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Volume 525, May 7, 1942
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Volume 525, May 7, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 525
May 7, 1942
- A -
Book Page
Australia
Coins minted by United States, hubs for: Cable from
American Consulate, Sydney - 5/7/42
525 311
- B -
British Purchasing Mission
See Lend-Lease: United Kingdon
- C -
Canada
Canadian facilities for production of war materials
and dollar position - effect of proposed pooling of
Canadian production through Joint Munitions
Assignment Board in Washington: Conference; present:
representatives of Canadian Government, War, State,
Board of Economic Warfare, Lend-Lease, and Treasury - -
5/7/42
19
a) Plumptre's memorandum: "Suggested plan for
solving Canada's United States dollar deficit
under joint arrangements for pooling war
production"
315
b) White memorandum: "Financial implications of
proposed pooling through Washington" - 5/8/42:
See Book 526, page 314
c) Canadian United States dollar position, first
quarter of 1942 in comparison with latest
forecast - 5/11/42: Book 527, page 173
Canal Zone
See Financing, Government
- D -
"Defense Agent News, United States"
See Financing, Government: War Savings Bonds
District Grocery Stores, Incorporated
See Financing, Government: War Savings Bonds
- E -
Exports
Freight Situation - Haas memorandum - 5/7/42
299
- F -
Federal Reserve Banks
See Financing, Government: War Savings Bonds
Regraded Unclassified
- 1- (Continued)
Book Page
Financing, Government
Panama Canal, Governor of: Has $1 million available
for investment in Government bonds - 5/7/42
525
49
Treasury Financing - - Bell memorandum covering
May 1942-1952 - 5/7/42
52
War Savings Bonds:
$1 billion a month objective from July on: Treasury
letters to presidents of Federal Reserve Banks -
5/7/42
6
Trounstine appointed chairman of Ohio Committee -
5/7/42
24
Rainer, Luise: Toledo appearance highly successful -
5/7/42
26
District Grocery Stores, Incorporated: War Bond
rally - Graves report - 5/7/42
30
"United States Defense Agent News": Third edition
sent to FDR, Cabinet officers, Speaker of House,
etc. - 5/7/42.
38
National Association of Manufacturers: 8,200
members contacted relative to Payroll Savings
Plans - - 5/7/42
44
Planes and Ships: Adoption by States - - Gamble
memorandum - 5/7/42
47
Freight, Export
See Exports
- I -
Inflation
See also Revenue Revision
HMJr's statements on, together with certain memoranda
on price problems prepared by Division of Research
and Statistics - 5/7/42.
56
- L -
Lend-Lease
United Kingdom: Federal Reserve Bank of New York
statement showing dollar disbursements, week ending
April 29, 1942 - 5/7/42
323
- M -
Military Reports
British operations 5/7/42
335,336
Coordinator of Information reports:
British Political Warfare weekly general directive -
5/7/42
339
The War This Week, April 30-May 7, 1942
342
Survey of Military Situation - - Kamarck report 5/7/42.
343
- N -
Book Page
National Association of Manufacturers
See Financing, Government: War Savings Bonds
- 0 -
Ohio
See Financing, Government: War Savings Bonds
- P -
Panama Canal
See Financing, Government
Postal Savings
See Financing, Government
Price Control
See Inflation
- R -
Rainer, Luise
See Financing, Government: War Savings Bonds
Revenue Revision
See also Inflation
Comparison of individual surtax rate schedule under
present law and proposal - 5/7/42
525
246
- S -
Silver
Additional stocks available for war production
purposes with and without additional legislation -
HMJr's letter to Nelson - 5/7/42
307
Statements by HMJr
Inflation: HMJr's statements on, together with certain
memoranda on price problems prepared by Division of
Research and Statistics - 5/7/42
56
- T -
Taxation
See Revenue Revision
Trounstine, Phil J.
See Financing, Government: War Savings Bonds
- U -
Book Page
U.S.S.R.
Planes and fighting vehicles - shipment of:
Kamarck memorandum - 5/7/42.
525
303
"United States Defense Agent News"
See Financing, Government: War Savings Bonds
- W -
War Savings Bonds
See Financing, Government
1
May 7, 1942
9:27 a.m.
Ted
Gamble:
Yes, sir.
HMJr:
Morgenthau.
G:
Yes, sir.
HMJr:
Good morning.
G:
Good morning, sir.
HMJr:
Gamble, now on these Negro meetings
G:
Yes.
HMJr:
I want to be consulted on all the details.
G:
Fine.
HMJr:
Because I saw this thing from New York by this
Kudner, or whatever his name is, on the com-
munity sings in New York.
G:
Arthur Kudner.
HMJr:
Yes.
G:
Yes.
HMJr:
Well, of course, I've asked for him. I'm not
getting what I want.
G:
Yes.
HMJr:
On these Negro things I'm going to get what
I want.
G:
All right, sir.
HMJr:
Now, as a starter, I wish you'd speak to that -
the Negro that you told me last night.
G:
Thomas.
HMJr:
Thomas.
2
- 2 -
G:
Yes.
HMJr:
Put this up to him, amongst their own people,
who would they like to - I'd like the names
of three men and three women, singers, that
they'd like to hear the most.
G:
Yes.
HMJr:
And that they consider their greatest singers.
G:
Yes.
HMJr:
You see?
G:
Yes, sir.
HMJr:
And - I mean, I wouldn't specify. I'd just say,
if we could get three men and three women singers.
List them 1, 2, 3. Who would attract the biggest
audience for a Negro mass meeting.
G:
Yes.
HMJr:
You see?
G:
Yes.
HMJr:
And, if necessary, he should send out a few
questionnaires; but I'd like the answer not
later than Monday.
G:
Fine. Well, we'll have it by then.
HMJr:
Tell him to list them 1, 2, 3 - the men and
women Negro - not Negros - singers. I wouldn't
say black or white.
G:
No, I understand.
HMJr:
If they could get three men singers or three
women singers, which ones would their people
come to hear.
G:
Yes.
HMJr:
And if he could send out word and have the
answer by Monday.
3
- 3 -
G:
Fine. Well, we'll have it, I think, maybe
before then.
HMJr:
And on the same thing, what speakers.
G:
Yes.
HMJr:
Men and women.
G:
Yes.
HMJr:
What speakers.
G:
Yes.
HMJr:
Will you do that?
G:
Yes, sir.
HMJr:
Because I'd like to have what the Negroes
think. I know what I think.
G:
Yes, I understand.
HMJr:
Because I think that - my own opinion 18, I
think that they'd rather hear Marion Anderson
than anybody else.
G:
Probably Anderson and Robeson, but you can't
tell.
HMJr:
But you don't know.
G:
That's right.
HMJr:
That's the point.
G:
Yes. Well, I'll have that information for you.
HMJr:
Right.
G:
All right, sir.
4
May 7. 19%
in. Ded deside
May 7, 1942.
Secretary Norgenthan
MEMORANDUM FOR THE SECRETARY
With reference to your request for some action of the
colored problem, please be advised that a plan has been bank
developed to submit to Messrs. Isbey, Patterson, and Collins
for the states of Michigan, New York, and Illinois, at a
meeting which has been set to be held here on Friday. At
that time I will discuss this plan with these Administrators
and I believe I will be able to report a very favorable None
answer to your request.
176 2020g % Red.
5/6- one di
much hill the
Ted R. Gamble.
myto with asis
5
May 7. 1942
Mr. Ted Gamble
Secretary Morgenthau
I wish you'd talk to me the first thing in
the morning about this man that I said is the head
of a committee here, about the discrimination against
Negroes. I think his name is McLean - whatever his
name 1s. What I have in mind is that I think it
would be helpful if you had a talk with him before
you saw the three State Chairmen tomorrow, and find
out what, if anything, any other Government Departments
are doing to help.
5/8- Mr. Gamble
and he Look this
up with Hijr
Regraded Unclassified
5/7/42
6
J. N. Peyton, President
Alfred H. Williams, President
Federal Reserve Bank
Federal Reserve Bank
73 South 5th Street
925 Chestnut Street
Minnespolis, Minnesota
Philadelphia, Pennsylvania
Chester C. Davis, President
M. J. Fleming, President
Federal Reserve Bank
Federal Reserve Bank
411 Locust Street
Federal Reserve Bank Bldg.,
St. Louis, Missouri
East Sixth & Superior Avenues
Cleveland, Ohio
William A. Day, President
Federal Reserve Bank
Sansome and Sacramento Sts.
San Francisco, California
W. S. McLarin, President
Federal Reserve Bank
104 Marietta Street
Atlanta, Georgia
(Letters to all the Federal
Reserve banks re objective of
H. G. Leedy, President
billion dollars per month by
Federal Reserve Bank
July in War Savings Bond cam-
10th and Grand Avenues
paign. Listing instructions
Kansas City, Missouri
re desired procedure for reporting
bond sales. - Signed HMJr.
R. R. Gilbert, President
Cooies to Thompson.
Federal Reserve Bank
Wood and Akard Streets
Dallas, Texas
Clifford S. Young, President
Federal Reserve Bank
230 S. LaSalle Street
Chicago, Illinois
Roy A. Young, President
Federal Reserve Bank
30 Pearl Street
Boston, Massachusetts
Allan Sproul
Federal Reserve Bank
33 Liberty Street
New York, New York
Hugh Leach, President
Federal Reserve Bank
Ninth and Franklin Streets
Richmond, Virginia
7
MAY 7 1942
My dear Mr. Sproul:
On May 1 the Treasury Department inaugurated
a War Savings Bond Quota Campaign, with a billion
dollars a month by July as its objective.
In undertaking to reach the sales quotas that
have been established for each state and county,
State Administrators and chairmen of local committees
in the field organization of the War Savings Staff
will need more timely information on bond sales than
is possible under the existing reporting procedure.
Therefore, in order that bond sales may be
tabulated quickly and with a minimum of report prep-
aretion, it is proposed that State Administrators of
the War Savings Staff or their representatives call
upon issuing agents on the 8th, 15th, 23d, and last
day of each month for the total sales of Series E
Bonds for the quarter-monthly period. A county break-
down of Series y and G Bond sales by Federal Reserve
Banks will also be needed by the State Administrators,
due to their importance in computing quotas. This
quarter-monthly sales information will not supplant
the regular monthly report on sales prepared for the
Treasury Department by the Federal Reserve Banks. It
will serve as guide to assist the field organization
in determining progress toward quotas during the course
of each month.
It is expected that in many instances issuing
agents will furnish sales figures verbally. Where it
10 more convenient for them to do so in writing, they
will be supplied with postel card report forms addressed
to the State Administrator or representative designated
by him.
Regraded Unclassified
8
- 2 -
Your valuable assistance is requested in
carrying out this reporting procedure, and it will
be very much appreciated if you would -
(1) advise all issuing agents qualified
by your Federal Reserve Bank to
anticipate these requests, asking
their cooperation in furnishing
sales totals (at issue price).
(2) arrange to furnish the State Admin-
istrator of each state in your district
with county totals of Series F and G
Bond sales, four times each month.
Within the next few days, each State Adminis-
trator in your district will contact your liaison
officer concerning this matter.
Sincerely,
(Signed) a. Morgenthau. Jr.
Allan Sproul, President
Federal Reserve Bank
33 Liberty Street
New York, New York
HBM:wcb
Regraded Unclassified
9
May 7, 1942
9:34 a.m.
HMJr:
Hello.
Ted
Gamble:
Hello.
HMJr:
Gamble.
G:
Yes, sir.
HMJr:
I'm just signing these twelve letters to the
presidents of the Federal Reserve Banks, but
I hear they haven't cleared through Bell.
Anything that goes through the Federal Reserve
Banks should be cleared through him.
G:
Fine. Well, I will take them in
HMJr:
I didn't call him, but I'll sign them.
G:
Well, I'll take them in to him and discuss
them with him after they return.
HMJr:
Will you do that?
G:
Yes, sir. If they're returned to my office,
I'll take them in to him.
HMJr:
Miss Chauncey will take them to your office,
but I'd like you to discuss them with him.
G:
Fine. I'll go down and talk to him about them.
HMJr:
Thank you.
G:
All right, sir.
10
May 7, 1942
11:51 a.m.
HMJr:
Hello.
Operator:
Go ahead.
HMJr:
Roy.
Roy
Blough:
Yes.
HMJr:
What happened this morning?
B:
Well, they're still going at 1t.
HMJr:
Did they read my letter?
B:
Oh, yes. It was read the first thing.
HMJr:
Well, it's not out - it hasn't - it's funny
it isn't out on the ticker.
B:
Well
HMJr:
Is it an open meeting?
B:
No, it's an executive session.
HMJr:
Oh, oh. I see.
B:
But - we got here a little late. There was
no transportation. And he went right into
the session; he dion't speak to the Chairman
about releasing it.
HMJr:
Yeah.
B:
Now.....
HMJr:
Well, supposing somebody talks to the Chairman
and finds out what they're going to do about
giving out the letter when the meeting's over.
B:
All right.
HMJr:
See?
B:
I'll have that done right away.
11
- 2 -
HMJr:
What sort of reception did my letter get?
B:
Well, I don't know that we know for sure, yet.
HMJr:
Weren't you there?
B:
Oh, yes, I'm right here.
HMJr:
I mean, weren't you there when the letter
was read?
B:
Yes, indeed.
HMJr:
Uh huh.
B:
They're still asking a lot of questions.
There's nothing - it hasn't been accepted
with open arms at all, but they're asking a
lot of questions, and nobody has really
started to lambaste it.
HMJr:
They have not.
B:
No, they haven't done that. There'll be some,
I think, who will; but they're sparring.
Here's Robertson on the one side, who doesn't
think it's enough and wants a sales tax; and
here's McKee on the other side who doesn't
want to go down in the exemptions; and here's
Cooper and Doughton who don't know just yet
what they do want
HMJr:
Which way to jump.
B:
and the thing - they still - - they seem to
be still sparring around.
HMJr:
Well, in any event, be sure it's given out to
the press.
B:
All right. You'd like to have it given out.
HMJr:
Surely.
B:
Okay.
HMJr:
I don't want it to leak out.
12
- 3 -
B:
Do you wish me to call you about it?
HMJr:
No, no. Between you and Paul, you work it
out.
B:
We'll see that it gets out.
HMJr:
That's right.
B:
Okay.
HMJr:
Thank you.
B:
Yes, indeed.
13
May 7, 1942
5:10 p.m.
Operator:
Go ahead.
J. Edgar
Hoover:
Hello.
HMJr:
Hello.
H:
This is Hoover talking, Mr. Secretary.
HMJr:
Hello, Mr. Hoover.
H:
Fine. I just wanted to let you know that if
your folks on that committee that was appointed
this morning, if they want anything on the
Argentine situation, whoever 18 representing,
if you'll just let us know.
HMJr:
Well, I frankly couldn't understand why the
Attorney General didn't want you people on,
because it seemed to me that you'd have a lot
of information.
H:
Well, very frankly - I can speak frankly to
you - I suggested to him that he have somebody
on.
HMJr:
Yes.
H:
And he felt that it should be otherwise; but I
wanted you to know that if we had anything
here
HMJr:
Well, I'm sure you have.
H:
it was - it's entirely available to you.
HMJr:
Well, I'd like to have it, because I'm per-
sonally interested.
H:
Fine. Well, now, I'll have - I'll not only
have our men scout through the files on it;
but if there are any questions that your
representative has on it, you have him feel
at perfect liberty to give us a call here and
it will be available to him.
14
- 2 -
HMJr:
Because here - as I say, I just didn't under-
stand the move. Here you're down there
H:
Yes.
HMJr:
and you people must have the Argentine
thing 18, to use the vernacular, just lousy.
H:
Well, it's the worst thing in South America.
HMJr:
Right.
H:
it just stinks down there.
HMJr:
Well, that's what I thought; and I wanted to -
wanted to give them something to chew on other
than each other there.
H:
(Laughs) I really thought that your suggestion
was not only good, but very diplomatic.
HMJr:
Yeah.
H:
(Laughs) But I'll have our men get the material
we have together, and - 80 it'll be available
to your folks even on the informal basis.
HMJr:
I tell you what let's do, 80 we don't be too
polite. When you have something, let me know,
and have one of your trusted men walk it over
and give it to me personally.
H:
I'll do that.
HMJr:
How's that?
H:
That'll be fine.
HMJr:
I thank you.
H:
Fine.
HMJr:
Thanks.
H:
Good-bye.
15 L
May 7, 1942
5:16 p.m.
Abbott
Mills:
Abbott Mills speaking, Mr. Secretary.
HMJr:
Go ahead.
M:
Thanks to Frank Iseby we can report that the
Ford Motor Company has qualified as an issuing
agent.
HMJr:
Oh, wonderful.
M:
And the General Motors Corporation are going
ahead with plans through banks that, the way
they exolain it, will be equally satisfactory.
HMJr:
Good.
M:
The one quite important thing to mention to
you, and that was a problem we hit out at Ford.
There's a Mr. Sid Goodman, or Leo Goodman,
under Mr. Houghteling's staff
HMJr:
Yes.
M:
on the labor end of it, who more or less
unannounced, went out to the Ford works with
a labor union war savings plant plan which was
all right in itself, but he irritated the Ford
people to the extent that if it hadn't been
for Frank, they never would have cuslified.
HMJr:
Well, he
M:
And it would be their wish that he be kept
away from them in the future. Frank says you
may remember him when you and Mrs. Morgenthau
were in the Keller - with Mr. Keller in the
tank plant.
HMJr:
I know very well.
M:
And he was a great embarrassment to the Ford
people, and he was a great embarrassment then.
HMJr:
Well, Mr. Graves and Gamble are sitting here,
and you're on the loudspeaker, and they both
16
- 2 -
hear what you're saying
M:
Fine.
HMJr:
and if they don't do something about it
M:
Well, they handle
HMJr:
Wait a minute
M:
because Frank was talking to Ted Gamble
earlier in the afternoon.
HMJr:
Hold on a minute. For your own confidential
information
(talks aside) Do you want him to tell it to
Iseby?
For you and Iseby and nobody else
M:
Uh huh.
HMJr:
just for the two of you, Goodman is being
taken out of Michigan and will not go back in
there again.
M:
oh, that's fine. That will relieve a lot.
HMJr:
Yeah.
M:
Mr. Secretary, the way it 1s now, we've cleaned
everything up except Hudson, and their president
1s 111, and would recommend that I come back
to Washington by tomorrow if I can't get to
Hudson
HMJr:
Yeah.
M:
and Frank will be in Washington anyway,
we'll lose his advantage, and then come back
maybe 8 week later and clean up the lesser
companies.
HMJr:
Okay.
M:
Then Frank has another matter he'd like to
17
- 3 -
speak to you more or less confidentially on
now.
HMJr:
Well, he'll have to talk fast.
M:
Yeah, he's right here.
Frank
Iseby:
Oh, Mr. Secretary.
HMJr:
Yeah.
I:
While we were out there, Harry Bennett came to
me and he said - about this Ford housing pro-
ject.
HMJr:
Yeah.
I:
He asked me if I knew Harold Smith, and I said
I did.
HMJr:
Yeah.
I:
They have a man here from Mr. Smith's office,
and Mr. Bennett wanted to know if we couldn't
get some information to Harold Smith - ask him
if he would wait on any decision until the
report of his man was in Washington tomorrow.
HMJr:
Well, I don't
I:
If you want to - it's Mr. Ford that's involved
personally in connection with it.
HMJr:
Well, are you going to be here tomorrow?
I:
Tomorrow afternoon. They said you wanted me
at four o'clock.
HMJr:
Well, wait a minute. Let me switch you over
to Bell and if Bell's in, let him handle it.
He knows Harold Smith better than I do.
I:
All right.
HMJr:
Just a minute.
18
- 4 -
I:
All right. Bennett was so fast in okaying
this issuing agent business
HMJr:
Well, now, just a minute. Hold on. I'm
delighted about Ford, but hold on, will you
please?
I:
All right.
19
MEMORANDUM FOR THE FILES:
Meeting in Mr. White's Office,
May 7, 3:00 p.m.
Present: Dr. Clark, Minister Wrong, Mr. Carswell
and Mr. Plumptre for the Canadians
Generals Aurand and Maloney for the War Department
Mr. Stinebower for State
Messrs. Tarshis and Shenefield for the Board of
Economic Warfare
Messrs. Rostow and Ecker for Lend-Lease
Messrs. White, Hicks and Miss Kistler for Treasury
The meeting was called to discuss the possible effect, upon Canada's
dollar position and upon the use of Canadian facilities for production
of war materials, of the proposed pooling of Canadian production through
the Joint Munitions Assignment Board in Washington.
General Maloney, executive secretary of the Board, stated that
discussions of pooling arrangements have been going on for only the
past few months and that a number of details remain to be worked out.
General Aurand, chairman of the Subsidiary Assignments Committee
in Washington, explained the operation of the pooling arrangement and
pointed out some of the problems which have arisen. He stated that
production of finished war materials of Continental United States is
thrown into the Washington pool and assigned without regard to financing
according to strategic war needs. He said the question of whether or
not war materials being produced in Canada under orders from the United
States Government are to be thrown into the Washington pool and assigned
from Washington has plagued the Committee from the start. Part of the
difficulty has arisen from the lack of knowledge of the overall Canadian
production picture, which is complicated by the fact that in a number
of instances, Canadian factories have orders for the identical product
from the three Governments concerned - i.e. from Canada, the United
Kingdom and the United States. Experience to date has indicated a
number of difficulties involved in assigning Canadian production from
London. He stated that the proposal to pool Canadian production in
Washington had not been raised by United States people who would approve
the suggestion only if Canada and Britain were both willing.
General Aurand admitted that the proposal to assign Canadian
production from Washington might affect adversely Canada's dollar
position, but he assured the Canadians that, in his opinion, if Canada
Regraded Unclassified
20
Division of Monetary
- 2 -
Research
enters the Washington pool, our Army procurement people would be more,
rather than less, willing to place orders in Canada than they are under
present arrangements. In his opinion, supplies are now and will con-
tinue to fall so short of demand that our ordnance people will continue
to place orders wherever they can find the capacity and that the only
thing that will lead to a cessation of United States orders in Canada
is the termination of the war. He cited the fact that the proposed
regular War Department appropriation for 1943, which is now before the
Budget Bureau, includes several million for Lend-Lease to be used
merely for continuing present United States contracts in Canada for
British type equipment. He stressed the point that ordnance officers
in the War Department are not concerned with the probable distribution
of the finished materials that they order, that all they are interested
in is getting orders placed for the items on the list of requirements
submitted.
General Aurand stated that the problem of financing production of
Canadian materials going into the Washington pool is still an open
question. In his opinion the production and assignment of finished
munitions is a military problem; the financial problem is one for the
Treasuries to take care of. As he sees it, the problem of financing
would arise only when munitions produced in Canada under British orders
are assigned by the pool to non-Empire countries. He suggested that
in the case of such Canadian produced munitions assigned to non-Empire
countries, the United States would pay Canada for them. In the case of
munitions coming from Canadian production lines in response to American
orders, the United States would pay for such goods regardless of what
country received them. In the case of goods produced under British
orders, Canada would, he thought, pay for them and write the cost
against the billion dollar (Canadian) gift to Britain. He stressed
the fact that because, in a number of cases, Canadian factories are
producing the same goods under orders from the three Governments-
Canada, United Kingdom and United States--it would frequently be a
matter of arbitrary decision as to which Government's orders are being
filled and thus which Government is responsible for payment.
Mr. White raised the question of what effect the proposed assign-
ment procedure would have on the volume of future British and United
States orders placed in Canada. General Aurand was confident that the
pooling arrangement would not affect procurement procedures, that the
determining conditions were physical.
Mr. Carswell suggested, on instructions from Mr. Howe, that
material produced in Canada on United States orders enter the pool as
American goods, that to do so would strengthen United States position
at the assignment table as well as give American procurement officials
an incentive to utilize Canadian capacity and to continue placing orders
in Canada.
Regraded Unclassified
21
Division of Monetary
- 3 -
Research
General Aurand replied that this supposed advantage to United
States in having the goods enter the pool as American is a fictitious
one, that on the other hand, the suggestion had definite disadvantages
from our point of view in that Canada would have complete determination
of whether Canadian, British or United States orders were being
filled by the material coming off the Canadian assembly lines. The
question of whether war material produced in Canada should go into
the pool as Canadian goods regardless of what country financed their
production or whether the goods paid for by United States should be
considered as United States production was left to future determination.
Dr. Clark said that he was reassured concerning Canada's exchange
prospects by General Aurand's explanation.
T.M.K.
Regraded Unclassified
22
May 6, 1942
MEMORANDUM FOR THE FILES:
Meeting in Mr..White's Office with
Dr. Clark, Deputy Minister of Finance
for Canada, 3:20 p.m., May 6, 1942.
Present: Mr. White, Dr. Clark,
Miss Kistler
Dr. Clark stated that U. S. Government orders now placed in
Canada total $480 million. There are in addition probable ship
contracts of $160 million and other pending contracts of $167 mil-
lion, bringing the total for actual and probable contracts to
$807 million.
Dr. Clark reported that during the first quarter of 1942
Canada's net U. S. dollar exchange position was $44.8 million
better than had been expected-i.e. that the Canadian Government's
reserve of gold and U. S. dollars showed a net increase of $43 mil-
lion during the quarter as compared to an anticipated net loss of
$2 million. An uncertain, but in his opinion, an important factor
had been the rumored return of the Canadian dollar to par with
United States currency, which resulted in the speeding up of pay-
ments by American importers for Canadian goods and the deferrment
of payments by Canadian importers of U. S. goods.
Dr. Clark stated that the purpose of the Canadian proposal is
to forestall, as a result of the proposed pooling arrangement, a
possible reluctance on the part of U. S. service procurement
officials to placing orders in Canada on the theory that if they
know the U. S. Government 18 committed to purchasing up to a certain
sum of goods in Canada ($542 million in 1942) they would place what
orders they could in Canada and have no reluctance to doing 80.
Dr. Clark stated that the British Government had pressed Canada
to enter the London pool and had reluctantly agreed to Canada's
Joining the pool here. He stated that Prime Minister King and the
President discussed the question of Canadian representation on the
Munitions Assignment Board during King's recent visit to Washington,
and he thinks that Roosevelt agreed on the understanding that Canada
would pool with the United States.
Regraded Unclassified
23
- 2 -
Mr. White suggested Lend-Lease procedure and possibly with the
Reciprocal Lend-Lease Arrangement to meet the problem, but Dr. Clark
again voiced the Canadian Government's objections to such a proposal.
It was agreed that Mr. White should call a meeting of the repre-
sentatives of the interested U. S. Government agencies to discuss
the arrangements and the possible effect of it on American procure-
ment policies, either for May 7 if Dr. Clark found he could remain
over, or early next week in the event that Dr. Clark had to return
to Ottawa yesterday afternoon.
Regraded Unclassified
24
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 7, 1942.
To
The Secretary
FROM
Harold GravesIn
I think you will be interested in reading the
attached telegram from Mr. Trounstine.
As I told Mr. FitzGerald, Mr. Trounstine and
his colleague, Mr. Moore, asked me to arrange for them
to see you next Tuesday if your time will permit.
R
25
E
A
S
U
R
Y
1942 MAY 7 AM 8 17
T
E
WUWE21 64 NT
L
CINCINNATI OHIO MAY 7 1942
E
G
HON HENRY MORGANTHAU JR
R
A
SECY OF TREASURY
P
H
T
YOUR REQUEST THAT I SERVE AS CHAIRMAN OF THE OHIO WAR SAVINGS
R
E
COMMITTEE IS MY COMMAND. I CONSIDER IT A GREAT PRIVILEGE TO
A
BE GIVEN THE OPPORTUNITY TO DEVOTE MY TIME AND EFFORTS IN
S
U
ASSOCIATION WITH ROY MOORE TOWARD MAKING THE WAR SAVINGS
R
Y
PROGRAM A SUCCESS I REALIZE THE SERIOUSNESS AND IMPORTANCE OF
T
OUR TASK AND I WILL GIVE MY VERY BEST EFFORTS SINCERELY
E
PHIL J TROUNSTINE.
L
E
815AM MAY 7.
G
H
Regraded Unclassified
26
TREASURY DEPARTMENT
WASHINGTON
DEFENSE SAVINGS STAFF
May 7, 1942
fot
My dear Mr. Secretary:
Miss Luise Rainer made an appearance for War
Savings at Toledo, Saturday morning, May 2. The
result of this visit is contained in the following
wire addressed to the writer:
"IN RESPONSE TO THE AP PEARANCE OF MISS
LUISE RAINER IN TOLEDO LAST SATURDAY
MAY SECOND, IT APPEARS, ON THE BASIS
OF INCOMPLETE RETURNS, THAT LUCAS
COUNTY WILL HAVE SUBSCRIBED IN EXCESS
OF FOUR MILLION DOLLARS. WE ARE HOPE-
FUL THAT WE WILL REACH FOUR MILLION
THREE HUNDRED THOUSAND. SIGNED
ROLAND L. WHITE, CHAIRMAN LUCAS COUNTY
WAR BOND AND STAMP COMMITTEE"
Attached are the schedule of her itinerary,
breakdowns on the Court House and Civic Auditorium
rallies, two of the tear sheets from Toledo, and
an article in Variety.
Sincerely,
CarthorDuffer Carlton Duffus
Chief, Motion Pictures
and Special Events
The Honorable
The Secretary of the Treasury
Washington, D. C.
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
27
COURT HOUSE RALLY
1:15 to 1:30
Band Concert - McCune Post Band -
American Legion
1:30
Flag raising ceremony - Star Spangled
Banner - Band and Glee Club - Marine
13
and Sailor Guard of Honor
1:35
Introduce Master of Ceremonies, Bob Hall,
M. C. introduces our notables on plat-
form to take bows, including Mothers.
1:50
Songs by Glee Club
2:00
Speaker (5 min.) Wythe Williams
2:10
Band Number
2:20
Swear in new enlisted Navy men.
(Commander Bartley)
2:30
Luise Rainer (After her talk solici-
tation through crowd - announcing
subscriptions, etc.)
Closing
God Bless America- Band, Glee Club
and Public.
Regraded Unclassified
28
SCHEDULE FOR LUISE RAINER
10:45 A.M.
Broadcast W.S.P.D. from Crystal Room,
Commodore Perry
11:00 A.M.
Leave Commodore Perry
11:30 A.M.
Champion Spark Plug (this will be the
only forenoon assignment. Miss Rainer
will return to the Commodore Perry
immediately after her appearance at the
Champion Spark Plug for luncheon and rest.)
1:30 P. M.
Court House
3:30 P. M.
Spicer Manufacturing Company
4:30 P. M.
Willys-Overland
5:00 P. M.
Local #12 C.I.O. - Winthrop & Ashland
Dedication of Service Flag - 592 stars
80 piece band at this dedication
A sound truck will accompany Miss Rainer on all these trips.
She will return to hotel immediately after dedication of
service flag for rest and dinner until 8:30 p.m. when she
appears at the Civic Auditorium.
Two buses will be at Naval Armory at 10:30 a.m. to bring
sailors to Commodore Perry. These buses will be at our
disposal all day.
29
EVENING PROGRAM - CIVIC AUDITORIUM
8:00 P.M.
Concert W.P.A. Concert Orchestra
8:15 P. M.
Introduce Master of Ceremonies,
Martin Courtney, M. C. introduces
any notables on platform to take
bow.
8:20 P. M.
Songs by Glee Club
8:25 P. M.
Speaker (5 min.)
8:30 P. M.
Orchestra number
8:35 P. M.
Swear in new enlisted men.
(Commander Bartley)
8:40 P. M.
Luise, Rainer (15 min. talk)
(After talk solicitation through
crowd - announcing subscriptions,
etc.)
Closing
Star Spangled Banner
Regraded Unclassified
30
TREASURY DEPARTMENT
WASHINGTON
May 7, 1942
MEMORANDUM FOR THE SECRETARY:
You asked me to get you a report on the War
Bond Rally to be held by District Grocery Stores,
Inc., as advertised in the Washington Post of
April 27, attached.
I hand you such a report herewith.
GRAVES
1
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
some
31
TREASURY DEPARTMENT
WASHINGTON
WAR
XXXNXX SAVINGS STAFF
District of Columbia Committee
439 Washington Building
May 1, 1942
Dear Mr. Graves:
Doubtless because of changes necessitated by uncontrollable
circumstances, the rally at the Warehouse of the District Grocery
Stores on Thursday, April 30, did not attain the proportions that
otherwise might have been the case.
You will recall that the original full page advertisement, noted
by Secretary Morgenthau, billed both George Jessel and Sophie Tucker
to appear on Monday, April 27. For unavoidable reasons, this dual
appearance could not be arranged for that date. Therefore, the rally
was postponed until Thursday, when Mr. Jessel appeared without
Miss Tucker.
Notwithstanding the difficulties encountered, all concerned were
pleased with the event. Mr. Jessel put on a good show, which was
witnessed by perhaps 500 persons assembled in front of the Warehouse
and at windows of large nearby buildings.
Mr. Jacobsen, President of the D. G. s., and his associates
reported after the rally that the publicity incident to the rally
and the occasion itself induced purchases of Bonds totalling $40,000.
As you have probably noted in the press, the D. G. S. began its
War Bond Sales campaign with & quota of $250,000. This was later raised
to $500,000, which goal has been reached. Officials of the Association
are carrying on and plan to bring sales to members and their employees
to a total of $1,000,000 during 1942.
With kindest personal regards, I am
Sincerely yours,
Hugh Lynch
Administrator
Hon. Harold M. Graves
PORDEFENSE Assistant to the Secretary of the Treasury
BUY
Main Treasury Building
units
STATES
Washington, D. C.
SWITHES
Boxes
I
THE
WASHINGTON
POST!
MONDAY,
APRIL
27,
1942
Through the courtexy of the NATIONAL THEATER and In
cooperation with the D. C. WAR SAVINGS STAFF
George JESSEL
Sophie
TUCKER
GEORGE JESSEL
SOPHIE TUCKER
New Appearing of the NATIONAL THEATER in the SMASH MUSICAL HIT
GEORGE JESSEL'S
HIGH KICKERS"
DIRECT FROMT LAUGH MONTHS ON BROADWAY
IMOGEN CARPENTER
Anisted by a group of
:Lired by
BETTY BRUCE
AMERICA'S LOVELIEST
WOL's Ace Commentator
SHOW GIRLS
Matual's "Double or Nothing" 37. C.
WALTER COMPTON
COMPTON
Contribute their help to further America's All-Out War Effort and
Will Sell
WAR SAVINGS
BONDS & STAMPS
Tuesday, April 28, 1:30 p.m. at the
D.G.S. WAREHOUSE
FOURTH and c STREETS, S.W.
Come out and see George Jessel, America's premier laugh-provoker und Sophie Tucker, the of the "Red-Hot
Manias." Buy a WAR BOND or STAMP from two of America's outstanding slage davorites. EVERYONE INVITED.
Remember the TIME and PLACE:
DISTRICT GROCERY STORES WAREHOUSE
4th & C Sts., W., TUESDAY, APRIL 28th, 1:30 P.M.
The District Grocery Stores, Inc., a co-operative
group of 276 individually-owned and operated
food stores located in Metropolitan Washington,
n
/
through their members, and employees, have
/
E
E
I
purchased
$500,000 IN WAR BONDS
and are continuing their drive in an effort to
double this amount.
New and Maders Home of the District Gracery Stores Awarded Certificate
of Merit for Superior Design and Construction by Washington Board of Trade
DISTRICT
THE OWNER IS YOUR NEIGHBOR
STORES
INC
Regraded Unclassified
33
Letters went out 5/7/42
5/7/42
34
Mr. Gamble now says that what he cleared with
the Secretary was the model letter for trans-
mitting the Third War Edition of U.S. Defense
Savings News. He then turned the matter over
to Miss Ready in Defense Savings with instruc-
tions that the letters be prepared and sent
out. Miss Ready says Mr. Gamble didn't send
the letters over until yesterday morning and
they have been working on them ever since.
The ones which the Secretary is to sign will
be over here for signature by 12:00 today, and
the others will be sent out without fail by
the Defense Savings Staff today.
5/4/42 1
p.m.
Mr. Gamble's secretary reported that
35
these letters are going out tonight.
Mr. Gamble cleared them with the
Secretary.
36
May 4, 1942
FOLLOW-UP FOR THE SECRETARY:
The letters mentioned in the attached memo have
not gone out. You asked that they be in the hands of
the various people to whom they were to go not later
than today.
37
April 30, 1942.
Harold Graves, Ted Gamble and erdinand Kuhn
Secretary Morgenthau
I would like to send a copy of the Third War Riition
of the U. S. Defense Savings News to every Senator, Congress-
man, member of the Supreme Court, the President and Vice
President, and Cabinet, Director of the Budget, Wayne Coy,
Harry Hopkins, Donald Nelson, Mrs. Roosevelt, Heads of the
Independent Agencies. I want to send them an accompanying
letter explaining just what it is, how many newspapers are
cooperating and how many news boys. Describe it in a nice,
newsy, friendly letter of one-page, and put it in their hands
not later than Monday.
I can't remember all the names that I said to send
this thing to, but send it to the same list that got the
General Electric book - that would be the right list - end
any other people around town who don't believe in our
Volunteer Plan.
Following 5/1/42-
Letter sent 5/4-mr.
Healle says he
cleared it with
the Security-
Regraded Unclassified
38
May 1942.
MEMORANDUM FOR THE SECRETARY
The attached letter went out with a copy of
the Third Edition of the United States Defense
Agent News, to the mailing list suggested by your-
self.
Ted R. Gamble.
39
May 7, 1942
Letters enclosing Third Edition of U. S. DEFENSE AGENT NEWS.
Telling of resolution passed by American Newspaper Publishers Assoc.
at their Annual Convention re fine work being done by newspaper
boys of this country in voluntary campaign to aid war financing.
Letters signed by Secretary. Sent to the following list:
The President
Mrs. Roosevelt
Hon. Donald M. Nelson
Hon. Claude R. Wickard
Secretary of Agriculture
Hon. Walter F. George
Hon. Cordell Hull
Hon. Jesse H. Jones
Hon. Vice President
Hon. Leon Henderson
Hon. Frances Perkins
Hon. Frank Knox
Hon. Frank C. Walker
Hon. Henry L. Stimson
Hon. Marriner S. Eccles
Hon. Stephen Early
Hon. Alben W. Barkley
Hon. Speaker of the House
Hon. Robert L. Doughton
Hon. Archibald MacLeish
Hon. Harold D. Smith
Hon. Lowell Mellett
Hon. Harold L. Ickes
Hon. Francis Biddle
Copies to Thompson and Miss Chauncey.
39
May 7, 1942
Letters enclosing Third Edition of U. S. DEFENSE AGENT NEWS.
Telling of resolution passed by American Newspaper Publishers Assoc.
at their Annual Convention re fine work being done by newspaper
boys of this country in voluntary campaign to aid war financing.
Letters signed by Secretary. Sent to the following list:
The President
Mrs. Roosevelt
Hon. Donald M. Nelson
Hon. Claude R. Wickard
Secretary of Agriculture
Hon. Walter F. George
Hon. Cordell Hull
Hon. Jesse H. Jones
Hon. Vice President
Hon. Leon Henderson
Hon. Frances Perkins
Hon. Frank Knox
Hon. Frank C. Walker
Hon. Henry L. Stimson
Hon. Marriner S. Eccles
Hon. Stephen Early
Hon. Alben W. Barkley
Hon. Speaker of the House
Hon. Robert L. Doughton
Hon. Archibald MacLeish
Hon. Harold D. Smith
Hon. Lowell Mellett
Hon. Harold L. Ickes
Hon. Francis Biddle
Copies to Thompson and Miss Chauncey.
40
May 7, 1942
My dear Mr. President:
Last week the Members of the American Newspaper Publishers
Association at their Annual Convention passed a resolution
expressing their appreciation of the fine work being done by
the newspaper boys of this country in the voluntary campaign
to aid war Cinancing.
to at the Treasury Department too, are proud of the news-
boys who have started a new kind of newspaper service in this
country. They are selling over 12,000,000 Mar Savings Stamps
every week, for a total of well over a million dollars every
seven days.
The latest report shows that 867 newspapers in 47 states
and Hawaii have already sold over $25,000,000 worth of United
States War Ravings Bonds and Stamps. These sales figures have
been computed by the Post office showing the actual purchases
by the newspapers. The sole reward these 300,000 young Ameri-
cans get is the satisfaction of doing a man-sized Job in the
War Program. Acknowledgment of the magnificent example they
are setting has been made by you, and the Treasury Department
has made provision to issue to then suitable cortificates of
award.
Knowing that you would be interested in the activities
of these boys, particularly those who might hail from your
own state, I an taking the liberty of enclosing the Third
dition of the U. S. DEFENSE AGENT NEWS, published by the
Treasury Newspaper Advisory Committee.
Sincerely yours,
(Signed) E. Morgenthau. 11.
n.m.c.
The President,
The White House,
no Measenger Harmon K33
Washington, D. C.
Regraded Unclassified
41
THE SECRETARY OF THE TREASURY
WASHINGTON
May 7.
1942
Last week the Members of the American Newspaper
Publishers Association at their Annual Convention passed
a resolution expressing their appreciation of the fine
work being done by the newspaper boys of this country in
the voluntary campaign to aid war financing.
We at the Treasury Department too, are proud of the
newsboys who have started a new kind of newspaper service
in this country. They are selling over 12,000,000 War
Savings Stamps every week, for a total of well over a
million dollars every seven days.
The latest report shows that 867 newspapers in 47
states and Hawaii have already sold over $25,000,000 worth
of United States War Savings Bonds and Stamps. These sales
figures have been computed by the Post Office showing the
actual purchases by the newspapers. The sole reward these
300,000 young Americans get is the satisfaction of doing a
man-sized job in the War Program. Acknowledgment of the
magnificent example they are setting has been made by the
President of the United States, and the Treasury Department
has made provision to issue to them suitable certificates
of award.
Knowing that you would be interested in the activities
of these boys, particularly those who might hail from your
own state, I am taking the liberty of enclosing the Third
Edition of the U. S. DEFENSE AGENT NEWS, published by the
Treasury Newspaper Advisory Committee.
Sincerely yours,
DEFENSE
BUY
UNITED
STATES
SAVINGS
Secretary of the Treasury.
BONDS
-
Enclosure.
Regraded Unclassified
42
May 7, 1942.
MEMORANDUM FOR THE SECRETARY
In answer to your request that the publicity and promotional
man that was hired for Dutchess County, vislt with you next Satur-
day morning and that the Dutchess County Chairman visit with you
next Sunday morning, you are advised that:
Mr. Paul Emile Rugile, former Brooklyn newspaper
man, thirty-three years of age, who was recommended by
the New York office for this job as special promotional
man, will telephone your Dutchess County farm next
Saturday morning at 9:00 A. M. for information as to
the hour you would like to see him.
The Dutchess County Chairman, Mr. Richmond Meyer,
Mid-Hudson Oil & Trucking Company, Poughkeepsie, New
York, will telephone your Dutchess County farm next
Sunday morning at 9:00 A. M. for information as to the
hour you would like to see him.
If you do not already know it, you might be interested to
learn that the Vice Chairman of Dutchess County is Paul Miller.
He is also Treasurer of Dutchess County.
Ted R. Gamble
Regraded Unclassified
OFFICIAL
U.S. DEFENSE AGENT NEWS
U.S.
DEFENSE
Devoted To The Activities of
AGENT
American Newspaper Boys for Victory
V
PUBLISHED BY THE TREASURY NEWSPAPER ADVISORY COMMITTEE
THIRD WAR EDITION
FOR IMMEDIATE RELEASE 10 ALL NEWSPAPERS
$1,100,000 U.S. WAR STAMPS SOLD BY PHILADELPHIA BULLETIN BOYS
NEWSPAPER BOYS SALES REACH 22 MILLION DOLLARS
Philadelphia Leads the Nation With More Than Half a
Milliver Deliveries Every Week: Total la
YOUNG AMERICA IN ACTION
Fanesh To Bay Five Bombers
I
Ini
P.S. Formald Names State
LOUISIANA ON THE
Daimas for Milwest C.
MORE ABOUT HONOR AWARDS
NEW RULES MAKE IT EASY!
1
B
F
"youre mighty right
SOUTHERN C.M.A.
were proud
THE
NEWSPAPER
BOY
HAS
HIS
SLEEVES
ROLLED
UP
-
CHAMP BOND BUYER
TOP AWARD WINNER OF THE BALTIMORE
New
Camir
By
NEWS-POST AND SUNDAY AMERICAN
AND
Thanks For The Pictures!
i
Regraded Unclassified
FORK PRESENTS U.S. REASURY AWARDS TO NEWSPAPER BOYS
STAR
BOTT
in
A RIGHT HAND
Salute
to
1
U.S.TREASURY HONOR PAGE
mi
CARRIER BOYS TO EARN HONOR AWARDS
was
HERE ACCNTS PAID -
me
-
declaration
the
-
"
MILT
ann
RECEIVE
440125
WESTERN
en ORGANIZATION or -
1
Regraded Unclassified
PALE
Extram
Rgw
yes
time vas billen
name una
SALES OF U. S. WAR SAVINGS STAMPS BY NEWSPAPER BOYS, COMPILED BY REGIONAL ORGANIZATIONS, AS OF MARCH 28, 1942
. des
SALES OF U.S. WAR SAVINGS STAMPS BY NEWSPAPER BOYS, COMPILED BY REGIONAL ORGANIZATIONS, AS OF MARCH 26, PAIS 1942 ane
0
-
---
-
.
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=
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41
-
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Regraded Unclassified
are
SALES OF U. $. WAR SAVINGS STAMPS BY NEWSPAPER BOYS, COMPILED BY REGIONAL ORGANIZATIONS, AS OF MARCH 26, 1942
SALES OF U. $. WAR SAVINGS STAMPS BY NEWSPAPER BOYS, COMPILED BY REGIONAL ORGANIZATIONS, AS OF MARCH 26. Nd 1942
-
RI
-
1
to
:
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is
1
(f)
1
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=
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-
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⑉
ULSA, OKLAHOMA
-
CALIFORNIA REWSPAPER PUBLISHERS
THE
BATTLE
IS
ONI
MERCHAND
NOTE
TRIBUNE WORLD
UREED
TO
ADOPT
ARE
STAMP
SALES
PLAN
wanng
REMI
CARRIER Il TOPS
0
-
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fine
TE
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=
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e
1
#
Anno Bore
#
-
in
Virtory
-
a
to
-
-
-
-
-
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/
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Regraded Unclassified
«
# Citient 3gent glose
EDUIT
(on
The Four-Millionth Stamp--For My Roy
THE RECORD NEWSPAPER CARRIERS AT TROY, NEW YORK,
le
the
leg
ARE SUPER-SALESMEN WHO WIN SUPER AWARDS
Mater
will
The
MS
LOS ANGELES TIMES BATTLE
FLEET GOES INTO ACTION
BRONX NEW YORK HOME NEWS CARRIER TOP
HONOR AWARD WINNER WITH SALES OF
The
75,000 TEN CENT U.S. SAVINGS STAMPS
NOW D 5. WAR SAVINGS STAMPS AND BONOS
PICTURES WANTED
THE DAYTON, OHIO, DAILY NEWS CARRIERS
PASS 1,500,000 SALES MARK QUICKLY
Hungr Shalds and Serve
and Gold Ban Are Now Being
1
Shipped on All Requestions
MARCHING ALONG TOGETHER-FON VICTORY!
Regraded Unclassified
44
May 7, 1942.
MEMORANDUM FOR THE SECRETARY
This is to advise you that the National Association of
Manufacturers, following our visit with Mr. Roscoe, reported
Mr. Witherow has telegraphed their 8,200 members relative
to our Payroll Savings Plans. A report on this will be made
to you on receipt of replies to these telegrams.
The United States Chamber of Commerce, through Mr.
O'Leary, have contacted all the members who requested similar
information. You will receive a report on this.
You may further wish to know that Mr. Eric Johnston, the
new President of the United States Chamber of Commerce, has
consented to serve on our Payroll Savings Advisory Committee.
We have not received word of Mr. Witherow's acceptance but I
am told by Mr. Roscoe that we will get it.
Ted R. Gamble.
45
May 7,1942.
MEMORANDUM FOR THE SECRETARY
Your request that photostats be made of the answers
to the wires you sent to the firms who employ 5,000 or
more people and that these photostats be distributed to
our state organizations, has been complied with.
You might also wish to know that all of these wires
are being answered individually and a copy of the General
Motors brochure is being sent to them.
Ted R. Gamble.
46
May 7, 1942.
MEMORANDUM FOR THE SECRETARY
The following men have been assigned by the American Feder-
ation of Labor to supervise the organizers in the several districts
of the country in their new work of enlisting the aid of all locals
in obtaining at least 10% of every member's pay every pay day:
Mr. John Murphy (A.F. of L.) to work with our Mr.
Gilbert Hyatt in the northeastern district.
Mr. George Googe (A. F. of L.) to work with our Mr.
James Barrett in the southern district.
Mr. Harry E. O'Riley (A. F. of L.) to work with our
Mr. Elmer Dowell in the middle western section.
Mr. S. Flannigan ( A. F. of L.) for the Pacific
Coast, to work with one of our men yet to be named.
We have taken the cards of the 13,000 firms from Mr. Tickton
who has broken them down by states, showing the number of persons
participating and the amount of War Bonds being purchased, and they
are to be put in the hands of these labor workers. Their re-
spective crews or organizers are now being gotten together and this
whole plan will be in operation by the end of this coming week.
Ted R. Gamble.
47
May 7, 1942.
MEMORANDUM FOR THE SECRETARY
Your suggestion that we receive names of ships being
launched by the Navy and have the states adopt them as
War Bond quota objectives, has run into the following snag:
A directive from Admiral Hepburn, "that no
name of any ship can be given out until twenty-
four hours before the launching".
We are trying to determine if the Navy
would permit the placement of a plaque or small
silver plate with copy to the effect - "This
destroyer was made possible by the war savings
of the State of New York".
You may be interested in the attached report showing
the cities that have, through our state organizations,
named planes purchased through the savings of War Bonds.
Ted R. Gamble.
48
TOWN
RAISED
WANTS
NAMED
Napa, California
$300,000
Bomber
City of Napa
Reno, Nevada (state-wide)
Bomber or
Reno Avenger
Pursuit
Palo Pinto County, Texas
(each town)
300,000 (3/28)
Bomber (for
For each town-last
each town)
named "Miss Palo Pinto
County".
Louis County, Mo.
100,000
Interceptor
Louis County, Mo.
Oklahoma City, Okla.,
American Pen Women
Bomber
Cle Elum - Rosyln, Wash.
Bomber
El Paso, Texas
300,000
Bomber
City of El Paso
Amarillo, Texas
300,000
Bomber
City of Amarillo
Cleveland, Ohio
100,000 (5/1)
Bomber
City of Cleveland
Baltimore, Md.
7,500,000
Bomber
City of Baltimore
Great Falls, Mont.
89,475
Interceptor
State of Montana
(statewide)
Durham, N. C.
Bomber
Idaho Falls, Idaho
Bomber
Idaho Falls
Nashville, Tenn.
Bomber
City of Nashville
Peoria, Illinois
200,000 (3/5)
Bomber
Spirit of Peoria
Chattanooga, Tenn.
Bomber
Scottsbluff, Neb.
Bomber or
(statewide)
Fighter
Miami, Florida
Bomber
Juneau, Alaska
436,552
Bomber
Spirit of Alaska
49
THE SECRETARY OF THE TREASURY
WASHINGTON
May 7. 1942.
My dear Mr. President:
As a result of the increase in postal savings deposits, the
Canal Zone Postal Savings System now has $1,000,000 available for
investment in Government bonds. The Postal Savings System pays a
fixed rate of 2% on deposits, and, therefore, it is necessary that
these funds be kept invested as far as practicable at a rate of-
ficient to cover the payment of such interest. The System's present
portfolio of approximately $3,400,000 is made up principally of
intermediate and long-term securities, and it would seen advisable
that the funds presently available be invested in obligations
redeemable at any time that funds are required for the discharge
of deposit liabilities.
The Governor of the Panama Canal has indicated his readiness
to purchase & series of special Treasury notes for the Canal Zone
Postal Savings System, bearing interest at 2% per annum, payable
semi-annually, and maturing in five years, which would be redeema-
ble upon demand to the Treasury.
These notes would be similar to the special 2% Treasury notes
which the Treasury has, with your approval, issued from time to
time to the Board of Trustees, Postal Savings System, to the
Federal Deposit Insurance Company and to other accounts, for the
purpose of providing investment obligations to those agencies and
accounts which can be liquidated at par to meet any unusual demand
upon them.
Inssmuch as the Second Liberty Bond Act, approved September 24,
1917. as amended, under which such Treasury notes would be issued,
provides that they say be issued only with the approval of the
President, I trust that the proposed issuance of such special 2%
Treasury notes to the Canal Zone Postal Savings System will have
your approval.
Hm
Faithfully yours,
ORDEFFENSE
OK
The President,
BUY
TIME
STATES
SAVINGS
Thusis
The White House. HR
Regraded Unclassified
50
THE Panama CANAL
WASHINGTON OFFICE
ADDRESS REPLY TO
WASHINGTON
IEF OF OFFICE
« PANAMA CANAL
WASHINGTON, D.C.
March 23, 1942
The Honorable D. W. Bell
Under Secretary of the Treasury
Treasury Department
Washington, D. C.
Dear Mr. Bell,
The following air-mail letter has been received from
the Governor of The Panama Canal:
Despite efforts to encourage conversion of
postal savings into Defense Bonds, postal savings
deposits have increased to such an extent that
$1,000,000 is now available for investment in Gov-
ernment bonds. Please take up with the Treasury
Department and advise as to the availability of
bonds for investment purposes, with sufficient
return to enable us to pay 2% on deposits.
I would appreciate advice as to the several kinds of
bonds referred to in an informal discussion with Mr. Hef-
felfinger, of your office, March 21.
Very truly yours,
B. F. Burdick
Chief of Office
Regraded Unclassified
CONFIDENTIAL
Sales of United States Savings Bonds
From May 1 through May 6
Compared with Sales Quota for Same Period
(At issue price in millions of dollars)
15
:
Series 3
:
Series I and G
:
Total
:
Actual
Sales
:
Quota,
:
Sales
:
Actual Sales
#
Quota,
:
Sales
:
Actual Sales
:
Quota,
:
Sales
Date :
:
May 1
:
May 1
:
to Date
:
:
May 1
:
May 1
: to Date
:
:
May 1
:
May 1
: to Date
# as $ of
Daily
to
: as % of
:
Daily
:
to
:
to
: as $ of
:
Daily
:
to
:
to
:
:
to
:
:
:
Date
:
Date
:
Quota
:
:
Date
:
Date
:
Quota
:
:
Date
:
Date
:
Quota
1
$ 12.7
$ 12.7
$ 14.0
90.7%
$ 7.3
$ 7.3
$ 9.0
81.1$
$ 20.0
$ 20.0
$ 23.0
57.0%
2
11.6
24.3
25.7
94.6
7.9
15.2
16.0
95.0
19.4
39.4
41.7
94.5
4
22.3
46.5
47.8
97.3
10.3
25.5
29.5
86.4
32.6
72.0
77.3
93.1
5
8.9
55.5
57.8
96.0
7.6
33.1
37.1
89.2
16.6
88.6
94.9
93.4
6
18.4
73.8
70.5
104.7
15.6
48.8
49.8
98.0
34.0
122.6
120.3
101.9
7
84.0
60.3
144.3
8
98.0
69.3
167.3
9
109.7
76.3
186.0
11
131.8
89.8
221.6
12
141.8
97.4
239.2
13
154.5
110.1
264.6
120.6
288.6
14
168.0
15
182.0
129.6
311.6
193.7
136.6
330.3
IS
215.8
150.1
365.9
19
225.8
157.7
383.5
20
238.5
170.3
408.8
21
252.0
180.8
432.8
22
266.0
189.8
455.8
23
277.7
196.8
474.5
25
299.8
210.3
510.1
26
309.8
217.9
527.7
27
322.5
230.5
553.0
28
336.0
241.0
577.0
29
350.0
250.0
600.0
Office of the Secretary of the Treasury, Division of Research and Statistics.
May 7. 1942.
Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States savings bonds. Figures have been rounded and will not necessarily add to totals.
Regraded Unclassified
tran
TREASURY FINANCING
(In millions of dollars)
3
:
CASH
:
#
:
#
:
:
:
:
2
REFUNDINGS
:
THEST
#
TAX
#
SAVINGS
2
TREASURY
I
SHORT-TERM
:
LONG-TERM
:
TOTAL
:
#
FUNDS
#
NOTES
#
BONDS
:
BILLS
$
ISSUES
2
ISSUES
#
CASH
:
1942
May
360
300
600
300
1,250
1,000
3,810
-
June
-
150
800
100
1,750
-
2,800
-
(276 KFC
July
130
250
1,000
800
2,000
-
4,180
(875 HOLC
August
325
300
1,000
100
1,900
600
4,225
-
September
-
150
1,000
-
3,000
-
4,150
342 Tr.Notes
October
140
250
1,000
-
3,400
600
5,390
320 RFC
November
350
350
1,000
-
3,750
-
5,450
1,507 Ctfs.
December
-
150
1,250
-
2,900
600
4,900
232 Tr.Notes
1943
January
145
250
1,500
-
4,000
-
5,895
-
February
360
250
1,000
e
3,400
600
5,610
-
March
-
150
1,000
-
-
-
1,150
66 Tr.Notes
April
210
250
1,000
-
3,400
600
5,460
-
May
625
300
1,000
-
4,000
-
5,925
289 000
June
-
150
1,000
-
400
600
2,150
(629 Tr.Notes
(454 Bonds
TOTAL - -
2,645
3,250
14,150
1,300
35.150
4,600
61,095
4,990
Office of the Under Secretary
May 7. 1942.
Maturity Schedule of Interest Bearing Public Marketable
Securities issued or guaranteed by the United
States through 1952, exclusive of
Federal Housing Administration
debentures, and Postal
Savings Bonds.
(In millions of dollars)
:
Month :
Fiscal Year
: 1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
July
1,151
324
-
-
-
-
-
-
-
-
August
-
-
-
-
-
-
-
-
-
-
September
342
279
918
1,214
-
-
451
1,250
1,186
755
October
320
1,401
-
-
-
759
-
-
-
-
November
1,507
-
-
-
-
-
-
-
-
-
December
232
421
1,037
1,072
-
701
571
2,277
-
1,628
January
-
-
-
16
13
-
-
-
-
-
February
-
114
412
-
-
-
-
-
-
-
March
66
610
718
992
-
2,338
-
-
-
1,024
April
-
2,090
-
-
-
-
-
-
-
-
May
289
1,614
-
-
-
-
-
-
-
-
June
1,083
416
755
1,855
-
-
1,014
-
1,627
1,501
Total
4,990
7,269
3,840
5,149
13
3,798
2,036
3,527
2,813
4,908
Note: - Schedule based on first call date.
