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Volume 571, September 20 – September 24, 1942
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Volume 571, September 20 – September 24, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 571
September 20 - 24, 1942
- A -
Book Page
Airplanes
Aircraft despatched, week ending September 15, 1942 -
British Air Commission report - - 9/21/42
571
96
Shipment to British Forces - Hoflich memorandum -
Andrews, 9/24/42 Adolphus (Commander Eastern Sea Frontier)
286
See LEEDSTON, SS
- B -
Barber, "Red"
See Financing, Government: War Savings Bonds
Business Conditions
Haas memorandum on situation, week ending
September 19, 1942 - 9/21/42
79
- C - -
Canada
See Lend-Lease
China
Economic Conditions White memorandum - 9/24/42
278
- D -
Draeger Shipping Company
See Foreign Funds Control
Draft, Military
Selective Service Men: Classification cards of 100
at Fort Dix, New Jersey, given to Treasury - 9/24/42..
274
- E -
Eliot, Tom
Connection with Treasury discussed by 9:30 group -
9/22/42
108
Embassies
See Revenue Revision
- F -
Federal Reserve System
Savings accounts control denied - 9/21/42
11
Diplomatic Pouches immunity of
See State Department
Regraded Unclassified
- P - (Continued)
Book Page
Financing, Government
War Savings Bonds:
"Red" Barber (broadcasts baseball games over Radio
Station WHN, New York City) has sold nearly
$)-million worth of bonds - 9/21/42
571
13,15
a) Possible meeting with HMJr discussed -
9/22/42
217
Pennies, Nickels, and Dimes: Investment in War Bonds
to be urged over all radio stations . 9/22/42
207
Foreign Funds Control
Separate status discussed in Thompson memorandum -
9/22/42
228
a) HMJr signs Order
230
Draeger Shipping Company: Conference; present: HMJr,
Paul, Bernstein, Pehle, and Cox - 9/22/42
163
a) Paul memorandum - 9/22/42
178
b) Treasury letter to Alien Property Custodian -
9/22/42
181,182
- H - -
High, Stanley
See "Reader's Digest"
- I - -
Inflation
Price Legislation: Cairns, Paul, and Bernstein work
on draft - 9/21/42
61
- K -
Kamarck, Andrew M. Lieutenant
See Military Reports
- L -
Law, Richard
Thanks HMJr for interview - 9/24/42
281
Leib, Joseph
Accusations against HMSr and HMJr discussed by
99
9:30 group - 9/22/42
Lend-Lease
Report for week ending September 19, 1942 - 9/22/42.
231
- LEEDSTON. SS
History by Adolphus Andrews, Commander Eastern Sea Frontier,
90 Church Street, New York City - 9/24/42
302-A
a) HMJr-Forrestal conversation - 9/25/42:
See Book 572, page 23
b) Forrestal report 9/26/42: Book 574, page 142-I
Regraded Unclassified
- L - - (Continued)
Book Page
Lend-Lease (Continued)
Canada: Naval aircraft and vessels
Currie-Treasury correspondence - 9/22/42
571
247
War Shipping Administration--Treasury correspondence -
9/22/42
249
United Kingdom: Final payment of fair and just
compensation for airplanes, etc., requisitioned
from United Kingdom on or about December 7, 1941 -
War-White House-Treasury correspondence - 9/24/42
283
a) Conference; present: HMJr, Sir Frederick Phillips,
and White - 9/28/42: See Book 572, page 188
1) Letter given Phillips: Book 572, page 189
- M -
Military Draft
See Draft, Military
Military Reports
British operations - - 9/20/42, etc
8,261,299,
300,301
Kamarck (Lieutenant), Fort Sill, Oklahoma, pamphlet:
"The Unknown British-American Victory" - 9/22/42
262
"The War This Week, September 17-24, 1942" - Office
of Strategic Services report
298
- 0 -
Oftedal, Alf
Investigatory work on tax evasion cases (Schenck, etc.)
and relations with Department of Justice discussed
in Gaston memorandum - 9/22/42
226
- P -
Pegler, Westbrook
Column answered by Treasury - 9/21/42
26
Pennies
See Financing, Government: War Savings Bonds
- R -
"Reader's Digest"
Usurpation of power by executive branch of Government -
possible article by Stanley High discussed in Cairns
271
memorandum - 9/24/42
- R - -
Book Page
Revenue Revision
Embassies: White House--Treasury-State correspondence
concerning taxing of - 9/21/42
571
45
a) Hull-HMJr conversation
201
1942 Bill: Chart showing comparative revenue from
House, Senate, and Treasury proposals - 9/23/42
268
- S -
Selective Service Men
See Draft, Military
State Department
Diplomatic Pouches - immunity of: Paul memorandum on
conference in Acheson's office; present: representatives
of Treasury, Censorship, and State - - 9/23/42
269-A
- T -
Taxation
See Revenue Revision
- U -
United Kingdom
See Lend-Lease
- W -
War Savings Bonds
See Financing, Government
-
1
Se tember 20, 1942
SECRET
TO:
James s. Knowleon
Mile Perkins
J. V. Ferrestal
B. R. Stettinius, Jr.
H. L. Vickery
R. P. Patterson
FROM:
Hale 1. Shenefield
Executive Secretary
Attached you will find the October let revision of the Statistical
Reports for the Joint War Production Committee, as fellows:
1. Contracts with War Supplies Limited by Months;
2. Har Supplies Limited Centracts Classified by
Type of Munitions Ordered;
5. Record of Deliveries: Har Supplies Limited Contrasts;
6. Canada's Munitions Production in September Compared
with Forecast;
7. Changes between September 1 and October 1 in the
Canadian Munitions Preduction Program.
001
Morgenthau
Coe
Currie
White
Harrison
Nathan
Strauss
Hall
*
Taub
Allon
Regraded Unclassified
2
REPORT NO. 1
Secret
(October 16, 1942)
Secret
CONTRACTS WITH WAR SUPPLIES LIMITED IN SEPTEMBER, 1942
Quantity
Item
Ordered
Value
3.7" AA Shells, H.E., Q.F.
1,350,000
$33,750,000.00
Airplanes, AT-16 (Harvard)
700
15,520,629.60
Propellers, 12D40
2,619
2,985,660.00
Stationary Oxygen Plants
18
1,173,186.00
Anhydrous Ammonia
15,000 Tons
1,050,000.00
RC-148 Radio Equipment
1,500
1,050,000.00
40 MM Cartridge Cases
1,000,000
1,020,000.00
Propeller Blades, 8930-3
4,000
840,000.00
Machine Tools
Various
801,000.00
40 MM Primer #12
1,000,000
380,000.00
Radio Sets, SCR-602
200
240,000.00
Cummins Diesel Generator Sets
41
231,643.85
Miscellaneous Items and Revisions
10,885,818.37
Total September Contracts
$69,927,937.82
SUMMARY OF REPORT NO. 1 TO SEPTEMBER 30, 1942
1941:
To June 30
$28,005,168.55
July
31,508,048.67
August
82,792,761.99
September
16,752,199.25
October
57,993,118.96
November
6,429,056.99
December
5,228,988.00
Total for 7 Months, June to December:
$228,709,343.03
1942:
January
22,290,717.17
February
26,643,349.03
March
144,838,673.77
April
55,478,635.24
May
67,856,599.29
June
207,820,550.37
July
57,777,181.35
August
26,212,444.93
September
69,927,937.82
Total for 9 Months, January to September:
$678,846,088.97
GRAND TOTAL TO SEPTEMBER 30, 1942
$907,555,432.00
- Joint War Production Committee -
3
Secret
REPORT NO. 2
Secret
(October 16, 1942)
WAR SUPPLIES LIMITED CONTRACTS DURING SEPTEMBER CLASSIFIED
BY TYPE OF MUNITIONS ORDERED
(Summary)
Subcommittee
Total to September 30,1942
Mechanization & Mechanical Transport
$ 87,564,291.17
Tank
527,500.00
Gun
111,415,502.25
Shell
181,802,626.39
Small Arms & Small Arms Ammunition
37,933,447.00
Chemicals & Explosives
11,689,978.50
Merchant Shipbuilding
160,101,655.88
Naval Shipbuilding
20,085,000.00
Airplane
191,879,254.44
Communications & Fire Control
68,691,449.07
Unclassified
35,864,727.03
GRAND TOTAL TO DATE:
$907,529,481.73
Items Ordered in September, 1942
Item
Value
MERCHANT SHIPBUILDING
)
NAVAL SHIPBUILDING
)
TANK
)
No Contracts in September
SMALL ARMS & SMALL ARMS AMMUNITION
)
MECHANIZATION & MECHANICAL TRANSPORT:
Sand Shields for Universal
Carriers
61,200.00
Miscellaneous
494.13
61,694.13
Add Revaluation on Earlier Contracts
9,901,977.76
9,963,671.89
GUN:
Tube Forgings for 40 MM Guns
180,000.00
180,000.00
Add Revaluation on Earlier Contracts:
16,805.29
196,805.29
Regraded Unclassified
4
Report No. 2, October 16, 1942: War Supplies Limited Contracts During
September Classified by Type of Munitions Ordered --- Page 2
Item
Value
SHELL:
3.7" AA H.E., Q.F.
33,750,000.00
40 MM Cartridge Cases
1,020,000.00
Primer #12 for 40 MM
380,000.00
Parts for Fuze #251
3,118.59
$35,153,118.59
CHEMICALS AND EXPLOSIVES:
Anhydreus Ammonia
1,050,000.00
Nitric Acid and Oleum
64,825.00
1,114,825.00
AIRPLANE:
Harvard (AT-16) and Spares
15,520,629.60
Prepeller 12D40
2,985,660.00
Propeller Blades
840,000.00
Miscellaneous
201,087.00
19,547,376.60
COMMUNICATIONS & FIRE CONTROL:
Radio RC-148
1,050,000.00
Radio Set SCR-602
240,000.00
Miscellaneeus
68,124.42
1,358,124.42
UNCLASSIFIED:
Stationary Oxygen Plants
1,173,186.00
Machine Tools, etc.
801,000.00
Cummins Diesel Generator Sets
231,643.85
Miscellaneous
388,043.66
2,593,873.51
Add Revaluations to Earlier Contracts:
142.52
2,594,016.03
TOTAL CONTRACTS IN SEPTEMBER, 1942
$69,927,937.82
- Joint War Production Committee -
5
REPORT NO. 5
Secret
(October 20, 1942)
Secret
RECORD OF DELIVERIES DURING SEPTEMBER:
WAR SUPPLIES LIMITED CONTRACTS
The value of deliveries on War Supplies Limited contracts for the month of
September 1942 is approximately $29.3 million. This compares with a figure
of roughly $29.0 million in August 1942.
Delivery of Selected Canadian Munitions Items to U.S. During September, 1942
Cumulative
Total
Percent of Order
Selected Item
Deliveries
Deliveries to U. S,
Delivered to
In September
September 30
Orders
September 30
Universal Carrier
612
3,404
12,854
26.5%
40 MM Anti-Aircraft Barrels
400
4,712
18,798
25.1%
40 MM H. E. Shells
116,108
1,293,733
3,000,000
43.1%
6-Pdr. A. P. Shot
41,988
402,365
4,000,000
10.1%
Harvard AT-16 Airplanes
16
166
1,500
9.6%
3.7" Anti-Aircraft Shells105,008
1,040,375
2,550,000
40.8%
75 MM Smoke Shells C/R
35,206
259,214
1,700,000
15.3%
#19 Radio Sets
*
7,828
11,950
65.5%
2" Bomb Throwers, Mk II
2,403
6,671
30,071
22.2%
3.7" Anti-Aircraft Barrels
23
1,953
2,400
81,4%
Lee Enfield Rifles, Mk I
8,000
47,402
100,000
47.4%
Boys Anti-Tank Rifles
1,350
3,517
34,000
10.3%
6-Pdr. Guns, Mk II
440
941
1,000
94.1%
6-Pdr. Carriage, Mk II
4
20
500
4.0%
37 MM S. A. P. Shot
99,990
366,469
500,000
73.3%
2" Smoke Bombs
0
170,010
1,000,000
17.0%
Bren Machine Guns
0
5,904
33,000
17.9%
.303 Ammunition
23,192,832
133,768,930
406,120,000
33.0%
2-Pdr. Anti-Tank Equipment
8
264
360
73.3%
4.5" H. E. Shells
81,628
425,991
852,000
50.0%
Anhydrous Ammonia (Lbs.)
*
34,030,760
65,200,000
52.2%
Hexachlorethane (Lbs.)
702,000
7,975,040
9,064,110
88.0%
2-Pdr. Q.F. Cartridges
o
486,261
1,540,000
31.6%
Nitric Acid & Oleum(Lb) 1,102,685
2,426,319
6,070,000
40.0%
25-Pdr. Shell & Cartridge
0
71,402
612,000
11.7%
* Earlier Figures not Available.
- Joint War Production Committee -
6
REPORT NO. 6
Secret
(October 20, 1942)
Secret
CANADA'S MUNITIONS PRODUCTION IN SEPTEMBER COMPARED WITH FORECAST
September Production
Selected Item
Actual
Scheduled
Items for which September Production Exceeds Forecast
Ram Tanks
290
175
Universal Carriers
907
775
40 MM Anti-Aircraft Guns, Complete
220
200
3.7" Anti-Aircraft Guns, Complete
71
60
90 MM Anti-Aircraft Gun Barrels
84
20
6-Pdr. Anti-Tank Gun Carriage
409
185
25-Pdr. Gun, Complete
88
72
Bren Machine Gun
5,468
4,500
Browning Aircraft Machine Gun
3,580
3,000
Sten Machine Carbine
3,463
2,500
.303 Calibre Ball Ammunition, l'k VII (000's)
93,396
82,500
25-Pdr. Projectile, H. E. (000's)
431
382
Items for which September Production Fell Below Forecast
Fairmiles Motor Torpedo Boats
2
8
Lysander Reconnaissance Plane
13
24
PBY Flying Boat
0
7
Hurricane Pursuit Plane
32
50
Cornell Primary Trainer
1
4
Valentine Tank
70
90
Scout Car
55
200
Armored Car
30
77
6-Pdr. Tank & Anti-Tank Gun
495
875
2" U.P. Mounting (Naval Anti-Mircraft
817
1,000
Rocket Projectile)
Boys Anti-Tank Rifle
2,984
4,000
2" Trench Mortar
277
400
(000's)
.303 Incendiary Cartridge
7,452
9,500
.303 h. P. Cartridge
6,690
10,000
9 VM Luger Parabellum
o
1,500
.55 A. P. Cartridge
24
100
75 MM S. A. P. Shot
79
100
75 M H. E. Shell
0
100
75 MM Smoke Shell
39
100
6-Pdr. A.P. Shot
244
350
Anti-Tank Mine, lik II & Mk V
0
112
Anti-Tank Grenade, #75
0
200
The Production of Merchant Vessels and Anti-Aircraft /mmunition was
approximately equal to forecast.
- Joint War Production Committee -
7
REPORT NO. 7
Secret
(October 20, 1942)
Secret
Changes Between September 1st and October 1st in the Canadian
Munitions Production Program
Changes in the Canadian Munitions program in the past month are recorded
below. The most important revisions concern the Cargo Vessel, Corvette,
Bren Gun, and Lee Enfield Rifle programs, all of which have been stepped
up. Browning Aircraft Machine Gun output is to be cut sharply and the
production of .30 Calibre Ball Cartridge is to be brought to an end. Other
changes are also listed in the following tables.
Items for which Schedules have been Increased Between September 1 & October 1
Production Schedule for 1943
Selected Item
September lst
October 1st
Corvettes
38
63
Minesweepers (Algerine and Wooden)
19
53
Merchant Vessels
80
133
Bren Guns
82,250
100,400
Lee Enfield Rifle
300,000
375,600
(000's)
3" Trench Mortar Bomb
1,200
1,500
Depth Charges
48
66
.455 Mk III Cartridge
o
10,600
Items for which Schedules have been Decreased Between September 1 & October 1
Production Schedule for 1943
Selected Item
September 1st
October 1st
Armored Personnel Carrier
3,000
1,000
40 MM Anti-Aircraft Gun Barrels
18,000
10,800
6-Pdr. Tank and Anti-Tank Guns
12,000
10,500
Browning .303 Aircraft Machine Guns
54,000
6,000
(000's)
20 MM H. E. and 3. A. P. Ammunition
20,900
7,250
9,600
0
.30 Calibre Ball Cartridge
In addition a rather large number of schedules have been set back because of
engineering and other difficulties.
- Joint War Production Committee -
Regraded Unclassified
8
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 327
Information received up to 7 A.M., 20th September, 1942.
1. NAVAL
The convoy to RUSSIA W&B due at ARCHANGEL last night. On the 18th it
wns attacked by high level and torpedo bombers off the entrance to the WHITE SEA and
one U.S. 5500 ton merchant vessel was torpedoed and sunk. At least 4 enomy aircraft
were shot down. One of H.M. armed boarding vessels WRO torpedoed and sunk early 19th
southwest of LISBON. 27 of the crew were rescued.
Attacks on shipping. During the 1:st three days (16th to 18th Septom-
ber) 15 ships were reported torpedoed butwoen 12th and 16th September. 5 ships
(B-itish, Norwogian, Dutch, Greek and a U.S. ship which later reached port) In convoy
in C/JLF OF ST. LAWRENCE. A U.S. ship in West Atlantic, a British and Dutch ship in
convoy in CARIBBEAN SEA. 3 British ships and 2 Panamanian (one n. large tanker) in
the TRINIDAD area, a Swedish ship in the FREETOWN area and a large British trawler
in the SOUTH ATLANTIC. Latest news of attack on outward bound convoy is 10 ships
definitely torpedoed, 5 of which are sunk, ono still afloat and 4 reached port. 2
other ships missing from convoy.
2. MILITARY
PUSSIA. The Russians continue their attacks in the northern and cen-
tral sectors and have goined some success against the Germen bridgehead over the
DON at VORONEZH. At STALINGRAD street fighting continues and the Gormans appear to
bu making slow progress though the situation is confused. In CAUCASIA the Russians
are still resisting strongly in the MOZDOK aren and aro counter attacking on the
phases of the bestern CAUCASUS.
3. AIR OPERATIONS
WESTERN FRONT. 18th/19th. A total of 3/1 mines Mare Inid successful.
19th. 3 Mosquitos, with bombs, reached the BERLIN area but could not identify th:
tom owing to completo cloud, another Mosquito WLS shot dorm.
19th/20th. 226 aircraft were sent out - SAARBPUCKEN 118, MUNTCH 90,
all hoavy. Intruders 14 MUNICH. Weather vary good, .11 pethfinders accuritely
identified the objective and fluros worked 11. Many fires are one v.ry Inrgo ax-
plosion believed in the gro works. Only modernto monrchitgat and s.h. Mrs. 5
bombors missing. SAARBRU KEN. Heavy ground hize made identification difficult, 5
hombers vissing.
Regraded Unclassified
8
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 327
Information received up to 7 A.M., 20th September, 1942.
1. NAVAL
The convoy to RUSSIA WILD due at ARCHANGEL last night. On the 18th it
WIS attacked by high level and torpedo bombers off the entrance to the WHITE SEA and
one U.S. 5500 ton merchant vessel was torpedoed and sunk. At least 4 enomy aircraft
were shot down. One of H.M. armed boarding vessels were torpedoed and sunk early 19th
southwest of LISBON. 27 of the crew were rescued.
Attacks on shipping. During the Last three days (16th to 18th Septem
ber) 15 ships were reported torpedoed between 12th and 16th September. 5 ships
(B-itish, Norwogian, Dutch, Greek and a U.S. ship which later reached port) in convoy
in GULF OF ST. LAWRENCE. A U.S. ship in West Atlantic, a British end Dutch ship in
convoy in CARIBBEAN SEA. 3 British ships and 2 Panamanian (one a large tanker) in
the TRINIDAD area, B. Swedish ship in the FREETOWN area and & large British trawler
in the SOUTH ATLANTIC. Latest news of attack on outward bound convoy is 10 ships
definitely torpedoed, 5 of which are sunk, one still afloat and 4 reached port. 2
other ships missing from convoy.
2. MILITARY
RUSSIA. The Russians continue their attacks in the northern and cen-
tral sectors and have gained some success against the Gorman bridgehoad over the
DON at VORONEZH. At STALINGRAD street fighting continues and the Gormans appear to
be making slow progress though the situation is confused. In CAUCASIA the Russianc
are still resisting strongly in the MOZDOK area and are counter attacking on the
passes of the bestern CAUCASUS.
3. AIR OPERATIONS
WESTERN FRONT. 18th/19th. A total of 3/1 mines were laid successfully
19th. 3 Mosquitos, with bombs, reached the BERLIN area but could not identify the
town owing to complete cloud, another Moaquito was shot down.
19th/20th. 226 aircruft were sent out - SAARBRUCKEN 118, MUNICH 90,
all heavy. Intruders 14 MUNICH. Weather very good, all pathfinders accurately
identified the objective and flures worked 311. Many firos and one v.ry Inrge ox-
plosion believed in the gas works. Only moderate workshlight and s.A. firs. 5
bombers missing. SAARBRUCKET. Heavy ground haso mde identification difficult, 5
bombers wissing.
Regraded Unclassified
9
- 2 -
8 enemy aircraft flew over TYNESIDE and TEESIDE dropping mainly in-
cendiary bombs. 8 others were probably sea mining. One was shot down, 2 probably
destroyed and one damaged.
EGYPT. 17th/18th. TOBRUK was bombed and a small ship probably hit.
Wellingtons attacked 3 vessels north of TOBRUK on 2 of which explosions were re-
ported, one of them was left stationary and low in the water.
18th. 2 ME 109's were probably destroyed and 2 others damaged by our
fighters, one of which is missing.
Regraded Unclassified
10
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
E.R. Stettinius, Jr.
Administrator
September 21, 1942
Honorable Henry Morgenthau
Secretary of the Treasury
Treasury Department
WASHINGTON, D. C.
Dear Mr. Secretary,
During the week end, Mrs. Klotz
was kind enough to send me a copy of Mr.
Ickes' letter to you of the 18th, relative
to securing oil refinery equipment for the
Russians.
She has asked me to give you щу views
on the matter, and I wisn to advise that,
in our opinion, Mr. Ickes has made an ac-
curate statement relative to the part that
his organization has played in the matter.
With best wishes,
Sincerely yours,
E. Ed Stettinius,
Regraded Unclas
11
BOARD OF GOVERNORS
OF THE
THE PERFORM of
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE VICE CHAIRMAN
September 21, 1942
Dear Henry:
I called you this afternoon to read you
the attached press release, but, finding that you
were not in your office, I read it to Dan Bell.
There were two stories in the Wall Street
Journal of today, one on page 1 and the other on
page 5. There was also a brief reference to the
same story on the Dow-Jones ticker today.
Sincerely,
Roneld Ransom
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Attachment
Regraded Unclassified
12
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
For immediate release
September 21, 1942.
The Board of Governors of the Federal Reserve System wishes
to deny a report printed in the Wall Street Journal of September 21
to the effect that Federal Reserve officials are contemplating some
form of control of savings accounts. This report may be interpreted
to mean that Federal Reserve officials are considering some inter-
ference with the individual's freedom to use his savings account.
This is not true.
Regraded Unclassified
13
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 21, 1942
TO
Secretary Morgenthau
FROM Vincent F. Callehan
Red Barber, who broadcasts baseball games over station
WHN in New York City, has sold nearly one-half million dollars
worth of Bonds through his broadcasts. The latest actual
figure is $476,000. He has devoted two entire broadcasts of
baseball games to Bond selling. The first one brought pledges
of $105,000 and the second brought pledges of $330,000. The
cash in to date is 98 per cent of that pledged - a remarkable
high.
Mr. Barber starts his program with an immediate goal (say
$10,000 in the first ten minutes of play) to be pledged by the
Red Barber baseball fans. As soon as the goal is reached he
doubles it and urges his fans to pledge twice as much. He
gives the totals between innings, and wherever else possible,
always adding "Come on, let's make it more". He has offered to
the fans autographed pictures of the Brooklyn Dodgers and auto-
graphed baseballs.
The $40,000 not accounted for in the two broadcasts run in
this fashion represents the money pledged from occasional Bond
plugs dropped into other games.
Regraded Unclassified
14
-2-
The idea of devoting an occasional complete ball game
broadcast to Bonds has the approval of Barber's sponsor, Old
Gold Cigarettes.
Mr. H. L. Petty, Director of WHN, reports that the
handling of the details in connection with the Bond selling
has necessitated augmenting his staff, and also much overtime
on the part of the employees. "It has cost us many hundreds
of dollars", says Mr. Petty, "but we love it".
Vancent 9. Caelahan
Regraded Unclassified
15
WAR SAVINGS STAFF NEWS
PAGE
AUGUST 17. 1982
Red Barber Sells $100,000 In War Bonds On Dodger-Giants Ball
KMBC Kicks- WLNH Bond Club Has Pass Book
Game Broadcast-Phone Calls Swamp Board At Radio Station WHN
Off In Victory
For Deposits on Bond Purchases
WLNH We Blash
WLMH find Class
Onlers Received From is Action Pictures In WHN's Red Barber $100,000 War Bond Sales Broadcast
Feud on Bond
Sures-Soldien Also
Wire For Bonds
und
of
$100,000
:
WHN
5.
-
the
willsht
when
I
-
lest
uffer
to
air
A
AL
the
at
as
WHX
-
N
-
WSAM has "Stamp im out poster
on converted Bond Wagon for Sales
1
TH STAMPWAGON
OLO GOL
Upen House "
KGNC,
tesarillo
to
3
l'age
WHEN
The
à
-
labe
under
1
who
-
il
!
-
of
Ale
-
e
$30,000
In
First
4:
Test Shows It
A
WHRL Sheboyans
al
Dar
(le
Bay
E
il
The
,
and
of
a
-
-
è
Camera Tells Story Of Radio Promotion In War Bond Drive
B
WEIF
3
1
2
EVERYBODY
THE
ZWAR BUY BONDS
6
A
5
-
of
-
the
---
is
-
die
of
1
of
.
i
-
-
1
.
at
-
Regraded Unclassified
Left
-
E
i
16
BUY BONDS * BUY BONDS * BUY BONDS * BUY BONDS * BUY BONDS
/
EINCINNATI STATIONS OPEN WAR BOND DRIVE
Promotion, Unique Selling
Feature Sale-New Mully
Pitcher
Idea
Captures
City's
Faney
Cincinnati's WLW And WSAI Open War Bond Sales Drive
WLW GIVES
CREDIT TO
a
COUNTIES
I
-
!
I
-
YOR FOR
DAY, WSAI
KOKA Sells WAR BONDS
ELECTION
o
-
of The United inaugural States Pittsburgh program in the new series dedicated to the sale
-
I
d.
-
-
I
-
I
-
War Bonds will bé publicly presented
-
I
-
-
I
I
-
GRANT STREET PORTALS
1
-
-
-
I
CITY-COUNTY BUILDING
=
-
I
Tuesday, July 28, High Noon
clory Maids and Molly Pitchers Feature Queen City Campaign
UGS
PENNSYLVANIA'S OWN 104th CAVALRY BAND
BOXIS FOR VICTORY
Commanital " Major Joils II. Gay
Direction of Warrant Officer MARION C. WALTER
MAJOR
BARN,
0.5
Air
Corpo
HON para KANE Chelreue
ARTHUR
BRAUN,
o
by RDR de United the nation's preser in pumer and facilities the gress rask
KUKA
and
Government,
un
the
Services
WESTINGHOUSE
KDKA
PITTSBURGH
somes STAMPS
Y BONDS
BUY BONDS
*
BUY BONDS
BUY BONDS
*
BUY BONDS
-
-
Regraded Unclassified
-
17
-
-
WCK) WAR BOND PURCHASERS SHOP FOR OWN ORDNANCE PIECE
DEMOLITION DEPUT DISPLAIS
Beauty Contest Is Primer
Dakota Station Uses Tank
RADIO
URMANENT IVI IN smow
In HYK) Bond Vote Drive
1x Mobile Unit Visiting Cities
WHAT BONDS
Over Its Broadcast In
Für
1
R
LL
R
gird
-
I
H
Deep In Heart
I
WDAY
Of Texas And
Here
a
Hade
agroud
a
-
E
-
1
i
Bonds
be
the
Transary
There
are
THE
/
-
Big Roundup
the
RAJKO
ROLL
OF
HONOIL
Within
the
E
1
has
all
the
del
the
sur
1
I
the
and
thei
I
Staff
-
-
de
1
1
-
I
-
Chicago Stations Shift Into High Gear
Sales Roll In. WGN Team Sells $70,000
I
I
-
il
I
Baffalo Metions Fine
HAMMOND PUTS ZIP
IN DIRECT SALES PLAN
-
Commindo Cargo Ind fairt
by lloner for Mar lind Ann
i
1
I
i
-
III
I
ANY
!
form
-
-
F
I
#
il
Cartoon IN Used " Saginar
-
Two Named To Aid Station
STAMP EM OUT
LI
-
-
-
Heder
I
f
-
Don't Forget-Blue Network Show All-Night August 29th
Regraded Unclassified
WNAC And Yankee Network Spurs Sale Of War Bond
BUY
Figur Vinialer
WNAC, Bodon Box Haise Sign (in Building Herahling SaleO) War Ilmib Five New Orleans Station
WAR
Treasury. To Specturatur Hisples
Purchasers
Noff
Nam
If
Twl
THE
Participate In Joint Program
WAR SAVINGS
BONDS
To Sell War Bonds
STAFF NEWS
YANKER
One Irishman
NETWORK
To Another
Sells $2,000
1
BUT
I
1
AIR these for
i
Three Points Are Stressed To Reach Treasury Objective
food fille la
WNAC
Il
-
Program
5
and
11
-
il
NOW
as
I
I
-
1
THE
I
in
-
I
la
T=
o
2
|
-
.
-
-
de
the
pul
-
1
-
-
[
-
-
I
E
-
E
e
Blue Network
Tipe For Stations In Building
-
-
!
BLUE NETWORK SET FOR BOND DRIVE
Shows For War Bond Sales
Offered For Approval
UERIES ON
All-Night Nation-Wide Bond Sale And Round-Up To Feature Blue
BOND NIGHT ON
I
PROCEDURE
Network Star-Studded Show Aug. 29-Madison Signature Gurden Sept. 4
BLUE SPARKLES
Boston Stations Active
I
ANSWERED
WITH TOP STAR
In War Bond Drive
[
Challenge Costs WMCA
I
News Analyst $7,100
-
I
--
-
WJR Detroit,
-
2
Bears Down
-
0
-Sells Bonds
-
I
|
-
I
-
-
KINK
Lev's Hear
QUERIES o
About Your
PROCEDUR
Cash Sales
i
r
-
-
I
-
-
-
I
et
!
-
-
-
(
|-
e
-
}
-
I
|
I
Entre Cur Of WQAM Hill
|
I
I
1
KSTP Beaching Untapped Sources It,
I
-
-
il
failly Shine Delivers Blood
I
Appeal- Featuring Staff Announcers
1
In Person At Miami
REPORTS OF SUCCESSFUL SALES DRIVES POUR INTO OFFICE
-
I
Many Foreign-Born Buyers Investing
OF TREASURY 15 MORE STATIONS QUALIFY TO SELL BONDS
I
I
Novt
Mil
.
For
New
-
-
I
I
-
-
I
1
-
-
-
4,
-
1
/
I
I
-
-
-
-
-
-
1
1
-
-
-
-
1
I
i
-
I
I
I
1
Il
1
1
I
-
I
il
-
I
I
I
1
1
-
-
-
-
I
I
-
i
.
I
-
1
-
I
-
di
I
-
-
I
I
-
-
STATIONS 1/13 GIVE INDIVIDUAL cot NTIES CREDIT FOR SALES IF DESIRED
Regraded Unclassified
19
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Sept. 21, 1942
TO
THE SECRETARY
FROM
TED R. GAMBLE
You will be interested to know that we have, at
your request, placed four LET'S ALL FIGHT posters,
especially framed, in different locations in the White
House.
You will also be interested to know that we are
making a special distribution through Admiral Conard's
Committee of approximately 1000 of these posters in
government buildings. This is in addition to our regular
District of Columbia distribution.
Regraded Unclassified
20
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Sept. 21, 1942
TO
THE SECRETARY
FROM
TED R. GAMBLE
You recently sent me a note with regard to a skit in the
New Priorities show which you read about in Leonard Lyons'
column.
The information contained in Mr. Lyons' column was correct.
Mr. Patterson and a committee of four people called upon Mr.
Clifford Fischer, Producer of New Priorities of 1943 and he
agreed to withdraw this number from the show.
21
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
September 21, 1942
TO
FROM
Randolph Paul
We put up the subject of outdoor advertising
but it was voted down 18 to 1.
AEP.
Sales of United States savings 22 bonds
CONFIDENTIAL
September 1 through September 19, 1942
Compared with sales quota for same period
(At issue price in millions of dollars)
:
Series x
:
Series 7 and G
I
Total
:
Actual sales
:
Quota,
:
Sales
:
Actual sales
:
Quota,
:
Sales
:
Actual sales
:
Quota, :
Sales
Date :
: Sept. 1
: Sept.
1
:
to date
:
: Sept. 1
:
Sept. 1
:
to date :
: Sept. 1
:
Sept. 1
:
to date
:
Daily
:
to
:
to
: as x of
:
Daily
:
to
:
to
:
as $ of :
Daily
#
to
:
to
:
as x of
1
:
date
:
date
:
quota
:
:
date
:
date
:
quota
:
:
date
:
date
:
quota
1
$ 11.6
$ 11.6
$ 14.9
77.9%
$ 7.5
$ 7.5
$ 6.9
108.7%
$ 19.2
$ 19.2
$ 21.8
88.1%
2
14.7
26.4
34.5
76.5
9.8
17.3
16.6
104.2
24.6
43.7
51.1
85.5
3
18.3
44.7
55.5
80.5
9.4
26.7
26.4
101.1
27.7
71.4
81.9
87.2
4
17.8
62.5
81.0
77.2
10.7
37.4
35.6
105.1
28.5
99.9
116.6
85.7
5
19.2
81.7
98.3
83.1
10.7
48.1
42.2
114.0
29.9
129.8
140.5
92.4
8
49.4
131.1
143.3
91.5
18.6
66.7
58.1
114.8
67.9
197.7
201.4
98.2
9
13.3
144.4
168.8
85.5
6.1
72.7
67.8
107.2
19.4
217.1
236.6
91.8
10
16.4
160.8
193.4
83.1
6.3
79.0
76.7
103.0
22.7
239.8
270.1
88.8
11
19.6
180.4
220.6
81.8
7.2
86.3
84.4
102.3
26.8
266.6
305.0
87.4
12
9.6
189.9
239.2
79.4
4.3
90.6
90.1
100.6
13.9
280.5
329.3
85.2
14
35.5
225.5
272.7
82.7
13.3
104.0
99.7
104.3
48.9
329.4
372.4
88.5
15
10.7
236.2
288.2
82.0
4.9
108.9
105.0
103.7
15.6
345.1
393.2
57.8
16
21.9
258.1
307.6
83.9
12.8
121.6
112.1
108.5
34.6
379.7
419.7
90.5
17
17.6
275.7
327.2
84.3
9.9
131.6
119.2
110.4
27.5
407.2
446.4
91.2
18
16.5
292.2
350.1
83.5
6.3
137.9
125.7
109.7
22.8
430.0
475.8
90.4
19
10.4
302.5
365.4
82.8
3.4
141.3
130.5
108.3
13.7
443.8
495.9
89.5
21
399.6
141.0
540.6
22
415.7
147.0
562.7
23
436.2
155.2
591.4
24
457.1
163.4
620.5
25
481.4
171.0
652.4
26
497.4
176.6
674.0
28
532.7
188.7
721.4
29
549.2
195.5
744.7
30
570.0
205.0
775.0
fice of the Secretary of the Treasury, Division of Research and Statistics.
September 21, 1942.
purce: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States savirige bonds. Figures have been rounded and will not necessarily add to totals.
Note: Quota takes into account both the daily trend during the week and the monthly trend during the month.
CONFIDENTIAL
23
UNITED STATES SAVINGS BONDS - TOTAL
Comparison of September sales to date with sales during the
same number of business days in August and July 1942
(At issue price in thousands of dollars)
:
September
:
Cumulative sales by business days
Date
:
daily
:
:
:
July
:
September
August
September as
:
sales
:
:
:
:percent of August
ember 1942
1
$ 19,162
$ 19,162
$ 26,267
$ 28,418
73.0%
2
24,558
43,720
65,032
52,687
67.2
3
27,702
71,422
92,055
79,964
77.6
14
28,482
99,904
117,890
126,495
84.7
5
29,880
129,784
158,341
157,605
82.0
8
67,950
197,734
196,524
201,056
100.6
9
19,367
217,101
220,742
240,974
98.4
10
22,709
239,810
261,763
288,729
91.6
11
26,807
266,617
277,037
324,856
96.2
12
13,926
280,544
301,761
372,020
93.0
14
48,890
329,434
324,518
402,122
101.5
15
15,632
345,066
353,022
435,929
97.7
16
34,631
379,697
365,852
467,599
103.8
17
27,538
407,235
407,659
505,257
99.9
18
22,809
430,044
422,209
527,186
101.9
19
13,745
443,789
449,965
580,443
98.6
ice of the Secretary of the Treasury,
Division of Research and Statistics.
arce: All figures are deposits with the Treasurer of the United States on account
of proceeds of sales of Unit ed States savings bonds.
Note:
Figures have been rounded to near est thousand and will not necessarily add
to totals.
Regraded Unclassified
CONFIDENTIAL
24
UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED
Comparison of September sales to date with sales during the
same number of business days in August and July 1942
(At issue price in thousands of dollars)
:
September
:
Cumulative sales by business days
Date
:
daily
:
:
:
:
September as
September
August
July
:
sales
:
:
:
:percent of August
ember 1942
$ 7,528
$ 7,528
$ 12,222
$ 12,597
61.6%
1
2
9,811
17,339
28,810
21,986
60.2
3
9.397
26,735
41,258
32,441
64.8
4
10,678
37,414
54,105
49,175
69.2
5
10,713
48,127
71,552
62,561
67.3
8
18,550
66,678
84,777
84,413
78.7
101,585
78.6
9
6,072
72,749
92,566
10
6,279
79,029
106,782
124,568
74.0
11
7,235
86,263
112,171
141,618
76.9
12
4,342
90,606
120,974
162,232
74.9
14
13,347
103,952
127,375
176,590
81.6
4,915
108,867
137,119
191,991
79.4
15
16
12,776
121,643
140,372
205,833
86.7
17
9,917
131,560
153,496
221,147
85.7
18
6,334
137,893
158,309
230,842
87.1
19
3,361
141,255
168,415
252,731
83.9
fice of the Secretary of the Treasury,
Division of Research and Statistics.
arce: All figures are deposits with the Treasurer of the United States on account
Figures have been rounded to nearest thousand and will not necessarily add
of proceeds of sales of United States savings bonds.
Note:
to totals.
Regraded Unclassified
CONFIDENTIAL
25
UNITED STATES SAVINGS BONDS - SERIES E
Comparison of September sales to date with sales during the
same number of business days in August and July 1942
(At issue price in thousands of dollars)
:
September :
Cumulative sales by business days
Date
:
daily
:
:
:
:
September
August
July
September as
:
sales
:
:
:
: percent of August
tember 1942
1
$ 11,634
$ 11,634
$ 14,044
$ 15,821
82.8%
2
14,748
26,381
36,222
30,701
72.8
3
18,305
44,687
50,797
47,523
88.0
4
17,804
62,491
63,785
77,320
98.0
5
19,166
81,657
86,789
95,044
94.1
8
49,400
131,057
111,748
116,643
117.3
9
13,295
144,352
128,176
139,390
112.6
10
16,430
160,781
154,981
164,161
103.7
11
19,573
180,354
164,866
183,238
109.4
12
9,584
189,938
180,787
209,787
105.1
14
35,544
225,482
197,143
225,532
114.4
15
10,717
236,199
215,903
243,938
109.4
16
21,855
258,054
225,481
261,766
114.4
17
17,621
275,675
254,163
284,111
108.5
18
16,476
292,151
263,900
296,344
110.7
19
10,384
302,535
281,550
327.712
107.5
fice of the Secretary of the Treasury,
Division of Research and Statistics.
arce:
All figures are deposits with the Treasurer of the United States on account
of proceeds of sales of United States savings bonds.
Note:
Figures have been rounded to nearest thousand and will not necessarily add
to totals.
26
September 21, 1942.
My dear Mr. Pegler:
I have noticed your column appearing in the
World-Telegram of last Friday in which you discussed
the subject of the credit for dependents in the income
tax law. This is a matter as to which there has al-
ways been, and probably always will be, rather wide
difference# of opinion. Some have taken the position
which you appear to take that the credits ought to be
regarded as allowances adequate for the full support
of the dependents. I doubt, however, that the Con-
gress has regarded them as more than a means of
lightening the tax burden in some degree for those
who have others closely related to them dependent on
them for support.
I have myself firmly resisted in the past efforts
to minimise these credits, as well as the personal ex-
emptions, and only the extremely urgent need for new
tax revenues on S. broader base to finance the war has
induced me to advocate lowering them.
One paragraph in your letter, however, seems to
me most serious In its implications. You write, re-
ferring to a statement of the President on tax avoidance:
"This opened up the subject and it was
revealed that the Treasury itself was the master
shyster of the country, skilled in a baffling
repertoire of snide tricks and interpretations
and operating under a fixed policy never to
give the taxpayer an even break, unless he
happened to be a regional king-maker of the
ruling party, such as Ed Kelly of Chicago or
Frank Hague of Jersey City.'
I am naturally concerned about two plain implica-
tions of this statement. One is that the Treasury is
Regraded Unclassified
2
- 2 -
unfair in its treatment of the ordinary taxpayer;
the other that some taxpayers get preferred treat-
ment because of their political influence. Frankly,
I don't think either of these is "fair enough"
or justifiable.
In the nearly nine years that I have been Secre-
tary of the Treasury there is no one matter to which
I have given more direct personal attention than that
of fair and equal treatment to all taxpayers in the
administration of the law. I have repeatedly asked
taxpayers who believed themselves to have been un-
justly treated to bring their grievances directly to
me. Examiners and investigators have been instructed
to disregard completely all questions of power and
influence, whether political or otherwise, in the con-
sideration of tax cases. I believe these instructions,
reinforced by the instructions and the decisions of
Commissioner Helvering, in whose integrity I have the
most complete confidence, have been faithfully followed.
If there are any instances in which they have not been,
I should most sincerely like to know about them. As you
know the Treasury is forbidden by law to disclose the
amount and sources of income reported by taxpayers (ex-
cept for a special provision as to high salaries received
from corporations) but we do welcome information of any
kind that may lead to the discovery of undisclosed in-
come or of any injustice or discourtesy to a taxpayer.
I think you know from your own recent experience that
this is true. In this connection I want to thank you
for the data you recently supplied to one of our agents,
whom I authorized to call on you in response to your
letter to Mr. Irey.
Normally we expect criticism of the administration
of the tax laws. The laws are intricate, they affect
millions of people and there are necessarily borderline
decisions that leave room for argument. Also most re-
viewers and investigators are, I think, continuously
conscious of the fact that they are dealing with the
public's money and that they can't make themselves good
Regraded Unclassified
28
- 3 -
fellows at the Government's expense, even for the sake
of creating good will.
It is my hope, however, that in these times,
criticism by men of your great influence will be suf-
ficiently specific and sufficiently well based 80 that
it will help us in correcting our mistakes and our
omissions.
We shall have a terrific job ahead of us to handle
collections under the new law that is now shaping up in
the Senate Finance Committee. It will probably mean
some 40,000,000 returns as against 27,000,000 this year
and less than 3,000,000 8. few ears ago. We should
like to be able to undertake the job in an atmosphere
of cooperation rather than one of resentment and ill
will. And I feel sure that we shall have to increase
taxes still further. I should like to have your help
with that problem, too.
I should appreciate it if you would drop in to
see me some time when you are in Washington.
Sincerely,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Mr. Westbrook Pegler,
Ridgefield, Connecticut.
mr
File in Diary
Regraded Unclassified
29
TheNews
SEP 19 1942
Fair Enough
SEP
1.
Wash. Daily Naws
1942
By Westbrook Pegler
Bept. 19-The present
Ed Keily of Chicago or Frank Hague of Jersey City,
allowed under the In-
The arbitrary figure of $400 deductible for each depend-
ternal Revenue Act for the support of
ent is reasonable only In the case of families living
the taxpayer's dependents is $400 per
modestly, If not the poverty, under one roof. It is not
head and it is now proposed to reduce
sufficient for the support of an aged parent, for example,
the allowance to $300 and even to as
living in his or her own quartera.
Little as $150. All these figures, In-
In the case of a dependent child the allowance stops at
cluding the existing rate, are hypo-
the age of 18 which, in normal times, and again citing the
critical and inconsistent with the eco-
New Deal's own ideas on education and youth, is Just the
nomie facts of life, and with the
time when the youngster's costa go up. In this there has
professed living standards of the New
been a dirty discrimination against the person of suffi-
Deal, and It would be far better to
clent talent, diligence and/or luck to earn a tax-bearing
have done with the fake and either
income. At 18, his kids are deemed to be grown and fully
abolish the allowance altogether or N-
educated and able to shift for themselves. But the chil-
duce it to a token figure of $1 just to keep alive, for some
dren of eitizens in the sub-taxable brackets are held to be
future and honester time, the principle that the support
more or less helpless and in need of public assistance for
of one individual by another in certain relationships is &
their education to the age of 25.
human duty, and a public benefit.
Again, the Revenue Act has been arbitrarily dishonest,
Nobody ever believed that $400 a year was a reasonable
eynical and brutal In disallowing any deduction for the
allowance for the support of dependent relatives. The
support of a grown but wholly dependent relative beyond
figure 1s below the standard which the New Dealers them-
the age of 18 but short of old age, unless that Individual
selves, in their anguish over one-third of the nation,
is helpless from illness or other physical affliction. For
regarded as wretched poverty, Now, with the cost of
example, an adult over 18 of sound health who is a charge
living risen and likely to rise still more, It is the more
on the Income and conscience of a taxpayer because of
dishonest, and a reduction to $300 or 8150 would be even
unemployment in not recognized as & dependent.
more insulting to the people's intelligence,
This sort of doing makes people cynical and impairs
their faith In their Government, and they would be better
I' THERE is anything in the principle that a well-daing
Individual should take care of his own people In hard
Impressed if Congress were to say that the whole principle
luck, and In the principle that he deserves a deduction
of deductions is out the window, or suspended until fur-
for easing to this important extent the public cost and
ther notice, because the Treasury needs the money to pay
the moral loss from mass public dependency, then the
for the war.
allowance should have been made In all such cases, re-
gardless of the recipients' health,
T HERE la no relationship between the people and the
It has been a queer Idea of our Congress, and of the
Government which has created as much nasty feeling
New Deal, that the Income taxpayers, a minority but em-
as the operation of the income tax. President Roosevelt
bracing that entire element known as the middle clasa
once made a memorable speech about deadhead passen-
and the most reliable producers of public revenue, deserve
gers on the ship of state who evaded taxes by clever little
nothing better than the worst of it all the time and
schemes having the color of legality.
needn't be dealt with on terms of common honesty.
This opened up the subject and It Was revealed that the
If we are 30 hard up that the allowance must be cut to
Treasury, Itself, was the master shyster of the country,
$300 or $350, we ought to abolish the fake entirely. It
skilled in a baffling repertoire of snide tricks and Inter-
would be futile to propose that, Instead, we turn square,
pretations, and operating under a fixed policy never to
establish a rate consistent with the truth, and extend the
slive the taxpayer an even break, unless he happened to
allowable field of dependency to Include all real de-
be n. regional king-maker of the ruling party, such as
pendents.
Regraded Unclassified
30
THE WHITE HOUSE
WASHINGTON
September 21, 1942
Dear Mr. Paul:
Thank you very much for the detailed
explanation of the Ruml plan and for the
copy of your radio talk. I understand the
plan, for the first time.
Very sincerely yours,
Thanks Rosteuer
30
THE WHITE HOUSE
WASHINGTON
September 21, 1942
Dear Mr. Paul:
Thank you very much for the detailed
explanation of the Ruml plan and for the
copy of your radio talk. I understand the
plan, for the first time.
Very sincerely yours,
Thanks Rosteuer
31
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
September 21, 1942
TO
Secretary Morgenthau
FROM Randolph Paul
For your information, I am attaching
correspondence with Mrs. Roosevelt in answer
to a telephonic request to your office from
the White House.
REP.
32
September 19, 1942
Dear Mrs. Roosevelt:
In response to your request to Secretary
Morgenthau, I an attaching a description of
the Ruml plan as compared with the comparable
features of the present law and the current
tax bill. I an also attaching copies of my
radio talk of September 1, 1942, In opposition
to the Ruml plan, and a further statement on
the plan. This statement contains an example
on page 2 which may help you to follow my
explanation.
It is not easy to explain the somewhat
complicated Ruml plan, but please understand
that if the enclosed explanation is not suffi-
cient I shall be only too glad to supplement
it in any way you may desire.
Sincerely yours,
(Signed) Randolph Paul
Randolph E. Paul
General Counsel
Mrs. Eleanor Roosevelt,
The White House.
Attachments
RB:REP:mv
Regraded Unclassified
33
the purpose of the had plan, which as accomplishes to part,
to to - and hosp the individual temperar out of dabb to the
Government. h wier. - individual werld pay quarterly during
each your a tentative tax for that year Inset - the provious
year's income, and on the following March 15 he would - a
final settlement for the your, adjusting my underpoyment of
1
Under the original plan the issue tax - 1941 Insures
would be forgives. the - paid during 1942 willd be considered
met a - - 1842 Insure but a tentative tax on 1942 income.
as Known 15. 1943, the tasse - return covering 1942 Income
would be filed and my - of astmal fax - above amounts
paid in 1948 would be paid at that time. If the anount of astual
1 payments die I lass 1998 2 1 s I il I $
to 1942. the difference would be refunded to the tempsyer off
effect against his tax « 1943 income.
M the - time, Narch 15. 1943. that this nettlement of
1942 - - mis, the temperar would start paying a tentative
tax on 19/03 Insure. This tentative to would be based on his
actual Income for 1948, computed at whatever rates the Law
provided for 1943 income. the tempoyer would have the privilege
Regraded Unclassified
34
- 2 .
of paying this tentative to in quarterly instalmate. as
March 15. 1944, be would file a return of Me astmal Income
for 1943 and pay the balance - If Me estual - ensected
Ms tentative tax, w reseive a refund w tax effect if his
netual text - loss than the tentative ten, M the - time
he would compute and start paying his tentative - to 1944
based on 1943 income. this presses would statime from your
to your.
If the tempsyer's Income reselved the - from your to
year, his payments during eath your well be emetly the -
- they site under the present arrangment. M his death, how
one, little or - - would be eved to the Covernments, while
under the present assungement the tax evel m death would be
approximately the - en - year's Income.
If the temper had - income in my year. he would -
time during that year to pay tentative tax on the basis of the
poter year's insure but would be allowed a refund the following
1
If a person's Income reastred the - from year to year.
be would not eve the Government tax at the and of my year. If
bis income were higher than in the provious year he would, at
the and of the year, owe the Currement tall on the - of the
Regraded Unclassified
35
- 3 -
increase. If his Income wase Lower then in the provious year.
the Government would, at the and of the year. we his tax en
$ % I 1 a
30 to understand that Mr. - has publicly revised his
plan in come particulars. but no statement of these revistens
has been received.
These the present 1aw a return is filed on March 15 for the
Income of the provious year and the tax my be paid in four
quartorly instalments if desired. The Treasury recomended that
for persons receiving wages. colories, or dividends, part of the
tax be collected at www. The unumple, the employer would
withheld part of the tax from wages and rest 10 so the Covern-
ment as part payment of the employee's ten. This proposal was
accepted w the House. the Senate Finance Committee, however,
eliminated this festure. 20 imposed an additional - of
5 persont on grees income, called the "Tistour" tax, to be
withheld at the course on vages and salaries.
September 18, 1942
Mided
Regraded Unclassified
36
TREASURY DEPARTMENT
Washington
FOR RULEASE. MORNING NEWSPAPERS
Tuesday, September 1. 1942
Press Service
8/31/42
No. 33-2
The following address by Randolph E. Paul,
General Counsel for the Treasury Department,
is scheduled to be broadcast over the Mutual
Network at 9:15 p. m., Eastern War Time,
Monday, August 31, 1942.
Last Friday you may have heard over this network a discussion of the
so-celled pay-rs-you-go tax plan by its sponsor, Mr. Beardsley Ruml. There
1s no doubt that the plan he has advanced is original end ingenious. The
Treasury has considered it earnestly and with the great respect to which
it is entitled, both on the merits and because of the high standing of its
author. But that consideration hrs not led us to the conclusion that the
plan should be adopted. I should like to outline to you tonight the reasons
why the Treasury does not like the plan.
Mr. Ruml proposes to put all texpayers on P current basis by skipping
a year's tax. Under his plan the tex liability for the year 1941 will be
simply forgiven by the Government. The payments which have been made
during this year 1942 for that year's tax will instead be treated as current
payments on 1942 tax liability. Of course 1942 income will not ordinarily
be the same as 1941 income, 80 when March 1943 comes around, each taxpayer
will file a return for 1942 showing what his actual 1942 income WAB. If
it was more than the amount his payments covered, he will then pay the
difference in tax. If it WAS in fact less, he will be entitled to a refund.
And his return of 1942 income will also be treated AB a tentative return
for 1943 which will determine his advance or current payments of 1943 tax
liability.
The description I have just given illustrates some of the Treasury's
objections to the Ruml plan. In the first place it is extremely complicated.
Each year's tax payments will depend upon two returns instead of one 88 at
present. The taxpayer will first file a return of one year's income which
will be the tentative return for the following year. He will pay tax
according to this return, and then when the year is ended he will have to
file another return showing what his incore actually was, and he will then
have to meke e further payment or collect a refund depending on how his
income varied. The administrative problems for the Government in collecting
these additional payments and in making a large number of refunds would be
very great, and the system would certainly be very confusing for many tax-
payers.
Another objection is the fact that the Ruml plan, despite its label
as the pay-as-you-go tax plan, would not in fact put taxpayers current
with their tax liability to the Government, Many taxpayers experience
considerable fluctuations in their annual incomes. In their cases the
Regraded Unclassified
37
- 2 -
Ruml plen would not be a pay-as-you-go plan at all. Let's take the case
of A man who ordinarily makes about $3,000 8. year, but who pute through
A successful deal in one year BO that he makes $10,000. Under the Ruml
plan he would pay on & $3,000 income in the year he had $10,000, and then
in the following year when he had en income of $3,000 again, he would have
to pay a deficiency on his last year's tax, and then pay currently on the
basis of a $10,000 income. His tax payments for that year would in fact
exceéd his total income for that year, and his problem would be a very
serious if not impossible one. The Ruml plan does not in fact achieve its
basio purpose to put the income tax on a current basis; its seductive allure
is in fact an illusion.
Why, then, has the Ruml plan been so earnestly advanced and so
assiduously pushed forward? We can find much of the reason when we turn
to consider the Treasury's third objection to the scheme. It is an
essential part of the Ruml plan that one year's taxes be forgiven. It
is said that this treats everyone alike; everyone is given a clean slate
for 1941. But let us see how this works out. In the first place several
billions of dollars of tex liability are cancelled. That is a somewhat
surprising way to raise tax revenue in wartime. And what is the result
of treating all alike? From eighty to ninety percent of the taxpayers
have incomes below $3,000. and they would be forgiven from a few dollars
up to a maximum of two or three hundred dollars each. But the wealthy
man with an income of half a million dollars would save a tax liability
of more than $350,000.
If 1941 were a normal year the plan would be bad enough, but 1941
was not a normal year in any sense of the word. It was a year in which
our factories made more shiny new cars, more bright gadgets of all kinds,
more goods for consumer use than in any year in our history. Individuals
made a great deal more money last year than they are apt to do now with
the impact of rationing. growing scarcities, higher taxes, and other
effects of the war. Under Mr. Ruml's plan such individuals would pay no
tax on their 1941 earnings at all. The man who got huge commissions for
placing war contracts in 1941 would pay no tax at all. The man who profited
by manufacturing AS many civilian goods as the treffic would bear would
pay no tax at all. Anyone who had a large income for 1941 - and that goes
for thousands, if not millions, of people - would get a wholly fortuitous
tax windfall.
