Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
28277144
label
Volume 579, October 16 – October 26, 1942
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
28277144
sourceUrl
contentType
document
title
Volume 579, October 16 – October 26, 1942
citationUrl
collections
Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
28277144
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
bafd85f4a8fbc6d2
ocrText
DIARY
Book 579
October 16 - 26, 1942
- A -
Book Page
Airplanes
Aircraft despatched, weeks ending October 13, 1942,
and October 20, 1942 - British Air Commission reports -
10/19/42, 10/24/42
579
79,151
Shipments to British Forces - Hoflich reports -
10/21/42, 10/26/42
97,174
- B -
Bank of America
See Jeidels, Otto
- C -
China
Extra-territorial rights: State Department considering
new treaty: Treasury recommends cancellation of
Boxer Indemnity payments - 10/19/42
73
Economic report from Adler - - 10/24/42
153
Correspondence
Mrs. Forbush's mail report - - 10/16/42
8
- E - -
Economic Stabilization Board
See Inflation
Exports
To Russia, Free China, and selected blocked countries,
during 10-day period ending October 10, 1942 -
10/21/42
101
- F -
Financing, Government
Federal Reserve operations in Government securities -
10/17/42. 10/23/42
38,144
Offering of $2 billion 7/8% Treasury Certificates of
Indebtedness, Series D-1943; subscription books open
two days to insure widespread participation; no
restrictions as to 'basis for subscription: redemption
in cash at maturity; no exchange privileges - 10/26/42.
164
a) Closing of books - 10/27/42: See Book 580, page 1
- I -
Inflation
Economic Stabilization Board: First meeting of - 10/16/42..
5
Regraded Unclassified
- J -
Book Page
Jeidels, Otto (Lazard Freres partner)
Correspondence concerning interview with HMJr -
10/16/42
579
1
(See also Book 582, page 81 - 11/6/42)
Conference with HMJr on joining Bank of America -
11/10/42: Book 583, page 93
- L -
Lend-Lease
Stettinius asks Treasury for a periodical report on
ability of certain foreign governments to pay for
goods procured in United States - 10/19/42.
74
Silver: Correspondence concerning lend-leasing of
Treasury silver to friendly foreign countries for
industrial uses essential to war production - 10/19/42
76
Report for week ending October 17, 1942
90
Export procedure - further report of Committee on -
10/21/42
94
U.S.S.R.: Status of Aid Program as of September 30, 1942 -
10/26/42
171
United Kingdom: Federal Reserve Bank of New York
statements showing dollar disbursements, weeks ending
October 7 and 14, 1942 - 10/16/42, 10/23/42
24,136
- M -
Military Reports
British operations - 10/16/42, etc
29,40,42,92,
108,130,132,
141,142,160,
162
Pacific Naval Losses - Japanese and United States:
Hoflich report - 10/16/42, 10/24/42
30,155
Hoflich summaries - 10/16/42, 10/21/42
35,112
Office of War Information reports - 10/16/42, 10/23/42
37,143
American General Grant Tanks - Hoflich report - 10/22/42
109
Japanese Strategy in Gilbert and Ellice Islands - Hoflich
report - 10/21/42
113
"Realism and the Offensive Spirit" - Office of War
Information report - 10/21/42
116
"The War This Week, October 15-22, 1942" - Office of
Strategic Services report
134
United States Military Strategy - Hoflich report -
10/26/42
192
Morgenthau, Mrs. Henry, Jr. (Elinor Fatman)
Government Securities - ownership of: Opinion of Office
of General Counsel - 10/20/42
82
Regraded Unclassified
- P -
Book Page
Poland
Strasburger, Henryk (Polish Minister of Finance):
"Who's Who" in connection with visit to United States -
10/22/42
579
122
Puerto Rico
Food situation discussed at Cabinet meeting - 10/22/42.
118
- R - -
Revenue Revision
Revenue Act of 1942: FDR states at Cabinet he neither
understood it nor did he think the Treasury did;
because of lack of time, forced to sign without
reading - 10/22/42
117
- S -
Silver
See Lend-Lease
Strasburger, Henryk (Polish Minister of Finance)
See Poland
- T - -
Tanks
See Military Reports
Taxation
See Revenue Revision
- U -
U.S.S.R.
See Lend-Lease
- V -
Vatican
Taylor reports at Cabinet meeting Vatican is leaning
more and more toward Allies - 10/22/42
117
Regraded Unclassified
1
appoint ment
OTTo JEIDELS
for
120 BROADWAY
NEW YORK CITY
note. 10,1942
October 16, 1942
Mrs. H. S. Klotz
Private Secretary to
Secretary of the Treasury
Treasury of the United States
Washington, D. C.
Dear Mrs. Klotz:
Since I wrote to you on October 13,
the radio has announced that the Secretary arrived
in England. This certainly simplifies the decision
to wait with the interview for which I have taken
the liberty to ask him directly and through you.
However, I would be grateful to you if you would
keep it in mind after the Secretary's return, because I
feel very strongly that the Secretary would like me
to submit to him personally the matter in question.
My warmest wishes for a successful journey
and a safe return accompany the Secretary.
Thanking you again and with kind regards,
I am
Sincerely yours,
OJ:MSC
Regraded Unclassified
2
OTTo JEIDELS
120 BROADWAY
NEW YORK CITY
October 13, 1942
Mrs. H. S. Klotz
Private Secretary to the Secretary of the Treasury
Treasury of the United States
Washington, D. C.
Dear Mrs. Klotz:
I am much obliged to you for your letter of
October 9. It is very kind of you to suggest an
early appointment in the absence of the Secretary.
The subject on which I took the liberty to
write to the Secretary has some implications in which
I believe the Secretary will be interested, and I there-
fore feel that before making a decision I should wait
until the Secretary will be good enough to grant me a
personal interview. I am aware of the many urgent calls
on matters of much greater importance made on the time
of the Secretary, and the least I should do is to wait
patiently until he is able to grant me a short visit.
Any day and hour will of course be agreeable
to me, and I wonder if you would be kind enough to ap-
proach the Secretary at an opportune moment. You can
reach me by 8. telegram to the above address, or on the
telephone at Rector 2-9200. I can always arrange to be
in Washington the day after your notification.
Please assure the Secretary of my high esteem
and best wishes, and accept my reiterated thanks for your
kind attention.
Sincerely yours,
OJ:MSC
3
October 9, 1942.
Dear Mr.
Year letter of October 2, saying that
you would like to talk with the Secretary
with
1 a I of I k 1
verir with the Entional Bank eywben, has
readhed Me dook while he is may from the
In view of Me absence, I - ventering
if you would 11km for as to arrange 48
1 any VISA á of :
the Under Secretary, is order that you my
discuss this mtter without delay. If you
will 1st - know what date 10 would be
convenient for you to come, I will to glad
to pass the word on to Mr. Ball.
Sincerely yours,
(Signed) H. S. Kiotz
liste, of d
Private Secretary.
Mr. Date Joidels,
120 Breakway,
Bev York, New York.
KP/dbs
4
OTTo JEIDELS
Cetaber 2, 1942
120 BROADWAY
NEW YORK CITY
Dear his. Secretary,
I apologize for addressing this
personal letter to you at a time when matters of greatest natio.
mal importance are absorbing your full attention more than
ever.
my excesse for taking this liberty is that it has been
proposed to me to escohange my present activity in Invest-
meat BanDing for one within the national Bank system and
that I feel it to be my duty not to follow this proitation
without having pubmitted the case to you as it seems to me
to involve a pomethat wider aspect than the purely private
me. It would made me happy, particulably in view of my
foreign discent, if by assuming such new activity I could do
come little pervice to the community; only of this is pos-
ible, I feel inclined to enter upon it.
may I ask for the great kindness of receiving me for
short visit to submit the case 2 I would be extremely
grateful and repeat my apologies for tading this F
and direct approach.
Belicar me to be, his. Secretary,
respectfully
TREASURY DEPARTMENT
Rea : e
1942 OCT 5 AM 8 59
SECRETARY OF TREASURY
301330
5
FOR THE PRESS
IMMEDIATE RELEASE
OCTOBER 16, 1942
The first meeting of the Economic Stabilization Board
vas held this afternoon in the office of James F. Byrnes, Director
of Economic Stabilization, Director Byrnes made the following
statement to the Board:
You are familiar by this time with Executive Order No. 9250,
providing for the stabilization of the national economy. The language
is plain and needs no interpretation by no. Its reading indicates
fully what 18 expected of us.
We are 8. part of the machinery which must convert the peace-
time economy of the country to & fully-controlled vartime economy,
At present ve are half and half.
In peace supply and demand is left to work. That requires
time. In war the tampo changes. There 18 no time. Every man and
woman, dollar and thing, everything must bo utilized for the quick-
est winning of the var.
The war-making agencies must have what they need, when they
need it. At the same time the welfare of those on the home front
must be given consideration. Living costa must be kept from spiraling
upwards 80 all of us can be free to contribute our utmost to winning
the war. Reductions in living standards that the war will impose
must be shared equitably by all of the people, without profiteering.
If we are to avert & repotition of the collapse that followed the
last var, VO must prevent runaway price increases now.
Each of you occupies cortain definite spheres of activity
in the carrying out of these aims, For example, the Secrotary of
Treasury, among other things has responsibility for the sale of gov-
ernment securities, the raising of taxes, the siphoning off of excess
purchasing power, and, of genorally taking the profits out of war.
For the control of salaries, I an looking for suggestions and guid-
ence also to the Secretary of Treasury. Labor, wages and working
conditions are within the province of the Secretary of Labor and the
National War Labor Board. The Price Administrator has control of
prices, including rents, rationing, etc. To the Price Administrator,
the Secretary of Commerce and the Secretary of Agriculture, principally,
I will look for advice on subsidios and related matters. To the Sec-
rotary of Agriculture I will look for guidance on the production of
farm products and advice as to their prices. At times it will be
necessary to invite the chairman of the War Production Board and the
War Manpower Commission to meet with us.
And to all the members of the Board, I will look for sugges-
tions to keep down the cost of living, While ours is an economy based
on personal incentive and the profit system, we must at this time give
more attention to keeping prices down than keeping profits up.
It is my dosire that the Agencies and activities represented
shall be increased in importance and not diminished in the least de-
groo, It 18 not my intention to undortake any of the activities which
lie within the province of your organizations, but rather to bring
them together, to sottlo conflicts, to integrate all of the parts into
one whole, I shall stop in only where thore are conflicts or whore I
think economic stabilization is threatened in any field.
As for the reprosentatives of labor, industry and agriculture,
we shall look to them to give us in all circumstances their sugges-
tions, particularly in the fields in which they have become oxperts and
to which they have given their life efforts. I know those gentlemen
will present their views not as to what 18 boat for any particular
group but as to what is bost for all of the people.
Regraded Unclassified
- 2 .
We shall meet horo overy fortnight. Discussions of inter-
est to the nombers of the Board shall not be restricted, but I shall
try in advance of meotings to noto those questions on which I will
want your advice,
In most cases comon counsel should result in common
agreement. But ve are at var and wo cannot wait upon the counsel
of perfection. We will make mistakes. But in war, inaction 1e the
greatost of mistakes. If after an adequate interchange of views,
differences still porsist, I shall resolve those differences and
promptly communicate to you my decisions,
II
1. Lot no horo tell you what I have done to implement the
Executive Order of the President.
a, I have arranged with the War Labor Board and
the Treasury Department to bring all salaries under
control. All salaries under $3000 and those salarios
up to $5000 which are covered in vago agreements are
to be regulated by the War Labor Board. For salarios
over $3,000, other than those handled by the War Labor
Board as part of vago agreements, the Treasury Depart-
nont 1e preparing regulations.
b. I have delegated to the Office of Price Adminis-
tration the power to intervene in cased involving proposed
increases in the rates or charges of utilities. The Of-
fice of Price Administration is the agency boat suitod
to represent the interests of the consumer in these
matters.
C. I have approved two regulations of the War
Labor Board for exemptions from the wage provisions of
the Executive Order. One regulation exempts special
nerit and promotion by length of service systems; the
second exempts omployers with not more than eight (8)
employees.
Wago increases granted in such exemptions are not
to be considered Justification for increasing arprice
ceiling or cost of any Government Contract; or as an
argument against any decrease in & price coiling or
Government Contract that might otherwise bo thought
necessary.
2, In addition to these regulations, I an working with
the agencies concerned on regulations to cover these things;
Liniting salarios to $25,000 after certain taxes
and other permissible doductions.
Machinory for handling vage increasos which may
affoct price ceilings. This necessitatos close coopera-
tion between the War Labor Board and Office of Price
Administration. A liaison official has boon appointed
by each of these agencios.
Machinery for the control of agricultural pricos.
This necessitates similar cooperation betwoon the
Department of Agriculture and the Offico of Prico Ad-
ministration,
3. I have also begun to review the situation with the various
agoncios to detormine if there 18 need for additional legislation. One
such onission vas discovered in the matter of comercial rents. I
have asked Congress to recody this. The House with splendid coopera-
tion has passed the Bill and I hopo for prompt action by the Senate.
Regraded Unclassified
7
- 3 -
4. I also have asked the different agencies to furnish me
with detailed reports on some of the problems that lie ahead.
The more important things on which I have requested re-
ports are:
Compulsory savings and other proposed measures
to control excess spending power.
Prospects as to future rationing needs.
The spacing of Military and Lend-Lease purchasing.
Prospective subsidy needs and considerations
which should govern or limit the use of subsidies.
Wages of farm labor.
The effect of the stabilization of wages on man-
power problems, particularly on the nigration of
workers.
If the members of the Board have any information or views
on these matters, of course, I will be glad to receive them.
I intend to continue this practice of asking for reports
on all likely problems that may arise in the future - in advance of
the necessity for action.
Regraded Unclassified
8
MEMORANDUM FOR THE SECRETARY.
October 16, 1942.
Mail Report
Taxes and Bonds continue to dominate as themes
of the letters addressed to the Secretary. Judging
by these letters, the public is not too happy about
either. Taxes, particularly, have been foremost in
the public mind, with the Tax Bill enacted by the
Senate meeting the strong disapproval of most corre
spondents. One of the most frequent objections to
it is that it fails to provide for collections from
highly paid itinerant workers, domestics, etc., and
penalizes the moderately salaried white-collar em-
ployees.
Out of 16 letters mentioning higher personal
taxes, 3 were favorable, 13 unfavorable. Seven let-
ters favored the Ruml Plan, 1 opposed it, and 8
favored the withholding tax, 1 opposing. There were,
however, 9 unfavorable comments on the Victory Tax,
to each one in favor, and the Sales Tax drew 16 favor-
able letters to 5 unfavorable. There were 2 letters
each in favor of & savings sales tax and an excess
profits tax on individuals.
For the third week, every letter mentioning the
increase in Social Security taxes has been strongly
disapproving -- not one word in favor of it has yet
been said.
For the first time in several weeks, the idea of
compulsory investment in Bonds met little opposition.
Those who favored such a measure were twice as numerous
as those who disapproved. The form letter, "A Message
to the American Farmer", brought in 8. number of per-
sonal replies, most of them written on the back of the
original letter. These replies touched upon the diffi-
culties that farmers are experiencing, and practically
Regraded Unclassified
9
- 2 -
Memorandum for the Secretary.
October 16, 1942.
all of them complained of the drafting of men who were
the mainstay of the farm, thus curtailing production
or forcing the abandonment of that particular farm.
Interest in Stamps and Bonds as Christmas gifts
continues to increase, while other suggestions touched
upon the conversion of dormant bank accounts into Bonds,
the elimination of the $5,000 limit on purchases, and
8. number of requests for simpler and more accessible
facilities for safekeeping. Two unusual suggestions
were that Bonds be issued to businessmen who must wind
up their firms as a nest egg to be redeemed at the end
of the War; and that & Bond salesman meet incoming ships
to sell to those who have accumulated money from sal-
aries paid during their absence from the country.
An interesting coincidence was the receipt of a
letter, dated October 5, abstracted in Bonds Favorable,
from the Advertising Agency of the Stromberg-Carlson
Manufacturing Company, outlining the supposedly efficient
and speedy manner by which Bonds are delivered to em-
ployees, and an anonymous letter, dated October 13,
from an employee of that Company, complaining of long
waits for delivery of Bonds purchased. Thisletter is
abstracted under Bonds Unfavorable.
Of the 27 complaints of delay in delivering or
issuing Bonds, 11 came from employees of some branch of
the War Department. There were 5 letters complaining
of the nonreceipt of interest. A pleasant comment on
the cooperative attitude of the Bond officials is ab-
stracted on page 6. There were 9 letters telling of
abuses of the privilege of cashing Bonds after 60-days.
A number of complaints concerning the inability
to secure Tax Anticipation Notes have appeared in the
mail this week.
Regraded Unclassified
10
- 3 -
Memorandum for the Secretary.
October 16, 1942.
Anti-labor feeling has somewhat subsided, but
Government economy is still the theme of many letters,
with inflation 8. close second. We received several
urgent requests that the Treasury broadcast a denial
of the rumor that all bank accounts are to be frozen.
Toward the end of the week Economy Stabilization
referred to the Treasury 8 letters from corporations
requesting permission to increase certain salaries now
set at $5,000 8. year.
Regraded Unclassified
11
General Comments
John J. Phillips, Temple City, Calif. The writer, in
common with millions of other citizens, has been buy-
ing Bonds and Defense Stamps regularly each month, and
glad to make such sacrifice and effort to help our
country to victory. But we read from day-to-day in the
press where throughout the country at every Government
cantonment and defense construction job, that every
worker is being compelled to pay some private group of
individuals under the name of "Unions" large fees for
the privilege of working to help their country; some
of these working permit assessments run from $25 to
several hundred dollars. Out in Montana, I noted
recently where the Carpenters Union is charging every
carpenter on a Government project there $50 for a per-
mit to work. This dictatorial practice was reprehensible
enough in peacetime, and has been going on for years,
but now with our country at war, and the help of every
person needed, it is a public scandal and a crime against
our sons and brothers who are offering their all on the
fields of battle. Therefore, this holdup of the public
and usurpation of the sacred rights of our citizens to
work should be stopped at once, and those guilty of this
racketeering practice be compelled to disgorge the mil-
lions they have taken from the workers, and the money
be turned into the U. S. Treasury, and Bonds and Stamps
given those who were compe lled, under threat and compul-
sion, to pay these unlawful fees. #
Senator Vandenberg transmits letter he has received from
Wm. A. Krey, Secretary, Detroit Photo-Engravera Union,
which reads in part:
#
#
#
Another problem is now
confronting our industry. The continued restriction
of silver nitrate is proving disastrous to photo-engrav-
ing and publishing, essential to the war effort. Release
of any minimum amount of the Government's idle hoard
would prove adequate for our purpose, and also avert
the possibility of " further considerable unemployment of
our members. #
Regraded Unclassified
12
- 2 -
George W. Johnston, Captain, Infantry Commanding,
Illinois Reserve Militia, Bloomington, Ill. Enclosed
find United States Savings Bond, Series F, issued in
the name of Company K (Sixth Regiment) Illinois
Reserve Militia, an unincorporated association. It
is the expressed desire of all members of the Unit to
which this Bond was issued that it be destroyed and
the Treasury released from all obligation to pay the
same. # #
Mrs. Wanda Lewis, N.Y.C. There are 8. few men in our
State Department who do not realize that we are fight-
ing 8. war against fascism, and not for fascism. For
what other reasons could men like Mr. A. A. Berle, Jr.
help disrupt our effort to send aid to Russia. * #
I am a housewife. Each day as I set out to do the shop-
ping for my family, I make a comprehensive list of the
items I need. There is nothing fancy in this list be-
cause I realize that whatever pennies I can save and
turn into Defense Stamps and Bonds is that much more
toward helping to win the war. I know that it doesn't
seem like much, compared with the tremendous sacrifices
the Russian people and Chinese people are making so
that we may enjoy a free world after the war, but it
gets me very angry when men in our own Government are
actually anxious to sabotage aid to our Allies. I hope
this will be stopped at once, and that our Allies will
be given all the material aid they need. ***
G. C. Gasber, Martins Ferry, Ohio. I see by the papers
that $6,000,000,000 is needed shortly for the successful
conduct of the War, and so I have figured that at an
estimated population in the United States of 132,000,000
that each individual is therefore in the red to the
Government for approximately $46. In consideration of
this fact, I am enclosing Post Office Money Order for
$20, which is part payment on my share of the debt. The
other $26 will be forthcoming in the next week or ten
days.
Regraded Unclassified
13
- 3 -
Charles A. Yarner, Philadelphia, Pa. Do you get many
letters of praise or thanksgiving from the American
Public? Oh, how I hear some people say, "The Secretary
of the Treasury is asking for more taxes, etc., etc.,
and now you hear some of those Half Americans grumbling
about the new plastic pennies you are going to give us.
The writer is an American citizen, age 55, and I have
a serious heart ailment called Angina Pectoris, and
I was out of work for over 5 years, but I am proud to
say that I am now employed by a 100% defense plant,
and my son is in the U. S. Army in B. foreign country.
# # # I am also proud to report that on last Thursday,
October 8, a representative from your office presented
the Smith Drum Company of Philadelphia with 8. Flag, in
recognition of 100% cooperation with our Government in
buying War Bonds. # the # When I hear or read that you
are going to speak over the radio, I am sure to tune in,
for I think that your job must be one of the hardest
in the entire Cabinet. Now Mr. Secretary, our country
is in urgent need of copper, so much so that although
you knew that you would get complaints and criticism
from many angles, and from many Soreheads, you felt
and knew the circumstances better than we do, you are
going to put out plastic pennies. Therefore, would it
not be possible for you to ask the American Public to
start a penny campaign? Ask each American to help fill
Uncle Sam's high hat with copper pennies. Suppose each
one of our people contributed 10 pennies - the price of
only one War Stamp - our Government would receive thirteen
million dollars. # # #
Mrs. Joseph Fels, Hotel Peter Stuyvesant, N.Y.C. The
putting out of "There Were Giants in the Land" was an
excellent piece of work. I congratulate you heartily
on it. There must be many to love it and profit by it.
It should be advertised more and more, so as to get even
wider distribution of it.
Regraded Unclassified
14
- 4 -
Favorable Comments on Bonds
Walter Stewart, Paris, Ill. Your message to the
American farmer received. In regard to buying Bonds,
I have purchased six $25 Bonds the first six months
of 1942. On account of my health, I have to hire all
my work done on the farm. # $ I hired 8. man to husk
corn. He worked three days, cribbed 303 bushels of
corn. Today he worked nine and one-half hours, husked
107 bushels - was paying him 80¢ per bushel. That made
him $8.56 for his day's work. He said he was not going
to work for that kind of wages, and wanted his pay,
which I gave him, and he quit. * # * I wouldl ike to be
able to buy Bonds, but 8. farmer cannot pay these prices,
and have much surplus cash to put into Bonds. If I was
able to do the work, of course I could save enough in
labor to buy a Bond every 21 days. Do you suppose the
fellow that was making $8.00 B. day is buying Bonds?
The answer is NO. I could give you several examples
along the same lines in this locality, but will not
bother you with them. But you can rest assured, all
my surplus will be put into Bonds.
E. L. Gaines, Associate Engineer, The City of Seattle.
The following story, wholly true, and involving two of
our neighbors, whose names I can supply, should be given
to the country. Please take care that not even the
name of our city be given out, lest we offend our dear
friends. " * # Near the edge of our city in a little
cottage, bare of many modern comforts, but scrupulously
neat and clean - and their own - lives an elderly couple,
AMERICANS, though of foreign birth. * # # He carefully
tends their little garden, which provides them with much
of their supplies, and she works frugally and skillfully
to maintain their scanty wardrobe, for their income from
which their sustenance must come is but $15 per month.
*** A sweet-faced lady of their circle of friends told
me this story today. "Mr. E. a short time ago sent word
to me to come up to their home. I knew it was important
or he would not have sent for me, so I put aside my work
Regraded Unclassified
15
- 5 -
and went. The old folks seemed much disturbed. 'We
got this letter from Uncle Sammie', said Mr. E. 'He
wants us to buy some more Bonds. He must need the money
very badly for the War, or he would not have asked us.
But we just don't see how we can. What shall we do?'
I knew of their slender $15 per month. I replied, 'We
will put this letter in the stove, for I know that if
Uncle Sam knew how small was your income, he would not
have asked you to buy. But you said more Bonds. Surely
you have not bought already?' A moment of quiet while
the old couple did not look up or speak. Then this from
the dear old lady, 'Yes, we talked it over and decided
we would be buried very plain.' A part of their savings
had been given to "Uncle Sammie". They love their country.
Mrs. M. D. Metcalfe, Sioux Falls, S.D. During the last
war, Kladderadasch (Berlin) had a cartoon of which I
have a copy in my war scrap-book, of a Japanese war ship
with many flying Japanese flags sinking an American ship
whose Flag is just going under the waves -- the caption
is, "Germany warns us, some day the sun will rise over
thestars". (This was printed in 1915.) I thought maybe
reprints of this cartoon would sell more Bonds. If you
are interested, I may be able to have a. copy made in
Sioux Falls, but you may be interested in seeing the war
book, as there is quite a good deal about Turkey, when
your father was American Ambassador there.
Thomas P. McMahon, Director of Public Relations, McCann-
Erickson, Inc., Advertising, N.Y.C. I understand from
news reports that you are curtailing inquiring into
methods to speed delivery of War Bonds purchased under
payroll deduction, and it occurred to me that you might
therefore be interested in how one war plant, that of
the Stromberg-Carlson Tel. Manufacturing Company of
Rochester, solved this problem. Bond sales were lagging
because deliveries were lagging as much as three or
four weeks. After a number of compromise adjustments,
Regraded Unclassified
16
- 6 -
both labor and m anagement decided that Bond purchases
and their delivery were 80 important a factor in em-
ployee morale that a thorough-going-over change in
system had to be made. The company, therefore, has
made an arrangement with a local bank, whereby the
Bonds are prepaid by the company. The moment payroll
deductions reach the purchase price of the Bond, the
list of Bond purchasers is supplied to the bank, the
Bonds are forwarded to the plant, and delivered to the
workers. Thus, the payroll deductions are made on
Friday, and by Monday morning Bonds are available. We
have noted that employees' reactions to Bond purchases
are much more satisfactory since the institution of
this system.
Bronson Morgan, Jasper, Texas. # * # Your program is
serving a two-fold purpose; first, the sale of War Bonds;
second, it is keeping alive the patriotism of a free
people, which I think is of equal importance. Your
program also contributes much in keeping up the morale
which is constantly being disturbed by conflicting re-
ports of our free press and radio. # # #
A pleasant note from Mrs. A. P. Clark, Jr., Fort Sam Houston,
Texas, in re Bond conversion. "This is to acknowledge
your letter of September 29, giving me permission to turn
in my husband's Bonds with my Power of Attorney. The fact
that you were able to do this for me has made it possible
for me to settle my family comfortably and securely until
such time as this war is over and my husband returns.
Needless to say, I am deeply grateful for your assistance;
and it is a source of great comfort to me to know that
those who are in a position to help, can understand the
position and unusual needs of those of us who must take
care of ourselves and our children while our husbands are
doing a bigger and harder job. And those men can do 8. far
better job when they know that their wives can go to the
top in time of need and get sympathy and assistance. I
thank you for myself, my children, and my husband, who will
probably know nothing of this for some time to come; but
he will be as deeply appreciative when he does know."
Regraded Unclassified
17
- 7 -
Unfavorable Comments on Bonds
C. B. Weidman, Credit Manager, Philadelphia Terminals
Auction Co., Philadelphia, Pa. * We are enclosing
& copy of a letter received from the Treasury Depart-
ment. We were astounded to think that the Post Office
Department, or any Department of the U. S. Government,
would pass the buck in this manner. It is 8. distinct
slap in the face to those of us in the trade who have
worked so hard to raise money for Uncle Sam. # #
(The following quotation is taken from the letter which
Mr. Weidman enclosed.)
*
*
The Post Office Depart-
ment has written to us stating that their facilities
for issuing Bonds in large quantities is very limited
and suggests that if convenient to you, you make arrange-
ments to purchase Bonds in the future through the Federal
Reserve Bank located at 10th and Chestnut.
W. Christian, Acme Foundry Company, Detroit, Michigan.
On September 10, I issued a check to the Commonwealth
Bank of Detroit in the amount of $1,215.36 to purchase
$1,200, Series A, Tax Anticipation Notes. Up-to-date
I have not been able to secure delivery of the Bonds,
and understand that they have been superseded by B. new
series of A Bond, payable in 1945. It would seem to me
that Bonds should be advertised only when delivery can
be made in a reasonable time. I have received since,
8. number of announcements of new Treasury issues, but
have paid no attention to them, inasmuch as it is
probable that no delivery could be made for some time.
Stanley Metalitz, Washington, D.C. # Some delay in
issuing Bonds is to be expected, I suppose. But isn't
four months excessive? As far as I know, this condition
exists only in the War Department, where I work. For
example, my wife works in another agency. She began
several weeks after I did, but with about the same pay
deduction. She has already received her first $50 Bond.
This is obviously discriminatory. I am willing and eager
Regraded Unclassified
18
- 8 -
to put more than 10% of my salary into Bonds. But,
with Bonds so easy to get at once through banks,
department stores, even newsboys, as well as 8. repre-
sentative right in my office, I decline to risk using
the manifestly inefficient, slow, and untrustworthy
pay deduction plan as it operates in this Department.
Stanley Meduski, Meats, Groceries, Fruits, Vegetables,
Florida, New York. As an American citizen, I make this
appeal. You and your office are doing 8 great job in
raising money to pay the expenses of this war by sell-
ing War Bonds, but do they have time to contact all
people? No, they cannot leave their business and sell
War Bonds, cause most of them say their business comes
first, all over this country -- I know from daily expe-
rience by contacting the people in my Market. All they
care is what can I grab for my dollar, or what the
Government will take from us next. This goes on daily
by your American people. The least our Government can
do is make them buy War Bonds, and the only way to sell
those people that are against our Government order is
by contacting them, and they should be contacted by a
uniformed man. My ambition is to promote the sale of
War Bonds. This I could do 24 hours each day, and to
further the sale of Bonds I have promoted shows, amateur
nights, etc., to raise money for first aid units, for
Red Cross, for ambulance funds, and now I have promoted
a sale of War Bonds in my market and sold to farmers
$25 and $50 Bonds to the amount of $3,850, just by having
a War Bond day. This is not boasting, I will lay
everything to one side and work for my Government, and do
everything in my power to help my Government to win this
War.
Virginia V. Vedder, Draftsman's Division, U.S. Patent
Office, Richmond, Va. I have been strongly advised to
write you personally in regard to two War Bonds pur-
chased by me through the Richmond Army Recruiting and
Induction Station while employed there by the War Depart-
ment. I have written to the Chief of Finance, Defense
Bond Division, New Armory Building, where application
Regraded Unclassified
19
- 9 -
was made, but can get no response. Quite 8. number of
us entered into the payroll agreement to purchase 8.
Bond a month. We were told it would take from 30 to
60 days to get delivery on them. It now has been 130
days for the first one, and 100 days for the other, - -
AND WE CAN'T GET ANY ANSWERS TO OUR QUESTIONS ABOUT THEM!
You can understand how much more satisfactory it would
have been for us to go somewhere and buy them and HAVE
them, but the Army wanted it handled through payroll.
#
We just can't believe that this is the way the Government
wants the Bonds sold. We don't even know when our in-
terest begins, or anything about them. My Bond buying at
the Patent Office, where I am now employed, is a different
matter - we get our Bonds just as soon as they are paid for.
Claudius 0. Johnson, The State College of Washington,
Pullman, Washington. A few days ago the leading busi-
ness organization of this town told its members not to
buy any Bonds for the present. Why not? Because we
are going to have a "shindig" in town next week. The
Standard Oil Company of California is sending 8. fancy
truck to town. There is to be & big parade and Bonds
are to be sold then. Does not this sort of thing (which
I am sure goes on in thousands of other towns) show the
inadequacy and insincerity of the promotion scheme for
voluntary Bond buying? I am doing all I can, however,
to cooperate with local Bond sales, and I have been asked
to make the principle address and shall do my best for
you. But I, with a growing number of my fellow citizens,
am convinced that the voluntary Bond buying plan is
wholly inadequate. It doesn't sell enough Bonds, and
it doesn't sell the Bonds to the right people. May I be
BO impertinent, Mr. Secretary, as to suggest once more
that we tackle this Bond buying proposition in a real-
istic way and without any further delay. Compulsory Bond
buying is the only answer, as I see it, and the people
should be buying at least $2,000,000,000 worth 8. month.
Mrs. I. J. Ives, Hazen, Ark. (On reverse of form letter
to farmers, re Bond buying.) I'm telling y ou why I can't
buy another Bond. My son is being drafted November 15,
and this is what he is having to do. Dispose of 1,000
Regraded Unclassified
20
- 10 -
bushels of rice; equally large quantities of soy beans,
oats, hay, cotton, and lespedesa; a herd of dairy and
beef cattle; hogs and poultry at a. sacrifice; store
his machinery; and put a 900-acre farm out of produc-
tion next year. I am 67 years of age and can't live
here alone, so I am buying a railroad fare to far into
the North to live with 8. sister. * * We have neigh-
bors who only raise one or two bales of cotton, and
are exempted because they are farmers. If the local
board could have a salary so they could go out and see
who is producing and who is not, they could make a bet-
ter decision, and send the ones who are not producing
much to the Army. # # I know the President can't go
out and see all the farmers, but he could have some one
do it.
"Stromberg Carlson Company", Rochester, N.Y. I am writing
this letter in regard to our Bonds. We wait as long as
three and four months for our Bonds, and then when we
get them, they are dated around the week before we re-
ceive them. They are paid for a couple of months before
we receive them, then they are not dated when they are
paid for. Is the company we work for using our m oney
for something else-when we get our Bonds paid for, we
expect to get them the next week, as other companies do.
This concern is "Stromberg Carlson Co.", and although
they are having lots of waste material, which can be
avoided, the waste is not necessary on such materials
as silver, platinum, gold and copper. If you can do
anything about this, I wish you would, and thanks 8.
million.
Regraded Unclassified
21
- 11 -
Favorable Comments on Taxation
Lt. Col. J. L. Perkins, U.S.M.C., San Diego, Calif.
I am delighted with the new income tax Bill. However,
there is one recommendation I wish to make in connec-
tion with its enforcement. Appropriate steps should
be taken to insure that the hundreds of thousands of
defense workers on the 1942 payrolls be required to
pay their proper tax on these present incomes, which
arehigher than they ever received before. Many of
the civilian employees receive as much pay as I do,
and 8. great many receive more! My tax for this year
will be $600, which I must pay, as the Income Tax
Division has 8. record of me. But they have no record
at all of the countless thousands receiving high wages,
and who have never filed an income tax return. For
the sake of convenience to all, and to insure that none
escape, I further recommend that the tax be taken out
at the source for all persons carried on payrolls, and
paid by check. Otherwise, the Government will lose the
greater part of it.
George W. Spayth, Typewriter strategist No. 144,
Editor, The Spayth Weeklies, Dunellen, N.J., encloses
an article entitled, "Let's Put Up and Shut Up", and
writes as follows: What this country needs is a tax
plan that cannot be consistently opposed by the guy
waving a Flag as he cheers the other fellow in uniform.
Maybe if you will read the enclosed editorial carefully,
you might agree that here it is.
E. Foster Webb, Park Hotel, Plainfield, N.J. ***
Any one not willing to pay a reasonable percent on sal-
ary earned, does not belong here, and I don't mean on
a minimum of $500, $600 or $700, but a percent on every
dollar earned. I think this is the least we can do.
Make it stiff! If we are beaten, what good will any
amount of money earned be to us, we had better be dead.
Every cent that I can possibly spare will be invested
in Defense Stamps and that won't be too much. You are
doing a proud job -- more power to you!
Regraded Unclassified
22
- 12 -
Campbell Holton, (Wholesale Groceries), Bloomington,
Illinois. There seems to be a rolling tide, all over
the country, in favor of the 10% Retail Sales Tax, with
no exceptions whatever. This will be a little sacri-
fice, of course, but it is a sacrifice the people are
waiting to give to the war effort, and to take care of
this seven billion dollars you are short, for your
estimate. We feel sure that your influence would count
more than any other man in the United States, in bring-
ing this about.
Mary Elizabeth Osborn, Department of English, Hood
College, Frederick, Maryland.
As
I
try
to
under-
stand the present tax proposals, it seems to me that
I should plan to pay in March, 1942, an income tax
amounting to about 20% of my salary. Ever since I be-
gan teaching, nearly 20 years ago, I have been putting
as much money as I could spare (it now amounts to 20%
of my salary) into annuity retirement insurance in the
hope that it would provide security for my old age. In
recent years, it has become necessary for me to contri-
bute another 20% of my salary toward the support of my
father and mother. This leaves me 40% of my salary to
live on, and since my salary is $2,000, this 40% amounts
to $800 a year. I have no reserve to draw on. In
order to cooperate in any savings plan which is to be
superimposed on my present one, or in order to pay taxes
much heavier than those now contemplated, I shall have
to abandon my retirement insurance, inasmuch as that is
the only place where curtailment of my expenses is now
possible. If the Government wishes this particular
sacrifice of me for the War effort, I am willing to
make it; only I want to be told about it plainly, in so
many words, and as long in advance as possible.
If someone in your Department can be found who will take
the time to answer my letter in plain, simple, unofficial
language, I shall be grateful. I am writing as a private
individual, not officially as a member of a college
faculty.
Regraded Unclassified
23
- 13 -
Unfavorable Comments on Taxation
Josephine A. Dawson, Columbus, Ohio. I, along with
countless others in this community, will appreciate
a public statement from you as to why it is necessary
to increase the Social Security payroll deductions as
of January 1, 1942, in view of the extremely heavy
war taxes being cast upon us. If, as we have always
been told by our Government, these payroll deductions
are used "for old age benefits", is it not true that
at the present rate of deduction, there is ample funds
to carry the fund -- even funds in excess of those
necessary for current demands?
George B. Hill, Los Angeles, Calif. As an investor,
I have noticed with appreciation several moves of your
Department to decrease red-tape-for-its-own-sake, but
what is the sense of the 1941 revision of Form 1,000,
Bond coupon ownership certificate? Why harass bondholders
with a request for the date of issue of their Bonds,
which has not heretofore been asked for, serves no obvi-
ous purpose, and requires the bondholder to do 8. job of
research for each issue of Bonds that he holds? # #
Edwin Ellett Gano, Public Accountant, Elizabeth, N.J.
In addition to being a continual subscriber to War Bonds,
I am now, together with all C.P.A.'s requested to in-
terest clients in the issues of Tax Bonds, which I am
doing gladly, and to date, have seen one client buy
$25, 000, and will continue to buy more each month, and,
while all this is going on, I am at B. loss to understand
why something is not done to collect amounts due from
tax evasion cases, and especially one that has been in
the Department ready to collect for 22 months, represent-
ing well over $100,000. What Government employee is
being paid 8. salary to allow such matters to drag along
in this manner? I refer especially to the case VS.
N. Marcalus, and Marcalus Manufacturing Company, and
when I have tried to get information on the matter, I
received nothing but evasions of the poorest sort, that
would not be tolerated in any business enterprise, and
surely are nothing to inspire confidence in the Treasury
Department. * # *
Regraded Unclassified
24
TREASURY
OFFICE OF SUGNAMANT
Catober 16. 1942
COMPENHIAL
Received this date from the Federal Receive
Bank of New York, for the confidential informa-
time of the Secretary of the Treasury, compile-
ties for the week quâvă October 7. 1942, showing
dollar disbursements on) of the British Expire
and French assounts at the Federal Reserve Bank
of New York and the means w which these expenditures
wase financed.
(Init.) B.M.A.
imo:9/27/42
Regraded Unclassified
25
C
o
P
Y
FEDERAL reserve BANK
OF NEW YORK
October 15, 1942
CONFIDENTIAL
Dear Mr. Secretary: Attention: Mr. H. D. White
I am enclosing our compilation for the week ended
October 7. 1942, showing dollar disbursements out of the
British Empire and French accounts at this bank and the means
by which these expenditures were financed.
Faithfully yours,
/s/ L. W. Knoke
L.W. Knoke,
Vice President.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Enclosure
Copy: ime: 10/27/42
Regraded Unclassified
APALYSIS OF BRITZED AND ACCOUNTS
(In Millions of Dollars
October 7.1912
BARK OF ENGLI ID (BRITISE DOVERNMENT)
OF
DEBITS
CREDITS
DEBITS
CREDITS
Proceeds of
Gor't
Sales of
Net Incr.
Total
Expendi- Other
(+) or
Cov't
Total
Securities
Other
Decr.(-)
Total
Expend:-
Other
Total
of Onld
Other
PERIOD
Debits
tures(a)
Debite
Credite
Gold
IT,
Credita(s)t
in Balance
Debite
terms (d)
Debits
Credits
Sales
Credita
in
Balance
First year of war
(8/29/39-8/28/40)*
1,793.2
605.6
1,187.6
1,828,2
1,356.1
52.0
420.1
+ 35.0
866.3(e)
(16.6(e)
449.7
1,095.3(a)
900.2
195.1(e)
+229.0
War period through
December, 1940
2,792.3
1,425.6
1,356.7
2,793.1
2,109.5
108.0
575.6
+ 10.8
878.3
421.04
456.9
1,098.4
900.2
198.2
+220.1
Second year of war
(8/29/40-8/27/41)-0
2,203.0
1,792.2
410.8
2,189.8
1,193.7
274.0
722.1
- 13.2
38.9
4.8
M.I
8.8
-
£
30,1
1941
Aug. 28- Oct. 1
140.9
105.9
35.0
176.2
20.1
2.0
154.1
35.3
0.3
-
0.3
0.5
-
0.5
- 0,2
Oct. 2 - Oct. 29
109.0
77.3
31.7
150.9
0,8
-
150.1
+ 41.9
0.3
-
0.3
0.3
-
0,3
-
Oct. 30 - Dec. 3
156,1
111.6
44.5
134.6
-
1.0
133.6
- 21.5
16.1
-
16.1
0.6
-
0.4
Dec. 4- Dec. 31
69.6
- 15.7
88.4
18.8
51.5
-
-
51.5
- 36.9
0.8
-
0,8
0.4
-
0.4
- 0.4
1942
Jana 1 - Jan, 28
102,3
73.2
29.1
69.3
-
0.5
68,8
- 33.0
0.2
-
0.2
0.4
-
0.6
+ 0,2
Jane 29 - Feb. 25
87.2
63.8
23.4
57.2
-
1.0
56.2
- 30.0
-
.
