here and there, nobody felt that the conclusions you would draw from the table were misleading. H.M.JR: Would you publish this, Walter? IR. STENART: Well, if I published anything it would be this first Table 1. Then it seems to me I would do It at a time when I was making a drive for some particu- Iar way of meeting the gap, some combination of-- H.M.JR: You wouldn't publish Table 2? Regraded Unclassified 58 - 10 - MR. STEWART: Those seem to me more - having a larger margin of error because Table 2 carries out the assumption that you are going to have the gap of eleven, that you have got to meet it by some method. If one said there is a gap of eleven, it has got to be met by some method, such as withholding taxes or more rationing or something else, what combination would meet it? This poses the question and this undertakes to answer it. H.M.JR: How about you, Jake? MR. VINER: Why, I think it would be helpful to publish one. It just possibly might result in suggestions which would either improve the estimating or - it would also be educational in terms of explaining to the public that there is a gap that has not yet been solved. I would agree with Stewart that I wouldn't publish two quite in its present form. I would like to see two published, too, but just reword it a little 50 it is more like one, as a problem chart. This is still in & preliminary stage, because two really states - two is one carried into application and broken down, but it is - two has not yet been reworded as much as one has been reworded so as to indicate that it is a problem chart. Don't you agree that if two were to be published, it would be more of these MR. LINDOW: Yes. MR. VINER: warning labels. I think I would be inclined to have two published too, because if outside people were going to get to work on that, two would give them a good deal of help in testing one. MR. LINDOW: The only difficulty 1 see in publish- ing either table is that it might be misinterpreted. Eleven billions - the eleven billion problem has to either be solved, Mr. Secretary, in order to retain the trice assumptions we have made here, or the price rises will be a lot larger than we have allowed for, in which onse the gap will be bigger than eleven billions. H.M.JR: But Congress hasn't yet got very excited Regraded Unclassified 59 - 11 - about this price question. It 1sn't - isn't one of the ways to get them excited to show them something like this? MR. BELL: I think if you were making B. drive for additional taxes or something like that, it might be a good time to bring it forward. MR. VINER: I think that Stewart's point that one and two oughtn't to be published unless there was to be some suggestion to the public as to ways in which this problem could be met - in other words, the Treasury oughtn't to throw a fiscal problem to the public. The Treasury has got to present programs to the public. It presents a problem and it also has to present at least & choice of solutions so that you would have to have in mind either an intensification of the tax program or withholding or forced saving or an intensified Defense Savings Bond campaign or say, "This is going to be Henderson's part." MR. HAAS: Henderson has already put out the con- clusion of the table. H.M.JR: Yes, but nothing like this. MR. HAAS: But not the detail of it, and he - that is all I had. H.M.JR: What do you think, George? MR. BUFFINGTON: I think it is very enlightening to feel as Mr. Viner does, until you have got some sug- rested solutions, it might be a dangerous or unwise thing to put it out. H.M.JR: I think I will sort of try it out. Now, where do we 20 on from here? Let me get the whole story first. What is the next thing? MR. BELL: The next step is the table that Mr. Murphy will explain on the monthly financing. I don't think he needs to go into detail. He can point out the main figure there, the amount that will come from the member Regraded Unclassified 60 - 12 - banks of the Federal Reserve System. These two tables don't jibe as to figures, because this covers fifteen months - sixteen months, rather. H.M.JR: Go ahead, Professor. MR. BELL: Yes, sixteen months, whereas the other one covers the fiscal year. MR. MURPHY: This table is to show by months how WE ght finance B. program set out by the fiscal year 1943. We set out by estimating that during this time we will get twenty-nine point nine of revenues, and I think it would be apropos to mention in this connection that in distributing these revenues between months in accordance with the proposal of Mr. Paul and yourself before the House Ways and Means Committee, you don't get the seven billion dollars that the budget provides for during the fiscal year. You get seven billion dollars and more on an ultimate annual basis, but you don't get it 28 provided in the budget during the fiscal year. So we have assumed in this table, putting it on a budget basis, that you will get seven billion dollars in the fiscal year and have distributed on that basis, but in order to realize the whole twenty-nine point nine, it would require to that extent a tightening up in the tax proposals to advance collections so that you would get seven billion dollars during the fiscal year. That gives us our first figure of twenty-nine point nine of revenues to be received during the sixteen-month period. During that period, defense expenditures will be sixty-four point three, distributing the amount on a constantly rising scale. Non-defense expenditure is eight point five, giving us seventy-two point eight of expenditures. You will have B budget deficit of forty- two point nine, and you will need four point three in addition for the corporations, giving the total amount to be financed, forty-seven point two. Now, we have estimated that you will be able to realize B total of five point five from trust funds. That includes the two billion dollars addition to the Regraded Unclassified 61 - 13 - Social Security program. And nineteen point one from non-marketable securities, which include the two tap securities. That will leave twenty-two point six to be rasied in the market during this period, of which we estimate that you can get three point two from purchasers other than banks. You see, the initiation of taps will in itself take out most of the purchasers other than banks for your market securities. That will leave nineteen point four to be purchased by banks, of which we estimated that perhaps one point three could be sold to non-member banks. That is assuming that they take the same share of the increase that they have of the present holdin of securities, and an additional four point three could be sold to the banks merely re- placing an equivalent amount of loans which will be decreased as a result of restrictions on consumer credit, priorities, allocations, et cetera. That will leave thirteen point eight to be taken by the Federal Reserve System and by the Federal Reserve System I mean the System and its members combined. If excess reserves will be maintained at their present level, ignoring all factors other than the increased reserve - amount of required reserves which will occur merely from the member banks buying bonds and thereby increasing their deposits, the Federal Reserve Banks will have to purchase fifteen dollars and twenty- four cents worth of socurities for every dollar's worth that is taken by the Federal and members together. If they did that, the purchases by Federal would exactly offset the increased required reserves that would occur from the member banks purchasing the others. If that were done, then during this sixteen months' period, the member banks would purchase eleven point seven billion and Federal would purchase two point one billion of Governments. MR. HAAS: That would increase reserves-- VR. BELL: In other words, existing reserves of three billion plus and to sell to the member banks eleven billion seven hundred million dollars to maintain those Regraded Unclassified 62 - 14 - reserves, the Federal Reserve banks would have to buy two billion one hundred million dollars worth of securities in the next fifteen months in the market in order to supply those reserves, H.M.JR: How about if they change those reserves? MR. BELL: Well, that is the same effect. MR. MURPHY: Another way of doing it. H.M.JR: Is that an easier way? Doesn't that make it mentally easier for the banks? MR. MURPHY: You mean the requirements? H.M.JR: I mean why can't they lower it. MR. MURPHY: We have argued, and it would be better to purchase securities in the market rather than lower reserve requirements for these reasons. In the first place, it permits 8 mich finer, nicer adjustment than you can get by changes in reserve requirements. You can only change those very occasionally; and, in the second place, when reserve requirements are reduced from the point of view of an individual bank, it merely means this. It has the same amount of money that it had before, but 8, law has been changed. Less of it is required. On the other hand, when the Federal Reserve System purchases securities in the market, from the standpoint of any individual bank, the only thing - impact on that bank is that it is getting additional money. The clearings are in its favor. Its money is piling up and it seems to us that it is a far more effective psychological stimulus to a banker to find money coming in through clearings with his old requirements the same than to merely say, "You have got the same money as before, but we will merely cut down your requirements." It seems to have 8. much more effective lever. H.M.JR: Theoretically. MR. MURPHY: I would say practically. Regraded Unclassified 63 - IS - H.M.JR: Theoretically I think it is lovely. How are you going to do this? On February 13 Guaranty Trust in New York had one-third - one-quarter of all the excess funds in New York, and they wouldn't buy any of our bonds except fifteen million. Now, how are you going to have that flow in there? MR. MURPHY: Well, I would say two things. H.M.JR: How are you going to control that? MR. HAAS: Explain the bills, Henry. That will do it. H.M.JR: I mean, how are you going to do it? Here is one bank that has one-quarter of all the excess re- serves. MR. MURPHY: Could I make two points there, Mr. Secretary. In the first place, contrasting open market operations with reduction in reserve requirements, which do you think would have the most influence on your Guaranty people? If that three hundred million became four hundred million, as far as they could see, merely because they had gotten new money on one end, or if they simply received a notice from the Federal Reserve bank, a balance sheet stating exactly the same as it is, say- ing, "You know - your requirements are less. Now the excess is five hundred instead of three hundred." And the second point, if we put out these tap securities and out our long long market and our non- banking market on a tap basis, then having segregated the bank market, we will be able to meet the Guaranty Trust Company half way. What Guaranty wants is short securi- ties. Regraded Unclassified 64 - 16 - H.M.JR: That has got nothing to do with excess reserves. The way you are going to do it, the Guaranty - their excess cash will just increase by that much. MR. BELL: Not necessarily, because the Federal wouldn't necessarily have to buy it from them. It could buy it from some other bank. The excess of the Guaranty could remain the same. They C oulá remain the same so far &8 the Guaranty is concerned. H.M.JR: Are they going to suy from banks? They are going to buy from Government dealers. MR. BELL: No, but if the Federal is buying in the Government market and increasing the holdings of the banks in general, the Guaranty isn't going to want to increase its reserves. It has got plenty. The bank that wants excess reserves will sell securities, H.M.JR: They can do that now. MR. BELL: That is right. MR. MURPHY: Even the banks that sell no securities will have their excess reserves increased. H.M.JR: Henry, your plan is beautiful, but you rely - I have got to sit back here and rely on the Federal Reserve Board from day to day. On the other hand, if they change their requirements, then it is done. Otherwise, I have _ot to be after them every single day to do something. If Kr. Eccles doesn't like it one day, he doesn't do anything. I mean, I have got to rely on them from day to daj. On the other hand, they do this thing in a lump sum and then - I mean, they just change the reserves over night, and it is done. ISL. BELL: Well, we were hoping that if we could carry through this whole program-- H.M.JR: I mean, I have got to sit here and at the pleasure of AP. Eccles, how much he is going to buy each day. Then they get in an argument, and for one week Regraded Unclassified 65 - 17 - they may not do anything. I mean, if you had a thing which was mechanical, like making the odds on a racing board, how much money you put in, the odds automatically went up and down, so that the thing disappeared auto- matically through machinery, I would be for you. I mean, if there was so much dropped in here and then you had to multiply - B. machine worked electrically and did the multiplying on the thing, I would De for you, but that happens to be Ar. Eccles, and -r. Ecoles. hasn't always been for two and a half percent money. hill. CURPHY: Well, could you secure a commitment with Mr. Eccles, Mr. Secretary, by which until the commitment was dissolved by mutual consent, and of course, it would have to be endorsed by the multiplicity of authorities they have over there, agree to keep excess reserves at 8 stipulated level by open market operations? XR. BELL: At a minimum. NT. MURPHY: At a minimum figure. NR. BELL: That was our hope. 11.M.JR: We have had agreements with them on buying bonds and after he goes three days, he gets cold feet. If you were dealing with - what do they call this, pari- mutuel? If you were dealing with & pari-mutuel that you stick to much money in, and up comes so many figures-- MR. HAAS: That is what you need. We were trying to work out some. Tie recognized the need for something like that. H.M.JR: I don't know how it works. I know you bet 20 much - I have seen it once in my life - and then the thing changes. Well, if you had a formula that you borrowed so much and automatically it went that much, it would be fine, but you are up against this human element. MR. HAAS: That is right. H.M.JR: Let Viner and Stewart - they always are friendly with the Federal Reserve. I don't mean to be Regraded Unclassified 66 - 18 - surcastic. I mean that seriously. I mean, they are always for using them. Would you be willing, if you were Secretary of the Treasury, to have to rely on 8 day to day - either of you - B. day to day operation? MR. VINER: At the present time you have no alter- native. The question is, which form shall the reliance take? If you can get an agreement from them to maintain E1 minimum of excess reserves, I think you have gotten 8. great deal. Now, I know from past experience that if It were open market operations they might work so slowly and so grudgingly that it wouldn't do the job. H.M.JR: That is what I mean. MR. VINER: But I don't see why you oughtn't to get B. firm agreement from them that they will maintain it - they will not let excess reserves fall below a particular minimum, and then I would say it is not a matter of very great consequence to you which of their two methods they use. H.M.JR: Can you write a formula, what the minimum should be? MR. VINER: I would ask Dan Bell, and then I would write it for you. MR. BELL: We think the existing level is all right. H.M.JR: Well, it is too tight. MR. BELL: Well, it is all right if they are spread properly. H.M.JR: Yes, but you can't spread them, Dan. We went right up against this thing last time. MR. VINER: Well, I would say two things. H.M.JR: It was too damn tough. MR. VINER: I would have a minimum level and also a minimum level for New York. Regraded Unclassified 67 - 19 - H.M.JR: What is the sense of having the thing so tight that you are operating around with a billion eleven - twelve hundred million and with one bank holding three hundred million. MR. VINER: New York is in a special position. H.M.JR: I don't see what is to be gained by keeping It 80 tight, It keeps interest rates hard, keeps short money hard. I don't get it. They have got me in 8 vise. What were you going to say, Jack? MR. VINER: I would say that I would like to see you et a pledge both as to the minimum over-all excess reserves and also as to the minimum excess reserves in the New York money market, because there is a special situation in New York. H.M.JR: Right. MR. VINER: And I think that New York situation is relatively going to get worse rather than better. H.M.JR: I agree with you there. MR. VINER: You have fundamental forces working to-- H.M.JR: Can they do that? Can they have "X" for the country and "Y" for the area? MR. VINER: They can do that by changing-- MR. HAAS: Changing designations. MR. VINER: They can do it partly that way. I think they might also conceivably do it by doing their open market buying in that form which New York buys heavily rather than in which the country buys. MR. BELL: In other words, they can sell short-term securities, or buy short-term securities. MR. VINER: You see, if they buy short terms, that tends to build up the New York excess reserves rather than the country's. If they buy long terms, that Regraded Unclassified 68 - 20 - tends more to build up the country's excess reserves. but, you can also reclassify New York. Is that the correct term? NEL. HAAS: Reclassify, yes. M. BELL: I don't know that it is quite clear that they can do it, but there is one view over there that they can reclassify New York and Chicago, doing away with central reserve cities which have a twenty-six per- cent reserve, and lower that to - making it twenty percent. MR. MURPHY: Yes. It might not be legal, but there is no one that could bring suit against them. MR. HAAS: I think it looks EL little funny. MR. MURPHY: It looks funny. It doesn't seem to be what the law contemplates. H.M.JR: I don't want to go through the same situa- tion I did on the last financing. There is no excuse for having the thing as tight as it was in New York, absolutely no excuse. What do you think, Walter Stewart? MR. STEWART: Well, there seem to be two human elements there. One is Eccles and the other is the Guaranty Trust Company. Under either method, whether you have changed excess reserves by changing classifi- cation or changing the minimum or buying in the open market, any single bank can, if it wants to, run 8. corner. If neither one guarantees against it, I should have thought that what you wanted was a combination of the two in some form which did deal with the New York situation and with the Board both, but how you could get more than the understanding, agreement, I don't know. It is all you have got. There is no other way that I know of, except for administering the funds of a reserve system without agreement with the Federal Reserve Board on open market operations or somebody, so, I don't see how you escape it. Regraded Unclassified 69 - 21 - H.M.JR: Well, I am willing to modify my position this much. If you people could work out a formula of minimum excess reserves for the country, which is no lower than the present one, and one for New York, which is a more liberal one, because it is too tight, see. The last one was too tight, Dan. I would want it at least twenty-five percent more than it was in the last financing. In other words, I want around - oh, I might guess a billion and & half. MR. BELL: How much did they lose the last time in reserve requirements? MR. MURPHY: I have got it here. MR. BELL: A billion dollars, wasn't it? No, about six hundred million. MR. MURPHY; The last week before the increase, excess in New York was one three forty-five, and the week after the increase it was seven seventy-five, 80 it went down about six hundred million. MR. HAAS: And now it is up nearly B billion. MR. MURPHY: Nine forty four the last week. H.M.JR: Well, when the financing was a billion one and there was three hundred million in one bank which was frozen, it brought it down to eight hundred million, you see. So, there was only eight hundred million affected reserves-- MR. HAAS: A billion and a half is a good round figure. H.M. JR:, which was too little. They had me by the throat. I would like - I think you ought to have 8. billion and B. half in New York. Now, I don't - it is really no concern of mine, if they would guarantee to maintain B. billion and a half in New York, and how much for the country? MR. BELL: A billion three. Regraded Unclassified 70 - 22 - MR. MURPHY: There is three point two there now. The last week in which you had a bigger one in New York WD.S October twenty-second. Things looked pretty well back there. I say the last week at which they had & billion and & half in New York WES October twenty-seven. I would rather like to de back there. H.M.JR: Yes. And how much for the country then? MR. MURPHY: Four six. H.M.JR: How much is it now? MR. MURPHY: For the country it is three two, and New York-- H.H.JR: We had four billion for the country? MR. MURPHY: Four, six fifty-five for the country on October second. H.M.JR: I wouldn't want to guess for the country. But & liberal amount for the country and a billion and a half minimum in New York, and they would maintain it there. MR. VINER: You say four for the country and one point five for New York would mean an easy money market? MR. STEWART: If you deal with New York-- MR. BELL: New York has had something under a third of the reserves. MR. HAAS: A little over three outside New York would be all right, I think. H.M.JR: Well, around four, a minimum of four or four and a half for the country and & billion and E half for New York, and they agree to maintain it there. MR. HAAS: I should think outside of new York, four would be plenty, and then a billion and 8. half in New York and you would have five five. Regraded Unclassified 71 - 23 - MR. VINER: No, four is over-all. MR. HAAS: Over-all? Oh, that is too tight. MR. VINER: Do you think it is too tight? MR. HA/S: Yes. H.M.JR: Well, you would want to think about lt. MR. HAAS: Yes. MR. BELL: They will argue that it isn't tight now with three to three and & half. H.M.JR: Well, it is. MR. HAAS: That is over-all. H.M.JR: And they have no reason not to do it. MR. MURPHY: Of course, it is the rise in short money rates which permits a bank like Guaranty to hoard three hundred million. If pickings were thinner, they would have to invest their three hundred million in order to make their dividend. That is the truth. It is inter- esting to note that Devine, in his annual review of the bond market, gives as factors that he thinks will keep the bond market strong the fact that increased taxes and low money rates will force the banks to increase their portfolios in order to maintain earnings, MR. BELL: Well, that is true. H.M.JR: Well, let me put it this way-- MR. BELL: It was demonstrated last week. H.M.JR: ... this and taxes are the most important things I have got. Why don't we continue this tomorrow and let this other thing go, this Dean Acheson thing? We will let that go tomorrow and let's continue this discussion. Regraded Unclassified 72 - 24 - MR. BELL: You mean you won't have the big confer- ence on Lend-Lease? H.M. JR: No, I won't have it at all. I want to keep on this subject. Now, could you, Dan - it is ten minutes of four - could you sound out the Fed on this, or do you want to first make up your mind what you want before you see me again? MR. BELL: Well, I would like for you to get the complete picture first, because we have spent hours with the Federal, and had 8. conference with them, you remember, a week ago Friday, all day. H.M.JR: But, supposing you just called up Eccles end said, "Look, we have been talking with Mr. Morgenthau and We have got to this point. How would you feel about guaranteeing a minimum of excess reserves for the country and for New York"? MR. BELL: All right, I can do that. M.K.JR: I mean, without naming any figures. MR. STEWART. You can guess his answer, can't you? MR. BELL: Oh, yes. MR. STEWART: lle would say, "I will keep the long- term rate at two and a half percent if the Secretary will say that is what he is for. That is the answer. MR. BELL: Well, he would say that, I All sure, but to show you how they are thinking on this reserve situation they had the Advisory Council meeting last week, and they passed two resolutions, One WAS that it said the Federal Advisory Council believes that in principle, at least, reserve requirements should remain as stable as possible, and that changes in such requirements should not be made unless clearly required by the credit situation. The Council is of the opinion that there is no present need for a change in the reserve requirements. Regraded Unclassified 73 - 25 - H.M.JR: Well, to which I answer, nuts. H.M.JR: I think they have anticipated some of our requests, and gotten resolutions on the record. MR. VINER: Well, we don't care whether they do it by reserve requirements. Then, if the Counsil won't do it, we will say, "It is up to you to do it by open mar- ket operations. H.M.JR: The Council has no authority. They are purely advisory. MR. RELL: That is all. H.M.JR: They are purely advisory. They meet four times a year, don't they? MR. BELL: At least four. H.M.JR: Well, Dan, what harm is there in calling up Eccles? MR. BELL: None. H.M.JR: I mean, you haven't got much to do the rest of the afternoon. MR. BELL: That is right. (Laughter.) I will be free after six. H.M.JR: And simply say, "We have been talking of going part way, and Mr. Morgenthau would like to know - the way he is leaning is, he would like a guarantee from the Open Market Committee that you people will keep the excess reserves of the country at a definite minimum, and the excess reserves for the City of New York at a definite minimum." MR. BELL: You don't want to say those minimums yet? H.M.JR: No, I think that these boys ought to work a little bit more. It is too important. Regraded Unclassified 74 - 26 - MR. BELL: The first question he is going to ask me is, "Are you willing to announce a program, agree upon a program of financing?" H.M.JR: Well, we are working on it. MR. BELL: And state the pattern of rates? H.M.JR: You tell him I can't make up my mind. To me the excess reserve thing comes first. MR. BELL: I will talk to him. H.M.JR: Then, why don't we say we will meet again at ten thirty tomorrow morning? IR. BELL: All right. H.M.JR: We will keep at this tomorrow, because I haven't soaked this up yet. MR. BELL: Well, this is B. big problem. I think this is just as important as your financing, which you spent two or three days on. H.M.JR: We will meet at ten thirty tomorrow, and we will just keep at this, but I can't go any further until I know that - will they do it. Don't you think, gentlemen, that is a good way, I mean to get them to guarantee that they will keep it at a minimum? And then if they want to go the way Murphy says, O.K., and if they want to do it some other way, O.K., as long as they give me & memorandum. MR. BELL: We don't care how they do it. K.N.JR: As long as they keep it at a minimum. MR. BELL: That is right. If we get some agreement out on some minimum, that is what we would like to have. MR. STEWART: Well, it makes a difference of two bil- lion dollars in your securities. It is two billion dollars Regraded Unclassified 75 - 27 - that they wouldn't otherwise have if it is built up in reserve requirements, because they will be carry- ing two billion more under your calculations here. MR. BELL: Well, we would prefer that they would do it in open market operations, but if they prefer the other, I don't think we would fuss with them a lot. MR. STEWART: That is a large figure. H.M.JR: You mean they would have to buy that much less. MR. STEWART: They would buy that much more under an open market operation than they would under 8 change in the reserve requirements. H.M.JR: And they wouldn't have to do it under the change in reserve? MR. HAAS: No. H.M.JR: So that would be an argument for my orig- inal case. MR. STEWART: An argument for open market as against just changing reserve requirements. H.M.JR: Why should they want more securities? MR. STEWART: Well, I don't know whether they want more or not. There are some earnings in them, but from the standpoint of the Treasury, if it is an equal choice, I should have thought you might rather have them buy the securities than change the reserve requirements. It places two billion dollars in securities. MR. VINER: Of course, there is this point. On the open market operations they can do them - they can dribble them on the market day after day. If they used the reserve requirement thing, they have to do some forecast- ing, and they may overdo it, and they may underdo it. Regraded Unclassified 76 - 28 M H.M.JR: I agree. MR. VINER: so that if you get a guarantee and it is an absolute guarantee that on no day are excess reserves to be permitted to fall below four billion, that means they will have to use open market operations to a substantial extent because they can't - the other way is always a guess, always uncertain. MR. MURPHY: It wouldn't look good to lower reserve requirements twice. H.E.JR: But, also you agree with me that before I do anything about any rates or anything else I ought to have such an agreement? M. VINER: Yes, except I think it would be legitim- ate on their part to say, "No, we can't undertake to maintain these as minimum reserves without knowing what you are going to do." m. BELL: That is what they will say, but it is part-- MR. VINER: That is part of a program which would be jointly worked out that - would