1/ Estimated sale of 2% Treasury bonds of September 15, 1949-51.
OFFICE OF THE UNDER SECRETARY
May 6, 1942.
Maturity Schedule of United States Savings Bonds,
Series A, B, c, D and E, Outstanding
January 31, 1942, through the
fiscal year 1952.
(In millions of dollars)
:
Fiscal Year
Month
:
a
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
uly
-
-
-
21
35
39
45
98
81
199
ugust
-
-
-
11
25
31
39
78
57
147
eptember
-
-
-
9
25
27
35
48
53
143
etober
-
-
-
19
26
28
44
57
60
162
Jovember
-
-
-
18
25
29
40
71
62
100
December
-
-
-
26
63
50
74
139
131
487
January
-
-
-
47
106
113
172
348
227
528
February
-
-
-
23
48
48
65
121
213
531 1/
March
-
-
38
26
43
48
74
167
69
451 1/
April
-
-
23
26
32
41
62
88
83
436 1/
May
.
-
17
22
26
36
71
67
165
800 2/
June
-
-
15
26
29
37
84
59
133
1,067 w
Total
-
-
93
274
483
527
805
1,341
1,334
5,051
1/
Estimated from sales.
Estimated.
UNDER SECRETARY OF THE TREASURY
May 7, 1942
55
May 7, 1942
Telegram received from Mr. John A. Hartford, President,
the Great Atlantic and Pacific Tea Company
"Tuesday's survey discloses consumer comment on price
ceilings continues diminishing in all company's territories.
Particularly small interest evidenced in New England. Sales
Tuesday generally slightly higher than last week, with very
little indications consumers are buying less in anticipa-
tion of effective date of ceilings. Main consumer concern
this week on sugar rationing and coffee limitation.
"New York sales Tuesday lightly over last week. Only
customer concern with coffee and sugar. Philadelphia
sales slightly under last week, moderately under two weeks
ago. The few comments heard are favorable to ceilings.
Chicago sales approximately same as last week. Coffee and
sugar situation causing more concern than ceilings. Boston
Tuesday's sales slightly higher than last week. Comments
fewer than on previous days, as customers evidence little
interest or knowledge of ceilings, with some believing all
prices will be same for all stores under ceilings. Sugar
sales over country very slow.
"Manufacturers report business at standstill, causing
many to effect March levels before deadline. Our company
reflecting further downward retail prices to consumers.
Find others doing likewise. Considerable inquiries being
made by retailers concerning retail prices effective
May 18 which will show them actual dollar loss against re-
placement on principally meats, soaps, canned citrus fruits
and juices."
56
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEMAY 7, 1942
TO
FROM
Mr. Haas
Subject: Statements the inflation problem.
Secretary and Morgenthau
In response to your request for data on statements you
have made in regard to inflation problems, I am submitting
the attached selected list of exhibits covering various
price statements that you have made, together with certain
memoranda on price problems prepared for you in this Division.
Attachments
57
Selected statements, memoranda, etc., indicating the
concern of the Secretary of the Treasury over the inflation
problem.
September 27, 1940:
At the suggestion of the Secretary, a Treasury price com-
mittee was organized to study the inflation problem, holding
its first luncheon meeting on this date.
October 7, 1940:
The Secretary's interest in the problem of inflation
led to the preparation of a memorandum submitted to him on
this date, reviewing price developments during the World War
period. Exhibit 1.
October 16, 1940:
The developing inflationary situation was responsible
for a memorandum submitted to the Secretary on this date en-
titled "What should be done now about inflation?" Exhibit 2.
October 25, 1940:
A statement, presented at the meeting of the Treasury
price committee on this date, entitled "What action 18 needed
now to forestall inflation?" indicated that the major immedi-
ate problem was to insure adequate supplies of steel and other
important materials. Exhibit 3.
November 1, 1940:
The Treasury price committee meeting on this date was
attended by Mr. Leon Henderson, who discussed the work being
done by his office to get increased production of basic
materials.
December 13, 1940:
Concerned with the mounting prices of lumber and various
basic materials, the Secretary gave the President two price
charts, showing trends of basic commodity prices and build-
ing material prices. Copies of the charts were also sent
to Mr. Henderson with a letter expressing the Secretary's
concern with these evidences of inflationary tendencies.
The letter, charts, and succeeding correspondence are shown
in Exhibit 4.
58
- 2 -
December 15, 1940:
The Secretary asked Mr. Haas, "To find out from the Army
each particular item that they insist must be made of pure
wool, and then we could show this list to the Institute of
Cotton Manufacturers, and find out from them if this article
could not be duplicated in cotton. After all, we have 8 or
10 million bales of cotton, and if we can find some way of
using this up on the Army and, at the same time, keep the
price of wool from going through the ceiling that would be a
move in the right direction." The list submitted is shown
in Exhibit 5.
December 16, 1940:
The Secretary requested of Mr. Haas: "I noticed in your
latest report that the price of butter 1s up 33 or 34%. I
wish you would let me know whether the Department of
Agriculture, through any of its affiliates or subsidiaries,
owns any butter, stores any butter, or 18 lending any money
on butter." A copy of the memorandum prepared in response to
this request 18 shown as Exhibit 6.
December 18, 1940:
The Secretary had insisted for some time that a shortage
of steel capacity was in prospect, despite assurances from
Mr. Stettinius to the President that the industry was pre-
pared to meet all demands. On this date he sent a letter to
the President expressing his serious concern over the pros-
pective steel shortage. Exhibit 7.
January 8, 1941:
A letter and chart were sent to the President on this
date showing the increase in cost of building & 6-room frame
house in St. Louis. Exhibit 8.
January 13, 1941:
The Associated Press quoted the Secretary as saying at
his press conference that prices of wool and certain other
commodities were too high, and that the danger of price in-
flation necessitated "every agency of the Government watching
the situation every minute of the time". Exhibit 9.
January 15, 1941:
The Associated Press statement quoting the Secretary
as saying wool prices were too high brought criticism from
the Secretary of the National Wool Growers' Association. Re-
sulting correspondence 18 shown in Exhibit 10.
Regraded Unclassified
59
- 3 -
January 28, 1941:
The Secretary asked Mr. Haas to discuss with Mr. Hamm
of the OPA the problem of controlling prices in the metal
markets. A resulting memorandum from Mr. Haas is shown as
Exhibit 11.
February 17, 1941:
Following conferences at the Treasury with Messre. Hamm
and Ginsberg of Mr. Henderson's office, at which the ration-
ing of civilian demand was discussed and an illustrative
chart on zino prepared, the Secretary wrote a letter to the
President, in which the extent of cooperation between the
Treasury and the Price Administrator's office is indicated.
Exhibit 12.
February 27, 1941:
The Secretary requested Mr. Haas: "Please bring to
Leon Henderson's attention the fact that there is a tremen-
dous rise in imported commodities. What are they doing
about it? I want to hear from them. Have they brought it
to the President's attention? If not, do they want me to
bring it to the President's attention?" A letter sub-
sequently sent to the President on this subject (March 11)
18 shown as Exhibit 13.
March 14, 1941:
The Gano Dunn steel report, indicating no shortage
of steel capacity, was at variance with conclusions arrived
at from analyses by the Treasury and other Government agen-
cies. A criticism of the Dunn report submitted to the
Secretary, together with correspondence with Mr. Dunn, is
shown in Exhibit 14.
April 24, 1941:
The statement of the Secretary before the House Ways
and Means Committee, in which he said that the proposed tax
program was designed in part "to prevent a general rise in
prices by keeping the total volume of monetary purchasing
power from outrunning production," is given in Exhibit 15.
May 6, 1941:
Becoming concerned over the fact that Department of
Agriculture price-lifting programs were being continued des-
pite their contributing to inflationary pressure, the
Secretary asked that this be called to the Department's atten-
tion. Memoranda to the Secretary on this subject are shown
in Exhibit 16.
Regraded Unclassified
60
- 4 -
June 6, 1941:
A letter to the President on this date expressed the con-
viction of the Secretary that an immediate expansion in steel
capacity was clearly called for, despite contrary conclusions
presented in the second Gano Dunn report. Exhibit 17.
September 9, 1941:
A copy of the Secretary's statement on inflation before
the Advertising Club of Boston 18 shown as Exhibit 18.
September 12, 1941:
A suggested method by which Government holdings of farm
products might be used for inflation control is contained in
a memorandum to the Secretary of this date. Exhibit 19.
September 24, 1941:
Copy of the Secretary's statement on the Price Control
bill before the House Banking and Currency Committee 18 shown
as Exhibit 20.
September 30, 1941:
Mr. Leon Henderson attended a Treasury luncheon meeting
with the Secretary on this date, to discuss price and credit
control and problems created by materials shortages. Others
present were Under-Secretary Bell and Messrs. Eccles, Haas,
Kuhn, Nelson, Ransom, Weiner and White.
October 2, 1941:
A copy of the Secretary's speech before the American
Bankers' Association on this date 18 shown as Exhibit 21.
December 6, 1941:
To organize an inter-departmental committee for the study
of the "inflationary gap" and other price problems, the
Secretary on this date sent letters to 9 Government agencies
asking that representatives be designated to serve on this
committee. A copy of the letter to Mr. Henderson is shown as
Exhibit 22.
March 3, 1942:
A copy of the Secretary's statement before the House Ways
and Means Committee 18 shown as Exhibit 23.
Regraded Unclassified
- 5 -
61
March 20, 1942:
A copy of a chart, memorandum and letter on the effect
of price ceilings on Canadian prices, sent by the Secretary
to the President and others on March 20, is shown as
Exhibit 24.
October 7. 1940:
The Secretary's interest in the
problem of inflation led to the prepa-
ration of a memorandum submitted to
him on this date, reviewing price
developments during the World War period.
Exhibit 1.
63
October 7, 1940
To:
Secretary Morgenthau
From:
Mr. Haas
Subject: Movements of commodity prices and related price
factors during the World War.
I am attaching herewith a detailed study of price trends
during the World War period, with a chart showing the move-
ments of prices and related price factors from 1913 through
1922. Developments in the price situation each year are dis-
cussed as separate sections.
The significance of this study, as it relates to the
present situation, seems to lie particularly in its demonstra-
tion of the leading parts played by (1) capacity limitations,
and (2) the method adopted for financing the war, in the price
inflation which occurred during that period. It will be noted
that commodity prices in general did not begin to rise until
the index of production had practically reached its upper
limit.
Attachments
64
COMMODITY PRICE TRENDS, 1913 to 1922,
AND RELATED PRICE FACTORS
Note: Numbers in circles refer to points on
attached chart.
January 1913 to August 1914
Commodity prices were generally stable during this
period, but a gradual decline was under way when the World
War began, largely due to world-wide business depression and
credit stringency associated with the Balkan War, which ended
in 1913.
August to December 1914
The outbreak of the war in August 1914 was immediately
followed by a speculative upturn in commodity prices lasting
about two months 1, which brought a rise of 2.3 points dur-
ing August in the all-commodities index (1926 - 100). Sugar,
grains, and chemicals were among the products having greatest
price increases.
Quoting & report of the War Industries Board: "Many of
the rather panicky apprehensions proved to be mistaken or at
least premature, 60 that the prices which had bounded up 80
suddenly subsided again in September or October." After this
flurry, the index dropped back to its pre-war level and
remained there until the last quarter of 1915.
Increased war demand for certain commodities during this
period was offset by the depressing effects of (a) & ourtail-
ment of export demand for many products, notably cotton,
resulting from the blockade of the Central Powers; (b) severe
monetary stringency in the United States, due in large part
to repatriation of foreign funds, which resulted in high
exchange rates for sterling 2 and other European currencies,
with sterling temporarily reaching as high as $7.00, and
caused heavy exports of gold from the United States; (o) general
unsettlement in trade and industry accompanied by a sharp
decline in industrial production 3 by the closing of the
Stock Exchange and some commodity exchanges, by the unsettlement
of international trade, and by a general moratorium on debts
abroad, which prevented payments on foreign commercial obliga-
tions owed in this country.
Regraded Unclassified
65
- 2 -
The year 1915
Several factors that contributed toward starting a
general rise in commodity prices, which got well under way
in 1916, became increasingly important in 1915:
(a) Exports, which began to expand within a month
after the outbreak of war 4 rose still higher in
1915 as war orders rapidly mounted. The demand for new
tools and machinery to equip plants for munitions
manufacture, in itself, created a great volume of
industrial orders. The increase in exports at first
was primarily in foodstuffs and textiles, but later in
the year exports of munitions increased, with no
restrictions imposed on their sale to belligerents.
(b) The demand for industrial raw materials
increased rapidly under a phenomenal expansion in
industrial production 5 induced both by the
increased demand from abroad and by a rapid revival of
domestic demand. The index of industrial production
nearly doubled during the year, with the iron and steel
industry experiencing the greatest revival in its history.
While the commodity price level was held down most
of the year by continued large supplies of agricultural
products, by increased output of mines, and by increased
available supplies of manufactured products, a point was
shortly reached where productive capacity became inade-
quate and labor costs began to increase, contributing
toward a general mark-up of prices that began in the last
quarter of the year 6
(o) Monetary conditions became increasingly inflation-
ary. Extremely easy money rates 7 # accompanying & huge
expansion in excess bank reserves under the newly-
established Federal Reserve System, were caused principally
by heavy imports of gold from Europe. More than $400,000,000
in gold was shipped to this country in 1915. In addition,
the velocity of turnover of bank deposits increased sharply
during the year, partly because of increased speculation
in the stock market, and bank loans began a general
expansion that did not end until 1920.
Regraded Unclassified
66
- 3 -
Sterling declined gradually during 1915, averaging below
$4.70 during the last quarter 8. The allied governments
floated a bond issue of $500,000,000 in the United States in
the fall of 1915, by far the largest flotation of this kind
on record. This followed the resignation of Secretary of
State Bryan, who had opposed loans to belligerents as contrary
to a policy of neutrality.
The year 1916
The rise in commodity prices which began late in the
previous year developed in 1916 into an upsweep of inflationary
proportions 9 . Industrial production had reached its practi-
cal limit of capacity under prevailing conditions do , and no
significant further increase occurred in the general production
index during the remainder of the war period. Unprecedented
advances in wages, together with increases in material costs as
manufacturers bid against each other for purchases of supplies,
contributed to the extensive price advance. Semi-finished
products took the lead on the rise, and prices of raw materials
turned exceptionally strong near the end of the year 11
The monetary situation continued inflationary. Net gold
imports of $530,000,000 during the year kept the money market
easy, despite a broad expansion in loans, though some tightness
developed at the close of the year. The velocity of turnover
of bank deposits continued to increase, and bank clearings
gained 39 per cent over the previous year.
Exports continued to expand 12 , and our "favorable"
balance of foreign trade for the year exceeded $3,000,000,000.
During this period, sterling was "pegged" around $4.75 by means
of stabilization operations financed by funds borrowed in the
United States. This rate made the dollar relatively under-
valued, and to that extent was an inflationary influence. In
the early part of 1916, foreign securities held by British
investors were taken over by their government, in exchange for
British government securities, and the proceeds from sales of
the foreign securities were used for purchasing supplies in the
United States. Upwards of $750,000,000 in various foreign loans
were floated in the United States in this year. This country
also became a depository for immense sums of foreign capital
formerly placed in London, as New York superseded London in the
short-term financing of international trade.
Regraded Unclassified
67
- 4 -
The year 1917
Commodity prices continued their steep advance during
the first half of this year 13 , stimulated in part by events
which foreshadowed the entry of the United States into the war
early in April. Prices-of raw materials and semi-finished
products continued to lead.
Our entry into the war, however, was followed initially
by certain deflationary influences. The flow of gold into the
United States ceased, and was succeeded by rather heavy gold
exports. Stook prices during the year suffered the most abrupt
decline since the panio of 1907, due to prospects of reduced
earnings owing to high labor costs and the probability of
drastic profits taxation and price fixing. Industrial
production and exports levelled off, with activity in some lines
hampered by war priority rulings, and by transportation shortages.
These influences prevented a further rise in prices during
the second half of the year. On the other hand, prices were
kept from declining by new inflationary influences that were
beginning to develop as a result of our war activities. Bank
loans expanded far beyond any previous record, with loans of
New York Clearing House banks rising 85 per cent during the
year. The new Federal Reserve Banks began active rediscounting
operations 14, the flotation of the first Liberty Loan ($2.0
billions) in May and the Second Liberty Loan ($3.8 billions) in
October, marking the beginning of a huge increase in rediscounts
with Government security collateral. By December 1917 the amount
of Federal Reserve Notes had increased to $1,251 millions, as
compared with $273 millions at the beginning of the year.
Industrial production had apparently reached the limit of
capacity under existing conditions, making the increased war
demand reflect itself more directly in prices of goods and
materials. The use of United States funds to stabilize sterling
may also have provided an impetus toward raising commodity prices
in this country, since the rate chosen was apparently high for
sterling and low for the dollar.
The beginning of a tightening in credit conditions was
reflected in a firming of interest rates during 1917, which was
followed by an increase in the Federal Reserve rediscount rate
near the end of the year
15
Regraded Unclassified
68
- 5 -
The year 1918
Prices in this year renewed their rise 16 , as various
inflationary influences began to take effect, but Government
price fixing regulations on a substantial list of important
commodities, which were put into effect over a period begin-
ning in July 1917, together with priorities on Government
orders, tempered the rise and made it much more gradual than
the broad upsweep of 1916 and 1917.
Industrial production averaged lower than in the previous
year, despite attempte to speed up the production of war
materials, and was sharply depressed in the first quarter 17
by shutdowns of factories which were unable to secure materials
because of a serious freight car shortage and an unusually
severe winter.
Monetary expansion arising from war finanoing continued
an outstanding inflationary influence. The flotation of the
Third Liberty Loan ($4.2 billions) in April 1918, and the
Fourth Liberty Loan ($7.0 billions) in September was fellowed
by a huge expansion in the volume of rediscounts by the
Federal Reserve Banks on Government security collateral 18,
incidental to the public distribution of these issues on the
installment plan through banks. Some volume of commercial
rediscounts doubtless also is included in these figures, since
banks were encouraged to use Government securities as collateral
by preferential rediscount rates. Increased commercial borrow-
ing 16 also indicated by an enlarged volume of "all other"
rediscounts in 1918.
The year 1919
The ending of the war in November 1918 was followed by
some setback in commodity prices, stock prices, and industrial
activity during the first quarter of 1919, as war orders were
cancelled and a general bearish sentiment swept over the
country. This proved to be short-lived. Inflationary influences
had been accumulating, and the removal of Government price
restrictions by March (on all commodities except sugar and wheat)
was followed by a wave of commodity speculation that carried
prices to excessive heights 19. The removal of restraints on
production for civilian purposes, combined with a general wave
of reckless extravagance, brought a pronounced rise in industrial
production during the latter part of the year 20
Regraded Unclassified
69
- 6 -
The floating of the Victory Loan ($4.5 billions) during
the early part of 1919 marked a peak in the volume of Federal
Reserve Bank rediscounts on Government security collateral 21
The removal of preferential rates on such collateral near the
end of the year was followed by a declining volume in these
rediscounts over the next several years. On the other hand, the
wave of commodity speculation which set in at that time, accom-
panied by heavy borrowing from the banks, was reflected in an
increased amount of rediscounts on other types of collateral
22 This carried total rediscounts to a new high level at the
end of 1919.
While the demand for credit vas expanding, the gold supply
of the country was being reduced by heavy exports of gold, which
continued without interruption for nearly a year after the embargo
on gold was removed in June. In a 12-month period, a record total
of $466,500,000 in gold was shipped out of the country. Meanwhile,
a severe decline in sterling (3), following a withdrawal of
credite to England for supporting the currency, was a further
deflationary price influence.
The increasing strain on the credit structure became strongly
evident late in 1919, when call money rates soared in November to
a monthly average of 10.4 per cent 24 , and temporarily reached
8.8 high as 30 per cent. The stock market, which had shared in
the general wave of speculation, was first to foreshadow the
coming deflation. Stock prices began to decline in December,
after reaching a new peak the previous month.
The year 1920
The momentum of the speculative movement carried prices
upward until the early summer of 1920, despite evidences that
the situation was becoming increasingly critical. Industrial
production reached a new peak in January and February, and
manufacturers, though heavily stocked with raw materials, were
booked far ahead and felt seoure in the industrial outlook.
Prices of finished products, however were raised more rapidly
than consumer incomes would support, and a "buyers' strike"
movement set in.
Stock prices continued to decline sharply throughout the
year. Large stocks of goods were piling uo in this country;
European demand fell off as factories abroad resumed operations,
and importe began to increase heavily. Industrial production
dropped sharply in April 25 , initiating a decline that became
more pronounced as the year progressed.
Regraded Unclassified
70
- 7 -
Money conditions became increasingly tighter during the
first half C. 1920 as bank loans mounted to new high levels,
and a severe strain on the reserve position of member banks
developed. Commercial paper rates rose steadily, reaching
8 per cent during the summer. In this contingency the Federal
Reserve Board decided to discourage speculation in commodities
by a sharp increase in rediscount rates early in 1920. This
was done in two steps. The first, on January 23, was an increase
in the rate of the Federal Reserve Bank of New York from
4 3/4 per oent to 6 per cent 26 , which was followed by the
banks in all other districts.
Stock prices in February suffered a severe decline. The
silk market was among the first of the commodity markets to
break, bringing on a panio in Japan in April 1920. In May, the
Commercial and Financial Chronicle mentioned that "deflation
seems to be gathering momentum; liquidation of stocks and bonds
18 extending to commodities; there are further cancellations of
goods."
The second increase in the rediscount rate, to 7 per cent,
went into effect on June 1, with four other Reserve Banks
following the example of the New York Bank (27) Average prices
of commodities, which had reached a peak in May, began to fall
in June, and by the end of the year the downturn had developed
into a precipitous break 28 . The price level in December,
according to the BLS all-commodities index, had dropped to a
level 28 per cent lower than in May.
While rediscounts by the Federal Reserve Banks on Government
security collateral declined steadily during 1920, this was more
than offset by a sharp increase in "all other" rediscounts 29
,
which lasted until near the end of the year.
The years 1921 and 1922
The price decline continued until the summer of 1921, when
raw material prices, which had suffered most severely, reversed
their trend and started a gradual improvement 30 Prices of
finished goods continued down for some months longer, and the
final low for the all-commodities index was reached in January
of the following year, 45 per cent down from its 1920 peak.
This compares with an extreme decline of 51 per cent for the
raw materials group.
Regraded Unclassified
71
- 8 -
The high rediscount rates were kept in effect by the
Federal Reserve Banks for nearly a year, throughout practically
the entire price decline. On May 5, 1921, the Federal Reserve
Bank of New York initiated a series of cautious reductions 31
which by the following year carried the rate back to its 1917
level of 4 per cent.
The evidence of a change in Federal Reserve policy given
by the first reduction in rediscount rates doubtless played a
part in stopping the decline in raw material prices in the
following month. While the deflationary effect of a declining
trend of bank loans (and rediscounts) continued into the follow-
ing year, certain strengthening price factors were coming into
play:
(a) Gold began to come into the country in heavy
volume near the end of 1920, and the heavy import movement
continued through the following two years.
(b) Industrial production 32 started to rise during
the second half of 1921, and gained at an accelerated rate
during 1922.
(c) Industrial stock prices began a substantial rise
in the latter half of 1921.
(d) Sterling exchange 33 recovered rapidly in 1921
and 1922.
(e) The excessive supplies of various goods and
materials had been substantially liquidated, and the
production of some commodities was drastically ourtailed.
The cotton crop in 1921 was the smallest since 1895.
(f) The pent-up demand for new building construction
which could not be satisfied in earlier years because of
war priorities and high costs, provided a powerful business
impetus when costs were lowered. In 1922 there was the
largest amount of new building ever recorded in a single
year.
October 16, 1940:
#
72
The developing inflationary situa-
tion was responsible for a memorandum
submitted to the Secretary on this date
entitled "What should be done now about
inflation?" Exhibit 2.
73
October 16, 1940
To:
Secretary Morgenthau
From:
Mr. Haas
Subject: What Should Be Done Now About Inflation?
I. The Problem as a Whole
The problem of inflation 1s of great concern to the
Treasury. Treasury fiscal policy has been the major con-
tributing factor to most war-time inflations, and 18 almost
certain to be blamed in any event, even if innocent. An
inflation, furthermore, reacts on the Treasury by increasing
the level of monetary expenditure necessary to achieve any
given physical objective. This, in turn, complicates the
fiscal problem and 80 1s likely to result in further inflation.
It is advisable, therefore, that the Treasury should watch
carefully all incipient movements likely to lead to inflation,
even when such movements seem in themselves to lie outside the
ordinary domain of fiscal policy.
An inflation can occur only when the amount of purchas-
ing power offered in the market during a given period of time
exceeds the supply of goods and services available during the
same time valued at the previously prevailing price level.
Under such circumstances, the price level naturally rises to
a sufficient extent to equate the available purchasing power
with the available supply of goods and services.
The problem of controlling an inflation, therefore, may
be attacked either on the monetary front by restricting the
supply of purchasing power, or on the physical front by in-
creasing the volume of production. In each case the factor
of timing is very important -- for some steps, if taken
prematurely, are merely repressive in their effects, while
others must be taken well in advance of the actual event to
be effective when the danger arises.
The purchasing power offered on the market during any
period comes from two sources: (1) new purchasing power
created during the period, and (2) purchasing power carried
over from previous periods, principally in the form of bank
deposits. The available supply of goods and services may be
correspondingly broken down into two parts: (1) those
Regraded Unclassified
74
Secretary Morgenthau - 2
produced during the ourrent period, and (2) stocks carried
over from preceding periods. The carry-over stock of goods
16 not likely to be as important, however, as the carry-over
of purchasing power.
II. The Monetary Side
Under existing conditions, the problems of controlling
inflation presented on the monetary side -- 1.e., the problems
of restricting purchasing power -- are less urgent than those
presented on the physical side -- 1.0., the problems of
increasing production.
The problems on the monetary side consist essentially
of (1) restricting the new purchasing power created in any
period through current incomes to an amount sufficient only
to purchase at the previously prevailing price level the
supply of goods and services produced during the period, and
(2) immobilizing the carried-over purchasing power 80 that
it cannot be used to bid up the prices of either newly created
or previously existing goods.
The problem of restricting current incomes to the ourrent
supply of goods and services presents special complications
under war-time conditions when a large proportion of the total
available supply of such goods and services 18 suitable for
the war effort only, and not for civilian needs. This problem
18 one with respect to which no action can or should be taken,
however, until the need for it actually arises. We can discuss
it and plan for it now, but there 18 nothing to be done about
it until an excess of current purchasing power over the current
supply of goods and services actually arises or is on the verge
of arising.
On the other portion of the monetary front -- that of
controlling carry-over purchasing power -- there are a number
of precautionary steps which may be taken now, the principal
of which are to place our monetary legislation in order and
to hold in check as far as possible any unnecessary rise in
bank deposits. The principal contribution that the Treasury
can make to such an effort within the framework of existing
legislation, 18 to 80 plan its finanoing as to cause as little
increase in bank deposits as possible.
Regraded Unclassified
75
Secretary Morgenthau - 3
When, and if, the problem of inflation becomes imminent,
however, it 18 probable that some direct steps will be needed
to control carry-over purchasing power, irrespective of the
level of bank deposits then existing. Such control would be
much easier than might appear at first sight, because of the
limited number of purposes for which such purchasing power
is likely to be expended.
Previously accumulated purchasing power is unlikely to
be expended for the ordinary costs of living. The purposes
for which such purchasing power 1s likely to be expended are
practically confined to the two categories of capital goods
and of durable consumers' goods. As far as capital goods are
concerned, the utilization of carry-over purchasing power may
be fairly effectively controlled by direct restrictions on
capital expenditures for purposes not essential to the war
effort. The durable consumers' goods for which carry-over
purchasing power 18 likely to be expended are pretty well
limited to houses, household goods, and automobiles. Ex-
penditures for these purposes can also probably be fairly
effectively limited by controls on mortgage money and on
consumer credit, by excise taxes, and -- when necessary --
by rationing. A striking example of control by means of an
excise tax 18 the new Canadian tax on automobiles which is
levied at the prohibitory rate of 80 per cent on that portion
of the price of any pleasure automobile in excess of $1,200.
III. The Physical Side
The problems on the physical side are more urgent.
Shortages are beginning to appear in the capacities for
producing certain basic materials essential for the defense
program, and prices for a number of such materials have al-
ready shown substantial advances. The importance of prevent-
ing price increases among individual commodities arises not
alone from the fact that such increases may serve as the first
step of an inflation spiral, but also because of their influ-
ence in stimulating speculative buying among these and other
commodities. An effective control of inflation, of course,
can only be achieved by increasing supplies, not by merely
attacking the price symptoms.
Regraded Unclassified
76
Secretary Morgenthau - 4
The following basic defense materials are illustrative
of capacity shortages which are beginning to appear. Others,
perhaps even more critical in their relationship to the de-
fense program, can doubtless be found. It 1s obvious that
the industries concerned will be reluctant to make the nec-
essary plant expansion on their own initiative. If a care-
ful objective analysis indicates that shortages of capacity
exist, and if the industries concerned will not undertake
to increase their capacity, it will be essential that plant
expansion be started soon by Government action.
(a) Steel
Some strain on steel ingot capacity 1s already being
felt, although the bulk of the steel orders for defense ma-
terials has not yet reached the steel mills. The steel in-
dustry 18 now operating at a higher percentage of total in-
got capacity than it was at the end of 1915, when price in-
flation in steel products began. The importance of insuring
an adequate supply of steel 18 heightened by the increasing
dependence of the Canadian armament industry on pig iron and
steel from this country, since the Canadian steel output 1s
near the limit of capacity.
The apparent strain on steel ingot capacity has been
accompanied by a strain on pig iron capacity (which is now
but slightly larger than the capacity during the World War
period). Blast furnaces in August operated at a higher per-
centage of total capacity than the average rate in 1916, which
was the highest annual rate of the World War period.
The output of blast furnaces during the coming winter
may be limited by a shortage of iron ore. At the middle of
September, the entire Great Lakes ore fleet of 296 vessels
was in operation. If ore must be carried by rail while the
lakes are closed, it will increase the costs of producing
steel, and tend to increase steel prices or to decrease pro-
duction.
To insure against any possibility of a shortage of steel
for the armament industries of this country and Canada, which
might also lead to an inflationary trend of prices for steel
and its many products, it seems essential that a rigid scru-
tiny be made of all possible bottlenecks in the steel indus-
try, from ore transportation, pig iron and steel ingot capa-
city, to finishing capacity. The length of time required to
Regraded Unclassified
77
Secretary Morgenthau - 5
build new production facilities -- variously estimated at
6 to 18 months -- emphasizes the need of early action.
It is understandable that the steel companies should
be reluctant to increase capacity if an increase can be
avoided, since it would add to present costs and would
leave them with expensive surplus plants when the emergency
is over. Nevertheless, the fact remains that steel ingot
production is already almost at full capacity, although most
of the defense orders for steel are yet to be placed. The
steel problem 10 so important in the determination of basic
policies for defense and for price control that it requires
an unusually careful determination of all capacity limita-
tions.
(b) Zino
During the World War period, zinc was one of the first
basic commodities to reflect a shortage of production capa-
city, and zinc prices soared to extreme heights early in
the war. Today the same tendency 18 under way. Zino 1e the
only one of the principal non-ferrous metals to have already
practically reached its 1937 price peak. The bottleneck 1s
in smelting facilities, which are now being operated close
to the present limit of capacity. Some idle capacity exists,
which will require time to put into operation. Supplies of
ore are ample, the potential output being far in excess of
available smelting capacity.
A situation in which prices can reach the speculative
peaks of 1937 under the moderate stimulus which the arma-
ment program to date has given them, has potentially serious
inflationary possibilities. A careful analysis should be
made of zinc capacity limitations, to determine whether
Government action may be necessary to increase smelting ca-
pacity, in order to forestall further price inflation and to
assure an adequate supply of zinc and brass for the defense
program. The zino producers, in all probability, will not
go to the expense of greatly expanding domestic capacity,
since the available world capacity after the war will again
include the large emelters in Belgium and other countries
now in German hands.
Regraded Unclassified
78
Secretary Morgenthau - 6
(c) Copper
While our mining capacity appears adequate, some tight-
ness may develop in copper refining capacity under the combined
demands of the United States and British armament programs,
particularly since a substantial part of our capacity is being
used for the refining of foreign copper in bond. During three
months of this year, the refining industry has operated within
13 per cent of the estimated total capacity, which may be close
to the practical limit. Capacity estimates in any industry are
often not reliable, since they may fail to make full allowance
for various factors which retard production, such as shutdowns
for repairs. Domestic copper consumption in August reached
the highest monthly volume since at least early 1939, when
estimates were first compiled.
While the need for action in expanding copper refining
capacity may be slightly less urgent than in the case of steel
and zino, an analysis of present capacity in relation to prob-
able needa seems advisable. It 1s possible that some shortage
exists in smelting capacity, although data for this section of
the industry are inadequate. It may be noted that the output
of refined copper was not sufficient to prevent 8 rise of near-
ly 80 per cent in copper prices in less than 12 months during
1936 and early 1937.
In the case of copper, additional methods of price con-
trol are available through (1) reduction of the 4-cent import
duty; and (2) restrictions on the exports of refined copper.
(d) Lead
In lead, a different situation exists, in which the treat-
ment of symptoms rather than an expansion of capacity seems
called for. While the estimated refining capacity for lead 18
considerably in excess of recent peak output reached in 1937
and 1939, refining activity in recent months has not been
stepped up rapidly enough to prevent a reduction in refiners'
stocks to the lowest level since April 1930, equivalent to
less than a month's supply at the current rate of shipments.
No action seems necessary to increase refining capacity,
but in view of the close control over refined lead output
held by the American Smelting and Refining Company, other
action may be necessary to insure an adequate supply of
Regraded Unclassified
79
Secretary Morgenthau - 7
refined lead for the defense program, and to avoid price
increases. The output in 1936 and 1937, it may be noted,
was not increased rapidly enough to prevent a 75 per cent
rise in prices. In the present situation, a large volume
of pig and bar lead held in bond, which would become avail-
able if the 2 1/8 cent tariff were removed, tends somewhat
to put a price ceiling over the domestic market.
October 25. 1940:
80
A statement, presented at the meet-
ing of the Treasury price committee on
this date, entitled What action is
needed now to forestall inflation?" in-
dicated that the major immediate problem
was to insure adequate supplies of steel
and other important materials. Exhibit 3.
81
WHAT ACTION IS NEEDED NOW TO FORESTALL INFLATION?
1. Immediate problem: To insure adequate supplies of goods
and materials.
The desirability of using the defense program as an op-
portunity to achieve full employment and a sound expansion of
national income requires that repressive methods of inflation
control be avoided during the early stages of the program.
Increased consumer incomes will thus tend to expand produc-
tion and employment in various consumer-goods industries that
are now operating some distance from capacity. They may be
diverted from those which are close to capacity by selective
taxes on consumer goods.
The carrying out of such a policy, however, necessarily
increases the difficulties of controlling inflation, since it
will limit the amount of defense financing by noninflationary
methods that can be used in the early stages of the program.
Practically, it means that inflation must be controlled dur-
ing this period largely by increasing the supplies of goods
and materials as the demand for them increases.
In many industries, of course, the present capacity 1s
adequate to meet very substantial increases in demand. The
immediate problem, therefore, boils down largely to the re-
moval of capacity bottlenecks in a limited number of indus-
tries. This applies with particular emphasis, of course, to
industries producing defense materials, where the problem of
inflation 1s secondary to the main problem of insuring
against shortages that might slow up the defense program.
2. Present excess capacity in major industries.
The extent to which production (and employment) may be
increased in each of the major industries without exceeding
capacity may be indicated roughly by a comparison of recent
FRB production indexes with the maximum production reached
by these respective industries in previous peak years.
The following table shows the index figure (unadjusted)
in September 1940 for each of the major industries included
in the FRB index, together with the high reached in 1929 and
the high reached in the 1937-1939 period.
82
-2-
Federal Reserve Board Indexes (Unadjusted)
1935-1939 = 100
High
High
Sept.
Weight in 1929
1937-9
1940
Durable production
Iron and steel
11.0
151
161
161
Machinery
10.8
136
134
141p
Automobiles
4.8
189
171
89p
Nonferrous metals
2.8
146
157
153p
Lumber
2.9
167
134
134
Furniture
1.5
157
125
127p
Stone, olay and glass
3.0
129
137
139p
products
Nondurable production
Textiles
11,2
99
131
119p
Leather
2.3
111
123
100p
Manufactured foods
10.9
123
135
131
Paper
3.1
90
136
122 2
Petroleum
1.9
95
121
110
Chemicals
6.3
93
118
115p
Rubber
1.4
123
129
121p
Bituminous coal
3.4
154
148
118p
p - preliminary
1/- including both manufacturing and primary production
2/- - August 1940
It will be noted chiefly that, while production in the
industries closely associated with national defense 1s al-
ready at or near previous high levels, scope for increased
production and employment exists in a number of other indus-
tries, chiefly in the consumers' goods group.
3. Lessons from World War experience.
Our experience during the World War lends distinot en-
couragement to the belief that, through proper planning, we
can avoid inflation until industrial production as a whole
approaches its capacity limits. But it also shows clearly
the need of looking ahead and carefully planning in advance
if this objective is to be achieved.
83
-3-
After the war broke out in 1914, general commodity prices
held stable for a period, despite the enormous volume of for-
eign buying concentrated in this country, until industrial
production had practically reached the plateau level at which
it held over the next several years. When the heavy demand
from both foreign and domestic sources in 1916, 1917 and
1918 could force production no higher, only then did it have
much effect in raising the general price level.
The influence of capacity limitations on prices during
the early years of the World War is shown more clearly in
the case of specific products, like steel and textiles.
Steel prices rose only moderately - less than $5 per ton -
until the practical limit of capacity was reached near the
end of 1915, after which prices soared to fantastic heights.
Steel production in December 1915 exceeded by 17 per
cent the peak output of any month in previous years, with an
operating rate averaging 87.2 per cent of the capacity in
that month. Currently, we are already operating closer to
total capacity than we were at the end of 1915. If we add
to the capacity at the beginning of 1940 about 800,000 tons
which are being added this year in electric furnace capacity,
the operating rate this week 18 approximately 94.0 per cent.
In the case of cotton textiles, likewise, the increase
in prices during the World War was relatively small until
production reached a level above which it could only with
difficulty be increased.
Price inflation during the World War early became ap-
parent in the nonferrous metal group, notably in zino
prices. The BLS price index for this group began to rise
before the end of 1914, and had practically doubled by the
end of the next year, when steel prices started sharply upward.
The rise in prices of steel, zino, and other metals
naturally induced an expansion of capacity. But this capacity
came into operation too late to prevent the marked rise in
prices noted above. In the case of steel, a capacity of
46,249,000 tons at the end of 1914 was expanded to 58,846,000
by the end of 1917 but it was not until the second half of
1917 that steel prices declined. Zino smelting capacity
was increased to such an extent that production overtook
84
-4
consumption in 1916, but this was not soon enough to prevent
a rise in zino prices from 4.81 cents in October 1914 to
22.14 cents in June 1915.
An important lesson to be learned from this experience
is the necessity for forecasting, well in advance, the
amount of capacity that will be needed, in order that any
necessary new capacity may be brought into production with
the minimum delay. A surplus capacity, as an insurance
against miscalculations, would be far preferable to the
risk of possible shortages.
4. The present situation in commodity prices.
The rise in prices of a number of basic commodities that
has been under way since the middle of August has had rela-
tively slight effect, Bo far, on the broader indexes of com-
modity prices. The BLS all-commodity index, which had been
in a gradually declining trend since last October, rose only
0.6 point in September to 78.0. The increase in commodity
prices brought a slight rise in living costs during September.
The upturn since mid-August has been much more pro-
nounced in the BLS price index of 28 basic commodities, which
has risen nearly 10 per cent from the August low. The rise
has been most persistent and most extensive among industrial
materials, of which hides and wool have led the upturn, fol-
lowed by the metals and silk. Among the basic foodstuffs,
wheat has shown outstanding strength.
5. Supply shortages beginning to appear.
The recent increase in prices of basic industrial ma-
terials has been due, in a number of instances, to rather
clearly apparent supply shortages, such as may be expected
in increasing numbers as a characteristic feature of the
first stages of inflation. In the case of certain commod-
ities, particularly imported materials, little can be done
to increase domestic supplies except through direct Govern-
ment buying, reducing import duties, and encouraging
substitution.
With many commodities, however, both industrial mate-
rials and farm products, adequate future supplies may be
assured by systematic production planning based on estimated
needs. It is the intention in this report merely to point
Regraded Unclassified
85
-5-
out briefly a few situations in which supply shortages have
already strongly affected prices, and which seem to warrant
further attention as a first step toward inflation control.
Shortages of available supplies at a time of increasing
demand have been largely responsible for the price upturns
in each of the three basic commodities showing the largest
percentage gains from their August lows - hides, wool and
wheat.
Reported domestic stocks of hides at the end of August
were the lowest for that month since at least 1922. In the
Argentine hide markets, Russia, Japan and the United King-
dom, in addition to the United States, have recently been
buying heavily. The orders from the Army for some 4,000,000
pairs of shoes, and recent heavy buying of sole leather in
this country by Russia have contributed to a tight supply
situation. The situation might be improved by a reduction
in the 10 per cent import duty or by the increased use of
lower quality hides available in Argentina.
The wool situation 1s dominated by (1) heavy Army or-
ders for cloth and blankets, and (2) control by Great
Britain of most of the stock of fine wools outside the United
States. When pending contracts are awarded, involving mostly
fine wools, the Army will have absorbed one-third or more of
this year's domestic clip. The price outlook will thus de-
pend partly upon Great Britain's willingness to dispose of
her stock of fine wools. Increased utilization of the medium
and coarse wools from Argentina and Uruguay, reduction of the
25 cent (approximate) import duty, and enforced mixtures of
other textile fibers in certain fabrics, are possible methods
of price control.
The sharp rise in wheat prices is credited chiefly to
the Government loan program, which has withdrawn a substan-
tial amount of wheat from the supply available to domestic
millers - 218,000,000 bushels of this year's crop being re-
ported under loan on October 15. Wheat does not yet present
a price-control problem, however, since (1) an ample domes-
tic supply 1s available, and (2) the automatic reduction in
new loans and increase in repossession of wheat by growers
at higher price levels tends to put a ceiling on the price
advance.
Zino presents an important bottleneck among industrial
raw materials, as it did during the World War, and largely
for the same reason - the unavailability of smelting capacity
Regraded Unclassifie
86
-6-
in Belgium and other German-occupied countries, which has
over-loaded the smelting capacity in the United States. As
B. consequence of heavy demand for refined zino, and little
increase in output, the stocks at smelters have been reduced
to the lowest figure since the excessively low levels of
1937, and prices have reached the speculative peaks of 1937.
Production, on a daily average basis, increased 10 per cent
in September, with a noticeable increase in the number of
retorts operating. The smelter output, however, remains
far below the present level of deliveries. In view of the
vital position of zine in the armament industries, a criti-
cal survey of present smelting capacity seems necessary, in
order to provide absolute assurance of adequate future
supplies.
In the copper industry, the domestic production of re-
fined copper in August and September was lower than in the
three previous months, despite a substantial rise in prices.
The fact that refinery output for domestic consumption 16
already approximately at the peak levels of 1937, and 1s
not increasing, may indicate that it is close to practical
capacity, particularly since part of the total capacity is
now being used for refining foreign copper for re-export.
Copper smelting capacity, for which adequate statistical
data are lacking, 1s also a possible bottleneck. The fact
that smelter output showed less than a seasonal increase
from August to September, despite urgent demand from con-
sumers, may indicate that at the present high levels of op-
eration further increases are difficult. A careful analysis
of copper smelting and refining capacity seems needed, look-
ing toward the building of additional plants if necessary to
supply the peak armament requirements in 1941 or 1942. The
possibility of reducing the 4 cent import duty, or direct
purchasing of foreign copper by the Government for armament
use, might also be considered.
6. Capacities in other industries may need reviewing.
With the defense program barely started, 80 far as the
actual production of goods and the demand for raw materials
1a concerned, it 1s obvious that supply shortages among the
numerous materials essential for the defense program have
only begun to be uncovered. Added to the defense demand in
coming months, of course, will be an expanding demand for
civilian uses, It 18 very likely that the total demand for
a long list of materials, under these conditions, will be
at the highest levels ever reached. Will the capacity for
producing these materials be adequate? Is it known now
Regraded Unclassified
87
-7-
where supply shortages are likely to develop before the end
of next year? Can steps be taken now to prevent these
shortages? The answers to these questions will help deter-
mine whether the armament program can be carried to comple-
tion with the least possible interruption, and with the
least repression of civilian industries.
The steel industry, with its various essential subsidiary
industries, any one of which might develop into a bottleneck
that would slow up the entire steel output, presents the
broadest capacity problem for the armament industry. It may
be recalled that in the winter of 1918 a mere shortage of
coke caused many blast furnaces to be banked, reduced pig
iron output by 25 per cent, and seriously retarded the pro-
duction of war materials.
While the steel industry believes that its ingot capacity
is adequate, there seems considerable doubt as to whether
their estimates make sufficient allowance for (1) a further
expansion in civilian uses, which might establish new records
in 1941 and 1942, (2) an excess of capacity to allow for mis-
calculation of armament and defense construction require-
ments, and to meet unforeseen emergencies, and (3) sufficient
capacity in subsidiary industries (ore production, pig iron,
coal, coke, etc.) to meet these maximum requirements.
Regardless of any statistical calculations, the fact
remains that steel ingot production 1s closer to full capacity
than it was when the steep rise in steel prices began at the
end of 1915, that recent increases in output have been very
gradual, indicating the difficulty of further expansion, and
that the larger part of the actual steel orders for defense
materials are yet to be received by the mills.
88
F.R.B. INDUSTRIAL PRODUCTION IN SELECTED INDUSTRIES
September 1940 Compared with Posk Month in - and Posk Month In Period 1907-1930
1935 - - . 100, UNABOUSTED
1 !
1997-1998 Pass
set. 1940
FEE
PER
cast
Durable Production
CENT
a
160
-
160
140
140
120
120
120
<<<<<<<<<<<<<<<<<<<<<<<<<
100
a
eo
3
30
&
40
2
20
0
o
laws AND
MACHINERY
NON-FERROUS
AUTOMORILES
STONE, CLAY
LUMBER
FURNITURE
STEEL
METALS
AME GLASS
PER
PER
CENT
CENT
Non-Durable Production
140
140
120
120
100
100
80
8
60
8.
40
&
20
20
o
o
TESTILES
LEATHER
NUMBER
PETROLEUM
RITUBINOUS
CHERICALS
PAPER*
MANUFACTURED
COAL
FOOD
RELATIVE IMPORTANCE OF SELECTED INDUSTRIES IN F.R.D. INDEX'
PERCENT
0
10
20
30
7
is
STRE. ELAT, GLASS
FUBLITURE
- - STEEL
MARKINGTY
RETALS
AUTOMMILES
LIMITED
Durable
HAVE
10.0%
111
4.8%
14%
in
una
Production
RITUMINIQUE -
TEXTILES
LEATHER
PETSILEM
MORICALES PAPER*)
IMMUFACTURER -
Non-Qursble
Production
sh
in
LAS
18.6%
14%
us
IN
109%
1340
NEIGHTS - THE INDIVIDUAL ITEM INDLAND BOTH IMMIFACTURE - PRIMARY PRODUCTION
Office of the Secretary of the Transary
c MO
- of - and -
89
COMMODITY PRICES DURING WORLD WAR
In Relation to Exports and Industrial Production
1913 - 1922
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
PERCENT
PERCENT
160
Prices. B.L.S.
160
1926-100
150
150
140
140
130
All
Commodities
130
Beginning of War
120
120
110
110
100
100
90
90
80
80
70
70
60
60
Industrial Production,
90
Stand Stat 1926-100
90
80
80
70
70
60
60
50
so
DOLLARS
DOLLARS
Millions
U.S Exports
Millions
us Exports
Millions of Delivery
800
800
600
600
400
400
200
200
o
o
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
- - - el - Insury
I
-
-
-
PRODUCTION AND PRICE MOVEMENTS IN STEEL AND COTTON
1914 - 1916
1914
1915
1916
1914
1915
1916
THOUSANDS
DOLLARS
PER
CENTS
OF TONS
PER TON
CENT
PER YARD
Steel
Cotton
350
50
165
5.5
300
45
150
5.0
[RON AND STEEL COMPOSITE PRICES
PRICE OF PRINT CLOTH
(DOLLARS PER TON)
(CENTS PER YARD)
250
40
135
4.5
200
35
120
4.0
MILL CONSUMPTION OF RAIF COTTON,
1926 = 100 ADJ.
150
30
105
3.5
STEEL INGOT PRODUCTION
(DAILY AVERAGE IN
THOUSANDS OF TONS)
100
25
90
3.0
50
20
75
2.5
WAR BEGINS
WAR BEGINS
0
15
60
2.0
1914
1915
1916
1914
1915
1916
90
Office of the Secretary of the Treasury
Division of hand and -
C - 320
Regraded Unclass
MOVEMENT OF METAL PRICES COMPARED WITH ALL COMMODITIES, 1014-1917
1926 = 100
PER CENT
PER CENT
220
220
200
200
180
180
NON-FERROUS METALS
160
160
140
140
IRON AND STEEL
120
120
100
100
ALL
COMMODITY PRICES
80
80
60
60
40
40
1914
1915
1916
1917
Office of the Secretary of the Treasury
Division of Remarch and Statistics
P - 195
91
Regraded Unclassif
92
CONNODITY PRICES AND COST OF LIVING
1926 100
1935
1936
1937
1930
1939
1940
1941
FER
PER
CART
Monthly
CENT
w
8
as
66
8
86
COST or LIVIM, N.I.C.B.
84
64
12
82
80
80
78
78
063 COMMODITIES, B.L.S.
76
76
74
74
72
1935
1936
72
1937
1930
1939
1940
1941
1939
1940
1941
A
.
.
.
D
di
,
.
A
.
4
,
A
a
o
.
D
.
-
-
PER
PER
CERT
CENT
Wookly
BO
8
863 OMMOBITIES, B.L.S.
76
76
72
72
3
$
20 BASIC COMMONITIES. B.L.S.
64
3
8
$
56
56
52
52
A
$
.
.
a
-
F
-
A
.
,
d
A
s
o
.
a
di
F
a
1939
1940
1941
"30 COMMITTES PRIOR TO JANUARY 1940
- - - - et - Treasury
- of - - -
P - 196
93
SINO PRICES, PRODUCTION, DELIVERING AND STOCKS
1935
1936
1837
CENTS
1936
1840
PER
CENTS
POLIND
PER
7.5
FOUND
7.5
7.0
7.0
6.5
apot Prices, Sr. LOUIS,
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4,5
4.5
4,0
4.0
Extimated Basic Price *
3.5
3.5
3.0
1935
3.0
1936
1937
1938
1959
1940
Toes
THOUSANDS
Teas
THOUSANDS
80
8
Deliveries
70
INCLUDING EXPORTS
70
60
3
50
50
40
&
30
30
Production
g
20
10
10
e
o
1935
1936
1937
1930
1939
1940
160
160
Stocks at Queltors
140
140
120
120
100
100
so
so
E
3
8
8
a
20
0
0
1935
1936
1937
1936
1939
1940
. COMPUTER - AVERAGE RELATIONSHIP of 2140 PRICES TO u. 5. PRODUCTION,
SHIPMENTS, - 170043 of INC.
~ # - - of - Insury
P - 199
- . - - -
94
COPPER PRICES, PRODUCTION, DELIVERIES AND STOCKS
1935
1936
1937
1936
1939
1940
CENTS
CENTS
PER
PER
FOUND
POUND
16
16
15
IS
Spot Prices, Now Yoar
2
14
14
13
13
12
12
if
"
10
10
5
9
Retimated Basic Price
a
8
7
7
1935
1936
1937
1938
1939
1940
1018
TONS
THOUSANDS
THOUSANDS
you
100
Deliveries
DOMESTIC, REFINED
8
Production
80
REFINED
60
3
NO
&
20
20
1935
1936
1937
1936
1930
1940
400
400
Stocks
REFINED COPPER
350
350
300
300
250
250
200
200
150
150
100
100
50
so
o
o
1935
1936
1937
1930
1939
1940
. COMPUTED FROM AVERAGE RELATIONSHIP or COPPER PRICES TO U.S. PRODUCTION,
SHIPMONTS, - STOCKS or COPPER.
- el the - of - Transury
- el - - -
P 200
95
December 13, 1940:
Concerned with the mounting prices
of lumber and various basic materials,
the Secretary gave the President two
price charts, showing trends of basic
commodity prices and building material
prices. Copies of the charts were also
sent to Mr. Henderson with a letter
expressing the Secretary's concern with
these evidences of inflationary tenden-
cies. The letter, charts, and succeed-
ing correspondence are shown in Exhibit
4
96
THE SECRETARY OF THE TREASURY
WASHINGTON
December 13, 1940
Dear Leon:
I have been much concerned with the extent of
the price rises that have already occurred in many
important commodities, particularly in lumber and
a number of other basic defense materials. Looking
at a chart showing recent price changes among the
28 basic commodities in the Bureau of Labor Statistics
daily price index, a copy of which is enclosed, I
notice that prices of practically one-third of these
commodities have risen 20 percent or more since
August. Lumber prices, shown in a second chart
enclosed, have had a very extensive rise, to far above
the peak reached in 1937, although total stocks
of lumber have not been greatly reduced.
I wonder what action has been taken with respect
to the situations responsible for these price increases,
and what further action, if any, ought to be taken?
Sincerely,
(signed) H. Morgenthau, Jr.
Hon. Leon Henderson,
Commissioner of Price Stabiliztion,
Advisory Commission on National Defense,
Federal Reserve Building,
Washington, D. C.
FORDEFENSE
Enclosures
BUY
UNITED
STATES
SAVINGS
BONDS
ARG 3DAMPS
97
MOVEMENT OF BASIC COMMODITY PRICES
AUGUST 1939 100
1939
1940
OCTOBER
NOVEMBER
DECEMBER
JANUARY
.
%
o
-
a
J
,
M
A
M
J
J
A
a
o
N
a
5
12
19
26
2
9
16
23
30
7
14
21
28
4
I.I.
PLR
PLA
FLR
PER
CENT
Weekly Average
CLNT
CENT
CENT
Daily
130
130
126
120
125
16 RAW INDUSTRIAL
MATERIALS
125
124
124
to KAW INVOSTATAL
120
120
MATCHIALS
120
120
115
115
110
116
110
110
112
112
105
105
12 FOODSTUFFS
12 FOODSTUFFS
108
ICE
100
100
95
95
104
16
23
30
7
14
2
28
4
II
104
A
5
o
N
D
,
,
&
A
&
J
,
A
-
o
IF
D
5
12
19
26
2
9
1939
1940
OCTOBER
NOVEMBER
DECEMBER
JANUARY
1940
Percentage Change for Individual Commodities, August Low to November 29, and to December 6, 1940
PCR
BOOL
PER
CENT
16 RAW INDUSTRIAL MATERIALS
CENT
12 FOODSTUFFS
40
40
INTUES
35
35
TALLOW
BUTTER
30
30
WHEAT
COCOA
25
25
SHELLAC
STEEL SCRAP, DOB.
20
BUNLAP
20
IMAILEY
RUSIN
STEENS
LEAD
15
ZINC
15
FLASCED
PRINT CLOTH
SUGAR
CUPPLE
10
number
10
COFFLE
COTTONSEED on
STEEL SCRAP, EXP.
5
5
COTTON
BILK
o
TIN
o
NLAND
4M001
com
-7.0
-5
-5
Aus. Low
Nov.29 Dec.6
AUG. Low
Nov.29
Dc8.6
Other of - Secretary of the Treasury
P - 187 - L
- of - - -
LUMBER AND BUILDING MATERIAL PRICES AND LUMBER STOCKS
1937
1938
1939
1940
1941
PER
PER
CENT
Wholesale Prices
CONT
1926 =100, B.L.S.
= : I
116
116
112
112
108
100
104
104
100
100
LUMBER
was not 12
%
96
92
St
BUILDING MATERIALS
BE
BE
84
J
M
M
J
5
.
J
M
M
J.
$
N
al
M
M
84
1937
1936
1939
1940
1941
BILLIONS
BILLIONS
or
or
OARD FEET
Lamber Stocks at Mills
BOARD FEET
11
II
10
10
9
12
9
TOTAL
6
6
HAREMOODS
7
7
6
6
5
5
4
4
Sortwoods
3
3
2
2
I
I
o
J
M
M
J
$
M
J
.
.
J
5.
.
J
.
.
J
$
-
J
M
M
J
$
-
J
M
o
-
J
$
#
1937
1938
1939
1940
1941
Regraded Unclassifi
(filles of the Secretary of the Treasury
99
THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
Federal Reserve Building
Washington, D. C..
December 18, 1940
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Henry:
I, too, have been concerned with the price rises that
have been taking place in lumber, and for the past two months
have been looking into them. As you may recall, I issued a
press release on September 10th in which I stated that I be-
lieved the increases were not justified on the basis of supply
and demand. Since that time there has been instituted 8 central
purchasing arrangement which has had the net result of bringing
prices paid by the Government down to the extent of $2 to $4 a
thousand.
That the industry has exercised some form of voluntary
production control is evidenced by the fact that in 1929, with
total shipments of 36 billion feet, stocks on hand at the end
of the year amounted to 13 billion feet, while in 1940, with
shipments estimated at 29 billion feet, stocks at the end of
November were only 6.75 billion feet.
There are a number of things which still serve to keep
the general price level high, most of which are minor matters in
themselves but, combined, serve to disturb the market. One of
these is the matter of grade marking, in which the Procurement
Division can help. Regulations of the Procurement Division re-
quire that specifications call for grade marked lumber. This
grade marking is done under the rules of the American Lumber
Standards Association, which is composed of the lumber manu-
facturers associations. In many instances it has been found that
these manufacturing associations have used their rights to issue
grade marking certificates in a discriminatory manner against
independents. This matter has been investigated by the Depart-
ment of Justice and indictments have been procured against the
West Coast Division and the Western Pine Division. However, the
process of litigation can be stretched out over 8 very long period
and we can get no immediate results from that source. I believe
that if the Procurement Division changed its regulation to permit
Regraded Unclassified
100
- 2 -
acceptance of inspection certificates from independent inspection
agencies approved by the Procurement Division, it would be one step
toward breaking up possible control which is alleged by the Depart-
ment of Justice to affect prices.
Other efforts are being made along the lines of encouraging
substitutes, particularly by those agencies engaged in defense
housing. We are also now investigating possible avenues of in-
creasing supply through the Forest Service.
Sincerely yours,
(signed)
Leon
Leon Henderson
Commissioner
P. S. I'm having the whole situation in lumber canvassed with
a view of taking whatever action we can.