This hardly seems to be treating everyone alike. It is instead the
passing out of huge benefits to those who need them least, and at a time
when we must be getting more revenue instead of giving it away.
It is true that taxpayers would keep on paying year after year under
the Runl plan, and the loss of revenue would not actually appear until B.
taxpayer's income declined or until he died. But it is undeniably true
that over a period of years the Ruml plan involves giving away B. sum of
billions of dollars, and giving it largely to the wealthy taxpayers who
Regraded Unclassified
38
- 3 -
need it least. It is not surprising, therefore, that it has been energetically
pushed by those who benefited by some of 1941's better than usual incomes.
With the basic purpose of the Ruml plan the Treasury has much sympathy.
It would be fine if a substantial part of our income tax liability could
be put on B. current basis. The easiest way to do this is to collect the
basic part of the tax at the source, that is, to withhold it from wages,
salaries, interest end dividends. The difficulty in the way of putting such
B. plan into full operation has lain in the fact that it would involve a
double payment of tax liabilities in the same year, first the tax on last
year's income, end second the tax on this year's income which would be
withheld at the source. The Ruml plan points a way by which this difficulty
cen be eliminated. It would make it possible for us to introduce now A
comprehensive system of collection at the source which would, in fact, put
the great majority of our taxpayers on a current basis, with the tax collected
week by week from their income: as they receive it.
We have already suggested to the Senate Finance Committee a plan whereby
the pay-as-you-go principle would be applied to All normal taxes and to the
first bracket of surtaxes. This would put at least eighty percent of our
texpayers on P. current basis. But the plan 8.8 Mr. Ruml proposed it, is not
acceptable for the three reasons which I have outlined. It is 8. very com-
plicated scheme; it would not, in fact, pat the texpayers on a current basis;
and it involves forgiving a year's tax liability, with the greatest benefit
going to those of the biggest incomes.
It is an attractive idea to get square with Uncle Sem; Mr. Runl himself
has made great use of that word "square" in arguing for his plan. But it
is not enough to be square. In our American vocabulary, the phrase is
"fair and square". It is our deep conviction at the Treasury that the Ruml
plan is not fair and square. Until it can be made fair, we at the Treasury
will not take the responsibility of recommending it to the Congress and to
the taxpayers of America.
39
Statement by Randolph E. Paul
on Ruml plan
In a press release of August 23, 1942, Mr. Beardsley Ruml criticizes
the Treasury's objections to his original Pay-As-You-Go income tax plan.
He directs his comments principally at two points: (1) the Treasury's
statement that the plan would be unacceptable without collection at the
source and (2) the modified method of tax cancellation suggested by the
Treasury. Mr. Ruml's statement reveals a serious misunderstanding of the
Treasury's position. Before proceeding with any changes in the income
tax so revolutionary as that suggested by Mr. Ruml, it is essential that
this misunderstanding be cleared up; and that the basic issues be clearly
understood.
The basic objective of the "pay as you go" plan proposed by Mr. Ruml
is to get taxpayers on a current basis. This objective has deservedly
met widespread public approval. The present method of collecting income
taxes is Doorly suited to a mass tax at high rates. The amounts individuals
pay in any year depend not at all on their income in that year. but rather
on the income of the preceding year. The taxpayer is always in the process
of catching un with himself and never succeeding.
The Ruml plan as originally proposed fails, however, to accomplish its
objectives. A change in names does not change facts. Under the Ruml plan,
the amount paid in 1943 would be called a "tentative tax on 1943 income."
But it would be computed by assuming that 1943 income would be the same as
1942 income. Calling the amount paid in 1943 a "tentative tax on 1943 income"
Regraded Unclassified
40
- 2 -
does not make it a tax on 1943 income if, as in the original Ruml plan, the
amount paid 1s computed as it now is on the basis of 1942 income.
In many cases the problem is made even worse than it now 18, since
under the Ruml olan a taxpayer will have to sottle in the following year
for any difference between his "tentative" tax and his actual tax.
Mr, Jones, let us say, is married with no dependents and has an income
of $3,000 in 1941 and 1942, $10,000 in 1943, and $3,000 in 1944. His
tax liabilities at the new rates passed by the House are $324 on $3,000
of income and $2,152 on $10,000 of income. How much will Mr. Jones have
to pay under the original Ruml plan?
1943: Income
$10,000
Tax payments:
Tentative tax on 1943 income computed on
the basis of a 1942 income of $3,000
324
Adjustment for difference between tentative
tax paid in 1942 and actual tax on 1942
o
income
Total payments
324
1944: Income
3,000
Tax payments:
Tentative tax on 1944 incone computed on the
basis of a 1943 income of $10,000
2,152
Adjustment for the difference between tenta-
tive tax paid in 1943 and actual tax on
1943 income ($2,152 - $324)
1,828
$ 3,980
Total
Regraded Unclassified
41
- 3 -
In 1943, Mr. Jones pays only $324 out of a $10,000 income-the same
amount he would pay under existing methods of income tax payment.
In 1944, Mr. Jones must pay almost $4,000 out of a $3,000 income.
He has a high tentative tax because his income was high in the
preceding year. In addition he has a big adjustment to pay because
his income was low two years ago. This is current tax payment in
name only. True, Mr. Jones will in 1945 receive credit for his
overpayment in 1944. But in 1944 he must finance this extra pay-
ment out of his reduced income.
It is no answer to this example to say that most taxpayers do
not experience such wild fluctuations in income. It is precisely
such fluctuations that make current tax payment necessary and
that the Ruml plan is designed to cure. If everybody's income
stayed the same year after year, the present method of tax collec-
tion would do well enough. There would be no need of the Ruml
plan or any other plan for current payment.
The best way to cure this defect in the Rural plan is to
couple the Ruml plan with collection at the source. Collecting
as much of the tax as possible from income as it is earned
is truly "pay as you go."
Regraded Unclassified
42
- 4 -
Collection-at-source is a practicable way by which the tax paid in any
year can be computed and paid on the basis of actual income received
in that year. It is "current" collection in fact as well as in name.
It is for this reason that the Treasury finds the Ruml plan completely
unacceptable unless it is linked with collection-at-source at the
combined normal and first bracket surtex rate.
Collection-at-the-source is essential not only to serve the
convenience of the taxpayer but also to make the income tax la flexible
instrument to meet war-time final needs. Under the original Ruml plan
as now, a change in tax rotes would not affect tax collections until
the following calendar year. With collection-at-the-source, & change
in tax rates can be effective almost immediately. Under the original
Ruml plan as now, & change in n/ tional income will not affect tax
collections until the following colender year. with collection-at-the-
source, it will affect tax collections immediately.
The other major defect in the original Ruml plon is the clear and
striking injustice of C/ ncelling oll 1941 liobilities. Mr. Ruml would
do this in order that tax poyments.mude in 1942 could be trected LB &
tentutive tax on 1942 income. Once agoin the objective, namely to bring
all texpayers current immediately is admirable. But the results are Not.
Many on individual had a higher income in 1941 than in most other years
of his life. Cancelling his 1941 liabilities would be a pure windfull,
& windfull that would have to be, made up by other texpuyers who had not
been so fortunate. The men who in 1941 received $500,000 would have D
Regraded Unclassified
43
- 5 -
tax liability of almost 350,000 cancelled, although his income in
1942 and later years may be much lower and although the $500,000
may be traceable directly to the war program.
Moreover, such a taxpayer is unlikely to need the cancellation
in order to wipe out his debt to the Government. Few men who have
such an income are so improvident as to make no provision for the
tax as the income is received; or are so unfortunate as to have no
substantial amount of capital with which to wipe out the debt.
To meet this obvious defect the Treasury has suggested that
the Ruml plan would be greatly improved if only part of tux liabil-
ities be cancelled, and that, for simplicity, the cancellation refer
to 1942 liabilities.
The part to be cancelled would be the entire normal tax - or 4
percent at existing rates - plus the first bracket rate of the
surtax - or 6 percent at existing rates. The cancellation would not,
as Mr. Ruml erroneously stated, apply only to the first $2,000
of net taxablo income. It would apply to the entire net taxable
income but at only the first bracket rate. For example, a married
person with no dependents with $500,000 income in 1942 would
(ignoring, for simplicity the ourned income credit) have a net
taxable income of $498,500 under existing exemptions. The amount
cancelled would be 10 percent of this or $49,850 out of a total tax
at oxisting rates of $345,350.
A man with 310,000 incomo would have a net taxable income of
$8,500. Again ignoring the oarned income credit he would have $850
cancelled out of & total liability of $1,305, leaving about 5450 to
be paid during the next two yours.
44
- 6 -
The Treasury's suggestion applies equally to all taxpayers; but
it does not permit high income taxpayers to cancel their liabilities
under higher surtax rates. As noted above, persons subject to these
higher rates are most likely to make advance provision for taxes, and
hence do not need to have all their liabilities cancelled.
This statement does not imply Treasury approval of the Ruml plan.
Its purpose is rather to clarify the considerations that must be taken
into account in judging the plan, and to indicate the modifications
that should be made in it if the Senate Finance Committee should deem
it an appropriate part of the 1942 tax bill.
August 24, 1942
45
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
September 21, 1942
TO
FROM Randolph Paul
With reference to the President's note as follows:
"H. M. Jr.
Treasury Taxing embassies?
Let C. H. know personally.
F.D.R."
I presume the President was referring to the subject
matter of correspondence between John Sullivan and the
Secretary of State, February 27, 1942 and June 26, 1942.
This correspondence has reference to a ruling of this
Department that effective July 1, 1942 foreign diplomatic
officers (members of their staffs, households, and
families, etc.) and consular officers would be allowed
only such exemptions from Federal excise taxes as are
specifically prescribed by statute or by treaty. There
are no statutory provisions allowing such officers
exemption from Federal excise taxes, such as manufac-
turers' excises, retailers' excises, automobile use,
admissions, club dues, transportation, and communica-
tions taxes.
Please note that Cordell Hull signed personally the
letter of June 26. It is apparent that the Secretary of
State knows of the problem. I am also attaching a copy
of a letter of July 1, 1942 signed by Acting Secretary
of the Treasury, John L. Sullivan, in reply to the
Secretary of State's letter of June 26, and a copy of
the letter of February 27.
REP.
Attachments
Regraded Unclassified
46
THE WHITE HOUSE
WASHINGTON
UMJ.
mbrins.
Treasury Taxing
L.TCH. know
Dersandly.
s
711
Regraded U
A-265342
Diplomate and Consuler Officers
47
Stationed in the United States.
COPY
MT:DC
FEB 27 1942
My dear Mr. Secretary:
Further reference is made to your letter of January 5, 1942
(FA), in which you request certain information concerning exemption
of foreign diplomatic representatives at Washington and the members
of their staffs and households and their families living with them,
including clerks and servants who are not American citizens, and
also exemption of certain foreign consular officers, from the Federal
excise taxes imposed under the provisions of the Internal Revenue
Code, as amended by the Revenue Act of 1941.
This Department has examined the tax exempt status of diplomatic
and consular officers of foreign governments, and has determined that
foreign diplomatic and consular officers should not be granted ex-
emptions from Federal excise taxes, unless such exemptions are
specifically provided for by statute or by treaties. The Internal
Revenue Gode, as amended, does not exempt foreign diplomatic and
consular officers from Federal excise taxes of any character. In
the absence of treaties, therefore, no exemption from Federal excise
taxes may be granted to foreign diplomatic and consular officers.
This ruling applies, for example, to the various manufacturers'
excise taxes imposed under Chapter 29 of the Internal Revenue Code,
as amended, and to the retailers' excise taxes imposed by Chapter 19
of the Internal Revenue Gode, as amended, even though the products,
the sale of which is taxed, are sold directly or indirectly to
diplomatic and consular officers of foreign countries. Similarly,
and by way of further illustration, there exists no statutory basis
for granting exemptions to diplomatic and consular officers of
foreign countries to such taxes as the automobile use, admissions,
club dues, transporation, telegraph and telephone taxes. Notwith-
standing that enforcement of these taxes may be difficult or impossible
in certain cases because of sections 4063 and 4064 of the Revised
Statutes, it is held that ambassadors, ministers, their families,
staffs, and households, are subject to these taxes.
Regraded Unclassified
48
MT:DG
- 2 -
The Honorable,
The Secretary of State.
You also request information respecting the applicability
of Federal excise taxes to consular officers of foreign countries
with which there are in force treaties containing provisions
relating to the exemption of consular officers from taxation,
and also to consular officers of foreign countries with which there
are in force treaties involving consular relations which contain
most-favored-nation clauses. This Department cannot state a
general rule concerning the taxation of such consular officers.
Because the exemption of consular officers depends upon treaty
provisions, it is essential to know the particular treaty involved
and also whether most-favored-nation treatment should be acco rded.
With a view to avoiding confusion which may arise by reason
of many previous rulings to the contrary, and for the purpose of
promoting uniformity and equitable treatment to all persons affected,
the conclusions reached herein will not, in accordance with section
3791 (b) of the Internal Revenue Gode, be applied with respect to
transactions occurring prior to July 1, 1942.
For the time being, however, and until July 1, 1942, the
position of this Department will continue to be as follows:
(1) ambassadows, ministers, their families, staffs, and households,
including clerks and servants who are not American citizens, are
exempt from (a) such excises as the automobile use, admissions,
club dues, transportation, telegraph and telephone taxes, and (b)
manufacturers' and retailers¹ excise, provided they are a party
to the transaction with respect to which the excise tax otherwise
would be imposed; (2) foreign governments, their agents and officers
other than diplomatic representatives, are exempt only with respect
to Federal excise taxes the legal incidence of which would fall
upon them, such as, for example, the automobile use, transportation,
telegraph and telephone taxes, and then only with respect to trans-
actions arising in the performance of their official functions for
which payment is made by their foreign government; and (3) consular
officers shall be accorded the same exemptions set forth in item
(2) above, and in addition such further exemptions as may be
prescribed by treaty.
If further correspondence relative to this matter is necessary,
kindly refer to IR:MT:ST.
Very truly yours,
(Signed) John L. Sullivan
Acting Secretary of the Treasury.
The Honorable,
The Secretary of State,
Washington, D. C.
Copy Attached.
Regraded Unclassified
49
C
0
P
July 1, 1942
Y
My dear Mr. Secretary:
Reference is made to your letter of June 26, 1942,
in which you ask that this Department reconsider its
position with respect to exemptions from Federal excise
taxes to be accorded on and after July 1, 1942, to diplo-
matic and consular officers of foreign countries.
In a letter to you dated February 27, 1942, this
Department stated that it had determined that foreign
diplomatic and consular officers should not be granted
exemptions from Federal excise taxes unless such exemp-
tions are specifically provided for by statute or by
treaty, but that this conclusion would not be applied
with respect to transactions occurring prior to July 1,
1942. You state that there would seem to be authority
in international law for the exemption of foreign govern-
ments from such taxes, and you express the hope that the
Treasury Department may think it expedient and proper to
defer definite action until the international situation
affords a more favorable opportunity for examination of
the subject in all of its aspects.
These matters were carefully considered by the
Treasury Department prior to the adoption of the position
expressed in its letter of February 27, 1942. Inasmuch
as July 1, 1942 was the effective date of this position,
information concerning it already has been furnished to
various corporations such as those engaged in transporta-
tion and in communication and which are responsible for
the collection of Federal taxes on these activities. At
this time it is impossible to postpone the effective date.
To attempt to do 80 would only cause confusion. Accord-
ingly, this Department will adhere to its position that
Regraded Unclassified
50
-2-
on and after July 1, 1942, foreign diplomatic and
consular officers will not be granted exemptions from
Federal excise taxes unless such exemptions are spe-
cifically provided for by statute or by treaty.
In the event of further correspondence refer to
symbols IR:GC:A-265342.
Very truly yours,
(Signed) John L. Sullivan
Acting Secretary of the Treasury.
The Honorable
The Secretary of State,
Washington, D. C.
I
#
-
NEGISTARY OF STATE
1
a
P
Diplomate + Consular officer Stationed
the United state DEPARTMENT OF STATE
WASHINGTON
MT ST
a-265342
RECEIVED IN
reply refer to
JUN 291942 June 26. 1942
CHIEF COUNSEL'S OFFICE
FOR THE
My dear Mr. Secretary:
BUREAU OF INTERNAL REVENUE
Int Div
Reference is made to the letter of February 27,
1942 from the Acting Secretary of the Treasury stating
that the Treasury Department "has determined that for-
eign diplomatic and consular officers should not be
granted exemption from federal excise taxes, unless
such exemptions are specifically provided for by statute
or by treaty"; also that "with & view to avoiding con-
fusion which may arise by reason of many previous rulings
to the contrary, and for the purpose of promoting uni-
formity and equality of treatment to all persons affected,
the conclusions reached herein will not *** be applied
with respect to transactions prior to July 1, 1942".
In order to ascertain the practice of other coun-
tries with respect to the granting by them to diplomatic
officers of the United States of exemptions from similar
taxes a circular instruction was sent to such of the
American missions abroad as could be communicated with
and there are transmitted herewith copies of the replies
which have thus far been received. Because of the exist-
ing international situation and consequent disruption of
communications, replies have not been received from a
number of the missions, but it will be observed from the
enclosed reports that a number of exemptions now granted
in the United States to foreign diplomatic and consular
officers are already accorded to American diplomatic and
consular officers in other countries.
In as much as a number of the taxes under reference
would, if collected, be payable not by the diplomatic or
consular
The Honorable
BVICTORY
Henry Morgenthau, Jr.,
Secretary of the Treasury.
BUY
WHITED
STATES
BONDS
-
STAMPS
Special Corres. no. 20816 5XX
RECORDED
Puik slips
-30-42 W.W.B.
do C
real
Regraded Unclassified
- 2 -
consular officers concerned but by their respective
governments for governmental purposes, the collection
of such taxes from foreign diplomatic and consular
officers would contravene the principle of international
law, to which the Government of the United States has
given recognition, that one sovereign should not be taxed
by another sovereign. Accordingly, since international
law is recognized as a part of the law of the United
States, there would seem to be legal authority for the
exemption of foreign governments from such taxes and the
present policy of the Treasury Department constitutes
proper recognition of that fact.
While this Department believes that it would be
desirable to make a comprehensive study of the question
of the exemption from taxation of foreign diplomatic and
consular officers with a view to the formulation of a
clear and definite policy as to the specific taxes or
categories of taxes to which such exemption should apply
and the conditions of its application, it is clear that
the present emergency does not afford a favorable oppor-
tunity to attempt such a study, which it is believed
should precede any endeavor to obtain the enactment of
legislation or the .conclusion of international agreements
if such legislation or agreements should appear to be
necessary or desirable. In brief, the Department feels
that any material change in the existing policy of this
Government respecting the exemption from taxation of for-
eign diplomatic and consular representatives--a policy
which is substantially reciprocated by many other govern-
ments--could hardly fail to cause resentment by the govern-
ments associated with the United States in the conduct of
the war and by other friendly governments, which accord
exemption to American diplomatic and consular officers,
particularly those of the Western Hemisphere.
While the Department has refrained from communi-
cating the Treasury Department's ruling to the diplomatic
missions, the British Embassy has learned of it informally
and there is transmitted herewith a copy of a note from
the embassy referring to the effect of the ruling on ex-
emptions now ranted to various British Missions in the
United States and requesting this Department's intercession
with the Treasury Department "with a view to the recission
of the latter's recent decision".
I am
Regraded Unclassified
- 3 -
I am not informed as to the importance of these
taxes from the point of view of the amount of revenue
involved. It seems certain, however, that the burden
will fall heaviest on our friends in the present struggle.
I therefore express the hope that the Treasury Department
may find it expedient to reconsider the matter in the
light of these observations and may think it expedient
and proper to defer definite action until the international
situation affords a more favorable opportunity for exami-
nation of the subject in all of its aspects.
Sincerely yours,
Enclosures:
1. Copies of twenty-nine
despatches from American
diplomatic Missions.
2. From British Embassy,
June 22, 1942.
RECEIVED
SPEO. CORRES CONT
JUN 29 1942
BUR INT. REV
NO.
Regraded Unclassified
Hm.7.
54
Redide prick
you
August 20, 1942.
TAXATION OF FOREIGN DIPLOMATIC OFFICERS
Prior to July 1, 1942, the Treasury Department exempt-
ed foreign diplomatic representatives from the payment of
Federal excise taxes, including taxes on the transportation
of persons, telegraph, cable and radio messages and facili-
ties, manufacturers' and retailers' taxes on commodities
including gasoline, tax on the use of motor vehicles and
boats, etc.
Effective July 1, 1942 the Treasury Department reversed
its policy and announced that such exemption would be granted
only when specifically authorised by statute or treaty.
Although none of our treaties provide specifically
for the exemption of diplomatic representatives from taxa-
tion, our treaties with Argentina, Bolivia, Costa Rica and
Paraguay provide that the diplomatic representatives of
those governments shall receive most-favored-nation treatment
with respect to exemptions and privileges and the Treasury
Department has accorded the diplomatic representatives of
the four governments mentioned exemption from the taxes
under
Regraded Unclassified
55
under reference on the basis of our treaty with Liberia
which was not intended to apply to diplomatic representa-
tives. The result is that the diplomatic representatives
of the four governments mentioned receive the exemption
which is denied to the diplomatic representatives of all
other governments.
The situation is further complicated by the fact
that the consular representatives of a number of govern-
ments receive, on the basis of treaty provisions, the
exemption which is denied to the diplomatic representatives
of the same governments.
In 80 far as the taxes are imposed on governmental
functions and are paid by foreign governments, the collec-
tion of the tax disregards the principle of international
law, which has been recognised by this Government, that
one sovereign may not tax another sovereign. This prin-
ciple was expressly recognised in a letter addressed to
the Secretary of State by the Secretary of the Treasury
in 1941 which contains the following statement:
"The General Counsel of the Treasury Depart-
ment, under date of August 14, 1940, held
that, as a matter of international law, one
sovereign may not levy a tax on the trans-
actions of governmental functions by a
foreign government when the tax or its direct
burden will fall upon that government."
This
Regraded Unclassified
56
-3-
This is the position which this Department has consist-
ently taken with respect to taxes imposed by the several
personal
states on foreign government-owned property in the United
States, to wit, property acquired here by the British and
other Governments for public purposes.
In a letter addressed by the Secretary of State to
the Secretary of the Treasury under date of June 26, 1948
the opinion was expressed that any material change in the
existing policy of this Government respecting the exemption
from taxes of foreign diplomatic representatives could
hardly fail to cause resentment by the governments associ-
ated with the United States in the prosecution of the war
and by other friendly governments which accord exemption
to American diplomatic and consular representatives,
particularly those of the Western Hemisphere. The hope
was expressed that the Treasury Department might find it
expedient and proper to defer definite action until the
international situation should afford a more favorable
opportunity for examination of the subject in all of its
aspects.
In a letter dated July 1, 1942 Acting Secretary of
the Treasury, Sullivan, stated that information concerning
the Treasury Department's new policy had been furnished
to various corporations concerned with the collection of
the taxes; that it was impossible to postpone the effective
date
Regraded Unclassified
57
÷
date of the policy, and that the Treasury Department would
adhere to its position that on and after July 1, 1942
foreign diplomatic and consular representatives would not
be granted exemption from Federal excise taxes unless such
exemptions were specifically provided for by statute or
treaty.
The announcement of the Treasury Department's new
policy has already caused strong resentment in the Diplo-
matic Corps and the Department has received numerous
inquiries and protests from the various embassies and lega-
tions in Washington, including those of Great Britain,
the Soviet Union, South Africa, Netherlands, Belgium,
Spain, Portugal, Argentine Republie, Colombia, Haiti,
Venesuela, and Dominican Republic. Some of the informal
protests were rather bitter, particularly those of Colom-
bia and Portugal.
The Legation of Colombia is ready to make a formal
protest but prefers not to write notes of protest in these
days and is delaying action in the hope that the situation
will be remedied.
The Minister of Portugal referred to the fact that
Portuguese ships are now carrying from the United States
to Portugal large consignments of gasoline, foods and
other commodities for the use of American diplomatic and
consular officers not only in Portugal but in many other
countries.
Regraded Unclassified
58
-5-
countries. He stated that the Portuguese Government viewed
with concern such arbitrary action on the part of the Gov-
ernment of the United States and that reciprocal action
would no doubt be taken by his Government.
There can be no doubt that the Treasury Department's
new ruling is prejudicial to the relations of this Govern-
ment with the Governments associated with it in the present
war and with other friendly governments, particularly those
of the Western Hemisphere. The taxes fall heaviest on our
friends in the present struggle. They have here large
numbers of officials -- diplomatic and non-diplomatie --
engaged in the common war effort, who have heretofore been
gi ven exemption from these taxes. The burden will fall
upon their Governments.
Moreover, we have in most of those countries large
contingents of official and enlisted personnel and the
number is increasing daily. If similar taxes are imposed
upon our people in those countries the result will be that
we will be paying out thousands of dollars which we are not
mow required to pay -- a sum considerably in excess of the
amounts that may be collected in the United States from
foreign representatives.
But what is more important is the fact that a principle
and practice of long standing is being uprooted, 1.0., that
the exemption is put on a treaty or statutory basis instead
of on the basis of international law and comity.
Both
Regraded Unclassified
59
-f-
Both Great Britain and the Soviet Union invoke
international law as a basis for exemption.
Great Britain in a note of August 18, 1942 states that --
"In accordance with the principle of the
immunity of foreign governments from taxation
His Majesty's Government gran to exemption in
the United Kingdom to foreign governments in
respect of taxes (such as motor vehicle taxes,
establishment licences, etc.) for which the
foreign governments would be accountable them-
selves. The exemption from motor vehicle tax
is of particular importance to the United States
Government since, were it net for this exemption,
the United States Army would be liable to pay
very large sume in licence fees on their vehicles
in the United Kingdom. ... Further United
States Government and other Allied governments
enjoy a very valuable concession in respect of
United Kingdom Purchase Tax, from which they are
exempted in all their purchases from registered
wholesalers."
It adds that --
It will be ampreciated that none of
these exemptions enjoyed in the United Kingdom
by governmental agencies of the United States are
derived from any treaty and that they result in
substantial financial concessions to the United
States Government."
In a memorandum dated August 17, 1942 the Soviet
Ambassador, after referring to the ruling of the Treasury
Department that it will collect these taxes except where
exemption is granted by virtue of treaties, states --
"But are not diplomatie representatives
according to international usage exempt from
all state taxation?"
Regraded Unclassified
60
-7-
A similar complaint, dated August 11, 1942, has been
received from the Belgian Embassy, requesting that taxes
collected by communications companies, and covering tele-
phone, telegraph, cable and radio messages of this Embassy,
for the month of July, be reimbursed.
We cannot overlook the effect of the new policy upon
our own officials and personnel in friendly foreign coun-
tries, or its effect upon the relations with our friends.
It does not adversely affect our enemies but rather it may
work to their advantage. The amount of revenue involved
would seem to be far outweighed by these other considerations.
It is believed that if these considerations were
brought directly to the attention of the Secretary of the
Treasury, he would appreciate their significance and would
revert to the practice obtaining prior to July 1. The order
of the Treasury Department might provide that these exemptions
may be denied if the Department of State informs the Treasury
Department that substantially reciprocal exemption is not
accorded in any particular country.
Regraded Unclassified
61
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
SEP 21 1942
TO
FROM
Randolph Paul
Huntington Cairns, Bernard Bernstein
and I worked on the draft of Price Legislation which you
distributed to the group meeting Friday at 2:15 p. n.
We made a number of suggestions to
Oscar at luncheon at the Occidental Saturday afternoon.
REP
62
September 18, 1942.
PRICE LEGISLATION
1. The Senate version - S.J. Res. 161 - meets
the problems better than the House bill,
2. The few substantial and technical flaws in the
Senate version should be corrected. The changes should be
kept to a minimum. Attached is a short memorandum on the
changes. It would be preferable to have these changes made
by having the corrected bill reported out by the Senate
Committee.
3. In so far as possible, the House bill should
conform to the corrected Senate version by:
a) The House waiting for the Senate to act
on its bill first; or
b) The House Committee reporting out the
same bill as the corrected Senate version,
Attachments
Doaraded
63
PRICE LEGISLATION
S.J. Res. 161
What the Senate Resolution Contains Now
1) The Brown-Wagner resolution, as introduced, authorises the
President "to stabilise prices, wages, salaries, and other factors affect-
ing the cost of living" 80 far as practicable around levels prevailing on
August 15, 1942. Adjustments may be made to the extent necessary ato
correct gross inequities or to aid in the effective prosecution of the war".
2) Farm prices: Maximum prices for agricultural commodities may
not be established below a price which will reflect to the farmer either
parity, or the highest price between January 1, 1942 and September 15, 1942,
whichever is higher-but the President may lower the January-September price
to the extent necessary to correct gross inequities.
3) Wages and Salaries: No action can be taken contrary to the
Fair Labor Standards Act, or which will cut across any case pending on
September 15, or which will reduce wages or salaries below the highest sum
paid between January 1, 1942 and September 15, 1942-but the President may
lower wages or salaries if he finds it necessary to correct gross inequities.
4) Sanstions: Wage and salary decisions are to be enforced through
existing government agencies in determining costs and expenses; and price
decisions through the Price Act.
5) The resolution and the Price Act are limited to expire on
June 30, 1944-this extends the life of the Price Act by a year.
Suggested Changes in Senate Bill
To correct the flaws in the Senate bill, it is suggested that:
Regraded Unclassified
64
- 2 -
1) The changes shown in the attached copy of the
bill be made.
2) Subsection 2 of Section 2 should be changed to
read "The highest price received by farmers for such commodity
between January 1, 1942 and September 15, 1942 (adjusted by
the Secretary of Agriculture for grade, location and seasonal
differentials). The reasons for this suggested change are:
a) To eliminate "sport" prices on & particular day-which may
be far higher than parity or a fair or normal market price--
as a guide for ceilings on farm prices; and b) To make it con-
sistent with the adjustment standards for parity prices-stand-
ards which have been used for more than 9 years.
3) The farm price and wage sections (Section 3 and 4)
should be changed to: a) Make them consistent with Section 1
by giving the President the power to adjust prices and wages
to correct gross inequities or to aid in the effective prosecu-
tion of the war. This will give more needed flexibility to
adjust prices to step up production of products or otherwise
aid the war; b) Give the President the power to adjust farm
prices and wages, This will give the President the power to
lower or raise prices or wages-rather than merely lower them-
to correct gross insquities or to aid in the effective prosecu-
tion of the war.
Regraded Unclassified
65
- 3 -
4) Subsection 2 of Section 4- the wage section -
should be stricken out to prevent pressure being put on the
War Labor Board to dispose of pending cases by granting
wage increases.
5) Section 2 should be changed to make it clear that
the powers and sanctions under the Emergency Price Act and
similar legislation will be available for the administra-
tion and enforcement of this joint resolution.
6) & minor change should be made in Section 2 to make it
consistent with Section 1. This can be done by adding the
words "and other factors" to the laws relating to prices,
wages and salaries.
Copy:fb
9-22-42
S.J.Res. 161
66
JOINT RESOLUTION
To Aid in stabilising the cost of living.
Resolved by the Senate and House of Representatives of
the United States of America in Congress assembled, That in order
to aid in the effective prosecution of the war, the President is
authorised and directed to stabilise prices, wages, salaries and
other factors affecting the cost of living; and such stabilisation
shall so far as practicable be on the basis of the levels which
existed on August 15, 1942. In exercising the authority conferred
by this joint resolution, the President may provide for making ad-
justments with respect to such prices, mages, salaries and other
factors, to the extent that he finds necessary to correct gross
inequities or to aid in the effective prosecution of the war.
Sec. 2. The President may, from time to time, promulgate
such regulations as may be necessary and proper to carry out any
of the provisions of this joint resolution; may exercise any power
or authority conferred upon him by this joint resolution through
such department, agency, or officer as he shall direct; [and] may
suspend any provisions of law relating to the establishment or
maintenance of prices, wages [or] salaries, or other factors which
are inconsistent with the purposes of this joint resolution; and may
utilise such provisions of law, including the enforcement provisions
thereof, for the administration and enforcement of this joint resolution.
Sec. 3. No maximum price shall be established or main-
tained for any agricultural commodity under authority of this joint
Regraded Unclassified
67
- 2
resolution [or otherwise] below a price which will reflect to pro-
ducers of agricultural commodities the higher of the following
prices, as determined and published by the Secretary of Agriculture;
(1) The parity price for such commodity (adjusted
by the Secretary of Agriculture for grade, location,
and seasonal differentials) or, in case a comparable
price has been determined for such commodity under
and in accordance with the provisions of section 3(b)
of the Emergency Price Control Act of 1942, such com-
parable price (adjusted in the same manner), or
(2) The highest [market] price received by farmers
for such commodity between January 1, 1942 and
September 15, 1942 [*] (adjusted by the Secretary of
Agriculture for grade, location, and seasonal differentials);
and no maximum price shall be established or maintained under
authority of this joint resolution or otherwise for any commodity
processed or manufactured in whole or substantial part from any
agricultural commodity below a price which will reflect to the
producers of such agricultural commodity a price therefor equal to
the higher of the prices specified in clauses (1) and (2) of this
section: Provided, that the President may [provide for a lower]
adjust the price [than the highest market price] for any commodity
between January 1, 1942 and September 15, 1942, to the extent that
he finds necessary to correct gross inequities[.] or to aid in the
effective prosecution of the war.
68
- 3 -
Sec. 4. No action shall be taken under authority of this
joint resolution with respect to wages or salaries (1) which
is inconsistent with the provisions of the Fair Labor Standards
Act of 1938, as amended, [(2) which is inconsistent with any recom-
mendation or order of any agency of the Federal Government affect-
ing the wages or salaries of employees whose cases were pending
before such agency en September 15, 1942, and were undetermined
on the date of enactment of this joint resolution,] or [(3)] (2)
for the purpose of reducing the wages or salaries for any particular
work below the highest wages or salaries paid therefor between January 1,
1942 and September 15, 1942: Provided, That the President may adjust wages
or salaries [below the wages or salaries referred to in clauses (2) and (3)
of this section,] to the extent that he finds necessary to correct gross
inequities[.], or to aid in the effective prosecution of the war.
Sec. 5. No employer shall pay, and no employee shall receive,
wages or salaries in contravention of the regulations promulgated by the
President under this joint resolution. The President shall also prescribe
the extent to which any wage or salary payment made in contravention of
such regulations shall be disregarded by the executive departments and
other governmental agencies in determining the costs or expenses of any
employer for the purposes of any other law or regulation.
Sec. 6. The provisions of this joint resolution, and all
regulations thersunder, shall terminate on June 30, 1944, or on such
earlier date as the Congress by concurrent resolution, or the President,
may prescribe.
Regraded Unclassified
69
-,4- -
Sec. 7. Section 1(b) of the Emergency Price Control Act of
1942 is hereby amended by striking out "June 30, 1943" and substituting
"June 30, 1944".
Copied:mn
9/22/42
70
Secretary Morgenthau
Randolph Paul
Huntington Cairns, Bernard Bernstein
and I worked on the draft of Price Legislation which you
distributed to the group meeting Friday at 2:15 P. n.
We made a number of suggestions to
Oscar at luncheon at the Occidental Saturday afternoon.
Kfa
71
September 18, 1942.
PRICE LEGISLATION
1, The Senate version S.J. Res. 161 - meets
the problems better than the House bill,
2, The few substantial and technical flaws in the
Senate version should be corrected. The changes should be
kept to a minimum. Attached is a short memorandum on the
changes. It would be preferable to have these changes made
by having the corrected bill reported out by the Senate
Committee,
3. In so far as possible, the House bill should
conform to the corrected Senate version by:
a) The House waiting for the Senate to act
on its bill first; or
b) The House Committee reporting out the
same bill as the corrected Senate version.
Attachments
i
72
PRICE
S.J. Res. 161
What the Senate Resolution Contains New
1) The Brown-Wagner resolution, as introduced, authorises the
President "to stabilise prices, wages, salaries, and other factors affect-
ing the cost of living" so far as practicable around levels prevailing on
August 15, 1942. Adjustments may be made to the extent necessary "to
correct gross inequities or to aid in the effective prosecution of the mr.
2) Farm prices: Maximum prices for agricultural commodities may
not be established below a price which will reflect to the farmer either
parity, or the highest price between January 1, 1942 and September 15, 1942,
whichever is higher-but the President may lower the January-September price
to the extent necessary to correct gross inequities.
3) Wages and Salaries: No action can be taken contrary to the
Fair Labor Standards Act, or which will out across any case pending on
September 15, or which will reduce wages or salaries below the highest sua
paid between January 1, 1942 and September 15, 1942-but the President may
lower wages or salaries if he finds it necessary to correct gross inequities.
4) Sanetions: Wage and salary decisions are to be enforced through
existing government agencies in determining costs and expenses; and price
decisions through the Price Act.
5) The resolution and the Price Act are limited to expire on
June 30, 1944-this extends the life of the Price Act by a year.
Suggested Changes in Senate Bill
To correct the flaws in the Senate bill, it is suggested that:
Regraded Unclassified
73
- 2 -
1) The changes shown in the attached copy of the
bill be made.
2) Subsection 2 of Section 2 should be changed to
read "The highest price received by farmers for such commodity
between January 1, 1942 and September 15, 1942 (adjusted by
the Secretary of Agriculture for grade, location and seasonal
differentials). The reasons for this suggested change are:
a) To eliminate "sport" prices on a particular day-which may
be far higher than parity or a fair or normal market price-
as a guide for ceilings on farm prices; and b) To make it con-
sistent with the adjustment standards for parity prices-stand-
ards which have been used for more than 9 years.
3) The farm price and wage sections (Section 3 and 4)
should be changed to: a) Make them consistent with Section 1
by giving the President the power to adjust prices and wages
to correct gross inequities or to aid in the effective prosecu-
tion of the war. This will give more needed flexibility to
adjust prices to step up production of products or otherwise
aid the war; b) Give the President the power to adjust farm
prices and wages. This will give the President the power to
lower or raise prices or wages-rather than merely lower them-
to correct gross inequities or to aid in the effective prosecu-
tion of the war.
74
-
- 3 -
4) Subsection 2 of Section 4 - the wage section -
should be stricken out to prevent pressure being put on the
War Labor Board to dispose of pending cases by granting
wage increases.
5) Section 2 should be changed to make it clear that
the powers and sanctions under the Emergency Price Act and
similar legislation will be available for the administra-
tion and enforcement of this joint resolution.
6) A minor change should be made in Section 2 to make it
consistent with Section 1. This can be done by adding the
words "and other factors" to the laws relating to prices,
wages and salaries.
Copy:fb
9-22-42
S.J.Hes. 161
75
JOINT RESOLUTION
To Aid in stabilising the cost of living.
Resolved by the Senate and House of Representatives of
the United States of America in Congress assembled, That in order
to aid in the effective prosecution of the war, the President is
authorised and directed to stabilise prices, wages, salaries and
other factors affecting the cost of living; and such stabilisation
shall 80 far as practicable be on the basis of the levels which
existed on August 15, 1942. In exercising the authority conferred
by this joint resolution, the President may provide for making at-
justments with respect to such prices, wages, salaries and other
factors, to the extent that he finds necessary to correct gross
inequities or to aid in the effective prosecution of the ware
Sec. 2. The President say, from time to time, promulgate
such regulations as may be necessary and proper to carry out any
of the provisions of this joint resolution; may exercise any power
or authority conferred upon him by this joint resolution through
such department, agency, or officer as he shall direct; [and] may
suspend my provisions of law relating to the establishment or
maintenance of prices, wages [or] salaries, or other factors which
are inconsistent with the purposes of this joint resolution; and say
utilise such provisions of law, including the enforcement provisions
thereof, for the administration and enforcement of this joint resolution.
Sec. 3. No maximum price shall be established or main-
tained for any agricultural commodity under authority of this joint
Regraded Unclassified
76
- 2 -
resolution [or otherwise] below a price which will reflect to pro-
ducers of agricultural commodities the higher of the following
prices, as determined and published by the Secretary of Agriculture;
(1) The parity price for such commodity (adjusted
by the Secretary of Agriculture for grade, location,
and seasonal differentials) or, in case a comparable
price has been determined for such commodity under
and in accordance with the provisions of section 3(b)
of the Emergency Price Control Act of 1942, such com-
parable price (adjusted in the same manner), or
(2) The highest [market] price received by farmers
for such commedity between Jamary 1, 1942 and
September 15, 1942 [1] (adjusted by the Secretary of
Agriculture for grade, location, and seasonal differentials);
and no maximum price shall be established or maintained under
authority of this joint resolution or otherwise for any commodity
processed or manufactured in whole or substantial part from any
agricultural commodity below a price which will reflect to the
producers of such agricultural commodity & price therefor equal to
the higher of the prices specified in clauses (1) and (2) of this
section: Provided, that the President may [provide for a lower]
adjust the price [than the highest market price] for any commodity
between January 1, 1942 and September 15, 1942, to the extent that
he finds necessary to correct gross inequities[.] or to aid in the
effective prosecution of the war.
Regraded Unclassified
77
- 3 -
Sec. 4. No action shall be taken under authority of this
joint resolution with respect to wages or salaries (1) which
is inconsistent with the provisions of the Fair Labor Standards
Act of 1938, as amended, [(2) which is inconsistent with any receive
mendation or order of any agency of the Federal Government affect-
ing the wages or salaries of employees whose cases were pending
before such agency on September 15, 1942, and were undetermined
on the date of enactment of this joint reselution,] or [(3)] (2)
for the purpose of reducing the wages or salaries for any particular
work below the highest wages or salaries paid therefor between January 1,
1942 and September 15, 1942: Provided, That the President may adjust wages
or salaries [below the wages or salaries referred to in clauses (2) and (3)
of this section,] to the extent that he finds necessary to correct gross
inequities[.], or to aid in the effective prosecution of the was
Sec. 5. No employer shall pay, and no employee shall receive,
wages or salaries in contravention of the regulations promulgated by the
President under this joint resolution. The President shall also prescribe
the extent to which any wage or salary payment made in contravention of
such regulations shall be disregarded by the executive departments and
other governmental agencies in determining the cests or expenses of my
employer for the purposes of any other 1ar or regulation.
Sec. 6. The provisions of this joint resolution, and all
regulations thereunder, shall terminate on June 30, 1944, or on such
carlier date as the Congress by consurrent resolution, or the President,
may prescribe.
Regraded Unclassified
78
-4-
See, 7. Section 1(b) of the Emergency Price Control Act of
1942 is hereby emended by striking out "June 30, 1943" and substituting
"June 30, 1944".
Copiedian
9/22/42
79
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATESeptember 21, 1942
TO
Secretary Margenthau
FROM
Mr. Haas
Subject: The Business Situation,
Week ending September 19, 1942.
Summary
(1) Industrial production rose more than seasonally in
August and the FRB adjusted index advanced to a new record
high at 183 as compared with 180 in the previous month. Last
November Just before our entry into the war the index stood
at 166. The gain in the unadjusted index in August was the
sharpest recorded since June 1941.
(2) Steel ingot production increased moderately in
August. However, output was still about 2 percent short of
the record peak of last March and only about 3 percent higher
than year-earlier levels. Steel operations during the current
week are scheduled at 96.2 percent, the lowest since early
August.
(3) The anti-inflation bills approved by the Senate and
House Committees near the end of last week would give the
President power to hold farm prices at parity or at recent
levels, and a directive to stabilize wages and salaries. Among
other features, the pending bills would also provide price
support to farm products by mandatory Government loans at
90 percent of parity for 6 basic crops as well as for
commodities which have to be produced in increased amounts to
meet war needs.
(4) The BLS wholesale price index of 28 basic commodities
advanced fractionally to a new high last week as 8 out of 9
uncontrolled commodities showed gains, led by an increase of
nearly 3 percent in butter prices. In the week ended September 12
the BLS all-commodity index showed another advance of 0.1 point
to a new high at 99.2. At this figure the index stands
32.3 percent above the pre-war level of August 1939.
(5) Department store sales in the week ended September 12
were only 3 percent below year-earlier levels, despite 1 less
shopping day than in the same week last year. Retail prices of
typical department store items, on the whole, were unchanged in
August for the second consecutive month owing to the effect of
price ceilings. On September 1, prices averaged 10.2 percent
higher than on the corresponding date in 1941.
Regraded Unclassified
80
- 2 -
Industrial production at new peak
Industrial output rose more than seasonally in August,
carrying the FRB adjusted index of industrial production to
a new record high of 183. This figure compares with 180 in
the previous month, and with 166 last November just before
our entry into the war. In August 1939, before the outbreak
of war in Europe, the index stood at only 106.
Steel operations improved moderately in August
Steel ingot output increased moderately in August, and
the monthly total of 7,233,000 net tons exceeded that of
August last year by 3.4 percent. Output for the month,
however, was slightly below the levels attained last spring.
The all-time high of 7,393,000 net tons was established
last March. After reaching a recent high of 97.6 percent
of capacity at the start of the month, steel operations
have receded to a rate of 96.2 percent scheduled for the
current week. (See Chart 1.)
More than 75 percent of finished steel output 18 now
going into direct war use, according to a recent statement
of the Iron and Steel Branch of the WPB. Indicative of the
tremendous demands of the war program for steel, it was
pointed out that cargo ships of the Liberty type which are
now in large scale production require approximately 4,500 tons
of rough steel per ship, while a medium tank takes about
38 tons and a big four engine bomber requires 15 tons.
Some anti-aircraft guns use up 14 tons of steel, while
16-inch guns require no less than 576 tons of steel each.
Steps taken to bolster lumber output
Due to the difficulties encountered in obtaining steel,
a tendency to substitute lumber for steel has been on the
increase and has contributed somewhat to the tight supply
situation which has developed in the lumber industry. In the
face of increased demand, lumber production this year has
fallen moderately below year-earlier levels. Moreover, log
inventories, usually at a peak in September, are at the lowest
levels in 5 years, due reportedly to difficulties in maintaining
the supply of labor in lumber camps.
In order to cope with the problem of labor shortage in the
industry, the War Manpower Commission recently froze in their
jobs all lumber workers in 12 western states. In addition the
WPB recently directed the Pacific Coast lumber industry to
Regraded Unclassified
81
- 3 -
institute a 48-hour week, with overtime payments after 40 hours.
A request to this effect had been made before, but it 1s
reported that only about 40 percent of the firms involved
actually complied with the request.
Construction awards declined in August
War-induced construction activity, which has been an
important factor in the heavy demand for lumber, shows
indications of a downturn.
Although total construction contract awards in August, as
reported by the F. W. Dodge Corporation, were at the fourth
highest monthly total on record, they were 24 percent lower
than in July and 39 percent lower than the record high reached
in June. Moreover total contract awards fell below year-
earlier levels for the first time this year. (See Chart 2.)
Residential construction awards dropped to the lowest levels
since February 1940.
Contracts for manufacturing buildings in August declined
14 percent from the record high reached in July, but still
amounted to $261 millions, or 36 percent of total awards. In
New York State, however, the State Labor Department reported
that, mainly due to priorities, plane submitted for industrial
building in August dropped to only 49 percent of the average
for that month for the last 18 years.
Stability of wholesale price index may be misleading
For the second consecutive week, the BLS all-commodity
wholesale price index in the week ended September 12 touched
& new war-time high. A slight rise carried the index to
99.2 percent of the level in 1926, and 32.3 percent above the
Dre-war level of August 1939.
The all-commodity index on the whole, however, has shown
very little change since the general price order became
effective in May. Its stability may be deceptive, however,
since the index has not been revised to take account of
commodities which are no longer being sold in any significant
quantity. Prices of these are merely held unchanged in the
index. Moreover, deterioration in quality and ceiling
violations are not being reflected in the index. On the other
hand, certain price increases resulting from allowances by
the OPA for special circumstances are being reported and
included.
Regraded Unclassified
82
- 4 -
Anti-inflation program continues to lift prices
Basic commodity markets continue to be influenced by
hopes and apprehensions concerning anti-inflation action.
The net effect for the week was higher prices, and the BLS
index of 9 uncontrolled commodities touched a new high for
the second week in succession. (See Chart 3.)
Led by an increase in butter prices of 3 percent, prices
of 8 of the uncontrolled commodities increased. Grains ad-
vanced on traders' belief that their prices would be en-
couraged to rise to parity. The buoyancy in rye was dampened
to some extent by reports that farmers might find it more
advantageous to sell cash rye than to pledge it for
Government loan at 60% a bushel.
Hog prices advanced moderately, following announcement
by Secretary Wickard of a pork purchase program to be
financed by the Commodity Credit Corporation "designed to
relieve the 'price squeeze' on small packers and to assure
continuing large supplies of pork products." Purchases of
pork by the Department of Agriculture in the two weeks ended
September 12 were the smallest since early March. Owing to
a decline in the price of hogs in the week before last,
packers' margins showed a further improvement as indicated by
Department of Agriculture calculations.
Cotton prices throughout the week showed considerable
uncertainty concerning the final terms of the pending price
legislation. Prices for steers declined to their lowest
levels since July 17.
Canadian food prices lower
The Canadian cost-of-living index as of August 1 de-
clined slightly from its war-time high of July 1. The de-
cline was due chiefly to a decrease of 0.5 percent in food
prices, ascribed particularly to lower prices for beef and
potatoes, which had risen sharply in the preceding month.
The lower level of beef prices reflected the first of the
adjustments in wholesale beef prices begun by Government
order. Such ijustments are being applied progressively
downward until beef prices reach a level considered "normal"
in relation to cattle supplies. The Government expects to
maintain prices in such relationship thereafter.
Since the decline in the Canadian cost-of-living index
was less than one point, there will be no decrease in the
weekly bonus to employees which became payable August 15, as
a result of the rise in living costs since last October 1.
Regraded Unclassified
83
- 5 -
The importance of full control of food prices in the
United States 1s indicated in Chart 4, which contrasts the
recent decline in Canadian living costs with the rise in
living costs in this country. The increase of 0.4 percent
in the cost-of-living index for the United States as of
August 15 was due to a further rise in food prices, amounting
to 1.2 percent since July 15. The Bureau of Labor Statistics
reports that prices of uncontrolled foods have increased
10 percent since the general price regulation became
effective on May 18, while prices of controlled foods have
declined 0.3 percent in that period.
Retail food prices continue rise
Awaiting the anti-inflation legislation requested by
the President, the rise in uncontrolled food costs must be
viewed with increasing concern. Chart 5 (upper section)
shows for retail food prices in 51 cities the steady rise
which has been under way in recent months despite the
ceiling regulation. Most of the recent rise has been due to
increased prices of products not subject to the regulation.
Eggs and butter (lower section of chart) are notable examples
of the rise in uncontrolled food prices in August. On the
other hand, prices of round steak, pork chops and bread,
which are under ceilings, have held practically unchanged
in the last four months.
Developments in anti-inflation legislation
The general pattern of the anti-inflation legislation
requested by the President, according to present Senate and
House bills, appears to be about as follows: (1) Farm
price control at parity, but not below the highest prices
of the period January 1 to September 15, 1942; (2) commodity
loans at 90 percent of parity on basic farm commodities
and some war-essential farm products; (3) Federal authority
to control wages and salaries, perhaps with use of the "Little
Steel" wage stabilization formula as a guide to wage increases.
The provision in both the Senate and House bills making
Government loans mandatory at 90 percent of parity for the
six basic crops -- wheat, corn, cotton, tobacco, rice and
peanuts -- may tend to throw agricultural production out of
balance by stimulating further production of unneeded wheat,
while increasing feed costs to producers of livestock,
poultry, and dairy products. Wheat production will be
stimulated at a time when storage space is overflowing. As
early as last April, Secretary Wickard suggested that parity
for wheat be maintained only for the production required
for domestic flour.
Regraded Unclassified
84
9 , I
Despite the President's expression of "unalterable
opposition" to changing the parity computation 80 as to
include farm labor costs, there are indications that the
issue may not be closed. If farm wage rates are added to
the parity index and labor of both the farmer's family and
hired help are included, according to Senator Bankhead, parity
prices would be raised 12.5 percent. If only the cost of
hired help were considered, parity prices would be increased
4.6 percent.
A comparison of the trend of farm wage rates with the
trend of costs of goods bought by farmers (including interest
and taxes) now used to measure the trend of parity, 1s shown
in Chart 6. It will be noted that the inclusion of farm
wage rates would have depressed parity prices in the years
1931 through 1939, but would have increased parity prices
in 1941 and 1942.
August retail trade showed divergent trends
The greater than seasonal rise in department store
sales in August was accompanied by a similar improvement in
rural sales despite the adverse effects of credit restrictions
and civilian goods curtailments on the sales of the leading
mail order houses. Both department store and rural sales,
however, fell short of the unusually high levels attained in
August 1941, when heavy advance buying was in progress.
(See Chart 7.)
Variety store sales, on a seasonally-adjusted basis,
declined slightly in August. Since adjusted sales in July
reached a record peak, this was still a relatively strong
showing. Moreover, unlike department store and rural sales,
variety stores showed a sales gain over August 1941, amounting
to 10 percent. (Refer to Chart 7.)
Complete August retail sales data for all types of
stores are not yet available, but preliminary figures of the
Department of Commerce indicate that eating and drinking
establishments showed the widest gains over year-earlier
levels, while motor vehicle dealers, filling stations,
furniture stores, and dealers in building materials and
hardware showed declines.
Department store sales strong in September
After making an unusually good showing in the week ended
September 5, department store sales in the week ended September 12
fell only 3 percent below year-earlier levels, despite the fact
Regraded Unclassified
85
- 7 -
that there was 1 less shopping day in the 1942 week due to
Labor Day. (See Chart 8.)
The strong sales trend shown in the early part of the
month appears to be continuing. Dun and Bradstreet, in
commenting on sales last week, referred to "a strong
buying movement" and estimated that general retail trade
was from 2 to 5 percent above year-earlier levels.
As a result of the maximum price regulations, retail
prices of typical department store items, as measured by
the Fairchild index, were unchanged in August for the
second consecutive month. A very slight rise in prices
of men's apparel was offset by corresponding declines in
prices of women's apparel and home furnishings. Although
average prices on September 1 were unchanged from the
previous month, they were still 10.2 percent above year-
earlier levels, and 27.2 percent above the pre-war levels
of August 1939.
Department store inventories in the New York Federal
Reserve District increased in August, but the rise was less
than seasonal and the adjusted index of inventories fell
to 165 from 168 in July. The gain in inventories over
year-earlier levels dropped to 59 percent at the end of
August from 82 percent at the end of July.
Regraded Unclassified
85
- 7 -
that there was 1 less shopping day in the 1942 week due to
Labor Day. (See Chart 8.)
The strong sales trend shown in the early part of the
month appears to be continuing. Dun and Bradstreet, in
commenting on sales last week, referred to "a strong
buying movement" and estimated that general retail trade
was from 2 to 5 percent above year-earlier levels.
As a result of the maximum price regulations, retail
prices of typical department store items, as measured by
the Fairchild index, were unchanged in August for the
second consecutive month. A very slight rise in prices
of men's apparel was offset by corresponding declines in
prices of women's apparel and home furnishings. Although
average prices on September 1 were unchanged from the
previous month, they were still 10.2 percent above year-
earlier levels, and 27.2 percent above the pre-war levels
of August 1939.
Department store inventories in the New York Federal
Reserve District increased in August, but the rise was less
than seasonal and the adjusted index of inventories fell
to 165 from 168 in July. The gain in inventories over
year-earlier levels dropped to 59 percent at the end of
August from 82 percent at the end of July.
Regraded Unclassified
Chart 1
86
STEEL INGOT PRODUCTION
PER
CENT
Per Cent of Capacity
'4'
100
42
90
40
80
70
Amer. / and Inst.
60
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
Office of the Secretary of the Treasury
Division of Research and Statistics
C-419
Regraded Unclassified
TOTAL CONSTRUCTION CONTRACT AWARDS
(37 States, F. W. Dodge Corp.)
DOLLARS
MILLIONS
1000
'42
800
600
'41
400
'40
200
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
Office of the Secretary of the Treasury
Derman of Research and Statistics
C-442
87
Chart 2
Regraded Unclassit
MOVEMENT OF BASIC COMMODITY PRICES
1941
1942
PERCENT
PERCENT
August 1939-100
190
190
185
185
9 Uncontrolled Commodities
180
180
175
175
170
28 Commodities
170
165
165
160
160
19 Controlled Commodities
155
155
150
150
145
145
140
140
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1941
1942
PERCENTAGE CHANGE DEC. 6, 1941 TO SEPT. " AND SEPT. 18, 1942
PERCENT
PERCENT
19 Controlled
9 Uncontrolled
+45
Commodities
+45
Commodities
Nage 425x
+40
+40
+35
+35
Flamed 3142
+30
+30
Butter 26.12
+25
+25
+20
w NM
+20
/ 18.00
+15
Shellee an
+15
Corn 138%
Load use
Steers 12.9%
Print Cloth F.E.X
Bonker an
+10
Sugar 4.9%
+10
Cottenesed Oil an
Cotton 202
AZino x
+ 5
0% Change
. 5
Wheet 43X
Nides, Sm.