they be willing to make that one item in the program. I think that is the way to put it, not, are they willing now. MR. ELL: That is the way they will want it if they agree to it. MR. V INER: And I think they are right, don't you? MR. BELL: Yes, I do. H.M.JR: All right, we will do some more tomorrow. Regraded Unclassified Jana3 explained by mr.Marphy in is 4 the 1839162 PUBLIMINANT ENTIMATED 77 Takin I STRICTLY CONFIDENTIAL April 114 of the Disapitlibrium Implicit in the Estimated Nov of Goode and Service: and the Nationated Application of Income to Various Uses Fiscal Tear 1943 (Dased on a national income of $115 billions and a rise la the coet of living of about 10% from December 1941) (1n billions of dollars) Nov Docalla and Services Application of Incomes cade available (Under existing hebit patterns and pressures) A. To mirchased by Government 1. Available for Government uset 1. Defense aspenditure: I. Assured - Taxes: 01 Total, 56.6 Bx Less: Prepayments, land and a. Existing business lazes 1/ 16.7 offshare, etc b. Existing personal taxes 6.8 2.5 O. New business and personal lates 7.0 C. liet defense expenditure 54.1 d. Total taxes 30.5 Other public expenditure: as Federal 6.1 2. Potential - For buying Government b. State and local securities, directly or indirectly 7.8 (Unsbecrbed seving, depreciation C. Total other public expenditure 13,9 and other allowances): B. Unabscrbed personal saving 15.5 3. Total Government b. Social security net accumulation 4.0 68.0 C. Unabsorbed business saving .3 d. Reserves for existing taxes 1.7 .. Reserves for nev taxes 0.5 f. Unabsorbed depreciation and other allowances 4.5 &. Total 26.5 3. Total income available for Government use 37.0 B. To be purchased by private personal 3, Available for private neet 1. Private capital expenditures: a. Plant and equipment 1. Income absorbed by private capital 5.5 b. Inventories: arpenditures) (1) Increase in volume -.5 8. Absorbed depreciation and other (2) Increase in value 1.5 allowances 1/ 4.5 (3) Total b. Absorbed business saving 1.5 1.0 C. Foreign balance C. Absorbed personal saving -2 --5 d. Total 6.5 d. Residential housing construction. .5 0. Total 6.5 2. Income available for consumer spending 79.0 2. Consumption goods and services: n. Durnbles 3.5 6. Non-durables and services 64.5 0. Total 68.0 3- Total Income evailable for private use 15.5 3. Total private 74.5 C. National gross product plus inventory reveluations 142.5 0. National gross product plus Inventory revaluations 142.5 february b, 1942 Dot included in national income concept used by Department of Commerce. In retinating personal and business saving, the revenue to be obtained from new taxes is arbitrarily divided 1/3 each from (1) corporation income and excess profits taxes, (2) excise taxes, and (3) individual income, estate and Eift taxes, Total personal seving, exclusive of social security net accumulation, 1s estimated at $16.0 billions- Julid business saving is estimated at $1,8 billions. Total depreciation and other allowances is estimated at $9.0 billions. Notes There is a dissquilibrium implicis is the above figures, amounting to $11.0 billions. realing free the discrepancy belower the goods and services the Government requires end the Lacome available for Government mse. This disequilities my be solved by transferring income DOW extimated to be available for private use no that " becomes available for Overament Mr. This may be accomplished by increasing lazes, or by increasing saving, either by voluntary or forced meas, or by the use of direct price and rationing controls. Unless the disequilibrium 1a solved by changing the application of income, boverer, 11 will selve Steelf by changing the flow of goods and services as . remit of price river which will occur is addition to the 10 persons rise is the coot of living allowed for. This will in turs came Government pay for the expenditures. supenditures to increase is order to purchase the - volume of pods and services and so further complicate the problem of raising fonds to Regraded Unclassified 78 Table II Kettanted Sources of Funds to Pinance Budgetary Deficit and Federal Agencise Financed with Treasury Tuais Fiscal year 1943 (to billions of dollars) I - I Distribution between types of Government securities I I liev I New - 1 I Sevings -- security Marketable securities : Total bonds security Special 1 : Sources of funds to to absorb 1 Sold to # I I amount : Series absorb issues long-term Tax Sold I corporations: Sold Subtotal to Sold I I notes BOOM to other than to for : : and : business trust market funds individ- hanks and :insursace: to marketable 6 banks : : expen- funds uale invurance companies: 1/ securities I ditures I companies 1. Current savings and accumulations assimated on the basis of aristing habit patterns and pressures (based on & national income of $115 billions and . rise la the cost of living of about 10% from December 1941): 1. Personal saving 15.5 7.0 1.1 -9 .2 - .2 ,2 1.9 4.0 6.3 2. Social security trust funds 4.0 - - - - 4.0 - - - - - 3. Business saving is - .1 .1 - e - - - .1 .1 4. Corporate tax accruale in BI- case of tax payments: (a) Existing taxes 1.7 - .2 - -4 - - - - 1.1 1.1 (b) Nov taxes -5 - - - .2 - - - - .3 7. 5. Excess of bookkesping charges for depreciation and similar Items over actual outlays therefor 4.5 .2 1.2 .2 - - - .2 - 2.7 2.9 6. Not surplus of State and local - - - - - - I , , - - revenuse over expenditures 7. Total from current savings and accumulations 26.5 7.2 2.6 1,2 ,8 4.0 .2 .4 1.9 8.2 10.7 11. Funds available only at the cost of an additional price rice: 1. Funds derived by converting old Idle balances into active bal- ances through purchase of Govern- ment securities. (a) By individuals 3.0 1.5 .2 1.2 .1 - - - - - - .2 S: - - - - (b) by corporations 1.5 - 1.0 - - (c) Total from old 1dle bel- ances 1.5 1.2 1.4 .4 - - - - - - 4.5 2. Residual balance which will - - - - I 8.8 E.S. have to be borrowed from banks, 5.8 - I - 1.2 1.4 ,4 - - - - 8.8 5.5 3. Total under Group II 13.3 1.5 III, Total berroving according to the budget (but this will have to be increased as A result of prices rising STAR higher than allowed for If borrowing listed under Group II is used) 39.8 8.7 3.8 2.6 1.2 4,0 .2 .4 1.9 17.0 19.5 1/ Includes securities sold to Federal Reserve leaks. March 5. 1942 Regraded Unclassified 79 Extimated Masina of Financing the Deficit - Monthly, March 1942 through June 1943 STRICTLY CONFIDENTIAL (A billions of dollars) 1943 1342 March April May June July sugust September Databer November December January February March April Mary June total 1, Amount to be finends 3.0 -5 -5 2-4 .7 ,8 2.9 1.0 1.0 2.8 -9 1.9 5.2 1.0 1,0 4-9 28.9 A. Net bulget receipts I. Buiget expendituress 2.5 2.8 3.0 3.2 3-4 3-5 3.7 3.9 4.1 4-3 4.5 4.7 4.9 5.1 5.3 5-4 64.3 1. Defense +7 .6 .4 -7 -3 -4 -5 ,5 4 -7 -5 4 .6 -5 +4 .7 8.5 2. 3.2 3.4 3-4 3.9 3-9 3-9 4.2 4-4 4-5 5.0 5.0 5.1 5-5 5.6 5-7 6.1 72.8 3 Total c. Set budget deficit .2 2.9 2.9 1.5 3.2 3.1 1.3 3.4 3-5 2.2 4.1 3.8 is 4.6 4-7 1.2 42.9 .2 .2 .2 .2 4-3 D. Set outlays of Government corporations is in -4 -4 -3 -3 is in in +2 ,2 is E. Total to be financed in 3.2 3.3 1.9 3.5 3.4 1.6 3-7 3.8 2.4 4.3 4.0 .5 4.8 4.9 1.4 47.2 II. Mevour of financing 1. Securities sold to Government trust funda .2 - .2 -3 is -5 -3 4 .6 -4 .1 .5 is is 1.0 in 5.5 3. securities: .4 5 -5 -4 6 -4 +4 -5 7 -6 -3 in -5 4 4 -,5 y 1. Tax notes. -5 .7 .6 in .6 .6 in .6 .7 in 1.2 ,8 .6 .8 in .7 11.0 2. Servings bonde. a -4 -3 ,2 .2 .2 .2 3 .3 is is in -3 is 4.4 3. Proposed per short-Sere security - 4. Proposed are long-tere security - -4 -3 ,2 .2 .2 .2 .2 ,1 .1 -1 J. .1 1 3.0 +7 .6 .1 1.0 2.4 à 1.6 1.4 -4 1.4 1.5 .8 2.1 1.6 -4 1.6 1.6 19.1 5- Total non-earkstable securities c. Marketable securities, .B 1.7 1.5 .9 2.2 1.7 1.2 2.1 1.8 -,2 3.0 2.5 .3 22,6 1. total accortable securities -4 2.2 -7 2. Marketable securities mold to Lorestors other the comercial banks and Federal RESERVE Banks. is -2 .2 .2 .2 .z ,2 .2 .2 -2 .2 .2 .2 ,2 3.2 .2 is 3- Marketable securities sold to cial benice and Federal Reserve Bankst .6 1.5 1.3 .7 2.0 1.5 1.0 1.9 1.6 -4 2.8 2.1 .1 19.4 a total .2 2.0 -5 .1 - .2 a .1 .1 .1 I .2 ,2 - 1.3 b. Sold to non-member banks. -1 - - a Sold to nember banks offesting an equal reduction in bank Lonns. - - 1 .2 is in -3 4 .3 4 4 4 -4 -4 -3 -3 4.3 4. Sold to Federal Reserve Backs and number backs thereby Increas- log thair net leans and Lovest- sental - .8 1.6 -,2 13.8 1.9 .4 -4 1.1 is -4 1,5 1.1 ,6 1-4 1.1 2.2 (1) Monthly .2 (2) .2 2.1 2.5 2.9 4.0 4-9 5.3 6.8 7-9 8.5 9.9 11.0 10.2 12-4 14.0 13.6 13.8 m. Purchases of Covernment securities by the Federal Reserve Banks required if reserves are to la hald undanged (except for changes by factors other then assber bank purchases of Government excurities and decresses in loans outstanding): & Purchases by member banks thereby increasing their net loans and investmentor 1.6 .3 -4 -9 .8 1.3 in -5 1.2 -5 -., 1.9 1.4 -.2 is 11.7 is 1. Monthly ,2 8.6 2.5 3-4 4.2 4.5 5.8 6.7 7.2 8.4 9.3 10.5 11.9 11.7 11.7 is 1.8 2.1 2. Commitive 1. Purchases by Totarel Bearre Banks: .2 .1 :- 1 .2 - .2 .2 1:- -3 -2 1 2.1 -3 .1 - 1. Monthly -3 -4 -4 .6 .7 à 1.0 1.2 1.3 1.5 1.7 1.6 1.9 2.1 2.1 2.1 2. Comulative March 7. 1942. freasury Department, Division of Besearch and Statistics. Regraded Unclassified 00 - Mr. Sullivan 80 March 9, 1942 3:13 p.m. HMJr: Hello. Operator: Hello, Mr. Budge. HMJr: Hello. Operator: Go ahead, please. Alexander Budge: Hello. HMJr: Hello. B: Good morning, sir. HMJr: Hello, Mr. Budge. B: Good morn - good afternoon, rather. HMJr: It's all right. B: We've been hoping that it would be possible to have some action on the income tax relief for certain cases that will come up during the course of the next few months. HMJr: Yes. B: This with particular reference to the rate of interest which has a very definite effect in an area such 8.6 ours from the standpoint of morale. HMJr: Yes. B: Now, I'm not talking about it from the corporate angle or my own situation at all. HMJr: I understand. B: We have, for instance, in thie company, we have about three million and 8. half due, which is all reserved for. HMJr: Yeah. Regraded Unclassified 81 2 B: But sometime ago Mr. Burlew of Interior and Mr. John Sullivan of Treasury had some dis- oussions on this subject. HMJr) Yeah. B: The thought was to put the Internal Revenue Department in B position where they could review each case HMJr: Yes. B: and might have some discretionary power to postpone the payment and also either waive the interest or if interest was to be charged It would be at a nominal rate HMJr: Yeah. B: the thought being to avoid discouragement, which we have a little of around here now, as you might imagine. HMJr: Yes. B: No blanket action would be necessary. Now, in this connection, I thought there ought to be a source of - possibly a loaning agency. HMJr: Yes. B: It seems to me that they are not in a position to make loans for the payment of taxes except under rather restricted conditions until after further legislation. HMJr: Yeah. B: It is deemed that you'll appreciate that their low collateral 18 abnormally depressed on the stock market. HMJr: Yes. B: It would seem that if a corporation could be run by Treasury that could loan at a nominal Regraded Unclassified 82 - 3 - rate of interest on & collsteral of Hawaiian securities, based let's Bay on eighty per cent of the average market for two or three years, with some respect for low evaluation will - such B. corporation if loaning only payment of taxes, would be a definite relief and would straighten out the tax situation in many cases. In other words, now the collateral 1s 80 de- pressed that the normal business will be unable to make plane that will be eatisfactory. HMJr: Well, now, Mr. Budge - hello. BI Yes. HMJr: Can you wait just one second. I just sent for Mr. Sullivan. Let me just ask him a question, will you? B: What did you eay? HMJr: Hello. B: Yes. HMJr: Just wait one minute. Can you hold on one minute? B: Yes. HMJr: Just wait one minute. B: Yee. HMJr: Hello. B: Yes. HMJr: Mr. Budge, I'll talk thie thing over with Mr. Bullivan - hello - and I'll get you off a cable the first thing in the morning. B: Yes. I don't think, Mr. Morgenthau, it isn't a matter of rush as much a.B it is to have someone think of it definitely in point not of the dollars to be waived - lost in any way, but Regraded Unclassified 83 - 4 - towards the number of people that will be affected in the smaller brackets; and it seems to me an orderly review of the whole question would probably enable some legislation that would not in any way be costly to the Govern- ment but would be of very definite help to 8 big section of our people. HMJr: Well, naturally, we're all here interested, and I haven't got into it myself B: Yes. HMJr: but I will talk with Mr. Sullivan B: Thank you very much. HMJr: and some time tomorrow we'll get you off & cable and tell you what we can or cannot do. B: Fine. HMJr: Now, Mr. Budge, what's your address in Honolulu? B: Just Alexander Budge, Honolulu, will get me all right. HMJr: What will? B: Alex Budge. HMJr: I don't hear you. B: Alex. A-1-e-x. HMJr: oh, Alex Budge. B: Yes. You might say Merchant Street. I guess they have to have an address on it. HMJr: What street? B: Merchant. HMJr: I don't get that. B: Merchand. M-e-r Regraded Unclassified 84 - 5 - HMJr: Merchant. Yeah, Merchant Street. B: Yeah. HMJr: Well, we'll get it off to you sometime tomorrow. B: Thank you very much. HMJr: I don't know what we can do, but Mr. Sullivan says that the delegate King has been in touch with him. B: Yes, I know that he had been. HMJr: Yeah. B: I thought it had been more or less - they were losing interest in it and it seemed HMJr: No, no, we're not losing interest. B: Fine. Well, thank you very much. HMJr: All right. We'll see what we can do. B: Earl wanted to be remembered to you. HMJr: Thank you. Remember me to the General. B: All right. HMJr: Good-bye. B: Good-bye. Regraded Unclassified 3/9/42 85 is material was used by HM, Jr at his press conference today together with material on average family which is attached to read- ng copy of Tax Statement of 3/3. It was HM, Jr's answer to New York Board of Trade. Regraded Unclassified 86 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Secretary Morgenthau FROM Mr. Kuhn A single person earning $750 8. year pays a total of $130 in Federal, state and local taxes of all kinds. That amounts to 17.3% of his income. It means that he would have to work more than eight weeks just to pay his taxes. A married person with no dependents, earning $1500 8 year, pays an estimated total of $250 8 year in Federal, state and local taxes of all kinds. This is 16.7% of his income. Here again he must work more than eight weeks in order to pay his annual tax bill. These estimates are based on Federal taxes for the fiscal year 1942, and state and local taxes for the year 1941. Regraded Unclassified 87 ESTIMATED AVERAGE FEDERAL, STATE AND LOCAL TAX BURDEN ON A SINGLE PERSON WITH A $750 INCOME AND ON A MARRIED COUPLE WITH A $1500 INCOME : : TOTAL TAX BURDEN : : : : AMOUNT : PERCENT OF INCOME : : : Single : Married: Single : Married : person : couple : person : couple : $750 : $1,500 : $750 : $1,500 : income : income : income : income Federal 52 97 6.9% 6.5% State 31 61 4.1 4.1 Local 47 92 6.3 6.1 Total 130 250 17.3 16.7 Treasury Department, Division of Tax Research 1/ On the basis of estimated fiscal year 1942 Federal and estimated fiscal year 1941 State and local tax collections. Regraded Unclassified 88 The New Bork Times. MAR 10 1942 SAYS TAX EXEMPTS a wide has become the charage between the Treasury and the Ways and Means Committee over 'CAN'T STAND MORE' the tax question that It was said that Mr. Murgenthau contemplates another appearance before the committee to make an even strong- MorgenthauOpposes Lowering or plea that the group now exempt be left free from direct taxes. of Limits, Asserts Poor Pay In explain his attitude Mr. Min- Heavily in Hidden Levies genthau read today from the Treasury study, a study which he said indicated that 3 single person earning $750 a year (the present AGAINST A SALES IMPOST lower Hmit on taxable salaries) paid $130 in Federal, State and local tases of all kinds. This was But Ways and Means Majority 17 3-10 per cent of his Income and Favors One-Now York Trade required eight weeks' work to earn. A married man with no dependenta Board Assails Exemptions and earning $1,500 paid $250, which was 16 7-10 per cent, or the equiva- tent of eight weeks' lahor. By HENRY N. DORRIS "After seeing these rigures." to THE New VIINE TIMES, sold Mr. Morgenthau. "I came to WASHINGTON, March 9-The the nonclusion that we would not be justified In lowering exemptions probability of n. fight to the finish OF Imposing a general sales tax between the Administration and Families And individuals below the Congress over the question of sub- exemption level are making . fair jueling persons now exempt under enough contribution at this time the income tax laws to direct lovies to the government. "Until we have exhausted all or A general sales tax was height- other sources of revenue and closed ened by two developments today, all loopbnies we should not add any The first was a statement by burdens to this group." Secretary Morgenthau, at his press The Secretary said this group conference, reiterating the Ad- did not have enough purchasing ministration's stand against either power to cause Inflation. removing exemptions on Income The Ways and Means Committee. continuing its bearing on the pro- taxes or imposing n. general sales posal to rains $7,610,000,000 In new tax. Mr. Morgentbau read from revenue, heard M. L. Seldman, an analysis completed recently by chairman of the taxation commit- Treasury Department experts Leg of the New York Board of showing that persons who did not Trade, urge that Income tas ememp- lions be removed, carn enough to be subject to the Because of these exemptions, income tax were aiready paying Mr. Seldman said, three-quarters of neavily in "hidden" lovies, and American families, about half the commented that "this group can't number of wage-earners, and more stand more laxes" Dues half the national income are The second development was the nnt subject to Girect taxes He would not lift exemptions for mur- revelation, through an unofficial poll of the House Ways and Means tax purposes. but would substitute Committee that . majority now n. fint 10 per cent normal tax for favored a sales tas in some form- the 4 per cent new levied. either nt the manufacturing or the A general nales tax was opposed by Mr. Seldman, na WILE the Treas- retail level-and that this group reached this conclusion through a Gry's proposal to require joint In- vame tax returns for married cou- belief that all wage-earners should plea. Mr. Seldman also held that thward the war ex- are proposed natess-profits, cales Turnes for corporations were too high. Regraded Unclassified 89 March 9, 1942 4:38 p.m. Leon Henderson: Hello, Henry. HMJr: Leon. H: Yeah. HMJr: How are you? H: Pretty good. HMJr: Leon, I just had a press conference, and they went after me on this question of lowering the exemptions of $1500 and $750. H: Uh huh. HMJri Well, we have our own figures on the amount of taxes which this group use which we gave them. Then it came on to these tables which we got from your Hildegarde Knuba H: Yeah. HMJr: which shows that until you get above twelve hundred and fifty dollars, an American family doesn't save anything. H: Uh huh. HMJr: And - oh, before I went on the Hill, Roy Blough got from somebody in their office permission to use those figures. Hello. H: Yes. HMJr: And I Just wanted to tell you I told them where I got them from. H: Un huh. HMJr: And if they come over there and 80 forth and 80 on, I hope that you'll hold up my hand. H: All right. Have you got a - when you get your Regraded Unclassified 90 - 2 - transcript, this part, will you send it over, BO that we'll Just hit it right on the nose right away. HMJr: I'll have that done right away - it ought to maybe take about an hour does it take to do it? H: All right. We won't say anything tonight. HMJr: Well, I'll get it over there, and - but, of course, from our standpoint, it's very important and your people have been very helpful but I wanted to let you know that I went to town - I did the same thing once before, and there wasn't B. single paper carried it when I testified. I gave them the same figures when I went up Tuesday, and Paul 18 sitting here, and he says he gave the same figures, and no newspaper carried it in the United States, BO I've tried it once more, and it's pretty, I think, sinister the fact that there isn't a newspaper that carried those. HI (Laughs) They'll probably carry it this time. HMJr: And you'll see that I told them that the people that wanted to lower them are the people that don't want to pay the taxes themselves. H: Uh huh. HMJr: But I'll get you a transcript and get it over; and if there's anything in there that you can't put your name to, before you throw me down, give me e call. H: Yeah. I will. HMJr: Thank you, H: All right, Henry. HMJr: Thank you, Regraded Unclassified TREASURY DEPARTMENT 91 INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Mrs. Klotz FROM Mr. Morgenthau Please be sure to get the clipping from Sunday's PM on Arthur Krock and Wayne Chatfield Taylor. attached. Please look up Wayne Chatfield Taylor's letter of resignation from the Treasury. I would like to see it. (See deary book to motich this mine is Regraded Unclassified France the had "immobilizing effects on Feench desistance to Germany." Vichy Finds One is James Clement Dow, political Visis last on European affairs, who was leader Pal in Krock of the pro-Franco bloc in the Department during the Spanish Civil War, The other la - minor bureauerat, Samuel Reber, in charge of "the French desk" in the division of Times' Bureau Chief Only European affairs, To Reher is attributed Correspondent to Detect 'Doubt' authorship of the original draft of the fa. mous "so-called Free French Navy" state- Over RAF's Paris Raid ment issued by the Department on Christ- mas Day fu protest against seizure of St. By 1. F. STONE Pierre and Miqueloo by the Free French PM's Nume The other Department official present Was WASHINGTON, Mar. 7.-The only Wallace Murray, in charge of the Division orwspaperman to discover that RAF bomili of Neur Eastern Affairs. np of Paris had created "doubt and die Only other American officials present of ient in the U. S. A. was Arthur Krock the dinner were Jesse Joner's righthand head of the New York Times burean to man, Under Secretary of Commerce Wayne Washington. Chatfield-Taylor, and Colonel Bentley Moll, The only newspaperman among the guest former U.S. military attaché of Vieliy, at the first formal dinner given here by the Krock, with Isolationist Boake Carter, and Viehy French Embassy Feb. 27 was Arthur the New York Enquirer (where publisher. brock. Hearst-pal William Griffin, is under sub- Less interventionist than his paper, per pena by the Federal Grand Jury investigat- sutently anti-New Deal, Krock frequent! ing Nazi propaganda), is reported in Unio was Vieby's ambassador. Gaston Henry week's issue of the Nation us carrying on Have minor campaign to create a warting pot Doubt and dissent," Kruck discovered for Joseph P. Kennedy. tax Times editorial-page column of Mar. 6. Kennedy, as ambassador to Creat Britain. with to have been invoked by the RAI was among the Munich-minded men. Lumbings of the industrial envirous Coris." Krock himself concluded by saying that total war calls for total war and Indaring "if the United Nations spote any industrial area. the enemy, as be has med, will not." Not on his way to those conclusions. the nief correspondent of the Times made some molusive" discoverion: "The degree of American disapproved worth noting. In the United States signa were to bei among strong supporters of the with war of regret mingled with dis- number Suggestions that the hombing might may the immobilizing effects on French --tance to Germany of this government's revard Vieby. A Job for Kennedy Invoice of these scoops may be indicated the list of other guests at the socially- Vichy Embassy. Arthur Krock of the New York Time the three guests from the State Dept. promisently identified with the he- who discovered that the bombing that American aid to Vichy Paris had created "doubt and disses in the U.S.A." Photo by Wide World Regraded Unclassified 93 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Mrs. Klotz FROM Mr. Morgenthau Will you invite General Marshall to have lunch with me on Thursday, please. Marshall unrepted- Regraded Unclassified 94 March 9, 1942 Harold Graves Secretary Morgenthau The meeting which we had scheduled for Wednesday for your staff, I would like to have at 9:15 on Thursday. 0, K. - Regraded Unclassified 95 March 9, 1942 Dear Randolph: Many thanks for sending me that quotation from the President's recent radio talk. I agree with you that it is a fine statement and that it should be used more widely. It expresses the present situation exactly. Sincerely, (Signed) Henry Mr. W. Randolph Burgess, 55 Wall Street, New York, N. Y. File n.m.c. FK/cgk Capies a thompson Regraded Unclassified 96 "NEVER BEFORE HAVE WE HAD SO LITTLE TIME IN WHICH TO DO SO MUCH". President Roosevelt. 97 W. RANDOLPH BURGESS 55 WALL STREET NEW YORK March 7, 1942 Dear Henry: There W&S one line in the resident's recent address which deserves wider use than it las received. A nephew of mine, working for International Business Machines, picked it up and has circulated it in the form of the attached card. I quoted it the other day in EL speech and have been surprised that more people have not picked it up. Sincerely yours, Randesh Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D.C. Regraded Unclassified TREASURY DEPARTMENT 98 INTER OFFICE COMMUNICATION DATE March 9, 1942 TO Mrs. Klotz FROM Mr. Morgenthau Please have somebody go through my files. Sometime during the last two years we had 8 meeting in my office at which Mr. Batt was present. I have 8. vague recollection that he was arguing we had enough steel production. I know that he and I got into quite an argument. I would like to see what it was about. Thank you. (the is being 2.) X skhib 7/7/40. smoked- Regraded Unclassified 99 CIO CONGRESS OF INDUSTRIAL ORGANIZATIONS 1106 CONNECTICUT AVENUE, NORTHWEST WASHINGTON, D.C. Opine of District 3882 THE PRESENT March 9, 1942 " The Secretary of the Treasury Washington, D. 0. Dear Mr. Secretary: I refer to your latter of January 28, with regard to your visit to the Detroit area. I have held your letter so that I might send you the on- closed copy of our paper, "Steel Labor". You will note the picture on Page 8. I an pleased to note the reaction to the work you are doing in promoting the sale of stamps and bonds. You may be assured that anything we can do to assist in this great work will be done. With every good wish, I am Sincerely yours, President, Congress of Industrial Organizations Regraded Unclassified 100 SWOC MEMBERS DONATE DAY'S PAY TO U. S. See Page 3 STEEL LABOR THE VOICE OF THE STEEL WORKERS ORGANIZING COMMITTEE-C. I. 0. Indianapolis, Ind., February 27, 1912 No. 2 SWOC ASKS VOTE AT U.S. STEEL PLANTS; UNION SECURITY, $1 RAISE DEMANDS IN 'LITTLE STEEL' GO To WAR LABOR BOARD SWOC REVEALS IS Largest Steel Firms Report $28,497,000 Profit Increase 'BIG STEEL' PACT In 1941-An Average Gain of 11.4 Per Cent Despite TO BOOST Wage Raise Forced by SWOC Last April 10 BE REOPENED STEEL OUTPUT No provide of insure the than $300,000,000, bat the present RU was by 15 of The trind indicates that this Agure will FOR PAY RAISES lacgest in Un United be increased to a far greater figure durung Dill Nation Lusing 2,000,000 l' 8. Strel Corp dawn - mi III- This represents all Intrass lis Government Board Enters - is profits were 1940 of funur Tons Yearly by Alleged protits of 1540. $7,1948,000 in jumits for 1910 wire Little Steel' Picture to The averall increase in nel profits $102,141,000 and In 1/41 This Bein Scrap Shortage 004 busted M $110,019,000 in tica Break Deadlock for the 15 steel Arais amounts to 11.4 per cent, despite the general wage His - provide MM sur from IFIM increase granted in April, 1941. The Start Work-re Discription university Invaster un #11 These trus comprise 85 per crat of War Orders Panr In will and Homel short the steel-making capacity of the of all of nit Event and which mation. Beildrless Street Perp.'s 1941 post Conted Sixtey NAME delve prove Al the same rate of increase profits in were Republic Bleed Philip Morrag. SWIRT - to ne important "F for 1942 would to DUTE ahound 6-19A1 prill at - Invelved will fur industry to previni. an AR INFORM of the 250,000 employee The parpose all the elections is in all the SWOC Gives $14,000 to Profits of Yumestown Sheet A extablish the metore P.E. (for Tuhr Co. WINE $3,305,000 jure - FDR Birthday Fund becausing Existing - . memos 1941 Has la IND: in 1911 Shret A with 5, Not - Homely clibet of David J McDonald, SWOC Tabe products were $16,134,000 Tom - fallens secretary treasurer, ansounced Inland Minn profits in WPI- any Instructions by that the swoc national or. $14,874.00 and is 1840 The profits E & Stort - I state supplies ganication and IN local unions wife American COMPLETE threughout the nation have The prull increase in 1940 BOX Stvet A. Wing National Tailver and No contributed a total of more IED nas TOO por imi, less Brider: Culumbia Street, Tem o **** than $14,000 to the 1942 came is 1942 will names Invo A AP et This - paign of the National Founds- meri and profile the highest in to immation and inn soore is tion far Infantile Paralysis. indivity's Mistery name VA eas jots flo operar entire The BWOC contribution this Latires Incl the doard no Hope to Cat Delay within to the year net A new record for the largest unreade to No details have have activation - ave arganizative The drive to profes In United members worked out traganding the commisal - - information stamp out infantile paralysis is $700,000 wheres in that the that en affert will le - have beld is conjunction with eals- noval np in them all consent Insilvi that is THE inn Inne not with be bration of President Reces- l'mility of Restlem ten 4 - have The 141 ay 200 de velt's birthday each year. form aliment M.STS prior - for 000 1910 (e $1,132,000 pay, Latiur Issue liverings. - nn Page BY This was ⑉ service nill uffeins hand the providents of all Mind luvil SWOC Awarded Raise STEEL INDUSTRY PROFITS - in Washington Nr. Marray must the NWOR At American Can Co. will has completed hill - with 1. 