-
0.3
-
0.3
. 0.3
Feb. 26 Apr. 1
121.4
86.4
35.0
171.4
-
-
171.4
+ 50.0
0.1
-
0.1
0.6
-
6.1
04.2
33.9
0.5
70.1
- 27.5
as
# 0.3
ADT. 2- ---- 29
70.6
-
0.2
-
0.2
0.4
-
0.6
. 0,2
Apr. 30 - - June 3.
2040
81.4
22,6
165.7
-
-
165.7
+ 61.7
-
-
-
C.3
-
0.3
+ 0.3
June 4- JULY 1
10.0
72.6
17.3:
113.6
-
0.5
113.1
+ 23,7
-
-
-
C.3
4
0.3
- 0.3
July 2- July 20
66.1
45.9
20.2
84.4
-
-
84.4
+18.3
0.1
-
0.1
0.3
-
0.3
+ 0.2
July 30- Sept. 2
72.2
52.9
19.3
116.1
0.9
-
115.2
+ 43.9
0.4
-
0.4
0.4
-
0.4
E
Sept. 3 Sept.30
50.1
37.1
19.0
81.6
-
0.5
81.1
+25.5
10.1
-
10.1
0.4
-
0.4
- 9.7
WEEK ENDED:
Sept. 16
12.5
4.3
8.2
22.6
-
-
22.6
+ 10.1
-
-
-
0.1
I
0.1
+ 0.1
23
11.8
2.2
4.6
11.1
-
.
11.1
- 0.7
-
-
-
0.1
-
0.1
+ 0.1
30
12.3
2.9
444
21.0
-
-
21.0
+ 8.7
10.1
-
10.1
0.1
-
0.1
- 10.0
Oct. 2
21.6
15.3(d)
6.3
14.6
-
-
14.6(f
7.0
I
-
-
0.1
-
0.1
+ 0.1
Average Weekly Expenditures Since Outbreak of Ner
Transfers from British Purchasing Commission to
France (through June 19, 1940) $19.6 million
Bank of Canada for French Account
England (through June 19, 1940) 27.6 million
Week ended October 7, 1942
-
million
England (since June 19, 1940) 34.5 million
Cumulation from July 6, 1940
162.7
million
*For monthly breakdown see tabulations prior to April 23, 1941.
**For monthly breakdown 660 tabulations prior to October B, 1941.
(See attached sheet for other footnotes)
(a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Malatry of
Supply Timber Control,and Ministry of Shipping.
(b) Satimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
proceeds of official British sales of American securities, including those effected through direct negotiation. In addition
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the
early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any socuracy. According
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation
of our securities through December, 1940 amounted to $334 million,
(c) Includes about $85 million received during October, 1939 from the accounts of British authorised banks with New York banks,
presumbly reflecting the requisitioning of private dollar balances, Other large transfers from such accounts since October,
1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar
receipts.
(d) Includes payments for secount of French Air Commission and French Purchasing Commission.
(o) Adjusted to climinate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(f) Includes $12.2 million deposited by the British Ministry of Supply.
(g) Includes payment of $8.0 million to Packard Motor Car Co. presumably on old contracts.
Regraded Unclassified
AMALYSIS OF CANADIAN AND AUSTRALIAN
(In Millions of Dollars)
Week Ended October 2. 1942 Confidential
BANK
OF
CAMADA (and Canadian Government)
COMMONWEALTH BANK OF AUSTRALIA (and Australian Government)
DEBITS
CREDITS
DEBITS
CREDITS
Transfers
Transfers from Official
Transfers
3
Proceeds
British A/C
Net Incr.
to
Proceeds
Net Incr.
Official
of
(+) or
Official
of
(+) or
Total
British
Other Total
Gold
For Own
For French
Other
Decr. (-)
Total
British
Other Total
Gold
Other
Decr. (a)
PERIOD
Debite
A/C
Debite
Credits
Sales
A/C
A/C
Credits
in Balance
Debits
A/C
Debits
Credits
Sales
Credits
in Balance
First year of war
(8/29/39-8/28/40)*
323.0
16.6
306.4
504.7
412.7
20.9
38.7
32.4
+181.7
31.2
3.9
27.3
36.1
30.0
6,1
+
War pariod through
December, 1940
477.2
16.6
460.6
707.4
534.8
20.9
110.7
41.0
*230.2
57.9
14.5
7°C7
62.4
50.1
12.3
+ 4.5
Second year of war
(8/29/40-8/27/41)**
460.4
-
460.4
462.0
246.2
3.4
123,9
88.5
+ 1.6
72.2
16.7
55.5
81.2
62,9
18.3
- 9.0
Auto 28 - Oct, 1
23.1
-
23.1
52.2
21,2
-
-
31,0
+ 29.1
10.7
0.5
10,2
2,8
2,1
0,7
- 7-9
1941
Oct. 2 - Oct, 29
37.4
.
37.4
19.7
11.9
.
-
7.8
- 17.7
8,2
5,5
2,7
8,0
529
2,1
+ 0,2
acts 30 - Dec. 1
52.8
0.1
52,7
32,5
19,3
-
-
13,2
- 20.3
10.3
6.9
3.4
11,6
9.0
2,6
+ 1,3
Dec. 4- Dec. n
47.7
-
47.7
22,2
17.3
-
-
4.9
- 25,5
3,9
1,8
2,1
2,8
0,2
2.6
- 1.1
1942
dan. 1- Jan. 28
39.5
-
39.5
33.0
27.0
.
-
6.0
- 6.5
4.5
-
4.5
10,8
-
10,8
+ 6.3
Jan. 29 Feb, 25
34.1
-
36.1
35.7
12.4
-
-
23.3
. 1,6
8,4
5.3
3,1
1.6
-
1,6
- 6,8
Feb. 26 Apr. 1
46.5
-
66.5
99.3
20.5
7.7
-
71d
* 52.8
7.8
1.3
6,5
3.6
-
3.6
- 4.2
for, 2 - лог. 29
37.6
1
37.4
35.9
14.2
I
I
21.7
- 1.5
10.9
8.0
2.9
16.8
-
16,8
+ 5.9
ARC. 30- June 31
54.2
-
54.2
47.9
15.7
-
-
32.2
- 6.3
13,2
9.5
3.7
16.6
-
14.6
. 16
June 4- July 1
47.2
1
47.2
72.9
14.7
-
-
58.2
+ 25.7
2,5
0.5
2,0
3.0
-
3.0
- 0.5
July 2 - July 29
40.8
-
10.8
37.7
9.0
-
-
28.7
- 3.1
19,1
15.0
4.1
19.5
-
19.5
+ o
July 30 - Sept. 2
05.1
0.2
64.9
77.3
15.4
-
M
61.9
+ 12.2
7.7
3.1
4.0
17.1
1
17.1
+ 9.2
Sept. 3- Sept. 30
46.3
-
46.3
53.6
13.2
-
-
40.4
+ 7.3
28.0
20.5
7.5
18.1
-
18.1
- 9.9
-
Sept. 16
13.7
13.7
10.9
2.2
-
-
8.7
- 2.8
-
0.5
I
0.5
0.5
-
0.5
-
23
9.3
9.3
9.8
3.6
-
1
6.2
+ 0.5
0.7
-
0.7
0.5
-
0.5
- OA2
E
17.0
17.0
20.0
4.6
-
-
30
15.4
+ 3.0
13.0
10.5
I
2.5
14.5
-
16.5
+ 1.5
Oct. 7
8.2(a)
8.2
11.0(a)
3.0
-
-
8.0(b)
+2.8
0,6
I
1
0.6
1.9(d)
-
1.9(c)
+ 1.3
hally of Total Debits Since Outbreak of Mar
For monthly breakdeen see tabulations 20 prior to April 23, 1941.
Through October 7. 1942
8.3
million
- For monthly breakdown see tabulations prior to October 8, 19/3.
(a) Does not reflect U. S. Treasury bill transactions.
(b) Includes $2.9 million representing proceeds of U. S. Government checks deposited by to War be Supplies, Lto
(c) Includes $1.0 million credited to Australia for account of Treasurer of the U. S. applied against U. S. currency and Treasury checks negotiated by
the
Regraded Unclassified
29
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 357
Information received up to 7 A.M., 16th October, 1942.
1. NAVAL
Repeated U-boat attacks on E. homeward bound convoy from SAYABA
during the night 14th/15th were driven off. One of H.M. submarines reports having
torpedoed a large tanker off North East SARDINIA. Another of H.M. submarines has
sunk two ships off NAPLES.
2. MILITARY
MADAGASCAR. By 13th evening our troops had captured the remaining
French positions north of AMBOSITRA. The following morning our leading elemento
occupied the town. The situation is quiet.
3. AIR OPERATIONS
WESTERN FRONT. 15th. 23 Bootons with strong fighter protection
bombed the docks at HAVRE and claim to have hit one ship. Four Mosquitos made FL
Low level attack on an engineering and diosel engine works at ONGELO. Many bursts
were saen on the objective. One Mosquito bombed the docks at DEN HELDER. Two
trawlers and an E-boat were damaged by Hurricane bombers at a small port in North
BRITTANY. One Spitfire is missing. 15th/16th. 289 aircraft were sent to attack
COLOGNE. 18 bombers are missing and one crashed.
LIBYA. 14th. 3 U.S. Fortresses bombed TOBRUK and obtained hits or
near misses on shipping.
MALTA. 14th/15th. 24 enemy aircraft approached the Island, one WELG
thot down. 15th. 110 Spitfire sorties were l'lown agninst 251 by the enemy. In
wo out of four attacks escorted bomb carrying Messerschmidts were usod. No
terial damage was caused. 14 enemy aircraft were destroyed, 4 probily destroyed
13 damaged. Four Spitfires aro missing, 3 pilots safe.
MEDITERRANEAN. 14th. Three Beaufighters bombed and machine gunned
small ship and one destroyer off HOMS. Results wore unobserved, but two Benu-
(hters wore shot down. At night a 7,000 ton enemy ship WELS torpedoed by a Naval
trcraft east of HOMS (L).
RUSSIA. On the STALINGRAD Front German bombers attacked a Russian
troops and supply columns cast of the VOLGA and claim to have sunk a medium sized
ship. German dive bonbers supported ground attacks on the road from MAIKOP to
TUAPSE.
Regraded Unclassified
30
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEOct.16,1942
TO
Secretary Morgenthau
Mr. Hoflich
FROM
Subject: Japanese and United States Pacific Naval Losses
1. U.S. Naval communiques dated October 6 - 15, 1942,
reveal the following additional Japanese and U.S. naval
losses in the Pacific:
a. Japanese
(1) Solomons. Sunk - one cruiser, 4 destroyers,
one transport; probably sunk - one
destroyer; damaged - one battleship,
4 cruisers, 3 transports, 2 cargo
ships.
(2) Aleutians. Probably sunk - one cargo ship;
damaged - one cargo ship.
(3) New Guinea. Sunk - one transport; damaged -
one destroyer.
(4) By U.S. submarine action. Sunk - one cruiser,
2 cargo ships, one tanker, one
trawler; probably sunk - one cargo
ship; damaged - 2 tankers.
b. United States: Solomons. Sunk - 3 cruisers
(Aug. 8 - 9, 1942), one destroyer.
2. Losses announced in U.S. Naval communiques since Pearl
Harbor total:
a. Japanese: 171 vessels sunk, 33 probably sunk, 143
damaged.
b. United States: 50 vessels lost, 12 damaged.
Regraded Unclassified
- 2 -
31
Table I
Total Japanese Vessels Sunk and Damaged
to October 15, 1942
Combatant Vessels
Probably
Type
Sunk
Sunk
Damaged
Total
Battleships
o
0
6
6
Aircraft Carriers
6
1
4
11
Cruisers
13
3
33 #
49
Destroyers
30
9
16
55
Submarines
6
1
7
14
Tenders
1
1
5
7
Others
13
2
14
29
Totals
69
17
85
171
Non-Combatant Vessels
Fleet Tankers
11
0
7
18
Transports
27
7
19 #
53
Cargo and Supply
50 #
7
21
78
Miscellaneous
14
2
11 #
27
Totals
102
16
58
176
TOTAL ALL TYPES
171
33
143
347
Also several additional vessels.
Regraded Unclassified
- 3 -
32
Table II
American Naval Vessels Sunk and
Damaged to Oct. 15, 1942
Demolished to
prevent
Type
Lost
capture
Damaged
Total
Battleships
1
o
1
2
Aircraft Carriers
2
o
0
2
Cruisers
4
o
2
6
Destroyers
12
1
6
19
Submarines
3
1
0
4
Motor Torpedo Boats
2
1
0
3
Submarine Tender
o
1
0
1
Aux. Seaplane Tender
1
O
1
2
Mine Craft
5
2
o
7
Gunboats
3
1
0
4
Tankers
3
o
0
3
Tugs
o
1
0
1
Transports
4
0
2
6
Target Ship
1
0
0
1
Floating Drydock
0
1
o
1
Total
41
9
12
62
Regraded Unclassified
- 4 -
33
Table III
Japanese and American Vessels Sunk and
Damaged in the Solomon Islands
(Aug. 7 - - Oct. 15, 1942)
Japanese Losses
Probably
Type
Sunk
Sunk
Damaged
Total
Battleships
o
0
2
2
Airoraft Carriers
o
0
2
2
Cruisers
1
o
16 #
17
Destroyers
5
2
5
12
Submarines
1
0
0
1
Tenders
0
0
2
2
Tankers
0
0
1
1
Transports
2
1
4 +
7
Cargo and Supply
0
0
6
6
Miscellaneous
4 *
0
6 #
10
Total
13
3
44
60
American Losses
Cruisers
4
2
6
Destroyers
3
2
5
Transports
4
1
5
Total
11
5
16
.
Also several additional vessels.
Regraded Unclassified
- 5 -
34
Table IV
Japanese Vessels Sunk and Damaged in the Aleutian
Islands (June 15 - October 15, 1942)
#
Probably
Type
Sunk
Sunk
Damaged
Total
Cruisers
1
o
5
6
Destroyers
6
1
2
9
Submarines
0
1
5
6
Transports
2
1
6
9
Cargo and Supply
4
1
6
11
Minesweepers
2
0
0
2
Miscellaneous
1
o
1 **
2
Total
16
4
25
45
*
No American vessels have been reported lost and damaged in
this area to date.
** Also several additional vessels.
Regraded Unclassified
35
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Oct. 16,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Summary of Intelligence Reports
Russian Submarines in Gulf of Bothnic
Reports from Helsinki indicate that Russian submarine
operations in the Gulf of Bothnia are causing considerable
worry to the Finnish authorities. During the past month,
these submarines have destroyed three freighters outward
bound from the Finnish port of Bjorneborg.
(0.8.8., "The War This Week", October 1-8, 1942)
Size and Disposition of German Army
In a memorandum of October 8, 1942, I gave the follow-
ing British estimate of the distribution of the German Army:
Russia
178 divisions
Poland
9
Finland
OR
France and Low Countries
36
Denmark
2
Balkans and Aegean
7
North Africa
4
Germany
45
Total
296
#
It now appears, from a later British report, that all of
the divisions in Germany (now 47), Poland and Denmark, four
or five of those in France, and 5 in Russia are merely either
administrative headquarters or training divisions. This outs
the total figure to 230 or 231 regular divisions, and shows
the German military position in Western Europe to be much
weaker than as indicated by the earlier estimates.
(U.K. Operations Report, October 1 - 8, 1942)
Regraded Unclassified
- 2 -
36
Burma
Apparently the Japanese in Northern Burma are
preparing for further military activities. United Nations'
reconnaissance planes have reported a large increase in
enemy air activity in this region. Construction work is
in progress at a number of airdromes and there is evidence
of increased shipping activity.
(0.S.S., "The War This Week", October 1 - 8, 1942)
Regraded Unclassified
37
10-16-42
NTELLIGENCE REPORT 45
THE DIRECTOR
V in 1 11 $ 3 1 B / N r STATE A 5
- by lever by
\ & I Y & the
OFFICE OF
WAR INFORMATION
BUREAUOF
INTELLIGENCE
COPY No.
7
Henry Morgenthau, Jr.
Regraded Unclassified
CONTENTS
Page
ATTENTION FOCUS
1
EDITORIAL ATTITUDES
2
The President's Speech
2
Economic Controls
3
Progress of the War
4
DEVELOPING SITUATIONS
5
Post-War Planning
5
Foreign-Born Groups in Manhattan
9
Day-Care of Children
15
Jim Crow Abroad
16
ENEMY PROPAGANDA
18
The President's Speech
18
The Biddle Speech
18
Wedge Driving
19
Tailor-Making Goering's Speech
20
Regraded
The period covered by this report Is the
week of October 8 through October 14, ex-
cept where otherwise specifically stated
ATTENTION FOCUS
Only the Navy's announcement that three United States
cruisers were lost in the August attack on the Solomon
Islands and fresh Nazi attacks in the Caucasus checked
the week's flow of optimistic news from the fighting fronts. Press and
radio kept public attention riveted on the successful defense of Stalingrad.
American military action in New Guinea, the Aleutians, the Solomons, and
the raid on Lille by Flying Fortresses, were all reported prominently and
encouragingly.
The President's speech of Monday evening was the big domestic news of the
week. Most reports emphasized its call for the drafting of 18- and 19-year
olds. It is estimated that the speech was heard by 58.9 per cent of all
radio homes in the United States, comprising some 45,685,000 adult indi-
viduals -- an audience larger by approximately eight and one-quarter
million than that which listened to his Labor Day address on inflation.
Congressional tax action and the scrap metal drive were also major home
topics.
Sumner Welles' charges against Argentina and Chile and the postponement
of President Rios' visit to this country were treated dramatically, though
not as of first rate importance.
Wendell Willkie's Far Eastern visit received only secondary headlines.
- 1 -
EDITORIAL ATTITUDES
material; and the answer is as stated by Mr. Roosevelt."
THE PRESIDENT'S SPEECH
ECONOMIC CONTROLS
To most editorial commentators, the President's fireside
Editorial comment about fiscal problems centered around opposition to the
talk of Monday evening reflected strong leadership and a
buoyantly hopeful attitude toward the progress of the war. Their discussion
Treasury's proposed methods of collecting higher taxes, disappointment over
the amount of revenue to be provided by the Senate Finance Committee's bill,
of it reflected a clearer sense of direction than they have exhibited at any
time in recent weeks.
dissatisfaction with specific levies, such as the "victory tax," and agita-
tion for a sales tax as the panacea of all tax troubles.
There was very little specific criticism of the address. Commentators
Attacks on the Treasury, in large part, took the form of protests against
applauded Vr. Roosevelt's generous commendation of Congress. A few objected
the announcement that a new tax bill to raise additional billions will soon
to his verbal spanking of "typewriter strategists," but avoided inflating
this into an issue,
be offered. "It is not so much the extra burden proposed by the Treasury
as the prolongation of uncertainty that is regretted," said the Philadelphia
The speech was discussed, for the most part, in terms of its delineation
Bulletin in an editorial typical of press reaction.
of the manpower problem. There was general satisfaction over the President's
Criticism of the Senate Finance Committee - much milder than that directed
proposal to solve this problem by voluntary methods if possible. The New
York Times, in a representative comment, said: "He is certain, and with
at the Treasury - was based chiefly on the argument that its bill will not
raise enough revenue to prevent inflation. The Hartford Courant, for
good reason, that the country will accept a compulsory draft of manpower,
if that is the best way or the only way to solve the problem; but his pre-
example, observed: "Nine billions taken out of the pockets of the people
ference is wisely for a thorough trial of the voluntary method before that
is not enough to close the gap between goods available and money on hand."
stage is reached."
There was little comment and even less enthusiasm respecting the "victory
On every hand, there was praise for the President's decision to bring 18-
tax." The Ruml plan received some support, but not in any considerable
and 19-year old men into the armed forces. Even the New York Daily News
volume. In general, newspapers want a sales tax or some other form of
remarked in this connection: "The question is not whether the younger men
taxation which will impose heavier burdens on the lower income groups.
have finished their schooling, or whether their mothers do or don't want
Comment on the initial acts taken by Mr. Syrnes as Economic Coordinator was
them to go to war. The question is what age group yields the best fighting
generally sympathetic. The one aspect of the President's directives in
- 2 -
- 3 -
Regraded Unclassified
respect to inflation control about which commentators were somewhat criti-
cal was the matter of wage stabilization.
The new Rubber Administrator, William Jeffers, evoked a round of editorial
applause by his first appearance before a congressional committee. His
"tough talk" in insisting that he would not be influenced by pressure
groups was taken by most of the press as a good omen for the future. The
appointment to responsible posts of such men as Jeffers, Wilson, Byrnes
and Eberstadt has produced a mild wave of editorial comment that the Govern-
ment is now buckling down to firm administration of its economic program.
PROGRESS OF THE WAR
Continued Russian resistance at Stalingrad has awakened a restrained jubi-
lance among the news analysts. They warned readers that German strength
must not be underrated and that the campaign in the Caucasus is still
menacing. The Berlin announcement that German tactics at Stalingrad had
been changed was generally viewed with skepticism.
A number of commentators, however, suggested that the successful defense
of Russia's key industrial city may mark a genuine turning point in the
war. The Hartford Courant, for example, thought it likely that the "Russian
defenders of Stalingrad may have put Hitler on the road to his Waterloo."
The Daily Oklahoman declared: "It is altogether possible that this global
war may be decided by Russian soldiers
Hopefulness about the war against Japan was somewhat modified by the Navy's
disclosure that occupation of the Solomons had been accomplished only at
- 4
the cost of three United States cruisers. For the most part, the Navy's
explanation of its delay in making this announcement was somewhat grudgingly
accepted as valid. The original reports, observed the Washington Star,
were "intended to mislead the enemy concerning the extent of the damage he
had done. If, incidentally, the American people also were misled, it must
be assumed that the necessity of protecting the men remaining in the
Solomons area was sufficient justification."
Commentators pointed to the loss of the three warships as further evidence
of the strength and resourcefulness of the Japanese. There is growing
uneasiness, moreover, concerning the continued Japanese landings in the
Solomons. The Dallas News remarked, for example, that "Our forces there
are not large and it is possible that they might be dislodged by a much
larger enemy attack force." On the whole, editorial commentators have
been giving the public a fairly sober and realistic view of developments
in the Pacific sector.
DEVELOPING SITUATIONS
POST-WAR PLANNING
(MONDAY
Recent statements by President Roosevelt and by other
Government leaders have encouraged the American people
to look forward to an improved social and economic organization of the
world when the war is ended. Nevertheless, public thinking about post-
war problems is wholly uncrystallized. Interviewing conducted by the
Bureau of Intelligence has shown that only a very small minority of Amer-
icans has any clear or concrete hopes about the nature of the post-war
- 5 -
world.
Little has been done by media of information to promote thinking about
post-war problems. A study of editorial comments in a nationwide sample
of 125 newspapers during the months of August and September reveals a
high degree of apathy concerning war aims and post-war planning. An over-
whelming majority of these newspapers has. refrained from endorsing any
definite pattern of future international collaboration.
Some newspapers and editorial commentators, it is true, have urged that the
Government undertake planning for the post-war world. But they have done
little to explain its importance and have confined themselves largely to
vague endorsements of the Atlantic Charter and the principles of the Four
Freedoms. They argue that we must cooperate in the future with the rest
of the world, but attempt no definition of the form which such cooperation
ought to take.
Those who advocate preparation for post-war conditions are almost counter-
balanced by a group of newspapers and commentators which argues that any
consideration of the future is likely to detract from the war effort, must
necessarily be visionary and impractical and may endanger the system of
private enterprise. Prominent among these opponents of post-war planning
are the Hearst and McCormick-Patterson newspapers, together with such
columnists as Benjamin DeCasseres and Westbrook Pegler.
The need for current consideration of post-war problems has been strongly
emphasized of late by authoritative Government spokesmen. In his broad-
cast of October 12, the President said: "It is useless to win a war unless
- 6 -
it stays won....We are united in seeking the kind of victory that will
guarantee that our grandchildren can grow and, under God, may live their
lives free from the constant threat of invasion, destruction, slavery and
violent death."
Speaking in Boston on October 8, Under Secretary of State Sumner Welles
declared: "One hears it said that no thought should be given to the pro-
blems of the peace, nor to the problems of the transitional period between
war and established peace, until after the war has been won. The s) 1-
lowness of such thinking, whether sincere or sinister, is apparent...
Earlier, Secretary Hull gave the clearest impetus to post-war planning.
He said in his address of July 23: "Without impediment to the fullest
prosecution of the war - indeed, for its most effective prosecution -
the United Nations should from time to time, as they did in adopting the
Atlantic Charter, formulate and proclaim their common views regarding
fundamental policies which will chart for mankind a wise course based on
enduring spiritual values."
But others in the Administration and in Congress have decried present
consideration of future problems. Representative Clare Hoffman of Michigan,
for example, asked just recently, "Why not wait until the war has been won
before dividing the earth's surface and people among the victors and de-
termining the form of government which shall be given to all?"
In a speech at Cleveland on October 6, Senator Harold H. Burton stated:
"We must not as a nation attempt to discuss the details of post-war condi-
tions because we cannot know the detailed premises on which to plan them.
- 7 -
We must not as a nation spend our precious fighting time on preparing de-
tailed terms of peace before we have won that peace."
In testifying before the Senate Agricultural Committee on October 12, the
Rubber Administrator, William M. Jeffers, gave some encouragement, pro-
bably unintentionally, to the opponents of post-war planning. When Sena-
tor Bankhead of Alabama expressed fear that rayon producing plants might
control the tire manufacturing business after the war, Mr. Jeffers said:
"Our job now is to win the war. Let's quit talking about what's going to
happen after the war."
Such concrete proposals as have been advanced for the post-war period
have been largely in the sterile framework of autarchy and armament.
Secretary of the Navy Knox, for example, told the American Legion con-
vention that "adequate preparedness for war is the best possible guarantee
against war" and advised them to "see to it that our nation never again
is left without weapons in a world where he who would be free must be
strong."
The indifference of press and public to post-war problems must be attri-
buted, at least in large measure, to a failure on the part of governmental
information policy to present clear-cut concepts of the post-war world.
Perhaps clear-cut concepts can evolve only from the sort of specific action
suggested by Secretary Hull, China's Minister of Foreign Affairs, T. V.
Soong, made this point recently in urging that an executive council of the
United Nations be established now as a means of evolving "a workable world
order, an international instrument fully capable of dispensing justice and
- 8 -
enforcing law and order among nations during, as well as after, the war."
The structure of the future can scarcely fail to be influenced by the
foundations laid in the present.
In his address to the Foreign Policy Association on October 3, Elmer Davis
said: "We in the information field are charged with a task which, if
rightly done, may make easier a more extensive and more intensive military
and diplomatic collaboration, for we believe that the more that is known
about the compelling reasons for continued cooperation of the United
Nations, the more surely that cooperation will be perfected and maintained."
But little has yet been done to clarify and publicize either the "com-
pelling reasons" or the nature of practical measures toward cooperation,
such as Lend-Lease agreements, which have already been undertaken.
As things stand now, Americans have no positive specific goals to fight
for. Nor have the United Nations any concrete, realistic program to
which the neutrals and the conquered can be rallied. They fight as people
who prefer to win rather than lose a war - not as people inspired by a
hope and a faith in the future.
FOREIGN-BORN GROUPS IN MANHATTAN
Almost three million people born in Germany and Italy are living in the
United States. One million of these have been in the legal status of
"enemy aliens" but all, in some way or other, feel the special effects
of having been born in one of these countries with which we are now wag-
ing war. Among them are some 90,000 refugees, most of them anti-Fascists,
but sharing with German and Italian aliens the restrictions imposed by
- 9 -
the United States on "enemy aliens," due to their having been born in one
of these countries.
The Italian-Born
A study recently conducted by the Bureau of Intelligence among foreign-
born groups in New York City supports the thesis of Attorney General
Biddle that most Italian-Americans are loyal. Even among those Italian-
born people who feel a strong sentimental attachment for their homeland,
there are relatively few who lack a sense of loyalty to the United States.
The majority of the Italian-born people interviewed think of themselves
as Americans; another large group think of themselves as both Americans
and Italians.
Perhaps a third of the Italian-born people in the sample have vague or
clearly defined pro-Fascist tendencies, and are therefore susceptible
to Fascist propaganda. The most common complaint among the people in
this group is that they have been made to feel like "second class" im-
migrants.
Even these people, however, must be sharply distinguished from those with
pro-Nazi leanings among the German-born. Their tendency to approve many
of the policies of their mother country is seldom the result of a systematic
indoctrination with Fascist ideology and is rarely developed into a defi-
nite structure of beliefs. It stems rather from a nostalgic attachment
to the particular region in which they were born, where, in many cases,
they still have relatives and friends.
The contrast between the Italian-born and the German-born was one of
- 10 -
the most notable which emerged from the study. Because the sample was
small and not altogether representative, the quantitative findings of
the study are not believed to be altogether trustworthy, although its
general conclusions are significant. Interviewing was completed before
the recent announcement that most Italians will be removed from the enemy
alien classification on October 19. It may be confidently expected that
this step will strengthen the identification of aliens and citizens of
Italian origin, wherever their present sympathies lie, with the United
States. And it will weaken their identification with the present govern-
ment of Italy, which they are already inclined to regard as an involuntary
partner and semi-captive of Nazi Germany.
The Italian-born people interviewed are, in general, extremely confused
in their thinking about the war. They disapprove strongly of America's
major allies, Britain and Russia. But, although they have great con-
fidence in the German military machine, they have no love for the Nazis.
They are dissatisfied with America's conduct of the war. Nevertheless,
the majority is confident that America will win. They are confused
about our war aims and inclined to feel that this is not America's war.
Economically, the Italians have suffered a great deal as a result of
the war. A number complain that they were barred from jobs because of
their classification as enemy aliens. The increase in unemployment
among New York's textile workers earlier this year hit the Italian group
especially hard.
A majority of the Italian-born people interviewed are participating in
- 11 -
the war effort through buying war bonds, acting as blood donors, or
engaging in civilian defense activities. While there is some correlation
between participation in such activities and a feeling of devotion to
the United States, participation is not an altogether reliable index of
loyalty. Many of those who do not engage in civilian defense have a
positive attitude towards it; some have been excluded from participation
because they are not citizens. On the other hand, some pro-Fascists
make patriotic gestures as a way of covering up their true sentiments.
The German-Born
The minority of German-born residents with Nazi tendencies, although
they do not admit being pro-Hitler, are much more vehement than the
Italians in revealing their viewpoints. Many of them justify their Nazi
convictions with facts and arguments. And Germans are bound to their
mother country not so much by a nostalgic attachment to a particular
locality as by an intense nationalistic pride.
There is a difference, too, in the way in which the Germans and Italians
feel bound to their respective homelands and to America. The Germans
feel at least as well integrated as the Italians in American society. As
many as two-thirds of those interviewed regard themselves primarily as
Americans, and another sixth think of themselves as both Germans and
Americans. The interviews revealed, however, that a number of people
in both of these groups are definitely pro-Nazi. These individuals do
not see any inconsistency in their pattern of allegiance; they maintain
that America should be Nazified, and that only true Germans can be true
Americans.
- 12 -
The Germans share the anti-British and anti-Russian feeling of the Italians,
but put a somewhat higher appraisal upon the military prowess of these anti-
Axis powers. They have no more use for the Italians than the Italians have
for them. They are sharply critical of America's conduct of the war, both
at home and on the fighting fronts, although a majority believe that the
United States will ultimately be victorious. About a quarter of those
interviewed - including some worried anti-Nazis as well as some pro-Nazis
- are doubtful about the outcome of the war. A somewhat smaller group
expressed the belief that the war would end in a negotiated peace or an
outright Axis victory; and it must be remembered that other respondents
may have concealed such opinions. There was a pronounced tendency to main-
tain that this war is no business of this country's and to blame the war
on the United States, on England or on the existence of economic inequality.
In view of the prevalence of such beliefs, it is not surprising to find
that many of the German-born group refrain from taking an active part in
the war effort. As among the Italians, some of those who do participate.
in civilian defense activities evidently do so to conceal their anti-demo-
cratic leanings. Unlike the Italians, the Germans have not been adversely
affected economically by the war, because of their concentration in occupa-
tions which are in great demand. Nor has lack of citizenship been a factor,
since most of the Germans interviewed, both loyal and disloyal, have become
citizens.
Refugees
A group of refugees, including both Jews and non-Jews, was also studied.
Because of the short time these refugees had been in this country, only a
- 13 -
minority regard themselves as Americans. Only six per cent of the refugees
had attained citizenship. But they have had enough first-hand experience
with Fascism to understand why America is waging a war against it. They
are better informed about war issues than any of the other groups studied.
The older and better educated refugees show a notable interest in post-war
problems and in plans for the reconstruction of Europe.
The flaws in the morale of the refugee group grow out of their very eagerness
to win the war. Filled with anxiety as a result of their experiences in
Europe, many of them succumb to defeatist psychology or become hypercritical
of the nation's war effort. Many refugees are disturbed by the loss of
status they have suffered as a result of having to start life over in a
strange land.
AS non-citizens, many refugees are excluded by local practices from partici-
pating in civilian defense activities. Participation in the war effort throug
bond buying, blood donations and similar activities is high.
Attitude Toward Alien Regulations
Considerable criticism of America's alien regulations was voiced by respond-
ents in all groups. Most of those interviewed agreed that some alien regu-
lations are necessary. But there was a general belief that existing rules,
which will be changed October 19 for certain classes of Italians, are unjust
and ineffectual. The most common argument was that disloyal individuals are
usually naturalized citizens or, when they are aliens, cleve enough to
evade the operation of the regulations. Thus in practice, 11, is believed,
these regulations affect the innocent -- and often the ardent anti-Fascists
- more severely than they do the disloyal.
- 14 -
These opinions may exaggerate the defects of present alien regulations, but
the study suggests that there is no necessary correlation between loyalty
and citizenship status. Loyalty depends upon the degree to which the
immigrant is integrated into American society and the extent to which he
accepts American values and purposes.
DAY-CARE OF CHILDREN
Delays in providing community facilities for the day-care of children con-
tinue to retard the recruitment of women into the labor force. In some
places, too, the lack of such facilities is resulting in numerous absences
and a rapid labor turnover among married women workers.
Here and there war plants have stepped into the breach by establishing day-
care centers for children of their own workers. Such centers, however,
entail undesirable paternalism and are likely to create employer-employee
difficulties. Furthermore, few individual companies are in a position to
furnish well-rounded programs. In addition to providing nursery schools,
it is necessary to arrange for the care of small children within homes,
either through placement with foster families or homemaker helpers; to
provide supervision for somewhat older children before and after school
hours; and to make counselling service available to mothers. The conception
of what day-care must include is constantly expanding as new needs become
apparent.
Experience to date suggests that adequate programs require the utilization
of welfare facilities, schools and other community resources. The War
Manpower Commission specifically recommends that programs be developed on
- 15 -
a community basis, not "under the auspices of individual employers or em-
ployer groups."
Federal funds have been provided for the upkeep of a coordinating office to
expedite the establishment of such community programs. Money has also been
appropriated for the expansion of the WPA nursery school program. The funds
for the actual operation of all but the WPA nurseries must be sought within
local communities, however, although federal grants-in-aid may later become
available. Field work and vigorous informational efforts appear to be need-
ed to make communities aware of the WASC policy respecting this problem and
of the need for inaugurating programs.
JIM CROW ABROAD
Negro newspapers assert that the U. S. Army is carrying patterns of racial
segregation into countries where color barriers have not previously existed.
Resentment on this score was recently given formal expression in a demand
presented by the National Association for the Advancement of Colored People
that the War Department "take steps to eliminate the friction in the
American Expeditionary Forces caused by Southern white soldiers who desire
to establish Jim Crow traditions in England." It is charged that Negro
troops were at first cordially received in England, but that white soldiers
protested against British friendliness to them.
In Hawaii, where racial projudice receives no sanction in laws and little
in public customs, people of many different colors mingle together freely.
Aware of this, Negro troops are hurt more deeply than at home by the
16
discrimination they encounter from their white fellow-Americans. They feel
that white service men and war workers fraternize more or less indiscrim-
inately with the non-white residents of the islands - Hawaiians, part-
Hawaiians, Chinese, Japanese, Filipinos, Koreans, and others - and draw
the color line only against them.
It is reported that the USO is considering the establishment of a special
center for colored troops in Hawaii. If separate facilities are provided
for whites and Negroes, it will be one of the first instances when proverns
of racial segregation have been institutionalized in Hawaii.
The discrimination Negro troops suffer, particularly in areas where it is
not sanctioned by custom, inevitably weakens Negroes' identification with
their fellow Americans and strengthens their identification with dark-
skinned peoples. Some of the Negroes interviewed in a recent Bureau of
Intelligence survey exhibited a marked tendency to align themselves with
the people of India in their effort to secure freedom and expressed strong
anti-British feelings. A number indicated that they felt the Indians were
justified in resorting to violence to liberate themselves.
Intelligent Negro leaders understand that the Army is engaged in fighting a
war, not in carrying on a program of social amelioration. But they feel
that there is no justification for transporting social customs involving
segregation overseas. Such a course, they argue, is bound to impair the
morale of American Negroes. Additionally, it may undermine the confidence
of colonial people and people of color throughout the world in the sincerity
of the proclaimed war objectives of the United Nations. There is clear need
for cooperation between appropriate OWI officials abroad and the military
- 17 -
authorities in areas where such tensions have developed.
(These findings are based upon "Anti-British Attitudes
of Negroes," Special Report #24, Division of Surveys,
and "Morale in the Territory of Hawaii," Report #33,
Special Services Division.)
ENEMY PROPAGANDA
THE PRESIDENT'S SPEECH
Axis propagandists resorted to belittling, ridicul ex-
aggeration, denunciation and distortion in their efforts
to depreciate the President's Columbus Day address. The Nazis call F. D. R.
the greatest "typewriter strategist" of them all and find evidence in his
speech that he planned the war two years ago. His references to Axis weak-
ness, they report, were net with "guffaws." Germany, the Nazis boast, can
repel an invasion at any point on the continent.
Radio Tokyo claims the speech reveals a marked labor shortage, betraying the
weakness of the American economy. Roosevelt's manpower proposals, say the
Japs, mean the virtual enslavement of the American workers. The Japs paint
a doleful picture of a United States whose schools are closed and whose
factories are manned by oldsters.
THE BIDDLE SPEECH
Axis reaction to Attorney General Biddle's speech was delayed until October 14,
evidently because their propagandists did not know how to deal with it.
Finally, Radio Rome reacted (in Italian, to North America) with the charge
that Italians were removed from the enemy alien category to win the good
- 18 -
will of Italian-Americans for the coming election. Rome attempts to minimize
the step by stating that it will have no effect anyhow. in portion of the
broadcast is devoted to a resume of the alleged persecution of Italians in
this country, in an attempt to offset the effect of the U. S. move.
WEDGE DRIVING
Goebbels and Co. seized upon a number of events this past week for the
familiar Axis propaganda device of wedge driving. Stalin's letter to
Associated ress correspondent Cassidy was made the spearpoint of an attempt
to alienate the Anglo-Americans and Russia. In broadcast after broadcast
Goebbels' heart bleeds for the Russians, left in the lurch by their Anglo-
American allies. American and English officials are presented as embarrassed
and disturbed by the supposed deterioration of relationships among the
United Nations. Ambassador Standley is pictured as returning to the United
States because of a desperate need to reduce the tension between Russia and
her Anglo-American allies.
Discord between the United States and Great Britain is also emphasized.
Life's letter to the people of England furnishes ammunition for divergent
broadcasts to the United States and Great Britain. Americans are told that
the letter indicates that England planned this war in order to maintain her
empire; the rest of the world is told that England has responded to the
letter with criticisms of U. S. war aid. Berlin tells England that the
American soldiers quartered there are paid more than the British soldiers,
live much better, and sneer at the British while enjoying their hospitality.
Radio Tokyo chimes in with the claim that an American submarine sank the
- 19 -
Lisbon Maru while she was carrying British prisoners. In alleged interviews
with the survivors, they express great bitterness toward the United States.
Germany capitalizes the supposed dissension among the United Nations domesti-
cally as well as internationally, to prove that there can be no second front.
To demonstrate and heighten inter-American conflict Axis propagandists use
Welles' speech and the hostile reactions of Chile and Argentina to it. The
reason for Welles' "insulting" remarks about the two South American countries,
the Axis alleges, is his desire to "blackmail" them into the service of the
United States. Chile and Argentina are portrayed as resentful and irritated
at Welles' "impudence." Rome played upon these themes in many broadcasts to
Latin America, scoring Welles for his "lack of tact and diplomacy."
TAILOR-MAKING GOERING'S SPEECH
A study of the manipulation of Goering's speech in commentaries and newscasts
for American listeners gives insight into Nazi propaganda strategy. It was
necessary for Goebbels to deal with many of the fears of the German people -
about British air raids, the German fuel situation, etc. - in order to allay
them. But since these themes suggest German weakness, they are not dealt with
in broadcasts to North America. To impress Americans with Germany's strength,
such themes as the ineffectiveness of the blockade and the satisfactory nature
of Germany's food situation are given more emphasis in broadcasts to America
than they received in the speech. Comments comparing the economic plight of
Britain and Russia to Germany's "excellent position" also receive more stress.
- # # - -
- 20 -
the with
3
at
w
38
FEDERAL RESERVE OPERATIONS IM GOVERNMENT SECURITIES
hp 1
Column A above Federal Reserve operations
is millions of dollars as follows:
Market purchases 1/
+
Market salse 1/
Golumn 3 shows price changes in 32ads, except
Maturities Direct purchases from Treasury
7
for certificates which are true decimels.
last Week
STRICTLY CONFIDENTIAL
Oct. 5
6
7
.
9
B
10
A
&
a
Inder
&
3
Description
This Week
3
A
$
A
A
3
Oat. 12
13 .
14 F
15
16
17
A
3
A
3
A
3
A
3
A.
3
&
3
+11.9
+25.0
+111.1
+63.8
I. Dumary
-21.2
-21.1
+68.0
+36.5
Holiday
-22.6
-35.0
-9.0
Market purchases
-.5
Market sales
+42.8
+266.9
+163.4
+32.9
+63.4
....