Tin, flubber,
o
Coffee, Copper,
o
& Screptom,
St.Screp.mp.
- 5
Coooo -.ex
- 5
Tollow 4/2
Aniso 4ax
Wes/ Tupe-6.7X
-10
10
Dec. 6
Sept.11
Sept. -
Dec. 6
Sept.It
Sept.
IS41
1942
1942
1941
1942
1942
. 20 Controlled and . Uncontralled previous to - N
88
Office of the of the Transry
[ 1 I E
P-244-11
Regraded Uncl
Chart 4
COST OF LIVING. U.S. AND CANADA
89
August 1939 . 100
1939
1840
1941
1942
PERCENT
Cost of Living
120
120
115
115
Canada
(Das Ar of State)
110
110
U.S.
(BLS)
105
105
100
100
95
&
J
A
$
o
D
di
F
A
J
,
A
1
0
0
4
F
A
,
/
A
9
a
di
4
A
0
1939
1940
1941
1942
PERCENT
PERCENT
Foods, Retail
130
130
125
125
Canada
(Dom the of Met)
120
120
us
(BLS)
115
115
110
110
IOS
105
100
100
8
95
4
A
.
o
.
o
#
F
#
a
A
o
#
F
A
4
di
A
0
.
D
/
F
&
4
a
A
1942
1939
1940
1941
Office of the hundry of the Transary
C-4E-A
- of - - -
FOOD PRICES. RETAIL
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
PERCENT
PERCENT
RETAIL FOODS*
(1940+ 100)
130
130
125
125
1942
120
120
115
115
110
110
1941
IOS
105
100
100
1940
95
95
90
90
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
Selected Basic Foods
SEPT
NOV.
JAN.
MAR.
MAY
MAY
SEPT.
NOV.
JAM.
MAR.
MAY
JULY
CENTS
GENTS PER
CENTS
CENTS PER
PER oor.
10 LB. SAS
PER DOZ.
10 LB. BAG
WHEAT FLOUR*
EGGS
.
52
52
54
54
1942
48
48
50
50
J941
1942
44
44
46
46
1940
40
40
JAM
MAR
MAY
ALT
SEPT.
NOV.
42
42
CENTS
CENTS
.
PER LA.
PER LE.
BREAD
1941
9.0
9.0
38
38
8.5
1942
8.5
1940
1940
8.0
34
6.0
34
1941
7.5
7.5
JAM.
MAR.
MAY
ALT
SEPT.
BOX
30
CENTS
30
CENTS
PER LB.
PER LB.
BUTTER*
26
48
26
48
JAR.
MAR
MAY
JAY
SEPT.
NOV.
CENTE
CENTS
PER LE.
PER LE
PORK CHOPS
44
44
46
46
1942
40
40
1941
42
42
36
36
1940
30
30
32
32
JAN.
MAR.
MAY
JULY
SEPT.
§
1941
CENTS
CENTS
J. E
PER LB.
1942
34
34
ROUND STEAK®
44
44
30
30
1942
40
40
1940
1941
1940
26
26
34
36
=
32
32
22
JAR.
MAR.
MAY
JULY
SEPT.
BOX
MAR.
-
ALT
I
Note: Letest figures are for April 26. Estimated
90
. - 51 Cities, B.L.S.
- el - Services of - -
- of - - -
Regraded Unclas
Chart 6
91
FARM WAGE RATES AND COST OF GOODS BOUGHT BY FARMERS'
1910-14=100
'27
29
"31
33
35
37
39
141
'45
1941
1942
PERCENT
PERCENT
PERCENT
Annual
Monthly
210
210
200
200
200
200
180
180
Wage Rates
190
190
160
160
180
180
140
140
170
170
Cost of Goods
Wege Rates
160
160
120
120
150
150
100
100
Cost of Goods
140
140
80
80
130
130
120
60
60
120
1925
*27
'29
31
33
35
37
'39
é
43
4
9
-
a
M
a
4
$
.
a
-
1941
1942
1943
Including Interest and foree
Office of the Secretary of the Truesary
0-441
- of - - -
Regraded Unclassified
RETAIL TRADE
Urban and Rural Sales of General Merchandise
1929 . 100. ADJUSTED
PER
PER
PER
CENT
Department Store Sales
CENT
Rural Chain Store and Mail Order Sales
CENT
120 180
180
120
115
115
175
175
1942
110
110 170
170
105
105
165
165
1942
100 160
160
100
95
95 155
ISS
1941
1940
90
90 150
ISO
85
85
145
145
80
80
140
140
75
75 135
135
70
70
130
JAN.
FEB
MAR.
APR
MAY
JUNE
OULY
AUG
SEPT.
OCT.
NOV.
DEC.
130
125
125
125
125
Variety Store Sales
120
120
120
120
4-1942
115
115
115
1941
115
1940
110
110
110
110
105
105
105
1941
1940
IOS
100
100
100
100
95
95
95
95
90
90
90
90
as
85
85
JAN
PUB
MAR
APR
MAY
JUNE
JULY
AUG
SEPT
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUNE
JULY
AUG
SEPT
OCT
as
NOV
DEC
92
Chart 7
- of - - - - Insury
- of - - -
C-150-C
Chart OR
93
DEPARTMENT STORE SALES
1935 - '39 . 100, UNADJUSTED
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
PER
CENT
PER
CENT
Weekly
260
260
240
240
220
220
200
200
180
180
160
160
140
140
120
120
'41'
'42
100
100
80
80
40
60
60
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
Office of the Secretary of the Treasury
- of - and -
C 390
Allen, L. C. Brig. Gen.
94
September 21, 1942
Dear General Allen:
In Secretary Morgenthau's absence from Washington
I All writing to thank you for the pictures of the
Parachute School which arrived this morning.
It does not matter that they were not taken on
the day of the Secretary's visit. They are just the
pictures he wanted to fill out the record of his tour,
and I know that he will appreciate your kindness in
sending them.
Sincerely,
Ferdinand Kuhn, Jr.,
Assistant to the Secretary.
Brig. Gen. Leven c. Allen,
The Infantry School,
Fort Benning, Georgia.
FK/egk
Regraded Unclassified
95
HEADQUARTERS
THE INFANTRY SCHOOL
FORT BENNING GEORGIA
September 11, 1942
1.6
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
Thank you for your letter )of September
eighth. I am glad you liked the photographs.
Unfortunately we do not have pictures
taken at the parachute towers since our photographer was
only on the job in the Infantry School section of the
tour. I have checked with the Parachute School and ex-
cept for the photograph taken with General Howell and
Captain Ewell they do not have any either. That pic-
ture we included with the group we sent.
I have, however, gathered together
from our file a. few pictures of parachute training.
I hope these will answer your needs.
With all kind regards,
Sincerely,
Levenb LEVEN C. ALLEN. allen
96
BRITISH AIR COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D.C.
TELEPHONE HOBART 9000
LEASE QUOTE
EFERENCE NO.
With the compliments of British Air Commission
who enclose Statement No. 51 - Aircraft Despatched
- for week ended September 15, 1942.
The Honourable Henry Morgenthau, Jr.
Secretary of the Treasury
WASHINGTON, D. C.
September 21, 1942.
97
MOST SECRET
STATEMENT NO. 51
AIRCRAFT DESPATCHED FROM THE UNITED STATES
WEEK ENDED 15th. 1942
FLIGHT DELIVERED
TYPE
DESTINATION
ASSEMBLY POINT
BY SEA
BY AIR
FOR USE IN CANADA
Consolidated
Catalina 1B
U.K.
U.K.
4
Curtiss
Kittyhawks
Middle East
Port Sudan
127
Lockheed
Ventura
South Africa
South Africa
4
.
U.K.
U.K.
7
Hudson VI
Canada
Canada
6
If
Middle East
Middle East
2
If
U.K.
U.K.
9
Glenn Martin
Marauder
Middle East
Middle East
5
North American
Mustang
U.K.
U.K.
12
Harvard
Middle East
Port Sudan
6
.
India
Bombay
30
Northrop
Vengeance India
Bombay
18
Vought Sikorsky
0.S.2.U.
West Indies
Jamaica
6
TOTALS -
199
31
6
BRITISH AIR COMMISSION
September 19, 1942.
98
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 328
Information received up to 7 A.M., 21st September, 1942.
1. NAVAL
The convoy to RUSSIA has arrived at ARCHANGEL. The honeward
bound convoy is being shadowed by U-boats end aircraft but up to 11 A.M. 20th no
ship in this convoy has been lost. One of H.M. Minesweepers one of the escort Was
sunk by submarine at 5:30 A.M. yesterday. The estimated position of the convoy
at 6 A.M. today was 200 miles north of JAN MAYEN ISLAND.
2. MILITARY
MADAGASCAR. BRICKAVILLE was captured by our forces on the 19th
without casualties. Our other columns are continuing their advance.
3. AIR OPERATIONS
WESTERN FRONT. 19th to 20th. SAARBRUCKEN. About 50 tons of
H.E. and 103 tons of incendiaries were dropped in about one and a quarter hours
some crews returning from MUNICH reported good fires two hours after the attack.
MUNICH. 115 tons of H.Z. and 47 tons of incendiaries were dropped including 33
4,000 lb. and 59 2,000 lb. bombs. Mnny large fires and two very large explosions.
One of the last aircraft to leave circled the town and reported fires burning well.
RUSSIA. 19th. Russian aircraft sank five small naval vessela
in a BLACK SEA port. German bombers attacked oil tankers on the VOLGA and rail-
way communications east of the river.
LIBYA. 18th to 19th. TOBRUK HARBOUR bombed again.
MEDITERRANEAN. 19th. Beaufighters attacked three schooners
off TRIPOLI and set one on fire.
MALTA! 19th. Two flying boats were shot down by Spitfiros
over SICILY.
1. LATE NEWS
73 survivors from H.M. Canadian destroyer OTTAWA have been
picked up.
Regraded Unclassified
99
September 22, 1942
9:30 a.m.
GROUP
Present: Mr. Bell
Mr. Buffington
Mr. Paul
Mr. Gaston
Mr. White
Mr. Blough
Mr. Thompson
Mr. Gamble
Mr. Odegard
Mr. Schwarz
Mr. Cairns
Mr. Kuhn
Mr. Graves
Miss Chauncey
H.M.JR: Where is Gaston?
MR. GASTON: Right here.
H.M.JR: Gaston, here is a curious one. Did
you ever hear of a fellow named Joseph Leib?
MR. GASTON: Yes.
H.M.JR: What sort of a fellow is he? He says
he has secret information that my father and I were
in the shrinking business during the last World War
and made a lot of money. Will you tell him that if
he knows of a good shrinking business we can use it
in the Treasury. I would like to know how to shrink
a few things. (Laughter) He says the Army was about
to investigate us and was stopped by some higher-ups.
MR. GASTON: He is the fellow who organized
what he claims was the first of the Roosevelt clubs
in 1932, and then he was not properly rewarded
politically and he has been "off the reservation"
since then.
Regraded Unclassified
100
- 2 -
H.M.JR: My father and I never had a war contract
in our lives; but if he knows a good shrinking business
right now I would like to know one. It would save a
lot of trouble. (Laughter)
MR. BELL: The dollar shrinking?
H.M.JR: On prices, I mean. (Laughter)
MR. PAUL: Mr. Secretary, I have to go up on the
Hill at ten o'clock.
H.M.JR: Is that so?
MR. PAUL: And I have got one thing here.
H.M.JR: Have you read "PM" yet about a good tax
plan?
MR. PAUL: Well, I--
H.M.JR: Or did you write it? (Laughter)
MR. PAUL: No. It was submitted to me, but I
did not write it.
H.M.JR: Listen, before you go on the Hill, in
regard to getting this Josephus Daniels' editorial
in the paper, tell him I suggest they ask La Follette
to introduce it.
MR. PAUL: I can ask La Follette.
H.M.JR: Will you?
MR. PAUL: Yes.
H.M.JR: Will you do that?
MR. PAUL: Yes.
H.M.JR: And then who is looking after Mabel
Newcomer
Regraded Unclassified
101
- 3 -
MR. GASTON: I think--
H.M.JR: Who guides her, assists her?
MR. GASTON: I think probably I do as much as
anybody. I talked to her originally.
MR. WHITE: Isn't she on OPA pay roll? Oh, that
is Hildegarde Kneeland.
H.M.JR: They sound very much alike. (Laughter)
MR. WHITE: They both were working on the same
thing. I have just learned that Hildegarde Kneeland
would be available if you want her. Her staff works
on cost of living.
H.M.JR: No. Mabel Newcomer is getting out 8
series of pamphlets, trying to sell the Treasury tax
program.
MR. WHITE: Didn't Hildegarde do some work for
the Treasury on the cost of living?
H.M.JR: Yes, she did. She made available her
figures to George Haas.
What are we going to do about Mabel Newcomer
to look after her temporarily?
MR. GASTON: She is available for part-time
work.
H.M.JR: But she has been working and doing a
lot. I want somebody to guide her.
MR. GASTON: I gave her the assignments that
she has been working on.
H.M.JR: will you take this letter, and have a
talk with her the next time she comes to town, until
we get this thing straightened out, Herbert?
(Letter dated September 18, 1942, signed by Miss
Newcomer, handed to Mr. Gaston.)
Regraded Unclassified
102
- 4 -
MR. GASTON: Yes.
H.M.JR: Now, one other thing - don't get restless.
MR. PAUL: I am not restless.
H.M.JR: Joseph L. Weiner, Deputy Director, Office
of Civilian Supply, writes me as of September 17 -
Miss Chauncey, make a note that I gave that to Gaston.
We will lose it, most likely. (Laughter)
MISS CHAUNCEY: Yes, sir.
H.M.JR: He says, "Among the many problems facing
the Committee is compensation to firms closed down by
the War Production Board program of concentration of
production. In order to deal with the compensation
problem, the Committee has established a Subcommittee
on Compensation. In connection with our work on
compensation plans for closed-down firms under the
concentration plans, we wish to have the experienced
and able help of the Treasury Department. At the same
time, I believe that the Treasury Department will be
vitally interested in the development of any compensa-
tion plans for closed-down industries. I suggest,
therefore, that you designate a representative from
the Treasury Department to be a member of the Sub-
committee on Compensation for Concentration of
Production so that you can participate fully in this
program."
Who would that be?
MR. GASTON: It is an e conomist's job.
MR. PAUL: Who?
MR. GASTON: I say it is an economist's job.
Regraded Unclassified
103
- 5 -
MR. WHITE: I think it is more important than
appears at first blush because it may grow into
compensation for closed-down plants at the end of
the war - outting down the billions of dollars of
contracts. It may be an important committee.
H.M.JR: Why not John L. Sullivan?
MR. PAUL: It is more than an accounting job.
MR. WHITE: I should think it belongs mostly
in Haas' shop.
MR. GASTON: That would be my guess.
H.M.JR: I don't think so. It comes down--
MR. BELL: Are there any documents attached to
show what it is?
H.M.JR: It is voluminous.
MR. WHITE: It takes both a lawyer and an
economist.
H.M.JR: He has been doing that kind of work
for me. I think I will put John on that, and he
can call on other people.
MR. THOMPSON: It sounds like George Haas' work.
MR. WHITE: I still think it belongs to the
Legal Division and Haas' shop.
MR. BELL: Sullivan can consult them.
H.M.JR: Yes, I think SO.
Now, Mr. Paul?
Regraded Unclassified
104
- 6 -
MR. PAUL: I want to leave with you a report - I
will just leave that with you (Memorandum to the
Secretary from Mr. Paul regarding Draeger Shipping Co.)
H.M.JR: What is that?
MR. PAUL: It is a report - a suggested recommenda-
tion.
H.M.JR: Crowley - oh, well now, look, on this
thing - Mr. Cox and Mr. Lubin have declared themselves
in on this thing, and I said when I decided it,I would
have them present.
MR. PAUL: Then we ought to have a conference with
them and go over that.
H.M.JR: All right. Tell Cox and Lubin three o'clock
this afternoon, and Pehle - and who else?
MR. PAUL: Probably Bernstein - I think Bernstein
and Pehle have been working very intensely on it.
H.M.JR: All right, three o'clock.
MR. PAUL: I would like to see you for a few minutes
after that about a little conflict with WPB about taxes.
H.M.JR: Just a little conflict - what could they
want to do, get somebody's taxes signed off? (Laughter)
MR. PAUL: They sent somebody up for about the third
time to oppose our program yesterday, and I think we
ought to do something about it.
H.M.JR: Why wait so long?
MR. PAUL: I did something before but it had no effect.
H.M.JR: The whole program?
MR. PAUL: No, on depletion.
H.M.JR: WPB - who went up there?
Regraded Unclassified
105
- 7 -
MR. PAUL: A man named Nelson, not the leading
Nelson, but another man by the same name.
H.M.JR: What is his name?
MR. PAUL: His name is Wilbur Nelson.
H.M.JR: Wilbur?
MR. PAUL: I would like to tell you the whole story.
H.M.JR: Why don't I just call up Donald Nelson?
MR. PAUL: That is what I did. I think we ought to
go on record on it.
H.M.JR: In writing?
MR. PAUL: I want to tell you the story. It is a
little more complicated than that.
H.M.JR: Write a letter for me to Donald Nelson.
MR. PAUL: Yes, I would like to do that. I would
like to do that.
H.M.JR: All right.
MR. PAUL: We have got the thing licked as far as
the present case is concerned, but I think it is impor-
tant for the future.
H.M.JR: All right. Write me a letter. Are you
going to be here at three o'clock?
MR. PAUL: I think so, unless something happens.
H.M.JR: Will you stay after that?
MR. PAUL: Unless something happens. We are up
on profit limitations, today.
H.M.JR: On what?
Regraded Unclassified
106
- 8 -
MR. PAUL: Profit limitations.
H.M.JR: I see they accomplished something yester-
day: The people over a million dollars don't have to
pay more than ninety percent. That makes good reading.
MR. PAUL: I thought they were going to do a lot
more. I was ready to leave.
MR. GASTON: The story in The Star last night says
that your interview with the press has caused them to
revise their ideas and increase the yield of the bill.
H.M.JR: That shows what an effective mouthpiece I
was for you, Herbert.
MR. GASTON: But if they really are softening
up it is pretty interesting. I don't know.
H.M.JR: Do you see any signs of softening?
MR. PAUL: No, no signs.
H.M.JR: Like softening up of the Japanese, huh?
What else?
MR. PAUL: That is all I have.
H.M.JR: All right, you are excused when you
feel like going.
(Mr. Paul left the conference.)
H.M.JR: Herbert, have you got a fist full?
MR. GASTON: Well, I have here a letter you
might wish to consider.
H.M.JR: (To Paul as he is leaving) Does
Sammy Klaus come to this three o'clock meeting or
not?
Regraded Unclassified
107
- 9 -
MR. PAUL: No, I don't think 30.
H.M.JR: Poor Sammy, aren't you going to allow
him to come? (Laughter)
MR. PAUL: He is on that other job now.
H.M.JR: And so he can't come to this?
MR. PAUL: No, I think not.
H.M.JR: I see. You want to close it. Don't
you want to give him a chance?
MR. PAUL: It would just complicate things, don't
you think?
MR. CAIRNS: I am afraid SO.
H.M.JR: The boy stirred it up; aren't you going
to let him have the fun of seeing me close it?
MR. PAUL: It will just clog the works.
H.M.JR: You fellows are tough. (Laughter)
MR. GASTON: I have had a number of calls from
John McCormack and have been ducking calls from him
about this matter of the appointment of a comptroller
at Boston. - Jim Curley's brother, you know, John
Curley. Jim Curley succeeded in getting the
nomination in a revised district up there for
Congress in defeating Tom Eliot, who is a really
good friend of the Administration. He moved over
into Tom Eliot's district and beat him, Jim Curley
did.
H.M.JR: And Tom Eliot is defeated?
108
- 10 -
MR. GASTON: Yes, Tom Eliot is defeated for
the nomination. Curley went out of his district
to oppose Eliot and beat him. They are pressing
very hard for that appointment, and they tell me
that it is favorably regarded across the street.
I have been stalling them for weeks on the thing.
H.M.JR: Well, keep on stalling. I would
like to get Tom Eliot in the Treasury.
MR. GASTON: That is a good idea.
H.M.JR: What?
MR. GASTON: That is an idea.
MR. ODEGARD: That campaign, incidentally,
reached a new low, 80 far as the character of it
is concerned.
H.M.JR: Who knows Tom Eliot?
MR. WHITE: His brother is here, Charles, in
the National Resources. I know of him.
MR. GASTON: I have met him. I don't know him
at all.
H.M.JR: Do you know him?
MR. ODEGARD: Yes, I know Tom Eliot.
H.M.JR: I don't know what I would have him
do, but I certainly could find a spot for him.
MR. GASTON: Of course he is still a Repre-
sentative until the third of January.
H.M.JR: I will call him. Do you want to call
him up and ask him what his plans are? Do you know
him well?
MR. ODEGARD: I don't know as I know him well.
I have been in his house, had cocktails with him,
and talked with him a great deal.
H.M.JR: Talk to him because tre is a good man.
Regraded Unclassified
109
- 11 -
MR. ODEGARD: He is a good man. I will call him.
H.M.JR: What else, Herbert?
MR. GASTON: Well, there are rather crucial
test cases in Randolph Paul's shop on the question
of the draft and commissions. There is one particu-
lar case, I think, that we would like to put up to you
during the day or within a day or two.
MR. THOMPSON: I hadn't heard of it.
MR. GASTON: No, you had not had a chance to hear
of it. Huntington and Joe O'Connell were talking to me
about it yesterday. They are in the Procurement Division.
H.M.JR: Procurement Division?
MR. GASTON: Yes.
H.M.JR: Lawyers?
MR. GASTON: Lawyers.
H.M.JR: Lawyers do not stand well with the draft
board.
MR. GASTON: There are two of them over there.
They are about to go at once.
H.M.JR: Well, why don't they go to Norman?
MR. GASTON: Well, I think this is a case that you
might want to look at and decide.
H.M.JR: It is very seldom that more than half a
day passes when Norman calls me that I--
MR. GASTON: I asked him to write a memorandum.
H.M.JR: Could you move it into Norman's shop, and
I will see the two of you?
MR. GASTON: Yes.
Regraded Unclassified
110
- 12 -
H.M.JR: I mean, I very seldom--
MR. THOMPSON: They move right along.
H.M.JR: When you say it is urgent, I see you right
away.
MR. THOMPSON: Sure.
H.M.JR: What else?
MR. GASTON: Nothing else.
H.M.JR: Kuhn?
MR. KUHN: You asked about pennies and nickels.
Those announcements have gone out. They were O.K.'d
by Peter. I am not sure whether they are for imme-
diate release by the radio stations or for the first of
October, but I will have the announcements over this
morning for you to see.
H.M.JR: Will you? O.K.
MR. ODEGARD: Did you want to see those announce-
ments?
H.M.JR: I would like to see them, yes.
What else?
MR. KUHN: That is all I have.
MR. BUFFINGTON: We are doing a good job in dis-
tributing circulars through the banks. They will start
on October first, making broad distribution through
their bank statements. We have decided, with your per-
mission, to hold up general distribution to the forty-
three million people we hope to reach until nearer the
time the tax bill is completed, if that is agreeable to
you.
H.M.JR: I will know better after I see how much we
sell this month.
Regraded Unclassified
111
- 13 -
MR. BUFFINGTON: There has not been much of an in-
crease to date. Usually a large percentage comes in
the last five or six days of the month, but there has
already been good distribution to the public through
these commercial bank sources.
H.M.JR: What else?
MR.BUFFINGTON: That is all.
H.M.JR: Ted?
MR. GAMBLE: On September 30, at the close of the
tour of these movie stars, they are going to have a big
celebration in Madison Square Garden. That is a week
from Wednesday night, and they would like very much to
have you present.
H.M.JR: No. Thank you very much.
MR. GAMBLE: That is all I have.
H.M.JR: No. I had my picture "took"; it was very
nice; I enjoyed it.
MR. GAMBLE: They have really done a remarkable job
during the month; they have worked very hard.
H.M.JR: Did you see the editorial on it in today's
Washington Herald?
MR. GAMBLE: No, sir.
MR. KUHN: Very stupid - somebody having space to
fill.
MR. SCHWARZ: Part of the lottery campaign.
H.M.JR: Just amusing. No, I do not think I want
to go up.
MR. GAMBLE: They have been responsible for--
Regraded Unclassified
112
- 14 -
H.M.JR: Maybe you can get Barnie Baruch to go to
that meeting. (Laughter)
MR. GAMBLE: We have had very fine editorial com-
ments from all over the country. Mr. Kuhn has a series
of them that I think he plans to show you.
MR. KUHN: The interesting thing is that since the
movies are big advertisers and are also big people in
the community - and retailers the same - the newspapers
have been publishing more editorials, appreciative
editorials, about the war bond campaign when they link
it with the retailers' drive or the movie drive than we
have ever had before.
H.M.JR: Ferdie, you surprise me! To think any
editorial page could be so influenced!
MR. KUHN: Well, it just happens that way.
(Laughter)
MR. ODEGARD: I was told that that was absolutely
not true, Ferdie, last year, by a society newspaper
editor.
H.M.JR: You made 8 speech to them, didn't you?
MR. ODEGARD: Yes, and they almost tore me limb
from limb for saying what Ferdie has just now said.
H.M.JR: That shows what a year and a half will
do for Ferdie. ( Laughter)
MR. KUHN: Seriously, these people have done the
greatest job that any group has done for us.
MR. GAMBLE: They have stayed right on it, Mr.
Secretary. It hasn't been just. & question of starting.
H.M.JR: You couldn't link up that meeting Wednes-
day night and make it a joint benefit affair for the
governor? (Laughter)
Regraded Unclassified
113
- 15 -
MR. GAMBLE: If you would come, twe might get Mr.
Bennett in.
H.M.JR: Nobody said a word to me about coming out
for Bennett. It is amazing, isn't it?
MR. BELL: Did you come out?
H.M.JR: Nobody has asked me to. Nobody has said
anything to me. It shows how important I am - or un-
important.
What else, Ted?
MR. GAMBLE: That is all I have, Mr. Secretary.
H.M.JR: All right.
Roy?
MR. BLOUGH: Has it been brought to your attention
the Groves-Gulick study is now in our hands for review?
H.M.JR: What happened was, Mr. Gulick came in here
on one of my tax days and said, "Mr. Morgenthau, this is
all right; this is going to be easy for you." He says,
"We have got this thing absolutely condensed down, irre-
ducible." He says, "I would like to give it to you."
He said, "It is fine, we have condensed this thing for
you. Why, it is just a thousand pages." And so I said,
Don't lay it on my desk because I don't want you to
think you have given it to me." That is all I know.
MR. BLOUGH: It isn't quite that bad, Mr. Secretary.
They do have the recommendations reduced to about seventy
or eighty pages, and I think even that can be further
reduced. I might put it on one page for you, sometime,
if you would like it. (Laughter)
H.M.JR: What are you going to use - microfilm?
When you get it down to one page I will look at it.
Regraded Unclassified
114
- 16 -
MR. GASTON: This is a straight attempt at black-
mail. (Referring to Mr. Leib's letter)
H.M.JR: Is it?
MR. GASTON: Yes.
H.M.JR: What do you want to do - give it to the
Secret Service?
MR. GASTON: I think it might be a good idea to
trap the fellow.
H.M.JR: What?
MR. GASTON: I think it might be a good idea to
hook the fellow. I will talk to Elmer about it and
see what he thinks.
H.M.JR: I would love it. I haven't been in on
a good blackmail case in a long time. (Laughter)
MR. GASTON: That is what it is.
H.M.JR: Let's have some fun with him. Do you
think that is what it is?
MR. GASTON: Yes.
H.M.JR: Let's have some fun with him.
All right, Roy, we got by you, didn't we?
MR. BLOUGH: I assume that meeting at ten-fifteen
has something to do with the other thing?
H.M.JR: Yes.
Cairns?
MR. CAIRNS: I have nothing.
H.M.JR: Odegard?
115
- 17 -
MR. ODEGARD: I have nothing.
H.M.JR: I sent word to one of your assistants,
Vincent Callahan, I had heard such good reports on Red
Barber broadcasting over WHN. I hear he has sold
a half million dollars worth of bonds.
MR. ODEGARD: He is supposed to have.
H.M.JR: Broadcasting the Dodger's - that is 8. lot
of bonds. A fellow listened to him Saturday and he said
he practically never broadcast the game at all, he just
read off the names of people that bought bonds.
Chick?
MR. SCHWARZ: If I could have two seconds after-
ward to show you two pictures.
H.M.JR: Two pictures?
MR. SCHWARZ: Yes.
H.M.JR: Where did you get them?
MR. SCHWARZ: "Life" pictures.
H.M.JR: "Life" - oh yes.
Harry?
MR. WHITE: Mr. Berle telephoned and wanted to
know what had happened to that bill authorizing a hundred
million dollars to be loaned to foreign governments. You
remember the last time we brought it up was August, and
you said that if Berle was interested he would raise it
again. Well, he has raised it. I asked him how he
thought it was to be handled, and he thought it would be
handled the same way as the Chinese loan, that you and
Mr. Hull would go up there; but he said that since it
is a money bill, it ought to be handled any way you think
it should be handled.
Regraded Unclassified
116
- 18 -
H.M.JR: Do you play poker? (Laughter)
MR. WHITE: I think I am pretty good. (Laughter)
H.M.JR: Well, I wouldn't see him. You said he
raised--
MR. WHITE: Neither see him nor raise him?
H.M.JR: No.
MR. WHITE: And the pot is his. (Laughter)
H.M.JR: What?
MR. WHITE: And the pot is his.
H.M.JR: Well, he can have what is in the pot. No,
let the thing drag. Ask him what happened to the bank
for North and South America.
MR. WHITE: Well, I do not think we can let it drag
because he called me especially on it. I told him I
would speak to you when you returned. Now we can throw
it back at him, but I think he has got to get some kind
of an answer.
H.M.JR: If he wants to come over here at three-
thirty this afternoon, I will see him. I am not going -
and if he comes I want you (Bell) here. A hundred
million dollars hush-hush money!
MR. BELL: We don't have it.
H.M.JR: No, I am not for it. I might as well tell
him SO.
MR. BELL: We can't afford it in these times.
H.M.JR: What else, Harry?
MR. WHITE: You might want to call up Hull and ask
him whether he feels keen on it.
Regraded Unclassified
117
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H.M.JR: I will do that when Berle is here.
MR. WHITE: There are copies of two bills repeal-
ing the Silver Purchase Act, one by Celler and one by
Somers, and it was mentioned - I imagine Dan must have
signed, or will have signed, about forty letters to
Senators and Congressmen, at least, on the silver
thing. There is a great ferment up there.
Now, the Green bill is coming up, and we are
going to report on it after we have a discussi on here.
Do you have any interest in it at this stage of the
game?
H.M.JR: Yes, I would like to put in a paragraph
in all of these letters - going back to my testimony
and picking out my testimony - and say that I am writing
that my position - that as far as I am concerned I would
like to see all silver legislation struck off the books.
MR. WHITE: You would like to say that now?
H.M.JR: Yes, quoted - "I said on such and such
a date
MR. BELL: And then go back to what you said, and
say, "I have taken the position and I have not changed."
H.M.JR: Yes. "On such and such a date I said" -
somebody go through the record - "that I would like to
see all silver legislation" - and I have said it on a
number of occasions, and my position has not changed.
MR. WHITE: All right. You may have noticed that
Senator McCarran on Saturday morning announced to the
press that they were planning to present a bill raising
the price of domestic silver. Now, the only interesting
feature about that is that I am pretty sure, from the
timing, that he did that before he got your answer to
his letter. So I think it clearly constitutes a
violation of the trust which he himself had proposed.
I thought you would be interested.
H.M.JR: That is interesting.
Regraded Unclassified
S
118
- 20 -
MR. WHITE: There was a cable from Winant about
Casady I wanted to speak to you about.
H.M.JR: I would let him go back.
MR. WHITE: There are a couple of things about the
work that he is doing--
H.M.JR: Why don't you stay behind after Berle
leaves and I will clean you up?
MR. WHITE: All right. That is all there is.
H.M.JR: How is the Mardi Gras down at New Orleans?
MR. GRAVES: It is abolished.
H.M.JR: It is abolished? Did you get us a new
administrator ?
MR. GRAVES: No, but I got some people interested
down there who will try to do that for us. Mr. Maloney,
our former administrator, who has been nominated now
for Congress, is still very much interested and is
going ahead with that effort to select an administrator.
H.M.JR: Harold, I have a suggestion to make to
you which you can consider with your associates. I
was very much impressed by Cagney reading that letter.
I thought that was an awfully good way to get over a
story, you see. I also was impressed when I went
outside there and saw the steady increase in the num-
ber of twenty-five dollar bonds which has been made,
plus the increase in the percentage of people from
six up to seven percent. There are certain things
there to sort of get over on the positive side, that
the war bonds are not a failure, as most people think
they are, I was thinking that if we could put that
into the mouth of somebody like Mr. Arnold, who is
president of the Motion Picture Actors, and get him
119
- 21 -
to read a letter or make it a little bit different -
I don't know - but if, for instance, if this thing
is going to be concluded on Saturday, or next Wednes-
day, I write a letter to these people thanking them
for what they have done and then put in this straight
propaganda stuff, "I think you would like to know
that during the month of August we sold eight million
pieces of twenty-five dollar bonds, which was the highest,
and steadily increasing," and something about pay-roll
deduction, how it has increased, both in dollars and
percentage, you see, something on that, and then get
this fellow to say it. Think about it.
MR. GRAVES: Say it on this occasion, Wednesday -
a week from Wednesday?
H.M.JR: Yes. Then maybe you could get a little
special short of him saying that, which would go
out to the theaters, because I am impressed with the
fact that Gamble says there are eighty-five million
people going to the theaters, and I discount that
by half, so forty million people - that is a lot of
people to reach.
MR. GAMBLE: As a matter of fact, that is the
exact figure your people in the Internal Revenue give
you, the information on how many people are going to
the theaters every month, because they are getting
the percent. There is seventy percent of the business
that is new business.
H.M.JR; Anyway, if it was forty million people
it is a lot of people. Will you work on that?
MR. GRAVES: Yes, I think that such a letter would
be very much in place on that occasion, and of course
it ought to do something, too, about acknowledging the
very fine work that has been done.
Regraded Unclassified
2/s
120
- 22 -
H.M.JR: I would make it an acknowledgment and
then sneak this paragraph into the middle.
MR. GASTON: I think so, too.
MR. GAMBLE: You wouldn't want to go so far as
to make this a subject involving yourself and one of
these people?
H.M.JR: No, I am no good - a fellow like Cagney
or a fellow like Arnold, or some outstanding figure in
the motion picture world. Who is this - I tell you
who I would like to have do it - who is this fellow
that just did this baseball picture?
MR. GAMBLE: Gary Cooper.
H.M.JR: Yes.
MR. GAMBLE: I don't think he would be very good
for this. He is kind of a slow and easy-going--
H.M.JR: That is all right.
MR. BELL: How about one of them in uniform?
H.M.JR: No, I don't think we want to use that.
MR. WHITE: Did you happen to see a short picture
trying to recruit men for the Air Force, in which Jimmy
Stewart does some talking?
H.M.JR: That was the first one we - no, we got
another one.
MR. WHITE: It was, I thought, splendidly handled
and kind of a new idea. If you hadn't seen it I
thought it might be well to run it off on the screen.
MR. BELL: He talks very well, too.
H.M.JR: All right. Will somebody tell them down-
stairs?
Regraded Unclassified
121
- 23 -
MR. GAMBLE: It is an Army film.
H.M.JR: If he gives this idea of the motion picture -
if he got Cagney to do it - they will get somebody to do
it who is good. Anything else?
MR. GRAVES: That is all.
H.M.JR: Dan?
MR. BELL: Mr. Sproul would like to make some
arrangements for regular meetings of the Executive
Committee. They meet maybe two or three times a month
and they would like to meet once a week during these
times and set a certain date during the week.
H.M.JR: With us?
MR. BELL: No, only with you when they want it
but they would like to set a certain date in the week
and make that more or less fit into what you might
want, whether Tuesday or Wednesday would be a better
date - I think possibly Wednesday might be a better
date, subject to change from time to time when we could
meet. I think maybe we ought to have a meeting of the
Executive Committee, say, next Wednesday, if that is
all right with you.
H.M.JR: All right. Eleven o'clock, Miss Chauncey.
All right, what else?
MR. BELL: I told you Governor Towers is in town,
and he would like to come in and pay his respects if
you have a moment.
H.M.JR: Four o'clock, tell him I will see him.
MR. BELL: We have three tickers across the hall,
I believe, one of bond, the cotton, and the grain. Miss
McCathran thinks we might do away with two of them.
H.M.JR: Who thinks so?
Regraded Unclassified
122
- 24 -
MR. BELL: Miss McCathran, who runs the desk
over there. We could save twenty-five dollars 8. month
on each of them if you would be willing to take the
cotton and grain quotations less often and from the
regular ticker.
H.M.JR: That girl has got brains.
MR. BELL: She is good.
H.M.JR: Cut out the cotton and grain. She has
got brains. She is the first girl that has ever been
there that used her head.
MR. BELL: She is very good and always has good
suggestions.
H.M.JR: She is the first girl that has ever been
there that used her head.
MR. BELL: We ought to thank Governor Towers for
that service. (Letter addressed to Governor Towers
signed by the Secretary.)
H.M.JR: What else?
MR. BELL: I understand that a bill has passed - a
joint resolution has passed the Senate which will cut
down our revenue in October and November by two hundred
and twenty million dollars. That is the postponement, I
believe, of the capital stock tax, and then the new
revenue act knocks it out altogether. So we are going
to lose two hundred and twenty million our next quarter.
H.M.JR: Is that right?
MR. BLOUGH: I didn't realize that the new revenue
bill was going to knock it out for this summer.
MR. BELL: Well, that is what--
MR. PLOUGH: It may be. I will have to check on
that.
Regraded Unclassified
123
- 25 -
MR. BELL: He thinks the new tax bill will knock it
out altogether, 80 we will lose that two hundred and twenty.
MR. BLOUGH: The situation is this, it had to be
postponed because no one could intelligently file a
statement of capital stock tax until he knew what this
tax bill was going to be. The Senate version knocks
it out; the House version has it in. And in any case,
the revenue will be less because the House version calls
for forecasting income only one year. But whether it
will be out or in, I don't know. Mr. Doughton is very
strong for the tax, and I am not at all sure that it
will go out.
MR. BELL: Anyway, we will lose about two hundred
million in our revenue.
The Bank of America has a number of branches that
are located outside of - quite a ways outside of some
city limits. It is necessary for their personnel to
travel back and forth by automobile and they are think-
ing of temporarily closing those branches during the
war; but they would like to have an understanding that
they can reopen them after the war if conditions are such
as to justify it. I think we ought to do it, but, on
the other hand--
H.M.JR: Do you recommend it?
MR. BELL: Yes, but I think we ought to put it in
such & way that you don't bind your future comptroller
or your future secretary.
H.M.JR: You do it.
MR. BELL: In connection with our talk last night
I think maybe you would like to read John Williams'
le tter - not the memorandum, just the letter. (Letter
addressed to Mr. Bell by Mr. Williams handed to the
Secretary.)
That is all.
MR. THOMPSON: I have nothing.
H.M.JR: Class is adjourned.
124
September 22, 1942
10:35 a.m.
WAR FINANCING
Present: Mr. Bell
Mr. White
Mr. Blough
Mr. Murphy
H.M.JR: What I wanted to tell you people was this,
and there is no use of having a bigger group - what is
the matter with George?
MR. MURPHY: He has a sore throat, Mr. Secretary.
His voice is so heavy you could cut it.
H.M.JR: Did he get that on the farm?
MR. MURPHY: I don't know what causes it. It
seems to be some kind of an allergy.
MR. BELL: He gets them periodically. He was all
right last evening.
H.M.JR: Well, this is the way I see the problem.
After all, if Henderson will do his job of over-all
rationing, or increase rationing, that is all to the
good, and if the President gets the bill through Con-
gress which will set the level on prices and wages,
that is all to the good. But it still leaves this
twenty to thirty billion dollars, and it still leaves
the job of how we are going to raise several hundred
billion dollars in financing.
Now, this is the way I have got the thing in my
own mind. I think that everybody agrees that we should
get: one, the maximum of taxes, and that we should get
it, as much as possible, from the groups that have it
to spend. I mean we should get it within - well, take
the way we had it, certainly as large a percentage of
the money in taxes as we can.
Regraded Unclassified
125
- 2 -
Then, as I see it, having agreed on that, the ques-
tion gets to - in the form of the borrowing - what are
we going to do to the banks. Now, the way it is at
present, if I got - I think the way it is at present,
about a third of the money will be raised through revenue,
of what we are going to spend - or less?
MR. BELL: That is about right.
H.M.JR: And leaving two-thirds to borrow. Going
on the assumption, as I said the other day, that the
thing is not going to get any better from Congress,
and having great difficulty in getting up to fifty per-
cent of pay-as-you-go, what is this thing going to do
to the banks. Now, when you get to that point, this
much is clear in my mind. It resolves itself down into
two sections. One, how you borrow the money and the
effect it has on the banking system itself, and then
the other thing is - let's say we found some device
whereby we could sterilize our effect on the banks - I
mean, what we borrowed, we could find some way of
sterilizing it so that it did not increase their ex-
cess reserves.
If we could find some way, O.K., that would be
one thing. That is A. But still, if we were success-
ful in that, it would leave the money in the hands of
the owners - of the people, to spend and compete with
each other for the reduced amount of goods which
would be available.
Now, I mean, that is the way I have kind of got
the thing regimented in my mind.
MR. BELL: A complete rationing would take care of
that latter.
H.M.JR: Well, I want to come to that. As I see
on that, there are two ways to do it. There is the way
of having money rationing - I mean, to freeze part of
the individual's account in the bank before he spends
it - or a complete rationing on the part of Henderson
so that he cannot use the money. Even if he wants to
spend it he couldn't because everything would be rationed.
Is that right? I mean, do you get it so far?
Regraded Unclassified
126
- 3 -
Now, I can see that, and I am not prepared to say
whether I would rather freeze the individual's account
through rationing, I mean through--
MR. MURPHY: Expenditure rationing?
H.M.JR: Expenditure rationing, or urge Henderson
to go forward and have an over-all rationing. But the
thing that concerns me right now is this question of
what we are going to do about the banks.
Now, before I get into that, does anybody not agree,
or do you think that I have painted the picture the way
it is from the Treasury standpoint? Have I "covered
the waterfront"? I take it you agree with me. But
that is the problem, Harry, isn't it?
MR. WHITE: Yes, but with one further modification
which I think needs to be made. Even though, as you
say, you can take care of the excess reserves through
some means, it still leaves one other problem.
H.M.JR: Well, I haven't touched on the bank thing
at all, yet, but what other problem is there?
MR. WHITE: This is outside the banks, and yet it
is like the banks. There is also a problem which would
be handled in a different way and yet it is a problem.
I merely point it out in passing, and I am sure you are
familiar with it. It is that large volumes of redeem-
able bonds, bonds redeemable at the will of the holders,
in the hands of the public, are only slightly different,
but not very much different, than cash deposits which
they can use, and constitute an element which you have
to direct your attention toward.
H.M.JR: Well, I think we are conscious of that,
but I am going to touch on that. I have been doing 8.
lot of thinking and talking - not much talking, but
thinking, over the week-end. But outside of that,
describing it in this very sketchy way, I think I am
covering it, am I not, Henry?
Regraded Unclassified
127
- 4 -
MR. MURPHY: Yes, sir, I think you are.
MR. BLOUGH: Yes, with a degree of emphasis.
MR. BELL: The thing that Harry raises, and also
the outstanding currency which will increase in a
situation of this kind, is involved.
MR. WHITE: That is right - smaller in magnitude,
but it is a factor.
H.M.JR: It is more or less the problem, isn't it?
MR. BLOUGH: Sure.
H.M.JR: All right. Now, the thing - and we have
got to guard this thing that we are going to talk about
terribly carefully, because I cannot trust anybody out-
side the Treasury. I was saying to Bell last night,
if this ever got out before I was ready to defend it
publicly I would be on the spot; and you cannot trust
the Federal Reserve because they always leak.
MR. BELL: Wreck your market, too.
H.M.JR: Now the thing we are sort of groping for -
as I say, you fellows, each of you, have got to be
responsible for whoever you consult in your staff on
this thing, see? I mean, I hold each of you responsible.
The thing that I am sort of groping for - I talked
with Haas and I talked with Bell - is something along
these lines: That if we said when we reach a hundred
billion dollars' worth of interest-bearing Government
securities outstanding, we are not going to issue any
more interest-bearing securities - and then we would
have to get some kind of legislation, if I understand
this thing correctly - that from then on, after a given
date, on any increased deposits with the banks, they
would have to put up a hundred percent reserve with the
Federal Reserve System. Wouldn't they?
Regraded Unclassified
128
- 5 -
MR. BELL: Something like that - control the in-
creased deposits.
H.M.JR: And that would leave us free to borrow
without interest from the Federal Reserve System.
As I say, all this is very sketchy. Then each year
there would be a certain amount coming due of bonds,
and if we were told - we would have a study on how much
the banks need to live on and make a reasonable profit,
then we would keep that much interest-bearing securities
out to give the banks - well, to keep them going, to
keep them solvent. This is just to throw in as a thought,
the possibility of continuing to pay interest, but much
less interest, to people who wanted to buy bonds on a
volunteer basis. They will be the only people that will
get interest, and they couldn't be purchased by banks.
Now, that is the kind of thing - have I sketched it
about the way I have been talking about it?
MR. BELL: Yes.
H.M.JR: Which would, we think, take care of the
excess reserve situation. It would take care of this
thing which we are all worrying about, the eight-billion-
dollar interest charge after the war. It would, for
instance - say the banks, for a month, put on a big
drive and sell six or seven billion dollars' worth of
securities for October - and I have been shunning it
because I have had something like this in mind, you see,
for some time. I don't want to sell any more than I
have to. Then, of course, the question - one other
thing which I am sort of changing on is the more I study
this thing the more I am disinclined towards this post-
war credit or forced savings. The more I go into it
the more I am leaning towards straight tax. I don't
think We are ready yet - that we have to sugar-coat
this thing by giving these people three to five billion
dollars a year in the form of even non-interest-bearing
securities.
In other words, I don't think we have yet exhausted
the possibilities of what we can get in the form of
129
- 6 -
taxes, if we are going to keep this country solvent
after the war. We are going to run up a four or five
billion dollar debt to pay for the munitions, and
that is enough without trying to give these people
a sop by saying, "Instead of taxing you we are going
to give you a post-war credit." I mean to that ex-
tent I am kind of changing my thinking. I want you
to know just where I stand this morning.
Bell has listened to, and before we get through
I want him to tell about it - there is this Colonel -
what is his name?
MR. BELL: Sanders.
H.N.JR: Sanford or Sanders, or whatever his name
is, that I heard about through Forrestal. Bell has
seen him and he is, as far as we can find, the only
man in Washington who has sat down and figured out
graphically what a ten-million-man Army would need.
I asked Bell to go over. He is seeing two generals
on the Staff.
MR. BELL: Joint Staff.
H.M.JR: And quite frankly they tell Bell they have
never explored this thing beyond their present needs. Is
that right?
MR. BELL: They have explored it in terms of men
and units and guns, but not in terms of dollars.
H.M.JR: And then, now, if I will write them a
letter, they will begin to--
MR. BELL: Translate that into dollars.
H.M.JR: And furthermore, they never heard of this
Colonel Sanders. We think we are going to bring them
together. So if I write the secretariat of the Joint
Chiefs of Staff, they will begin to study this thing
in terms of dollars. In other words, until I had raised
this thing, nobody had done it.
Regraded Unclassified
130
- 7 -
Now, the more I think about it the more I am con-
vinced that we have got to plan this thing for five
years; and if it is five years, what is it going to
mean. You see, this Colonel Sanders has figured it,
and he figured that each civilian will be able to buy
one overcoat and two pairs of shoes in five years.
That is how he has figured the thing. Well, if he
is right and he can justify his figures, then this
whole question of savings and the whole question of
taxes take on an entirely new thing, because if you
can't buy the stuff, what are you going to do with
the money. What are you going to do with it? So
we are exploring - unfortunately he is out of town
this week, so I cannot - I have talked kind of long.
I would like to, this morning, just direct our
thinking, because to me it is the most difficult, it
is the most revolutionary part of it - about the
banks, see? I mean, how can we, what is the best approach
on Treasury financing, interest rates, sterilizing the
excess reserves, and all the rest of that. I mean, I
would like to talk about that approach. I have kind of
painted the picture, over-all, don't you think? Harry,
I can't see you.
MR. WHITE: Yes, that is one of the important
phases of the problem.
H.M.JR: Well, the Treasury's responsibility - our
end of it.
MR. WHITE: I mean this banking is one of the impor-
tant phases.
H.M.JR: I mean the whole thing, from my standpoint--
MR. WHITE: Yes. You are directing attention to the
banking phase this morning?
H.M.JR: I am going to this morning. The borrowing,
Harry, how we are going to borrow the money - that is
what I want to talk about.
Regraded Unclassified
131
- 8 -
Henry, do you want to S tart off the discussion on
this banking business?
MR. MURPHY: I would, Mr. Secretary, yes. I am
basically in agreement with you, Mr. Secretary. It
does not seem to me that the banks perform any service
commensurate with the interest that we would pay them
if we ran up the debt substantially, and gave them
interest-bearing securities in exchange for it.
Basically, the problem is merely giving the banks
enough to live on - enough to perform the socially
necessary functions which they have to perform; that
is, the handling of the demand deposits, and if we aré
going to have private banking systems, the payment of a
reasonable, and I should say not high, return on their
capital funds.
Now, I would like to emphasize that--
H.M.JR: I am listening.
MR. MURPHY:
that I am contrasting borrowing from
banks at interest as opposed to borrowing without interest.
If properly handled, I think the borrowing from banks
without interest or borrowing from them at a nominal rate
of interest, fixed not in accordance with any supposedly
criteria of market price but in accordance with their ne-
cessities, is not inflationary any more than borrowing
with interest, and inflation is involved in either case.
In other words, we have not solved our problem if
we secure the means of borrowing from banks at no in-
terest or low rates of interest. It will still be de-
sirable and essential to get as much of the money as
possible by taxation and by borrowing from individuals
in such a way as to obviate that expenditure.
H.M.JR: I have prefaced my remarks that way.
MR. MURPHY: I merely wanted to emphasize that
point, Mr. Secretary.
Regraded Unclassified
132
- 9 -
H.M.JR: I think we should get every dollar from
taxes, and every dollar from an individual we can.
Now, after we have done that supposing we got fifty
percent that way - isn't that the figure I used?
MR. BELL: Yes, I think it was.
H.M.JR: Supposing we got fifty percent that way,
that would still leave this gigantic figure.
MR. MURPHY: That is correct, and to pay interest
on the borrowings from banks would in no way improve the
inflationary problem. Merely pounding our thumb does
not make the problem any better. Therefore, it would be
foolish to pay it and aggravate our fiscal problem and,
as 8. matter of fact, make a post-war inflation more
likely because one of the motivating forces of the post-
war inflation might be to reduce the interest burden on
the public debt.
If the burden seemed so high that it resulted in
a bad fiscal problem there would be a push, conscious
or unconscious, to depreciate the dollar to where the
Government revenues had been increased and the interest
on the public debt formed a lower proportion of the
total expenditures that would otherwise be the case.
As we indicated in the memorandum presented to you
over the week-end, there are the two basic ways in which
you might go about borrowing from the banks - the no-
interest, or at a nominal rate of interest. One is the
approach of Representative Patman to sell non-interest
bearing securities to the Federal Reserve banks and to
prevent the commercial banks from purchasing additional
interest-bearing securities in the open market. As we
indicated, you would have to go considerably beyond the
Patman bill; you would have to provide means of blocking
the excess reserves that the banks secured, either by
increasing their reserve requirements or by & direct
control of their loans and investments, or both.
I feel it would be a mistake to rely exclusively
on control of reserve requirements. I think we ought
Regraded Unclassified
133
- 10 -
to have some direct selective control of their loans
and investments. That is one possible solution.
You will note, as we put it, it involves two
middlemen, the Federal Reserve banks and the commer-
cial banks. That is, you are borrowing from the persons who
hold the deposits. You have two middlemen in between,
the Federal Reserve banks and the commercial banks. It
is possible to exclude one of these middlemen, namely,
the Federal Reserve banks, and allocate securities direct-
ly to commercial banks; and doing that has certain ad-
vantages in the mechanical handling of the matter.
You could have, as we suggested, two security issues.
We just said, for instance, say one percent and one-
cighth of one percent, and you could allocate amounts of
these securities to different banks in such a way as to
permit them to make a living. Your large banks would
have mostly one-eighth; some of your smaller banks--
H.M.JR: Look, Henry, you are getting into much
too much detail.
MR. MURPHY: Pardon me.
H.M.JR: I want to talk about principles. I want
to know - first I want to know how much-you have got
to tell me, through Shields, how much interest do the
banks need to live on. I want that. Now, I am not
interested in one-eighth of one percent. I want to
talk about the devices.
MR. MURPHY: Mr. Shields is down here today. He
is working today and will be working tomorrow on his
estimates of bank earnings. He hopes to complete his
preliminary estimates tomorrow evening, and that will
serve as the basis for our estimates of how much of a
living the banks need.
H.M.JR: That is right, but I am afraid to talk
for fear that I might tip my hand at this time.
MR. MURPHY: We have not discussed it with Mr.
Shields at all, naturally.
Regraded Unclassified
134
- 11 -
H.M.JR: When you get that you can say, "All right,
if it is eighty billion or 8. hundred billion, so much
interest will keep the banks going."
MR. MURPHY: That is correct, and it is the need
of the banks for a quota of earnings toprovide for
their expenses and a small return on their capital
funds which should be our concern rather than any ideas
of two percent or one percent or any other percent as
& fair return. As 8. matter of fact, giving them such
return is entirely illusory, as Professor Warren pointed
out a number of times in a memorandum for Mr. Haas.
Under present conditions the money market is pegged at
a pattern of rates, and the additional interest that
banks receive on long-term obligations as compared with
short-term obligations is a return for asupposed service
which, in fact, they do not perform. They are supposed
to assume a certain risk on longer-term securities;
actually a cushion is-placed between them and the risk
by the operations of the Federal Reserve System - they
just receive the money without performing any functions.
H.M.JR: As I understand it, in Canada they simply
say to the banks, "You can live on two percent.
MR. BELL: That is in England, I think, where they
take these certificates. It is at one and an eighth.
MR. MURPHY: But in Canada they have also completely
separated their borrowing from banks and borrowing from
the public. When they offer issues to the public the
banks are not supposed to subscribe. When they offer
issues to the banks the public does not subscribe. So
they determine how much they will borrow from each, and
when they offer an issue of a certain amount to banks
the banks are expected to take it at the interest stipulated.
The most recent bank security I happen to have in my mind,
and I think the most recent, was a three-quarter percent
certificate due in about six months.
H.M.JR: Where?
MR. MURPHY: In Canada.
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H.M.JR: Yes, but the point that Iam getting at
is where I think we have got to look ahead is - in
England they say the banks can live on one and one-
eighth. All right, once we find out what the banks
can live on and we are satisfied that they need that,
and that, as you say, they are really rendering a ser-
vice, that is one thing. But this thing is so big,
you see, that we have quickly passed the point of what
they need for earnings.
MR. MURPHY: That is correct. Of course it would
need some changes in statutes again, Mr. Secretary.
For example, they pay a one-twelfth of one percent FDIC
assessment.
H.M.JR: All of those are details which do not
interest me. I mean, those things, for this argument,
do not interest me any more than if Bell said, "Well,
you do this and they can't afford to cash our checks
and they can't afford to handle war bonds and all the
rest of that stuff." I mean, for this discussion
those are all details. All right, if they cannot do
it then we will pay them.
MR. MURPHY: That is correct.
H.M.JR: You see what I mean? I mean we will pay
them for the actual services they are rendering and not
let them feel they are doing something for nothing.
MR. MURPHY: That is the basis it would have to
be put on.