5 Mind NI state 19 D.C. First Financial Statements of Fiftern Leading Steel Firms have street the a The Amount War letter Board Show How Profits Climb the Line - 6% agreement had Out War Later Hunnil - marked settling all Imme - us! - working Trelits of D perminal del firms to ID* Form Rights representing KI with the Time "Tand- American On Us. must the and Workers per rend of The stret meking reparts of the ination, tallive (in the years Kyel - 1940 and PMD public Nom di Tute - The is will of name membership will Do Ten Year 1010 auf The to - lu the Twi Hord Jue State Street Corporations attention not and Stat Curporation NII have *** Lomo The valor (w . is Republis Street Corporation the War Monod pust as hame "Age Intrane. of 10,577.000 The Was Hord post when 12% age/fa will tip major domes a Laughlin Street Comparation in - Bu lu 1. National Corporation - et - 1911, M which Time the - Youngstons Sheet A Tulle Company 10 Code) Antion pass hail gramel * Purport Inimal Steel Company 13450,000 unting labour Uxom I have increase withet peogle American Holling ALIM Pumpany T. A sint invelved in - Wherling Find Commission destry. and Tams This will affict senting The the une plants to Coing in and Property el valved DE the disquire Alleglimy Budlism devi Corporation 5.00 "Big Steel First le Sign The agreement With Laker Company 700.00 the faur Anys of - Mid CRSM TAXID Le ago - controlly with SWIM (are e prod mm. 126.00 in March post of Watten P. Heary From Keywner mind è Wire resul fhe followive Ching and Jane " Paris form 4 Corporation funil. en only # The dispute, which medica your 2.00 nothern SOM the Tradia #219313140 last April - 16 demends for WAGE in - united unitily dans Toe ON jointi expensent eu overall berwen the and (14) named antil compaña e - filles additional and drught the general internal granted Amil 1941. of almost 11.4 per emi naive charges have loen made niersly. 110 glows - about (*) end of (he expacity in the ten the invogation of On Consumed so Page My Regraded Unclassified Par Tea STEPL LABOR February 37, INC a7, 1942 STEEL LABOR Per The $500,000 WON IN AMERICAN CAN PACT Reading, Pa., Locals Donate One Day's Pay to U.S. EMPLOYES GET MEMBERS SHOW MOLTRUP STEEL CO. PAYS $11,238 Syracuse Locals INDIANAPOLIS LOCAL INVESTS $2,700 IN BONDS 10-CENT RAISE DESIRE TO AID, BACK PAY TO SWOC MEMBERS Offer Solid Aid IN CINCINNATI MEDRICK SAYS To Crush Hitler Time-and-a-Ha Rates Are Now Contract at Edna Brown President and Land to Compute Cift at Union leaders An Given Galine Union Shop Rights American Safety Table Confidence Vote For SWOC Loral 2148 Pa. Mill Approxi- time K. he 3/, o. 1,00 entigrie lost ne Das norwed if the of 01 de È will under - - il - - day LPH# El Interal priment " university Cry is nhm Cherge Matrick, " les #WIII advant dewth - - of (M) 1-10 Majork - - MY will via the main , amount volumnte be HWTRO am. and later, A intered Manko reter of - Austres Table "The may - - is product in - By endo Cyling O, of M primi E el Indiag more ed maniry M Pinge its including - el furling glost M bene 1/a 1 - F - organic ed TM of (in exploye tergaining - that for of la Mality Talder Co. - - - Cales also remived - - engn the Milina Res till BY to pay the night - of - dount & der pay a Banding the left - Issue Progre, - Fine per mil un - im for the Lahr Presion herew misle I who 3 bun # Members of swee formal TIME - - Marion Desta Definer Revings Staff: Less England, - - bell name M el por the order Any el in improve - the - 1 recently - Defense - with - the timel: C. Desephic, - of the -- addet la pin's AVEN adented la BIJMAA Naillee him, M Halps, - in fist Villan Name, and - All Nike Firther Tran. (x) Walter Cralgie (Regand INCO I I the DATE - for the in far are la refine doing - I T - fries the - treatment The above - with If TM estimated this I I I , I 1 I 1 I - - also - resided - - ml - elen the pines --- was all for - - Holp ling) uning valida amend - - lest who were prowit - the - - - - trinking W. - THE 1 - TM FEN entre HE - Invoice Tran - la right --- Bestells trantee M - the nonta visit) Lowell Insin - I Diaver Tilla N. THE leg ent the - and - Mr. v. - - - - - - Name À - perel by Use Date WiekwireSpencer in the min al - - - in - to www - injury Mi, Mains said and latte later - MH riming - No - Imal " valino dues provide for a desire mail - in agains Miling sini Proters a Re-Signs Contract ellal liberties MEMBERS GET AID This Week Public Indiana Plants ET of on with's vidio 05- les - AWOO VM - 'We ell Solid Vote Given % Y. IN 57 A of 150 Itm - agrel far - in - - - Type restim wish pm IN COMPENSATION bm mily when the - - Mas less la IN guient ant - of Sign New Pacts with the are la adid employee vila not in SWOC in Memphis remi " male keyl primont of I the amin = - I Is de included in the 4F, Exh. -A Brvis Land Take Action per - le Hel of fale, wills last ME, lost - India delnel nel - riskes classing - onde error registras by benko la the errors am improved Serond Enanimune Vate implian of la par ... a Avg. leg (4m) employee He les Back Wiss of M. 24 representing Pay Increase Win in First for wood M the - - agni E IIA Time - - the - information their MI I also the - The agreed de AI Mill I lies # Won in Tennessee Mills SWOC Contract Signed Major and . I - sun flair anotty is las gren time la in INFOC - for - But (lat law divires Public furn 10 goint - New 18 of frosh " Mind Ity Shirley Corp. Two Krle June PC units. al não of Mr said the asy - to - EMIT n J. Marin has Kimai, dela the AWAY - with Ind. We Tip min vitelai wid that MYS swoc livi dates wills the # grami - 18 uni [ will lines, Not finalism Altha while Few later Rard - de name ileary - - the - nbw swoo Totals in Resting is pl e die all have seil William 1 floring w hire Jabre land - - wa à of 1,80 wide Haveing No - were la - TM verving a VIA Or in Name - and will - - - 4) - es, an reperted la any el the of la And and al I trup, governing - - airnes an TM given le god pour ages to a day's listre like - - lumma of - ming las Yes 187 mgk *Age legs el work, grown - A - as nas de lns [hom in ------------------------- - Me very bing - of and - - all fail a. the the - Date "M" to the principal set rights has 1% water resplay from the Mig. is - - des, IWOP ImAg will distried approved - The Take * through live sam is la the Reviling wind, in fill the pni is the - - interne No M as stady dining mind is awoo Tent To The any all The la tax five (» liveling, instrude Allen- Tu W/A - La as I to univirsità - nin aprive filat all provide was medical le the foom in Karm, Pailits mindals IM to valido live and - bill (Se - you with A Minny el Mailire Are 4a - - et las far the M 4P plane - belief - - - licels be the med - TIME a J. Remiving United the - entin, shing commitation, will bisis APP tarking He así de il is that of - digita by - - the anne before Miking sur Mm dos all replace est Milling Risel Prodicis smill to lost - - di il mission the a el 1 air i and the amenue grants will ville vote entre is being telm emple with the mder, and has Mine nimel to fast - alid El was I 1 the - for rive job V) Danner Clark, - during imag la ha all la ! I 3 E The for with - Insur la Imale have sinsing M . realing - - - old agrico lie aloid - general le the 1 - not by if the Tay Vr July 100 Final attimati of lia. Bdeard Pinel, dr. Pasi of will of the like payal is error All - employee livel " la mec HIK nel Led FARE All Tu addition in line general M De Reimo and flight the last pur contro - less P Sex ent trip by num - - per 4, plants, lice saisa madel, lown, end Devision in Par polar sing me The " und - which et min of Year 201g 1% - valor - - an in email et the VIIIA en L nwen e time Burt A Is - in previded fur - - plants le el Brün- - din an due The been, - the Kastra far A (4) la na of sight [wel will de - all - is BIAR, all lens 42 TUBE CITY LOCAL BUYS NATIONAL DEFENSE BONDS below and Dos - - Won't Shave Until Tie restrict. the la may . - if any swist - Marr la Mr. Matrirk and los der verá - determent - - PM el and val. in to vita of Bethlehem Signs mis Imail - - will of 2011 stall - vider in - - Timer. Ernia Owner, Buy May Oirs $150.000 Type ent No 4. by - the -- line and 2/r. oliginal that if the NOTICE Hour will mm Mrs. 1 As non - " de unt - is mit kan Derrington Every - - - ornal en tinadim for - al the and I - pail la a et Bausays la 1% of the plant in . awar - dide, swoo main will - MT - of This LA der far I 1 è è [ Signature for are Address vilate - la the prime Works form NM of Date GUMBI APP - - smore edo (46.19) - the mor - they RP AT use 1 1 tiemi - limi jur to mapa not of PARA Only MA rvi- Mill to an production and in Addition No the direct - purised KUM - - - Inw has Party Matury end These A - in - the yest vaid against wir liere are land maying through the - a the und will - Ind - - - - Vissory Commissions Homing this replajes la belo Pa. - Mr Holder AND le- insted la that is I 4 1 : . Will a general of BY: A. F. If for the Mm below & Endes any law plate to J. & L Agrees to L patievant is the below having licine Bank provided of - has I la At P.O. YOUR 2013 of National Take in - Time les, - is - pur and E Bond Check-off like Corp. Ini. plan - - - being made by AWOC - 81,675 BONDS SOLD Handay bitt 14 naid - - A l'M the the - las Los) m lugs ann STATE I Cashel Au Alkergia. Ps. Pric 27 Twilve I ans 4 langli with the employer M - UNDER CHECK-OFF relery) arts 4. Haley A. form - in Items J. Walt - for Kind Box Guvis 1. Har - RM Forp Mapages Werks IDO Neal - no MM no Pa, of A who- - - Willas E Margan, Insurer ed Page Have age la a NVT wint expirative UWTR Begin- tury des - for pm The - sine - 2416 Bair a if video for of Xational United Instructing Rank is - Insure Class 40 Anligo - Hell les/s Kimu, Sylva . management - nuto the - Therefore ter mainted is the limited - - file the of Michael hairbir of - $1.675 - - - - delive entrilles Cale Day Harris Tagina There - verifary, - - - sal - Mate - eval. Pind organizational by todices of PWORT lew 1271 M I ( (HEI - On, Fortes Tle - MM taken by - FIT TOTAL - são Commission fa registered for - - " a nes, Dia - - of the PAY DUES IN ADVANCE The Phone any mid - de New INT - lest PROC less IIII. - servid la 4) edicate also ENTE Williams Dires. 2r. a - day Illusing BAR das by * - mith to RIM. - less II Im the --- if / To - - - - - - N.V. Fell Pine - la - et liarry Mille, person - - - here), last ITS. Ca. Walson, - MY Namber visa, ISM to - EVPOC - - - et BEGO land 1743 lass don't Version not provider who - Me line to - - - - - , parah for all of THE The there P. Within goni provide ONE - - through Milling Twite law. Junes - (M) - MM of IM - Heary Cash - PM - - - - . IDVIC - a - - - I'm Phone TII, David IL - of not No A - Trans Houls Card e These and broker - Themas - in (No - the - el MA heal APP No. - - within I - of the : trivel and Administration - 1 BM, Marking Two 1 ELTE. 1 Mr. to - - Serie Mainer. First Dago and ser of the theat's - 1 1 Kriva, (vistime) Janes INFOC - - that - - - I Mr. Time - Commis) - Wilson allego Not- - - The More - - No - of - - - employee is - - Total TMI - the - - 4. Fryme - set TML Puner, If address milks summary and Kate - Person I - of - - Check Carp. May, Bays Month, - Regraded sified and & di Washeld. Page Fair STEEL CAROR February 27, 1942 I 21. 1982 ATEAL CABOR a Page Fine STEEL LABOR LITTLE STEEL' VOTED 'YES'-SO WILL BIG STEEL Canadian Steel Workers Tour U. S. Mills Publishe Monthly 21ST C. Westington / - I free Steel Workers Organizing Committee 199 Communication - - FULLY MURRAY self - Mate Bahr PELBIOLOG DAVID * - finalistal Regraded Unclassified CLESTON Binefor - Area VAN A. Benter - Name WILLIAM METCH, - Are LEE PRESHMAN, - BABOCO AUTHORIZED - Director VISCENT Publicity - - Billine Eximet - a JATT, et the - Ofice el - - the Art JOHNS if Aunth 11. nara. Price a - Val. VII SAT SPARKOWS POINT is THERE A CONSPIRACY YES - - - : I - - ! de Não of steel - - - - - - the Ame, above - claimed - - la - Datest fina 1 Memo to he the in - - Comple's start - - MI 3 - Fines into / - E I Newt The é : I il Forbelly tas # Marin DAL) a. - - Item Chaman, - No. Mattery - I TM SWOC I - 5 A. that Maryer VIA instrurgh, - the L. - Armp. and Goods E. - - la de al Daria, of MY 1 - - - Form and Honey - Lateo Boud The - the stage I the : M Elimple A he Plate - Name Rx von IV represt le (el beil - ALL - - - Drive INS. of - - M° - al - 1 - tur - The production with leke 4d margie - ami will Hund (al VISIAL we list . LACKAWANNA international - mill I lo 150 1 - . behing Baten - - - the - ELECTION NI - The - Hamily the Date: in - I - le - refuirs - - at Hml Sire - - wall - claimed, IMP thre must - - giftered as - mated - personal discover Theylan. - F Fight. - and - vas well rism 14. WHICE later - above - 1 I : - I Total Time - CIO URGES UNEMPLOYMENT RELIEF TO BOLSTER 1 import an De - - and if The Wer Name size - - Certain MORALE OF DISPLACED WORKERS INTERNATIONAL will - - - deter- - 19 your may well this - You Valor is detail el - " - Enery - Their - de - . - *** informed et Or Has ed pas - a - INC the a Time the - of Mes - - provide Termitte (a solem la ADE - - - - 4 . them - - 1 - at eur end - Setive im mill - - problems - Problem Phis at Isla el) and al Ertie - I mást - 5 of de is - he - - surgrention E The # les Treatment financials 1 la flat in name am - - of : have - entise dawn As - No Two ner the CDO - list Product - - - , - the - is P. and America werld la not - and - is . i missions Immail préviles Approviment - für Red. - line - Name If for and is - unmed the deposite ! ----- the give - - - - 1 11/ el " - - - to - your BY being fini fis here and rights for - the cod soil is - MAN - prevint uni the - la - - Dunt. President --- - - anil in etc. No has ( tala - How Ipoke - - the Piem Additions. Mamo Date Hop fasility that a - the of - . I PI Inc miled and live Reme of Under is - Mail wild I - rise - - - Apployciations A - - - --- - - TMI - know - el is M 1 - upon : the promium - real or de Just - in New Yes 30 Will Later primary debtal et - - interes - of the Notional NT FORM NO - mind et - line Was and Diress - Name, ! - 2 - - gravile learnts in - - o desided - lie - de We la UNFAIR RENT RAISES dons di las 1-40 - el ext - Das - - Mil. nd - The as - given Amino CONDEMNED BY CIO - - - vera - - - 5 the Comm has al line - for - im - ad Via un ml A stare provi against persit not - la on - - lawis of . - inst ! - also a - - provide . - buring eu represent the United la l'etend - reporting from the We - e - the I E ml el - ⑉ WE the for uni - M ander " into of the Cogree of Organizations (e in i ! - virtal with the - - - This - beit volun off IM portal university e In 1. Themas, chairman Tax name al - wing to vor pm. limited (mm/dd/yyyy) is repla sod alber - - of . - is Ha - - " - a thing is is delai a - Importance The provident the eming programs ave elish - ET ate el el na in des e - unjustified and comple la the BE - M swin - - jany le Tele --- to live - - IMIN for il Limily vale if - variors Times mid - ware nd that hells se la and The is end a pr Ima Import - a - plays le - MD inion harml Xii only de to united revintr - of - times - if - ind agreed - of ⑉ 915M - and las liv) visit IM the - - del - THE - - las with fine result efficied. or - Consing, will anded - repairing to and This and - 1 the A ling jart if la se # anne (ine - the suiten and mindo of Lat - mike in Ao is für - - - eing and by - the surtin unived They asset to # . I in - en and - K. - - a SWEKT Limi 44 Ambrew - and I F. of sure de Issue - - of profertive and and be kand et - Newput Bulling dest- gradded of Andrew there fs and Shipm - NIL, - MM actioned the de 1 - ! permits with 3 MIL, - of the Consider - - print above Le E am Tringine dess Codes - previsions in nale las you TO 00 lieuing hisrilly - laver of organization of - prese projects. - - under the American Flag the a sports of unito beforem live - - inco members - they antived As - with if the la Du enter alim From in - Imain. Million di and - issuire Halls - - - so, ME have and No. ... falling with Mayer Willer Lesk, as BY - for - Prais the - - - the PUMP distres, there - the 4. - - - MM al the Letge hall ave have Ma of flat Vin - like at line will - inland fais le (*) fat ninl, tel. - that the de - representation - a, - The Sexi On - Billike and Cart. president H - The Checken - workers - la canada - - M fire M aid - - divided - in miss and das - and the provide the applicant and - 185, - . the picture as the - venter of the - of a. - pridertion Time - - in - with I a PHOLIP HERRAY, Two in et the was par AF Houry am - by the in - programs M when they - Page His STEEL LAROR February 27, 1412 21, 1M3 STEEL LABOR Page Service Canadian SWOC Members Tour U.S. Mills WORKERS SEEK LETTERS FROM READERS TO THE EDITOR Joseph Good Honored SWOC MEN SING TO AID WAR PROGRAMS IDEAS TO HELP By Pitisburgh Local Heller (true. Land New Company Palicy Marcher ship Climbs WAR CAPACITY 1 who di 4/1er Provi Marine ay of Joseph nambe at ewuc mil who É of The Newt - UnlawManagement Program of Americas The wilding die all w - in Canadian must la Part Harber, - of the lotal Basis of Yisit are which - Regraded Unclassified ⑉ la the M. - of are Add No - i address F DEFENSE - the due - - of $1.00 45- Honds $50.00 sisted dul - has - Aml " and le the TM . Bires Halls vider - / Les - I - --- nas , - 1 The é Maing . F ciranged Whigh The L with n. 48 if LOCAL FAVA HAS @ - relied of the the . - VP MANGERS stat THAT Plag - - - GREAT and to È I The tax MANY of ENGLISHE of Pla by 2 I à - $ 50 DEFENSE - - 1175 New (her TN - hold 1 Leginess el = ME - 2 A. 1,200 Vembers in the las I la the as ! - . - I - the line your - J - America " - - part Payment Mip CM, (Mr) - and (9) I and 3 the HAB ménager - it. Birth - Fm in my - - e tuis - by Cast and - the - las - alint in less the awec a a Algima Republic Miner 4d Members in Marge a plan - Land Bay Name NP Bei a signa il Puly Gets Back Wages i - 1989 of Out ! i " of the depended - the Billing Mim. Tel. II - per - L the for E - - Tetal ail IMA - the / Aunihi In type - Exition M Iron nine - Missin la Hoal HROO Check Can - 2 1 less les the No of of . the - Registre - el - De ? - at the = - - - live Later IDEAL AUTHORY No CELL- Load 1262 Members like THE - of 1173 16 MAILY - 7 in Ort after Mr un BRATED IT# FOURTH Work 1 INIMAINE m NEMBERSHIP in filence then Mailter - Fini Vrs. JARY - CHYTARD - Say the Bart - 154 - - with by Min. - 5 Laber Line I - us - Alguma the Fromal Brietima Boand . I' i My em - e à charges that Mr. Duquest Lacal felivé 5 Piener Land - 0 18a - THEMAS 1 The para - my in of the Waster An Josemal Agenci In Bend Companies "On the Marris" . alule [ - that Republic : Tairring . - N. the - from - & - - - anles è Water, Labor AM M. Lame to I - la vus ARE - signadure Bir Local No. Invo - tent de - or - IM Prok Membership I = a IMPDC fail BY I - - - The - Alive - - Pais die . et and - - - - bank - ever - 9 visits 1 - 1 - - is Canada Minnemis inin wider - I F IN If 1 with si visite - - to - 1 - 1 il - M - 14 NEAR and Mr. Drive 1991, My Lovel Presents 1mg - I I - - - E part - - - , - - the augustions they purked - trum wayor Mild la Dirk Brunkers, Inc. . 5 - - and - the Vinited listes ! for often - ⑉ a - N - 1 6 - - - uning - è like -- true la 1 - of - - all - - name MM - - that : the irror I I E - I representing of United Demotery - . - blue en - - AL seti. pm 1 - Adama, - i --- - Adress Mm - - AND Midine - - live "DIg Used Mr. - - - Time, Pioneer Local Buys $1,600 Delense Bonds nisne) to work and No IN - san, = - 1 - I exet of - employee is Feel F - I - ? I - - - 1 - that - nin - NAME Charles - has and lie Services M of in - late Ped 1 TUM warts Comerge - la The Busils. Your - as MORLEY - - 17 SUB/DRITY a 1 - in - 616 AT - se Die - The " - - - Less Lord 1323 Forms 1 = - a Ideal dualliery - - with replayes if the 4 Franking If - First und Chasses - fune Installs (Flicers la - = enter - o - and to bandle I Carlar, - Lam in - (Re . - y - energ mi # I I AL - register - - B il - The This ! of Itms E I with I Minim $ . PAT net prix 1 line min E premit 4. We - thing I $ I I - LAKE ERIE UNION sheir - - 2 la III study - United - " NO - - in Tell - - a - 4 - WILL - VOTES FOR SWOC 2 - at & a Ringles. pul and 1 (AP), # a - - Mingre We - - N. Pels ME is Grown - - all a I - I in I I i Labe of via e - - enter al protected at I M al 2 birth - M - - Une west ja the Thether a Rock Fells Lost 4ab That I damage - cio binel ! - - T MARE Correction Be Nule . (DD - ment, . 1 - Public . - , el 1 Mill la 1 New Here land Give - Full, - é #. 3 ⑉ lis Implied - - Bleek Labor - T with - - Funds a Paralysis Drine la - y - A 7 - lie è - N. ww a diff the - - - MMN - file I a if was ultra e all for Date Later : ! Turies 1 - - I 1 - Labe No the last - ? - at The - - hill Mr of I - the of - - et à ] to I 1 - Serve I --- - f in - - E - - - 1 - the if - I For Victory-Buy Bands Julian - - I - I --- - invoice - E delin - - MARTET is MA Materials: at = ] ARE - - Page Eight STEEL LABOR February 27, 1942 California Locals Endorse SWOC Demands ACTION TAKEN SWOC INVESTS $50,000 IN BONDS 'BIG STEEL' PACT AT STATE-WIDE TO BE REOPENED (Contimed from Page UNION PARLEY classe bax always reasiond the NEW to contract 10 The neles ND. liens with Hig Steet Dir that Oakland Conference Also volving "Taitle Strel. 1917 No. Sels Goal of $750,000 companies refused to sign with the nain resulting is Note Defense Bonds striken that Fair your Labor Board at Oakland Cal. Feb. 27.-Sixty-one hem's Signia and through - - ship check against paymile et No délegites from 20 loral of the other three rempanies, the swine KWOC we California, representing a hersme exclusive hargining sum. termitership close to 20,000, musmi- for the 173,000 employer in Has musly pindged their support of the companies present policy of The diving to BEFORE Kinre the SWOO's 30% is has taken part in or later . wege instruct of not loar than enn Bourd elections. winning Reduction dellar per day. the checked of hargaining rights for 263.00 state prom dros, and unlen acculity. workers. This action tank place at the Brik FOR YOUR RUES state-mide emilovery of KWOU Ineal unteria in California Plan Will Boost held ne the Uniel The delegates returned to their la- Steel Output val missing determined to - IM endorsement n° Lavir for (Continated tom Page the swor: programs is and 000 light timbs, 10 bittleships Mil Terred the anrial golns address by 4,000 heavy tants the uning during the pass Buy Mr. Morray simmi to how pum Day Defense Bonds are being violated by The conference also went IIII no- David 1. McDenald, of the BWOC, la shown alone et the left, frequently in with ent linging SWOC ressives in The unsing arez Le Frask chalrman at the Alleghery County Defense Bend Centr- recipative miller, . storck for $50,000 which the SWUC Invested in Defrase "From the vulert with the (NO. state to purchase of hast $750,000 in in the center is Clark Appelle, of the BWOC dellaned after who " serving se the of Price Administration an April Defense Bonds during 1942, all County Boad Committres, 1941, eviablished prim. hu amount sufficient to supply three The $64,580 Investment is antively superate from the theasands at dellare swoc asies of Four net and Tank totals the nation are investing in terrido and states. than railmad arrajo, the wrap Inio local and and sind industry especially the were impet to organism SWOC Men Awarded SWOC WINS VOTE AT healthers je in: hungar to long compaigns. 'shortage wränt Email the purpose The C10 Defense Plan calling for Navy 'E' Medals INTERLAKE IRON CO. attempting to binsk 160 Industry wide eventite received the price reding Mo Marry) and support of the rester- 8. Chicago, III.. Fell. 27 - by à Ambitidge. Pm Frb. IT Es These interests Work - EILEF playes of Wyreff Drawn Street 1% rute of (2) to 261, the SWOC vali from the givernment through il TO District Director James Theores wire awarded "E" plan recently hg rights for employee et visit price bent ou in was glovied chairmen of the conterns the empany. of "Kref- two Plants of the Interiske Jenn G 24, "hat despite this entire enen and William Hark of Local Twot Production in defense mate- ricough au elention conducted by aloo, which line should to gobe= Union Jame (Columbia Htnel Office The company Wes given the the National Lahor Relations Board. the write prices, internal- Workers at Torrener: was elected right to make - of the E' by the draling in ensp in and unl to The Aprion VAN held hi determine is Navy Department. atill endongrieg the ear pouls Director Thimmers reviewed the AU of the company employee are whether swoc Enmal 1867 er flie lina program isi gain dill ferth) activities of the neganization since members of The swoe, seid Monuel "Employes Amoriation of Interlake profile." the preseding confervire held in Wand, SWOC representative in The Tron" should ecl. PLA bengalning agrint Blvd firms are also prosesting the word last July, district. for the employee. "shoringe state." be eid. De Invid expension ant thereby avenopalitie puntrol. U.S. HONORS WORKERS AT GREAT LAKES STEEL He declared the provide DOSP shortage no settain mille " - my Hing and that them is - встир in this essantry 10 keep the mills eving all 100 jer esst of - parity tue the heat Rive years. The difference between the present upon atlon of around 90 F° má and too per cent represents has of same 2.000,000 low. Mont than :00 agent branth funsins BY bille unleg five lark of arrap what farges # Ima every 21 Min of - than 3000 tate of stock The entive sopply of areage should be placed muder - system of allow distribute - in shermills that Bred it, that the prown tweln major should have edequito Bold starts the 6MM fain the of exemine supplies, to in appoider enlin- Line of MTCP and administrative the all foration of supplive "This nerded artip will not Bar of He - account in the stret for haves, for will inadequire givin Nm. paigne to relievt Irm and and shild adequate torinage." he sald. too to be reserved, shipped and processed in a avalemation - Obviously this is are being das to merely relying upon the airibrida of serviço collection Unisiness ⑉ must times," Mr. Murray proposed that the gov. survence . revoting of the wrap internets, steet fires and the Decretary of the Treasury Heary la shown Lest 1190 of the awoo y almody established la the plant. swoo for the "purpose of effects. alove, and from the right. presenting - - to Great Finkered en - - is the "Minute Mign," of sting . practical program in Keep. And Carp. Even Misk, after - Issue - per cent the Bond and - drive the stail formare of Democracy of the employer agreed to purchase National De- manding at Mr. Marymises's right is Manire Cork, prot- Amenal faming at total experity. dest of Lossi 1295. from Bonds under . eyeläm Regraded Unclassified 101 January 28, 1942 Dear Mr. Murray: I think you may be interested in seeing the enclosed picture taken during my visit to the Detroit area on Sunday. The gentleman on my right is Stanley Cook, President of Local #1299 of your own Steel Workers Organizing Committee. This flag was awarded at the Great Lakes Steel plant, where more than 90% of your union members are saving regularly out of their pay for the purchase of Defense Bonds. They have been making & perfectly wonderful response to the Defense Savings campaign. It gave me & real lift to go to the Detrolt area and see the extent of C.I.D. participation In our payroll savings plans. My wife went for me to the Chrysler Tank Arsenal and said that the enthuslasm among the C.I.O. workers there was thrilling. Later I had the privilege of speaking to a great and friendly audience of U.A.W.-C.I.O. workers at the Coliseum, and again found & spirit of which you may well be proud. Sincerely, 1. 192 Mr. Philip Murray, President, Congress of Industrial Organizations, 1106 Connecticut Avenue, Washington, D. C. to Mr. FK/bkb Regraded Unclassified 102 THE SECRETARY OF THE TREASURY WASHINGTON January 28, 1942 Dear Phil: I think you may be interested in seeing the enclosed picture taken during my visit to the Detroit aroa on Sunday. The gentleman on my right is Stanley Cook, President of Local #1829 of your own Steel Workers Organizing Committee. This flag was awarded at the Great Lakes Steel plant, where more than 90% of your union members are saving regularly out of their pay for the purchase of Defense Bonds. They have been making a perfectly wonderful response to the Defense Savings campaign. It gave me 8. real lift to go to the Detroit area and see the extent of C.I.O. participation in our payroll savings plans. My wife went for me to the Chrysler Tank Arsenal and said that the enthusiasm among the C.I.O. workers there was thrilling. Later I had the privilege of speaking to & great and friendly audience of U.A.W.