-6.1
-*96.8
+3.9
-10.5
Maturities Direct purchases from Treasury
-10.0
....
-67.2
-4.0
-9.4
-9.3
+26.8
+79.0
3592.0
+36.0
Total net increase or decrease (-)
-m60.6
....
Wednesday report of total portfolio
+36.7
+196.3
+116.2
+28.9
....
+54.0
3809.0
....
....
II. Tamable Securities
+2.9
+.3
+11.4
+.2
+2.0
Mlls all issues combined
-21.2
-21.1
+22.1
-22.8
-35.0
-9.0
Market purchases
-.5
+2.6
+110.2
Market sales
+17.7
+-3
+1.6
-=98.8
-6.1
Maturities
....
-10.0
-67.2
-4.0
-18.3
-20.8
-9.4
-110.2
-34.8
-7.0
+21.6
-960.6
Total net increase or decrease (-)
......
-3.5
439.6
....
->.5
-4.7
....
-7.6
+001
Certificates
+5.0
-001
+002
1/2% A - 11-1 42
+2.0
-001
+1.0
-001
4002
+8.4
5/8 A - 2-1 43
-.001
+34.3
+3.3
......
.65 c- 5-1 43
....
+.008
+003
+11.9
1004
-.001
+4.3
7/8 1- 8-1 43
+5.4
+00%
+.4
-.004
....
+.6
......
4011>
Treasury notes
* 2
3/4% D - 3-15 43
+1
+1
+6.4
$ 9
3/4
+22.0
D - 9-15 44
....
......
....
+20.2
+18.4
+30.0
+,4
will
1-1/4 C - 3-15 45
....
+1
....
....
+1
+,4
+1
N 12
3/4
+7.9
....
+8.6
3 - 12-15 45
....
+4.9
+6.7
L
+2
+.9
+1
+.9
N 13
1
10
A - 3-15 46
+.7
+3
+4.6
-3
+2.8
-1
+.4
N14
1-1/2 3. - 12-15 46
+1.0
-1
....
+2.0
....
+9.1
+92.6
....
+150.8
+1.2
....
+2.2
+.2
+.6
Treasury bonds
+.1
-2
+1
+6.5
+2.4
+1.2
B 12
25
-
-1
3-15
46-50
-1
+1
+.4
+,6
+.9
3 16
2
+1.7
- 6-15 49-51
+.5
-1
-2
+3.0
2
+.9
+17.6
3 17
2
-1
+.4
- 9-15 49-51
-1
+15.6
+1
+11.8
+.1
+,4
+3.4
3 16
....
2
?
+.2
$
- 12-15 49-51
+5.8
+7.7
....
3 21
2
+.5
....
+1.3
- 3-15 50-52
-1
+9.9
+29.2
326
....
41.2
2
+10.9
+54.6
+.6
- 12-15 51-55
-1
+3.7
+6
+1.1
+2
+1.3
2-1/2
....
3 27
+.9
+.7
+.2
+.4
- 3-15 52-54
+3.3
-1
+4.5
+1
+3.3
+2
+1,0
3
+7.8
....
+1.5
3 28
2-1/4
- 6-15 52-55
-1
+1.8
+1
+,8
+1
+.3
$
....
+.3
-1
+.5
32
2-1/2
- 3-15 56-58
+.1
+1
36
2-1/2
- 6-15 62-67
-1
+2
+
+3
+1
+2
-1
37
2-1/2
- 9-15 67-72
....
....
Quaranteed securities
07
RFC 7/8% U 10-15 42
-1
-1
......
08
RFC 1-1/8 1- 7-15 43
7
....
+1
09
an 1
Y - 4-15 lab
-1
....
-1
02
COC 1-1/8 0- 2-15 45
offe
All temble securities
+11.9
+25.0
+106.1
+59.3
+73.0
+29.5
Market purchases
-21.2
+38.9
-21.1
-22.8
+258.8
-9.0
-.5
Market sales
....
+180.6
+25.4
+60.8
-35.0
-6.1
-10.0
-67.2
-4.0
Direct purchases from Treasury
....
-9.4
-=98.8
Maturities
....
-9.3
-=60.6
+3.9
-15.5
+24.3
+64.0
+29.0
Total net increase or decrease (-)
....
+32.8
+184.2
+113.4
+21.4
$51.4
Office of the Secretary of the Treasury, Division of Research and Statistics.
Purchases and salse recorded as of day of transaction and not day of delivery. Transactions after 4 o'slock are included in the next day.
Less than $50,000.
,
Revised.
Regraded Unclassified
39
39
FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES
hp 2
Column A above Federal Reserve sperations
in millions of dollars M fellows:
Market purchases 1/
Markets sales 1/
*
Column 3 shove price changes la 3his, except
Naturities Rever purchases free Treasury
7
for certificates which are the docimals.
1
last Vesk
STRICTLY CONFIDENTIAL
Oct. 5
6
7
8
9
A
3
&
10
3
3
A
3
Index
This Vesic
&
A
3
&
3
Description
Opt. 12
13
14
15
16
A
3
17
A
3
A
1
A
3
A
III. securities
3
&
3
Treasury notes
Holiday
-1
If 1
1-3/45 12-15 42
I 3
1-1/8 - 6-15 43
....
....
I à
....
0 - 9-15 43
2
+1
1
+1
I
....
-1
+1
-1
our
1-1/8 B-12-15 43
+1
I
1
3 . 3-15 44
+1
" 1
3/4
......
....
A - 6-15 44
....
......
I I
1
0 - 9-15 lake
....
If 10
3/4
A - 3-15 45
+1
&
....
....
7
-1
+.3
Treasury bonds
+2.7
+1
3 1
+5.1
3-3/85
-
6-15
43-47
L
......
3 2
&
.
3-1/4
- 10-15 43-45
+.1
&
7977
+1
3 È
3
3-1/4
- 4-15 44-46
+.2
-1
L
......
7
-1
+1.3
&
+.9
+.3
+1.5
+1
+1.3
+.2
-12-15 4-5
+.5
....
+1.0
L
3
our
2-3/4
-1
L
+.4
- 9-15 45-47
......
1
+1.0
3
2-1/2
+1.0
-1
-18-15 45
+3.3
....
....
+1.5
7
41.0
-1
+.5
-1
+.4
....
L
&
+,4
3 7
+1
3-3/4
....
....
+.8
/
- 3-15 46-56
......
+2.1
B 5
+.1
-1
7
+1
+2.6
- 6-15 46-48
39
3-1/8
- 6-15 46-49
7
7
+.1
....
3 10
4-1/4
+.1
-1
1
- 10-15 47-52
+1.5
+1.3
....
+.4
....
......
-1
+1
+1
3 11
2
+1
- 12-15 47
1
......
313
2-3/4
7
+1
+1
- 3-15 48-51
+.2
....
&
+1
+.5
7
314
+1
2-1/2
- 9-15 48
....
315
2
-12-15 48-50
....
+.1
+1
......
+2
-1
L
-
+.3
39
3-1/8
+1
-12-15 49-52
+1
+.2
3 20
2-1/2
7
-12-15 49-53
+1
-2
+.3
+2
+1
+.9
7
322
2-1/2
+.5
+2
- 2-15 50-52
+1
+1.1
2
323
2-3/4
+.5
....
+1
- 6-15 51-54
....
+1
7
124
3
- 9-15 51-55
+.1
-1
....
+3
-1
325
2-1/4
- 12-15 51-53
-1
7
+2
+1
-1
+2.5
329
+.1
2
7
of
- 6-15 53-55
+2
+1.4
-1
3030
2-1/4
-3
- 6-15 54-56
....
+1.0
+1.0
+1
+2
+1
31
2-7/8
&
+.2
- 3-15 55-60
....
1
+2
-1
....
333
2-3/4
- 9-15 56-59
....
+.5
......
7
+.5
+2
+3.5
....
....
34
2-3/4
+1.0
- 6-15 58-63
%
+1
35
2-3/4
+.5
- 12-15 60-65
****
+.5
....
+.5
....
....
+.1
....
42.0
10
......
....
Quaramised securities
....
01
000 3/4% 1- 5-1 43
....
******
0 10
-1
USEA 1-3/8 - 2-1 44
....
6
....
:
THIS
3
- 3-15 4-49
....
+1.0
....
+1
......
+,6
....
03
TFMC 3-1/4 - 3-15 4-64
....
......
7
-1-
......
&
7
......
....
0 INVOICE
HOLD
....
3
1- 5-1 44-52
,
&
......
----
7
-1
+.1
....
+.1
....
....
0
HOLD 1-1/2 6-1 45-67
7
......
....
******
****
+.1
....
....
....
All securities
+5.0
+4.5
+15.0
....
+7.0
....
Market purchases
+3.9
....
+8.1
....
+2.8
....
....
sales
....
+7.5
....
+8.6
....
....
......
....
....
Direct purchases from Treasury
......
....
....
....
....
......
....
......
....
Naturities
....
....
+5.0
4.5
....
+15.0
......
****
....
....
+7.0
....
Total not increase or decrease (-)
....
+3.9
....
e
....
+6.6
+7.5
....
+2.6
....
Office of the Secretary of the Preasury, Division of Research and Statistics.
Less them $50,000.
Purchases and sales recorded as of day of transaction and net day of delivery. Transactions after 4 s'alock are included in the art day.
Regraded Unclassified
COPY NO. 13
40
BRITISH MOST SECRET
U.S. SECRET
OPTEL NO. 358
Information received up to 7 a.m. 17th
October, 1942.
1. MILITARY
MADAGASCAR. Our forces have been delayed
by weather at Ambositra but the bridging train has
now joined them and should speed up the advance. Our
aircraft bombed French positions 4 miles South of
Ambositra.
2. AIR OPERATIONS
WESTERN FRONT. 15th/16th. COLOGNE.
473 tons of high explosive and incendiaries were
dropped, including three 8,000 lb. and 69 4,000 lb.
bombs, Early arrivals reported no cloud and good
visibility but later the main attack was hindered
by considerable cloud. Flares by Pathfinders were
rather dispersed but many fires some of them large
were seen in the town and other scattered fires on
both sides of the river.
16th. 6 Mosquitoes again bombed the Diesel
engine works at Hengelo, important parts of the
factory were hit. A Beaufighter Whitney and a
Wellington are missing from Biscay patrols.
16th/17th. 34 aircraft were sent sea
mining and five to drop leaflets. Four aircraft are
missing. A Beaufighter destroyed a German bomber off
Sunderland. Early this morning, a Junkers 88 was
destroyed off Beachy Head.
LIBYA. 14th/15th. Wellingtons bombed
Tobruk Harbour.
15th. Fighters and Fighter-bombers
attacked tanks and mechanical transport in the
Southern sector and a Railway station near El Daba.
MALTA. 15th/16th. Nine enemy aircraft
operated ineffectively against the Islands. One
Regraded Unclassified
41
was destroyed.
16th. 206 Axis and 125 Spitfire sorties
were flown. Seven enemy aircraft were destroyed,
6 probably destroyed and 14 damaged. 6 Spitfires
were lost. 3 pilots safe and eight more were damaged.
One aircraft was destroyed and two damaged on the
ground at our aerodromes.
MED ITERRANEAN.
15th. Beaufighters destroyed a Junkers
52 South of Crete.
Correction to OPTEL 357
Air operations, para. 3. third line
For "Ongelo" read "Hengelo"
- 2 -
NOT TO BE RE-TRANSMITTED
42
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 359
Information received up to 7 A.M., 18th October, 1942.
1. NAVAL
ATTACKS ON SHIPPING. During the 3 days 14th 16th inclusive, 14
ships reported torpedoed and sunk between 5th and 13th October - 9 ships sunk in
Northwestern Approaches, 8 in one convoy (4 British, 1 Norwegian, 2 Greek, 1 U.S.
and 1 Yugo-Slav), one British, 1 Greek, and 1 U.S. ship in CAPETOWN area. One
British ship in South Atlantic and one British ship in Indian Occan. One British
ship previously reported possibly sunk in South Atlantic now known definitely sunk.
3 U.S. ships, one & tanker, previously reported overdue now presumed sunk.
2. MILITARY
MADAGASCAR. Operations continue. Somo progress has been mado
southwards and roads have been repaired. Over 300 prisoners were taken in operations
around ANTSIRABE.
3. AIR OPERATIONS
WESTERN FRONT. 16th/17th. A Hudson obtained a direct hit on a
4,000 ton ship off CALAIS.
17th. 88 Lancasters were sent to attack the Schneider Armament
Works at LE CREUSOT and B. transformer station south of LE CREUSOT. One aircraft
is missing and another returned early with engine trouble and off BREST shot down
2 enemy aircraft. All other bombers attacked the objectives and dro ped 153 tons
of bombs in 62 minutes. Hits were made on the steel works, the turbine building shop
the foundry machine shop, the rolling mills, factory buildings, the transformer
station and many largo fires were started. 6 fighters made successful attacks on
locomotives and rolling stock in Northern France and the Low Countries. One F.W.190
was shot down off HASTINGS.
17th/18th. 7 Stirlings were sent sea-mining. Early this morning
a JU 88 was shot down near DUNKIRK.
LIBYA. 15th/16th. 29 Wellingtons bombed TOBRUK harbour and SCLLUM.
16th. Fighter bombers attacked a landing ground west of DABA and M.T. and tents in
the central sector.
MALTA. 17th. 245 enemy and 103 Spitfire sorties ware flown.
Enemy formations, with increased fighter escort, were intercepted and broken up be-
fore reaching the Island and no material damage was caused. 8 enemy aircraft were
Regraded Unclassified
43
- 2 -
shot down, 4 probably destroyed and 9 damaged, including 3 by A.A. 3 Spitfires
are missing, one pilot safe.
RUSSIA. Heavy German bombing attacks have been made on ground
positions at STALINGRAD and on Russian communications in the Central and Northern
sectors.
4. HOME SECURITY
On 16th/17th 9 persons were killed and 6 are missing, believed
killed, at SUNDERLAND.
0:
me Kuhu
Many thanks. I gree
that he should he
ignored - In - the
present
/
L.
MR. CAIRNS
45
MERSHAM 2-3385
CABLES:
MAJORANGAS NEW YORK
Mr Kuha
L.L.B.ANGAS
INVESTMENT CONSULTANT
570 LEXINGTON AVENUE, NEW YORK
October 18, 1942
Hm'
H. M.
FROM AN ENGLISHMAN
Sir:
I have lived for seven years in America,
and for twenty years have been writing on monetary
matters
... (and have usually been right).
In my view, the American currency is now
being rapidly sabotaged. If this happens, there will
be a political revolution in the United States.
You will probably not agree with my argu-
ment; but I feel it my duty (to U.S.A.) to send it to
you,---even though it may end in a waste paper basket,
and perhaps not reach you at all.
However, I do 80 at the request of numerous
American clients.
I have the honour to be, Sir,
Your obedient Servant,
a a Anges
Major L. L. B. Angas
1. A Summary of the Argument appears on page 1 of Digest 99.
2. Particularly read Nos. 99, 100, and 101.
2
Regraded Unclassified
TO:
mr. Carins s
46
angar seems
determined to become
a martyr. I'm not
answering his letter,
but & think you
:
should See his
second opus on The
subject.
F.K.
MR. KUHN
C
47
"VICTIMIZING THE LENDER"
A PLEA FOR FINANCIAL STRAIGHTFORWARDNESS IN THIS WAR
by
MAJOR L. L. B. ANGAS
Digest 99
September 30, 1942
THE COLD FACTS OF WAR FINANCE
The cold facts are these:-
1. The war costa $75 bna. annually.
2. Current taxes bring in only $25 bns.
3. Voluntary loans bring in only $10 bns.
4. Deficit equals $40 bns.
5. Implying an inflation of $40 bns. a year.
6. Total (spendable) money of the country today is only a little over $40 bns.
7. Which suggests a monetary inflation of nearly 100% a year. (In 1941,
it was only 12%; and has only averaged 15% per annum since 1938.)
8. Price controls are (I think) incapable of keeping a 100% per annum
monetary inflation (of demand deposits) in check.
9, War finance must therefore be as ruthless as the war itself.
10. And if the war effort is to be two-thirds of the national monetary income,
taxes plus voluntary plus compulsory loans must also equal two-thirds
of the national monetary income - if inflation is to be avoided. (Not
just 40%, as at present!)
11. This means that forced plus voluntary loans must be twice the current
scale of taxes, i.e., $50 bns. in relation to $25 bns. - 80 as to get $75 bns.
in all for the war.
12. And if this is not done, you pave the way for wild inflation, which will
get cumulatively worse each year, as Digest 100 will show.
13. The Government therefore must stop the rot.
You do not Lighten war burdens by Inflating (you Multiply them).
14. Incidentally, in terms of real wealth, the public will not REALLY suffer
any more from these harsh monetary proposals than they will automati-
cally suffer from the war itself. Only one-third of the nation's produc-
tion (total real income) will be available for consumption (due to reduced
production of consumables) 80 it does not really matter if only one-
third of its total money income is left available, (and the rest taken by
the Government in forced loans and taxes). It is just a simple mathe-
matical equation - and quite reasonable.
- 1 -
Regraded Unclassified
47
"VICTIMIZING THE LENDER"
A. PLEA FOR FINANCIAL STRAIGHTFORWARDNESS IN THIS WAR
by
MAJOR L. L. B. ANGAS
Digest 99
September 30, 1942
THE COLD FACTS OF WAR FINANCE
The cold facta are these:-
1. The war costs $75 bns. annually.
2. Current taxes bring in only $25 bns.
3. Voluntary loans bring in only $10 bns.
4. Deficit equals $40 bns.
5. Implying an inflation of $40 bns. a year.
6. Total (spendable) money of the country today is only a little over $40 bns.
7. Which suggests a monetary inflation of nearly 100% a year. (In 1941,
it was only 12%; and has only averaged 15% per annum since 1938.)
8. Price controls are (I think) incapable of keeping a 100% per annum
monetary inflation (of demand deposits) in check.
9. War finance must therefore be as ruthless as the war itself.
10, And if the war effort is to be two-thirds of the national monetary income,
taxes plus voluntary plus compulsory loans must also equal two-thirds
of the national monetary income - if inflation is to be avoided. (Not
just 40%, as at present!)
11. This means that forced plus voluntary loans must be twice the current
scale of taxes, i.e., $50 bns. in relation to $25 bns. - so as to get $75 bns.
in all for the war.
12. And if this is not done, you pave the way for wild inflation, which will
get cumulatively worse each year, as Digest 100 will show.
13. The Government therefore must stop the rot.
You do not Lighten war burdens by Inflating (you Multiply them).
14. Incidentally, in terms of real wealth, the public will not REALLY suffer
any more from these harsh monetary proposals than they will automati-
cally suffer from the war itself. Only one-third of the nation's produc-
tion (total real income) will be available for consumption (due to reduced
production of consumables) - - so it does not really matter if only one-
third of its total money income is left available, (and the rest taken by
the Government in forced loans and taxes). It is just a simple mathe-
matical equation - and quite reasonable.
- 1 -
Regraded Unclassified
48
15. Thus, it can be seen that sound financing of the war will benefit the na-
Price Controls Are Merely Bandages. They Do Not Prevent the Disease of Inflation,
tion, by avoiding the EXTRA danger of inflation. - Although of course
it will not increase the amount of available consumables. It will however
The real point is that Mr. Henderson and his Office of Price Administration cannot turn
assist a more equitable distribution thereof - for a wild inflation would
of the inflationary gas: all they can do in temporarily to apply certain brakes on the re-
make fair distribution impossible, and possibly lead to semi-revolution.
sulta of prior inflation. Inflation proper (i.e. borrowing from the Commercial banks) in a
problem for Mr. Morgenthau and Congress, rather than for Mr. Henderson. The latter
16. And yet if the nonsense of bank borrowing is continued indefinitely (be-
is merely a nurse who applies surface bandages: and it is up to Mr. Morgenthau (and Con-
cause a vote-bunting Congress votes war appropriations without voting
gress and F. D. R.) now to prevent the underlying disease from apreading.
parallel taxes and (orced hans), you will certainly get your wild infla-
tion, because the elected would not risk their necks by telling and rul-
ing the electors.
In addition, if the government is going to pretend to the public that temporarily success-
ful price controls by OPA are the same thing as avoiding fundamental inflation, they are ipso
17. A wild inflation will prove the end of this Democracy. The objective of
facto (in my view) financially dishonest, - for they are just pretending that a bandage over
the war will be lost (Just as Hitler has boasted) through internal imbe-
an abscess eradicates the disease.
citity and moral comardice.
Certainly, poultices like the Office of Price Administration may be useful temporary
Stop Tricking the Lender
palliatives; but if more puss in the form of continued bank loans is being pumped into the
economic system, as a result of Congress not supporting Mr. Morgenthau, the disease of
The history of government finance throughout the ages is disgusting. A failure to pay
inflation will rapidly spread. Indeed, it is no use political physicians fixing their eyes on the
promised interest is not uncommon; and refusal of monetary repayment has been frequent.
poultice when they ought to fix their eyes on the root cause of the puss, namely hank bor-
And what a nearly as bad, governments often repay their loans with money that has depre-
rowing. And yet that is what the whole trend of current thought around Wall Street, DE well
cialed in purchasing power, owing to interim inflationary finance. Let us hope, however,
as around Washington, seems to be. The spotlight is deceptively turned on Henderson's
for the sake of future generations, that the same thing will not happen as a result of this
price-Baing, and not on Morgenthau's continued borrowing from the banks. It is daring to
War. But it might and that is what we now want to discuss although it in the declared
say It, but surely it in true.
policy of the Government to provent it.
Patriotism (Some Angles)
With this Digest, I enclose a Government pamphlet on war bonds. Every dollar that
Incidentally, although it is popular to state how patriotic the American people are
goes into war bonds does at least five things: it helps to win the war; it helps to win the fight
financially, I personally do not believe that they are sufficiently "patriotic" to subscribe
against inflation; it shows our enemies that we are solidly against them, and our fighting
VOLUNTARILY to enough loans to enable the Government to avoid additional borrowing
(orves that we are solidly behind them; it gives the purchaser a sound and profitable invest-
from the Commercial banks also. There ought therefore to be heavy forced loans as well.
ment; and it builds him up a fund for the economic readjustments which will lie abead of
For it would be a tragedy if the recent patriotic buyers of war bonds turned out in the end
the war.
to be suckers; and if those who refuse to buy war bonds now turn out to be the "prudent"
people.
But although 1 advocate the purchase of war bonds (in preference to stocks), I also
advocate that every purchaser campaigns his Congressman in order that subscriptions may be
Actually, in the Press, Mr. Morgenthau is reported to be averse to compulsory loans,
made REALLY, as well as monetarily, safe, For, under certain conditions of weak Government
as yet. But somebody really ought to tell him that although most firms have persuaded,
finance, subscriptions to war bonds, made today, might turn out to be the reverse of really
sometimes by force majeur, their employees to submit voluntarily to 10% pay deductions
safe, even though redemption and interest may be monetarily paid in full. Let me explain
in order to provide our fighting boys with guns a great many of the payers of weekly dedue-
by giving an example.
tions are becoming quite infuriated with the continued rise in the price of food and the general
cost of living, and already have made up their minda to cash in their subscriptions quite
VOLUNTARY WAR BOND SUBSCRIPTIONS (THE RISKS)
shortly.
Assume that the more patriotic element in the community puta up say $12 bns. out of
The general argument seems to be among heads of white collar families that "I would
their private savings for voluntary war bond subscriptions. Assume however that, later on,
do my financial bit willingly enough if the Govertment would keep down the price of food,
owing to an inadequate supply of such patriotic persons (or owing to the absence of a eam-
and (a) not cater almost solely to the votes of the farmers, and (b) see that retailers did not,
pulsory loan system) wild inflation of retail commodity prices occurs as a result of inflation-
by various subterfuges, evade the food price-ceilings which are "supposed" to be fixed but
ary borrowing from the commercial banks; then the patriotic persons who originally put
which any working housewife will tell you are being moved up month by month by innumer-
up the $12 bne will be positively punished for their patriotiam. And for all future time
able cunning subterfuges coupled with the information, given by shopkeepere "that there
Americans will have been taught by experience that it dues not pay to be financially patriotic
are plenty of other people waiting to buy the stuff if you do not care to pay the price." And
during wars.
that is certainly the situation as regards the Eastern states.
In fact, I can imagine no greater financial disaster than that, after the intensive war
In other words, if the Government does not stop making over the country to the farm-
bund sales campaign of the last few months, creeping inflation should be allowed to develop.
era, and does not commence seeing that shopkeepers are not "cunning," not only will sub-
scriptions to voluntary war lonns, and also voluntary pay deductions, cease; but recent sub-
And yet it is not completely impossible - the way things appear to be going on at
scribers will "cash in" partly because they need more money to pay the higher costa of
Washington I rules of course (a) to the continued inflationary burrowing from the Com-
living and partly because they lear that inflation is getting out of control and their subscrip-
mercial banks, and (b) to the recent hesitation in Congress to control (as distinct from talk
tions to war loans are becoming unsafe. And some even say that (as soon as it is recognized
about controlling) farm prices and wages, as well as other prices.
that money placed in war loans is depreciating) the Government might withdraw "in the
interest of the nation" the right to convert into cash (after a bond has been held 60 days).
In my view, there ought to be compulsory loans almost at once ao as to make the com-
placent as well as the patriotic fork out; and so as to avoid inflation.
The Parity Racket
There should, in addition, so think I, be (a law passed to cause) cessation of burrowing
In other words, through I besitate to my it, such Congressional rackets as are now going
from the Commercial banks, - for that is the root came of inflation, and not the partial fail-
en must stop If America in to be saved from inflation. And I advisedly use the word "racket,"
une (due in Congresa) of Mr. Henderson's attempts at tough price control.
(a) firstly, because the original base for farm parity was the period 1909-14 which was the
8
2
Regraded Unclassified
49
record highest farm-price-ratio period in relation to "what the farmer buys" (very tricky!):
and (b) because farm-labor and transportation costa were originally left out of the basic
But if the people of a nation, owing to financial or military ignorance, do not appreciate
1909-1914 index, because they would have then lowered it (very tricky!); and (e) when later
either the need to enerifice or the need to fight or the need to pay, the first duty of the Gov-
trunsportation costa rose, the farmers managed to get transportation costa in; and (d) now
ernment is to educate them, instead of appeasing them by devious methods. That, I think,
that labor is rising they now want to get labor costs in also.
is the first duty of Washington if this country la not going to be eventually landed with finan-
cial chaos such as leada to revolution. See Digest 97.
Oh yes, it all anunds very reasonable to the uninitiated; but nevertheless the whole thing
savors of subtle jockeying, and a racket- And the public in the Eastern states are now be-
ginning to know this; and the resentment is already quite frightening for faith in Congress
I know of course the political difficulties surrounding the sudden imposition of forced
loans, withholding taxes, sales taxes, etc., before the public in sentimentally quite ripe for
is diminishing in wartime.
it. And 1 am aware, of course, of the lazy argument that during wars there is never time to
The Farm Group in, dare I tell them, indirectly busting the War Bond Campaign. And
educate the public, and that the first practical thing is to try to keep them sweet no matter
the same applies to certain groupa of Trade Unionista.
If it does lead to some inflation for inflation is not so had as defeat. But my own argument
is that not nearly sufficient attempts are yet made honestly to educate the public (and Con-
If the Government Expects Prices to Go On Rising,
gress) on the brutal realities of war financing, with the result that the give of inflation in
the War Bond Campaign le Not Quite Honest.
continually turned on (borrowing from commercial banks) when at least HALF of it could,
I think, be turned off at once, - and ALL of it if the Government would be politically brave
enough to take the nation into its confidence and educate It.
As regards the current War Bond Campaign, the point in this:- If the Government which
loudly promises price stabilization really means to allow the farm price level, the wage level,
Short-Sighted Financial Patriotism
and the cust of living gradually to slip upwards at about 10% per annum as a result of
repealed adjustments to be made (slways rationally) in the interest of "fairness" to various
Nor (again in my humble view) is nearly enough written by the Press about the danger
groups (which in what certain "Washington Letter Writers" seem to expect); it in quite dis-
surrounding voluntary war bond subscriptions IF (and please note this word "if") the Gov-
hunest of the Government to go on with à "voluntary" loan system on the grounds that
ernment ja going on borrowing from the commercial banks; or if it is going to allow farm prices
Government loans are "perfectly sift" benque they will be paid back in full (in terms of
and wages "gradually" to creep up. Of enurse, the Preas hesitate to do anything which might
money). The Government would be indulging in a tricky "error of omission."
reduce the volume of war bond subscriptions today; and they are naturally afraid of doing
anything which might be labelled as unpatriotic, or interfering with the war effurt.
For the real facts would be these: that if prices creep upwards at 10% per annum, then
in four yours the "real" value of the money now patriotically lent would depreciate 40%:
But to my mind it is much more patriotic to guide the Government (and the public)
and that the intérest received meanwhile (of around 8% per annum) would only amount to
into a sound method of financing the war (and reducing borrowing from the commercial
12 money units out of the 40 real unite of depreciation. Such voluntary loans would in fact
banke) than to go on letting the public be bluffed (concerning the serious nature of the bank
turn out to be, from a REAL angle, loans without real interest at all but planned by the
borrowing problem) just for the sake of getting, in the short run, a few more voluntary war
Government on the basis of a prospective mal loss - which la not quite a gentlemanly way
bond subscriptions.
to treat the financially patriotic.
Since voluntary loans (and Taxes) today are inadequate, it is essential to resurt immeil-
Foreed loans, equitably imposed ON ALL, would be much fairer. For they would apread
ately to compulsory loans IN ORDER TO MAKE THE RECENT VOLUNTARY LOANS
the REAL loss (if any) over ALL more EQUALLY.
SAFE. That la the gist of the matter today. The facts are indisputable. And the more
Government propaganda that is devoted to the matter, and the more the truth is told shout
Commodity Index Loans
the dilemma (without hoodwinking), the better for America's financial future.
1 would not so much mind inflationary borrowing from the banks IF interest and capi-
I personally would like to see the American and British Governments come out and quile
tal redemption on voluntary savings were eventually payable in a (rubber) commodity dol-
brazenly and honestly state that unless the war is financed without borrowing from the com-
lar i.e. in paper dollars, the number of which would be based on the index level of retail
mercial banks i.e. by means of compulsory lonna instead, there will be an ultimate retail
prices for then it would not much matter to what level retail prices rose since the patriotic
price inflation eventually, even though Henderson and OPA etc. may be temporarily success-
WILL bond subscribers would be paid parallel. But the idea that those who fork out first should
ful in covering the cancer by their widespread price-fixing poultices.
eventually be victimized most (by inflation) is to me utterly repulaive. And yet. there is n
risk of it - if Washington is wenk.
They should also admit that to take voluntary war loan money now is dislumess UN-
LESS they are going to finance the war without further Commercial bank inflution. Ugly
U.S.A. Is Ready for Forced Loans
words, these; but surely the Truth!
The fact remains however that if wild inflation is to be avoided, there must either be
Financing the War Without Inflation
higher taxes or forced loans. And from my own inquiries, I have come to the conclusion that
many do not like the VOLUNTARY LOAN system at all - since (a) it enables the skunks
Actually, as I said in Digest 91, there is no need whatever to resort to inflation during
to escape; and (b) escape by the skunks hastens on the inflation which automatically make
a war if Congress has political courage, and the nation is really patriotic, and in kept well
suckers of previous patriotic lenders.
informed.
As far as I (one humble individual) can make out, that in pretty much the opinion of
From the commodity (real effort) standpoint, the war le financed as it goes along by mians
most Americans especially the relatively poor whose life savings out of wagns are small
of the extra hard work, and the extra abstinence practiced by the nation-as-a-whole. All the
and who are simply terrified of having nothing except semi-worthless paper dollars, or paper
things used in war are produced during the war. And the financing thereof can be, and should
bonds, or insurance policies on which to live during their old age. They think everybody
be, simultaneous. Indeed, it in a fallacy to believe that there in "not enough money" today
ought to be FORCED to subscribe to War loans NOW.
to pay for all that is produced today or that you cannot tax or borrow (by force) sufficient.
You can! For it in merely a simple mathematical equation that-if two-thirds of the
Education Essential
nation's productive effort is devoted to so-called wasteful war expenditure taxes (and
forced, and voluntary, loans) could be, and should be, two-thirds of the nation's
The politicians of course argue that they too would like to avuid inflation (by relorting
annual income; and not just 40% of it, as at present. [The real OBVIOUSLY must
to forced loans), but that the public is not yet sufficiently educated to put up with the higher
come from (the hidden laz of) inflation.)
taxes and forced loans by which alone inflation can be avoided.
Regraded Unclassified
And all the tricky little business of hidden inflation taxes (which borrowing from the
Commercial banks involves) ahould be tabooed by every honest Congressman. Indeed, if
Surely, such a statement today would make the public more ready to accept (nocessury)
50
forced loans immediately.
a Congressman does not think his constituents are yet patriotie enough (or feel the war seri-
ous enough) to put up with such burdens, he ought to take the first train down to his Con-
My Personal Angle
gressional district and stump the country, lecturing his people on the simple truth of this
financial situation. That would be more honorable, and wiser, than letting the Administra.
In offering the above essay, I am fully aware that I may be writing a prospective post-
tion go on borrowing from the Commercial banks (and of pretending that effective Price and
mortem obituary for these Digesta; for many will (wrongly) regard my remarks as unpatrio-
Wage Control (poultice work) was the only inflation problem). It is ridiculous to have taxes
tie, and will think that my office should at once be closed down by OCD lest my writings
of only 26% of the national income when 66% (including forced plus voluntary loans) is ob-
might influence war bond sales.
viously and mathematically essential and right.
The gist of the matter is however that Congress, the Prese, and the White House have
Everyone of course detesta being taxed, but I have enough faith in the American people
not yet the mental courage to face up to the real problem of financing the war, without infla-
to believe that if Congress did turn on the heat of propaganda, or rather financial educa-
tion. Ten billion dollars have already been borrowed Inflationarily for war purposes from the
tion, as I have just suggested, they would be astoundingly surprised with the extent of which
Commercial banks, and in the next twelve months another $20 bns. (perhaps $40 bns.) may
the great mass of people would welcome the sacrifice being spread simultaneously and com-
be similarly borrowed, if nothing drastic is done.
pulsorily over all, instead of resorting (a) to voluntary temporary inflationary tricks such as
keeping taxes low and letting inflationary bank borrowing surreptitiously pile up. True today
So afraid however is Washington of telling the public the truth - or is it that they do
there is not much support for such toughness even in Wall Street, but that is because many
not know enough - that a terribly abort-sighted policy is being pursued of (a) hiding the
people, even in Wall Street, do not understand the monetary side of war production.
risks attending voluntary purchases of war bonds (if bank borrowing is to continua unchecked),
and (b) of financing the war largely by bank borrowing and protending that it is not really
We Have the Money Without Inflation
inflationary - (on such completely false economic arguments as that bank money la not
paper money (when actually it is, although the paper is kept within the banks, and does not
The facta however are quite simple. Every penny spent on the War, say $75 bns. annu-
have a Government stamp on it)).
ally, constitutes an income received from the War. And if war expenditure constitutes 66%
of the total national monetary income, there is plenty of money paid out annually to pay
And yet if nobody patriotically riska his neck (a la Billy Mitchell) in trying to speak
for the War as it goes along if taxes (plus forced loans) equal 66% of the national mone-
the truth, - for fear of being short-sightedly labelled as pro-Nazi and seized by the FBI or
tary income.* And this is how it should be, and will be, I hope.
OCD* - too little will be said too late, and America will get into as big a financial meas ne
England and France got into a military mens. One's clear duty is therefore to try and pre-
The point is that if a combination of taxes, bona fide savings, and forced loans are not
vent it - even at the risk of being accused of being unpatriotic, and pro-German. [Let that
made to cover the cost of the war effort in full an additional disease, almost as bad as war
be my own rather feeble contribution.)
itself (sometimes worse, since it often leada to revolution, see Digest 97), will be imposed on
America, namely, surreptitious and wild inflation.
But enough of these Earoica. The fact in that the war can be (and should be) financed
without dishonest inflation. And my next Digest will analyze the ability of individuals and
If the Administration is going to be honest with America, it should propagandize this
corporations to pay the forced loans and taxes which I suggest. It is true they will lead to
danger as much or more than it propagands voluntary war bond sales now; and should (I
the cutting of dividends. But that, I am afraid, is the outlook for Wall Street - if America
think) propagandize the need for higher taxation and COMPULSORY lending 80 that the
finances this war on sound grounds.
patriotic lenders do not run the risk of suffering more than the lose patriotic abstainers.
Today's pre-election preference (in Washington) for bank credit inflation and for de-
I myself was "investigated" by the New York State Attorney General, with the SEC sitting in, in
vious methods is most dangerous. It is really not fair to the American public - although
March, 1939, after a journey to Europe. I came back and published Digest 35, entitled, "Pandemonium Ahrod"
some may rather like it that way at the moment largely through ignorance. The Govern-
which forecast the War, and dozens of other things, which have since come true in detail But such fore-
ment however should dispel the ignorance: not foster it.
casting was then anpatriotic; though it is a pity more people at the top did not take notice, and indulge in a
little rather obvious forward-thinking also.
The fact in that the only way to make existing VOLUNTARY war loans safe is to resort to
COMPULSORY war loans immediately.
And les not Congress think that it is being honest with the public merely by piously TALKING in favor
of inflationary controls and then either (a) passing the buck to the President, or (b) impiraly VOTING
The Government therefore should immediately prepare the public mind for the all-round
down anti-inflation measures. Does if not smack of political subterfuge?
financial burdens which are immediately necessary if wild inflation in to be avoided.
And the White House and WLB should give up pretending that the wages of work-
This is a pretty hot remark and may be dangerous to myself, but it in written on the day (September
ers or farmers "should" be raised parallel with the cost of living IN ORDER TO
24th) when, despite the President's plea for price control, the vote-catching House has voted 284 to 96 in
MAINTAIN THE REAL STANDARD OF LIVING. It just cannot be done in this War,
favor of still higher farm prices. [Is America to be governed this way perpetually? Il so, what chance of
for the simple reason that there will not be enough consumable commodities to go around
winning the Was? Or is the House not aware of the Anatomy of Inflation?)
to maintain NORMAL standards.
Indeed, it might perhaps, be a positively good thing for the nation if one of the small EARLY volun-
I repeat I would like to see the American Government come out and quite brazenly and
tary was loans failed provided such failure caused Congress to stop voting inflationary measures, and to
honestly say that unless the war in financed without borrowing from the commercial banks
commenes - realistic and son-inflationary - finance The general bluthing of the public
- i.e. by means of compulsory loans instead, there will be an ultimate retail price Inflation
ought to be stopped EARLY: otherwise the inflation will soon get UNCONTROLLABLE,
eventually - even though Henderson and OPA may be temporarily successful in covering the
cancer with their widespread poultices.
THE MARKET (Common Stocks: No Hedge)
They should also admit that to take voluntary war loan money now is dishonest UN-
I should however ndd that even if inflation is allowed to develop at the cumulative rate
LESS they are going to finance the war without inflation.
of about 10% per annum (in retail prices), common stocks will not necessarily benefit - for
corporation taxes would almost certainly riso much faster than retail prices. Therefore, it
does not follow that just because you may believe in moderate inflation, you ought there-
The extent to which the burden of a war can be passed is future generations, by maans of loans, val
fore to go off and buy common etocks as a hedge.
discussed in full in Digest 91,
Regraded Unclassified
51
My own view is that, in order partially to check inflation, common stocks will be taxe]
to the bone (so as to reduce Governmental borrowing), even though such heavy corporation
ROAD TO RUIN
AND ALL THAT
taxation la only a partial check on inflation. I still remain bearish for common stocks.
SUMMARY
AN ESSAY ON THE ECONOMICS OF INFLATIONARY DEBT
1. Loans from the commercial banks are definitely inflationary.
by
2. Louns from the commercial banks are therefore the real inflation disease of América
MAJOR L. L. B. ANGAS
(due, of course, to the War).
Digest 100
3. Trying to control prices (Mr. Henderson's Department) is only poultice work. The
real job is for Mr. Morgenthad's Department to eradicate the financial disease of bank bor-
October 5, 1942
rowing - and for Congress to help him.
4. The gist of this Digest is that voluntary war loan subscriptions are safe if and only
In this Digest, I am going to talk bluntly about Governmental borrowing in relation to your
if the Government does not progressively borrow inflationarily from the commercial banks,
stocks and how the national debt will hit you.
5. But it will have to borrow from the commercial banks if voluntary war loan subscrip
I shall also show that it is not the SIZE of 4 debt which determines whether if is inflationary-
tions do not more than quadruple, or unless current taxes are nearly doubled.
but the SOURCE (i.e., who lends).
6. Alternatively, you will have to have compulsory loans.
America's Assets
7. And if compulsory loans are not resorted to quickly, voluntary war loan subscriptions
Since many people think that the amount of debt a nation can support without inflation
are unsafe and will cease.
(or deflation) depends on its assets, as well as on its income, let me give you a picture, not my
own, of the assets of America. My figures come from page 149 of an unusually able book
8. Inilation will therefore get CUMULATIVELY worse.
by Mr. Robert R. Doane entitled, "The Anatomy of American Wealth," published by Harper
& Brothers, New York, 1940. This book only costs $2.50: it is remarkably interesting: it
9. Borrowing from the Commercial banks (and inflating the currency) is merely a die-
should be owned by every serious investor.
lionest way of pretending to the Public that the War does not cost as much as it does.
From the 1938 figures which follow, you will see that America has two sorta of assets:
10. And it la not "kind" of the Government to do this - for in the end wild inflation in
just "brutal"
I. Income-producing
$184 has.
Can these blunt statements be honestly demied? I challenge you.
II. Comfort asseta
$204 bas.
their ratio being roughly 50/50; and the combined total under $400 bns (which is a sum
many people expect the Federal debt to exceed before the present war is over).
THE END
I should add that since the following figures are based on assessed values, and since
assessed values are often double current market values, the figures below especially for comforts
are probably an over-statement, not an under-statement:
Summary, by Principal Categories, of the
Send this Digrat to your Congressman if you think he ought to have a
Total Physical Assets of the United States
Year 1938
We will send you another copy free.