H.M.JR: Let's come back to the point. Let's say
for argument's sake that a hundred million dollars - a
hundred billion dollars, would be the point - we are
now at what point now?
MR. BELL: About eighty-six.
H.M.JR: Let's say we have reached a hundred billion
dollars and that the earnings are all right, that that
would be the point where we would stop issuing.
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MR. MURPHY: If it is not too much of a treatise,
Mr. Secretary, the banks, of course, are way under a
hundred billion dollars; they hold perhaps twenty-five
billion dollars, or thereabouts, of securities now,
and if we stopped issuing interest-bearing securities
at a hundred, they could continue to accumulate for
some time.
MR. BELL: That was just used as an example. You
might base it on what the deposits were June 30 or
December 31.
H.M.JR: Let me put it this way. Try to pin it
down. Let's get down to brass tacks. Which device
do you think would be the best when we get beyond a
certain point? I don't care what it is, when we get
beyond a certain point - there is a certain point
where we have got to stop, and what device do you think
would be the best to sterilize these deposits in the
banks so that they won't have a potential inflationary
value. That is the question.
MR. MURPHY: Good. I was going to come to that
point, Mr. Secretary.
H.M.JR: Speak on that, will you? Wipe out every-
thing else - a point from where we will have to stop.
MR. MURPHY: There is no question in my mind that
the best device to do that is expenditure rationing.
I believe, however, that before we can put in expendi-
ture rationing and secure a satisfactory popular re-
sponse for it we will have to have a rather intensive
program of commodity rationing. I think Mr. Haas and--
H.M.JR: Henry, I have got to stop you again. If
you have expendi ture rationing, that is not going to do
the thing. I am talking about the banks, Henry.
MR. MURPHY: Sterilizing excess reserves?
H.M.JR: I do not want to put words in your mouth.
I am not talking about individuals; I am talking about
banks.
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MR. MURPHY: I thought I was answering your ques-
tion.
H.M.JR: You are not.
MR. MURPHY: There are two stages to the sterili-
zation. The first is to prevent the banks from expand-
ing their credit by a greater amount than the amount
which the Government has borrowed from them. There
are two ways in which that can be handled.
H.M.JR: Now you are getting to it.
MR. MURPHY: The first is by increasing their re-
serve requirements in such a way that they have no
more excess reserves after the Government has borrowed
from the Federal Reserve banks than they did before.
The other way of doing it is by a direct selective
control of their loans and investments - something like
regulation "W" applied on a broader scale. You will
notice that if the approach--
MR. BELL: That is the installment loan.
MR. MURPHY: You will notice that if we sold our
securities to banks by the approach of direct allocation
the problem of excess reserves would not occur. If we
sell them through the Federal the problem of excess re-
serves will occur. I do not think, however, that the
problem of excess reserves presents--
H.M.JR: How would it occur - if we do it how?
MR. MURPHY: If we sold the securities - non-interest-
bearing securities - to Federal, the member banks will
receive substantial excess reserves because for every
dollar of non-interest-bearing securities we sell to
Federal, the member banks will receive a dollar of addi-
tional deposits. Against that they will have, as assets,
a dollar of reserve at the Federal Reserve banks, but
Regraded Unclassified
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only about twenty cents of that dollar will be re-
quired reserves. The remainder will be excess re-
serves.
Since the banks will have these excess reserves
at the same time that their earnings are being cut
in two, they are losing opportunities for earning
expansion; they will have every incentive to attempt
to acquire assets, either open-market Government
securities; or, if they are barred from those, securi-
ties other than Federal securities. To make new loans
to permit them to do so would add an element of infla-
tion to the picture in addition to the element that is
involved in borrowing from the banks themselves. They
can be prevented from doing that by increases in re-
serve requirements. Such increases, however, will
have an unequal impact. Some banks will have their
requirements increased to an amount that might pinch
them somewhat, and other banks to a less extent. I
think that can be evened out, but I believe it should
be supplemented by some direct control of loans and
investments.
Now, assuming that this problem can be completely
solved - and I believe that it can - the problem of
inflation would still continue. That is, for every
dollar that we have borrowed, 8. dollar of deposits
would be created; and it is that problem that I
thought you had asked me to address myself to.
MR. BELL: That is the second phase of the whole
picture that you presented this morning.
H.M.JR: Yes.
MR. MURPHY: And I think it is the much more impor-
tant phase.
H.M.JR: I am not saying which is.
MR. MURPHY: And that problem can, I think, in the
final analysis, be solved only by expenditure rationing.
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H.M.JR: But I am not addressing myself to that
this morning. I mean, I understand that, and having
understood it, it does not seem so difficult. The
other one, not understanding it thoroughly, seems
more difficult.
MR. MURPHY: I am sorry. I thought you meant both
of them. I thought you were interested in both.
H.M.JR: Not for the minute, no. In other words,
I am not for the minute interested in what happens
to the individual deposits. What I am interested in is
what happens to the deposits of the banks as a whole
and the banking system as a whole.
MR. MURPHY: Is my discussion of that satisfactory?
H.M.JR: No, but--
MR. MURPHY: Would you like me to pass on--
H.M.JR: No, I am working too hard. Let's you
and I rest a minute. You have got too much in your
head. I want to keep this down to one thing. You see
too much. I only want to see a little picture. Just
relax a minute. Let me take on Harry for a minute.
MR. WHITE: If I understand, you want to direct
yourself to one part of the problem, that part which
I gathered was involved in your last question - the
bank excess reserves.
H.M.JR: Well, I will put it a little bit differ-
ently. It may be the same. Knowing that we are going
to have to borrow four or five hundred billion dollars
if the war continues for five years, what can we do to
sterilize the inflationary impact on the banking system.
Do you see? What can we do? How can we borrow?
MR. WHITE: I am afraid I am going to fall into
the same difficulty that Henry did, but I will try not
to. The way you phrased your question, he had to answer
the last part the way he did. If you excluded, as I
Regraded Unclassified
140
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gather you have, the individual deposits, let's forget
about that; and you are going to concentrate merely on
the expansibility of the banking system on the basis
of the reserves, which is another way of saying you
want to absorb these excess reserves, which is the
question you asked.
I think that the simplest way that I would recom-
mend is the one that has been suggested, of obtaining
powers to raise reserve requirements up to a hundred
percent, if necessary. You can do that in either of
two ways. You can raise the average on existing so
there will be none left above the level that you are
seeking, or you can make it a hundred percent above -
take any date or amount you want. You can do it either
way. I think there is something to be said for either
way, which needs a little more discussion. But it would
be a question of raising reserve requirements, either
the general average, or making it a hundred percent or
ninety percent or eighty percent above X - take whatever
level you want.
I don't know whether that answers your question--
H.M.JR: Well, the point is, this memorandum to
me is not quite clear. As far as I have gone, it seems
to me that the best way for us to do is, after a certain
date, to borrow our money from the Federal Reserve System
at no interest.
If we decide that that is the way we will do, then,
as I understand it, for every thousand dollars we borrow
it creates a thousand-dollar credit with the banks; and
in order to keep that new thousand dollars from becoming
available to them as a basis for their borrowing, we re-
quire them to redeposit an equal amount with the Federal
Reserve, which, as I understand it, would be a hundred
percent reserve for new deposits.
Am I stating it correctly?
MR. BELL: That would be one way, yes.
H.M.JR: Have I stated it technically correct?
Regraded Unclassified
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MR. WHITE: Not quite, because for every thousand
dollars that you put in the banks they already have to
pay, under existing laws, a certain amount.
H.M.JR: Over and above.
MR. WHITE: Yes, over and above.
MR. BELL: Leaving out the present requirements,
that is correct.
MR. WHITE: It would make it impossible for the
banks to handle any of that.
H.M.JR: I want to make this very clear. I think
I am technically clear, am I not? I want to get - if
at present they have to deposit twenty percent after a
certain date, if we borrowed a million dollars from the
Federal Reserve System, non-interest-bearing securities,
as I understand it they would have to create a thousand
dollars' worth of deposits with the banks - member banks.
MR. WHITE: Approximately.
H.M.JR: And we would say, "For that million dollars
of new deposits, you have to redeposit a million dollars'
worth with the Federal Reserve System." That is, as I
understand it, what is meant by a hundred percent reserve.
MR. BELL: Instead of the present required twenty.
H.M.JR: Yes. All right so far?
MR. BELL: Yes.
H.M.JR: Now, is that a better device than some
suggestion that you people made of doing this borrowing
directly from the banks? I mean, I want to get this
thing straightened out first. I mean we could borrow
from the banks and not pay any interest.
MR. WHITE: I don't think there is that difference
between the problems.
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H.M.JR: He talked about a couple of middlemen. I
just wondered whether we weren't cutting out the middle-
men if we borrowed directly from the Federal Reserve
System rather than the banks.
MR. MURPHY: No, sir; you have the middlemen. You
are at one end and the person who owns the deposits is
at the other end, and any persons in between are middle-
men. If you allocate securities to commercial banks,
say, for the sake of argument, at no interest, there is
oremiddleman between you, the borrower, and the holder
of the deposits, the lender, that middleman being the
commercial banks.
Now, if the Federal Reserve banks are also in the
picture, there are two middlemen. In essence, you
borrow from the Federal Reserve bank, the Federal Reserve
bank reimburses itself by borrowing from the commercial
bank, and the commercial bank reimburses itself by borrow-
ing from its depositors. In any event, there will be a
middleman; borrowing from the Federal Reserve banks there
will be two, which is not necessarily a difficulty.
H.M.JR: What I am trying to get down to is - with-
out committing anybody, but as of this morning, if we
were going to borrow, without interest, and create a
hundred percent reserve against these new additional
borrowings, which do you think is the better way to
do it, through the Federal Reserve System or directly
from the banks?
MR. WHITE: When you speak of the Federal Reserve
System do you mean the Federal Reserve banks? Do you
mean from the Federal Reserve banks or from the commer-
cial banks?
H.M.JR: I mean the Federal Reserve banks.
MR. BELL: I do not think it makes, really, a lot
of difference, and I think after we get to discussing
the thing we may find some reason why it ought to go
one way more than another. I sort of feel now as
though it would be better, psychologically, to borrow
Regraded Unclassified
143
- 20 -
from the Federal Reserve banks and let them deal with
their members. But I can see Henry's point, that you
eliminate one step here, going directly to the banks -
it might be better. On the other hand, I would like
to think the thing through.
MR. MURPHY: Could I make two points?
H.M.JR: One second - my own psychology, I think,
towards the subject is, what is the Federal Reserve
bank for? It is for something like this. If you went
to the banks direct they would say, "Look what you are
doing; you are squeezing the wall' and all the rest of
that stuff - all of that publicity. But if you go to
the banks - the Federal Reserve banks - and borrow this
money, if that isn't what they are for, I don't know
what they are for.
I mean, all this is very tentative and very new.
I am just trying to think and then have all you fellows,
after we get through here, go out and think and talk
about it. You see?
MR. WHITE: Can I give you the other side without
saying which side is more important?
H.M.JR: Henry is first.
MR. MURPHY: The point I wanted to make first is
that technically your reserve problem is just the oppo-
site in borrowing from the Federal Reserve Banks and
borrowing directly from the commercial banks. If you
borrow from the Federal Reserve banks the problem is
to mop up a lot of excess reserves created in the course
of the borrowing; if you borrow by direct allocation to
the commercial banks, the problem is to create new ex-
cess reserves for the commercial banks, by means of
which the commercial banks can support their borrowing.
Neither problem, however, is insuperable, technically.
H.M.JR: You mean, then, the Federal Reserve has
to buy securities in order to--
Regraded Unclassified
144
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MR. MURPHY: That is right. You have to, in any
event, do enough borrowing direct from the Fed to put
the member banks in funds. I agree perfectly with Mr.
Bell with respect to what would ultimately be the
criterion of choosing between the systems. They work
out about the same theoretically.
H.M.JR: Which one?
MR. MURPHY: The thing that would be determining
would be which one, it seems, would have the best
psychological effect - which one would shock Mr. Speigel
the least. (Laughter)
H.M.JR: You are getting very practical, Henry. I
didn't expect that from you. (Laughter)
MR. MURPHY: I think that is a very practical
question. When you say, "What are the Federal Reserve
banks for," I think there is an opposite point of view
to that. There is a very wide-spread feeling, particu-
larly among the older generation - monetary theorists -
that that is just what a central bank is not for, and
that when a central bank is used for that purpose that
is the first portent of disaster. I don't know which
will prove the strongest, the aversion of commercial
banks to taking non-interest-bearing securities, or
the aversion of traditional thinkers to borrowing from
the central banks. I think it is something that you have
to try on various people and see which shocks them the
least, and that is the final decision.
H.M.JR: Well, one way I would have to deal with
this Executive Committee, which is a group of five
people, the Open Market Committee, wouldn't I?
MR. BELL: Yes.
H.M.JR: Isn't that who I would deal with?
MR. WHITE: With new legislation.
MR. MURPHY: After five billion; and you would need
new legislation, in any event, to control your reserves.
Regraded Unclassified
145
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H.M.JR: And the other way I would have to sit
here and make an offering to the banks, and the
Guaranty Trust of New York will say "We don't want
to buy any of that stuff." How am I going to make
them buy it?
MR. BELL: It would have to be mandatory. You
couldn't do it any other way.
H.M.JR: According to the capital and reserves.
MR. BELL: You would have to get legislation on
that which would be really dictatorial from your stand-
point. Just say, "This is allocated to you. You will
have to take it."
MR. MURPHY: We are making a study of what would
be the appropriate criterion to the banks.
H.M.JR: The purpose of this discussion is - I
mean I have gone about so far in my thinking, and I am
throwing this at you to let you know how my brains work,
what is bothering me, what I think the problem is, and
then you fellows have got to go out for a couple of
days and study it and come back to see me.
You have been very good.
MR. BLOUGH: This isn't my problem, and I don't
propose to be an expert in this field. I would like
to make a very few remarks.
I very much di slike seeing non-interest-bearing
debt forced on commercial banks because I feel the
problem of the criteria of allocation would be very
difficult to develop. It would also leave a very bad
taste in the mouths of quite a number of people. It
seems to me that there is no particular point in
stopping at a hundred billion dollars or any other
point and saying, "From now on, no more debt with
interest." You could continue to issue debt with
nominal interest to commercial banks - or a very low
rate of interest, simply for the purpose of taking
care of their--
Regraded Unclassified
146
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(Discussion off the record.)
MR. BLOUGH: I was saying, it seemed to me a
rather bad psychology to force the commercial banks
to take non-interest-bearing securities. It would
seem to be somewhat better to continue to give them
very low-rate interest-bearing securities - much
lower then now, but still with a token rate, at least,
so they could feel they were getting their expenses
out of it. And for the rest, frankly go to the central
bank and get it from them. That would have a less un-
desirable effect, psychologically, which I think is the
basic point here, to do that from the central banks than
to do it from the commercial banks, and then make what-
ever adjustments were necessary to get your reserves
protected against the excess reserves which were thereby
accumulated. I should, at the same time, continue some-
what higher interest-bearing issues to the public, not
including the banks, and I would have at least a little
compulsory saving at the lower end of the income scale
for people who would otherwise be taxed a great deal
heavier than we would want to tax them.
I am very much pleased to see the approach you are
taking, Mr. Secretary, because it seems to me perfectly
obvious that facing the problem We do, very unorthodox
methods of financing are going to be absolutely necessary.
H.M.JR: Roy, what I am trying to do is, and what
you fellows have got to help with - and I don't care how
long it takes - I think it would be a mistake to try to
do it before election, I just think it would be bad, but
I don't care whether it is going to take me an hour or
two hours, but when the time comes - or a half a day -
where it is within the realm of our responsibility -
maybe Henderson and I will do it jointly, he explaining
what he is going to do and we explaining what we are
going to do - make a joint presentation, you see. He
will say, "I will take care of this problem; the Treasury
will take care of that problem" - I mean, if we could get
an agreement.
(Discussion off the record.)
Regraded Unclassified
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H.M.JR: I am just thinking out loud. Supposing
this presentation of this Colonel Sanders is good and
he shows the requirements of a ten-million-man Army,
what do they need, how much is going to go into the
Army and how much is going to be left - he has a visual
presentation, as I understand it, hasn't he?
MR. BELL: Yes.
H.M.JR: And then we check with the General Staff.
We will get what they need. And then we go out and
say, "All right, gentlemen, looking ahead for five years,
this is what this country has got to do. So much of the
production has to go for war and so much is going to be
left. We in the Treasury have got to do our part. This
is the way we think we can do it," with alternatives
within each group. Mr. Henderson will present his part -
what he can do and how the people can spend their money,
and the Fed will do its part. It will be a joint pre-
sentation to the country of what the problem is, think-
ing it through for five years and then, out of that, ask
for legislation.
MR. BLOUGH: I have only one misgiving about the
whole business, and that isn't that it won't be neces-
sary, but that the real answer to the question is taxes,
in almost every sense of the word. That is, we don't
want to make it seem too easy some other way to cut down
the amount of taxes we might otherwise get. We must,
all the way through, from beginning to end, and in every
way possible, emphasize over and over and over again,
that the burden is here, and that the real way to meet it
is through taxes.
H.M.JR: Roy--
MR. BELL: You can't get something for nothing. You
have got to pay for it eventually.
H.M.JR: Roy, that is all very nice, but the thing
is this, that nobody in this administration has presented
the whole picture to the country. We still have not pre-
sented it to the civilian population, what this thing
means. We don't know.
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Mr. Henderson is working like hell doing his job.
Mr. Nelson is working like hell doing his job. I am
doing the best I can. Now, one of the reasons We failed
on the tax thing is just because we haven't presented
it to the people. They don't get the whole picture.
MR. BLOUGH: I think that is right, sir.
H.M.JR: I think that the people would say - I go
on this theory that all of this thing gets down to what
I call extension teaching; that is, taking the teaching
to the grass roots. You have got to go to the people,
and the people have not had this thing explained. They
don't understand not only their own problem, but they
don't understand what England's problem is. This thing
is terribly complicated, and with no disrespect to the
President he does not understand it because I can't even
get him interested in taxes. It is the one thing he
does not want to talk about; it is the one thing he
won't discuss. He won't do anything about it. So if
he doesn't, starting with the President, how can you
expect John Doakes to understand it?
And therefore, just because you are afraid that
if the thing seems so easy we will get less taxes - and
I don't personally think that holds water--
MR. BLOUGH: I hope you are right.
H.M.JR: Well, the argument is in my favor, because
we are not getting the taxes.
MR. BLOUGH: Yes, and don't misunderstand me. I
don't mean this does not have to be done. I do think it
has to be done. I simply want to stress the idea that
in doing it we want to make it perfectly clear to the
public - my only point is this, this has to be done and
I am all for it, but it seems to me all through it we
ought to make clear to the public as we go along that
this is the second best thing. "What you ought to do is
do this through taxes, but to the extent you won't, and
it is economically not fitting - and that is true in
some cases, not to do it through taxes - then we have
got to do it some other way." But the stress, all the way
through, ought to be on "this is the second best approach."
Regraded Unclassified
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H.M.JR: Well, you are thinking taxes.
MR. BLOUGH: I am thinking of France.
H.M.JR: Of what?
MR. BLOUGH: I am thinking of France, for one
thing.
H.M.JR: Well, on taxes we are pretty far removed
from France.
I don't know, gentlemen, whether this thing could
be done visually - the whole thing - but if it could
it would be a: magnificent thing. I mean if there could
be a visual demonstration of what it means to this
country to have ten million men under arms, and what we
have got to do. That is the problem.
MR. BELL: I think some time the President has got
to tell the country what ten million men mean.
H.M.JR: When we get through he may make the speech.
MR. BELL: He has to make one of them, it seems to
me; that is, what you are up against when you have a
ten-million-man Army - what it is going to do to indus-
try, what each individual has to do without. Then you
follow along as to how you are going to control each
segment of this economy after he makes that statement.
H.M.JR: But he should not make the statement until
we have the answer.
MR. BELL: Absolutely not. I think it is dangerous.
H.M.JR: Until we have the answer. You say this
fellow Sanders is afraid about whom he tells this thing
to?
MR. BELL: I think his time and efforts are not
his own.
H.M.JR: No. But anyway I have talked myself out.
I am trying to give you people the pictures. Now I
want - have you talked yourself out?
Regraded Unclassified
150
- 27 -
MR. WHITE: Yes. This will bear a lot of talking.
I don't think there is much disagreement with us. It
is clear that this has nothing to do with inflation
during the war; you are concerned with directing your-
self to post-war inflation and the interest burden.
I am in thorough agreement with you on keeping
the interest burden down, and I am glad to see the
subject opened that way.
On the post-war inflation, 80 far as the bank
expansibility is concerned, I am not in whole agree-
ment on. It still leaves other areas which I take
it you will explore. I am not in thorough agreement
on the question of compulsory savings and taxes, but
I gather that is a separate problem. You will raise
that some other time?
H.M.JR: No. What I am doing, Harry, is this -
in my own thinking - I don't know about anybody else -
I have made a little progress. I think I see a
little bit more clearly the magnitude of the thing,
and I realize that certainly I, or anybody else in
Washington, has not gotten the thing laid out in &
way that you can explain it to a high school graduate
or somebody attending high school. The President has
not done it, and I know he doesn't understand it. I
know Harry Hopkins doesn't understand it, and the
great trouble is, it is like the time we did that job,
you remember, on prices on copper. We went over to
see the President. His reaction was that he sort of
flushed and he said, "Well, this is a new experience.
I am supposed to be the teacher and you the pupils, but
this time I gather I am to be the pupil."
MR. WHITE: I remember that very clearly.
H.M.JR: That was his introductory remark, but he
listened to what we had done, and I think it was Lubin -
didn't he explain the thing?
MR. WHITE: There were twelve or thirteen persons
there.
Regraded Unclassified
151
- 28 -
H.M.JR: Didn't Lubin do the explaining?
MR. WHITE: I don't remember.
H.M.JR: I think he did. Were you (Bell) there?
MR. BELL: No.
H.M.JR: The President--
MR. WHITE: I think he started.
H.M.JR: The President said, "I see, this is a novel
experience. He was a little irritated. "I am to be
the pupil and you the teachers," he said. This is the
same thing over again, and I am more than willing to be
the pupil now. I am the pupil.
But can you four gentlemen carry on from now, to-
gether, for a couple of days, and study this thing on
an over-all basis; not just this thing, but on an over-
all basis.
Dan is getting the stuff from the Army, and starting
with the assumption it is ten million men, how we are
going to equip them - that isn't out job, but how we
are going to pay for it, and what are we going to do
with the money that the civilians have left in their
pockets. What are we going to do about that? How are
we going to control that? How are we going to control
the civilian goods that are left? That is the problem.
Now I don't want to get into how we are going to
produce the munitions for the Army, because I don't
think that has anything to do with this. Do any of
you gentlemen think so?
MR. WHITE: No. I am glad to see what you said,
and I think it is important that you set aside a couple
or a few hours a week, or half a day a week, and listen
to the discussion. I think that is important.
H.M.JR: I am telling you now, that I am going to
start again at ten o'clock Friday on this thing.
Regraded Unclassified
152
- 29 -
MR. WHITE: What I mean is it is not only important
for us to try to agree, but it seems to me - but the
thing needs discussion in your presence.
H.M.JR: O.K. For the time being, I think we will
just keep it to this group.
MR. BELL: And Haas. I am scared to death of
this thing getting out. It is a bombshell.
H.M.JR: I mean, there is no use anybody else--
MR. MURPHY: Do you want me here if Mr. Haas is
here?
H.M.JR: Yes, I do. You are all right.
MR. WHITE: I would like to extend it, if it is a
question of confining it to an individual, to my assistant,
Bernstein, who knows more about banking that I do.
H.M.JR: That is all right. Bring him along. Do
you (Blough) want to bring somebody?
MR. BLOUGH: If I may have the privilege of bring-
ing one - I don't know now who.
H.M.JR: Well, the only thing, can't these people
discuss it with you a little bit? Don't bring them
in, but keep this small like this.
MR. WHITE: Oh, yes, keep it without them. These
problems, speaking for my own section, have been gone
over a great deal, and I suppose the others have, too.
H.M.JR: I would rather - I would like Henry to
come, and George, but keep it down to this.
MR. WHITE: O.K.
H.M.JR: You didn't mean to bring him in?
MR. WHITE: Either way you like. He knows a good
deal about the technical points in banking.
Regraded Unclassified
153
- 30 -
H.M.JR: He isn't very vocal - I mean Bernstein
isn't, so talk it over with him. Just as soon as the
group begins to expand I don't work so well. I mean,
I know you people intimately; I don't know the others.
But let's keep it down to three or four fellows. We
will make it nine o'clock on Friday. Now can't you,
between now - today is Tuesday - between now and Friday,
have discussion amongst yourselves?
MR. MURPHY: Surely.
MR. WHITE: I think we can agree on some portions
of the program.
MR. BELL: We can meet Wednesday or Thursday.
MR. WHITE: Do I understand your assignment is to
include not only this banking matter, but everything
you have touched on today?
H.M. JR: Let me do it once more. The assignment
that I am asking you people is this. They tell us
they are going to have a ten-million-man Army, and I
am giving you an assumption that the war is going to
last for five years.
Now, how are we going to raise the money, how are
we going to deal with the banks, and how are we going
to deal with the civilian population in regard to the
money that they have in their pockets, and to control
their spending habits; and how are we, besides the
borrowing from the banks, the borrowing from individuals,
and the taxes - in other words--
MR. WHITE: That is the whole problem.
H.M.JR: The whole problem - looking forward to
some kind of a visual demonstration on this thing.
MR. BELL: Now this is right along the lines of
the big committee study, except you have thrown in the
banking problem.
H.M.JR: What big committee?
Regraded Unclassified
154
- 31 -
MR. BELL: The one that you had here last Thursday
on what you want to get out to the public.
MR. WHITE: I think the principles don't need a
large group, but once you want to find the best method
of presentation, and that sort of problem, then that
does need to be extended to other persons.
MR. BELL: But this ought to be kept separate from
what we have been talking to the Secretary about and
the memorandum we submitted, in which there was a dead-
line today to get together with the group, and Thursday
we were to have a meeting on it with the Secretary.
H.M.JR: What was that, Dan?
MR. BELL: That was on the approach to this whole
problem.
MR. WHITE: It is the same problem.
MR. BELL: It is the same problem except you have
thrown into this picture this borrowing on a non-interest-
bearing basis.
H.M.JR: What I did - what I said to you people
the other day when I gave you this originally was,
"I don't care how radical you are," and nobody came
in with anything radical enough. I was disappointed.
MR. BELL: This one is radical. (Laughter)
(The Secretary held a telephone conversation with
Mr. Stonier.)
H.M.JR: But, Dan, I don't know - isn't this an
overlapping of the two things?
MR. BELL: Yes, but I would keep them separate
and keep the groups going ahead.
H.M.JR: If you will do the thing, and keep push-
ing the thing, because I never was more in earnest in
Regraded Unclassified
155
- 32 -
anything in my life, and the way to do it - I think I
have traveled quite a road over the week-end. Don't
you men think so?
MR. BELL: You have dropped from a conservative to
a radical. (Laughter)
MR. MURPHY: Not necessarily "dropped" - changed--
MR. BELL: Oh, I see - maybe "up". I accept the
modification.
H.M.JR: Listen, I was surprised at you, young
fellow.
MR. BELL: I know. It shocked my conservative
nature, I tell you.
H.M.JR: I was surprised at you.
MR. BELL: But so does the prospect of a five
hundred billion dollar debt shock me.
MR. WHITE: The distinction between youth and old
age is the ability to be flexible enough to adapt your-
self to new situations. It has nothing to do with
years. (Laughter)
MR. BELL: Youthful or old--
H.M.JR: You are talking intellectually now?
(Laughter)
MR. WHITE: I think it goes all the way up and down.
H.M.JR: Well, anyway--
MR. WHITE: May I suggest this one thing - it may
avoid our difficulty. The one thing that we should not
talk about, and the most important new thought that you
have introduced I don't think we have to talk about;
that is, the suggestion that you might consider either
Regraded Unclassified
156
- 33 -
very low or no-interest borrowing from the Federal Re-
serve System. Anything outside of that we have talked
about, and will continue to talk about, but that por-
tion we need not talk about because it need not affect,
except in our minds, the other work we are doing.
MR. MURPHY: That point should be omitted from the
memoranda.
MR. BLOUGH: It has only one effect, or substantially
one effect, and that is the post-war problem, so that--
MR. WHITE: The interest burden - it has some other
important effects now.
H.M.JR: Roy, it isn't only post-war. I mean, it
takes care of a potential real criticism of the Treasury,
in the sense that we would be subsidizing a particular
group during the war, the way we are not supposedly
doing with the manufacture of munitions, but we would
be subsidizing the manufacture of money - that is a good
line.
MR. BLOUGH: What I meant to say--
H.M.JR: We are supposed not to subsidize the manu-
facture of munitions, but if we keep on this way we will
be subsidizing the fellows manufacturing the money.
MR. WHITE: We manufacture the money and give them
the subsidy - it is worse than that.
MR. BLOUGH: It won't fit in with the rest of the
picture.
H.M.JR: I traveled that road with Haas.
MR. WHITE: That is a very important road, too.
H.M.JR: I traveled that road, also. Why not just
print the money?
Regraded Unclassified
157
- 34 -
MR. WHITE: It is equivalent to printing money.
That is one of the charges that you expect to have
levied against you when you borrow from the Federal
Reserve banks. It is a little more disguised when you
do it from the commercial banks. But in any of the
cases, it is just the equivalent to what is called by
those who don't like it "resorting to the printing
presses."
H.M.JR: Do you know what this radical Dan Bell
suggested last night: Couldn't I get into the Presi-
dent's price bill just a little joker somewhere, which
would permit us to do this thing. You have got to
watch him, boys; a couple of you conservatives around
here have to watch him. He wanted to get a little
joker to permit us to go to the Fed and do this thing.
I said, "Better wait."
MR. BELL: I said it would be a good thing if you
could do it because in doing a job like this the discus-
sion over a period of months is what is really going to
hurt; whereas, if you could do it all at once, and explain
it, you would have something.
H.M.JR: That is why - the more I am thinking here,
that is why if you presented the whole thing and started
in to talk about how we are going to finance a ten-
million-man Army, and get into all that business, then
if you, for instance, told them, "Well, now, gentlemen,
you might just as well know it, you are only going to
be permitted two pairs of shoes and one overcoat in the
next five years, and all this stuff piled on at once -
the other thing, they wouldn't get it.
MR. WHITE: You are making the package fancier and
more acceptable by all that sort of thing.
H.M.JR: What you are doing is you are dumping a ton
of coal on them instead of hitting them over the head
with just one piece of coal. (Laughter) I mean, by
the time the fellow digs himself out he won't know--
Regraded Unclassified
158
- 35 -
MR. BELL: What you really would do, you shock the
American people into their senses that this war really
means something to them instead of going along in their
daily routine and spending their money.
MR. WHITE: There is certainly room for something.
I can see you are groping for it. None of us have it.
I think it is terribly important. I think, as you do,
we ought to stick with it until you are satisfied you
have got this problem licked. I think we can, and I
think the problem of deciding what to do from a tech-
nical level is a somewhat easier problem than deciding
how to present it and how to get the necessary powers.
But I think that we ought to stick with it until we are
completely satisfied.
H.M.JR: Once you agree on the technique, then I
don't think the visual picture will be so hard.
MR. WHITE: In any case, it has to be done.
H.M.JR: And I think at a certain stage we have got
to invite Henderson in.
MR. WHITE: If you are going out for this, after
you decide what to do I think there might be a lot of
people you will want to invite in. The more support
you get on a thing like this the better.
MR. BELL: You have got to have the Federal Reserve
in, somewhere along the line.
MR. WHITE: Otherwise there will be a charge of
radicalism.
H.M.JR: There will be a charge of what?
MR. WHITE: Radicalism - unsound finance.
H.M.JR: No, you would have to have Henderson. I
don't know whether Nelson would come into this thing or
not. You would have to have the Bureau of the Budget.
Regraded Unclassified
159
- 36 -
MR. WHITE: You would have to have a united front.
H.M.JR: You would have to have everybody.
MR. BELL: And Eccles.
MR. WHITE: I don't think you would have difficulty
convincing them. I know a good many of them feel that
way.
MR. MURPHY: I think you are optimistic when you
say that otherwise there would be a charge of unsound
finance. You can strike out the "otherwise". There
will be.
H.M.JR: I am glad to hear what you say because I
felt everybody was groping. Nobody has thought this
thing through to its final conclusion.
MR. WHITE: Nobody has thought it through to the
extent that you want to think it through, or to the
extent - which is the important aspect of it - of putting
it into effect. Many have thought it through from the
point of view of what is theoretically desirable, that
is true; but no one has pushed it as far as you will
want to push it.
H.M.JR: That is my job, and it is like all these
things. If I don't do it, some day somebody will, but
it may be too late.
MR. WHITE: I don't think others will do it so much
as others will severely criticize, particularly post-war
history.
H.M.JR: What?
MR. WHITE: I think if you stand out against it, I
think no one will have the strength to put it over
because on such matters I think you are the key - no
question about it in my mind. But I do think--
H.M.JR: If I take the leadership, though--
Regraded Unclassified
160
- 37 -
MR. WHITE: Yes, but I do think if you don't do
it history will criticize you for it.
H.M.JR: It is my responsibility.
MR. WHITE: It is your responsibility, more than
any other single thing.
H.M.JR: That is right. O.K.
161
September 22, 1942
11:42 a.m.
Operator:
Go ahead.
Harold
Stonier:
Hello.
HMJr:
Hello.
S:
Hello. Mr. Morgenthau?
HMJr:
Speaking.
S:
This 1s Stonier in New York.
HMJr:
How do you do, Mr. Stonier?
S:
I was calling you up to see if you were able
to make up your mind yet about next Tuesday.
HMJr:
Oh. Now where - where - what
S:
That will be at the Waldorf Hotel at noon on
Tuesday.
HMJr:
Well, I - I could make up my mind now. I'm
going to have to regret.
S:
Oh, I see.
HMJr:
I'm very sorry.
S:
Well
HMJr:
But I
S:
we're sorry also, but we'd like very much to
have you there.
HMJr:
No, I won't be able to leave town.
S:
I see.
HMJr:
No.
S:
All right.
Regraded Unclassified
162
- 2 -
HMJr:
I wish - thank everybody, but I'm very sorry.
S:
Yeah, all right, fine. Thank you.
HMJr:
Thanks.
Regraded Unclassified
163
September 22, 1942
3:00 p.m.
RE: Draeger Shipping Company
Present: Mr. Paul
Mr. B. Bernstein
Mr. Pehle
Mr. Cox
H.M.JR: I don't know whether or not these
gentlemen sent you this stuff.
MR. COX: I have not seen it.
H.M.JR: Well, somebody, for the benefit of Mr.
Cox - for old time's sake we will let him do his
homework here - give a thumbnail sketch. I have
read this (indicating memorandum to the Secretary
from Mr. Paul dated September 22, 1942).
MR. BERNSTEIN: This Draeger Company is a for-
warding company, and it has been established here
for a few years. Back in 1935 it entered into a
contract with the Schenker Company, which is the
leading German forwarding company, owned by the
German railway system for the creation of, in effect,
a joint enterprise in New York.
H.M.JR: German railway system?
MR. BERNSTEIN: Yes. In effect, the German
Government owns the German railway system, for the
setting up of a joint enterprise in New York to handle
the business formerly done by Schenker, as well as by
Draeger.
At that time they were fearful of the boycott
problems. Draeger was the man to do the work. They
Regraded Unclassified
164
- 2 -
got some of the personnel from the Schenker outfit,
and it was run as though it were one business. When
the war broke out and Schenker was barred from the
American market, Draeger was pushed forward even
further.
There was a very significant letter written to
the Schenker representative in B.A. advising him of
thi S identity of relationship between Draeger and
Schenker in New York and saying, "When you are dealing
wi th Germans down there in B.A. represent yourself to
be Schenker, but when you are dealing with people who
do not like to do business with Germans represent
yourself to be Draeger."
We have examined this fellow over a period of
months. He has been very slippery. He refused to
let us have or admit that there was a contract. He
claims that it had been cancelled. We got the con-
tract, believe it or not, through the British
Gerhard and Hey Company, which is one of the leading
British forwarding companies and is owned fifty per-
cent by Draeger.
We are working very closely with the British, and
BEW, and the APC has been in on it.
Also, the British are anxious to know what our
views are. Our views are--
H.M.JR: Excuse me. That part you have just
told - it is inconceivable that the British should
permit this to go on.
MR. BERNSTEIN: It is. Our conclusions in the
matter are clear and simple, that this is in effect
a German company and it ought to be put out of busi-
ness immediately. Whether it is put out of business
by denial of the license or by the APC vesting it
and then putting it out of business is not as
important as it is to get it out of business.
Regraded Unclassified
165
- 3 -
The information would be furnished to the
British, and they also would probably do the same
thing with that Gerhard firm over there. So far
as we can find out they do not handle Government
or Lend-Lease contracts, but it is principally in
the trade between here and Latin America by private
account. They can learn through that, shipping in-
formation between the two areas.
MR. COX: Don't they handle some of the stuff
for the British on private account in connection with
Gerhard and Hey?
MR. BERNSTEIN: I don't know about the Gerhard
and Hey outfit - maybe.
MR. COX: It seems significant, to at least
give them some tip-offs as to the ship movements.
MR. BERNSTEIN: So far as we have been able to
ascertain, we just have not found any misuse of the
information.
MR. PAUL: But that is not saying it is not
done.
MR. PEHLE: It should be shut down because this
is a German enterprise, regardless of whether they
have vital information.
MR. COX: The Secretary raised the fundamental
problem the other day in talking about the price
thing. That is, you have got the problem of closing
it down, and it seems to me that obviously you have
got enough information for that; then you have the
practical problem, is it likely or is it worth the
effort to see whether these birds have been supplying
dope as to ship movements, assuming that they have
been tipping off already, by your investigation.
Now, if it were going to be a six months'
investigation to find out whether they are tipping off,
Regraded Unclassified
166
- 4 -
that obviously won't make any sense. The practical
thing to do would be to close them down.
The only question I have is whether within, say
a week's deadline, you can run anything down in terms
of all the techniques - the kind of things that the
FBI can do.
Now, from what little I have seen about this
kind of stuff there is a tendency to overrate the
capacity and intelligence of the enemy, because they
occasionally pull some awfully stupid stuff. Having
had the investigation for some time, and having run
down enough to close them, I just raise the question
of whether they are using any of this information on
ship movements; and, secondly, if you can run it down
in a short space of time, what effect will it have on
other outfits that are doing it.
MR. BERNSTEIN: Oscar, we have been in this
thing now for a few months. We have been examining
these people very closely, including all the per-
sonnel. We have not run across anything yet showing
they are tipping off.
MR. COX: But you wouldn't ordinarily use the -
I mean--
MR. PAUL: You mean should the FBI go in there
for a week?
H.M.JR: The FBI has been over and, he said,
up and down.
MR. COX: No, they have been over Jarka, not
over Draeger. But here is the point: The kind of
do because it involves to a degree intricate corporate
job you have just done FBI would not be likely to
relationships and all that sort of thing. That
is just is not their field, and they don't know
the curves on it. But when it comes to a question,
Regraded Unclassified
167
- 5 -
for example, of tapping wires and that 8 ort of thing,
that is the typical flat-foot's job.
Now, whether a week of that would turn up any-
thing or not I don't know.
MR. PEHLE: I should say it is almost highly
unlikely. I mean, this outfit has been tipped off
for months. The Treasury is watching them. We have
guards in there all the time.
MR. COX: I know, but if they had any sense at
all and wanted to tip off as to movements they would
not do it in the office; they would go back and pick
up a telephone and do it orally, but that part of
it--
H.M. JR: Have you ever known of FBI to break a
case where they started new, and do it in & week?
MR. COX: No, but this is not starting new.
This is a case where you have all the stuff for the
purposes of closing the thing, and you have got the
whip hand in that you can say, "We are going to close
it in a week. We will give you a week to trail these
fellows down and see what, if anything, can be found
out."
MR. PEHLE: They have been in a position to do
that all the way along, and we have other shipping
companies which are in the course of investigation.
MR. COX: The fact is that they have not done
it, John, and my basic point is that as far as the
Germans are concerned they do not give a damn about
our jurisdictional problems. Their only hope is that
the proper fellows won't do their job.
H.M.JR: There are a dozen key employees in
here, Oscar, and until FBI does - I wanted to shut
this down last week and then the boys asked for time.
I think it is a great responsibility that you are
Regraded Unclassified
168
- 6 -
taking in asking us to keep this open one extra day.
MR. COX: I agree. I mean, I am by no means
clear or strong about it.
MR. PAUL: I wonder if we can't combine some-
thing of your scheme with investigations of other
companies. We have got another bunch of them, five
or six others that we are following up.
MR. COX: Why not do this, why not close this
down immediately, give the FBI the names of the people
who are the key people and let them follow them up
from there on out. Then when you get the next one,
before you are sure of the closing-down stage, give
them the names of the key people to follow up on this
flat-foot thing.
H.M.JR: They can do that now on some of the
others.
In this thing here, this recommendation calls
for notifying the Army, Navy, and Justice, and the
individuals.
MR. COX: I agree. I mean, I was just raising
it for discussion - what the alternatives were,
MR. PEHLE: Oscar, this is a subject which - I
understand the FBI feels that they have got a lot of
business already. We have every interest in their
going ahead and doing all the work they can on the
problem. This is just one spot; there are a lot more.
MR. COX: Mind you, I haven't any interest in
the FBI because I am not looking at this as working for
Justice. The way I originally got into this, and how
I happened to talk to Klaus, was that it seemed could to me,
not be popping off as many ships without some knowledge in
just as an off-hand reaction, that the Germans
as to the movements of ships. We were interested
Regraded Unclassified
169
- 7 -
it from the Lend-Lease standpoint. I talked to Klaus
and asked him what he knew and what he could check up.
Then he checked up around town and did several things.
One was, for example, that we sent fellows up to take
pictures of the boxes on the docks. We could see what
the stuff was and to whom it was consigned. Anybody
could walk in and take a picture, let alone the
stevedores. They had the problem of not letting the
crews know where the ships were going, but let others in.
The FBI approach is that this thing has been
turned over to the Coast Guard, and therefore it is
not within their bailiwick. Now, you know that you
can drive a horse and cart through that division of
responsibility, and it seems to me--
H.M.JR: That is something else again. That is
something which FBI and ONI fought a battle on, and
everything else, and I don't know - didn't Biddle
actually go up to bat on it himself?
MR. COX: I think he did.
H.M.JR: That has nothing to do with this.
MR. COX: There is a larger problem here. You
ought to call it to the attention of the President -
that is, the implications of this divided responsibility.
H.M.JR: No, I don't think that is up to me. We
here in the Treasury really have no responsibility on
this thing other than this; but here the Attorney
General has a very definite one and the Navy has a
very definite one.
MR. PAUL: Of course the problem is much broader.
It is a question of safeguarding information, even if
you stopped these people.
MR. PEHLE: That is a problem that BEW has, as
a result of some meetings at Justice, undertaken,
Regraded Unclassified
170
- 8 -
partly with Censorship, to handle, on which the
Treasury has received 8. letter inviting them to serve
on & committee.
MR. BERNSTEIN: Oscar, on this stuff, we know all
this information isn't picked up a piece at a time; we
know where it is recapitulated - every ship movement
is recapitulated, where it is going, to whom, when it
will leave the port, and where it will cross certain
points. Every insurance. company - six insurance
companies that are doing re-insurance business in
this country, including one Swiss, know all this.
MR. COX: There is this, without the job being
the Treasury's primary responsibility except on the
foreign funds control thing, you have run into 8. thing
where there is enough evidence to close the thing; and
that will to a large degree automatically shut down
the corporate mechanisms, the means of communicating
information. So as a practical matter you say it ought
to be shut down. Now, actually, in view of the fact
that the jurisdiction has been turned over to the Coast
Guard and you have got other things, there ought to be
a much closer tie-up in the way that information is put
together for the purposes of stopping dope about ship
movements.
H.M.JR: Yes, but, you see, you are talking about
something - I needn't tell you times have changed, and
if you told me this six months ago I would have jumped
up and would tear my hair - what little there is left -
and get busy. But every time we want to do, or in-
stance - just let's talk about Justice - well, I don't
know, I was going to use the word "rule" - but they
rebuff the Treasury every single time we ever try to
do anything. Let's call a spade a spade. We see what
we can do about it, and Justice fights us tooth and
nail. They fought the Coast Guard tooth and nail on
this thing, and they don't do the job themselves. Let's
call a spade a spade. I wish Biddle was sitting there
in the chair instead of you.
Regraded Unclassified
171
- 9 -
MR. COX: That is the central problem I am trying
to point out
H.M.JR: I mean, why should I - - I mean I talk to
you one minute as Justice and now you sit over here
and you are my friend. We want to win the war.
MR. COX: That is exactly what I am interested
in.
H.M.JR: But supposing that I got together a
memorandum and sent this to the President, see? I
know what his reaction would be. He would say, "Henry,
mind your own business."
MR. COX: I am not so sure of that.
H.M.JR: I mean let's say that this thing that
you can drive a horse and cart through . - in one of
your many capacities you are more or less of an
assistant, legal adviser, to Harry Hopkins. Why
shouldn't Harry do this thing? This is right down
his alley.
MR. COX: I mean I am not--
H.M.JR: I am not trying to make a record. I
would just as soon stop the machine.
MR. COX: That doesn't Bother me.
H.M.JR: But the point I can't get, Oscar, is
this--
MR. COX: All I am trying to say is this, that--
H.M.JR: Here you are, an assistant to the
Attorney General and to Hopkins, and both of them
are charged - certainly the Attorney General is
charged with this responsibility. Hopkins is advisor,
Regraded Unclassified
172
- 10 -
or something, to the President - what is his title?
MR. COX: Special assistant.
H.M.JR: Which is it, advisor or special
assistant?
MR. COX: I don't know what his titles are.
H.M.JR: To the President and doing mostly, or
entirely, military matters. Now, why shouldn't one
of those two men--
MR. COX: They should.
H.M.JR: Have you tried them?
MR. COX: No, but I want to talk to you first,
and I was going to try both of them. But it seems
to me they are not exclusive because when you present
it to the President in terms of this thing, which is
really a nugget and developed out of your shop, you
are not saying that the Treasury ought to take over -
I mean I don't think you ought to say the Treasury
ought to take this over. All you do is present a
concrete case which came up in a way, in terms of the
division of responsibility, and they would say, "Well,
how in the world did the Treasury dig this up? Why
didn't Coast Guard or FBI dig it up?" They didn't,
that is the fact.
Now, the only relevance to that is that there ought
to be some method devised by which either Justice does
not rebuff you when you offer them something or ask
for their assistance, and where the thing is not off
in water-tight compartments, as far as the jurisdictional
stuff is concerned--
H.M.JR: Look, the Attorney General could tonight,
if he wanted to, say, "I want everybody that has any-
we will sit around and we will try this thing out."
thing to do with protection to come to my house, and
Regraded Unclassified
173
- 11 -
He would be the logical person to do it. I certainly
would not. But you have got to do this thing on a
man-to-man basis.
MR. COX: Sure.
H.M.JR: He with FBI - with all of the subversive
thing, he is the man to do it. I think the person that
should be needled - I don't know, you can come right
back at me - is the Attorney General.
Now, the boys did a good job on this thing - you
were here in the Treasury, you know. We have become
aggressive, and we become too aggressive and they try
to take our authority away from us. I am reaching
and groping - we just want to see the job done. But
I think that the Navy can't call all these people to-
gether. The Army might do it; the Services and Supplies -
General Somervell might do it. But I think we would be
the last people to do it. I think if I wrote the
President a letter I would rather do it when this case
is through. It is in this memorandum - it says when
it is through to send him a little review of the thing,
but--
MR. COX: Let me ask you this. Do you have any
objection if the A.G., for the purposes of calling the
meeting, through the A.G., or otherwise, to get some
connection between this, uses the Draeger thing as
an illustration?
H.M.JR: Delighted.
MR. COX: All right, fine.
H.M.JR: Delighted. Look, I will cooperate with
anybody else on this thing. That is why I invited
you here. That is a demonstration - you are a
visual demonstration. But I have beent hrough this
thing so much with the Attorney General and with
Hopkins, and with all of them, and they are all too
Regraded Unclassified
174
- 12 -
busy to do the job which is theirs and their responsi-
bility. This New York waterfront thing has been going
on for months and months and months.
MR. PAUL: Actually the only thing done about it
at all is what has been done here.
H.M.JR: Three or four years ago - maybe not that -
the President said, "I am going to have a person who
is going to have all the information on the subversive
question. The first person he asked to do it was
Jimmy Dunn.
MR. PAUL: Who?
H.M.JR: Jimmy Dunn. Then it went from Jimmy
Dunn to the fellow who is ambassador--
MR. PEHLE: Breckinridge Long.
H.M.JR: Breckinridge Long, and then it went from
Long to the man who is ambassador to Cuba now--
MR. PEHLE: Messersmith.
H.M.JR: He was the third man who had the job,
and Gaston represented the Treasury. I don't know
where it went after Messersmith left. I don't know
who picked it up. But the President has had it in
mind for a long time, but he has not gotten the
service and the country has not. I think it is
outrageous.
MR. COX: That is the feeling I have about it.
H.M.JR: You can use the Draeger case and you can
use our own people and the evidence, but I just did
not want to go to the front because it is useless. I
mean, it is useless for me to try to battle the
Department of Justice on this thing.
Regraded Unclassified
175
- 13 -
MR. COX: I was not thinking of battling the
Department of Justice.
H.M.JR: That is what it amounts to.
MR. PAUL: Why don't you "load the dice" with
the Department of Justice, then we will come right
along with you?
MR. COX: All right. I feel so strongly about
this in terms of people getting sunk out in the
ocean.
H.M.JR: You don't feel it any more than I do.
But, as I say, there are so many people charged with
the responsibility and they don't do the jobs.
MR. COX: That is right.
H.M.JR: And, incidentally, somebody had better
call up Crowley and tell him.
MR. PEHLE: I intended to walk right over.
H.M.JR: Try to get him to do it today.
MR. PEHLE: Yes, sir.
MR. COX: What you have got on the divided
responsibility thing is that with the primary
responsibility in other agencies you fellows have
actually done the best job on this.
H.M.JR: I think so.
MR. COX: It is not a periphery thing, really,
I think.
H.M.JR: I think that they have. I told you
that the other day. Some other agency just wouldn't
touch this.
Regraded Unclassified
176
- 14 -
MR. COX: I know on Jarka, which is another
forwarding and shipping agency, FBI has been up and
down, but I don't think they are equipped to do the
kind of job that your fellows did on Draeger because
their minds do not work that way.
MR. BERNSTEIN: We will probably have another
report on Phoenix, which looks like a blood brother
of this thing.
H.M.JR: Now, if you have Phoenix, ask Oscar
officially to have Justice simultaneously do the
wire-tapping and that kind of thing.
MR. PAUL: That is why I suggested it.
MR. COX: I can get that done.
H.M.JR: Get whatever the Phoenix case is and
invite FBI in to cooperate with us.
MR. BERNSTEIN: I think we keep FBI posted, as
we did in this case.
MR. PEHLE: In many cases we go in the front
door at the same time, when they say, "We haven't
gone in because we can't get in."
MR. COX: But you have got to remember one
central thing, and that is that an investigative
service is an investigative service. I mean, unless
they get direction, for example, the way the
Secretary will direct Irey - he does not tell him
in detail what to do but he gives him, really, a
direction. The thing that impresses me in watching
different investigator services is that they are
not much better than their direction. I mean, they
won't dig up this kind of stuff. FBI would very
rarely dig up this kind of stuff unless adequately
directed.
Regraded Unclassified
177
- 15 -
Now, on the other stuff, like the saboteur
thing, cases of that kind, that is like the fellow
that is stealing money out of a till - he doesn't
need much direction.
H.M.JR: Let's stop this, because I want to talk
to Oscar privately a minute.
TREASURY department
.yu
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
SEP 22 1942
TO
FROM
Randolph Paul
Re: Draeger Shipping Company
Attached is the report on the Draeger Shipping Company. It is
worth reading since the conduct of this company illustrates the
manner in which German interests cloak their operations to avoid
our wartime controls and to preserve their markets until after the
war.
Our investigation has conclusively established that Frederick
Draeger, a former German citizen, and the Draeger Shipping Company,
which he owns, have, since the beginning of the war in Europe and
even after our entry into the war, acted as a cloak for the Schenker
companies -- a world-wide system of international freight forwarders
beneficially owned by the German government. The underlying relation-
ship between Draeger and Schenker is based on a written contract of
April 10, 1935, providing for management for a ten-year period of
Schenker, New York, by Draeger subject to the direct supervision of
Schenker, Berlin. Draeger originally denied the existence of such
a contract and, when confronted with the evidence of its existence
(we obtained the original of this contract from London through the
offices of the British Embassy), he contended that it had been
superseded by subsequent oral agreements with Berlin which were later
cancelled. These contentions are in sharp conflict with his continued
activities conforming in substance with the provisions of the written
contract.
Although the original agreement between Schenker and Draeger
may have been motivated by a desire to avoid the boyoott of German a
enterprises, it provided, after the outbreak of war in Europe,
convenient method for preserving the German markets in the United
States and South America for the Schenker interests, despite the
controls established by the United Nations. This is clearly
illustrated in a letter signed by Draeger as manager of the New
York office of Schenker, which was sent on October 17, 1939, to &
Schenker representative in Argentina.
Regraded Unclassified
- 2 -
give you "Report eventually the necessary hints how you have to conduct
to
us
how you are progressing
...
80 that we can
yourself with regard to the various customers. For your guide we
inform you that we are in very close connection with the Draeger
Shipping Company, Inc. and Herr F. Draeger is likewise director of
Schenker and Company, Inc., New York.. We should like to request
you now with such receivers in Buenos Aires who have German sympathies
to acquire in the name of Schenker; with other firms which have an
opposite way of thinking, as English, French, etc., rather work for
Draeger Shipping.
"In consequence of the war and since Argentine is so ,almost out
off from Germany, we assume that the USA business with Buenos Aires
will significantly increase and you should therefore have a very
good field there to work successfully for Schenker and Draeger if you
proceed correctly. We repeat once more, with firms having German
sympathies one must acquire as Schenker, if you see any sort of
difficulties then act just as representative of Draeger Shipping
Company.
The Draeger Shipping Company, which is one of seventy private
freight forwarding concerns in New York City, handles the detailed
work involved in forwarding shipments of merchandise abroad. In the
course of normal business it obtains information concerning ship
movements. While our investigation has not uncovered any evidence
indicating that it has been making such information available to
onesy interests, such a possibility obviously exists.
It is the policy of the Treasury Department to force the
liquidation of business enterprises which are enemy owned or controlled,
which have been acting for enemy interests, unless such action
would impair the war effort, The Draeger Shipping Company handles
shipments going principally to South America for private concerns.
We have checked with Lend-Lease and the Board of Economic Warfare
and have been assured that this company does not handle any Lend-
Lease shipments. As far as can be ascertained it does not handle
shipments of any of the governmental agencies.
Accordingly, it is proposed to take the following action:
1. To furnish the Alien Property Custodian with a copy of the
report on Draeger Shipping Company, and to advise him the that
the Treasury Department will not continue to license it
operations of the Draeger Shipping Company and that
Regraded Unclassified
3
should be liquidated. If the Alien Property Custodian does
not act promptly, the Foreign Funds Control will revoke
the operating license of the Draeger Shipping Company and
permit only liquidating operations. Attached is a proposed
letter to the Alien Property Custodian.
2.
To furnish informally to the British Embassy a copy of our
report on Draeger Shipping Company; the British Embassy is
interested in this matter because of Draeger's 50 percent
interest in the British freight forwarding company of
Gerhard and Hey, Ltd.
To furnish copies of the report to the Attorney General,
the Secretary of War, and the Secretary of the Navy, in
order that they may inform interested offices within their
respective departments.
be
To prepare, a.s soon as the Draeger Shipping Company has
been made a "completed case," a memorandum to the President
for your signature summarizing the action.
are in agreement, please indicate below.
REP
Regraded Unclassified
SEP 22 1942
Hy dear Mr. Crowley:
There is enclosed herewith a report on Draeger Shipping
Company, Inc., New York, which is engaged in freight forward-
ing business with branch offices in St. Louis, Chicago, Pitts-
burgh, and New Orleans. The report establishes conclusively
that Draeger Shipping Company, Inc., owned and controlled by
Frederick Draeger, has, since the beginning of the war in
Europe, and continuously since our entrance into the war, been
cleaking the Schenker interests -- international freight for-
warders, owned beneficially by the German government = to.
avoid wartime controls and to preserve the German markets for
the Schenker interests until after the war.