- C.T.O. workers at the Coliseum, and again found 8. spirit of which you may well be proud. Sincerely, Mr. Philip Murray, President, Congress of Industrial Organizations, 110G Connecticut Avenue, Washington, D. C. Regraded Unclassified 103 March 9, 1942 Dear Mr. Murray: Thank you very much for send- ing me 6. copy of your broadcast on war production. It was an excellent talk and I should like to send you my congratulations. I appreciate your courtesy In enabling me to have the full text. Sincerely, (Signed) S. JP. Secretary of the Treasury Mr. Philip Murray President Congress of Industrial Organizations 1106 Connecticut Avenue, Northwest washington, D. C. File n.m.e. copies to shompson FK:b1b (3/9/42) Regraded Unclassified 104 C]O CONGRESS OF INDUSTRIAL ORGANIZATIONS 1106 CONNECTICUT AVENUE, NORTHWEST WASHINGTON, D.C. Office of TELEPHONE Dimocr 5532 PRESENT as March 6, 1942 The Honorable Secretary of the Treasury Washington, D. C. Dear Mr. Secretary: I am sending you herewith a copy of the nation-wide broadcast which I shall deliver tonight over the Blue Network, to express the response of the Congress of Industrial Organizations to the call of President Roosevelt for the immediate stepping up of war production. Sincerely, Philip Murray uopwa 27 Regraded Unclassified 105 WE'LL WORK TO WIN By Philip Murray, President Congress of Industrial Organizations (A nationwide broadcast delivered over the Blue Network on Friday, March 6, from 10:15 to 10,30 P.M., ENT) The President of the United States and Donald Nelson, Chairman of the War Production Board, have challenged labor and industry to speed up war production immediately. on B. greater scale than has ever been attempted in any country in the history of mankind. I am going to accept this challenge tonight on behalf of the live million working men and women who make up the Congress of Industrial Organi- antions. Our President is now our Commander-in-Chief in 6. world war which threatens not only our nation's security and our very lives, but all our freedoms, our way of life, and our living standards, as no provious war has ever done. There can be no question of the response of true American working men and women to the de- nands of our Commander-in-Chief in such a war. It is the wholehearted and enthosistic response of good soldiers of democracy, who know that everything depends upon united and disciplined support of our great leader. But I can 60 much further than this. For I speak for the working people, who have more at stake in this war than perhaps any other section of our popula- tion. We are fighting nations whose economy is based on slave labor. In Germany, Italy and Japan there are no labor unions, as We know them. On the contrary, the first àim of any Nazi or Fascist movement is to destroy the labor unions. Labor Inders are stood up against the wall and shot. Workers who seek botter condi- tions In the shop are hounded, beaten, placed in concentration comps or murdered, Without union protoction and without democracy, the workers are ground Cown to coolie wage levols and intolerable working conditions. They are trented 5,3 voiceloss instruments of their dictators, their var lords and their Industri- olints. In every country conquored by Hitler and his gung, like conditions, or ORAD worse, have boon imposed on the working population. A. similar fate will oor- trinly be in store for the working people of America, if our fighting strongth is not sufficient to crush the military might of the Axis. We know that this 1a labor's war. We of labor must be more than loyn1 followers and patriotic citizens. We are and must continue to be loaders in the demond for more production and for every step that is necessary to win the war. Regraded Unclassified 106 Cortainly the history of the war to date leaves no room for complacency. listor tas counted on the softnoss and the complaconcy of every country he has con- quorud, The Japanese have taken full advantage of our unproparedness. Furthor- more. the months which lie immediately ahead will be of crucial importance, par- \iqularly in the fiald of industrial production, Our whole country, and every man and woman in it, must be aroused and mobilized for total war, for B. tremendous transformation from a peaceful people to a nation of warriors, if we are to turn the tide of battle from dofonse and retreat to offense and victory, Than I speak of a nation of warriors, : am thinking too of our industrial workers. Modern muchanized warfare calls for some 18 workors in industry for every noo et the front, Each fighting man depends for his very lifo on the workers who produce his munitions, his arms and his supplies. They too must think as soldiers, Landing their every effort for more and more production, for one purpose above all offers -- victory for our armed forces. We pledge our complete and wholehearted support to our Commander-in-Chief, President Roosevelt, for the achievement of the production goals which he has act, In doing 50, we are mindful that upon the shoulders of labor rests the primary responsibility for achieving these goals. We are also mindful that the experience of other countries has taught us other lessons besides the fate which lios in store for labor if Hitler wins. It has taught us that national unity can be undermined by appossers and Quislings, whose subtle propaganda can be as dangerous as actual plant shootage. We are determined that our country shall not suffer the fato of France or Norway, through the disruptivo offorts of fifth columnists or self- proglaimed patriots who preach disunity, At the present time, in particular, We must guard against carping critics of our President and of the program which he has initiated for winning the war. Constructivo criticism we must have, to mobilizo our full domocratic effort, But let the appeasors and the men of faint heart beware of the wrath of America's workers, if their constant carping cloaks A purpose to dis-unite, to confuso, and to asbotage our war effort. Mr. Donald Nelson, our Production Chief, has just announced 8, concrete program for increasing and speeding up war production. We welcome this program most heartily and pledge our anthusiastic cooperation for placing it into execu- Regraded Unclassified 107 5100. In fact, wo of the CIO take pride in the knowledge that wo have been pleneers and londors in the demind for just such a program for mobilizing American Industry for all-out war production. The Industry Council Plan which the CIO advanced more than a year ago was disigned for just this purpose. So too were the proposuls advanced by our unions in ell the major industries for early conversion to war production and industry- wido planning. We were the first to put forward conorate proposals for producing more stual, more aluminum, more copper, more airplanes and more of all the other roods and services that are neaded for victory. We take courago and ronewed inspiration from the fact that our Production Ohief in now urging steps which we have long advocated. The joint laber-management plant committees which he proposes are directly in line with our Industry Council proposals, 0.5 io the whole spirit of the program which he advances, Spoaking now to the officers and mumbers of our affiliated unions and councils, I call upon you to act without dolay in the spirit of the oall issued by our Prosident and our War Production Chief. Many of you, I know, have already approsched the managements in your respective plants with concreto proposals for joint affort to Increase production. In many cases, where such committees have bown sut up. production has increased from 10 to 60 per cont. In a omo cases, it is true, we have encountered reluctance on the part of management. But now that such committoe planning for increased production has become the no tional policy of our government, I am suro that we can count on patriotic employers to join with labor in sotting up functioning committees for the promotion of every constructive step to produce more and more. The goals cannot be not too high, Production Chiof Nelson has also advanced proposola for appropriate awards for the soldiors of industry 05 well as for our soldiers in uniform. This is a splendid iden. So too is his proposal for onlisting the spirit of Amorican compe- tition in achieving over higher production quotas. I know that our CIO members WILL entor wholehcortedly into this spirit of patriotic competition. Porhaps somo of my non-labor listoners may be saying to themsolvos at this point, "All you have and is fine and dandy, but what is all this we road about strikus and about labor trying to take a solfish advantage?" Regraded Unclassified 108 201 us meet this question squaroly and frankly. Let us clear from our tirida the fog of propagunda deliberately sprend by profiteers, reactionaries and appeasers who are trying to take & selfish advantage over labor in this emergency, If we so oxamino the facts, we will find labor's position is firm and consistent, that winning the war must be our first consideration, and that nothing must be ATTOMED to interrupt war production, Labor itself WBE the first, of ita own free will, to advance an effective program for the ending of strikes. No sooner WELS war declared than both the Con- (Mon of Industrial Organizations and the American Foderation of Labor, assembled la conforence with representatives of industry and government, solemnly pledged themsolvos to set saida the striko woapon for the duration of the wer. Wo also invoiced proposals, accepted by the President, for the peaceful solution of all labor disputes, through mediation, conciliation and arbitration. There has not boon EL singlo authorized strike in EL war industry since that time, and all the efforts of the CIO and its unions have been directed to ending at once such minor incidents as have occurred. These incidents have been few and of the briefost duration, but they have been grossly inflated and misrepresented by \fish propagandists for the purpose of promoting anti-labor legislation. Thore is 110 forco, not oven that of a complete dictotor, which can furnish any Absolute guarantse that a nan will not ceuse working under conditions which he Place intolerable. The best guarantee that can be given under a free system is the plodge of the workers' own democratically elocted representatives and the scourance that collective barguining will remedy grievances without the need to strike. The CIO can point to B. rocord of uninterruptod production by millions upon millions of industrial workors; and to the ;enceful solution of thousands of and disputes which night otherwise have led to stoppages, had there been no union on the job to provent thom. We are determined to maintain this record, I an again calling the attention of our unions and our membership to the action agrooment, to which we have voluntarily subscribed, that "there shall be no strikes or lockouts", and "all disputes shall be settled by peaceful mouns". This is our commitment to our President and to our country. I call upon all our unions, their officers and their members, to exercise the utmost patience and tol- erance in sijusting all disputes. Proper channels aro now provided for their Regraded Unclassified 109 5- posseful adjustment. Support your country and your unions by seeing that not an hour of production-time is lost from any cause, until we win the war. Production Chief Nelson has called for B. 168-hour working week for the machinery of industry. We are wholeheartedly in favor of working our plant and equipment every hour of the week that it can be utilized, Our unions, in many cases, nave been the first to call for 24-hour and seven-day week production. But human buings are not machines, Their officiency deponds upon reason- able working hours and adoquate rest periods. Practical experience in Great Britain and other countries, under war conditions, has shown a sharp decrease in actual production when excessivo hours were worked, and working hours have had be reduced for the very purpose of increasing production, In conclusion, I want to stress again and again to labor and to the pub- lie that America is today at the parting of the ways. If we lie down on the job, if WV shirk, if we listen to the sly preachers of disunity and complecency, if we fuil to back up our armed forces with all that is in us, WE can go down to defeat, dishonor und the loss of all our liberties -- to the complete blackout of civiliza- tion which Hitler and the Axis are fighting to bring about, But if, on the other hand, the American people, and the working people in particular, are true to ourselves and to our country, if we stand loyally behind our President, if we dovote our every thought and effort to more and more produc- tlon, more effective civilian defense, and more and more support to our armod forces, we shall turn the tide of battle in these very days and weeks that lio ahoud of us, to final and complete victory, Our destiny is in hour hands -- the hands of every one of uo, To labor, and particularly to the members of the Congress of Industrial Organizations, whom I have the honor to represent, I say: Get on the job nt oncel Heed the call of our Commander-in-Chief and our country. Let our slogan be: WORK, WORK, WORK! PRODUCE, PRODUCE, PRODUCE Regraded Unclassified 110 Daily changes in the stock of Series E savings bonds on hand 1/ (In thousands of pieces) : Number of : Number of pieces : Stock on hand : IBM :pieces sold : manufactured : at close of : deliveries : this day : this day : day : this day Feb. 23 214 800 21,905 - 24 55 800 22,650 1,600 25 104 800 23,346 700 26 158 800 23,988 875 27 240 800 24,548 660 28 162 none-closed 24,386 I Mar. 1 none-closed none-closed 24,386 I 2 304 500 24,582 - 3 160 500 24,922 625 4 171 500 25,251 - 5 200 500 25,551 625 6 210 500 25,841 - 7 211 none-closed 25,630 625 Office of the Secretary of the Treasury, March 9, 1942 Division of Research and Statistics. 1 Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices, (3) Federal Reserve Bank issuing agents, and (4) Treasury veults in Washington. Regraded Unclassified UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Sir Business Days of March, February and January 1942 (March 1-7, February 1-7, January 1-7) On Basis of Issue Price (Amounts in thousands of dollars) : : Sales Amount of Increase : Percentage of Increase : # or Decrease (-) : or Decrease (-) Item : : : : March : February : March : February : March : February : January : over : over : over : over : 1 : : February : January : February : January Series 1. Post Offices $ 23,708 $ 28,490 $ 36,385 -$ 4,782 -$ $ 7.895 - 16.8% - 21.7% Series 1 - Banks 65,889 108,273 86,171 - 42,384 22,102 - 39.1 25,6 Series I . Total 89,597 136,763 122,555 - 47.166 14,208 - 34.5 11.6 Series 7 - Banks 11,354 21,136 13,573 - 9.782 7,563 - 46.3 55-7 Series G - Banks 59,086 97,261 60,150 - 38,175 37,111 - 39.3 61.7 Total $160,037 $255,160 $196,279 $95,123 $58,881 - 37.3% 30.0% Office of the Secretary of the Treasury, Division of Research and Statistics, March 9. 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonde. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 112 CONVIDENTI UNITED STATES SAVINGS BONDS Daily Sales - March, 1942 On Basis of Issue Price (In thousands of dollars) Post Office Bank Bond Sales All Bond Sales Bond Sales Date Series = Series I Series ? Seriew G Total Series I Series 7 Series G Total March 1942 2 $ 5,811 $ 15,868 $ 2,043 $ 8,726 $ 26,636 $ 21,678 $ 2,043 $ 8,726 $ 32,447 3 2,975 8,459 1,629 5,780 15,568 11,434 1,629 8,780 21,843 4 3.395 8,833 2.658 12,558 24,048 12,228 2,658 12,558 27,443 not 3,869 10,448 1,680 11,870 23,998 14,317 1,680 11,870 27,867 4,179 10,696 1,759 10,825 23,279 14,875 1,759 10,825 27,458 7 3,480 11,586 1,586 6,328 19,499 15,066 1,586 6,328 22,979 Total $ 23,708 $ 65,589 $ 11,354 $ 59,086 $136,329 $ 89,597 $ 11,354 $ 59,086 $160,037 Office of the Secretary of the Treasury, Division of Research and Statistics. March 9. 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totale. Regraded Unclassified TREASURY DEPARTMENT 113 INTER OFFICE COMMUNICATION CONFIDENTIAL DATE March 9, 1942 TO Becretary Morgenthau FROM Mr. Hane Subject: The Business Situation, Week ending March 7, 1942. Summary (1) The Federal Reserve Board's preliminary and confi- dential estimate of the seasonally-adjusted index of industrial production for February 1s 173, as compared with 171 (revised) for January. Aggregate industrial output rose more than seasonally, largely as a result of increased acti- vity in the manufacture of armament. (2) Stock prices moved lower last week, with selling attributed to prospects of heavier taxation and adverse war news. The Dow-Jones average of industrial stocks declined to the lowest level since 1938, while the average of utility stocks reached the lowest point since its compilation was begun in 1929. (3) Despite relative stability in basic commodity prices, the general price level continues to rise. With A further advance of 0.3 percent to 96.8 in the last week in February, the BLS all-commodity index has reached the highest level since September 1928. The index now stands 29.1 percent above the level of August 1939 and 5.0 percent above that of the week before the attack on Pearl Harbor. [4] National income payments moved up to 4. new record annual rate of $101.2 billions in January. However, the pur- chasing power of national income fell slightly below that of December, due to the relatively sharp rise in living costs during the month. (5) The tonnage of steel ingota scheduled for production last week slightly exceeded the previous record set last fall. However, the operating rate of 97.2 percent of capa- city has been bettered on numerous occasions, Operations during the current week are scheduled at 97.4 percent of capacity. Regraded Unclassified - 2 - 114 Industrial production at new high Aggregate industrial output last month showed further gains, The Federal Reserve Board's preliminary and confi- dential estimate for February indicates that the seasonally- adjusted index of industrial production during the month rose 2 points to a new high of 173. (See Chart 1.) The gain was due to the fact that actual output ross more than seasonally, and on the whole slightly exceeded the previous peak levels attained last fall. Activity was sharply re- duced in the automobile industry, and was also out somewhat in the woolen textile, and paper industries. However, these declines were more than offset by increases in other industries, principally those engaged in armanent manufactur- ing. Despite the recent gain in industrial output, the Production Director of the NPB last week stated that short- agee of materials threatened to prevent attainment of some of the production goals set by the President. The rise in the industrial production index last month contrasts with the declines shown during most of the period by the New York Times' and Barron's weekly indexes of business activity. However, as man-hours expended on war materials output assume increasing importance as a gauge of production, weekly indexes of business activity are likely to show greater divergences from the monthly FRB index than in the past, Moreover, the coverage of weekly indexes has been re- duced in recent periods due to discontinuation of weekly production data for the automobile and cotton textile industries. Stock market déclines to new low In the face of mounting industrial activity, the stook market continues to move lower. Under the impact of addi- tional adverse war news and the outlook for further tax increases, the Dow-Jones industrial stook averages last week declined over 4 percent to a new low since 1938. (See Chart 2.) On a relative basis, utility stocks made an even poorer showing and declined to the loweet level since compilation of the average was begun in 1929. Friday's closing utility average of 12.20 contrasts strikingly with the record high of 144.61 reached on September 21, 1929. The volume of trading was relatively light until near the end of the week, when activity increased moderately as the market weakened. Even railroad stocks, which have recently been resist- ing the declining trend of the market, sagged moderately in the latter part of the week. Excellent traffic prospects, Regraded Unclassified 115 improved earnings and finances, as well as relatively lighter tax burdens, have contributed to the stronger market per- formance of these stooks. (Refer to Chart 2.) Early last week the Interstate Commerce Commission authorized freight rate increases equivalent to about two-thirds of the amount rates and other costs. Judging from subsequent action of sought by the railroads, in order to offset increases in wage railroad stooks, the ICC decision was about in line with market expectations. While the rise in freight rates will enable the rail- roads largely to offset recent wage increases, they will also add to industrial costs, which will have to be absorbed into the general price structure. At last year's traffic level, the increased rates would raise the national freight bill by about 203 million dollars annually. Wholesale prices continue to rise Extensive control of basic commodity prices has not kept the BLS all-commodity price index of nearly 900 commodities from continuing its upward climb. In the week ended February 28 the all-commodity index rose 0.3 percent to 96.8, the highest point since September 1928. The index now stands 29.1 percent above the August 1939 pre-war level. (See Chart 3, red line.) After levelling out from mid-September through the week ended December 6, wholesale prices rose sharply in the week following the Pearl Harbor attack, and resumed their general upward trend. From December 6 to the end of February the index advanced 5.0 percent. As 1a shown in Chart 4, four component indexes accounted for most of the advance: farm product prices increased 12.3 percent; chemicals and allied products, 8.2 percent; foods, 7.7 percent; and textile prod- ucts, 4.6 percent. That chemical prices have not risen higher 1s doubtless due to broad action taken by the OPA and the Board of Economic Warfare. Textile prices in the week ended February 28, it will be noted, advanced more than prices for any other group, reflecting sharply increased prices for woolen and worsted materials, and moderate increases in clothing prices. Basic commodity prices higher The BLS price index of basic commodities moved upward Inst week, departing from its previous stable trend. (See Chart 5.) The indexes for foodstuffs and raw indus- trial materials both advanced. The rise in foodstuff prices was due principally to higher prices for livestock and livestock products. Hog prices have now advanced 32.1 Regraded Unclassified 4 116 percent since December 6 and 107.3 percent since August 1939; prioce for steers have advanced 8.2 percent since December 6; and lard pricee have increased 17.7 percent since December 6 to ceiling levels. Price changes among industrial raw materials last week were limited to three commodities. Flaxseed prices continued their broad rise, and wool prices advanced, while cotton prices declined slightly. The strength in flaxseed and linseed oil prices was intensified by further stringency in shipping space from Argentina and an announcement that the Canadian Government had "frozen" all flaxseed stocks in elevatore and milla because of the international situation restricting sup- pliee of vegetable oils. Cotton textile situation tightening Sales of cotton goods, especially of unfinished goods, are currently exceeding their very high production volumes, and it 18 believed in the trade that shortages will develop by next summer on many classes of finished goods. Menu- facturers of finished goods are finding it difficult to obtain continuous and unverying supplies of cloth, and manu- facturers of cotton goods are finding it increasingly diffi- oult to obtain adequate supplies of yern. In January, cotton mills consumed raw cotton at 8. record daily level, although this WAS only two percent over the rate in effect ten months ago. Only & very small percentage of spindles were idle, and those in operation averaged close to 19 hours of active work a day. The chief limit to some further activity 18 reported to be & shortage of satisfactory labor. The Department of Agriculture forecasts an even greater rate of mill consumption of cotton in the months immediately ahead, at a level which will materially reduce the carry- over of raw cotton 8.8 of August 1, 1942. Factors contribut- ing to greater cotton consumption are reduced imports of and increased war requirements for jute, hard fibers (prin- cipally sisal, henequen and abaca), and wool. Moreover, importe of raw and manufactured cotton, silk, flax, and hemp, now reduced or eliminated, have hitherto aggregated & con- siderable quantity. In 1935-39, these imports averaged 31 percent of the fibers available for consumers in the United States. Cotton will also have to be used in much larger quantity in place of burlap for the greater requirements in the production, harvesting, and marketing of farm pro- duots, and for sandbage. Regraded Unclassified - 5 117 Some comment 10 noted of a possible cotton shortage in 1943. In this connection it 10 significant that Secretary Wickard has called on ootton farmers to plant their full acreage allotment of 27,400,000 acres of cotton in 1942. The 1941 crop of 10,976,000 bales vaa produced from a planted acreage of 23,250,000. National income payments atill rising National income payments continued to rise in January and attained an annual rate of $101.2 billions. (See Chart 6.) This compares with an annual rate of $100.2 b11- lions in the previous month and $81.7 billions in January 1941. However, due to B relatively sharp rise in living costs during January, the purchasing power of national Income payments actually showed a slight decline from the peak levels reached in December. (Refer to Chert 6.) The total national income produced in 1941 is estimated by the Department of Commerce at $94.5 billions, or 22 per- cent above that in 1940. A part of the increase, however, vas due to the higher price level, real income showing an estimated increase of 15 percent. Wages and salaries paid in 1941 totalled $61.2 billions, about 25 percent greater than in the previous year. The Department of Commerce notes that at the end of 1941, national income produced was running at an annual rate of about $104 billions, of which about 20 percent represented war production. Seasonal deoline in non-agricultural employment Largely as a result of seasonal factors, oivil non- agricultural employment in mid-January was 1,235,000 lower than a. month earlier. However, 62 percent of the decrease was due to the usual reduction in temporary personnel in wholesale and retail trade following the Christmas holiday sales rush. Total oivil non-agricultural employment in January was approximately 39,850,000 -- a gain of 2,700,000 over the year-earlier level. Factory employment rose 1,500,000 during the year, thus accounting for well over half of the total increase. Analysis of the January non-agrioultural employment on a regional basis reveals that the widest gain over year- earlier levele was shown in the Pacific coast States, with an increase of over 17 percent. Nevertheless, the largest gain for any State was shown by Alabama, followed by Oregon, the District of Columbia, and Arkansas, in the order named. Only Florida and Louisiana showed employment decreases from year-earlier levels, although the gain in Michigan was limited to less than 2 percent, due, no doubt, to the our- tailment in automobile production, The percentage increase Regraded Unclassified 6 - 118 or decrease in non-agricultural employment by States from January 1941 to January 1942 18 shown in the attached Table 1. Steel operations at new high Although last week's steel operating rate of 97.2 per- cent of capacity has been exceeded on numerous occasions, the tonnage of steel ingots scheduled for production last week (in view of the industry's expanded capacity) was slightly above the previous record set at the end of last October. During the current week, operations are scheduled at 97.4 percent of capacity. In connection with its efforts to break the bottleneck in steel plate production, the WPB announced last week that new specifications had been worked out with the Maritime Commission for plates for the "ugly duckling" cargo ships. As & result, it was stated that 80 to 90 percent of the plates needed for these ships would come from converted strip mills, as compared with only about 10 percent hereto- fore. This will serve to relieve the heavy pressure on the normal plate-making facilities of the industry. Regraded Unclassified Table 1 119 Percentage increase in non-agricultural employment January 1941 to January 1942, by States Percent Percent State State increase increase Alabama 22.9 Illinois 8.8 21.4 Utah 8.8 Oregon District of Columbia 21.2 Iowa 8.6 Arkansas 17.9 West Virginia 7.8 Washington 17.6 Tennessee 7.8 California 16.4 New Mexico 7.5 15.5 New York Maine 7-5 Nevada 14.8 Kansas 7.5 Virginia 12.9 Oklahoma 7.0 Missouri 12.3 Idaho 6.5 Nebraska 12.0 South Carolina 6.1 New Hampshire 11.8 Rhode Island 6.1 New Jersey 11.8 South Dakota 5.5 Connecticut 11.5 Kentucky 5.4 Colorado 11.1 Mississippi 4.9 Vermont 11.0 Texas 4.4 Georgia 10.7 North Carolina 4.3 Ohio 10.3 Delaware 4.2 Wisconsin 9.6 North Dakota 3.9 Massachusetts 9.3 Montana 3.6 Pennsylvania 9.3 Wyoming 2.5 Arizona 9.3 Michigan 1.9 Maryland 9.2 Louisiana -0.9 Indiana 8.9 Florida -1.5 Minnesota 8.9 Source: Bureau of Labor Statistics Regraded Unclassified DERAL RESERVE BOARD INDEX OF INDUSTRIAL PRODUCTION 1935-39=100 1939 1940 JFMAMJ J A S o N D J F M A M J J A 5 o N D J F M A M J J A SONDJFMAMJ 1942 1941 PERCENT PERCENT 170 Seasonally Adjusted 170 165 165 160 160 155 155 150 150 145 145 140 140 135 135 130 130 125 125 120 120 115 115 110 110 105 105 100 100 95 J F M A M J J A S o N D J F M A M J J A S o N D J F M A M J J À $ o N D J F M A M J 95 1939 1940 1941 1942 120 Chart 1 the of The Secretary of the Train - of - - - Regraded Unclassified wookly Range 1940 1941 1542 MAY JULY SEPT NOV JAR. MAR. MAY JULY SEPT. M Jan, MAR. DOLLARS DOLLARS 180 30 Industrial Stocks 100 170 170 150 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 55 55 50 50 20 Railroads 45 a 40 40 35 35 30 30 25 25 20 20 15 15 10 10 35 35 15 Utilities 30 30 DE 25 20 20 15 15 10 10 SMARES SHARCH Volume of Trading MILLIONS BILLIONS (AVERABE or MAILY) 3 3 2 2 1 1 0 0 MAY SEPT. sov. JM. MAI. MAY JULY SEPT. any, JAB. MAR, JULY 1940 1941 1942 121 Regraded Unclassifi Chart Chart 2 Chart 3 B.L.S. INDEXED OF WHOLESALE COMMODITY PRICES 122 1025 - 100 Wookly Daily ($40 1941 ==== FEB. APR, 1842 1942 PETA OSTs PES. FEB. APR, JANUARY ce. à 16 17 24 Il , - FEA 14 21 APRIL PER a 7 14 21 20 4 " I 25 cont EASY CENT PER CERT . 