I. Physical assets used for PRODUCTION:
Farm business buildings
$ 4,000,000,000
Farm equipment including livestock
9,000,000,000
Farm land
26,000,000,000
Industrial and commercial building
84,000,000,000
Industrial equipment
20,000,000,000
Industrial and commercial land
20,000,000,000
Railroad buildings including tracks
13,000,000,000
Railroad equipment
5,000,000,000
Railroad land
2,000,000,000
Utilities buildings
13,000,000,000
Utilities equipment
7,000,000,000
Utilities land
3,000,000,000
Stocks of goods
11,000,000,000
The Angas Digesta
Stock Selection Letters
fatured as market conditions warrant.
Angee Wire Service
Fritten Mid-weekly by Mr. M. Rich,
Gold and silver coin and bullion
17,000,000,000
Minimum-fitteen per calendar year.
High speed condenation of opinion
name specific unes le buy or sell
12, é and 2 mos. #25, #15 and #
at inportant points in the market
12, 6 and 3 mas. 850, 830 and are
12, 6 and J mon-125, #15 and $10
Total physical asseta used for production
$154,000,000,000
Portfolios Managed-$800 minimum
Single Consultations $100
Major L L B. ANGAS, Investment Consultant, 570 Lexington Avenue, New York
- 1 -
8
Regraded
Unclassified
52
II. Physical asseta used primarily for COMPORT:
Farm dwellings
$ 5,000,000,000
Indeed, as I showed in Digest 91, the rich are for the most part taxed to pay the inter-
Nonfarm residential buildings
44,000,000,000
est on war loans which they or their fathers previously subscribed, hoping (I imagine) that
Nonfarm residential land
48,000,000,000
the poor, and not they or their own sons, would be taxed to pay the interest in future due-
28,000,000,000
ades. (But, actually, the capitalist classes usually got taxed to pay their own interest, ao
Public tax-exempt buildings
Public tax-exempt land
18,000,000,000
that in the long run the loans are virtually free of interest. And this phenomenon obviously
5,000,000,000
makes common sense, for clearly a nation does pay its own interest on its own Internal
Motor vehicles
debt unless it can make foreign nations pay!) (And it does not much matter whether the
Ships of U. 8. Navy
1,000,000,000
39,000,000,000
War Loans are floated at 1% interest or 10% interest, in the above context)
Chattel goods
Stocks of goods
16,000,000,000
The Circuit Flow of Monay (Mock Interest)
Total physical nameta used for comfort
$204,000,000,000
Floating internal national debta is in fact rather an amusing, or should I my tricky,
procedure: (it depends on the way your mother brought you up to look at these things!)
For if a loan-foating government really intends to tax the capitalist classes to pay the in-
Total physical assets in the United States
$388,000,000,000
tarest on the capital they put up during a war they darn well ought to say BO bonestly,
(End of Deane quotation)
and should tell the patriotic lenders outright in advance that they are not "really" going to
receive interest at all, although they will get paid interest in terms of money (which money
DEBT IS NOT LIMITED BY REAL ASSETS
will be subtly and surreptiously taken from their own dear selves, for Mock Interest [). But,
To what extent can the above asseta be pledged, and debts superimposed upon them?
of course, if & Government did speak like this, they might not get any subscriptions at all.
Actually, they are already pledged, theoretically on paper, as to about 60% for the (c).
And they could not go on with the war unless they had much higher taxes, or forced loans,
lowing was the state of debt in America in 1941:
or capital levies--(or wild inflation, which might lead to revolution).
1. Federal debt (direct, and indirect through guarantees and agencies)
$ 50 bas.
POOR VS. RICH
2. State and local governmenta
20 bas.
On the other hand, if the Government honestly intends to tax persons other than those
3. Private long-term debt (including industrial corporations, railroads, etc.)
75 bns.
capitalista who originally put up the money, the only people whom they could tax would be
4. Private short-term debta (bank. personal, and instalment loans)
35 bns.
the relatively poor which, by the way, is what I am fool enough to think is the general
tacit implication behind any war loan that the poor will be taxed to pay off the rich after
Total
$180 bns.
the war is over.
But no government that I know of, in our present vote-catching generation, is likely
But in the maze of modern finance, debta are not limited to pledgeable assets. For in-
to tax the poor to pay off the rich, after a war is over. In fact, just imagine some post-war
stance, a government can borrow $50 bns. from its people (on the security of prospective
Secretary of the Treasury, or Chancellor of the Exchequer in England, asking Congress, or
taxes); and then the owners of the government bonds can go and re-borrow say $80 bns.
the Commons, to impose (openly or surreptitiously) a war loan interest tax BO that the loan
against them-and with the proceeds buy fixed assets. And then they can go and borrow
abarks of the previous war (formerly patriotic voluntary subscribers) could be paid their
against the fixed assets, issuing bonds as financial photographa. And then somebody else
pound of fleah with promised regularity instead of having that pound of flesh lopped off
can go and borrow against the bonds. Thus, debts can be pyramided, while assets remain
their own foul bodies. (Why lop it off the bodies of the relatively poor voters, instead?)
fixed. And debt can quite well exceed total assets. (And the joke of it is that people (not
Of course, the rich will pay their own interest as long of democracy And V it is no,
irrationally) regard their pyramided debt-certificates as assets, and as part of their "wealth"
why not say not
-which leade to a lot of double counting!)
The Naughty Trick of Subsequent Inflation
Or, if you do not like the above illustration, take a family of four children (not the
Incidentally, you can of course equally deceive or swindle war loan holders by eventual-
Crusoe Family, this time), each of whom has $1,000 worth of tangible asseta, while the father
by inflating the currency and raising the general price level, say 5 times, so as to make the
has no fixed assets but $1,000 in cash. The eldest son can borrow $1,000 from his father to
real burden of the old monetary debt only 1/5th of what it was originally. But that again
buy the assets of the second son (Loan 1). And then the second son can lend the money to
is even naughtier, particularly if you do it deliberately.
the third som (Loan 2), who pays it over to the fourth son, say for work done. And the
N.B. Raising the price level 5 times tends to increase the national monetary income 5
fourth sun can lend it back to the father (Loan 8), just because he likes him and/or trusts
times also, DO that old percentage rates of taxés will bring in 5 times as much money, and
him. And the father can re-lend the same money once again say to the second son (Loan 4),
make the service of old debta only 1/5th as heavy really.
And the second aon can lend it to the third (Loan 5). And so the re-lending, or debt-creat-
ing process, can spiral upwards until at last the monetary debt, on paper, vastly axceeds the
Pay, Pay, Pay Again (The 1917 Conservion Loan)
total market value of the pledgeable assets. And neither the currency, nor trade, nor profits
I do not know if you have ever stopped to think what usually happens to a war loan,
need necessarily be either inflated OR deflated by the nice of the debt.
or to consider the extent to which nations get into financial messes, as a result of extensive
In other words, it is a fallacy to think that the federal, state, and local debt of a coun-
government borrowing and of attempts (quite fallacious in theory and practice) to transfer
try cannot exceed its asseta (of say only $400 bns). Quite a fallacy! America can easily
what should be current tax burdens to future generations.
support an internal debt of $1,000 bns. on paper without either industry or life stopping,
Take the tragically amusing example of the 4% war loan of $570 mns of 1917, maturing
or without the currency necessarily being inflated, or trade deflated!
in 1947. This 4% war loan is now 25 years old. Therefore already $570 mns or 100% has
been paid in interest upon it, and yet the war loan still remains unpaid. Nor is there any
The Cost of the War will not Stop it.
chance of it being paid off for many decades to come except with the proceeda of another
By the end of the War, it in expected that the national debt will rise to $400 bns. (assum-
government loan. Not a chance unless there in a wild inflation first which would la tan-
ing no further inflation, in which case it would be more), BO that everything in America, on
tamount to constructive default.
an average, would be pledged.
And if this present war raises the American national debt to $300 bas (or $400 bas), as
But it is worth remembering that the annual national income of the United States in
some suggest, then, over the next 25 years if the $300 bns suffers the name experience as the
about $120 bna. derived (at one or more removes) (with much double counting) from rev-
1917 War Loan, the American public will by then have paid in interest $300 bna*; and yet
enue-producing asseta of $168 bns. (Doane's figures).
the debt will still be outstanding. Meanwhile the public will be taxed each year sufficiently
Hence If the service of B debt of $400 bna only coats 4% per annum, the service charges
to pay itall, most of the taxes probably falling on the original subscribere or their heirs
will only amount to $16 bns which is only about 15% of the current national income of $120
and successors!
bna
which does not make the national debt of $400 bos per se insupportable-particularly
If the debt in all beld internally (no foreign loans), and the public are taxed to pay them-
Unless by luck the interest can be kept at 234% (which will be impossible if inflation
selves, as in fact they rather amusingly are,
develops).
2 -
8
CASE II: INFLATIONARY BORROWING
53
As regards the 1917 War Loan, the point in this:- By the time it is eventually (and
really) paid off, except by conversions, the public will probably have parted with three times
On the other hand, if the Government only borrows my $12 bns a year from the public,
and only taxes to the tune of $24 bna a year, then, (if total war expenditure in at the rate of
the amount of the money (and real resources) that they aequired as a result of the original
$78 bna o year), the remaining $42 has will have to be borrowed inflationarily from the Com-
loan. And it will have been a mighty expensive transaction for the public if there is such
mercial Banks.
a thing as "the publie." Indeed, it would probably have been much better to have had a
forced loan or extra taxes way back in 1917, instead of going to all the expense and bother
The financial results would then be as follows:
of collecting taxes and paying quarterly interest over several decades just for the missing of
"making the War popular" in 1917.
Bona Fide
Growth in
Growth in
As regards the bluff:- It in quite okay if the rich are told honestly in advance that they
Taxes
Loans
Bank Money
National Debt
will probably be involuntarily taxed to pay the interest on their own voluntary loans (as they
1st year
$24 bns.
$12 bns.
$40 bna.
$52 bns.
have been). But if, instead of taxing the relatively poor to pay the interest (as is tacitly
2nd your
24
12
40
52
rather implied by all loans from the rich when they are floated), the rich are taxed instead,
3rd year
24
12
40
52
the rich have been merely swindled by a verbal ruse, and the nation as a whole is burdened
4th year
24
12
40
52
with the extra expense of keeping all the accounts relating to the Loans throughout their
5th year
24
12
40
52
whole life. It is a funny business: and yet normal in most countries - and only Justified on
the principle (if it is a principle) that if the people as a whole prefer evasiveness to direct-
$200
$260
ness, then it is the duty of any "democratic" government to give it to them (and bluff them)|
The important factor is WHO LENDS not THE SUM itself
Thus, if the total spendable money of the country, before the war, was only $40 bea.,
There is of course no great objection to a government doing this, i.e., borrowing from
the rise in bank deposits of $200 bns would constitute a 500% inflation - which, despite all
one part of the public to pay another part (or itself), if the borrowing is of a non-inflationary
the Hendersons in the world, would probably cause the development of black marketa and
nature, i.e., if it in out of the bona fide savings of the public and not from the commercial
runaway prices. (See especially Note 5, which follows).
banks.
But borrowing from the commercial banks is highly inflationary, as Digest 101 will
show, and is almost as bad as printing paper money.
From the above two tables, it will be seen that, although in both casos the national debt
In other words, it is not the AMOUNT of the borrowing which matters so much
was increased sixfold, in the first case, money (the bank monetary purchasing power) was
as the SOURCE of the borrowing. And it does not much matter if a country has an in-
only increased 10%; whereas, in the second place, it was increased 500%. And it is the second
ternally raised national debt of several times its national income, like England has, if the
case which the American Government has to guard against, in this War. America in fact
source of the borrowing is not, and was not, inflationary.
must make her tough choice.
The following two tables show how the national debt can be doubled or trebled either
(I) without resort to noticeable inflation; or (II) by violently inflationary measures:
NOTES ON THE ABOVE TWO "CASES"
Skip the first four Notes, unless you are "an economist"
CASE I: NON-INFLATIONARY BORROWING
Assume that a government starts a war with a national debt of $40 bns.
1. Savings Bank Deposits:- Borrowing deposits from the Savings banks, as distinct from
Assume also that it requires $78 bna annually for war purposes, and that it raises only
the Commercial banks, is ant inflationary, since the money which the Savings banks invest in War Bonds
$24 bns by taxation, Thus, $54 bns will have to be raised annually by loans.
merely constitutes the bona fide savings of the public and already appears largely in the deposit-6gures
So as to prime the war pump a little, let us permit our imaginary government, at the
of the Commercial banks or the Reserve banks.
outset, to borrow several billions (say $4 bna) inflationarily from the Commercial banks to
finance preliminary war purchases. (But once only/]
2. Time Deposits:- Time Deposits within the Commercial Banks are not really part of
Thereafter let it cease inflationary borrowing from the Commercial banks, and borrow
the immediately spendable "money supply": but are, strictly speaking, merely loans by depositors to the
the rest (by forced and voluntary loans) from the public only.
Commercial banks. They are thus rather similar in nature to deposits in the Savings banks even though
Under the above premise i.e., $4 bna being borrowed initially from the Commercial
they can in most cases be switched at short notice into current accounts, whereupen they do become part
banks, and $52 bns borrowed from the public annually thereafter, the national debt would
of the total spendable monetary supply. (But of course there are mongrel borderline cases)
rise as follows:
But if the Commercial banks (as distinct from the Time-depositors) lend part of what they mentally
Increase in
regard 4a Time Deposits to the Government, new Demand Deposits are created (as will be shown in Digest
Forced Loans
Govt. Debt
101), and the monetary supply is thereby inflated.
Initial bank debt inflation
1st year
$ 4 bns.
3. Privately Hoarded Bank Money:- Many people keep money idle in their banks as a
$52 bns.
store of value, in addition to the amounts they keep on deposit as a medium of exchange. If the Govern-
2nd year
52 bna.
52
52
ment borrows these boarded deposits from the Public, the statistical volume of purchasing media is NOT
Ord year
52
52
thereby inflated.*
4th year
52
5th your
52
52
52
Bet if the idle money has been hearded in the banks for some years by customers, the effect of Gav-
cramental borrowing thereof (direct from customers) it jest as inflationary in prodice, 44 if the Govern-
$200 boau
$266 box.
ment borrowed direct from the backs for the money which was previously hoarded begins to circulate
again WITH VELOCITY, and its pradical effect is the same as if a new addition had been made to the
supply. In fact, a Government does not avoid inflationary influences (as distinct from statistical inflation)
The net result is that, although the national debt has increased by $264 bna, only $4
by borrowing from the public money which for A long time has been kept idle and hoarded by them in the
bns. thereof is of an Inflationary nature; and neither the bank deposits nor the legal tender
banks,
paper money of the country are increased (above $4 bns extra).
Money is taken (syphoned) away from the public almost as fast as it in paid out in war
expenditure. Neither quantitative inflation, nor an Inflationary Gap, develope. The debt
If the banks land hourded deposita, statistical inflation does secur: for the new hank loans lead lo the cre-
per - is neither inflationary NOR deflationary!
alion of new (so-called) deposite. See Dignt 103 for a full discussion of this qualion of "the creation" of not
o-called bank "depate"
Regraded
54
4. Note Inflation:- In countries which have not developed - widespread bank deposit буь
tem of making payments (check currency), as inflation of the total paper note supply is I good statistical
MAGNITUDES OF PROSPECTIVE INFLATION?
messure of total monetary inflation. But in America or England, the amount of paper ontes (billa) in pub-
The first quastion to arise is what percentage of existing national money would $40 bus,
lie circulation outside the banks may signify deflationary influences, rather then inflationary influences.
year represent.
L Cash (paper bills) outside Treasury and the P.R. banks
For instance, today much of the increase in notes outside the banks (from $6 bas. in 1938 to 313 bas. today)
in U.S.A. is
is due, not to fear of maney, but to fear of other things. For instance, some people rather stupidly fear
$13 bos.
П. Since Time Deposita are not immediately spendable
that the banks may fail again, as in 1932: therefore they heard notes, instead of keeping their fiquid funds
money, they don't count
within the banks. Others, fearing capital levies eventually, or the "freezing" of surples deposits, hourd
0
notes in strong boxes and alsewhere. And probably only - small part of the increase since 1938 is due to
III. The Net Demand Deposita of the 101 cities' reporting
member banks are
people holding more maney for till meary, pocket money, and wage-paying purposes (doe le higher prices
27 box.
IV. The Net Demand Deposita of the other non-reporting
or a larger scale of general business).
member banks are say
10 bns.
In America today the printing (and use) of notes is a result rather than a cause of other inflationary
TOTAL SPENDABLE MONEY OF THE COUNTRY
(or deflationary) factors.
50 bns. (or loss)
Thus, $42 bna. represents over 80% of America's existing spendable money, which means
5. Cumulative Runsway Influences:- la case IT above (Inflationary Bank Borrowing),
that if the war lasta four years without commodity prices rising, and with the same
I illustrated my argument by showing (in the table) how the bank deposits of Americá might be inflated
volume of war effort as that adumbrated above (78 bns. a year) the country's money will
500% within five years if the Government persisted in inflationary bank finance. Bet I ought to add
be inflated over 800% before the 4-year war ends. And I doubt if all the Hendersons in
that although, as regards the third, fourth, and 6fth years, I assumed (in my table) that Government is
the world could prevent a commodity inflation from ensuing - under such conditions!
penditure would remain stationary at $78 bas, this of course would not be the case: for such wild infle-
In other words, If wartime inflation is to be avoided, under the presently planned war
tion of total bank purchasing power would, as stated, largely nullify effects towards individual price 190-
effort, you have got to have much higher taxes, or forced loans, or both!
trol; and Government expenditures would Increase with prices - thus, leuding is still more borrowing
And I myself, though I hate being taxed, am much more in favor of forced loans, and
from the Commercial banks: and still higher prices: and still heavier borrowing, in as ever rising cumu-
higher income taxes, and/or sales taxes, THAN inflation. For don't forget that inflation is
lative upward spiral.
just as much of a tax as are Income taxes. All this time explained in Digest 91.
It would constitute, in a somewhat lesser degree, the same sort of cumulative uncontrolled inflation
as occurred in Europe after the last War. But more will be said on this question of a cumulative runaway
And as far as I can see, no practical ellent of mine can expect the country or himself to
inflation in my next Digest. I agree it is "not very likely" in the United States; but it is certainly "quite
get through the war without seeing his taxes almost doubled, over and above the current
possible," and aught to be discussed; for I can certainly envisage a 1000% inflation in U.S.A. if Case II
1942 levels UNLESS the Government imposes forced loans, the interest on which will
(continued government borrowing from the banks) is allowed to continue unchecked, as today.
be collected by the tax-gatherer largely from the subscribers themselves, - which virtually
turns the so-called forced loans back into time-spaced taxes, for the conscripted londers won't
6. Bank Reserves:- I ought also perhaps to add that, if a Government cumulatively persists
get interest at all, "except on paper." The forced loans will turn out to be capital levies -
in financing its was deficits with inflationary bank loans, it will have to resort to various ruses so as to pro-
often bigger than an individual's total annual income!
vide the lending banks with adequate legal cash reserves. But this is not A restraining policy in America
Indeed, if national taxation (or levies) as a whole are gong to be doubled, some groupe
today, as the Government can, merely by decree, say that the banks need not hold such large reserves
- on the principle of graduated taxes will pay more than 100% extra, while others will
with the Reserve banks: and it can similarly permit the Reserve backs to hold fewer gold certificates
pay somewhat less. The outlook for the rich is therefore just terrible unless there la going
There is in fact nothing, except Governmental wisdom, to prevent a wild reneway inflation in America
to be an inflation. And yet during an inflation, the rich rarely escape for inflations usually
the possibilities of which will be discussed further in Digest 101,
lead to semi-revolutions, in which they lose everything (see Digest 97).
Expect your standard of living to fall by one-half or two-thirds!
WILD INFLATION - UNLESS
Let us DOW return to the barter aspects of the present American war effort. As was shown
CAN CORPORATIONS PAY SUCH TAXES?
In Digest 99, if the country in going to devote two-thirds of its human and machinery effort
It may however be suggested, as a counter-argument to the above pessimism, that al-
to the War, obviously the country, taken as a whole, will have to live on what the other third
most all corporations, except the Rails, are already running short of cash (working espital),
produces.
since more working capital in required for the increased war effort. And that if the Govern-
ment neizea more in taxes, dividends will have to be cut (to start with), which in precisely what
This, I admit, is certainly not maying that the average standard of living must fall the full
I forecast; and that later the corporations will have to borrow working capital from the Gov-
66% for the extra work done by both men and women during the war sends up the total
ernment (RFC) to pay the taxes to the Government or so as to raise extra working capi-
output BO that probably the AVERAGE standard of living only falls by my 20% or 80%
tal which is practically the same thing. In other words, the companies will get in hoek
to the Government, and the Government indirectly will be merely paying its own taxes!
But from the point of view of war finance - if the whole of the war is financed BY TAX-
Sure, it will - to some extent. But that does not mean the end of the world. For it
ATION AND FORCED LOANS ALONE - certainly taxes and forced loans combined will
does not completely ruin a corporation, or a country, if companies do get in hock in a na-
have to be two-thirds of the (increased) monetary national income. And there just ain't
tional crisis (either a war erisis or cyclical slump). It is unpleasant, of course. But it la
DO getting away from It.
better than wild inflation. And before this war is over, I personally expect a great many
companies to be borrowing from the Government in order to pay taxes and/or to gut sufficient
I repeat that if two-thirds of the nation's men, women and machines are going to be
working capital whichever way you like to word it.
devoted to war-affort, (in terms of barter or ml things), taxes phus bona ôde loans (forced
or otherwise) must equal two-thirds of the national Insume (monetury) IF inflation to
DIVIDENDS WILL BE HALVED. (THE DOW IS TOO HIGH)
to be avoidad.
But dividende will, for the most part, be cul first. And since during wartime the size of
dividends does not affect the incentive of either the managers or the workers (as I have said
And if the beloved public won't lend more than $12 bns a year voluntarily, and if the war
a hundred times), it is not much worth adducing the usual argument that "under espitalism,
is to cost $78 bas. a year, and if federal taxes don't exceed $24 bns. a year, then there will
there must be profite BO as to provide incentives, and to attract new capital."
have to be an inflationary borrowing, or note printing, of $40 bas. a year, (i.e., $78 bns. -$36 bas).
If the Government puta up the DEW capital, that solves one problem. And if the mana-
gere, as distinct from the shareholders, are kept sweet, that solves another.
I hope it won't happen. But if the current sloppy method, and scale, of war finance is
And that is what I expect will be done, (It ought to be donel), if the war is to be financed
continued, it definitely will;- to let us 500 to what extent prices "might" got inflated If the
on a non-inflationary basis.
current Dotisense continues.
e
Regraded
Stockholdere were able to endure a period of low, or no, dividends in the peacetime slump
of 1932. They can equally endure it for a few years in wartime, for Uncle Bam's sake, Oh,
55
yes, this war will ruín lots of families, and make the old age of many most unpalatable. But
old-age peruions can alleviate the situation so that no one will starve as distinct from
suffer.
"MONETARY CHAOS Happening Here"
But, first, I envisage sharp cuttings of dividends, below current levels, if the war is to
be financed WITHOUT wild inflation. And this, I believe, will transpire to be (already ia)
the Government's policy.
AN ESSAY ON THE FLASH POINT, AND RUNAWAY PHASES, OF INFLATION
How Companies will be Squeezed Dry
by
The likely Governmental argument will be that the corporations have capacity to pay:
MAJOR L. L. B. ANGAS
that they are owned for the most part by the relatively rich: that stockholdere have no
organized political lobby: and that, before you can (or try to) get real wages down, it seems
Digest 102
politically essential to be able to asure the workers that the stockholders have suffered dis-
astrously first, and that the companies which employ them cannot afford to pay their workers
October 13th, 1942
higher wages to meet either their higher taxes or higher costs of living,
We therefore argue that companies will suffer much more than they have already suf-
Security "thoughts" are numbered 90 to 112 for future reference.
fered, even though many say that corporation taxation has reached its practical limits and
will soon reach the stage of diminishing returns. (I just do not agree.)
BENEVOLENCE IS THE FATHER OF INFLATION
SUMMARY
The whole matter of war finance can be summed up as follows: If the war effort in to
90. In recent Dignsta, I have shown how inflation can, and ought to, be stopped. But
be on the scale now projected, and if voluntary savings will not be at a pace greater than $12
that does not follow that it will be stopped, for Washington may prove to be too weak its
bns. a year, THEN you have either got to have (a) an inflation of about $40 bns a year, or
weakness resulting from a desire to be kind and not to treat different (voting) groupe harshly.
nearly 100% per annum; or alternatively (b) an increase in taxes or forced loans to double the
In fact, as I showed in page 8 of Digest 95, the early phases of runaway inflation almost al-
current annual tax scale. See page 6 of this Digest.
ways result from 6 continued succession of attempta to be generous and "reasonable" on the
And it in the latter which I forecast- corporations suffering especially: with heavily
cut dividends: sharp falls in stocks: and the Dow standing well below 80.
part of a Government which is anxious to please (and afraid to annoy). Benevolence in
fact is the father of inflation, (although I ought perhape to add vote-catching as well).
Why Gamble (foolishly) on Government Wisdom? (An Answer)
WHAT HITLER WANTS
You may of course wonder why, with & "possible" commodity-price inflation of 1,000%
and with the Dow already down to around 100, I do not turn bullish, or partially bullish, -
What Hitler wants more than anything else in America in internal economic and finan-
na the off chance that the Government will not have the furtitude, nor the public the patri-
cial chaos, and a disgruntled populace no longer interested in the War. AB his agents and sym-
otie endurance, to stand the scale of taxation and forced loans which I suggest ALE being "ex
sential" in order to avoid wild inflation.
pathizers are therefore anxious to foster inflation, and a failure of its controls. And Hitler
is rather helped in this matter, for anyone today who writes (anything more) about inflation
is considered in the class of a crashing club bore. But that does not get rid of the problem.
You may in fact ask me why I do not expect that Congress will, as usual, adopt half-
hearted measures, too little, and too late, with the implied result that even though taxes
may be considerably higher, und some forced loans (of a sort) imposed that there will not
Moreover, since the inflation wolf has been called by everybody for eight years [ever
also be "eome" inflation, though perhaps not to the tune of 1,00%,
since Roosevelt deliberately adopted B (quite reasonable) policy of priming the pump after
the previous (unreasonable) Hoover deflation] must people turn a dest ear to those who
At first eight, such a suggestion seems pretty reasonable; und, to tell the truth, I per-
still cry wolf, and accuse them (Goebbels smiling!) of suffering from inflatio-phobia.
sonally am rather afraid of Congress adopting half measures and doing too little, too late,
"in order to keep their voters sweet, and the War fairly popular."
Two other popular Hitler-pleasing fallacies are that America cannot suffer violent in-
flation (A) because of the aise of her gold reserves, and (B) because of her huge productive
But my counter-argument against recommending common stocks now is that even if
capacity. But if, for physical reasons, production cannot be increased more than 100%
considerable further bank-deposit inflation is resorted to, and even if commodity prices do
then, if bank deposita are inflated say 1,000% (10 times), you can get prices going up at least
wriggle away from Henderson and rise perhaps 100% that even so, equity common stock-
600%. And unfortunately, as this particular Digest will show, violent inflation, when once
holders will, in the interim, be BO heavily taxed that their dividends will fall to a half or less,
It geta under way, tenda rapidly to become cumulative so that the people who originally
and that the Dow-Jones Index will fall similarly.
cried wolf, should really have cried wolves (in the plural). And the idea that the fact that a
country has huge gold reserves in any way limite an inflation is (if anything) just the reverse
(And here I ought perhaps to remind you of the possibility of directors cutting dividends
of true. It tenda, if anything, to stimulate it.
extra working capital. See Digest 90.]
over and above the needa for extra taxation, solely to provide their busy war companies with
America unfortunately is already well on her way towards uncontrollable inflation. There-
fore, at the risk of being a club bore, I am going to let off some further fireworks on the subject.
(Oh yes, you had better read the rest of this Digest for it will be vitally important to your fam-
dy fortune i/, after this War, prices do not come down again (os they have done after all past Amer-
THE END
ican Ward], but stay up several hundred per cent da they did in France in the Twenties where
they TIM 800% relapeed to plus 500% and then stayed more or less stationary. Sure, my
dear Reader, it can happen here.
The Anges Digesta
Insued en market conditions werrent,
Stock Selection Leurn
DEFINITIONS (FOR CLUB BORES)
rites Mid-weldy by Mr. M. Rich,
Angas Wire Service
per valender your.
12, 6 and a - #15 and all
name specific una la day or sell
High speed condensation al apinion
12, o and 3 the and are
of important printy in the nurket
91. Inflation is an annoying word since it has so many different meanings. You can
Portfolios Manage!-$300 minimum
12, 5 and J nu-125, BLS al #20
Single Consultations
get inflation of gold-money without having inflation of bank deposits; inflation of bank de-
Major L L B. ANGAS, Investment Consultant, 570 Lexington Avenue, $100 New York
posita without having inflation of prices (or gold): inflation of Velocity (as in 1929) without
having (much) inflation of money: inflation of stocks without inflation of any sort of money;
- 8
1
Regraded Unclassified
5
and inflation of commodity prices and Inventories, without having inflation of stocks. And
97. Of course, during Phase III, each man (on an average) may and will setually have
ao you might go on.
(and need) many more units of money (in order to command only one car) than be originally
used to hold when be habitually used to "command" two care with money, (which make this
Most people, however including myself, differentiate sharply between the inflation of
whole subject rather irritating and subtle to discuss). But in Germany in 1923, when money
money and the inflation of commodity prices, - since there is normally a wide Time Las
was quantitatively inflated by 566 quintillions (which means 15 noughts on the end of 566),
which is vitally important. In fact, price inflation usually develope in three phases; [and
the REAL purchasing power of the TOTAL money in existence (at the end of the finaco)
America today would, I think, already be passing from the second into the third, or astron-
was only one-seventh of the "real" purchasing power which it (the total quantity) had prior
omical phase IF it were not for various price controls and restrictive governmental policies)
to the inflation. Hans and Frits did their very best not to hold money for more than a for
minutes 80 as to avoid the hidden tax! They "velocitated" it fast, foreing up prices "laster"
than money rose. Buch is the nature of Velocity-Inflation and 8 general flight from money.
PART 1. THE THREE PHASES OF INFLATION
CUMULATIVE FORCES
92. As regards the speed of price inflation:- Do not think that the rise in prices usually
keepe exactly parallel and proportionate to any rise in the quantity of money. There are
98. The development of this economy of "real" monetary purchasing power (on the
three habitual time-laga, or phases.
part of the public) in, however, very bad luck on a semi-bankrupt Government; for, whereas
on the first injection of my a billion new units of inflationary money which, for the sake
i. To start with, prices usually lag behind money.
of this argument, we will assume was worth (in real purchasing power) one-twentieth of the
ii. Later, they eatch up and move roughly parallel; and
previously existing total quantity of money, - the Government was able to obtain (without
u. Finally, they move very much faster than the quantity of money.
honest taxation) my one billion unita of "real" wealth or usable resources merely by in-
flating money 6%
The reasons are these:-
the fact in that if, at a later date, the public have got wise to the swindle, and, by
PHASE I (The Pleasant Lag) ("Harmless" Stimulation)
their actions, have reduced the REAL purchasing power of the total money in existence by
say one-half, the Government, by again inflating the then already inflated supply of money
93. To start with, nobody notices the quantitative inflation except a few fussy econo-
by another 5% will only get HALF as much REAL value in terms of usable resources.
mists, like Professor Kommerer (and myself), and the Government "geta away with" quite a
They will in fact have to inflate 10% to get command of the same amount of real resources
lot of inflationary borrowing from the banks, or printing-press wickedness, before retail prices
as on the first injection! The dissase - resulting from unbalanced budgeta - is cumulative.
get marked up at all. In fact, prices usually only begin to rise when factories and mines at
Tast become ao Jully employed, and delivery becomes so difficult, that they capture bargaining
Runaway Tendencies. The Volcanic Phase
power from the consumer and are able to raise prices. Until this has occurred, and until in-
ventories have fallen, business men are rarely able to raise prices. Competition prevente it
99. And the and joke of it is that, if in the meantime commodity prices have doubled,
to start with. Hence, the initial delay, or lag, between money and prices in Phase 1. (And
the Government will have to inflate 4 bn. money dollare to obtain what it ORIGINALLY
during the pleasant and profitable stages of Phase 1, all long-run economista, like
obtained, in terms of usable goods, by inflating only $1 bo. That is why inflation, on the port
Mr. Kemmerer, are said to have lost sight of realities, and to talk antiquated nonsense.)
of any Government which cannot balance its budget, ALMOST ALWAYS Decomes cumulative
and steps up its speed in the later phoses. Not only does the Government have to print (or
Everyone enjoye these "apparently harmless" stages of inflation. Nobody has any bead-
borrow from the banks) more and more inflationary dollars as prices progressively rise; but,
achos (yet). The world, in fact, ballucinates happily.
in proportion as the public get wise to the inflationary tax on money, [and in consequence
acts in such a way as to reduce the REAL value of the total amount of money in existence
(see Thought 96)), so does the Government have to issue still more dollars in order to levy or
PHASE II (Parallel Movements) THE FLASH POINT
"steal" surreptioualy from the holders-of-money any previously determined (or wanted)
amount of REAL resources, or value.
94. But as soon as factories become FULLY EMPLOYED, and producers have esp-
And there you have the inflation picture which is (possibly) (i.e. other things equal)
tured BARGAINING POWER from consumers, i.e., when competition becomes unimpor-
on its way in America. It in perfectly capable of becoming astronomical especially if more
tant, up prices go probably just as fast as money is cumulatively influted. (The good old
bad people, like me, write more good articles, like this,
strict Quantity Theory of Money at last seeme to work!) This in the FLASH-POINT.
(Actually the purpose of this article is to urge presention, and controls!)
Then comme giddy Phase III.
Some Comments on "Sequences"
Phase III (Prices PASTER Than Money) (Due to Velocity Inflation)
There are however certain minor aspects of the above "cormal" B-phase Inflation Cycle
which require further elaboration. So please let me go back a little.
95. By this time, the public usually gets wise to the fact that an uncontrollable, or only
half-controlled, inflation is in full swing; and anybody who holds paper money or idle bank
PHASE I. THE HONEYMOON (Something for Nothing Apparently)
money, or who owns contracts in terms of money, tenda to try to get rid of them. He tries to
get out of money-values into commodities. (That was the invariable experience of Europe
100. Às regards PHASE I, i.e., the augmentation of money without it (yet) increasing
in the Twenties.)
prices, note this, concerning the sequence of events:
96. The net result of this attempt at economie self-preservation, in that & man who
A War government, by artificially augmenting the total volume of money (by printing-
might normally keep idle (in his bank) an amount of money equivalent in purchasing power
prom methods, or by borrowing bank deposits), injects the new monetary purchasing power
to my two automobiles, might, in order to avoid the hidden tax on idle money, try to reduce
into general circulation. It gets, as already said, real values (guns) in exchange for the new
his boldings thereof to the equivalent in real purchasing power of only 000 automobile. He
inflationary money. The sellere of the guns then go off and buy "butter"; and this causes
tries to avoid the depreciating last, namely, money!
a boom in the butter industries - and makes the inflationary policy of the Government highly
popular with the average not-greatly-thinking business man and worker, - who often does
prices still more - even faster than money is quantitatively inflated. That is go giddy Phase
Hence if everybody is trying to get rid of money into commodities up commodity
not look very far abead, and usually prefers a bird in the hand to two in the bush. The pump
in thus primed: business prospers: proñte rise: the Dow Index rises. And everyone enjoys
III. The High-Velocity phase: The Flight from Money!
the first few stimulating cocktails! (And they sig that MONETARY inflution does no damagel).
- 2 -
8 -
Regraded Unclassified
IRRATIONAL BEHAVIOR
107. Then, at last it is seen that the supply of money bas already exceeded the poten-
tial output of gooda (quite regardless of extra bugbears, like lack of imports and war-caused
101. But then begins the birth of beadaches. A lot of orthodox financiers point out
searcities). Competition to buy and hoard butter-producta (all consumable) ensues. Manu-
that the next phase will be higher caxes, particularly taxes 00 corporations, and on the high
facturers, middlemen, and consumers, obeying the Law of the Rising Market, all try to in-
income brackets. All financially-illiterate conservatives in consequence become rather pes-
crease their inventories, either in the hope of, or fear of, rising prices. Inflation of priors has
simistic, and, fearing the future, start following their old rules of behavior (when frightened)
at last "arrived,"-bocause of inflation of the quantity of money-particularly, bank depos-
they increase their liquid resources, or as economista call it, sugment their liquidity-demand
its which are "created" when the Government borrows from the commercial banks-
for money, IME a fear-inspired store of value.
For a commercial bank does not un-creale the power of its existing depositors to draw checks schen
it lenda those self-same deposita to the Government. In other words, I disagree with the Wall
BELIEVE IT OR NOT!
Street Journal leader-writere scho say that the banks CANNOT create bank money by their loans.
Eccles knows they CANI And my own family once made a fortune out of a. But more of this
also in another Digest. But let as get back to our moutons,
102. This augmentation of fear among (financially illiterate) conservatives, arising out
of distiko of bad government finance, in a most amusing phenomenon; for the fun of it is that
THE NATURE OF THE (TAX) SWINDLE
in 40 far as the mouse-bearted conservatives take money (bank deposits) out of general cir-
culation and hoard it in the banks (when they ought theoretically to be dishoarding money),
108. As regards the Government: By every additional inflation of muney it gains
possession of resources, at current prices, and thus avoids ordinary taxation. But the tax-
they automatically increase the total so-called "Iiquidity-demand" for money, (i.e., the store-
ution is there nevertheless. And the people who suffer, though with a time lag, are the ex-
of-value-part of total demand, as distinct from the medium-of-exchange part) at the same time os
the Government is wickedly augmenting the supply thus, to a large extent stultifying the
isting owners of money including bank deposita for it depreciates in real purchasing
practical effect (on prices) of the wicked quantitative inflation!
power. All owners of paper credits, insurance policies, annuities, long-term debta in fact,
all creditors, also suffer for they get paid back eventually, in terms of real wealth, much
less purchasing-power-over-real-wealth than they originally expected.
103. So the lucky though "vicious" little Government geta away scot free with its in-
flation for a while,-owing to the "stupid" nervousness of the financially illiterate rich -
A Fool of a Tax
which, incidentally, enables many (financially illiterate) Government spokeamen to say,
109. But unfortunately, the Government does not get the whole of the REAL purchas-
"Look, we prime the pump, without inflating prices! Who cares a hoot for the national
Ing power that the wide galaxy of aufferers are surreptiously done out of. Debtors usually
debt: raising it does good, not harm: let us therefore go on with the good non-vote-loaing
reap a windfull for, at the end of so inflation it perhape requires the sale of only one bushel
work."
of wheat to pay off a money mortagage which the debtor (say the farmer), and the lender,
originally anticipated would require the equivalent of five bushels of wheat. Debtors posi-
104. What I want to emphasize, is that if a Government, accidentally or deliberately,
tively benefit, for a while. (That's why farmers in all countries, who ghoul-like hope to pro-
creates enough FEAR among the (Anancially illiterate) relatively rich, it can get away with
fiteer at the expense of rentiers, trust-fund widowa, hospitals, and pensionera, are usually
a vast amount of quantitative inflation without the inflation actually "catching" since it
ardent inflationista and soft-money men.)
can augment the store-of-value demand for money almust as fast as, or even faster than, it
inflates the quantitative supply,-an amusing facet of the Law of Supply and Demand,
The Infletion-Taz does more Harm than the Other taxes it Feebly Shirks
which can (temporarily) prevent a progressive augmentation of supply from depressing BE-
110. From the above remarks it will be seen that although inflation is a hidden Tax
change value (and raising prices) for quite a while-i.e, if one of the two types of Demand
which obtains real resources for the government, it also redistributes wealth among the gren-
(the Liquidity type, or distinci from the Medium-of-Exchange type) keeps parallel.
eral public - farmers usually benefiting: rentiers suffering - but the good fortunes and
misfortunes do not cancel out, for this reason:-
PHASE II:
THE FLASH POINT (VELOCITY REFLATION)
The rentiers certainly lose all around; but most of the so-called profiteers suffer from
the phenomenon of "False Profits," described in Digest 90; and virtually everybody, except
105. But eventually (if the price level is left uncontrolled) the frightened conservatives
a few auper-cunning speculators (say my clients) make real loases out of the inflation. The
or "malefactors of great wealth" (as they watch prices gradually rise) begin to feel that they
government "catches" them (almost) all around by means of its hidden inflation tax al-
have more than snough money idle, and become more and more aware of the cumulative
though of course in the 1920's many more people made millions (through understanding In-
nature of the quantitative inflation;-with the result that when most factories do at last
flation) than will in the 1940's, where the government also has learned how to exploit the
become fully employed, and when commodity prices begin to rise rapidly (M distinct from
would-be exploiters. It is however a pity that the government can not capture for itself
gradually); they not only cease augmenting their hoards, but may also begin positively to
all the real losses made by the rentiers, and that a few highly educated economista (and their
unload them!
clienta) should making a killing, while the simple, the bonest, the sick and the old, are finan-
rially "lilled" by the government (if not by the profiteers).
106: Whereupon, (unless prices are controlled by law), the top blows off the volcano,
for you then have a dual inflationary factor in force, namely (i) The continued inflation-
PART II.
ary spending by the Government, and (ii) The disboarding, or re-velocitation of the previ-
COLLAPSE OF GOVERNMENT CREDIT
ously idle money formerly kept immobile by terrified conservatives. Then, you get your
THE GALLOPING PHASE "CATASTROPHE BOOM"
real wild inflation, or dual infiation, in the very grand manner. (Velocity plus Quantity.)