Regraded Unclassified
101
THE SECRETARY OF THE TREASURY
WASHINGTON
December 23, 1940
Dear Leon:
Replying to your letter of the 18th, I am
glad to note that plans are contemplated for getting
lumber prices under control. I believe, however,
that you have been misinformed in concluding that
grade marking requirements of the Procurement
Division have been a factor in the price situation.
Regulations of the Procurement Division provide com-
plete flexibility in the basis of lumber specifications
used by Government buying agencies, the only require-
ment being that the Division be notified of the grade
ratings used if they differ from those of the Lumber
Standards Association. All agencies can use independent
grade ratings, if they so desire, and various agencies
have been using them for some time.
Sincerely,
(signed) Henry
Hon. Leon Henderson,
Commissioner of Price Stabilization,
Advisory Commission on National Defense,
Federal Reserve Building,
Washington, D. C.
P.S. What do you propose to do about the price of lumber?
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
AFD MAMPS
Regraded Unclassified
102
December 15, 1940:
The Secretary asked Mr. Haas,
"To find out from the Army each par-
ticular item that they insist must be
made of pure wool, and then we could
show this list to the Institute of
Cotton Manufacturers, and find out from
them if this article could not be dup-
licated in cotton. After all, we have
Oa or 10 million bales of cotton, and
if we can find some way of using this
up on the Army and, at the same time,
keep the price of wool from going through
the ceiling that would be a move in the
right direction." The list submitted
is shown in Exhibit 5.
December 20, 1940 103
To
Secretary Morgenthau
From
Mr. Haas
Attached 18 a list of woolen items used by the Military
Service. You indicated that you wished to give such a list
to the Cotton Institute, in order to secure their suggestions
as to cotton substitutes.
Attachment
104
December 20, 1940
To
Secretary Morgenthau
From
Mr. Haas
Subject: Items purchased by the Army, Navy, and Marine Corps,
containing wool.
In response to your request the following lists
have been prepared, showing the principal items con-
taining wool, used by the military services. These
data were obtained directly from the Army, Navy, and
Marine Corps.
Army
Blankets, wool, 0. D., 3th lbs., Q.M.C.
Serge, 0. D., 18 oz.
Melton, 0. D. 32 oz.
Shirting, worsted, O. D., 101 oz.
Blankets, wool, 0. D., 4 lbs., Med. Corps.
Undershirts, woolen
Drawers, woolen
Kersey, O. D., 30-32 02.
Socks, woolen, heavy
Socks, woolen, light
Gloves, woolen, 0. D., Off., W. O. & E. M.
Serge, 0. D., 13 OZ.
Blankets, Saddle, O. D.
Buiting, O. D., 20 oz.
Serge, 0. D., Cotton & Wool Lining, 4.9 oz.
Sweaters, O. D., Nurses
Sweaters, O. D., Air Corps
Bunting, wool, O. D., 4.2 oz.
Mufflers, woolen, 0. D., Nurses
Gloves, Woolen, 0. D., Nurses
Flannel, woolen, gray, 28", lining for horse covers
Felt, several kinds
Cloth, lining, wool, knitted, 0. D. 22.5 OZ.
Elastique, O. D., 18 OZ.
Cloth, lining, wool, 11 OZ.
Serge, O. D., 16 oz.
Cloth, shirting flannel, 10# OZ.
Woolen inserts, leather gloves
Toques, worsted
Bags, sleeping, wool filled.
Source: Lt. Col. C. A. Hardigg
105
Secretary Morgenthau - 2
Navy
Blankets, wool, white, crew, single
Caps, watch
Flannel, blue, 11 oz.
Gloves, woolen
Jerseys
Melton, blue, dark, 16 oz.
Socks, wool, black
Socks, wool, natural color
Undershirts, cotton-wool, mixed
Kersey, blue, dark, 30 oz.
Lining, felt, grey
Cloth, blue, dark, for officers' uniforms
(16, 20 and 28 oz.)
Cloth, maroon
Drawers, men's, cotton-wool, mixed
Serge, blue, dark (14, 15, 16 and 17 oz.)
Trunks, bathing
Source: Commander W. B. Young
Marine Corps
Underclothing
Outer clothing
Overcoats
Blankets
Saddle Blankets
Field hats
Buntings and flags.
Source: Col. L. S. Swindler
December 16, 1940:
106
The Secretary requested of Mr.
Haas: "I noticed in your latest report
that the price of butter is up 33 or
34 %. I wish you would let me know
whether the Department of Agriculture,
through any of its affiliates or sub-
sidiaries, owns any butter, stores any
butter, or is lending any money on but-
ter." A copy of the memorandum prepared
in response to this request is shown as
Exhibit 6.
107
December 18, 1940
To
Secretary Morgenthau
From
Mr. Haas
Subject: Butter under loan or owned by Department of
Agriculture.
In response to your request of yesterday, I have learned
that the Commodity Credit Corporation has acquired under its
1940 price stabilization program 66,000 pounds of butter,
valued at approximately $19,000, and the Surplus Marketing
Administration has 25,000 pounds (chiefly 1939 butter) for
relief distribution, valued at about $8,500. This represents
the total present interest of the Department in the butter
market.
December 18. 1940:
108
The Secretary had insisted for
some time that a shortage of steel
capacity was in prospect, despite as-
surances from Mr. Stettinius to the
President that the industry was pre-
pared to meet all demands. On this
date he sent a letter to the President
expressing his serious concern over the
prospective steel shortage. Exhibit 7.
Secretary of the Treasury
109
December 18, 1940
My dear Mr. President:
My interest in forestalling potential inflationary developments that
would react unfavorably on the economy of the country, as well as our
whole fiscal program, and in guarding against possible shortages of de-
fense materials, leads me to express my serious concern over the growing
congestion in the steel industry.
No expert knowledge is necessary to see that the steel industry will
be unable to handle the volume of orders that lies ahead. In addition to
the huge British orders that are now in prospect, the bulk of our defense
orders are still to be placed with the steel mills, and the ordinary non-
defense demand will undoubtedly be enlarged as the national income rises.
As you will note on the chart which I am attaching, there is very little
capacity available in any steel district for a further increase in output.
A system of priorities, applied except as a temporary expedient,
would seriously hamper the program for achieving full employment of labor
and resources.
I have not been greatly encouraged by recent press announcements of
expansion plans by certain steel companies. In an attached table I have
listed all of the proposed increases in steel ingot capacity that I know
about, plus the new capacity (electric furnace) completed this year or
under construction. Taken together, this amounts to a prospective in-
crease in ingot capacity of only 2.7 per cent, the bulk of which apparently
will not be completed for 12 to 18 months.
You will recall the large steel expansion that was found necessary
during the World War, when the ingot capacity was increased about one-third
between 1914 and 1918. In view of the increasingly urgent need for more
steel, it seems to me that an immediate major expansion program for the
steel industry is clearly called for.
Faithfully yours,
The President,
The White House.
110
New steel capacity completed, under construction
or authorized since January 1, 1940
Net tons
Bethlehem Steel Corporation
850,000
U. S. Steel Corporation
400,000
American Rolling Mill
50,000
Electric furnaces
(American Iron and Steel Institute
estimate of capacity of 21 new
electric furnaces now in operation,
or expected to be in production
early in 1941)
900,000
2,200,000
STEEL OUTPUT AND RATED CAPACITY
Weekly Tonnage
1940
1941
JFMAMJ 1939 J A # o N D J F M A J A 6 o N o F M
TONS
TONS
Millions
U.S. Total
Millions
Copacity
1.6
1.6
1.4
1.4
1.2
1.2
Output
1.0
1.0
#
#
&
.6
4
.4
2
2
o
0
J F M A M J J A # o N D J F M A M J J A $ o N o J F M
1939
1940
1941
PRINCIPAL PRODUCING DISTRICTS
1939
1940
1941
1939
1940
1941
JFMAMJJ
N
0
F
A
A
F
,
TONS
TOMS
Thousands
Thousands
Thousands
Chicago
Copecrt:
360
360
320
320
Pittaburgh
Capacity
320
$20
280
200
200
280
240
240
240
240
200
200
Output
200
200
160
160
Output
160
160
120
120
120
120
no
so
so
so
40
40
40
40
o
#
Youngstown
0
o
200
200
140
Philadelphia
160
160
160
120
120
120
120
so
80
so
-
40
40
40
40
e
0
o
e
Cleveland
Buffalo
so
se
as
⑉
40
40
40
40
0
6
o
e
Birmingham
40
40
48
:
Wheeling
0
.
.
.
Cincinnati
40
40
40
40
Detroit
.
.
0
e J F M A M 4 J A a o . 0 é # M A M. J. A . e # D F
,
#
-
A
A
$
o
.
-
1939
1940
1941
1939
1940
1941
"Based - from Age data
111
- of - - of - -
C-344
I
Regraded Unclassifie
.
January 8, 1941:
112
A letter and chart were sent to
the President on this date showing the
increase in cost of building a 6-room
frame house in St. Louis. Exhibit 8.
113
January 8, 1941
My dear Mr. President:
I think you may be interested in the
attached chart, which shows that the cost
of a 6-room frame house in the St. Louis
area has increased 13 per cent since July,
and shows in detail the individual cost
items responsible for this increase.
Faithfully yours,
The President,
The White House.
114
Residential construction costs 13 per cent above July
Estimated costs of construction for a standard 6-room
frame house in the St. Louis district, compiled each month
by the Real Estate Analyst, show an increase of 13 per cent
since July. The itemized increases for materials, labor,
and general costs are shown on the attached chart.
It will be noted that the largest percentage increase
has been in the cost of finished and unfinished lumber. Lum-
ber costs, however, levelled out between November and December.
(The BLS figures on wholesale lumber prices also show a level-
ling out during the three weeks ended December 14, but in the
last two weeks of December a further rise has carried them
again to new highs.) The cost of heating and plumbing ma-
terials in December, according to this compilation, declined
below the cost in July.
The greatest advance during the past month was in labor
costs, and certain general costs have also increased. (Lower
sections of chart.)
CHANGES IN COST OF CONSTRUCTION OF STANDARD
6-ROOM FRAME HOUSE, ST. LOUIS
Percentage Change, November and December over July 1040
PERCENT
ITOI AND PERCENT CHARGE
COST
Materials
JULY TO Drc. 1940
Dec.
1940
30
UNFINISHED LUMICR 32.9%
$493
25
FINISHED LUMICE 23.7%
805
20
WINDOWS, Doors, ETC. 14.05.
645
15
MASONRY AND TILE
MATERIALS 6.9%
655
10
PAINT, HARDWARE AND
ELECTRIC MATERIALS 1.0%..
390
5
HEATING AND PLUMBING -2.5%
508
o
MATERIALS
$3,496
-§
JULY
NOV.
DEC.
20
MASORIEY AND TILE
Labor
MATERIALS 18.2%
$726
UNFINISHED 15.2%
182
15
PAINT, HARDWARE AND
ELECTRIC MATERIALS 13.1%
259
10
FINISHED LUMBER 13.0%
243
WINDOWS, Doors, ETC. 12.3%
219
5
HEATING AND PLUMBING 10.3%
321
LABOR
$1,950
0
+5
JULY
NOV.
DEC.
20
General
INSURANCE,
SALES TAX, ETC.* 14.7%
$375
15
GENERAL CONTRACTORS'
PROFIT 13.4%
585
10
SUBCONTRACTORS OVERNEAD
AND PROFIT 8.0%
380
5
GENERAL
$1,340
o
JULY
NOV.
DEC.
TOTAL COST, Dec.,
$6,786
TOTAL COST, JULY.
$6,004
. MISSOURI SALES TAX (now 2 PER CENT ON MATERIALS), OLD AGC AND UNEMPLOYMENT
INCREASE
$782
TAX (FEDERAL AND STATE), LIMILITY AND EMPLOYEES COMPENSATION INSURANCE,
FIRE AND TORMADO INSURANCE, COMPLETION BOND.
PERCENT
13.0
SOURCE: REAL ESTATE AMALYST.
115
Other of the Service of the Transury
I % ] I I
C-368
Regraded Unclassifie
January 13, 1941:
The Associated Press quoted the 116
Secretary as saying at his press con-
ference that prices of wool and cer-
tain other commodities were too high,
and that the danger of price inflation
necessitated "every agency of the
Government watching the situation every
minute of the time." Exhibit 9.
117
Copy of Associated Press report of January 13, 1941,
covering statement on wool prices at press conference on
that date:
Secretary Henry Morgenthau Jr said today that he had
been alarmed by what he called "unwarranted rises" in the
prices of lumber, scrap iron and wool, but that Leon
Henderson, member of the National Defense Commission had
been doing a "grand job" in handling the price situation.
The Treasury head added that the danger of price
inflation necessitated "every agency of the Government
watching the situation every minute of the time."
In the Treasury, Mr. Morgenthau added, scarcely a day
passes without some discussion of the price situation. He
said that no use of tax powers to control prices appeared
to be necessary at present, but that this possibility was
being studied.
Mr. Morgenthau said one of the price rises which he
had noticed and which he thought "unreasonable" was a
13 percent rise in the price of a six-room house in St.
Louis since last July.
January 15, 1941:
118
The Associated Press statement
quoting the Secretary as saying wool
prices were too high brought criticism
from the Secretary of the National Wool
Growers' Association. Resulting cor-
respondence 1s shown in Exhibit 10.
COPY
119
January 16, 1941
12 W
WY12 M 140 NT
Great Falls Mont Jan 15 1941
Hon Henry Morgenthau Jr
Secretary of the Treasury
Wiring as Secretary National Wool Growers' Association
representing fifteen thousand western wool growers wish
express regret publication Associated Press statement
January thirteen quoting you saying have been unwarranted
advance in wool prices. We feel that careful checking will
convince you that statement 1s unwarranted and unfair to
wool producing industry and misleading to consumers. Urge
you consult Department Agriculture "Farm Price Figures"
which show wool prices now lower than fall 1939 or 1937
and lower than average ten years following 1914. Will
appreciate your wiring me Davenport Hotel Spokane saying
if you were quoted correctly and if 80 if you will investi-
gate and issue fair correction. Also please advise if you
have complied with Section 303 Tariff Act which requires you
increase duty on wool imported from Uruguay account export
subsidy being paid by that Government. Will appreciate
early reply.
F R Marshall
Regraded Unclassified
120
COPY
January 19, 1941
CA298 24 NT = Spokane Wash 19
Hon Henry L Morgenthau =
Treasury Department Wash D C
Reference my wire 15th sent as Secretary National
Wool Growers Association request you wire reply care
Davenport Hotel Spokane on two questions asked you.
F R Marshall
Regraded Unclassified
121
COPY
January 21, 1941
Mr. F. R. Marshall
Davenport Hotel
Spokane Washington
Your wires January 15 and 19 re wool prices Letter to you
will go forward today.
Herbert E. Gaston
Assistant Secretary Treasury
122
January 21, 1941.
Mr. F. R. Marshall,
Secretary, National Wool Growers' Association,
c/o Devenport Hotel,
Spokane, Washington.
Dear Mr. Marshall:
For Secretary Morgenthau I am replying to your wire of January 15,
which had reference to an Associated Press report of a statement with
respect to wool prices made by the Secretary at a press conference on
January 13. I have before me a press clipping of an Associated Press
report of that date which reads as follows: "Secretary Henry Morgenthau,
Jr., said today that he had been alermed by what he called 'unwarranted
rises' in the prices of lumber, scrap iron and wool, but that Leon
Henderson, member of the National Defense Commission had been doing a
'grand job' in handling the price situation."
This statement is essentially correct. The Secretary's concern
over the price situation for woolen goods 1B shared by the Defense
Commission as indicated in a newspaper article of January 6, which reads
as follows: "Tomorrow, Mr. Henderson has invited representative members
of the wool manufacturing industry to Washington to discuss prices on
woolen piece goods. Buyers of woolen goods have complained to the Defense
Commission of sharply advanced prices on fall lines and of high pressure
sales methods by some sellers which tend to create an unnecessary rush to
cover recuirements at higher prices. It is reported that less than half
of the increase in prices now being cuoted can be explained on the basis
of higher raw wool prices, Mr. Henderson said, adding that such unjusti-
fied increases in the cost of piece goode would inevitably be reflected in
an increase in the price of retail clothing. It is hoped that this con-
ference will draw the attention of the industry to the importance of pre-
venting the start of an upward spiral in prices and will result in &
reconsideration of any contemplated price advances at this time when buyers
are covering their fall requirements, the defense commissioner said."
Secretary Morgenthau has indicated full agreement with the position
taken by Commissioner Henderson and at his press conference on January 13
he referred to the experience of the Procurement Division of the Treasury
Department in purchasing woolen goods for use by the Red Cross and non-
military agencies of the Government.
Section 303 of the Tariff Act, to which you refer in the last
sentence of your telegram of January 15, authorizes the Secretary of the
Treasury to impose countervailing duties on imports of dutiable goods with
respect to which it has been determined that export subsidies are being
paid.
Regraded Unclassified
123
- 2 -
Information before this Department is that there exists in Uruguay
a currency control, which, as administered, may favor certain exports over
others. With the exception of manufactured woolen articles wool is not at
this time among the favored commodities. The Department is giving inten-
sive study to the Uruguayan control system with the provisions of Section
303 of the Tariff Act in mind.
Very truly yours,
Herbert E. Gaston
Assistant Secretary of the Treasury.
124
COPY
February 4, 1941.
Dear Mr. Marshall:
In reply to your telegram of January 31, I will say that a
closer study of the wool price situation which we have recently made
raises the question whether the criticism of woolen goods prices by
Commissioner Henderson and Secretary Morgenthau, to which you refer,
does not apply with almost equal force to wool prices.
We are much concerned, for example, with the increase in the
price of cloth used in Army uniforms. The wholesale price of fine
grade serge uniform suiting rose 12 per cent during 1940, from a low
of $2.426 B yard on February 27 to $2.723 on December 24. Medium
grade serge in the same period rose 18 per cent. We find that prices
for certain types of wool in 1940, however, made considerably greater
gains than these in a shorter time. As a measure of prices for one
type of semi-manufactured wool, the price of wool tops at New York
rose to $1.44 B. pound on January 31, 1941, as compared with prices
below $1.00 as recently as last August. During the highly speculative
price rises of early 1937 and the fall of 1939, the highest monthly
averages for wool tope were $1.30 in January, 1937 and $1.21 in
October, 1939.
Raw wool prices have shown very extensive price gains. I note,
for example, that the average monthly price of Ohio fine combing wool
at Boston, as reported by the Department of Labor, rose 29 per cent in
four months between August and December. Ohio fine delaine combing
in the same period rose 27 per cent, and wholesale prices of various
other types increased in those four months around 25 per cent.
I note that the average farm price of wool in your State of
Washington, as reported by growers to the Department of Agriculture,
rose from 24 cents a pound in August to 33 cents in December, an
increase of 372 per cent.
The average farm price of wool in the United States, which rose
14 per cent between August and December, reached 31.2 cente a pound in
the latter month, This was far above the Department of Agriculture's
parity price of 23.2 cents in December. It 1s also above the peak of
28.7 cents reached in October, 1939, and is 3 per cent above the aver-
age price in 1929. In contrast, the average price received by producers
of all farm products in December was 29 per cent below the 1929 average,
and showed a gain of only 5 per cent in the last four months of 1940.
Regraded Unclassified
125
- 2 -
You should understand that the concern expressed by the Secretary
was not so much over a level of prices at a particular moment as over
rates of increase threatening violent dislocation of the price struc-
ture. From this point of view and in the light of the facts mentioned
above, his position seems to have been well justified.
Sincerely yours,
Herbert E. Gaston
Assistant Secretary of the Treasury.
Mr. F. R. Marshall,
Secretary, National Wool Growers Association,
509 McCornick Building,
Salt Lake City, Utah.
Degraded
-
January 28, 1941:
126
The Secretary asked Mr. Haas to
discuss with Mr. Hamm of the OPA the
problem of controlling prices in the
metal markets. A resulting memorandum,
from Mr. Haas is shown as Exhibit 11.
127
January 28, 1941
To
Secretary Morgenthau
From
Mr. Haas
In accordance with your request I telephoned Mr. Ham and
he explained the extreme difficulty they are having controlling prices
in some of the metal markets. He mentioned in particular aluminum
scrap and zine scrap.
Taking zinc as an illustration, he said that through the
efforts of Mr. Henderson's office the producers of virgin zinc have
maintained a price of $7.50, whereas because of the extreme demand
for zinc, scrap zinc upon which they have no control at present is
selling for $10.50. He pointed out that new capacity, which would re-
lieve the situation somewhat, would not come into production until
sometime in June.
Mr. Ham was confident that & price situation of this kind
should be handled by a system of priorities, rationing the output of
the industry. He seid that additional legislation would be required
to grant power to the President to ration such products for civilian
as well as for military uses. He spoke to Attorney General Jackson
about the legislation and also raised with him the question as to who
should be responsible for the priority or rationing policy. He said
that Mr. Jackson suggested that he discuss the matter with you as he
thought you had discussed this matter with the President at one time
Mr. Ham said his study of the British procedure and organ-
ization for rationing clearly indicated that responsibility should be
placed in the hands of one agency. He said the British experience also
indicated that the best results were obtained when it wes in the hands
of civil service employees rather than in the hands of businessmen.
He would like to know that he had your help and backing in
getting a priorities and rationing organization set up, presumably
under Mr. Henderson or somewhere where the work would be conducted to
their satisfaction. He considers this problem of the most vital
importance in the control of prices and feels that it is very urgent.
As there is to be a meeting of the Defense Commission tomorrow morning
at 11 o'clock, Mr. Ham had hoped to see you, along with Mr. Ginsberg
(Mr. Henderson's legal adviser in the Defense Commission), sometime
this afternoon, if only for ten minutes. He said he was greatly in need
of your help.
Mr. Ham said that Mr. Henderson is in Florida and may be
away for a month or more.
Regraded Unclassified
128
February 17, 1941:
Following conferences at the
Treasury with Messrs. Hamm and Ginsberg
of Mr. Henderson's office, at which the
rationing of civilian demand was dis-
cussed and an illustrative chart on
zinc prepared, the Secretary wrote a
letter to the President, in which the
extent of cooperation between the
Treasury and the Price Administrator's
office is indicated. Exhibit 12.
THE SECRETARY OF THE TREASURY
WASHINGTON
129
February 17, 1941
My dear Mr. President:
Before Leon Henderson left on his vacation,
he asked that I see his two principal assistents,
Mr. Hamm, who is an economist, and Mr. Ginsberg, who
is his attorney, in case they needed guidence.
Last week, these two gentlemen had lunch
with me and brought to my attention the question of
the rationing of civilian demand for various strategic
commodities. I asked them to work out the case of
zinc, which they did with the assistance of Mr. George
Haas, of my office. I had not realized until they brought
this matter to my attention how important the rationing
of the civilian demand for strategic materials is.
I am enclosing a chart which clearly outlines
the problem. I am also enclosing a draft of proposed
legislation prepared by Mr. Henderson's office. After
reading these documents, I would appreciate suggestions
from you as to how to guide these two gentlemen during
Mr. Henderson's absence.
I am sending a complete copy of this corres-
pondence to the Attorney General.
Yours sincerely,
(signed) H. Morgenthau, Jr.
The President,
FORDEFENSE
The White House.
BUY
UNITED
STATES
ENVINGS
BONDS
AND TAMPS
Regraded Unclassified
130
THE NEED FOR POWER TO RATION CIVILIAN DEMAND
IN ORDER TO MAINTAIN PRICE STABILITY
A Specific Example
ZINC, SUPPLY AND DEMAND IN THE FIRST HALF OF 1941
(FIGURES IN THOUSANDS OF SHORT TONE)
The total picture appears as follows:
Primary Production
Scrap
SUPPLY
487
t
DEMAND
54
430
Militaryand British
Civilian Demond
Shortage 40°
But this breaks down into two parts:
/ RATIONED MARKET-VIRGIN METAL
(Price 7.25 Centa)
Primary Production
SUPPLY
427
DEMAND
14
373
Military and British
Retioned Civilian Demand
2. COMPETITIVE MARKET SCRAP METAL
(Price 10 Cente and up)
Armary preducers are -
hang - - ordere from
certein - their former -
SUPPLY
in
tomare who are furning a
the secondary producérs
DEMAND
57
Remainder of Civilies Demand
1. the secontial problem le to restore a balance
3. This MANA, is the first place, that legislation
either by increasing supply - this aannot be done during
is accossary authorising the Prestdent to ration supplies
the sext six months -- or by reducing or otherwise -
is the event of stortage. Priority for Area and Ravy
trelling denand,
ordere my be required under Bestion 2(a) of Public No.
1. 40,000 toss of demand san be aliminated in any
671, but there is ao similar legal authority to control
cas of three wager
and retion the residual supply for civilian purposes.
(a) Let price go - until 40,000 tone of demand
4, This power to determine the growth and survival
turns to substitutes.
of American inlustry le transmics, IN La unquestionably
(b) Pla the price (we think - can 4a 18) but
the mist far-reaching authority which the Government will
leave the srusial power of desiding who
require during the defense program.
gots sine and who does not to the assendary
5. Yhere should this power be lodged? English
producers.
experience indicates that military priorities and sivilian
Quary: are they La a position to
retioning should be administered by . single agency. This
decide how sine can beet be used in the
would paggest that the retioning pover should be delegated
antional public interest? (Are the primary
14 00% and English experience also indicates
professrs, who are see retioning all sine
very definitely that these controle should net be ladged
not taken for military purposes, La any
vith business groups - their Le to advise, not
better position?)
$ entral. It le questionship whether OFK and the
(a) FLI the price and grant the retioning power
military-business group visa at present control military
to a Government agency.
priorities have the breadth of and social rision
This is obviously the only destrable
to a proper administration et . et
sourse, Retioning La . governmental power
equally important program of civilian retioning which will
which ours be exproised is the public,
" intimately south the sorale and valiery it
not the private interest.
una person in this
1-151
Regraded Unclassified
February 27, 1941:
131
The Secretary requested Mr. Haas:
"Please bring to Leon Henderson's atten-
tion the fact that there is a tremendous
rise in imported commodities. What
are they doing about it? I want to hear
from them. Have they brought it to the
President's attention? If not, do they
want me to bring it to the President's
attention?" A letter subsequently sent
to the President on this subject (March 11)
18 shown as Exhibit 13.
THE SECRETARY OF THE TREASURY
WASHINGTON
132
March 11, 1941
My dear Mr. President:
I should like to bring to your attention the steady
increase in prices of imported materials that has been
under way for a month or more. The contrast, 28 compared
with the rather flat trend of domestic commodity prices,
is shown on the attached chart made from prices of the
11 imported materials and 17 domestic materials in the
Bureau of Labor Statistics daily price index of 28 basic
commodities. The price index of imported materials has
geined 10 per cent since the end of January, as compared
with a 2 per cent average gain in prices of domestic
materials.
While the increased prices are attributed in the
press to the tight ocean shipping situation, an increase
of one-third in prices of cocoa and shellac within five
reeks would also suggest that speculative buying has
been a factor. I note that the volume of trading in
cocoa futures increased sharply last week. Increasing
speculative activity in any group of commodities would
tend to affect other groups, and would add to the dif-
ficulty of holding a general price rise in check.
Faithfully yours,
(signed) H. Morgenthau, Jr.
The President,
The White House.
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
Regraded Unclassified
133
MOVEMENT OF BAGIC COMMODITY PRICES
Domestic and Imported
AUGUST 1939 - 100
1941
1940
1941
JANUARY
FEBRUARY
MARCH
APRIL
J
F
.
A
M
,
-
A
I
9
,
D
*
,
M
A
-
of
11
18
25
0
PER
15
22
0
15
22
29
5
12
19
26
PER
PER
PER
CENT
CENT
Weekly Average
CENT
CENT
Daily
135
135
132
132
130
130
120
128
11 IMPORTED
125
125
COMMODITIES
11 IMPORTED
124
124
COMMODITIES
120
120
120
120
115
115
17 DOMESTIC
17 DOMESTIC
116
COMMODITIES
116
COMMODITIES
110
110
112
105
112
105
100
100
108
III
108
8
15
22
29
5
12
19
26
J
,
-
A
-
J
J
A
a
o
-
D
J
F
M
A
-
J
4
10
25
1
B
15
22
-
1940
1941
JANUARY
FEBRUARY
MARCH
APRIL
1941
Percentage Change for Individual Commodities, August 1940 Low to February 20, 1041, and to March 7, 1941
PER
PER
0000A 67.38
CENT
CENT
17 DOMESTIC COMMODITIES
11 IMPORTED COMMODITIES
Yes, 52.38
50
TALLOW 50.0%
50
TENELLAR 4.5
- 45.9%
40
40
reises 33.36
APRINT BLOTH 31.00
30
LAB N.4
30
morrez 27.98
BIL
26.48
MINICAT 25.08
- 22.45
I
21.45
-
27.8
ALEAD
21.1%
20
MARLEY
15,7%
20
i
15.2%
ARIM
15.1%
-STED scare, - 14.5%
- 12.45
INSURTER
13-21
NOTEERS
10
11,48
10
-
THE 5.95
4001708
:
NATED SORAP, EXP. 5.%
NTIN 2-2%
o
o
--- 4.7%
-10
-10
Fca.28 Mas.7
Aug. Low
Fes.28 Mar.7
Aus. Los
Office of the Secretary of the Treasury
P - 199 - 6
- of - or Notifies
Regraded Unclassified
March 14, 1941:
134
The Gano Dunn Steel report, indi-
cating no shortage of steel capacity,
was at variance with conclusions arrived
at from analyses by the Treasury and
other Government agencies. A criticism
of the Dunn report submitted to the
Secretary, together with correspondence
with Mr. Dunn, is shown in Exhibit 14.
135
March 14, 1941
To:
Secretary Morgenthau
From:
Mr. Haas
Subject: Comments on Gano Dunn steel report
I am submitting herewith, in response to your request,
an analysis of the Gano Dunn report on the adequacy of our
steel capacity.
This analysis, while not carried out in extensive
detail, is sufficient to reveal that the apparent surplus
of steel capacity indicated by the Dunn report is based on
a number of unrealistic and erroneous assumptions. When
allowance 18 made for these, it seems very likely that any
surplus may be wiped out before the end of this year, and
certainly by 1942.
Since the entire question of the speed of our defense
effort is bound up in the adequacy of our steel capacity,
it would seem that any differences of opinion should be
resolved on the side of providing too much capacity rather
than too little.
Attachments
136
Comments on the Gano Dunn Steel Report
I. The Treasury's relation to the question of steel capacity
1.
For some time, concern has been felt in various
quarters over the adequacy of our steel capacity. On
December 18, 1940, a letter was sent to the President by
the Secretary of the Treasury in which he expressed con-
cern over this problem, saying that "no expert knowledge
18 necessary to see that the steel industry will be unable
to handle the volume of orders that lies ahead,' The need
was indicated for an immediate expansion of steel capacity
in order to forestall potential inflationary developments,
which would react unfavorably on the economy of the country
as well as on our whole fiscal program, and to guard against
possible shortages of defense materials.
2.
The President appointed Mr. Gano Dunn to make 8 thorough
study of the steel industry and to submit a report, compar-
ing probable steel requirements with the capacity of the
steel industry to meet those requirements. Mr. Dunn con-
ferred with Secretary Morgenthau regarding the Treasury's
interest in the subject, and was offered all information on
steel requirements available in the Treasury.
3.
On January 17, 1941, the Division of Research and
Statistics completed a statement converting into equiva-
lent terms of ingot steel the quantities of various com-
modities required by Great Britain, as listed in a secret
document prepared in London and presented to Secretary
Morgenthau early in January by Mr. Arthur B. Purvis,
Chairman of the British Supply Council in North America.
The rates of conversion used by the Treasury were very
conservative, and were determined after consultation with
the steel expert of the Bureau of Research and Statistics
of the National Defense Commission. In line with Secretary
Morgenthau's offer of assistance to Mr. Dunn, the statement
was sent to him by the Secretary immediately upon completion.
4.
On January 22, Mr. Philip Young sent Mr. Dunn a copy
of the December monthly report of the British Iron and
Steel Corporation, the purchasing agent of the United
Kingdom for commercial steel in the United States. This
report presented, among other things, certain figures
which were stated to be estimates of the future monthly
exports of commercial steel.
I/ A copy of this letter, together with other letters referred
to, 18 attached to this report.
Regraded Unclassified
- 2 -
137
5.
On January 27, Mr. Dunn wrote the Secretary raising
certain questions about the Treasury conversions of
British requirements. In the absence of the Secretary,
the questions raised by Mr. Dunn were answered in a letter
of Acting Secretary Gaston, dated February 3. In order
that Mr. Dunn might make his own conversions into ingot
steel, Mr. Gaston also enclosed for his confidential use
a_copy of the estimates of requirements for selected com-
-
- modities shown in the "London secret document" previously
referred to,
II. Some general comments on the report
1,
The conclusions of the Dunn report may be briefly sum-
marized as follows:
(a) Steel capacity 1s larger than calculated by
the American Iron and Steel Institute because the in-
active time allowed for repairs and maintenance may
be reduced, and certain capacity for making steel
castings may be added.
(b) The total steel requirements for defense,
British, and civilian needs are sufficiently lower
than capacity to indicate a surplus for the calendar
year 1941 of from 10 to 14 million tons, depending
upon whether national income 1s $80 billions or
$77 billions. For 1942, the surplus would be from
2 to 6 million tons depending upon whether national
income were $90 billions or $87 billions.
(c) To make the calculated steel capacities ef-
fective it would be necessary to make certain in-
creases in blast furnace and coke capacity.
2.
No comprehensive analysis of the Dunn report can be
made without undertaking B. lengthy project. No such
analysis is necessary, however, to conclude that the
position taken in Secretary Morgenthau's letter of
December 18 was well advised. This may be seen by consider-
ing some of the assumptions and calculations in the report
which appear to be erroneous. Most of these seem to
arise as a result of what appears to be a consistent ef-
fort in the report to use every possible means to increase
the indicated steel plant capacity and to decrease the
indicated requirements for steel.
Regraded Unclassified
138
- 3 -
III. Considerations in Dunn report regarding plant capacity
1.
The Dunn report exaggerates the ingot capacity of the
steel industry by assuming that the industry can operate
at an average of 1021 per cent of capacity, as rated by
the American Iron and Steel Institute, Even allowing for
additional capacity coming into production, an average
rate of 102. per cent seems an excessive expectation,
particularly in 1941, for the following reasons:
(a) Since much old and obsolete capacity has
been brought into production, repairs will be more
frequent and a high operating rate more difficult
to attain.
(b) The steel rate has not currently risen higher
than 98.8 per cent of rated capacity, despite all the
pressure on steel production facilities that has been
exerted in recent months.
Since the first quarter of 1941 is nearly
past, with the steel rate averaging only 97 per cent
of capacity, the rate would have to go immediately
to nearly 1041 and hold at that level for the re-
mainder of the year to average 1021 per cent in 1941.
(c) Historical precedent provides no basis for
such an expectation. Even during the World War period
this rate was not reached. The Dunn report 8 ntaine
8 chart (labelled Appendix A) and table (Appendix B)
purporting to show that during the World War the out-
put of steel reached a peak of 101.6 per cent of rated
capacity in the year 1916. The figures used in this
chart and table, however, do not accurately represent
the rate of output, since they are based on capacity
at the end of the previous year (a customary but fal-
lacious method) which fails to take into account the
effect of increases in capacity during the year. In
another section of the report (page 29), Mr. Dunn
recognizes the desirability of taking such increases
into account, saying "If such capacities had been
added as they came into operation, the percentages by
which production exceeded capacity would be reduced.
Using his figures (Appendix B of the report) the
average rate of steel output in 1916, based on average
capacity during the year, was 97.6 per cent.
4
139
2.
The steel capacity figure 1s exaggerated by the addi-
tion of 1,320,000 tons of capacity for "outside steel cast-
ings" as of December 31, 1940 and 1,387,000 tons as of
December 31, 1941. If these are included in the capacity
figures, steel castinge should also have been included in
the estimates of steel requirements.
3.
The Dunn report similarly exaggerates the pig iron
capacity by assuming that blast furnaces can operate at
an average of 1021 per cent of rated capacity in 1941 and
1942. In vi ew of the fact that the pig iron rate in
January 1941, as estimated by the American Iron and Steel
Institute, was only 95.5 per cent of capacity, and in
February only 95.2 per cent, the rate would have to rise
immediately to 104 per cent of capacity and hold at that
level until the end of the year to average 1021 per cent
in 1941.
IV. Considerations in Dunn report regarding recuirements
1.
A serious understatement of steel requirements is
made in presenting the estimates as for the calendar
years 1941 and 1942, when in reality the essential data
apply to the years ending 6 months earlier. Thus it 16
said (page 50) that "the estimates in this report are in
terms of calendar years" and the estimates of total steel
requirements are given as 77,5 million tons "for the
calendar year 1941" (page 62) and 89.0 million tons "for
the calendar year 1942" (page 63). Yet the figure of 61.0
million tons of steel used for civilian requirements in
the estimate for calendar year 1941, for example, is the
de Chazeau estimate of requirements during the year end-
ing June 30, 1941, (not "at the end of the year" as stated
in the report) and similarly for calendar year 1942. To
correct this one item, it would be necessary to project
the de Chazeau estimate 6 months ahead, which would add
4.5 million tons to civilian requirements in calendar year
1941.
The only possible justification for this might be that
the author wished to be conservative as to national income
levels. That 1s to say, the Dunn report may have taken the
de Chazeau national income figures on a fiscal year basis
as a calendar year estimate. If this be the case, the
Dunn report assumes a level of national income 5 billion
dollars lower in the calendar year 1941, and a correspond-
ingly lower volume of steel requirements for civilian
consumption, than 18 consistent with the de Chazeau basic
estimates which the Dunn report claims to accept.
- 5 -
140
2.
The estimates of steel required for direct defense
needs of the United States are obviously too low,
(a) Because they are based only on appropria-
tions actually made (for the Army, Navy, and Maritime
Commission) as of the end of November. The actual
requirements, particularly in view of the passage of
the lend-lease bill, will obviously exceed appropria-
tions as of that date.
(b) Because they are for fiscal years, and cover
periods 6 months earlier than the calendar years to
which the estimates of total requirements are stated
to apply. A correction for this error would add
700,000 tons to direct defense requirements for the
calendar year 1941, without allowance for any require-
ments in excess of those for which appropriations
had actually been made as of the end of November.
(c) Because, except for requirements of the
Bureau of Docks of the Navy, they make no allowance
for the construction steel directly or indirectly
required for the defense program. These requirements
are not included in any other category.
3.
The Dunn report does not allow for ingot steel re-
quired for American plant expansion to take care of certain
projected British programs in this country. This item is
mentioned in connection with British requirements for ex-
port with the explanation that it 1s being transferred to
the classification of civilian consumption, but the amount
involved has not been added to the other items included in
estimates of civilian consumption in the Dunn report. The
Treasury statement had included British estimates for this
item as prepared by the British Purchasing Commission.
4.
British requirements for steel, according to the Dunn
report, are reduced considerably as compared with the
figures arrived at by the Treasury through translating
into ingot steel the requirements listed in the "London
secret document". The reductions are achieved by various
means, but all are unwarranted, In this connection, the
Dunn report gives the impression that the Treasury itself
estimated what the British needs were, rather than merely
translating into steel ingots the specific quantities
of particular items cited in the "London secret document".
141
- 6 -
The major weaknesses in this section of the Dunn report
may be described briefly as follows:
(a) The figures used for commercial steel are
based on exports considerably lower than were indicated
as requirements in the "London secret document." The
latter figures were in Mr. Dunn's hands but instead he
used information taken from the monthly report of the
British Iron and Steel Corporation. The commercial
steel figures in the Corporation's report are not as
comprehensive nor as newly estimated as those in the
"London secret document.'
(b) The Dunn report allows ingot steel for British
ships to the amount of only 120 ships per year, whereas
the "London secret document" calls for 21 to 3 times
as many. From the Treasury conversions of figures cited
in the "London secret document", the Dunn report cal-
culates that 334 ships are involved in 1941 and 300 in
1942 but deems these quantities excessive" in view of
the capacity of our yards built, building and to be
built; and the large additional demands upon them for
the construction of American ships."
(c) The Dunn report also reduces the Treasury con-
version figure for ammunition in 1942 on grounds that
the rate of conversion was too high. No change was made,
however, in the Treasury figure for 1941, although exactly
the same ammunition items were covered and the same con-
version factor was used,
(a) To offset all these reductions, the Dunn report
sets up a special allowance which is intended to appear
as being generous in providing for British export, but
the allowance 18 so small that it 1s only & gesture when
compared with the amounts by which British requirements
were written down.
(e) The Dunn report makes its figures for British
export compare favorably with the Treasury figures by
adjusting the Treasury figures to take out something
which 1s not in them. The adjustment 18 made by taking
out almost 2,000,000 tons of pig iron and scrap iron as-
sumed to be in the Treasury figures for ingot steel,
which were not Bo included.
5.
The discussion in the Dunn report of the Treasury con-
versions inadvertently releases to the public important
derivative information from the "London secret document." From
the converted figures, it is possible by converting back-
wards to determine the magnitude of items listed in that
highly confidential report. The Dunn report did this
in the case of ships and actually cited an exact number of
142
- 7 -
ships as computed from the Treasury conversions of the
secret figures. As it stands, the British stated re-
quirements for ships 18 accurately protrayed in the Dunn
report which has been made available for public inspection.
V. Summary and conclusions
In an apparent effort to magnify the indicated steel plant
capacity and to minimize indicated requirements for steef, the
Dunn report makes use of a number of unrealistic and erroneous
assumptions, leading to conclusions regarding the adequacy of
our steel capacity which are untenable.
1.
He assimes that steel furnaces can operate at a rate
21 per cent higher than the capacity as rated by the American
Iron and Steel Institute, despite a lack of historical
precedent, despite an increased number of over-age plants,
and despite the evidence afforded by lower current operat-
ing rates.
2.
He adds a substantial tonnage of steel casting
capacity, although steel castings are not included in the
estimates of requirements.
3.
He under-estimates direct defense requirements by in-
cluding only actual appropriations as of the end of Novem-
ber 1940, by using figures for fiscal years and applying
them to calendar years ending six months later, and by
failing to include most of the construction steel directly
and indirectly involved in the defense program.
4.
He under-states British steel requirementsby fail-
ing to use the most comprehensive and recent of the British
figures. Instead, he uses older and smaller figures for
commercial steel requirements, and drastically writes down
the amount involved in British ship requirements.
5.
He under-states the United States civilian recuire-
ments as compared with the de Chazeau estimates, by using
fiscal year estimates to apply to the calendar years end-
ing six months later.
After allowances are made for the various erroneous as-
sumptions underlying the estimates in the Dunn report, and
particularly if provision be made for steel requirements in
excess of those for which appropriations actually had been
made as of November 1940, it seems very likely that the steel.
surplus envisaged in the Dunn report may be completely wiped
out before the end of this year, and certainly by 1942.
Regraded Unclassified
143
- 8 -
Since the entire question of the speed of our defense
effort is bound up in the adequacy of our steel capacity,
it would seem that any differences of opinion should be
resolved on the side of providing too much capacity rather
than too little.
144
THE SECRETARY OF THE TREASURY
WASHINGTON
January 17, 1941
Dear Mr. Dunn:
With reference to our conversation last
week, I am sending you herewith an estimate
of British Government requirements for steel
in the United States, which is based upon a
British Government report just recently compiled.
Sincerely,
(signed) H. Morgenthau, Jr.
Mr. Gano Dunn,
Senior Consultant,
Advisory Commission on National Defense,
Room 2807 Munitions Building,
Washington, D. C.
145
ESTIMATED BRITISH GOBERNMENT REQUIREMENTS FOR STEEL
IN THE UNITED STATES, IN TERMS OF INGOTS
The attached table shows the estimates which we have made
on the amount of steel required by the British Government in the
United States during 1941 and 1942. These estimates were made on
the basis of the most recent information available concerning
British requirements but they are known to represent an under-
statement in view of the fact that requirement figures were not
available except for major items.
The total estimate for the two years is 25,000,000 tons of
ingots, of which about two-thirds is for commercial steel items and
one-third for steel in manufactured goods, including steel required
for plant expansion purposes. The total requirements thus represent
an ingot output of slightly more than 1,000,000 tons per month. This
compares with a present capacity of about 7,000,000 tons of ingots
per month. The British requirements would thus take up approximately
15 percent of the capacity - assuming the demands were spread over
the two years. It is probable that the actual immediate need is
even larger, since the British estimate of requirements must have
been framed with allowance for United States priorities and for the
availability of bottoms.
It should be noted that our estimates do not include the
requirements of Canada or the other Dominions, and exclude British
requirements in connection with certain manufactured items for which
no data are available.
Attachment
Office of the Secretary of the Treasury,
Division of Research and Statistics.
January 17, 1941.
146
ESTIMATED BRITISH GOVERNMENT REQUIREMENTS
FOR STEEL, IN TERMS OF STEEL INGOTS
(In thousands of tons)
Form of requirement
:
Total
:
1941
:
1942
:
:
:
Commercial steel
16,502
8,251
8,251
Manufactured goods
Ships
2,857
1,504
1,353
Aircraft
347
122
225
Tanks
371
234
137
Ordnance
220
182
38
Ammunition
3,197
918
2,279
Machine tools
66
33
33
Total manufactured goods
7,058
2,993
4,065
Plant expansion
960
480
480
Total requirements
24,520
11,724
12,796
Office of the Secretary of the Treasury,
Division of Research and Statistics.
January 17, 1941
147
THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
Washington, D. C.
January 27, 1941
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
I want to thank you for the estimate of British Government
requirements for steel in the United States, which you sent me
in your letter of January 17 and which I have carefully studied.
Since receiving your letter I have received the Monthly
Program Statement of the British Iron and Steel Corporation, Ltd.,
giving their estimates for the coming year. There is considerable
difference between these estimates, which I should like to submit
for your advice as to whether they can be harmonized.
The British figures from their Institute indicate for the
calendar year 1941 approximately 5 million gross tons in semi-
finished and finished commercial carbon steels. If we assume
(which may not be warranted) that 60% of this amount 1s in semi-
finished steel and convertible into ingots at an inverse ratio
of 85%, and if we assume that 40% is similarly convertible at an
inverse ratio of 72%, it yields an annual delivery of 6,380,000
gross tons, which is equal to 7,120,000 net tons. The figure in
your estimate is 8,251,000 net tons, or 1,131,000 net tons more.
In your estimate 1,504,000 net tons is set aside for ships
during 1941, but I am informed that these ships, which are of a
cargo type, call for 3,500 net tons of finished steel of which
the ingot equivalent is approximately 4,000 net tons. At the
rate of 1,504,000 net tons of requirements this would represent
376 ships, which seems way beyond what might be expected to be
the right number, as it is beyond the present and future capacity
of our shipyards. I am informed that the British program at pres-
ent calls for only 60 ships of which only half are expected to be
off the ways this year.
Would not 500,000 tons for ships seem nearer the possible
requirements than 1,504,000 tons?
The estimate with which you have been kind enough to supply
me gives for the calendar year 1941 918,000 net tons for ammunition.
It is my understanding that a large portion of this ammunition
148
- 2 -
steel is for demolition bombs, which are not made of ingot steel
but of cast steel in foundries whose steel-making capacity is
not included in the ingot capacity figures reported by the
American Iron and Steel Institute for the steel industry. It
would seem, if I am not in error, that a reduction by 500,000
tons to 418,000 tons would be a more likely figure for the
ingot steel for ammunition.
Your estimate also gives 480,000 tons for plant expansion,
but is it not true that this plant expansion is in the United
States, in which case the whole of this item would be included
in the figures for United States civilian consumption and should
not be entered in the export requirements?
If we add together the differences so far accumulated between
your estimates and the estimates of the British Iron and Steel
Corporation, Ltd., they amount to 3,115,000 net tons, and if we
subtract this from your figure for 1941 of 11,724,000 net tons, it
leaves for British export 8,609,000 net tons instead of the
11,724,000 tons of your estimate.
If to the British export we add 1,800,000 tons for Canada
and 2,000,000 tons for other exports, we will get a total export
figure of 12,409,000 tons, which is considerably within the figure
of 14,500,000, which up to now we have been using.
Your estimates did not indicate whether the tons were gross
or net, but inquiry from your office brought the reply that they
were net, excepting for possibly a few items of small amount
which were gross, of which the inclusion would not materially
affect the result.
Appreciating very much your help in this matter, I am
Sincerely yours,
(signed) Gano Dunn
Gano Dunn
Senior Consultant
Industrial Materials Division
149
THE Secretary OF THE TREASURY
WASHINGTON
February 3. 1941
Dear Mr. Dunn:
Receipt is acknowledged of your letter of January 27, in
which you discuss the estimates of British Government require-
ments for steel in the United States.
The first three questions which you raise concerning the
Treasury estimates submitted to you apparently arise because
of a difference in the basic data considered. The Treasury
estimates (except for plant expansion) were based on a secret
comprehensive statement of British requirements which was
recently received from Mr. Purvis. This statement showed, for
selected items, the estimated quantity or dollar value required
from the United States in 1941 and 1942. Naturally, in some
cases, these requirements represent an amount greater than
present available productive capacity in the United States.
This is the case with ships. If the British are to secure the
ships which they estimate they need, however, it will of course
be necessary to attack the problem of increasing ship-building
capacity where it is deficient, as well as supplying the steel
for the ships.
For your confidential use, I am attaching a table listing
the requirements of selected items referred to above. It should
be noted that the figures for commercial steel have now been
cleared up as to the basis of measurement, and the original
Treasury estimates will have to be revised upward accordingly.
Your attention is also called to the fact that no demolition
bombs are included in the ammunition figures, 80 that the
Treasury estimates do not include cast steel for their manu-
facture, as you suggest.
The last question that you raise concerns the amount of
steel required for plant expansion in order to meet British
requirements in this country. The estimate for plant expan-
sion included in the statement of British steel requirements
prepared by the Treasury was taken from data prepared by the
British Purchasing Commission recently but prior to receipt
of the secret comprehensive statement of British requirements
referred to above. This means that the estimate was based on
150
Mr. Dunn - 2
a less comprehensive list of requirements than is now available,
and the figure included in the Treasury table is therefore
probably too low.
In any event, you suggest that steel required for plant
expansion to cover British export requirements should be con-
sidered as already allowed for in estimates of civilian consump-
tion of steel, and that, therefore, such requirements should not
be considered along with the British needs for export. One
question occurs to me, however, in connection with estimates made
from the point of view of domestic consumption. Is it possible
for such estimates of steel requirements to cover plant expansion
required for British export needs beyond the orders or inquiries
already known to manufacturers? On the other hand, the estimate
for plant expansion in the Treasury table covered not only such
orders but also programs which were in the initial stages of
development.
I should like to call to your attention the fact that the
attached list itself is not all-inclusive, but covers only the
principal kinds of articles required. For example, no estimate
is included for motor vehicles, although it is obvious that
British purchases of trucks, scout cars, and the like will call
for at least a small amount of steel.
Sincerely yours,
(signed) Herbert E. Gaston
Acting Secretary of the Treasury
Mr. Gano Dunn, Senior Consultant,
Industrial Materials Division,
The Advisory Commission to the
Council of National Defense,
Washington, D. C.
Attachment
April 24, 1941:
151
The statement of the Secretary
before the House Ways and Means Committee,
in which he said that the proposed tax
program was designed in part "to prevent
a general rise in prices by keeping the
total volume of monetary purchasing
power from outrunning production," is
given in Exhibit 15.
Statement of Secretary Morgenthau before the Committee 152
On Ways and Means of the House of Representatives,
Thursday, April 24, 1941.
I have come before you today to discuss with you the
need of producing three and a half billion dollars annually
in additional revenue for the defense of our country. Such
an increase is without precedent, but the situation confront-
ing us today is also without parallel.
We are faced with a greater challenge than any in the
history of the Republic. It calls for a much greater response
than has yet been made. The American people are prepared to
make such a response, and to make it willingly.
The Treasury is now proposing an additional diversion
through taxation of 31 billion dollars, which is only four
per cent of a rapidly rising national income, to the cause of
national defense. This surely 1s a modest proposal in the
present emergency, and with the present level of prosperity.
Other countries, free and progressive countries like our own,
have uncomplainingly carried far heavier defense burdens in
proportion to their size and population.
We are big and rich and strong. We are economically
better able to carry this load than any other people in the
world. The American taxpayer stands ready to take this burden
in his stride.
24-72
153
- 2 -
We now have a program of about thirty-nine billion
dollars for defense exponditures including the Lond-Lease
appropriations. Many people assume from this figure that
we are going to spend most of these thirty-nine billions in
the coming fiscal year. But our studies at the Treasury
have shown that unless we greatly speed up our production
effort, not much more than twelve billions will be spent for
defense purposes in the fiscal year ending June 30, 1942.
The Treasury estimato 16 that at the start of the new
fiscal year we shall be spending no more than 1 billion
dollars a month on defense. Almost two years will have passed
with the world on fire. The forces of aggression already
control all the factories of continental Europe. The danger
to our peace and security is mounting hour by hour. Yet we
shall find ourselves spending less than fifteen per cent of
our national income for the national safety.
The problem of building our defense is fundamentally a
problem of production. We cannot build planes and tanks,
ships and guns, merely by voting money. We build them with
labor and management, with raw materials and machinery. The
resources now employed in the defense industries are not
enough to produce the guns and tanks and ships and planes
154
- 7 -
that we need to carry out the program to which we are already
committed. We must hasten the reemployment of our idle
resources. Even this increase will not be enough. As we
closely approach full employment of our resources, we must
take the next step of diverting to defense production more
and more of the resources now engaged in satisfying our
civilian needs and wants.
The tax program before you is designed to promote these
very objectives.
First of all, it presents a method of paying as we go
for a reasonable proportion of our expenditures.
Secondly, it 18 designed so that all sections of the
people shall bear their fair share of the burden.
Third, it will help to mobilize our resources for de-
fense by reducing the amount of money that the public can
spend for comparatively less important things.
And finally, it 1s designed to prevent a general rise
in prices by keeping the total volume of monetary purchasing
power from outrunning production.
There must, of course, be no stinting of our defense
expenditures. But there is another set of expenditures
which, as I suggested to this Committee on January 29, we should
now "re-examine with a magnifying glass.' These are the govern-
155
- 4 -
ment expenditures which are neither for purposes of defense
nor for purposes of relief and security from want. We are
continuing to spend in these non-defense and non-relief
fields as if we had no emergency defense program, as if we
could superimpose our huge rearmament effort upon government
as usual and business as usual. This was all right before
the existing emergency and while there continued to be a
large volume of available unemployed resources. But we simply
cannot carry on business as usual and government as usual
from now on and still take adequate care of our defonse
needs, It would be a tragic error to assume that we can
expand our defense production on a colossal scale and still
go our usual ways, whether as a Government or as individuals.
It would be folly to assume that we can continue to spend
now as we did in normal times.
In the past twelve months, we have completely revised
our thinking on defense expenditures, as this Committee
knows. We are now awake to the need for expenditures on the
enlarged scale required to make this country safe and strong.
We have not, however, kept pace with events in our thinking
about non-defense and non-relief spending. We have
remained curiously static in our conceptions of what to
spend on those things not directly connected with defense.
156
- 5 -
Ordinary tr: ffic must now get to one side to let planes and
tanks and guns have the right of way. Other traffic can
be permitted only if it does not obstruct the National
purpose.
Now, I don't want anyone to misunderstand me. I want
to make it perfectly clear that we must continue to provide
for those in want, those who face old age without means of
their own, or who are otherwise in urgont need of relief.
There has been general agreement that much higher taxes
are necessary; but one group may urge that new taxes be
imposed on labor but not on business, while another group
may urge that the rich and prosperous can afford to bear the
whole load. Both kinds of advice should be disregarded.
The Job before us is 80 big that all the American people must
help to carry it out, in proportion to their ability to pay.
It is unsound, especially at a time like this, to proceed
on the assumption that any group of our people should be
penalized or that any section should be exempted from sharing
the common task. We all want labor to earn fair wages,
the farmer to have his proper share of the national income,
and business to make a fair profit.
157
- 6 -
Please note that I used the term "fair" profit. No
business, no American, should make inordinate and excessive
profits out of this national emergency. The Congress has
tried to deal with the problem of defense profiteering
through excess profits taxes. We all know how hard it is to
devise any excess profits tax which 1s 100 per cent
protection against defense profiteering, but I hope that the
bill to be written by this Committee with be helpful in
further reducing the evil. The American people do not intend
that any of their number shall grow rich and fat out of this
country's danger. They will, in my opinion, support any
fair and workable tax that will help to keep this from
occurring.
The Treasury 1s prepared to suggest tax revisions of
which the most important features are an increase of income
tax rates, a lowering of the minimum income subject to surtax,
an increase in excess profits tax, and finally, new excise
taxes on a number of commodities which are not essential to
the defense program. Mr. Sullivan and the Treasury Staff
are here to discuss these suggestions in detail.
In conclusion I should like to make one more observa-
tion. The American people, I believe, have outgrown the old idea
that taxes were exactions forced upon them by their Government.
158
- 7 -
We have come to understand, especially in recent years,
that taxes are payments for services rendered. We can look
about us and see highways, schools, airports, reclamation
work and Government activities of all kinds which have been
paid for by our own efforts. Our daily lives would be
insupportable if it were not for the necessities and the
conveniences which our taxes have made possible.
We are now about to pay for the greatest service of all:
the safety and protection of our country. How much does
it mean to the American taxpayer to have a navy guarding
American shores? How much does it mean to him to have an
adequate supply of airplanes and other weapons of national
defense? How much is it worth to be a free man living in a
free land? If we remember always the services we are receiv-
ing as individuals, the new taxes will seem a small price to
pay. The American people are ready to pay that price.
- 000 -
May 6, 1941:
159
Becoming concerned over the fact
that Department of Agriculture price-
lifting programs were being continued
despite their contributing to infla-
tionary pressure, the Secretary asked
that this be called to the Department's
attention. Memoranda to the Secretary
on this subject are shown in Exhibit 16.
May 7, 1941.
160
To
Secretary Morgenthau
From Mr. Haas
In accordance with your request of yesterday, I telephoned
Mr. Carl Hamilton, Assistant to the Secretary of Agriculture,
with regard to that Department's continuance of its surplus dis-
posal programs in view of the current record level of mill con-
sumption of raw cotton and the relative increases in the prices
of cotton textiles.
I explained to him that you were, of course, apprehensive
about inflationary tendencies resulting from undue price rises,
and that according to a recent report we had furnished you, cotton
goods had shown the most important price increase among the textile
materials - the average price having risen better than 23 percent
since a year ago.
Mr. Hamilton was cognizant of the price rise and said it
was true that they were continuing to make subsidy payments on
exports of cotton products as well as subsidies under the mattress,
stamp plan, cotton bagging for cotton bales, and cotton insulating
programs. He said their justification for continuing the subsidy
payments was that the export markets had been largely lost and
even if there were a complete crop failure this year there would
be a sufficient supply of cotton on hand. He said they were
running into some difficulty in the mattress program due to a
phortage of ticking. He felt that the real bottleneck was in
manufacturing facilities and that this bottleneck was causing the
increase in prices.