100 104 104 HOME 106 103 103 * 104 102 (§ 167 102 TOI 101 100 100 100 100 # 90 99 99 a 96 se ALL COMMODITIES H 94 27 (WEERLY) 07 si $2 H ALL COMMODITIES so + se 90 as 95 a os H 34 65 no 93 in : 34 S2 26 BASIC COMMONITIES a en az 51 91 80 20 BASIC DOMODITIES 60 so K 78 76 as - N 76 DE 50 N 74 87 67 T2 72 B6 - X 70 as is M (a) 64 a M. 56 61 as a 64 e a W 12 E1 = If 1 201, 50 80 B set, 1940 for, a A AMS. 007. DED. FEB. APR, - 3 19 17 & 31 7 14 21 a 7 14 21 # 4 " 16 X 1941 1942 FERMS I APRIL 1942 - el - - - el - Serial, as N - P-218-2 Chart 4. 123 WHOLESALE COMMODITY PRICES Percentage Changes in Major Groups of B.L.B. All Commodity Index Week Ended Dec. 6, 1041 to Week Ended Feb. 21 and Feb. 28, 1042 PER CENT FARM PRODUCTS 12 10 CHEMICALS, ETC. B FOODS 6 ALL COMMODITIES TEXTILE PRODUCTS 4 BUILDING MATERIALS Misc. COMMODITIES 2 HOUSEFURNISHINGS HIDES ND LEATHER PRODUCTS METALS AND METAL 0 PRODUCTS FUEL AND LIGHTING 7 2 Dcc.6 FEB.21 Fca.28 1941 1942 1942 Office of the Secretary of the Treasury Division all Research and Statistics P - 235 Regraded Unclassified MOVEMENT OF BASIC COMMODITY PRICES AUGUST 1939-100 PERCENT PERCENT PERCENT PERCENT Weekly Average Daily 220 220 200 200 200 200 190 190 12 Foodstuffs 12 Foodstuffe 180 IBO 180 180 160 160 170 170 140 140 160 16 Row Industrial 160 16 Raw Industrial Moterials Materials 120 120 150 150 100 100 140 JUNE AUG. OCT. DEC. FEB. APR. JUNE AUS. OCT DEC. a 13 20 " a a IF - a , - 2) a , 44 140 B - DEC. 1941 1942 JAN. FEB. MAR 1941 1942 PERCENTAGE CHANGE FOR INDIVIDUAL COMMODITIES Aug. 1939 to Mar. 6. 1942 Dec. 6. 1941 to Feb.27and Mar, 6. 1942 PERCENT PERCENT Woge us 12 Foodstuffs 12 Foodstuffs +25 200 +20 160 Cottonsed or en Tollow HETS Lord aux +15 Lard 17.72 120 Phoge Borkey se Coooo ARTX Borley 06.72 +10 Com an Steure the Com 82.4% 80 When 77.2% Talker 112 Coffee 772% +5 Sugar are Staare an Wheat La 40 Butter 44EX 02 592 Sugar MER 0 Coffee os Cooor ass Author -15% o 5 Aug Mar. 6, Dec.6. Feb.27, Mar 6, 1939 1942 1941 1942 1942 MERCENT PERCENT Finand M.O. 16 Raw Industrial Materials 16 Rew Industrial +25 Materials 200 Cotton WERE +20 (Lood as 160 Bunkp no Cotton 412 Print Cloth 04/2 Rown AUX Zine an +15 (Print Ober 442 Flowed use 120 Box If (Mon/ ner She/lee OR (Rein 42/2 *10 Zine oz (Plicles 20.72 a or ao 4St Screador au Publer a Rubber MAX +5 Capper 0% Lood MAX & ux 40 1213 Tin oz Copper 8.00 0 DE - << Miche 02 Tin us o -5 Bunbo 4.11 Aug. Mar. 6, Dac.6, Feb.27, Mar. & 1939 1942 1941 1942 1942 . - - # - - 124 Chart 5 P-254-1 Regraded Unclass NATIONAL INCOME AND ITS LQUIVALENT PURCHASING POWER 1939 1940 1941 1942 DOLLARS DOLLARS BILLIONS BILLIONS Monthly 100 100 96 96 92 92 NATIONAL INCOME 88 88 64 84 80 80 PURCHASING POWER OF NATIONAL INCOME - 76 76 72 72 - A $ o N D J F - A M J J A $ o . D J , If A - J J A 5 o # D J F - A M J 1939 -1940 1941 1942 125 Chart 6 BASED DM COST OF LIVING INDEX or B.L.S. Aug. 1939 = 100 Office of the Secretary of the Treasury - of Reservé - C - Regraded Unclassified 126 March 9, 1942 MONTHLY REPORT OF NATIONAL DEFENSE CASES FEBRUARY 1942 Applications received 86 of January 31, 1942 9190 Applications received during February - Previously reported cases reopened 6 Total received as of February 28, 1942 9196 * * * Completed investigations as of January 31 5647 Completed investigations during February 177 Total completed investigations as of February 28 5824 Applications withdrawn as of January 31 486 Applications withdrawn during February - Applications delivered to Department of Justice 2852 Total applications withdrawn as of February 28 3338 Total cases closed as of February 28, 1942 9162 Applications pending in office as of February 28 5 Applications pending in field as of February 28 29 Total applications pending as of February 28,1942 34 Total cases disposed of and pending as of February 28 9196 * Agents engaged on this work under direction of this office close of February 1942. Alcohol Tax Unit - 54 Secret Service - - Customs Service 1 2 Narcotice Service - 6 Intelligence Unit - 38 Regraded Unclassified 127 Sent to McConnell in New York c/o J.J. O'Connell, Jr. AIR MAIL Regraded Unclassifie 128 MAR 1942 Dear r. CoConnell: Now that we have reached an understanding that you are to take on the Job of running, as its President, the affairs of General Aniline and Film Corporation, aided by a small group of not more than three men to serve with you as a Board of Directors, I think it desirable to state again the general policy which the Covernment proposes to pursue in handling the affairs of the Company. Our program envisages the elimination of all things in General Aniline and /13m Corporation representing control by German interests. These controls stemmed in the first Instance from ownership of the corporation by I. 0. Farbenincustrie which, in azi Germany, has been its staunchest bulmark and full partner. In dealing with its sutellites outside of Germany, I. C. Farben developed an extensive and well- organized system of controls. Men were trained in I. 0. Farben methods and techniques in the home office and plants. Some of these men were able technical den, others were younger sona of the dominant familles within the organization, but all of them were men nijose loyalty to I. G. Farben was unquestioned and done of them would have been appointed to such in- portent industrial posts outside of Geruany if such Lac not been the case. As soon as they were trained they were sent to various countries where they were placed in key technical or administrative positions in companies within the I. G. Farben sphere of influence. They were encouraged to marry within the new country and acquire its citizenship, but they remained "I. G. varben Ken". Even after filling the key positions in this way other control techniques were employed. is recently as late in 1941 managerial pollcy was being dictated from Germany by transatlantic telephone, and until that year periodical official visite were Regraded Unclassified 129 the settled rule. Option agreements of bewildering complexity reinforced or replaced control by share ownership. Cross-licensing agreements, control agree- ments and agreements for the exchange of patents and "know-how", implemented by frequent exchange of in- formation cemented enduring ties. All of these methods were found to be present in General Aniline and ?11m Corporation. The German-owned stock has already been vested in the Secretary of the Treasury. Furthermore, we have broken the lines of communication between the two companies in BO far 8.5 they relate to the open exchange of information and "know-how", and we are and shall be dealing with the more obvious ways in which the operations of General Aniline have been con- trolled from Cermany in the past. More difficult is the problem of Company personnel, and that is & matter walch requires development somewhat in detail. An effective job of freeing the organization from German domination and control requires the elimination of the I. C. Farben men. In practice, all persons of executive or mail- agerial status who have been connected with 1. 0. Farben will have to be replaced as soon as possible by men un- questions.ly devoted to American locals. with regard to technical personnel of similar background, our objective may take longer to attain. Assuming that these men, or some of then, have such technical qualifications as would make their impediate dismissal impracticable from an operating standpoint, they will be retained under surveillance for 20 long LE is required to obtain ano train multable substitutes for them. In determining the rate of effecting these changes I expect to rely heavily on the Judgment of the management. Persons of doubtful allegiance may also be Found who do not have I. C. Farben backgroumes. These, too, will be eliminated. However, our program does not Regraded Unclassified 130 - 3 - involve the diamissal of employees simply because they are of German birth or extraction. Of course, the whole program must be carried out with a view to maintaining, and wherever possible expanding, the operations of the Company whose products are 80 necessary in the war effort. will you please confirm to no your willing- ness to operate the affairs of the Company in & manner calculated to achieve the results hereinbefore outlined. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. .r. Robert E. McConnell, Middleburg, Virginia. JJO'C:mdm 3/7/42 Regraded Unclassified 131 2020120 SALARIES A EXPENSES FORSTON EXCHANGE CON'ROL 1942 Allot. 1-b Mashington, DeC. March 9, 1942 :. .. STUDERT, PRESIDENT STATEM JL COMPANY (INDIANA), 910 DATE MICRIGAN AVINUE, CHICKOO, ILLINOIS. 15 HAVE TALLS OVER OWNERSHIP OF GENERAL ANILINE k FILM CORPORATION, REPORTANT CHEMICAL MANUFACTURING COMPANY FORMERLY CONTROLLED BY Y 110 BAILY NEEDED IN OUR hR FFORT. TOOD LIKE To ELICT - 30AML CY TECHNICALLY TRAINED MEN WITH DUSINESS EXP.51.5C3 AND VAT YOUR DE. ROBERT E. WILSON. IT WILL REQUIRE HALF 1. TO-THIRDS OF BIS TIME FOR FIRST MONTH BUT NOT MUCH TRKR AFTER. : WILL AMONT YOU LATE TOLAY OR TOMORROW MORNING REGARDING LICEPTANCE RICK I HOPE YOU WILL APPROVE. (Signed) H. Morgenthau, Jt. SECRETARY OF THE TREASURY ENF:v1s - 3/9/42 Regraded Unclassified 132 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE E THE DIRECTOR WASHINGTON March 8, 1942 MEMORANDUM TO THE SECRETARY: The following are A fow observations made as 8. result of B preliminary study of the W. P. B. report of Russian Lend-Lease steel requirements received today. 1. The narrative report by commodities has been pre- pared to show an overall picture. The immediate concern is to make up existing deficiencies by April 1st as directed by the President, and our reports to you have been prepared on that basis. It is realized that the time is short, due for the most part to delays by the Russians in submitting requisitions. However, the President's request, likewise the purpose of Mr. Stettinius' visit to you, and your in- structions emphasize exerting every effort to overcome ex- isting deficiencies prior to April 1st on Protocol items, which is the objective. 2. The schedule which follows page ten in the report shows the Protocol commitment for the six months prior to Ap- ril lot as 294,120 tons. I have not checked that figure, but the next column shows the deficiency as of April 1st as 106,516 tons which takes credit for items other than those contained in the Protocol, and the actual deficiency is 175,693 tons, the total of items 25 to 41, crediting the ex- cesses. 3. Evidently the W. P. B. Steel Group has used dif- ferent classification for their report. For example, Steel Wire for which they show 26,713 tons allocated, of which 7500 tons are allocated for delivery by April 1st, whereas our records show receipt of allocation orders for 4202 tons. There may also be allocations which they have made which have FORDEFENSE not yet cleared through to us because the figures which they BUY report do not reconcile with our record of actual allocations virto 010gs THINGS HOWDS Regraded Unclassified 133 - 2 - received in many instances, which will be checked further. On page nine of the report it is stated that the def- icit as of April 1st will be made up by April 30th. While the report goes into considerable detail, my reaction to it was that it W8.8 not responsive to the immediate problem of overcoming to the extent possible existing deficiencies of specific items by April lst. Clifton'l Chick E. Mon Mack Director of Procurement Regraded Unclassified 134 1 Chauncey TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 9. 1942 TO Secretary Morgenthau FROM Mr. Dietrich STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the various vest- ing orders since February 19, 1940: No. of Shares $Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold Feb. 23 Holiday 24 - - - - 25 - - - - 26 - - - - 27 - - - - 28 - - - - - - - - Sales from Feb.22,1940 to Feb. 21,1942 9,847,610-1/6 281,858,763 45,647,516 37,473,716 Sales from Feb.22,1940 to Feb.28,1942 9,847,610-1/6 281,858,763 45,647,516 37,473,716 A Regraded Unclassified 135 pt Visa check TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 9. 1942 TO Secretary Morgenthau FROM Mr. Dietrich STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the various vest- Ing orders since February 19. 1940: $ Proceeds of $ Proceeds of Shares Sold Bonds Sold Total you. 23 . - - 24 1 - - 25 I - - 2b - - - 27 - - - 28 - - - - - - Sales from Feb.22,1940 to 166.21,1942 281,858,763 37,473,716 319,332,479 sales from Feb.22,1940 to Feb.28,1942 281,858,763 37,473,716 319,332,479 319,332,479 $ proceeds of non-vested securities sold Feb. 16, 1942 - Feb. 21, 1942 500,000 é proceede of non-vested securities sold Sept. 1, 1939 - Feb. 14. 1942 243,100,000 8 procesda of non-vested securities sold Sept. 1, 1939 - Feb. 21, 1942 243,600,000 243,600,000 GRAND TOTAL 562,932,479 Jan. 7, 1942 - Cash Dividend on 156 Shares $ 61 Jan. 9. 1942 - Partial Liquidating Dividend 125 9 Units sold from Aug. 18, 1941 - Feb. 14, 1942 42 11 Shares Stock Dividend sold AUG. 18, 1941 - Feb. 14, 1942 for 123 50,007 Riguts sold from July 24, 1941 - Feb. 14, 1942 for 102,938 A Regraded Unclassified 136 Mies Chaunday TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 9. 1942 TO Secretary Morgenthau FROM Mr. Dietrich STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the various vest- ing orders since February 19. 1940: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold Feb. 16 - - - - 17 - - - , 18 - - - - 19 - - - - 20 - - 1 - 21 - - - - - - # - Sales from Feb.22,1940 to Feb.14,1942 9,847,610-1/6 281,858,763 45,647,516 37,473,716 Sales from Feb.22,1940 to Feb.21,1942 9,847,610-1/6 281,858,763 45,647,516 37,473,716 A Regraded Unclassified 137 TREASURY DEPARTMENT for Visa Chauncey INTER-OFFICE COMMUNICATION DATE March 9. 1942 TO Secretary Morgenthau FROM HT. Dietrich STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the various vest- ing orders since February 19, 1940: $ Proceeds of $ Proceeds of Shares Sold Bonds Sold Total Feb. 16 - - - 17 - - - 16 - - - 19 - - - 20 - - 1 21 - - , - - - Sales from Feb.22,1940 to Feb.14,1942 281,858,763 37,473,716 319,332,479 Sales from Feb.22,1940 to Feb.21,1942 281,858,763 37,473,716 319,332,479 319,332,479 $ proceeds of non-vested securities sold Feb. 9, 1942 - Feb. 14. 1942 200,000 $ proceeds of non-vested securities sold Sept. 1, 1939 - Feb. 9, 1942 242,900,000 $ proceeds of non-vested securities sold Sept. 1, 1939 - Feb. 14, 1942 243,100,000 243,100,000 GRAND TOTAL 562,432,479 $ 61 Jan. 7, 1942 - Cash Dividend on 156 Shares Jan. 9, 1942 - Partial Liquidating Dividend 125 9 Units sold from Aug. 18, 1941 - Feb. 14, 1942 42 11 Shares Stock Dividend sold Aug. 18, 1941 - Feb. 14, 1942 for 123 50,007 Rights sold from July 24, 1941 - Feb. 14. 1942 for 102,938 A Regraded Unclassified 138 - - THE SECRETARY OF STATE - - c DEPARTMENT OF STATE WASHINGTON STRICTLY CONFIDENTIAL March 9. 1942 My dear Mr. Secretary: I refer to your request for my comment in regard to the proposed agreement to extend financial ald to China pursuant to Public Law 442, approved February 7, 1942, and Public Law 452, approved February 12, 1942. The matter 18, of course, one with regard to which responsibility lies primerily with you and the Presi- dent. In my opinion, retention of Article II of the draft originally presented to Dr. Soong or an exchange of letters along the lines thereof would serve useful purposes both for the Chinese Government and for this Government. I believe that such 6. provision would be reflective of the cooperative spirit which underlies the common war effort of the two countries and might be of some assistance to the Chinese Government in resist- ing pressure from any group in China which might advo- cate an unwise use of any part of the funds made available. PORDEFENSE Realizing BUY UNITED The Honorable STATES SAVINGS Henry Morgenthau, Jr., GOKDS Secretary of the Treasury. Regraded Unclassified 139 -2- Realizing that you have considered both the economic and the political angles of the problem, I am prepared, in view of the opinion which you have expressed orally that the adoption of the Chinese Government's sugges- tions would be satisfactory, to concur in the conclu- sions at which you arrive and the course which you propose. Sincerely yours, Acting Secretary Delho Regraded Unclassified 140 THE UNDER SECRETARY OF THE TREASURY WASHINGTON March 9, 1942 FOR THE SECRETARY: Attached is P. photostat copy of E letter we received today from Under Secretary Welles on the question of eliminating Article II from the dreft of" agreement we originally presented to Dr. Soong. In Dr. Soong's letter of March 3. 1942, he stated that the Generalissimo list reised the following noint with respect to Article II: "Reactions in Chungling as to Article II nonear to be that the U. S, Government will in some vey pass julquent on the uses to :itch t. f LOAD may be out, and thereby limits in some degree the freeton of orking disbursement. "As China in any case would like to keep the Secretery informed, 2° the Secretary has in the past without any agreement always everted himself on every occasion to help China, be suggests that Article II is unnecessary, since it malses of such voluntary note maidstory. He therefore hopes that Article II may be dropped." In line with our conversation & few days ago we acreed among our- selvos to drop out Article II. Representatives of the State Department were present and while they thought that Article II WAS desirable, they indicated their general suproval or at least we thought they did. No La not feel that we can let the letter of Under Secretary Welles' stand on the record so we have drefted a reply which is also attrohed. In view of the urgency of this matter, I an sending this to your house. DWB ORDEFENSE BUY ENTIED STATES WISGS FRUNDS INSURED Regraded Unclassified 141 THE SECRETARY OF THE TREASURY WASHINGTON STRICTLY CONFIDENTIAL My dear Mr. Welles: I have your letter of March 9, 1942, ex- pressing your opinion that it would be desirable to retain in the Agreement Article II of the draft first presented to Dr. T. V. Soong. It is my view that the decisive considera- tions governing the $500 million financial aid to China, as well as the desirability of retain- ing provision for consultation and exchange of information, are political in character. From the point of view of protecting the financial interesta of the United States and of safeguarding the most effective economic use of the financial aid, the retention of Article II would be desirable. However, the Treasury was unwilling to take the responsibility of serious- ly affecting the great political and psycholog- ical value of this financial aid by insisting upon the inclusion of this provision in view of the reactions of Generalissimo Chiang Kai-shek, as indicated in the letter from Dr. T. V. Soong to this Department. I construe your letter to mean that you believe that from a political point of view the retention of Article II 16 desirable. Accord- ingly, unless you advise me to the contrary, I propose to reply to Dr. Soong that, after having taken the mattek up with the State Department, PORDEFENSE BUY inmo THISGS froms Regraded Unclassified 142 - 2 - it is the view of this Government that Article II should be retained in the Agreement since it is "reflective of the cooperative spirit which under- lies the common war effort of the two countries and might be of some assistance to the Chinese Government in resisting pressure from any group in China which might advocate any unwise use of any part of the funds made available". Since Il feel that the time 1a of essence and that we should consummate this agreement with- out delay, I would appreciate an answer from you on this matter as soon as possible. Sincerely yours, Secretary of the Treasury. The Honorable Summer Welles, Under Secretary of State. Regraded Unclassified DEPARTMENT OF STATE WASHINGTON RICTLY CONFIDENTIAL March 9. 1942 dear Mr. Secretary: I refer to your request for my comment in regard to the proposed agreement to extend financial aid to Onina pursuant to Public Law 442, approved February 7, 942, and Public Law 452, approved February 12, 1942. The matter 1s, of course, one with regard to which responsibility lies primarily with you and the Presi- dent. In my opinion, retention of Article II of the draft originally presented to Dr. Boong or an exchange of letters along the lines thereof would serve useful purposes both for the Chinese Government and for this Government. I believe that such a provision would be lective of the cooperative spirit which underlies common war effort of the two countries and might be K some assistance to the Chinese Government in resist- pressure from any group in China which might advo- its an unwise use of any part of the funde made ilable. Realizing 110 Honorable Henry Morgenthau, Jr., Secretary of the Treasury. Regraded Unclassified -2- Realizing that you have considered both the economic the political angles of the problem, I am prepared, in view of the opinion which you have expressed orally that the adoption of the Chinese Government's sugges- tions would be satisfactory, to concur in the conclu- sions at which you arrive and the course which you propose. Sincerely yours, Acting Secretary Delly Regraded Unclassified 145 DEPARTMENT OF STATE Washington In reply refer to March 9. 1942 FD The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of an excerpt from & telegram dated March 6, 1942, from the American Ambassador at Chungking, China. Enclosure: From Embassy, Chunghing, an excerpt, March 6, 1942. eh:copy 3-9-212 Regraded Unclassified C 0 P 146 I EXCERPT FROM TELEGRAM FROM CHUNGKING, DATED MARCH 6, 1942 "In the economic finance field, interest has centered around the large American and British credits, granted to China in February and the manner in which they will be employed. Currency inflation, with resultant price rises, hoarding, and speculation continue to be a major concern. A 'commodities administration' has been established with a view to stabilising prices and attacking the hoarding situation. A new land administration has been set up ostensibly as a preparation for dealing with land problems. Past experience does not make for optimism with regard to the success of these organizations, but there is some reason for hope that in present circumstances they may attack the problems more resolutely. There are indica- tions that the American credit might be effectively employed as an aid toward solving these problems and to stimulating production of consumption goods as well as to attack the currency inflation situation.' ehropy 3-9-42 Regraded Unclassified 147 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 9. 1942 TO Secretary Morgenthau FROM Mr. Bistrich CONFIDENTIAL Registered sterling transactions of the reporting banks were AB follows: Sold to commercial concerns £ 29,000 Purchased from commercial concerns £115,000 or the sterling purchased, £100,000 was reported to have represented the proceeds of the export of burlap from this country to Canada. Open market sterling remained at 4.03-3/4, with no reported transactions. The Canadian dollar discount widened to 11-11/166, RE compared with 11-1/25 on Saturday and 11-3/4% B. week ago. Reflecting & Blight change in the rates received from Mexico City, the Rew York bid and offered quotations for the Mexican peso were .2060 and .2064. respectively. AS compared with the quotations of .2055 and .2065 which haveprevailed since last December 9. In Bew York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) .2370 Brazilian milreis (free) .0516 Colombian peso .5775 Venezuelan boliver .2800 Uruguayan peen (free) .5295 Cuban peso 7/32% premium Re sold $3,988,000 in gold to the Central Bank of the Argentine Republic, which was earmarked for its account. llo new gold engagements were reported. In London, spot and forward silver remained at 23-1/2d, equivalent to 42.67#. The Treasury's purchase price for foreign silver was unchanged at 35¢. Hendy and Harman's settlement price for foreign silver who also unchanged at 35-1/8d. We made no purchases of silver today. X Regraded Unclassified 4/c 148 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 30 Information received up to 7 A.M., 9th March, 1942, 1. NAVAL FAR EAST. No nows has been received from the following ships and it 16 presumed that they are lost: 2 H.M. Cruisers, 2 destroyers, 2 aloops and a base ship. One of H.M. Cruisers has arrived safely in port. One of H.M. trawlers was sunk by nine or torpedo south of TOELAND (c) on the 3tb. It la now known that B British tanker of medium connage, a 9000 ton British merchant vessel and n. small "orwegian ship vere lost in the Java area. A 7000 ton British Merchant ship 10.8 torpedoed ao the 23rd February in outward entivoy for out off Newfoundland, 2. "ILITARY. Libya, 7th. Some increased eveny activity in Tuirti area. Energy armoured care withdrow after betrig engaged hgt one of our Infantry columns in the area ten miles southwest of Twini. Burna. No military report received. New Outnea, Mo news of a Japanese landing at Inlanaya beyond the published report. Air reconnissance on 5th showed 20 merchant chips at anclier as Rabaul (Tem Britain). 1, AIR OPERATIONS. Western Pront. 8th. A total of 24 Bostons ware sent to attack a power station at Comines. The railway contre, Abeville and the atford factory near Paris. Hts were poer on the two latter targets. About 480 fighters carried out offensive operations or escorted the bombors. Enemy defensive po trols involve about 150 aireraft. 2 energy Fighters were dentroyed and A inmiged. No lost 3 Spitfired and one Hoston. 8th/9th. 265 aircraft, including 62 heavy Sembers, vera Bank mit. Raceo 210, Havre 12, Optend 6, Aerodrosce 21. Sea-mining 15. Preliminery recorts Indicate that the attack on Sssen was successful. 8 aircraft are miss!) About 50 enemy aircraft operated against this country minly off the GBST, const. l'ight fighters destroyed 1 and damaged another. Libya. 6th/7th. Wellingtons hombed Benghasi and Into ninee Ln the harbour. One small vessel man destroyed. Malta. 7th, 7th/8th and oth. A total of about 150 aircraft attach with Luqa an main objective. 