111. The story of the three phases of Inflation which I have just given you is bad enough.
But in addition to a government having to print more-and-more paper (or bank credit) to
Indeed, the longer the catching of inflation in delayed, the worse the eventual blow-off.
obtain command of any given amount of real resources (you will remember in Thought
99 we used the illustration of #4 bns. as opposed to an original $1 be.)- the hard-pressed
PHASE III:
THE UPRUSH
government simultaneously runa into A SECONDARY lot of troubles which make its infla-
tion all the more painful and all the more cumulative For the-very fact that it is inflating
pleasant (wer-time or proce-time) inflationary finance which all the time is a 'real' faz on
But les use go back and - what happens to "butter" during this long drawn-out comedy of
80 fast ACTUALLY DRIES UP the bona fide war loans which would normally be forth-
coming IF the government were NOT inflating ao fast with the result that it has to in-
money, though to any so se (to start with) regarded as out-minded financial nonamee among the
younger men in our Brave New World.
flate EVEN FASTER.
In other words, it has to raise (by more inflation) the real resources which it formerly
The gradual pumping of inflationary money into circulation makes the "butter" fac-
raised by non-inflationary bona fide loans from the public. (say $12 bos per annum).
tories fully employed, and the price of butter (i.e. all consumables eventually) gets aboved
up. with In fact, from a market point of view, butter eventually gets positively "searee," (what
be butter-hearding, as well as increased consumption), although the output thereof may
I shall deal with this problem more fully in a later Digest on prospective interest rates.
at an all-time record high.
5
4.
Regraded Unclassified
58
It also has difficulties in collecting taxes punctually, for everyone (seeing money depre-
ciato fast) does his best to delay paying his own taxes as much as possible hoping to be
After that, productive facilities, either abort run or long run, have DO influence in de-
52
able to pay (a few months later) with further-depreciated money.
laying wild inflation whatever. From the flash point onwards (Phase II), productive facili-
Moreover, since in most countries taxes are paid with a lag of one year, or even more,
tim, being at a maximum, can have no more than a faint psychological influence. And if money
the old tax money (paid in respect of last year) is worth very little to the government, per-
is subsequently inflated several hundred per cent without it being possible to increase produe-
hape only a fourth of its previous purchasing power last year-- that the government geta
tion any more than by a few per cent annually, you can get all your runaway phases (Phase
III), even in a country as rich and productive M America.
TREBLY cornered.
In fact, such governments usually find they have not enough actual "money" to pay
Of course, in so far as a country can increase its production, euch production does tend
their postmen, soldiers, sailers, civil servants, etc., - let alone the monetary interest on
partially to counteract progressive inflation. But if inflation of money runs five times as
the government debt - ao that they go on printing paper money all the faster to meet
fast as the expansion of production; inflation wins, and prices start to rise the rise rapidly
their immediate wage bills (which may by this time have risen several hundred per cent)
gaining cumulative momentum (a) because Velocity increases also; and (b) because bons
fide loans to the Government dry up, and the Government has to resort to even more infla-
so as to keep government workers sweet, in view of the rapidly rising cost of living!
tioo; and (c) because the rise in prices increases the Government's expenses 60 that they
have to inflate all the more.
IT CAN HAPPEN HERE
112. The above represente, in brief outline, the ultra cumulative or galloping stage of
Thus, neither the wealth, nor the gold reserves, of America rule out the possibility of
wild inflation HERE at all. In fact, it is already well on ita way.
inflation. It almost habitually goes on until the paper money, then current, become com-
plately worthless; and some Dew (gold or paper) money in introduced to take the place of
Moral of the Story
perhaps 1,000 or 1,000,000 units of the old paper money. (In Germany, in 1926 it was &
As I showed on page 7 of Digest 100, the outlook for America unless forced loans
matter of one new Reichamark taking the place of one billion Hobenzollern Marks.)
are resorted to immediately la a prospective inflation of 100% per annum even if prices
And it can happen just as easily in America despite all her gold reserves, all her resources,
(and the expenses of the Government) do NOT rise because of Mr. Henderson's skill.
all her productive skill, all the honest intentions of her government, and all the support which
Actually, however, (unless forced loans and higher taxes are resorted to) they WILL
the public (including tax payers), and lenders (savers) are willing to give their beloved Uncle
rise; and the Government's expenses will rise parallel; which will cause Lbe inflation of bank
Sam, particularly in war time. These factors have virtually nothing to do with it.
money to become MUCH GREATER than the 100% per annum, adumbrated in Digest 100.
What brings it about is the existence of a few unintelligent men AT THE TOP. (And
This danger already faces America and if it is not Isced AT ONCE, the home will
do not think that unintelligent men do not frequently come to the top, When I was in
soon bolt, and inflation will become uncontrollable despite Mr. Henderson, probably in 1948.
Germany in 1923, where I had gone to watch, in practice, the wild inflation of the Mark
All the business of the Office of Price Administration, in G more bagatalle compared with the
(eince monetary problems were then my hobby), Dr. Havenstein, the President of the
business of stopping continued borrowing from the Commercial banks. It se up to Congress and
Reichsbank, in his honest Ignorance, actually saw fit to state that the wild inflation of the
Mr. Morgenthau to cut off the gas: for Mr. Henderson can only apply the brakes (f.e., bandages
Mark then occurring (it had just slumped from 100 to the pound sterling to 43,000) was due
corr the underlyng inflationary concer). And V Mr. Morgenthau does not cui of the pas, Mr.
not to the printing of paper money indeed Dr. Havenstein emphasized that there was a
Henderson soill eventually be blown to amitherens. [See Dignst 95 for the step-by-atep argument].
positive abortage of money in the banks (which there was), with short term loan rates then
at 18% (subsequently, 106%) but to wicked speculation in the Mark (mainly by foreign-
BLIND BELIEFS
en) who had been selling the Mark abort abroad, and depressing it on the international ex-
Of course, nearly every American you meet, even though live may admit the theoretical
changes thereby sending up the cost of all German imports and generally raising the
possibility of cumulative runaway inflation, argues that the Americans are really much too
German internal price level and setting in motion a wave of speculation in commodities
sensible a People to allow such a thing to happen here; and that as soon as there in any sign of
within Germany, in consequence.
it beginning to happen, the Government will immediately put on the brakee, and the People
The poor honest man, - and I honestly believe him to have been just that, for I do
will darn well make them. The average American in fact relies on the Government taking
not subscribe to the view that Havenatein (or anyone else in Germany) deliberately wrecked
suitable action, when necessary.
the German Mark (like Lenin deliberately wrecked the Russian currency "so as to produce
But that is always the argument put forward in the early stages of every inflation. The
revolution") (Leuin said so himself) the poor Doctor, despite his exalted position as head
fact remains however that it is behaviour (due to benevolence and/or vote eatching) euch as
of the Reichabank, just honestly knew 80 little about the fundamental Theory of Money,
is now occurring in Washington i.e., a reluctance to tax sufficiently or to resort to forced
and the Anatomy of Inflation, that he just did not know what it was all about.
loans when a expensive was is being waged which prevents inflation being stopped in its
But of course there are DO such people in America, near the top. Or are theref Cer-
early etages (before it la too late).
tainly, Mr. Eccite (who is absolutely first class on monetary theory, despite his unpopularity
As pages 1 and 7 of Digest 100 showed, the Government is only raining from taxes and
in Wall Street and elsewhere) and Mr. Henderson do "know what it is all about". But there
non-bank loans about half of the annual War bill of $75 bos. The rest, say $40 bna, looks like
are certain other gentlemen in the Financial Press, and in the Farm Boe, and in Wall Street,
coming inflationarily from the commercial banks; and since the total spendable money of the
who (dare I, a foreigner, say so) either do not know what it is all about OR are definite pub-
country is only alightly over $40 bns, the prospective infiation in America is today about
lie enemies.
100% per annum.
My own view, of course, in that they Just do not know what It is all about and that they
(Actually, however, as Section 99 of this Digest has explained, it is quite wrong for me to
are NOT conscious public menaces.
speak only of "One Hundred Per Cent unnually." For if in the first year (1943) you inflate
But the danger nevertheless exista; and certain selfish labor leaders, as well as the self-
100%; you will almost certainly have to inflate much more than 100% in the second year
ish Farm and Silver Bloca give me the impression that a few hours monetary study would
if the Government is going to pay fur an equal amount of REAL war effort. (Re-read Section
not be a particularly bad thing for them (and beloved America). For, as I showed in Digest
99 of this Digest again).]
97, wild currency inflation almost certainly (indeed absolutely certainly) leads to revolu-
The trouble is that the danger phase, or flash point, of inflation has already been reached
tion and when I say revolution, I mean real revolution, not just strikes, Le., utter chaos
in America - both monetarily and paychologically - and yet the Government atill in doing
and wide bloodshed. (If you think I exaggerate, re-read Dignet 97.)
virtually nothing about it. It plays with the "poultiess" of price control by OPA, when the
real inflation dragon in progressive borrowing from the COMMERCAIL banks. In fact, the
PRODUCTIVITY (AND GOLD RESERVES) NO GUARANTEE
government seems to be virtually planning to borrow from the banks next year (1948) to the
At this point, let me answer those who may that America - because of her intrinale
tune of about 100% of the total existing monetary purchasing power in the United States.
strength, huge national resources, and enormous productive capacity - is not an ordinary
subject for wild inflationary influences.
[See top of page 7 in Digest 100.]
The above prospective inflation will sirtually double the avrage individual bank balance of
The argument that productive facilities delay or prevent the maturity of wild inflation
everyone in the country before end-10421
is only true up till the point when must factories become fully employed and/or labor becomes
Thus, those who argue that as soon as the inflation situation gets dangerous, the American
Phases. scarce. In other words, it is only true in the first phase of the above three normal Inflation
Government will face up to the situation boldly, are, despite this proud and patriotic feeling
already belied by the lacta
6
Regraded Unclassifie
I repent, we are in danger of monetary chaos. And unless the Public begin to chase their
59
Congressmen and demand that they, the Public, be made to pay more, the chances are that
wild inflation WILL happen here.
ADDENDA
1. Breakdown of Price Controls:- In a later Digest (1049), I shall show how progressive
inflation of the total spendable supply of money (including bank deposits) gradually burna a hold
Inflation Seriez (Easory No. IV)
in people's bank pass-books, and overflows into other things (possibly including common nocks),
until at last even the most rigid price controls, as now set up by law (OPA), get reamped (nía black
markets) by the rising flood of money. (I mentioned this gradual erosion process briefly on page 3
of Digest 95; but will deal with it fully in Digest 104.]
II. Omission:- 1 apologize for not having made clear, in Digesta 99 and 100, precissly what
I means by "loans from THE PUBLIC," as distinet from "loona from the COMMERCIAL
banks."
PAYING FOR THE WAR
Pages 5 and 6 of Digest 100 did, I think, explain adegiately what sort of borrowing was in-
Mationary, and what non-inflationary. It is however necessary for me to add that by the expression
(You Personally)
"non-inflationary borrowing FROM THE PUBLIC," I mean loans raised either from the savings
banks, insurance companies, big and small corporations, rich men, and also poor men (by means
of wage deductions at source). (The inflationary forms of borrowing are loans from the commer-
by
cial banks and the reserve banks.]
of course, when the Government pays out money borrowed from "THE PUBLIC", it swells
MAJOR L. L. B. ANGAS
the bank balances of the recipients; but national inflation of monetary purchasing power does not
occur, because what is paid to B is first taken from A. It inflates the purchasing power for some
Digest 91
people parallel with the deflation of that of others.
An early Digest, probably 103, will explain "How the Commercial Banks 'Create' Deposits
April 1942
Out of Nothing - And, By Financing the War, Cause Inflation."
III. Reasons for Recent Laga:- The Government has already inflationarily borrowed
$8 bna from the Commercial banks since January, 1941; and the any reason why it has not had
Part 1.
Who "Really" Pays
Part IF. Captial Levier (Digem va)
more than a 15% influence on the cost of living is because simulaneously private loans to the banks
Part 11.
Future Generations?
Part F, Forced Loans
Part 111. Finance by Inflation
Part Fl. I/sing the Gold Depulmation Profit
have been either called in or soluntarily reduced, thus, to some extent offectting the augmented
Governmental bank loans (borrowings). [Conoumera are also reducing their private debts.)
My last the Dignets aver, "The Butt can "TM Bear and
"Brorus discovniancy Arguments (Dwing This perform Diarer vi will relity rhanar -
IV. Playing with War Finance:- As I write this Digest (October 8th) comes the neice that
relief and deal - the problem of THE Page for the War My purpose in de above Are - War -
- YOU PERSONALLY.
the Senate has passed a Taz Bill with only a 40% combined income and aurtaz for corporations,
and 90% excess profits tax, If the Committee or the House do not increase it again, 1 feel I shall
be almost tempted to change round to the buil lock. In my view, Washington is merely playing with
PART I - WHO REALLY PAYS
var finance. Wild inflation, I think, se bound to occur if you borrow #40 bns annually from the
Encreasive - medical 30 as # per - reference.
commercial banks through G. benevolent desire to please, and a hesitation to taz. It is all my kind,
but ulterly foolish with War costa of #75 bns annually. In my view it is complacently rabota-
The Six Ways of Financing a War
ging the currency.
lober 1942 figures are these:-
And don't think / am exaggerating, Just the reserse! Budget Director Smith's cion Oc-
50. There are six ways of financing a war:-
(1) Foreign loans.
1942-43 Expenditures
BNS
(ii) Taxes.
"
85
Tax Receipts
IF
22
(ffi) Bona fide loans from the public (Including from savings banks, who
Borrowing
63
merely relend what the public lenda them).
..
Loans from the Public
of
12
(iv) Forced loans (which pay interest, and are usually repaid). (N.B. With-
Loans from the Commercial banks
51
holding taxes on wages are similar to forced loans.)
Implying Monthly Average (next 9 months)
4.3
1942 Monthly Average (to date)
(v) Capital levies, without interest and without repayment.
1.1
Monthly Average: required for next 9 mos.
5.4
(vl) Inflation (either of printing press money, or borrowing from the com-
mercial, as distinct from the savings, banks.)
which se 6 to 5 times the quantity of Government obligations that the Commercial banks ab-
ING HERE."
sorbed last fiscal year. That is why I entitle this essay "MONETARY CHAOS: HAPPEN-
Who Pays Whom
In 2. War
THE END
51. The question of who pays for B war is always rather subtle. Nationally
speaking, payment for the war in really in the form of "over-work and/or under-con-
Sand this Dignet to your Congrasses il you think As ought to have it.
sumption, Le. abstinence,"-although of course some violent internal wealth-redistri-
bution probably occurs
some getting poorer, while a few get richer.
We will and you another copy free.
52. But accumulated capital la not destroyed (in the "real" sense) nor is It
dissipated by the war, unless saneta are sold to foreigners. Individuals of course may
lose all their capital, but not the nation as a whole-even though the normal rate of
The 4 Dignes
Issued - market conditions
Stock Selection Letters
capital expansion is usually impeded by the war effort.
Minimum Altern per relevée -
Frittes Mid-weskly by Mr. M. Rich,
dages Win Service
12, 6 and 3 - are and All
- specific & buy or all
High speed condention of opinim
12, 5 and , AN and 818
# inpirted prints in the market
1
Portfolion Managed-4200 minimum
12, 5 and J - 825 al 110
Major L L B. ANGAS, Investment Consultant, 570 Elingle Lesington Consultations Avenue, $100 New York
8
Regraded Unclassified
Barter Economics
57. But to return to the question of loans In America today. Certainly, the lend-
53. In terms of barter economics, it is obvious that (without the aid of foreign
ing capitalista put up the money TODAY. And the Government spends the monetary
loans of war material or money) the armament workers are kept alive by the non-
purchasing power (which the capitalista might have spent themselves on other capital-
armament workers. The latter obviously support the former. (Though both "pay" in
goods), on employing armament workers and on producing munitions. The capitalista
the form of hard work.)
are happy to make the loans-though I am going to comment on this word "happy,"
And unless the non-armament workers can increase their output of consumables
later: the Government is happy to borrow the money; and the workers are happy to
to nn extent equivalent to the "displaced" output of the new armament workers, the
avoid the Immediate higher scale of taxation on themselves that would (probably)
standard of living of the country will obviously have to decline.
be entailed if the capitalists did not lend to the Government at all. In fact, it all seems
perfectly "lovely" to finance a war by loans even if, as I shall show later, the
On the other hand, if the non-armament workers, by working overtime, or by call-
REAL burden of the War is paid for, and suffered, as It goes along in the form of
log in women, children and the aged as assistants, can replace the work previously
the extra work, overtime, worry and abstinence which are "put in" both by business
done by the newly enlisted armament workers, the country can have both guns and
men, statesmen, civilians and munition workers
and their wives, and children,
butter
and feel no effect from the War, as regards CONSUMPTION, although
and elderly aunts and uncles.
they. the public as a whole, will be WORKING very much harder.
On the other hand, If the non-armament group cannot produce enough to main-
Happy?
tain the national standard of living (after the armament workers have entered muni-
But, as I shall shortly show, the capitalista (poor patriotic and/or greedy dupas)
tion factories), some groups will obviously have to suffer, even if all do not suffer
usually get taxed to pay their own interest on their own defense loans
and
also
equally.
to service their own eventual redemption charges.
And even the working public (dear fellowe) also suffer a little bit of extra tax-
ation too
So that although everybody WAS very "happy" that the Government
But that is only the barter side of the argument, which is simple. The workers "sup-
originally resorted to loans instead of extra taxation
they
all
find
out,
sooner
or
port" the fighters while the fighters defend the workers: a sort of fifty-fifty arrange-
later, that they (especially the capitalista) do not (because of the loans) escape any
ment-although of course the workers help the fighters to fight, and the fightera help
extra taxation worth speaking of at all. If you read on, gentle reader, you will are
or "enable" the workers to work. Now let us turn to the financial, or monetary aide.
that this in no.
54. When looked At from a "monetary" angle, the non-armament workers do
not alone soom to have the monetary burden (or pleasure) of "supporting" SINGLE
HANDED all the armament workers (and the army and navy)
as they rather
PART II - FUTURE GENERATIONS
appear to do under barter.
Of course, the non-armament workers are taxed to pay the armament workers for
The Present, Not the Future, Generation "Really" Pays
the armaments; but BIS also are the armament workers themselves! And that is how
As already said, all wars are really paid for as they go along. by the extra amount
the burden of paying for the war is "monetarily" spread over all classes of the com-
of overtime and of REAL hard work that the men and women of the muntry put
munity (including the Davy and army).
And the chances are that, If the War to on a large scale, all classes will (after 6
payment for a war,-except by borrowing or getting gifta from abroad
in. In terms of barter economics, there is no means of a country postponing the which real
short time lag) SUFFER in terms of REAL purchasing power (despite harder work)
America La not doing.
even though all money-wages may become inflated, along with commodity prices.
58. Of course, all sorta of long-term MONEY-debts can be floated, which rather
Thus, the people who monetarily pay for the War are "everybody" (in so far an
"efficiently" make it "look" as though REAL-payment WAS being postponed for an-
taxation is at all equitable). And, as said before, unless the consumers' goods Industries
other generation to pay. But such long-term money debta do not defer the REAL
can get a special move un, everybody is bound to SUFFER (if you like, PAY) as a
burden, and are IN FACT only a re-distribution of national spending today, and also
result of the War. Less butter! All classes contribute either money, extra work or
later in a future generation.
abstinence.
All that the long-term war loans do la to bring it about that the subscribere volun-
But how about the question of Loans?
tarily part with their current monetary purchasing power over real resources, (Le.,
with the use of their monetary capital), today: and that the Government, instead of
the lenders, spends it today on the services of workers producing armamenta, which
Do Loans Shift the Real Burden (Over Time)
are actually produced today. (All armaments are paid for (roughly) spot cash i.e.
55. At first sight, it always seems that if a Government can borrow to pay for
today.)
the War, nobody is going to suffer at all, except A future generation. The real pain, bur-
Thus, the wealth of capitalists, 1.e., past savings, are redistributed, by the loan
den, torture, or cost, is postponed!! (But is an
process, to the Government, which redistributes the meney (which has real purchas-
ing power) to the armament workers. Hence, as far as the nation-as-a-whole la con-
56, First let me throw out two or three thoughts:- (1) In an imaginary 80-
cerned, the workers consume what the capitalista might have consumed. Meanwhile
clety where wealth and Income were EQUALLY distributed, the Interest on all loans
the new armamenta are actually produced, and paid for in terms of real aervices-per-
would be paid "by the lender" via the government "through Taxation on himself."
Secondly (2) the size of the national debt would be Immaterial alnce we would not
formed (and money), today.
only "uwe it to each other" but also "owe it to ourself." Rut thirdly (8) in cases where
wealth and taxation la NOT EQUALLY distributed the charges on A huge national debt
Economics of "Monetary" Repayment
(of say $500 bns.: equivalent to England's today) become mainly a charge (a) on
the equity of Industry Le the common stock bolder and (b) on the relatively rich, who
59. Certainly, years bence If and when the money loans are paid back again to
have Ability to Pay. And doubling the debt would mean roughly doubling the charge
the lending capitalista, the general public are admittedly taxed to pay back the money
on these two groups] (Are you equirming?)
(purchasing power over real resources) to the subscribers to the war loans (or their
heirs). It is, however, the domestic lenders who pay for the war today, although the
2
8.
Regraded
domestic public theoretically reimburses them later. But as far as the nation-as-a-whole
in concerned, the war is paid for AS IT GOES ALONG. The REAL effort, and eacri.
64. But this fact, or "unavoidable swindle," was wrapped up ao cunningly, and
fice, are NOT passed along to and palmed off on some future generation. The loans are
R well confused, and so well hidden from public view that, since he (the capitalist)
merely & method of DELAYING TAXATION on the general public.
did pot usually know 1t, he did not much mind. He just grumbled at the high post-
war scale of taxation: he did not know it was largely to pay himself back his own
interest on his past (patriotic!) (greedy?) War Loans,-and also his own capital-
The Lenders Usually Repay "Themselves"
redemption service too, Very pretty. He was "paid" (O.K.) I Government credit re-
mained excellent. Although he really paid himself-which was "constructive default."
60. Of course, the (patriotic) lenders, If they are simple minded, think (and
are told) that It will be the rest of the (lass patriotic or poorer) public who will Day
Let us hope It will not happen to War Loan subscribers "in America" in this
them back eventually PLUS interest In the meantime.
War. But of course it will, especially as It is politically almost unavoidable.
But if they are not so simple minded, they are (or should be) fully aware that
they themselves are going to be taxed to pay most of their own interest and eventual
Future Generations-The Only Influence on
redemption money. In the meantime, the rich are often actually paid interest by the
government out of their own capital, or out of (extra) taxes on their own incomes!
65. Wars, I repest, have got to be paid for by taxation eventually. And t have
shown that the rich probably pay themselves in the end. But being mortal men (or
Thus, war loans are in theory merely a financial ruse by which both the lenders,
rather mortal ostriches), they naturally rather prefer to avoid the chance of Imme-
taxation and the whole of the rest of the general public, are SUPPOSED to escape crushing
diate virtual capital levies TODAY, in favor of the not quite certain, and long drawn-
TODAY and with it the real burden of the War today. It la all A "keep
not, taxes or levies on themselves at 8 later date: which may hit their children rather
'em happy" ruse; but it La surely 8 ruse as I shall now explain.
than their mortal selves.
The point is that few elderly large capitalista expect to live fifteen years longer.
The Ruse
Hence, the popularity of War Loans (and deferred and long-drawn-out taxation). in
preference to immediate capital levies and/or Immediate higher taxation during ware.
61. What usually happens to the rich in as followe:- The money loans which
After all, the loans might (Just possibly) be paid off, as they were In the 1926-30 period
they lend to the Government have to be serviced with annual interest and redemption
in the U.S.A. And in the meantime they "might" die. The capitalista in fact like to
allocations. This requires extra money taxation (unless inflation in resorted to) or
bluff themselves and "hope," just as much as Washington (and Downing Street)
alternatively the Interest on the old loans la paid out of more and newer loans (pyrn-
miding finance!),
likes bluffing them and letting them "hope".
And, financially speaking. from the point of view of national finance, there la noth-
And aince the loans would (probably) not have been raised unless taxation of the
ing particularly unhealthy about the foregoing "highly ethical" please-everybody tricks
masses had already reached its politically convenient limit, the chances are that the cap-
and ruses. It in just a cute method of making the war loans popular today. [Although
Italista, who put up the money, will themselves be taxed to pay their own annual In-
terest (and redemption-fund money)
If, in private life, you borrowed money from Mr. J. P. Morgan and then stole additional
which practically amounts to turning a part
sums from him to pay the interest thereon, you would soon be in The Tomba. But pub-
of the whole an-called loan-transaction into an additional annual tax-transaction, or
if you like, a small annual capital levy.
lie financial ethica and private financial ethica are not exactly the same. Robbery in
O.K. If supported by mass votes, and If sufficiently "devious".]
Lend-or Levy?
PART III - FINANCE BY INFLATION
fused to lend their idle savings, the government would probably impose almost equal
62. And here I might add that if the capitallst-lendera (unpatristically?) re-
Loans from the "Commercial" Banks are Different. (Inflationary)
it taxes, In or capital levies, upon them,-since every war loan rather presupposes that
politically inexpedient to TAX the relatively poor general public any more at the
66. The above remarks however refer only to boma Ade loans made out of the
untarily moment. to I suffer repeat, a if capital the lenders levy do not VOLUNTARILY lend today, they tend invol-
"true" monetary savings of the capitalist classen. If, however, war loans are borrowed
for capitalists cannot be permitted to "strike" and
from the commercial (as distinct from the savings) banks, there are a thousand ob-
hold up a war for the nation's existence.
jections to such war loans for defense bonds bought by commercial banks inflate
the bank credit currency (net demand deposita). (I shall prove this point in digest 99.)
How the Lender is Made to Pay Himself
And in en far as this in done, It in utter fully to risk wrecking the monetary system
of B country-just for the sake of pretending to the (gullible) public (especially the
63. Thus, in the long run as well AS In the short, the lending capitalists as a
rich) that ware need not hurtfully be paid for by the rich or poor just yet. I repeat
future. do most of the "monetary" paying, And they are, on the whole, NOT paid back in group the
that it la utterly wicked to ruin the national currency just for the sake of spoofing
For politiciana representing the public (Le, the majority vote) usually find
people into believing that they can temporarily avoid the real burden and REAL
them heirs) out of true (as distinct from monetary) repayment of their loans by
some cunning method of eventually jockeying the minority-group capitalista (or their
TAXATION cost of the War. The hidden tax of "Inflation" is, with a amall time lag.
a very definite current real tax TODAY even though it in hidden and misunderstood.*
so much (forgive me for saying It yet again), that they have to their taxing own
Read the footnots. Furthermore, wild currency inflation dosa much more real damage
demption relves, not only M regards annual Interest, but also as regards eventual pay capital N-
to a country than wild taxation, or wild capital levies. And this applies both to the
Can war loans are eventually paid off IF they are paid off).
rich and the poor. (If always enda in revolution. See Digest 94.)
who day, or subscribed In to defense loans In 1916, was In the following position. capitalist If
In had fact, before the PRESENT War broke out in England, an olderly
67. In theory, governments (no matter how deceitful they may be in their pack-
aging of taxation) ought entirely to eachew the printing press and/or borrowings
$50) bis from war loans, be was, and is, in fact paying all his own Interest year, & (except third
of It coming even 1985, he had a total income of only $16,000 (dollars) a to-
The government (or the benks) "prior" many (which com des nothing); spend in and obain "real
on own particular war loan subscriptions! (Poor Lord Smith.)
The inflation diams the real purchasing power or value of all accer, That is the name of de -
which is a tax on all money-bolders
5
Regraded Unclassified
62
from the commercial banka. Let them play about with tricky bona fide loans from
Non-beneficial Booms
the general public, if they like. But don't let them prefer borrowing from the banks
either to immediate capital levies or to higher immediate taxation.
72. Indeed at this point we must ask ourselves what precisely we mean by the
Even the rich, as B class, do not escape the real burden (of hidden, or open, levies)
word "trade" in connection with the expression "trade boom". [N.B. There In hardly
by means of Inflationary BANK loans. What real burden they appear temporarily to
& single word in economics, that I know, which has e clear and single-minded mean-
escape, they eventually lose by the damage done to their monetary capital by inflation
ing. The following words all have at least five meanings to me: Inflation, money:
credit, capital, confidence, demand, supply. Inventories, etc. And when we talk about
Inflation, I admit, destroys nothing except money; but If cumulative, it also leads
& trade boom (which some people think harmful and others beneficial) we certainly
La virtually certain revolution (See Digest 94) and it la the rich who then particu.
ought to clear our heads.]
larly suffer in the end. No rich man should favor inflationary bank borrowing for the
sake of avoiding forced loans, capital levies, or taxes. The rich don't escape, in any
73. War itself causes a production boom, especially if It is a blg war,-for peace
case: and the only way they can "hedge" against "paying for the war" le to die.
workers are diverted Into armament Industries, and there is of course a boom (nta-
tistical) in production, for you get the gun Industries piled on top of the butter
Inflation, I repeat, (Including loans from the commercial banks) is the minst dis-
industries. And of course, employment and the transportation Industries boom.
estrous form of all taxation. And it la utterly silly to go on with It today. (f shall
promote all this in Digest 94.)
But despite the production-boom everybody may become worse off and will do no
unless the butter industries can expand sufficiently to replace displaced labor which is
eiphoned off into the armament industries. But, as I have said before, if you enlíst the
When Inflation is Good
services of the aged, the very young. and the females, and if everybody works double-
overtime; you probably can get the butter industries up to replace most of the displaced
68. And yet there la & school of thought which rather likes inflation
in
fact
armament workers (If Mr. Hitler's submarines do not sink all the cowa). The chances
I do myself at times, though only at certain (depressed) stages of the trade cycle.
are however, as 1 have shown in this Digest, that, In a really big war, the peace Indus-
My point Is this:- If a trade alump has occurred due either (1) to general fear
tries will have to be curtailed; and the general consumption of the public reduced
causing a decline in the velocity of money as in 1932: or due (2) to positive deflation
despits the boom In total (statistical) (including armament) production. It is happen-
of the total volume of bank credit money (caused either by calling-In or voluntarily
ing here, and will shortly do so moreso,
paying-off, as in 1932) or due (3) to trade outstripping the supply of gold, as in
1929, 1893, etc., I certainly am one of those who favor deliberate reflation of total
And incidentally if you tax the corporations enough you can have a common stock
slump, despite the boom In profits and the boom in production Indless. [The word
money, especially net demand deposita, by a process of deliberate governmental bor-
rowing from commercial banks.
boom itself, as you will see, has at least 3 (30) meanings.]
Such policy 1a, I admit, inflationary or reflationary. But It worked in the spring
of 1933; it worked in the spring of 1938; and will always work if sufficient doses of
Modern Monetary Magic (What it can, and can't do)
inflationary reflation are applied. In fact I favor It.
74. It is true to say that "by some curious modern monetary magic" you (or the
69. But the fine art of scientifie money management la not morely to fatten the
Money Managers) can (in a modern money-profits economy) turn . slump into a
skinny (nt the right time) but also to lay off the inflationary injection-proces, when
adipose tissue begins to set In
boom. It is also true to say that Wars, "by curious monetary magle" can end trade-
and the belly swells beyond twenty-six inches, or
if you like, the 1926 price level.
cyclical depressions and improve slumping industries. But if it is a really BIG
FAT WAR (as today), it Le NOT true to say "the war makes the nation? prosperous"
And, if Rising Monetary Velocity (after deliberate Reflation of the Quantity-of-
-for the war absorbs too many men, materials, and bits of machinery to maintain
money) spontaneously takes charge of the price level so that prices and/or trade start
the old standard of living (butter).
down swinging side) my too high and getting out of balance (as they originally were on the
Though of course . few workers and employers will get prosperier
then the acientific Money Managere should deliberately deflate again
to counteract the increased velocity which their own previous deliberate reflation had
engendered. Compensation is what in wanted. [Although of course the financial hill-
The Labor Leader's Dilemma
billies around Washington and Wall Street (the Opposition) will delightedly accuse
them of economic inconsistency and of never being able to make up their minds, and
75. And I might rather objectionably add that even though nt. the present mo-
of doing first one thing, and then another, and generally bewildering (if that is
ment the trade unions and Washington seem to be planning to keep wages paralle)
the rude word) the public about. What di Civilization/]
with the rising cost of living
so AS TO MAINTAIN THE REAL STANDARD
OF LIVING OF THE WORKERS
they just will not be able to de so (let me tell
them) because there just won't be enough butter produced in America to go around.
Are Wars Beneficial (To Trade)
And no amount of spoofing, political speeches, or promises to trade unions can pre-
vent It.
70. But to return to our subject: Just All wars can cause general trade booms,
because they cause governments to spend money like blazes, and borrow money from the
And if the trade union leaders go on pretending that they will keep wages parallel
banks like blazes (inflation); 80 also can the non-military Money Managers, in peace
with prices, they will have to stage a revolution (so as to And anmebody else to blame,
time, cause trade to re-boom. (And I here and now definitely must assert that 8 large
for their failure) : for it just cannot be done, not even by trade union leaders!
seale war, or the preparation for à large scale war, If it comes at 8 moment when the
trado epain is in the clump period, can and will (assuming 4 certain number of in-
If these gentlemen wish to preserve their own skine, they had better start making
ventory In readjustments have already been completed) cause trade to boom again. It did
speeches AT ONCE, saying that it cannot be done (even by them). And that they (tem-
England early in 1999.]
porarily) have nothing to "sell" to their followers. And let them blame Hitler: not Rouse-
velt, or Knudsen, or Wall Street/
or war that so every cyclical alump in trade you should go off and deliberately A declare a
71. in But that dons not say that ware are on balance beneficial to community.
But these remarks are getting me rather far away from the question of borrow-
as to get a Trade boom.
Ing from the commercial banks, and monetary inflation.
6
7
Regraded
63
Theory of Avoiding War Inflation (Siphoning)
76. Of course, Washington could avoid inflation entirely, IF the public could
Inflation Series (Enny No. F)
(would) "take it"
The theoretically correct and non-inflationary method of financing a war is as
CAPITAL LEVIES AHEAD
-"Borrow war-expenditure money (once only) inflationarily from the banks:
spend It on munitions: borrow it back from the public (or tax the public) as fast as
you can. and before the public have had time to spend it in forcing up general com.
FORCED LOANS
modity prices. Use withholding taxes on labor-wages, If necessary. Deduct income at
source (taxes) wherever you can. Keep your extra inflationary money circulating in
AND
the armament arena alone, without letting it overflow like a tidal wave onto general
commodity prices. Then spend it again; and re-borrow it again (from the public, not
USING THE GOLD PROFIT
the banks): or alternatively, tax it away quickly from the public."
[A sequel to Dignet 91 "Paying for the War (You Personally)"]
77. All the above "sounds" easy on paper, but it needs some political guts. And
the question arises whether the general public are patriotic enough, or far-seeing
by
enough, or economicly-minded enough to "take" it. (And If you want my own view
MAJOR L. L. B. ANGAS
(and I rather fear Washington thinks the name), the public are "the very devil," and
just won't "take" it-until they have had three or four more Pearl Harbors, consid-
Digest 92
erably nearer than Pearl Harbor.]
April 1942
So In order to prosecute the war, Washington (and I mean Congress just as much
as (or even more than) the White House) is probably darn well going to go on using
PART IV - CAPITAL LEVIES
the hidden tax of bank inflation, even though poor Washington will not itself get all the
benefits of which the inflation-sufferers will be deprived. [Meanwhile farmers and
The war must be paid for: Inflation is unsound: taxes are terrific: bona fide loans
other too.] debtors (and my clients too) will, I fear, share in the spoils-and they are spoils
may fall. What is G frantic Treasury to do? Will it resort to forced levies!
(Surcessier "Hroght" and numbered 78 is 89, for fature reference)
But Washington probably knows as much about this subject as I do. Its chief
Capital Levies
difficulty in probably not lack of knowledge, but the unwisdom of the public, or if
you like, polities. The test question in all democracies has to be, not is a thing theoreti-
78. Unfortunately some potes on capital levies seem desirable. First of all let me
rally sound, but in It politically possible-with the public.
try to de-bunk certain popular ideas. The poor look around and see all the wealth owned
by the rich, their castles, their cars, their yachts, and their sables; and then, confusing
wealth with money, say "Look at all the money the rich still have. Why not have a
Conclusion
capital levy and spend the proceeds on the war; thereby saving the relatively poor
from extra taxation which will damage their already strained standard of living." And
Although / personally expect further wild bank borrowing (though I am against
at first sight it all seems very reasonable.
it) / do not expect on early boom in stocks, in consequence. In fact before that hop-
79. But for the rich to convert their diamonds into bank deposita (spendable by
pena in the stock market, I personally fear a further sharp shakeout for the very
the government on munitions) they have got to find a buyer (who is also quite rich)
rude faz redeons already given in my last two Digesta, 89 and 90.
with the result that If you suddenly had a capital levy aimed at turning the diamonda
and yachta and old masters of the rich into deposit money, the price of diamonds
would fall to almost nothing: and the government would get nothing. All sellers: No
buyers! Only diamonda!
THE END.
Incidentally it is little use giving the diamonds, the yachts and the Goyas to the
government; because the government would equally have to find buyers: for yachta and
Goyas, though offensive, are not munitions. Even stocks, like General Motors, are not
MR. RICH'S WEEKLY SELECTION LETTERS HAVE MADE MONEY DURING
much use, because they too have to be sold to raise money to pay munition workers.
THE SLUMP (ON BOTH THE BULL AND BEAR TACK). SUBSCRIBE.
But despite the difficulty of finding buyers, Italy in 1936 did have a capital levy
(payable in cash) and such capitalista as did not possess idle cash were forced to throw
their other assets on the market for what they would fetch. Stocks (and pictures) may
slump for this reason at G later date in America
a great chance for the bargain
hunters holding cash.
The dogas Digesta
Money Levies
Issued or market conditions marrast,
Stock Selertion Letters
12. Minimam é and I files mas, per ralester you.
Fritten Mid-weekly by Mr. M. Rich,
Angas Wire Service
High speed condensation of optains
80. Even no, the only form of capital levy which in of any real use to a war-time
#25,
#25
2
If
Name specific image to bay an inll
12, o end I 250, $30 and III
- important paints in the market
government, is money. And certainly insofar as a large number of rich men (who
Pertfollse Managed--$20 minimum
12, a and / mon-425, are end and
fear their government) or who fear the future, are hoarding large amounts of idle
Major L L. B. ANGAS, Investment Economist, Single 570 Consultations Lexington $100 Ave., New York.
bank money or notes, and are pounced upon and made to "give it up to the govern-
ment"
Then, the government does get money all right
which it can spend
on munitions
without taxing the general public any more. Very nice.
Sure, levies on hoarded MONEY, including Idle bank deposita, would do the trick.
I
Regraded Unclassified
64
Lord Brown
(But I ought to add that despite all this "ourplus money", I do not think that
BI. But then the question of justice comes in. Why should Lord Brown (worth
there will be much of a Poor Man's Boom in low priced stocks since
riocks
will
any $1,000,000) nuffer especially because he has invested "in money." whereas Lard
200% not be paying any dividends worth having
unless
the
Dow
Index
falls
80
low
Smith (also worth $1,000,000) who has invested in yachta, or Goyas, or General Motora,
of to make stocks worth having. But more of that also in another Digest.]
or a modernistic mistress, escapes scot free!
Conclusion
82. (Incidentally, as a tricky theoretical aíde-issue connected with the LAW OF
SUPPLY AND DEMAND, let me mention that the very fact that Lord Brown decided
88. Of course the general trend of this essay is that the government will be
through fear of the future (or Mr. Ickes) to hoard money in his bank, is, to some ex-
weak minded (the Public's fault of course!) and finance much of the war by inflationary
tent, a nocial service-eince he has enabled New Dealers in the past to inflate the total
borrowing from the banks instead of meeting the whole financial burden out of
supply of money (by horrowing from the banks for social services), while be (Lord
pay-as-you-go taxation.
Brown) has very kindly simultaneously (though nervously) augmented his own liquid.
But although I personally expect considerable bank borrowing (though I am against
Ity-demand for money and thus enabled the New Deal to get away with many
It) I do not expect an early boom in atocks in consequence. In fact before that hap-
Inflationary government works
without inflating the actual price level at all. In
pens in the stock market, I personally fear a further sharp shakeout for the
very
fact, (patriotic) Lord Brown's increasing liquidity-DEMAND for Money has simulta.
rude reasons already given in two Digesta, 89 and 90.
neously negated the Increased governmentally-created SUPPLY. Hence, no change in
the "price" or purchasing-power of Money!]
PART VI - USING THE GOLD PROFIT
Hence, if the government pounces on Lord Brown and seizes his $1,000,000; then,
A Real Good Way of Paying For the War
immediately the government spends this sum, it will set in motion (potential) previ-
ously-dormant inflationary forces.* [So really it may be rather best for the government to
89. In high finance, there are various ways of swindling your creditors respect-
go on keeping Lord Brown thoroughly scared, and not to disturb his hoarded pile at
ably. In Chapter 24 of my book, "Investment for Appreciation," I told you how to
all! But more of these financial subtleties in a later Digest.]
swindle the public (If you were a financier). or how not to be swindled (if you were
the public). But I did not deal in that pratty book with really, REALLY HIGH Finance.
NE Entrything fatent inform is highly inflairmary, abbough it does not show is quantin-of-moon
The sPon ni inflation nb prives are NOT availed: dough forther "Infation" is
The whole history of government (high) finance throughout the ages has been one
83, What the government really ought to do, according to the theory of capital
of swindling the public, or clipping coins, or printing paper money, or capital levies on
levies, is to take toll of monetary income AS IT FLOWS
which
is
the Jews and on other creditors. And our own dear America has not been quite guilt-
not
really
a
cap-
ital levy at all. but just ordinary taxation.
less, even within the last eight years. I refer to the trick of devaluation, which presup-
poses the existence of gold-backed currency, (Don't forget it). And any really wicked
And the amartest way to tax in this manner is to use sales taxes on the poor, and
government will always keep a gold-backed currency, so that it can awindle its credi-
terrife income taxes on the higher brackets
just as England is doing today. [When
tora, and still "look" respectable, and do no (democratically) in the interesta of the public.
does A tax become a capital levy? But I cannot go into that here! When does a lady
become over-weight?]
The trick is quite simple: it is really rather smart.