Mr. Hamilton admitted, however, that their program might be
aggravating the bottleneck and said he would like to have time
to explore the situation and would call me again with regard to
the matter.
Regraded Unclassified
161
May 8, 1941
To
Secretary Morgenthau
From Mr. Haas
Mr. Carl Hamilton, Assistant to the Secretary of
Agriculture, telephoned me this morning to say that he had
explored further the question of the Department's continuance
of its surplus disposal programs in view of the price rise in
cotton textiles. The justification for continuing the programs
is that foreign markets have been greatly restricted and
Government stocks of cotton amount to more than 10 million
bales. He said they are fully aware that something should be
done, but they feel that the real bottleneck is in the manu-
facturing facilities and that some arrangement should therefore
be made with the processors.
He told me that Milo Perkins, who is running the surplus
disposal program, had talked with Donald Nelson, and it was
Mr. Hamilton's understanding that Mr. Nelson intended to go
into the matter thoroughly with the Agriculture people and
call a meeting with the textile manufacturers. They feel that
if production at the mills can be increased the problem will
be solved.
Mr. Hamilton said they appreciated your calling this
matter to their attention and they realized that their program
as it now stands does aggravate the price rise. However they
are now working on the problem, in conjunction with the other
Government people concerned, and hope to be able to work out
a satisfactory solution.
Regraded Unclassified
162
June 6, 1941:
A letter to the President on this
date expressed the conviction of the
Secretary that an immediate expansion
in steel capacity was clearly called
for, despite contrary conclusions pre-
sented in the second Gano Dunn report.
Exhibit 17.
Secretary of the Treasury
163
June 6, 1941
My dear Mr. President:
Last December 18, as you may recall, I wrote you expressing my serious
concern over the capacity of the steel industry, in view of the immense vol-
une of defense and civilian orders then in prospect. No expert knowledge
seened necessary at that time to foresee that the industry would be unable
to handle the volume of orders that lay ahead, and I gave you my opinion
that an immediate major expansion program seemed clearly called for, to guard
sminst a stringency in steel supplies that would react unfeverably on our
national economy and our fiscal program, as well as hinder our defense effort.
In his first report to you last February, Mr. Gano Dunn objected to in-
creasing our steel capacity on the ground that there was no shortage of ca-
pacity, forecasting surpluses of 10 million tons this year and 2 million tons
in 1942. In his second report, he admits that steel capacity will be inade-
quate this year and greatly inadequate in 1942: but be still recommends
against increasing capacity, this time on the ground that an expansion pro-
grum would take two years. and would require steel now badly needed for de-
fenge purposes.
I disagree with Mr. Dunn's arguments against increasing our steel ca-
racity. There is no assurance that this will be a short war, as Mr. Dunn
apparently visualizes; on the contrary, we must prepare for the possibility
of 25 long war, requiring the utmost of our productive capacity. I should
much prefer to see civilian consumption curtailed temporarily by en amount
necessary to provide the steel for new steel plants, than to see our national
economy threatened by a steel nhortage for an indefinite period. I greatly
doubt that two years would be needed to build new plants, if full defense-
construction effort were directed toward that end.
The objection of the steel companies that an increase in capacity at
this time would leave them with surplus capacity after the war seems to me
particularly short-sighted. Under the world-wide competitive conditions of
the post-war era, en abundant steel capacity of the most modern type should
prove one of our greatest assets. To cite our experience after the World
Far, although steel capacity was increased from 44.5 million tons at the end
of 1913 to 61.0 million tons at the end of 1918, yet each year after the
Arvistice saw a further expansion, with no interruption until 1932.
In view of the increasingly urgent need for more steel, I wish to re-
peat, ne my earnest conviction, that an immediate expansion program for the
steel industry seems clearly called for. The shortage of steel capacity is
E fundamental problem now, and a problem which will pyramid as the defense
effort expends.
Faithfully yours,
The President,
The White House
Regraded Unclassified
September 9. 1941:
164
A copy of the Secretary's statement
on inflation before the Advertising
Club of Boston is shown as Exhibit 18.
TREASURY DEPARTMENT
Washington
165
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Wednesday, September 10, 1941.
No. 27-37
(The following address by SECRETARY MORGENTHAU
before the Advertising Club of Boston is sched-
uled to be broadcast at 8:00 p.m. Eastern
Standard Time, Tuesday, September 9, 1941, and
is for release upon delivery at that time.)
Only twenty miles from here, at Lexington and Concord,
the men of New England first proved that Americans could de-
fend their homes and their freedom. Today, the people of
these States are proving that they are still New Englanders.
In army camps and naval stations, in hundreds of factories
and shipyards from Connecticut to Maine, the men and women
of New England are responding magnificently to their country's
needs. I am glad to be here tonight to pay my tribute to
the great work that New England is doing, like all other
sections of the country, to arm America.
I am glad also that my host tonight is the Advertising
Club of Boston, for the advertising profession is a mighty
force in creating public understanding. We cannot make our-
selves the arsenal of democracy and the defender of freedom
unless our people understand the tremendous issues involved
in this Battle for the World. In the same way, we at the
- 2 -
166
Treasury shall find it more difficult to accomplish our task
of financing the dofense program unless the public sees clearly
the need for greater sacrifice and for greater effort.
In particular, I think that clear understatanding is needed
if we are to avoid the economic evils that might otherwise
spring from a defense program as great as ours, a program that
is making such enormous demands upon our productive resources.
The worst of those economic evils has been constantly uppermost
in my mind as Secretary of the Treasury. That is the evil of
inflation and that is the subject which I should like to dis-
cuss with you tonight.
We have been talking about inflation for a long time as if
it were a threat remote from our daily lives. It is a distant
threat no longer. We are facing it now and we must deal with it
at once.
If we are solfish or shortsighted in facing this issue,
the consequences may haunt us and our children for years. But
if we look at the problem with clear vision and firm resolve,
we can beat this thing. If we keep always in mind the interests
of our country as a whole, if we provide promptly the appro-
priate means and use them vigorously whenever necessary, we
can prevent inflation from fastening its grip upon us.
That task calls for alertness and mental toughness on the
part of everyone in the executive departments of the Govern-
ment, everyone in the halls of Congress, everyone of us here
in this room and overyone who may be listening to me tonight.
Regraded Unclassified
+ 3 -
167
The word "inflation" is cold and lifeless, so cold that
even you advertising men here tonight might have difficulty
in making it real, but the thing it describes is treacherous
and crucl. Memories are so short that I suppose many of us
have forgotten what happened the last time a price inflation
struck us 25 years ago. The effects of that inflation, how-
ever, lasted for many years and brought untold heartbreak
and miscry in their train.
Let us look at the record to see what happened a generation
ago. In 1916 the cost of living began to rise sharply but
there were few who saw its significance. It was only when
prides had risen by 70 per cent that President Wilson recom-
mended any steps to prevent inflation. In fact, the country
was so blind to its dangers that as late as June, 1917, Congress
actually hastened the rise in prices by reducing the reserve
requirements for member banks of the Foderal Reserve System.
The consequences were so serious for every American that
there must be many housewives even today who can remember them.
By 1920, a ten-pound bag of sugar cost $2.67, a dozen eggs
cost 92 cents, a ten-pound bag of flour cost 88 cents, a pound
of butter cost 76 cents and a pound of pork chops cost 50 cents.
By that year prices had skyrocketed to twice the level of five
years earlier. The money the housewife paid for one loaf of
bread in 1914 bought only half a loaf in 1920. The money she
paid for a pound of bacon in 1914 bought only half a pound in
1920. The money she paid for a yard of cotton cloth was
Regraded Unclassified
4 -
168
enough to buy only 1/3 of a yard in 1920. The consumer found
that food, fuel, shelter and clothing which cost a dollar in
April, 1916, had risen to almost two dollars by 1920. The
family with no increase in income found its purchasing power
cut in half.
We have now, as we had then in 1916, a moderate rise in
the cost of living, a great rise in wholesale prices, and a
still greater rise in the prices of basic commodities like
wheat, hogs, cotton and lumber. It is the rise in the prices
of basic commodities that constitutes our red light, our
warning signal, today, for such a rise is always the advance
guard of an increase in the cost of living.
If we fail to use the controls at our disposal now, if
we fail to do the specific things which are in our power to
check inflation now, if we allow prices to go on rising as
they did from 1916 to 1920, we may find that food, fuel,
shelter and clothing which now cost a dollar will once more
cost almost twice as much before the process has ended.
The rise in prices is by no means confined to foodstuffs
and clothing. I have before mc, for instance, the actual
figures on the cost of constructing a standard six-room
frame house in one of our typical cities. This home that
could have been built a year ago for $6,000 now costs $7,140
to build. Here we have an increase in prices of nearly
20 per cent, and if it goes along the 1916 pattern, we are
only at the beginning of the story.
- 5 -
169
Not only is the cost of building homes rising, but
higher rentals are also on the way for the millions who do
not own their homes. In scores of areas where industrial
expansion has first taken hold, rents have already risen
10, 20, 30 per cent, and even higher.
I have brought with me tonight a pictorial chart which
I wish the radio audience could see because it shows so
plainly the road we traveled once, and the road which we
must not travel again. The chart shows how the buying power
of your dollar shrank from 1914 to 1920, how your dollar
bought less food, less clothing, less shelter, less heat
and light because prices were allowed to run away. It shows
how your dollar is already buying less in 1941 than in 1939,
and it leaves a big question mark for the space showing what
your dollar may buy in 1942. The answer to that question is
in our keeping as Americans, whether we are officials of the
Government or private citizens. And I have written on the
chart, alongside the question mark, the words: "Answer de-
pends on us". We must decide now, this year, we in Washington
and you in the country at large, whether we shall have the
common sense and determination to avoid what we went through
twenty-five years ago.
Let it not be said of us, as David Lloyd Goorge said of
his people in 1915, that we were "too late in moving here, too
late in arriving there, too late in coming to this decision,
too late in starting with enterprises, too late in preparing."
- 6 -
170
There is no excuse for us to be too late in meeting
this threat of inflation that faces us. We now know, or
ought to know, what is going on; that is perhaps the greatest
difference between conditions today and in 1916. This time
our eyes are open to the dangers that lie ahead of us. We
E
now know that the time to do something about inflation is
bofore it occurs, not after it has gathered momentum. We
should profit by our greater knowledge and take prompt and
effective action now.
There is no need for me to remind this audience in detail
of the reasons why prices have already risen. The reasons are
plain for everyone to see. Our economy today resembles an
overloaded steam boiler. The fire under the boiler is being
fed by billions of additional purchasing power in the hands
of the public. The fire is growing hotter and is generating
more steam than the boiler can safely hold. If we are to
prevent the boiler from bursting, we must damp down the fires
by diverting spending away from those articles or commodities
in which there is a shortage, actual or potential. We must
damp down the firos also by increasing the flow of supplies
of goods available to the consumer.
We can, as I have said before, defeat this threat of
inflation, just as we can defeat and destroy the forces of
evil that have been let loose upon this earth. But we need
to understand the issues and we need to sec clearly the con-
sequences of inaction or delay. I should like, therefore,
Regraded Inclassifie
171
- 7 -
to point out, first, what we have done, and then, what we
need to do, in order to stop prices from rising further.
In the first place, Congress is on the point of passing
8. huge tax bill designed to raise almost four billion dollars
in additional revenue, thus withdrawing a great amount of
purchasing power that competes with the defense effort.
Secondly, the Treasury in its borrowing program is try-
ing to obtain as large a portion of its funds as possible
from current consumers' income.
Through a new form of note - the tax anticipation note -
it is seeking to increase the effectiveness of the income tax
as a check on current purchasing power, and I am happy to
report to you that more than & billion dollars' worth of
these notes were sold in the month of August.
The Treasury has also begun a program of selling Defense
Savings Bonds and Stamps to people of moderate and low incomes.
The people have responded to a tune of 8. billion and a quarter
dollars in four months, without coercion of any kind; and in
making that response possible the advertising profession has
been of truly invaluable help.
The President has recently issued an order authorizing
the Board of Governors of the Federal Reserve System to control
consumers installment credit.
The Congress is considering, and I hope will pass without
172
- 8 -
undue delay, a bill to limit price rises and to supplement the
efforts of the Office of Price Administration to limit those
rises by voluntary cooperation.
All these are useful steps to a necessary end, but they
are not enough.
We shall have to tax ourselves much more heavily next
year than this year, great and far-reaching as the present
tax bill will be.
We shall have to invest much more widely and systemati-
cally in Defense Savings Bonds and Stamps. In particular,
the rising payrolls of the past year have been a clear call
to the wage earners of America to set aside a portion of
their earnings each week for their own good and their country's
good.
We may have to extend general controls over benk credit
and create controls over selected capital expenditures.
I hope that we may extend the social security program so
as to increase the flow of funds to the Treasury from current
income during the emergency and increase the outflow of funds
when needed in the post defense period. In addition, I have
already suggested the creation of what I have called a "separa-
tion wage" -- that is, an entirely new form of contribution
out of which a worker may draw a regular wage for 8 stated
period in case he loses his job. These measures would be
good and desirable in themselves, but they are especially
173
- 9 -
necessary at this time, for they should help us to decrease
certain forms of purchasing now and increase them in the
future when they may to needed.
We must, P.S I have said many times, reduce nonessential
Federal expenditures. We must also appeal for economy in
state and local government expenditure and 8. curtailment of
their borrowing for nondefense purposes. The President pointed
the way e. month ago when he vetoed 8 bill calling for 320 million
dollars worth of highway construction. By this action he dem-
onstrated that there is a clear distinction nowadays between
the spending that is necessary for defense and the spending
that can be postponed until a later day.
The country should congratulate itself on the President's
veto of this measure, and also upon the Senate's action only
last week in approving the creation of e joint committee of
the texing and the appropriating agencies of Congress to study
the possibilities of economy all along the line in nondefense
activities. I have several times suggested the creation of
such e committee, and I am very happy that my suggestion has
been adopted by the Senate at last. I hone now that the House
will also approve the idea, because it seems to me that such
joint action is the only sensible wey to proceed if we are
to cut the costs of government end cleer the decks for defense
spending.
- 10 -
174
All of the measures I have so far suggested for combetting
inflation would attack the problem by reducing the demend for
goods now and by nelping to build up 8 backlog of purchasing
power for the post war world.
But we should also sttack the problem from the opposite
direction. We must make every effort to increase the supply
of goods available to the consumer wherever this can be done
without encroaching upon the defense program. Above all, we
must make full use of those supplies that are available, not
only in defense production, but in the provision of civilian
goods which do not compete with defense output.
This is a time when we must fletten the peaks end fill
up the valleys in our economic picture. If we reduce unde-
sirable purchasing now and keep prices down now, we shall be
helping to provide for the day when these vest defense expend-
itures will end and when our defense workers will take up the
work of peace again.
The most effective way to prevent 8 damaging rise in
prices is, quite simply, to release surpluses from storage,
I wonder if the housewife knows, when she pays fifteen
per cent more then she did a year ago for & beg of flour,
that our supply of whent is the largest on record, end that
498 million bushels of several years' crops are available in
our neighbor democracy of Canada. It is true that only three
months ago a rigid quote was applied to the importation of
- 11 -
175
wheat from Canada with the ultimate objective of keeping up
the price of whent in this country. But it is also true that
only the other dry the quote on sugar from Cube was enlarged
so substantially P.S to absorb most of the reserve stocks in
that country. It seems to me desirable end necessary that we
now follow the example set in the case of Cuban sugar end
permit the entry of Conadien whent in lerger volume.
Here in this country we have large reserve stocks of
form products of many kinds which should be relessed for con-
sumption P.S fest 08 necessary to prevent unreasonable price
rises.
The Government now holds or controls seven million bales
of cotton in reserves, end cotton prices have risen from
91/2 cents n pound on August 1, 1939 to over seventeen cents
P pound nt the present time. In snite of this rise of not
for from 100 per cent in two years, Congress recently sent to
the President e. bill to freeze government stocks of cotton end
whent for the duration of the war, and thus to prevent the
government from disposing of any of the surplus whert end
cotton it had scquired. The President promptly vetoed the
bill because this measure would have aggrevated the denger
of inflation and might have frustrated our efforts to fight it.
We ought not to withhold cotton surpluses, or any sur-
pluses, from the morket in times like these. The housewife
ought not to be mode to pry n tribute to profiteers end
176
- 12 -
speculators when she buys 8. cotton sheet for her home or 8 shirt.
for her husband or e suit for her child.
Millions of people still go without the milk, butter and
eggs which, according to the testimony of food experts end
the dictates of plain common sense, are necessary to good
health and good morale. Yet the reserve stocks of butter,
cheese, beef and pork now held in this country are fer higher
then they were E. year ago and fer higher then the average of
the past five years.
This has been historically a land of milk end honey.
There is still plenty of milk and honey but too much of it
is in the warehouses. Let's make it flow. If we were to let
it flow to the public we would not only help in keeping prices
stable but we would be doing something even more important;
we would be helping to make our people healthier and happier,
It is sheer folly from the farmer's point of view to
push prices un by creating scarcities in times like these.
The fermers suffered cruelly for twelve long years after the
collapse of the inflation of 1920 and 1921; they should not
be made to suffer again,
It is sheer folly in the same way for labor leaders to
seek new increases in wages every few months -- new increases
which in turn produce higher manufacturing costs, higher
prices, and 8 higher cost of living.
Regraded Unclassified
- 13 -
177
It is short-sighted for e. landlord to charge ell that
the traffic will bear in defense centres where housing space
is at e premium.
It is poor business, in the long run, for any businessmen
to seek exorbitent profits in this period of defense spending.
It is bad banking, in the long run, for any banker to
exploit the present demand for funds by seeking to charge
unreasonable interest retes.
There are always selfish groups in any country which
think they can profit from inflation. They are wrong.
Infletion does more then merely to rob the wege earner
of E. portion of his earnings. It does more than saddle the
former with & load of debt which he cannot repay. It is more
dostructive of morale than any other single force. Inflation
divides the country. It sets up producers against consumers,
workers against employers, the people who owe money against
the people to whom the money is owed.
No group in e community profits from inflation in the
long run except the Three Horsemen - the Speculator, the
Profiteer and the Hoarder.
These are truths that should be self-evident. They
should be especially so now, in view of the fect that rising
prices will only add to the cost of our defenso program end
make the arming of our country steadily more difficult.
They should be self-evident now in the light of the experience
Regraded Unclassified
178
- 14 -
that we suffered only 25 years ago.
We Americens have more than 150 years of self-government
behind us. We are a mature nation, and WE should be able to
face up to our responsibilities as mature men and women.
My plea to you tonight is that we should learn from bitter
experience. My hope end my belief is that no group among us -
whether farmers, working men or business men - shall be tempted
by the illusion of selfish gain into allowing prices to rise
unchecked.
The cost of inflation is too ruinous to producer end
consumer alike for anyone in authority to tolerate it now.
I cen give you only this pledge - that this Administration
will do everything humanly possible to prevent inflation.
But in this fight the Administration must have the firm
support and the clear understanding of 130 million Americans
behind it. If we have that support and that understanding,
I know that we shall not fail.
Regraded Unclassified
179
COST OF LIVING
Changes in Buying Power of Your Dollar
World War and Now
Total Cost of Living
WORLD WAR -
NOW -
What Your Dollar
What Your Dollar
Would 9uy - Ifle Base
Would Buy - Isso Been
June
June
1914
1939
100%
100%
June
June
1916
1941
92%
94%
June
June
1920
1942
?
Answer
depends
on us
48%
Food
Clothing
WORLD WAR -
NOW -
WORLD WAR -
NOW -
What Your Dollar
What Your Dollar
What Your Dollar
What Your Dollar
Would Buy - 1914 lass
Would Buy - 1939 Base
Would Buy - 1914 Base
Would Buy - MM Base
June
June
June
June
1914
FOOD
1939
1914
1939
FOOD
100%
100%
100%
100%
June
June
June
June
1916
1941
1916
1941
ENT
FOOD
FOOD
90%
88%
89%
97%
?
Answer
June
?
Answer
June
June
June
1920
1942
depends
1920
1942
depends
F
on us
on us
44%
33%
Shelter
Heat and Light
WORLD WAR -
NOW -
WORLD WAR
NOW
-
What Your Dollar
What Your Dollar
What Your Dollar
What Your Dollar
Would Buy - 1914 Base
Would Buy - RR Bass
Would Buy - me Sase
Would Buy - MM BASS
June
June
June
June
1914
1939
1914
1939
100%
100%
100%
100%
June
June
June
June
1916
(*)
1941
(*)
1916
1941
98%
96%
96%
99%
June
June
June
June
?
Answer
1920
1-1
1942
depends
1920
1942
?
Answer
depends
on us
on us
77%
59%
Note: All other Items of Cost of Living included in total
i
Regraded Unclassified
September 12. 1941:
1 180
A suggested method by which
Government holdings of farm products
might be used for inflation control is
contained in a memorandum to the Secretary
of this date. Exhibit 19.
September 12, 1941
181
To:
Secretary Morgenthau
From:
Mr. Cairns
Mr. Haas
Subject: Use of farm surpluses for inflation control, within
the framework of the Administration's agricultural
policy.
The President has stated in his press release of May 26,
1941, approving the 85 percent of parity loans (s. J. Res. 60):
(1) "This is an effort to obtain farm prices nearer
parity. It reflects the Government's objective for the
past eight years.'
(2) He stated that "wholly unmanageable surpluses
should not accumulate in the hands of the Government.
Finally, the Commodity Credit Corporation should be
free to dispose in an orderly manner of many commodities
acquired under the loan program."
(3) "I am approving this Joint Resolution on the
distinct understanding that parity payments will be
limited to the amount necessary to bring the basic com-
modities to parity but not beyond parity."
A method by which the Government holdings of cotton
and wheat could be used to stabilize prices, consistent with
the Administration's stated policy on agricultural prices,
is 88 follows:
The President or the Secretary of Agriculture could an-
nounce that the Government stood ready to sell wheat and
cotton at parity price levels. The Government has 170,000,000
bushels of wheat and 6,000,000 bales of cotton available for
this purpose. It is believed that those are sufficient quanti-
ties to maintain the open market price at parity for the time
being. The parity price for cotton 1s at approximately the
present market level, and for wheat somewhat higher than present
market prices.
Regraded Unclassified
September 24, 1941:
182
Copy of the Sec. stary's statement
on the Price Control bill before the House
Banking and Currency Committee is shown
as Exhibit 20.
Statement of Secretary Morgenthau
before the Committee on Banking and Currency
of the House of Representatives
183
Wednesday, September 24, 1941
I am glad to testify in behalf of this Bill not only
because I am in accord with its objectives, but also because
I am convinced of the terrible urgency of the problem which
this Bill would help to solve.
As the President said two months ago in recommending
to Congress a bill to control prices:
"Today we stand, as we did in the closing months of
1915, at the beginning of an upward sweep of the whole price
structure."
In the facts and figures already presented to this
Committee there has been ample demonstration of the accuracy
and timeliness of the President's warning. Almost any part
of the price data presented to this Committee points to the
same conclusion, namely, that the pattern of price rises in
the past two years is showing an alarming similarity to the
price movements during the first two years of World War No. 1.
In the last war we waited too long. It was not until
August, 1917, that the first step was taken to check price
rises. The Lever Act empowering the President to control
27-68
Regraded
- 2 -
184
food and fuel prices was not introduced until June 11, 1917,
and did not become law until August of that year.
By that time the damage had already been done. The
general price level had risen more than 75 per cent and the
forces making for further price rises had become 80 powerful
that they could not be stopped.
Are we again to wait until prices have risen 75 per cent
before we take bold and effective action?
The wholesale prices of farm products have risen 37
per cent in the past year, and of that rise, 6 per cent has
occurred in the last. month. All commodities have risen 18
per cent in the last year and 2 per cent in the last month
alone. Similarly down the line: foods are up 25 per cent;
hides and leather up 13 per cent; textiles up 23 per cent;
building materials up 12 per cent; and chemicals up 14 per
cent.
The public is amply aware of what is happening. The
housewife knows that pork chops that were 29 cents a pound
in January were 30 in February, 31 in April, 32 in May, 35
in June, 37 in July, 38 in August and 41 at the moment, &
total rise of 40 per cent in those nine months. The house-
wife knows that eggs have risen more than a third since
Regraded Unclassified
185
- 3 -
January, that coffee is up about one-fourth in the same period,
and that sugar and flour are up almost 8. fifth in the same
period, respectively. The housewife, the business man, the
wage-earner, and the Government employee all know from their
daily experiences that prices are rising.
The forces at work today are the same as those that
brought our inflations in previous periods of war or rearmament.
Yet there is fortunately one difference in the situation
which, I believe, can save us from the disaster of inflation
now. This time the public and the Government are aware of
what happened before and what is happening now. All of us are
able, if we choose, to take positive, effective, preventive
measures in time.
That is what the Congress is being asked to do today.
Passage of this Bill would be one additional step forward in
the war against inflation, the war on our home front, the
war that must be fought and won if we are to preserve our
American heritage.
It is true, of course, that price control alone will not
conquer inflation. This Bill alone cannot stop price rises.
Every government that has attempted to check inflation has
Regraded Unclassified
186
- 4 -
found that direct price controls alone cannot hold down the
lid when the income of the consuming public is increasing
and the amount of goods available to the consumer is decreas-
ing. Additional steps are necessary.
Our Government has already taken some of them:
(1) The Congress has passed, and the President has
just approved, a tax bill designed to raise more than 3-1/2
billion dollars of additional revenue. This is 8. major
accomplishment in the anti-inflation effort, for it will
absorb a substantial portion of the increased incomes that
are initially responsible for price rises.
(2) Secondly, the Treasury is engaged in a borrowing
program designed to absorb still more of this excess income.
Through the sale of Defense Savings Bonds and Stamps the
Treasury is trying to borrow a large proportion of its funds
from current consumer incomes, rather than from banks. In
the past four months 1-1/4 billion dollars of Defense Savings
Bonds and Stamps have been sold.
(3) Thirdly, a new form of borrowing - the tax anticipa-
tion note - has been introduced, with the object of absorbing
consumer incomes before the date at which income taxes fall
Regraded Unclassified
187
- 5 -
due. During the month of August more than $1 billion of
these notes were sold, absorbing income that might otherwise
be pushing up prices in the market place.
(4) Fourthly, the Board of Governors of the Federal
Reserve System has recently been given the authority to
control consumer installment credit and has just increased
reserve requirements of member banks as a further check against
inflation.
(5) Finally, the Office of Price Administration has been
exerting every effort to control prices through the cooperation
of producers and consumers.
Those are the more important steps that the Government
is now taking to check price rises. But they are not enough.
If we are to be sure of victory in the fight against
inflation, we must prepare further to increase taxes. We
may have to extend the general controls over bank credits.
We shall certainly have to reduce capital expenditures for
non-defense needs, and widen the sale of Defense Savings
Bonds and Stamps.
It would be wise to extend the social security program
to absorb purchasing power now and pave the way for increased
purchasing power after the emergency.
Regraded Unclassified
188
- 6 -
It will also be essential for Federal, State and local
governments to reduce non-defense spending as much as
possible.
I am looking forward now to an early meeting of the
joint committee of the taxing and appropriating agencies of
Congress, a committee that has just been created to study
the whole problem of non-essential Federal expenditures.
I hope that this committee will receive constant support
from Congress and the country at large, for it can make 8.
vital contribution in the anti-inflationary struggle.
We must do much more than cut down purchasing power;
we must attack the problem from the other side. Rising
prices can also be retarded by increasing the supplies of
goods which do not compete with defense needs.
We are in 8. position to do just that. The Government
has in its warehouses vast quantities of cotton, wheat, and
corn. Our granary doors should now be opened, enough at
least to prevent unreasonable price rises. Such a step
would be in agreement with our established agricultural policy -
the ever-normal granary. Having accumulated stocks in times
of low prices, they should be distributed in times of high
Regraded Unclassified
189
- 7 -
prices. Now is the time to draw on these supplies, both as
an anti-inflationary measure and as a preparation for
replenishing them if that should again become necessary.
The concept of an ever-normal granary, which calls
for a control of falling farm prices, seems to me to call
equally for control over rising farm prices. This Bill,
however, specifically restricts the authority of the price
control administration over farm prices. That is, I believe,
the major defect of the Bill. I strongly recommend that
this inflexibility be removed - in the interest of the
attack upon inflation, in the interest of the standard of
living of our people and in the long-run interests of farmers
as well.
I am not disturbed by the general level of agricultural
prices now prevailing, but I am deeply concerned about the
danger that agricultural prices will continue to rise as
they did in the World War. Such a rise would hasten general
inflation, would restrict the standard of living, and would
even interfere with the health and morale of our people.
And it cannot be repeated too often that in the long-run
the worst sufferers from inflation are farmers themselves.
Regraded Unclassified
190
- 8 -
After the First World War inflation, agriculture was the
hardest hit and the slowest to recover.
It has been suggested during these hearings that this
price-control bill should include a ceiling over wages.
I should like to go on record as not sharing this view.
In free countries labor is not a commodity, human beings
are not property; and they should not be treated as such.
I fully appreciate that wages affect the cost of
production and the general level of prices. However, I
feel very definitely that if we can on the one hand keep
the cost of living from rising, and on the other hand impose
adequate taxes on excessive profits, then we will have
removed the major causes for demands for general wage
increases. Furthermore, it is worth noting that the major
portion of our defense industries today is covered by
collective bargaining contracts, and only a sharp rise in
the cost of living is likely to upset those contracts.
Two weeks ago I said at Boston that it was folly for
labor leaders to seek continual increases in wages every
few months, and that it was equally shortsighted for farmers,
businessmen, landlords or bankers to seek to exploit the
present abnormal situation for selfish gain.
Regraded Unclassified
191
- 9 -
If we provide effective price control and adequate
excess profits taxation, and if it should later develop that
wage rates are not being kept within bounds, we shall have
to consider other measures. As yet, however, I see no
necessity for them.
Before closing, I feel it my particular responsibility
as Secretary of the Treasury to point out to you the special
interests of the Government and the Treasury in stopping
prices from rising further.
As the nation's largest purchaser, the Government is
concerned with the problem in a very direct way. Congress
has already appropriated more than 50 billion dollars for
defense, and the end is not yet in sight. The rise in
prices which has already taken place will cost us billions
of dollars. If prices are allowed to behave as they did
during the World War, we may find that our defense program
will cost us double without giving us a single additional
gun or plane for that extra expenditure.
We not only are the nation's largest purchaser of
goods, but we are the nation's largest employer. The
Government now employs nearly one and a half million civilians
in the Executive Departments, with a payroll now running at
Regraded Unclassified
192
- 10 -
the rate of 2-1/2 billion dollars & year. A substantial rise
in the cost of living will raise for us as an employer a
choice of evils: to permit the real incomes of our employees
to be unjustly reduced, or to increase still further the
payroll that we must meet.
I fully appreciate that it requires courage on the part
of Congress to pass this Bill. It always requires courage
to put brakes on rising prices. But if any lesson is to be
learned from the record of the past, it should be that infla-
tion is inevitable in times like these unless all of us -
Congress, the Executive Departments, and the people - fight
it on all fronts and with all the strength and courage at
our command.
We should gain courage from the knowledge that infla-
tion is not only accompanied by serious evils but is
followed by even greater evils. We should never lose sight
of the fact that inflation is always followed by deflation
and that the ride down is 8. lot longer and a lot harder and
a lot more painful than the short intoxicating ride up.
After all, this question of inflation is one that goes
to the very heart of the social aspirations of the American
people. An uncontrolled price rise now would endanger the
Regraded Unclassified
193
- 11 -
fruits of our hard-won progress of many years. If we lack
the necessary realism and courage now, we shall place
multitudes of American farmers, workers and Government
employees at the mercy of those whom I have called "the
three horsemen -- the speculator, the profiteer and the
hoarder."
Every hardworking and thrifty man and woman in the
United States has a direct personal stake in the success
of the battle against inflation. I regard it as vitally
important for Congress to pass this bill and pass it
promptly.
-oOo-
Deereded i
October 2. 1941:
194
A copy of the Secretary's speech
before the American Bankers' Association
on this date is shown as Exhibit 21.
TREASURY DEPARTMENT
Washington
195
(The following address by SECRETARY MORGENTHAU
before the Annual Convention of the American
Bankers Association in Chicago is scheduled to
be delivered at 10:30 a.m., Central Standard
Time, Thursday, October 2, 1941, and is for
release upon delivery at that time.)
Three weeks ago, in a speech at Boston, I said that we
were in the early stages of a serious price inflation, and that
we must deal with the danger at once. I said then, and I should
like to repeat it at the very start of this talk today, that if
we do not check the spiral of rising prices, and check it now,
the consequences will haunt us and our children for years to
come.
I outlined then a twin program for fighting inflation, on
the one hand by reducing excess purchasing power in the hands of
the public, and on the other hand by increasing the supply of
goods, like farm products, which do not compete with the over-
riding needs of our national defense effort.
I said then - and I feel very deeply about it - that it
was "sheer folly" for the farmer to seek higher prices for his
27-83
Regraded Unclassified
- 2 -
196
crops at this time, for labor leaders to seek continual new
increases in wages, or for landlords, businessmen, bankers,
or any group to exploit the present emergency for selfish
gain. And I asked for the understanding and support of 130
million Americans in fighting the evil of inflation by every
means in our power.
There is no need to tell this audience of bankers of the
need of common effort, on the part of every group and every
individual in the community, if inflation is to be averted.
You have shown abundantly in the past year that you are
conscious of your duties and your responsibilities to the
country. You have given magnificent help, and given it un-
selfishly and cheerfully, in the selling of Defense Savings
Bonds and Stamps. You have given further help in the sale
of tax anticipation notes which make it possible for every
taxpayer to meet next year's heavy tax bill more easily.
You have cooperated willingly with the Treasury's control
of foreign funds, even though it interferes with the free
handling of your business affairs and subjects you to many
complicated regulations and questionnaires.
Regraded Unclassified
197
- 3 -
In all these and other ways you have been such real
partners of the Government that I am very glad to be with you
this morning, to thank you personally for all that you have
done.
But the most important task of American bankers lies
immediately ahead, and it is a broader and bigger task than
any you have yet been called upon to perform. That is the
task of doing everything in your power, not only as bankers
but as influential and respected leaders in your communities,
to fight this evil of inflation wherever it rears its head.
Many of you will remember, from your own experience of
twenty-five years ago, that inflation is just as damaging to
bankers as to farmers, wage earners or businessmen.
We now know that the doubling of bank loans and invest-
ments from 1916 to 1920, and the resulting doubling of
deposits in the same five years, contributed to the great
increase in prices which brought such hardship to American
consumers and such disastrous after-effects to American farmers.
We now know that the inflation of a quarter-century ago,
with all of its injustices and dislocations, could to some
extent have been avoided if the Government of those days had
acted more promptly, if it had taxed more heavily and borrowed
more widely from genuine savings.
Regraded Unclassified
198
- 4 -
When the inevitable collapse came, no fewer than 2,910
banks with 790 million dollars of deposits were compelled to
suspend operations in the five-year period from 1921 to 1925.
Humpty Dumpty had fallen from the top of a very high wall,
and many years of effort were needed to pick up the pieces.
It is our job at the Treasury and the Federal Reserve, and
yours as custodians of the people's money, to make sure that
any present-day descendants of Humpty Dumpty shall not go
climbing up that wall of expanded credit and higher prices
again.
That is why my first plea to you as bankers is that you
scrutinize closely your own lists of applications for loans.
Those lists contain within them much of the ammunition of
inflation. You have in your hands, therefore, one of the
most effective weapons for checking inflation at its source.
You are sure to find, on looking over your lists, many ap-
plications for money for non-defense projects that would
involve competition for steel or copper or any of the thou-
sand and one materials now needed so desperately for our
defense effort. If you can postpone all such unnecessary
loans until a later day, without waiting for the priorities
to become broader, you will be doing a real and lasting
service to your country.
Regraded Unclassified
199
- 5 -
I hope that in the not too distant future the priority
system will become so effective that the supply of practi-
cally all raw materials for all purposes will be under full
control in the interests of national defense. That should
mean that materials which must be used for defense purposes
will not go into any unnecessary civilian projects. But until
that day comes, I hope that you will constitute yourselves the
sentinels of the nation, in your own bank and your own com-
munity, in guarding against any private encroachment upon the
stock of resources needed for the national effort.
Another essential service which you can perform is, quite
simply, to teach the people of your communities the facts
about inflation and defense financing. You see in your daily
work men and women from many walks of life. You are in a key
position to advise them, and your advice carries as much
weight as that of a family doctor to his patient or a lawyer
to his client. I know that in these serious times you will
give the right kind of advice, and that your influence col-
lectively and individually will be joined with that of your
Government in its efforts to keep the cost of living in check.
Regraded Unclassified
200
- 6 -
There is a real need of convincing the average citizen,
right now, that he will have to accept far greater taxation.
There is a real need of preparing him to make greater savings
in his daily life to ensure the long-run survival and improve-
ment of his standard of living. Above all, there is a real
need of explaining to him that this war cannot be won quickly
or cheaply or easily.
It will require all-out effort on our part to tip the
scales in this war. It will require every ounce, of strength
that our giant industrial system can give. It will demand
sweat and sacrifice on the part of producers, workers, man-
agers and consumers alike. And it will mean the greatest
public expenditure that has ever been pumped into the arteries
of our economic system.
Defense expenditures have now risen slowly to more than
a billion and a quarter dollars a month. They will soon be
a billion and a half, but even then they will be utterly in-
adequate compared to the need. Perhaps "inadequate" is too
mild and charitable a word. We are trying to make ourselves
the arsenal of democracy by devoting only 20 per cent of our
factory and mining output to defense, only 30 per cent of our
Regraded Unclassified
201
- 7 -
output of durable goods, only 10 per cent of our output of
non-durable goods, and only 16 per cent of our national in-
come. That, surely, is very far from total defense or all-
out effort.
Nobody can emphasize too often or too strongly the
magnitude of the job which we American people have set out
to do. Let me give you a few simple illustrations. At
present prices the cost of the total defense program as now
planned will be more than 50 billion dollars. This is 10
billion dollars more than the original value of all building
construction in the United States since 1927. It is twice as
much as the total investment in American railways. It is
twice as much as the total value of all passenger automobiles
produced in this country during the past fourteen years.
Yet there is no reason whatever for us to be discouraged
over the mere size of the job ahead. In spite of a slow start,
we are now on the road to an expansion of production which will
confound those of narrow vision and little faith who cried, "It
can't be done." The capacity of America to produce over the
long pull is almost limitless. We Americans can do any job
that we set ourselves to do.
Regraded Unclassified
202
- 8 -
It is not so much the size of the undertaking as the
limited time at our command which causes our economic system
to heave and strain. To telescope such a vast construction
or production job within, not twenty years or ten years, but
within one, two or three years, is bound to affect profoundly
every aspect of our economic and social life.
Under the impact of our comparatively modest defense ex-
penditures up to now, our national income has increased by
fourteen billion dollars in a year, and we are feeling all the
preliminary symptoms of a serious price inflation. What will
the inflationary forces be six months from now, when we shall
be spending much faster and when the supplies of materials
for civilian use will be smaller than they are today? Where
will prices be then, if we do not act courageously to check
them now?
It is imperative that we set aside a great part of that
national income, and especially the increase in the national
income, if we are to put an effective brake upon inflation.
One indispensable method of paying for defense without
inflation is "all-out" taxation, a method that has not yet
been tried in spite of the good start that Congress has made
in raising $3,500,000,000 in additional revenue. With the
Regraded Unclassified
203
- 9 -
help of the new Revenue Act of 1941, our tax structure will
yield about fourteen billion dollars in revenue, but in my
opinion it still contains many inequalities and many omis-
sions which will have to be corrected next year.
The tax bill next year will have to be a genuinely
"all-out" bill, a genuine levy upon all in accordance with
their ability to pay, if it is to raise the necessary revenue,
place the necessary check upon inflation, and take the profit
out of war.
The second indispensable method of drawing off excess
consumer purchases is by borrowing as much as possible from
the genuine savings of individuals throughout the country.
I know I can count on your wholehearted cooperation whenever
we have to come to your banks for funds. The way to proceed
now, however, is to finance our needs as far as possible with-
out adding unnecessarily to bank deposits, to borrow instead
from private investors, large and small, and thus to reduce
the inflationary pressure of our swiftly rising national
income.
The Defense Savings Program has now been in progress for
five months. It has yielded us a billion and a half dollars
from two and one-half million individual investors. The
Regraded Unclassified
204
- 10 -
result so far is certainly not below our expectations, but
just as certainly it falls far short of our needs. It falls
short especially in that it has only begun to reach workers'
payrolls. Every one of the great national labor organizations
has given its endorsement to systematic saving, and voluntary
payroll allotment plans are now in operation in more than five
thousand companies employing between five and six million
workers. Our strongest efforts must now be made in our great
industrial centers, and must be directed at the good sense and
patriotism of the workers themselves.
I can find no usefulness, for our present purposes, in the
old Liberty Loan method of fixing money quotas for communities,
trades, labor unions, school classes or individuals in this
Defense Savings Program. I can see no value, either in terms
of economics or of morale, in high-pressuring people to take
money out of bank savings accounts or out of life insurance.
But I do see a great benefit, financial and moral, in persuad-
ing spenders to set aside, systematically, week after week,
a part of their current income for their own good and their
country's good.
The kind of spending that the Treasury is most anxious to
divert into Defense Savings Bonds is the spending produced by
Regraded Unclassified
205
- 11 -
pay increases and bonuses, and by increased dividend payments.
I should like to offer as a suggestion, for example, that every
Christmas bonus in the United States be paid in Defense Savings
Bonds or Stamps this year. The banks of America can start the
fashion so that it will sweep the country. The total amount of
such bonuses may be small, but there could be no finer example
to the public, no more striking reminder of the spirit of these
times, no better safeguard for the days of economic strain that
are sure to follow the war.
We at the Treasury believe that the voluntary Defense
Savings Program has. already awakened a greater sense of pride
in America and a greater sense of participation in the national
effort. We shall continue along that road of voluntary cooper-
ation, and I am perfectly confident that we shall reach vast
numbers who are willing and eager to put their savings to work
for their country.
In this effort the Treasury will continue to depend greatly
upon the bankers of America, not only as its agents in selling
Defense Bonds but also as missionaries in spreading the gospel
of savings in times like these.
There are no commissions for bankers in this work, and
you have asked for none. But in order to enable you to give
Regraded Unclassified
206
- 12 -
wider distribution to Defense Savings Bonds, I am happy to
announce to you this morning that it will no longer be ne-
cessary for you to put up collateral for the Series E bonds
which you keep in stock for customers. I hope that this will
relieve the banks, especially the small banks, of a real burden,
and I hope that you will not hesitate to tell us at the Treasury
of any similar burdens which you feel may be hampering you in
the sale of these bonds.
Wider savings and greater taxes will not, of course, be
enough in themselves to cope with the inflation that now con-
fronts us.
You have seen the joint statement issued last week by the
Federal Reserve System and the Treasury, dealing with the rais-
ing of bank reserve requirements to the limit of the law, and
pledging full cooperation with the Office of Price Administration
and the new Supply and Priorities Allocations Board.
That joint statement was a reminder of the fact that the
Government already has powerful weapons of control in its hands,
and that if it needs more power it will ask Congress for what-
ever it needs, in the fight against rising prices and falling
living standards. It is now asking for additional power
Regraded Unclassified
207
- 13 -
through the price-control bill, which I hope will be passed
by Congress without delay.
I have already suggested an extension of the social
security program as a possible method of absorbing several
billion dollars of next year's national income and thus build-
ing a further reserve for the future. I have already suggested,
not once but repeatedly, that the Government cut down immedi-
ately on non-defense expenditure, not only as sound financial
policy but as sound anti-inflationary practice.
Of course, such a combination of emergency taxes, priori-
ties, savings and price-control will cause some inconvenience;
of course it will cause some hardship, some sacrifice. We are
now engaged in a world struggle that demands all our energies
and all the qualities that have made America great. As a re-
sult of that effort we are compelled to fight another enemy,
the enemy of inflation, on the home front. How can we hope
to win unless we first throw onto the rubbish heap all ideas
of business as usual, pleasures as usual and comforts as
usual? In my opinion, complacency is our major source of
weakness today in building our defenses, for it saps our will
and clouds our minds, and blinds us to the stupendous size of
the job that confronts us.
Regraded Unclassified
s
208
- 14 -
We can conquer inflation on the home front if we act now,
just as we can ensure the defeat of foreign tyranny if we
rouse ourselves in time. Most Americans, I think, are begin-
ning to see that they have a personal stake in the fight
against inflation, just as most of them began long ago to see
their individual stake in the destruction of the Axis war
machine. I am confident about the outcome on both fronts,
because I have a deep and abiding faith in the common sense
of the American people.
Regraded Unclassified
209
December 6. 1941:
To organize an inter-departmental
committee for the study of the "infla-
tionary gap" and other price problems,
the Secretary on this date sent letters
to 9 Government agencies asking that
representatives be designated to serve
on this committee. A copy of the letter
to Mr. Henderson is shown as Exhibit 22.
THE SECRETARY OF THE TREASURY
WASHINGTON
210
December 6, 1941
Dear Mr. Henderson:
In consideration of various fiscal problems growing
out of the defense program, the Treasury Department
desires to establish more effective liaison with other
departments on technical research work relating to
national income, civilian consumption, savings and
investment, defense expenditures, prices, and related
matters. There is in the Treasury Department a
research committee, of which Mr. George C. Haas,
Director of Research and Statistics, is the chairmen,
working on these problems. I have asked this commit-
tee to carry on a continuous study and to furnish me,
from time to time, data helpful in the determination of
Treasury policy.
I should appreciate it if you would designate one
or more persons from your Staff to maintain liaison
with the Treasury in this connection, and to serve as
members of a consultative committee to meet at Mr. Haas'
call,
Sincerely,
(signed) H. Morgenthau, Jr.
Secretary of the Treasury
Honorable Leon Henderson,
Administrator, Office of
Price Administration,
Washington, D. C.
FORDEFENSE
BUY
UNITED
STATES
SAVINGS
BONDS
AND TAMPS
211
March 3. 1942.
A copy of the Secretary's state-
ment before the House Ways and Means
Committee is shown as Exhibit 23.
212
Statement of Secretary Morgenthau before the
Ways and Means Committee of the
House of Representatives
March 3, 1942
I am here to offer my suggestions as to our
first Revenue Act of the war. I hardly need to
emphasize the seriousness of the occasion. The
task before us is to decide how this desperately
serious war is to be financed and how its gigantic
cost is to be distributed. Economic and social
conditions during and after the war will depend
to a large degree upon the courage and wisdom with
which we attack these problems now.
To defeat the strongest combination of enemies
in our history, we shall have to spend on a scale
for which there is no precedent. If we are to equip
and transport fighting men in sufficient numbers to
turn the tide, if we are to furnish the weapons to
the men who are doing the fighting, we shall have to
use every ounce of our national energy and mobilize
every possible dollar of our income. The President
has announced a program involving expenditures of
$59,000,000,000 in the fiscal year 1943. We shall
have to tax in accordance with the magnitude of
that program and in accordance with the seriousness
of the position in which we stand.
The President's Budget Message in January called
for the raising of $7,000,000,000 in new revenue from
taxes, together with an additional $2,000,000,000 to
be obtained from the social security program. The
30-52
Regraded Unclassified
213
- 2 -
unprecedented sum of $39,800,000,000 will have to be
borrowed in the coming fiscal year, even if the new
Revenue Act fulfills the President's hopes to the last
dollar. I should like to urge, therefore, the adop-
tion and attainment of the goal the President has set,
not as the maximum but as the very least that the
American people can afford to provide at this critical
time.
Our task is more than the raising of a huge
amount of new revenue, It is to make the tax program
an instrument of victory. It is to frame the new
Revenue Act so wisely and so soundly that it will
facilitate the maximum production of war materials,
hasten the mobilization of our resources, strengthen
the unity of our people for the waging of total war,
and prepare us for the new economic and social problems
that will face us when the war is won.
This means, first, that the new Revenue Act must
help to check inflation, for nothing in the economic
field can interfere with the war effort as much as an
uncontrolled rise in prices. An inflationary price
rise is a source of grave social injustice. It under-
mines morale and impedes war production. It strikes
at random without consideration of equity or ability
to bear the hardships which it imposes. Once it has
acquired momentum, inflation is extremely difficult to
control, and leaves a heritage of post-war stresses
and strains that will haunt us for decades.
Today we are confronted with a grave threat of
inflation. Prices of food today are following pre-
cisely the trend of the first World War; prices of all
commodities are rising at a somewhat slower but never-
theless disturbing rate. (A chart showing these trends
is attached as Chart 1.) Unless effective preventive
measures are taken by all the means at our command, we
shall have a rapid general increase in prices, with a
resultant rise in the cost of our war effort far beyond
the figures now contemplated.
Regraded Unclassified
214
- 3 -
The way to prevent inflation is to prevent
people from engaging in the futile effort to buy more
goods than can be produced. This requires, first of
all, the continuous and willing cooperation of every
man and woman. It also requires a comprehensive and
integrated program of anti-inflationary measures, in
which increased taxes and increased savings are essen-
tial parts. Price control, rationing, and the regula-
tion of consumer credit are other parts of such an
integrated program.
It is important for us to remember that all these
controls are interrelated. The devices of price con-
trol, allocation and rationing will be more effective
if taxes and savings are increased. Similarly, the
effectiveness of the fiscal devices in preventing in-
flation will be greater if price and commodity controls
are used.
We should, therefore, tax 80 as to withdraw the
greatest possible volume of purchasing power at this
time, when money incomes are high and the quantity of
goods for civilian use is shrinking day by day because
of the demands of our war effort.
A second obligation, second pressing duty, is the
need for severe economy in the operations of Federal,
State, and local governments. The anti-inflationary
purposes of our taxing and savings program will be
defeated if, at the same time, Federal, State or local
governments indulge in unnecessary expenditure.
As you know, I recommended a few months ago the
saving of at least $1,000,000,000 in Federal expendi-
tures which compete with war production and add un-
necessarily to the volume of purchasing power in the
hands of the people. I recommended especially the
immediate reduction of expenditures on highway con-
struction, rivers and harbors, non-defense vocational
training and Federal subsidies to keep up the prices
of agricultural products.
Regraded Unclassified
215
Since then some economies have been made, but
a large field for economy remains, not only here in
Washington but in the operations of State and local
governments. I should like to urge once more that
real and substantial economies be made as a corollary
to the new tax program.
I do not mean that we should economize on the
health and strength of our underprivileged, for that
is no economy at all; but I do mean that we should
save in subsidies to those who no longer need Govern-
ment assistance, and in non-defense construction
projects which can be postponed until the war is over.
I have spoken of the need of checking inflation
and the need of cutting non-essential expenditures in
financing the war effort; I come now to a third and
most insistent need that should govern our wartime
fiscal program. That is the need of holding fast to
the basic principle of our tax system, namely, that
taxes should be fair and non-discriminatory and im-
posed in accordance with ability to pay. The cost of
this war will have to be borne by everyone. It will
be borne willingly and cheerfully if the principle of
ability to pay is followed.
In terms of the new tax program, this principle
means that special privileges in our tax laws should
be removed. It means that taxes which cannot be ad-
justed to differences in income or family responsi-
bilities, such as general sales taxes, should be
avoided. It means that undue profits should be re-
captured wherever they occur. Unreasonable profits
are not necessary in order to obtain maximum production
with economical business management. The country will
not tolerate the retention of undue profits at a time
like this, when millions are pledging their very lives
to save and perpetuate our freedom.
Regraded Unclassified
216
- 5 -
All will be expected to bear their fair share,
in the higher and lower income levels alike. The
recommendations which I shall now outline to the
Committee will involve progressively increased taxes
throughout the whole range of individual and corporate
income now covered by our tax laws.
1. Individual Income Tax
The individual income tax is the best available
type of tax based upon ability to pay. Its rates
and exemptions can be adjusted to the size of personal
income and differing family responsibilities. Further-
more, it is a direct tax, It falls where the Congress
wants it to fall.
I recommend that the individual income tax be
changed to yield approximately $3,000,000,000, or about
sixty percent more revenue than will be yielded under
the present law.
In recommending this amount I have had in mind
the fact that the great bulk of tax increases under
the social security changes will also fall on individual
incomes. In accordance with the President's views, I
feel that the social security program should be expanded
both as to coverage and as to protection, and that taxes
for this purpose should be increased by approximately
$2,000,000,000 a year. I am not making any recommenda-
tions with regard to social security taxation or bene-
fits in connection with this bill, but changes of the
magnitude indicated should be kept in mind in planning
the tax program.
As for the individual income taxes themselves,
I am suggesting a substantial increase in the income
surtax rates throughout the scale. I should like to
give you a few examples to show the effect of these
increases on typical incomes.
Regraded Unclassified
217
- 6 -
A single person with no dependents, with a
net income of $3,000, pays $221 tax under the
present law; he would pay $470 under the suggested
schedule. A married person with two dependents,
and with a net income of $3,000, pays $58 under the
present law; he would pay $118 under the suggested
schedule.
A single person with no dependents and with
a net income of $10,000 pays $1,493 under the
present law; the suggested schedule would call for
payment of $2,720. A married person with two
dependents and with net income of $10,000 pays
$1,117 under the present law and would pay $2,143
under the proposed schedule.
The accompanying chart and tables, which I shall
now submit to the Committee, will show the rate scale
and comparative effective rates of tax under the
present law and under the suggested program. (Chart 2
and Tables 1,2,3,4.)
You will notice that these proposed schedules
involve no further lowering of the personal exemp-
tions, which now begin at an income of $750 a year
for a single person and $1,500 for a married person,
with a credit of $400 for each dependent. The
exemptions were lowered in the 1940 Revenue Act:
they were lowered again in the 1941 Act, and their
value has been reduced still further this year by
the rise in the cost of living. Although single
persons with less than $15 a week and married persons
with less than $30 a week do not pay any direct
taxes, they already pay a disproportionate part of
their little incomes in indirect taxes of all kinds.
Moreover, a further lowering of the exemptions
would yield a relatively insignificant amount of
revenue from the earners of very low incomes. If
I felt that the expenditures of this group added
Regraded Unclassified
218
N ! 1
materially to the danger of inflation, I should
not hesitate to recommend the lowering of the
exemptions in spite of the small amount of revenue
that would be produced. Our studies at the Treasury
indicate, however, that the very lowest income
earners have all they can do to feed and clothe
themselves and their families. Their buying habits
are governed strictly by the need of maintaining
nutrition and health, and I cannot recommend a
direct tax upon them until we have exhausted every
possible source of revenue from those who enjoy
higher incomes.
Because of the threat of inflation and because
of large increases suggested throughout the exist-
ing rate scale, it becomes essential to afford
a more convenient method for the payment of income
taxes. The best available expedient for this
purpose is a provision for collecting at the source
for those incomes that are paid periodically,
including wages, salaries, bond interest, and
dividends.
To start such a system immediately, however,
might cause considerable hardship to taxpayers
because of the substantial increases they are already
called upon to pay during the year 1942 as a result
of the Revenue Act of 1941. On the other hand, if
the threat of inflation makes necessary substantial
speeding up of tax collection, we cannot afford to
postpone collection at the source.
Regraded Unclassified
219
- 8 -
Since it is not known how soon it may become
necessary to speed up tax collection to check infla-
tionary price rises, the Secretary of the Treasury
should be authorized to begin the collection of income
taxes at the source, at any time and at rates within
his discretion up to 10 percent of wages and salaries,
with an allowance for personal exemption and credit
for dependents, and up to 10 percent of the full amount
of dividends and interest. This would not be a supple-
mentary tax; it would simply be a means of collection.
It would furnish needed flexibility in relating tax
collections to future economic conditions.
2. Corporation Taxes
It is recommended that additional taxes be raised
from corporations in the amount of $3,000,000,000, an
increase of about forty percent.
A substantial share of the increased corporation
tax should fall on excess profits. Taxes paid from such
profits have less disrupting effects on business than
taxes which are generally applicable to all corporate
earnings irrespective of the rate of return. A tax which
absorbs excess profits still leaves the corporate tax-
payer with a sufficient margin of income for dividends
and safety.
On the other hand, a tax which dips too deeply into
the incomes of low earning corporations may seriously
affect their debt-paying capacity, if not their very
existence.
It is suggested that the maximum rate of the excess
profits tax be increased from sixty percent to seventy-
five percent with corresponding increases in the lower
rate brackets.
Regraded Unclassified
220
- 9 -
The proposed increases in the excess profits
taxes have the additional virtue of recapturing undue
profits on war contracts. This method is far better
than imposing profit limits specifically on war con-
tracts. The difficulties of segregating profits on
war contracts are very great and involve personnel,
expense, uncertainty and litigation which we can ill
afford at this time. Moreover, it is almost impossible
to determine what rates of profit on cost or sales
would be equitable under the widely varying special
circumstances confronting different industries and
contractors.
With rates of this magnitude it is increasingly
important to have a fair basis from which to measure
the profits subject to the excess profits tax. In
addition to the many provisions in existing law to
adjust earnings of the base period to take account of
unusual circumstances, it is suggested that further
relief be afforded where the earnings of the base
period were abnormally depressed.
Other changes in the excess profits tax law should
also be made, some to eliminate defects which have been
brought to light in the operation of the law, and others
to eliminate unnecessary hardships. These changes are
of a more technical character and will be presented
later, at the Committee's convenience.
There should be no further increase in the cor-
porate normal rate because any such increase would
result in an undesirable windfall to the holders of
partially tax-exempt Federal securities.
It is suggested that the balance of the
$3,000,000,000 in additional corporate taxes be provided
by a special war surtax which would absorb the present
corporate surtax and would be imposed at the rate of
thirty-one percent on corporations with incomes of more
than $25,000. This tax would differ from the present
surtax in that a special tax credit would be allowed
when the surtax net income for the current year has
dropped in comparison to the income for the pre-war
period. In a further statement, the Treasury will give
the Committee a detailed explanation of this proposed
Regraded Unclassified
221
10 I I
war surtax and the reasons which have led the Treasury
to recommend it.
There can be no fair quarrel with the imposition
upon corporations of a substantial proportion of the
increased load of taxation required by our national
peril. We are fighting for the maintenance of the very
system of free enterprise which makes corporate profits
possible. At a time like this, I am confident that in-
corporated business will willingly pay additional taxes
which will, after all, leave it in the aggregate about
the same amount of income after taxes as during the
years before 1940.
In the critical months ahead our patriotism will
be put to the acid test. It must rise above the profit
motive. National war production may be tragically in-
adequate if it depends upon that motive alone. This
is a time when we must forget profits and concentrate
upon a supreme productive effort which alone will win
the war.
However, it is recognized that very high top, or
so-called "marginal rates, If may leave little incentive
for the maintenance of efficiency in business operation.