4 Wellingtons and one Scaufighter were damaged. Regraded Unclassified 149 - 2 - Burma, 6th, Our Divisional Headquarters, 20 miles ..E. of Rangoon vas heavily bombed and machine-gunned, 7th. Our fighters gave continuous protection to our troops during their withdrawal from Rangoon and to shipping evacuating demolition parties and civilians. Java, 5th. The last Allied fighters were destroyed in repulsing an attack north of Bandung. Regraded Unclassified 150 JADISATO the UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, D.C. March 9, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: The attached is 8 summary of opinion trends in occupied France and is based upon reliable and secret information which has come to us. Sincerely, Biu William J. Donovàn Enclosure Regraded Unclassified 151 SECRET The French were tremendously depressed over the call of Singapore end the escape of the German battle- ships, but the parachute raid on the French coast by the British had 8 heartening effect out of all propor- tion from military significance. A flood-of rumors of imminent Anglo-American invasion of the Continent were unloosed. The already pro-British feeling was stimulated by the Billancourt raid. However, it gave German propaganda an occasion to exploit the accusation of indiscriminate action against civilians by the RAF. This caused widespread ill feeling, especially in such coastal areas as Bordeaux and Le Havre. Because of increasingly successful radio jamming few people in Paris are aware of Japanese shipping losses. The listeners want only news and are averse to talks. A great deal of latent feeling over France's future was brought out at the Riom trials. This brought to light intense and widespread attachment to the ídea of a Republic which conceived however as different from Third Republic. A strong emotional hold is had on large sections of people with such words as "liberate". Because of fear and the effect of French opinion of a break between Vichy and Washington and because of American pressure, it is generally felt that Vichy is trying to avoid sending supplies to Rommel. Regraded Unclassified 152 UNITED STATES GOVERNMENT di) NOTE COORDINATOR OF INFORMATION WASHINGTON, D.C. March 9, 1942 The Honorable Henry A. Morgenthau Secretary of the Treasury Washington, D. C. Dear Henry: The attached is a report on German home propaganda. Sincerely, Bill William J. Donovan Attachment Regraded Unclassified 153 The Far East is still subordinated to Russia in German Home Propaganda which takes the line "England can no longer do anything to us. The British Empire is being taken care of by Japan. Germany's only serious enemy is Russia and when she is beaten the rest will be easy though not of necessity short." There is no longer a ban on stating that in certain parts of the Eastern Front the German position has been "dangerous." The impression is given that the German troops have almost entirely been on the defensive, but in spite of incredibly bad weather conditions they have repelled all "tough and vigorous Soviet Attacks, all tasks mas- tered", Russians claim advances "absurd". In prophesy- ing the results of the coming spring offensive, great caution is being displayed. Churchill is personally and consistently blamed for the "irretrievable loss" of the British Far Eastern possessions and the "grim hopelessness" of the allied position. The role of America is mini- mized as "too weak to help". Much less talks are devoted to Japan, but 1/5 is all news. Much greater prominence is given to the Japanese and German sinkings of allied shipping in the Atlantic and Pacific. Production in America is belittled, inadequate to replace the huge losses and "propaganda bluff". Regraded Unclassified 154 ECRET - 2 - of INFORMATION The report of Petain's Comment on Billan- court raid was given in such a way as to make it appear that he was accusing the British openly of a cowardly attack worse than Mers-el-Kebir. Norwegian news was wholly suppressed includ- ing the resignation of the Norwegian bishops. There is no increase in general home morale in spite of the successes of the Japanese. There is a strong suggestion of a drop in morale among the offi- cers--supplying upper middle classes of East and North Germany. As the majority of the people are so strained, they haven't the power to concentrate and absorb exact- ing programs, Goebbels advised the film industry to concentrate on producing relating entertainment. Regraded Unclassified E- TREASURY DEPARTMENT 155 INTER OFFICE COMMUNICATION DATE March 10,1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Summery of Intelligence Reports Japanese Attack on Russia According to the French Ambassador at Tokyo, the Japanese High Command 1a planning an attack on Siberia in April to synchronize with the anticipated Nazi drive against Ruesia. (C.O.I., "The War This Week,' February 26-March 5, 1942) Distribution of Japanese Army Divisions Opposite Siberia 25 South Seas: Java 8 Rest of Indies and Malaya 3 Philippines 5 Trailand and Burma 4 New Britain 2 (threat to Australia) Total South Seas 22 China 16 (plus independent brigades) Janan 9 Grand Total 72 (2-1/4 million men, 2,800 tanks) (C.O.I., "The War This Week," February 26-March 5, 1942; M.I.D. Situation Map, March 9,1942) Regraded Unclassified 2 156 Reasons for Japanese Victory in Malaya General Wavell summarized the following factors 8.9 being responsible for the Japanese victory in Malaya: 1. Previous war experience of the Japanese troops. ?. Good discipline and high morole of the Japanese soldiers, 3. A high standard of Japanese training for the campaign. 4. The possession of tanke by the Japanese. 5. Japanese superiority in the air. There is a strong probability that the divisions used in the Malayan expedition were the crack divisions of the Japanese army. (This list is revealing in giving A picture of what actually happened. The British troops were not primarily defented because they had no tanks and few planes, although lack of these did contribute to the defeat. They were beaten because the Japanese did 8 better job. Tanks and airplanes are not AB important in Jungle fighting AB in ordinary warfare.) (M.I.D., Information Bulletin Number 9) Finland Tonner, Finnish Minister of Commerce, recently made 8. sneech in which he stated that eince there had been no military activity for three months, none need be anticipated. The Censor suppressed the address, but not before the release of it by one paper had caused wild rejoicing among the Finnish trooos, Desertion 18 becoming common. Finnish troops are reported to be disappointed at finding that the inhabitante in the ***** conquered by Finland are not Finns yearning to be free, but rather tough enemies. (C.O.I., "The War This Week," February 26-March 5,1942) Regraded Unclassified 157 - 3 - German Navy (There have been a large number of alarmist rumors about the size of the German Navy. The following is the list of German warships, according to the British. This 18 accurate, I believe. In the last war, without the nighly developed aerial reoonnaissance of the present day, the British always had an accurate picture of German navel strength. In this war, concealment of B major naval unit on the part of the Germans is well-nigh impossible.) Battleships Tirpitz, (35,000 tons.) No sister ships are under construction. (Evidently, construction of ships "H" and "I", originally planned to form with the Biemarck and Tirpitz a battle-line of four ships, has been abandoned.) Battle Cruisers Gneisenau, (26,000 tone) Scharnhorst (26,000 tons) Pocket Battleships Luetzow, (10,000 tons) Admiral Scheer, (10,000 tone) Heavy Cruisers Hinper, (10,000 tons) Prinz Eugen, (10,000 tons) One under construction Light Cruisers Four light cruisers (8,000 tone and under) Aircraft Carrier Graf Zepolin (British Ministry of Information, March 6, 1942) Regraded Unclassified - 4 - 158 VOICE OF THE CHIEF BROADCASTS Rommel (General Erwin Rommel 18 described as A man whose venity and ambition know no bounde.) "What sent the S.3. strategist to Rome, 18 not the welfare of his troops, It 18 the welfare and career of Herr Erwin Rommel. He wants to get the supreme command over the Mediterranean region, with All German and Italian land and sea forces and the air force under Field Marshal General von Kesselring under his brillient leadership. "It 16 that same pernicious illusion of grandeur which led Rommel to leave two valuable divisions with all equipment in Bardia and Halfya to their fate. Rommel imagined he could always get them out again. "Rommel, with his excellent connections to Himmler the Almighty, promised the Italians German tanks, planes, U-boats- Those promises are akin to the lies he has told his own troops. To instill them with the wrong kind of courage, he pretended that Moscow hed fallen, that the Russian campaign WAB AE good AS finished. These are the methods employed by a man who WRB not even sent to A war academy before an army WAB entrusted to him. "Rommel was able to redeem himself in Libya only by the fact that reinforcements of tanks and planes were sent to him after being taken away from the Eastern front, thereby upsetting the immessurably more important offensive against the Russians." The S.S. in Russia (The Chief devotes an entire broadcest to the refusal of Gestago Chief Himmler and his) "shyster group lenders to gamble any more of his costly S.S. formations in the dengerous enter- prises at the front. The fighting and dying is left exclusively to the Wehrmacht while the S.S. get their special training by the perpetration of cruelties against prisoners, civilians and disarmed masses." "A unit of Field Marshal von Bock's army, holding a sector near Lodowaya, had lost 135 officers and 2,700 men. There wis danger of the enemy breaking through in that sector Field Marshal von Book wae unable to move up his reserves. It looked dangerous and only 8 swift and unusual decision could have naved the situation. Regraded Unclassified 5 159 "The only non-combatant formation in the immediate vicinity was the 13lat 8.8. police regiment. The Field Marshel personally got in touch immediately with the commander, Von Bach-Stalewski, at Moghilev, and requested the services of that regiment: Von Bach-Staleweki was merely to pinch-hit until von Book's own reserves could arrive. Suddenly, von Bach-Staleweki became hard of hear- Ing and made evesions: he said his regiment had neither antillery nor tanks and therefore could not fight. In conclusion, he promised to come to headquarters and talk matters over. But Field Marshal von Bock needed no Bach- Stalewski at his headquarters. What he needed MA8 8. regi- ment At the front. And at once, After a short decision, the Field Marshal got in touch with General Deluege (Commander in Chief of the S.S. police troops) and two hours later, the police regiment received the order to move up. "Unfortunately, this occurred too late. The enemy had Already broken through and was advancing in the direction of Pavlograd. The S.S. regiment got a thorough thrashing. Here, they had to shoot at Russians -- who were neither disarmed nor prisoners of war. There were a couple of old sergeants. Those fought bravely. But the rest of the S.S. leadership balks description. In the heat of the bettle, the B.S. regimental commander And hie A.D.C. vanished, presumably to report in person to their General on the situation. These should have been shot outright! If it only were possible to get 3.S. men of such caliber before B. court martial! "Lodowayn was lost, and Pavlovach, too, went to the dickens. The whole damned thing had to be retaken later. This, to be sure, was quite immaterial to Von Bach-Staleweki. Sut. that his proud 131st regiment had been battered into smithereens, he could not get over. He made quite A stink over it. Now he calmly takes the cure for nie gellstones. As for the Fatherland, here we have one more proof of the willingness of the S.S. Bolshevike to do their part at the front." (Foreign Broadcast Monitoring Service, Federal Communications Commission, March 9, 1942.) Regraded Unclassified 160 March 10, 1942 Mr. Duffus The Secretary What would you think of A1 Jolson as a community song leader? Let me know by memo, and send the memo direct to Mrs. Klotz, please. we sex 1-11mg --- teng =/13 sery - : 3/13- in Daffus chared anth xletz nv the fhone- Regraded Unclassified 161 March 10, 1942 Lieutenant Stephens The Secretary Please call up Senator Harry Byrd's secretary and ask him when he's going to have the next meeting of his Economy Committee, of which I'm a member. Fatyres phoned 10 meeting shurst Regraded Unclassified 162 March 10, 1942 10:25 a.m. HMJr: Hello. Summer Welles: Good morning, Henry. HMJr: How are you? W: Fine, thanks. HMJr: Look, Sumner, I have your letter before me in regard to the Chinese. W: Yeah. HMJr: Now, in the sentence, taken by itself, that saye, "In my opinion, the retention of Article two of the Draft originally presented to Dr. Soong are along the lines which serve useful purposes." See? W1 Yeah. HMJr: Well, I don't know whether you intentionally or not, but that puts the State Department on record that they think that that should be in. Do you know what Article two 1s? W: I wouldn't have written the letter unless I'd known what was in it. HMJr: Well..... W: Certainly I feel that way. HMJr: You feel that way. W: Why, surely. I think it would have been & much sounder document, but since the HMJr: All right. Well, then, you - 88 long 8.8 you feel that way, you take full responsibility then for throwing down what Chiang Kai-shek wants. W: No, I don't take any responsibility for throwing anything down. As I said in my letter, I think Regraded Unclassified 163 - 2 - the responsibility in this financial trans- action clearly 1a the President's and par- ticularly yours as Secretary of the Treasury. HMJr: Yeah, but you're making a record for yourself. W: I'm not in the habit of doing that. HMJrt Well, I was trying to approach it in B. friendly fashion, otherwise - I've got a letter written that I can throw back - it's Just 8.6 smart 88 the letter that you've written, almost as smart. W: Well, Henry, I'm not in the habit of trying to write smart letters. After all, in nine years' experience with me, I don t think you have any reason to say that. HMJr: Well, I distinctly feel - I mean - to that what this letter 18, and if. you want to leave it that way, that's all right, and W: I think it would in the long run - I think the arrangement probably would have worked out better if we'd suggested to Chiang Kai-shek that some arrangement for consultation with you would have been wise. HMJr: You know, I called you up on the phone and put you on notice how your own people felt; and then I said that I thought it would be much better to take it the way the Chinese wanted it, and you said, "Yes, I think - I agree with you." W: Well, I thought, of course, when you were speeking on the telephone, Henry, that you were referring to the general draft of the agreement that had been sent in. HMJr: Oh. W: You see, I didn't to get your letter when you promised it at two o'olock, and I didn to have a chance to see it until early Sunday morning. HMJr: Well, Bell said he'd have it over there at two, I don't know when it got over there. Regraded Unclassified 164 - 3 - W: I think it came over about - they told me about seven o'clock, so I didn't have A chance to see the HMJr: Well, all I know is that Bell said he'd have it there at two. W: Yeah. Well, it wasn't here, BO I didn't have an opportunity of considering it until Sunday; and in going over it HMJr: Well, that has nothing - that wouldn't make any difference if it got there at two or st seven, I mean, as far aa this letter 1e concerned. WI Well, if I'd had the opportunity of studying it on Saturday afternoon, I could have probably have had an opportunity of talking with you personally about it; but since you wanted the reply early yesterday morning, Monday, with the other thinge that I have on my hands it's not possible to give as much time a.e I should like to. HMJr. Yeah. V: But I think the general arrangement contained in Article two to which you refer, was a much easier way for us to work it out with a view to the future. After all, neither you nor I know whether Chiang Kai-shek 18 going to be murdered tomorrow and whether somebody else 18 going to etep into his place. If that happens, we have absolutely no assurance whatever 88 to the disposition of those funds. HMJr: Oh, as Secretary of the Treasury, I'd like to have all kinds of safeguards; but the spirit under which the thing wae undertaken, I thought we were going to try to please them as much as possible. W: Well, I thought, Henry, that if you had sent back a message to Chiang Kai-shek, possibly re- phraeing Article two BO that there would be some provision for consultation with you in the future, that probably it would have been B. better and a wiser procedure; and that 18 the reason that I suggested that. Regraded Unclassified 165 4 HMJr: Do you want W: After all, 80 far 8.6 I can understand, the only reason for this tremendous urgency 1s the anniversary on Thursday; and that doesn't seem to me a suf- ficiently important reason to Jam it through quickly without at least making the effort to give you some opportunity for wise advice BE to the disposal of those funds. HMJr: But you want your letter to stand. W: What I'm anxious to do 18 to try, if possible, and get that provision amended 80 that there 18 some opportunity for cooperation with you in the future on the part of the Chinese Government. HMJr: I say you want your letter to stand. W: I don't want it to stand at all 60 long a B the arrangement can be worked out. HMJr: Well, of course - I mean, with your letter, it leaves me nothing else to do but to follow what you've said, and that's what I'm going to do. Wr Well, don't you think it's wise to try and get them to agree to some provision for cooperation and consultation? HMJr: Well W: Every other arrangement that we've made with every other government has had something of that kind in it. HMJr: Well, but this loan 16 unique. W: Certainly it's unique. I quite agree with you. HMJr: And in testifying before the Senate, I told them - in the House they sald, "How much could we get back?" I said, "You start with zero, and anything above that would be your own guess." W: Well, I think that's a perfectly fair statement. Regraded Unclassified 166 - 5 - I think it's a political loan, naturally. HMJr: Yeah. W: I quite agree with you, and I certainly would rather go ahead with it on the basis you now have it than not go ahead at all; but if sending back a friendly message saying that you feel that it would be helpful to have some cooperative arrangement inserted there if you can get it, I think it would be a better document than it now 18. HMJr: Oh, no question about it; but on the other hand, if it irritates Chiang Kai-shek and - seriously 1 then the whole loan might not 88 well be made. W: Well, we haven't even tried, have we? HMJr: oh, yes. The original we gave - we gave an original set of copies of the papers to Soong. W: Then Soong wrote back saying that Chiang Kai-shek would prefer to have that omitted. HMJr: That's right. Wi But I don't think that you sent any personal message to Chiang Kai-shek from this Government, saying why you thought it would be desirable to retain something of that kind in it. HMJr: No. W: That was what I wanted to suggest. HMJr: No. Well, I'll answer your letter and then you people can give us 8 suggestion what the next step should be. WT Well, I've already just told you what I think the wiee thing to do would be, and that is to either do it through Boong or direct to Chiang Kai-shek, suggesting that there be some rephrasing of that so as to provide for some measure of cooperation on your part. MMJr: Well, will you have something drafted for me? Regraded Unclassified 167 - 6 - W: I'd be delighted to, Henry. HMJr: All right. W: Now, do you want me to wait for your letter, or send it over without waiting? HMJr: You'd better wait for my letter. W: All right. HMJr: Thanks. W: All right, Henry, thanks. Regraded Unclassified 168 March 10, 1942 11:00 am AID TO CHINA Present: Mr. Bell Mr. White Mr. Viner Mr. Bernstein Mr. Southard H.M.JR: I read this correspondence here with Welles, and then I called him up on the phone and had quite an acrimonious discussion with him. I asked him if he knew what Article Two was. He said, "I supposed I had put it in." I said, "Well, of course, you have written me a smart letter, and I don't know that We can write you a smarter one, but do you really want this to stand on the record?" So he said, "Yes, yes, I think it is important, If so I said, "Well, I called you Saturday, and you agreed to leave it out." He said, "Well, you said you would have a letter over too, and it never got here until seven. I said, "Well, Bell told me he would have it there at two. I didn't have & chance to study it." MR. BELL: It wasn't seven, out it was three thirty. MR. BERNSTEIN: In the middle of the afternoon. Three thirty. MR. BELL: At three thirty Bernie was in my office and said that the letter had just gone over. H.M.JR: "Well, anyway," I said, "what difference does that make?" "Well," he said, 'what makes you think that you can't get them to agree?" I said, "Well, I thought the whole idea - you know they don't want to, and why take a risk at this time?" So he said, "Well, we can send back a message suggesting a few changes Regraded Unclassified 169 2 - and SO on." I said, "Well, fix it up." He said, "Well, do you want me to fix it up now, or wait until I get your letter?" I said, "You had better wait until you get my letter. I said, "If you want to make a record--" He says, "We are not trying to make a record," and I said, "Well, I think you are; and if you are trying to make a record, as Secretary of the Treasury naturally I want all the safeguards, but I thought we were trying to please General Chiang Kai-shek." I said, "I thought that was the whole purpose." So I suppose there isn't much left for me to do but to send this letter and then just add a P.S. I would be glad to receive suggestions from you on what we do next. Of course, the thing that bothers me is, here between the State Department and ourselves we get into a two-by-four row, and their attitude is, to hell with Chiang Kai-shek, it is to see which fellow can be the smarter. MR. BELL: It really wasn't 8 row at all, and I was quite surprised to get that letter, because I thought that when they left our conference the other day that while they preferred to have Section Two in, they thought the situation justified our going ahead. MR. SOUTHARD: Mr. Bell, as it turns out Mr. Hamilton's performance at the meeting was in part - it was his performance - it was one in which he was right either way it went. He told you he thought Two should stay in, but then he just passively agreed that all right, it could stay out. MR. WHITE: There is another alternative, Mr. Secretary. H.M.JR: Well, there isn't much alternative now. MR. WHITE: A different kind of letter. He hesn't Been that letter. H.M.JR: No, no. "I have your letter of March V expressing your opinion that it would be desirable to retain in the Agreement Article Two of the draft first presented to Soong. Regraded Unclassified 170 - 3 . "It is my view that decisive considerations governing the five hundred million as well as the desirability of retaining the provision for consulta- tion and exchange of information, are political in character. "From the point of view of protecting the financial interests of the United States and of safeguarding the most effective economic use of the financial aid, the retention of Article Two would be desirable. However, the Treasury was unwilling to take the responsibility of seriously affecting the great political and psychological value of this financial aid by insisting upon the inclus- ion of this provision in view of the reactions of Generalissimo Chiang Kai-shek, as indicated in the letter from Dr. T. V. Soong to this Department. "I construe your letter to mean that you believe that from a political point of view the retention of Article Two is desirable. Accordingly, unless you advise me to the contrary, I propose to reply to Dr. Soong that, after having taken the matter up with the State Department, it is the view of this Government that Article Two should he retained No, I would stop there. I would stop right here and say, In view - from T. V. Soong to this Department, II then a new paragraph, and simply say, "In the light of our telephone conversation, I would be very glad to receive suggestions from you as to how to proceed from this point. IT You see, "In the light of our telephone conversation, I would be very glad to receive suggestions from the State Department how we should proceed. You can say, "In the light of the political nature of this loan and in view of our telephone conversation, I would be glad to receive suggestions. In the light of the political nature of this loan - have you said that it is political? MR. BERNSTEIN: We can work that out, Mr. Secretary. I think we have your idea clearly enough. 300, and go back to Chiang Kai-shek again." Well, H.M. JR: He said, "We can redraft Article Two, i you simply want to say, "In view of the light of your - will Regraded Unclassified 171 you suggest to me what you - what the State Department would like to see us do next?" MR. WHITE: Does that leave that peragraph in in which you say, "We would like as much financial protec- tion as possible"? MR. SOUTHARD: The essential part is left in, and you have said the other in your telephone conversation, after all. You have already said orally the harsh stuff at the end. H.M.JR: I have said that. I simply said, "You tried to pull 8 fast one on us. In nine years I have never tried to do that.' "Well," I said, "all right, you people want it in, and you say that you think we could go back to Chiang Kai-shek again - 11 you can set my conversation. You had better get my conversation, you see. MR. WHITE: Well, I think it is true that the inclusion of that part in the letter makes this a smart letter. I think you are quite right; and if you leave that part out, and merely ask them specifically for-- suggestions, is it, you are asking for? MR. BELL: How to proceed from this point. E.V.JR: Now, he said over the phone, "You will see - We can go back to him - II He said, You haven't tried to go back to him again.' I said, "No, because I thought that that was the whole purpose of the loan, and I didn't want to risk this thing. He said, "Well, you have always had protection before. I said, "This loan is unique." If I say so, I think I was pretty good. I mean, he got mad, and the surprising thing is, you see, where I have E little advantage over these fellows, I very rarely get med these days. The only trouble is that when I get mad, I get results, and it is very bed for me, Dernie. I get red, and then Bernie does me a beautiful job, and I say, "Well, that is the way to get it," but the other day st Regraded Unclassified 172 - 5 - Cabinet I was amazed at Welles. In a very quiet way Henry Wallace said something about some planes in South America and that Rockefeller has consulted with Welles. Welles said, "It isn't so." So the Vice-President was very firm. He said, "Sumner, Rockefeller says he posi- tively has." "It absolutely is not so," to the Vice- President. The Vice-President said, "I am sorry, there must be some misunderstanding." And he said it three times like that. In other words, his nerves were like Donald Nelson's the other day. They are beginning to go. MRS. KLOTZ: But toward the end he was very sweet. H.M.JR: He got worried. So I think this. lie can write the thing, asking them what We should do next. If you people will come in about two thirty, I will be ready for you. Anybody question my procedure? MR. SOUTHARD: It sounds excellent. H.M.JR: Anybody question it? Bernie? MR. BERNSTEIN: No, I think it is fine. H.M.JR: Now if after all they want to 80 back he said they are going to redraft Article Two and send it back-- MR. SOUTHARD: It is their responsibility. H.M.JR: It is their responsibility, and he has asked it. MR. SOUTHARD: And it should be their responsi- billty. That is the whole point. H.M.JR: Well, this is a very tricky thing. "The matter is, of course, one with regard to which responsi- bility lies primarily with you and the President. In my opinion retention of Article Two in the draft presented to Dr. Soong should be left in." Regraded Unclassified 173 - 6 - MR. BERNSTEIN: And then on the next page, they said you had considered the economic and political aspects. B.M.JR: I said, "Look, Summer, you just lift this one sentence out and let it stand by itself, and there is nothing left for me to do, and I am just as anxious as you are, as Secretary of the Treasury, to have protection, but I am also more interested in pleasing Chiang Kai-chook." MR. BELL: That will look beautiful ten years from now. MR. SOUTHARD: That is a perfect letter for that purpose. H.M.JR: Well, he is trying to make the record so we go back-- MRS. KLOTZ: That is what you said to him, he is trying to make a record. H.M.JR: And that is what he got angry about, I think we can use this first part and simply say, "In the light of our conversation, we would be very glad to receive suggestions from you as to how we should proceed from here. MR. WHITE: With 8 phrase that we fully appreciate that we need to act very quickly. LR. BELL: Soong is calling me this morning. I haven't called him back. H.M.JR: Oh yes, in the thing he said, "What is the use?" Just because they have 8. holiday on Thursday, "Thet is the use of hurrying? MR. HELL: Gosh, they have lost Rangoon. I should think it would be pretty important. H.M.JR: All right, put in something about - you can say, "I feel that no time should be lost. Regraded Unclassified 174 - 7 - MR. WHITE: That is right. After all, this is already-- H.M.JR: I would say, "I feel that no time should be lost." MR. WHITE: Chiang Kai-chek has given his answer over ten days ago. H.M.JR: Now, I keep this. Have you people got the stuff? This is for my record. Now, don't "yes" me. MR. SOUTHARD: Oh, no. H.M.JR: Because, after all, we are talking about the whole Chinese-Indian situation, gentlemen. Bernie, the Chinese-Indian situation is what we are playing for, and I am perfectly willing to crawl on my hands from here to the State Department if I could save China and India. MR. SOUTHARD: That was the only question that came up in our minds yesterday, what would happen if the State Department insisted on keeping Article Two in. Wouldn't we then be willing to do it. MR. BELL: Well, we are just as anxious as they are, Mr. Secretary, to have Article Two, but we had to bear in mind all of this situation over there, and that is the reason we didn't want to ask Soong. H.M.JR: Well, that is what they should be doing. If you see my conversation, I think you will be pleased with it, and Welleson second thought - he is nobody's fool. We will throw this right back in his lap, and it is his responsibility, end believe me, he is not going to let me say that we lost Chiang Kai-chek because Summer Welles wanted to protect the financial interests of this country. MR. WHITE: Well, that is exactly what this letter - it puts him on that spot. Regraded Unclassified 175 - 8 - H.M.JR: But, Harry, I don't like to do business that way in these times. MR. WHITE: Well, we didn't start this, Mr. Secretary. There was no intention on our part of doing this. When we got this letter from them, which we felt left no out-- H.M.JR: Right. MR. BELL: And we are in a position where-- H.M.JR: If you bring this back to me at two thirty, see. I want this for my files. MR. NELL: We are in a position where we feel that we can't talk to Soong, because he telegraphs it right back to the Generalissimo. Everything you say to him goes back. H.M.JR: I told him, I said - he said, "Well, you have never asked him." I said, "Well, we sent this thing back to him, and this came back." You will see. I knew my taxes, and he wasn't - at first he was very, very brusk, and then he kind of ran off into honey. Regraded Unclassified STRICTLY COMPIDENTIAL My dear Mr. Holles: I have your letter of March 9, 1942, as- pressing your opinion that it would be desirable to retain in the Agreement Article II of the draft first presented to