The recipe reads somewhat as follows:-
PART V - FORCED LOANS (Seizing Idle "Money")
1. First of all, catch your golden rabbit at the rate of $20.67 to the fine ounce,
or (as from 1933 onwards) at one paper dollar for 13.71 grains of pure gold. [N.B. This
84. Rot I might mention that by calling a thing by a different name, the gov-
you can do by fixing your foreign (paper) exchange rates below international purchas-
ernment can mop up idle bank money (If it wants to) by having forced loans on any
Idle bank deposits over a given amount (or as considered "unnecessarily large" by lo-
ing power parity. Your goods will flow out. Gold will flow in! France did It in 1925.]
U.S.A. today has 630,000,000 ounces, or 23,000 tons (one ton is about $1,000,000
cal boards of politicians who will pass on the "reasonable needs" of the relatively rich).
And that too may happen here-forced loans!
(today) Le, 80% of world's monetary supply of gold. Annual world production now
about $1.4 bns.]
85. But the re-velocitation of the boarded funds (forced leans) will be nearly
2. Then on the fallacious argument that you must keep pace with the deprecia-
as inflationary AS new borrowings from the banks
so that the forced loans, al-
tions of other currencies, (or on the alternative argument that you might na well get
tionary EFFECTS.
though avoiding STATISTICAL inflation (of bank deposits) will not avoid the infla-
some use out of your gold) raise the nominal price of gold to $35 an ounce (and gret
a. gold profit on paper of say $2.8 bna.). (It is now a plucked "eagle".)."
Re-velocitation" [Oh yes, I know that some will disagree with me on this "theory of inflationary
[But of course don't forget to persuade someone to persuade the Supreme Court
but I will enter the ring with them somewhere around Digest 94.]
that all "promises to pay actual gold metal" appearing on the back of all gold bonds,
do not really promise to pay gold at all, but merely paper dollars! Stir the whole thing
The Real Target for "Levies" are the Under-privileged
up (as in 1932). Make it confusing, so that nobody can know what a dollar in (despite
B6. Incidentally, in this particular war, in this particular America, the extra
the intentions of the framers of the Constitution). (See Records of Federal Conven-
into money being borrowed inflationarily from the banks by the government, is not going
tion of 1787: Max Farrand: Vol. II; pp 308-310).]
tively poorer) but into the hands (and mattresses) of munition workers in the rela-
the pockets (banks) of the relatively rich (whom taxation has already made rela-
3. Then, make it legal to issue paper gold certificates in terms of dollars for the
$2.8 bns. gold profit.
tively lower income bracketa, And it is they, whose eventual spending on A reduced
supply of consumables (butter) will Inevitably force prices up (especially in the black
Then, use the new gold certificates to pay off the old Government Debt, or to meet
markets) unless the government does tax them with sales taxes, or introduces WITH-
current expenditure, or to build a new battleship or sink a canal (or vice versa) ac-
HOLDING patriotic TAXES ON WAGES (forced lesus on the workers), or persuades them by
cording to your own feeling.
propaganda to "Invest In attack bonds".
[Wisecrack a la Jimmy Durante:-Oh yes, the Government have only paid off two
Gap haps in 1942 soon cause violent price Inflation: for statistics show that In Inflationary
87. will But If the government does not do this fairly soon, the so-called
teenie, weensle little (1930) government debta with the gold devaluation profit of Jan.
1934, amounting to $75 mns. in one case and $600 mns. in another. The rest they have
only be $50 bns. also) the workers will be receiving $66 bns. in money, 1943 (and per-
allocated to the Exchange Equalisation Fund, and hardly used at all.]
that money! Quite worth exciting. of annually produced consumables, on which whereas they can there spend will
But they have stalen their first apple! The "principle" is established.
Prior an Jan. 1934 the un-dollar goldgiere contained 232 grains of pure gold Today (M re-minted) only 137.1
grains, Le 1/5ds of an osnat, with power to devalue further to 2/7iha.
3
11
Regraded Unclassified
65
Inflation Series (Essay Na VII)
4. Then, get permission from Congress to devalue below $35 an ounce 80 as to
turn your gold hoard of $22 bns. into say $44 bne., or $66 bna, or $88 bns. Why not
$88 bns.? This would give a further gold profit of $66 hns, And that with the aid of
a little taxation, would just about pay for World War IL O.K., let us go about it.
Washington Giddy-Go-Round
5. Realize meanwhile that you need not part with your gold at all. You keep It
(No Need To Get Dizzy)
all yourself. It never leaves Fort Knox (where only two-thirds of it is held), nor the
various government Treasuries elsewhere.
6. All you do in to Issue $66 bns. more of gold certificates, each of which says
by
that an equivalent value is held in gold by the U. S, Treasury, payable on demand
although of course you pass a law to prevent anyone, except foreigners, getting it (the
MAJOR L. L. B. ANGAS
gold) on demand.
7. Then, you deposit your new gold certificates with a Reserve bank (or any other
bank) and get a credit with the bank in question for dollar deposit money,-which you
Digest 96
can then go off and spend on more battleships, or even buying in War Loans you have
already floated, and generally paying off the dear old Debt.
August 3, 1942 (Dow at 106)
8. Gold certificates, or rather the bank deposits resulting therefrom, replace the
Debt. You have still got your gold. You have paid off the Debt. [Why not have more
Debt. and then do it again?]
Introductory
9. The laws of America very nearly permit It, and a certain gentleman wrote a
Digest 95 of July 22 dealt mainly with the political-psychologien] problem of whether
letter to the Wall Street Journal of 15th Feb., 1942 suggesting It though the let-
or not Mr. Henderson could succeed in controlling prices effectively and
whether
or
ter wore considerably more clothes than my own foregoing risqué Sally Rand argu-
not the White House would turn on the white heat of ita support.
ment. We have done it already (first apple). Why not do it again? It happened here.
(Professor Warren's rather dangerous baby.) The coin-atripper's bubble dance!
Statesman's Dilemma
Note by L.L.B.A.
The duty of all statesmen is to be fore-sighted-mure fore-sighted than the masses,
The above is certainly not the intention of the present rulers at Washington. Eccles
whom they lead. But in a voting democracy, even though a statesman may sur the urgent
and Morgenthau know all about it, and hate it. But funny things can happen HERE,
And all good citizens should campaign against them (It), as Mr. Eccles and Mr. Mor-
need for some political action, his less far-sighted public may not yet have similar
views which leaves the statesman in a quandary. particularly If the necessary action
genthau are doing. For a country's money is quite important to its citizens. And the
American gold/dollar eagle should not be clipped further. No! I do not think it in very,
required will take a long time to put into practical effect (for instance, a rearmament
very wise to use the gold-proft (and inflationary bank deposits) for paying for the war.
program. or the policing of retail prices).
Here endeth these Essays on Paying for the War.
The statesman's dilemma, in a voting democracy, is that If he does not nee far abead,
he la accused of negligence; and if he does see far ahead, he is accused either of being
a scare monger or of not having sufficient consideration for the public and the tax payer.
and of wanting to do unnecessary bureaucratic things.
THE END
Of course, Government propaganda can do much to make the public eateh up with
the statesman's mind; but there are limits to what a. democracy will "take." prior to
In my next few Digesta, / shall show (a) How Inflation is a Hidden Tax; (b) How
its having fully realized the absolute need for sacrifices. Sacrifices therefore (and an-
it is ulterly un/air; and (e) Why it usually leads to Revolution.
nouncements) often have to be imposed in installments, so as not to make the public too
In other words, although you have already enjoyed or suffered five long Digests
mad too quickly.
of my SPECIAL INFLATION SERIES, it will only be in Digest 93 that you will really
At the beginning of this War, for instance, before Hawali, if the White House had
begin to eat the strong meat of the general inflation problem. But unless you (and 1)
said we have got to fight alongside of England: you are going to be regimented almost
get our THEORY right, you and / are going to be fooled, and make, or lose, 6 million.
as much as the Germans: your taxes are going to be as high an the British: and you will
For American capitalists are soon going to divide themselves into two separate armies,
neither have business as usual, nor liberty all usual, nor life an usual it is not Im-
the one believing that inflation will occur and will send stocks up: the other believing
possible that (if such remarks had been made in time) that the White House would have
either that inflation will not occur, or that even if it does, it will not send stocks up.
lost all public support, New ideas must be imposed in installments, even if a statesman
And the two financial armies, who trade blows with ench other, will be "reciprocal",-
sees the whole ugly future in toto far ahead.
for one group will sell its cash to the other for stocks; and one will be left holding the
baby, Which is the baby? Ah/ Read my next few Digesta.
Some people of course will say that this in tantamount to arguing that all statesmen
must, on principle, deceive the public. But I have not space to enter into all that.
New Deal Policy
The Angue Dignate
lassed as market resitions warrant.
Stock Selection latters
Angu Fine Service
In my own opinion, no one can understand the stock market battle between the in-
Minimum per calendar year,
rittes Mid-weekly by Mr. M. Rich,
name specific inser - buy or sell
High speed condensation of opinion
flationary bulls and their brothers, the bears, unless they acquire an airman's perspective
12, 6 and , mai, $25, $15 and #
12, o and 3 mas, $50, RM and #18
at important points in the market
Portfolios Managed-$300 minimum
12, 4 and I mos.-$25, 115 and 110
of the war-time "political" economy of the New Deal. I cannot guarantee that I see
Single Consultations
it clearly myself, but the larger framework of the Political Big Picture seems to be
Major L L. B. ANGAS, Investment Economist, 570 Lexington $100 Ave., New York.
somewhat as follows:
-
Regraded Unclassified
66
Despite the War, the New Dealers want to re-distribute annual national income
will be built up whereby It will become very easy (quite soun) for the New Dealers to
(whatever it may ultimately prove to be) in favor of the relatively poor-so as to pro-
crack down on any FURTHER rises in monetary wages, i.e., on TWO more whirls.
duce a happier, and more efficient, working class with a better and healthier batch of
liables,-so that twenty years hence the "average" American will be generally "better"
By Installments - Gentlemen, Please
than anyone else. The New Deal want to give to the future masses some of the benefits
of the "privileged" Victorian classes. And they do not intend their eyes to be diverted
And if one became even more Machiavellian, one might add that, to start with,
(by Hitler) from this major long-run strategy in the realm of domestic political BOOK-
the workers will be told that there will be no "attack" on wages: later on, when they
omy. That is our Roosevelt, as I see him.
see the War going badly, they will be told that wages must be stabilized, without any
attack on the standard of living: and that finally they will be told that the War has
High Money Wages. Keep 'em Loyal.
become HO serious that the production of consumables as well as durables has to be cur-
tailed and that therefore the standard of living will (temporarily only) also have to fall.
Nor from a monetary angle do the New Dealers (probably) much mind seeing
money wages forced up to rather high levels, for they feel that such action will leave
And if these disagreeabilities are not imposed upon the workers TOO FAST, they
money wages on a high post-war platesu, and that even if the Republicans come into
will swing along loyally with Washington and not got too mad, nor strike, nor vote
power, It will be difficult to get money wages down again, particularly if trade unions
Republican.
have been made ultra strong by the New Deal. Hence, labor will not suffer too much
Meanwhile labor leaders too must be kept reasonably popular, and given time grad-
in any post-war deflationary slump. There may be some unemployed (looked after by
unlly "to explain the War" to their followers: for the general public do not absorb
the State), but those who still keep their jobs will retain high money Wages and an ap-
new ideas, and the need for new serifices, very quickly. There must therefore always
preciable larger share of the real national income (whatever it is).
be some temporary playing for position, coupled with attempts on the part of each
But although we live in a. monetary economy, the New Dealers are tending more
group to be the last, and least, to suffer. Indeed, it is only when the War outlook be-
comes particularly somber that everyone will become willing to swing along in line, and
and more to look at the PHYSICAL national income rather than at the MONETARY
to do what is obviously necessary, despite the secrifices (and possible Inequality of sac-
national income. And they want to give labor as large n share of both as possible, and
riflee) involved.
progressively to re-distribute wealth in favor of the poor.
That seems to me to be approximately the general framework of the situation in
By corollary, this is, from a long-run point of view, RELATIVELY bad for equity
Washington. (No gentleman mentions these things, bot investing gentlemen ought per-
stockholders, in terms of percentages;-although if real national wealth Increases enor-
hape to look at them-lest they get their time factor rather wrong).
mously, both groups may be absolutely better off. And the New Dealers have no objec-
tion to this as long as Kapital does not re-gain too much power over labor, as in the
Behead the Capitalists First
Harding regime.
Meanwhile the one great "political" fact remains that the Government cannot lower
But no Government, in a voting democracy, can execute its long-run plana unless It
the real standard of living of the workers until It has torn the financial pants off all
keepa Its votes and "plays" its public aright.
capitalista FIRST
which is a big bear point for all common stocks - even though
As regards the War, labor cannot safely be regimented too soon, Le, before labor
the successive tax bills do Impose on stockholders their miseries in polite installments.
nees the absolute need for being regimented. Meanwhile labor must be kept sweet and
In the long run, the common stockholder in going to suffer. He la also going to
"loyal". And if short-run minor subterfuges are necessary in order to keep votera
suffer in the short run.
"loyal," I am not too sure that they will not be resorted to.
Eyeless in Wall Street
Raising Their Brackets (Sugar ON the Surface)
But a great many common stockholders, and above all, their stock brokers who issue
For instance, even though a rise in money wages may not make a worker really
market letters, seem to confuse the political wood with the trees.
richer
on account of either rising prices or rationed commodities, most workers
For instance, if the Government and the WLB are allowing wages one more whirl,
earning $30 rather like to have their money wages raised to $40. It gives them the
and pretending that purchasing power of wages is going to remain fixed and that
feeling that they are "getting on," and moving up into higher income brackets. (Eng-
wages will be raised with each rise In the cost of living their stock broker friends
land gives public benefactors peerages: not "real" benefits. And the psychological trick
works effectively. The recipients "feel" better, although they are not richer.)
are rather inclined to say that, although such action may be described in Washington and
as "one more whirl," it will in reality only be the first of many more whirls
And raising wages during the War not only makes workers feel better (even
that inflation is in a rising spiral: wages chasing prices, and so on and
they
are
If they are not really richer), but may possibly cause them to become really richer after
therefore likely to say that inflation at last is out of control: the wolf in here there-
the War owing to wages having been pegred at a permanently higher "sticky" plateau,
fore buy the market.
and commodity prices coming down.
They seem to forget completely and entirely that the higher wagren will be paid in
the main out of capital, and that it la the common stockholder who will get hit first, and
One More Whirl (Then the Crack Down)
hardest, in the process of paying for the War, both in terms of money and in terms of
I therefore personally have a sort. of feeling that although the Administration loud-
real commodity-sacrifice. The limit to taxes on corporations la the sky, for production
ly says that money wages must be stabilized, they do not really much mind if they rise
during War la not governed by the profit motive. You merely keep the managers sweet
some 10%, or 15%, first. Such rises keep the workers sweet and loyal and make them
and make the common stockholders pay.
"feel" good. Meanwhile the willingness of New Deal Governmental Departments, like
the WLB, to grant higher money wages makes the workers feel that Washington in
Economic Historians (Fatlacy Boomleteers)
working for the workers
and this tenda to give the New Dealers more votes.
The trouble about the inflationary bulls is that they are so steeped in economic
80 the far as allowing money WAges "one more whirl" is likely to attract an attack from
Incidentally, a Machiavellian critie might also have the audacity to suggest that in
history and economic precedent. and have acquired so many mental market rules of
thumb, that they simply cannot distinguish between inflationary conditions as they rule
press, and also from the CONSUMING public, a psychological political situation
today and inflationary developments as they occurred in the past. They are always look-
ing back into past history and asking "what happened in the last War and what hap-
2
3
67
pened last time." They seem to think that Governments learn nothing from history and
that economie and market conditions repeat themselves without variation. Which in Dog.
sense! For governments (usually) learn faster than investment advisers.
cal." "In France, for instance, in 1924-26, despite a 500% inflation, steel stocks went
down because of surplus steel capacity due to the reacquisition of Alsace-Lorraine, They
should have "gone up" in theory, but they did not. Conversely, public utilities which were
Lunch With The Orthodox
partly owned by municipalities went up, though theoretically they should have gone
down, because they sold at stereotyped prices, while costa were free to rise. But the
If however anyone asks you to lunch down in Wall Street in the Parrot Room of
municipalities, because they themselves had a share, allowed prices to rise for revenue
Alice's Wonderland Restaurant, the conversation runs somewhat as follows:-
purposes. And the utilities naughtily went up BO that an unthinking theorist or
orthodox parrot who went bull of steels and bear of utilities, got doubly pasted both
(1) The Experienced Parrot:-"We have inflation: we are going to have more:
you simply THEREFORE must buy common stocks."
ways."
"The trouble is that PAST economic history is not always an entirely safe guide,
(2) The Knifer-"Hut since corporation profits and Excess Profits Taxes can take
and that It is no use just rushing into the market and buying any well-spread list of 30
away net curnings faster than inflation increases them, dividends may fall, and stocks
Industrials just because inflation USED IN THE PAST habitually to benefit most
may dump-inated of rising, na theoretically they ought to. The old rules of exper-
common stocks."
inco may no longer hold good."
(3) Then, some fellow (The Fork) gets up and says, "Oh, we agree with you about
This blaze of rationality on the part of the Parrot (which annoys the blunt Flower
the trend of net earnings, but why take such a short-run view? In the long run, in-
flation will double or treble the replacement cost of all fixed asseta and machinery;
Pot, who thinks he is "slipping") is also rather disconcerting to the highly polished
and in the long run, these higher replacement values will somehow work themselves
Knife-because he, poor devil, la left with the difficult problem of proving that a man
out in common stock prices. It may take some years, either during, or after, the War,
(or a parrot) who in right about something (say one or two trees) can be totally wrong
but work out it will, most assuredly. Therefore buy common stocks now-for this in a
re something else (say a wood).
sure long-run gamble. Of course, you may not get complete protection from inflation but
But the pompous Parrot has now established the fact that he "can" talk sense
equities will certainly afford some protection. Therefore, get aboard now and don't miss
and "be reasonable" so that the rest of the table interrupt the irritating and pessimis-
the bus."
tie Knife, and scense him (ad hominem) of having no faith in the future of the Ameri-
can System.
(4) There in, The Knife at once agrees, some soundness in this long-run asset
theory, particularly as some new Government might come into power which tries to up-
All he can do is occasionally to butt in with the remark that "It is only if com-
and the trend towards State Socialism and to reinstitute the profit system. "But that, he
modity prices are going to go up and STAY UP that the long-run buying of common
anys, Le a terribly long way to look ahead; and seeing that it La 30 easy deliberately to de-
stocks as a post-war gamble becomes at all a good one. And even then it is not neces-
flate a nation's money, particularly its bank money (provided that the Government la
serily safe." And that "Governments have learned the tricks of eliminating those bene-
no longer running into debt on account of a war), the chances are that when the War
fits, and switching them over to themselves!"
in over, there will be di deflation of money, and also of commodity prices (due to more
production); and that therefore, with wages more or less peoged at high levels, the
common stock owner may carn mighty little. Indeed, even though " might theoretically
The Parrot in future lunches with the Flower Pot: the Knife takes his luncheons all
Crast "plenty" to reproduce the ezisting /actories, low earnings will prevent the common
alone. And the financial papers only quote the Parrot. [The crowd however usually
start stocks from rising. Hence, it is probably winer to wait until after the War before you
proves wrong. The Knife, in the end, turns out to be right. And the rich pay first and
buying common stocks on nebulous post-war fized-asset-replacement-cout values."
most for the War (and the Peace) since Washington willed it sol]
And, in the short run as distinct from the long, the very fact that there is an Office
One more whirl, in wages, maybe. But equities won't benefit. Though NO one con
of Price Administration, and heavy Excess Profits Taxes, makes it (in the Knife's
prove that anything "will" happen. The lonely forecaster can only say what HE sees
view) rather foolish to buy common stocks (which you know are going to suffer
on the horizon. And what he sees (as also does Mr. Morris Rich) Le the Beheading of
perhaps not till several years after the War ends.
throughout the War) just because you know the suffering may end some day, though
the Rich, by the slow saw system.
(5) Then comes the man in the middle of the table (The Flower Pot) who always
Let us now turn to the question of Subsidies
for,
in
order
to
avoid
raising
that speaks in generalizations and in terms of economic "tendencies." He parrot-like,
prices in certain industries, Mr. Henderson wants to subsidize the higher-cost pro-
"Inflation tends to inflate earnings: that all price coilings tend to says, be rubber ceil-
ducers! There In also some talk of pegging the cost of living. and subsidizing certain
Ings: and that gradually inflation will benefit common stocks, even If taxes
groups in order to do so. And the bulls have seized upon this suggestion as constitut-
tendencies?" Therefore buy stocks and lock them up. Why buck the normal probabilities are huge. and
ing nothing but a method of trying to cure inflation BY MORE INFLATION. Which
makes them all the more bullish!
or al inflations (of the ever-recurrent bank credit cycle which used to occur before 1940)
(6) But, says The Knife, such men seem to forget that, although in all the natur-
Price Control Subsidies
"managed" dispensation, wages rise before controlled prices
usually profits and prices which rose ahead of wages, today under our present more
At first eight, the thought of Government subsidies to high-cost manufacturers and
distributora (who are suffering from high or rising costa), in order to prevent prices
That COMMON (the stockholder getting ahoad with the ball, he, pour devil, so is that, usually instead left behind. of the
rising, looks quite ridiculous. For obviously such subsidies cost the Government more
and the lag) in the difference between this Far and the last between the normal
money, and positively accentuate the inflation of money, which in the ruot cause of the
abnormal. Governments (too) home learnt from past history.
inflation of prices. Indeed, subsidies look like trying to cure inflation by means of more la-
ly, you growls, have got to do benefits common stocks. It always has done, and though blind-
(7) Then, "Inflation the traditionalist Parrot at the side of the table orthodoxly,
tent inflation monetary dynamite that the eventual blow-off in general prices will tend to be
with the suggestion that the policy, if continued, will store up so much
stocks le to frame your investment policy intelligently and nelect always will. All
greater than ever (if eventually the Controls break down).
exceptionally carefully - in the light of NEW conditions, economic your and common politi-
5
Regraded Unclassified
68
True, you have to give each industry some profit in order to prevent it from ceas.
PART II - THE BIG PICTURE
log production. But many argue that it is much the best to allow general prices to rise
Price Control Is Only Part of the Problem
(so as to give the profit) rather than for the Government to subsidise.
This Digest BET far has primarily been concerned with Mr. Henderson and his cell-
If, however, the Government is the chief (or only) purchaser; and if the Government
ingo on prices and wages. But the problem of Controls la only half the problem of pre-
policy is to allow the producer "some" profit, it doesn't much matter whether the Gov.
venting
wild
inflation
and eight must NOT be lost of this point. For after all, Mr.
ernment pays the profit either in the form of a higher price or in the form of subsidy,
Henderson is only concerned with the super-difficult task of preventing ALREADY EX-
But if the Government is not the sole purchaser; or if the various manufacturers
ISTING inflationary forces from "catching." He has THE power to shut off the in/la/ionary
concerned have different levela of costs; it seems much better to give subsidies to the
engine: all he can do is to apply certain broker.
few high-cost producers (in order to encourage marginal production) than to pay more
to everyone all around.
The outstanding fact in the whole issue is that there are two completely different
eides to the problem of checking inflation:
1. AVOIDANCE:-To check it at the monetary source, by reducing Government
Of course if excess profits are a full 100% and if the low-cost producers are paying
expenditure and/or taxing heavily, and avoiding borrowing from the commercial
excess profits, the Government does get back from the producers perhaps the whole of
banks; (This, plus Forced Loans, will be done later, after Election) and
the extra money it might pay to everyone as & result of higher prices
were true, it would again not make much difference to the Government if it paid higher this
and
if
11. BRAKES:-Arüficially preventing the (largely unavoldable) Inflation of mone-
lary purchasing power from "catching" and foreing up prices.
prices all round, provided that it got the addition back (from the low-cost producers)
in the form of levy-receipts from excess profits taxes,
As regards I, the cure (Le. avoidance) lies in forced loans, withheld wages, high
taxes
and a reduction in borrowing from the COMMERCIAL banks.
But if excess profits taxes are not 100%, (and If the government is the chief buyer)
As regards II, (namely the Brakes), you can't control prices for long unless you also
subsidies are theoretically preferable to raised price ceilings
particularly if the
control wages, and farm prices. Otherwise they spiral.
low-cost producers are (a) paying excess profits taxes, and (b) constitute the major part
of the Industry.
Mr. Henderson and the OPA are not concerned with the problem of avoidance
except in so far as the control of prices and wages prevents a tendency towards spiraling.
Avoidance is rather a question for Mr. Morgenthau and perhaps Mr. Eccles, Leg the
Obviously, however, if the Government is not the only purchaser, and if the commod-
financing of the War, with taxes and bona fide loans rather than with borrowings from
ity in question forms part of the general cost of living, all arguments that the Govern-
the commercial and Federal Reserve banks. In other words, complete success by Mr.
ment geta back the whole of ita subsidies in one way or another fall to the ground.
Henderson does not necessarily mean that the danger of inflation is PERMANENTLY
avoided
for if Mr. Morgenthau gues on borrowing from the commercial banks at
Subsidies, nevertheless, do have this merit that they will enable the price level, as
say $25 bns a year, the latent dynamite goes on being stored up, so that eventually, if
published in indexes, to be pegged, And if the public really believe that it is going to be
explosions in prices begin to occur over and above Mr. Henderson's ceilings, black mar-
kept pegged, they will not obey the Law of the Rising Market and start trying to stock
kets may develop as in England; and second-band gooda may sell at higher prices than
up unduly, therefore creating artificial starcities,
now goods; and production may cease because it la unprofitable; and eventually, in order
to get production started again (Ho as to prevent rising prices due to scareity), Mr. Hen-
Moreover, if the Indexes are prevented from rising, the labor unions will not be able
derson may be positively ordered to raise his cellings.
raling wages may be taken out of the factor of spiraling prices.
to ask for higher wages on the score that the index has risen; and thus the factor of spi-
Such a condition ia theoretically quite possible
though
probably
not
this
year.
pegging real (and monetary) Wages
Pegging prices may in fact be the first, and the politically most prudent, atep in
The question therefore arises as to whether the Administration is willing to, and
dustries. thing in the way of a few subsidies to the even high-cost if the insertion marginal of companies the peg does in cost a few some- In-
politically capable of, virtually ceasing burrowing from the commercial banks. Personal-
ly, I think no, for these reasons:-
(1) If the output of consumables has fallen so low that the average housewife,
will be the hesitation of the public to subscribe to fixed-interest bearing war bonds.
Incidentally, the more that prices (the index) are expected to be pegged, the less
despite the higher wages of her husband, cannot buy washing machines, pew cars, new
carpets, and so on, she especially if taxes on corporation profits are increased, and
with more inflation," the idea has more merits than faulta
Indeed although subsidies are admittedly a method of "trying to prevent Inflation
stocks
Government earning Loans (whether forced or voluntary) as in anything alse.
are
less
and
lesa
each
year
will probably be as willing to invest in
80
think
L
She may not want to clutter up her house with surplus furniture; and may not be
And Mr. Henderson will get most of his asked for subsidies, for he will use discretion
willing to let her husband start buying real estate, especially if rents are controlled
in what be aubeidizes.
for she will know that the safest and most profitable form of real estate, namely, houses
for the workers, is likely to be augmented immensely after the War, when the Govern-
Subsidies be all Around would, of course, be inflationary, but an occasional patch of them
ment has upon its hands the task of finding jobs for disemployed soldiers.
may anti-inflationary, regarding the national economy as a whole.
And many housewives will say to themselves that even if the Government dom In-
index, N.B. succeeds If in Government, avoiding 10% by spouding rise in the half Index a billion no as to peg the Cost of Living
elat on 10% of wages being put into War Loans, that such savings are only the equiva-
lent of five weeks' pay per annum and that even if such savings are forced upon her
round increase in wages
and if this avoida a 10% all-
Then, Thus, seeing that wages are about $70 bna, & rise in wages
family for three years, it will only keep the family, at current standards of living, for
of $7 bna will be avoided
fifteen weeks
which may not be much of an insurance if there happens to be a long
"employs" subsidy of half only the a half workers, It will be saved if the $31/2 War bns Government In estra indirectly pays and
unemployment slump, when peace occurs, with lots of discharged soldiers competing for
billion. Good business: and anti-inflationary, wages, though as a inflationary result of 4.
her husband's job. In fact, instead of objecting to forced loans, she may be rather grate-
6
7
Regraded Unclassified
L9
ful for a Government that steps in and makes her save
for are not most Women, with
cash in their purses, rather unable to resist that new hat?
But Congress wants to keep Labor and the Farmers sweet and "loyal" (forgive a
little repetition here), and the New Deal policy la to re-distribute the national income in
And if she is a normal woman, she will not want to nee her husband going too much
favor of workers and (armers.
to Exchange. the horse races, or drinking too much, or beginning to speculate in dogs on the Stock
When, however, the re-distribution in virtually complete (m It nearly is), there will
be nothing more to give to these two pressure groups: and even they will then (probs-
And since she is sure that the War will end some day, she will not behave as in 1920,
bly) see that any extra monetary gains they may get, must be paid for by extra mone-
when most American ladies thought that a new era was here forever, and that therefore
tary taxes on themselves, And then, they will no longer have any sound reason for ob-
there was no need to save, and that wisdom consisted rather in borrowing. This time,
jecting to more or less general price and wage control,
the lady will expect a post-war slump (if her husband is an armament worker) and will
be only too glad to pay off all her debta to the installment companies and to save for the
There is already little more to re-distribute In favor of workers and farmers, The
eventual and inevitable rainy day. Moreover, it would be patriotic, and help to defeat the
capitalist group have been nearly (not quite) milked dry. And when this can be "proved,"
Jape and Hitler
and to avoid a rise in the cost of living.
as It will be largely proved when the coming crop of dividends is announced, the New
Deal will no longer be open to the accusation that It is trying to fleece the poor before
My own view is that forced loans will not be objected to provided that everybody is
fleecing the rich.
made fluences. to subscribe, and that one pressure group does not get off because of political in-
In fact Mr. Henderson is very soon virtually bound to receive the support of Mr.
Roosevelt, whose nwo political future depends upon Henderson's success. And Mr. Roose-
And if forced lonns and taxes are adequate, there is no need to go on borrowing
velt's first act will probably be to ask for atill higher taxes on the rich!
from the banks; and the inflation of bank deposits may be stopped.
Mr. Henderson's opponents may meanwhile say that Mr. Henderson and the OPA
That is how I see it eventually turning out
although all this will not happen
are trying to usurp the powers of WLB; and that the Administration is adopting the
before the nest election.
view that, "The Way to Win the War is to wage war on wages"; but the past record of
the New Dealers disproves this.
And incidentally, every additional piece of bad military news will make the Amer-
ican housewife, and her husband, more willing to be careful, frugal, and patriotic.
The way to lose the War in to have a violent inflation. To prevent such inflation,
wages MUST be controlled
and the workers will soon have the good sense to see it.
Forced monetary loans will be unpopular only if Henderson la going to fail, and If
So also will the farmers.
the ultimate fear of the dollar in thereby sugmented,
They merely need to be convinced that nobody is becoming a war millionaire, and
But if the Administration adopta a well-rounded out program, not only of controlled
that the relatively rich have suffered first.
wages and farm prices, but also of forced loans to avoid progressive inflationary bor-
rowing from the banks
almost everyone will gain renewed confidence in the dollar and
Incidentally, neither the President, nor any other Washington big guns, have yet
feel that their forced loans are not risky at all, and, in fact, will subscribe to them almost
(27 July) bothered to hurl their propagandist projectiles Into the inflation arena. True,
voluntarily, though forced.
the President did make his 7-point speech on April 28th, but the rest of the Cabinet
What le wanted is a well-rounded out policy without loopholes in either farm prices
have been totally bush hush, and Mr. Henderson has been left to fight his fight alone.
or wages or in any other segment of the economic apple as à whole. And that is un-
And the bulls, foolishly thinking this apparent desertion of Henderson to be per-
doubtedly the Government's polley. (Re-read Mr. Roosevelt's speech of April 28, 1942.)
manent, have jumped to the conclusion that the battle against inflation la lost: that the
It cannot of course be put into process overnight
but it is already "on its way."
President does not care: and that Congress rather wants it, because it wants to "please"
both farmers and laborers
farmers, because it gives them higher prices and reduces
And personally, I feel sure that Mr. Roosevelt would resign rather than see his
the real burden of their mortgages-and labor, so that wages may not be controlled.
economic anti-inflation program break down. Incidentally, his whole personal reputation
with history dependa upon It!
But all these views are very short-sighted. Workers are consumers an well as wage-
recipients; and if wages are going to be raised only because the cont of living rises,
wage-earners will suffer from the time lag
ao they and their wives do not want to
Temporary Delays (But Don't Get Bullish)
see the cost of living rine.
But (as already said) America is a democracy, and it is difficult for an Adminis-
And trade union leaders will only want money wages to rise if the rises can be at
tration to move very far ahead of the thinking of its public,
the expense of profits (or the general tax payer) rather than at the coat of the workers
themselves (In the form of higher prices).
time; but to apply them EFFECTIVELY, it is perhaps prudent to wait until the mo-
It may be fairly easy to get preventive (anti-inflation) bills through Congress in
And that point is nearly reached. So the trade unionista will soon agree to the fixing
of
ment in psychologically right, l.e., until it in a little late; and the public have CONVINC-
wages for Uncle Sam's sake or at all events won't rebel publicly much more than
ING proof of the need for action, and sacrifice,
is outwardly necessary "in order to remain a trade union leader."
public "really" to see the real need for rigorous action.
That is what, I believe, the Administration have been doing-i.e., waiting for the
A Pre-Election Inflationary Boom?
At the moment, with an election ahead, it "looks" as If Congress unwilling to
The Administration may of course privately desire to wait till after the election
control either farm prices or wages. But that la only the surface appearance. were
before cracking down on prices or supporting Henderson; but although the President
may be a great politician, be is also a great statesman. And if inflation sentiment shows
In fact, to climb as soon as there is a risk of the retail price level rising
signs of getting at all seriously out of control before the election, as It has been doing
wagon; in likely for on the anti-inflationary bandwagon, and desert the fast, Labor-Farm Congress itself
this mid-July, be and his Cabinet will act before the election.
the light of soon consumers even farmers than producers. and laborers may begin to consider themselves more band- in
Indeed, if inflation in given B little more publicity, Congressmen are likely to climb
on the anti-Inflation bandwagon. So also are farmers and labor.
8
9
Unclassified
70
Inflation Series (Essay No. VIII)
I am therefore not one of the inflationary stock market bulls. I feel that both the
President and Congress will give Henderson their full support quite soon; and that most
of the inflationary arguments which are now being put forward by the bulls will fall
lo the ground.
How Inflation Leads To Revolution
Indeed, it is quite a fallacy to argue that even if commodity prices did rise another
by
50% owing to Henderson failing, common stocks must therefore automatically benefit
Additional taxes might meanwhile more than cut current profits in half! And that is
MAJOR L. L. B. ANGAS
what I see ahead.
Digest 97
Incidentally, if the War goes badly in Russia and Egypt, or elsewhere, the public will
August 4th, 1942 (with Dow around 106)
become much more ready to accept sacrifices than they are today. As I have often said,
it may need one or two more Pearl Harbors to get the American public (farmers and
Revolutions are not a Question of Viciousness
laborers) really willing to wage the War all out, in such a way that financing the War
It is well known that the wild inflations of the Twenties in Europe led to virtual
will NOT lead to an inflation which will ruin the country, and which MIGHT lead to
revolution.
revolutions in Germany, Hungary, Austria, etc. When, however, anyone, particularly a
foreigner, gets up and says, "America might suffer a similar revolution," he in usually
The question of Revolutions (in rich and strung countries) will be dealt with in
accused of being either crazy, or anti-American. But that in mere foolishness
for
Digrat 97.
revolutions do not come because people are viclous, or because the country is uncivilized:
but because something goes wrong in their lives of a nature so painful and disconcert-
ing to their families, that the general public begin to feel that they simply must do
something drastic about it quickly
otherwise their wives and children will starve,
and life will no longer be worth living.
Unfortunately, both inflation, and deflation, are capable of bringing about this con-
dition.
Moreover, let me immediately add that it makes no difference whatever how great
are the natural resources, or the accumulated wealth, or the moral fiber, or the general
good-will, or the gold reserves of the country in question. The simple fact is that if eco-
nomie conditions become so bad, as a result of either inflation or deflation, that produc-
tion (and above all, distribution) comes to a standstill and incomes cease, about the only
thing that the people can do is to net in a. way which constitutes revolution
and
the chances are that the higher the normal standard of living and the greater the in-
telligence of the population, and the greater their political liberty, the more certain
are they to get angry and go wild if they begin to see their families suffering starvation
and themselves becoming financially declassed.
I have closely watched these developments in Europe. So forgive me for briefly
THE END
mentioning them here.
Complete Breakdown-Revolution
When a wild inflation geta out of control, and when no businessman knows how high
prices are going to stand a month or even a week hence, all long-term and short-term
contracts become meaningless.
No producer of raw materials will take orders except on an escalator (price Index)
basis. Therefore no manufacturer will quote prices, except on an escalator basis, to re-
tailers. And retailers, If they have seen prices rise several hundred per cent within the
last few months, will feel that the cumulative price rise "must" soon come to an end:
BO that they simply dare not give firm orders to manufacturers (at higher prices)
lest some inflation-buster (like Monsieur Poincare in 1925) appear on the scene and
suddenly stop the rot.
Retailers therefore refuse to give orders to manufacturers (although they are prob-
ably wrong about an early saviour like Poincare) : manufacturers therefore refuse to
give orders to raw material producers: and production itself comes to a standstill, and
millions upon millions become unemployed.
Workers are then left without any money income, with which to buy the fantasti-
cally expensive commodities required for their living standard. Fathers see their wives
The Angue Digesta
Stock Selection Latters
and children starve. And in obedience to man's primary instinct, the Will to Survive,
Issued as market conditions
Alteen per cultar your,
Frittes Mid-weekly by Mr. M. Rich,
4 Wire Service
12, di and J me). $25, BIS and at
name specific issues la buy or sell
High speed condenantion et opinion
they loot the shops, for the sake of their children.
12, 0 and 3 NI. 150, $30 and III
of imported prints in the market
Portfolios Managed-$300 minimum
12, 0 and J as and $10
Meanwhile the police, if they do their duty, arrest (and occasionally have to be rough
Major L L B. ANGAS, Investment Economist, Single 570 Consultations Lexington $100 Ave., New York.
with) the family-loving fathers. "New" politicians then come to the front to organize
loving fathers to be rough with the "brutal" duty-doing police. Inflation, I repeat, leads
to revolution.
Regraded Unclassified
I myself have had the experience of seeing some of the wrecking of private homes
Inflation Series (Essay Na IX)
which took place in Budapest when Bela Kun set up his Communist rule in Hungary-
as a nominal antidote to the "mismanagement of money by the capitalist government"
who mis-managed the capitalist system-because they did not understand the dynamics
of Inflation, and the latent dynamite in spiraling Government Debt.
YOU CANT BEAT INFLATION
by
Of course, there are always counter-revolutions, eventually. But why invite tempo-
rary revolution in America? And if (I said IF) the Government goes on borrowing from
MAJOR L. L. B. ANGAS
the COMMERCIAL banks enough, that is what, I assert, is going to happen HERE.
Digest 98
Week-Kneed Finance
August 5, 1942
Quite a few people outside Washington should (I think) ponder the subject more
deeply. It in not enough just to shirk the problem comfortably, and say (1) that taxes
are high enough already: (2) that to resort to forced loans would make the War too
Nobody Makes A Killing
unpopular: (3) that therefore one must rely on bons fide loans as much as possible;
and (4) that if they are inadequate, the rest of the War financing must be done by
Popular talk about inflation usually leads to a debate on what is the best hedge.
borrowing from the commercial banks (which le inflationary, although some pretend It
(Though I admit that in most cases any discussion of the "best bedge" really means
is not). Nor is it any use (stupidly) saying that America's huge gold reservee rule out
"How to make a killing.")
inflation.
Actually, very few people do make a REAL killing out of inflations. Their money,
Inflating bank money, in a modernized economy, is just BE bad BE inflating paper
though more, may really be worth less! (False profital See Digest 90). And even
notes. And it in more foolishness to say that "bank deposita are not money," nor mone-
the few adroit speculators who de temporarily make a real killing (as well as a money
tary purchasing power, and that therefore inflating bank deposita la not Inflation-
killing) usually lose all their gains in the end, by misjudging the moment at which
and that therefore It does not matter borrowing progressively from the banks.
to get out.
It does matter, All I shall prove in a later Digest. And, if continued eumulatively,
(N. B. The Hugo Stinnes Group in Germany in 1923 owned about one-tenth of the
will lead to national ruin. I cannot stress this point too emphatically.
industry of the country by the time the inflution reached its peak. But they did not know
As Digest 92 showed, YOU. no matter how rich you are, should prefer high cur-
schen to sell (and incidentally, they could not find buyers when they realized they were
rent taxes to either loans or forced loans. You should prefer forced loans and capital
too
late)
no that Group actually went nearly bankrupt/]
levies (Digest 92) to inflation (and revolution). And you should realize that borrowing
from the commercial banks la just as much inflation as was the printing-press infla-
The Selling Problem
tion of the German mark. It la merely the YOUTH of a note-inflationary movement.
Persons speculating in commodities, etc., on borrowed money often make real profits
For, as soon as bank reserves become strained, paper money is printed to sup-
during the inflation; but making the real profit is only the easiest half of the problem.
port the reserve ratios.
Picking the selling point, and the point to pay off loans-and not being too soon. and
And when this begine, the country is well un ita way to INTERNAL REVOLU-
not being too late-is much more difficult. For most people either sell too spon (be-
TION
regardless of how really rich it is, or how much gold It has, or the magni-
cause they just can't believe the wild Inflation can go any further) or sell too late
tude of its potential productivity.
(because they do not realize that, under certain conditions, inflation can be stopped: and
that men, like Poincare, Mussulini, and several others, are capable of stopping it, If
Germany was etill one of the physically richest countries in Europe in the early
they are ruthless enough: and have sufficient political power.)
twenties. Yet, despite this, inflation completely wrecked her. Hence, Hitler.