Furthermore, after the war there may well be need for
a large volume of expenditure in readjusting industry
and maintaining employment. For these reasons it is
believed desirable that in the case of any dollar of
corporate profits the receipt of which results in an
increase in tax beyond perhaps eighty cents, the
additional tax on such dollar shall be held by the
Government to the account of the corporation and be
returnable within a limited period after the war, in
those cases where it is spent for new and additional
capital equipment or otherwise is spent in the addi-
tional employment of labor.
The uncertainties of this period also make it
important to reduce to the minimum the necessity for
prophesying. The capital stock tax and the associated
declared value excess profits tax are determined largely
by the accuracy of guesses about future profits. It is
Regraded Unclassified
222
- 11 -
suggested that the revenue produced by these taxes
can be more fairly and less harmfully produced by the
other taxes on corporations and that accordingly the
capital stock and declared value excess profits taxes
be repealed.
3. Estate and Gift Taxes
The estate and gift taxes are imposed at the time
of the transfer of wealth from one person to another.
Many of the fortunes which are being transferred, and
will be transferred in the future, were built up during
a period when income tax rates were far lower than they
are today. It is much more difficult now to build up
large holdings of property. For this reason substantial
increases in the estate and gift taxes should be imposed
as a method of equalizing tax burdens. The suggested
increases are indicated in attached tables. (Chart 3
and Tables 5 and 6.)
In conjunction with the rate increases, it is
suggested that the existing insurance exclusion of
$40,000 be merged with the existing exemption of
$40,000, and that a single exemption of $60,000 be
allowed. This will increase the present exemption in
some cases and decrease it in others, and will remove a
discrimination between persons who are insured and those
who are not.
It is likewise suggested that the exemotion for the
gift tax be reduced to $30,000 and that the annual ex-
clusion of gifts be made a total of $5,000 for each donor
regardless of the number of donees to whom property is
given.
These changes in rates and exemptions, together with
certain changes designed to prevent avoidance of the tax,
should increase the annual revenue from estate and gift
taxes by $300,000,000.
4. Excise Taxes
New and increased special excise taxes on distilled
spirits, gasoline, cigarettes, soft drinks, candy, and
chewing gum, and other items listed in the attached
Regraded Unclassified
223
- 12 -
table, are suggested to raise approximately $1.3 billion
of additional revenue. (Table 7).
Although these excise taxes are in the nature of
sales taxes, their effects are substantially different
from the effects of general sales taxes, Some of them
are imposed on commodities of which there is or will
increasingly be a scarcity. Such taxes not only yield
revenue but help to conserve materials needed for the
war. Those excise taxes not relating to scarce
commodities have been chosen so as to fall on goods
which are widely used and are of a luxury or semi-luxury
character. The increase in consumer incomes will keep
up the demand for those commodities despite the higher
taxes. Needed revenue will thus be obtained, consumer
purchasing power will be tapped, the producers will not
be injured, and the consumers will not be taxed on neces
saries of life.
These special excise taxes have the further ad-
vantage of not requiring any substantial expansion of
administrative machinery.
No general sales tax is recommended, and indeed,
I strongly urge that no such tax be made a part of this
revenue bill. The general sales tax falls on scarce
and plentiful commodities alike. It strikes at neces-
saries and luxuries alike. As compared with the taxes
proposed in this program, it bears disproportionately
on the low income groups whose incomes are almost wholly
spent on consumer goods. It is, therefore, regressive
and encroaches harmfully upon the standard of living.
It increases prices and makes price control more diffi-
cult. It stimulates demands for higher wages and adds
to the parity prices of agricultural products. It is
not, as many suppose, easily collected; on the contrary.
its collection would require much additional adminis-
trative machinery at a time when manpower is limited.
5. Removal of Special Privileges
There are in our tax system certain provisions
which grant to relatively few of our people special
advantages and privileges at the expense of the great
Regraded Unclassified
224
- 13 -
mass who must pay what is thereby lost. I am reluctant
to recommend that the great mass of the taxpayers of
the United States should pay billions of dollars of
additional revenues until these defects have been
removed from the tax laws. They are bad enough in time
of peace -- they are intolerable in time of war.
(a) Tax Exempt Securities, An important example
of such a. privilege is presented by tax exempt securi-
ties. Every element in our population should bear its
fair share of the burdens which war imposes. Through
tax exempt securities, however, persons with large tax-
paying ability find themselves in B. sheltered position.
For the most part they did not buy these securities
at prices reflecting to any significant extent the great
favor of escape from wartime burdens, and surely the
States did not offer the securities on any such basis.
The holders of tax exempt securities are obtaining what
are essentially windfall profits in a time of national
sacrifice.
For a long time Presidents, Secretaries of the
Treasury, and Congressional Committees have recommended
the elimination of the tax exemption of interest on
future Government securities. Last year the Congress,
at my recommendation, removed the exemption on interest
from future issues of Federal securities. No action has
been taken with respect to the interest on future or
outstanding State and local securities.
In times of peace, when the strain on other elements
in the population was not so heavy, there was much to be
said for the gradual elimination of tax exemption through
taxing future issues only. The national emergency of
war makes this gradual approach unacceptable. I there-
fore recommend the repeal of the present exemption
applicable to outstanding issues of State and local
securities.
Unfortunately, tax exemption clauses appear in many
of the outstanding issues of Federal securities and
these promises must not be violated. In the case of
State and local securities, however, there has never
Regraded Unclassified
225
- 14 -
been any contract or moral commitment between the
Federal Government and the security holders or the
State and local governmental authorities regarding
Federal taxation. Since the Supreme Court decision
in the case of Graves V. O'Keefe in 1939 fair-minded
experts in constitutional law have had no doubt of
the Federal power and moral right to tax the income
from State and municipal securities,
A tax system cannot be defended which in a time
of grave national emergency calls upon the great mass
of our taxpayers to shoulder the heavy burden of addi-
tional taxes and yet permits persons with large tax-
paying ability to pay virtually nothing in taxes. The
sacrifices necessary to win a war for the benefit of
all of us should be shared by all of us--including the
holders of tax exempt securities. The President said
in his Budget Message, "When so many Americans are con-
tributing all their energies and even their lives to
the Nation's great task, I am confident that all
Americans will be proud to contribute their utmost in
taxes."
Taxing the interest of future and outstanding
issues of State and municipal securities would yield
$200,000,000 a year.
(b) Percentage Depletion. A second example of
special privilege is the allowance for depletion. At
the present time the owners of mines and oil wells are
allowed to deduct so-called percentage depletion or
cost depletion, whichever is higher. Percentage de-
pletion consists of a certain percentage of gross income
(27-1/2 percent in the case of persons having an eco-
nomic interest in oil and gas properties), the deduction
being limited to fifty percent of the net income from
the property. Under this arrangement percentage de-
pletion goes on even after one hundred percent of the
cost is recovered and may substantially exceed depletion
based on cost.
In 1937 the President and the Treasury recommended
the elimination of percentage depletion, but no action
Regraded Unclassified
226
- 15 -
was then taken. The war has intensified the necessity
for eliminating any such special favor to one group of
taxpayers. The removal of this special privilege
would yield $80,000,000 a year.
One of the reasons asserted in behalf of percentage
depletion for oil and gas properties is that it stimulates
exploration for such properties. If this is a proper
objective, it would be better achieved by a special
depletion allowance to those who do explore without in-
discriminate extension of the same favor to all owners.
At the convenience of the Committee, we shall place be-
fore it a plan directed to this purpose.
So far as minerals other than oil and gas are con-
cerned, it is believed that an adequate stimulus for
exploration would remain if the percentages allowable
for depletion purposes were substantially reduced or
percentage depletion were eliminated.
(c) Separate Returns by Married Persons. A third
example of special favoritism in the tax laws is the
option allowed married couples to file separate income
tax returns. This permission has little or no signifi-
cance for most taxpayers since at the present time
married couples with incomes of up to $3,500 (the amount
is higher in the case of married couples with dependents)
pay the same total tax whether they file joint returns
or separate returns. It may make a great deal of differ-
ence in tax, however, in the case of married couples
with large incomes, especially if the income is more or
less evenly divided between husband and wife.
This difference in tax is unwarranted since in
actual operation the family is the economic unit. Two
families with the same total income will usually manage
and dispose of that income in a similar fashion, regard-
less of whether the income is received by only one
spouse or is received by both spouses.
The adoption of mandatory joint returns would re-
move this tax differential and would also eliminate two
specific kinds of tax avoidance which are present under
existing law. The first is the treatment of community
income in the so-called community-property States. In
Regraded Unclassified
227
- 16 -
the non-community-property States the income is tax-
able to the spouse who earns it. In the community-
property States, however, the husband who earns the
income may for tax purposes attribute half the earnings
to his wife, although he retains the management and
control of all the earnings. The result is that married
couples with high incomes in community-property States
receive a very substantial tax advantage over those
living in other States. This advantage would be re-
moved if joint returns were made mandatory.
A second source of tax avoidance which would be
eliminated by mandatory joint returns is the possi-
bility of manipulating incomes between husband and wife.
For example, if the husband receives a large amount of
income from securities, he may reduce the family income
tax substantially (and also reduce the amount of estate
tax in case he predeceases his wife) by giving a portion
of his fortune to his wife. This, and other methods
of reducing taxes by married couples, would be eliminated
through provision for mandatory joint returns.
Accordingly, it is suggested that the filing of
joint tax returns by married couples be made mandatory,
with a special allowance for the earned income of the
wife or the husband.
At the present rates of individual income tax,
it is estimated that the revenue from requiring the
filing of joint income tax returns would be approximately
$300,000,000.
(d) Other Special Privileges. There are other
examples of special privilege in our tax laws which
need to be removed. They are to be found in the pro-
visions of our present laws affecting capital gains,
insurance company taxes, and pension trusts, and will
be discussed in detail later in these hearings. The
removal of these additional methods of avoidance would
yield about $100,000,000 a year in additional revenue.
(e) Hardships on Taxpayers. The inequities of
our tax laws work in two directions. As I have said,
Regraded Unclassified
228
- 17 -
some of them extend undue privileges to a favored few.
Still others result in unfair burdens upon certain tax-
payers. Let me give you a few examples of such in-
equities which need correction,
If you rent your house to tenants but are not in
the real estate business, you are taxed on the rent you
received but you may be denied the right to deduct your
expenses in producing that income. If, as an individual,
you expand your plant to produce war materials, you are
denied the benefits of the amortization provision which
applies to corporations. If you collect a debt which
you previously charged off as worthless, the amount
collected becomes part of your taxable income even though
you received no tax relief when you charged it off. With
rates at wartime levels it becomes urgent to correct all
such defects. I, therefore, propose that we make every
effort in this session of Congress to eliminate all hard-
ships of this character 80 that our tax laws will cast
their burden equitably upon all taxpayers.
Conclusion
The recommendations I have outlined to the
Committee this morning would, if added together, pro-
duce over $8,000,000,000 in additional revenue. Since
the effects of any series of tax proposals are inter-
related to some extent, we should deduct about
$1,000,000,000 from this total. That would give us the
$7,000,000,000 in new revenue which, as I said at the
outset of my statement, should be regarded as the very
least that we can call for at this time.
We are at war. . An adequate tax program is vital
to the successful prosecution of the war. The new taxes
will be severe, and their impact will be felt in every
American home. War is never cheap; but, as I have said
before, it is a million times cheaper to win than
to lose.
Regraded Unclassified
229
Chart I
PRICES, 1939 TO DATE COMPARED WITH 1914 TO 1918
July 1914=100 World War Period; Aug. 1939-100 Present Period
PERCENT
PERCENT
All Commodities
200
200
1918
180
180
1917
160
160
140
1916
140
Week Ended
Feb. 21
First Month
120
of War
1942
120
1915
1939
1940
1941
100
100
1914
80
J M M J $ N J M M J S N J M M J S N J M M J $ N J M M J $ N
80
PERCENT
PERCENT
Foods
200
200
1918
180
1917
180
160
160
Week Ended
Feb.21
140
140
1941
1942
First Month
120
of War
120
1939
1940
1916
100
100
1914
1915
80
80
J M M J 3 N J M M J S N J M M J $ N J M M J 3 N J M M J $ N
Regraded Unclassified
Chart 2
INDIVIDUAL INCOME TAX
Effective Rates for Married Person without Dependents
Under Present Law and Proposal
PER
PER
CENT
CENT
90
90
80
80
70
70
Proposal
60
60
50
50
Present Law
40
40
30
30
20
20
10
10
0
I
2
4
6
10
20
40
60
100
200
0
400
600
1000
2000
4000
NET INCOME IN THOUSANDS OF DOLLARS
230
Regraded Unclassifie
231
TABLE 1.
Comparison of individual surtax rate schedule under present
law and proposal
Surtax
I
Bracket rate
2 Total surtax, cumulative
net income
I
($000)
Present law
:
:
:
Proposal
Present law
1
:
Proposal
$
- 8
.5
6%
12%
$
30
$
60
.5 -
1
6
15
60
135
1 -
1.5
6
18
90
225
1.5 -
2
6
20
120
325
2 -
3
9
22
210
545
3 -
4
9
24
300
785
4 -
6
13
27
560
1,325
6 -
8
17
30
900
1,925
8
-
10
21
34
1,320
2,605
10
-
12
25
38
1,820
3,365
12
-
14
29
42
2,400
4,205
14
-
16
32
45
3,040
5,105
16
-
18
35
48
3,740
6,065
18
-
20
38
51
4,500
7,085
20
-
22
41
54
5,320
8,165
22
-
26
44
57
7,080
10,445
26
-
32
47
60
9,900
14,045
32
-
38
50
64
12,900
17,885
38
-
44
53
68
16,080
21,965
44
-
50
55
72
19,380
26,285
50
-
60
57
76
25,080
33,885
60
-
70
59
78
30,980
41,685
70
-
80
61
80
37,080
49,685
80
-
90
63
82
43,380
57,885
90
-
100
64
84
49,780
66,285
100
-
150
65
86
82,280
109,285
150
-
200
66
86
115,280
152,285
200
-
250
67
86
148,780
195,285
250
-
300
69
86
183,280
238,285
300
-
400
71
86
254,280
324,285
400
-
500.
72
86
326,280
410,285
500
-
750
73
86
508,780
625,285
750
- 1,000
74
86
693,780
840,285
1,000
- 2,000
75
86
1,443,780
1,700,285
2,000
- 5,000
76
86
3,723,780
4,280,285
5,000 and over
77
86
-
-
Regraded Unclassified
232
Table 2.
Amount of individual income taxes and effective rates
under present law and proposal
Single person - no dependents
Personal exemption $750
Net income:
Amount of tax
I
Effective rates
before :
:
:
I
Present
I
:
Increase
Present
: Increase in
personal :
Proposal
:
law
I
:
in tax
law
Proposal:
effective
exemption :
:
:
:
rates
$
800
$
3
$
8
$
5
.4%
1.0%
.6%
900
11
24
13
1.2
2.7
1.5
1,000
21
40
19
2.1
4.0
1.9
1,100
31
56
25
2.8
5.1
2.3
1,200
40
72
32
3.3
6.0
2.7
1,500
69
128
59
4.6
8.5
3.9
1,600
79
147
68
4.9
9.2
4.3
2,000
117
230
113
5.9
11.5
5.6
2,500
165
345
180
6.6
13.8
7.2
3,000
221
470
249
7.4
15.7
8.3
4,000
347
735
388
8.7
18.4
9.7
5,000
483
1,023
540
9.7
20.5
10.8
6,000
649
1,333
684
10.8
22.2
11.4
8,000
1,031
1,990
959
12.9
24.9
12.0
10,000
1,493
2,720
1,227
14.9
27.2
12.3
12,500
2,178
3.740
1,562
17.4
29.9
12.5
15,000
2,994
4,888
1,894
20.0
32.6
12.6
20,000
4,929
7.473
2,544
24.6
37.4
12.8
25,000
7,224
10,418
3,194
28.9
41.7
12.8
50,000
20,882
27,715
6,833
41.8
55.4
13.6
75,000
36,487
48,055
11,568
48.6
64.1
15.5
100,000
53,214
69,625
16,411
53.2
69.6
16.4
500,000
345,654
429,610
83,956
69.1
85.9
16.8
1,000,000
733.139
879,610
146,471
73.3
88.0
14.7
5,000,000
3,923,124
4,479,610
556,486
78.5
89.6
11.1
Regraded Unclassified
233
Table 3
Amount of individual income taxes and effective rates
under present law and proposal
Married - no dependents
Personal exemption $1,500
:
Amount of tax
:
Net income
Effective rates
:
:
before
personal
Present
Proposal
Increase
Present
Proposal
Increase in
:
:
:
exemption
law
in tax
:
law
:
:
effective
:
:
:
:
:
:
rates
$ 1,500
-
-
-
-
-
-
1,600
$
6 $
16
$
10
.4%
1.0%
.6%
1,700
13
32
19
.8
1.9
1.1
1,800
23
48
25
1.3
2.7
1.4
1,900
32
64
32
1.7
3.4
1.7
2,000
42
80
38
2.1
4.0
1.9
2,100
52
99
47
2.5
4.7
2.2
2,200
61
118
57
2.8
5.4
2.6
2,300
71
137
66
3.1
6.0
2.9
2,400
80
156
76
3.3
6.5
3.2
2,500
90
175
85
3.6
7.0
3.4
3,000
138
285
147
4.6
9.5
4.9
4,000
249
535
286
6.2
13.4
7.2
5,000
375
805
430
7.5
16.1
8.6
6,000
521
1,100
579
8.7
18.3
9.6
8,000
873
1,735
862
10.9
21.7
10.8
10,000
1,305
2,435
1,130
13.1
24.4
11.3
12,500
1,960
3,425
1,465
15.7
27.4
11.7
15,000
2,739
4,535
1,796
18.3
30.2
11.9
20,000
4,614
7,060
2,446
23.1
35.3
12.2
25,000
6,864
9,960
3,096
27.5
39.8
12.3
50,000
20,439
27,145
6,706
40.9
54.3
13.4
75,000
35.999
47,425
11,426
48.0
63.2
15.2
100,000
52,704
68,965
16,261
52.7
69.0
16.3
500,000
345,084
428,935
83,851
69.0
85.8
16.8
1,000,000
732,554
878,935
146,381
73.3
87.9
14.6
5,000,000
3,922,524
4,478,935
556,411
78.5
89.6
11.1
Regraded Unclassified
234
TABLE 4.
Amount of individual income taxes and effective rates
under present law and proposal
Married person - Two dependents
Personal exemption $1,500, dependent credit $400
Net income
:
Amount of tax
I
Effective rates
before personal
1
I
$
Present
Increase
:
Present
:
:
Increase in
exemption and
1
=
law
Proposal
:
in tax
:
law
1 Proposal
:
effective
dependent credit
1
rates
$ 2,300
-
-
-
-
-
-
2,400
$
6
$
16
$
10
.3%
0.7%
.4%
2,500
12
32
20
.5
1.3
.8
2,700
29
64
35
1.1
2.4
1.3
3,000
58
118
60
1.9
3.9
2.0
4,000
154
333
179
3.9
8.3
4.4
5,000
271
587
316
5.4
11.7
6.3
6,000
397
861
464
6.6
14.4
7.8
8,000
717
1,472
755
9.0
18.4
9.4
10,000
1,117
2,143
1,026
11.2
21.4
10.2
12,500
1,728
3,089
1,361
13.8
24.7
10.9
15,000
2,475
4,167
1,692
16.5
27.3
11.3
20,000
4,287
6,629
2,342
21.4
33.1
11.7
25,000
6,480
9,472
2,992
25.9
37.9
12.0
50,000
19,967
26,537
6,570
39.9
53.1
13.2
75,000
35,479
46,753
11,274
47.3
62.3
15.0
100,000
52,160
68,261
16,101
52.2
68.3
16.1
500,000
344,476
428,215
83,739
68.9
85.6
16.7
1,000,000
731,930
878,215
146,285
73.2
87.8
14.6
5,000,000
3,921,884
4,478,215
556,331
78.4
89.6
11.2
Regraded Unclassified
Chart 3
EFFECTIVE ESTATE TAX RATES
Before Credit for State Death Taxes
PERCENT
PERCENT
90
90
80
80
70
70
60
60
50
50
Proposal
Present Law
40
40
30
30
20
20
10
10
o
10
20
40
100
200
400
1,000
2,000
4,000
o
10,000
20,000
40,000
100,000
235
NET ESTATES BEFORE EXEMPTION IN THOUSANDS OF DOLLARS
Regraded Unclassified
236
Table 5
Comparison of estate tax rate schedule
under present law and proposal
Net estate after:
Bracket rate
:
specific exemp-: Present
:
:
Total estate tax
tion 1
:
law
: Proposal :
cumulative
($000)
:
:
: Present law
:
Proposal
Under $5
3%
8%
$
150
$
400
5 -
10
7
12
500
1,000
10 -
15
11
15
1,050
1,750
15 -
20
11
18
1,600
2,650
20 -
30
14
22
3,000
4,850
30 -
40
18
26
4,800
7,450
40 -
50
22
30
7,000
10,450
50 -
60
25
33
9,500
13,750
60 -
70
28
36
12,300
17,350
70 -
100
28
40
20,700
29,350
100 -
150
30
44
35.700
51,350
150 -
200
30
46
50,700
74,350
200 -
250
30
48
65,700
98,350
250 -
300
32
50
81,700
123,350
300 -
350
32
52
97,700
149,350
350 -
400
32
54
113,700
176,350
400 -
450
32
56
129,700
204,350
450 -
500
32
58
145,700
233,350
500 -
600
35
60
180,700
293,350
600 -
700
35
62
215,700
355.350
700 -
800
35-37
64
251,700
419,350
800 -
900
37
66
288,700
485,350
900 - 1,000
37
68
325.700
553.350
1,000 - 1,500
39-42
70
528,200
903,350
1,500 - 2,000
45
72
753,200
1,263,350
2,000 - 2,500
49
75
998,200
1,638,350
2,500 - 3,000
53
76
1,263,200
2,018,350
3,000
-
4,000
56-59
78
1,838,200
2,798,350
4,000 - 5,000
63
79
2,468,200
3,588,350
5,000 - 6,000
67
80
3,138,200
4,388,350
6,000 - 7,000
70
80
3,838,200
5,188,350
7,000 - 8,000
73
80
4,568,200
5,988,350
8,000 - 9,000
76
80
5,328,200
6,788,350
9,000 - 10,000
76
80
6,088,200
7,588,350
77
80
-
10,000 and over
-
A specific exemption of $40,000 and & life insurance exclusion of
$40,000 are allowed by the present law. The proposal would
allow a single specific exemption of $60,000 but no life insurance
exclusion.
Regraded Unclassified
237
Table 6
Amount of estate taxes and effective rates
under present law and proposal
:
Amount of tax
:
Net estate
:
Effective rate
:
before
:
:
:
:
:
:
specific
:
:
: Increase :
:
: Increase
exemption
: Present
:
:
in
:
law
:
Proposal
: Present :
: in ef-
($000)
:
tax
:
law
: Proposal:fective
:
:
:
:
:
: rates
:
:
:
:
:
:
$
60
$
500
-
$
-500
.31
-
&
70
1,600
$
1,000
-600
2.3
1.4%
-.9
90
4,800
4,850
50
5.3
5.4
.1
100
7,000
7,450
450
7.0
7.5
-5
150
20,700
25,350
4,650
13.8
16.9
3.1
200
35,700
46,950
11,250
17.9
23.5
5.6
400
97.700
144,150
46,450
24.4
36.0
11.6
600
163.200
257.350
94,150
27.2
42.9
15.7
800
233,200
380,950
147.750
29.2
47.6
18.4
1,000
307.200
512,550
205,350
30.7
51.3
20.6
2,000
730.700
1,220,150
489,450
36.5
61.0
24.5
4,000
1,808,700
2,751.550
942,850
45.2
68.8
23.6
6,000
3,104,700
4,340,350
1,235,650
51.7
72.3
20.6
10,000
6,050,200
7.540.350
1,490,150
60.5
75.4
14.9
20,000
13,749,700
15,540,350
1,790.650
68.7
77.7
9.0
40,000
29,149.700
31,540,350
2,390,650
72.9
78.9
6.0
The amounts shown as the size of the "net estate before specific
exemption" include $10,000 of life insurance. It is assumed that
none of this insurance would have been taxable under present law,
which allows a $40,000 insurance exclusion, in addition to a
specific exemption of $40,000. The proposal would eliminate the
insurance exclusion and provide a single specific exemption of
$60,000. In recent years the amount of excluded insurance has
averaged about $6,000 per taxable estate.
Regraded Unclassified
Table 7.
Excise Tax Proposals
:
:
:
Estimated
:
:
Recommended tax
:
increases
Article
Present tax
:
:
rate and base
#
in revenues 1/
:
:
:
(In millions)
1. Photographic apparatus
10% manufacturers'
25% manufacturers' sales price
$ 11.2
sales price
2. Transportation by pipe line
43% of amount paid
10% of amount paid
18.7
3. Communications:
a. Telephone toll service
24-50#, tax 5#:
25# to 39#
.....
5# tax
)
24.5
additional 5# tax
40# . 64#
.....
10# .
)
on each 50#
65# # 994 ..... 15# .
)
5# additional tax for each
)
25# or fraction thereof
)
)
b. Telegraph, cable
10% of charge
15% of charge
)
)
c. Leased wires, etc.
10% of charge
15% of charge
)
d. Local telephone bill
6% of bill
10% of bill
46.6
e. Coin-operated telephone
Exempt
10% of service charge
6.7
under 25#
4. Gasoline
per gal.
3# per gal.
242.2
5. Lubricating oil
420 per gal.
10# per gal.
49.9
6. Beer
$6 per bbl.
$8 per bbl.
117.1
1/ Estimated full year effect of indicated excises at estimated fiscal year 1943 levels of business after
allowing for the initial impact of the imposition of the augmented rates.
13
238
Regraded Unclas
Page 2 of Table 7
7. Wines:
Still wines -
)
Not more than 14% alcohol
8¢ per gal.
15/ per gal.
)
14-216 alcohol
30$ per gal.
50# per gal.
)
More than 21%
65# per gal.
100# per gal.
)
25.0
Sparkling wines
74 per half-pint
10$ per half-pint
)
Artificial carbonated wines
35# per half-pint
54 per half-pint
)
Liqueurs, cordials, etc.
3¥ per half-pint
5# per half-pint
)
8. Distilled spirite
$4 per gal.
$6 per gal.
279.7
9. Transportation of persons
5% of amount paid
15% on transportation;
94.8
20% on seats and berths
10. Carbonated soft drinks
None
a. Schedule for bottled drinks
146.9
based on 1$ per bottle re-
tailing at not more than 10#;
b. 80# per lb. of carbonic acid
gas used in unbottled drinks
11. Candy and chewing gum
None
15% manufacturers' sales price
45.3
12. Cigars
Rate schedule
New schedule 1/
13.1
13. Smoking tobacco
184 per lb.
36¢ per lb.
26.8
14. Cigarettes
$3.25 per M.
$3.50 per M - 10-cent brands;
188.6
$4.00 per X - 15-cent brands
15. Cigarette papers and tubes
Schedule
No exemption: tax all papers and
7.8
tubes 1/24 per 25 papers or tubes
Total
$1,344.9
1/ Class A, retail price 2-5¢, tax $2.50 X; B. 54. tax $5.00 M; C, 5.1-84, tax $7.50 M; D, 8.1-10#, tax $10.00 M;
B, 10.1-15#. tax $15.00 M; P. 15.1-204, tax $20.00 X; G, 20.1-304, tax $25.00 M; H, 30.1 and over, tax $40.00 M,
239
Regraded Uncla
240
Table 8
Corporation tax plan under present law
and under the proposal
: Present :
:
law
:
Proposal
1. Excess profits credit
a. Invested capital method:
First $5,000,000 of invested capital
8%
8%
Over $5,000,000 of invested capital
7
7
b. Income method:
Portion of average earnings in base
period, 1936-1939
95%
95%
C. Specific exemption
$5,000
$5,000
2. Excess profits tax rates
Adjusted excess profits net income:
First $20,000
35
50
$ 20,000 - 50,000
40
55
50,000 - 100,000
45
60
100,000 - 250,000
50
65
250,000 - 500,000
55
70
Over 500,000
60
75
3. Income tax
a. Normal tax
(1) Corporations with net income of not
more than $25,000:
First $5,000
15
15
$ 5,000 - 20,000
17
17
20,000 - 25,000
19
19
(2) Corporations with net income over
$25,000:
Flat rate
24
24
b.
Surtax
(1) Corporations with net income of not
more than $25,000:
First $25,000
6
16
(2) Corporations with net income over
$25,000:
First $25,000
6
31
Over $25,000
7
31
(a) Relief provision: Corporations
with current year surtax net income
less than the average surtax net in-
come for the base period years, 1936-
1939, are allowed a tax credit of 10%
of the difference, but not to exceed
20% of surtax net income. This provi-
sion applies only to corporations with
net income over $25,000.
Regraded Unclassified
241
Table 9
Estimated revenue increase from
proposed tax program
Increase over yield
of present law 1
(In millions of
dollars)
Individual income tax
$ 3,200
Corporation taxes
3,060
Estate and gift taxes
330
Excise taxes
1,340
Removal of special privileges, approximately
680
Eliminate exemption from
income and profits taxes
with respect to interest
from all State and local
governmental obligations
$ 200
Percentage depletion
80
Mandatory joint returns
300
Other, approximately
100
Grand total
$ 8,610
Less allowance for interrelated
effects, approximately
1,000
Approximate increase in revenue from
proposed tax program
$ 7,610
1/
For a full year of operation.
March 20. 1942:
242
A copy of a chart, memorandum and
letter on the effect of price ceilings
on Canadian prices, sent by the Secretary
to the President and others on March 20,
is shown as Exhibit 24.
Secretary of the Treasury
243
March 20, 1942.
Dear Mr. President:
I have recently been impressed by the fact
that living costs in Canada have distinctly
levelled out since the Canadian price ceiling
program was put into effect, while living costs
in this country have continued strongly upward.
I thought you would be interested in the
attached chart showing comparative price trends
in the two countries and in the brief explanatory
statement which accompanies it.
Faithfully,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
244
Canadian inflation-control program.
On December 1, 1941, after previous unsuccessful attempts
to control prices, Canada put into effect an overall price
ceiling as part of a far-reaching program of inflation control.
This 5-part program consists of (1) a general ceiling on re-
tail prices, with limited exceptions, (2) Dr. ceiling on wages
and salaries, supplemented by cost-of-living bonuses, (3) cur-
tailment of public spending through taxation and war savings
programs, (4) a system of industrial allocations, with pro-
spective consumer rationing, and (5) subsidies to producers
of essential farm products, to maintain supplies without in-
creasing costs to consumers.
While it is probably too early to determine the effective-
ness of the Canadian program, a levelling-out of the Canadian
cost-of-living index and index of retail food prices since
November 1941 may be significant. The attached chart shows
the official Canadian cost-of-living index and the index of
retail food prices, in comparison with similar official in-
dexes for this country. For comparability, both are converted
to an August 1939 base.
The Canadian figures (as of the 1st of each month) show
that the cost-of-living index in February was 0.5 percent
lower than last November, and that the index of retail food
prices was 1.8 percent lower. (The Order in Council establish-
ing ceiling prices was issued November 1, the base period for
the ceilings having been announced on October 18.) Figures
for the United States (as of the 15th of each month) show in
the same period 8. rise of 2.2 percent in living costs and
a rise of 3.3 percent in retail food prices.
The Canadian price ceiling is essentially a rigid ceil-
ing on retail prices, applying to all commodities (unless
specifically exempted), to twelve essential services, and to
the rental of all real property. A major administrative
problem 18 the "rolling back" of squeezes between retail
prices and basic costs, which is accomplished in part by the
payment of various Government subsidies.
Attachment
Regraded Unclassified
COST OF LIVING, U.S. AND CANADA
AUGUST 1939 - 100
PER
PER
CENT
CENT
Cost of Living
120
120
115
115
Canada
(DOM. Bus. or STAT.)
110
110
105
105
U.S.
(B.L.S.)
100
100
95
95
J
M
M
J
$
N
J
M
.
J
$
.
J
.
M
J
$
.
J
M
-
1939
1940
1941
1942
PER
PER
CENT
CENT
Foods, Retail
130
130
125
125
120
120
115
115
Canada
(Bun. OF STAT.)
110
110
105
105
U.S.
(B.L.S.)
100
100
95
95
.
J
.
-
J
s
-
J
.
M
J
$
.
J
.
.
$
J
.
J
#
1940
1941
1939
1942
245
Office of the Summary of to Treasury
c 412
- of - of -
5/3/42
Comparison of individual surtax rate schedule under present
law and proposal
Surtax
I
Bracket rate
: Total surtax, cumulative
net income
:
Present
law
($000)
Proposal
1/1
Present
law
:
:
Proposal
1
:
$
- $
.5
6%
12%
$
30
$
60
.5 -
1
6
15
60
135
1 -
1.5
6
18
90
225
1.5 -
2
6
20
120
325
2 -
3
9
22
210
545
3
-
4
9
24
300
785
4 -
6
13
27
560
1,325
6
-
a
17
30
900
1,925
8
-
10
21
34
1,320
2,605
10
-
12
25
38
1,820
3,365
12
-
14
29
42
2,400
4,205
14
-
16
32
45
3,040
5,105
16
-
18
35
48
3,740
6,065
18
-
20
38
51
4,500
7,085
20
-
22
41
54
5,320
8,165
22
-
26
44
57
7,080
10,445
26
-
32
47
60
9,900
14,045
32
-
38
50
64
12,900
17,885
38
-
44
53
68
16,080
21,965
44
-
50
55
72
19,380
26,285
50
-
60
57
76
25,080
33,885
60
-
70
59
78
30,980
41,685
70
-
80
61
80
37,080
49,685
80
-
90
63
82
43,380
57,885
90
-
100
64
84
49,780
66,285
100
-
150
65
86
82,280
109,285
150
-
200
66
86
115,280
152,285
200
-
250
67
86
148,780
195,285
250
-
300
69
86
183,280
238,285
300
-
400
71
86
254,280
324,285
400
-
500
72
86
326,280
410,285
500
-
750
73
86
508,780
625,285
750
- 1,000
74
86
693,780
840,285
1,000
- 2,000
75
86
1,443,780
1,700,285
2,000
- 5,000
76
86
3,723,780
4,280,285
5,000 and over
77
86
-
-
Treasury Department, Division of Tax Research
May 7, 1942
As proposed by Secretary Morgenthau, March 3, 1942.
Regraded Unclassified
247
Amount of individual income taxes and effective rates
under present law and proposal
Single person - no dependents
Personal exemption, present law $750
:
Amount of tax
:
Effective rates
Net income
:
: Treasury proposals 1/
:
:Treasury proposals 1
before
:
Present :with personal exemptions:
Present
:
with personal
personal
:
law
:
of
:
law
:
exemptions of
exemption :
:
$750
: $600
:
:
$750
:
$600
600
march 3
may
-
-
-
$
700
-
-
$
16
-
-
2.3%
800
$
3
$
8
32
.4%
1.0%
4.0
900
11
24
48
1,2
2.7
5.3
1,000
21
40
64
2.1
4.0
6.4
1,200
40
72
99
3.3
6.0
8.3
1,500
69
128
156
4.6
8.5
10.4
2,000
117
230
263
5.9
11.5
13.2
2,500
165
345
381
6.6
13.8
15.2
3,000
221
470
509
7.4
15.7
17.0
4,000
347
735
777
8.7
18.4
19.4
5,000
483
1,023
1,069
9.7
20.5
21.4
6,000
649
1,333
1,379
10.8
22.2
23.0
8,000
1,031
1,990
2,041
12.9
24.9
25.5
10,000
1,493
2,720
2,777
14.9
27.2
27.8
12,500
2,178
3.740
3,803
17.4
29.9
30.4
15,000
2,994
4,888
4,961
20.0
32.6
33.1
20,000
4,929
7,473
7.555
24.6
37.4
37.8
25,000
7,224
10,418
10,509
28.9
41.7
42.0
50,000
20,882
27,715
27,829
41.8
55.4
55.7
75,000
36,487
48,055
48,181
48.6
64.1
64.2
100,000
53,214
69,625
69.757
53.2
69.6
69.8
500,000
345,654
429,610
429,745
69.1
85.9
85.9
1,000,000
733,139
879,610
879.745
73.3
88.0
88.0
5,000,000
3,923,124
4,479,610
4,479,745
78.5
89.6
89.6
Treasury Department, Division of Tax Research
May 7. 1942
Surtax rate scale as proposed by Secretary Morgenthau, March 3, 1942.
Regraded Unclassified
248
Amount of individual income taxes and effective rates
under present law and proposal
Married person - no dependents
Personal exemption, present law - $1,500
..,
:
Amount of tax
:
Effective rates
Net income
:
:Treasury proposals
before
:
:Treasury proposals 1/
: Present :
with personal ex-
:
Present
:
personal
with personal ex-
:
law
:
emption of
:
law
:
emption of
exemption
:
:
$1,500
: $1,200
#
:
$1,500
:
$1,200
1,200
-
were
$ 1,300
-
-
$
may 16 7
-
-
1.2%
1,400
-
-
32
-
-
2.3
1,500
-
-
48
-
-
3.2
1,700
$
13 $
32
80
.8%
1.9%
4.7
2,000
42
80
137
2.1
4.0
6.9
2,500
90
175
241
3.6
7.0
9.6
3,000
138
285
357
4.6
9.5
11.9
4,000
249
535
613
6.2
13.4
15.3
5,000
375
805
889
7.5
16.1
17.8
6,000
521
1,100
1,193
8.7
18.3
19.9
8,000
873
1,735
1,837
10.9
21.7
23.0
10,000
1,305
2,435
2,549
13.1
24.4
25.5
12,500
1,960
3,425
3,551
15.7
27.4
28.4
15,000
2,739
4,535
4,673
18.3
30.2
31.2
20,000
4,614
7,060
7,225
23.1
35.3
36.1
25,000
6,864
9,960
10,143
27.5
39.8
40.6
50,000
20,439
27,145
27,373
40.9
54.3
54.7
75,000
35,999
47,425
47,677
48.0
63.2
63.6
100,000
52,704
68,965
69,229
52.7
69.0
69.2
500,000
345,084
428,935
429,205
69.0
85.8
85.8
1,000,000
732,554
878,935
879,205
73.3
87.9
87.9
5,000,000
3,922,524
4,478,935
4,479,205
78.5
89.6
89.6
Preasury Department, Division of Tax Research
May 7, 1942
1/ Surtex rate scale as proposed by Secretary Morgenthau, March 3. 1942.
249
Amount of individual income taxes and effective rates
under present law and proposal
Married person - Two dependents
Personal exemption, present law - $1,500
Dependent credit,
present law - $ 400
Not incomo :
Amount of tax
:
boforo
:
Effoctivo ratos
:
porsonal
:
: Treasury proposals
1/
:
: Treasury proposals 1,
exemption and
:
:with personal exemp-
:
: with personal exemp-
dopondont
: Prosont
:tion and dependent
:Prosont: tion and depondent
crodit
:
law
:
credit of
: law
:
crodit of
:
: $1,500
:
$1,200
:
:
$1,500
:
$1,200
:
:
400
:
300
:
:
400
:
300
$
1,900
-
- $
16
-
-
.8%
2,000
-
-
32
-
-
1.6
2,300
-
-
80
-
-
3.5
2,500
$
12
$
32
118
.5%
1.3%
4.7
3,000
58
118
219
1.9
3.9
7.3
4,000
154
333
457
3.9
8.3
11.4
5,000
271
587
721
5.4
11.7
14.4
6,000
397
861
1,007
6.6
14.4
16.8
8,000
717
1,472
1,633
9.0
18.4
20.4
10,000
1,117
2,143
2,321
11.2
21.4
23.2
12,500
1,728
3,089
3,299
13.8
24.7
26.4
15,000
2,475
4,167
4,397
16.5
27.8
29.3
20,000
4,287
6,629
6,895
21.4
33.1
34.5
25,000
6,480
9,472
9.777
25.9
37.9
39.1
50,000
19,967
26,537
26,917
39.9
53.1
53.8
75,000
35,479
46,753
47,173
47.3
62.3
62.9
100,000
52,160
68,261
68,701
52.2
68.3
68.7
500,000
344,476
428,215
428,665
68.9
85.6
85.7
1,000,000
731,930
878,215
878,665
73.2
87.8
87.9
5,000,000
3,921,834
4,478,215
4,478,665
78.4
89.6
89.6
Treasury Department, Division of Tax Rosearch
May 7. 1942
Surtax rato scalo as proposed by Secrotary Morgonthau, March 3. 1942.
Regraded Unclassified
250 5/7/42
Comparison of individual surtax rate schedule under present
law and proposal
Surtax
#
Bracket rate
: Total surtax, cumulative
net income
($000)
: : Present law Proposal 1/1 Present law : Proposal
-
- $
.5
6%
12%
$
30
$
60
.5 -
1
6
15
60
135
1 -
1.5
6
18
90
225
1.5 -
2
6
20
120
325
2 -
3
9
22
210
545
3 -
4
9
24
300
785
4 -
6
13
27
560
1,325
6 -
8
17
30
900
1,925
8
-
10
21
34
1,320
2,605
10
-
12
25
38
1,820
3,365
12
-
14
29
42
2,400
4,205
14
-
16
32
45
3,040
5,105
16
-
18
35
48
3,740
6,065
18
-
20
38
51
4,500
7,085
20
-
22
41
54
5,320
8,165
22
-
26
44
57
7,080
10,445
26
-
32
47
60
9,900
14,045
32
-
38
50
64
12,900
17,885
38
-
44
53
68
16,080
21,965
44
-
50
55
72
19,380
26,285
50
-
60
57
76
25,080
33,885
60
-
70
59
78
30,980
41,685
70
-
80
61
80
37,080
49,685
80
-
90
63
82
43,380
57,885
90
-
100
64
84
49,780
66,285
100
-
150
65
86
82,280
109,285
150
-
200
66
86
115,280
152,285
200
-
250
67
86
148,780
195,285
250
-
300
69
86
183,280
238,285
300
-
400
71
86
254,280
324,285
400
-
500
72
86
326,280
410,285
500
-
750
73
86
508,780
625,285
750
- 1,000
74
86
693,780
840,285
1,000
- 2,000
75
86
1,443,780
1,700,285
2,000
- 5,000
76
86
3,723,780
4,280,285
5,000 and over
77
86
-
-
Treasury Department, Division of Tax Research
May 7, 1942
1/ As proposed by Secretary Morgenthau, March 3, 1942.
251
Amount of individual income taxes and effective rates
under present law and proposal
Single person - no dependents
Personal exemption, present law $750
:
Amount of tax
:
Effective rates
Net income
:
: Treasury proposals 1/
:
before
:Treasury proposals 1/
:
Present :with personal exemptions:
Present
:
with personal
personal
:
law
:
of
:
law
:
exemptions of
exemption
:
:
$750
:
$600
:
:
$750
:
$600
$
700
-
-
$
16
-
-
2.3%
800
$
3
$
8
32
.4%
1.0%
4,0
900
11
24
48
1,2
2.7
5.3
1,000
21
40
64
2.1
4.0
6.4
1,200
40
72
99
3.3
6.0
8.3
1,500
69
128
156
4.6
8.5
10.4
2,000
117
230
263
5.9
11.5
13.2
2,500
165
345
381
6.6
13.8
15.2
3,000
221
470
509
7.4
15.7
17.0
4,000
347
735
777
8.7
18.4
19.4
5,000
483
1,023
1,069
9.7
20.5
21.4
6,000
649
1,333
1,379
10.8
22.2
23.0
8,000
1,031
1,990
2,041
12.9
24.9
25.5
10,000
1,493
2,720
2,777
14.9
27.2
27.8
12,500
2,178
3,740
3,803
17.4
29.9
30.4
15,000
2,994
4,888
4,961
20.0
32.6
33.1
20,000
4,929
7,473
7,555
24.6
37.4
37.8
25,000
7,224
10,418
10,509
28.9
41.7
42.0
50,000
20,882
27,715
27,829
41.8
55.4
55.7
75,000
36,487
48,055
48,181
48.6
64.1
64.2
100,000
53,214
69,625
69,757
53.2
69.6
69.8
500,000
345,654
429,610
429,745
69.1
85.9
85.9
1,000,000
733,139
879,610
879,745
73.3
88.0
88.0
5,000,000
3,923,124
4,479,610
4,479,745
78.5
89.6
89.6
Treasury Department, Division of Tax Research
May 7. 1942
1/ Surtax rate scale as proposed by Secretary Morgenthau, March 3, 1942.
Regraded Unclassified
252
Amount of individual income taxes and effective rates
under present law and proposal
Married person - no dependents
Personal exemption, present law - $1,500
:
Amount of tax
:
Effective rates
Net income
:
: Treasury proposals
:
before
:Treasury proposals 1/
: Present
:
with personal ex-
:
Present
:
personal
with personal ex-
:
law
:
emption of
:
law
:
emption of
exemption
:
:
$1,500
: $1,200
:
:
$1,500
:
$1,200
$
1,300
-
- $
16
-
-
1,2%
1,400
-
-
32
-
-
2.3
1,500
-
-
48
-
-
3.2
1,700
$
13 $
32
80
.8%
1.9%
4.7
2,000
42
80
137
2.1
4.0
6.9
2,500
90
175
241
3.6
7.0
9.6
3,000
138
285
357
4.6
9.5
11.9
4,000
249
535
613
6.2
13.4
15.3
5,000
375
805
889
7.5
16.1
17.8
6,000
521
1,100
1,193
8.7
18.3
19.9
8,000
873
1,735
1,837
10.9
21.7
23.0
10,000
1,305
2,435
2,549
13.1
24.4
25.5
12,500
1,960
3,425
3,551
15.7
27.4
28.4
15,000
2,739
4,535
4,673
18.3
30.2
31.2
20,000
4,614
7,060
7,225
23.1
35.3
36.1
25,000
6,864
9,960
10,143
27.5
39.8
40.6
50,000
20,439
27,145
27,373
40.9
54.3
54.7
75,000
35.999
47,425
47,677
48.0
63.2
63.6
100,000
52,704
68,965
69,229
52.7
69.0
69.2
500,000
345,084
428,935
429,205
69.0
85.8
85.8
1,000,000
732,554
878,935
879,205
73.3
87.9
87.9
5,000,000
3,922,524
4,478,935
4,479,205
78.5
89.6
89.6
Treasury Department, Division of Tax Research
May 7. 1942
1/ Surtex rate scale as proposed by Secretary Morgenthau, March 3. 1942.
Regraded Unclassified
253
Amount of individual income taxes and effective rates
under present law and proposal
Married person - Two dependents
Personal exemption, present law - $1,500
Dependent credit,
present law - $ 400
Not incomo :
Amount of tax
:
boforo
:
Effoctivo ratos
:
personal
:
: Treasury proposals 1
:
: Treasury proposals 1/
oxomption and
:
:with personal exemp-
:
: with personal oxemp-
dopondont
: Prosont
:tion and dependent
Prosont: tion and depondont
crodit
:
law
:
credit of
: law :
credit of
:
: $1,500
:
$1,200
:
:
$1,500
:
$1,200
:
:
400
:
300
:
:
400
:
300
$ 1,900
-
- $
16
-
-
.8%
2,000
-
-
32
-
-
1.6
2,300
-
-
80
-
-
3.5
2,500
$
12
$
32
118
.5%
1.3%
4.7
3,000
58
118
219
1.9
3.9
7.3
4,000
154
333
457
3.9
8.3
11.4
5,000
271
587
721
5.4
11.7
14.4
6,000
397
861
1,007
6.6
14.4
16.8
8,000
717
1,472
1,633
9.0
18.4
20.4
10,000
1,117
2,143
2,321
11.2
21.4
23.2
12,500
1,728
3,089
3,299
13.8
24.7
26.4
15,000
2,475
4,167
4,397
16.5
27.8
29.3
20,000
4,287
6,629
6,895
21.4
33.1
34.5
25,000
6,480
9,472
9.777
25.9
37.9
39.1
50,000
19,967
26,537
26,917
39.9
53.1
53.8
75,000
35,479
46,753
47,173
47.3
62.3
62.9
100,000
52,160
68,261
68,701
52.2
68.3
68.7
500,000
344,476
428,215
428,665
68.9
85.6
85.7
1,000,000
731,930
878,215
878,665
73.2
87.8
87.9
5,000,000
3,921,834
4,478,215
4,478,665
78.4
89.6
89.6
Treasury Department, Division of Tax Rosearch
May 7. 1942
1/ Surtax rate scalo as proposed by Secrotary Morgenthau, March 3. 1942.
Regraded Unclassified
155°
254
Exhibit 63.-Amount of Indicidual Income taxes and effective rates under
present law and Treasury proposal
Single person-no dependents
Personal exemption 8750
Amount of tax
Net income
Effective rates
before
personal
exemption
Present
Treasury
Increase
Present
Treasury
Increase
law
proposal
in tax
law
proposal
in effec-
tive rates
Percent
Percent
Percent
$800
$3
$8
$5
0.4
10
0.6
$900
11
24
13
1.2
27
1.5
$1,000
21
40
19
21
4.0
L9
$1,100
31
56
25
28
5.1
23
$1,200
40
72
32
3.3
6.0
27
$1,500
69
128
59
4.6
8.5
19
$1,600
79
147
68
4.9
9.2
4.3
$2,000
117
230
113
5.9
11.5
5.6
$2.500
165
345
180
6.6
13. 8
7.2
$3,000
221
470
249
7.4
15. 7
8.8
$4,000
347
735
388
8.7
18. 4.
9.7
$5,000
483
1,023
540
9.7
20. 5
10. 8
$6,000
649
1,333
684
10. 8
22. 2
11. 4
$8,000
1,031
1,990
959
12. 9
24. 9
12. 0
$10,000.
1,493
2,720
1, 227
14. 9
27. 2
12 3
$12,500
2,178
3,740
1, 562
17. 4
29. 9
12. 5
$15,000
2,994
4,888
1, 894
20. 0
32. 6
12 6
$20,000
4,929
7,473
2, 544
24. 6
37. 4
12. 8
$25,000
7,224
10,418
3, 194
28.9
41. 7
12 8
$50,000
20,882
27,715
6,833
41.8
55. 4
13.6
$75,000
36,487
48,055
11,568
48. 6
64. 1
15. 5
$100,000
53,214
69,625
16,411
58.2
69. 6
16. 4
$500,000
345,654
429,610
88,956
69. 1
85. 9
16.: 8
$1,000,000
733,139
879,610
146,471
73.3
88. o
14. 7
$5,000,000
3,923,124
4,479,610
556,486
78.5
89. 6
11. 1
MARRIED-NO DEPENDENTS
PERSONAL EXEMPTION $1,500
$1,500
$1,600.
$6
$16
$10
0.4
1.0
0.6
$1,700
13
32
19
.8
1.9
1.1
$1,800
23
48
25
1.3
27
1.4
$1,900
32
64
32
1.7
3.4
1.7
$2,000
42
80
38
21
4.0
1.9
$2,100
52
99
47
25
4.7
22
$2,200
61
118
57
28
5.4
26
$2,300
71
137
66
3.1
6.0
29
$2,400
80
156
76
3.3
6.5
3.2
$2,500
90
175
85
3.6
7.0
3.4
$3,000
138
285
147
4.6
9.5
4.9
$4,000
249
535
286
6.2
13. 4
7.2
$5,000
375
805
403
7.5
16.1
8.6
$6,000
521
1, 100
579
8.7
18. 3
9.6
$8,000
873
1,735
862
10. 9
21. 7
10. 8
$10,000
1, 305
2,435
1,130
13. 1
24. 4
11. 3
$12,500
1,960
3,425
1,465
15. 7
27. 4
11. 7
$15,000
2, 739
4,535
1,796
18. 3
30. 2
11. 9
$20,000
4,614
7,060
2,446
23. 1
35. 3
12. 2
$25,000
6,864
9,960
8, 096
27. 5
39. 8
12. 3
$50,000
20,439
27,145
6,706
40.9
54. 3
13. 4
$75,000
35,999
47,425
11,426
48. o
63. 2
15. 2
$100,000
52,704
68,965
16,261
52. 7
69. 0
16. 3
$500,000
345,084
428,935
83,851
69.0
85. 8
16. 8
$1,000,000
732,554
878,935
146,381
73. 3
87. 9
14. 6
$5,000,000
3,922,524
4,478,935
556,411
78.5
89. 6
11.1
156
157
Exhibit 63.-Amount of individual income taxes and effective rates under
present law and Treasury proposal-Continued
Exhibit M.-Individual income tax-Effective rates for married person
without dependents, under present law and Treasury proposal
MARRIED PERSON-TWO DEPENDENTS
PERSONAL EXEMPTION $1,500, DEPENDENT CREDIT $400
Amount of tax
Net income
Effective rates
before personal
(CHART TO BE INSERTED LATER)
exemption and
dependent
Present
Treasury
Increase
Present
Treasury
Increase
credit
law
proposal
in tax
law
pro-
in effec-
posal
tive rates
Percent
Percent
Percent
$2,300
$2,400
$6
$16
$10
0.3
0.7
0.4
$2,500
12
32
20
.5
1.3
.8
$2,700
29
64
35
1.1
24
1.3
$3,000
58
118
60
1.9
3.9
20
$4,000
154
333
179
3.9
8.3
4.4
$5,000
271
587
316
5.4
11. 7
6.3
$6,000
397
861
464
6.6
14. 4
7.8
$8,000
717
1,472
755
9.0
18. 4
9.4
$10,000
1, 117
2, 143
1, 026
11. 2
21. 4
10. 2
$12,500
1, 728
3, 089
1, 361
13. 8
24. 7
10. 9
$15,000
2, 475
4,167
1,692
16. 5
27. 8
11. 3
$20,000
4, 287
6, 629
2,342
21. 4
33. 1
11. 7
$25,000
6, 480
9,472
2,992
25. 9
37. 9
12. 0
$50,000
19,967
26,537
6, 570
39. 9
53. 1
13. 2
$75,000
35,479
46,753
11,274
47. 3
62. 3
15. 0
$100,000
52,160
68,261
16,101
52. 2
68. 3
16. 1
$500,000
344,476
428,215
83,789
68. 9
85. 6
16. 7
$1,000,000
731,930
878,215
146,285
73. 2
87. 8
14. 6
$5,000,000
3,921,884
4,478,215
556,331
78. 4
89. 6
11. 2
158
159
Canada, effective rates for married person without dependents
65.-Individual Income tax-United States, United Kingdom, and
Exhibit 66.-Net income required to leave $10,000, $25,000, $50,000, and
$100,000 after Federal tax, under present law and the Treasury pro-
posel
Net income before
Federal tax
(CHART TO BE INSERTED LATER)
Net income after Federal tax and family status
Present
Treasury
law
proposal
$10,000:
Single, no dependents
$12,049
$14,674
Married, no dependents
11,748
14,035
Married, 2 dependenta
11,474
13,422
$25,000:
Single, no dependents
40,178
63,722
Married, no dependents
39,204
60,425
Married, 2 dependents
38,265
57,225
$50,000:
Single, no dependents
110,344
295,540
Married, no dependents
108,674
288,790
Married, 2 dependents
106,894
281, 590
$100,000:
Single, no dependents
280,283
795,540
Married, no dependents
278,256
788,790
Married, 2 dependents
276,093
781, 580
Source: Treasury Department, Division of Tax Research, Apr. 30, 1942.
160
161
Section 6. INDIVIDUAL INCOME TAX BASES AND YIELDS
Exhibit 69.-Estimated number of individuale affected and yield If Indi-
Exhibit 67. Number of taxable returns, net Income, normal tax net
vidual incomes were limited to $25,000 after tax, at calendar year 1943
proposal at calendar year 1942 levels of Income:
income, and surtax net income, by net income classes, under Treasury
levels of income¹
Number of individuals affected:
Present law.
38,235
Number of
Net in-
Normal
Net income classes
Surtax
Treasury proposal
17,000
taxable
come
tax net
net
returns
income
Increase in yield:
In millions
income
Present law.
$716. 5
Treasury proposal
174. 3
Thousands
Billions
Billions
Under $5,000
Billions
I Without mandatory joint returns.
19,294
$37. 4
$13. 3
$5,000 to $25,000
$13. 3
, Includes 2,000 marginal returns yielding nominal net increase.
1, 181
9.8
7.8
Over $25,000
7.9
84
4.4
Source: Treasury Department, Division of Research and Statistics, May 1,
4.2
4.2
1942.
Total
20,559
51. 6
25. 3
25. 4
Exhibit 70.-Estimated Increase in revenue from a 100-percent tax on net
1 Without mandatory joint returns.
incomes (before taxes) in excess of $5,000, at the estimated level and
distribution of income of the calendar year 1942, and assuming a full
Source: Treasury Department, Division of Research and Statistics, May 1, 1942.
year of <llections
[In millions of dollars]
Exhibit 68.-Number of taxable returns and estimated yield of present law
Under
and Treasury proposal, by net-Income classes, at calendar year 1942
Under
Treasury
levels of Income¹
present
proposed
rates
rates
Number of returns
Estimated yield
Increase
1. Net incomes in excess of $5,000 before deducting ex-
in yield
Net income classes
emptions
15,300
15,300
from
Present
Treasury
Treasury
2. First $5,000 of item 1
6,300
6, 300
Treasury
Present
law
proposal
law
proposal
3. Balance in excess of $5,000 net income
9,000
9, 000
proposal
4. Tax liabilities
3,800
5,600
5. Increase in liabilities from a 100-percent tax on net
incomes in excess of $5,000
5,200
3,400
Thou-
Thou-
sands
sands
Millions
Millions
Millions
$0 to $1,000
2,493
2,493
$15. 7
$16. 7
$1. 0
I Without allowing for the proposed mandatory joint returns but allowing for
$1,000 to $2,000
7,765
8,783
304. 5
557. 8
253. 3
the proposed elimination of the earned income deduction. Corporation tax
$2,000 to $3,000
5,697
5,445
434. 4
634. 4
200. 0
rates are assumed unchanged from the Revenue Act of 1941.
$3,000 to $4,000
1,877
1,779
279. 7
483. 1
203. 4
$4,000 to $5,000,
804
794
430. 0
208. 8
Source: Treasury Department, Division of Research and Statistics, Apr. 7, 1942.
221. 2
$5,000 to $6,000
356
356
141. 5
281. 1
139. 6
$6,000 to $7,000
221
221
124. 8
241. 6
116. 7
X
$7,000 to $8,000
139
139
101. 7
192. 1
90. 4
$8,000 to $9,000
96
96
90. 2
163. 3
73. 0
$9,000 to $10,000
70
70
80. 1
141. 1
61. 0
$10,000 to $25,000
300
300
810. 4
1,198.5
388. 1
Over $25,000
84
84
2,440.3
2,610.6
170. 3
Total
19,902
20,559
5,044.8
6,950.5
1,905.7
1 Without mandatory joint returns.
I The figures are rounded and will not necessarily add to totals.