Dr. T. V. Scong. It is my view that the decisive considers- tions governing the 8500 million financial aid to China, M well M the desirability of retain- ing provision for consultation and exchange of information, are political in character. From the point of view of protecting the financial interests of the United States and of safeguarding the most effective sconomic use of the financial aid, the retention of Article II would be desirable. However, the Treasury was unsilling to take the responsibility of serious- ly affecting the great political and payeholog- ical value of this financial aid by insisting upon the inclusion of this provision in view of the reactions of Generalissimo Chiang Kai-shek, as indicated in the letter from Dr. T. V. Soong to this Department. I construe your letter to mean that you believe that from a pelitical point of view the retention of Article II 18 desirable. Accord- ingly, unless you advise DO to the contrary, I propose to reply to Dr. Soong that, after having taken the matter up with the State Department, Regraded Unclassified 177 - 2 - 1t. in the view of this Government that Article II should be retained) in the Agreement since it is "reflective of the cooperative spirit which under- lies the ecamon war effort of the two countries and sight be of some assistance to the Chinese Government in resisting pressure from any group in China which might advocate an unwise use of any part of the funds made available". Since I feel that the time 1e of essence and that we should consumate this agreement will the out delay, I would appreciate an answer from you on this Matter se soon as possible. Sincerely yours, Secretary of the Treasury. The Honorable Summer Relles, Under Secretary of State, HDW:BB:FAS:dmb dnh 3-9-62, Regraded Unclassified 178 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Press Service Tuesday, March 10, 1942. No. 30-61 3/9742 The Secretary of the Treasury announced last evening that the tenders for $150,000,000, or thereabouts, of 91-day Treasury bille, to be dated March 11 and to mature June 10, 1942, which were offered on March 6, were opened at the Federal Reserve Banks on March 9. The details of this issue are as follows: Total applied for - $471,349,000 Total accepted - 150,194,000 Range of accepted bids: High - 100. Low - 99.938 Equivalent rate approximately 0.245 percent Average Price - 99.942 # a If 0.229 " (17 percent of the amount bid for at the low price was accepted) -000- Regraded Unclassified 179 March 10, 1942 11:20 a.m. FINANCING Present: Mr. Viner Mr. Bell Mr. Stewart Mr. Buffington Mr. Murphy Mr. Haas Mr. Lindow H.M.JR: All right, Bell. MR. BELL: I suppose yesterday we went over all of that material that we need to, didn't we, George? MR. HAAS: Yes, the Secretary asked us to look into this reserve thing and mention some specific criteria. Henry has got some suggestions on that. H.M.JR: Did you talk to Eccles? MR. BELL: Yes, and I didn't get very far. He argued for an hour but wound up by saying that he would give it consideration and be prepared to talk again in B. day or two. I told him you would probably want to talk to him before we went ahead here very much further and that that would be one of the problems we would have to discuss, and he said all right, he would be prepared to discuss it, but he argued very strenuously against it. H.M.JR: Why is he opposed to it? Regraded Unclassified 180 - 2 - MR. BELL: He said he didn't think you could fix any minimum. One minimum one time might not be 8 good minimum for another time. He thought that wasn't the problem at all, that what you are interested in is keeping a good market and seeing that you can finance this program within the range of rates that you fixed. He said two and a half was the limit and then it is up M to the Federal Reserve to see that the market is in such shape that you could all the time finance within that limit, and he thought that that was their responsibility, and they would have to assume that. Now, whatever level of reserves would be required, they would have to see that they were there. That is his main argument. H.M.JR: Well, you have worked on this? MR. HAAS: Henry has got some suggestions. H.M.JR: Let's hear them, Henry. MR. MURPHY: Here is a chart you can look at. We have a chart which shows the recent movement of excess reserves and the long and short rates so that you will have the factual background. We have worked up as possible bases for B. definite agreement three alternative bases. First, increase excess reserves by at least three hundred million a month until total excess reserves exceed five billion and excess reserves in New York City is two bil- lions, these levels to be maintained thereafter. The figures might be changed, but that is one type of a basis of agreement we might have. Another type is, the Federal Reserve banks to purchase an amount of Govern- ment securities equal to twenty percent of the net in- crease in total open market securities. This to continue until the levels of excess reserves specified in one have been attained. This level of excess reserves to be maintained thereafter. The twenty percent would not only offset the increases in reserve requirements due to bank consumption but would also provide B. continuing backlog to increase the supply of excess reserves, and the one that We are inclined to - the type of basis that we are inclined to prefer is the third. Increase excess reserves by at least three hundred million in every month, in Regraded Unclassified 181 - 3 - which the long-term taxable average is more than two thirty or the money as long-term taxable average is now - now yield two forty-seven, so if an agreement of the last type were made using those figures, they would agree to increase excess reserves by three hundred B. month until either the '67-'72's had gone up - had gone up until they yielded only two forty or the long-term - both that and the long-term average had fallen in yield to two thirty. That would provide an objective criteria and would prevent further disputes if it is expressed this way in figures. H.M.JR: Well, you couldn't tie into that something for the short-term rate too? MR. MURPHY: Well, the idea is that the short-term rate would be kept flexible at such a level as would support the long-term rate, that the long-term rate would be the only stated objective and the immediate impact of the excess reserves would be on the short- term rate and that will propagate itself out to the long-term rate. H.M.JR: You feel sure of that? MR. MURPHY: I feel sure that that would be the tendency. I have no idea what short-term rate would be necessary to maintain 8 given long-term rate. H.M.JR: This is the idea of my mechanical pari- mutuel, is it? MR. HAAS: That is right. H.M.JR: It is not bad, Henry, for overnight. (Laughter) What would you do in two nights? MR. STEWART: Go down to two parcent, wouldn't you? H.M.JR: It is not bad. MR. BELL: That would mean the total excess reserves of about five billion? Regraded Unclassified 182 - 4 - MR. HAAS: Well, this other one - you have no top on the third suggestion. You just look at the rates and see what is necessary. MR. MURPHY: They might not have to buy any if the rates-- MR. BELL: Were between two forty and - on the long-term? MR. MURPHY: Yes, if the rate was below two forty on the '67-'72's and two thirty on the long-term. MR. BELL: Below two forty? MR. MURPHY: If the rate was below two forty. The price of course would be higher. MR. BELL: That is what I was thinking. What does that mean in terms of prices for '67-'72, about one something premium? MR. MURPHY: Two and & half. MR. BELL: Oh, really? MR. MURPHY: I haven't figured it out in price. H.M.JR: At first blush that number three looks very interesting. MR. BUFFINGTON: I was just wondering if there was any assurance that the three hundred million increase a month would necessarily keep those rates at those levels. MR. LINDOW: It wouldn't tie in. The three hundred wouldn't have anything to do with the third one of tying into the rates. The third one is independent, in which, if the rate goes to a certain point, you have to buy three hundred. MR. HAAS: Next month they have got to do it again. Regraded Unclassified 183 - 5 - MR. LINDOW: Three hundred more? MR. HAAS: That is right. H.M.JR: What would you think if you simply said "increased reserves by that amount, leaving the amount blank, which will attain the following results"? MR. VINER: I think that that seems to me desirable except that they technically could keep that agreement by making very, very slight purchases at 8 rate which doesn't correct the situation, you see, and I take it that this three hundred million minimum is an attempt to force them to act not necessarily sufficiently but et least actual minimum degree of action. MR. LINDOW: That is right. MR. VINER: And yet I think that is too rigid. I think you would have to work out something between those two whereby the obligation is for sufficient action but where you don't tell them how much is sufficient. MR. MURPHY: Well, that would be sort of like keep- ing buying silver until the proportion were one-quarter in the monetary reserves, but no statement as to how soon that objective had to be attained or how much progress you had to make on it in any given month. MR. VINER: Well, I would prefer their weekly rate, you see. A lot can happen in 8. month. Theoretically here they would have to keep on for a month. I would prefer a weekly rate. MR. STEWART: How would it be to have a combination of the weekly rate of purchase with an amount to be maintained in New York City? Then you would have an amount of purchase in the open market aimed at the maintenance of a given rate, whatever rate is decided, and until excess reserves in New York City are maintained at a certain level of excess. MR. VINER: Well, there you would have the problem Regraded Unclassified 184 - 6 - that what you were doing was too much for one purpose. MR. STEWART: But there is some limit. It iseven conceivable, you see, that through excess reserves you couldn't maintain the rate. It is conceivable. There is some place at which you might stop, but you wouldn't stop until you had built up excess reserves in New York City to 8. certain level. MR. VINER: I see, yes. Whichever one is reached first, then? MR. STEWART: Yes. MR. BELL: Henry, in our discussions with the Board, we have referred to long-term two and a half's as falling in the early '60's. Would we need a yield rate of two thirty - between two thirty and two forty on the '67-'72's to get a security in the early '60's on a two and a half basis, market security? MR. MURPHY: Well, of course we-- MR. BELL: You could do better than that, couldn't you? MR. MURPHY: You could put out another '67-'72. MR. BELL: Yes, if you had the price you just sug- gested, you could put out another '67-'72 and wouldn't we be satisfied if the yield on the '67-'72 is kept between two forty and two fifty? MR. MURPHY: or course it is two forty-seven right now. It seemed to me that it was necessary that it be boosted - the price be boosted enough to provide an element of insecurity to the holders, such as Mr. Stewart was suggesting yesterday. If the yield of the '67-'72's is lowered enough, the price was raised enough 50 that the holding of them represents a real risk as compared to the short-term money, you have got a better change of maintaining your pattern of rate and a less chance that they will be considered to be demand money. You remember that when we were discussing the ten basis points range Regraded Unclassified 185 - 7 - of fluctuation in the meeting in your office yesterday morning, it was said that that couldn't be around two fifty. It probably couldn't even be from two forty to two fifty. It would have to be a level which maintains your two and a half percent rate and still maintains the essential insecurity of long-term securities, and therefore the superiority of short-term money. MR. BELL: We said we couldn't maintain a level between two forty and two sixty. In other words, it couldn't be ten points each side of two fifty. It has not to be some place below two fifty. MR. MURPHY: I don't think it could have two fifty as one of its ends either, because if we make a commit- ment that two fifty is the floor and then we allow rates to fall to exactly that floor, then long-term money is a safe commitment. If your floor is two fifty, it seems to me your range of fluctuation has to be perhaps from two thirty-five to forty-five in order to provide a constant - always have a risk in your long security. Does that implement your point? MR. STEWART: Yes, the amounts I don't know, but that is the logical-- MR. MURPHY: I mean the general idea. H.M.JR: Well, personally I think we have made a little headway, but I just want to throw this to you so that you people don't think you are working up to n crescendo and then find that there isn't going to be any. It is going to be practically impossible for you people to get me to join the Federal Reserve on 8 statement on the two and a half percent rate. Do you mind if I quote you, Walter? MR. STEWART: No. I don't remember what I said. H.M.JR: Walter Stewart said what I would be building up - he didn't use the word, "a Frankenstein", but I used it, he said would be building up another gold standard 30 Regraded Unclassified 186 - 8 - when we went off the two and a half percent rate it would become a thing of great financial importance just as when we went off the gold standard. Am I putting it correctly so far? MR. STEWART: Yes. H.M.JR: And why do it, and it would be tying my hands. Isn't that what you said? MR. STEWART: Yes. Tying your hands so long as long-terminancing is concerned. Then you would have to look for other alternatives. H.M.JR: Now, I just - one reason Roosevelt put me into the Treasury was to untie his hands on the gold standard, and I don't see why it is necessary or wise, in view of the changing situation every day, for me to join anybody in a statement that two and 8 half percent is going to be the rate, because you can't do it. Now, you can grope toward it and, if they have come along on a formula like that, we can approach it, but all my instincts cry out against doing it. I have been that way now for how many months? MR. BELL: Well, we first approached it in November, I think. H.M.JR: Yes. I am afraid you fellows just - I work on instinct, which I suppose is based on accumulated experiences. When you get a hardheaded fellow like Walter Stewart who does everything with 8. slide rule and has no emotions, and he arrives at the same conclusion inde- pendently, I just want to let you know - I mean, if you think, well, we are going to come up toward that, and when we get to this point, this is what we are going to do-- MR. STEWART: May I make an observation there? H.M.JR: Do you want to claim you have got emotions? MR. STEWART: I fear that I haven't got any. I Regraded Unclassified 187 - 9 - understand the instinct of freedom. The real question of analysis is how much freedom have you got? Because any one would like to have what he wants and preserve his freedom. You already have some commitments, both in the market on your long-term securities and some commitments on your restricted issues, and I think the subject of inquiry is not what you would like, but the degree to which you haven't got a free hand already. You have got a structure of rates, part of which you are committed to on these restricted non-negotiable securities, part of which are in the market already, so that the margin of freedom that you have is not as - without consequences is not as wide. H.M.JR: Well, I know I am surrounded by a fence, but why make the fence higher and why charge it with electric current? MR. STEWART: If you say why make a statement, that I am in sympathy with. I must say, for myself, I am very dubious about the advisability of a statement to a public which you cannot be sure when you make it that you are going to fulfill it without foregoing other advantages. H.M.JR: What? MR. STEWART: I agree with that. H.M.JR: Statement or no statement? MR. STEWART: No statement. A policy which con- deivably could be worked out with the Federal Reserve, but to my mind, no statement. MR. VINER: You may recall that I have always been reluctant to recommend a statement, particularly & very definite one, but I have been converted to the belief that you will have more freedom if you do make a state- ment like the one that has been discussed here in which you say that the Treasury plans not to finance at higher rates than two and 8 half, but don't say anything about maturities, and that you won't have a program without Regraded Unclassified 188 - 10 - the statement to the public, because the Federal Reserve and Treasury don't work quickly enough together and harmoniously enough together and one or the other of them doesn't keep its understandings to the other faith- fully enough so that you will have anything to count on unless you have protected it by a statement to the public, and I really think that you ought to be seriously concerned as to whether you can sell securities to the banks without pressure if you don't give them assurances that they are not going to have capital losses. H.M.JR: Well, I an sorry, but that doesn't make it - that doesn't make a dent. I would like to go along, gentlemen, with you. I would like to have you explore this for me at once, see. This is the thing which would make the two and a half percent thing realistic, wouldn't it? MR. BELL: Probably it would. I don't know that it is-- H.M.JR: Well, let's put it this way. This is the way I would like to approach it. Now, I know you have got something tailored in the short-term. I know you have got something ready in the long-term. I am ready to go to town any day on that. MR. BELL: Well, I think we ought to get going on that, whether you do the other thing or not. If we are going to make a statement, the Federal was going to join us, and we would come out at the same time and say, "Here is a short-term and a long-term security that would pick. up these current available funds." H.M.JR: Well, Dan, I will not start launching this plan of having the Federal Reserve start selling these securities until I can get an agreement with them on excess reserves. I make that as-- MR. BELL: You mean you won't go along with a. short- term issue? H.M.JR: No. Regraded Unclassified 189 - 11 - MR. BELL: Until you have something on the other. H.M.JR: Yes, because we have got another financing coming along very closely, and I want to get this thing straightened out first. MR. HAAS: Isn't the stronger statement action in any case? H.M.JR: Yes. Get this understanding, something like what you fellows have worked out, and then come along and announce - what is it, a five year? MR. BELL: And 8. twenty. H.M.JR: Five and a twenty. And then I am per- fectly happy. I am doing a little horse trading, but the Fed is very anxious to be designated as a medium to do this. The five year, that is. Do they want to do the twenty, too? MR. BELL: Yes. H.M.JR: And I am not doing anything that I don't believe in, but before we do the five and the twenty, I want an agreement on excess reserves. MR. BELL: I am not sure you can't do the securities-- H.M.JR: No, I don't want to do it. If you don't mind, I won't do it, because the Fed are crazy to do the thing. Eccles is crazy to do it. You have to trade with Eccles and this is the time to make 8. bargain with him. MR. BELL: It is going to take 8. long time. H.M.JR: I thought they said they were ready to ão something on this. MR. HAAS: They agreed - you name the pattern and they will support it. They say all they are suggesting Regraded Unclassified 190 - 12 - is a mechanical way of implementing that understanding. MR. VINER: There is a big step between support- ing 8 principle and accepting a formula. MR. BELL: There is 8. lot of difference in that and what they suggested. H.M.JR: I will tell you what I am willing to do. I don't want to be dogmatic. I want to be fair. Give this thing a trial and re-examine it every month based on the record. That is fair, isn't it, Walter? Try it for thirty days and then each month we will have a meeting and re-examine it and see what happens. MR. STEWART: My impression is that the agreement - that this number three, if it could be put in such form, that the only difference was that you are not going to make 8 statement. Then it seems to me you have got some essentials reserved here. You can make modifica- tions in three which would meet part of their require- ments if the purpose is to maintain 8. volume of reserves adequate to support a long-term rate of so and so. Then that is what they are asking for, but they are also ask- ing for 8. statement. If you say, we are just not mak- ing any statements, and then couple it with the other two, it might look 8. good deal like & program that you have talked over, without the statement. MR. BELL: I think they will contend that it isn't necessary to have the '67-'72's at that yield level to maintain this two and a half rate. MR. STEWART: I think so too. I think there may be merit in that. MR. BELL: There may be some-- MR. STEWART: But they would be on the other side prepared to say they would do such things in the market as were necessary to maintain some rate. Then you have B. difference as to which rate it is you are trying to maintain and whether you make a statement. Regraded Unclassified 191 - 13 - MR. BELL: Well, they agreed with us the other day in a conference that long-term securities meet in the early sixties, which means twenty years, at two and & half percent, and that they were prepared to go along on a program of that kind, and I think they would con- tend that you don't need thrèe and 8 half million dollars in reserves to maintain that. H.M.JR: Well, this thing that - the interest rates and their movement, there is a definite tie-up between the two. There is your history. I mean, it is conclusive. I mean, I sense these things, and then they come along and give me some data to back up my - what I sense. It proves it definitely, doesn't it, Henry? MR. MURPHY: Yes. H.M.JR: Definitely. I mean, this isn't just - end, Dan, I will not go through another financing with the excess reserve situation the way it is in New York, the way it was last time. I won't go through it again. I feel very, very strongly on this thing. I will not go through another thing like that. MR. BELL: Of course, one thing Ecoles would like to see is a short-term ratè of a half, and he says that when you get that, you are going to get a lot more funds than you have had heretofore out of the country, and not just in New York. H.M.JR: Well, could I do this, to let Ecoles know? I am very quiet on the phone. Let me call him up and say that you people are meeting with me this afternoon. Supposing you meet with him. I want to get as much as I can out of Stewart, see, and let me tell him that I feel this thing very strongly, and if I am wrong, supposing they go out on a program and do this for me, and I am wrong. Well, then I am wrong. I mean, their reputation hasn't been hurt and my reputation hasn't been hurt. Can you see any harm in their trying this thing? MR. VINER: Oh, I think it would be something ained If you had an agreement. I am not saying you must have Regraded Unclassified 193 - 14 - the statement. I would suspect - you can't be sure. You can't be confident that they are going to work any such pledge as this unless it is made rigid. They won't accept a rigid one. They won't work one which rests on a statement of principles to your satisfaction unless there is a statement to the public which imposes a compulsion on both of you to carry out your agreement. H.M.JR: Well, let me just-- MR. VINER: Also, it may be hard to work it without the statement, because I am not an expert in the sense of the market, but from what I gather, the bankers are really expecting that if you are going to ask them to buy a lot more Government Bonds that they are going to get some kind of assurance that the bonds are not going to have sharp fluctuations. K.M.JR: Look, Jake, I just went through on B. tax thing - I made a statement. In fact, I didn't make it, Sullivan made it. It was in regard to what you could or couldn't deduct in the way of your taxable income, see. They gave it & certain interpretation. We didn't mean that, but that is what they gave. So, I have - were you present? MR. VINER: Yes, I was here. H.M.JR: You were there. You saw what I went through, and against the Treasury's better interests, I said, "If this is the way you understand it, gentlemen, I will go along, didn't I? MR. VINER: Yes. H.M.JR: Now, that was on an interpretation which they gave something thata mouthpiece said for me. Now, I an coming out myself and say something, and I never can live it down if time should change. I mean, some- thing can - look, I keep going on the theory ever since I have been here, that the unexpected can't happen, and it has happened every month, something. Since I have Regraded Unclassified 193 - 15 - been here, we have been fortunate enough that the public has confidence in the Treasury. Now, it could lose this confidence. I might make & misstatement inadvertently, or the President might, and we might lose it, and these fellows go out on a sit-down strike. This country might be invaded, and then it gets down to saying, "Well, the only way that you can borrow the money is through making the rate attractive. God, they did it in the last war. What did they pay? How high did they go? MR. BELL: Four and a quarter percent on their bonds and they went six percent-- H.M.JR: And here I am hamstrung with this statement facing me where I could get the money at three, but I can't get it at two and a half, or I could get it at five. MI. VINER: I think what they are telling you now is that really you can get it at two and B. half, but can't get it at four. H.M.JR: Well, I don't believe it. That is what I don't believe, because I have gone through it, and I know that at & price - I mean, if these fellows come in here and say, "Isr. Morgenthau, we will let you have money for nine months at two and a quarter percent and you can have it." Then they come along and say, "We will let you have long money for eleven months." I have been all through that. But, you are taking away from me the attractive- ness of an interest rate. There must be other wars where people paid ten or fifteen percent when they were losing a war, There must be plenty. You fellows that have been in universities all your lives, you must know plenty of examples where countries were losing a war where they had to pay-- MR. VINER: Well, I would argue that they gained nothing by paying that, that the rate of Interest has little to do with-- MR. BELL: With the supply. Regraded Unclassified 194 - 16 - MR. VINER: ... with the supply of funds, and that 1 wouldn't - I certainly wouldn't get a pattern on the basis that - well, if the funds are coming in slowly, we will tempt them in by raising the rates. I think on non-banking funds to 8 certain extent, yes, but on the banks, no. I would say that the rate that you pay to the banks ought to be figured out in terms of what they need in order to maintain a healthy position, but the funds they have to give you, they can't keep them out, and they themselves will be more comfortable, and their position will be stronger if you don t raise the rates. MR. STEWART: They are comfortable so long as the guarantee is kept. MR. VINER: As long as there is assurance in the market that the guarantee can be kept. H.M.JR: Did you want to say something? MR. BUFFINGTON: No. I know so little about all this. I shouldn't express an opinion, but I don't see how you can avoid the fact that the old law of supply and demand works. In other words, I know of funds today that would come out on & three percent market. MR. VINER: Banking funds? MR. BUFFINGTON: Yes. MR. VINER: What are they doing? MR. BUFFINGTON: They are just there. They are taking the best they can get in places where they can get it, and holding idle funds where they can't get it, but I think that business funds and banking funds both-- MR. VINER: Well, business funds is another story. H.M.JR: Excuse me. Who told me at Chicago how many accounts had over & million dollars in--? MR. BUFFINGTON: It wasn't me. Regraded Unclassified 195 - 17 - H.M.JR: Well, somebody told me the number of accounts that they had in their bank of over a million dollars of individuals, cash, just lying there. I think some- body told me - oh, I guess it was Ned Brown. Was it Ned Brown? Do you remember that story? MR. BELL: Yes. MR. VINER: Well, they must be expecting the rate to raise. MR. HAAS: Yes, that is it. LOL. VINER: That is what makes the funds idle. MR. STEWART: That is not all of it, Jack, there is a rate at which given the surtaxes it isn't worth bothering with the papers. There is another rate which makes it worthwhile. And the option of doing nothing is always open to them. On the general argument, I an in agreement with the Secretary. H.M.JR: Well, you go back - it isn't quite the same. You did business, when you were in business - you were in B. venture business, and you had to have a high return to venture your money. If you couldn't get & high return, you wouldn't venture your money. Is that right? MR. STEWART. That is right. H.M.JR: Well, this is to a lesser degree the same thing. MR. BELL: I think you are in 8. war, Mr. Secretary, and I think you are-- MR. STEWART: They look upon the rate of interest as being essentially B. monetary factor which can be main- tained under 8. monetary mechanism, and that the money which comes from the banks does not have to have adjust- ment with reference to