Few Benefit
As I have said in part Digesta, the way to avoid and prevent inflation in:
Of course, a few people may make & REAL killing. But obviously. the nation an a
whole does not do anything except suffer, because inflation is a real tax on all money
(1) To stop borrowing from the commercial banks, and resort to still higher
users, i.e., everybody. And it is just as difficult for large groups to make a killing out
taxes, forced loans, or capital levies, instend;
of inflation (the inflation tax) as it is for large groups to make a killing out of the In-
(2) To riphon off excess monetary purchasing power (over and above produc-
come tax. And you can't, for the most part, make A killing out of parting with real re-
tive capacity), even if it involves withholding wages, or taxing the workers
sources to the government!
ao that their standard of living falls.
Incidentally, I myself tried to make & killing out of bearing the German Mark in
(3) With no much productive capacity devoted to war material, you cannot main-
London in 1922, starting at 524 to the pound. It went to many trillions: but the firm
tain the real standard of living, To pretend that you can is just bluffing the
I used was not "firm," and went bankrupt; (and I actually lost my deposit margin!)
workers.
Nearly everyone, including the self-belleved astute, suffer, from inflational The chances
of winning are not one in a thousand.
(4) If these things are not done, you will get your Inflation and maybe revolu:
tion-just as Hitler hopes for and forecasta.
How the Poor Suffer
(5) May the financial authorities In Washington (and also their opponents) see
fit to save America IN TIME from financial foolishness pursued just for
The next quastion to answer is, "Who suffers most?" the rich or the poor?
the sake of avoiding the inevitably high taxes and forced loans which all
First, let me debunk a popular argument. The man in the street says, "The rich
global wars must automatically and unavoidably entail,
have all the money. Inflation is a tax on money. Therefore the rich must suffer must.
And since the average worker has little money, he probably escapes the tax. Hail in-
THE END
inflation."
Regraded Unclassified
72
But although the rich are wealthier than the poor, they do not necessarily "have
mire money"; and since they are usually better advised on financial matters than the
Oh yes, the "Tittle people" pay, although no far (in U. 5, A.) some of them have
relatively poor, the rich collectively usually shift from money and bonds and other mon-
made inflation pay.
ey-obligations into other assets, or foreign exchange
to avoid the inflation-tax on
money.
How to Hedge Against Inflation
In fact, the segment of the rich which suffers most seriously, as a rule, are those
Personally, I know of no perfect bedge unless you can find a foreign country which
with trust funds which have to be invested in fixed-interest securities. And they suffer
in not inflating at all
and by that I do NOT mean one that is morely not inflating
plenty.
so fast as one's own
although it certainly does relatively pay to be in the frying
But the majority of fixed-interest securities are All it happens, not owned by the
pan, rather than the fire.
rich, but by the relatively poor, particularly in the case of America. Let me prove It.
(i) Of course, if you can borrow on a margin of 10%, and if the commodity mar-
First of all, let us look at the distribution of the Government Debt. (1940 flgure
keta are not controlled, you can probably best Inflation, i.e., not merely make a lot of
"money," but also retain your real wealth. But governments today have learned auft-
of $15 bns.) Of this, 60% was held by banks: the other 80% by universities, churches,
foundations, insurance companies, and other institutions.
elent to control the commodities in which It is essiest to opeculate on margin. (They
too have learnt the tricks of tricking the would-be tricky.)
What hita the poor when bankrupt governments inflate wildly is the real lonnes
(ii) Then, in theory, you can go and sell bonds short. if anyone will lat you. But
they suffer from the money they have put into savings banks and insurance companies.
you usually find that you can't find anyone "to get on with" who will loan you his
Oh yes, they get paid their "money" all right. But It may only have one-twelfth of
bonds to sell short; for it Immediately puts the bondholder on his guard that he too
its real purchasing power, enabling the aged suver to live only one month out of twelve!
ought (perhapa) to sell out and go short. And If he in in A legal position to lend his
They are the fellows who really "pay" the inflation tax.
bonds, he in also in a legal position to sell. No go, usually!
N. B. There are 60 million policy holders in America, most people holding two
And before I forget it, let me repeat that you have got to goess the time when to
policies each, And there are nearly 50 million depositors in savings banks.
pay off your loans. Nor muat you not override your bear bond market.
Women
(iii) Then, you can buy high-geared equities in highly lovered industries. assum-
Ing that the price of their product in not controlled. But It usually in in all such cases.
Now let us turn to the ladies: secretaries, teachers, government employees, shop
Just look around the New York Stock Exchange list today. Even the products of dis-
girls, domenties, They are usually on n salary basis. And their employers usually have
tillers are controlled.
excuses (connected with either the rising cost of living, or their own shortage of work-
(iv) Then, you can buy that farm, or cattle, or real estate, or timber which grown
DR capital, blah, blah, blah) as to why they cannot raise wages and salaries. All these
and gradually geta more valuable yearly, or A young orchard, or some married pigs,
fadies really "pay" the Inflation tax. The Government gete the real resources which they
or B. fox ranch. And maybe you will get "really" richer, and escape, either totally or par-
might have commanded, IF prices had not risen.
tially. But if you go out into these "to you unknown businesses," some emarty osually
EYP* you; and the foxes turn out to be all gentlemen: or the trees to have diseases: or
Wage Earners
the real estate cannot be maintained (for lack of workers) or something else goes wrong.
(It always does!) And even If you buy ailver or gold dishes, it may K° out of circula-
Rut how about the boy friend? In the EARLY stages of inflation, most workers
tion. And your diamonds may get stolen, or your centa may be restricted: or your up-
gradually become fully employed, and (while their employers are making large money
developed mining claims may be nationalized (in the coming inflation-cased economic
profits, which are usually false profits, see Digest 90) they are able, with the aid of
revolution) : and heaven knows what
their trade unions, and because of the competition among employers for labor, to get
(v) The only way to escape. If you can escape, la to be ultra-nimble, and hup-
their wages put up IN ADVANCE OF the cost of living. Indeed it has been happening
gally in America recently: and the workers probably like the New Deal cum War Infla-
from the ownership of one thing to another just before the various markets in your
the (20 far).
temporarily-lucky "one thing" get sat upon by governmental interference: and a few
months before the next lucky thing (other things) get sat upon, Only kangaroos escape
But when inflation really gets on the move, (particularly in a War when patriotic
inflation, so says old-man Kangaroo Angas.
workers cannot politely strike), wages tend eventually to lag very beavily behind prices.
At all events, it has always happened in all past inflations. And America, though she
Propaganda (Your Duty)
rather seems to think that "Things are different here," will probably not escape this
normal time lag. For employers always complain that the rising cost of living is due
Actually, dear reader, If you want a hodge against inflation, the best thing you
to rising wages, not vice versa: and they Invariably run short of working capital dur-
can do is to yell like hell (as this Digest la doing) against the Government resorting to
ing Inflations (as well as making false profits), (See Digest 90) and after a bit
inflationary measures (like borrowing from the COMMERCIAL banks) because
of employers living rises say, "I would rather close down than move wages up every time the cost
it wants to please the public, and keep them temporarily sweet.
for the simple reason I just can't make any forward sales contracts,
1. First of all, you can lend all you can and make bona fide loans to the Govern-
and the whole thing is driving me mad. I would rather speculate with my working
ment to save the Government from going to the commercial banks (which is inflation).
capital in diamonds, than in labor."
2. Secondly, you can go down to Washington and scream at your Congressmen
In other words, do not think, my dear reader, that because labor has 50 far (early
to pass a law to prohibit any further borrowing from the commercial banke. Advocate
1942) busten the New Deal cum War Inflation it will continue to do no if inflation
more taxes and capital levies instead! And the poorer you are, the more you should do it.
geta Worse. It Just won't.
Go ask to be taxed. (But can I see you doing it?)
C. L. rises 100% (and your wife will tell you about It!), what chance have of
And if you happen to be a workman who in reading this Digest, ask yourself, if
How to Lose Money
gotting & full 100% increase In money wages. Personally, I rather fear you you will suffer
from the time leg. Ge talk it over with your boar,
Some of us perhaps would love to make a fortune out of the War but we won't
We'll probably lose
especially as almost all market letters today are filled with the
2
3
Regraded Unclassifie
fallacious arguments with which I began this Series of Inflation Digests, namely Di-
gest 88, THE "UNANSWERABLE" BULL CASE, wherein I let my forecasting venom
fall on all the unsound "orthodox" arguments now being widely trotted out.
If you want to lose a fortune RATIONALLY, then go buy the peace babies on every
early peace scare; then, when it looks as though the War will last longer, go buy the
war babies; then, as a regular habit, buy near the top of every recurrent short-run in-
flation-talk cycle; and above all, buy the stocks selling below their fixed-asset values.
It is all 80 reasonable, especially as, if enough people do it, you will actually get a (fal-
lacy) boomlet!
Really, however, one ought to have the horse sense to distinguish between infla-
tions which WILL be allowed to "come through" to common stocks (as always in the
past) and an inflation which will not (as today).
POLICY
Don't go off and buy common stocks
till 1 tell you.
THE END
The Angus Digesta
Issued as market conditions warrent.
Stock Selection Letters
Angas Wire Service
Minimum-6/teen per calendar year,
Fritten Mid-weekly by Mr. M. Rich,
High speed condensation of opinion
12, 6 and 3 mas. - $25, $15 and #8
name specific issues to buy or sell
at important points in the market
12, 6 and 3 mos. - 150, $30 and 118
12, 6 and 3 mos.-$25, $15 and $10
Portfolios Managed-$300 minimum
Single Consultations $100
Major L. L. B. ANGAS, Investment Economist, 570 Lexington Ave., New York.
Regraded Unclassified
73
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
October 19, 1942
STRICTLY CONFIDENTIAL
MEMORANDUM FOR THE FILES
Mr. Hamilton of the State Department phoned
ae this morning that the State Department had under
consideration the question of negotiating a. new
treaty with China on extra-territorial rights. In
this connection there will probably be included a
provision which will eliminate all questions of the
Boxer Indemnity. He asked if this Department would
have any objection.
I said that it had been the long-established
policy of this Department to recommend the remission
of the Chinese Boxer Indemnity payments to this
country. As he knew, they had been used for a number
of years for educational purposes. In view of this
stand, I was quite certain that we would not only
not object to the cancellation of the -indemnity pro-
vision of the old treaty, but would probably strongly
recommend that it be cancelled.
DWB
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
74
OCT 19 1942
Dear MI
This is is reply to your letter of October 10, 1942,
conserving receipt from the fressury of information - the
ability of certain countries receiving lond-lease assis-
tense to finance their purchases of geeds in the United
States.
The Treasury will be glad to facilitate the regular
provision of the available data you request. I think it
would be helpful to both agencies if the transuittal of
these and other data from the Treasury to the Office of
Lend-Lease Administration was restinized to the greatest
extent possible. Monover, as you my the -
and type of information which the Treasury has - the
different countries varies considerably. for this reason,
I suggest that a member of your staff confer with
Dr. Unite's effice to decide the date your office should
receive pariodically.
Very sincerely yours,
(SIGNED) D. W. BELL
Aoting Secretary of the Treasury.
Mr. & ". Stattinius, dr.
Administrator,
Office of Land-Lease Administration,
525 22ml Street, ...
Washington, & Co
TMK/gre
10/15/42
Regraded Unclassified
75
COPY
Office of Lend-Lease Administration
Five-Fifteen 22nd St., N.W.
Washington, D. C.
E.R. Stettinius, Jr.
October 10, 1942.
Administrator
The Honorable
The Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary,
From time to time I have requested the
Treasury for information regarding the ability
of certain foreign governments to pay for goods
procured in this country.. Dr. White's office
has always been most cooperative in supplying
the information desired.
It would be most helpful if such information
were forwarded to me periodically, and I am
wondering if it would be agreeable to you to have
this done.
I desire particularly to be kept informed
with regard to the following Lend-Lease countries:
Relgium, Brazil, Czechoslovakia, Fighting France,
Greece, Iceland, Iran, Iraq, Netherlands, Norway,
Poland, Turkey, U.S.S.R., Yugoslavia, United
Kingdom of Great Britain and Northern Ireland and
the Dominions included in the British Commonwealth
of Nations.
Sincerely yours,
Sgd. E.R. Stettinius, Jr.
E.R. Stettinius, Jr.
Regraded Unclassified
76
OCT 19 1942
I I á à
This is in regly to your letter of Ocheber 12,
1942, conserving the of Treasury cilver
to friendly for industrial -
consential to - production.
the Treasury will be and to consult with the
Lemi-Lease
Administration
the
MP
Production
Board regarding the class of Treasury silver to be
used in meeting cash approved Land-Lease requisition.
1 1 I $ I
the
Land-Lasse
any
of
I
too
the
ruturn
after
I
r
I
Treasury silm is made available under lanb-Lease
provided,
7 wall
(SIGNED) D.W. BELL
Acting Secretary of the Treasury
É I I d fill
office of 1/mi-Lease Administration,
as - send. Street, no Weg
Washington, Do a
10/15/42
Regraded Unclassified
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
E R. Stettinius Jr.
Administrator
the dear Vr. Secretary:
This Administration is willing to lend-lease Treasury
silver for industrial uses essertial to war production pro-
vided that in each case the usual criteria of the Lend-Lease
Administration for providing lend-lease aid are satisfied.
The preferable method of transferring Treasury free silver
is for this Administration to direct you, under the authority
and subject to the limitations of Section 3(a)(2) of the Lend-
Lease Act, to transfer from the Treasury stock of free silver
specified quantities of silver, which it will be necessary for
you to value. To transfer Treasury monetary silver for lend-
lease pur oses, under existing silver statutes, it appears to
be necessary for this Administration to authorize the Treasury
through the employment of lend-lease funds to redeem silver
certificates.
Inasmuch as the procurement of Treasury free silver
for lend-lease purposes is considerably less costly than the
procurement of Treasury monetary silver, we would naturally
prefer to draw upon Tree silver for lend-lease purposes, but
would be willing to araw upon monetary silver if this should
be deemed necessary in order to conserve the free silver for
domestic use in war production. We are informed that, at the
present time Treasury free silver alone is available without
cost for uomestic non-consumptive use in war production, al-
though legislation now pending in Congress would, if enacted,
make Treasury monetary silver also available for such use.
lie recommend, therefore, that in the case of each
approved Lond-lease requisition for silver, representatives
of the war Production Board, the Treasury and this Adminis-
tration determine whether the leno-lease need should be met
out of free or monetary silver.
There are cogent reasons why silver which is lend-
leased should not be made the subject of a special agreement
PORDEFENSE
providing for the return of an equivalent number of ounces
BUY
UNITED
STATES
PAYINGS
BONDS
Regraded Unclassified
- 2 -
of silver. We are willing to adopt such an agreement in the
case of Treasury silver, however, if in your opinion it is
necessary.
Before embarking upon any program for lend-leasing
silver we should wish to give to the Appropriation Committees
of the two Houses of Congress notice of our intention so that
if they saw fit they might express an opinion upon the subject.
Very sincerely yours,
E R. Stettinius, Jr.
The Honorable
The Secretary of the Treasury
Regraded Unclassified
AIR 19
79
BRITISH AIR COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D.C.
TELEPHONE HOBART 9000
PLEASE QUOTE
REFERENCE NO
With the compliments of British Air Commission
who enclose Statement No. 55 - Aircraft Despatched
- for week ended October 13, 1942.
The Honourable Henry Morgenthau, Jr.
Secretary of the Treasury
WASHINGTON, D. C.
October 19, 1942.
Regraded Unclassified
80
MOST SECRET
STATEMENT NO.55
AIRCRAFT DESPATCHED FROM THE UNITED STATES.
WEEK ENDED OCTOBER 13TH. 1942.
DESTINATION
ASSEMBLY
BY
BY
FLIGHT DEL'D
TYPE
POINT
SEA
AIR
FOR USE IN CAN.
CONSOLIDATED
U.K.
U.K.
4
Catalina IB
BRENSTER
Bermuis
U.K.
U.K.
10
DOUGLAS
Boston IIIA
U.K.
Canada en route
2
FAIRCHILD
Cornell PT.26
Canada
Canada
6
CURTISS
Kittybawk
Middle East
Port Sudan
7
-
West Africa
Takoradi
16
LOCKHEED
Hudson VI
Takoradi
8
West Africa
#
Middle Fast
1
"
Middle East
GRUMMAN
Hartlet IV
U.K.
U.K.
16
NORTH AMERICA
Canada en route
5
Mitchell II
U.K.
1
Canada
-
"
Canada
Harvard II
South Africa
Durban
40
if
If
If
If
Capetown
19
If
"
Bombay
10
India
"
in
Middle East
Port Sudan
6
U.K.
2
NORTHROP - Vengeance
U.K.
VOUGHT SIKORSKY
0.8.2.U.
South Africa
Capetown
3
.
Kingston
14
Jamaica
20
-11
143
Regraded Unclassified
81
NOT TO BE RE-TRANSMITTED
COPY NO.
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 360
Information received up to 7 A.M., 19th October, 1942.
1. NAVAL
8th. One of H.M. Submarines sank a small eastbound ship
off DERNA. 10th. One of H.M. Submarines sank a 900 ton ship and torpedoed
two others. Another of H.M. Submarines sank an 8,000 ton escorted ship off
the southwest coast of GREECE. 16th. One of H.M. Corvettes shot down an
ME 109 off ALEXANDRIA.
CORRECTION: OPTEL 356 for "Canadian Armed Yachts" read
"Unarmed Newfoundland Railway Steamer".
2. ATP OPERATIONS
WESTERN FRONT. 18th. Three pairs of Spitfires attacked
a gun position, locomotives and trains in Northern France.
MALTA. On 17th/18th and 18th 287 enemy sorties were
flown against 92 Spitfire and six Beaufighter. The aerodromes at HAL FAR,
LUQA and TAKALI were cratered and the engine repair hangar at KALAFRANA was
damaged. Three enemy aircraft were destroyed, one probably destroyed and two
damaged. We lost two Spitfires, one pilot safe.
RUSSIA. 16th. The German air force continuously at-
tacked Russian forces in STALINGRAD and battery positions east of the VOLGA.
Heavy attacks were also made on railways in the KALININ-TOROPETS Sector.
BURMA. 15th. Twelve U.S. medium bombers escorted by
11 Tomahawks bombed LASHIO Town and Aerodrome.
Regraded Unclassified
Refund
82
4M
GENERAL COUNSEL
TREASURY DEPARTMENT
WASHINGTON
OCT 2 0 1942
To:
Secretary Morgenthau
From: General Counsel
You have requested my advice on the question
whether, under the Federal statutes, your wife would
be prohibited from purchasing United States Savings
Bonds.
If your wife uses her own separate funds, that
is, funds in which you have no interest, and if she acts
entirely on her own responsibility and without any
previous arrangement or understanding with you, I am
inclined to the view that a purchase of United States
Savings Bonds by your wife would violate no Federal
statute. However, it appears to me that the design and
purpose of the relevant Federal statute is such that
the purchase might result in criticism because of ethical
implications.
Section 243 of the Revised Statutes of 1873
(U.S.C., 1940 ed., title 5, sec. 243) provides, in part,
as it appears in the Code:
Regraded Unclassified
83
- 2 -
"No person appointed to the office
of Secretary of the Treasury *
*
shall directly or indirectly * * be
concerned in the purchase or disposal
of any public securities of any State,
or of the United States, * * # and every
person who offends against any of the
prohibitions of this section shall be
deemed guilty of a high misdemeanor
and forfeit to the United States the
penalty of three thousand dollars, and
shall upon conviction be removed from
office, and forever thereafter be in-
capable of holding any office under the
United States;
That statute was first enacted as section 8 of the Act
of September 2, 1789, 1 Stat. 67, the same statute that
created the Department of the Treasury. There is no
escape from the proposition that a purchase of United
States Savings Bonds by a Secretary of the Treasury is
specifically prohibited by section 243. That position
was taken by my predecessor, Mr. Oliphant, in an opinion
to Under Secretary Magill, dated March 11, 1938. He
there said:
"It seems clear that section 243
of the Revised Statutes prohibits the
Secretary from purchasing United States
bonds, since making a purchase is
obviously being 'concerned in' the pur-
chase. Moreover, such an interpretation
Regraded Unclassified
84
- 3 -
is warranted by the evident purpose
of the restriction, which was to
eliminate the possibility that motives
of private interest might influence
the judgment of the Secretary in mat-
ters pertaining to the public debt."
I agree entirely with that statement of the law.
You will note that section 243 not only
prohibits the Secretary of the Treasury from purchasing
public securities of the United States, but prohibits
him from being "concerned in" the purchase of such
securities. Furthermore, the Secretary of the Treasury
may not be 30 concerned either "directly or indirectly".
Obviously, if a Secretary of the Treasury were to sup-
ply his wife with funds in order that she might purchase
public securities of the United States in her own name,
but really for his account, there would be & violation
of the statute.
On the other hand, section 243 is a highly
penal statute, and the Attorney General of the United
States has said that, therefore, it should "be taken
strictly, and not extended by construction". (1873)
Regraded Unclassified
85
- 4 -
14 Op. Atty. Gen. 352. Section 243 says nothing about
the purchase of public securities by the Secretary's
wife, and, accordingly, I am constrained to the view
that it is technically not applicable to the wife of a
Secretary who, from her own separate funds and entirely
on her own account, purchases public securities of
the United States.
Nevertheless, it seems to me that an ethical
problem is presented where one who is intimately con-
nected with the Secretary seeks to do that which the
Secretary himself is prohibited by statute from doing.
Some persons might criticize such action as out of keep-
ing with the declared policy of the law, though per-
mitted by its letter. I call your attention to the
fact that my predecessor, Mr. Oliphant, in his opinion
!/
Under sections 50 and 51 of the New York Domestic
Relations Law (McKinney's Consolidated Laws of New York,
Book 14, secs. 50 and 51), 8. wife may have separate
property and exercise separate control over it. I have
not considered what the situation might be in case a
Secretary came from a state which has community property
or which does not recognize in a wife entirely separate
rights and control over property.
Regraded Unclassified
86
- 5 -
to Under Secretary Magill, dated March 11, 1938, found
an ethical question in the more remote case of the
purchase of public securities of the United States
by the Under Secretary's wife.
handly General Counsel Paul
Regraded Unclassified
87
11, BRUTON STREET,
C
0
LONDON, W. 1.
P
Y
Mayfair 4195.
October 20, 1942.
Dear Alan:
I have been trying to get in touch with Dr. White, as
you know, but since he is out of town, as you informed me
yesterday, I have not been able to do 80,
Mr. Hays has cabled me asking if Dr. White would kindly
look over the proposals that have been received from the
British Treasury, and the Companies' reply, relative to the
unfreezing of film revenues and possibly show them also to
Secretary Morgenthau if the latter wishes to see them.
Mr. Hays would also appreciate Dr. White's advice whether it
is in order for us to transmit the Companies' reply directly
to Sir Frederick Phillips.
I shall be greatly obliged, therefore, if you will
mention this matter to Dr. White on his return and ask him to
be kind enough to see me at that time if it is convenient from
his standpoint. The Companies are, of course, anxious to
conclude the matter as promptly as possible.
With kindest personal regards,
Sincerely yours,
(Signed) F. W. Allport
F.W.Allport.
Dr. Alan N. Steyne
The American Embassy
Grosvenor Square
LONDON W.1.
Regraded Unclassified
88
THE BRITISH TREASURY'S PROPOSALS AS CABLED OCTOBER 9, 1942:
The proposed outline below which is receiving serious con-
sideration by the U.S. film concerns has been received from the
United Kingdom Treasury.
The motion picture companies agree to accept the proposals
for changing the regulations regarding quota as set forth in the
attached Memorandum "A".
The Treasury, however, cannot at the present time undertake
to provide for the transfer from sterling into dollars of the
earnings of the companies for the twelve months' period ending
24th October, 1943, beyond the amount of $20,000,000.
The Treasury, in addition, reserves all rights with respect
to all taxation which may hereafter be imposed and which might
affect the incomes of the American companies in the United Kingdom.
Should the companies be prepared to agree to the preceding
proposals the Treasury is prepared to permit the transfer into
dollars of the sterling balances accumulated by the companies on
October 24th, 1942, in so far as these balances are monies which
under the Defence (Finance) Regulations would have been transferred
during the previous three years had there been no special restrictions
made in the Film Agreements. You must, of course, appreciate
that it is impossible to give more favorable terms in this connection
to film companies than to other subsidiaries in the United Kingdom of
Regraded Unclassified
89
- 2 -
the U.S. parent companies. However, it is not expected that
the dollar amounts which will be remittable by the motion
picture companies will actually be substantially less than the
sterling balances at their disposal on the 24th October minus
any capital amount which may be included therein.
The British Treasury is of course prepared to discuss with
the film concerns any technical details which may occur to them
with respect to the date of the release of said dollars. The
suggestion that I would offer is that as large amount as can
safely be transferred, according to the auditors' certificates,
should be transferred not later than the end of October, 1942.
The remaining balances should if possible be transferred at the
end of December, 1942, provided the auditors have then finished
their work. Should the companies accept these proposals I sug-
gest that the detailed drafting of any agreement can best be
done in London.
Regraded Unclassified
90
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
October 20, 1942
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating report
of Lend-Lease purchases for the week ended October 17,
1942.
Within the past few days the Foreign Requirements
Branch of WPB has started to rerate existing Russian
contracts under the recent confidential order of WPB
which provides for AA-1 priority ratings for all
U.S.S.R. protocol requirements. The production against
the contracts in question has fallen behind seriously
because the original priorities applied became ineffec-
time in many cases due to higher ratings issued to
manufacturers for other requirements. If the proposed
procedure recently initiated is maintained, AA-1 priori-
ties will enable meeting the revised delivery schedules.
A copy of the second protocol has been received
from Major General Burns of the Munitions Assignment
Board, and is being used in connection with our prepara-
tion of the 1943 budget to cover items to be procured
through Treasury Procurement Division.
your Clifton E. Mack
Director of Procurement
POBLYCTORY
BUY
UNITED
STATES
BONDS
AND
STAMPS
Regraded Unclassified
T6
LEND-LEASE
TREASURY DEPARTMENT, PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
AS OF OCTOBER 17, 1942
(In Millions of Dollars)
Administrative
Undistributed and
Total
U.K.
Russia
China
Expenses
Miscellaneous
Allocations
$2325.4
$1153.4
$661.3
$56.7
$3.7
$450.3
(2100.4)
(1140.7)
(643.7)
(56.7)
(3.7)
(255.6)
Purchase Authoriza-
$1745.3
$1025.3
$663.4
$40.0
-
$ 16.6
tions (Requisitions)
(1712.9)
(1014.7)
(642.0)
(40.0)
-
( 16.2)
Requisitions Cleared
$1643.8
$ 994.5
$593.3
$39.9
-
$ 16.1
for Purchase
(1609.1)
( 980.4)
(573.1)
(39.9)
-
( 15.7)
Obligations (Pur-
$1548.3
$ 971.1
$522.1
$39.9
$2.5
$ 12.7
chases)
(1515.3)
( 952.6)
(508.2)
(39.9)
(2.4)
( 12.2)
Deliveries to Foreign
Governments at U. S.
$ 644.0
$ 512.7
$107.4
$20.1
-
$ 3.8
Ports
( 627.5)
( 499.8)
(104.1)
(20.1)
-
( 3.5)
* 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 October 10, 1942.
Regraded
Ur
classified
92
NOT TO BE RE-TRANSMITTED
13
COPY NO.
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 361
Information received up to 7 A.M., 20th October, 1942.
1. NAVAL
A Fighting French submarine while on patrol off the N.W.
Coast of NORWAY on the 18th damaged a ship which went aground and on the
19th sank a ship at the entrance to VEST FJORD. One of H.M. submarines
attacked an escorted convoy off the Coast of TUNISIA yesterday but was
slightly damaged in counter attack.
2. MILITARY
MADAGASCAR. 17th. Our troops successfully attacked French
positions west of AMBOSITRA and advanced southwards.
3. AIR OPERATIONS
WESTERN FRONT. 19th. Between 7 A.M. and 1 P.M. about 35
enemy aircraft taking advantage of low cloud made a series of scattered
raids and reconnaissance, mainly over East Anglia. Fighters shot down
one, probably destroyed two and damaged three, combined gunfire from
Naval AA and a trawler destroyed another.
EGYPT. 18th. Beaufighters damaged about 25 lorries in
eastbound convoy between SIDI BARRANI and MERSA MATRUH.
MALTA. Between 6 P.M. 18th and 5 P.M. 19th about 285
enemy aircraft, including some bomb carrying fighters made ton raids.
Apart from two Hurricanes damaged on HAL FAR aerodrome no material damage
has been reported. Several formations were intercepted some miles off
shore, some jettisoned their bombs and others made off. Our fighters
shot down two enemy aircraft, probably destroyed one and damaged four
without loss.
4. HOME SECURITY
Yesterday morning bombs wore dropped mainly in the Coastal
Districts of East Anglia, damage of some consequence was reported from
NORWICH, IPSWICH, COLCHESTER, CHELMSFORD, SOUTHEND and BRENTWOOD. Slight
damage occurred at one U.S. aerodrome. Casualties so far reported 19 killed,
75 seriously wounded.
Regraded Unclassified
am. Viscose Co. 93
care
October 21, 1942
Are 10/24/42
MEMORANDUM FOR THE FILES
I talked to Mr. Fulton in New York at 5:18 p.m.
today and told him that it was impossible to ascertain
the facts from the files. I told him also that the
Secretary had handled the matter personally and inquired
whether it would be satisfactory if he could wait until
the Secretary returned from London. He said that would
be quite satisfactory and would not inconvenience him
at all. He said, that he was seeing the Dillon & Read
crowd this afternoon and could probably ascertain some
of the facts from them. I said I would call him as
soon as the Secretary returned. He said he would
probably be away himself next week and we could get
together as soon as he returns, providing the Secretary
is back himself at that time.
1K
good
FurB
Regraded Unclassified
94
October 21, 1942
Dear Hr. Jurans
The Secretary of the Treasury is away
from Vashington and I am, therefore, asknovl-
edging your letter of October 16, which -
closes the final report of the committee on
Lend-Lease Export Procedure. I knew that
Mr. Morgenthau will be much interested in
seeing this material, and I shall be glad
to bring it to his attention as - as he
returns to his office.
Many thanks for your courtesy in the
mtter.
Sincerely,
(Signed) H. S. Klotz
L s. Klots,
Private Secretary
Mr. J. M. Juma, Chairman,
Office of Lend-Lease Administration,
515 Tventy-second Street, Northwest,
Washington, D. c.
GEF:el
Regraded Unclassified
95
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
October 16, 1942
Dear Mr. Secretary:-
You will recall that you and Mr. McCabe
set up the Interdepartmental Committee on Lend-
Lease Export Procedures last April.
Attached is the final report of the Com-
mittee. I urge especially that you see the
enclosed chart which shows, rather strikingly,
how the Committee effected a drastic reduction
in paper work in this problem.
Yours very truly,
auguan
J. if. Juran, Chairman
Attachment
The Honorable
Henry L. Morgenthau, Jr.,
Secretary of the Treasury.
96
FINAL REPORT
OF THE
COMMITTEE ON LEND-LEASE EXPORT PROCEDURE
IND-LEASE
OF
OTHER * NOTINE
OFFICE OF LEND-LEASE ADMINISTRATION
OCTOBER 14, 1942
Dearaded
FINAL REPORT
COMMITTEE ON LEND-LEASE EXPORT PROCEDURE
Organization and Objectives of the Committee
This Committee was organized early in May, 1942,
following a discussion between Secretary Morgenthau and Mr.
Thomas B. McCabe, with respect to the difficulties encountered
in movement of Lend-Lease goods, arising from the associated
paper work.
The Committee developed two objectives:
(a) Investigation and correction of delay in export of
Lend-Lease goods arising from paper work procedures.
(b) General conditions of duplication and of burden-
some procedures which do not bring about delays
in the ordinary sense of the word. but which
clearly add to the effort required to do the over-
all job.
The specific items of investigation, along with their
associated results, are entlined below:
General Conditions of Excess Paper Work
The prevailing export procedures as the Committee found
Regraded Unclassified
- a -
them were essentially the old peace time systems, but contain-
ing some patching up to meet the needs of the war. In its
earlier deliberations, the Committee attempted to make minor
inprovements here and there in the procedures, but found that
the pattern was too closely interwoven to permit such action.
Accordingly the Committee abandoned such efforts and under-
took to develop a new system specially designed for war pur-
poses.
The Committee found that great simplification was
possible because where formerly the participants in the export
procedure were various private organizations, the situation 1s
now that the Government is on many sides of the transactions.
Possibilities for improvement can be seen in the attached chart
which was prepared as a proposed War Department procedure, and
which the War Department is in process of putting into effect.
Improvement in War Department Procedure
The attached chart shows that export of War Depart-
ment goods involved eighteen principal documents along with
some minor documents not shown on the chart. The situation
was studied in considerable detail by a Sub-Committe* of which
Captain E. C. Whitmore of the International Division, Services
Regraded Unclassified
-3-
of Supply, was Chairman. The result of the Committee's de-
liberations was to reduce the number of principal documents
from eighteen to nine. This was accomplished by:
(a) Combining certain documents which were almost
identical anyway.
(b) Use of extra copies of basic documents to become
equivalent to new documents through endorsement
of additional items of information.
(c) Designing some documents in such & way that they
registered with each other and could therefore
be duplicated in one set-up of a machine.
The net result has been:
(1) Reduction of the number of times that something
has to be typed.
(2) Greater accuracy because papers duplicated in
one set-up are bound to be alike while re-copying
breeds mistakes.
(3) Greater case of association of papers because
there are less papers to associate.
(4) Less delay because papers do not need to halt
to be re-copied.
Regraded Unclassified
(5) A very siseable reduction in the man-hours of
effort required generally.
It has not been possible to compute the amount of
effort which will be saved in the War Department through the
use of this revised procedure, but the Committee believes it
to be enormous.
Problems in Navy Department. Department of Agriculture
and Maritime Commission
These Agencies use export systems involving papers
much like those shown in the upper half of the attached chart.
Nevertheless, the Committee has not urged any change on these
agencies because the work in these agencies is proceeding
smoothly, and the Committee has been constrained to leave well
enough alone. However, the techniques developed in the case of
the War Department are available for use by any of these agencies
if they should decide to go into a further simplification of
their paper work procedures.
Procedures in Treasury Procurement
The volume of the export of the Treasury Procurement
goods 1e very considerable, and there has been substantial ev-
idence of goods arriving at port without papers, and of excess
Regraded Unclassified
-5-
paper work. The Committee is of the opinion that action
should be taken to improve the Treasury procedures. The
officials of Treasury Procurement are generally aware of this
situation, and are working toward improving it. They have
suggested that Treasury Procurement be made the consignee of
goods and documents at port. Officials of Treasury Procure-
ment feel that this will go far to correct the situation.
Goods Arriving at Ports Without Essential Papers
The Committee obtained from the forwarding office
of the British Ministry of War Transport (now War Forwarding
Corporation) lists of cargo arriving at port without papers.
Analysis of these instances disclosed that the principal dif-
ficulty was encountered in goods received from the Army Air
Corps. The situation has been largely cleaned up by the use
of a new procedure involving essentially:
(1) Decentralization of the physical doing of much
of the paper work while retaining centralized
control for uniformity.
(2) Reduction of the number of times that a document
has to be recopied so as to minimize errore and
effort involved.
Regraded Unclassified
-6-
The attached chart shows in detail the nature of
change made in the Air Corps procedure.
Similar lists of cargo on which essential papers
were missing were obtained by the Committee from Moore-Mc-
Cormack, the forwarding agents for the Soviet Purchasing Com-
mission. Although there is general knowledge of what the
causes are, there has been no quantitative determination as
to how theme cases were caused. In the absence of such quan-
titative determination, the Committee is unable to know
whether the steps being taken by Treasury Procurement will
clean up the situation. The Committee has designated a Sub-
Committee to be available to Treasury Procurement on demand.
The Committee wishes to make grateful acknowledg-
ment to the people who variously attended the meetings and
to the organizations they represented for the very generous
aid they gave the Committee in carrying out its assignment.
A list of these people is attached herewith.
The Committee:
C. G. Cornwell
Var Shipping Administration
Charles Bunn
State Department
Donald C. Riley
Bureau of the Budget
John Miles
Board of Economic Warfare
Howard McClure
Department of Commerce
J. W. Montigney
Office of Defense Transportation
Capt. E. C. Whitmore
War Department
Lt. Col. Marvin H. Dixon
War Department
Lt. à. J. Moran
Navy Department
V. R. Johnson
Bureau of Customs, Treasury Dept.
A. J. Waleh
Procurement Division, Treasury Dept.
J. M. Juran (Chairman
Office of Lend-Lease Administration,
Regraded Unclassified
Consultants, Alternates, and Interested Visitors
Who Collaborated in the Study
British Purchasing Commission
War Shipping Administration
Captain W. G. Coventry
Mr. F. M. Darr
Mr. George A. Viehmann
British Ministry of War Transport
Mr. Edward Brandrath
Mr. 1. H. Romaine
Mr. J. B. Dixson, Jr.
Mr. T. H. Andruss
Bureau of the Budget
British Army Staff
Mr. Marvin L. Fair
Lt. Col. G. P. Taylor
Board of Economic Warfare
Soviet Government Purchasing Commission
Mr. H. E. Newman
Mr. P. A. Golikov
State Department
War Department
Mr. Carl D. Corse
Lt. Col. E. C. R. Lasher
Major Richard C. Moore
Office of Defense Transportation
Captain M. A. Darragh
Mr. Arthur Thielmann
Lt. John C. Doub
Lt. V. Q. Harmon
Department of Commerce
Mr. C. W. Trotter
Mr. Ernest J. Engquist. Jr.
Mr. Udell Jolley
Mr. L. V. Armour
Bureau of Custome, Treasury Department
Mr. L. P. Johnson
Navy Department
Mr. E. F. Thompson
Ensign 7. M. Morton
Office of Lend-Lease Administration
Agricultural Marketing Administration
Commander W. J. Rague
Mr. Arnold A. Garthoff
Mr. Edward Jay
Mr. Willie C. Armstrong
Procurement Division, Treasury Department
Mr. E. G. Meyers
Mr. C. 1. Hughitt
Mr. E. I. Abell
Mr. C. H. Alcock
Mr. V. 1. Hayghe
Mr. R. A. Coatsworth
Mr. Brant Holms
Regraded Unclassified
INFORMATION REQUIRED ON VARIOUS SHIPPING DOCUMENTS
WAR DEPARTMENT
FORMER PROCEDURE
I É i
I I
I I
I I to
I
I ]
I 1
while I
I
I I
I 1
I I
I I
I 1
I I
I I
hereign
1 =
I
I
I
- of -
1
1
father
1 5 ,
I 1
i I il
I 1
I I I
Value - must
I I
I I
I I
I I ,
I =
I
I
a I
I
Individo
Mail
I
I
I I
I
Original
Dayles - -
of
4
Selective -
-
BIGIN order
-
is
I
belie -
-
- - - - I
- -
as
I
-
- -
Persing -
a -
Emering - - -
Products - -
I
Passign -
as - MI
-
I I I I
- Mill
- Regular
- if Lailing
- - Register
È
Program - Millow
mring -
I I
Center
-
hereing -
-
is la 30
I
here -
-
I I
failmal invist
lewer, -
with
-
I I 1
Traiges -
Desit -
Penilt
, to .
I
I
Fier
- .
- Report
-
- and/or
to
I I I
a
- Bills of
total
Program Re
-
Letting
- -
Presuring - - -
E
- - -
-
house -
Mis ---
, to
Projest
I I I
Penicier
trues home
-
-
-
I
Milmi
- behneft -
M
-
Invises
might
fraign -
to
large -
O
- NEW
I
Bertise -
TITL
department of -
lesser
-
- -
Incluse
, I I
Inser
Remair
I
I I I
I
Date
for - -
-
+
-
Department
for Department
a If
-
Inlesse
=
- Depart-
Provide - hereign -
1
belived,
- - - information
have Maria - at persons, varily - et settes -
Provide toger
Schemie . Rater - as - medical estamic
- . - information -
Person Pater Healthy of appearance will - -
Funder wi/le - - -
hrs
of
?
defling
E
at
morel
não M partings - and natur - Invoice For unterle
Blad of Perious Indicated hair, himile, - territ, -
Part of - print fe
- Quantity places
NO forting have - License print lamel - programent agency
- TIME might
Instructions tries Talue and 451 Has charge et place of -
Provide
4pmg
Refer
Been declaration insigned in - presention of declaration
a
reducting
-
Imbian - - - Import Authorization - inipal to
Durves hand - district is with pri of selling to Lensted
Be - - - arting latting
to - approval. -
PRESENT PROCEDURE
1
etc.
I á
I
I I
I I
1 ! I
I
I I
I I
Castred Beier
I I
I i
I I
I
I
I 1
I I
] ,
- If -
14.
1 $ Inc.
I 1
Flaid
Printe i
I 1
Rest Pright Barges
- THESE Charges
Value
I 1
I
I I
]
I I
I 2
1
! TAX I
Provide
I 2
= /
I I
Original
Septem - -
4
-
e
PAYT
Riching Inter
a
I
Transportation herion, -
- Service -
1
I I I
-
Failing Liet
E
E
E
E
faile-
i
-
from - -
intered fail
I
su of Letter -
If
Regular
Nymb
to
I
I
hereing - -
fine 4mm)
-
1 I I
-
billined, house - capan, Prigit
1 I I
I to 1
house
fin
- Nom letter
1 I I
- DeClarery Order,
I I
hearter, Homely - Certify
- - Inspector
- FLLE < latting
i
- - Insign -
- begars and
I
- - this, famign -
) I I
0
D
D
D
D
D
D
D
D
-
Bettle -
-
I y I
1 I
i
(Not
I
I I I I
% ill
- Pervice
is
for
- Pervice I
billine, -
- - -
- - - - Prime Than " -
,
This Information - . - Repart - the - report.
A, 1A4
97
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEOct.21, 1942
TO
Secretary Morgenthau
Mr. Hoflich
FROM
Subject: Shipment of Planes to British Forces
1. During the week ending October 13, 1942,
170 planes, including 89 combat planes, were
sent from the United States to British forces.
2. Of these shipments, 39 went to the
British Isles, and 100, including 65 trainers,
were sent to the Middle East. Ten trainers
went to India, but for the second week no
combat planes were sent to the British forces
there.