We recommend that the Draeger Shipping Company, Inc., be
liquidated immediately. It does no governmental nor land-lease
business; its clients are exclusively private concerns. The
liquidation of this company would not Impair our war effort
since the facilities of the many other American firms engaged
in the freight forwarding business would be available to the
elients of the Draeger Shipping Company, Inc.
We are referring this matter for your attention since
Drager Shipping Company, Inc., represents enemy interests.
The immediate liquidation of this enterprise in urgent and
unless you propose other action, we intend to revoke the
present operating license and thus compel liquidation.
Our files in this matter are available for inspection at
my time,
Sincerely yours,
12/ H. morgeathan, Jr.
In. Leo T. Crowley,
Alien Property Custodian,
Room 414, National Press Building,
Washington, D. C.
Just
APP
Regraded Unclassified
182
Regraded Unclassified
September 19, 1942
REPORT OF INVESTIGATION OF DRAEGER SHIPPING CO., INC.
AND FREDERICK DRAEGER, NEW YORK CITY,
The investigation of the Draeger Shipping Co., Inc. shows
with certainty that Frederick Draeger, through the medium of Draeger
Shipping Co., Ine., actively represents German interests by virtue of
contractual relationship and a course of conduct. It further indicates that
continued operation of Draeger Shipping Co., Inc. would be contrary to the
best interests of national defense.
It is recommended, therefore, that the presently outstanding
30-day operating license of Draeger Shipping Co., Inc. be immediately
revoked. The Office of the Alien Property Custodian should be consulted
with respect to their views concerning vesting of Draeger Shipping Co.,
before action is taken pursuant to the above recommendation.
Origin of the Investigations
Prior to June 1942, there was some evidence indicating that
Draeger Shipping was in BOMB way affiliated with Schenker Co., Inc.,
New York, which gave rise to suspicions concerning the status of this
company. These suspicions were confirmed during the course of a foreign
funds control investigation of Topken and Farley, former counsel for the Germen
Consulate in New York City, and Schenker Co., Inc., New York. Documentary
evidence revealed that there had been a malafide transfer of the stock
ownership of Schenker Co. New York, around February 1940, whereby
the total outstending shares were transferred from Schenker Holding
Corporation, a Swiss corporation, the beneficial ownership of which vas
in Schenker & Co. G.m.b.H., Berlin, Germany, to one Johann Van Dijk
of Rotterdam, formerly manager of Schenker, Holland, Schenker, Berlin
1s owned fully " the Reichsbahn, 1.0., the German State Railway System.
Correspondence in the files also stated flatly that the aforementioned
Van Dijk and one Lorens, an employee of Schenker Co., New York, were
"confidential agents* of Schenker, Berlin. Inspection of the premises
of Schenker, New York showed that it and Draeger Shipping Co., occupied
joint office space.
As a result of this and other information, Draeger Shipping Co.,
was blooked as a national of Germany. At this time, a supervisor and guards
were installed on the premises, and shortly thereafter active investigation
began.
183
Background:
Frederick Draager, President of Draeger Shipping Co., was born
in Germany and came to the United States in 1892. He was naturalised
in September 1898. His previous connections having been with the
shipping business, he organized the Draeger Shipping Co., Inc. in 1922,
all the outstanding stock of which has always been owned by his, end
he has continued as its president to this date. Its business is that of
foreign freight forwarder and customs broker, and it has branch offices
in St. Louis, Chicago, Petersburg and New Orleans. Its South American
correspondent is Dickinson & Co., Sao Paulo, Brasil. Draeger is also
president of Merchandise Factors, Inc., New York City organized as an
adjunct to Dracger's business to handle warehouse facilities. In addition,
he holds a 50% interest in Gerhard & Hey, Ltd. of London, the reasining
50% being owned by A Mr. Jeffrey of Scotland. Às Thairman of the board,
Draeger holds the controlling vote in 01.50 of disagreement on policy.
With respect to this interprise the Ministry of Economic Warfare has
indicated through the British Embusay, that although suspicious of the
enterprise, it has taken no action against Gerhard & Hey because
of the ostensible ownership. The Ministry is actively interested in
our action in re the Draeger Shipping Co., because of the reperoussions
upon Gerhard & Hey, Ltd. and has expressed the view that their action
should be closely co-ordinated with ours.
Schenker & Co. Inc., New York, was likewise engeged in foreign
freight forwarding, but does not have a customs brokerage license.
As previously stated, it 10 nominally owned by 6. Dutch national.
Beneficial ownership, however, rests in Schonker, Berlin.
2/
The business of
Schenker, How York, had, until 1935, been uncertain and precarious, due
primarily, according to Draeger, to loose end ineffectual management.
In that year. e contract was made between Frederick Drueger, individually,
Dragger Shipping Co. Inc., Schenker Holding Corporation. Schenker of
Borlin and Schenker of New York, which led to the active representation
by Dragger of the Schenker interests in this country, which relationship
has continued us to the present date. Schenker Co., Nov York, was
recognised in 1935 as representing the German interests of Schenker, Berlin,
and the inability of Schenker, New York to realize profitable operations
at that time may very likely have been the fact that there was a general
and effective boycott of the Reichsbahn. This being so, placing the
management of Schenker, Now York in the hands of an American would tend
toward elimination of the boyoott.
Ownership of Schenker New York Stock:
Schenker & Co., G.m.b.H., Berlin, Germany 1e the parent concern
of a far-flung organization of freight forwarders. Its agencies, all
bearing the Schenker name, are located inell continental countries, 83
well as the United States. There is apparently 4. consolidation of stock
ownership of the various enterprises in the Schenker Holding Corporation
of Zurich, Switzerland. However, it is evident that the parent concern
is Schenker, Berlin.
Exhibit 1, Copy of Contract.
Regraded Unclassified
184
- 3 -
In the files of Topken and Farley, various letters were found
indicating this fact conclusively. In the file entitled "Holser vs.
Deutsche Reichsbahn and Schenker & Co." & letter written by Karl
von Lewinski at Berlin on February 14, 1936, appeared, which stated,
in parts
"The Schenker Co2 G.m.b.H. 1a owned fully by the
Reichsbahn. The clients /meaning Reichsbahn and Schenker
do not want to admit this under any circumstances as it
would be very hormful to their business interest in several
countries where all organizations, directly dependent on
the Reichsbahn, are boyootted. # # . In this connection,
you must avoid the words 'sale of Schenker & Co'."
In the opinion of the New York Court of Appeals, in 277 H. Y. 474,
written in the decision of this case, the statement is also made that
Schenker & Co. Berlin, is controlled by the Gorman State Railway Bystem
through stock ownership. It therefore appears that the ultimate owner of
the stock of Schenker & Co. Berlin is the German Government, and hence
the ultimate owner of Schenker & Co. Inc., New York, is also the
Germen Government.
Contract:
At the inception of the investigation, it became apparent that
such a contract existed. Draeger was repeatedly questioned on this point
but persistently denied its existence. He finally admitted, however,
that Georg Stephan, former manager of Schenker, New York, had approached
him many times prior to 1935 to take over management of Schenker, How York,
which Draeger consistently refused. Finally, however, he consented and in
April 1935, a 10-year contract was executed between Schenker and Drager,
as previously nentioned. The foreign funds control has obtained the
original of this contract from the Offices of Gerhard & Hey in London
through the survice of the British Embassy and it forms the prime basis for the
conclusions reached herein. 1/
The essential provisions of this contract are that there would be
an internal nerger or a joint enterprise of Drueger Shipping Go., and
Schenker, New York, but that, from a legal standpoint and for tax
purposes, the exterior entities should be maintained. Separate
forwarding books and a separate system of bookkeeping and financing
would be naintained for this purpose. All profits accruing from the
1/ Exhibit 1, Copy of Contract.
Regraded Unclassified
185
- 4 -
operation of the Schenker business would be divided 75% to Draeger
Shipping Co., and 25% to Schenker, New York. Out of Draeger
Shipping's 75% they were to pay all expenses of the office. However,
Schenker, Berlin reserved the right to give instructions for the
conduct of the management of Schenker, New York, in order to conform
the practices of Schenker, New York, with those of the entire
Schenker organization. This included the right to negative any
intended dismissal of Schenker personnel in New York. Draeger wes to
handle all business of Schenker, New York, from that date on, and, in the
event of any dispute under the contract, it should be settled by arbitration
in Hemburg, Germany.
Finally, Draeger agreed not to sell his shares during his
lifetime, or at most for the duration of this contrast. In the event
of Draeger's death, Schenker, Berlin, parent of Schenker, New York, could
demand of Draegor's heirs the continuance of the agreement or the sale to
it of the shares of Draoger at all arbitrated price. Should the heirs
elect to continue the contrast they could not dispose of the shares without first
offering them to Schenker, Berlin.
Pursuant to this contract, Draeger moved the offices of Schenker,
New York into those of his own at 17 State Street, New York City.
Thereafter, the business WES operated as a single entity with comeon
personnel engaged in making entries on both Schenker and Draeger records.
Draeger Stated, upon examination, that there was no attempt to solicit
new business on behalf of Schenker, New York, but that the business was
carried on only with respect to the olientele of Schenker existing at the
time of the contract.
In May of 1937, disagreements arose between Schenker, Berlin and
Draeger, who was manager of Schenker, New York, 8.9 to operations under the
contract, and Draeger visited Germany to make exesption thereto. 1/
He contends that at that time the written contract was cancelled and was
supplanted by an oral understanding, to continue in existence until a
successor could be found for Draeger, whereby the profits would be split
half and half and Draeger would not be subjected to any interference by
Schenker, Berlin. The written contract, however, wes never cancelled and to
all intents and purposes, as indicated by the course of conduct pursued by
Draeger subsequent to 1937, it remains in effect.
1/ Page 2, Draeger Testimony.
Regraded Unclassified
186
- 5
An analysis of the written contract and of the oral agreement
as recited by Draeger reveals a good many absurdities which reflect
issessurably on Draeger's statement that the written contract was
cancelled and supplanted by a "gentleman's agreement". It is
illogical that & men who considers a written contract as broken by
the opposite party should place his confidence in an oral understanding
never reduced to writing. Similarly, a provision for division of
profits with no like provision for losses is inconceivable, yet this
was stoutly maintained by Drager. There is evidence that
differences arose in 1937 and 1938 over operation of the contract,
by both sides. However, the written contract itself bears no mark
of cancellation, nor 1s there collateral evidence of its extinguish-
sent, nor is there any documentary evidence found in Draeger's file
or voluntarily produced by Draeger, which suggests the alteration
of the written contract by the oral agreement. Lastly, the course of
conduct to which reference will be made removes any doubt that the spirit
of the contract has been observed by Draeger throughout the war years
and still exists.
Draeger's Actions after May 1937:
In 1937, Schenker, Now York was showing profits. They continued
through 1938 and the first six months of 1939 with Draeger as manager. 1/
A successor for Draeger had apparently not been found. The wor broke out
in September 1939, and its impact was felt inuediately by Schenker, New York.
On September 29, 1939, Draeger and Topken discussed the election
of new officers for Schenker, New York and decided "in view of the
political situation it was urgantly advisable to have only American citisens
as officials of the company for the future." 3/ Stephan, a German citizen,
then president of Schenker, New York, submitted his resignation by cable,
to which Draeger enswered: . I shall comply with your request ...
I am still waiting for
the
shares of the Holding Company and also the
share book
...
so that ... we can arrange our records for any eventuality."
Thereupon, on October 31, 1939, Draeger was elected president
of Schenker, New York by the dummy holding company in Switzerland, Schenker
Holding Corporation, through Topken who held proxy of these shares. All
advices concerning this election were given directly to Schenker & Co., G.m.b.H.
Berlin, not Schenker Holding Corporation, Zurich, the dumay.
PP.3, Draeger Testimony.
Exhibit "S"
2
Exhibit "T"
Exhibit "8"
Regraded Unclassified
187
Regraded Unclassified
- 6 -
It 10 pertinent at this point to rocall that, under the alleged
oral agreement of May 1937, Draeger WELL to continue as manager only
until A could be found. It is now October 1939. Draeger's
explanation is that he wished morely to help out Schemker.
1/
Letters written by Draeger subsequent to his election as
president demonstrate the degree of attention given by his to the
administration of his office in Schenker, New York, and to the joint
enterprise of Draeger and Scheaker. They further show the continued
existence of the written contract and the close relationship of the two
companion.
on October 17, 1939, 2/ (fourteen days before Draeger's
election), Draeger, on the letterhead of Schenker, New York, and over the
signature of Schenker, New York, wrote to G. Sommerlatte, a representative
of Schenker, Berlin, in Buenos Aires, Argentina:
"October 17, 1939
0. Someerlatte
a/o Casa Schonker & Cic
Representation Buenes Aires
385 Sermiento, Pieas 85
Buenos Aires, Argentina
We receive your address from SCHENKER, HAMBURG, who
inform us that you week rates for the most importent standard
goods to Buenos Aires.
This 10 not so easily executed; but we assume rightly
that your activity in Buenos Airas 10 acquisition for Scheaker.
You oon unquestionably obtain yourself in Buenos Aires any rates
that you wish from the various steamship compenies that mintain
service to Buenos Aires: otherwise you must from time to time
communicate to us what it is about since your inquiry is very
general.
Report to us furthermore how you are progressing in your
activity no tbst we can give you eventually the becausery
hints how you have to conduct yourself with regard to the
various customers. For your guide IN inform you that we
are in very close connection with the DRANGER SHIPPING CO. INC.,
end Herr 7. Draeger 1s likewise director of SCRENKER & 00. INC.,
Pages 21 et. seq., Draeger Testimeny.
Exhibit "R"
188
Regraded Unclassified
- 7 -
New York. - He do not know if this is known to you.
Schenker itself has little at Buenos Aires; but the
Draeger Shipping Go. has somewhat more already. - No should
like to request you now, with such receivers in Busnos Aires
who have German sympathies to acquire in the name of SCHENKER:
with other firms which have an opposite way of thinking, as
English, French, etc., rather work for Dranger Shipping. -
With the various receivers the main point is to have a
forwarding agent in New York who can forward regulation
shipments to Buenos Aires and is well experienced in Consular-
Vorschriften, etc. Draeger understands this princi ally
because Draeger has already been in the South American business
for years. - Ye shall undertake our shipments in the may
that after the freight shall be paid here we shall let the
expenses be taken through the bank. If it is e question of
great and good firms, TO should also be willing to guarantee
the people the freight credit if it in not a question of too
great amounts, and this so well Schenker as also Draeger. -
Fe do not enter into finances, that 1a, prepayments of
invoices of the contractors, and then draw for the worth of
the merchandise on the bill of lading. - You will have such
to do to put through such affairs; please note from that in
advance that neither Schenker nor Draeger take over such
effairs.
In consequence of the war and since Argentine is BO
almost cut off from Germany, we assume that the USA business
with Buenos Aires in the shortest time will significantly
increase and you should therefore have a very good field
there to work successfully for Schenker and Draeger if you
proceed correctly. - We repeat once more, with fires having
German sympathies one must acquire as SCHENKER; if you see
any sort of difficulties, then not just as representative of
BRAEGER SHIPPING CO. - We give you with the same milk.
letterhead of Draeger Shipping 80 that you can goe with whom
you are dealing. You will see from the letterhead that
Draeger Shipping represents the perhaps well known to you
firm GERHARD & HEY Ltd. in London, which is the greatest
shipping agency in Greet Britain. ...
In case you wish any sert of further information,
write to us directly.
No should like to mention further that the future
commercial treaty with Argentina will add variously to
give you opportunity to acquire customers.
Respectfully,
SCHENKER & CO. INC.
F. DRAEGER .
DMZ
189
Regraded Unclassified
- 8 -
This letter is of vital importance in that it shows the state
of aind and intention of Draeger immediately after the outbreak of was
in continental Europe. It shows, further, that Draeger was immediately
concerned with the retention of those customers in South America
with whom Schenker, Berlin was accustomed to do business. In his testimony,
Draeger relates that he understood that Sommerlatte was in the Argentine
to solicit business for Schenker, Berlin. When Schenker, Berlin was out
off from this actual end prospective business, a hesty effort was mado
with the connivance of Drasger to preserve those gains already made and
to capture the business which would result from the anticipated expansion
of South American import and export business due to the outbreak of the war.
When questioned about this letter during his examination, Draeger
read a prepared answer. 1/ In substance, he attempted to say that his
sole purpose in writing this letter was to gut the business in South
America for Draeger Shipping Co. solely. The reason Draeger gave for writing
as Schenker, New York, was to identify himself to Sommer Intte, because
he was afraid Someerlatte would not recognize the Draeger Shipping Co.
The explanation is unacceptable. The unequivocal language of the
letter shows beyond question - - particularly considering that Draeger
and Schenker, New York was 8 joint enterprise, that the new Janus was
taking over the Schenker business in the New World, presenting the face
of Draeger or the face of Schenker as required by the political complexion
of the shipper. The letter was written on the letterhead of Schenker,
Now York, over the signature of Schenker, New York, and refers to obtaining
business for Schenker, New York, using the Draeger name for "firms which
have an opposite way of thinking, as English, French, etc." There would have
been no need for discussion of the political beliefs of shippers. Draeger
himself admitted, finally, that Sommerlatte must have known of the existence
of Schenker, New York, and that, therefore, there was no purpose served in
attempting to identify himself to Sommarlatte as a Sebenker mn. The only
conclusion that can be reached is that 6 Schenker man wrote to a Schenker man 2/
with a plan to save the Schenker business for the duration.
Page 34, Draeger Testimony
Pages 33-47, Draeger Testinony.
190
- 9 -
Another letter of May 17, 1940, reflecting the continued cloaking
of Schenker by the Draeger name, was written by Lorents for Drager
Shipping Co., to Etablissments Weigel & Cie, Peris, in which it was stated,
among other thingss
"The firm of N. E. Lindemenn is B. Schenker account,
but we went to have all these shipments forwarded and
consigned to the DRAEGER SHIPPING 00. for the time being."
The use of the phrase "for the time being" obviously suggests that
Schemker New York WILLS lying dormant for the duration of the war, when
it sould resume business, and that Draeger was doing his utmost to
preserve the Schenker business and worldwide organization until that time.
ha evidence that the previously mentioned letter of October 17,
1939, was not simply an idle gesture, on July 12, 1940, 21 Lorents wrote
to Nanuel Vivas, Ltd., Lisbon, Portugal, with respect to 6. shipment of
hops, giving certain instructions, and among others:
"Should you receive any shipment for Schenker & Co.
New York, please consign them to us only, and not to
Schenker. As you know, we are taking care of the Schenker
interests and it is better not to consign any shipments
to Schenker & Co. until the Eurouesn situation is cuist again."
On February 3, 1940, 3/ a letter from Schenker Holding Corporation,
Switserland, addressed to Topken and Farley, requested Topken to issue B. new
certificate for 250 shares in the par value of 825,000 and to issue it in the
name of Johann P. Van Dijk, who would surrender the old certificate issued in
Schenker Holding Corporation's name. In this letter Van Dijk was described
by Schenker Holding Corporation as "our confidential agent", Referende had
formerly been made to Van Dijk in the same terms and also as manager of the
Dutch Schenker firms, in a letter by Schenker, Berlin to Topken on December
20, 1929. w The total outstanding stock of Schenker, Sev York consisted of
250 shares, all oned beneficially prior to this tine by Schenker, Berlin.
The new certificate for 250 shares of Schenker Co. New York, was issued to
Van Dijk end placed with Topken for safekeeping. The custody of this stock
was reported by Topken on March 19, 1941, on Form TFR-100, an property of a
Dutch national.
Exhibit "2"
Exhibit "MA"
Exhibit "y" (Italics supplied).
Exhibit "U"
Regraded Unclassified
191
Regraded Unclassifie
- 10 -
In & letter dated March 10, 1941, V from Topken to the German
Consulate General, New York City, written with respect to those shares,
it is stateds
"Should I receive instructions from Mr. Van Dijk
to deliver the certificate to him, I would be able to do so
only with the consent of Schenker & Company G.m.b.H. after
having ascertained that Schenker & Company G.m.b.H. can
prove its rights to the certificate."
It is apparent from the last quoted letter of Topken that
Schenker, Berlin has at least certain interests in this stock and
probably entire beneficial ownership thereof. Further, in the letter of
December 20, 1939, previously referred to, Van Dijk vas described by
Schenker, Berlin, as "manager of our Dutch firms". This inter-
change of letters does everything but baldly state that Van Dijk holds
the bare legal title to these shares to conceal the true ownership.
On April 4, 1940, Van Dijk presented himself at the offices
of Schenker à Co. New York and, according to Drosger, desended and obtained
6. check of Schenker & Co. New York in the amount of $10,000 payable to Van Dijk.
This represented a withdrawal of practically all of Schenker & Co.
New York's available cash, and, according to Frederick Draeger, it was
8. liquidating dividend to which Van Dijk was entitled. The foregoing
statement WRD made when the withdrawal first case to light during the
investigation but subsequently, in his examination, Draeger simply said
that Van Dijk requested the money and Branger gave it to him.
Dreeger did state that Ven Dijk said, in response to Draeger's protect,
that Van Dijk was the only shareholder and could sign the check himself.
The check for $10,000 was deposited in the Guarenty Trust Co., New York. After
his return to Rotterdam, Van Dijk cabled the bank, on April 29, 1940, as follows:
"Charge my account $10,000. Cable to Deutsche
Reichsbank, Berlin, to the favor of Schenker & Co.,
Ritterstrasse, Berlin."
This is further corroboration that Ven Dijk WS.: the nominee of Schenker
Berlin and The acting in its behalf in negotiations with Schenker, No- York.
1/ Exhibit "JJ"
192
- 11 -
It thus appears that Schenker, New York, is still owned by
Schenker, Berlin, a fact important as regards Schenker, New York,
itself, but also as demonstrating that those note committed by
Draeger on behalf of Schemker, New York, were not committed a
behalf of a Dutah national but for the benefit of a German easay
national.
Continuation of Schemker Representation:
It will be recalled that in May 1937, Drager had agreed, se
he says, to continue the management of Schenker's affairs until
a successor could be found. From May 1957 until October 21, 1939,
over two years, be continued actively as manager. During all
of this time no rucesser apparently could be found and, centrary
to any avouals en the part of Draeger as to his extress desire
to never his relationship with Schemker, he nevertheless accepted
the presidency on this date.
He continued as president until April 10, 1941, at which time
Mr. Lorents became president. It is significant that during all
of these years, from 1938 m, Lorents, who has been described by
Schenker, Berlin, as its "confidential representative," was
constantly employed by Behenker, New York, and was available as
a successor to Dragger.1/ Upon the resignation of Drager as
president, on April 10, 1941, Lerents succeeded to the presidency.
On April 25, 1941, 15 days later, Lorents was transferred to the
Draeger payrell. In this light, Drager's protostations that
he was extremely anxious to sever his relationships with Schenker
are ridiculous. It is further significant that from 1939 on,
as Draeger admits, the Schenker, New York, business showed
absolutely the profit, This being no, there is only one conceivable
reason why Draeger should continue his relationship with Schemker -
a relationship en the part of Draeger to preserve the customers
of Schenker, Berlin, to maintain the name of Schenker, New Tork,
and Schemlcer, Berlin, in the minds of the public, and in every
way to keep the Schenker flaght flying in the Western Hemisphere.
Pages 59, 60, Draeger Testimeny.
Page se, Draeger Testimeny.
Page 7. Draeger Testimeny.
Page 25, Draeger Testimeny.
Regraded Unclassified
193
- 12 -
On July 9, 1941.1/ after Lorents had become president of
Schenker & Co., he wrote to Mrs. Lisl Welff, Rew York City, concerning
certain charges against the addresses and requesting payment, in
which it was stated:
"will you please ⑉ that we receive an additional
payment, but please note that all of the payments are to
be made to our customs broker, the Draeger Shipping Co.,
Inc., 17 State Street, New York, so please do not issue
any money orders or checks to Schenker & Do., Inc., but
make these payable to the Draeger Shipping Co. Inc."
At this time Schenker & Co., Inc., was blocked as a Dutch national
so that this letter is a patent attempt to violate the Executive
Order. There is no reason why payment should be made to Drager for
an account owing to Schemker. This also illustrates the impossibility
of differentiating between Draeger and Schemker even as late as July 1941.
In a letter to the mar Production Board, Washington, D. C., on
April 28, 1942,2 written by Lorents for Schenker & Co., Sew York,
in answer to an inquiry from the "ar Production Board, it was stated:
"As this firs will not be active for the duration
of the war, we suggest that you strike our name off the list."
This series of letters, which are illustrative of the general
tone of numerous letters found in the Draeger-Schauker files, indicates
clearly that it was intended that Schenker, New York, because of its
national interest legally Dutoh but beneficially German, remain
dormant for the duration of the war, after which it was hoped reincarna-
tion would be immediate. To effectuate this program, use of the Schenker
name was to be made in South American countries, but, though the
solicitation of orders was in the Schenker name, the consignment
was to be made to Draeger Shipping Co. because it was obviously
felt that Draeger, being 100% owned by a citizen of the United States,
its axistence would not be jeopardized by the controls encircling
foreign national enterprises. This conclusion, based upon the
written words in the afore-mentioned letters, is supported by the
internal operation of the Draeger-Schenkor office, particularly the
activities of its personnel and handling of accounts.
Exhibit "PP"
Exhibit "QQ"
Regraded Unclassified
194
- 18 -
Work of Employees:
From the period of May 1935 to May 1941, the Schenker payroll
discloses that approximately 40 individuals were at one time or another
employed by them. After 1938, seven employees of Schanker & Co. were
transferred to the Drager Payrell.
When the employees of Draeger Shipping Co., Inc, were interviewed,
among numerous other things, their employment history was covered.
Out of the seven former Schenker employees, only one advised us that
she worked for Schemker & Co. Some time later, the six former Schenker
employees were again interviewed. At this time, they were advised of
the facts indicated by the Schenker payroll. Their reply was that it
was their opinion that they were working for Drager. Even though
all were doing both Draeger and Schenker work, it was always their
opinion that they were employed by Draeger and they considered the
Draeger and Schenker business one and the same.
In view of the above, it is a reasonable sonclusion that internally
the Draeger and Schenker activities were the same, and that no
distinction was made between the two concerns.
Recent Representation of Schenker by Draeger:
From 1935 to 1938, Schenker, New York, under the management of
Draeger, handled the importation of shipments of Polish hame upon
which excessive duty was lovied. Refunds were sought by Schenker,
New York, and the firs of Barnes, Richardson and Coleburn, New York
City, were retained as counsel. According to license No. IT 407915,
a payment of $29,865.71 WE made to the attorneys, representing
50 percent of the duty refunds recovered for Schenker, Yes York.
The balance is held by Schenker, New York, in its blocked account
at Chase National Bank for the benefit of the original importers.
The $29,865.71 received by the atterneys was released from
the blocked account of Schenker, New York, and of this amount $2,600
has been paid up to May 7, 1942, to Draeger Shipping Company "in
payment for services." A further payment is to be made in the near
future, according to Barnes, Richardsen and Coleburn. This appears
to be the latest transaction involving the "Draeger-Schenker, N.Y."
relationship.
Mr. Draeger explains these payments as usual in the relationship
between custom house brokers and customs lawyers. Assuming that this
is true, this transaction was, nevertheless, 6. violation of the Executive
Order by Barnes, Richardson and Celeburn and Draeger Shipping Company.
Regraded Unclassified
195
- 14 -
From blooked funds payable to Schemker and Company, Inc., counsel
received a fee with the intention at that time of paying part of that
fee to Draeger Shipping Company, the unblocked alter age of Schemker
and Company. This intention was carried out and the funds were removed
from our sontrol.
Income Tax:
In analysing Mr. Draeger's personal account for 1941, it was
found that through various methods, Mr. Draeger withdrew approximately
$47,000 from the corporation for personal use, His 1941 tax return
showed his total income as $5,000. During this year Mr. Draeger
received through petty each approximately $8,000. The balance was
withdrawn by cheeks, not payable to P. Dreeger but to third parties,
concerns, etc., for his personal living expenses, etc.
Numerous adjustment entries appear on Mr. Draeger's personal
account, which attempt to cover up some of his withdrawals. These
adjustment entries involve his personal accounts in the New York
and London offices. This phase of the investigation will be
referred to Internal Revenue,
Draeger's Defense:
On his OTHER behalf, after being apprised of the principal charges
against him (August 4, 1942, before B. H. clay), together with the
evidence supporting those charges, Draeger has submitted affidavits
attached herete. They should be read.
But in considering such affidavits, the credibility of Draeger
is decidedly material. At the inception of the investigation, Draeger
denied that a contract had over existed. He later admitted, when
pressed, that a written contract had existed for a. short period but
had been canselled. He emitted reference to an oral understanding
until-the evidence of a contractual relationship became so overwholming
he finally disclosed that the written contract had been supplanted by
an oral understanding in May 1957.
When Heins Herrasm, of Schenker, paris, immigrated as a visitor,
by law he was barred from taking demostic employment. Nevertheless,
be was placed on the payrell of Schenker, New York, a charge being
zade against Schenker, Paris. Herrmann actually worked for Draeger,
the charge against Schember, Paris, being a shaw to oversoms his
employment difficulties. Be admite he worked for Draeger.
Regraded Unclassified
196
. 15 -
Regraded Unclassified
One individual, an imdgrant to this country, wanted to bring his
sister to the United States from Germany. Being jobless, he ma-pro-
vented from doing so, unless he could certify to his ability to support
the sister. Whereupen, after request, es November 25, 1959, Drugser
signed a letter for him certifying that he was on Drager Shipping
Company's payroll at $50 a week. Written beneath Draeger's signature on
the copy was a signed statement to the effect that the undersigned would
not use the above letter to obtain a job with Dranger Shipping Campany.
Drager's testimeny was indefinite, contradistory and evasive. 30
failed utterly to advance one argument or produce affirmative preef to
support his contentions and constructions. The nest that can be said is
that he did have trouble under his contrast to the extent that both par-
ties threatened to break it.
Personnel:
The investigation of the Drager Shipping CO., Inc., included a
thorough examination of its 35 efficers and employees. Every officer
and employee was interregated and a statement was then prepared of his
answers, which was signed and evera to. Six of the officers and employees
who were interrogated appeared questionable, and therefore a. brief state-
went conserming each is set forth below.
1. Proderick Draeger. From 1892 to 1907, Draeger was employed by
various conserns located in New York City. In 1907 he travelled to England
to became manager of Gerhard & Bay of Londen, Regland (Germen firm). In
1922, be organised the firm of Draeger Shipping Co., Inc., in New York City.
From 1907 to 1939, he spent approximately 10 months out of each year in
London and two menths in New Terk. While living abroad, he travelled -
tensively, and periodically visited every country on the continent. During
these visits, he contacted massrons foreign firm. To his personal no-
port, he attached a list of the firms which were visited. It was during
this time that Dranger became asquainted with the European Schemker
organizations and through this asquaintance the present Draeger-Scheaker
relationship was established.
A Mr. Fround, who formerly was associated with the European Schemker
organisations, was interviewed conserning Drager. He stated, "It is
my opinion that Mr. Dranger is very such pro-German and that in all
probability Mr. Draeger is taking care of the Schemicer business of New
York for the duration, and after the war will again return the business
to Schemker & Company."
During the interview of Mr. Comman, vice president of Drager Ship-
ping Co., Inc., he stated "off the record" that in his opinion Mr. Draeger
was definitely pre-derman. This opinion was based on Mr. Certeran's
general observations of Mr. Draeger's activities during the past 10 years.
itr. Corman also advised that before be was interviewed by the Treasury
Representatives assigned to the Draeger consern, Mr. Dranger sold his that
if the Treasury Representative inquired about any contract or contracts
between Draeger and Schemker he should advise them that no contract over
existed.
197
- 16 -
2. Heins Herream. Ten years prior to September 1939, Heins
Hermann was employed by Schenker and Company, Berlin, and Schenker
and Company, Paris, France. In September of 1939, ae - to the
United States on a visitor's visa, for the purpose of soliciting
business to the United States for the Paris Schenker organisation.
At the time of his interview, Herruann advised that shortly after
arriving in the United States, he received a letter from the Schanker
Holding Company of Switzerland advising him that his services were no
longer required. A copy of this letter or the original itself was
requested, but Berrmann has failed to produse the saze, stating that
it must have been destroyed or lost. It 10 questionable whether
Herrusan still represents the Schemker, Paris, organisation. It is
indicated he had considerable influence in that he 10 reported to have
stated verbally that he had instructions and authority from Schenker,
Berlin, to cancel the Schenker contract with Draeger at his discretion.
At the time he first once to the United States on a visitor's
visa, he ostonsibly was employed by Schenker, Paris. Under his visa
he was prohibited from working for a domestic consern. The fact is
that he DAS been working for Draeger Shipping Company. Furthermore,
there in evidence indicating quite clearly that Herrmann has falsified
certain documents filed with the State Department bearing upon his
application for citizenship papers. These matters have been referred
to the State Depruntment.
3. Agon Slaton-2lotmitaki. Slaton was born January 10, 1910, in
Graudens, Germany. 30 livedin Derlin, Germany, from 1923 to 1937,
and during 1937 he impigrated to the United States on a Polish
immigration visa. Hiewife was also born in Germany, and at the presect
time her father is still living in Germany. In his affidavit, Slaton
advises that he was employed by Draeger Shipping Company, Ino., in 1937
and has worked for the company since that time. In checking the
payroll of Schenker and Company of how York, it 1s found that
Itr. Slaton was employed by Schenicer and Company from September 24, 1937,
to December 30, 1938, at which time he was transferred to the Draeger
payroll. Further investigation of Slaton is indicated.
4. Manuel Holaro. Molaro was S. native of Venesuela and has
been in the United States since 1924. It was only in 1940 that ise
applied for his first naturalization papers. He is a registered alien,
and further investigation is indicated as to whether, in his assosiation
with Draeger, his work promoted German interests.
5. August Lorents, Lorents was born on July 16, 1806, in
Mamheim, Germany. He entered the United States on December 19, 1927,
and received his fiml naturalisation papers on June 8, 1935, from
the Suprese Court, Richmond County, New York. His affidavits disclose
that he active in the last war and that be also received the Iron
Cross decoration. From 1925 to 1928, be was employed by various
Schenker companies in Cermany. In 1928 when he came to the United
Regraded Unclassified
198
- AT -
states, he was employed by the German Railway Company in New York City.
Be held this position until 1933 when he again was employed by the
Schenker organization in Schenker and Company of New York. The Schenker
payroll indicates that Lorents was paid by Schenker and Company of
New York until April 25, 1941, at which time he was transforred to
the Drager payroll.
6. Herean Ettlinger. Sttlinger was born on May 5, 1902, in
Zell bei nuersburg, Germany. de immigrated to the United States in
1938 and from that time until the present day he has held various jobs
in New York and in Chicago. His affidavit shows that he applied for
his first citizenship papers on January 24, 1940, and applied for
his final papers in February of 1942. In reviewing his affidavit,
it is also found that his mother and father and other relatives are
still living in Germany at the present time.
7. Adam Benker. Benker, a. naturalised citizen, was born in
Germany August 5, 1900. He served in the German army from 1918 to
1919. After holding positions with several business enterprises in
Germany between 1920 and 1923, he arrived in the United States. He
arrived on November 11, 1923. He received his final citizenship papers
on March 28, 1933. After employment for four month's duration with a
New York textile firm, Benker became affiliated with Draeger Shipping
Company, Inc., with which fire he has been associated ever since.
Mr. Cornmann, an officer of Draeger Shipping Company, in an interview
with a. Treasury Department representative, expressed a belief that
Mr. Backer may have pre-German tendensies. Mr. Benker is treasurer
of Draeger Shipping Company, Inc.
8. sinon Ohama. Ohana was born in Lisbon, Portugal, on June 18,
1899. He came to the United States with his parents in 1904 and was
naturalised by his father's papers on May 17, 1917. After working for
several American firms from 1914 until 1923, he became associated with
Traeger Shipping Company, Inc., and continued in their employ from 1925
until 1932. After being employed by the Metropolitan Life Insurance
Company from 1932 to 1940, he returned to Draeger Shipping Company and
has been employed there over since. On October 5, 1940, he went to
South America 68. a business trip for the Draeger Shipping Company.
The purpose of this trip was to visit the various importers in several
South American countries and endeavor to obtain their business in
having them use Tranger Shipping Company as their freight agents in
the United States. do returned from this trip, which he claimed to
be unsuccessful, on March 10, 1941.
In view of the information comerning Traeger Shipping Company's
activities in Mouth America, it would seen appropriate to investigate
further a. man who represented Draeger in South merica for the purpose
of securing customers.
Regraded Unclassified
199
- 19A -
The Business of Freight Forwarding:
A person engaged in the business of foreign freight forwarder and
customs broker, has direct access to information of a strategie and
vital nature, the importance of which is emphasised during time of was.
Generally, the forwarder is employed by manufacturers, producers and
sellers throughout the world to arrange for delivery of goods and to
handle the many details incident to leading and shipment of the goods
and clearance through Customs of the various countries.
The work of the forwarder is best illustrated by setting
out his duties incident to handling a trans-shipment of goods from
Switzerland to South America. The initial step is to make the contract
with the Swies fire originating the shipment. Then arrangements are made
by the forwarder for overland shipment through Europe to the point
of export and space aboard a ship bound for the United States is found.
The necessary documents, duties, licenses and insurance are taken care of.
Through the New York effice provision is made for receiving
the goods at New York and for deak space or warehouse facilities. When
the goods are received the forwarder handles the clearance through Customs
and arranges in advance for railroad freight space from New York to
liew Orleans, the point of export from the United States to the consignee
in South America, and for space for the goods aboard a vessel leaving
from New Orleans to the port nearest the location of the tillinate consignee
in South America.
It is readily apparent that as an incident to handling of
this shipment from its point of origin in Switserland to its ultimate
destination in Seath America, the forwarding agent knows the character
of the goods shipped, the appreximate date the carrying vessel leaves a
particular port in Europe, the eise and name of the vessel, the approximate
date of arrival in New York, as well as the approximate date it will
leave New Orleans, the size and name of the vessel, its ultimate destination
and the approximate date of its arrival. In addition, as an incident to providing
dook space and warehouse fasilities at the various points of loading and
unloading, from ship to train and vice versa, the employees of the forwarder
have access to information soncerning the general character of the entire
shipment contained in any particular vessel.
It is obvieus, therefore, that forwarding agents in the
United States constitute an integral member of that group of individuals
which have access to information of vital importance in time of way and
because of which they should have the complete and utter confidence of
the Government.
Regraded Unclassified
200
- 18 -
Conclusions:
Schenker and Company, Inc., New York, which has been dormant
since the outbreak of the war, is entirely owned by Schenker and Company,
Inc., Berlin, and indirectly by the German government.
Frederick Draeger and the corporation which he owns, Draeger
Shipping Company, since the beginning of the way in Surope and after
our entry, have acted for the benefit of the German government through
Schenker, Berlin, in protecting and cloaking German interests and
preserving the business of the German Schenker organisation, particularly
in South America.
The continued operation of the Draeger Shipping Company is highly
dangerous to the national interest, particularly since it is engaged
in foreign freight forwarding, and in the normal course of business
has access to information with respect to ship movements and carge
and other transactions of & strategic character. Accordingly, the
operations of Draeger Shipping Company should be promptly terminated.
Evidence relating to certain employees should be referred to
the appropriate governmental agencies for consideration as to criminal
or administrative action.
Additional Recommendations:
It is recommended that the present personnel of the Draeger-
Schanker combine should be watched for future connections should Draeger
and Schenker be liquidated. Certain employees listed in the body of
the report, together with the information thereon, have been referred
to the Federal Bureau of Investigation.
The indicated violations of the Executive Order should be referred
to the-Goumittee on Investigations and Enforcement for such action as
they deem appropriate.
Information pertaining to Heins Herrmann should be referred to the
State Department for their consideration with respect to the imaigration
status of Herrmann.
The information relating to suggested evasion of income tax
payments on the part of Frederick Draeger should be referred to the
Bureau of Internal Revenue.
Regraded Unclassified
201
September 22, 1942
Mr. Stone, Secretary Hull's secretary,
phoned and said that Mr. Hull meant to
say that Mr. Hackworth of State Department
handles this metter, and Hackworth, not
Feis, will contact Mr. Sullivan.
00: Sullivan
202
September 22, 1942
4:28 p.m.
HMJr:
Hello.
Operator:
Secretary Hull.
HMJr:
Hello.
State
Operator:
Coming right on, sir.
HMJr:
Hello. Hello. Hello.
Operator:
He said he'd be right on.
HMJr:
Hello.
Cordell
Hull:
Hello, Henry.
HMJr:
Hello, Cordell.
H:
What's going on?
HMJr:
Oh, nothing much. I got a note from the
President in longhand, and it said, "Treasury
taxing embassies? Let Cordell Hull know per-
sonally." And I didn't know Just what it meant.
H:
Some of my fellows and your fellows have had up
that question
HMJr:
Yes.
H:
....of why there were some British - I think
the recommendations were that - were such that
is calculated to get us into considerable
trouble and the embassies were making pretty
strong complaints
HMJr:
Yeah.
H:
along the line, and - I told the President
that the Treasury and State Department were dis-
cussing it and tried to work out something, but
that, in my opinion, we'd need a sort of recipro-
cal proposition, tax those that don't tax us
abroad.
Regraded Unclassified
203
- 2 -
HMJr:
Yeah.
H:
And then exempt those here who exempt us.
HMJr:
Yeah.
H:
Now if we can do that, the thing could be made
to work without - you see, we've got so many
interests abroad we'd suffer more than anybody.
HMJr:
Yeah. Well, who in your department looks after
that?
H:
Well, I - Feis.
HMJr:
Feis?
H:
Yeah.
HMJr:
Well, could Feis talk to John L. Sullivan,
Assistant Secretary?
H:
Is that the prize-fighter?
HMJr:
Well (laughs), no, this 18 known 88 John L.
Sullivan of New Hampshire.
H:
Oh, I see. Well, he can talk to him. He wouldn't
want to get near the prize-fighter
HMJr:
No, this 18....
H:
if he were still living.
HMJr:
No, this is a nice fellow.
H:
Then it's all right.
HMJr:
He's - he comes from New Hampshire.
H:
Yes, all right, then, Henry.
HMJr:
And I'll tell him of your interest..
H:
Yes,
HMJr:
....and ask him to hold himself in readiness to
hear from Feis.
Regraded Unclassified
204
- 3 -
H:
All right. Thank you, Henry.
HMJr:
Thank you.
H:
You're welcome.
Regraded Unclassified
TREASURY DEPARTMENT
205
INTER OFFICE COMMUNICATION
DATE September 22, 1942
TO
Secretary Morgenthau
FROM Ferdinand Kuhn, Jr.
Your host at Fort Benning last month is now a
Major General. In case you would like to congratulate
him, I have prepared these few lines for your signature.
7.K.
206
September 22, 1942.
Dear General Allen:
I have just read in this morning's
newspapers that you have been promoted
to the rank of Major General. From
what I saw on my all tee brief stay at
Fort Benning, I know that your two stars.
are well deserved. My heartiest con-
gratulations to you.
Sincerely,
(Signed) H. Morgenthau, Jr.
Major General L. c. Allen,
Fort Beaning, Georgia.
FK:eg
File in Diary.
Regraded Unclassified
W
207
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 22, 1942
TO
Secretary Morgenthau
FROM Ferdinand Kuhn, Jr.
These radio announcements are now being printed
in Chicago and are about to be sent to all radio, stations
for use once a day every day throughout October, beginning
October 1st.
J.K.
208
Are you saving pennies at home, or dimes, or
nickels? If you are, put your coins to work, to help
win the war and help yourself toward financial security.
Take your coin collection to your bank, post office or
retail store and swap it in for War Stamps and Bonds.
Do it today! Your coins and all coins are needed in
circulation, so that our businessmen and manufacturers --
the men behind the men behind the guns -- can get their
jobs done more quickly and more smoothly. New metal
cannot be used in minting new coins. This new metal
must go into bombers and tanks and other military
weapons to smash the Axis. Your coins, in circulation,
will be helping to turn out those bombers and tanks.
Your coins, in War Bonds, will be providing for your
financial security, because your War Bond dollars
will come back to you, four for every three you put
in, when your Bonds mature in only ten years. And so,
swap in your coin collection for another Bond
from
$18.75 up
and keep on saving, in Stamps and Bonds!
Regraded Unclassified
209
Today is bargain day in every bank, post office
or savings and loan association in the United States!
Every day is bargain day where they sell War Stamps
and Bonds. And here's a swell, necessary way to add
to your savings in War Stamps and Bonds. Take your
collection of pennies or nickels, dimes or quarters
and swap it in for Stamps and Bonds. Do it today
because all coins are needed in circulation, to help
our war industry handle its tens of thousands of daily
business transactions
business transactions which
mean more tanks and bombers for our fighting men in the
front lines. New metal cannot be used to mint new
coins to do this job. New metal must go into tanks
and bombers. Your idle coins must help to do the
job. Today, take your coin collection to the bank,
post office or retail store and swap it in for Stamps
and Bonds. Today, buy another Bond
from $18.75
up
and keep on saving, in Stamps and Bonds.
Regraded Unclassified
210
Here's a double-barrelled way to help win the
war and help yourself toward financial security. Go
today and swap in your collection of coins for War
Stamps and Bonds, at your bank, post office or retail
store, and then keep on saving in War Stamps and Bonds.
Your coins are needed, in circulation, to help industry
and business speed up their transactions, speed up the
job of building and supplying our fighting men with
more weapons to win the war. New metal cannot be
used for coins. New metal must be used in tanks and
bombers. Your coins are needed, in circulation. Turn
them in for Stamps and Bonds today. As Bonds, your
coin collection not only will help to win the war but
it will be working for your financial security
because your War Bond dollars will return to you, four
for every three you put in, when your Bonds mature in
only ten years. So, swap in your collection for War
Stamps and Bonds, at your bank, post office or retail
store.
Regraded Unclassified
211
If you have a collection of spare change you've
been saving at home, take it to your bank, post office
or retail store today (tomorrow) and exchange it for
War Stamps and Bonds
You'll be helping our war
effort and you'll be helping yourself toward financial
security. These coins are needed in circulation, to
help keep the wheels of our war industry turning,
ceaselessly and smoothly. New metal cannot be used
for coins
because new metal must go into tanks
and bombers and other weapons to smash the Axis. Your
coins in War Bonds will be helping you toward financial
security because your War Bond dollars will return to
you, in only ten years, four for every three you put
in. Take your coins to the bank, post of fice or
retail store and swap them in for Stamps and Bonds.
Do it today! And keep on saving in Stamps and Bonds.
Regraded Unclassified
212
Your little collection of pennies or nickels
can be put to work to help win our war! That's
right
your little collection of coins. Our
expanded war industry needs every possible coin
in circulation
so that business transactions can
be carried out more quickly, more smoothly. Our
Government cannot mint new coins now to do this job.
Every bit of new metal must be put to use in bombers,
tanks and other weapons to fight the war. So put
your coin collection into uniform, by swapping it in
for War Stamps or Bonds. Keep on saving by buying
Stamps and Bonds
at your bank, post office or
retail store. Buy another Bond today
from
$18.75 up.
Regraded Unclassified
213
Building up a coin collection was 8 fine way
to save
before the war. It no longer is & fine
way to save
because our full-blast war industry
needs every possible coin back in circulation so
that business transactions can go ahead unhindered.
But don't quit saving! Here's the best possible
way to save and help win the war through your saving
Swap your coin collection in for War Stamps and Bonds
and keep on saving in War Stamps and Bonds. Swap your
coin collection in today, because our Government can't
mint new coins. All new metal is needed for bombers and
tanks and other weapons to fight the war. Today swap
your coin collection for Stamps and Bonds at your bank,
post office, or retail store.
Regraded Unclassified
214
Did you ever hear of lazy money? Sure, money cán
be lazy. Take, for example, that box of pennies lying
in the back of your bureau drawer -- or that jar half-full
of nickles. That's lazy money because it isn't on the
job
making change
taking part in the tens of
thousands of business transactions which must take place
every day if our war effort is to go ahead at full speed.
We cannot afford lazy money in these hectic war days.
There just is not enough metal to use for new coins to
take the place of lazy money in coin collections, if
we are going to turn out all the bombers and warships
and guns our fighting men need on the fighting fronts.
So empty that box of coins, that milk bottle half-full
of nickles. Put your lazy money to work
for our
country's war effort and for you, personally. Turn
in your coin collection for War Stamps or War Bonds
today
at your bank, post office or retail store.
Bonds start at $18.75:
Regraded Unclassified
215
Have you got a milk bottle half-full of pennies
at home? Or a cigar box with a few dimes in it? Or
are you saving nickels? Well, maybe you never thought
of your coin collection as lazy money but that's just
what it is. And lazy money is hindering our war effort!
Our business life in these hectic war days needs tens
of thousands of coins in circulation
helping to
keep transactions going which may mean more bombers
for our men on the fighting fronts. We cannot use
new metal for new coins. Every bit of our new metal
can be used to build those bombers, or tanks. So put
your lazy money back to work, to help win the war.
Put your lazy money back to work in the best possible
way
by swapping it in for War Stamps and Bonds
at your bank, post office or retail store. Buy another
Bond today
from $18.75 up.
Regraded Unclassified
216
If you're a good, thrifty soul who saves pennies
or nickels or dimes at home -- you know, in a box or jar or
milk bottle -- here's something for you to think about.
Your coin collection is not doing its part in our war
effort. Your coin collection is needed, in circulation,
SO that the job of industry and business -- building
tanks for and sending them to our fighting men -- can
be done more smoothly and quickly. New coins cannot
be minted to take the place of your idle coins because
all new metal is needed in the building of tanks and
bombers to smash the Axis. Turn in your coin collec-
tion for War Stamps and Bonds. Do it today! Your
War Bond dollars not only will help to win the war by
providing more tanks and bombers for our fighting men
but will return to you, four for every three you put
in, when your Bonds mature in only ten years. Today,
swap in your coin collection
buy another Bond,
from $18.75 up
at your bank, post office or retail
store.
Regraded Unclassified
September 22, 217 194
Dn presentation 8 this mems.
to Hello to Red Barber
HS. 2a said he would like
the say came to Washington
riday lim see morning the show and on have the
Treasury steps (216)
- advised Callahan who
me. Barber Incest leave
love equested or an before app ointment because
m a noon plane in order
To meet his afternoon (2:18) schedule
see am. Barber until
Secy paid he could not
shortly before the show. (2:27)
said
Repoted toured Collahan les us who
tay over. but doubts
know if Barber he cauld CV.7.C
// very seriously. 3:05
E.g7 7.
218
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATESeptember 22, 1942
TO
Secretary Morgenthau
FROM
Vincent F. Callahan
22 1 189 SS 2999 SAET
We are carrying out your suggestion of using Red Barber's
idea on other radio stations and on other sporting events.
As the baseball season is about over it will not be
practical for us to use the Red Barber plan before the season
ends. We plan to use the same system in connection with the
broadcasting of football games.
In its allocation plan the Office of War Information has
arranged for the Treasury Department to be identified with a
good portion of the big league football games to be broadcast
throughout the nation. In the games which are assigned to us
we will ask the stations and the networks to use the Red Barber
plan.
To organize this program we have invited Red Barber to
come to Washington this Friday morning and are hopeful that he
will consent to assist us in carrying out our plans.
Unit 4. Caelahan
219
September 22, 1942
In order to promote the sale of War Savings
Bonds, every radio broadcasting station and broadcast-
ing company is hereby licensed to make such arrange-
ments or adaptations of the musical composition "Jolly
Molly Pitcher" by Richard R. Uhl and Thomas M. Adair,
owned and copyrighted by Henry Morgenthau, Jr., Secre-
tary of the Treasury, as it may desire and to record
or perform for radio broadcasting and to radio broad-
cast (including television) such recordings or perform-
ances of said composition or adaptations or arrange-
ments thereof at any time it may desire.
No fees or royalties are payable to the
Secretary of the Treasury for the rights herein granted,
and no other person, company or agency whatsoever has
been authorized to make any charge for the rights
granted by this license.
This license is revocable at will.
(Signed) H. Morgenthau, Jr.
Henry Morgenthau, Jr.
Secretary of the Treasury
Returned to Mr. Meyers
for mailing (thru Kuhn's
office)
BSM:fb
9-22-42
File in Diary.
Regraded Unclassified
220
September 22, 1942
National Newspaper Neek gives me the opportunity to pay sincere
tribute to the intelligent patriotism of the American press in meeting
the new responsibilities of a free press in total war.
In the teeth of Axis propaganda drives, the overwhelming majority
of American newspapers are keeping the public informed of the real
issues of this war. By reporting the news as completely as it can
be printed within the limits of national safety, they have checkmated
enemy propaganda intended to demoralize and mislead our people. They
are using the freedom of the press to help fight the war of the free
peoples. They know that a free press cannot survive unless this war
is won.
Beyond this, we at the Treasury have special reason to thank
the press, as well as pay tribute to it. With a public spirit that
1s beyond all praise, the newspapers of the country have given inval-
usble help to the Treasury Department's Har Savings program.
Every part of the press and all classes of newspaper workers,
from apprentices to foremen and from office boys to executives, have
helped the Treasury in its job of financing the war. And I should like to
thank especially the newspaper boys of the nation, whose sale and delivery
of nearly fifty million dollars in War Savings Stamps during the past
eight months is an outstanding achievement.
Congratulations and all good wishes for the success of National
Newspaper Week.
Sincerely,
(Signed) H. MORGENTHAU JR.
Regraded Unclassified
221
September 22, 1942
Dear Mr. Simpson:
I have just heard that the National
Bank of Commerce has consistently led all
others in Houston each month of 1942 in
its total sales of War Savings Bonds and
Stamps.
This is an outstanding achievement
which reflects the greatest credit upon
you and every member of your staff. We
at the Treasury are most grateful to
everyone in your bank who had a share
in setting such a fine record.
Sincerely,
(Signed) H. Morgenthau, Jr
Mr. A. D. Simpson,
President, National Bank of Commerce,
Houston, Texas.
File to Thompson.
FK/cgk
Photo file in Diary.
Regraded Unclassified
mr Kilm
3EP 21 1942
3 STATE
THE SECRETARY OF COMMERCE
2
WASHINGTON
September 18, 1942
Dear Henry:
A nice little letter to A. D.
Simpson, President, National Bank of
Commerce, over your signature is suggest-
ed.
Sincerely yours,
June
Honorable Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
Enclosure
Regraded Unclassified
National Bank of Commerce
HOUSTON, TEXAS
)FFICE MEMO.
September 9, 1942
Mr. Doherty:
I attach & statement by months of our
sales of U. S. Savings Bonds and Stamps.
I was -informed yesterday, by the Federal
Reserve Bank, that we had consistently led Houston each
month in 1942 in our total sales, and I am pleased that
such is the fact for we have a smaller force devoted to
this work than any of the next three largest banks in
Houston.
Charles Hamilton
CWH:JD
Regraded Unclassified
224
TREASURY BILLS
Sept. 23
Sept. 16
Sept. 9
Sept. 2
Amount offered
$ 400 M
$ 400 M
$ 350 M
$ 350 M
Bids tendered
796
882
710
873
Low rate
.297%
.297%
.297%
.297%
High rate
.376
.372
.376
.372
Average rate
.370
.369
.368
.367
Amount in New York
$ 196 M
$ 132 M
$ 113 M
$ 147 M
Amount in Chicago
47
129
92
67
Amount in San Francisco
...
30
27
29
25
Amount in balance of
country
127
112
116
111
September 22, 1942
Regraded Unclassified
225
September 23, 1942.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
The Supervising Agents of the various investigative
services called in from the field to examine personnel
records of the investigative services have completed their
work here without finding any definite information requiring
further investigation, except as to one case already under
investigation. They are now about to proceed to the field
to interview all Supervising Agents and Agents in Charge
of all services and review the current records of all agents.
Since storekeeper-gaugers of the Alcohol Tax Unit have
access to many defense plants where highly secret and criti-
cal war work is being done, the Alcohol Tax Unit has been
asked to make a similar inquiry as to all these men. Steps
have also been taken to obtain from the Civil Service Com-
mission the complete personnel files of White House policemen
drawn from the Metropolitan Police for critical examination.