Source: Treasury Department, Division of Research and Statistics, May 1,
1942.
101
[CONFIDENTIAL COMMITTEE PRINT-UNREVISED]
DATA ON PROPOSED
REVENUE BILL OF 1942
SUBMITTED TO THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
BY THE
TREASURY DEPARTMENT
No. 6
MAY 4, 1942
C. Corporation Taxes-Continued.
D. Individual Income Tax-Continued.
Section 5. Treasury Individual Income
Tax Proposal.
Section 6. Individual Income Tax Bases
and Yields.
UNITED STATES
GOVERNMENT PRINTING OFFICE
71730-42
WASHINGTON # 1942
no ATAQ
ХИИНУНЯ
CONTENTS
Page
C. Corporation taxes-Continued:
Exhibit 60. Estimates of the revenue effects of the Ways and
Means Committee's tentative action of May 1, 1942, with
reference to changes in the corporation tax law
151
D. Individual income tax-Continued:
Section 5. Treasury individual income tax proposal
153
Exhibit 61. Summary of Treasury's proposals with respect
to individual income tax
153
Exhibit 62. Comparison of individual surtax rate schedule
under present law and Treasury proposal
154
Exhibit 63. Amount of individual income taxes and effective
rates under present law and Treasury proposal
155
Exhibit 64. Individual income tax-Effective rates for mar-
ried person without dependents, under present law and
Treasury proposal
157
Exhibit 65. Individual income tax-United States, United
Kingdom, and Canada, effective rates for married person
without dependents
158
Exhibit 66. Net income required to leave $10,000, $25,000,
$50,000, and $100,000 after Federal tax, under present law
and the Treasury proposal
159
Section 6. Individual income tax bases and yields:
Exhibit 67. Number of taxable returns, net income, normal
tax net income, and surtax net income, by net income
classes, under Treasury proposal at calendar year 1942
levels of income
160
Exhibit 68. Number of taxable returns and estimated yield
of present law and Treasury proposal, by net income
classes, at calendar year 1942 levels of income
160
Exhibit 69. Estimated number of individuals affected and
yield if individual incomes were limited to $25,000 after
tax, at calendar year 1942 levels of income
161
Exhibit 70. Estimated increase in revenue from a 100-percent
tax on net incomes (before taxes) in excess of $5,000, at the
estimated level and distribution of income of the calendar
year 1942, and assuming & full year of collections
161
(m)
C. CORPORATION TAXES-Continued
Exhibit 60.-Estimates of the revenue effects of the Ways and Means Com-
mittee's tentative action of May 1, 1942, with reference to changes in
the corporation tax law¹
[In millions of dollars]
Increase (+), decrease (-)
Effect of
over yield of present law
repeal of
capital
stock tax
Allow annual
Repeal cap-
as come
redeclaration
ital stock
pared to
of capital
and declared
annual re-
stock value
value excess
declara-
profits taxes
tion 1
Income taxes:
Normal
-746.5
-7222
+24.3
Surtax
+631.7
+647.4
+15.7
Total income taxes
-114.8
-74.8
+40.0
Excess profits tax
+2,715.2
+2,871.8
+156.6
Declared value excess profits tax
-58.5
-107.5
-49.0
Total income and excess profits
taxes
+2,541.9
+2,689.5
+147.6
Capital stock tax
-51.5
-290.0
-238.5
Total
2,525
+2,490.4
+2,399.5
-90.9
appears
-125 (Blary
I Assuming that the 16 percent war surtax for corporations with surtax net
incomes in excess of $25,000 will be accompanied by the recommended war surtax
of 10 percent on incomes of corporations with surtax net incomes of less than
$25,000.
1 At income and excess profits tax rates recommended by the committee.
NOTE.-Proposed changes in corporation income and excess profits taxes,
common to all estimates shown above, are:
(a) Retain present law normal tax rates.
(b) Increase surtax rates to 10 percent on corporations with net incomes of
$25,000. $25,000 or less and to 16 percent on corporations with net incomes in excess of
(c) 1. Reduce invested capital credit to:
8 percent on first $5,000,000.
7 percent on next $5,000,000.
6 percent on next $190,000,000.
5 percent on balance.
2. Allow specific credit of $10,000.
3. Allow entire adjusted excess profits tax net income as deduction in
computing normal tax and surtax net income.
4. Impose fist rate of 94 percent on entire adjusted excess profits tax net
income,
Source: Treasury Department, Division of Research and Statistics, May 2,
1942,
(151)
not after indive wear
:7 rate M quertey explane
Present 73.9
annual declaration
1.25 rate on Austay world
Transprop 68.9
replace whole capistack
REP, 4mg'42
of repeal capital stock and
tannual redectaration
D. INDIVIDUAL INCOME TAX-Continued
Section 5. TREASURY INDIVIDUAL INCOME TAX PROPOSAL
Exhibit 61.-Summary of Treasury's proposals with respect to individual
income fax
1. Rates.-Normal tax-continue present 4 percent rate. Surtax-
adopt rate scale in exhibit -,
2. Exemptions.-Retain present exemptions of $750 for & single
person, $1,500 for a married person, and $400 for each dependent.
3. Earned income credit.-Eliminate present earned income credit.
4. Collection at the source.-Authorize the Secretary of the Treasury
to begin collection of income taxes at source at any time and at rates
within his discretion up to 10 percent of wages and salaries, with an
allowance for personal exemption and credit for dependents, and up
to 10 percent of the full amount of dividends and bond interest.
5. Payment of taxes.-Require payment of one-half of the 1942 tax
liability on March 15, 1943, and the remaining one-half in installments
thereafter. The one-half due on March 15, 1943, could be paid either
in cash or in the form of a credit for taxes collected at source.
(153)
154
Exhibit 62.-Comparison of individual surtax rate schedule under present
law and Treasury proposal
Bracket rate
Total surtax, cumulative
Surtax net income
Present
Treasury
law
Present law
Treasury
proposal
proposal
Percent
Percent
$0 to $500
6
12
$30
$60
$500 to $1,000
6
15
60
135
$1,000 to $1,500
6
18
90
225
$1,500 to $2,000
6
20
120
325
$2,000 to $3,000
9
22
05
545
$3,000 to $4,000
9
24
300
785
$4,000 to $6,000
13
27
560
1,325
$6,000 to $8,000
17
30
900
1,925
$8,000 to $10,000
21
34
1,320
2,605
$10,000 to $12,000
25
38
1,820
3,365
$12,000 to $14,000
29
42
2,400
4,205
$14,000 to $16,000
32
45
3,040
5,105
$16,000 to $18,000
35
48
3,740
6,065
$18,000 to $20,000
38
51
4,500
7,085
$20,000 to $22,000
41
54
5,320
8,165
$22,000 to $26,000
44
57
7,080
10,445
$26,000 to $32,000
47
60
9,900
14,045
$32,000 to $38,000
50
64
12,900
17,885
$38,000 to $44,000
53
68
16,080
21,965
$44,000 to $50,000
55
72
19,380
26,285
$50,000 to $60,000
57
76
25,080
33,885
$60,000 to $70,000
59
78
30,980
41,685
$70,000 to $80,000
61
80
37,080
49,685
$80,000 to $90,000
63
82
43,380
57,885
$90,000 to $100,000
64
84
49,780
66,285
$100,000 to $150,000
65
86
82,280
109,285
$150,000 to $200,000
66
86
115,280
152,285
$200,000 to $250,000
67
86
148,780
195,285
$250,000 to $300,000
69
86
183,280
238,285
$300,000 to $400,000
71
86
254,280
324,285
$400,000 to $500,000
72
86
326,280
$500,000 to $750,000
410,285
73
86
508,780
$750,000 to $1,000,000
625,285
74
86
693,780
840,285
$1,000,000 to $2,000,000
75
86
1,443,780
1,700,285
$2,000,000 to $5,000,000
76
86
$5,000,000 and over
3,723,780
4,280,285
77
86
[CONFIDENTIAL COMMITTEE PRINT-UNREVISED
DATA ON PROPOSED
REVENUE BILL OF 1942
SUBMITTED TO THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
BY THE
TREASURY DEPARTMENT
No. 6
MAY 4, 1942
C. Corporation Taxes-Continued.
D. Individual Income Tax-Continued.
Section 5. Treasury Individual Income
Tax Proposal.
Section 6. Individual Income Tax Bases
and Yields.
UNITED STATES
GOVERNMENT PRINTING OFFICE
71730-42
WASHINGTON I 1942
CONTENTS
Page
C. Corporation taxes-Continued:
Exhibit 60. Estimates of the revenue effects of the Ways and
Means Committee's tentative action of May 1, 1942, with
reference to changes in the corporation tax law
151
D. Individual income tax-Continued:
Section 5. Treasury individual income tax proposal
153
Exhibit 61. Summary of Treasury's proposals with respect
to individual income tax
153
Exhibit 62. Comparison of individual surtax rate schedule
under present law and Treasury proposal
154
Exhibit 63. Amount of individual income taxes and effective
rates under present law and Treasury proposal
155
Exhibit 64. Individual income tax-Effective rates for mar-
ried person without dependents, under present law and
Treasury proposal
157
Exhibit 65. Individual income tax-United States, United
Kingdom, and Canada, effective rates for married person
without dependents
158
Exhibit 66. Net income required to leave $10,000, $25,000,
$50,000, and $100,000 after Federal tax, under present law
and the Treasury proposal
159
Section 6. Individual income tax bases and yields:
Exhibit 67. Number of taxable returns, net income, normal
tax net income, and surtax net income, by net income
classes, under Treasury proposal at calendar year 1942
levels of income
160
Exhibit 68. Number of taxable returns and estimated yield
of present law and Treasury proposal, by net income
classes, at calendar year 1942 levels of income
160
Exhibit 69. Estimated number of individuals affected and
yield if individual incomes were limited to $25,000 after
tax, at calendar year 1942 levels of income
161
Exhibit 70. Estimated increase in revenue from a 100-percent
tax on net incomes (before taxes) in excess of $5,000, at the
estimated level and distribution of income of the calendar
year 1942, and assuming a full year of collections
161
(m)
C. CORPORATION TAXES-Continued
Exhibit 60.-Estimates of the renenue effects of the Ways and Means Com-
mittee's tentative action of May 1, 1942, with reference to changes in
the corporation tax law¹
[In millions of dollars]
Increase (+), decrease (-)
Effect of
over yield of present law
repeal of
capital
stock tax
Allow annual
Repeal cap-
as com-
redeclaration
Itar stock
pared to
of capital
and declared
annual re-
stock value
value excess
declara-
profits taxes
tion I
Income taxes:
Normal
-746.5
-7222
+24.3
Surtax
+631.7
+647.4
+15.7
Total income taxes
-114.8
-74.8
+40.0
Excess profits tax
+2,715.2
+2,871.8
+156.6
Declared value excess profits tax
-58.5
-107.5
-49.0
Total income and excess profits
taxes
+2,541.9
+2,689.5
+147.6
Capital stock tax
-51.5
-290.0
-238.5
Total
2,525
+2,490.4
+2,399.5
-90.9 (Blangh)
1 Assuming that the 16 percent war surtax for corporations with surtax net
incomes in excess of $25,000 will be accompanied by the recommended war surtax
of $25,000. 10 percent on incomes of corporations with surtax net incomes of less than
1 At income and excess profits tax rates recommended by the committee.
NOTE.-Proposed changes in corporation income and excess profits taxes,
common to all estimates shown above, are:
(a) Retain present law normal tax rates.
(b) Increase surtax rates to 10 percent on corporations with net incomes of
$25,000. $25,000 or less and to 16 percent on corporations with net incomes in excess of
(c) 1. Reduce invested capital credit to:
8 percent on first $5,000,000.
7 percent on next $5,000,000.
6 percent on next $190,000,000.
5 percent on balance.
2. Allow specific credit of $10,000.
3. Allow entire adjusted excess profits tax net income as deduction in
computing normal tax and surtax net income.
4. Impose income. flat rate of 94 percent on entire adjusted excess profits tax net
1942, Source: Treasury Department, Division of Research and Statistics, May 2,
(151)
not after indist
.7 rate mortay works splace
annual declaration
Present law 73.9
1.25 rate on Austay world
replace whole capistock
Trans prop 68.9
REP, 4mg'42
cf repeal capital stock Tax
tannual redectaration
D. INDIVIDUAL INCOME TAX-Continued
Section 5. TREASURY INDIVIDUAL INCOME TAX PROPOSAL
Exhibit 61.-Summary of Treasury's proposals with respect to indicidual
Income fax
1. Rates.-Normal tax-continue present 4 percent rate. Surtax-
adopt rate scale in exhibit -.
2. Ezemptions.-Retain present exemptions of $750 for a single
person, $1,500 for & married person, and $400 for each dependent.
3. Earned income credit.-Eliminate present earned income credit.
4. Collection at the source.-Authorize the Secretary of the Treasury
to begin collection of income taxes at source at any time and at rates
within his discretion up to 10 percent of wages and salaries, with an
allowance for personal exemption and credit for dependents, and up
to 10 percent of the full amount of dividends and bond interest.
5. Payment of taxes.-Require payment of one-half of the 1942 tax
liability on March 15, 1943, and the remaining one-half in installments
thereafter. The one-half due on March 15, 1943, could be paid either
in cash or in the form of a credit for taxes collected at source.
(153)
154
Exhibit 62.-Comparison of indicidual surtax rate schedule under present
law and Treasury proposal
Bracket rate
Total surtax, eumulative
Surtax net income
Present
Treasury
law
Present law
Treasury
proposal
proposal
Percent
Percent
$0 to $500
6
12
$30
$60
$500 to $1,000
6
15
60
135
$1,000 to $1,500
6
18
90
225
$1,500 to $2,000
6
20
120
325
$2,000 to $3,000
9
22
210
545
$3,000 to $4,000
9
24
300
785
$4,000 to $6,000
13
27
560
1,325
$6,000 to $8,000
17
30
900
1,925
88,000 to $10,000
21
34
1,320
2,605
$10,000 to $12,000
25
38
1,820
3, 365
$12,000 to $14,000
29
42
2,400
4,205
$14,000 to $16,000
32
45
3,040
5,105
$16,000 to $18,000
35
48
3,740
6,065
$18,000 to $20,000
38
51
4,500
7,085
$20,000 to $22,000
41
54
5,320
8,165
$22,000 to $26,000
44
57
7,080
10,445
$26,000 to $32,000
47
60
9,900
14,045
$32,000 to $38,000
50
64
12,900
17,885
$38,000 to $44,000
53
68
16,080
21,965
$44,000 to 850,000
55
72
19,380
26,285
$50,000 to $60,000
57
76
25,080
33,885
$60,000 to $70,000
59
78
30,980
41,685
$70,000 to $80,000
61
80
37,080
49,685
$80,000 to $90,000
63
82
43,380
57,885
$90,000 to $100,000
64
84
49,780
66,285
$100,000 to $150,000
65
86
82,280
109,285
$150,000 to $200,000
66
86
115,280
152,285
$200,000 to $250,000
67
86
148,780
195,285
$250,000 to $300,000
69
86
183,280
238,285
$300,000 to $400,000
71
86
254,280
324,285
$400,000 to $500,000
72
86
326,280
410,285
$500,000 to $750,000
73
86
508,780
625,285
$750,000 to $1,000,000
74
86
693,780
840,285
$1,000,000 to $2,000,000
75
86
1,443,780
1,700,285
$2,000,000 to $5,000,000
76
86
3,723,780
4,280,285
$5,000,000 and over
77
86
155°
254
Exhibit 63.-Amount of Indicidual income taxes and effective rates under
present law and Treasury proposal
Single person-no dependenta
Personal exemption 8750
Amount of tax
Net income
Effective rates
before
personal
exemption
Present
Treasury
Increase
Present
Treasury
Increase
law
proposal
in tax
law
proposal
in effec-
tive rates
Percent
Percent
Percent
$800
$3
$8
$5
0.4
1.0
0.6
$900
11
24
13
1.2
27
1.5
$1,000
21
40
19
21
4.0
1.9
$1,100
31
56
25
28
5.1
23
$1,200
40
72
32
3.3
6.0
27
$1,500
69
128
59
4.6
8.5
3.9
$1,600
79
147
68
4.9
9.2
4.3
$2,000
117
230
113
5.9
11. 5
5.6
$2,500
165
345
180
6.6
13. 8
7.2
$3,000
221
470
249
7.4
15. 7
8.8
$4,000
347
735
388
8.7
18. 4.
9.7
$5,000
483
1,023
540
9.7
20, 5
10.8
$6,000
649
1,333
684
10. 8
22. 2
11. 4
$8,000
1,031
1,990
959
12.9
24. 9
12. o
$10,000
1,493
2,720
1, 227
14.9
27. 2
12 a
$12,500
2,178
3,740
1, 562
17. 4
29. 9
12 5
$15,000
2,994
4,888
1, 894
20.0
32. 6
12.6
$20,000
4,929
7,473
2,544
24. 6
37. 4.
12 8
$25,000
7,224
10,418
3, 194
28.9
41.7
12. 8
$50,000
20,882
27,715
6,833
41.8
55. 4.
13. 6
$75,000
36,487
48,055
11,568
48. 6
64,1
15. 5
$100,000
53,214
69,625
16,411
53.2
69. 6
16. 4
$500,000
345,654
429,610
83,956
69. 1
85. 9
16. 8
$1,000,000
733,139
879,610
146,471
73.3
88. 0
14. 7
$5,000,000
3,923,124
4,479,610
556,486
78.5
89. 6
11. 1
MARRIED-NO DEPENDENTS
PERSONAL EXEMPTION $1,500
$1,500
$1,600
$6
$16
$10
0.4
1.0
0.6
81,700.
13
32
19
8
1.9
1.1
$1,800,
23
48
25
1.3
27
1.4
$1,900
32
64
32
L7
3.4
1.7
$2,000
42
80
38
21
4.0
1.9
$2,100
52
99
47
25
4.7
22
$2,200
61
118
57
28
5.4
26
$2,300
71
137
66
3.1
6.0
29
$2,400
80
156
76
3.3
6.5
3.2
$2,500
90
175
85
3.6
7.0
3.4
$3,000
138
285
147
4.6
9.5
4.9
$4,000
249
535
286
6.2
13. 4
7.2
$5,000
375
805
403
7.5
16. 1
8.6
$6,000
521
1,100
579
8.7
18. 3
9.6
$8,000
873
1,735
862
10.9
21. 7
10. 8
$10,000
1,305
2,435
1, 130
13.1
24. 4
11. 3
$12,500
1,960
3,425
1,465
15.7
27. 4
11. 7
$15,000
2,739
4,535
1, 796
18. 3
30. 2
11.9
$20,000
614
7,060
2, 446
23.1
35. 3
12. 2
$25,000
6,864
9,960
3, 096
27. 5
39. 8
12. 3
$50,000
20,439
27,145
6, 706
40. 9
54. 3
13. 4
$75,000
35,999
47,425
11,426
48.0
63. 2
15. 2
$100,000
52,704
68,965
16,261
52.7
69. 0
16. 3
$500,000
345,084
428,935
83,851
69.0
85. 8
16. 8
$1,000,000
732,554
878,935
146,381
73.3
87. 9
14. 6
$5,000,000
3,922,524
4,478,935
556,411
78. 5
89. 6
11. 1
Regraded Unclassified
156
157
Exhibit 63.-Amount of individual income taxes and effective rates under
present law and Treasury proposal-Continued
Exhibit 64.-Individual Income tax-Effective rates for married person
without dependents, under present law and Treasury proposal
MARRIED PERSON-TWO DEPENDENTS
PERSONAL EXEMPTION $1,500, DEPENDENT CREDIT $400
Amount of tax
Net income
Effective rates
before personal
(CHART TO BE INSERTED LATER)
exemption and
dependent
Present
Treasury
Increase
Present
Treasury
Increase
credit
law
proposal
in tax
law
pro-
in effec-
posal
tive rates
Percent
Percent
Percent
$2,300
$2,400
$6
$16
$10
0.3
0.7
0.4
$2,500
12
32
20
.5
1.3
.8
$2,700
29
64
35
1.1
24
1.3
$3,000
58
118
60
1.9
3.9
20
$4,000
154
333
179
3.9
8.3
4.4
$5,000
271
587
316
5.4
11. 7
6.3
$6,000
397
861
464
6.6
14. 4
7.8
$8,000
717
1, 472
755
9.0
18. 4
9.4
$10,000
1, 117
2,143
1,026
11. 2
21. 4
10. 2
$12,500
1, 728
3,089
1,361
13. 8
24. 7
10. 9
$15,000
2,475
4,167
1, 692
16. 5
27. 8
11. 3
$20,000
4,287
6,629
2,342
21. 4
33. 1
11. 7
$25,000
6, 480
9,472
2,992
25. 9
37. 9
12. 0
$50,000
19,967
26,537
6,570
39. 9
53. 1
13. 2
$75,000
35,479
46,753
11,274
47. 3
62. 3
15. 0
$100,000
52,160
68,261
16,101
52. 2
68. 3
16. 1
$500,000
344,476
428,215
83,739
68. 9
85. 6
16. 7
$1,000,000
731,930
878,215
146,285
73. 2
87. 8
14. 6
$5,000,000
3,921,884
4,478,215
556,331
78. 4
89. 6
11. 2
158
159
Exhibit 65.-Individual Income tax-United States, United Kingdom, and
Canada, effective rates for married person without dependents
Exhibit 66.-Net income required to leave $10,000, $25,000, $50,000, and
$100,000 after Federal tax, under present law and the Treasury pro-
posal
Net income before
Federal tax
(CHART TO BE INSERTED LATER)
Net income after Federal tax and family status
Present
Treasury
law
proposal
$10,000:
Single, no dependents
$12,049
$14,674
Married, no dependents
11, 748
12,02%
Married, 2 dependents
11,474
13, 422
$25,000:
Single, no dependents.
40,178
63,722
Married, no dependents
39,204
60,425
Married, 2 dependents
38,265
57,225
$50,000:
Single, no dependents
110,344
295,540
Married, no dependenta
108,674
288,790
Married, 2 dependents
106,894
281,590
$100,000:
Single, no dependents.
280,283
795,540,
Married, no dependents
278,256
788, 790
Married, 2 dependents
276,093
781,590
Source: Treasury Department, Division of Tax Research, Apr. 30, 1942.
)
160
161
Section 6. INDIVIDUAL INCOME TAX BASES AND YIELDS
Exhibit 69.-Estimated number of individuals affected and yield If Indi-
Exhibit 67. Number of taxable returns, net Income, normal tax net
vidual incomes were limited to $25,000 after tax, at calendar year 1942
proposal at calendar year 1942 levels of income!
income, and surtax net income, by net income classes, under Treasury
levels of Income¹
Number of individuals affected:
Present law.
38,235
Number of
Net in-
Normal
Surtax
Treasury proposal
17,000
Net Income classes
taxable
come
tax net
net
returns
Increase in yield:
In millions
income
Income
Present law.
$716. 5
Treasury proposal
174. 3
Thousands
Billions
Billions
Under $5,000
Billions
1 Without mandatory joint returns.
19,294
$37. 4
813. 3
$5,000 to $25,000
813. 3
a Includes 2,000 marginal returns yielding nominal net Increase.
1,181
9.8
7.8
Over $25,000
7.9
84
4.4
Source: Treasury Department, Division of Research and Statistics, May 1,
4.2
4.2
1942.
Total
20,559
51. 6
25. 3
25. 4
Exhibit 70.-Estimated Increase in revenue from a 100-percent tax on net
1 Without mandatory joint returns.
incomes (before taxes) in excess of $5,000, at the estimated level and
distribution of income of the calendar year 1942, and assuming a full
Source: Treasury Department, Division of Research and Statistics, May 1, 1942.
year of collections
[In millions of dollars]
Exhibit 68.-Number of taxable returns and estimated yield of present law
Under
and Treasury proposal, by net-income classes, at calendar year 1942
Under
Treasury
levels of income
present
proposed
rates
rates I
Number of returns
Estimated yield
Increase
in yield
1. Net incomes in excess of $5,000 before deducting ex-
Net income classes
from
emptions
15,300
15,300
Present
Treasury
Present
Treasury
Treasury
2. First $5,000 of item 1
6,300
6,300
law
proposal
law
proposal
3. Balance in excess of $5,000 net income.
9,000
9,000
proposal
4. Tax liabilities
3,800
5,600
5. Increase in liabilities from a 100-percent tax on net
Thou-
Thou-
incomes in excess of $5,000
5, 200
3,400
sands
sands
Millions
Millions
Millions
so to $1,000
2, 493
2,493
$15. 7
$16. 7
$1. 0
1 Without allowing for the proposed mandatory joint returns but allowing for
$1,000 to $2,000
7,765
8,783
304. 5
557. 8
253. 3
the proposed elimination of the earned income deduction. Corporation tax
$2,000 to $3,000
5,697
5,445
434. 4
634. 4
200. 0
rates are assumed unchanged from the Revenue Act of 1941.
$3,000 to $4,000
1,877
1,779
279. 7
483. 1
203. 4
$4,000 to $5,000
804
794
221. 2
430. 0
208. 8
Source: Treasury Department, Division of Research and Statistics, Apr. 7, 1942.
$5,000 to $6,000
356
356
141. 5
281. 1
139. 6
$6,000 to $7,000.
221
221
124. 8
241. 6
116. 7
X
$7,000 to $8,000
139
139
101. 7
192 1
90, 4
$8,000 to $9,000
96
96
90. 2
163. 3
73. 0
$9,000 to $10,000
70
70
80. 1
141. 1
61. 0
$10,000 to $25,000
300
300
810. 4
1,198.5
388. 1
Over $25,000
84
84
2,440.3
2,610.6
170. 3
Total
19,902
20,559
5,044.8
6,950.5
1,905.7
1 Without mandatory joint returns.
3 The figures are rounded and will not necessarily add to totals.
1942. Source: Treasury Department, Division of Research and Statistics, May 1,
771*255
Comparison of individual surtax rate schedule
under present law and new proposal
:
:
Bracket rate
:
Surtax net income
:
Total surtax cumulative
($000)
: Present :
:
law
:
Proposal
: Present
:
:
law
:
Proposal
$
- $
.5
6%
12%
$
30
$
60
.5 -
1
6
15
60
135
1 -
1.5
6
18
90
225
1.5 -
2
6
20
120
325
2 -
3
9
22
210
3
F
545
-
9
24
300
785
4
-
6
13
27
560
1,325
6
-
8
17
30
900
1,925
8
-
10
21
34
1,320
2,605
10
-
12
25
38
1,820
3,365
12
-
14
29
42
2,400
4,205
14
-
16
32
45
3,040
5,105
16
-
18
35
48
3,740
6,065
18
-
20
38
51
4,500
7,085
20
-
22
41
54
5,320
8,165
22
-
26
44
57
7,080
10,445
26
-
32
47
60
9,900
14,045
32
-
38
50
64
12,900
17,885
38
-
44
53
6870
16,080
22,085
44
-
50
55
7277
19,380
26,705
50
-
60
57
7686
25,080
35,305
60
-
70
59
7886
30,980
43,905
70
-
80
61
8086
37,080
52,505
80
-
90
63
8286
43,380
61,105
90
-
100
64
8486
49,780
69,705
100
-
150
65
86
82,280
112,705
150
-
200
66
86
115,280
155,705
200
-
250
67
86
148,780
198,705
250
-
300
69
86
183,280
241,705
300
-
400
71
86
254,280
327,705
400
-
500
72
86
326,280
413,705
500
-
750
73
86
508,780
628,705
750
- 1,000
74
86
693,780
843,705
1,000
- 2,000
75
86
1,443,780
1,703,705
2,000
- 5,000
76
86
3,723.780
4,283,705
Over
5,000
77
86
-
-
I-N-E
Confidential256
UNITED STATES BUREAU OF LABOR STATISTICS
Preliminary Figures
Average Money Plus Nonmoney Income
Estimates for City Families and Single Persons
#
#
Money Income
$
1941
First Quarter
annual
#
Class in 1941
#
1
Of 1942
Rate
I
I
Under $500
$ 415
$ 145
$580
$500 and under $1,000
793
256
1024
$1,000 and under $1,500
1,273
375
1500
$1,500 and under $2,000
1,802
494
1976
$2,000 and under $3,000
2,595
654
2616
$3,000 and under $5,000
3,889
919
3676
$5,000 and under $10,000
5,626
1,275
5/00
Cost of Living Division
May 6, 1942
Confidential
U. 8. HURRAU OF LABOR STATISTICS
257
Preliminary Pieures
2
Money Expenditures, Tax Payments, Net Saving or Deficit, and Government Bond Purchases
Estimates for City Families and Single Persons
1941
Average
Average
Average total
Average
total
Direct
Average
Money income
total
amount spent
money
Tax
Net Saving
class in 1941
for purchase
money
expend-
Payments or Deficit
of Government
income
items V
Bonds
Average amount in dollars
Mer $500
# 323
426
0
100 and under $750
-99
6
625
723
1
DO and under $1,000
-60
875
946
5
2
-49
8
1,000 and under $1,250
1125
1170
1,250 and under $1,500
3
-19
12
1375
1393
1,600 and under $2,000
4
*11
1731
15
1689
4
+63
26
1,000 and under $3,000
2527
2429
15
0 and under $5,000
+115
41
3828
3426
21
+428
,WO and under $10,000
5578
73
4702
27
+920
119
Percent of total money income
der $500
131.89
o
00 and under $750
-30.65
1.86
50 and under $1,000
115.68
.16
-12.80
.80
108.11
.23
- 5.60
.91
,000 and under $1,250
,250 and under $1,500
104.00
.27
- 1.69
1.07
,500 and under $2,000
101.31
.29
.80
1.09
97.57
.23
3.64
1.50
,000 and under $3,000
96.12
,000 and under $5,000
.59
4.55
1.62
,000 and under $10,000
89.50
.55
11.18
1.91
84.30
.48
16.49
2.13
Including expenditures for current consumption, gifts and contributions, and direct taxes
wt does not include expenditures for bondo.
er of Living Division
6, 1942
Confidential
258
U. 8. SURRAU OF LABOR STATISTICS
3
Preliminary Figures
Koney Expenditures, Tax Payments, Net Saving or Deficit, and Government Bond Purchases
Estimates for City Families and Single Persons
First Quarter of 1942
Average
Average
Average
Average Pote)
Total
koney Income Class
Total
Direct
Average
Amount Spent
in 1941
Money
Money
Expendi-
Tax
Net Saving
for Purchase
Income
or Deficit
tures
1
Payments
of Government
Bonds
Average amount in dollars
Under $500
112
108
2
4
39
1500 and under $750
183
174
2/
8
35
4750 and under $1,000
245
233
1
12
33
41,000 and under $1,250
307
291
1
16
30
$1,250 and under $1,500
370
350
2
20
28
$1,500 and under $2,000
469
445
4
25
23
12,000 and under $3,000
667
619
22
47
19
000 and under $5,000
922
791
12
132
22
$5,000 and under $10,000
1252
985
68
268
31
Percent of total money income
Under $500
100.0
96.4
3/
3.6
34.8
$500 and under #750
100.0
95.1
3/
4.4
19.1
750 and under $1,000
100.0
95.1
0.4
4.9
13.5
$1,000 and under $1,250
100.0
94.8
0.3
5.2
9.8
$1,250 and under $1,500
100.0
94.6
0.5
5.4
7.6
$1,500 and under $2,000
100.0
94.9
0.9
5.3
4.9
2,000 and under $3,000
100.0
92.8
3.3
7.0
2.8
3,000 and under $5,000
100.0
85.8
4.6
14.3
2.4
15,000 and under $10,000
100.0
78.7
5.4
21.4
2.5
Including expenditures for current consumption, gifts and contributions and direct taxes.
Less than $0.50
3/ Less than 0.1 percent
it of Living Division
1942
Confidential
U. S. BUREAU OF LABOR STATISTICS
259
Preliminary Figures
4
Average Income and Outlay
Estimates for City Families and Single Persons
1941
Total
Money
Monoy
Money Income Class
Expenditures
Expenditures
Direct
liet
in 1941
Money
for Current
for
Tax
Saving or
Income
Consumption
Gifts and
Payments
Deficit
Contributions
Average amount in dollars
der $500
$323
$381
$ 41
0
-99
500 and under $1,000
749
784
31
1
-67
,000 and under $1,500
1243
1211
37
3
-8
FOO and under $2,000
1753
1623
63
4
+63
1,000 and under $3,000
2544
2283
131
15
115
,000 and under $5,000
3854
3247
158
21
428
1,000 and under $10,000
5621
4507
167
37
920
Percent of total money income
der $500
100.0
118.0
12.7
o
-30.7
00 and under $1,000
100.0
104.7
4.1
0.1
-8.9
,000 and under $1,500
100.0
97.4
3.0
0.2
-0.6
,500 and under $2,000
100.0
92.6
3.6
0.2
3.6
,000 and under $3,000
100.0
89.7
5.2
0.6
4.5
,000 and under $5,000
100.0
84.3
4.1
0.5
11.1
,000 and under $10,000
100.0
80.1
3.0
0.5
16.4
shown Living Division in the followingteble.
note the savings of families white incomes of $ 1250 3 1,500
t of
6, 1942
260
Confidential
U. 8. DEPARTMENT OF LABOR
5
Preliminary Figures
Money Expenditures for Current Consumption
Estimates for City Families and Single Persons
1941
Housing,
Fur-
fuel,
Other
nish-
Auto-
Other
Per-
Medi-
Money income class in 1941
Total
Food
light,
house-
ings
Cloth-
no-
trans-
sonal
cal
Recrea-
To-
Read-
For-
Other
and
hold
and
ing
bile
porta-
care
care
tion
bacco
ing
nal
items
refrige-
opera-
equip-
tion
educa-
ration
tion
ment
tion
Average amount in dollars
Under $500
381
154
116
18
14
17
28
3
6
14
4
3
3
o
1
$500 and under $1,000
784
302
190
26
24
79
45
20
17
28
16
22
8
2
5
$1,000 and under $1,500
1,211
440
266
41
49
138
76
33
28
50
31
36
13
4
9
$1,500 and under $2,000
1,623
559
341
61
90
178
109
43
37
81
47
45
18
2
12
$2,000 and under $3,000
2,283
700
453
97
172
265
162
54
49
183
64
54
24
19
27
$3,000 and under $5,000
3,247
960
526
168
225
387
429
59
70
142
110
75
so
21
45
$5,000 and under $10,000
4,507
1,315
681
270
269
547
862
61
98
147
138
106
36
10
70
Percentage of total money expenditures (for current consumption)
Under $500
100.0
40.4
30.4
4.7
3.7
4.5
7.3
.8
1.6
3.7
1.0
.8
.8
.0
.8
$500 and under $1,000
100.0
38.5
24.2
3.3
3.1
10.1
5.7
2.6
2.2
3.6
2.0
2,8
1.0
.3
.6
$1,000 and under $1,500
100.0
36.3
22.0
3.4
4.0
11.2
6.3
2.7
2.5
4.1
2.6
3.0
1.1
.3
.7
$1,500 and under $2,000
100.0
34.4
21.0
3.8
5,5
11,0
6.7
2.6
2.3
5.0
2.9
2.8
1.1
.1
.8
$2,000 and under $8,000
100.0
30.7
19.8
4.2
7.5
11.6
7.1
2.4
2.2
5.4
3.7
2.4
1.0
.8
1,2
$3,000 and under $6,000
100.0
29.6
16.2
5.2
6.9
11.9
13.2
1.8
2,2
4.4
3.4
2.3
.9
s6
1.4
$5,000 and under $10,000
100.0
29.2
12.9
6.0
6.0
12.1
19.1
1.4
2.2
3.3
3.0
2.3
.6
of
1.5
Cost of Living Division
Kay 6, 1942
Confidential
U. 8. BUREAU OF LABOR STATISTICS
261
Preliminary Figures
6
Average Income and Outlay
Estimates for City Families and Single Persons
First Quarter of 1942
Total
Money
Money
Money Income Class
Money
Expenditures
Direct
liet
Expenditures
in 1941
for Current
Tax
Income
for Gifts and
Saving
Consumption
Contributions
Payments
Average amount in dollars
Under $500
$
112
to
103
(
5
$
1/
(
4
$500 and under $1,000
241
225
4
1/
12
$1,000 and under $1,500
365
337
6
2
20
$1,500 and under $2,000
469
431
9
4
25
$2,000 and under $3,000
667
571
27
22
47
$3,000 and under $5,000
922
715
33
42
132
$5,000 and under $10,000
1,252
879
37
68
268
Percent of total money income
Under $500
100.0
91.9
4.5
2/
3.6
$500 and under 81,000
100.0
93.3
1.7
2/
5.0
$1,000 and under $1,500
100.0
92.3
1.7
.5
5.5
$1,500 and under $2,000
100.0
91.9
1.9
.9
5.3
$2,000 and under $3,000
100.0
85.6
4.0
3.3
7.1
$3,000 end under $5,000
100.0
77.5
3.6
4.6
14.3
$5,000 and under $10,000
100.0
70.2
3.0
5.4
21.4
Less than $0.50.
Less than 0.1 percent.
of Living Division
6, 1942
Confidential
262
U. a. BURRAU OF LABOR STATISTICS
Prelisinary Pleures
Money Expenditures for Ourrent Consumption
7
Estimates for City Families and Single Persons
First Quarter of 1942
Housing,
Other
Pur-
fuel,
House-
nish-
Arto-
Other
Money income class in 1941
Per-
Medi-
Total
For-
Food
light,
hold
ings
Cloth-
no-
trans-
sonal
cal
Recre-
To-
Read-
mal
Other
and re-
oper-
and
ing
bile
porta-
care
care
ation
bacco
ing
educa-
items
frigera-
ation
equip-
tion
tion
tion
ment
Average amount in dollars
Under $500
103
44
30
5
3
5
2
2
3
5
1
2
1
#500 and under $1,000
225
84
52
7
5
28
10
7
5
,
5
7
2
$1,000 and under $1,500
337
119
2
72
11
,
44
18
11
7
16
10
10
4
$1,500 and under $2,000
431
147
89
16
3
3
15
52
26
13
,
28
13
13
5
$2,000 and under $3,000
571
185
112
3
2
23
25
73
39
13
12
40
24
12
6
4
$3,000 and under $5,000
715
227
130
35
40
86
3
56
16
16
37
34
16
7
6
$5,000 and under $10,000
879
275
148
,
53
59
98
19
21
21
22
45
22
7
8
21
Percentage of total money expenditures for current consumption
Under $500
100,0
42.7
29.1
4.9
2.9
4.9
1.9
1.9
2.9
$500 and under $1,000
4.9
1.0
1.9
1.0
100.0
37-4
23.1
3.1
2.2
12.5
4.4
3.1
2.2
4.0
$1,000 and under $1,500
100.0
2.2
3.1
35+3
21.3
.9
3.3
2.7
13.0
=
5.3
3.3
2.1
4.7
3+0
3.0
1.2
$1,500 and under $2,000
100.0
.9
34.1
20.6
3.7
3.5
12.1
6.0
3.0
2.1
6.5
3.0
3.0
1.2
$2,000 and under $3,000
100.0
-7
32.4
19.6
.5
4.0
4.4
12.8
6.8
2.3
2.1
7.0
4.2
1.1
1.1
.7
$3,000 and under $5,000
100.0
31.8
18.2
3
4.9
5.6
12.0
7.8
2.2
2.2
5.2
4.8
2.2
1.0
.8
$5,000 and under $10,000
100.0
31.3
16.9
6.0
1.3
6.7
11.1
9.0
2.4
2.4
2.5
5.1
2.5
.8
.9
2.4
Less then $0.50
Less then 0.1 persent
Cost of Living Division
Day 6, 1942
Regraded Unclassified
Confidential
263
U. S. BUREAU OF LABOR STATISTICS
8
Preliminary Figures
Average Change in Specified Types of Assets Compared with Net Change in Assets and in Liabilities
Estimates for City Families and Single Persons
1941
U.S. Government Bonds
Net
Net
Net 1
and Defense Stamps
Tax
change in
change in
Net
Change
Net
Money income
Amount
Amount
savings
money in
money in
Change
in
Saving
class in 1941
spent for
received
notes
savings
checking
in
Liabili-
or
purchase
from sale
Purchased
accounts
accounts
Assets
ties
Deficit
Under $500
$ 6
$ 0
$ 0
$ -119
$ -3
$ -84
$ +15
$ -99
$500 and under $1,000
6
0
0
-33
-5
+31
+36
-67
$1,000 and under $1,500
13
0
o
+11
?
+38
+46
-8
$1,500 and under $2,000
26
o
o
-13
+10
+118
+55
+63
$2,000 and under $3,000
41
o
0
-10
-54
+116
+22
+115
,000 and under $5,000
73
o
5
+11
+143
+453
+25
+428
$5,000 and under $10,000
119
0
0
+52
+508
+1010
+90
+920
Plus (+) means an increase in liabilities, minus (-) means a decrease in liabilities.
Cost of Living Division
May 6, 1942
Regraded Unclassifie
264
U. S. BUREAU OF LABOR STATISTICS
9
Preliminary Figures
Average Change in Specified Types of Assets Compared with Net Change in Assets and in Liabilities
Estimates for City Families and Single Persons
First Quarter of 1942
U.S. Government Bonds
Tax Savings Notes
Net
Net
Money income
and Defense Stamps
change in
change in
Net
Net
Net
class in 1941
Amount
Amount
Amount
Amount
money in
money in
change
Change
Saving
spent for
received
spent for
used for
savings
checking
in
in
or
purchase
from sale
purchase
tax payments
accounts
accounts
Assets
Liabilities
Deficit
Under $500
$ 39
$
the
$
-
$
-
$ -
2
$
3/
$
1
3
-
3
$ 4
$500 and under $1,000
33
-
-
-
- 21
-
1
14
t
2
12
$1,000 and under $1,500
28
-
-
-
- 26
+ 2
25
t
5
20
$1,500 and under $2,000
23
-
-
--
- 19
t
12
32
t 7
25
$2.000 and under $3,000
19
--
-
-
t
13
-
6
50
t
3
47
$3,000 and under $5,000
22
-
--
--
-
8
t
28
109
-
23
132
$5,000 and under $10,000
31
-
-
-
- 64
t
91
202
- 66
268
z
Plus (f) means an increase in liabilities; minus (-) means a decrease in liabilities
Less than 80.50
Cost of Living Division
May 6, 1942
Regraded
Confidential
U. S. BUREAU OF LABOR STATISTICS
265
Preliminary Figures
10
Estimated Average Number of Persons Per Family
City Families 1/
1941
Average
Average No. of
Money income class
total
persons per family
in 1941
family
18 years under
size
and over 18 years
Under $500
1.3
1.2
.1
$500 and under $1,000
2.6
1.8
.8
$1,000 and under $1,500
2.5
1.8
.7
$1,500 and under $2,000
3.1
2.3
.8
$2,000 and under $3,000
3.1
2.3
.8
$3,000 and under $5,000
3.5
2.8
.7
$5,000 and under $10,000
3.8
2.8
1.0
$10,000 and over
3.8
3.1
.7
1/ Including one-person families
Cost of Living Division
May 6, 1942
Regraded Unclassified
Confidential
266
UNITED STATES BUREAU OF LABOR STATISTICS
Preliminary Figures
Average Money Plus Nonmoney Income
Estimates for City Families and Single Persons
$
I
Money Income
I
1941
annual
#
First Quarter
Class in 1941
$
1
Of 1942
Rate
I
I
Under $500
$ 415
$ 145
$580
$500 and under $1,000
793
256
1024
$1,000 and under $1,500
1,273
375
1500
$1,500 and under $2,000
1,802
494
1976
$2,000 and under $3,000
2,595
654
2616
$3,000 and under $5,000
3,889
919
3676
$5,000 and under $10,000
5,626
1,275
5/00
Cost of Living Division
May 6, 1942
Regraded Unclassified
Confidential
U. S. BURRAU OF LABOR STATISTICS
Preliminary Pleares
267 2
Money Expenditures, Tax Payments, Net Saving or Deficit, and Government Boad Purchases
Estimates for City Families and Single Persons
1941
Average
Average
Average total
Average
total
Direct
Average
amount spent
Money income
total
money
Tax
Net Saving
for purchase
class in 1941
money
expend-
Payments or Deficit
of Government
income
1thres 1/
Bonds
Average amount in dollars
faior $500
# 323 8
426
0
-99
6
500 and under $750
625
723
1
100 and under $1,000
460
5
875
946
2
+49
8
11,000 and under $1,280
1125
1170
3
11,250 and under $1,500
-19
12
1375
1393
4
+11
11,500 and under $2,000
15
1731
1689
4
+63
26
$2,000 and under $3,000
2527
2429
15
+115
13/70 and under $5,000
41
3828
3426
21
+428
15,000 and under $10,000
73
5578
4702
27
+920
119
Percent of total money income
Mar $500
131.89
o
500 and under $750
-30.65
1.86
115.68
.16
-12.80
750 and under $1,000
.80
108.11
.23
- 5.60
.91
1,000 and under $1,250
104.00
1,250 and under $1,500
.27
- 1.69
1.07
1,500 and under $2,000
101.31
.29
.80
1.09
97.57
.23
3.64
1.50
2,000 and under $3,000
3,000 and under $5,000
96.12
.59
4.55
1.62
15,000 and under $10,000
89.50
.55
11.18
1.91
84.30
48
16.49
2.13
Including expenditures for current consumption, gifts and contributions, and direct taxed
but does not include expenditures for bonds.
ber of Living Division
476, 1942
Confidential
268
U. S. BUREAU OF LABOR STATISTICS
Preliminary Figures
Money Expenditures, Tax Payments, Net Saving or Deficit, and Government Bond Purchases
Estimates for City Families and Single Persons
First Quarter of 1942
Average
Average
Average
Average Total
Total
koney Income Class
Total
Direct
Average
Amount Spent
in 1941
Money
Money
Income
Expendi-
Tax
Net Saving
for Purchase
or Deficit
of Government
tures
1
Payments
Bonds
Average amount in dollars
Under $500
112
108
2
4
39
$500 and under $750
183
174
2/
8
35
6750 and under $1,000
245
233
1
12
33
$1,000 and under $1,250
307
291
1
16
30
$1,250 and under $1,500
370
350
2
20
28
$1,500 and under $2,000
469
445
4
25
23
000 and under $3,000
667
619
22
47
19
11,000 and under $5,000
922
791
42
132
22
$5,000 and under $10,000
1252
985
68
268
31
Percent of total money income
Under $500
100.0
96.4
3.6
34.8
$500 and under $750
100.0
95.1
3/
4.4
19.1
#750 and under $1,000
100.0
95.1
0.4
4.9
13.5
$1,000 and under $1,250
100.0
94.8
0.3
5.2
9.8
$1,250 and under $1,500
100.0
94.6
0.5
5.4
7.6
$1,500 and under $2,000
100.0
94.9
0.9
5.3
4.9
12,000 and under $3,000
100.0
92.8
3.3
7.0
2.8
$3,000 and under $5,000
100.0
85.8
4.6
14.3
2.4
$5,000 and under $10,000
100.0
78.7
5.4
21.4
2.5
Including expenditures for current consumption, gifts and contributions and direct taxes
Less than $0.50
Less than 0.1 percent
st of Living Division
1942
Regraded Unclassified
Confidential
269
U. S. BUREAU OF LABOR STATISTICS
4
Preliminary Figures
Average Income and Outlay
Estimates for City Families and Single Persons
1941
Total
Money
Money
Money Income Class
Expenditures
Expenditures
Direct
Net
in 1941
Money
for Current
for
Tax
Saving or
Income
Consumption
Gifts and
Payments
Deficit
Contributions
Average amount in dollars
Inder $500
#323
$381
$ 41
0
-99
500 and under $1,000
749
784
31
1
-67
1,000 and under $1,500
1243
1211
37
3
-8
1000 and under $2,000
1753
1623
63
4
+63
2,000 and under $3,000
2544
2283
131
15
115
13,000 and under $5,000
3854
3247
158
21
428
5,000 and under $10,000
5621
4507
167
37
920
Percent of total money income
Inder $500
100.0
118.0
12.7
0
-30.7
500 and under $1,000
100.0
104.7
4.1
0.1
-8.9
11,000 and under $1,500
100.0
97.4
3.0
0.2
-0.6
1,500 and under $2,000
100.0
92.6
3.6
0.2
3.6
2,000 and under $3,000
100.0
89.7
5.2
0.6
4.5
3,000 and under $5,000
100.0
84.3
4.1
0.5
11.1
5,000 and under $10,000
100.0
80.1
3.0
0.5
16.4
Charte the savings of families write means of $ 1250 1,500
Pst of
shown Living Division in the following table.
y6, 1942
Regraded Unclassified
270
Confidential
U. 8. DEPARTMENT OF LABOR
Preliminary Figures
Money Expenditures for Current Consumption
Estimates for City Families and Single Persons
1941
Housing,
Pur-
fuel,
Other
nish-
Auto-
Other
Per-
Medi-
Money income class in 1941
Total
Food
light,
house-
ings
Cloth-
no-
trans-
sonal
cal
Recrea-
To-
Read-
For-
Other
and
hold
and
ing
bile
porta-
care
care
tion
bacco
ing
nal
items
refrige-
opera-
equip-
tion
educa-
ration
tion
ment
tion
Average amount in dollars
Under $500
381
154
116
18
14
17
28
3
6
14
4
$
3
o
1
$500 and under $1,000
786
302
190
26
24
79
45
20
17
28
16
22
8
2
5
$1,000 and under $1,500
1,211
440
266
41
49
135
76
ss
28
50
31
36
13
4
9
$1,500 and under $2,000
1,623
559
341
61
90
178
109
43
37
81
47
45
18
2
12
$2,000 and under $3,000
2,283
700
453
97
172
265
162
64
49
183
84
54
24
19
27
$3,000 and under $5,000
3,247
960
526
168
225
387
429
59
70
142
110
75
so
21
45
$5,000 and under $10,000
4,507
1,315
681
270
269
547
862
61
98
147
135
106
36
10
TO
Percentage of total money expenditures (for current consumption)
Under $500
100.0
40.4
30.4
4.7
3.7
4.5
7.3
.8
1.6
3.7
1.0
.8
.8
.0
.5
$500 and under $1,000
100.0
38.5
24.2
3.3
3.1
10.1
5.7
2.6
2.2
3.6
2.0
2.8
1.0
.3
.6
$1,000 and under $1,500
100.0
36.3
22.0
3.4
4.0
11.2
6.8
2.7
2.3
4.1
2.6
3.0
1.1
.3
.7
$1,500 and under $2,000
100.0
34.4
21.0
3.8
5.5
11.0
6.7
2.6
2.3
5.0
2.9
2.8
1.1
.1
.8
$2,000 and under $3,000
100.0
30.7
19.8
4.2
7.5
11.6
7e1
2.4
2.2
5.4
3.7
2.4
1.0
.8
1,2
$3,000 and under $5,000
100.0
29.6
16.2
5.2
6.9
11.9
13.2
1.8
2.2
4.4
3.4
2.3
.9
.6
1.4
$5,000 and under $10,000
100.0
29,2
12.9
6,0
6.0
12.1
19.1
1.4
2.2
3.3
3.0
2,5
.8
2
1.5
Cost of Living Division
Kay 6, 1942
Confidential
U. 8. BUREAU OF LABOR STATISTICS
271
Preliminary Figures
6
Average Income and Outlay
Estimates for City Families and Single Persons
First Quarter of 1942
Total
Money
Money
Money Income Class
Money
Expenditures
Expenditures
Direct
Net
in 1941
for Current
for Gifts and
Tax
Ino ome
Saving
Consumption
Contributions
Payments
Average amount in dollars
Under $500
$
112
+
103
€
5
$
1/
(
4
$500 and under $1,000
241
225
4
1/
12
$1,000 and under $1,500
365
337
6
2
20
$1,500 and under $2,000
469
431
9
4
25
$2,000 and under $3,000
667
571
27
22
47
$3,000 and under $5,000
922
715
33
42
132
$5,000 and under $10,000
1,252
879
37
68
268
Percent of total money income
Under $500
100.0
91.9
4.5
2/
3.6
#500 and under $1,000
100.0
93.3
1.7
2/
5.0
$1,000 and under $1,500
100.0
92.3
1.7
.5
5.5
$1,500 and under $2,000
100.0
91.9
1.9
.9
5.3
$2,000 and under 43,000
100.0
85.6
4.0
3.3
7.1
$3,000 and under $5,000
100.0
77.5
3.6
4.6
14.3
$5,000 and under $10,000
100.0
70.2
3.0
5.4
21.4
Less than $0.50.
Less than 0.1 percent.
of Living Division
1942
Confidential
272
U. a. BURRAU OF LABOR STATISTICS
Preliminary Asures
Money Expenditures for Ourrent Consumption
7
Estimates for City Families and Single Persons
First Quarter of 1942
Housing,
Other
Par-
fuel,
House-
nish-
Money income class in 1941
Auto-
Total
Other
Food
Per-
Medi-
For-
light,
hold
ings
Cloth-
-
trans-
sonal
cal
Recre-
To-
Read-
ml
Other
and re-
oper-
and
ing
bile
porta-
care
care
ation
basco
frigera-
ation
ing
educa-
items
equip-
tion
tion
tion
ment
Average amount in dollars
Under $500
103
44
30
5
3
5
2
2
3
225
84
5
1
#500 and under $1,000
2
1
52
7
5
28
10
7
5
,
5
$1,000 and under $1,500
337
119
1
2
72
11
2
9
44
18
11
7
16
10
10
$1,500 and under $2,000
431
147
89
4
16
15
3
52
26
3
13
,
28
13
$2,000 and under $3,000
571
185
112
13
5
23
25
3
2
73
39
13
12
40
24
12
6
$3,000 and under $5,000
715
4
227
130
35
40
86
3
56
16
16
37
34
16
$5,000 and under $10,000
879
7
6
275
148
53
98
9
59
19
21
21
22
45
#
7
8
21
Percentage
of
total
money
expenditures
for
current
consumption
Under $500
100.0
42.7
29.1
4.9
2.9
4.9
1.9
$500 and under $1,000
1.9
2.9
4.9
1.0
1.9
1.0
100.0
37.4
23.1
3.1
2.2
12.5
4.4
3.1
2.2
4.0
$1,000 and under $1,500
100.0
2.2
3.1
35.3
21.3
2.7
.9
3+3
13.0
F.
5.3
3.3
2.1
4.7
3.0
3.0
$1,500 and under $2,000
1.2
100.0
.9
34.1
20.6
3.7
3.5
12.1
6.0
3.0
2.1
6.5
3.0
3.0
$2,000 and under $3,000
1.2
.7
100.0
32.4
19.6
4.0
4.4
12.8
6.8
.5
2.3
2.1
7.0
4.2
2.1
1.1
$3,000 and under $5,000
31.8
.7
100.0
18.2
4.9
5.6
$
12.0
7.8
2.2
2.2
5.2
4.8
2.2
1.0
.8
$5,000 and under $10,000
100.0
31.3
16.9
6.0
6.7
1.3
11.1
9.0
2.4
2.4
2.5
5.1
2.5
.8
.9
2.4
Less than $0.50
Less them 0.1 percent
Cost of living Division
they 6, 1942
Regraded Unclassified
273
U. S. BUREAU OF LABOR STATISTICS
Preliminary Figures
8
Average Change in Specified Types of Assets Compared with Net Change in Assets and in Liabilities
Estimates for City Families and Single Persons
1941
U.S. Government Bonds
Net
Net
Aet 1
and Defense Stamps
Tax
change in
change in
Net
Change
Net
Money income
Amount
Amount
savings
money in
money in
Change
in
Saving
class in 1941
spent for
received
notes
savings
checking
in
Liabili-
or
purchase
from sale
Purchased
accounts
accounts
Assets
ties
Deficit
Under $500
$ 6
$ o
$ 0
$ -119
$ -3
$ -84
$ +15
$ -99
$500 and under $1,000
6
0
0
-33
-5
+31
+36
-67
$1,000 and under $1,500
13
o
0
+11
?
+38
+46
-8
$1,500 and under $2,000
26
0
0
-13
+10
+118
+55
+63
$2,000 and under $3,000
41
0
0
-10
-54
+116
+22
+115
000 and under $5,000
73
0
5
+11
+143
13453
+25
+428
$5,000 and under $10,000
119
o
0
+52
+508
+1010
+90
+920
Plus (+) means an increase in liabilities, minus (-) means a decrease in liabilities.
Cost of Living Division
May 6, 1942
Regraded Und
U. S. BUREAU OF LABOR STATISTICS
9
Preliminary Figures
Average Change in Specified Types of Assets Compared with Net Change in ssets and in Liabilities
Estimates for City Families and Single Persons
First Quarter of 1942
U.S. Government Bonds
Tax Savings Notes
Net
Net
Loney income
and Defense Stamps
change in
change in
Net
Net
Net
class in 1941
Amount
Amount
Amount
Amount
money in
money in
change
Change
Saving
spent for
received
spent for
used for
savings
checking
in
in
purchase
from sale
purchase
tax payments
accounts
accounts
Assets
Liabilities
1/Deficit
Under $500
$ 39
$
the
$
-
$
--
$ -
2
$
2/
$
1
3
-
3
$ 4
$500 and under $1,000
33
-
-
-
- 21
-
1
14
t
2
12
$1,000 and under $1,500
28
--
-
-
- 26
+
2
25
t
5
20
$1,500 and under $2,000
23
-
-
--
- 19
t
12
32
t
7
25
$2,000 and under $3,000
19
--
-
--
t 13
-
6
50
t 3
47
$3,000 and under $5,000
22
--
--
--
-
8
t
28
109
- 23
132
$5,000 and under $10,000
31
--
-
-
- 64
t
91
202
- 66
268
Plus (f) means an increase in liabilities; minus (-) means a decrease in liabilities
Less than $0.50
Cost of Living Division
May 6, 1942
Regraded Uncl
275
Confidential
U. S. BUREAU OF LABOR STATISTICS
Preliminary Figures
10
Estimated Average Number of Persons Per Family
City Families 1/
1941
Average
Average No. of
Money income class
total
persons per family
in 1941
family
18 years under
size
and over 18 years
Under $500
1.3
1.2
.1
$500 and under $1,000
2.6
1.8
.8
$1,000 and under $1,500
2.5
1.8
.7
$1,500 and under $2,000
3.1
2.3
.8
$2,000 and under $3,000
3.1
2.3
.8
$3,000 and under $5,000
3.5
2.8
.7
$5,000 and under $10,000
3.8
2.8
1.0
$10,000 and over
3.8
3.1
.7
1/ Including one-person families
Cost of Living Division
May 6, 1942
276
MAY 7 - 1942
MEMORANDUM FOR THE PRESIDENT:
During our discussion of the American Bosch
matter, you asked whether dividends paid on the stock of
the American Bosch Corporation which George Murnane is
holding as voting trustee could be transferred to Sweden
under the Swedish general license and made available to
the German owners of American Bosch.