anything that is called saving, or the amount of money that is going to come out, and it is Regraded Unclassified 196 - 18 - possible to take a commitment, given the Reserve System cooperation, and they say as far as the banking system is concerned that is quite-- MR. BELI.: We are talking about controlling prices all along the line, and I think it would be unconscion- able to the American people to pay more than two and a half percent to finance this war. H.M.JR: I agree with you, but let me look up some of these speeches in which he said through cheap money he could put people back to work. Did he? MR. BELL: That is another era. H.M.JR: No, Dan, excuse me. MR. HAAS: He helped. H.M.JR: Now, wait 8. minute. What? MR. HAAS: It helped. H.M.JR: But wait & minute. The point - but it didn't solve unemployment. MR. HAAS: But it might have been worse if he hadn't done it. MR. MURPHY: Two and a half percent might not win the war either, but it will help. H.M.JR: Well, you very seldom see me as rigid 83 I am on this thing. Now, it isn't going to break Mr. Eccles' back or his theory or anything else if we say to him, "Look, let's try this thing. I feel this way very, very strongly. I am going to ask you to try it. And let's see what happens to the record here and every- would like to call him up on the phone and just tell him thing else. Let's try it and see what happens." I very quietly how I feel. Could he see you people, and I would like to meet with him Thursday afternoon and try to settle this thing between now and Thursday afternoon. Regraded Unclassified 197 - 19 - MR. BELL: Would you agree-- R.M.JR: There are two honest differences of opinion. Using Viner as the example, Viner says that the interest rate is not the controlling factor, that it is the people scared-- MR. VINER: For banks. H.M.JR: And, I differ with you. And I also say I will not go into another financing unless this excess reserves situation has changed. MR. BELL: Would you be willing to agree here that the two and 8. half percent is an objective without making any public statement, in other words, among ourselves-- H.M.JR: Yes. MR. BELL: O.A. MR. VINER: There is no - I don't see yet any urgency-- H.M.JR: Yes. MR. VINER: .of the statement H.M.JR: Dan. MR. VINER: as long BE the pattern-- H.M.JR: Yes. MR. VINER: isn't broken. MR. BELL: Well, the urgenoy of the statement is that you get 8. lot of people outside saying, "Well, why doesn't the Treasury have B. program? What is this program of financing thirty-nine billion dollars next year? Have they got any pattern?" A lot of people raise that question. Now, the Fed says-- Regraded Unclassified 198 - 20 - H.M.JR: I read that. MR. BELL: That is what we want. Maybe it came from the Fed, I don't know. But they say when the Treasury establishes that pattern, we are going to get behind it and see that it works to the full extent of our ability. H.M.JR: That is why I raised the question about publishing the stuff yesterday. I read the same article you did. MR. BELL: It has been out. A lot of people on the Street have been in to see me, and they say, "What is your pattern for financing this thing? Is it just going to be an issue every other month of any type that you can put out at that time, or are you going to say to the public, 'Now, this is what you can expect'?" H.M.JR: Well, Dan, answering your question as to the object, I have given you my answer. MR. BELL: That is right, you have, and I am satis- fied with that. H.M.JR: Are you satisfied? MR. BELL: Yes. H.M.JR: Will you fight for that on that level? MR. BELL: Yes, and they will go along with that on that two and a half objective. They may not go along with the way of achieving it like Henry put it down on paper, but they will go along with that objective. MR. HAAS: It will leak out anyway. Maybe that is the most effective way of doing it. MR. BELL: Well, that is an effective way. H.M.JR: All I have got to do is send for Randolph Burgess and Mr. Stonier the way I did the other day Regraded Unclassified 199 - 21 - and then the whole thing down to the very adjectives appeared in the Wall Street Journal. It was the most disgusting performance I ever saw. If I seem a little terse today, I can't sing it, but I paid my income tax today. (Laughter.) Boy, oh boy, oh boy, 8.8 Donald Duck says. It is & good thing to have Donald Duck around. MR. BELL: I hope you think back when you go to put in the ten percent withholding. H.M.JR: It is 8 good thing to have old Donald Duck around. I can also understand-- MR. SELL: Think of next year. H.M.JR: That is the thing. This thing comming now when we are talking about next year makes this year look good. I think we are going to take in boarders if we can deduct it as expenses, and this year of all years, my farm had to make money, Jake. MR. VINER: Well, you could get a new accountant. No gentleman's farm makes money. H.M.JR: This year of all years we had to average so much on our strawberries. MR. VINER: That is why I say you ought to get a new accountant. H.M.JR: Just this year the farm had to make money. (The Secretary held a telephone conversation with Mr. Eccles as follows:) Regraded Unclassified 200 March 10, 1942 12:06 p.m. HMJr: Hello. Operator: Chairman Ecoles. HMJr: Hello. Marriner Eccles: Hello. HMJr: Good morning, Marriner. E: Good morning, Henry. HMJr: How are you? E: I'm pretty good. HMJr: Marriner, I've been sitting around here with my advisers on this question of financing. E: Yes, sir. HMJr: And we've reached a certain point where we'd like to meet with your men, you see? E: Yeah. HMJr: And I've got some notions which I'd like them to put up to you. I don't think we're BO far apart as to the objective, you see. E: Uh huh. HMJr: But frankly, the last financing, that excess reserve thing bothered me tremendously, you know. E: Yeah. HMJr: Particularly the New York situation, the fact that & quarter of all the reserves were with the Guaranty and they sat back and did next to nothing. So I'd like them to present our view- point to you on 8 kind of a trial basis, you see? And then I thought if between now and Regraded Unclassified 201 - 2 - next Thursday at three o'clook, at least we could come as close as possible - at least know where our differences were. Then I'd like to meet with you. E: On Thursday. HMJr: Yeah. Are you going to be here Thursday? E: Yes, sir. HMJr: Would three o'clock be good for you? Thursday? E: Let's see. Yeah. I'll set Thursday - three o'clock 18 okay. HMJr: Well, now, my men can come over this afternoon to aee you. E: Well, I wouldn't have time to get Sproul here: but I guess that wouldn't be necessary then. HMJr: Well, he could come down tomorrow. Then we could work right through until Thursday until we got the thing settled. E: I'd like him here Thursday, because it's very important, because he understands this problem possibly as well or better than any of us, and is very - we've got to depend a good deal, of course, upon the - as long as the New York bank 18 our agent in the operation, why it's pretty important that they be in the picture. HMJr: Well, would you like to meet with our boys this afternoon? E: Yes, I would. Then let's see now - unless we could meet tomorrow. HMJr: I tell you E: with them, I could get Sproul down tomorrow afternoon and we'd meet tomorrow afternoon with them and meet with you Thursday. How would that be? HMJr: Well, with this - Walter Stewart is just here Regraded Unclassified 202 - 3 - for today. E: Oh, yes. HMJr: And he happens to see the thing the way I do, so I'd like you to get the benefit of his thoughts. E: Yes. HMJr: I mean, if you just would get his ideas today. E: Yes. Well, I'd like very much to get them if he 1sn't going to be here tomorrow - I'd like very much to have his point of view. HMJr: Well, he's not going to be here tomorrow. E: He isn't? Well, then - who did you - I can come over there or they could come over here, either way. Who did you want me to meet with? HMJr: Well, it would be Bell and Viner and Stewart and some of Haae' people, and Buffington. E: Uh huh. HMJr: And they'd be glad to come to you - any way - they'll come over to you. E: Well, now, what I thought - let's see - gosh I wish we could get Sproul here. I might be able to get him to take a plane and come down HMJr: Yeah. is if we met later this afternoon. Well, what time would they like to meet this afternoon? HMJr: Well, Stewart leaves - (talks aside) when do you leave? Stewart leaves at five. E: At five. Well, we ought to meet by three anyway. HMJr: Yes. E: Hadn't we? Regraded Unclassified 203 - 4 - HMJr: Yes. E: Well, I'll tell you what to do. I'll come over there. There's possibly fewer of us than you've got: and if that's okay..... HMJr: Fine. E: I'll come over there and we'll meet in Dan's office. HMJr: Right. E: And I'll get Sproul if I can, and if I can't, why I don't know who I'll bring over. But I'll come over and bring somebody. HMJr: Righto. E: And three o'clock then. HMJr: Right. E: Then we'll figure three o'clock on Thursday with you. HMJr: That's right. E: All right, then. Fine. HMJr: Thank you. E: Good-bye. HMJr: Thank you. Regraded Unclassified 204 - 22 - H.M.JR: I am seeing you, Dan, at two thirty on the Chinese thing. They can't laugh off that chart that those boys prepared showing the influence of the Federal Reserve increase in excess on the money market, and I frankly, Dan, - I would like this week if possible this thing settled of-- MR. BILL: We would like to have it settled too. H.M.JR: I agree in principle on the two and a half as an objective. I think every effort should be made. I don't want to commit myself publicly to it. I feel very, very strongly; I would like something done about the reserves on some kind of a formula basis and then on the other thing, these two issues; as soon as those two things are settled, I am willing to go ahead at once and use the Federal Reserve, but I don't want to move until those things are settled. And here is the point-- MR. VINER: How much of this may we tell Eccles? H.M.JR: Everything. And supposing I am wrong. Well, how much damage is done if he has bought three or four hundred million dollars worth of stuff? MR. BELL: Well, at the end of the next twelve months he will have a good deal more than that. H.M.JR: But I mean, supposing I am wrong? Eccles will say, "Well, I did it because Morgenthau insisted. We told him he was wrong, but in order to humor him, we did it." And if, on the other hand we are right, it is & joint operation and I keep my mouth shut. I don't think that that is unreasonable, Jake, do you? MR. VINER: Well, I don't see any problem on that. If they increase their excess reserves, the only ill effect I can see that it might have is an inflationary effect at a time when we don't want it, but that is easy to correct at this time. Regraded Unclassified 205 - 23 - H.M.JR: Well, you can say, "Morgenthau wanted to--" MR. VINER: But, they will not want & rigid formula. I think myself that they probably will feel that they have a duty not to accept B. rigid formula handed to them from another agency, but they are obliged to use their judgment, and my guess is that I would want to read the text of the law, and their counsel would tell them they can't do that. H.M.JR: Well, you can have it verbally. MR. BELL: You mean they can't legally enter into & rigid arrangement. MR. VINER: No, I doubt whether they have the right to do it. H.M.JR: Their word is good enough for me. MR. VINER: The point is you can talk to them too rigidly. They may feel you are trying to put them in a vise where they won't be in a position to use their own judgment as the law requires them to. MR. ILAAS: Well, wouldn't that be their judgment? MR. VINER: I wouldn't show them anything as definite as that. H.M.JR: Look, I an willing - all I an asking is to make an earnest start, and I am willing to have consul- tation at any time. I think we should consult anyway once a week, whether v.e have something to consult about or not. MR. BELL: We have been doing & lot of consulting right along. H.M.JR: Furthermore, you can tell them, "Morgenthau wanted to do it through regulations, and we think we have persuaded him not to do it through regulations, which is correct. I mean, I wanted to change it. Now, we have Regraded Unclassified 206 - 24 - argued them of that and let them do it this way. Let them think that this is my first position, and this is my second position, which is true, Dan. My first position, I wanted to do it through regulations. Now, you fellows have got ne down to this point. Do you feel you can go in this thing and represent me without stultifying yourself? MR. BELL: Oh, sure. I am all right. I don't feel badly about this. H.M.JR: You don't feel you would have to stultify yourself? MR. BELL: No, sir, as long as the objective is what we are after, and we get strong action toward the objective, and I think there has been some doubt in all of our minds as to whether this should be a public state- ment; and when we discussed it last, we thought maybe that you could make this statement before the Ways and Means when you discussed the debt limit. Well, we didn't have time, so we dropped that idea. Now, even if you are going to make it public, I think we would have to still decide what would be the occasion. You just can't come out with a public statement like this. You have to have some sort of an occasion on which to do it, and that is what we were looking for. Now, on the support of the market, you say that it is 8. joint undertaking. I wonder if We are going after this objective - should it be a joint undertaking in the market? Because we are using borrowed money, and their going ahead alone is much more effective. H.M.JR: Well, I am open to argument on that. I will take advice on that. MR. BELL: I think if we start out on that program, that they ought to do it alone. H.M.JR: But, let them ask for it, you see. MR. HAAS: There is one more supplement-- Regraded Unclassified 207 - 25 - H.M.JR: I am open to argument and advice on that. MR. HAAS: There is one more thing, Dan, which hasn't been mentioned which I think the Secretary should have brought to his attention. In order to carry on these open market operations to the extent to which they will have to be carried on, you have no objection to increasing the bill issue? H.M.JR: No, that is all right. MR. STEWART: How long an experimental period do you have in mind? H.M.JR: Three months? MR. BELL: Until after, certainly, the next financ- ing. H.M.JR: Wouldn't that be on-- MR. STEWART: Yes. H.M.JR: Am I unreasonable, Walter? MR. STEWART: I don't think so. H.M.JR: Do you think I am, Jack? MR. VINER: No, not at all. I don't think this is an easy problem to answer. MR. BELL: That is right. MR. VINER: And I think we are - I don't really think that there is very great difference of opinion. There are a few little edges of difference here, and I don't think there are great differences of opinion in the Federal Reserve. MR. BELL: I think we are together on fundamentals. It is probably the mode of carrying it out. Regraded Unclassified 208 - 26 - MR. STEWART: I think you might have & difference in the rate here. MR. VINER: I hadn't thought about that. H.M.JR: Again, I want to move in the direction of more - what did I want? I mean, I want the banks to have more reserves, isn't that what I want? MR. STEWART: Yes. With an objective, but not necessarily too restricted a formula and with the exchange of ideas between the two. MR. VINER: I think there is one more point on which there may be room for disagreement, and that is the question as to the very short-term rates, and as to whether or not they can go up without affecting the long term rates, whether they should be allowed to go up. H.M.JR: Well, that is again - but one thing I would like, and I just thought of it, so it isn't uppermost in my mind. Otherwise, I would have mentioned it earlier. Eccles has told me, sitting there, again and again, the responsibility of financing the war is mine. I recognize that. "But, we will do everything we can to help you," he said. So, in the final argument with him, remind him that he said that the final responsibility is mine. MR. BELL: Well, he has often said that. H.M.JR: But, he has said that, and he does recog- nize that. As I have said again and again, we sit around and ask Eccles' advice on a financing; and if the financing fails, I can't publicly say, "I took Mr. Eccles' advice or the Federal Reserve Board's advice, and that is why it is a failure, and he does recognize that the Secretary of the Treasury has got to finance this war, and certainly We haven't been trying to bulldoze him into anything; but in the final analysis, and I say I am mentioning it last because I just thought of it, it is my responsibility, and I do feel this thing very, very - and if I an wrong, that is that. Regraded Unclassified 209 - 27 - MR. BELL: You know, if this two and & half twenty- year security that we are suggesting here works, you won't have many more long-term issues as a public offer- ing, because the funds won't accumulate except rather slowly, and the things that you offer hereafter will have to fit the bank's portfolio. In other words, it will be within the twelve years. We hope to simplify the financ- ing, but we are not sure we will. Regraded Unclassified 210 Alternative Bases for Agreement on Excess Reserves (1) Increase excess reserves by at least $300 mil- lions a month until total excess reserves exceed $5 bil- lions, and excess reserves in New York City $2 billions; these levels to be maintained thereafter. (2) The Federal Reserve Banks to purchase an amount of Government securities equal to 20 percent of the net increase in total open-market securities, this to con- tinue until the levels of excess reserves specified in (1) have been attained; this level of excess reserves to be maintained thereafter. (3) Increase excess reserves by at least $300 mil- lions in every month in which the long-term taxable average 1s more than 2.30 percent, or the 2-1/2's of 1967-72 yield more than 2.40 percent. (The long-term taxable average 18 now 2.36 percent, and the 2-1/2's of 1967-72 now yield 2.47 percent.) March 10, 1942 Regraded Unclassified 211 March 10, 1942 MEMORANDUM FOR THE SECRETARY'S FILES Conference in Mr. Bell's Office March 10, 1942 2P.M. Present: Mr. Bell Mr. White Dr. Viner Mr. B. Bernstein Mr. Southard Mr. Friedman Meeting was called to draft a letter in reply to letter received from Undersecretary Welles. Dr. Viner and Mr. White submitted draft letters and on the basis of these a letter was drawn up. It was agreed at the meeting that a history of the loan should be written. Letter received from Dr. Soong containing changes in the Agreement suggested by Dr. Kung was distributed. Regraded Unclassified 212 My dear Mr. selles: I have your letter of March 9. 1942, in which you question the desirability of eliminating Article II from the draft of the Agreement presented to Dr. T. V. soong. I would welcome any provisions in the financial arrangement with China which would protect the financial interesta of the United States, " well as promote the most effective economic use of the funds by the Chinese. If there were not overbalancing political and military considerations, I sould insist upon the retention of Article II of the original draft, and even inclusion of stronger provisions. But it has always been agreed at meetings between State and Treasury Departments that the purposes of the financial aid were predeminantly political, diplematic, and military. These considerations therefore have determined the formulation of the terms of the Agreement which vas submitted to the Chinese. As you know, the first draft handed to the Chinese Government included Article II colling for consultation and exchange of information. However, in view of General- issime Chiang Kai-shek's reactions to Article II, and of his request that it be amitted, communicated to - in the letter from Dr. T. V. soons to t is Department, the Treasury was unwilling to risk Jeopardizing the important political and military value of this financial aid by insisting upon the retention of Article II in the Agreement and therefore raised that question with the State Department. In light of the fact that the determination of the inclusion or the exclusion of Article :1 turns almost wholly on questions of political character, and in view Sent at crm to Sing- for signature 9 then to State dept they sheet (dgl montgomery 3/10/42 Regraded Unclassified 214 - 2 - of our telephone conversation of today, 1 should like 10 have you advise 38 as to what our next step should be in replying to the Generalissimo. Since I feel that time is of the essence and that we should consummate this Agreement without delay, I sould appro- 'ate an enewer from you on this matter as soon 68 possible. Sincerely yours, decretary of We Treasury. conorable hummer Welles, Under Cocretary of State. Regraded Unclassified 214 Winister for Foreign Affairs Republic of China March 10, 1962 CONFIDENTIAL Dear Mr. 2alli Following my letter of March 3ru containing the observations of Generalissimo Chiang Kai-shek on the draft loan agreement, I have now received & message from .r. H. H. Kung suggesting some further changes. These final suggestions how ever, as you will see, are principally changes in draftemanship: (a) Preamble (6) Instead of the words "will safeguard the unity", substitute the words "will promote the selfare". (b) Preamble (7) Include the plicase Pother than those supplied under the Lend-Lease Act" after the WGENS "geet military needs". (a) Article I. It so desired to name the Vinister of Finance as the channel of she Chinese Government to implement the terms of Article I. (d) Article II. The accord anntence is retained in the form of the original draft. Instead the words "by the two contracting parties" are added to the first sentence of Article II, after the words "1s deferred". I ARE enclosing several copies of the craft, with the suggested changes. I hope you and your colleagues will be good enough to give your kind consideration to the above points. Tours sincerely, (agd) T. V. Soong T. V. Soong Mr. D. V. Bell Under Secretary of the Trwasury Treasury Department Washington, D. C. Regraded Unclassified SUGGESTED DRAFT CHANGES 215 THEREAS the Governments of the United States of America and of the hepublie of China are engaged together with other nations and peoples of like mind, in a ecoperative undertaking against common enemies, to the end of laying the beses of just and enduring world peace securing order under law to themselves and all nations and WHEREAS the United States and China are signatories to the Declaration of United Nations of January lat 1942 which declares the t "each government pledges itemir Lo employ its full resources, military or economic, against those members of the Tripartite Pact and its adherents with which such government is At war"; and WHEREAS the Congress of the United States, in unanimously neesing Public Law No. 442 approved February 7, 1942 has declared that financial and economic aid to China will increase China's ability to oppose the forces of aggression and that the defense of China is of the greatest possible importance, and has authorized the Secretary of the Treasury of the United States with the approval of the Premident, to cive 'inancial aid to China and WHEREAS such financial aid will enable China to strongthen greatly its war efforts against the common enemies by helping China to (1) Strengthen its currency, monetary, banking and economic system; (2) Finance and promote increased production, acquisition and distribution of necessary goods) (3) hotard the rise of prices, promote stability of economic relationships and otherwise check inflation; (4) Prevent hoarding of foods and other materials, (5) Improve means of transportation and communication; (6) Fffect further social end economic measures which promote the welfare of the Chinese people; and (7) Meet military needa other than those supplied under the Lend-Lease Act, and take other appropriate measures in its war effort. in order to achieve these purposes, the undersigned being dul: authorized by their respective Governments for what purpose, have agreed as follows: Regraded Unclassified 216 - 2 - ARTICLE 1 The lecretary of the Treasury of the United States agrees to establish forthealth on Lhe books of the United States Treasury & credit in the name of the Government of the Republic of China in the amount of 500,000,000 U.S. Dollars. The (ecretary of the Treasury shall make transfers from this credit, in such amounts and at such times 08 the Government of the Republic of China shall request through the kinister of Finance to an account or accounts 10 the Federal Reserve Bank of New York in the name of the government of the Republic of China or an) agencies designated by the Vinister of Finance. Such transfers may be requested by and such Accounts at the ederal Reserve Bank of New York my be drawn unon 13 the Government of the Republic of China either directly or through such persons or opencies ne the Cirlater of Finance hall authorize. ARTICLE II The !inal determination of the terms unon which this financial rid is given, including the benefits to be rendered the United States in return, la deferred by the two contracting parties until the progress of events after the war makes clearer Lie final terms and benefits which will be in the mutual interest of the United States and China and will promote the establishment of lasting world peace and security. In Retermining the final terms and benefits full cognisance shall to given to the Resirability of maintaining a healthy and stable economic and financial situation in hina in the post-mar period as well as during the wer and to the desirability of promoting mitually advantageous economic and financial relations between the United Wise and China and the betterment of world-wide economic and financial relations. ARTICLE III Tita agreement shall take effect an from this day's date. vare:, 1942 Regraded Unclassified 217 March 10, 1942 2:40 p.m. AID TO CHINA Present: Mr. Bell Mr. White Mr. Viner Mr. Bernstein H.M.JR: Is it different? Where does it begin to get different? MR. BELL: The whole letter is different. MR. WHITE: Right after "My dear Mr. Welles." (Laughter) H.M.JR: Where you say "I would insist," make it, "I would have insisted." MR. BERNSTEIN: I think that phraseology has been changed a little bit, Mr. Secretary, to meet this last suggestion. H.M.JR: Yes. "I would have," don't you think? MR. BERNSTEIN: Where it says "continue to insist"? H.M.JR: No, I said, "If there were not overbalanc- ing political and military considerations, I would insist upon," and so forth. Make it, "I would have insisted." MR. WHITE: I don't think you should be the judge of that, Mr. Secretary. That is what you are asking them to judge, because you still can insist if they say SO. Regraded Unclassified 218 - 2 - H.M.JR: Oh, I see. Well, I say, "In all my participation and in my testimony before the House and the Senate.' MR. VINER: Well, that is changed. MR. WHITE: We have changed that, and I think it is better. MR. BELL: We have said, "in our conferences between the two Departments." H.M.JR: Well, I would certainly say something about my testimony before the House and Senate. MR. VINER: But here your - they are supposed to know what the purposes are, too. You are throwing it back on them. H.M.JR: All right. It is all right. MR. BELL: Well, we have changed it a little. H.M.JR: Well, when it is ready somebody-- MR. BELL: It will be ready in five minutes. H.M.JR: When it is ready if somebody can walk it in to me. Regraded Unclassified zy dear Hr. welles: I have your letter of March 9, 1942, in which you question the desirability of eliminating Article II from the draft of the Agreement presented to Dr. To V. Soong. I would welcome any provisions in the financial arrangement with China which would protect the financial interesta of the United States, as well as promote the most effective economic use of the funds by the Chimase. If there were not overbalancing political and military considerations, I would insist upon the retention of Article II of the original draft, and even inclusion of stronger provisions. But it has always been agreed at meetings between State and Treasury Departments that the purposes of the financial sid were predeminantly political, diplomatis, and military. These considerations therefore have determined the formulation of the terms of the Agreement which yes submitted to the Chinese. AS you know, the first draft handed to the Chinese Government included Article II selling for consultation and exchange of information. However, in view of General- issime Chiang Xai-shek's reactions to Article II, and of his request that it be cmitted, communicated to W in the letter from Dr. T. V. soong to t is Department, the Treasury VAS unwilling to risk jeopardizing the important political and military value of this financial aid by insisting upon the retention of Article II in the Agreement and therefore raised that question with the State Department. In light of the fast that the determination of the inclusion or the exclusion of Article II turns almost wholly on questions of political character, and in view Regraded Unclassified - 2 - of our telephone conversation of today, I should like to have you advise - as to what our next step should be in replying to the Generalissimo. Since I feel that time 10 of the essence and that we should consummate this Agreement without delay, I would appreciate an answer from you on this matter = 2 soon as possible. incorely yours, Secretary of the Treasury. Honori le Summer welles, Under Secretary of State. Regraded Unclassified