Mr. Irey is consulting with Mr. Pehle as to re-examination of
the records of Foreign Funds personnel, particularly those
of the considerable number of lawyers in that organization
who are engaged in investigative work.
mr
Regraded Unclassified
226
September 22, 1942.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
Commissioner Helvering and Elmer Irey have spoken to
me about & rather serious situation involving our relations
with the Department of Justice.
Alf Oftedal, who did excellent work in the development
of the Schenck case, came on to New York about a year and a
half ago to cooperate with the District Attorney there in
the prosecution of that case and with Commissioner Helvering's
consent stayed on to work with Correa on the Browne and Bioff
cases and has since been helping Correa with the matter of
developing evidence against racketeers. Correa got permission
from the Attorney General to develop cases involving among
others a group of Chicago racketeers. He asked that Oftedal
be permitted to work on these cases in Chicago. Helvering
and Irey agreed, but with the understanding: (1) that we
would make genuine income tax cases of them, working along
our own well established lines; (2) that in his work in Chicago
Oftedal would be subject to the direction of Arthur Madden,
the Intelligence Unit Agent in Charge there, who has already
eight agents working on the cases of the men in whom Justice
is interested; and (3) that while our procedure would be the
same as in any tax case we would supply Justice with all
available information as it was developed.
Irey went out to Chicago so as to establish proper work-
ing relations and have a clear understanding as between Madden
and Oftedal. Oftedal, however, announced to Irey, before the
matter had been discussed with Madden, that he could not work
under Madden since in view of his experience it would be humili-
ating and that he must have complete independent charge of the
cases. It also developed that Oftedal proposed to make the
investigations primarily from the standpoint of racketeering,
using the tax angle merely as a pretext and intended to use
methods which in Irey's opinion would make it impossible to
develop adequate tax cases and would probably be ineffective
Regraded Unclassified
227
- 2 -
even from the racketeering standpoint. The reason for this
is that Correa and his assistant, Kostalanetz, want to have
evidence to present to 8. grand jury now sitting in New York.
The upshot was that Oftedal said he would retire from
the service rather than carry on the investigation as directed
by Irey and he has in fact submitted his application for re-
tirement. He is 56 years old, has had 38 years in the
Government Service, including 21 years in the Intelligence
Unit, and service for 8. short time as Assistant Commissioner
of Prohibition. He is described by Irey as a very able in-
vestigator, but highly temperamental.
Since his return from Chicago Oftedal has been in
touch with Kostalanetz and Sam Clark of the Department of
Justice called up Sullivan to make an appointment for a meet-
ing here at which Clark and Correa could discuss the matter
with Sullivan and Helvering.
The primary question involved appears to me to be
whether we are to permit the Department of Justice to employ
and direct our investigators and to use tax inquiry powers for
purposes other than making tax cases.
Oftedal's own position is secondary. I think if he
does not wish to work under authority he ought to be permitted
to retire.
This matter will probably get up to Attorney General
Biddle eventually and he will no doubt undertake to see you.
You may wish to see Helvering before that happens.
Helvering and Irey took the matter up with me because
of John Sullivan's absence since it may come to a head this
week.
was
Regraded Unclassified
TREASURY DEPARTMENT
228
INTER OFFICE COMMUNICATION
DATE September 22, 1942
TO
Secretary Morgenthau
FROM Mr. Thompson
Subject: Proposal for Separate Status for Foreign Funds Control
At the present time Foreign Funds Control is still administratively a
part of the Office of the Secretary, despite the fact that it is larger than
many other separate bureaus and offices. I recommend that Foreign Funds
Control be accorded separate administrative status, subject to the usual
departmental controls, in the same manner as other Treasury organizations of
comparable size and importance. The principal reasons for this proposal are
as follows:
1. Foreign Funds Control now has over 1,000 employees. The
administrative detail for so large a force has outgrown the
administrative facilities of the Secretary's Office, which
actually should be confined to general rather than detailed
administrative supervision.
2. Foreign Funds Control has developed an administrative division
to perform these administrative functions and there is therefore
no further need for Foreign Funds attachment to the Secretary's
Office for detailed administrative purposes.
3. Separate status will permit elimination of extra steps and
save paper work in the handling of many of the Foreign Funds
administrative transactions, with resultant economy and increased
operating speed.
Regraded Unclassified
229
- 2 -
4. Separate status will clarify some existing confusion grow-
ing out of the present status of administrative responsibility
and authority in Foreign Funds.
There is attached for your consideration and approval if you concur
E. proposed departmental order establishing separate status for Foreign Funds
Control, which has the approval of Mr. Paul and Mr. Pehle, whose initials
appear on the carbon copy of the proposed order.
of
Regraded Unclassified
230
September 22, 1942.
Treasury Department Order No. 47.
By virtue of and pursuant to the authority vested
in me by Executive Order No. 8389, as amended, by Executive
Order No. 9095, as amended, by Section 161 of the Revised
Statutes (U.S.C. title 5, sec. 22), and as Secretary of the
Treasury, I hereby order that:
1. There is hereby established and created in
the Treasury Department the Foreign Funds
Control which shall have separate administrative
status, subject to the usual departmental controls,
and at the head of which shall be a Director of
Foreign Funds Control. John W. Pehle, Assistant
to the Secretary, is designated as Director of
Foreign Funds Control.
2. The Director of Foreign Funds Control shall
exercise and perform all authority, duties and
functions which I am authorized or required to
exercise or perform under Sections 3 and 5(b)
of the Trading with the enemy Act, as amended,
and any proclamations, orders, regulations or
rulings that have been or may be issued there-
under.
3. The Director of Foreign Funds Control shall
exercise and perform such authority, duties
and functions subject to the general supervision
of Randolph Paul as Acting Secretary of the
Treasury.
Secretary of the Treasury
Regraded Unclassified
231
TREASURY department
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
September 22, 1942
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating report
of Lend-Lease purchases for the week ended September 19,
1942.
A conference is scheduled for Thursday Morning of
this week for a joint discussion with the Lend-Lease
representatives to investigate into the methods of better
coordinating material relating to the forwarding of Lend-
Lease cargo for the Russians and to avoid further dupli-
cations. I will advise you as to the outcome of this
meeting.
John Clinton E. Mack
Director of Procurement
PORVICTORY
BUY
UNITED
STATES
BONDS
AND
TTAMPS
Regraded Unclassified
LEND-L! 3E
TREASURY DEPARTMENT, PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
AS OF SEPTEMBER 19, 1942
(In Millions of Dollars)
Administrative
Undistributed and
Total
U. K.
Russia
China
Expenses
Miscellaneous
Allocations
$2100.2
$1095.3
$586.4
$56.6
$3.7
$358.2
(2100.2)
(1086.5)
(558.8)
(56.6)
(3.7)
(394.6)
Purchase Authoriza-
tions (Requisitions)
$1563.3
$ 959.7
$547.2
$40.5
-
$ 15.9
(1534.0)
( 947.3)
(531.2)
(40.5)
-
( 15.0)
Requisitions Cleared
for Purchase
$1513.5
$ 946.1
$512.2
$40.4
-
$ 14.8
(1484.4)
( 933.6)
(495.9)
(40.4)
-
( 14.5)
Obligations (Pur-
chases)
$1403.8
$ 915.1
$435.9
$40.4
$2.3
$ 10.1
(1383.9)
( 906.5)
(425.1)
(40.4)
(2.2)
( 9.7)
*Deliveries to For-
eign Governments
$ 582.9
$ 465.1
$ 94.7
$20.1
-
$ 3.0
( 572.6)
( 457.6)
( 92.1)
(20.1)
-
( 2.8)
# Deliveries to foreign governments at U. S. Ports do not include the tonnage that is
either in storage, "in-transit" storage, or in the port area for which actual
receipts have not been received from the foreign governments.
Note: Figures in parentheses are those shown on report of September 12, 1942.
232
Regraded Unclassified
Treasury Department
23
Division of Monetary Research
Date September 22, 1942
19
Secretary Morgenthau
b:
Mr. Hoflich
rom:
With respect to August shipments from the
United States to Russia, I understand that you
wish to know (1) by what routes and means of
transportation the goods were sent and (2) what
proportion of the goods have actually reached
their destination in the Soviet Union.
I believe that only the Lend-Lease
Administration has this information, and I do
not wish to make inquiries there without your
.N
approval. Shall I consult Lend-Lease about
the matter?
no.
234
SEP 22 1942
My dear Mr. President:
I as enclosing report on our exports
to some selected countries for the period
ending August 31, 1942.
Faithfully,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The President,
The White House.
By Mess. Bundy 4:25 9/22.
Diary - extra copies to
Dr. White's
office
Enclosure
MDW/efs
HDw"
FILE COPY
Regraded Unclassified
SECRET
235
September 18, 1942
Exports to Russia, Free China and selected blocked
countries as reported to the Treasury Department tment
during the eleven-day period ending
August 31, 1942
1. Exports to Russia
Exports to Russia as reported to the Treasury Department
during the eleven-day period ending August 31, 1942 amounted
to $112,492,000. Emong the military equipment exported were
108 bombers, 148 fighter planes, and 508 tanks. (See
Appendix c.)
2. Exports to Free China
Exports to Free China, as reported during the period
under review amounted to $2,850,000, as compared with
$3,066,000 during the same period in July, 1942. Non-military
exports accounted for the total emount. (See Appendix D.)
3. Exports to selected blocked countries
Exports to selected blocked countries are given in
Appendix A. Most important were exports to Sweden amounting
to $1,892,000.
ISF/efe 9/18/42
Regraded Unclassified
SECRET
236
SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SELECTED
COUNTRIES AS REPORTED to THE TREASURY DEPARTMENT
FROM EXPORT DESCLARATIONS RECEIVED DURING
THE PERIOD INDICATED
Total
Total
11-Day
10-Day
Demestic Experts
Demostic Emports
Period ended
Period ended
August 1,1942 to
July 28, 1941 to
Ang. 31, 1942
Aug. 20, 1942
August 32, 1942
July n, 1942
U. S. S. R.
$112,492
$23,325
$150,787
$742,941
Free China
2,850
192
3,250
97,720
Spain
227
40
305
2,858
Switeerland
124
167
648
11,537
reden
1,092
324
2,476
18,056
Portugal
161
5
167
9,743
French North Africa al
117
1,773
1,919
6,305
Treasury Department, Division of Menshery Research
September 17, 1942
Many of the export declarations are received with a 1ag of several days or mere.
Therefore this compilation does not accurately represent the actual shipment of &
particular period.
y Includes Merceso, Algeria, and Tunisia.
MIF-ef 9/17/42
Regraded Unclassified
SECRET
237
APPENDIX B
Exports from the U. s. to Free China and U.S.S.R.
as reported to the Treasury Department
July 28, 1941 - August 31, 1942
(Thousends of Dellars)
Exports to
Experts to
Free China
U.S.S.R.
July 28, 1941 - Jan. 24, 1942
e 32,758
. 98,902
1942
Jan. 26 e Jan. 31
Feb. 1 - Feb. 10 al
Feb. 10 - Feb. 20
Feb. 20 - Feb. 28 3/
Mar. 1 - Mar. 10
Mar. 10 - Mar. 20
Har. 20 - Mar. 31
w
2
Apr. 1 - Apr. 10
Age. 11 - Apr. 20
Apr. 21 - Apr.
30
May 1 - May
10
5/
May 11 - May
20
1,872
18
May 21 - May
31
w
June 1 - June 10
June 11 - June 20
June 21 - June 30
July 1 - July 10
7,900
July 11 - July 20
July 21 - July 31 w
3,066
Aug. 1 - Aug. 10
hug. 11 - Aug. 20
192
Aug. 21 - Aug. 31 w
2.850
Total
. 103,573
$ 894,548
1. These figures are in part taken from copies of shipping
manifests.
2. Beginning with February 1 figures are given for 10-day
period instead of week except where otherwise indicated.
3. 8-day peried.
4. ll-day period.
5. Due to changes in reporting procedure by the Department
Commerce this report 10 incomplete for the period indicated.
resury Department, Division of Monetary Research September 18, 1942
ISF/efs 9/18/42
Regraded Unclassified
SECRET
238
APPENDIX 0
Principal Exports from U. 8. to U. s. s. R.
as reported to the Treasury Department
during the eleven-day period ending
August 11, 1942
Value
Unit of
(Thousands
Quantity Quantity of Dollars)
TOTAL EXPORTS
e 112,492
Principal Items:
Aireraft
25,636
Medium bombers (2 eng. B-25)
No.
3
Light bombers (2 eng. A-20)
No.
105
Fighters (P-39)
No.
15
Fighters (P-40)
No.
133
Hilitary tanks
21,776
Light, M-3
No.
78
Light, M-3 - Al
No.
4
Light, n.o.s.
No.
217
Medium, N-3
No.
131
Medium, N-3 - Al
No.
1
Nedium, n.e.s.
No.
77
Assunition
15,936
9 n.m. balls
Round
1,000,000
.30 caliber
Round
72,351,580
.32,.38 and .45 caliber balls
Round
14,724,000
32,38 and .45 caliber magastres
No.
1,874,000
.455 ealiber balls
Round
3,000,000
.50 caliber
Round
10,271,150
Shotgun shells
No.
100,000
2ª mortar shells
No.
10,734
81 n.m. mortar shells
No.
74,891
Armor piereing shells
No.
248,094
Armer piercing shot
No.
High explosive shells
No.
161,848
75 n.s. SPHOP piereing shot
No.
99,166
75 n.w.semi-armor piereing shells
No.
3,906
75 n.m. high explosive shells
No.
86,541
75 n.m. howitzer high explosive
shells
No.
50,475
75 n.m. howitser shrapnel
No.
21,420
Anti-aireraft artillery 37 c.m.
armor piereing shot
Round
15,400
Regraded Unclassified
SECRET
239
APPENDIX c
Page 2
Unit of
Value
Quantity Quantity (Thousands
of Dollars
Ammunition (con't)
For aircraft 20 N.M. tracers
Round
50,160
For sircraft 20 n.m. high explosive Round
48,120
Anti-aireraft 90 n.m. high
explosive shells
No.
8,001
20 N.N. (Oerlikon) tracers
Round
32,000
20 M.M. (Derlikon) high explosive
shells
Round
275,720
Aircraft parts
-
-
6,480
Sub-machine guns, .45 caliber
No.
25,000
5,675
Pork sausage and beef
Lb.
10,372,531
3,078
Steel bars and rods
Lb.
37,097,963
2,687
Rotating converters
No.
2,360
2,312
Chemicals and related products,n.e.s.
-
7,272,433
1,660
Iron and steel wire manufastures
Lb.
11,275,907
1,542
reasury Department, Division of Monetary Research September 18,1942
ISP/ofe 9/18/42
Regraded Unclassified
SECRET
240
APPENDIX D
Principal Exports from U. 8. to Free China
as reported to the Treasury Department
during the eleven-day period ending
August 31, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 2,850
Principal Items:
Machinery and vehicles, n.e.s.
571
Printed matter
Truck, bus and autemobile easings
476
Automobile parts
274
Chemicals and related products, n.e.s.
237
Lubricating oils, n.e.s.
130
Teasury Department, Division of Monetary Research Sept. 18, 1942
ISP/ere 9/18/42
Regraded Unclassified
241
SEP
22 1942
My dear Mr. Secretary:
I an enclosing copy of report on our
exports to some selected countries for the
period ending August 31, 1942.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable,
The Secretary of State,
Washington, D. C.
Enclosure
By Mess. Bundy 4:25 9/22/42
Diary - extra copies direct
to Dr. White's offic
HDW/efs
9/18/42
HDW
FILE COPY
Regraded Unclassified
SECRET
242
September 18, 1942
Exports to Russia, Free China and selected blocked
countries as reported to the Treasury Department
during the eleven-day period ending
August 31, 1942
1. Exports to Russia
Exports to Russia as reported to the Treasury during
the eleven-day period ending August 31, 1942 amounted to
$112,492,000. Military equipment accounted for 70% of the
total. (See Appendix C.)
2. Exports to Free China
Exports to Free China, as reported during the period
under review amounted to $2,850,000, as compared with
$3,066,000 during the same period in July, 1942. Non-
military exports accounted for the total amount. (See
Appendix C.)
3. Exports to selected blocked countries
Exports to selected blocked countries are given in
Appendix A. Most important were exports to Sweden amounting
to $1,892,000.
ISF/efe 9/18/42
Regraded Unclassified
SECRET
243
SUBMANY of UNITED STATES DOMESTIC EXPORTS to SHLROTED
MB REPORTED 90 THE TREASURY DEPARTMENT
you EXPORT HECEIVED DORING
= PHRIOD INSERGATED
Total
Total
11-Day
10-my
Demositie Experts
Period ended
I
Period ended
August 1,1942 to
July 28, 1941 to
Aug. n, 1942
Ang. 20, 1942
August 32, 1942
July x, 1942
1. S. S. R.
$112,492
423,325
$150,787
8742,941
Free China
2,350
192
3,250
97,720
Speds
227
48
305
2,858
Switserland
124
167
648
11,537
weden
1,092
324
2,476
18,056
Partugal
161
s
367
9,743
French North Africa al
117
1,773
1,919
6,305
Treasury Department, Division of Monetary Research
September 27, 1942
Many of the expert declarations are received with a lag of several days or mere.
Therefore this compilation does not accurately represent the actual shipment of a
particular period.
al Includes Morosso, Algeria, and Tunisia.
WF-ef 9/17/42
Regraded Unclassified
SECRET
APPENDIX B
244
Exports from the U. s. to Free China and U.S.S.R.
as reported to the Treasury Department
July 28, 1941 - August 31, 1942
(Thousends of Dellars)
Exports to Emports to
Free Ching
U.S.S.R.
July 28, 1941 e Jun. 24, 1942
. 32,758 6 98,902
1942
Jan. 26 - Jun.
Feb. 1 - Feb.
10
Feb. 10 - Feb.
20
Feb. 20 - Feb.
Mar. 1 - Mar.
10
Mar. 10 - Mar.
20
Mar. 20 - Mar.
31
Apr. 1 - Apr.
10
4,83
illimillit May 11 - May
Apr. 11 - Apr.
Apr. 21 - Apr.
May
1 - iiiiiii May
20
30
May
10
w w s/ 5/ w
20
20
1,872
21 - May
31
2,553
June 1 - June
10
June 11 -
20
June 21 . June
30
1,664
July 1- July 10
7,900
July 11 - July 20
590
July 21 - July
31
à
3,066
Aug. 1 - Aug.
10
208
Aug. 11 - Aug. 20
192
23,325
Aug. 21 - Aug. 31 w
2,850
112,492
Total
s 103,575
s 894,548
1. These figures are in part taken from copies of shipping
manifests.
2. Beginning with February 1 figures are given for 10-day
period instead of week exsept where otherwise indicated.
3. 8-day period.
4. ll-day period.
5. Due to changes in reporting procedure by the Department &
Commerce this report is incomplete too the period indicated.
reasury Department,Division of Mometary Research September 18, 1942
I2P/efa 9/18/42
Regraded Unclassified
SECRET
245
APPENDIX C
Principal Exports from U. 8. to U. s, S. R.
as reported to the Treasury Department
during the eleven-day period ending
August 31, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 112,492
Principal Items:
Military equipment
78,280
Pork sausage and beef
3,078
Steel bars and rods
2,687
Rotating converters
2,312
Chemicals and related products, n.e.s.
1,660
Iron and steel wire manufactures
1,542
Brass and bronse plates, sheets, bars and rods
1,383
Linseed oil
1,302
Iron and steel plates, sheets and strip
1,264
Iron and steel billets
1,115
Cotton seed and soybean oil
1,088
Surgical and scientific instruments, etc.
1,005
reasury Department, Division of Monetary Research September 18,1942
ISF/efs 9/18/42
Regraded Unclassified
SECRET
246
APPENDIX D
Principal Exports from U. s. to Free China
as reported to the Treasury Department
during the eleven-day period ending
August 31, 1942
(Thousands of Dollars)
TOTAL EXP ORTS
e 2,850
Principal Items:
Machinery and vehicles, n.e.s.
Printed matter
Truck, bus and automobile easings
Automobile parts
Chemicals and related products, n.e.s.
237
Lubricating cils, n.e.s.
130
ist
reasury Department, Division of Monstary Research as September 18,1942
ISP/efs 9/18/42
Regraded Unclassified
247
SEP 22 1942
Dear Dr. Curries
I an writing to asknowledge your letter of September 15,
1942, concerning the penting orders to Canada for neval
aircraft and various types of neval vessels.
I note with apperoval that the placing of the contract with
artine Merchant Shipping Limited for merchant vessels of the
"Vistory" type to being hold in abayenee for the time being.
In reference to the two pending orders for airplanes,
parts, cre., to be produced w Beeing Aircraft of Canada,
Ltd., and Fairchild Aircraft Limited, w suggestion to that
the Joint - Production Heard make 8 comparchensáve study
of all aspects of the matter before 8 fined decision en
these contrasts is nade.
Very twoly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Dr. Leuchlin B. Currie,
Administrative Assistant to
the President,
The White House,
By Messenger Simmone 5:30
File direct to White's office.
Photo file in Diary.
TMKtrl 9/18/42
Regraded Unclassified
THE WHITE HOUSE
WASHINGTON
September 15, 1942.
Dear Mr. Secretary:
I have made certain injuiries today on the two pending orders
to Canada, which you brought up in our meeting this morning. On
the proposed aircraft order of 859 million, for which letters of
intent have been issued, I AD informed, that we require both types
of planes in question. By placing the order in Canada, however, we
release a portion of our own facilities for more advanced models.
It 1a estimate that evaylation of these ord require
only 20 percent American materials. About one helf by dollar value
of this order is on Lend-Lense account arvi about one half on Navy
account. This particular order appears to fit admirably our
qualifications of leading to a not increase in the overall production
of the two countries and I should like to recommend that you interpase
no objections to its conclusion.
The other large impending order, that of approximately $100
million for some 60 merchant ships in 1943, raises more difficult
questions. I have discussed the matter, both with Admiral Vickery
and with Mr. Howe, Minister of Munitions for Canada. It is perfectly
agreeable all around to hold the matter of placing an order in
abeyance for the time being. In the meantime, the Canadians will
convert to an American type ship and we will endeavor to supply them
with the approximately 1,000 tons of plate steel that they need per
ship. If it develops that additional U.S. dollar exchange is
required, the Maritime Commission is prepared to purchase these
American type ships for our common pool. I recommend, therefore,
that you tell Lew Douglas that it is your understanding that through
common consent this matter is being held in abeyance for the time
being.
Yours sincerely,
Landh Care Lauchlin Currie
Administrative Assistant
to the President
Monorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Reshington, D. C.
Regraded Unclassifie
249
SEP 22 1942
by dear Mr. Douglass
I - writing in reply to your letter of September 9,
1942, regarding the pending contract with Wartime Merchant
Shipping Limited, for eighty-one "Victory" type merchant
vessels.
I understand from a letter received from Dr. Currie,
dated September 15, 1942, that by COMMON compents of the
appropriate officials concerned in both Canada and the
United Status, this contract is being held in abayance for
the time being.
Very truly yours,
(Signed) B. Morgenthau, J/
Secretary of the Treasury.
Mr. L. N. Douglas,
Deputy Administrator,
Ter Shipping Administration,
Washington, D. C.
By Messenger Simmons 5:30
File direct to White's office
Photo file in Diary.
T.K:rl 9/18/42
Regraded Unclassified
WAR SHIPPING ADMINISTRATION
WASHINGTON
September 9, 1942
The Honorable
The Secretary of the Treasury
My dear Mr. Secretary:
As you know, the War Shipping Administration has a contract
with the Wartine Nerchant Shipping Limited, an agency of the Dominion
of Canada, for the purchase of one hundred ships being built by
Canadian shipyards, the cost of such vessels to the War Shipping
Administration to be the actual cost to Wartine Merchant Shipping
Limited.
Enclosed herewith, as Attachment "A", is a schedule setting
forth those vessels of the one hundred under contract which have
been delivered, as well as the estimated delivery dates of those
not yet completed. The price paid for those vessels delivered to
date, all of which are of roughly 9,000 tons deadweight, has been
approximately $1,800,000 each. It is estimated that the ten 4,000
ton vessels, which are scheduled for delivery next year, will be
approximately $1,000,000 each.
The Wartime Merchant Shipping Limited now proposes to sell to
the War Shipping Administration eighty-one additional ships of its
"Victory" type. These vessels are to be more or less comparable, in
50 far as characteristics and deadweight are concerned, with the
Maritime Commission's EC-2 or "Liberty" type vessel.
There is also enclosed, as Attachment "B", the estimated
delivery dates of the eighty-one "Victory" ships. In the event these
are purchased by the War Shipping Administration, it is contemplate
that payment would be made in American dollars in accordance with
contractual arrangements similar to those now in force with
to the one hundred ships referred to above, the price per
the War Shipping Administration to be the actual cost to
Merchant Shipping Limited. Based upon par exchange, it :s esti
that the eighty-one vessels would cost approximately $1,800,000 each,
or a total of $145,800,000.
Inasmuch as the Wartime Merchant Shipping Limited is desirous
of obtaining the early advices of the War Shipping Administration as
Regraded Unclassified
The Honorable
The Secretary of the Treasury
Page 2.
September 9, 1942.
to whether or not it desires to purchase the eighty-one "Victory"
ships in question, it will be appreciated if you vill inform me
at your earliest convenience as to whether or not such a contract
would have your approval and, if your reply is in the affirmative,
what contractual provisions you would suggest regarding rates of
exchange.
Sincerely yours,
Through
Deputy Administrator
Enclosures
Regraded Unclassified
(COPY)
WARTIME MERCHANT SHIPPING LIMITED
ESTIMATED DELIVERY DATES OF 90 NORTH SANDS SHIPS
for
UNITED STATES MARITIME COMMISSION
YARD
HULL#
ESTIMATED
W.M.S.L.
YARD
DELIVERY DATE
BURRARD
Delivered to date 9102-9114 inclusive
& 9135
9115
144
Sept. 8/42
9119
148
Sept.21/42
9116
145
Oct. 1/42
9136
165/70
Oct. 11/42
9120
149
Oct. 21/42
9117
146
Oct. 31/42
9118
147
Nov. 10/42
9137
166/71
Nov. 20/42
9121
150
Nov. 30/42
9125
154
Dec. 10/1,2
9122
151
Dec. 20/L2
9138
167/72
Dec. 30/42
9126
155
Jan. 9/43
9123
152
Jan. 19/43
9124
153
Jan. 29/43
9139
168/73
Feb. 8/43
9127
156
Feb. 18/43
9131
160
Feb. 28/43
9128
157
Mar. 10/13
NORTH VAN
Delivered to date 9201-9206 inclusive.
9208
108
Sept.10/42
9209
109
Sept.26/42
9210
110
Oct. 14/42
9211
111
Nov. 7/42
9212
112
Nov. 19/42
9213
113
Dec. 13/42
9214
114
Jan. 4/13
9215
115
Jan. 20/43
9216
116
Jan. 30/43
9217
117
Feb. 23/43
9218
118
Mar. 17/43
WEST COAST
Delivered to date 9301-9303 inclusive
9305
105
Sept. 5/42
9306
106
Sept.25/42
9307
107
Oct. 14/42
ACHMENT A)
Regraded Unclassified
HULL#
ESTIMATED
YARD
W.M.S.L.
YARD
DELIVERY DATES
WEST COAST
9308
108
Nov. 2/42
(Continued)
9309
109
Nov. 20/42
9310
110
Dec. 8/42
9311
111
Dec. 26/42
9312
112
Jan. 13/43
9313
113
Jan. 31/43
9314
114
Feb. 16/43
9315
115
Mar. 6/43
V.M.D.
Delivered to date 9401-9402
inclusive.
9403
22
Sept. 12/42
9404
23
Dec. 1/42
9405
24
Dec. 29/42
9406
25
Feb. 18/43
YARROWS
Delivered to date 9501-9502
inclusive.
PRINCE RUPERT Delivered to date 9601.
9602
44
Oct. 1/42
9603
45
Dec. 15/42
9604
46
Feb. 1/43
VICKERS
Delivered to date 9702-9704
inclusive & 9706.
DAVIE SHIP.
Delivered to date 9901-9903
inclusive
9908
538
Oct. 22/42
9909
539
Nov. 16/42
9910
540
Dec. 22/42
UNITED
10001
1
Dec. 1/1:2
10002
2
Dec. 1/1,2
10003
3
Dec. 1/42
10004
4
Dec. 10/42
September 4th 1942.
- 2 -
Regraded Unclassified
(COPY)
WARTINE 1 ERCHANT SHIPPING LIMITED
ESTIMATED DELIVERY DATES OF 4,700 TONNERS
FOR
UNITED STATES MARITINE COMMISSION
HULL#
ESTIMATED
W.M.S.L.
YARD
DELIVERY DATE
YARD
ST. JOHN
4102
15
Apr. 15/43
4103
16
Nov. 15/43
4104
17
Feb. 15/44
PICTOU
4402
2
Feb. L 28/1,3
4403
3
Mar. 31/43
4404
4
Apr. 30/43
4405
5
Aug. 15/43
4406
6
Sept. 30/43
GEO. T. DAVIE
4302
15
Apr. 15/43
4303
16
May 15/43
September 3rd 1942.
Regraded Unclassified
(COPY)
WARTINE NICHT SHIPPING LIMITED
ESTIMATED DELIVERY DATES OF 81 VICTORY SHIPS
HULL/
YARD
ESTIMATED
W.I.S.L. yard
Delivery DATE
BURRARD
9144
173
June 8/43
9146
175
June 18/43
911.2
171
June 28/43
9143
172
July 8/1.3
9147
176
July
911,8
177
July 28/43
9119
178
Aug. 7/43
9150
179
Aug. 17/43
9151
180
Aug. 27/43
9152
181
Sept. 6/43
9153
182
Sept.16/43
9154
183
Sept.26/43
9155
184
Oct. 6/43
18/43 16/43 26/43
9156
185
Oct.
9157
186
Oct.
9158
187
Nov. 5/43
9159
188
Nov. 15/43
9160
189
Nov. 25/43
9161
190
Dec. 5/43
9162
191
Dec. 15/43
9163
192
Dec. 25/43
9164
193
Jan. 4/44
9165
194
Jan. 14/4/14
9166
195
Jan. 24/44
9167
196
Feb. 3/44
9168
197
Feb. 13/44
9169
198
Feb. 23/44
9170
199
Mar. 4/44
9171
200
Mar. 14/44
NORTH VAN
9222
122
May 30/43
9223
123
June 12/43
9221
124
June 27/43
9225
125
July 21/43
9226
126
Aug. 10/43
9227
127
Aug. 23/43
9228
128
Sept. 7/43
9229
129
Sept.29/43
Oct. 20/43
9230
130
Nov. 1/43
9231
131
Nov. 16/43
9232
132
133
Dec. 8/43
9233
9234
134
Dec. 28/43
9235
135
Jan. 9/44
(ATTACHMENT B)
Regraded Unclassified
ESTIMATED DELIVERY DATES OF 81 VICTORY SHIPS (CONT'D.)
YARD
HULL #
estimated
W.M.S.L.
YARD
DELIVERY DATES
NORTH VAN
9236
136
Jan.
24/44
(continued)
9237
137
Feb. 17/44
WEST COAST
9320
120
July
15/43
9321
121
July
30/43
9322
122
Aug. 16/43
9323
123
Sept. 6/43
9324
124
Oct.
15/43
9325
125
Oct.
30/43
9326
126
llov.
16/43
9327
127
Dec.
6/43
9328
128
Jan.
15/44
9329
129
Jan.
30/44
9330
130
Feb.
16/44
9331
131
Mar.
6/44
V.M.D.
9409
29
Aug.
29/43
9410
30
Oct. 18/43
9411
31
Dec.
29/43
9412
32
Feb.
18/44
PRINCE RUPERT
9608
50
Oct.
1/43
9609
51
Dec. 15/43
9610
52
Feb.
1/44
MARINE
9815
120
Sept. 20/43
9816
121
Oct.
5/43
9817
122
Nov.
5/43
9818
123
Dec. 10/43
DAVIE SHIPBUILDING
9918
543
Oct.
15/43
9919
542
Oct.
20/43
9920
550
Nov.
1/13
UNITED
10013
13
Aug.
15/113
10014
14
Aug.
25/43
10015
15
Aug.
31/43
10016
16
Sept.
10/43
10017
17
Sept. 20/43
10018
18
Oct.
1/43
10019
19
Nov. 15/43
10020
20
Nov. 25/43
10021
21
Dec.
5/43
10022
22
Dec. 15/43
September 4th 1942.
257
SEP 22 1942
Mr. 0. 7. Towers
Governor
Bank of Canada
Ottawa, Canada
My dear Mr. Towers:
Mr. Hell has informed se of the very prompt and
effective service which you readered to the Treasury in
making available to us. in connection with the var effort,
certain coin desired by ear military forces. I as in-
formed that the coin arrived 62 the morning of September 17.
and that reimbursement, in accordance with your invoice,
was sade at the Tederal Reserve Bank by the Var Department
on the same date.
I vish you to knew that the Treasury is deeply
appreciative of your cooperation in this matter.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
File in Diary.
EDB: ec 9/18/42
WBS DWB
Regraded Unclassified
258
Reea 222
Stabilization Fund
September 22, 19kg
Federal Receive Bank of New York,
New Yerk, New York,
Attention: 1. 1. Senfere
Please debit Treasurer's General Account $5,012,679.60 as
transfer of funds to Treasurer of United States and credit a like
amount to the account "Secretary of the Treasury, Special Account".
This amount represents the deposit of United States currency W
the Minister of the Treasury of the Reyablic of Cuba to the credit
of the Treasurer of the Valted states is a custody account at the
Revenue branch of the National ciw Bank of New York in payment of
142,857.814 fine ......................... of plus 1/46 and expenses sold to the
deveranent of the Republic of Outs on September 9. 1942. Yes are
hereby authorised to dobit the assount *Secretary of the Treasury,
Special Assess $277.12 representing your expenses. STREET
(Signed) D. W. BELL
Acting torretary of the Treasury
- VE - Bell
Regraded Unclassified
259
September 22, 1942 11:35 as
wash 9/6
w NIVING If - = 1942 11041
D V BEEL
or THE TREASURY WASHES
NAVANA CONFIRMS $5,022,679.60 as AMOUNT ASSERVED
NATIONAL CITY BANK or INVIONE.
1138AM
Regraded Unclassified
260
0
I
1942 ser a MI 11 %
- TVS PAID 3
VUX a If - n 1942 11194
, V BELL
WEDER SECT TO TREASURER WASHES
SAVANA ABVISES DEPOSIT RECEIVED AND VE ASSUME FOR ANOUNT
MENTIONED If TOU BUT ARE EXQUESTING CONFIRMATION BY CABLE
NATIONAL CITY BANK OF m.
11554
Copy:2019/21/42
Regraded Unclassified
261
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTAL No. 329
Information received up to 7 A.M., 22nd September, 1942.
1. NAVAL
The convoy to RUSSIA entered ARCHANGEL HARBOUR on 21st after some
delay outside owing to weather. 27 vessels arrived safely. 13 totalling 74, 411
tons were lost. One of H.M. Destroyers was torpedoed on 20th but is in tow of
another Destroyer. One of H.M. Submarines reports having sunk a heavily laden mer-
hant ship northeast of DERNA on the 5th and having torpedoed another ship of 3,000
tons. Another of H.M. Submarines reports having sunk by gunfire and torpedoes a
schooner of 200 tons and a small merchant ship in ZLITEN ROADS East of TRIPOLI (L).
A third Submarine reports sinking two schooners and damaging others at wharves at
BUGGERU (SARDINIA). A fourth submarine en route to MALTA is overdue and must be
presumed lost.
2. MILITARY
MADAGASCAR. Our columns in the north continue to make progress in
spite of heavy rain. On the Northwest coast our advanced elements are reported to
be moving towards ANTSOHIHY, while on the Northeast coast we have reached SAHAMBAVA.
The column approaching TANANARIVE occupied ANKAZOBE on the 20th and is continuing
its advance.
RUSSIA. German penetration into STALINGRAD continues slowly. They
have made slow rogress in the MOZDOK area.
3. AIR OPERATIONS
WESTERN FRONT. 21st. An A.A. ship off the Dutch coast was set on
fire by Spitfires, one of which is missing. 21st/22nd. 17 aircraft were sent to
lay mines. 3 are missing.
EGYPT. On the 19th and 20th enemy camps, M.T. and tanks in the
coastal and southern sectors and M.T. in the northern sector vere machine gunned and
bombed. 2 enemy aircraft wore destroyed, 2 probably destroyed and 2 damaged. 3 of
our fighters were shot down but 2 pilots are safe.
MEDITERRANEAN. A Beaufighter hit a 100 foot ship off SICILY.
Regraded Unclassified
ARCK, Lt. Andrew M.
262
B.O.C. 72
Field Artillery School,
Fort Sill, Oklahoma
Until about December 1, 1942
Treasury Department
263
Office of the Secretary
Date September 2219 42
To:
Secretary Morgenthau
From:
Lieutenant Kamarck
With my compliments.
Regraded Un
264
THE UNKNOWN BRITISH-AMERICAN
VICTORY
By
FIRST LIEUTENANT ANDREW M. KAMARCK, F.A.
U.S. Army
Reprinted from the
UNITED STATES NAVAL INSTITUTE PROCEEDINGS
Vol. 68, No. 8, Whole No. 474
August, 1942
[COPYRIGHT: U.S. NAVAL INSTITUTE, ANNAPOLIS, MD.]
1942]
The Unknown British-American Victory
1135
[Hilder's] outrage. He wishes to destroy the Rus-
Plan A a good try and if it failed to adopt
sian power because he hopes that if be succeeds
THE UNKNOWN BRITISH-AMERICAN VICTORY
in this be will be able to bring back the main
Plan B. The defeat of Plan A by the
strength of his army and air force from the cast
British with American help in the spring
and hurl it upon this island, which he knows be
of 1941 left the Germans no alternative,
By FIRST LIEUTENANT ANDREW M. KAMARCK, F.A., U. 5. Army
must conquer or suffer the penalty of his crimes.
if they wished to bring the war to an early
His invasion of Russia is no more than a prelude
end, but to crush the Russian military
HE VICTORY gained by the British
The events leading up to the Axis of-
to an attempted invasion of the British Isles.
T
forces with a sudden surprise attack and a
in the Battle of Britain in August
fensive against shipping in the spring of
A few men in the United States, like
lightning campaign.
and September, 1940, has been uni-
1941 in retrospect can be seen to fit into
Captain W. D. Puleston, U. S. Navy
As is customary with German offensives,
versally acclaimed. But six months later,
a sharp pattern, although they were ob-
(Retired), even at that time, saw clearly
Hitler opened his Plan A, the offensive
Great Britain, with American assistance,
scure at the time, After the fall of France
that Germany had a two-front war on
against British shipping, with a speech. He
gained just as decisively important a
in June, 1940, Hitler offered peace terms
her hands in the summer of 1940, and
announced on February 24, 1941:
victory which has gone practically un-
to the British. The small British Army
that the German-inspired propaganda on
Our fight on the sea can begin only just now,
recognized. This was the defeat of the
had been practically stripped of weapons.
a Russo-German alliance covered up an
[The Allies]
will know what has been going
Axis all-out offensive in the spring of 1941
According to The Aeroplane, there were,
actual state of inactive warfare on the
on. They will know shortly when our new types of
against British shipping, which was de-
for example, fewer than 100 tanks left in
Eastern Front. It is now evident to all
submarines are going to be brought into the ex-
signed to gain a victorious peace by
panded warfare. They will find out in March and
England after Dunkirk. Yet the British
of us that what happened in the summer of
April what German-Italian submarine coopera-
blockading England.
refused to make peace with Hitler. The
1940 was that the concentration of Russian
tion will mean to them.
The Axis attack on shipping was much
Nazis then began to prepare in their
troops and airplanes on the German east-
One thing is certain. Wherever the British
more than the guerrilla submarine cam-
thorough, methodical way, for an invasice
em frontier pinned down a large portion
touch the Continent we will encounter them Im-
paign which is now being carried on with
of England.
of the German Army and a decisively large
mediately, and where British ships cruise they
will be attacked by our U-boats until a decision
the present limited purpose of hampering
At this point, a distraction arose, What
portion of the German Air Force. Hitler,
comes.
and crippling Allied sea communications.
happened can be best described in the
nevertheless, attempted to smash the
The German offensive against shipping in
words of Hitler when he reviewed Soviet
Royal Air Force as a preliminary to
The Germans did give Plan A a thor-
the spring of 1941 was an all-out offensive,
German relations on June 22, 1941, as his
invasion, with the remaining available
ough try. The offensive against shipping
an attempt to gain a decisive victory and
troops crossed the Russian frontier. Hit's
fraction of his Luftwaffe. During the
went all-out. Increased numbers of sub-
so win the war. The information which is
declared:
Battle of Britain in August and Septem-
marines preyed on convoys, Long-range
now available makes it fairly clear that
While our soldiers from May 10, 1940, on, tal
ber, 1940, the Royal Air Force completely
bombers were sent out in attacks on ship-
the British success, with American help,
defeated this attempt.
ping, The bulk of the German Navy was
been breaking Franco-British power in the west,
in turning back these attacks, forced
Russian military development on our eastm
The Germans in the fall and winter of
thrown into the battle. The two battle-
Hitler to undertake his Russian adventure.
frontier was being continued to a more and more
1940-41 were, therefore, confronted with
ships, Scharnhorst and Gneisenau, were
The progress of this campaign, except
menacing extent.
two alternative plans which might win
sent out in March. The pride of the Ger-
for spectacular episodic events, like the
From August, 1940, on, I, therefore, consident
the war. With American airplanes flowing
man Navy, the battleship Bismarck, and
it to be in the interest of the Reich no longer to
raid of the two battleships, Scharn-
permit our eastern provinces, which moreover la
into England, even if in small numbers,
a heavy cruiser, Prins Eugen, were sent out
horst and Gneisenau, and the sinking of
already been laid waste so often, to remain e
and with the experience of the Battle of
in May. The only major unit of the Ger-
the Bismarch, went practically unnoticed,
protected in the face of this tremendous concer-
Britain behind them, the possibility of
man Navy not in action was the Tirpits,
at the time, by the public. Even the at-
tration of Bolshevik divisions.
destroying the British Air Force with a
which may not have been ready for
tention of most of the military experts on
Thus, there resulted British-Soviet Russian or
part of the German Air Force could not
operations yet.
this side of the Atlantic was absorbed by
operation, intended mainly at the tying up of nd
powerful forces in the East that radical conducion
be counted on. Hitler's choice then was
The German offensive did meet with
the German mop-up campaigns in the
of the war in the West, particularly as regards an
between:
some successes, but, as we know, it failed.
Balkans, which occurred at the same
craft, could no longer be couched for by the Gran
Sinkings increased from under 300,000
(4) An attempt to defeat England by a policy
time. Yet these were merely designed, as
high command (Author's italic's).
of blockade, using the German naval forces which
gross tons in January to over 500,000
the Germans indicated clearly, to remove
Churchill's analysis of the situation is
were completely available for this purpose.
tons in March and April. According to
a threat to their Balkan flank, and to
(B) An attempt to destroy the Russian threat
Churchill, in the four months, March-
organize their Balkan supply sources. The
similar. He said in his speech on June 22,
and then, as Churchill said, "bring back the main
June, shipping losses totaled more than
Balkan campaigns were important, but
1941, when Hitler was beginning his inva-
strength of his army and air force from the east
2,000,000 tons. Note that if these losses
and hurt it" upon England.
subsidiary to the main objective of winning
sion of Russia:
running at a rate of 6,000,000 tons a
the war.
[There
in]
one
deeper
motive
behind
his
Probably the decision was made to give
year could be sustained, and if England
1134
1942]
The Unknown British-American Victory
1135
[Hitler's] outrage. He wishes to destroy the Rus-
Plan A a good try and if it failed to adopt
sian power because he hopes that if he succeeds
THE UNKNOWN BRITISH-AMERICAN VICTORY
in this be will be able to bring back the main
Plan B. The defeat of Plan A by the
strength of his army and air force from the east
British with American help in the spring
and burl it upon this island, which he knows be
of 1941 left the Germans no alternative,
By FIRST LIEUTENANT ANDREW M. KAMARCK, F.A., U. S. Army
must conquer or suffer the penalty of his crimes.
if they wished to bring the war to an early
His invasion of Russia is no more than a prelude
end, but to crush the Russian military
HE VICTORY gained by the British
The events leading up to the Aris of.
to an attempted Invasion of the British Isles.
T
forces with a sudden surprise attack and a
in the Battle of Britain in August
and September, 1940, has been uni-
fensive against shipping in the spring of
A few men in the United States, like
lightning campaign.
1941 in retrospect can be seen to fit into
Captain W. D. Puleston, U. S. Navy
As is customary with German offensives,
versally acclaimed. But six months later,
a sharp pattern, although they were ob-
(Retired), even at that time, saw clearly
Hitler opened his Plan A, the offensive
Great Britain, with American assistance,
scure at the time. After the fall of France
that Germany had a two-front war on
against British shipping, with a speech. He
gained just as decisively important a
in June, 1940, Hitler offered peace terms
her hands in the summer of 1940, and
announced on February 24, 1941:
victory which has gone practically un-
to the British. The small British Army
that the German-inspired propaganda on
Our fight on the sea can begin only just now.
recognized. This was the defeat of the
had been practically stripped of weapons
a Russo-German alliance covered up an
[The Allies]
will know what has been going
Axis all-out offensive in the spring of 1941
According to The Aeroplane, there were,
actual state of inactive warfare on the
on. They will know shortly when our new types of
against British shipping, which was de-
for example, fewer than 100 tanks left in
Eastern Front. It is now evident to all
submarines are going to be brought into the ex-
signed to gain a victorious peace by
England after Dunkirk. Yet the British
panded warfare. They will find out in March and
of us that what happened in the summer of
blockading England.
April what German-Italian submarine coopera-
refused to make peace with Hitler. The
1940 was that the concentration of Russian
tion will mean to them.
The Axis attack on shipping was much
Nazis then began to prepare in their
trops and airplanes on the German east-
One thing is certain. Wherever the British
more than the guerrilla submarine cam-
thorough, methodical way, for an invasion
em frontier pinned down a large portion
touch the Continent we will encounter them im-
paign which is now being carried on with
of England.
of the German Army and a decisively large
mediately, and where British ships cruise they
the present limited purpose of hampering
At this point, a distraction arose. What
portion of the German Air Force. Hitler,
will be attacked by our U-boats until a decision
comes.
and crippling Allied sea communications.
happened can be best described in the
nevertheless, attempted to smash the
The German offensive against shipping in
words of Hitler when he reviewed Sovies-
Royal Air Force as a preliminary to
The Germans did give Plan A a thor-
the spring of 1941 was an all-out offensive,
German relations on June 22, 1941, as bis
invasion, with the remaining available
ough try. The offensive against shipping
an attempt to gain a decisive victory and
troops crossed the Russian frontier. Hirrin
fraction of his Luftwaffe. During the
went all-out. Increased numbers of sub-
so win the war. The information which is
declared:
Battle of Britain in August and Septem-
marines preyed on convoys. Long-range
now available makes it fairly clear that
ber, 1940, the Royal Air Force completely
bombers were sent out in attacks on ship-
the British success, with American help,
While our soldiers from May 10, 1940, on, bad
been breaking Franco-British power in the wes,
defeated this attempt.
ping. The bulk of the German Navy was
in turning back these attacks, forced
Russian military development on our easten
The Germans in the fall and winter of
thrown into the battle. The two battle-
Hitler to undertake his Russian adventure.
frontier was being continued to a more and mon
1940-41 were, therefore, confronted with
ships, Scharnhorst and Gneisenau, were
The progress of this campaign, except
menacing extent.
two alternative plans which might win
sent out in March. The pride of the Ger-
for spectacular episodic events, like the
From August, 1940, on, I, therefore, considered
raid of the two battleships, Scharn-
it to be in the interest of the Reich no longer to
the war. With American airplanes flowing
man Navy, the battleship Bismarck, and
permit our eastern provinces, which moreover tad
into England, even if in small numbers,
a heavy cruiser, Prins Eugen, were sent out
horst and Gneisenau, and the sinking of
already been laid waste so often, to remain us-
and with the experience of the Battle of
in May. The only major unit of the Ger-
the Bismarch, went practically unnoticed,
protected in the face of this tremendous once-
Britain behind them, the possibility of
man Navy not in action was the Tirpits,
at the time, by the public. Even the at-
tration of Bolshevik divisions.
destroying the British Air Force with a
which may not have been ready for
tention of most of the military experts on
Thus, there resulted British-Soviet Russian &
this side of the Atlantic was absorbed by
operation, intended mainly at the lying up of rack
part of the German Air Force could not
operations yet.
powerful forces in the East that radical conclution
be counted on. Hitler's choice then was
The German offensive did meet with
the German mop-up campaigns in the
of the war in the West, particularly as regards air-
between:
some successes, but, as we know, it failed.
Balkans, which occurred at the same
craft, could no longer be vouched for by the German
(4) An attempt to defeat England by a policy
Sinkings increased from under 300,000
time, Yet these were merely designed, as
high command (Author's italic's).
of blockade, using the German naval forces which
gross tons in January to over 500,000
the Germans indicated clearly, to remove
were completely available for this purpose.
tons in March and April. According to
a threat to their Balkan flank, and to
Churchill's analysis of the situation is
(B) An attempt to destroy the Russian threat
Churchill, in the four months, March-
organize their Balkan supply sources. The
similar. He said in his speech on June 22,
and then, as Churchill said, "bring back the main
June, shipping losses totaled more than
Balkan campaigns were important, but
1941, when Hitler was beginning his inva-
strength of his army and air force from the east
2,000,000 tons. Note that if these losses
subsidiary to the main objective of winning
sion of Russia:
and burl it" upon England.
running at a rate of 6,000,000 tons a
the war.
[There is]
one deeper motive behind bis
Probably the decision was made to give
year could be sustained, and if England
1134
1136
U. S. Naval Institute Proceedings
[AUGUST
1942]
The Unknown British-American Victory
1137
were thrown on her own shipbuilding re-
sources, publicly acknowledged to be little
1941, were hunted into Brest, and then
continue indefinitely without seriously affecting
Axis submarines had to abandon the west-
more than 1,000,000 tons a year; then,
kept out of action for the rest of the year
by the Bomber Command. The Germans
our war effort and our means of subsistence.
ern Atlantic as scene of operations, or run
But when all is said and done, the only way in
England must surrender. April, with over
claimed that the two raiders sank over
which we can get through the year 1942 without
the risk of bringing the United States into
550,000 tons in losses, according to the
100,000 tons of shipping in their first and
very sensible contraction of our war efforts is by
the war. This risk Hitler was not willing,
latest published figures at that time, rep-
& another gigantic building of merchant ships in the
as yet, to take because of his hopes of an
resented the peak of the offensive. It is
only sally into the Atlantic. Discounting
the German statement by the usual 50
United States similar to that prodigy of output
early victorious end to the war.
likely that later revised figures, as the
accomplished by the Americans in 1918.
In spite of the Nazi propaganda at-
per cent, the toll they took must have
All this has been in train in the United States
reports came in, might have raised April
been fairly large and if they had been
for many months past. There has now been a very
tempts to belittle the United States as an
losses still higher, but in any case, losses
allowed out again, they would have un-
large extension of the program and we have as-
opponent, the German High Command
questionably caused serious losses,
surance that several million tons of American
showed at this time an absence of desire
in April must have been considerably un-
newly-built shipping will be available for the com-
to add us to their opponents. In 1917, Ger-
der the 870,000 tons of the peak month of
The United States showed acute aware-
men struggle during the course of the next year.
many was willing to take the chance of
the last war, April, 1917. Not all of the
ness of the British danger. Secretary Stim-
Here, then, is the assurance upon which we may
April losses were due to the German ship-
count for the staying power without which it will
bringing us into the war in pursuance of
son said on May 6, 1941, in a radio broad-
not be possible to save the world from the crimi-
her attempt to defeat England by an
ping offensive; a large part of them re-
cast:
sulted from the evacuation of Greece. In
nals who assail its future.
unlimited submarine blockade. In the
The life line of Great Britain is threatened. The
But the Battle of the Atlantic must be won not
spring of 1941, confronted with at parallel
May, in spite of the losses resulting from
high-water mark of the Nazi effort is at hand in
only in the factories and shipyards but upon the
choice, the Germans refused to run the
the evacuation of Crete, ship sinkings be-
the shape of an attack on the shipping which fur-
blue water.
gan to decrease sharply. Losses continued
nishes Britain with the means and the nourish-
The defeat of the U-boats and of surface raiders
risk of adding us to their enemies. Hitler,
to decrease, and by July they had fallen
ment to maintain her battle.
has been proved to be entirely a question of ade-
indeed, has done us the honor of stating
to a negligible amount, well within the
quate escorts for our convoys.
that fear of bringing us into the war para-
The government of the United States did
It will indeed be disastrous if the great masses
lyzed his submarine fleet. In his speech of
British shipbuilding capacity.
more than extend sympathy: it helped,
of weapons, munitions and instruments of war of
April 26, 1942, Hitler said:
The German offensive was turned back,
all kinds made with the toil and skill of American
but the resources of the British were
perhaps decisively. On March 11, Lease-
hands at the cost of the United States and loans
1 have already previously stated that the
strained to the utmost to meet the threat.
Lend became law, making completely
to us under the Aid to Britain Bill were to sink
paralyzing of German submarine activities in the
available American shipbuilding resources
into the depths of the ocean and never reach the
past year was solely due to our efforts to avoid
The Navy, of course, fought hard and well
to the British without fear of exhausting
hard-pressed fighting line.
any conflict one could think of with the United
and the Royal Air Force was also called
into the battle. The Air Ministry stated
the British supply of dollars. On March 30,
That would be lamentable to us and I cannot
States.
believe it would be found acceptable to the proud
several hundred thousand tons of Axis
in a review of 1941 that for the protection
and resolute people of the United States.
and Danish shipping immobilized in Ameri-
The German High Command claimed
of shipping, the Coastal Command was
built up at the cost of the Bomber Com-
can ports were seized.
The next day, April 10, the United
to have destroyed over 1,000,000 tons of
At the height of the Axis offensive, on
States took a preliminary step towards
shipping in April, 1941, or more than at
mand. Most of the heavy bombers we
April 9, 1941, Churchill analyzed the
providing the needed assistance in an-
the height of the 1917 campaign, when
sent to England had to be diverted to the
British position. He pointed out that to
nouncing that it was taking over the pro-
England was rapidly going under. If the
Coastal Command instead of being used
win the Battle of the Atlantic, there were
tection of Greenland. Then, on April 30,
German figures were actually true, Eng-
for the bombing of German industry. The
Fighter Command furnished Hurricane
two main factors: (1) The provision of
the United States took the step which the
land would soon have been forced to her
Nazis at once must have realized doomed
knees. That the Germans did not believe
fighters to be catapulted off ships to drive
adequate shipping replacements; and (2)
off the long-range German Focke-Wulf
the provision of adequate convoy escorts.
their offensive to ultimate failure. The
their own claims and had realized that
The United States had taken action al-
second necessary measure requested by
their best was not good enough, is evi-
Kurier bombers. The British have since
ready to provide shipping replacements,
Charchill to win the Battle of the Atlantic
denced by the fact that preparations to
announced that 40 per cent of the activi-
through her shipbuilding campaign and
was provided: help in protecting ship-
put in effect Plan B, the invasion of
ties of the Bomber Command were de-
Lease-Lend to pay for the new ships. He
ping. President Roosevelt announced that
Russia, began to be made.
voted to the winning of the Battle of the
Atlantic.
called upon America to help in the provi-
the American Navy would patrol the sea
On May 10, Hess parachuted to earth
sion of escorts. He stated:
in the American defense zones. An im-
in Scotland, undoubtedly bearing peace
Perhaps the greatest service the bomb-
ers performed was keeping the battle-
But, after all, everything turns upon the Battle
mense burden was lifted off the British
proposals designed to take England out of
ships, Scharnhorst and Gneisenau, holed
of the Atlantic which is proceeding with growing
Navy. It could concentrate on giving in-
the war while Russia was being finished
intensity on both sides. Our losses in ships and
creased protection to shipping in the East-
off. The last big bombing raid on England
up in Brest. These two 26,000-ton ships
tonnage are very heavy and, vast as are the ship-
ern Atlantic, At the same time, the sphere
occurred on May 11, and after that the
made one foray into the Atlantic in March,
ping resources we control, these losses could not
of action of submarines was cut down;
German Air Force began to move towards
1138
U.S. Naval Institute Proceedings
[AUGUST
the East. Throughout May, we received
reports of the movement of German
sian trial. frontier, and Plan B was given its,
troops to the Russian frontier. Even while
Most people remember the spring of
the German parachutists were dropping
1941 as a time of successive allied defeats
on Crete to secure the Balkan flank, Ger-
in Libya, in Yugoslavia, and in Greece.
man troops were being moved out of
Actually, these battles must pale before
Greece towards the Russian front.
the unspectacular ceaseless struggle waged
In the third week of May, one last
at sea at that time for the mastery of the
desperate attempt was made against Brit-
lanes to the British Isles. The failure of
ish shipping: the strongest ship of the
Hitler in these months to blockade the
German Navy, the Bismarch, was sent out
British Isles forced him to invade Russia
to attack commerce. The sinking of the
in his striving for the elusive final victory.