In view of the investigation made by the Foreign
Funds Control of the American Bosch Corporation, this
company has been blocked not only as Swedish, but also as
German and Dutch. As a consequence, the American Bosch
Corporation can not pay dividends or make any other pay-
ments under the Swedish general license.
Recently the American Bosch Corporation applied
for a license to make a dividend payment. The license,
when granted, required that the dividends in the amount
of $120,000.00 on the stock held by Murnane be paid into
a special blocked account in his name as voting trustee.
Regraded Unclassified
277
- 2 -
No payments can be made from this account under the
Swedish general license. An application has recently
been filed by Murnane to transfer such funds to the
account of the Stockholms Enskilda Bank. Once trans-
ferred to such account, the funds could be used under
the Swedish general license. This application is being
denied.
It is important to note, however, that if the
Treasury Department had not uncovered the German interest
in the Swedish-held stock of the American Bosch Corpor-
ation, the Swedish general license might have been used
to transfer to Sweden the dividonds paid on such stock.
It is true that the Swedish government has
assured us that it would not use its general license for
the transfer of funds in which the Axis had an interest.
However, the Swedish government insists that there is no
German interest retained in the Swedish-held shares in
American Bosch. Sweden would therefore say that it has
not violated its assurances to us by transferring abroad
the dividends paid by American Bosch on shares held in
Swedish name.
Regraded Unclassified
278
This situation is comparable to what might
have happened with regard to the General Aniline and
Film Corporation and the I. G. Chemie if the Treasury
had not been convinced of the German interest in that
company and blocked the company as German as well as
Swiss. The Swiss insisted that General Aniline was
Swiss owned and would therefore have considered trans-
fers to Switzerland by the General Aniline and Film as
coming within the Swiss general license.
The foregoing shows one way in which the
general licenses held by Sweden, Switzerland, Spain and
Portugal provide a channel through which funds may be
transmitted to our enemies.
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
BB:EHF:v1s - 5/7/42
Regraded Unclassified
279
STRIOTLY CONFIDENTIAL
MEMORANDUM FOR THE PRESIDENT:
You asked ae to bring up to date my memorandum
to you of January 30, 1942, concerning William L. Batt's
connection with American Bosch Corporation.
In that memorandum, a copy of which is attached,
I pointed out the following:
(1) Batt has been with SKF since 1919; practi-
cally all of his income is from salary as head of that
company; and under a voting trust agreement executed in
1941, he acts as trustee for the stock in SKF owned by
Swedish interests, which amounts to 95% of the stock of
SKF.
(2) When Mendelssohn and Co. nominally ac-
quired the German Bosch interest in American Bosch in
1934, George Murnane of Monnet, Murnane and Co. was
designated to represent Mendelssohn's interest in Ameri-
can Bosch. In 1938, Murnane reorganized American Bosch
Regraded Unclassified
STRICTLY CONFIDENTIAL
280
- 2 -
and put in as President, Donald P. Hess, who had been
recommended to him by Batt. At the same time Batt was
made a director of American Bosch. (Murnane stated
that it was upon his recommendation that Batt was made
President of SKF.)
(3) After the failure of Mendelssohn and Co.,
its interests in American Bosch were sold in May 1940 to
Swedish interests dominated by the Wallenberg family,
which family also owned a dominant interest in American
SKF. Murnane was designated as the voting trustee of
the Swedish interests in American Bosch.
The investigation of American Bosch which the
Treasury Department has recently concluded reveals the
following:
(1) In 1934 German Bosch, desiring to protect
itself against the Nasi foreign exchange control, trans-
ferred its interests in American Bosch, British Bosch and
French Bosch to Mendelssohn of Amsterdam, retaining an
option to repurchase the stock. Officials of German Bosch
went along to Amsterdam with the transfer of these shares
to insure continued German Bosch control over these
companies.
Regraded Unclassified
281
STRICTLY CONFIDENTIAL
- 3 -
(2) Mendelssohn, contrary to its agreement
with German Bosch, pledged the stock of American Bosch
with the New York Trust Co. to secure some loans. When
Mendelssohn failed in the Summer of 1939, German Bosch
was very fearful lest the stock in American Bosch be sold
by the New York Trust Co. to competing American interests
who would refuse to resell the shares to German Bosch.
George Murnane and his partner Jean Monnet participated
in negotiations to prevent the sale of the American Bosch
stock to interests that would not be friendly to German
Bosch.
(3) Negotiations took place between Chemical
Bank and the German Reichsbank for the acquisition by
Chemical of the American Bosch stock against payment of
$1,000,000 in eash to be put up by Chemical, together with
$2,200,000 of standstill credits acquired by Chemical on
option from British banking interests. Under the proposal,
Chemical was to agree to resell the American Bosch stock
to German Bosch after the war. For some reason these
negotiations fell through. The Reichsbank official told
Kollmar, the representative of Chemical, that there had
been too long 1 delay in concluding these negotiations and
Regraded Unclassified
282
STRICTLY CONFIDENTIAL
also that the German Government, to the embarrassment of
the Reichsbank, found out that enemy-owned German stand-
still credits would have been used to effectuate the
purchase by the Chemical.
(4) In May 1940, the shares of American Bosch
which had been held by Mendelssohn were purchased by The
Stockholms Enskilda Bank. Kollmar of Chemical Bank was
thereafter told by the official of the Reichsbank that
the stock had been sold to "Swedish friends", the Wallen-
bergs, on terms similar to those discussed with him,
namely, on the basis of the stock being resold to German
Bosch within two years after the war. Kollmar stated
that if the "Relehsbank makes any deal in Sweden it is
with the Wallenbergs, because I know who their confiden-
tial bankers are."
(5) It is my judgment that the Swedes in ac-
quiring the stock in American Bosch have agreed to PO-
sell it to German Bosch after the war. The remainder of
this memorandum relates to the interrelated roles played
by George Murnane, Jean Monnet and William L. Batt in
the American Bosch picture.
Regraded Unclassified
283
STRICTLY CONFIDENTIAL
- 5 -
George Murnane
George Murnane has disclaimed knowing that there was
any Cerman interest in the American Bosch stock when that stock
was held nominally by Mendelssohn. In that connection the
following testimony by Arthur T. Murray, President of American
Bosch through 1937, is of interest:
#
Dr. Mannheimer= further told me that
it was his desire and intent to hold the shares
In all of these companies as Agent for the German
owners until such time as the Nazi Regime no
longer existed, when they would be returned to the
real owners.
...
"I was talking with Mr. Murnane and I suggested
that some day both of us might find ourselves being
asked by the Government who really owned the Bosch
stock, because I felt then that sooner or later a
war between Germany and the United States and the
rest of the world was inevitable. Mr. Murnane
replied that he was going to see to it that he
never made any inquiry as to how the Bosch shares
came into the hands of Mendelssohn & Co. because he
always wanted to be In a position to say honestly
that 80 far as he knew the shares were the property
of Mendelssohn & Company. This conversation took
place some time during 1936 or 1937.
...
"Stuttgart wanted to be very certain that there
wasn't anything going through the mails that the
Nagi Regime might get ahold of to indicate that they
were the real owners of United American Bosch shares."
+ Dr. Mannheimer was the head of Mendelssohn & Co. and his
suicide in August, 1939 led to the liquidation of
Mendelssohn & Co.
Regraded Unclassified
284
STRICTLY CONFIDENTIAL
- 6 -
When Hess was being considered in January 1938
for the Presidency of American Besch, he wrote a letter
to Batt, a copy of which is attached, in which he stated
in part as follows:
"Dear Bill:-
"Just returned to Columbus yesterday so
this is the first chance I have had to tell
you that Mr. Murnane is in my opinion all
that you stated and was most willing to give
me all necessary data re United American
Bosch. While this statement is somewhat pre-
mature, I am satisfied that he and I could
get along in a most satisfactory manner.
The general setup is exactly as you described
it with control (705) in Mendelsschn & Co.,
Rotterdam--which means German Bosch and
Murnane acts for them. He has apparently
as much authority as could be expected under
such circumstances.
The foregoing would clearly indicate that Hess
understood from Murnane as well as Batt that Mendelsschn
was acting for Bosch.
In 1939 Murnane was in communication with
Rassbach, who was an official of German Besch. They were
discussing National City Bank's effort to acquire the
shares in American Bosch in exchange for blooked German
assets owned by National City. Murnane pointed out that
since National City was prohibited from retaining common
Regraded Unclassified
STRICTLY CONFIDENTIAL
285
- 7 -
stock even though acquired in settlement of debts, National
City would be compelled within a reasonable period to sell
the shares of American Bosch and that there would then be
a repetition of the existing situation. By this Murnane
meant that the National City Bank, like the New York Trust
Co., might sell the shares of American Bosch to interests
unacceptable to German Bosch.
Murnane has said that in response to a ques-
tion he asked Marcus Wallenberg during a visit to this
country in the Fall of 1940, Wallenberg stated that
Swedish interests alone owned the shares in American
Bosch transferred from Mendelssohn, and therefore,
Murnane believed that there was no German interest in
American Bosch. At the same time Murnane stated that he
believed that where money matters were concerned the
Wallenbergs were the coldest-blooded people he had ever
met.
When Marcus Wallenberg was in this country in
the Fall of 1940, he was making very substantial purchases
of German municipal and industrial bonds owned by Americans
at prices from 20 to 25 cents on the dollar. Wallenberg
Regraded Unclassified
286
STRICTLY CONFIDENTIAL
was making these purchases with funds transferred to the
accounts of the Stockholms Enskilda Bank from the accounts
of the German Gold Discount Bank. Wallenberg admittedly
was acting for the benefit of German authorities in making
these purchases. These activities by Wallenberg were widely
known in this country and must have been known by Murnane.
It is also interesting to observe that Marcus
Wallenberg admitted to an official of the Treasury in the
Fall of 1940 that Sweden had been negotiating with the
Germans in order to protect itself from a German invasion.
It is my belief that after the German invesion of
Norway, German and Swedish financial and industrial interests
drew closer together. Swedish Interests were used by the
Germans to hold title to German owned property in the United
States during the period of the war and Swedish interests
were also used by the Germans to engage in other financial
transactions here and elsewhere for the benefit of Germany.
In exchange therefor the Wallenbergs and other Swedish
interests obtained protection for their property holdings in
Germany and German occupied territories. Needless to say,
Germany also held the Swedish properties as a hostage to
compel Swedish interests to act on behalf of Germany.
Regraded Unclassified
287
STRICTLY CONFIDENTIAL
- 9 -
Jean Monnet
I called in Jean Monnet, who is the partner of
George Murnane, who shares in Murnane's earnings as
Chairman of the Board of American Bosch and who is at
present & member of the British Supply Council. I told
him that our investigation of American Bosch indicated
that German Bosch retained an interest in the stock of
American Bosch even though the stock had been transferred
first to Mendelssohn and thereafter to the Swedish in-
terests.
Monnet said that he did not believe that the
Germans retained any control over the shares in Swedish
hands and that if George Murnane was aware of any such
tie-up he would have made such information known to
Monnet. However, Monnet said he would question Murnane
about the situation and report back.
At a second conference which I had with Monnet
& couple of days later, Monnet said that he had talked
the matter over wi th Murnane, that Murnane had corrobor-
ated his impression that the sale from Mendelssohn to
the Swedish interests was thout any strings whatsoever
in favor of the Germans.
Regraded Unclassified
288
STRICTLY CONFIDENTIAL
- 10 -
I was not satisfied that Monnet was telling
all that he knew. Monnet unquestionably knew all of
the aspects of the Bosch situation. On August 17, 1939,
a telegram was sent to Hess, the President of American
Bosch, by Dr. Otto Fischer, one of the watch-dogs of
German Bosch who worked out of the Mendelssohn's office.
In that telegram Fischer indicated that thanks to urgent
representations by Mendelssohns and Murnane, the invest-
ment in American Bosch had been kept intact and that it
looked as though desirable interests were going to be
able to raise the amount required for release of the
American Bosch shares which were held as collateral by
the New York Trust Co. Dr. Otto Fischer then stated:
"I am going to see Mr. Monnet
tomorrow in connection with this
project."
In a memorandum in the files of the New York
Trust Co., signed by C. E. Hunter, a Vice President,
he said that Murnane had told him on August 21, 1939,
that Monnet had gone to Amsterdam to investigate the
Regraded Unclassified
289
STRIOTLY CONFIDENTIAL
- 11 -
situation respecting Mendelssohn and the American Bosch
shares. Monnet's report is stated in substance to have
included the following:
"Third parties have rights in those
shares, this right consisting of privilege
retained by Robt. Bosch G.m.b.H. to meet
any potential buyer's price within 30 days
of the bid.
"A group in Amsterdam representing
Stuttgart--very responsible people, are
working feverishly to present a proposi-
tion to us. They are fully able to buy
all these shares we hold."
Monnet also told me that up until the latter
part of 1938 he was a believer in rapprochement between
France and Germany.
Regraded Unclassified
290
STRIOTLY CONFIDENTIAL
- 12 -
William L. Batt
I had & talk with Batt last Tuesday. I told him
I believed that German Bosch had retained an internst. in
American Boscheven though the shares were owned first by
Mendelssohn and later by the Swedes. Batt stated that
he did not know that German Bosch continued to have such
an interest while the shares were in Mendelssohn's name,
but that if the Treasury had come to that conclusion,
he would not question it.
During my talk I showed Batt a copy of the
letter that Hess had written to him in January 1938 in
which he said with respect to American Bosch:
"The general setup is exactly as you
described it with control 70% in Mendelssohn
& Co., Retterdam - which means German Bosch
and Murnane asts for them. He has apparently
as much authority as could be expected under
such circumstances."
I also recalled to Batt that in his letter of reply to
Hess, he had not denied the German Bosch interest in
American Besch.
Regraded Unclassified
291
STRICTLY CONFIDENTIAL
- 18 -
Batt said that he had never told Hess that he
betieved the Mendelssohns were acting for the Germans
and this part of the letter was Hess' personal conjecture.
I asked Batt if he would have accepted member-
ship on the Board of Directors of American Bosch in 1938
had he known at that time that the Germans retained an
interest in the Dutch-held American Bosch shares. He
replied that he would have accepted the directorship at
that time even if he had been aware that the Germans con-
tinued to dominate the affairs of the company. Batt then
pointed out that he always believed there was a difference
between German industrialists and the Nazi party and that
he had always entertained the highest admiration and
affection for German industrialists.
I then asked him if he believed that the Swedes
were holding the shares in American Bosch for the Germans
in consideration of an agreement on the part of the Germans
to protect the Wallenbergs and other Swedish interests in
German SKF. Batt denied that such an agreement existed,
stating flatly that he believed the sale from Mendelssohn to
the Enskilda Bank was without any reservations and that such
an inference had never even entered his mind. I then asked
Regraded Unclassified
STRICTLY CONFIDENTIAL
292
- 14 -
him if it was not possible for such an arrangement to
exist without his knowing about it, and he said it was
possible although he did not believe it. In response to
another question, Batt stated that 80 far as he knew there
had been no interference by Germany with SKF properties
in German-occupied Europe, and he assumed that these prop-
erties were being used to assist Germany in its war effort.
He then asked me what reason I had to infer that
the transfer of the Mendelssohn shares to the Enskilda Bank
included an agreement to resell to German Boach after the
war. I told him of the information which had come to the
Treasury's attention, particularly the negotiations and
discussions between the Chemical Bank and the Reichsbank.
Notwithstanding that, Batt did not think it was conceivable
that the Wallenbergs could be acting on behalf of the Germans.
I then told Batt that we had information to the
effect that during the Fall of 1940 Marcus Wallenberg had
come to the United States for the purpose of purchasing for
the Reichsbank German municipal and industrial bonds at a
discount and had told certain people that he had a free hand
in the purchase of these securities.
Batt confirmed what we had previously been told by
Murnane, namely, that the Wallenbergs were hard and cold in
matters of money, but that he had the highest regard
and affection for them.
Regraded Unclassified
293
STRICTLY CONFIDENTIAL
- 16 -
Batt said that he could understand the reasons for
our apprehensions and thought that if he were in our posi-
tion he would require the Enskilda Bank to warrant that the
American Bosch shares would not be transferred for at
least 10 years after the war.
I told him that I appreciated his frankness,
but I wanted to think the matter over and would let him
know my conclusions later this week.
(Signed) H. Morgenthau, Jr.
& have also sent a copy of this
report to Donald Nelson
JES:BB:EHF:nrd:kfa:vla - 5/7/42
Regraded Unclassified
294
STRICTLY CONFIDENTIAL
JAN 3 0 1942
MEMORANDUM FOR THE PRESIDENT:
You have asked me for information concerning William
L. Batt's connection with American Bosch Corporation.
1. In order to have a clearer picture it is neces-
sary to mention briefly Batt's connection with SKF. Batt
has been associated with American SKF and its predecessors
since 1919. He was general manager from 1919 to 1923, when
he became president, which office he still holds. His
salary as president has ranged from $26,000 in 1935 to
$60,000 in 1940. lie customarily files a joint return. He
and his wife have no significant income other than his
salary from American SKF Corporation.
On January 1, 1939, Swedish SKF owned 76 percent of
the outstanding stock of American SKF; certain other Swedish
interests owned approximately 18 percent. These shares were
transferred to Batt under voting trust agreements early in
1941. Batt himself owns a trifling amount of shares in
American SKF (65 shares).
Regraded Unclassified
295
- 2 -
2. In 1938 Batt became a director of American Bosch
Corporation at a salary of $2000 a year. The records of the
company and the transfer agent do not reveal that he has ever
owned any stock in American Bosch. He resigned as director
of American Bosch on March 5, 1941.
The majority of the stock of American Bosch was re-
acquired in 1931 by the German Bosch Company. In 1934
Mendelssohn & Co. nominally acquired the German Bosch interest
in American Bosch. Shortly thereafter, George Murnane became
director of American Bosch and represented Mendelssohn's
interest in American Boach. George Murnane is at present 8.
member of the firm of Monnet, Murnane & Co. and formerly was
a partner of Lee Higginson where he actively handled the
Kreuger and Toll matters. Murnane's partner, Jean Monnet,
formerly was chairman of the British French ecanamic council,
and is now a member of the British Supply Council. Murnane be-
came chairman of the board of American Bosch in June 1937 and
in 1938 effected a reorganization of the company. The financial
reorganization left the stock in Mendelssohn & Co. and the
managerial reorganization resulted in Donald P. Hess replacing
Arthur T. Murray as president. At the same time Batt was made
a director of American Bosch.
When Fritz Mannheimer, the head of Mendelssohn & Co.
committed suicide in August 1939, Mendelssohn & Co. failed
Regraded Unclassified
296
- 3 -
and was liquidated. In May 1940, the Mendelssohn interests in
American Bosch were sold to the Stockholm Enskilda Bank which is
owned by the Wallenberg family. Murnane was then designated as
the voting trustee of the Swedish interests in American Bosch.
At the present time, therefore, the Swedish interests in
American SKF are represented by Batt, as voting trustee, and the
so-called Swedish interests in American Bosch are represented by
Murnane, as voting trustee.
.....
3. In the course of our investigation of the personnel
and records of American Bosch, which we started last Saturday, we
have run across information which suggests that arrangements may
have been made whereby the Germans would protect SKF holdings in
Cerman-occupied countries in exchange for efforts by the Wallen-
bergs to protect the German interests in American Bosch. Under
such an arrangement the Wallenbergs would hold the Swedlsh
interests in American Bosch until the end of the war when it
would resell such interests to the Germans.
Murnane reported to one of our Treasury investigators
that it was upon his recommendation that Batt was made president
of SKF and that Hess who succeeded Murray in 1938 as president
of American Bosch was suggested by Batt.
It has also been reported from another source that during
the liquidation of the Mendelssohn (after the outbreak of
war) English interests were asked to buy the Mendelsschn-
Regraded Unclassified
297
- 4 -
held shares in American Bosch with the understanding that
at the end of the war the control would be resold at a
profit to German interests; but the English exchange author-
ities refused to permit the transaction. Thereafter the
Mendelssohn interests in American Bosch were sold to the
present Swedish holders.
In view of the fact that our investigation of American
Bosch has just begun we can not warrant the accuracy of the
comments contained in section 3 of this memorandum.
(Signed) H. Morgenthau, Jr.
EHFJr:BB:RP:mp
1/30/42
Regraded Unclassified
298
DONALD P. H:38
I
Columbus, Ohio
Jenuary S, 1938
No. L. Batt,
SKF Industries Co.,
Philadelphia, Pa.
Do : Bill:
Just returned to Columbus yesterday 00 this 10 the first chance
I have he: to tell you th t Mr. Murnene 10 in my opinion, =11 that
you stated and Will not willing to Give no +11 necessary date ro
United American Bosch. While this statement 1: nomewhet prepature,
I 12 outlsfied that he and I could got adoms in most activisatory
sanner. The general setup 1a stactly 0.8 you described it with
control (70%) in Mendelssohn & Co., Rotterdam - which moins Germen
Bouch and Murnano 2018 for thom. He has apporently, ne much authority
se could be expected under such circumstances.
From the stendpoint of operations, 1. O., menufacturing end
merchandising, 16 looks 1001 to 2dd with real possibilities even
in view of = very erratic performance over the post seven years. The
financial picture 10 not good - which 1st probably to be expected in
view of past earnings, or rather look of earnings, and it 10 giving me =
good doal 0 concern. In analyzing the 1ust monthly 181 tennnt it indicates
current naneta and liabilitive about balance with #. nm-11 amount of ot.sh
on hand. In this I ca considering all notes payable ne current withough
the statement does not show -- such do (due?) to certain rrangoments as
to payments, etc. This your should show a amall profit, but even this
is questionable 18 present inventories look high to no.
Mr. Murnane told no that the bankers are willing to convert
the notes into stock and he die additional funds to at into the
company to holp the cash position. Summarising the whole thing Bill, I
as much inclined to take it on, but the financial retup bothers 20, and
I want to (ive 1L considerable thought. Hope to (ive Mr. Murnans
something definite within the next two wooks. Incidentally 15 you hoar
anything from his 08 to his feelings in my regard would greatly appreciate
your so advising 20.
Sincerely yours,
/0/
Donald :. Hoss
DPH-V
Regraded Unclassified
299
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 7, 1942
TO
Secretary Morgenthau
FROM
Mr. Haas M
Subject: Export Situation
Lighterage freight in storage and on hand for unloading
in New York harbor decreased by 397 cars last week to 20,142
cars. (See Chart 1.) Additional rail storage space for
7,292 cars was available at the end of the week.
Exports from New York increased by 536 cars to
7,745 cars, exceeding the peaks reached in 1941. (See
Chart 2, upper section.)
Receipts for export at New York also increased slightly,
reaching 7,387 cars, or 220 cars over last week's figure.
However, receipts for export at 9 other North Atlantic ports
and 6 Pacific ports both decreased, the former by 299 cars
to 3,488 cars, and the latter by 224 cars to 2,824 cars.
(See Chart 2, lower section.)
Regraded Unclassified
LIGHTERAGE FREIGHT IN STORAGE
AND ON HAND FOR UNLOADING IN NEW YORK HARBOR*
1941
1942
CARLOADS
CARLOADS
Thousands
Thousands
24
24
22
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
JAN.
MAR.
MAY
JULY
SEPT
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1941
1942
-
Largely export freight, our about 10% represents freight for local
and coastel shipment. Figures exclude grain.
300
die
Chart 1
Office of the Secretary of the Treasery
- of - and States
C-303-D
Regraded Unc
EXPORT FREIGHT MOVEMENT
1941
1942
CARLOADS
CARLOADS
Thousands
Thousands
Exports
10
10
9
9
8
B
From
7
7
6
6
5
5
4
4
3
3
2
2
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1941
1942
CARLOADS
CARLOADS
Thousands
Thousands
Receipts for Export
10
10
=
9
9
8
8
7
7
6
5
At New At York® 9 other North
6
5
4
4
Atlantic
Ports
**
3
3
2
vm
2
I
I
At 6 Pecific Ports -
.
o
o
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT
NOV.
1941
1942
As estimated from data of general monagers' association of New York.
.
e Association of American Reilroods.
301
Office of the Secretary of the Truesury
- of - - -
C-382-B
Regraded Unclass
Chart 2
302
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
May 7, 1942
MEMORANDUM TO THE SECRETARY:
Supplementing my memorandum to you of yester-
day's date, I talked with Mr. Nelson this morning
concerning the Russian situation and he advised that
he is very much concerned over the difficulties that
have necessitated the reduction of shipments and has
asked Bill Batt to keep in very close touch with the
matter.
Yesterday afternoon Batt's assistant informed
me that he had talked with the Russian delegation
relative to selecting the items for forwarding, and
the production schedule is being revised accordingly.
In the meantime, materials produced against Russian
orders are being stored so that we will be in a posi-
tion to utilize the reduced number of vessels to the
utmost in 80 far as weight and space content are con-
cerned by having a selection for loading most advan-
PORDEFENSE
tageously.
BUY
UNITED
STATES
SAVINGS
BONDS
AND STAMPS
Glyfton E. Mack
Director of Procurement
Regraded Unclassified
y
303
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 7, 1942
TO
Secretary Morgenthau
Mr. Kamarck
FROM
Subject: Shipment of Planes and Fighting Vehicles to U.S.S.R.
Summary
1. In the second ten-day period of April,
46 planes and 285 tanks (205 light, 80 medium)
were shipped to the U.S.S.R.
2. The total number of tanks shipped to
the Russians in 1942 has now passed the 1,100
mark.
Regraded Unclassified
304
Table A
Shipments of Planes and Fighting
Vehicles from the United
States to the U.S.S.R.*
Shipments
Cumulative total
during
Jan. 1, 1942 to
April 10 - 20
April 20,1942
Planes
Pursuit
31
337
Bombers
15
311
Total
46
648
Tanks
Light
205
594
Medium
80
512
Total
285
1,106
Other Fighting Vehicles
Jeeps
0
1,549
Gun carriers
0
78
#
These figures are based on export declarations received
for the period indicated.
Regraded Unclassified
305
Table B
Shipments of Planes and Tanks to
U.S.S.R. by Months
Total
Light
Medium
Total
Fighters
Bombers
Planes
tanks
tanks
Tanks
January, 1942
56
4
60
20
22
42
February
123
115
238
172
38
210
March
68
170
238
159
258
417
April 1 - 20
90
22
112
243
194
437
Total 1942 to
April 20
337
311
648
594
512
1,106
Regraded Unclassifie
306
MAY 7 1942
Ky dear Mr. Ambassador:
I wish to refer to the agreement dated October 10, 1941,
relative to the purchase of 903,000 fine trey curses of gold w
the Secretary of the treasury from the Government of the Union of
Seviet socialist Republics, against which - advance of $30,000,000
vas made on October 11, 1941.
I take pleasure is enclosing for your information two
copies of the ussay report of the United States Assay Office at
New York giving as analysis of the gold which vas consigned to the
rederal Reserve Bank of New York and vas deposited w year Govern-
sent es April 20, 1942, for the account of the Secretary of the
Treasury.
You vill observe from the enclosed report that the ship-
ment, after melting and upon assay, was determined to centain
321,444,518 fine tray cussos of gold will to have a value of
$11,250,538.13. After the deduction of the amount of $28,446
representing the melting charge of $321.60 plus the 1/45 handling
charge of $26,126.40. the not value of the gold vas $11,222,110.13.
This amount of gold has been applied by the Treasury against the
amount of gold agreed to be purchased by the Secretary of the
Treasury under the agreement of October 10, 1941.
the Treasury has applied against the sévance of $30,000,000
made on October 11, 1941. the amount of $9,503,422.61 and 10 has also
applied against the advance of $20,000,000 made on Jamary 5. 1942,
$1,415,687.52.
AS the agreement of October 10, 1941, is any considered
to have been fulfilled, my further deposits of gold made by the
deverament of the Union of seviet socialist Republics for acceant
of the secretary of the Treasury will be applied against the agree-
nest of Jenuary 3. 1942.
sincerely years,
(Signed) N. Morgenthaw. Jr.
His Insellency
Secretary of the Treasury
Maria Litvineff,
Antesseder of the Union of seviet
Socialist Republics.
Inclesures.
Laben In Dietneh's office
n.m.c
(a)
Regraded Unclassified
307
MAY 7 1942
Dear Mr. Nelson:
I have been giving careful consideration to
your letter of April 29, 1942, in which you ask for my
views as to what additional amount of silver from the
monetary stocks of the United States can be made avail-
able for war production purposes with and without ad-
ditional legislation.
In connection with the possibility of obtain-
ing new silver legislation, I should like to mention
that I have stated to the Special Silver Committee in
the Senate that I would not urge the enactment of new
silver legislation or the sale of substantial amounts
of silver without first consulting that Committee.
In the event that you desire to urge the
enactment of new legislation, there are a number of
different ways of dealing with the problem, among which
are the following:
(a) Repeal or suspend during the war
the Act of July 6, 1939, requiring the
Treasury to pay 71.11 cents per ounce for
domestically mined silver.
(b) Repeal or suspend for the duration
of the war sections 3 and 4 of the Silver
Purchase Act and grant authority to the
Secretary of the Treasury to sell the free
silver stocks at a minimum price of 35 cents
an ounce and also grant the authority to
the Secretary of the Treasury to dispose
of such silver without monetary consideration
for use in the production of war materials
produced or manufactured pursuant to contract
with the United States.
Regraded Unclassified
308
- 2 -
(c) Authorize the Secretary of the
Treasury to call in outstanding coinage,
melt down the same, and sell, lease, or
otherwise dispose of the metals therein
contained for purposes of war production,
and to substitute for such coinage other
coins made of non-strategic materials.
(d) Authorize the Secretary of the
Treasury to suspend the issue of silver
certificates and to retire outstanding
silver certificates. In the alternative,
authorize the suspension during the war
of the requirement for the maintenance of
silver as collateral for outstanding silver
certificates, thereby making possible the
use of all silver in the monetary stocks
as free silver.
The Treasury Department will continue to be
available to discuss with you and representatives of
the War Production Board any problems relating to the
use of silver in the war effort.
Sincerely yours,
(Signed) B. Morgenthas, Jos
Secretary of the Treasury.
Hon. Donald M. Nelson,
Chairman, War Production Board,
Washington, D. C.
By Messenger Veach 10:45
File to foloy
"
BB:EHF:v1s - 5/6/42
Regraded Unclassified
WAR PRODUCTION BOARD
WASHINGTON. D. C
OFFICE OF
DONALD M. NELSON
CHAIRMAN
April 29, 1942
My dear Mr. Morgenthau:
We are very appreciative of your cooperation in our program to sub-
stitute silver for copper in the bus bars of new Government-owned aluminum
and magnesium plants. Arrangements for installation are now proceeding
satisfactorily, and it is expected that within a few months the entire 46,000
odd tons of "free" silver available for this purpose will have been largely
put to such use.
In our efforts to conserve critical and ocorue raterials 16 las been
established that silver is a suitable substitute for many applications of
aluminum, magnesium, copper, nickel, and tin. Shortages in all these metals
are so severe that the supply is insufficient to meet even the most essential
requirements. As you know, industry has had recently to depend for its silver
supply solely on imports, which we estimate will amount to approximately
3,700 tons in 1942.
A preliminary calculation indicates that the amount of silver, which
can be used industrially in 1942, may total approximately 11,285 short tons.
A tabulation of the probable uses is attached and includes several anticipated
uses, which have not as yet actually been put into effect. with an adequate
supply of silver available, it is probable that the ingenuity of American
industry will discover further uses for silver as a substitute for scarce
materials.
It is my opinion that the maximum utilization of silver in industry as
a substitute for critical materials, where its use is economically feasible at
a level of 35 and a fraction cents per Troy ounce, should be pressed to a
satisfactory conclusion immediately. As you know, the present arrangement
leaves the 39/40,000 short tons of silver, which is specifically held as
security for silver certificates, unaffected by the agreement between Defense
Plant Corporation and yourselves. Therefore, I would appreciate your sugges-
tions as to how this remaining silver can be made available for essential
industrial uses, particularly as to the amount of silver which might be made
available for such uses without legislation, and also how much could be made
available with legislation and the form which such legislation should take.
Whichen Sincerely yours,
Donald 2. Nelson
The Honorable
The Secretary of the Treasury
Regraded Unclassified
ESTIMATED POTENTIAL 1942 CONSUMPTION OF SILVER, BY MAJOR USES
(Short Tons)
1942
Use
Potential Consumption
Total Consumption a
11,285
Solder
2,300
Copper-zinc
700
Lead
1,600
Electrical Industry
2,000
Contacts
500
Other
1,500
Bearing Materials
500
Returnable Containers c/
3,500
Chemical Industry
685
Electroplating Anodes and Salts
305
Photographic
320
Other
60
Decorative Arts
1,700
Silverware and Holloware
1,350
Other
350
Dental and Medical
100
Miscellaneous
500
Source: War Production Board, Division of Statistics
Military requirements are included under the appropriate use.
The substitution of a 23% silver solder on the average, to replace
the 21,000 tons of tin used during 1941 would require 1,600 tons
of silver.
The substitution of a .001" coating to replace an estimated 2,500
tons of tin used in returnable containers would require 3,500 tons
of silver.
Regraded Unclassified
C
0
311
P
Y
DEPARTMENT OF STATE
Washington
In reply refer to
May 7. 1942
FD
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses copies
of telegrams nos. 248, dated May 5. 1942, from the American
Consulate, Sydney, Australia and the reply thereto, no. 177, to
the Consulate, dated May 6, 1942, concerning hubs to be used
for minting Australian coins.
Enclosures:
1. From Consulate, Sydney,
no. 248, May 5. 1942.
2. To Consulate, Sydney,
no. 177, May 6, 1942.
eh:copy
5-8-42
Regraded Unclassified
C
o
312
P
Y
TELEGRAM SENT
WM
May 6, 1942
This telegram must be
paraphrased before being
11 p.m.
-communicated to anyone
other than a Governmental
agency. (BR)
AMERICAN CONSUL
SYDNEY (AUSTRALIA)
177
Your 248, May 5. 5 p.m.
Hubs were delivered to Treasury April 21.
HULL
(FL)
847.515/15
FD:FLtHMcB
Bu
eh:copy
5-8-42
Regraded Unclassified
C
o
313
P
Y
MJL
Sydney
This telegram must be
paraphrased before being
Dated May 5. 1942
communicated to anyone
other than a Governmental
Rec'd 11:05 a.m.
agency. (BR)
Secretary of State,
Washington.
248, May 5, 5 p.m.
Commonwealth Bank is anxious to know whether
Department has received hubs forwarded April 6
with my despatch no. 233 to be used for minting
Australian coins.
PALMER
NPL
eh:copy
5-8-42
Treasury Department
314
Division of Monetary Research
D
Date May 7.
19 42.
To:
Miss Chauncey
From:
H. D. White
The attached is for your files. It
was left with me by Mr. Plumptre of
Canada.
A Suggested Plan for Solving Canada's
Deficit Under Joint Arrangements for
War Production.
A. The Problem
The problem which Canada now faces
a continuing substantial deficit of U.S. exchange
is likely to be seriously aggravated by the measures
currently under discussion for the pooling of Canada's
total war production through the Joint Munitions heat are
ment Board in Washington.
Canada commenced the war with total U.S.
exchange (gold and U.S. dollar balances) of $391,000,000
of which $261,000,000 represented official reserves held
by the Minister of Finance and the Foreign Exchange Control
Board and $130,000,000 represented surplus private U.S.
dollar balances held by individuals and corporations. By
the end of 1940 (and in spite of imports of gold from the
United Aingdom of $250,000,000), total gold and U.S.-
dollar balances had declined to $330,000,000. All of
this was held by the Minister of Finance and the Foreign
Exchange Control Board - in other words, surplus private
holdings of U.S. dollar balances had been taken over,
leaving private individuals and corporations (banks,
insurance companies, industrial corporations, etc.) with
only the minimum working balances legally or practically
necessary to carry on their day-to-day business.
In 1941, the net drain on Canada's holdings of
U.S. exchange amounted to $142,000,000. This was after
taking into account the net effect of the Hyde Park Agree-
ment - amounting to $57,000,000. As at December 31, 1941,
Canada's holdings of gold and U.S. dollars had declined, as
a result of this drain or deficit during 1941, to $188,000,000.
Estimates/
Regraded Unclassified
315
A Suggested Plan for Solving Canada's U.S. Dollar
Deficit Under Joint Arrangements for Pooling
War Production.
A. The Problem
The problem which Canada now faces 18 that of
a continuing substantial deficit of U.S. exchange which
is likely to be seriously aggravated by the measures
currently under discussion for the pooling of Canada's
total war production through the Joint Munitions Assign-
ment Board in Washington.
Canada commenced the war with total U.S.
exchange (gold and U.S. dollar balances) of $391,000,000
of which $261,000,000 represented official reserves held
by the Minister of Finance and the Foreign Exchange Control
Board and $130,000,000 represented surplus private U.S.
dollar balances held by individuals and corporations. By
the end of 1940 (and in spite of imports of gold from the
United Kingdom of $250,000,000), total gold and U.S.-
dollar balances had declined to $330,000,000. All of
this was held by the Minister of Finance and the Foreign
Exchange Control Board - in other words, surplus private
holdings of U.S. dollar balances had been taken over,
leaving private individuals and corporations (banks,
insurance companies, industrial corporations, etc.) with
only the minimum working balances legally or practically
necessary to carry on their day-to-day business.
In 1941, the net drain on Canada's holdings of
U.S. exchange amounted to $142,000,000. This was after
taking into account the net effect of the Hyde Park Agree-
ment - amounting to $57,000,000. As at December 31, 1941,
Canada's holdings of gold and U.S. dollars had declined, 88
a result of this drain or deficit during 1941, to $188,000,000.
Estimates/
Regraded Unclassified
316
-2-
Estimates made in March of this year forecast
an additional net less of U.S. dollars during 1942 amounting
to $79,000,000 which, if correct, would reduce Canada's
reserves to only $109,000,000 at the end of this year.
Admittedly, this forecast was attended with a good many
difficulties, such as the difficulty of forecasting future
orders to be placed by U.S. agencies with War Supplies
Limited and of appraising the effect of priorities and
shortage of materials on production and deliveries, the
difficulty of forecasting the effect on tourist expenditures
in Canada of rubber and gasoline restrictions, the difficulty
of estimating what would happen to the production of gold,
etc. In fact, actual results during the first quarter proved
a good deal better than had been anticipated, partly due to
the unexpectedly large capital movements and to the effect
on payments for imports and exports of rumoured changes in
the Canadian-U.S. exchange rate. At this time, however, we
could not with confidence revise to a lower figure our
estimate of the exchange deficit for the year as a whole.
Recently, a new and important factor has emerged
which may, unless other steps are taken, produce a serious
adverse effect on Canada's exchange prospects. This is the
proposal for pooling Canada's total war production through
the Joint Munitions Assignment Board in Washington, a pro-
posal which Canada wishes to accept in order to assure the
most efficient utilization of her economic resources for the
common war effort.
If this pooling proposal is implemented it may
embarrass Canada's exchange position in one or both of the
following ways:
(1) Possibly/
Regraded Unclassified
317
(1) Possibly through the non-payment of U.S. dollars
for war supplies delivered under contracts placed
by U.S. war agencies with War Supplies Limited, if
the supplies in question are turned over to the pool
and diverted from U.S. use. (Perhaps there is no
danger of this in regard to orders already placed).
(2) Possible reduction of such ordera in the future if
as B. result of the pooling arrangement the U.S.
200
war agencies which have placed such orders in the
past fear that they themselves will not receive for
their own use the war supplies to be ordered in
future.
B. A Suggested Solution
Canada believes that the financial relations
between the two countries should be such as to eliminate
the influence of considerations relating to the balance of
payments between the two countries, both during and after
the war, upon the utilization of the resources of either
country in the joint war effort.
She is exceedingly grateful for the suggestion
made a little over a year ago by the Secretary of the
Treasury which was embodied in the Hyde Park Agreement.
This has been and promises to continue to be of enormous
benefit to Canada. The agreement was negotiated in April
1941 and naturally some time had to elapse before its
fruits could mature. Nevertheless Canada received a net
benefit from the agreement last year of $57,000,000 and for
1942 we estimate a net benefit no less than $379,000,000.
Our March estimates indicated that, were it not for the
Hyde Park Agreement, Canada's doller 543 deficit for indumy 1942 would
total the impossible figure of $668,000,000 (excluding net
effect of capital movements, estimated at $85,000,000).
If there is any basis for the fears expressed
in regard to the effects on Canada's dollar receipts of
the proposed/
Regraded Unclassified
+
318
the proposed pooling arrangement, Canada's dollar deficit
would soon reach a magnitude of unmanageable proportions.
What is therefore proposed 1a really an extension and per-
fecting of the Hyde Park Agreement.
It 80 happens that Canada's imports of war goods
from the United States accounts for all of Canada's annual
deficit of U.S. dollars (excluding the effect of the Hyde Park
Agreement and of net capital movements). Thus, in 1941, our
total imports for materials and supplies for war purposes were
estimated at $294,000,000, whereas, had it not been for the
effect of the Hyde Park Agreement and of net capital movements
amounting to 94,000,000, our dollar deficit would have been
$293,000,000. For 1942, we estimated that our total imports
from the U.S.A. for war purposes will amount to $542,000,000,
whereas, were it not for the effect of the Hyde Park Agreement,
and of net capital movements estimated at $85,000,000, our
total deficit would be $543,000,000. In other words, our
U.S. exchange deficit is entirely due to the contribution we
are making to the fighting strength of the United Nations by
the production of war supplies.
It would appear, therefore, that our exchange
problem would be solved if the United States would agree to
purchase from Canada through War Supplies Limited an amount
of war supplies equivalent to the estimated amount of Canada's
war purchases from the United States less the net amount of
capital movement. If in this way the sales of War Supplies
Limited were increased to the point where they balanced our
war imports from the United States, then we would have
accomplished the President's objective of eliminating the
dollar sign from the contribution of war goods to the common
war effort. The trade in war goods would in e ffect have been
converted to a barter basis.
It may be added that this "swap" of war materials
and supplies would be arranged on B. basis which would not
involve an elaborate requisitioning and accounting system
desired or burdensome would be accomplished wi thout delays on work
administrative procedures, The results extra
Regraded Unclassified
319
-5-
-- extremely important considerations under existing
conditions.
The calculations of our U.S. dollar costs
for war imports necessitates the use of estimates in
certain cases and it would, it is believed, be necessary
to proceed on the basis of an estimate for the year (or
other convenient period). However, these estimates can be
made with B. reasonable degree of accuracy and they can be
revised after the end of each quarter in the light of
actual experience. It should probably be an understanding
between the two governments that if the working of the
agreement over a period should result in Canada building
up a surplus of U.S. dollars or showing a further drain
of U.S. dollars, the agreement should be reviewed and
appropriate adjustments made.
It is believed that if the U.S. Government
agreed to accept financial responsibility for the purchase
of Canadian war production equivalent to the amount of
Canada's import of war goods from the U.S.A., then the
various U.S. departments and war agencies would be
encouraged to place orders for that amount. If the orders
which they placed on their own initiative were insufficient
to provide the necessary dollar sum, it would be understood
that the U.S.A. would agree to treat as U.S. orders a
sufficient additional amount of Canadian war goods turned
over to the common pool.
If there should be established anything in the
Planning
nature of a Joint
- Production Board designed to distribute
orders to whtever country has the facilities for production,
the arrangements outlined above could, made
to work if the United States would agree
portion of such orders 98 orders placed for SACH r
recunt
and
for which they would accept financial respons
dozesses
May 5, 1942.
Regraded Unclassified
320
May 7. 1940
Mr. Livesey
Mr. Biotrich
will you please send the attached cable to the American Rubasay, Chungking,
"For Adler from the Secretary of the Treasury".
FDich
321
May 5. 1942
To: Adler
From: Secretary of the Treasury
Fox has left Washington to return to Chungking by
plane. He is expected to arrive at Chungking about June 5.
ISF/efs
5/5/42
322
PARAPHRASE OF TELEGRAM SENT
TO:
American Hubassy, Chungking, China
DATE: May 7, 1942, 5 P.M.
NO.: 365
This is & message from the Secretary of the Treasury
for Mr. Adler.
Fox has departed from Washington by plane for Chunge
king. According to plans he should arrive about the 5th
of June in Chungking.
HULL
(FL)
Regraded Unclassified
COPY
323
FEDERAL RESERVE BANK
OF NEW YORK
May 7. 1942
CONFIDENTIAL
Dear Mr. Secretary!
Attention: Mr. H. D. White
I am enclosing our compilation for the week
ended April 29, 1942, showing dollar disbursements out
of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.
Faithfully yours,
/8/ L. W. Knoke,
L. W. Knoke,
Vice President.
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Enclosure
Copy:vw:5-11-42
Regraded Unclassified
OF BITIME AND PRENCH ACCOUNTS
(In Willions of Dollard
feet Inled Amril 29, 1942
o ID (BRITISH -DOVERIMENT)
BANK
OF
FRANCE
DEBITS
CREDITS
DEBITS
CREDITS
Gov't
Proceeds of
Net Incr.
Sales of
(+) or
Gov't
Proceeds
Net Incr.
Total
Expendi-
Other
Total
(+) or
Securities
Other
Decr, (-)
Total
Expendi-
Other
Total
of Gold
Other
Decr. (-)
PERIOD
Debita
tures(s)
Debite
Credits
Gold
(Official) (b)
Credita(e)in Balance
Debits
tures (d)
Debits
Credits
Sales
Credits
in Balance
pear of war
Unit -8/28/40)*
1,793.2
605.6
1,187.6
1,828.2
1,356.1
52.0
420.1
+ 35.0
866.3(e)
416.6(e)
449.7
1,095.3(e)
900.2
195.1(e)
+229.0
period through
1940
2,792.3
1,425.6
1,356.7
2,793.1
2,109.5
108.0
575.6
+ 10.8
878.3
421.4
456.9
1,098.4
900.2
198.2
+220.1
year of war
1/10
2,203.0
1,792.2
410.8
2,189.8
1,193.7
274.0
722.1
- 13.2
38.9
4.8
34.1
8.8
-
8.6
- 30.1
1961
- Oct. 1
140.9
105.9
35.0
176.2
20.1
2.0
154.1
+ 35.3
0.3
-
0.3
0.5
-
0.5
+ 0.2
Only 2- Oct. 29
109.0
77.3
31.7
150.9
0.8
-
150.1
+ 41.9
0.3
-
0.3
0.3
-
0.3
#
Det. 30 Dec. 3
156.1
111.6
44.5
134,6
-
1.0
133.6
- 21.5
16.1
-
16,1
0.4
-
0.4
-15.7
Des, 1- Dec. 31
66.4
69.6
18,8
2.5
-
-
51.5
- 36.9
0.8
-
0,8
0.4
-
0,4
- 0.4
1942
Jan. r- Jan, 28
102,3
73.2
29,1
69.3
-
0.5
68,8
- 33.0
0.2
I
0.2
0.4
-
0.4
. 0.2
Jene 29 - Feb. 25
87.2
63.8
23.4
57.2
-
1.0
56.2
- 30.0
-
-
-
0.3
-
0.3
- 0,3
Path, 26 Apr. 1
121.4
86.46
35.0
171.4
-
i
171.4
* 50.0
0.1
-
0,1
0,4
-
0.4
+ 0.3
Apr. 2 - Apr. 29
98.1
64.2
33.9
70.6
-
0.5
70.1
- 27.5
0.2
-
0.2
0.4
-
0.4
+ 0.2
- 4 ENDED:
1
Apr. 8
36.3
19,0
17.3
20.3
-
0.5
19.8
-16.0
-
-
I
0.1
-
0.1
+ 0.1
15
24.8
17.6
7.2
22.8
-
-
22.8
- 2.0
0.1
-
0.1
0.1
,
0.1
-
22
18.6
12.9
5.7
14.1
-
-
14.1
- 4.5
-
-
-
0.1
-
0.1
+ 0.1
29
18.4
14.7
3.7
13.4
-
-
13.4(f) - 5.0
0.1
-
0.1
0.1
#
0.1
-
. Weekly Expenditures Since Outbreak of Var
Transfers from British Purchasing Commission to
France (through June 19, 1940) $19.6 million
Bank of Canada for French Account
England (through June 19, 1940) 27.6 million
Week ended April 29, 1942
$
-
million
England (since June 19, 1940) 38.5 million
Cumulation from July 6, 1940 $ 162.7
million
*For monthly breakdown see tabulations prior to April 23, 1941.
oufor monthly breakdown see tabulations prior to October 8, 1941.
(See attached sheet for other footnotes)
Regraded Unclassified
(1)
Includes
Supply
Timber
(b)
Retinated figures taped on transfers the the lieu Tark Agency of the Bank of Montreal, which apparently represent
to
proceeds of efficial British sales of American securities, influding those effected through direct negotiation. In addition
to the official selling, substantial liquidation of securitie) for private British account occurred, particularly during the
carly months of the var, although the receipt of the proceeda/at this Bank cannot be identified with any accuracy. According
to data supplied by the British Treasury and released by Secretary Morgenthan, total official and private British liquidation
of our securities through December, 1940 amounted to $334 million,
(a) Includes about $85 million received during October, 1939 from the accounts of British authorised banks with New York banks,
presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar
receipts.
(d) Includes payments for account of French Air Commission and French Purchasing Commission,
(e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(f) Includes $3.0 million transferred from account of Commonwealth Bank of Australia.
Regraded Unclassified
ANALYSIS OF CAMADIAN AND AUSTRALIAN ACCOUNTS
dirictly
(In Millions of Dollars)
Week Ended April 29, 1942
Confidential
Candion
Government)
COMMONWEALTH BANK OF AUSTRALIA
DEBITS
CREDITS
DEBITS
0.1
Transfers
Transfers from Official
Transfers
3
Proceeds
British A/C
Net Incr.
to
Proceeds
Not Inst,
Official
of
(+) or
Official
of
(+) or
Total
British
Other
Total
Gold
For Own
For French
Other
Decr. (-)
Total
British
Other
Total
Gold
Other
Decr. (+)
PERIOD
Debita
A/C
Debite
Credits
Sales
A/C
A/C
Credits
in Balance
Debits
A/C
Debits
Credits
Sales
Credits
in Balance
Please THE of
(8/29/37-8/28/60)+
323.0
16,6
306.4
504.7
412.7
20.9
38.7
32.4
+181.7
31.2
3.9
27.3
36.1
30.0
6.1
+ 4.9
period through
1940
472.2
16.6
460.6
707.4
534.8
20,9
110.7
41.0
1230.2
57.9
14.5
7'E7
62.4
50.1
12,3
+ 4.5
year of war
(8/29/40-8/27/61)**
460.4
-
460.4
462,0
246.2
3.4
123,9
88.5
. 1,6
72.2
16,7
55.5
81,2
62,9
18.3
- 9.0
26 - Oct. 1
23.1
6
23.1
52.2
21.2
-
-
31.0
+ 29.1
10.7
0.5
10.2
2.8
2.1
0.7
- 7.9
1961
2- Oct. 29
37.4
-
37.4
19.7
11.9
-
-
7.8
- 17.7
8.2
5.5
2.7
8.0
5.9
2.1
+ 0.2
0ct 30 Dec. 3
52.8
0.1
52.7
32.5
19.3
-
-
13.2
- 20.3
10.3
6.9
3.4
11.6
9.0
2,6
+ 1,3
6- Dec. 31
47.2
-
47.7
22.2
17.3
-
-
4.9
- 25,5
3.9
1,8
2,1
2.8
0,2
2,6
- 1.1
1962
- Jan. 28
39.5
-
39.5
33.0
27.0
-
-
6,0
- 6,5
4.5
-
4.5
10,8
-
10.8
+ 6.3
29 - Feb. 25
34.1
-
34.1
35,7
12,4
-
-
23.3
+ 1.6
8.4
$3
3.1
1,6
-
1.6
- 6.8
Feb. 26 - Apr. 1
46.5
-
46.5
99.3
20.5
7.7
-
71.1
+ 52.8
7.8
1.3
6.5
3.6
-
3.6
- 4.2
Apr. 2 - Apr. 29
37.4
37.4
35.9
14.2
-
-
21.7
= 1.5
10.9
8.0
2.9
16.8
-
16.8
+ 5.9
-
-
ENTED:
7.2
9.5
2.5
-
-
7.0
+2.3
0.3
I
0.3
0.8
-
0,8
Apr. a
7.2
+ +0.5
-
7.6
7.9
3.7
-
-
4.2
+ 0.3
1.1
-
1.1
12.3
-
12.3
+11.2
15
7.5
-
5.2
5.0
0,2
2.1
5.9
11.8
5.1
-
-
6.7
$5.9
-
2.1
- 3.1
22
5.9
-
29
16.7
-
16,7
6.7
2.9
-
-
3.8(a)
-10.0
4.3
3.0
1.7
1.6
-
1.6
- 2.7
Weekly Average of Total Debita Since Outbreak of Mar
e For Through monthly breakdown see tabulationsprior 7.9 to April 23, 1941.
April 29, 1942
$
million
es For monthly breakdown ... tabulations prior to October 8, 1941.
(a) of which 83.5 million represent.s proceede of U. S. Government checks deposited by War Supplies, Ltd.
Regraded-Unelassified
TREASURY DEPARTMENT
327
INTER OFFICE COMMUNICATION
DATE May 7, 1942
TO
Mr. White
FROM
Mr. Hoflich
Subject: Mr. Casaday's second report on the British Voluntary Savings Campaign
We have received a cable report from Casaday based on his visit
to Gloucester and some villages in the surrounding agricultural and
mining area. You will be interested in reading the entire cable.
The following highlights are of particular interest:
1. Decentralization marks the organization of the savings campaign
in Gloucestershire. Permanent small committees, largely selected by
the Deputy Regional Commissioner, carry the real burden in each locality.
These are almost independent bodies, under the supervision of the Deputy
Regional Commissioner, rather than under the local town committees which
function only nominally. These latter committees are believed by the
Deputy Regional Commissioner to be (1) too large to work effectively,
and (2) often filled with "stuffed shirts."
The small active committees are designed to reach every section
of the population, e.g., the industrial committee of businessmen and
union representatives to organize savings groups in offices and fac-
tories. Each of these committees is allowed to use its own initiative
in selling methods and publicity, and each raises its own funds for
overhead.
2. The value of savings leagues (competing employee groups) was
doubted by the Deputy Regional Commissioner. He cited examples of
firms giving a $3.00 certificate to any employee who would contribute
$2.30. This was done, he said, because of the excess profits tax, and
represented no gain to the Exchequer.
3. The same official was dubious about the value of kiosks at
factory pay windows because, in his opinion, employees will not buy
voluntarily but must be approached and sold regularly by an enterprising
individual.
4. During the special campaigns such as warships week, an entirely
new organization was created in Gloucester, with numerous sub-committees
based on sections of the population and several functional sub-committees
such as publicity, entertainment, pageantry and finance. But since the
recent organization of the small committee system outlined above, it is
graves;
Rod
here
sample
Regraded Unclassified
328
Division of Monetary
- 2 -
Research
believed that for future special weeks only the functional committees
will have to be organized for the occasion.
5. It was admitted that in the different localities during the
special weeks, from 25 to 75 percent of the savings came from large
institutional investors, and that the results were to that extent mis-
leading. It was admitted also that many individuals saved more than
they could afford during such special weeks and found it necessary to
save less than usual or nothing at all during weeks immediately fol-
lowing. But the purpose of the special weeks is not simply to raise
money, but to create enthusiasm and reach new savers. The aggregate
level of savings tend to be higher after the special weeks than before.
6. A device found extremely useful in small communities is the
short locally made newsreel shown during the special week at the local
cinema, with close-ups, and local persons recognizable. Outdoor movie
vans showing pictures, released by the national committee are found
effective in gathering street crowds.
7. The following groups have been found unenthusiastic about the
savings movement--(a) workers in new war factories, because they are
drawn from various parts of the country and consider their employment
to be temporary; (2) young workers earning well for the first time;
(3) miners. The opposition of miners is stated to be on two grounds:
(a) They remember the means test after the last war when they were
denied unemployment relief until all their savings had been used up,
and apparently still distrust the Government on this score. (b) Some
of them view the savings campaign as a method of indoctrinating workers
in the virtues of the capitalist system as a substitute for & compre-
hensive plan of social security.
Regraded Unclassified
C
0
P
329
T
PLAIN
30
Leadon
Dated May 5, 1942
Rec'd 7:50 p.a.
Secretary of State,
Washington.
2391, fifth.
FOR SECRETARY OF THE TREASURY FROM CASADAY.
Department's 1730, April 22 and Embassy's 2281, April 30.
A visit was más to Glouesster and to some villages and hamlets
in surrounding agricultural and mining area. Population of Glousester
is estimated at 68,000 (said to represent an increase of 36% during
the war). Glousester industry is diversified pepulation of Gloueester
and Gleucester rural district (which is the area under the jurisdiction
of the Glousester lecal committee) is estimated at 96,000. One of
the persons interviewed is 1. 1. Vernall Deputy Regional Commissioner
for Flousestershire with a 1931 population of 335.801. This is one of
the five counties in the southvestern region with headquarters at
Exeter, the others being Cornwall, Devon, Derset and Somersetshire.
Vernall is a fire believer in decentralization in the savings
organization. Instead of relying on the local committees which he
says are too large to work effectively and often filled with stuffed
shirts he has brought about in each locality largely w personal
solection a series of permanent small committees which earry the real
burden. Bash such committee has a secretary and is in fast an almost
separate independent body under supervision of the Deputy Regional
Commissioner rather than of the local committee which functions only
nominally. There are active separate committees to reach every section
of the population. Examples are the industrial committee composed of
businessmen and union representatives and designed to organise savings
groups in factories and offices, the street groups committee to organize
street groups, the organizations committee to create groups in clubs
and other organizations, the schools committee, et cetera, where
feasible parish committees or ward committees are likewise organized
even if these overlap some of the others. This system relieves the
almost intelerable burden that would otherwise devolve upon the secretary
of the local committee and gets better results. Each small committee is
allowed to use its own initiative in selling methods and publicity. Also
each committee raises its own funds for overhead. It is reported that
nowhere in Gloucesterahire has any of the per capita allotment out of
Government funds been accepted but that on the contrary most committees
have raised an excess of expense money to turn over to the Exchequer
as a gift.
Regraded Unclassified
330
Vernall was dubious about the value of savings leagues. He
cited examples of firms giving a fifteen shillings certificate to any
employee who would contribute eleven shillings and sixpence. This
was done, be said, because of excess prefits tax and therefore repre-
sented no gain to the exchequer.
Be was also dubious about the value of kiosks at factory pay
windows. Employees. he said, will not go even & few stops to buy
stamps but must be approached and "sold" regularly by as enterprising
individual. People de " of their own accord, however, to the post
office, the trustee savings banks and to well conducted savings centers
to buy stamps or certificates. The savings center in Glousester has
been outstandingly successful in individual sales.
During war weapons work and warships week in Gloucester an entirely
new organization was created with a series of subcomittees based on
sections of the population and several functional subcommittees such as
publicity, entertainment, pageantry and finance. It was pointed out
that the small committee system outlined above was only recently
developed and that is future special vooks only the functional committees
would have to be created for the occasion.
The usual variety of stunts was reserted to in order to keep
enthusiass at high pitch. The function of the finance committee was to
persuade institutions and large fires to invest heavily during the week.
It was admitted that in the different localities from 25 to 75 por cent
of the total saved came from these institutional investors and that the
results were to that extent micleading. It vas also admitted that my
individual savers saved more during the special vooks than they could
afford on & continuous basis and found it necessary to save loss or
nothing in the weeks immediately following. But it was emphasized that
the purpose of the special weeks is not simply to raise money but to
create and to reach new savers. In practice the aggregate
level of savings in the area visited tended to w higher after the special
weeks than before and the aucosse of the "week" in any lecality must be
judged on this basis.
One device found extremely successful in small communities is &
short locally made nevereel shown during the special week at the local
cinsma. It is emphasised that there must be closs-ups and people must
be recognizable. A few verds spoken w OR or two well known and well
like local characters results in packed houses. This is senstimes
supplemented w a short-personal talk w some civic leader between
pictures. The outdoor novie vasa showing pictures released w the
national committee are also found effective is gathering street crowds
during special weeks.
A few randem observations as reported w persons interviewed my
be of interest: (1) The vay to got rid of a stuffed shirt who insists
on volunteering for committee work is to call his up several times a day
and pile more work ea his than be can possibly do: (2) street groups is
the area visited vary from 5 houses to 100 but the ideal is condiered 20
to 40 houses: (3) when an industrial committee (composed of businessmen
Regraded Unclassified
331
-8-
Regraded Unclassif
and union representatives) desires to send out a notice it is better
to have the netice sent to the business community through, say the
Chamber of Commerce, and to the labor community through the trade
union council; (4) the following groups have been found unenthusiastic
about the savings movement: (A) workers in new war factories because
they are drawn from scattered parts of the country consider their en-
playment temperary and have little stability: (B) young workers who are
earning well for the first time; (c) minors. The opposition here seems
to be on two grounds. (First) They remember the means test after the
last war when they were demied employment relief until all their savings
had been used up and apparently still distrust the Government on this
score. Some of them viewed the savings campaign as a method of indestri-
nating workers in the virtues of the capitalist system as a substitute
for a comprehensive plan of social security. They are reported to have
said in effect, "What good would it de the worker if he were able to
save all his wages? It is a paltry sur and would only last a. short
time anyway. What we need after the war is guaranteed employment and
permanent security."
Sample campaign literature and publicity is being forwarded w air
pouch. In general the literature appears less expensive and elaborate
than that sent in from the eastern district last week. There is also
being sent a short film made W British Novietone News of a colliery
worker speaking to his fellows about war savings in the forest of dean
and which was used during warships week there. This film is coywrited
is for the confidential information of Treasury only and should be given
no distribution. British Movistone News also produces films of out-
standing local pageantry as well as of military and naval scenes suitable
for national distribution.
WINANT
EMB
Copy:bj:5-6-42
332
-COPY-
To:
Mr. Lauren W. Casady,
United States Embassy,
London, England.
I
From: The Secretary of the Treasury
Please send by air pouch samples of local
news-reels mentioned in your cable No. 2391 of
May 5. If British authorities are interested in
seeing some samples of the films used here for
similar purposes, we will be happy to S end them.
Film received 6/12/42 -
THK:HDW:1s
5/15/42
333
May 12, 1942.
Harold Graves
Secretary Morgenthau
ACTION!
Please read pages 5 and 7 of the attached
cable from Casaday. Ask White to cable for sample of
their films, especially local films, and in exchange
send them some of our State films, which by the way
I have never seen.
Followed of with
White 5/14- still
let me know-
Regraded Unclassified
334
May 7. 1942
Secretary Morgenthau
Mr. White
Subject: Purchase of Dollar Currency in Switzerland by the
Turkish Government
The attached memorandum from the British Embassy states
that the British Government recently received information
that the Turkish Government had been buying dollar currency
in Switzerland and shipping it to Turkey in a diplomatic
pouch.
Such action by the Turkish Government is contrary to
the Treasury's General Ruling 6-A, which is designed to pre-
vent the Axis from benefitting from dollar currency seized
in the invaded countries. The British Ministry of Economic
Warfare applies its regulations to currency consigned from
Turkey in the same manner as these regulations are applied
to other European countries. The recent extension of our
General Ruling 6-A applies to all countries, including
Turkey.
It may be desirable to inform the Turkish Government
of our policy and urge their cooperation. A note to this
effect for possible use is being prepared.
original w previted motation
office with to
not submitted
sering."
EMB/grs - 5/7/42
Regraded Unclassified
334-A
C
0
P
Y
DEPARTMENT OF STATE
WASHINGTON
May 5, 1942
In reply refer to
FD
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and transmits herewith
a memorandum left with this Department by the British Embassy
at Washington under date of April 25, 1942 concerning the
alleged purchase of dollar bills in Switzerland by the Turkish
Government.
Enclosure:
Memorandum, dated
April 25, 1942.
Regraded Unclassified
334.B
C
o
P
Y
SECRET
(Reference:
W.T.1001/AA/191/42)
MEMORANDUM
Enemy Currency Regulations: Turkey
The British Government recently received information that the
Turkish Government had been buying dollar bills in Switzerland and
shipping them to Ankara by Diplomatic Bag, thus providing a channel for
evasion, by a blocked country, of General Ruling 6A of the United
States Greezing Order and of the British Government's controls under
the Enemy Currency Regulations, by which currency (money or securities
as defined in the Regulations) in transit through British territory is
liable to seizure and forfeiture unless the owner can prove freedom
from enemy taint. A copy of these Regulations is attached.
This channel would, of course, be open to any country, including
enemy territories, where the Turks might be willing to buy, and it could
seriously prejudice the measures taken by the United States Government
and the British Government to prevent disposal of currency in which there
is likely to be enemy interest, and to destroy the market for such cur-
rency in Europe.
The Ministry of Economic Warfare has therefore decided that
the power of seizure under the Enemy Currency Regulations will be applied
to currency and securities consigned from Turkey as it is already applied
to consignments from European countries. The British Ambassador at
Ankara has communicated this decision to the Turkish Government and the
matter has been discussed also with the Central Bank who have been re-
quested for their part to discourage Turkish nationals from engaging in
this traffic.
It is believed that if the United States Ambassador in Ankara
were to make representations to the Turkish Government and if necessary
to the Central Bank requesting them to take such steps as they can to
suppress this traffic in currency through Turkey, such representations
would have considerable effect. Since the decision of the Ministry of
Economic Warfare and the representations already made by the British
Ambassador are directed towards objectives which are common to both the
United States Government and the British Government, the Ministry hopes
that the United States Ambassador may be instructed accordingly.
BRITISH EMBASSY,
WASHINGTON, D.C.
25th April, 1942.
Regraded Unclassified
335
COPY NO.
13
BRITISH MOST secret
(U.S. secret)
OPTEL No. 151
Information received up to 7 A.M., 7th May, 1942.
1. MADAGASCAR
An attack launched by our troops against ANTSIRANE on the morning
of the 6th was unsuccessful, the position being strongly hold with large numbers
of 75 MM's and machino guns. A further attack on ANTSIRANE in tho evening from
the south supported by a landing by Marines on the North was successful. Naval
and military Communders surrendered but no general capitulation.
2. NAVAL.
NORTHERN WATERS. An outward bound convoy arrived at MURMANSK on
5th. 22 ships out of 25 arrived safely in spito of constant shadowing and at-
tacks by enemy aircraft and U-boats.
3. AIR OPERATIONS
WESTERN FRONT. 5th/6th Bosch Factory, STUTTGART, was not identi-
fled owing to heavy haze but 93 tons of H.E. and incendiaries were droppod on
estimated position on the town. 11 tons H.E. dropped on NANTES docks. 6th.
26 Bostons and Hurricano Bombors attacked targets at CALAIS, BOULOGNE and
CAEH. 41 Squadrons of Spitfires provided escorts or made sweeps over Northern
France. 8 enemy aircraft raided South-East and South-Wost ENGLAND damaging two
Naval Auxiliary Vessels in BRIXHAM HARBOUR. 6th/7th. Aircraft were despetched -
STUTTGART 97, NANTES 19, Aerodromes in HOLLAND 4, Leaflets (FRANCE) 9. Seven
aircraft are missing. 24 R.C.A.F. (one missing), 10 R.A.A.F. (two missing) and
? 1.2. aircraft took part. 2 enemy aircraft flow inland, one onemy fighter
destroyed and another damaged. Re lost one Spitfire.
MALTA. Between 1550/5 and 1050/6 twonty-nine bombers end 60
fighters attacked. 4 enemy aircraft damaged by A.A. guns and fighters. We
lost 2 fighters, ono pilot safe.
INTELLIGENCE
Photographic reconnaissance of DAKAR on 5th showed no material
change in French Warships present. Bombing of MALTA - estimated that 6,728 tons
of bombs dropped on MALTA in April compared with 2,174 tons in March and 993 in
Fabruary. A marked docrease is apparent since 28th April.
Regraded Unclassified
336
13
COPY NO.
BRITISH MOST SECRET
(U.S. SECRET)
OPTEL No. 157
Following is supplementary resumo of operational events covering the
period 30th April to 7th May, 1942.
1. NAVAL
Ninetoen attacks, twelve by circraft and seven by surface craft were
ando upon enemy submarines. It is estimatedthat about ton U-bonts were operating
against the Russian convoy route. There was a considerable increase in the number
of ships attacked and twenty-two including sevon tankors were torpodood, of which
six were sunk. Most casualties occurred in the East Indies area.
Our submarines in the MEDITERRANEAM report having torpedoed thirteen
thousand tons of enemy shipping. During the week ending 6th May, six hundred and
moventy eight ships were convoyed. Imports into the United Kingdom from ships in
convoy for week ending 25th May were 621,000 tons including 218,000 tons of oil.
FRENCH NAVY. It is reported that STRASBOURG and PROVENCE are at TOULON
fully offective. DUNKERQUE will not be ready for nine months. RICHELIEU at DAKAR
has one gun of her main armament out of action. JEAN BART at CASABLANCA has only
one turret mounted and is in low state of readiness for sea.
Z. MILITARY
RUSSIA. The total of Gorman divisions on the front, including FINLAND,
is HOW one hundred and eighty-two.
BURMA. Our forces are operating north and weat of MANDALAY and are
withdrawing up the CHINDWON VALLEY towards KALEWA. AKYAB has been evacuated.
The Chinese are resisting on the BURMA-CHINA Frontier.
3. AIR OPERATIONS
WESTERN FRONT. Day. Various military objectives in Gorman occupied
territory were bombed by Bostons and Hurricanes with Spitfire oscorts. Henvy fire
from A.A. defences WELL? often experienced. Sweeps by fighters wore also made.
Night. Our bombing operations were curtailed by adverse weather on two nights
and by a heavy sea-mining programme on another. Nevertheloss, two hundred and ninety
six tons of high explosives and two hundred and sixty four tons of incendiaries
wore dropped, the main objective boing STUTTGART, but cloud and hazo spoilt the
full effect of these attacks. HAMBURG was also raided once under similarly un-
favourable conditions. Night intruders bombed thirteen different enomy aerodromes,
An average of about sixty enemy bombers operated on three nights by way of
"reprisal" raids on towns in constal counties, these activities caused a noticeald
reduction in German mine-laying and anti-shipping operations. It is estimated the
during the period twenty-thruo thousand tons of enemy shipping was sunk or damage
by our aircraft off NORWAY and HOLLAND, 269 sea-mines were laid.
MALTA. The intensity of the air attacks died down, only two hundred
venty bombers, sometimes with fighter escort attacked, some Italian aircraft t
1 in the raids. This decline, apart from losses, in probably due to within
sobe G.A.F. units from SICILY and also to the need for resting crews from wt:
utmost has been demanded during n. puriod of intenso activity.
BURMA. Wellingtons bombed AKYAB after its occupation by the onemy.
C. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACLE
N. ENEMY TERRITORY IN EUROPE.
AUGSBURG. Photographs 29th April show the min diesel ongine shope dum
several direct hits besidos various other buildings forming part of the M.A.N.
Cactory.
Regraded Unclassified
337
2 -
COLOGNE. Photographs un the same date show ton areas of damage, mostly
cound by firo. The damago is such that the authorities can no longur clear away
the dobris quickly and have given up trying to hide It by crecting hoardings.
ROSTOCK. In the first two raids, the Heinkel Works received twolve
Hrest hito by heavy bombs, work was going on at the time. Two engineoring shedu
cought firo and the wells of the largest assumbly shop fell inwards destroying
the dircrift on the lines. Five warehouses in the docks were curnt out and 30700
cranes foll into the dock.
KIEL. Photographs 3rd May show A direct hit on shude in the Gurman ship-
building yards and two main shops in a wire cable factory completely gutted. On
16th February, 1. bomb fell on the assembly shed at the Marineworft and killed nost
of the night shift there.
GENNEVILLERS. Photographs of 30th April show damage to the pover
stition, a building in the Thomson-Houstan factory guttod, direct hits on a largo
bullding nuar the Goodrich factory and a woodwork factory completely gutted. Other
mistographs taken since 27th April confirm damage to the Sholl factory it MARQUISE,
NV docks at DUNKIRK where nine invesion barges were destroyed end others damaged
to the railway station and a factory at ST. OMER, and show bombe bursting in the
`ispursal area at MORLAIX aerodrome, riso on E factory and among industriel
buildings at LILLE there it is reported that c barrocks received direct hit and
accoral Germins were killed.
:- OPERATIONAL AIRCRAFT BATTLE CASUALTIES
Motropolitan Area. British. In the Air: Bonbers 22, Fighters 31,
Cocatal 8, Army Co-operation 1. fotal 62. Six fighter pilots are sefe.
Enemy
Destroyed
Probably Destroyed
Danaged
Bombers
24
2
9
Fighters
20
24
17
Miscellaneous
3
Nil
Nil
TOTAL
53
26
26
Three of the bombers were destroyed by A.A. firs.
MIDDLE EAST (including MALTA)
British
In the Air
On the Ground
Sumbers
2
Nil
Fighters
6
2
TOTAL
8
=
One pilot is safe.
Enemy
Destroyed Probably Destroyed
Card
Bombers
6
B12
11
Fighters
8
1
8
Miscellaneous
Nil
Nil
1
TOTAL
1/.
1
20
Seven of the circraft vero destroyed and six daraged by i.k.
FAR EAST
British and Allied
In the Air
Bombers
1
Fighters
10
TOTAL
11
Enemy
Destroyed
Probably Destroyed
Donaged
Bombers
Bill
3
Sil
Pighters
13
5
12
Miscellanoous
Nil
Bil
1
TOTAL
13
8
13
Regraded Unclassified
338
- 3 -
NOTE: No account is taken of enemy aircraft destroyed on the ground
in any theatre or of British Naval Aircraft casualties.
6. HOME SECURITY
Estimated civilian casunlties for week ending six n.m. sixth. Killed
three hundred and nineteen, seriously wounded 387, including killed at COWES 51,
EXETER 139, NORWICH (one night) 50.
Regraded Unclassified
339
DEDINATOR
UNITED STATES GOVERNMENT
COORDINATOR OF INFORMATION
WASHINGTON, D.C.
May 7, 1942
The Honorable
The Secretary of the Treasury
Washington, D. C.
Dear Henry:
The attached is from the weekly general
directive of the British Political Warfare
Executive.
Sincerely,
Bru
William J. Donovan
340
Strategy.
a. Europe. The significance of the scale of our April
air offensive, in that it is proof of the inadequacy of the
Luftwaffeto protect the German War Machine, should be rubbed
in. From now on Germany's increasing shortage in equipment
of every kind and her growing inferiority in the East will
handicap her war effort. Germany is already obliged to re-
duce her air offensive against Britain to Baedecker bombings
and cut down the scale of the Malta attack. Because this
patent truth can no longer be hidden from the German people,
Hitler is apprehensive.
b. The Far East. Japan's probable intentions in our
long-term propaganda line, are seen as: Conquest of Burma
the extension of operations into North Eastern India, cap-
ture of New Guinea and Solomons, reduction of Corregedor,
Southward and Eastward extension of operations in Fiji, Samoa
New Caledonia, air raids on Ceylon and possible attempt to
occupy the island, Air and Naval operations in Western Indian
Ocean, and, in the event that a strategical course would
make such a move desirable in Japan's interest, preparations
for an attack on Russia.
C. The linking of the Eastern Theatre with the Western
should be avoided, but so long as Madagascar leads, short-term
modification of this is necessary. Madagascar must be linked
with the battle of the Atlantic. A somewhat more prominent
place will have to be taken by Far Eastern News generally.
Propaganda policy.
a. Both moral and physical results in Germany being
produced by R.A.F. offensive. Germans are physically on the
defensive in the West.
b. Poor effect on Italy was produced by Hitler's
speech. Italian internal difficulties brought out even
Regraded Unclassified
341
- 2 -
more strongly in Mussolini's address to the Prefects.
C. By giving a good deal of attention to France ac-
centuate the war of nerves during the coming week. Give
impression that there are many more raids to come and that
Laval will not find it easy to collaborate with a country
which itself is showing more signs of nervousness and which
is constantly being ataacked in the French territory it
occupies. It is important to go all out in discrediting
Laval both as a politician who allowed himself to be used
by the Germans to occupy a position which is even more
difficult than that of actual Quislings, and as a traitor.
342
NUMBER 30
SECRET
COORDINATOR OF INFORMATION
=
THE WAR
THIS WEEK
April 30-May 7, 1942
as
SEATION
Printed for the Board of Analysts
Copy No. 6
The Secretary of the Treasury
Regraded Unclassified
APRIL 30-MAY 7, 1942
SECRET
The Coordinator of Information
THE WAR THIS WEEK
Following the recent accession of Laval, the British seized
the initiative and struck Tuesday at Vichy-held Madagascar.
With parachutists and commandos reported in the van of the
attack, the British have captured the principal base at Diego
Suarez and threaten the early conquest of the island, aiming
above all to safeguard it against potential future use by the
Axis. At the other end of the Indian Ocean the Japanese
were fully capitalizing the successes of their newest offensive
in Burma. With Lashio and Mandalay in their hands, they
drove fresh spearheads northeast along the Burma Road,
north toward Bhamo, and northwest toward India, and had
virtually isolated China from all but air supply. To the
southeast, developments in Melanesia clearly indicated the
imminence of some further advance in the Solomon Islands
and suggested that an even wider offensive in the Coral Sea
area may be in the making.
In the west, German precautions in France and the Low
Countries appeared to reflect no substantial anxiety concern-
ing a "second front," despite the widespread publicity given
the latter possibility in the press of the democracies. On the
eastern front the Soviets continued to win victories by com-
muniqué, but American military observers were inclined to
discount these successes and to believe that the Germans are
actually in the process of ironing out salients created by earlier
Russian drives.
1
SECRET
SECRET
The British Seize the Initiative in Madagascar
Good Hope to the Red Sea, the Persian Gulf, India and
The British expedition against Diego Suarez, following
Australia would be neutralized.
President Roosevelt's prediction of measures to prevent
Furthermore, the United Nations would possess a new
further Axis use of French territory in any part of the world,
strategic springboard, well situated in relation to the Middle
emphasized again the determination of the United Nations
and Far Eastern theatres of combat as a point of support for
to seize the initiative from their opponents. Threats of a
convoys, a base for submarines and destroyer patrols (the
Japanese move on Madagascar have been in the air since the
dry-dock at Diego Suarez can accommodate 10,000-ton
fall of Singapore, and measures to forestall it were under-
cruisers), and & vantage point for aerial surveillance of the
taken even before the Vichy visit of Admirals Abe and
southern Indian Ocean and southeast Africa. Madagascar
Nomura accentuated the danger, according to press reports.
normally exports large quantities of agricultural and mineral
The attacking forces struck directly for Madagascar's
products, particularly beef, coffee, graphite and mica. It is
strongest fortified point-a naval base and military area,
understood that she now has substantial accumulations of
with & considerable garrison even in normal times. Geo-
these products which will be available for the common effort
graphically this northern tip of the island is practically iso-
as fast as ships can be found to carry them.
lated, save for a single none-too-adequate road down to
Majunga, and thence inland to Tananarive, the capital. But
Difficulties of Occupation
capitulation of Diego Suarez would probably entail the col-
Considerable local difficulties face a power which assumes
lapse of resistance elsewhere and open the way for rapid
responsibility for Madagascar by military occupation. These
penetration of the whole colony. The few thousand ill-
are not lessened by the publicly expressed determination to
equipped native and French troops can hardly resist long,
respect the status of the colony as French territory, ulti-
and the possibilities of Japanese aid appear remote. Fifth
mately to be restored to France. The chiefs of the adminis-
column activities present no serious threat. The natives are
tration are strongly collaborationist, and probably cannot
unarmed, and disinclined to guerrilla fighting; the bulk of
be left in office. The economic situation is very bad, owing
the 25,000 French residents are friendly; no serious inter-
to shipping losses and the effects of eighteen months of
ference will be offered by seventy Italians, five Germans, and
British blockade. Trade has practically ceased, and there
two "problematical" Japanese-a hotel keeper and his wife.
are acute shortages of all kinds of manufactured goods, con-
struction materials, petroleum products, medicines, wheat
flour, and condensed milk. Health conditions present a
Advantages of Holding Madagascar
third major problem for an occupying force. Malaria is
The United Nations would gain decided advantages from
prevalent over the whole island, tuberculosis and syphilis
a conquered and strongly held Madagascar. Most impor-
are very widespread, and the microscopic jigger flea, which
tant, the danger of hostile use of the island would be removed;
burrows under the toenail to lay its eggs, could by itself
a critical threat to troops and supplies routed via the Cape of
cripple an incautious army.
2
3
SECRET
SECRET
Potential Danger of a Break With Vichy
to warn his people of the difficulties which lie ahead and of
A larger peril is that the Vichy government might be
the possibility of further prolongation of the war.
drawn into full Axis belligerency, especially in the event of
In the Burmese campaign the Japanese appear to have taken
protracted fighting. If the occupation is completed by land-
brilliant advantage not only of superior forces and equipment,
ing troops on Madagascar's insular dependencies in the Indian
but also of native aid, Fifth columnista captured Lashio some
Ocean and the Mozambique Channel, not to mention the
hours prior to the actual occupation of the town by Japanese
nearby independent colony of Reunion, the number of pos-
forces, according to reliable advices received here. Four
sible grievances will be multiplied. It is clear, however, that
Thai divisions are said to have participated with the Japanese
the United Nations face the chances of a break with open
in the attack, and native Burmese were active against the
eyes, The United States has declared that it will not hesitate
Allies throughout the campaign. In addition to the Thai
to send troops or ships to Madagascar, should such action be
divisions, eight Japanese divisions and two motorized regi-
desirable in the common cause, and that it will regard any
ments are estimated to be in action on the Burmese front,
warlike act against either Great Britain or the United States
supported by some 400 planes. Upwards of 250 light and
as an attack upon the United Nations as a whole. War with
medium tanks also are said to be in use.
one power means war with all. Laval has chosen to place a
minimal interpretation on this formula, and to regard local
The Advance on China
resistance in Madagascar as falling outside the category of
"warlike acts." Meanwhile it is reported that the British
The strongest Japanese drive appears to be along the Burma
did not consult the Free French in advance and that General
road, where the invaders are reported to have reached and
de Gaulle's headquarters have evinced notable chagrin and
passed Wanting, which lies beyond the Chinese border in
Yunnan Province, The nature of this threat to China is
disappointment in this connection.
difficult to evaluate, but it hardly seems likely that the
Japanese can extend their operations far into China at present.
Defeat in Burma
Beyond Wanting, the terrain becomes very difficult, and the
The Japanese are moving swiftly to rout the last Allied
Burma road climbs over rugged country to elevations as
resistance in Burma. Chinese and British forces, defeated
high as 8,430 feet. Various Chinese in Washington seem to
and separated, are retreating on three fronts-toward India,
be convinced that southwest China is not the danger spot
toward northern Burma, and into China itself. Imperial
for a Japanese offensive. The real threat, they say, still
Headquarters at Tokyo claims also the capture of the air-
lies in the Yangtze valley area of central China, and particu-
field at Akyab on the western Burmese coast, only 300 air-
larly in the region of Changsha, which the Japanese have
line miles from Calcutta, but the British have offered no
already three times assaulted.
confirmation. This denouement of the Burmese campaign,
The Japanese may intend, however, to proceed as far as
which has now developed new threats to both China and
Lungling. Their objectives here would be two: the sub-
India, has led Generalissimo Chiang Kai-shek once again
stantial isolation of China and destruction of lend-lease sup-
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plies cached along the Burma road. Although depot facili-
Withdrawal to India
ties between Lashio and Kunming are poor, the Chinese
A third Japanese drive is directed against British and
apparently have transferred some supplies from Lashio to
Indian troops retreating along the Chindwin River toward
this region.
Kalewa. From Kalewa there is a trail across the great
Arakan Yoma range to Chittagong in India. The Japanese
The Isolation of China
are reported to be moving up the Chindwin River in barges.
At Lungling, about 20 miles southwest of the point where
Whether they would attempt to follow the retreating Allied
the Burma road crosses the Salween River, there is & junction
forces across the Arakan Yoma range is again open to ques-
with a route northward to Myitkyina, thence to Fort Hertz,
tion. But these mountains, formerly thought to be impass-
from which a road is now being built over the mountains to
able for armies, are probably no more so than those which
Ledo in Assam. Japanese capture of Lungling would put
lie between eastern Burma and Thailand, and over which the
an end even to the faint hope of supplying China over this
Japanese have moved their tanks to capture Lashio. Refugees
new route to the Burma road.
from Burma, of whom there are reported to be some 80,000,
Another supply route, known as the India road, is said to
have been filtering into India over the mountains at the rate
be under construction. Starting at Ledo, it uses the route to
of & thousand or more a day for the past several weeks. It is
Fort Hertz, then runs due east to Sichang in China and from
difficult to believe that Japanese troops could not do the same.
there another 600 miles to Chungking. News despatches
It must also be borne in mind, however, that the region on
from Chungking say that "350,000 laborers" are now working
the windward side of these mountains is one of the rainiest in
on this road. But it crosses very difficult terrain and several
the world during the monsoon season now approaching. At
high passes, including one of more than 13,000 feet. It is
Cherra Punji in India, some 200-odd miles north of Chitta-
estimated that at best this road could not be completed for
gong, the rainfall sometimes reaches 425 inches a year-with
one exception, the heaviest in the world.
at least two years.
The most effective method of implementing President
Roosevelt's recent promise to maintain aid to China appears,
The Japanese Move Forward in Melanesia
therefore, to depend upon the further development of a
Current Japanese naval and air activity in the Carolines
traffic in airborne goods. Japanese air bases in northern
and Melanesia now suggests the beginning of a forward move-
Burma might also make this difficult. But the fact that,
ment in the Solomon Islands, with an offensive on a large scale
before the fall of Hongkong, a regular air freight service was
in the Coral Sea area not to be excluded. Since the with-
maintained over Japanese occupied territory between Hong-
drawal of their naval concentration from the Bay of Bengal
kong and Chungking indicates that freight service of this
in mid-April, the Japanese have shifted the focus of their naval
kind is at least possible.
activities to the Southern Mandates-New Britain area. It
is believed that most of the heavy units returning from the
Indian Ocean proceeded to home waters for overhaul and
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repairs. But at least two heavy cruisers, supported by de-
Russo-Japanese Relations Improve?
stroyers and submarines and later reinforced by the new air-
Japanese relations with Russia are improving, while those
craft carrier Ryukaku, sailed to the vicinity of Truk in the
with Germany are getting worse, in the opinion of the French
Carolines. An attempt to occupy Tulagi Harbor in the
ambassador in Tokyo, whose views are to be received with
Solomons, which continues to be the object of Japanese
some reserve since in mid-March he regarded a Japanese
bombing attacks, is looked upon as imminent.
attack on Siberia as imminent (The War This Week, March
The Japanese may soon be able to reinforce their troops
19-26, pp. 6-7). Although the extreme militarists still favor
in this area from units released by the fall of the forts in
war and the betterment in relations may even be a Japanese
Manila bay. After a pounding from Japanese heavy artil-
ruse to deceive the Russians, the ambassador thinks that
lery, firing from the heights of Bataan, Corregidor's defenses
cooler heads in Japan will restrain the others until the results
have given way, and this key fort has finally fallen. Terms
of the expected German offensive against Russia become
for the surrender of other forts in the bay are being arranged.
apparent.
Resistance apparently is continuing, however, on Mindanao,
The following may be straws in the wind: General Tate-
Cebu, and Panay and even in Northern Luzon, coming
kawa, ex-ambassador to Russia, has made remarks implying
chiefly from small, scattered units and guerrillas. How far
praise of Russia's war effort, and the Japanese government
the Japanese intend to mop up in the Philippines at this
again permits and even encourages its officials to travel by
time is a matter of conjecture.
the Trans-Siberian Railroad. Moreover, there were no indi-
cations of military movements on either side of the Man-
Reconnaissance in New Guinea
churian frontier during the past week. A Japanese warning
to the Soviets that additional landings of American bombers
In the Markham Valley of Northeast New Guinea, where
in Siberia would endanger Russo-Japanese relations was to be
their troops were flooded out several weeks ago by heavy
expected in the circumstances.
rains, the Japanese have again penetrated inland. Observ-
ers on the scene, however, apparently do not anticipate an
immediate attack on Port Moresby overland via the Mark-
Non-violence in India
ham Valley, but suggest rather that the Japanese are seeking
On May 2 the Working Committee of the Indian National
to disperse their airfields. Numerous commercial fields
Congress, by & vote of 176 to 4, adopted a measure calling
exist inland, which in peacetime were used for air transport
for non-violent non-cooperation as the means of resisting a
to the New Guinea gold fields.
possible Japanese invasion. The motion precludes any sup-
The anxiety of the Japanese, reflected in their search for
port of the British program of military resistance, although
dispersal fields, is well grounded. On two successive days,
the Congress states that it will put no hindrance in the way
April 29 and 30, Allied fliers were able to bomb and machine
of that program. It was at the instance of Mahatma Gandhi
gun Japanese aircraft lined up on the ground at Lae, destroy-
that the Congress acted-Gandhi, who less than two weeks
ing or damaging some 50 planes.
before had protested against the growing American military
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strength in India. The motion represents, for the present
present war, and withdrew from the leadership of the Con-
at least, the return of Gandhi to leadership, and the tem-
gress when the latter offered in the summer of 1940 to support
porary eclipse of Nehru.
the British war effort. Convinced that the Japanese, as
The Cripps mission had left the Congress a prey to internal
military aggressors, are the agents of evil, Gandhi now has
dissension. Nehru and Azad, president of the Congress,
induced the Congress to oppose them also with satyagraha.
favored full resistance to Japan. Rajagopalachariar, right-
wing leader from Madras, while also favoring active resist-
ance, differed from the ther Congress leaders in wishing to
Non-Violence in Action
collaborate with the Moslem League by establishing separate
The action of the Working Committee is not pro-Japanese.
Hindu and Moslem states. His resignation from the Con-
Neither does it imply merely passive resistance. It may
gress preceded by a few days the vote in favor of non-violence.
mean such active forms of opposition as refusal to man the
railways, abandonment of city services, mass demonstrations
against taxes-all efforts to wear down the endurance of the
The Philosophy of Non-Violence
aggressors. Its success is far from certain, but the only
Non-violent non-cooperation is a technique of revolt
other way of mobilizing the civilian population seems to be
developed by Gandhi in South Africa before the First World
guerrilla warfare, and for this the people have no training.
War. He took it to India in 1919 to use against the British,
and it was the weapon of his widespread campaign during
1919-1922. Its philosophy is epitomized in the word
Fresh Speculation on Laval
satyagraha-somewhat loosely translated by Gandhi as "soul
An element of mystery continues to surround the in-
force." Literally it means "stubborn insistence (agraha)
tentions of Pierre Laval. General de Gaulle believes that
upon the truth (satya)." Truth, in Gandhi's view, as in that
he may for the present lull the French people into a false
of traditional Hinduism, is a metaphysical force, with absolute
sense of security (apathetic reactions to Laval's return to
value, which can operate to produce concrete results in the
power have been reported in various French circles). The
physical world. A true cause, promoted by sincere advocates,
General also believes that later Laval will perhaps place the
themselves strictly devoted to truth in every respect, cannot
French fleet indirectly at the service of the Axis in operations
fail. Ethically, truth abhors the injury of living creatures:
against Syria.
it is the antithesis of violence.
In this same connection, another observer points out that
In the case of modern India, Britain as its sovereign has
the cabinet is filled with second rate men (see Appendix I)
appeared to Gandhi to represent untruth, to be "satanic":
and is really to be viewed as a half-way house on the road to
Britain took and enslaved the country; it holds India by
full collaboration. These second raters, some of them friends
violence. For this reason, Gandhi has felt himself called on
of Pétain, have been chosen as a transitional cloak under
to lead a movement to drive out the British by non-violence.
which Laval can act while he is establishing full control in
For the same reason, he opposed active cooperation in the
France. Meanwhile the Germans will make concessions to
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Laval only as he demonstrates that he is their man, accord-
some 30 divisions (one armored). The strength of each
ing to this argument, and they may then drop him in turn
division is estimated to be considerably less than that of divi-
when he has served their purpose.
sions operating on the Eastern Front, where more overhead
Various sources now picture Laval's appointment as &
troops are required, 80 that the total of the 30 divisions may
grudging pis aller on the part of Pétain: if the Marshal had
not be more than 375,000 men. Some observers, moreover,
refused to yield, Hitler threatened to install a Gauleiter in
believe that the total number of divisions may be 27 rather
France and to institute military control (and perhaps total
than 30, but with an additional armored division in training
occupation) of the unoccupied zone. In any event the
in the vicinity of Paris.
Marshal recently defended the appointment by declaring
that, although Laval was somewhat more favorable to the
The Factor of Rapid Reinforcement
Germans than he (Pétain), the new premier would give no
military aid to the Nazis.
The current situation could change almost overnight,
however, since it is estimated that ground reinforcements
leaving central Germany could be set down on the French
German Anxiety in the West?
coast within 72 hours. With adequate bases and facilities
On the eve of Hitler's expected offensive in the east, various
(which they are believed to possess), and assuming the
developments and reports reveal German anxiety concerning
availability of operational units in central Germany and
the military position in the west, according to some observers.
elsewhere, the Germans could probably double their air
It is widely believed that the Nazis sought in the creation of
force in 24 hours, according to military observers.
the Laval regime security in their rear. The popular demand
Troops stationed near Cherbourg have been observed
in Britain for a "second front" and the recent conversations
recently undergoing intensive training to resist possible
of high Allied strategists are believed in some quarters to be
landings, and preparations for defense along the entire
the source of uneasiness in German counsels. An uncon-
French coast continue. But there is no evidence of new
firmed report has Field Marshal von Rundstedt appointed
Nazi invasion plans against the British Isles, and certain
commander of the German Army of Occupation in the west,
American observers believe that Germany will be content
and it is insisted that Hitler would scarcely waste Von
for the present to maintain a strong defensive position.
Rundstedt's talents on an inactive front.
This view is perhaps confirmed by a report that Rhine
On the other hand, the present German military position in
barges, previously requisitioned and adapted for use in an
the west, as indicated by the accompanying map, suggests no
invasion, are being returned to their Dutch owners.
great anxiety, either in terms of number or disposition of
However confident the Germans may be about the situa-
ground troops or of aircraft. Some ten divisions hold the
tion in the west, it is not true that they are using only third
coastal defense zone from the Gulf of St. Malo to Lille. Three
rate troops to garrison their defenses in that area. It is a
further divisions are stationed in the Low Countries. Alto-
fact that the troops include older men and that they are not
gether in occupied France and the Low Countries there are
the best in the German Army. But they are veteran fighters
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with battle experience gained in the present war, and the
dust storms lasting five or six days are useful for concealing
divisions include a considerable leavening of younger men.
secret maneuvers from the enemy.
Reports that these troops are of a distinctly inferior quality
may arise in some instances from contacts not with regular
The Germans Straighten Their Line
units but with Landeschützen. These troops are veterans of
the First World War, and the Germans are using about 20
A Nazi effort to wipe out the chief salients established by
battalions of them in France, primarily for guard duty in
the Soviets last winter-thereby straightening the German lines
the interior.
in preparation for concerted offensive action-has character-
ized recent operations on the Russian front, according to well-
informed American military opinion. Of the three great
Soviet salients, the Nazis have doubtless already eliminated
Libyan Alternatives
the one farthest south, toward Dnepropetrovsk. After two
In the Western Desert observers point out that a shortage of
weeks of German claims, the Russians have finally admitted
artillery and anti-tank equipment may force Marshal Rommel
fighting around Izum, far to the east of their extreme penetra-
to postpone until autumn any planned offensive. As the
tion last winter.
hot summer months approach, the problem of water and
The middle salient, below Smolensk, where Soviet parties
of reasonably comfortable bivouacs may well be the chief
last February pushed as far as Dorogobuzh, may also have
consideration in the Libyan theater. Apparently Rommel's
disappeared. Here the Nazis claim to be in Sukhinichi,
present positions at Jebel el Achdar are hilly, comparatively
effectually pinching off the area of Russian advance, but this
well watered, and much cooler than those of the British.
claim still awaits Soviet confirmation. The final salient, the
Yet an Axis attack is not entirely out of the question.
northern one around Staraya Russa, may still be intact. It
The virtual neutralization of Malta has permitted far more
is of some significance, however, that the Russians have now
Axis convoys to get through to Tripoli than was the case
admitted for the first time that the Germans are occupying a
last autumn and winter. Considerable reinforcement of
number of towns south and east of Leningrad.
Marshal Rommel's army is, then, theoretically possible.
As the Nazi lines straightened, the German armies were
The extent of this reinforcement will largely depend on how
apparently attempting to clear the areas behind their forward
much armored equipment the Nazis think they can spare
positions-in order to obtain increased mobility for a coming
from the Russian front.
offensive. Where such an attack might come was still any-
Were Rommel to receive such additional strength, he could
body's guess. So far as weather was concerned, the ground
probably take the offensive at any time this summer, Highly
was dry in the south, in the center it was still muddy, while
competent observers suggest that even in the most intense
in the north the ice was breaking up.
heat mechanized warfare is possible on the Libyan front.
The windy season, which lasts for a two-month period some-
time between April and June, even offers certain advantages:
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Stalin's Ultimate Aims
audience against any derelictions of duty or half-hearted
Despite its present position of extreme peril, the Soviet
support of the war in Russia, he could reasonably assume a
Government is apparently unshaken in its desire to regain
new and severe "power"-even though he already possessed
and permanently hold the territory included in its boundaries
it.
of June, 1941. In his May Day order, Stalin eschewed any
Abroad Hitler must have known his remarks would be
desire for "foreign" conquests. But his specific enumeration
interpreted as a sign of weakening morale, according to these
of the peoples that the Soviets intend to liberate gives some
observers. Presumably he aimed at this effect, both in
notion of his ultimate aims: "We want to free our brother
America, where his objective is to retard the war effort and
Ukrainians, Moldavians, White Russians, Lithuanians, Lat-
to create confusion, and in England, where he also wishes to
vians, Esthonians and Karelians from the insults to which
awaken doubts as to the wisdom of British policy in carrying
they have been subjected by the German Fascist beasts."
on the war. This he did by assuring the British that they
are bound to lose the war, even if they lose it only to Russia
and the United States.
Hitler's Speech Again
Optimistic reports interpreting Hitler's recent speech con-
tinue to arrive. Gothenburg editors dub it privately as the
Axis Air Strategy: The Value of Interior Lines
rehearsal of a swan song. The Swedish ambassador at
Recent air developments have emphasized the Axis advan-
Ankara mentions military tangles and sagging morale.
tage of speedy concentration offered by interior lines, in the
"Hitler's uneasiness" is another phrase which occurs, and a
opinion of an American air expert. In the case of the
Swiss Consul mentions the speech along with other factors
Germans, who have not yet revealed their full reserves, this
foreshadowing a "threatened crisis."
factor is still of great importance. The Japanese, on the
On the other hand, certain observers here continue to regard
other hand, as a result of their far extended lines, may now be
the speech as one of Hitler's shrewdest and most carefully
in a considerably less favorable position than they were a
considered utterances. They point out that the speech aims
few weeks ago.
at opposite effects at home and abroad, and is to be under-
Plane production figures running to many thousands have
stood in terms of the two intellectual climates-authoritarian
often given a misleading impression as to the number of
and democratic-to which it was addressed.
aircraft needed to carry out a given mission: a relatively small
At home, it was a precautionary warning to all Germans,
number, if well organized and well supported, can accomplish
aiming not to weaken but to strengthen morale in the face
seemingly disproportionate results. For instance, in their
of the arduous spring and summer ahead. The promise of
southward drive on the Indies, the Japanese used in all about
further hardships and the threat of harsh treatment for
2,500 planes, 1,500 of which were operational at any given
recalcitrants need not have a demoralizing effect on the
time. Despite their reckless expenditure of aircraft in
Germans. The Nazi state normally acts by spreading terror,
specific actions, they exercised considerable economy in
and if Hitler sought to warn the widest possible German
their dispositions of strength. For example, by establishing
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landing stages about 200 miles apart, they probably cut down
all-out air offensive against India, Australia, or even New
operational losses, as compared with combat losses, to the
Caledonia.
surprisingly low ratio of 1:1.
There remains the possibility that Japan may swing on her
From a central air base at Bangkok, the Japanese were
western pivot in Burma and go into China. But this again
able to despatch planes quickly where they were needed.
might cost Japan more planes than she can afford to spend.
Against them, the Allies, desperately outnumbered, lost the
And in Siberia the undetermined strength of potential Russian
greater part of their own aircraft on the ground. Eighteen
resistance presents a threat which the Japanese might very
American B-17's in Java, for instance, after sinking 45
well hesitate to encounter.
transports and 11 naval vessels in the battle of Macassar
Straits, finally succumbed to a Japanese attack on their
landing fields. And even when the Allies were able to ship
The Factor of Reserves
in new planes over long and dangerous transport routes,
Our observer concludes that Japan has no substantial air
the necessity of guarding both Australia and India kept their
reserves of her own. Nor is it likely that by any gigantic
air strength dispersed and divided.
pincers movement the German and Japanese air fleets would
be able to join forces in the Middle East. Formidable
Significance of the Attack on Ceylon
physical barriers would doubtless prevent any such long-
distance replenishment of Japan's reserves.
Then came the Japanese air attack on Ceylon. It seems
Turning toward Europe, we find that German handling of
likely that, owing to faulty intelligence, the attackers were
the problem of reserves has been extremely effective. When,
surprised at the resistance they met. After losing around
for example, Marshal Rommel found himself hard-pressed
70 planes shot down or damaged (the decks of three carriers
by the British in Libya, he obtained an impressive number of
were shot clean), they broke off the attack, and withdrew
additional planes within about two days. But the German
their heavy naval units from the Bay of Bengal.
air force in North Africa is merely an outpost. The Luftwaffe
This engagement proved what the B-17's in Java and the
as a whole is organized in depth to a distance of roughly
AVG in Burma had already shown-that the Japanese have
1500 miles from circumference to center, and the central air
never yet won an air-battle against properly equipped and
reserve is well under cover.
properly organized opposition. The AVG has outscored its
enemies by more than 20 to 1. American raids on Japan's
bases at Rabaul, Salamaua, and Lae have been almost uni-
Dispositions in Europe
formly successful-and virtually without losses for the at-
In Russia we can distinguish three main areas of German
tackers. At the present time the American naval air arm is
air concentration. To the south, in the Crimea, our observer
successfully contesting Japanese aerial and naval expansion
reports increasing Nazi strength. Such a concentration, he
southward through the Solomons. Faced with this new
adds, does not necessarily presage an offensive toward the
Allied strength, the Japanese may well hesitate to launch an
Caucasus. A second area of strength is in the center, facing
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the considerable Russian air mass in the Moscow region.
including the biggest and best boats, has disappeared, taking
Here the immediate purpose of the Nazis is apparently to
refugees to the British Isles. Quisling has attempted to stop
attack the Russian railroads and blast the Soviet troops out
this exodus with regulations of great severity: recently 18
of their trains into the mud. To the north, in Finland, the
such refugees were caught and then selected for execution in
growing Nazi air concentration threatens the periodic inter-
reprisal for the assassination of two Gestapo agents.
diction of American supplies to Russia. The lines of com-
Meanwhile, the Germans have been rapidly strengthening
munication from Murmansk-running laterally to the dis-
their system of communications along the Norwegian coast.
position of the German air force-are particularly vulnerable
They have completed the coastal highway all the way to
to attack, the lines from Archangel less so.
Kirkenes, near Murmansk. Reports from Stockholm indicate
In general, however, the Germans-favored by interior
that they have already extended the coastal railway from
lines-have not yet revealed their full strength in Europe.
Namsos to Mo on the Rana fjord, that they expect to
The day-time fighter sweeps of the British, for example, have
complete the previously projected stretch to Bodö by the
not forced the Nazis to show their band. Fundamentally,
autumn of 1943, and that they are using Russian prisoners of
our observer concludes, Hitler must regard the building of
war to construct the final link from Bodõ through Narvik to
American air strength in the British Isles, and not the Russian
Kirkenes, which will not be finished for at least two years.
land mass before Moscow, as the main threat to his system.
The dispersal of American air strength suits his purposes
A Democratic Victory in Colombia
well, and he may be expected to encourage it and to keep the
United Nations guessing as long as he can.
Democratic forces won a fresh victory when Alfonso
López was chosen president of Colombia in the elections of
May 3 by a majority of 200,000 votes out of a total of about
Norwegian Resistance Grows
1,100,000. His opponent, Carlos Arango Vélez, is, like López,
With the Quisling regime in conflict with practically all the
B member of the Liberal Party. But, whereas the former
clergy, teachers, and lawyers in Norway, current Swedish
drew his support from the right wing of that party and from
newspaper reports picture a spread of the spirit of revolt in
the Conservative Party (headed by pro-Falangist, pro-Nazi
that country. Many teachers have been arrested, thrown
Laureano Gómez), López found his constituents among the
into concentration camps, subjected to forced labor. On
middle and working classes. He also had the support of
the whole, opposition has forced the Quisling regime to desist
President Eduardo Santos. The election, which was almost
from its attempts to indoctrinate these groups, and perse-
entirely free from violence, reflected the pro-democratic
cutions have served only to unite the people against National
convictions of the Colombian people, it is said. In foreign
Socialism. National Socialist agitators declare that the
policy López favors an aggressive "international democracy"
Norwegian professional classes are attempting to create
and American solidarity against the Axis forces.
chaos to facilitate eventual military invasion by the Allies.
In the last two years about 20 percent of the fishing fleet,
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The Navy Takes Jurisdiction of Venezuelan Tankers
To facilitate protection against further submarine depreda-
APPENDIX I
tions, it is reported that the United States Navy has just
THE CHARACTER OF LAVAL'S CABINET
taken jurisdiction of the tanker fleet serving Venezuelan oil
With the final constitution of the Laval ministry, It has become possible to make
fields. Practically all the crude oil produced in the Mara-
certain generalizations about its composition. Noteworthy are the small number
caibo fields is transported by shallow-draught tankers to the
of holdovers from the previous regime-only five-and the fact that only four
departments of the government besides those directed by Laval himself carry full
Dutch islands of Curaçao and Aruba for refining. Between
ministerial rank-so obvious effort to leave A maximum of authority in the hande
February 16 and March 15 of this year Axis submarine ac-
of the Chief of the Government. Furthermore, French reactionary and fascist
tivities in these waters had reduced the daily average ship-
groups are well represented, and the powerful Worms et Cle, banking and Indus-
trial trust controlling a large share of the French economy, while less important
ments out of Lake Maracaibo and other Venezuelan ports
numerically than in the previous eabinet, etill retains & considerable representation.
by a large percentage.
Finally the ministry in full of men of relative youth and inexperience-men who
have recently come up through the ranks, and who now for the first time attain
The Navy has now ordered that the tanker fleet operate
cabinet rank.
at less than 50 percent of normal. This rate of operation
Brief biographical details follow:
Lucien Romier: minister of state without portfolio attached to Marshal Pétain.
signifies an annual loss of revenue for Venezuela of nearly
Editor of the conservative daily Le Figare and something of an authority on alx-
two million dollars, and will also necessitate a substantial
teenth century France, Homier is à man of considerable intellectual distinction,
curtailment in the personnel of the oil companies. Both
an intimate friend of Pétain, and probably less collaborationist than the majority
of the cabinet.
the Standard and Gulf Oil Companies, however, have
Joseph Barthélemy: minister of justice. A former deputy and one-time French
recently agreed to bridge this loss in revenue, which should
delegate to the League of Nationa, Barthélemy is a large landed proprietor, with
views which may be described as feudal agrarian. He in a noted jurist, and like
be only temporary, by non-interest bearing loans to the
Romier, n. friend of Pétain and not an outright collaborationist.
Venezuelan treasury, but they have not yet made provision
Pierre Cathola: minister of finance-one of Laval's oldest political associates,
for their own unemployed workers.
having served with him in his ministry of 1931, and in the Tardieu ministeries of
1930 and 1932.
Jacques Leroy-Ladurie: minister of agriculture and supply-a large conserva-
tive landowner, who wields the preponderant influence in the National Federa-
tion of Agriculture. His brother, Gabriel, in & guiding figure in the Banque
Worms.
Abel Bonnard: minister of national education-a poet and member of the
Academy, for some time an ardent exponent of collaboration. He has supported
Bonspartist claims to the French throne, and has ridiculed Anglo-Saxon civilisation.
General Eugène Bridovz: minister of war. As Pétain's military delegate at
Paris on the commission discussing armistice problems with the Germans, General
Bridoux has assisted Fornand de Brinon, a notorious collaborationist.
Admiral Paul Auphan: secretary of state for the navy-one of the youngest
admirals in the navy, & Darlan man, whose political opinions have been variously
reported as "pro-Ally" and definitely "anti-American."
General Jean Jennequin: secretary of state for air-a daring air leader in 1940,
and subsequently commander of the French air force in Syria at the time of
the British and Free French attack.
Hubert Lagardelle: secretary of state for labor-a personal friend of Mussolini,
who helped draft Pétain's labor charter.
22
23
SECRET
SECRET
Jean Bichelonne: secretary of state for industrial production-s mining engi-
neer with connections in the French steel industry and the Dutch coal industry.
He is a collaborationist and A great admirer of German efficiency.
Robert Gibral: secretary of state for communications-a young man, previously
APPENDIX II
director of the electricity and communications secretariat.
Maz Bennafous: secretary of state for agriculture and supplies. Graduate of
THE ZONES OF OCCUPIED FRANCE
the Ecolé Normale Supérieure, B socialist and editor of the works of Jaures,
Bonnafous has been prefect of Bouches-du-Rhône and la said to admire autarchy
Since the Armistico the portion of metropolitan France occupled by the Germans
and authoritarian government.
has been divided into at least neven different xones, each with special regulations
Julea Brevie: secretary of etate for colonies-formerly resident-general in Indo-
of its own controlling the movement of Frenchmen and foreignere. At present,
china, and an expert on French West African problems. He has instructed all
however, there appear to be only three zunes which have any political or military
French colonial governors to organize a stendfast defense of the empire.
importance: the forbidden zone on the north and east, the constal zono, and the
Dr. Raymond Grasset: secretary of state for family and health-departmental
maritime zone (see accompanying map),
leader for Pétain's National Veterans Legion and a long-time neighbor of Laval.
The coastal zone includes the Atlantic and Channel coast of France from the
Paul Marion: secretary of state for information-an amateur economist who
Spanish frontier to the forbidden zone in the northeast. Over most of its length
has been associated with B number of the new political partice in France,
it is a strip of territory about nineteen miles (thirty kilometers) wide, but the
notably Doriot's fascist Parti Populaire Français,
boundary line cuta much farther inland behind the larger peninsulas. This anne
The following are secretaries of state attached to Laval:
is obviously a region of possible combat, and the German military authorities aim
Count Fernand de Brinon: The scion of a wealthy family with an entree into high
to control all movement and residence there. Since October 20, 1941, entrance
German circles, de Brinon was effective bead of the Comité France-Allemagne, the
into the zone has been forbidden to all persons except those whose principal
most active of the pro-German groups of the pre-war period. The author of
residence la there, and even residents must have permits from the commander of
several articles for official Nazi organs expressing admiration for the policies of
the local military district in order to enter or remain in the sone. No newcomers
Hitler, he was one of the principal engineers of the Franco-Germao trade agreement
are allowed to establish residence there.
signed after Munich, and in the spring of 1939 served as Bonnet's personal sigent to
The forbidden zone includes the departments along the northeastern frontier
Guering. Since the fall of France he has been Pétain's ambassador to the Germans
contiguous with Belgium, Germany, and Switzerland, and parta of the second row
at Paris, nt which post he now remains,
of departments farther from the border. The return of refugene to this sone in
Admiral Hend Platon: A follower of Darlan, under whom he served an under-
absolutely forbidden, except to the Departments of the Moselle, Bas-Rhin, and
secretary for the colonies.
Haut-Rhin, which compose Alsace-Lorraine and have been annexed outright to
Jacques Benaist-Méchin: An outstanding pro-German and the author of the
Germany. All traffic between this zone and the rest of France is closely restricted.
leading French book on the Reichwehr, Benoist-Méchin WAS confined to a prison
The forbidden zone in served by important rallroads leading from the cosst to
eamp by the French government for a time during the present war. On the fall of
Germany, and it includes some of the most highly developed Industrial districts
France, Abets, German representative in Paris, obtained his release. An ardent
of the country and has the principal French deposite of Iron ore, coal, and potash,
collaborationist, he became secretary of state under Pétain, serving M intermodiary
which, with the sole exception of bauxite, are France's only important mineral
between Vichy and the Germans in Paria. It was he who first conceived the idea
resources.
of transferring to the Invalides the ashes of Napoleon's son.
The Germans originally explained their special control over this region as
Jacques Guérard: secretary-general attached to Laval-formerly confidential
necessitated by beavy war damage, the difficulty of provisioning the area, the
secretary to Paul Baudouin, well known defeatist of the Armistice period, during
danger of British air-raids, and strategic considerations. There in evidence DOW,
the latter's tenure of the ministry of foreign affairs.
however, which indicates that they intend to annex this sone, or at least a large
Robert Bousquet: secretary-general of police-a young mao, previously prefect
part of it, to Germany. French control has been almost obliterated by barring
entrance into the sone to officials appointed to poste there by the French Govern-
of the Department of the Marne, in occupied France,
Georgee Hilaire: secretary-general of administration in the ministry of the
ment. The refusal to allow former residents who left the region during hos-
interior-another young man, also a prefect in occupied France (Department of
tilities to return to their homes, and the Intensive recruiting of French laborers
for work in Germany suggests an attempt to depopulate the area of Frenchmen.
the Aube).
Jaeques Barnaud: delegate-general for Franco-German economic relations-
A German agricultural and colonizing society has taken over the cultivation of
an able, cultured man, formerly one of the economic advisers to the Blum govern-
land owned by refugees and is apparently preparing eventually to settle Germans
mont. Deeply interested in Catholic theology, he apparently believes it possible
on that land. After the Armistice there appeared in Germany several books and
to establish a Catholic totalitarian Europe. He in & partner and leading figure
articles in National Socialist publications seeking to justify the extension of the
in the Banque Worms.
25
Joseph Pascaud: general commissioner for sports. No information available.
24
SECRET
German frontier westward to include much of eastern France, which, It was
maintained, is geographically and culturally part of Germany.
The maritime sone is a continuation of the constal zone into the forbidden
zone. It is an especially restricted combat area, but the particular regulations
applying there are not known.
In unoccupied France the only zone to be distinguished is that composed of
the few narrow strips of territory along the Franco-Italian frontier which are
occupied by the Italians, and which were held by their troops at the time the
Armistice went into effect.
26
U.S. GOVERNMENT PRINTING OFFICE 1943
343
TREASURY DEPARTMENT
MA
INTER OFFICE COMMUNICATION
DATE May 7, 1942
TO
Secretary Morgenthau
FROM
Mr. Kamarok
Subject: Survey of Military Situation
Axis Campaign Plans
According to British analysis, the following are the
Axis plans:
A. Russia
Overwhelming evidence indicates that the next major
German operation will be an attempt to defeat the Russian
Army and obtain Caucasian oil. The offensive will
probably start late in May or early June. The recent
Russian operations have been designed to interfere with
the German preparations and so postpone the attack and
reduce its force. It is over-optimistic to assume that
they have had any large effect.
B. Libya
There is little probability of an offensive by Rommel
in the near future.
C. Japan
Since the date of the reported increase in Japanese
forces in Manchuris is uncertain, it is still not possible
to make any deductions as to Japanese intentions towards
Russia.
The Japanese are continuing to build up their con-
centrations in the southern mandated islands. This activity
would indicate a Japanese attempt at cutting the American
supply route to Australia. (Our Military Intelligence
states that the Japanese have several aircraft carriers,
8 battleship, and about twenty transports now in the New
Guinea and New Britain-Solomon Island area. The United
Regraded Unclassified
- 2 -
344
States has several task forces deployed to meet this expected
assault. Our main fleet, which formerly was in this area,
has recently been moved elsewhere.)
(U.K. Operations Report, April 23 - 30, 1942;
U.S. Militery Intelligence Information, May 6, 1942)
Air Operations
As nearly as it can be made out, the German first-line
air fleets are disposed as follows:
Western Europe
1,000
Mediterranean area
1,000
Russian front
2,500
Reserve in Germany
1,000
Total
5,500
(The total of 5,500 is 1,000 greater than the British estimate
of the German first-line strength.)
(U.S. Military Intelligence Information, May 6, 1942)
Later information on the R.A.F. bombing attack on Luebeck,
the Baltic port, in March, gives more indication of the large
extent of the damage done. A complete embargo on the dispatch
of goods via Luebeck was imposed for twenty-one days after
the bombing attack. 42,000 people (about one-third of the
population) were made homeless.
The R.A.F. has been almost completely successful in
closing the Strait of Dover to enemy shipping. During March,
only five enemy merchant shios of any size tried to pass
through the Strait. One WAS sunk and A large tanker WAB
seriously damaged and later beached.
(U.K. Operations Report, April 23 - 30, 1942)
Atlantic
The main U-boat concentration is still off the consts
of the United States in the Atlantic and in the Caribbean.
Some Italian submarines are operating off Brazil and
Freetown, Africa.
(U.K. Operations Report, April 23 - 30, 1942)
Regraded Unclassified
345
- 3 -
Pacific
Australian and Dutch troops are still maintaining
guerrilla operations against the Japanese in Timor.
A new Japanese aircraft carrier has just joined the
fleet, but whether she is a converted merchantman or
regular aircraft carrier 18 still uncertain.
(U.K. Operations Report, April 23 - 30, 1942;
May 5, 1942)