Bismarch on May 27 by the British Navy
The German defeat at sea forced Germany
must have finally convinced the Germans
to bring into active warfare against the
that Plan A had failed and that Plan B,
Nazis the most formidable military ma-
the invasion of Russia, must be tried. Six
chine outside of Germany. It appears cer-
days later, on June 2, Hitler met Mus-
tain that history will regard the British
solini at the Brenner Pass and undoubtedly
and American victory at sea in the spring
informed him of the decision taken. On
of 1941 as one of the decisive victories of
June 22, German troops crossed the Rus-
the world.
265
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
Sept. 23, 1942
TO
FROM Randolph Paul
I should like to call your attention to a
release on the Dow-Jones ticker today, which is attached.
It would be pleasant for the Congressional
Committees if they could write tax bills entirely in
secret without anyone to criticize or condemn. I
doubt if the business and taxpayer world would be so
pleased. None of this attitude has been expressed
in the Senate committee.
Attachment
Regraded Unclassified
266
Dow-Jones
September 23, 1942
3:00 P.M.
CRITICIZES TREASURY ON TAXES
Chicago - Dissatisfaction with methods employed by
administration in dealing with Congress on tax legislation was
expressed here by Representative Boehne (Dem. Ind.), 8. member
of House Ways and Means Committee.
In a statement sent to annual meeting of Controller's
Institute of America Mr. Boehne charged executive and particu-
larly Treasury Department has to an increasing extent sought
to arrogate to itself the determination of both amount of taxes
to be imposed and manner in which burden of taxation shall be
distributed.
He said he did not question the propriety of revenue
recommendations from the executive branch of the government on
revenue requirements and methods for meeting them but added:
"Unfortunately the participation of the executive depart-
ment has not stopped with recommendation, advice, and the
provision of statistical and economic information and expert
technical aid."
He said, "It has become common practice in recent years
for the Secretary of the Treasury after he has submitted a
program during public hearings to make further recommendations
to the Committee in executive session which sometimes involve
fundamental changes in or addition to the prior program."
"This," Mr. Boehne said, "caused confusion and delay in
the reporting of a bill and has caused doubt as to whether the
Treasury itself really had a well-thought-out program."
"In face of this," Mr. Boehne continued, "the Secretary of
the Treasury has not hesitated publicly to criticize the Ways
and Means Committee for delay in reporting a revenue bill.
He said that in the case of the revenue bill now pending
before the Senate Finance Committee the Ways and Means Committee
not only was told how much revenue the Treasury hought it was
Regraded Unclassified
267
- 2 -
necessary to raise and the methods which should be followed
in raising it, but has been criticized whenever it insisted
upon exercising its proper functions and acting upon its
independent judgement on either question.
268
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
SEP
TO
Secretary Morgenthau
FROM Mr. Paul
There is attached for your interest
a graphic description of revenue obtainable from
the House proposal on the Revenue Bill of 1942,
from Senate Committee action September 14, 1942,
and from Treasury proposals. The amounts are in
Millions of Dollars.
REP.
Attachment
Regraded Unclassified
Individual Income Tax
HOUSE BILL
2,8723
SENATE COMMITTEE
5.08/0
TREASURY PROPOSAL
12280
COMPARISON OF ADDITIONAL REVENUE
Corporation Texes
FROM HOUSE BILL OF 1942. FROM SENATE
HOUSE BILL
COMMITTEE ACTION SEPTEMBER 14. 1942.
SENATE COMMITTEE
AND FROM TREASURY PROPOSALS
TREASURY PROPOSAL
From Principal Sources
Estate and Gift Taxes
(Amounts in Millions of Dollars)
HOUSE BILL
13.0
BENATE COMMITTEE
27.8
TREASURY PROPOBAL
Excises
HOUSE BILL
SENATE COMMITTEE
TREASURY PROPOBAL
Special Privileges"
HOUSE BILL
SENATE COMMITTEE
TREASURY PROPOSAL
TOTAL
HOUSE BILL
SENATE COMMITTEE
TREASURY PROPOSAL
"Joint returns, interest on State and local obligations; and percentage depletion
Excludee post-war credit
Office of the Sereary of the Insury
- el les -
D-328-A
269
Regraded Unclass
269-A
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
SEP
TO
Secretary Morgenthau
FROM Randolph Paul
In my memorandum of August 24, 1942, I indicated that a
meeting was to be held with the State Department on the problem
of the diplomatic pouch as soon as Mr. Acheson returned to
Washington. The meeting was held last week in Mr. Acheson's
office and was attended by Pehle, B. Bernstein, and others from
the Treasury; representatives of Censorship; and Assistant
Secretaries Acheson and Shaw and several others from the State
Department.
The Treasury representatives orally presented evidence of
wide-spread misuse of the diplomatic pouch by various govern-
ments or their agents, particularly the French and Spanish.
One of the most significant cases was obtained in our investi-
gation of the French Line, in the course of which we discovered
evidence indicating that the French diplomatic pouch has been
regularly used to avoid the American and British censorship
of correspondence between the United States French Line offices
and Europe. Such evidence also indicated that the French
diplomatic pouch has been used to carry mail into the United
States from occupied France and to take information of possible
military importance from the United States to Europe. In
general, Treasury indicated that at present diplomatic pouches
constituted 8. channel, presently uncontrolled, through which
vital information not entitled to diplomatic immunity may
pass and through which currency, securities, and other
valuables may be sent in violation of Treasury financial
controls. It was pointed out that the abuse of the diplomatic
pouch leaves very little evidence behind it by reason of the
status of the pouch and of those who are entitled to use it.
The State Department representatives agreed with Treasury
that the diplomatic pouch is being used against us by our enemies,
but is reluctant to take any step that would jeopardize the
immunity of diplomatic pouches used by this Government between
the neutral European capitals and the United States. After some
discussion of the matter, State admitted that the problem should
be viewed in the practical light of deciding whether we obtained
more benefit from the immunities of diplomatic pouches than do
Regraded Unclassified
269-B
- 2 -
the enemy, and agreed that we might canvass the possibilities
of taking measures which would interfere with the use of diplo-
matic pouches of foreign governments to transmit information
and materials inimical to our interests without interfering
with the ability to keep our own channels open. A subcommittee
consisting of representatives of State, Treasury, Censorship,
and War is being appointed to work on this problem.
In the course of the meeting the problem of the immunity
of diplomats and their baggage from search by Customs was
mentioned several times, and it appears that State may be willing
to consider openly tightening up in this field if we can do
this without publicly raising the diplomatic problem.
The meeting seemed worthwhile in that it focused the
attention of the State Department and the Office of Censorship
on this very significant problem. We are continuing our work
on the problem and will cooperate with the other agencies to
work out some intelligent plans of dealing with it. The Office
of Military Intelligence has informally advised us that they
are much concerned with the security aspects of the problem.
REF.
Regraded Unclassified
270
TREASURY DEPARTMENT
WASHINGTON
September 24, 1942
MEMORANDUM FOR THE SECRETARY:
The attached is intended for Mr. Nate Shapero,
whose friends are putting together & book to be
presented to him on the occasion of his 50th
birthday.
Mr. Shapero is our retailers' chairman for
Wayne County (Detroit), Michigan, and is doing
an outstanding job for us.
Your signature on the attached page will be
appreciated.
Junes.
GRAVES.
Regned Hmorgenther &
POLYICTORY
(9/5/42)
BUY
VEITED
PTATES
BONDS
ARB
stude
Regraded Unclassified
271
MEMORANDUM
To:
Secretary Morgenthau
From:
Huntington Cairns
September 24, 1942
Mr. Paul asked me to tell you about a discussion
he had yesterday with Stanley High, who is now associated
with the Readers' Digest. Mr. High is collecting material,
possibly with a view to publication of an article, on the
usurpation of power by the Executive Branch of the Govern-
ment. Mr. High referred to two recent events.
The first was an interview by Dr. Alvin H. Hansen,
printed on June 27th in the Chicago Journal of Commerce.
According to the account printed in the Congressional
Record, on July 23, 1942, page 6778, Dr. Hansen outlined
the New Deal aim as follows:
"Congress will surrender to the admin-
istration the power to tax, keeping to itself
the right only to establish broad limits
within which the administration may move.
"Congress will appropriate huge sums of
money; will surrender its power of directing
when and how the money shall be spent.
"Other extraordinary powers such as, for
instance, to affect wholesale social reforms,
will be delegated to the administration which
Regraded Unclassified
272
- 2 -
will retain most, if not all, of its present
extraordinary wartime powers.
"It is folly to think we can return to
normal after the war."
Mr. Paul thinks that to give public expression to
such ideas is, to say the least, most unwise.
Mr. High also referred to the Supreme Court deci-
sion of U. S. V Pink, decided on February 2, 1942, opinion
by Mr. Justice Douglas, concurring opinion by Mr. Justice
Frankfurter, dissenting opinion by Mr. Justice Stone, in
which Mr. Justice Roberts joined. The Court held that the
right to property located in the United States, which had
belonged to a Russian corporation later dissolved by the
Soviets, became vested in the Soviet Government; that the
right passed to the United States under the Litvinoff
assignment (which was an Executive Agreement and not a Treaty
submitted to the Senate); and that the United States is en-
titled to the property as against the corporation and the
foreign creditors.
Mr. High made the point that there is discussion
throughout the country to the effect that the Administration
is preparing the way to making a peace settlement without
submitting the matter to the Congress. The Administration,
Regraded Unclassified
273
- 3 -
during the or 'ogress of the war, will accomplish that through
& series of International Executive Compacts which would
commit the United States to a particular peace settlement
before the arrival of the time of the actual peace settle-
ment. The peace settlement itself might be made by a com-
pact which might not be referred to the Congress, but which
would be as far-reaching, or more so, than the Versailles
settlement.
/ duntington Cains
274
HEADQUARTERS 1229TH RECEPTION CENTER
FORT DIX, NEW JERSEY
HGP-JER
September 24, 1942.
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
My dear Sir:-
In compliance with your request, the enclosed report,
composed of information contained on the classification cards of
100 Selective Service Men, chosen at random from men received at
this station, is submitted.
In the column marked "Specialist Serial Number", there
are a number of blanks. This indicates that there is no Army
Classification for the occupation listed.
I trust this is the information you desire, and that
if there is anything further that you desire, you will not hesitate
to call on us.
Respectfully,
HYPanneen
H. G. PAULLIN,
Colonel, Cavalry,
Commanding.
Regraded Unclassified
275
Distribution of 100 randum Selective Service Men as to age,
marital status, and claimed dependency, partial or otherwise.
AGE
NUMBER
M
8
DEPENDENTS
20-24
37
5
32
10
25-29
11
8
3
12
30-34
6
2
4
2
35-39
54
15
7
8
13
40-44
28
7
21
18
45-
3
1
2
1
TOTAL
100
30
70
56
MARITAL
HAME
A.S.N.
AGE
STATUS
DEPEND.
276
OCCUPATION
3.8.NO
as William B.
32497762
40
M
1
Estimater
-
regel, Harry Jo
32352126
20
M
1
Laborer, Process
-
orig, Richard Do
32362070
24
X
2
Cahier
269
urs, Charles P.
32362114
21
S
0
Laborer
-
m, Theodore Do
32362081
21
8
0
Radio Announcer
-
strood, William J.
32362101
22
M
1
Truck Driver, Heavy
245
has, Chester Jr.
52862140
21
M
1
Sales Clerk
373
coia, Dominick 4.
32362087
24
8
0
Laborer
-
soia, Angelo J.
32362090
21
8
o
Laborer, Process
.
ldon, James 8.
32495452
38
X
1
Investigator
301
yer, Arthur G.
32497084
48
M
1
Investigator
301
ingelo, Joseph A.
32466934
29
M
1
Chemist
292
iffing, Peter C.
32496215
27
M
1
Purchasing Agent or Buyer
371
delken, Harold 0.
32467505
27
8
o
Clerk, General
055
brig, Luthar E.
32362107
28
S
0
Stock Clerk
324
ronson, Edward B.
32362060
36
M
1
Manager, Sales I
us, Walter
32362137
20
8
0
Student
-
the Earl L.
32362075
23
M
2
Sheet Metal Worker
201
6, Albert C. W.
32497875
21
S
o
Packer
-
res, Ewans C.
32362117
21
S
0
Electric Truok Driver
354
vers, Walter F.
32362130
20
8
0
Truck Driver, Heavy
245
raulay, Norman
32497742
41
M
1
Carpenter, Accustion]
-
le, August
32497743
29
M
1
Floral Designer
-
isica, Peter J.
32362125
21
8
o
Sales Clerk
373
ann, Albert A.
32498322
21
8
0
Map Clerk
-
s, Francis
32498195
45
8
0
Salesman, Beverages
.
on, Maroo
32497046
21
8
0
Manager, Retail
-
sus, Henry v.
32463184
41
D
o
Cook
060
rt, Charles P.
3249790₺
37
8
0
Stenographer
213
sholm, Frank B.
32467577
45
X
1
Chiropodist
422
onon, Milton
32497750
40
8
0
Truok Driver, Light
345
veter, Joseph C.
32362119
21
8
0
Laborer
-
m, Benjamin
32443636
25
8
8
Laborer, Process
-
gast, Peter G.
32463644
44
M
1
Breakman, Automobile
-
ley, William M.
32465453
45
8
0
Laborer
-
an, Arthur P.
32497946
36
M
1
Truck Driver, Heavy
245
pel, Edward
33467598
24
8
0
Laborer, Process
-
turman, Richard B.
32497827
41
8
1
Salesman, Floor Covering
-
it, William J.
32497827
41
8
1
Salesman, Securities
-
ustet, Harry F.
32497898
40
8
o
Chauffeur
344
ikowits, George P.
32497761
35
X
2
Cook, Short Order
sto, Joseph
32496231
37
8
2
Truck Driver, Light
345
spatrick, Edward J.
32497937
22
8
o
Laborer
-
erson, Harry H.
32362127
22
S
o
Clerk, Typist
406
scenzo, Raymond J.
32362056
27
X
1
Sales Clerk
373
lin, Theodore 0.
32362073
26
X
1
Rotary-Shear Operator
-
, George J.
32362109
20
S
0
Laborer
-
ura, George
32497748
32
8
0
Sales Clerk
373
srs, Thomas H.
32362072
24
8
2
Stock Clerk
324
-1-
MARITAL
HAME
A.S.N.
AGE
STATUS
276
DEPEND.
OCCUPATION
S.S.NO.
by, William B.
32497762
40
X
1
Estimater
-
mogel, Harry Jo
32562126
20
X
1
Laborer, Process
-
wig, Richard D.
32362070
24
Y
2
Cahier
269
478, Charles P.
32362114
21
S
0
Laborer
-
own, Theodore De
32362081
21
8
o
Radio Announcer
,
stwood, William J.
32362101
22
M
1
Truck Driver, Heavy
245
ches, Chester Jr.
52362140
21
M
1
Sales Clerk
373
dooia, Dominick 4.
32862087
24
8
0
Laborer
-
socia, Angelo J.
32362090
21
8
0
Laborer, Process
-
eldon, James S.
32495452
38
M
1
Investigator
301
yer, Arthur G.
32497084
45
X
1
Investigator
301
Angelo, Joseph A.
32466934
29
M
1
Chemist
292
lifting, Peter C.
32496215
27
M
1
Purchasing Agent or Buyer
371
adelken, Harold G.
32467505
27
8
o
Clerk, General
055
brig, Luthar E.
32362107
28
8
0
Stook Clerk
324
ronson, Edward B.
32362050
36
M
1
Manager, Sales I
us, Walter
32362137
20
8
0
Student
-
the Earl L.
32362075
23
M
2
Sheet Metal Worker
201
Albert C. 1.
32497875
21
S
o
Packer
-
TOB, Ewans C.
32362117
21
S
o
Electric Truok Driver
354
ivers, Walter F.
32362130
20
8
0
Truck Driver, Heavy
245
reaulay, Norman
32497742
41
M
1
Carpenter, Accustical
-
le, August
32497743
29
M
1
Floral Designer
-
usion, Peter J.
32362125
21
8
0
Sales Clerk
373
mann, Albert A.
32498322
21
8
o
Map Clerk
-
s, Francis
32498195
45
8
0
Salesman, Beverages
-
a, Maroo
32497046
21
8
o
Manager, Retail
,
sus, Henry V.
32463184
41
D
0
Cook
060
rt, Charles P.
32497904
37
8
o
Stenographer
213
roholm, Frank B.
32467577
45
X
1
Chiropodist
422
lonon, Milton
32497750
40
8
0
Truck Driver, Light
345
Peeter, Joseph C.
32362119
21
8
0
Laborer
-
mm, Benjamin
32443636
25
8
8
Laborer, Process
-
gast, Peter G.
32463644
44
Y
1
Breakman, Automobile
-
ley, William M.
32465453
43
8
0
Laborer
-
p, Arthur P.
32497946
36
X
1
Truck Driver, Heavy
245
pel, Edward
32467598
24
8
0
Laborer, Process
-
surman, Richard B.
32497827
41
8
1
Salesman," Floor Covering
-
ft, William J.
32497827
41
8
1
Salesman, Securities
-
ustet, Harry P.
32497898
40
8
0
Chauffeur
344
ikowits, George P.
32497761
35
X
2
Cook, Short Order
ato, Joseph
32496231
37
8
2
Truck Driver, Light
345
spatrick, Edward J.
32497937
22
8
0
Laborer
-
erson, Harry H.
32362127
22
S
0
Clerk, Typist
406
Raymond J.
32362056
27
M
1
Sales Clerk
373
lin, Theodore 0.
32362073
26
X
1
Rotary-Shear Operator
-
George J.
32362109
20
8
o
Laborer
-
ara, George
32497748
32
8
O
Sales Clerk
373
ars, Thomas H.
32362072
24
S
2
Stook Clerk
324
-1-
277
MARITAL
A.S.N.
AGE
NAME
STATUS
DEPEND.
OCCUPATION
S.S.NO.
EIGS Elmer J. Jr.
32362077
24
8
0
Job Pressman
169
dberg, Harry
32496107
22
8
1
Fur-Machine Operator
-
lbach, Frank T.
32444282
40
8
o
Manager, Rec. Estab.
-
& Toy F.
32497345
44
8
0
Cook
060
doi, Frank
32497166
22
8
0
Baker
017
irdman, Martin
32439699
20
8
o
Paymaster
-
ly, William P.
32497456
37
8
o
Laborer
-
inson, Anguish W.
32362112
31
M
1
Manager, Retail Food
-
Harold E.
32467575
41
S
1
Parts Clerk, Automobile
348
Benedetto, Louis A.
32498030
21
8
0
Warp-Dry-Can Man
-
110, Byron
32496242
39
M
1
Manager, Property
-
an, Apolinario G.
32497289
41
8
0
Valet I
-
1, Gouie
32361855
22
S
o
Bellman III
-
flsson, Karl J. V.
32444106
44
S
0
Pantryman
-
y, Bernard D.
32466128
43
8
0
Wholesaler
-
ech, William E.
32467558
36
M
1
Photographer, Commercial 162
for, Herman L.
32450522
44
D
0
Janitor - I
-
10, Joseph B.
32362086
40
8
1
Laborer, Process
-
1am, Carmen A.
32362085
20
8
1
Farm Hand
-
squet, Joseph M.
32498090
40
S
0
Waiter, Informal
-
decker, Douglas E.
32497751
40
W
0
Hairdresser - II
-
cia, Emilio
32496362
42
S
0
Fireman, Marine
117
ming, Kenneth W.Sr. 32462550
43
D
0
Teller - I
-
do, Thomas E.
32465693
39
8
0
Inspector
-
tson, David
32465296
48
8
0
Sales Clerk
373
Charles 0.
32495349
26
M
2
Truck Driver, Light
345
vito, James
32360217
32
S
o
Laborer, Process
-
ba, Galliano
32467011
42
8
0
Cook
060
1, Peter P.
32467123
20
8
0
Meat Cutter (Butcher)
037
htenberg, Robt. M.
32441617
21
S
0
Statistical Clerk
212
sech, Vincent S.
32361528
31
S
0
Baker
017
ano, Mariano J.
32467075
22
8
O
Routeman - I
-
ald, Otto R.
32467073
21
S
0
Laborer, Process
-
gesanto, Philip
32360226
40
D
1
Laborer
-
no, Peter
32439346
37
S
1
Laborer
-
fy, John W.
32495416
41
8
2
Truck Driver, Heavy
245
rancois, Alfred
32495878
41
M
4
Kitchen Helper
-
card, Michael J.
32496893
54
8
o
Bell Boy
-
80, William Jr.
32362123
43
M
1
Carpenter, Construction
050
rino, Joseph
52466237
21
S
o
Laborer, Process
-
sohi, Eugenio L.
32466235
45
S
0
Carpenter, Construction
050
ts, George A.
32466264
42
M
2
Expeditor
-
anno, Paul
32444303
35
8
2
Presser, Machine - I
-
ver, Alfred B.
32362076
21
8
1
Stock Control Clerk
374
ber, Walter G. Sr.
32362076
21
S
0
Chemical Lab. Assistant
411
1st, Louis
32358430
37
8
0
Cement Finisher - II
-
+1, Morris
32362132
38
S
0
Pharmacist
149
sch, Frank A.
32362080
38
M
1
BEE Candler
-
kler, Joseph T.
32362074
25
M
1
Marker
-
orristin, Frank J.Jr.32362108
21
8
0
Receiving & Ship. Checker 186
Herman A.
32362055
34
M
1
Order Filler
-
-2-
278
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 24, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Economic conditions in China.
1. I believe you will be interested in the following information
received September 24, in cable from Adler, dated September
21, regarding the growing crisis in China's economic situation
and the deadlock in the negotiations with the British regard-
ing the proposed British loan.
2. The Ministry of Finance is reported to have asked the British
for a loan totalling 650 million, of which 630 million would
be credited to Central Bank's account with Bank of England
immediately; L10 million would be used as security for bond
issue, and another 610 million would be used to purchase
munitions in India. Of these, the British Treasury has only
agreed to the offering of L10 million to be used as security
for bond issue. Adler reports that this impasse in negotia-
tions has contributed to the deterioration of Sino-British
relations.
3. The inflation in China has advanced to a stage where it
might greatly impair the ability of the Central Government
to maintain authority over the provincial governments and
to continue its present already low-geared war effort.
Thus, wholesale price index in Chungking in August reached
5,930 (January to June 1937 = 100) -- an increase of over
17% in one month, while interest rates are about 58% per
year for 15-day loans. It has been found necessary to
raise the salaries of Government officials from 50% to
100% as of October 1. Moreover, the rise in prices are
driving more foreigners into the black markets where the
Chinese yuan is being exchanged for 2 to 3 U.S. cents as
compared with the official rate of 5 1/15 cents.
Regraded Unclassified
COPY
279
AS
Chungking via Karachi
This telegram must be
paraphrased before being
Dated September 21, 1942
communicated to anyone
other than a Governmental
Rec'd 1:51 a.m., 23rd
agency. (BR)
Secretary of State,
Washington.
1077, September 21, 6 p.m.
FOR SECRETARY OF THE TREASURY FROM ADLER:
TF 60 weekly economic.
One. Chungking prices August: wholesale, general 5930, food
3770, increases of over 17 and 16 per cent on July: retail, general
5640, food 4370, increases of nearly 10 and 7 per cent on July. Rise
in prices beginning to cause alarm. At special meeting of Executive
Yuan last week to discuss price situation it was agreed that it was
desirable to extend powers of commodity administration but action was
deferred until Generalissimo's return from northwest. Salaries of
government officials are being raised fifty one hundred per cent from
October 1.
Rising prices driving more foreigners into Black Market in which
rates for United States cash are forty forty-two fapi to the United
States dollar in Yunnanfu and thirty-five - thirty-eight in Chungking.
Two. Central Bank on September 16 raised official rate for fifteen
day loans by Chungking native banks from en dollars fourteen to en
dollars fifteen per en dollars one thousand, which is equal to thirty-
six per cent per annum. Reported that actual rate of en dollars twenty -
twenty-five per 1000 for fifteen day loans quite common.
Negotiations for British loan to China deadlocked. According to
Chinese version, Minister of Finance asked for: (a) sterling 30,000,000
to be credited to Central Bank's account with Bank of England immediately,
(b) sterling 10,000,000 to be used as security for internal allied victory
bond Chinese national dollars 1,000,000,000 issue, and (c) sterling
10,000,000 for purchase of munitions in India. British Treasury agreed
to (b) and offered sterling 10,000,000 with no strings attached. Impasse
in negotiations has contributed to deterioration of Sino-British relations.
Four. Federal Reserve Bulletin would be useful to me in answering
requests for information on economic situation at home. There is common
impression here that China is in good company in suffering from inflation.
Please forward Bulletin in State Department pouch.
GAUSS
EDA
Regraded Unclassified
280
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Chungking, China, via
DATE: September 21, 1942, 6 p.m.
NO. # 1077, Section Two
The following is in strict confidence.
5. For the first six months of 1942, expenditures equal
about Cn$10,000,000,000 and revenues are over $2,500,000,000
according to the preliminary fiscal returns. It is anticipated
that for the whole of 1942 the revenues will be between CN$6,000,-
000,000 and $7,000,000,000 and the expenditures will be between
CN$22,000,000,000 and $23,000,000,000. The first draft of the
budget for 1942 is now being prepared by the Executive Yuan. Al-
though a budget with expenditures of CN$37,000,000,000 was urged
by the "spending" ministries, the Minister of Finance so far in the
debate has won and he is now pushing for a maximum of expenditures
not to exceed CN$30,000,000,000. It is likely that in 1943 the
revenues will not exceed more than 40 per cent of the expenditures.
6. It is very obvious from the data given above that China
is now in an inflationary zone of danger. Economic and social re-
sults of a currency crisis probably would not be as serious as that
of Europe after 1918, but it would greatly and possibly disastrously
cut the ability of the central government to maintain its authority
over the provincial governments and its present low-geared war effort.
END OF MESSAGE.
GAUSS
Copy:bj:9-24-42
281
Foreign Office,
S.W.1.
24th September, 1942.
Dear Mr. Secretary,
Now that I am back in London I am writing to
thank you very much for receiving me, and to say how
greatly I was interested by our talk. I hope that we
may have the opportunity of meeting again.
With kind regards,
Yours sincerely,
Richard law
le Honourable H.J Morgenthau Jr.
Regraded Unclassified
Treasury Department
Division of Monetary Research
Date Sept. 29
19 1942
To: Miss Chauncey
From: L. Shanahan
For your files. The original material
is in Mr. White's files.
With regard to the draft copy of
general release referred to in Par. 3,
Sir Frederick Phillips took this with
him following the meeting in the
Secretary's office yesterday. He
will, no doubt, prepare a release in
accordance with this form and send it
to us.
The check referred to was handed to
Sir Frederick by the Secretary,
together with original of letter
addressed to Sir Frederick, as attached.
ARMY AIR FORCES
HEADQUARTERS OF THE MATERIEL COMMAND
WASHINGTON
September 24, 1942
MEMORANDUM FOR THE LICENSARY OF THE TILASUPY
SUBJECT: Final payment of D fair end just compensation for the
airplanes, airolane en does and other materials requi-
19/1. altioner frrm the united Singler on or about December 7,
1. Às shown by the attached letter from the Secretary of
War to the President OF the United States, the President has approved
the payment of $79,623,569.17 as fair and just compensation for air-
craft materials requisitioned from the United Kingdom in December 1941.
On April 25, 19/2 a proliminary payment of $70,000,000 WELB made pending
final determination of the compensation to be paid.
2. A check for the final payment of $9,623,569.17 is attached.
You will recall the check covering the preliminary payment was handed by
you to Sir Frederick Phillips of the British Supply Council. It is sug-
gested that the same proc dure be followed in transmitting the present
check.
3. It is suggested that you receive from Sir Frederick
Phillips, or the designated British representative, a general release
at the time the check is handed to the representative. Attached is 8.
draft copy of the release. A signed copy thereof is being held by Mr.
Alec Keyes of the British Supply Council and is ready for delivery to
you upon presentation of the check.
Incls.
Bapy of letter fr. Sec. of War
Check
B. E. MEYERS
Draft of release
Brig. General, U.S.A.
Chief of Staff, Materiel Command
Regraded Unclassified
war DEPARTMENT
WASHINGTON
September 11, 1942
The President
The White House
My dear Mr. President:
Pursuant to authority under the Act of October 10, 1940
(54 Stat. 1090), the following described property of His Majesty's
Government in the United Kingdom was requisitioned by the War De-
partment, on or shortly after December 7, 1941:
Fair and Just
Quantity
Compensation
Airplanes (including engines
propellers and equipment
therewith):
Liberator LB 30 (B24 - 4
engine bomber)
50
$15,707,580.51
Boston III (A20A-2 engine
bomber)
213
34,478,259.58
Lightning 322 (P38 - 2 engine
interceptor pursuit)
20
2,383,073.62
Airacobra P400 (P39 - 1 engine
pursuit)
196
14,262,791.70
Total 479 aircraft
$66,831,705.41
Engines (uninstalled)
766
12,282,944.60
Propellers (uninstalled)
74
508,919.16
Total
$79,623,569.17
As shown by the attached photostat, you approved the prelimi-
nary payment of $70,000,000 on April 25, 1942 pending the determination
of a fair and just compensation.
His Majesty's Government in the United Kingdom has agreed to
the method of using costs (and $79,623,569.17 as the total cost) in do-
termining a fair and just compensation for the material requisitioned.
Regraded Unclassified
It is recommended that $79,623,569.17 (the cost to His Majesty's
devernment in the United Kingdom of the material requisitioned) be
determined as a fair and just compensation therefor, and that final
payment on account of such compensation in the amount of $9,623,569.17
be made.
Respectfully yours,
Henry L Minson
Secretary of Var.
Determined that the sum of $79,623,569.17
represents just and fair compensation for
material referred to above; final payment
of $9,623,569.17 on account of such compen-
sation approved.
Musweh
Dated: September 11, 1942.
WAR DEPARTMENT
ADMINISTRATIVE ASSISTANT
1942 SEP :** 12 PM 1:51
Regraded Unclassified
TREASURY DEPARTMENT
286
INTER OFFICE COMMUNICATION
DATE Sept.23,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Shipment of Planes to British Forces
1. During the week ending September 15, 1942,
236 planes (200 combat planes) were sent to British
forces from the United States. This is the greatest
number of planes sent to the British in any week since
late in March, 1942, and is substantially higher than
the average of 117 per week during the first six
months of 1942.
2. Of the week's shipments, 144 planes, including
127 Curtiss Kittyhawk fighters, went to the Middle
East. This 1s an all-time high, both for shipments
of the Kittyhawk and total plane shipments to the
British in the Middle East. Forty-eight planes were
sent to the British Indian forces and 32 to the United
Kingdom.
Regraded Unclassified
- 2 -
Table A - Shipments by Area
287
Week
Total Shipped
Ending
Total Shipped
in 1942
since
Sept. 15,1942
to date
Jan. 1, 1941
the United Kingdom
Light and medium bombers
16
576583
0
1,737 17441
Heavy bombers
142
Naval patrol bombers
4
246
63
Pursuit
12
165
930
Army Cooperation
0
1,241
119
150
Trainers
0
0
37
24
Total to the United Kingdom
32
1,830
3,563
the Middle East
3570
Light and medium bombers
11
514
844
Heavy bombers
o
0
06
0
Naval patrol bombers
5
л.
6
6
Pursuit
127
637
1,485
Army Cooperation
0
35
35
Trainers
6
24
166
Total to the Middle East
144
1,216
2,541
the Canadian Forces
Light and medium bombers
6
66
234
Heavy bombers
0
1
1
Naval patrol bombers
0
23
31
Pursuit
0
30
72
Trainers
0
613
1,854
Total to Canadian Forces
6
733
2,192
the British Pacific Forces
Light and medium bombers
0
145
245
Naval patrol bombers
0
O
27
Pursuit
0
200
363
Trainers
0
12
117
Total to Pacific Forces
0
357
752
the British Indian Forces
Light and medium bombers
18
154
154
Pursuit
0
40
40
Trainers
30
43
43
Total to Indian Forces
48
237
237
the British West Indian Forces
Army Cooperation
6
6
6
Total to West Indian Forces
6
6
6
als
Light and medium bombers
51
1,455 / 462
3,214
3221
Heavy bombers
0
143
252
Naval patrol bombers
4
92
229
Pursuit
139
1,837
3,201
Army Cooperation
6
160
191
Trainers
36
692
2,204
4386
Grand Total
236
4,379
9,291
9298
Regraded Unclassified
- 3 -
288
Table B - Shipments by Types
Week
Total Shipped
Total Shipped
Ending
in 1942
since
Sept.15,1942
to date
Jan. 1, 1941
ght and medium bombers
Boeing Boston III
0
15
39
Brewster Bermuda
0
1
1
Douglas Boston I, II, III
0
76
423 498
Lockheed Hudson
17
514
1,484
A29A (AC-151)
0
1
1
Ventura I
0
12
12
Ventura Bomber
11
310 312
310 312
Martin Marauder B-26A
5
54
54
Baltimore
o
280
348
Maryland
0
0
150
Nor th American B-25
o
110
110
Northrop Vengeance
18
122
122
Vought-Sikorsky Chesapeake
o
O
50
Vultee Vengeance
0
40
40
avy Bombers
Boeing B-17
0
42
62
Consolidated Liberator
0
101
190
aval patrol bombers
Consolidated Catalina PBY-5B
4
92
229
rsuit
Bell Airacobra
0
315
469
Brewster Buffalo
0
0
168
Curtiss Kittyhawk
127
868
1,250
Tomahawk
0
o
544
Grumman Martlett II
0
57
98
Martlett IV
0
40
40
Lockheed Lightning
0
3
3
North American Mustang
12
549
629
AV Cooperation
Fairchild 24 R-9
0
117
139
Pitcairn Autogiro
0
0
5
Vought-Sikorsky 0S2U
6
33
33
Vultee Stinson 049
0
10
14
ainers
Cessna-Crane I-A (AT-17)
0
97
97
T-50
0
86
700
Pairchild PT-26 Cornell
0
87
87
North American Harvard II
36
125
1,022
Stearman PT-27
0
297
298
Total
236
4,379
9,291
4386
1298
Regraded Unclassified
- 4 -
289
Table C - Plane Shipments to the British by Weeks
Light and
Naval
Week
medium
Heavy
patrol
Army
Ended
bombers
bombers
bombers
Fursuit
Cooperation
Trainers
Total
Weekly average
of shipments
in 1941
35
2
3
27
1
29
97
Weekly average of
shipments in first
6 months of 1942
36
4
1
55
3
18
117
July 7, 1942
77
17
0
17
0
30
141
July 14, 1942
42
11
3
24
o
1
81
July 21, 1942
66
8
3
0
2
4
83
July 28, 1942
39
0
2
0
6
46
93
August 4, 1942
32
o
4
27
38
8
109
August 11, 1942
59
9
6
70
8
19
171
August 18, 1942
60
3
7
20
0
11
101
August 25, 1942
25
0
11
26
0
26
88
September 1, 1942
33
0
8
81
17
28
167
September 8, 1942
30 31
o
13
11
0
6
60 61
September 15, 1942
57 51
0
4
139
6
36
236242
Total shipments since
January 1, 1941 to
date
3,214
252
229
3,201
191
2,204
9,291
3221
9298
Total includes planes shipped in 1942 prior to March 17 which are not included in the weekly
totals up to that date.
Regraded Unclassified
290
SEP 1942
My dear Mr. Secretary:
I an in receipt of your letter of September 18,
1942, with respect to the pending negotiations for
the construction and operation of oil refineries in
the Soviet Union.
Your letter indicates anxiety as to whether
arrangements between the Procurement Division and
Lend-Lease authorities will be consummated with suf-
ficient speed, and urges that the Russian requirements
should be satisfied at once. In that connection, I
think it appropriate to point out to you something of
the chronology of the development of this program.
In August, 1941 the President approved preliminary
lists of required refinery equipment to be furnished
to Russia, and on April 6, 1942, Lend-Lease solicited
the advice of your office by submitting & tentative
program to meet the Russian requirements to Mr. Davies.
An extensive study of the problem was apparently
undertaken by your office, and on July 28, 1942, the
Procurement Division was informed by letter from Acting
Lend-Lease Administrator McCabe that & program in this
field was being prepared.
At that time Lend-Lease suggested that the Pro-
curement Division could proceed with negotiations
involving the acquisition of two refineries in Texas
(a relatively small portion of the entire program),
and their letter included advice that your office had
suggested the retention of Universal oil Products
Company for the purpose of making an inspection and
appraisal of those properties. In view of the fact
that Universal was a creditor of the owners of the
plants' to be acquired, and was therefore an interested
Del. by Messenger (Dixon) 9:40 9/23 (a.m.)
Copy
#
11
"
(Manus) 10:25 9/23
"
to Mr. Stettinius.
291
- 2 -
party, they could not properly be used and another
firm of engineers was employed. By August 24, 1942,
options had been obtained from the owners of the
properties and the engineers retained to make the
necessary inspection and appraisal were at work.
On September 14, 1942, we were presented by your
office with a draft of the detailed specifications
for the processes proposed to be used and the
materials proposed to be acquired. At that time,
representatives of the Soviet Government Purchasing
Commission expressed some doubt as to the desirabi-
lity of using one of the patented processes involved
and Mr. Crampton was asked for advice on the point
by letter from Deputy Director of Procurement Walsh
on September 15, 1942. On September 21, 1942, we
received advice, through Mr. Crampton, that the pro-
ceases described to us on September 14th were satis-
factory to the Russians, but have not yet been advised
whether your office is in accord.
I need scarcely add that I an as anxious as you
to consummate this arrangement as expeditiously as
possible, and am prepared to undertake final negotia-
tions just as soon as R receive a reply to the request
for technical assistance contained in Mr. walsh's
letter of September 15th.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
Hororable Harold L. Ickes,
Petroleum Coordinator for War,
Department of the Interior,
Washington, D. C.
HC:ee
292
OFFICE OF
PETROLEUM COORDINATOR FOR WAR
WASHINGTON
SEP 18 1942
My dear Mr. Secretary:
In view of the various questions which have recently arisen
relating to the efforts of my Office to assist the Russians in
securing equipment and processes for the construction and operation
of refineries in the Soviet Union, I wish to make clear for your
information the functions and responsibilities of my Office in
connection with these negotiations.
From the outset, we have endeavored to have made available to the
Russians all the technical information possessed by American companies
which might assist the Russians in any way in selecting those processes
and equipment most suitable to meet their needs. No have assumed no
responsibility whatsoever for the selection of any particular equip-
ment or process since we have believed that these were matters for
the Russians themselves to decide. Such selections have been made
solely by the Russians and not by us, as our files show and as I know
they themselves will confirm.
With respect to the cost of acquiring either the rights to use, or
the engineering and technical data and assistance necessary to con-
struct the refineries and operate the processes selected by the
Russians, these are financial and legal questions for Lend Lease and
Treasury Procurement in which my Office has no interest. We are only
anxious that whatever arrangements you and Lend Lease may decide upon
be consummated as quickly as possible in order that the Russian require-
ments shall be satisfied at once.
We shall be happy, of course, to continue to provide you and the
representatives of the Soviet Government with any technical assistance
which may be needed.
Sincerely yours,
(Sgd.) HAROLD L. ICKES
Petroleum Coordinator for War.
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury.
VICTORY
BUY
UNITED
STATES
WAR
BONDS
ARE
STAMPS
Regraded Unclassified
Treasury Department
93
Office of the Secretary
Date September 24.19 42
To: Secretary Morgenthau
From: Mr. Hoflich
Attached is the "Voice of the
ief" broadcast of September 22,
reported by Federal Communications
mmission.
'VOICE OF THE CHIEF'
294
'KOMMUNE' PERILS REICH'S RACE PURITY
The clandestine transmitter, "Voice of the Chief", with
"Gustav Siegfried Eins" broadcasting in German to the Reich
(Sept. 22), warns that the Nazi Party 'Kommune' has falsified
the original National Socialist doctrine to an extent where
it has become practical Bolshevism, and & danger to the racial
purity of the Germanic people.
'Homeland Bolsheviks' "I am often asked, not without a tone of
reproach, why I refer to a certain portion of the leadership
of the German people with the unflattering term 'Kommune', why
in my last report, I referred to the influence of Karl Brandt
in Der Fuehrer's headquarters as 'dangerous Kommune influences',
why I refer to the Black Organization of the country as the
S.S. 'Kommune' and why I call its members, which are fighting
along with other Germans against Bolshevism, 'homeland Bolshe-
viks'", the "Chief" says.
Untiring Fight- "I have fought too long against the 'Kommune'
not to be able to recognize it, regardless of what form or
what patriotic appearances it may assume. And as long as I
can still utter a sound, I will call the Kommune 'Kommune', even
when it occupies the highest posts in the state, even when it
acts as leader and misleader of the nation.
Ex-Red Leaders-- "Not all of them are former Communists, as are
Ley, Koch, (Nuerall) Sauckel whose Red past is well-known. Many
of them have been good patriotic fighters, but they are now
engaged in struggling for the same Bolshevik goal, the 'Kommune'
state.
Nazi Bolsheviks "When a band of adventurers nationalize other
people's property and then take it over themselves, calling
themselves representatives of the State and people, that 18
nothing but Bolshevism, and that's what I call it. When they
remove honest judges, and replace them with their own who
dictate their own 'heal thy national sentiments' to the people,
then that is Bolshevism, and that is what I call it.
Destroyed Traditions-- "When they do away with the faith, tradi-
tions, ideals of the people in order to favor the cynical
materialistic aims of these state-fakers who have become stock-
holders and dividend-takers of the nation's property, then I
call it Bolshevism, and who ever calls it anything else is a
scoundrel. The state, so they say, is he who exercises state
power. That is the way the slacker class sets up the curve of
values of its so-called 'new ethics', through its patented
apparatus of popular enlightment. Values which yesterday were
praised to the skies are not worth anything today.
Regraded Unclassified
- 2 -
295
Propaganda Fakes--"The propaganda 'Kommune' used to praise the
German peasant class, and demand its right to its paternal soil.
And now for other opportunistic reasons, they have torn away
South German and Westphalian peasants from their soil, and sent
them off into the wild, unknown steppes of the East, just as the
Moscow Bolsheviks one day took the peasants of the Ukraine from
their homeland, and sent them off into Asia, in order to replace
their land with others favored by the system. The propaganda
'Kommune' preached to us, because it appeared opportune to do so,
about the maintenance of our pure blood. And what now appears
opportune to the 'Kommune?
Race in Danger-- "Now, when the sons of the best and oldest
families, the real bearers of our race, are falling one after
the other, and whole clans are dying out, these homeland Bolshe-
viks have the crust to declare to the nation that they will see
to it that ersatz (replacement) will be provided from the East
for the German blood that is lost in the East. It is not enough
that they bring into the Reich the Slavs and Tartar mongrels,
and then try to Germanize them as 'racial Germans'.
Racial Mixture Camps- "Now at (Annanovo) near Litzmannstadt,
they have opened special 'race mixture camps' where, under the
veterinary supervision of S.S. Oberfuehrer Dr. Meyer, of the
Reich Commissariat for the strengthening of the German Folkdom,
Polack whores are being serviced by S.S. stude. And these
monstrosities and mongoloids who won't even know who bumped
them together are to become the first-class citizens of the
future. They are to fill out the spaces which have appeared in
the ranks of those who are falling in the struggle against Bol-
shevism, and then they want to tie my mouth when I speak about
the 'homeland Bolsheviks.'
Party Nihilists- "They have always jeered at Germanism, from the
very beginning. These noble Socialists and Bolsheviks who have
no interest but the furtherance of their own filthy plans--a
horde that really is suited to carry on their deadly perverted
business.
Beckoning at Home--"The number of men is daily growing who under-
stand that they have to fight Bolshevism, not only at the front--
but also in the homeland. And the ringleaders of the 'Kommune'
will not be the last ones to learn that these men know how to
handle their weapons, and, if need be, even to die for the purity
and the ideals of their fatherland."
(Federal Communications Commission, September 23, 1942)
Regraded Unclassified
296
TREASURY department
INTER OFFICE COMMUNICATION
DATE Sept.24,1942
TO
Secretary Morgenthau
Mr. Hoflich
FROM
Subject: Summary of Intelligence Reports
Russian Convoy
The convoy to Russia entered Archangel Harbor on
September 21st. Attacks by German submarines and
bombers had resulted in the loss of 13 ships, and 27
vessels arrived safely. One British destroyer was
torpedoed on the 20th but was towed in by another
destroyer. The homeward-bound convoy of 18 ships
from Archangel has been attacked by submarines, and
three ships are reported sunk.
The convoy to Archangel, consisting of 40 cargo
vessels and one resoue ship, left England at the end
of the first week in September. It is probable that
at least a part of the cargo originated in the United
States, since British reports indicate that one of
the lost cargo vessels was American. The nationality
of the other cargo vessels is not revealed. Escort
was furnished by more than 70 British ships, including
oilers, minesweepers, etc.
(U.K. Operations Reports, September 10-17, 20,
22, 23, 1942)
Japanese Air Strength
Military and naval observers estimate that the
Japanese had 3,688 planes on August 31, 1942. At the
beginning of the war, Japanese air strength was esti-
mated at 5,200 planes. This indicates a decline of
about 1,500 planes - if the two estimates are based on
comparable data.
(Office of Strategic Services, "The War This Week",
September 10 - 17, 1942)
297
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATESept.23,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Summary of Intelligence Reports
Dakar
Reports from Dakar "indicate a general expectation of
some major impending development". The anxiety of the
Germans to have Stuka planes stationed at Dakar is men-
tioned as evidence of the Nazi interest in that area. It
is now reported that the Germans have sent only one offi-
cial observer to Dakar, and that Governor-General Boisson
withdrew his resignation on condition that this observer
will remain only temporarily. General Falvy, new commander
of the land forces in French West Africa is reported to be
8 pro-Nazi collaborationist.
(o.s.s., "The War This Week", Sept. 10-17, 1942)
British-Fighting French Relations
A crisis in Anglo-Fighting French relations in the Near
East seems to have been averted -- at least for the present.
Shortly before the opening of the current British offensive
in Madagascar, the British informed the Fighting French in
London that they could hardly allow the De Gaullists to
take over the civil administration in Madagascar unless De
Gaulle returned to London and settled the Syrian difficulty.
The French National Committee then sent a telegram to De
Gaulle, urging that the civil administration of Madagascar
was infinitely more important than the administration of
Syria, which is simply mandated territory. It is reported
that De Gaulle has notified the British that he is hopeful
of a settlement, and that he will return this week to
London.
(0.S.S., "The War This Week", Sept. 10-17, 1942)
Regraded Unclassified
298
NUMBER 50
SECRET
OFFICE OF STRATEGIC SERVICES
--
THE WAR
THIS WEEK
September 17-24, 1942
Printed for the Board of Analysts
Copy No. 6
The Secretary of the Treasury
Regraded Unclassified
SEPTEMBER 17-24, 1942
SECRET
Office of Strategic Services
THE WAR THIS WEEK
While the Germans are fighting their way into Stalingrad
street by street, military observers incline increasingly to the
view that the season is too far advanced to invite a large
scale attack in the Moscow area. They emphasize rather
the possibility of early liquidation of the war in the North
Caucasus and attacks on Leningrad and Murmansk. A
drive on Trans-Caucasia-practicable during the entire
winter-is a more remote possibility but one which would
yield large returns to the Germans.
In the west, the Germans continue to press Laval on the
labor and shipping fronts, and his problems are now reported
to have become so acute that he may soon renounce French
obligations under international law and proceed to more com-
plete collaboration with the Germans. In the east mean-
while the Egyptian campaign has settled once more into a
stalemate. Despite the current comfortable position of the
British, a German decision to reinforce on a notable scale
might rapidly alter the whole complexion of the war in this
area. To the south, British forces have entered the capital
of Madagascar and have virtually ended the threat of Axis
influence on the island.
With the convening of the Indian Central Legislature, it
is evident that the Government's policy commands the sup-
port of virtually none of the native Indian members of that
body, despite the fact that no representatives of the Congress
Party are present. Earlier activity in the Solomons and New
Guinea has been succeeded by comparative quiet, with
evidences of vigorous development of air bases by the
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Japanese in those areas. In the absence of fresh intelligence
Since its inception, the German southern offensive has taken
from the Manchurian theater, observers are divided as to
approximately three months. Little more than two months
whether the Japanese may await a further anticipated weak-
of good fighting weather on the central and northern fronts
ening of Russia in the coming months or will strike a pre-
are now left to the Nazis. It is very possible that the Stalin-
ventive blow now in the belief that no equally favorable
grad campaign has consumed a longer time than the attackers
opportunity will recur.
bad at first envisaged. In any case, limitations of time,
transport, and available equipment cannot fail to be decisive
Stalingrad's Agony
factors in German planning for the rest of 1942.
In the city of Stalingrad the Soviet defenders are apparently
The clearest limitation is air power. Current estimates
fighting stubbornly from street to street and from building to
suggest that with a total of about 2,500 planes on the Eastern
building. Their tenacious resistance has obliged the attack-
Front, the Nazis have been using about 1,000 before Stalin-
ers to intensify their assault with the help of heavy artillery.
grad. This concentration has left inadequate air strength
Yet Russian efforts to break through from the north to relieve
available for major operations elsewhere. In the past few
Stalingrad have been unsuccessful, and the Soviet diversion-
weeks, the Germans have bombed Murmansk only spas-
ary attack at Voronezh, while making gains above and below
modically, they have husbanded their plane strength in the
Rzhev sector, and around Mozdok in the North Caucasus
the city, has failed to reduce the German bridgehead. Al-
their reduced momentum seems to be largely attributable to
though Stalingrad's resistance may be prolonged for some
a lack of air power. Hence large-scale plane transfers from
time to come, its fall appears to be inevitable.
the Stalingrad area must necessarily precede the launching
South of Novorossiisk on the Black Sea Coastal Highway,
of any major new offensive.
the Germans are progressing only slowly against strongly held
If it should be necessary to build advance fields and install
positions in the foothills of the mountains. To the east, the
new ground equipment, these transfers would probably take
Nazi pincers on Groznyi have made more substantial prog-
anywhere from 10 days to two weeks. In one fairly clear case
ress. The southern column, headed for Ordzhonikidze, has
of such a transfer-from Sevastopol to the Slavyansk area at
taken the towns of Terek and Deiskoye, and is within 17
the end of last June-it was not until 10 days after the fall
miles of Darg-Kokh, at the northern end of the Ossetian
of the Crimean city that the Germans launched a major
Military Highway. The northern column beyond Mozdok,
drive from Slavyansk to Lisichansk. On the other hand, if
advancing slowly against strong Russian resistance, now
new fields and equipment were already prepared, the delay
threatens to encircle the Groznyi oil field area from the north
would be shorter. For example, facilities for several hundred
and east.
additional Nazi planes may now be ready before Moscow.
After Stalingrad What?
The Threat to Russia's Supply Lines
With the approaching fall of Stalingrad, the pattern of
At the extremities of the Eastern Front, however, the
ovents on the Eastern Front is beginning to grow clearer.
Germans will probably be able to make clear-cut local gains
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with only minor transfers of planes or mechanized equipment.
In the North Caucasus, where the Russians, favored by the
war-weary and loath to arouse the anger of the United States-
terrain, have been fighting successful rear guard actions, the
have refused to take part in further offensive actions. Recent
arrival of 100 or more additional planes might be enough to
reports from Helsinki suggest, however, that the Finnish
turn the balance of air power in favor of the Nazis. It seems
Cabinet may now have changed its mind.
likely that within the next few weeks the invaders will reach
Tuapse, Groznyi, Astrakhan, and Makhach-Kala. The
The Moscow Venture
control of key points on the Caspian shore would give the
Germans bases from which to bomb Soviet shipping on the
Such operations in the extreme north and the extreme
Caspian and to interfere with the Baku-Guriev supply route
south would be essentially local offensives-executed pri-
to the north.
marily with the troops and equipment already in those
At the other end of the line, the invaders probably have
theaters. An attack on Moscow, however, would be & major
enough forces available to capture Murmansk whenever they
venture, greater even than the Stalingrad campaign. Around
feel it is worth the sacrifice. The Germans have now appar-
Moscow the Russians have concentrated perhaps 40 percent
ently taken over the whole north Finnish sector, where they
of their fighting forces. Here they would be operating on
have 10 divisions-half of them mountain divisions-already
interior lines, with strategic railways radiating from the
stationed. Furthermore, they have been keeping a substan-
capital-a situation in sharp contrast to the logistic disad-
tial air force in the Aretic for operations against Murmansk,
vantages from which they suffered at Stalingrad. Without
Archangel, and Allied convoys in the Barents Sea. United
doubt, the defense of Moseow would be much bloodier and
Nations losses on last June's convoy in these waters were
much more stubborn than the defense of Stalingrad.
staggering. Last week's convoy, although its losses were not
The Germans, on the other hand, have about 10 Panzer
comparable to those of its predecessor, still suffered heavily.
divisions and between 500 and 700 planes before Moscow.
With these sinkings in mind, some observers suggest that
According to Russian accounts, 14 German divisions have
the Germans may not feel that an attack on Murmansk is
received a severe mauling in the Soviet offensive around
Rzhev. Of the three main railways from the west, the
a matter of immediate necessity.
On the other hand, the convoys of last winter-protected
attackers could use the line Smolensk-Moscow up to and
by the long northern nights-suffered far smaller losses than
beyond Vyazma and the line Gomel-Moscow up to and
the last two. And in the future the Allies will doubtless do
beyond Bryansk. The lateral Smolensk-Roslavl-Bryansk
everything possible to ensure the safe arrival of these criti-
line is also in German hands. But the line Velikie Luki-
cally important cargoes. On balance, it seems probable that
Rahev-Moscow has probably been cut west of Rzhev.
the Nazis will launch an attack on Murmansk and the Kola
Over these barely adequate rail communications the Nazis
Peninsula this autumn. Whether they will try to control the
would be obliged to commit large quantities of men and
whole western shore of the White Sea by the occupation of
equipment brought up from the central front reserve or
Sorokka will be dependent on the aid they receive from the
from the southern front. Furthermore-to judge by the
Finns, who hold this sector of the line. To date the Finns-
Stalingrad experience-at least 500 additional planes would
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have to be transferred from the south, plus several Panzer
It seems more likely that the Nazis will try to establish 15
divisions. These operations would probably consume about
winter line shorter and straighter than the one they are
two weeks from the termination of the mop-up around
holding at the present time. They may develop the are
Stalingrad (even if some additional air facilities before
Sorokka-Valdai Hills-Rzhev-Orel-Voronezh-Stalingrad-Astra-
Moseow were already prepared). If we set the end of the
khan into an "Eastwall" for another winter of "offensive
Stalingrad operation at October 1, then it would be the
defense". The Caucasus front can wait. Although the
middle of October before the Germans would be in a position
passes are already filling with snow, the Black Sea Coastal
to launch a full-scale offensive against Moscow. This would
Highway and railway and the Caspian shore from Makhach-
leave them only about seven weeks of good fighting weather
Kala to Derbent, will be open for operations all winter long.
in which to complete the campaign. One can conclude that
It is always possible that the Germans, after establishing a
seven weeks is too short a period and that the Germans will
tenable winter line, will throw all their available offensive
probably not attempt to reduce Moscow this year.
strength into a drive for the Trans-Caucasus around the
flanks of the mountains. Nor is it impossible that they will
merely hold through the winter in Russia while concentrating
Leningrad; the Winter Line
on reinforcing Rommel for a knockout blow in the Middle
East.
A more likely possibility would be an attack on Leningrad.
Finally, and perhaps most important, one can conclude
Since the ice went out of Lake Ladoga last spring, Leningrad
that the prolonged defense of Stalingrad has been the principal
has been cut off from supplies from free Russia except for
factor in preserving Russia's fighting strength for next year.
some boat traffic and probably some air traffic across the
Its fall will probably force what remains of Timoshenko's
Lake. Civilian conditions within the city are no doubt
army back on the are Saratov-Uralsk-Guriev. But its
appalling, with the starvation reported last winter probably
defense has preserved to Russia the industrial and military
on the increase. Ammunition may be running low. Reports
resources of the Moscow area, the upper Volga, and the
suggest that the Germans are emplacing around Leningrad
Urals. When next spring comes, the Soviet Union, though
the heavy siege guns used against Sevastopol, and that the
critically weakened by the defeats of this summer and by the
Finns have agreed to help in the reduction of the city. In
threat to her supply lines with her Allies, will still have a
short, an assault on Leningrad seems likely this autumn.
powerful army ready to take the field for a third year of
While it would entail substantial transfers of planes and
resistance.
heavy equipment from other sectors, it would be far less
difficult than an offensive against Moscow. If the Nazis
should succeed in eapturing Leningrad, they might try to
The Policy of Finland
drive east from the Schlüsselburg to cut the Archangel-
German plans for further offensive action in the North will
Moseow Railway at Vologda. But the establishment of this
depend to a considerable extent on the attitude of Finland.
250-mile salient along a single-track railway would probably
The recent statement of the Finnish Legation in Washington
prove too arduous a project for so late in the season.
that Finland "wants to cease fighting as soon as the threat
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to her existence has been averted and guarantees obtained
that of the home government-but perhaps with the tacit
for her lasting security" brings to the fore once again the
consent of the latter-in an effort to offset official American
ambiguity of her position. The American press has inter-
coolness by an appeal to the American people, among whom,
preted this utterance as a statement of the conditions under
it feels, Finland still enjoys much good will.
which Finland would be prepared to withdraw from the War,
To the British Government, according to United States
German Food Ration Increased
press reports, it was simply "another effort to retain American
good will." The Ankara radio described it as possibly part
General increases in bread, meat, and potato rations,
of an Axis peace offensive, To Finnish editors in the United
effective October 19, were announced this week by German
States, the statement meant that Finland would cease fighting
authorities. For bread, the measure restores completely the
if the Allies would guarantee her security-which, the editors
reductions made in April, 1942. The new meat rations are
insist, they have not done up to the present time; one editor
still somewhat below the pre-April level. Potatoes are
added that "Procope had not stated anything new."
rationed at 10 pounds per person weekly-well above pre-
vious allotments this summer. There has been no increase,
The Finnish Foreign Minister was quick to deny that
Finland was seeking a separate peace. According to Swedish
however, in the fat rations. In terms of calories, the German
diet under the new measure will stand at about 90 percent of
press despatches, Witting described such reports as "without
foundation". Meantime Toivola, Counsellor of Legation in
the pre-war level.
There are still differing estimates, however, of the ability
Washington, declared in a private conversation that the
of the German food economy to meet the demands of a long
Finnish Government had repudiated not the Legation's state-
war. After the April reductions, there was considerable
ment but only the "false imaginary conclusions drawn by the
foreign (American) press." He added that the "Helsinki
opinion that the food situation in the Reich was very tight
and that further decreases in meat, bread, and fat rations
Government had not authorized the Legation statement, and
knew nothing about it".
were likely. However, even if this view is maintained, it can
still be argued that for reasons of morale and productive
In any case, the Legation's statement is at variance with
efficiency, an increase in rations might be made as a momen-
the recent official declaration by Vaino Tanner, Finnish
tary measure of relief, despite the longer-run implications of
Finance Minister, that Finland will "shut her ears" to all
Soviet peace proposals, now that "the enemy is in distress."
such a policy.
Food experts in the Economics Division of the Office of
Nor is it in line with recent annexationist demands for
Strategic Services, after investigating the situation in April,
Soviet Karelia-at least one of which has emanated from the
took the view that the reductions were made in an effort to
Finnish Legation in Washington. The statement implies-
bring the Reich's food economy into a balance which weuld
in contradiction to the facts-that Finland remains a free
be sufficiently stable to stand up even against extreme cir-
agent and can withdraw from the war against Russia when-
cumstances. Weather reports at that time suggested the
ever she decides to, regardless of German pressure. In brief,
possibility of poor crops, and the Germans were obliged to
the Legation seems to have pursued a line independent of
take into account Russia's unexpected resistance, America's
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entry into the war, and a deteriorating agricultural situation
any extent, and that nothing favorable to the United Nations
in the conquered countries. The April level, according to
can be expected from Pétain, whose influence is less every day.
this view, was somewhat unsatisfactory, but tolerable, and
Important officials in Rome are also reported to be anxious
adequate from a nutritional standpoint. With this basic
to have Germany force a break in Franco-American relations.
estimate in mind, these food experts now believe that the
Such a rupture, it is felt, would deprive France of United
increases in rations probably reflect merely a more bounteous
States' support at the peace table, thus assuring Italy of
harvest than had been anticipated. No definitive statement
domination of the Mediterranean.
is possible, however, until further analysis has been completed.
Laval Negotiates Over Labor and Shipping
Laval's Gravitation Toward the Axis
The two most pressing immediate issues in Vichy's rela-
Accumulated reports indicate that Laval's problems are
tions with the Nazis are the latter's demands for labor and
becoming 80 acute that, according to a well-placed observer,
merchant tonnage.
he may shortly undertake more complete collaboration with
The French people apparently do not generally understand
Germany and repudiate France's obligations under inter-
the full significance of the plan for mobilizing French work-
national law. To accomplish his goal, Laval has gained
ers. The German demand is now reported to have risen to
control of the administrative machine, placing his henchmen
600,000 workers, of whom 150,000 must be skilled, Upon
in the important posts in North Africa as well as in France.
"delivery" of these French laborers, the Nazis have promised
This infiltration policy, our observer believes, has included
to free 50,000 prisoners-an overall ratio of 1-12. Laval is
a number of high-ranking Army officers who are believed to
expected to send the first contingent as soon as a method can
be willing to command French troops against any United
be arranged that will not cause too much public protest, but
Nations invasion.
Vichy observers feel that he can not approach the required
Doriot's continual pressure has apparently produced an
number unless he is willing to face the consequences of foreing
agreement whereby Laval will give important posts, espe-
skilled labor to go to the Reich.
cially in Occupied France, to members of Doriot's Parti
German pressure for shipping persists. Vichy is apparently
Populaire Français. At any event, Doriot's opposition has
resisting any surrender of French tonnage proper, but is
been quieted, at least until the October meeting of his
reported to be negotiating with Germany with regard to the
followers.
surrender of tonnage belonging to occupied states that is
Laval may also have come to believe that his position with
now under French control. A large percentage of the coal-
the Germans would be strengthened if Vichy and the United
burning vessels of the latter category-which is reported to
States were to sever relations. He will probably avoid taking
total 127,000 tons-is now carrying ores and foodstuffs from
any such action himself, but he may be attempting to place
North Africa. About half of this cargo goes to Germany,
the United States in a position where it will appear "re-
but the balance is important to the French economy. The
sponsible" for such a development. Our observer feels that
State Department has protested that the surrender of either
American representatives cannot influence Laval's policy to
foreign or French shipping would be a violation of French
neutrality.
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Nazi Influence in North Africa
bombs on Tobruk, now referred to by Allied fliers as the
In changes that are unfavorable to the United Nations,
"milk route."
four high-ranking army officers are being transferred from
A mobile British raiding party also struck deep in the Axis
Oran to other duties. The Nazis are also reported to domi-
rear on September 13-14, attacking Bengazi, the nearby road
nate the port of Casablanea completely, military matters
junction of Barce, and Gialo Oasis to the southwest. Press
alone excepted. The Germans supervise police, customs,
reports assert that more than 30 parked Axis planes were
cargoes, manifests, passengers, and transports. German
destroyed, in addition to losses inflicted on enemy personnel,
representatives are showing increased apprehension about the
motor transport, and supplies.
possibility of Allied invasion, and are indicating that they
may request a share in the defense of French colonies, on the
grounds that the French have failed.
Friction Continues in Syria
Although Boisson's resistance has apparently forced the
Although De Gaulle is reported to have left the Levant
Germans to back down on the question of military observers
for Brazzaville, friction continues in Syria, and there are indi-
at Dakar, Berlin may insist on a consulate there, inasmuch as
cations that previous good relations between French and
the United States has one.
British field officers are deteriorating. Nevertheless, it is
claimed that De Gaulle is no longer pressing his demand that
the forces in Syria be placed under French command. In
Aris Defensive Stand in Egypt
general, the two British officers commanding forces in the
In Egypt the enemy is establishing strong defensive po-
Levant and in Iraq and Iran are reported to feel that only
sitions along the line to which he withdrew after the abortive
the removal of both Catroux and Spears can prepare the way
offensive of early September. Axis forces have lately been
for better working relations.
regrouped, probably for purposes of rest, supply, and the
organization of a defense in depth. Except in the north, no
Japanese Visitors to Turkey
full German division is now in the front line, but the Italian
forces there have been stiffened by smaller German units.
The Turkish press announces the arrival in Istanbul of
Rommel has received some additional fighter planes, and his
Admirals Nomura and Abe, Japanese Naval Attachés at
situation in fuel and ammunition may be easier; but as yet
Berlin and Rome, respectively. Although the latter firmly
no large scale reinforcements have appeared. A serious cur-
denied that they came at German behest, unofficial local
tailment of German operations in Russia might alter this
observers suggested that their visit might be intended to
picture, especially in terms of air power. At present, how-
offset the Willkie mission. Mr. Willkie is reported to have
ever, the British enjoy superior strength in all departments.
made a very favorable impression in Iraq and Iran, as well
Allied air forces continue their heavy attacks on enemy
as in Turkey.
shipping and enemy ports. Tobruk has been bombed almost
Meanwhile five prominent Turkish editors are on their
nightly. Since the fall of the port three months ago, British
way to the United States via Great Britain, to view for
themselves the United Nations' war potential.
and American planes have dropped more than 3,000 tons of
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Operations in Madagascar
that no adherents of the Congress Party were in attendance
The reported capture of Tananarive, on the 14th day after
-according to reports from New Delhi. For the Govern-
the resumption of operations, closes the most essential phase
ment, Sir Reginald Maxwell, Home Member of the Viceroy's
of the campaign and virtually ends the threat of Axis influ-
Executive Council, has outlined the events of the last month
ence in Madagascar. The occupying forces now control the
and a half, characterizing them as "an orgy of destruction",
colony's most important towns-Diégo Suarez, Majunga,
especially in the strategically-located industrial province of
Tamatave, and Tananarive-and the roads connecting them.
Bihar. Nationalist papers have bitterly criticized this ad-
Possession of Tananarive gives access to the main highway
dress as unstatesmanlike and symptomatic of a police con-
and railroad line southward, and will facilitate occupation
stable's mentality.
of Antsirabe, Fianarantsoa, and Ihosy, key points in the
All members representing any substantial constituency-
southern half of the Island.
including adherents of the Moslem League-have insisted
It is not yet certain whether French resistance will continue.
that the Government compromise with the Congress. In
Tananarive itself seems to have been left undefended, but
the words of one Moslem League member, "To ignore the
Governor-General Annet, having announced his intention
Congress is a folly of the first magnitude." Furthermore,
to "mark by my absence (1)
our determination not
they have concurred in expressing their resolve to defend the
to accede to the aggressor," is believed to have withdrawn &
country against the Japanese and in demanding the immedi-
consíderable portion of his small forces to the south. Though
ate formation of a national government. The chief Moslem
there is nothing to indicate that the latter are strong enough
League member has emphasized again and again that his
to face a pitched engagement with the British, they can
party would give full support to the war effort of a pro-
continue to interfere with road and rail communications, and
visional administration, provided that both the Government
the varied mountain jungle and the prairie terrain would
and the chief Indian parties agreed in advance to the creation
facilitate a campaign of evasion. The British and South
of a separate Moslem State.
African forces, numbering perhaps one man for every 10
Representatives have concurred in stating that India
distrusts British intentions about the country's future. The
square miles of territory, will face a difficult mopping-up
problem unless they succeed in winning native cooperation.
deputy leader of the European group has answered these
Time is limited by the proximity of the winter rainy season,
complaints with the assertion that: "If any
government
which halts all wheeled traffic off the main highways from
goes back upon the promise [to give India self-government
November until May.
immediately after the war], I will be the first to lead a move-
ment against that government." Yet the Administration
shows no signs of taking any positive action to resolve the
The Indian Legislature Meets
current impasse. In the upper house, the Council of State,
General Sir Alan Hartley, Deputy Commander-in-Chief, has
The current session of the Indian Central Legislature has
revealed that on July 1 the ratio of Indian to British officers
revealed that practically none of its native Indian members
in the Indian Army was still about 1 to 4½ Moreover, the
supports the Government's present policy-despite the fact
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Viceroy has apparently rejected the request of the Hindu
under construction near Lae, and some new fighter aircraft
Mahasabha's leader for permission to sound out the im-
appear to have been transferred to the New Guinea theater.
prisoned Congress chiefs on the compromise proposals for-
mulated at New Delhi (The War This Week, September
10-17, pp. 14-15).
The Debate on Siberia
The debate on Japan's next move continues meanwhile
Quiet on the Middle Melanesian Front
unabated, with Siberia still the center of attention. General-
issimo Chiang Kai-shek is reported to believe that an attack
After a preliminary skirmish last week with heavy Army
either on India or Australia is unlikely, since the Japanese
bombers, the Japanese naval task force operating east of
do not have sufficient transport facilities, but regarding
Guadalcanal (in the vicinity of Santa Cruz Island) apparently
Siberia he is non-committal. Somewhat enigmatically, he
has withdrawn outside the range of our reconnaissance planes.
declared that Japanese plans will become manifest "in
Ship sightings in the past week indicate a lower level of
November." At about the time Chiang was making this
Japanese activity in the southeastern Solomons than formerly,
statement in Chungking, Chinese officials in Washington
and no new landings on Guadalcanal have been reported.
were reported to have abandoned entirely the view that
On New Guinea, the Japanese have been held at relatively
Siberia will be the next scene of attack.
stable positions between Efogi and Ioribaiwa.
Whether or not the Siberian attack has now become less
This comparative lull may be attributed in part at least
probable (in view largely of Russia's remarkable stand on the
to the work of Allied aircraft. Of the force sighted near
Eastern Front) remains open to speculation. Berlin has found
Santa Cruz (2 battleships, 4 heavy cruisers, 3 light cruisers,
it necessary, however, to insist upon the "unswerving"
6 destroyers, and 2 cargo ships), possible hits were claimed
nature of Japan's loyalty to the Axis, and to attribute any
on both battleships. On New Guinea, the track from
talk of improved Soviet-Japanese relations to the machina-
Efogi to Buna (see map accompanying Appendix III) was
tions of the United Nations. A Wilhelmstrasse spokesman,
repeatedly strafed and bombed, Buna airdrome was rendered
quoted in desputches to Bern, declares that the new wave of
unusable, and heavy attacks were made on Japanese bases
such reports, touched off by Emperor Hirohito's reception of
throughout New Guinea, the Bismarck Archipelago, and the
the Soviet Ambassador, were simply intended to "sound out"
Solomons. In the latter area, Japanese installations on
Japanese policy. Assertions that this policy may include a
Gizo Island and at Rekata Bay on Santa Isabel Island (the
Japanese attempt to negotiate a Russo-German peace, he
nearest important enemy bases to our own positions centering
adds, are idle talk.
on Tulagi) were kept under fairly heavy attack.
The Japanese, however, are actively developing their own
air bases. In the Solomons, construction activity has been
Anticlimax at Sian
noticed especially at Buin, a village at the southern extremity
The negotiations which were supposed to take place at
of Bougainville Island, and on Buka Island, farther to the
Sian between General Chiang Kai-shek and the Chinese
north. On New Guinea, new landing strips are apparently
Communists have fizzled out without really beginning.
17
16
SECRET
SECRET
Chiang was present in Sian and a conference was held at which
the Communist question presumably was discussed. A strict
Chungking to make the change. Wei Tao-ming's connections
censorship, imposed by the Central Government, seemed to
have been French rather than American; he is known as a
indicate that important negotiations were in progress. But
practical administrator, and is a Party member with im-
it now transpires that no one was present at the meeting to
portant political backing. On the other hand, Hu Shih's
represent the Communists. General Lin, who had been
connections have been with this country, he has filled the
designated for the purpose, received notice so late that he
function of persuasive advocate rather than administrator,
could not reach Sian until after Chiang had left. The Com-
and is not a member of the Kuomintang. Hu Shih has been
munist representative in Chungking believes that the diffi-
notably successful in mobilizing popular American sympathy
culties between the Kuomintang and the Communists will
for China. Chungking, it is thought, may well feel that it
continue and that there will be neither conflict nor agreement.
now requires a representative who will press China's case
Meanwhile there has been continued quiet on the military
through official rather than popular channels, who can be
fronts. Chungking has repeatedly announced that its forces
trusted to represent a purely Chinese point of view, and who
will have the practical experience and political support in
are nearing Chin-hua, in Chekiang, but the Japanese continue
China to administer effectively the affairs of the Washington
to hold the town and as yet there are no signs that they in-
tend to withdraw.
Embassy.
The New Chinese Ambassador
Mass Protests Continue in Argentina
Wei Tao-ming, successor to Hu Shih as Chinese Ambas-
Political riots and mass demonstrations continue to hold
sador to Washington, is an influential member of the
the public spotlight in Buenos Aires. Clashes between pro-
Kuomintang Party who has, at various times, held positions
Allied and pro-Axis students, resulting in more than 80 ar-
as Minister of Justice, Mayor of Nanking, Secretary General
rests, led to the temporary closing of the law school of the
of the Executive Yuan, and Member of the Supreme National
University of Buenos Aires. On the 20th of September,
Defense Council. In the summer of 1941, he was appointed
30,000 people gathered in Luna Park to express their solidarity
Ambassador to France, but did not proceed to his post
with Brazil, making this the largest anti-Axis meeting since
because of unsettled relations between Chungking and Vichy.
January, when the present "state of siege" was imposed by
Madame Wei is one of the few Chinese women jurists and a
the Castillo government.
close friend of Madame Chiang, having been associated with
This meeting marks the high point of open resistance to
her as the only other woman member of the first Legislative
the government's international policy in more than one way.
Yuan. Both Ambassador and Madame Wei were educated
Endorsed by labor unions, by the mildly leftist Acción Argen-
in Paris and have been counted as members of the pro-
tina, the Junta de la Victoria (a women's organization
European clique in Chungking.
especially active in Russian war relief), and by prominent
The contrast between the new Ambassador and his prede-
political figures of decidedly conservative leanings, it was
cessor indicates at least some of the factors which impelled
more nearly a demonstration of national anti-Axis unity than
any previous public meeting.
18
19
1053
SECRET
SECRET
Special significance also must be attached to the active
participation in the meeting of Adolfo Bioy, prominent cor-
poration lawyer, ex-Cabinet Minister and now President of
the Sociedad Rural Argentina (an association of the most
APPENDIX I
powerful land owners in the country), and to the message
of solidarity sent by the Nobel Peace Prize winner and former
THE POLITICAL AND MILITARY SITUATION IN OCCUPIED
YUGOSLAVIA
Minister of Foreign Affairs, Carlos Saavedra Lamas, who
had been unfriendly toward the United States during his
Like Caechoslovakia, the other Versailles-created conglomerate Slav state,
Yugoslavia has been splintered by its conquerora into regional (ragments which
term of office. The fact that Señor Lamas is now Rector of
have been variously reassembled and occupied. The Germans have annexed
the University of Buenos Aires and thus a federal appointee
most of Slovenia, leaving the rost to the Italians. The Italians have annesed
Dalmatia and Montenegro. Croatia has been made n. puppet stato, and has
makes his pro-Brazilian stand an act of open defiance of
theoretically annexed Bosnia and Herzegovina. Serbia is ruled by a German-
President Castillo. Added to the recent offer of General
dominated Quisling Government. Hungarian troopa have overrun the Backs,
and Bulgarian troops Macedonia, while native Germane control the Banat.
Justo to serve in the Brazilian Army, the Luna Park meeting
Everywhere there are Germans in varying numbers, and everywhere resistance
indicates that a showdown for the Argentine Government is
continues (see necompanying map).
approaching with increasing momentum.
Guerrillas of various kinds have sabotaged large parts of native industry, and
fought some major military actions. Their most important activity, however, in
the destruction of railroads. The Belgrade-Niñ-Salonika line, important for
supplying Rommel, has suffered especially, so much eo that last spring the Ger-
German Arms for Argentina
mans ordered that all trees and brush be cleared from either side of all railroad
The Argentine Army may not lack military supplies to the
tracks in the country, to prevent saboteurs from finding cover.
These guerrillas keep a growing number of Axis troops active in Yugoslavia.
extent generally supposed. Statistics recently released by
A recent estimate places this number at 4 German, 17 Italian, and 7 Bulgar divi-
the Argentine Ministry of the Treasury reveal that during
sions, in addition to 4 Croat army divisions and 15 battalions of Ustal. Ten of
the Italian divisions are reported in Dalmatia, and 5 in Montenegro,
the first seven months of 1942 German exports to Argentina
Germans, Crosts, and Magyars may so far have killed as many as 1,000,000 of an
amounted to more than six and a half million pesos (approxi-
estimated 8,000,000 Serbs, and have virtually exterminated the country's 75,000
mately $1,660,000), nearly double the figure for the corre-
Jews, besides uncounted refugees. In spite of this, the Yugonlav resistance-
stimulated by Pan-Slavic attachment to Russla-ie by fat the most effective in
sponding period of 1941. War materials may make up as
Axis Europe, and, if given outside aid, should impose an increasing burden on Axis
much as 90 percent of this increase. Previously most of the
forces of occupation.
shipments were granted British navicerts, under a special
I. THE POLITICAL SITUATION
agreement with Argentina permitting the movement of
Slocenia, Dalmatia, Montenegro
military supplies contracted for in Germany prior to the
Here siege conditions prevail, with the Slovene capital, Ljubljana, surrounded by
barbed wire and blockaded. The chief aim of the Italian garrison seems to be to
outbreak of hostilities. The British have now stopped issuing
impress upon the Germans the rebellious state of the region, 80 that they may not
navicerts for this traffic.
be sent off to Russia. Mass executions and recent large seale foreed migrations of
the population have cut down resistance, and have come close to esterminating the
native population in the area. The Italiana are said to have deported this summer
20,000 Slovenes and 7,000 Dalmatians to Italy, the women and children hand-
cuffed together and packed into trains.
The Dalmatian and Montenegrin coastal region is under the command of
General Mario Roatta's second Italian army.
20
21
CONFIDENTIAL
18º
10"
se*
14"
SECRET
U
Marther
Puppet Creatía, Bornia, and Herzegovina
YUGOSLAVIA
HUNG
R
Y
An "Independent" state, with full membership in the Axis, Croatia has a little
GERMAN
MILITARY 0 POLITICAL
Fuehrer (the "Poglavnik", Dr. Ante Pavelié); solemn treaties with other Azia
estellites, & corrupt and privileged 88 organization (the Ustall) which -
SITUATION
Julijana
Serbs and Jews; and an Italian king, the Duke of Aosta. The latter has serve
yet dared to appear in his kingdom, and the Vatican reportedly will Best allow
JOINT
him to be crowned. The Croats have in theory been allowed to street the old
the
fores are in control of this whole area.
Bosnis and Hersegovina, but in practice the German and Italian cooupying
DEMAN-HUNGARIAN
ITALY
The Vice Promier in the Pavelid government, D. Kulenovid, has added to
RUMANIA
OCUPATION
Serbia's massacres by "Lousing the Moelems against the Serbs. In command
of the new Crost army la a former colonel on the Austro-Hungarian general staff,
Revi
ERMAN
Field Marshal Slavko Kvaternik.
ATS
The population to reported to be 80 percent opposed to the regime, remaining
OCCUPATION
loyal to its traditional leader, Madek, with whom the Germans have repeatedly
tried and failed to make a deal. The war with the U. 8. B. R. has further de-
B-BELORADE
Benjalved
pressed the pessants because of their deep-rooted Pan-Slav affection for Rossia,
I
which persists despite their Roman Catholie religion and distrust of Communism.
The Germans demanded of Kvaternik, who went to Berlin in March 1942,
ERMAN
300,000 Crosta for the Eastern Front.
In spite of Kvaternik's desperate attempt to build a national army (theoreti-
N
A
cally 5 divisions), popular distrust, Italian opposition, and rivalry of the 20,000
/
well-paid Ustall have combined to make the task virtually Impossible.
Economic conditions are deplorable: the cost of the armies of occupation is
enormously heavy; there are about 150,000 Croat laborers in German factories;
there la a general food shortage which to without remedy because Germany taken
the timber and 90 percent of the bauxite, leaving nothing with which Crostis can
barter for wheat alsewhere. No trade relations with Serbia are permitted except
HERZEGOVINA
through German intermediaries. And yes, since Germany finda is nocessary to
feed and clothe her Croatian ally, Crostia stands M the only country in Europe
I
"In debt" to the Germans.
MONTENESRO
Quisling Serbia
NAME
SOFIA
In practice, Serbia is ruled by the German Army, but in theory by General
pash
Milan Nedid's German-dominated Government at Belgrade. His leading fellow-
Determit
puppeta are former anti-democratic agitators and hangovers from the pro-Asis
Stojadinovid regime: Ljotié (hrother-in-law of the Minister to America, Fotid),
Central
1935 BOUNDARY OF TUGOSLAVIA
Adimovié, who la starting a Berb Gestapo, and Bishop Venjamin of the Orthodos
ZONES OF OCCUPATION
Church, On the radio Nedié has frequently urged his fellow Serbe to collaborate
with the Germans and has helped the Nazia fight the guerrillas.
I
Hungarian and Bulgarian Areas, and the Native Germans
KINDA
u
EADOURTERS
AREA
Hungary has occupied part of Balka, and in known to control the citien of
GUERRILLA
FORCES
o
U
T
N
Suboties and Novi Bad. Large Bulgarian armies have been given the task of
Mishave,
wiping out the Serba in the Macedonian areas of Yugoslavia and Green. The
DETNINS
PARTISANS
Bulgar territorial gains have not yet been officially delimited, but are reported
MAIDURE
M
IRANA
Price
OREEN ARMY
to include the town of Skoplje and a strip of land which gives them & frontler
USHOKS
A
SA
BLOVENIAN
E
BOKOS
PATRIOT ARMY
Owne
22
⑉
se
n
MILES
n°
no
RE
MAP
NO.
1100
SEPTEMBER 14, 1942
DRAWN IN GEOGRAPHY DIVISION,
SECRET
with Albania. This the Italians naturally oppose, and rumors of Italo-Bulgar
clashes in this region are current.
Throughout the country, especially in the Banat (the only region where they
are numerous), the native Germans have been welcomed as Volksdeutsche, given
special courts, administration and schools, put in uniform, and urged to fight side
by side with their blood brothers. Uniformed German girls were seen in January
1942 by an Argentine diplomat, dictating prices In village market places.
Thus, by playing Croat against Serb, Roman Catholic against Greek Orthodox,
Moslem against both, and emphasizing all the other hatreds which exist in pro-
fusion, the Axis has created political chaos. Yet everywhere the German and
Italian armies are meeting fierce resistance.
IL THE MILITARY SITUATION
Contrary to the general opinoin, the fight against the occupying forces is not
limited to the Cetniks, nor are the Četniks, strictly speaking, Mihailovie's men.
From region to region there are many distinguishable varieties of guerrilla in
Yugoslavia, most of whom have only slight connection with Mihailovié, who does,
however, provide the core of resistance. The following are the chief types, arranged
in order of importance.
General Mihailovid's Men
(1) Many of General Mihailovid's troops are remnants of the trained Yugoslav
conscript army. The General and his staff train recruits from the irregulars,
coordinating and regularizing volunteer detachments, and working out a planned
campaign. Mahailovie's staff includes Vasié, a lawyer, author, and World War I
officer; and Mahin, an ex-Tearist officer and White Russian intellectual, both of
whom are reported to be anti-Communist. The most recent available estimate
of the forces of Mihailovié puts them at 10,000 or fewer. One of Mihailovie's
subordinates, Captain Jordan Kimié, commands a virtually independent army in
the region of Skoplje. Perhaps 90,000 more are scattered in the other groups
with whom Mihailovié has contact, and whom he can order to perform assigned
tasks.
Mihailovié himself has reportedly moved his headquarters to Bosnia because
the terrible German rate of executions (100 Serbs for every German) threatened
to exterminate the population. The guerrillas seem to be threatened with an
ammunition shortage for their 7.9 rifles. In accepting a position as Minister of
War in the Government-in-Exile, Mihailovié, who had formerly been a national
hero, alienated large groups who are disgusted with the shoddy polities of the
exiled regime. Among the many current conflicting reports, one charges that
Mihailovié is at present neglecting the fight against the Axis in favor of the
internal struggle with the Communists, and that he has reached a tacit under-
standing with Nedi6, and possibly even with the Italians.
The Četníka and Partisans
Most important of the irregular outfits are the Četniks and the Partisans.
(2) The Cetniks important during World War I and supporters of the dictator-
ship in Yugoslavia, were deserted by their leader, Kosta Pedanac, who joined
23
SECRET
SECRET
His deserted men have since reorganized and added new members, have associated
Nedid's government and who has a force of Fascist Cetniks helping the Germans,
(4) The Croatian peasant "Green Cadre", rapidly becoming effective, has
themselves with Mihailovié, and have undertaken larger military operations
taken to the woods and engages in sabotage and passive resistance. Its members
than any other guerrilla group. It was they who attacked the Kragujevac
are mostly followers of Maček, and concentrate their hatred against the Ustasi
in Serbia and in Western Bosnia.
areenal, and they who have destroyed numerous factories. They operate chiefly
stormtroopers.
(5) The Slovenian Patriot Army has recently launebed effective attacks on
(3) The Partisans, some of whom are Communiste, are strongest in Monte-
Italian troops and on local steel mills.
negro, the Bosnian Kraina, Lika, and Slovenía. In Montenegro they have
attacked, and considerably weakened the Italian garrisons In Cetinje and Nikine,
Early in the days of the movement, they nearly captured Belgrade, but have
since, in Serbia, been defeated and pushed back by the Germans and the Insope
APPENDIX H
of the puppet government. Their ranks are being swelled by escaped prisoners
and by deserters from the Serbian police, Nedió's men, and even the Nazis,
RAF DAYTIME HOME OPERATIONS
No reliable estimate of the strength of the Partisans in available, Mihailovid
and the other Nationalist groups,-having long regarded them with suspicion and
May 1 to August 12, 1942
cooperated with them only under necessity-have now broken completely with
them, and are reported actually to have engaged them in combat when 5 British
RAF daylight operations this summer were conducted with relatively limited
officer, sent to make peace, arrived too late. The Partisans' practice of earrying
objectives In view, and the results achieved were commensurate only with these
OD class warfare along with their guerrilla activities has caused diamay among
objectives, according to a report of the Economics Division of the Office of Stra-
conservatives. Partisan practice has been to set up local government immediately
tegio Services. Major bomber operations were undertaken at night, reflecting the
upon winning a victory, and occasionally to execute those opposed to their pulitical
British belief that large-scale daytime raids on Germany are too costly for the
beliefs. The Germans recently inflicted a defent upon them, which is reported to
resulte achieved.
have overjoyed conservatives and landowners, Although no actual contact with
As a result, while numerous daylight attacks have been made on Germão cities
Moseow has yet been proved, Pan-Slav feeling is strong and is shared even by those
and towas, not more than 21 planes were dispatched on any one raid, with the
who are not Communists.
single exception of a 14-plane attack on Danzig. Daytime fighter and bomber
In the future the Partisans will probably oppose any government which given
creeps over the coast of France, Holland, and Belgium have employed many more
power to any of their enemies,-the clericals (mostly Creat), the conservative
planes, largely in an unavailing effort to draw out Nazi fighter opposition. An
peasants (Madek's Crost party), or the Nationalists (Mihallovié or anyone due
arrount of RAF daytime activities during the period May 1 to August 12, 1942,
who favors the regime in exile). All these are held in nearly M great hatred M
follows:
Prince Paul, Nedié, and the Nazis.
Daylight Attacks on Targeta in Germany
Other Guerrilla Groups
1. The average number of planes dispatched in daylight bombing attacks 00
Five minor groups of guerrillae deserve consideration:
German towns and cities was 10. The principal planes used on these raids were
(1) The Halduks (an old Balkan word for outlawa operating in email bands of
the large, four-motor Lancaster and Sterling bombers and the smaller Welling-
three to five men) are active guerrillas, including men respected in their villages.
loss, Hampdene, and Halifaxes. Of the total of 150 sorties during the period,
They have operated most successfully in Eastern Serbia, and have damaged or
only 47 planes actually succeeded in reaching and dropping hombs upon the as-
put out of commission industrial and mine installations, especially the Bor copper
signed target area. This result la explained largely by weather conditions-
mine, important to Germany's war economy, They have also sunk freighters on
premature return when clouds were not sufficiently dense to provide adequate
the Danube, and demolished the Germans' supply buildings in Pozarevac and
cover from ground flak and failure to locate the target by reason of denee clouda.
Smederevo-the latter, A town of 25,000 people, was completely blown up.
There were six plane casualties, representing four percent of the total planes dis-
(2) The "Uskoke", is term dating from the Turkish domination, operate largely
patched, a rate approximately the same as that experienced by the RAF in night
in Contral Dalmatia, and are still weak despite successful raids on various towns,
bomber operations.
including Split.
The small number of planes dispatched Indicates that such raids are considered
(3) Members of the Soko, a physical culture organization, have joined the
to be of little more than nuisance value. They are useful mainly in keeping the
Cetniks, They operate in Northern Herzegovina, under the leadership of Codo
themy anti-aireraft and civil defenses active, and in bringing enemy fighters into
Milit, a veteran organizer of underground movements against Austria in the
the air. The Industrial damage resulting in thought to be comparatively alight
First World War, and & leader of the opposition to the Pact with the Axis. These
While direct hita on industrial objectives have been claimed in some cases, bomb-
three groups-the Haldoks, Uskoks, and Soko-are often loosely called Cetniks,
ing accuracy in general is impaired by the need to release the bombs rapidly
before taking evasion action against anti-aireraft fire.
24
I One operational Bight by une place,
25
Regraded Unclassified
SECRET
SECRET
2. The only other RAF daytime activity of note over Germany was that of the
Britleh Mosquito planes. These fast, high altitude planes are dispatched individy.
Fighter Escorts for Bombers
ally on most occasions and never in groups of more than six, They are lined
5. The British Spitfires were kept active in providing escorta for the Boston
orally for photographie reconnaissance, and are frequently employed to study Dra- the
and Hurrieane bombers, engaging in harassing and diversionary operations in
damage resulting from bombing raids. The Mosquitoes occasionally drop 250 and
France, and in fighter sweeps across the Channel. Ninety-three Spitfires were
500 pound bombs, usually 1½ to 2 tons per plane. Attacks are made from either
last in providing escorte for bomber missions and in diversionary operations de-
a very low altitude (50-100 feet) or from a ceiling of 23,000 to 27,000 feet.
signed to draw enemy fighters away from the principal acene of attack. This
These planes have also experienced difficulty in locating the German titles
figure represents roughly two percent of the number of sortice on these operations.
assigned. Insufficient cloud cover, fighter opposition, and technical difficulties
Fifty-seven enemy fighter planes were destroyed, 27 probably destroyed, and
have been the chief operational obstaeles encountered. Seventy-five planes were
77 others damaged. Following the conservative procedure of considering as lost
dispatched during the period May 1 to August 12. Of these, seven are missing,
50 percent of planes reported M probably destroyed, German losses were 71
making a casualty rate of more than nine percent.
places. On this basis, the ratio between British and German casualties was
15:1. In the event that some of the damaged planes failed to return eately to
Daylight Bombing of France, Belgium, and Holland
their bases the German loases would be correspondingly higher.
These figures, however, du not provide a basis for establishing the relative merits
3. One of the principal daytime activities of the RAF has been the bombing of
of the British and German fighter planes. The attacks of Nail planes were
objectives in Occupied France, Belgium, and Holland, The plane employed is
frequently directed against the bombers rather than their escort, and anti-aireraft
these attacks is the Boston (American-built Douglas A-20), a speedy, twin-engine
fire may have accounted for some of the ILAF plane casualties. The German
attack bomber. The shallow penetration on these raida permits & fighter escort,
planes, fighting close to their bases, are also at & distinct tactical advantage.
which has been impossible on the long-distance missions to Germany. The
Bostons are dispatched in groups of 6 or 12, and are always accompanied by an
Fighter Sweeps Across the Channel
escort of Spitfires, This escort has varied in size from 36 to 264 planes.
6. In nine fighter sweepe over occupied territory, more than 1,000 Spitfires were
In contrast to the area, or blits, bombing strategy of the night attacks, the
despatched. The purpose of these sweeps, similar to that of some of the bombing
Bostons do precision bombing against specific military of industrial largete is
missions, was to draw out the Nazi fighter planes. The RAF was apparently
occupied territory. Typical objectives are: the airdrome at Abbeville, the power
willing to exchange plane losses with the Germans, in the intereste of reducing the
stations at Lille and Ostend, a parachute factory at Calais, coke overs at Zee-
enemy fighter strength in the West. German aircraft, however, were reluctant
brugge, the Phillips radio and electric works at Eindhoven, the railroad statine
to engage in combat. Instead, German fighter bases were withdrawn inland from
and yards at Boulogne and St. Omer, and the docks at Rotterdam, Dunkirk,
the French cosst, obliging the RAF fighter planes to Ay greater distances,
Flushing, and St. Malo. The attacks are carried out either at n minimum altitude
In the direct combats between British and German fighter planes during
of 50-200 feet or, more frequently, at a level of between 8,000 and 14,000 feet.
fighter sweeps, 10 Spitfires were shot down, and 20 Focke-Wulf 190'> were de-
When cloud conditions are favorable, the pilote generally claim to have observed
stroyed. Thirteen F. W. 190's and Mo. 109's were probably destroyed. and 19
their bits. The customary bomb load in four 500-lb. bomba; Incendiaries are
damaged. Following the procedure given above, the ratio between RAF and
rarely employed.
GAF casualties is % to 1. This ratio differe markedly from that on escort
Bostons were dispatched on an average of 11 days each month, and were also
operations. The RAF losses were only one percent of Spitfiros despatched.
hampered by insufficient cloud cover, In the medium altitude attacks, soti-sit-
craft fire, rather than fighter opposition, appears to have been the chief cause of
Other Daylight Operations
essualties. Of 401 Bostons dispatched during the period, only nine were missing.
This low casualty rate, 2% percent, was increased somewhat by loases among the
There were numerous operations of a varied nature which are not included in
escort of Spitfires.
the above description. The Coastal Command dispatched Catalinas. Sunder-
4, The Hurricane homber (a converted fighter plane) la also used for daylight
lands, and Laneasters on anti-submarine patrol. Spitfires and Hurricanes engaged
attacks similar in nature to those of the Bostons. The Hurricanes fly with à
in the shipping patrol. Weather reconnaissance, attacks on enemy convoys and
fighter escort against shipping, railroad and Industrial targeta, and airdromes in
naval vessels (The Prince Bugen and the Tirpits), and covering operations for the
France, Belgium, and Holland, It in possible that one of the main objects of
Commando raida were others of the varied daylight activities of the RAF.
these bombing missions, as well as of the sorties of Bostons, is to bring into combat
the eneiny fighter screen located in the West. Seventy-six planes were dispatched,
of which seven (or nine per cent) were lost.
27
26
Regraded Unclassified
SECRET
SECRET
APPENDIX III
la at e premium. The town includes Government offices, hospitals, hotels,
stores, B library, tennis courts, a race course, and other sports facilities. But all
THE GEOGRAPHY OF THE PORT MORESBY REGION
civiliane other than males of military age were evacuated by military order early
in the year, so that the town in now wholly a garrison post. (Even civilian
Japanese troops are DOW less than 40 miles from Port Moresby, evidently pre-
Government officials, including the Administrator, were included in the order.
paring for the critical phases of an attack on this important Allied base, Geog.
The Territories of Papua and New Guines are now administered as a unit by the
raphy already has played a very important role in the fighting in this rugged and
military authorities under martial law.) The waterfront area of the Port has
primitive country, about which there is relatively little recorded knowledge,
been the principal target for Japanese bombers. Its facilities include & maio
according to a memorandum prepared in the Far Eastern Section of the Office
Government wharf, which was enlarged and improved by dredging shortly before
of Strategic Services, The accompanying map in based on the best available
the war, and two smaller wharves.
eartographical data, and is believed to include considerable information on the
In the defense of Port Moreaby, the security of the Laloki River will be of
sketchy system of trails and roads not published heretofore. The topographical
musual importance. The water supply of Port Moresby has always been a
features are defined as closely as available data and the scale will permit.
serious problem, and just before the war & pumping and pipeline system was
From their base at Buna, Japanese troops first occupied the village of Kokoda,
completed to bring water from the Laloki about 10 miles to the town reservoir.
then pushed through the Gap to their present positions between Efogi and Tori-
A former rain eatchment, located on a bill above the town, was recently dis-
baiwa. They now face country which ie drier and more open than that which they
mautled, presumably because It formed an unduly prominent landmark in war
have recently traversed, and consequently less adapted to their skillful jungle
time. Loss of the Laloki River waterworks would be very serious in case of a
tacties. Their supply line is under constant aerial attack, and since the occups-
prolonged siege.
tion of Milne Bay by Allied troops, their chances of bringing naval support to their
land troope have diminished considerably. For this reason, renewed operations
Areas Flanking Port Moresby
against Milne Bay may actually precede a final attempt to take Port Moresby
If Japanese operations are intensified, two areas Banking Port Moresby will
Japanese naval units, sighted At various times recently in the Trobriands, at
doubtless come into prominence. To the southeast in the Rigo District around
Normanby Island, and in Goodenough Bay, might be preparing for such a tark.
the Kemp Welch River. The Japanese can reach the headwaters of this river by
The strategy of land attack meanwhile le dominated by the trails and airports of
way of the alternative pass from the Buna side, already mentioned. They might
the Port Moresby region itself,
then follow a branch trail down to the cosat at Rigo with the purpose of striking
west from there at the name time that they used the more direct approach through
Trails and Roads
Sogeri. In the Rigo area, as elsewbere along the south coast of Papua, there are
Two traile cross the Owen Stanley Range northeast of New Guines (see map).
a fow commercial plantations (coconut and rubber) and some mission stations.
Japanese troops 50 far appear to have used only the trail which crosses the main
The Rigo area also has some partially exploited manganese deposits. This situa-
range at the Gap (6,170 feet above sea-level) and then drops to Efogi (about 3,600
tion accounts for the trails from Rigo to Port Moresby across the hills from Boot-
feet). Traversing ridges and streams, the trail drops to Naoro (2,380 feet),
less Inlet. There is no continuous trail system elsewhere along this coast.
loribalwa (2,705 feet), and Sogeri (1,590 feet), each B native village. Branching
A second area of some strategic importance la the Yule region northwest of
off from the Buna-Kokoda trail, however, is an alternate track which crosses the
Port Moresby. The principal settlement here in Kairuku, on Yule Island. On
range about 35 miles southeast of the Gap over a pass about 9,000 feet high, and
the adjacent mainland a mule trail, sometimes called the "Yute Road," strikes
Joins the main trail at Sogert. From Sogeri the trail continues to Rouns (Rona)
luland for more than 120 miles. The trail was built by French Catholle Fathers
Falls, where it Joins a motor mad to Port Moresby (21 miles).
to open up mission stations in villages high up on the Interior platesus and slopes.
The first section of the road from Rouna Falls winds rather steeply down the
It in possible that the Japanese may try to reach this trail from Kokoda via the
Laloki Gorge, and in 1940 It was for the most part only wide enough for one-way
Mambare River headwaters, and thence penetrate to the south coast. They
traffie. From Supphire Creek (which branches off the Laloki River just cast of
might also try to make their way overland acruss very rugged country from Yodda
Rouns Falls), a two-way road turns southwest across fairly open hilly eountry to
to the Vanapa River trail, in order to approach Port Moresby from the northwest.
enter Port Moresby from the east, About four miles cast of Port Moresby, near
Kila Kila, the road passes the Port Moresby airdrome, the main airbase in this
area,
The Town of Port Moresby
Port Moreshy itself Les situated largely on & promontory which forms the east
shore of Fairfax Harbor. The town divides in two parts-Granville West and
Granville East. The buildings are largely perched on hill slopes, as building epace
29
28
GOVERNMENT PRINTING OFFICE -
299
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
J.S. SECRET
OPTEL No. 331
Information received up to 7 A.M., 23rd September, 1942
1, NAVAL
NORTHERN WATERS. The convoy which arrived at ARCHANGEL
on 21st was unsuccessfully attacked that day by JU 88's. The home-
ward bound convoy of 18 ships from ARCHANGEL has been attacked by
U-boats and shadowed by aircraft. Three ships are reported sunk.
2. MILITARY
RUSSIA. Fierce fighting continues in STALINGRAD as
well as Russian attacks in the Northern and Central sectors and at
VORONEZH.
3. AIR OPERATIONS
WESTERN FRONT. 22nd. Bostons, of which 2 are missing,
obtained hits on 6 power stations in Northern FRANCE. Mosquitos
attacked iron and steel works at IJMUIDEN. One Spitfire lost off
BREST and a JU 88 destroyed by U.S.A.A.F. Spitfires off SELSEY BILL.
6 enemy aircraft crossed the south coast, some damage and casualties
being caused at RYE.
EGYPT. 20th/21st. TOBRUK HARBOUR and a landing
ground near EL DABA were bombed.
4. LATE NEWS
LIBYA. Our forces have been operating from KUFRA
against JALO (GIALO) Oasis and towards BENGHAZI. They are now being
withdrawn. No details are available but losses are believed small,
Regraded Unclassified
300
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 332
Information received up to 7 A.M., 24th September, 1942.
1. NAVAL
Attacks on trade. Losses in Russian convoy already reported. Be-
tween 19 and 22 September 10 ships were reported torpedoed, including 2 belated
reports. One British and one Norwegian ship in the NEWFOUNDLAND area, one British
in Western Atlantic, one British, 3 U.S. and one Spanish in the TRINIDAD area, one
Dutch in the FREETOWN area, one British in the GULF OF ADEN. Following have
reached port, one British ship reported torpedoed in outward convoy in GULF OF ST.
LAWRENCE and one Dutch ship previously reported torpedoed in TRINIDAD area. One
Greek ship has been overdue at LOURENCO MARQUES since 13 September.
2. MILITARY
MADAGASCAR. On 23rd, TANANARIVE was occupied by East African
troops, supported by South African armoured cars and British artillery, checred up
by populace on entry. Garrisons of ANDRIBA and IVATO surrendered unconditionally.
Patrols have occupied ANTSOHIHY.
RUSSIA. Little change at STALINGRAD. On night 17/18, Russians
carried out raid across MOTOVSKI GULF, West of KOLA BAY, and destroyed a number of
fortified positions before withdrawing. *here have been further Russian attacks
in the Northern sector and at VORONEZH.
3. AIR OPERATIONS
WESTERN FRONT. 23/24. Aircraft were despatched - WISMAR 63, Dornier
factory northwest of WISMAR 20, FLENSBURG Shipbuilding Yards 28, VEGESACK Ship-
building Yards 24, sea mining 23, shipping 13. Direct hits made on ships of 6,000
and 4,000 tons and another 4,000 ton ship believed hit. 12 bombers missing. Pre-
liminary reports indicate weather conditions unfavourable. 2 enemy aircraft over-
-and in YORKSHIRE area. One shot down. Damage negligible.
EGYPT. 21/22. 38 bombers attacked enemy landing grounds at EL DABA.
Eight 22/23. U.S.A. and F.A.F. Liberators bombed BENGHAZI HARBOUR and hit two ships.
Regraded Unclassified
301
NOT TO BE RE-TRANSMITTED
BRITISH MOST SECRET
COPY NO.
3
U.S. SECRET
OPTEL No. 338
the period 17th to 24th September, 1942.
Following is supplementary resume of operational evonts covering
1. NAVAL
Of the trelve ships lost out of the recent convoy to RUSSIA six
sere U.S., three British, two Russian and one Panamanian. Out of the convoy just
returned from RUSSIA one destroyer, one mine-swooper and five ships were sunk by U-
boats. It is believed that SCHARNHORST is now working up end the cruiser PRINZ
LUGEN with AL new storn fitted 1s ready for tricls - both ships are in the BALTIC.
British submarines in the MEDITERRANEAN have reported in the last week sinking two
ships of 5,000 tons, two of 3,000 tons, one of 2,000 tons, enother small merchant
ship and four schooners. The oight inch cruiser BOLZANO has arrived at NAPLES with
damage to the starboard side extending from the uppor deck to the waterline and with
one funnel displaced. The two CAVOUR class battloships were excrcising during the
week and have now returned to TARANTO. There WALLS an increase during the week of
almost 100 per cent in the traffic to NORTH AFRICA and un increased use of TRIPOLI
(L) has been noted.
Submarine/Narfare, Ninety U-boats are estimated to bc operating
in the ATLANTIC. Their activity was still concentrated against convoys in North
Atlantic and in TRINIDAD-South American Coast Grea.
Week ending 24th September. Six attacks by British surface craft,
eleven by British aircraft, at least one of ench kind promising. Those figures ex-
clude operations covering Russian convoys. Four promising attacks by U.S. surface
and aircraft in same period.
Week ending 20th September. Sixty attacks by U.S. surface and
aircraft in all. Provisional figures for the week onding 20th September give twelve
ships sunk by U-boat, eleven of them in the Atlantic. Two Russian submarines have
baen operating in the GULF OF BOTHNIA and by 12th Suptember had claimed two Finnish
snips sunk and possibly a third.
Trode. Five ocean convoye totalling 139 ships arrived in the United
Kingdom without loss. Three outward bound convoys roached their dostinations without
loss. Imports into the United Kingdom in convoy for the week ending 19th - 910,000
tons including 239,000 tons of oil.
2. MILITARY
EGYPT. Activity on the main front was again confined to patrole on
Each sides. Our Dosart Forces carried out successful operations 500 miles bohind the
curry's front. BENGHAZI and BARCE were raided over thirty aircraft boing damaged or
/antroyed on the ground whilo others wore shot down by our attacking troops. JALO
DMVIE now also temporarily occupied. Although our forces who have now returned to
ONTA suffered some casualties in personnel and vehicles the casualties inflicted on
meny were much heavier and in addition many dumps of ammunition and supplies
destroyed.
FAR EAST. CHINA. Fighting around KINHWA continuing.
There are now believed to be 179 German Divisions on the Russian
34 in FRANCE and the Low Countries and 8 in PINLAND, including the KIEKENES
of NORWAY.
AIR OPERATIONS
WESTERN FRONT. Night bombing could only be done on two nights.
SAARBRUCKEN, WISMAR and FLENSBURG were the main objectives. Constal Command
sent out 242 sorties on anti-U-boat operations augmented by 38 sorties of Bomber
Comsand on BISCAY patrols. It is estimated that about 18,000 tons of enemy shipping
want sunk or seriously damaged in home waters by our aircraft during the wook. A
total of 446 mines were leid for the loss of 12 aircraft in operations which extended
73 far east as KONIGSBERG. In the MIDDLE ZAST our bombers concentrated mainly upon
anemy harbours and shipping. TOBRUK was heavily attacked on five nights, & large
ship was completely destroyed by bombs in BENGHAZI HARBOUR. Heavy attacks were also
made on enemy landing grounds. Enomy shipping en the African supply route was con-
stuntly harassed in the IONIAN SEA by our aircraft, as well as in the vicinity of the
African Coast. At least four ships were hit.
Regraded Unclassified
302
- 2 -
RUSSIA. Russian bombers attacked aerodromes in Northern NORWAY,
troops and communications in the STALINGRAD sector, troops, aerodromos and the TEREK
Bridges on the CAUCASUS Front and enemy shipping in the BLACK SEA Ports and in the
CRIMEA. The main Axis activity was on the STALINGRAD Front against railway communi-
cations, fuel dumps and oil tankers on the VOLGA. Their Air Force also operated
fairly strongly against supply depots, aerodromes and railways in the Northern,
Central and Caucasus Sectors.
4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS
ON NEMY TERRITORY IN EUROPE.
DUSSELDORF. Photographs 11th and 12th cover the whole city and
show over 100 acres devastated in the centre. Industrial dumago is heavy, at least
30 factories or industrial premises having been hit. Nearly seven acros of the main
buildings of & steel tube factory are wrecked. These works had already been damaged
and repairs wore in progress. At a machine tool factory already damaged and under
repair about half an acre of sheds is burnt out. Eight buildings of an iron foundry
are destroyed and three more badly damaged. A factory making insulating materials
is almost entirely destroyed and a chemical works received a direct hit on the main
structure. The main railway station had a direct hit evidently from a large bomb.
There is also damage at two other stations, among rolling stock in a goods yard and
to the permanent way at an important junction. The total area of destruction in
recent attacks apart from isolated incidents is about 380 acres.
DUISBURG. Additional damage shown by photographs 10th includes a
large building burnt out entirely in a factory making iron and bicycles, four or fivo,
buildings of a tobacco factory burnt, three or four buildings of e. small chemical
works badly damaged by fire and seventeen other industrial buildings destroyed or
damaged. It is reported that at the railway wagon repair shops in spite of 24 hour
shifts 68 wagons come in for repair every 30 sent out,
KARLSRUHR. Newspaper reports containing appeals to the inhabitanta
to clear debris from the streets and to carry,out their own minor repairs are evi-
donce of the severity of the recent attack.
5. OPERATIONAL AIRCRAFT BATTLE CASUALTIES
METROPOLITAN AREA
BRITISH AND ALLIED
ENEMY
Prob.
In the Air
Des.
Dest.
Damaged
Bombers
35
Bombers
6
2
7
Fighters
6
Fighters
3
Nil
2
Coastal
4
Miscallaneous
1
Nil
1
Army Co-Operation
1
Total
10
2
10
Total
46
MIDDLE EAST
(Including MALTA)
BRITISH AND ALLIED
ENEMY
Dost. Prob. Damaged
In the Air
Dest.
Hombers
3
Bombers
Nil
Nil
2
Fighters
8
Fighters
8
8
15
)thers
1
Miscellaneous
4
Nil
3
Total
12
Total
12
8
20
Three pilots are safe.
Amendement week ending 17th September.
Delete 4 enemy bombers probably des-
troyod. Add 4 destroyed.
Note: No sccount is taken of enemy aircraft destroyed on
the ground in any theatre or of British naval air-
craft casualties.
6
HOME SECURITY
Estimated civilian casualtios for the week ending 6 A.M., 23rd.
Killed 33, seriously wounded 49.
Regraded Unclassified
302-A
COMMANDER EASTERN SEA FRONTIER
90 CHURCH STREET
NEW YORK
PERSONAL & CONFIDENTIAL
September 24, 1942.
My dear Mr. Secretary:
I have inquired about the LEEDSTON, regard-
ing which you phoned (notatrached) me this afternoon.
I find that she was formerly the SANTA
LUCIA of the Grace Line and was originally used as
an Army Transport. About a month ago she was taken
over by the Navy and sent to the Tietjen and Lang
Company here in Brooklyn for overhaul and conver-
sion to fit her for a combat loaded transport. I
understand further that the work was rushed on her
and she came out of the Tietjen and Lang Yard last
Monday and tied up at Pier 12 Staten Island.
She is commanded by Lieutenant Commander
Cook, Merchant Marine Reserve, with B. Navy crew on
board. She has just been assigned to Transport
Division Eleven of the Amphibious Force of the U.S.
Atlantic Fleet. I have just discussed the matter
with Captain Edgar, U.S. Navy, who is in command
of Transport Division Eleven, which includes the
LEEDSTON. He has reported to me that as this ship
just came out of overhaul last Monday she was dirty
and disarranged, that the officers and crew are
doing everything possible to clean her up and make
her ready for service. As I stated to you over the
phone, she is not under my jurisdiction but has
been recently assigned to the Amphibious Force of
the U.S. Atlantic Fleet.
I have reported this matter B. few minutes
ago to the Commander in Chief, U.S. Fleet and I am
- 1 -
Regraded Unclassified
302-B B
COMMANDER EASTERN SEA FRONTIER
90 CHURCH STREET
NEW YORK
PERSONAL & CONFIDENTIAL
sure that every effort will be made to get this
ship clean and in condition as soon as possible.
With assurances of my high regard, I am,
Very respectfully yours,
ADOLPHUS ANDREWS
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
- 2 -
Regraded Unclassified