Regraded Unclassified
- 2 -
98
Table A - Shipments by Area
Week
Total Shipped
Total Shipped
Ending
in 1942
since
Oct.13,1942
to date
Jan. 1, 1941
To the United Kingdom
Light and medium bombers
19
655
1,816
Heavy bombers
0
146
250
Naval patrol bombers
4
81
183
Pursuit
16
1,003
1,314
Army Cooperation
0
119
150
Trainers
0
O
24
Total to the United Kingdom
39
2,004
3,737
To the Middle East
Light and medium bombers
9
537
867
Heavy bombers
0
0
5
Naval patrol bombers
0
6
6
Pursuit
23
704
1,552
Army Cooperation
3
58
58
Trainers
65
231
373
Total to the Middle East
100
1,536
2,861
To the Canadian Forces
Light and medium bombers
1
79
247
Heavy bombers
0
1
1
Naval patrol bombers
0
23
31
Pursuit
0
30
72
Trainers
6
665
1,906
Total to Canadian Forces
7
798
2,257
To the British Pacific Forces
Light and medium bombers
0
145
245
Naval patrol bombers
0
0
27
Pursuit
0
200
363
Trainers
0
12
117
Total to Pacific Forces
O
357
752
To the British Indian Forces
Light and medium bombers
o
174
174
Pursuit
0
40
40
Trainers
10
53
53
Total to Indian Forces
10
267
267
To the British West Indian Forces
Army Cooperation
14
20
20
Total to West Indian Forces
14
20
20
Totals
Light and medium bombers
29
1,590
3,349
Heavy bombers
0
147
256
Naval patrol bombers
4
110
247
Pursuit
39
1,977
3,341
Army Cooperation
17
197
228
Trainers
81
961
2,473
Grand Total
170
4,982
9,894
Regraded Unclassified
- 3 -
99
Table B - Shipments by Types
Week
Total Shipped
Total Shipped
Ending
in 1942
since
Oct.13,1942
to date
Jan. 1, 1941
ight and medium bombers
Boeing Boston III
0
15
39
Brewster Bermuda
10
22
22
Douglas Boston I,II,III
was
26
518
Lockheed Hudson
562
1,532
A29A (AC-151)
0
1
1
Ventura I
0
12
12
Ventura Bomber
0
314
314
Martin Marauder B-26A
0
57
57
Baltimore
o
285
353
Maryland
0
0
150
North American B-25
6
117
117
Northrop Vengeance
2
144
144
Vought-Sikorsky Chesapeake
0
0
50
Vultee Vengeance
0
40
40
eavy bombers
Boeing B-17
0
42
62
Consolidated Liberator
0
105
194
aval Patrol Bombers
Consolidated Catalina PBY-5B
4
110
247
ursuit
Bell Airacobra
0
315
469
Brewster Buffalo
0
0
168
Curtiss Kittyhawk
23
905
1,287
Tomahawk
O
0
544
Grumman Martlett II
o
57
98
Martlett IV
16
127
127
Lockheed Lightning
0
3
3
North American Mustang
0
565
645
ray Cooperation
Fairchild 24 R-9
0
117
139
Pitcairn Autogiro
0
0
5
Vought-Sikorsky OS2U
17
70
70
Vultee Stinson 049
0
10
14
rainers
Cesena Crane I-A (AT-17)
o
97
97
T-50
o
86
700
Fairchild PT-26 Cornell
6
139
139
North American Harvard II
75
342
1,239
Stearman PT-27
0
297
298
Total
170
4,982
9,894
Regraded Unclassified
100
Table C - Plane Shipments to the British by Weeks
Light and
Naval
Week
medium
Heavy
patrol
Army
Ended
bombers
bombers
bombers
Pursuit
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
o
30
141
July 14, 1942
42
11
3
24
o
1
81
July 21, 1942
66
8
3
o
?
4
83
July 28, 1942
39
o
2
o
6
46
93
August 4, 1942
32
0
4
27
38
8
109
August 11, 1942
59
9
6
70
OR
19
171
August 18, 1942
60
3
7
20
o
11
101
August 25, 1942
25
0
11
26
o
26
88
September 1, 1942
33
0
8
81
17
28
167
September 8, 1942
31
0
13
11
o
6
61
September 15, 1942
57
0
4
139
6
36
242
September 22, 1942
58
2
2
36
20
35
153
September 29, 1942
30
1
2
9
0
106
148
October 6, 1942
11
1
10
56
o
47
125
October 13, 1942
29
o
4
39
17
81
170
Total shipments
since Jan. 1, 1941
to date.
3,349
256
247
3,341
228
2,473
9,894
Total includes planes shipped in 1942 prior to March 17 which are not included in the weekly
totals up to that date.
Regraded Unclassified
Treasury Department
Division of Monetary Research
Date Oct, 23
1942
To: Secretary Morgenthau
From: Mr. White
riginal of this report appended
0 prepared letter to President
Regraded Unc
SECRET
102
October 21, 1942
Exports to Russia, Free China and selected blocked
countries as reported to the Treasury Department
during the ten-day period ending
October 10, 1942.
1. Exports to Russia
Exports to Russia as reported during the ten-day
period ending October 10, 1942 amounted to $14,564,000
as compared with $30,947,000 during the previous ten-
day period. No planes or tanks were reported as oz-
ported during this period. (See Appendix C.)
2. Exports to Free China
Exports to Free China as reported during the
period under review amounted to $1,885,000. Military
equipment ascounted for sixty-two per cent of the
total. (See Appendix D.)
3. Exports to selected blocked countries
Exports to selected blocked countries are given
in Appendix A. Most important were exports to Switzer-
land amounting to $237,000.
ISF/efe
10/23/42
EMB
Regraded Unclassified
SECRET
103
APPENDIX A
Sumary of United States Exports to Selected
Countries as Reported to the Treasury Department
from Export Declarations received
During the Period Indicated 2
(In thousands of dollars)
Total
Total
10-day
10-day
Domestic Exports
Domestic Exports
Period ended
Period ended
Aug. 1, 1942 to
July 28, 1941 to
Oct. 10. 1942
Sept. 30, 1942
Oct, 10, 1942
July 32. 1942
8. S. R.
$ 14,564
$ 30,947
$ 265,071
8 742,941
China
1,885
902
6,903
97,720
in
3/
80
394
2,858
Isserland
237
338
1,244
11,537
3/
1
2,508
18,056
stugal
2
254
563
9,743
sach North Africa w -
47
2,088
6,305
-
easury Department, Division of Monetary Research
October 21, 1942
Many of the export declarations are received with a lag of several days e more.
Therefore this compilation does not accurately represent the actual shipment of
a particular period.
Includes Morecco, Algeria and Tunisia.
Less than $500.
7/efe 10/21/42
Regraded Unclassified
SECRET
APPENDIX B
104
Exports from the U. s. to Free China and U.S.S.R.
as reported to the Treasury Department
July 28, 1941 - October 10, 1942 2
(Thousands of Dollars)
Exports to
Exports to
Free China
U.S.S.R.
uly 28, 1941 - Jan. 24, 1942
8 32,758
$ 98,902
1942
an. 26 - Jan. 31
6,938
9,608
eb. 1 - Feb. 10 2/
4,889
13,315
eb. 10 - Feb. 20
4,853
26,174
eb. 20 - Feb. 28 3/
2,921
28,119
ar. 1 - Mar. 10
2,879
32,509
ar. 10 - Mar. 20
8,058
28,556
ar. 20 - Mar. 31 y
2
42,435
DF. 1 - Apr. 10
4,836
51,698
pr. 11 - Apr. 20
5,335
66,906
DF. 21 - Apr. 30
2,827
50,958
ay 1 - May 10 5/
296
28,652
lay 11 - May 20
1,872
18,000
"7 21 - May 31 w
2,533
26,180
до 1 - June 10
3,399
12,764
une 11 - June 20
2,707
53,799
une 21 - June 30
1,664
49,919
uly 1 - July 10
7,900
35,657
July 11 - July 20
590
33,940
July 21 - July 31
4/
3,066
35,669
ug. 1 - Aug. 10
208
14,970
Lug. 11 - Aug. 20
192
23,325
Lug. 21 - Aug. 31 y
2,850
112,492
Sept. 1 - Sept.10
855
24,339
Sept.11 - Sept.20
ii
44,434
Sept.21 - Sept.30
902
30,947
Det. 1 - Oct. 10
1,885
14,564
TOTAL
$ 107,226
$1,008,832
These figures are in part taken from copies of shipping manifests.
P. Beginning with February 1, figures are given for 10-day period
instead of week, except where otherwise indicated.
3. 8-day period.
ll-day period.
5. Due to changes in reporting procedure by the Department of
Commerce, this report is incomplete for the period indicated.
easury Department, Division of Monetary Research
October 20,1942
ISF/efs 10/20/42
Regraded Unclassified
SECRET
APPENDIX 0
105
Principal Exports from U. s. to U. s. S. R.
as reported to the Treasury Department
during the ten-day period ending
October 10, 1942
Value
Unit of
(Thousends
Quantity
Quantity
of Dollars)
TOTAL EXPORTS
6 14,564
Principal Items:
Industrial machinery and parts
-
-
2,696
Aluminum and aluminum alloys
Lb.
6,524,920
1,907
Aireraft parts and accessories
-
-
1,746
Copper, brass and bronse bars,
plates, sheets, etc.
Lb.
4,603,687
1,046
Meat products
Lb.
3,707,041
854
Electrical machinery and apparatus
-
-
821
Motor trucks, automobile replacement
parts, engines, etc.
-
-
614
Ammunition
558
.30 caliber balls
No.
978,000
.45 caliber balls
No.
1,646,000
.50 caliber tracers
No.
286,000
.50 armor piereing
No.
300,000
75 an. high explosive shells
No.
12,000
Wire and manufactures
-
-
554
Iron and steel billets, bars,
497
rods, plates, etc.
-
-
Dried egg products
Lb.
455,271
456
Lead, nickel, sine, quick silver
or aeroury
Lb.
1,124,256
365
Leather and manufactures
-
287
-
-
263
Explosives
-
Regraded Unclassified
SECRET
106
PPENDIX C (Con't)
Page 2
Value
Unit of
(Thousands
Quantity
Quantity
of Dollars)
Military trailers
No.
27
136
Sub-machine guns .45 caliber
No.
5,850
118
Parts and accessories for tanks
-
-
37
Parts and accessories for bridge
building
-
-
20
Links and belts for small ares
ammunition
No.
100,000
7
Military equipment, n.e.s.
-
-
3
400
easury Department, Division of Monetary Research
October 21, 1942
F/efe 10/21/42
Regraded Unclassified
SECRET
107
APPENDIX D
Principal Exports from U. S. to Free China
as reported to the Treasury Department
during the ten-day period ending
October 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 1,885
Principal Items:
Military equipment
1,161
Printed matter
255
Tools
146
Electrical machinery and apparatus
83
Lubricating oils
50
Truck, bus and other easings and tubes
45
Wire rope, cable & electric welding rods & wire
40
Writing paper
38
Automobile replacement parts, hand trucks
and push earts
24
Scientific, surgical and medical instruments
11
Steel bars, plates, ets.
10
Chemicals and related products, n.e.s.
9
Industrial machinery and parts
3
Treasury Department, Division of Monetary Research October 21,1942
MVF/efs 10/21/42
Regraded Unclassified
108
NOT TO BE RE-TRANSMITTED.
COPY NO.
BRITISH MOST SECRET
U.S. SECRET.
OPTEL NO. 363.
Information received up to 7 a.m. 21st October, 1942.
1, MILITARY.
MADAGASCAR. On 19th, our troops captured Ivato, 8
miles South of Ambositra. Prisoners taken 134 Europeans,
including one Regimental Commander, 353 Calagache, together
with a considerable amount of equipment.
2. AIR OPERATIONS.
WESTERN FRONT. 20th. Mosquitoes, 1 missing, bombed
Bremen, Minden and Varel Hafen (near Wilhelmshaven).
EGYPT. 18th/19th and 19th. Hits were made on shipping
in Tobruk harbour.
19th. Two aircraft destroyed on the ground
and fires started at landing ground near El Daba. Four enemy
destroyed a locomotive and petrol tanker and damaged about
fighters probably destroyed in the air. Beaufighters
17 lorries near Mersa Matruh other Beaufighters destroyed a
schooner off Crete and a Junkers 52.
MALTA. 20th. Between 5.40 a.m. and 1.15 p.m. about
attacked Takali and Luga aerodromes using cloud cover, the
0 high flying Messerschmidts 109, some carrying bombs
runway at Luga was hit.
MEDITERRANEAN. 18th/19th, and 19th/20th. Aircraft
operating from Malta attacked the following ships:- 5,500
Lampedusa severely damaged, 6,000 tons off Lampione damaged Sea
tons off Pantellaria, left sinking 6,000 tons South of
by bombs. Also following tankers - 8,000 tons Ionian
torpedoed and later seen stationary, 5,500 tons off
Tripoli(L) torpedoed.
Regraded Unclassified
TREASURY DEPARTMENT
109
INTER OFFICE COMMUNICATION
DATE 06t.22,1942
Secretary Morgenthau
TO
Mr. Hoflich
FROM
Subject: American General Grant Tanks
1. American tanks have a bad reputation in the
Russian Army, according to the appended article by
Leland Stowe, U. 8. war correspondent, based upon
conversations with Red Army officers in the field.
This reputation is due to the performance of the
only American tank well-known to the Russians --
the old M-3 (General Grant) - which is said to be
outranked by both Russian and British models of
similar size.
2. The Russians told Stowe that (1) the General
Grants take fire too easily - "burn like torches" -
due in considerable part to the use of gasoline
rather than diesel motors; (2) the turret is too
high, making it an extremely vulnerable target;
(3) the treads are too narrow for use in mud and
swamps.
3. On the favorable side, the Russians praised
the Grant for its firepower, ammunition, and radio
equipment, and for its nose construction, slanted 80
as to ricochet the enemy's fire.
(Washington Evening Star, October 16, 1942)
The Evening Star
October 16, 1942
110
LELAND stows.
Fingupe to Veg Good.
WAT of Ind Chi-
"We - American tanks in com-
- Datly and
bat here no the Best time about
WITH THE RED ARMY ON THE
four months Ma). Irmakov
REHEV FRONT-From the time
add, "When we got more of them
we reached the first front zone
I was assigned to command & bat-
tallon of American tanks."
headquarters I began hearing com-
"Have you actually fought in
ments about American tanks, but
American tanks?" I asked.
not exactly the kind to make you
That brought & smile to Maj. Ir-
throw your hat in the air. The
makov's face.
major general expressed It bluntly
"Naturally. I fend our tanks in
when he said, "They burn like
attack quite often. I have led al-
tacks In American tanks 13 times.
torches."
Once I was wounded in one."
It should be noted that this re-
I explained that I wished the
mark concerned the only American
major and his men would be com-
tank which has yet seen planty et
pletely frank In telling what they
action in Russia, the original M-J,
considered good and what they con-
which is called the Gen. Grant
sidered bad about the M-3, on the
These tanks have been used on the
basis of their combat experience.
Rahev front for several months now,
Then Maj. Irmskov began to give
along with Russian tanks and Bri-
me his findings, item by item, It
tich Matildas,
solunded exactly like an engineering
But because the naver and im-
expert's report after having "given
proved American models have not
her the works" on an Army testing
yet undergone battle, tests, it is an-
ground-plus the fact that these
fortunate, bat true, that American
testa were made with the major's
tanks at present have. & decidedly
life at stake.
bed reputation in the Red Army. On
"Let's take the positive, first."
performance over this exceedingly
Maj. Irmakov sald. The American
difficult marshland terrain, they are
tank's firepower is very good, both
Widely outranked-the M-3 medium,
cannon and machine guns, The
that Is-by both Soviet and British
munition is good and its nose con-
Medels of similar size.
struction. stanted so as to ricoches
First Hand Testimeny,
the enemy's fire. is also very good.
This is the model which you call the
The major scheral and brigade
M-1's. Yes, It has its cannon dram
termissor both cited to me some
low, on the right side instead of ou
a the major failings of the Gein
Grant tank. I also learned that in
top.
Difficult to Maneuver.
one recent operation, three out of
four tanks lost were American. It
"Now as to the negative. First,
was A rather sharp blow to any
the tank's turret is too high. It
American's industry-consclous ego-
makes too much target. The British
tiem to hear their factual reports-
additions turret is much lower and
but that is part of the price that
much better in this respect.
is exacted for the United States'
"Second, the American tank takes
failure to create an up-to-date war
fire very smally. Its motor used
Industry years ago.
sirplane sublice. It is not Denti-
That of course, does not make
mosseral. like our Soviet units una
Il any easter on the young Russian
the Names from its gasolloe mails
tankman who also have to risk pay-
the whole tank burn quickly. YES
log the price in American Gen.
can't do anything to put a qui
Grants.
Then, third, is the fact that the
I decided I must talk with Rus-
American tank's treads are mich
too narrow for the kind of muddly
sians who fight in our tanks. In
another sector, many miles away,
awampy ground we have in Rumai,
For this reason, your tank# box
another general arranged for me
down more easily than OUTS do, and
to do so. The major of a battalion
they are difficult to maneuver."
of American tanks and several of
So. far Maj. Irmakov had men-
his tank crewmen were brought
tioned criticisms of the Gen. Grant
back from their battle positions so
which we had heard before but
1 could get absolutely first-hand
never from some one so qualified to
testimony of M-3 performance along
the Rzhev front in the past several
spenk with final authority. All re-
cards American tanks in Russia,
months of fighting
these particular weaknesses long
Maj. Ivan Irmakov, 32 years old.
ETO cented to be a military secret et
has been a tankist for 10 years in
far 61 the Germans are concerned
the Red Army and has been handling
But the Red Army's tank battalion
Yankee Gen. Grants for the past
commander bed by DD means An-
atx months. The to - alender, keen-
tahed his report.
eyed. extremely invelligent officer
and obviously a diret-class techni-
clan.
Regraded Unclassified
111
Beggets Improvements.
MAL cited DYe more spe-
of losses of American tanks here,
eing Hims about the M-3 tank which
as compared to Soviet and British
either heightened Its vulnerability
tanks. But be clearly didn't want
or handicap to a notable degree its
to appear to be deliberately paint-
offensive capacity. He explained
each point clearly, convincingly, and
Ing e dark picture, He merely re-
in some cases told how Improve-
plied:
ments could be made with a. com-
"When our unles Take fire, we
paratively simple alteration here
can estingrish the fire quickly. or
or there. These, however, are not
matters to be reported in daily news-
we can like them back while
papers in wartime.
burning and then put out the fire
Nevertheless, there was no par-
But the American M-I's go up in
ticular consolation for American
pride In the fact that, with the sec-
flames immediately."
and World War already under way,
I asked: "Which tanks have you
such A great Industrial power as
Idst the most of on the Rahev
the United States should produce
front?"
a medium tank with less than eight
serious faults or weaknesses. With
Again the major paused. Then
only 20. years of industrialization,
be answered in another fashing:
the Soviet Union had produced an
"For burning, American tanks
infinitely stronger and less inflam-
have no rival," he said. "Our tank-
mable tank than the Gen. Grant,
men have more confidence in our
& very considerable period before
own Boviet tanks than any others.
the Finnish war,
So far, they are not at all anxious
I hastened to explain to the ma-
to get assigned to foreign-made
jor and his men that Soviet engl-
tanks. But if they must take them,
neers had spent more than 10 years
they prefer the British tanks."
designing and building tanks be-
That, too, was what 7 tiad heard
fore the war began, whereas Amer-
on other ectors at the front.
lea's tank Industry was only created
in less than two years.
All We Bad Le Berld.
It seemed only fair for me to ex-
They're Tea Comfortable.
"There is & newer and improved
plain that the first model tank the
American medium tank," I said, "alld
United States produced had been
it is certain that some of the faulta
sent to Russia because at that time
it was all we had to send. Improve-
you mention have been eliminated.
ments on the first models had only
Whether all of them have, I don't
been made after battle experience
know. One thing, however, you CED
New America was producing better
count on: Americans are an en
and also much bigger tanks: some of
tremely adaptable people and quick
50 or 60 tons or more.
to learn by experience, Our in-
dustrialista have certainly improved
When those tast tonnage figures
their tank technique and they will
were translated, DOP of the major's
continue to do 80."
tankmen, Bergt. Ivan Balaskin, from
"We had expected that your tanks
Siberts, tooked at . Leningred
would be among the beat," the ma-
youngeler signature of him and
Jor replied, simply. Then he added:
grinned . NO broad and daughted
There are one or two other things
on the good side I meant to men-
gitn.
Judging by that arin, there is still
tion. Your tank's radio equipment
a chance PT the American tanks'
is extremely good. Also, your 37-
mm, cannon has an excellent angle
reputation to be retrieved in Russia
for use against airplanes. But there's
-If our DEW Made are de-
another thing."
signed out of the from the
The major grinned: "You know,
old-and III we pit them ever to the
Inside your American tank is typical-
RUMIN front last enough.
by America. It's very comfortable.
It has special head and bump pro-
Tank Berryl- solt care
tectors and looks very handsome.
how big that 40 as their
But really, that's not for war. Your
American comfort 29 chiefly code
tanks could be made cheaper with-
centrated on fire protection
out those dress-up touches and be
1042. of Charges Daily (Non)
made more quickly-and for fight-
ing. they would be every bis M
good."
Trainer With Title
1 pressed the Russien last corps
new in remard to the preventage
Regraded Unclassified
112
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEOct.21,1942
TO
Secretary Morgenthau
Mr. Hoflich
FROM
Subject: Summary of Intelligence Reports
Archangel
It is predicted in a British report that Archangel
will be ice-free this year until about November 20.
(U.K. Operations Report, October 8-15, 1942)
Soviet Submarines
Four or five Russian submarines are operating in
the Baltic, and 43 in the Black Sea, according to a
British report.
(U.K. Operations Report, October 8-15, 1942)
British-Fighting French Relations
It 1s reported that De Gaulle, in his negotiations
with the British, has given up the demand for military
control in the Levant. It is said that he has also
yielded in the matter of the elections, proposing that
they be held in April, 1943, rather than this fall.
(0.8.S., "The War This Week", October 8-15,1942)
Regraded Unclassified
TREASURY DEPARTMENT
113
INTER OFFICE COMMUNICATION
DATE Oct.21,1942
Secretary Morgenthau
TO
Mr. Hoflich
FROM
Subject: Japanese Strategy in Gilbert and Ellice Islands.
(Map attached).
1. Within two days after the attack on Pearl Harbor,
the Japanese sent a naval task force to take over the
northern Gilbert Islands. They recently have occupied
the southern Gilberts, and apparently are now engaged
in occupying Funafuti in the Ellice Islands.
2. This Japanese activity, according to a survey
by the Far Eastern Section of the Office of Strategic
Services, 1s one of several moves made by the Japanese
in attempting to counteract the advantages gained by the
United States in occupying the southeastern Solomons.
Other such Japanese moves include (1) the recent abortive
drive toward Port Moresby, (2) the unsuccessful attempt
to gain control of the China Strait by occupation of
Milne Bay, and (3) occupation of the islands of Nauru
and Ocean west of the Gilberts.
3. The objectives of the Gilberts infiltration
are presumed to be (1) to outflank the Solomons on the
northeast side, (2) to extend the range of Japanese re-
connaissance and attacks upon supply routes from the
United States, (3) to provide stepping-stones to the
south toward F1J1 and Samoa from Japanese bases in the
Marshall Islands, and (4) perhaps ultimately to support
an attack on F1J1 and Samoa.
4. Conditions in the Gilbert and Ellice Islands
are not particularly favorable for the Japanese occupying
force. Virtually all supplies will have to be brought in,
due to the scarcity of food and water. Docking facilities
can be provided only for very light ships, and seaplane
Regraded Unclassified
114
- 2 -
anchorage only during favorable weather. A few small
airfields could be constructed, but no level or
cleared spaces appear to be immediately available.
It would, however, be "dangerous to discount the
value of the islands as bases for light naval vessels
and seaplanes Whatever light forces the enemy can
base on the Gilberts or Ellices will be available to
Join such battleship and aircraft carriers as may
come down from stations nearer Japan, making the
whole task force that much less dependent on a supply
train. Whether the Japanese can continue to hold the
Gilberts and to menace the Ellices is something else
again; but as long as they do, their forces, big or
small, flank our supply route from Hawaii to the
Solomons. The importance of that one strategic fact
is very considerable."
(Office of Strategic Services, "The War This Week",
October 8 - - 15, 1942)
Regraded Unclassified
ISS
165
ITS
TO
GUAN
ENIWETOK
THE
M
seem
RONGELAB
/
ARLIN$INAE
RONGERIK
/
WOTHO
/
SOUTHWEST PACIFIC
10
UJELANG
LIRTER
10
1ˢᵗ
WOTJE
( DISTANCES ARE APPROXIMATE
MAMONUITO
LAE-
HALL IS
was
Y
MALEOLAP
AND ARE GIVEN IN STATUTE MILES)
840
NAMU
AUR
LAMOTREK-:
OROLUK
PULUWAT TRUK
444 M
PONAPE
MARSHALL
ARNO
CAROLINE IS.
/
IS.
NONOI
490M
3
JALUIT MILLE
1530M
KUSAIE
EBON
/
HOMESTON
MOINT
AT 175° E. 3600M
ENGTH OF AREA
715 W
MAKIN
/
/
APAIANG
MARSHALL
?
to
CAROLINE IS
IS
TARAWA
MAIANA
HOWLAND
MAMA
KURIA:
BAKER
GILBERT
530
o
WIDTH OF AREA
OCEAN
NONUTI-
GILBERT IS
NAURU
627M
IS.
/
2
AT EQUATOR 2800M
NAURO
BERU
OCEAN
PHOENIX
850M
IS
ARORAI
PHOENIX
CANTON
IS
ENDERSURY
SOLOMON
ELLICE
IS
GARDNER.
IS
HULL
UNION
SANTA CRUZ
IS
IS
ELLICE IS.
NUKUFETAU
NEW
SAMOA
FUNAFUTI
HEBRIDES
FIJI IS
IS
IS
NUKULAELAE
/
UNION IS."
MKAOFU
to SANTA CAUZ 040M
10
NEW
CALEDONIA
/
NOUMEA
RDTUMAH--
WALLIS
Brisbone
NEW
SAMOA
PAGO
HEBRIDES
,
HORN
IS
PAGO
911
AUSTRALIA
IS.
CANTOM
N/UAFOO
&
FIJI IS.
È
A
KERMADEC
IS
SAVU SAVU
/
EFATE
SUVA
Sydney
Auckland
NEW ZEALAND
WOUNER 8324
20
SOUTHWEST PACIFIC REGION
A
NUKUALOFA
CTT
175 EAST
WEST 175
MAP NO. 1144
DBER 15, 1942
DRAW
GEOGRAPHY DIVISION 0.5.5
Regraded Unclas
116
10 21 42
NTELLIGENCE REPORT
REALISM AND THE OFFENSIVE SPIRIT
relating / to worded. 10 any - - any v. defense Code person 50, d / w United 31 States -
à 1 5
- within <<<<<<<<<<<<<<<<<<<<<<<<< document - meaning <<<<<<<<<<<<<<<<<<<<<<<<< of the In ony
E
OFFICE o
WAR INFORMATION
BUREAU OF
INTELLIGENCE
COPY No.
7
Henry Morgenthau, Jr.
Regraded Unclassified
Such recommendations and suggestions as may appear in
this report have not been cleared in advance with the
Director of the Office of War Information and do not
CONTENTS
necessarily reflect his views or those of the Office of War
Page
Information. Recommendations and suggestions, if they do
appear, are only submitted by individuals in the Bureau
IMPLICATIONS OF THE REPORT
of Intelligence who have assembled the data and they are
Introduction
1
offered for the consideration of appropriate authorities.
Timing of Offensive
2
European Second Front
3
Expectation of Second Front
5
Confidence in our Armed Forces
7
Evaluation of the Japanese
9
Effect of Informational Level on Confidence 11
Specific Criticisms of the Army
12
Confidence in Production and Shipping
14
Educational Differences
15
Conclusions
18
The Bureau of Intelligence of the Office of War
Information uses o variety of procedures and tech-
niques to obtain its data on the attitudes of people
and on what is brought to their attention. These pro-
cedures and techniques have been found reliable after
extensive experimentation over o period of years.
IMPLICATIONS OF THE REPORT
Confidence In American military strength and a prevalling. re-
cognition that the war can be won only through offensive action
have promoted a general expectation that the United Nations
will soon be able to wrest the Initiative from the enemy. Many
Americans believe that the war can be won within & period of
two years. This hopefulness, together with the belief that
American military might Is far superior to that of the eñemy,
may lead to dangerous complacency.
The pronounced Inclination among Americans to consider Germany
a more formidable and dangerous foe than Japan may reflect an
unhealthy tendency to underrate the military potency of the
Japanese. It seems probable that the focussing of Interest In
recent weeks upon the problem of opening a second front In
Europe has diverted attention from the seriousness of the war
In the Pacific,
Confidence in production and shipping appears to be on the
increase, although the public does seen to have a fairly clear
realization of the serious shipping problem we now face. The
belief held by a majority of the public that America is now
the major source of supply for the United Nations war effort
suggests a need for Informational efforts to promote under-
standing of the contributions made to the common cause by other
members of the United Nations.
In general, the public shows a high degree of satisfaction
with the Army's treatment and training of its troops. Few feel
that there is any serious discontent among enlisted men; only
a small minority Is critical of Army training.
A need for greater understanding of the war's problems is
especially pronounced among people on the lower educational
levels. These people are peculiarly susceptible to the over-
confidence which derives from blind patriotic fervor. They
are more prone than persons of superior educational background
to think that American military strength is greater than that
of our allies or our enemies. And they also tend, In much
greater degree, to anticipate a war of short duration.
Information policy should be designed to place national pride
and confidence on a basis of solld realism. There is need for
fuller explanation of the magnitude and complexity of the
military task ahead In order to promote full public recogni-
tion that strategic decisions must be left in the hands of
qualified military and naval authorities.
"Wo cannot wage this war in & defensive spirit.
As our power and our resources are fully mobil-
ized, we shall carry the attack against the
enemy - we shall hit him and hit him again
wherever and whenever we can reach him." --
President Franklin D. Roosevelt, January 6, 1942.
REALISM AND THE OFFENSIVE SPIRIT
INTRODUCTION
Americans have been taught that the road to victory must be opened by of-
fensive action. They have watched their growing military strength nove to
strategic positions all over the globe. Each fresh convoy of troops and
shipment of supplies has sharpened their hope that the time for American
seizure of the initiative is close at hand. Recently, the blunt demands
of Josef Stalin, the exhortations of Wendell Willkie, have focussed their
thoughts upon the possibility of attack on specific fronts.
Military strategy cannot, of course, be determined by public opinion. But
a shift from defensive to offensive action must be accompanied and support-
ed by a healthily balanced civilian outlook. Such an outlook will be
characterized, on the one hand, by a. genuine desire to take offensive ac-
tion; on the other hand, by a sober appreciation of the manifold problems
involved which will leave to the properly constituted military authorities
the decisions as to when and where to strike.
Along with the careful weighing of military capacity to undertake any such
move, then, should go an equally objective assessment of civilian attitudes
For only through an information policy which encourages a realistic public
appraisal of the task presented can the proper cushion be provided against
in view of enemy attacks throughout the summer in Rissia, North Africa
the shock of high casualties attendant upon full-scale attack.
and the Pacific, these responses suggest that a considerable body of Ameri-
The evidence here is not presented as a complete examination of public sen-
cans have an unrealistic appraisal of the military situation. Even in
timent on all the problems connected with the launching of an offensive;
May, before the first important American offensive action was launched in
it does, however, represent findings of the Bureau of Intelligence on a
the Solomons, the same question evoked very similar results. At that
number of the most vital issues involved.
time, 30 per cent said, "Offensive," 46 per cent, "Defensive," and 24 per
cent, "Don't know."
TINING OF THE OFFENSIVE
The general approval which will greet the anticipated switch to the offen-
In considering public reactions to any future opening of new fronts, it is
sive is perhaps indicated by the fact that in September nine out of ten
in point to note how people characterized the strategy we have employed
Americans thought we were "doing the right thing" in sending our nen over-
thus far. In early September, half of the American public described the
seas to fight. Very little isolationist or purely defensive sentiment was
fighting we were engaged in at that time as largely defensive rather than
evidenced.
offensive in nature. About a third believed we were fighting "mainly on
Intimately bound up with people's hopes and desires as to the kind of war
the offensive."
to fight must be their estimates of how long it will be before victory is
However, practically all of those who described our fighting as defensive
achieved. In the face of much expert opinion to the contrary, half the
were convinced that another year would find us on the offensive, and al-
population believed in September that the war would be over within two
most a third of them expected such action before the close of 1942.
years or less. This figure represented the highest tide of confidence
reached since May and early June. During the spring, the bombing of Tokyo,
*Would you say the United States is now fighting mainly on the offensive
or mainly on the defensive?"
the 1,000-plane attack on Cologne, and the success of the Midway battle
915
50%
195
Offensive
Defensive
had bolstered public opinion to 6 point which was widely considered over-
Don't know
confident and complacent. Optimism which waned during the summer appears
to be on the rise again, and millions of Americans are obviously not pay-
Asked of those who said "defensive":
145
145
12% 2% 8%
chologically prepared for a long war.
"About how much longer do
you think It will be
before we really start
over don't
taking the offensive?"
4 mos.
EUROPEAN SECOND FRONT
6 nos,
I yr. 1 yr. know
Naturally there is greater resistance to the undertaking of specific
- 2 -
- 3 -
Regraded Unclassified
offensive action than to the general idea of offensive strategy. When the
As the following chart indicates, most of the skeptics who doubted Pussia's
national sample interviewed in September was asked about the desirability
ability to hold out were, however, certain that the Soviets could be saved
of attempting a second front invasion of Europe within the near future, &
if the Allies should land an army in Europe in the next two or three months:
majority expressed approval. But a quarter of the public indicated opposi-
tion to such a venture. The findings illustrated below reflect attitudes
"If Russia does not get more help from the Allies than she la getting now,do
measured after the Dieppe raid on the continent - but before a full a.c-
you think Russia will be able to hold out against Sermany until this winter?"
count of Canadian losses there had been released.
57%
32%
11%
Yes
No
Don't know
"Do you think In the next two or three months the Allies should try to land
an army on the continent of Europe for a real Invesion?"
57%
Asked of those who answered "No" or "Don't know"
25%
Yes
185
No
Don't know
26%
4%
135
*Do you think Rusela would be saved
Yes
No Don' know
If the Allies should land an army In
Europe In the next or threemonths?"
One reason for the strong minority opposition to a second front venture at
this time may lie in the fact that invasion of Europe has been tied, in the
EXPECTATION OF SECOND FRONT
public mind, to the issue of "saving Russia in order to save ourselves."
The majority who favored an early second front in Europe was matched by &
A third of the American people is not convinced that we would lose the war
majority of alightly greater size which expected that such an attack would
even if Russia, China and England were all defeated.
be launched before winter. Quite naturally, those who favored a second
front were much more certain that it would be opened this fall than were
A majority of the public, moreover, believed in September that Russia could
those opposed to a European invasion.
hold out against Germany until winter, even without increased assistance
from her allies. Varying estimates of Russian endurance clearly influence
Over half of the whole sample felt that the chances of success in such an
attitudes toward the necessity for an immediate second front invasion:
attempt were "pretty good," while eight out of ten were convineed that the
odds on success were at least even. Those who considered such an attempt
70 per cent of those who believe Russia will not be
able to hold out until winter unless saved by an
likely to fail - only 10 per cent of the whole sample -- were overwhelm-
allied invasion, as compared with
ingly against the move. On the other hand, a majority of the people who
56 per cent of those who believe Russia will be able
to hold out against Germany until winter, are in
thought the chances of success "fifty-fifty" were willing to have the Allies
favor of an invasion of the continent within the next
two or three months.
take the risk.
4 -
- 5 -
Regraded Unclassified
"Do you think that In the next two or three months the Allies should try to
land an army on the continent of Europe for a real invasion?"
military lenders have failed thus far to undertake the effort because they
consider it impractical. There is good reason to believe that action
of those who feel that
our chances of gaining
125
a foothold are:
15%
launched by trusted and competent authorities would, as in the past, be
73%
should
don't
should invade
not Invade
know
supported by overwhelming popular approval.
pretty good
54%
32%
iss
CONFIDENCE IN OUR ARMED FORCES
50 50
9%
82%
Any shift to an all-out offensive strategy will be regarded by the people
95
more likely
to fall
in the light of their confidence in our military establishment. In Septem-
ber, this confidence appeared to be on a very high level. The quality of
It seems significant that persons with relatives and friends in the ser-
our leadership, the fighting spirit of our men, our military equipment and
vice, or about to go in, voted just as strongly in favor of an early in-
the strength of our Navy and Air Force were all considered far superior to
vasion of Europe as those who had no close relationship with the service.
those of Germany and Japan. A healthy national pride is undoubtedly re-
flected by these sentiments. They may, however, connote more patriotism
Better educated groups showed a greater belief that the United States needs
than realism.
support to win the war, but curiously enough were more cautious in recos-
mending a second front and more possimistic about its chances of success
As the chart on the following page illustrates, Americans overwhelmingly
than were less educated groups - perhaps because of a greater appreciation
rated their own armed forces higher than those of the other najor powers on
of the magnitude of the job. Acceptance of the imminence of an invasion
all points of comparison save one; four out of ten gave Germany credit for
of Europe was, however, greatest on the upper educational levels. They
having the strongest aray in the world. But, despite the numerical superi-
were more prone than others to expect an invasion in spite of the fact
ority of the German aray, and despite the actual combat experience which
that they advocated it less strongly.
it has had, three out of every ten Americans still felt that our own Army
was stronger. It is fairly plain, moreover, that even those who gave first
These expressions of opinion about a second front in the future are by no
place to the Wehrmacht thought that our own Army was potentially superior.
means intended as a measurement of popular reaction in the event that an
Many of them held that we have smarter generals than the Germans, better
actual invasion of Europe should be attempted. Public opinion is, in large
fighting spirit and the best Aray equipment in the world.
part, a response to leadership and to action. Much of the current opposition
This confidence that total American military strength is unchallengeable,
to an invasion effort may be based on nothing more than an assumption that
- 6 -
7 -
Regraded Unclassified
QUALITY OF AMERICAN FIGHTING FORCES
even by the Germans, was evidenced by the answers given to a nomewhat simi-
COMPARED WITH OTHER COUNTRIES
lar question asked of a national sample in August: "From what you know or
have heard, would you say the all-around fighting ability of the American
Which one of these countries would you say MI....
armed forces is better, about the same or poorer than Germany's?" Fifty-
U. S. 31%
the strongest
England 15
seven per cent said that our all-around fighting ability was greater than
army?
Russia 145
Germany's, while only 15 per cent confessed that they considered it inferior.
Germany 42%
Japan 2%
Nevertheless, respect for the Nazi army - the army which will face Aneri-
#: S. 51%
the strongest
can troops invading the continent - has some influence upon civilian sen-
England 20%
air force?
Russia 1%
timent in regard to the opening of a second front:
Germany 13%
Japan 2%
64 per cent of those who think the United States
has the strongest Aray, but only
e. S. 52%
the strongest
England 27%
54 per cent who believe Germany's army strongest,
navy?
favored the invasion of Europe this fall.
Russia IS
Germany 3%
Japan 6%
EVALUATION OF THE JAPANESE
U. S. 58%
The comparative rating of military capacities gives added emphasis to other
the smartest
England 2%
generals?
Russia 5%
indications that Americans consider the Germans & more dangerous and nore
Germany 19%
formidable foe than the Japanese. It seems significant that this relative
Japan is
disregard for Japanese military strength was registered at about the time
U. s. 65%
best fighting
when Assistant Secretary Bard and ex-Ambassador Grew were warning that
England 6%
spirit?
Russia 125
Japanese ferocity and might must not be underrated.
Germany 5%
Japan 5%
This tendency to regard Japan as & subordinate foe may stem from a lack of
U. s. 65%
information among large sectors of the American public. A surprisingly
the best army
England 2%
§
equipment?
large proportion of the population - almost half - manifested ignorance
Russia 15
Germany 20%
of the fact that the Japanese had occupied American territory in the
Japan 15
Aleutian Islands. It 18 possible that some of those interviewed
- 9 -
8 -
Regraded Unclassified
QUALITY OF AMERICAN FIGHTING FORCES
even by the Germans, was evidenced by the answers given to a somewhat simi-
COMPARED WITH OTHER COUNTRIES
lar question asked of a national sample in August: "From what you know or
Which one of these countries would you say 188...
have heard, would you say the all-around fighting ability of the American
armed forces is better, about the same or poorer than Germany's?" Fifty-
0. S. 31%
the strongest
England is
seven per cent said that our all-around fighting ability was greater than
army?
Aussia 14%
Germany's, while only 15 por cent confessed that they considered it inferior.
Germany 42%
Japan 25
Nevertheless, respect for the Nazi army -- the aray which will face Ameri-
J. 5. 51%
the strongest
can troops invading the continent - has some influence upon civilian sen-
England 20%
air force?
Russia IS
timent in regard to the opening of a second front:
Germany 135
Japan 2%
64 per cent of those who think the United States
has the strongest Army, but only
u. S. 52%
the strongest
England 27%
54 per cent who believe Germany's army strongest,
navy?
favored the invasion of Europe this fall.
Russia IS
Germany 3%
Japan 6%
EVALUATION OF THE JAPANESE
u. S. 58%
The comparative rating of military capacities gives added emphasis to other
the smartest
England 2%
generals?
Russia 5%
indications that Americans consider the Germans a more dangerous and more
Germany 19%
formidable foe than the Japanase. It seems significant that this relative
Japan 12
disregard for Japanese military strength was registered at about the time
U. S. 65%
best fighting
when Assistant Secretary Bard and ex-Ambassador Grew were warning that
England 6%
spirit?
Russia 12%
Japanese ferocity and might must not be underrated.
Germany 5%
Japan 5%
This tendency to regard Japan as a subordinate foe may stem from 6. lack of
U. S. 66%
information among large sectors of the American public. A surprisingly
the best army
Ingland 2%
equipment?
large proportion of the population - almost half - manifested ignorance
Russia 1%
Germany 20%
of the fact that the Japanese had occupied American territory in the
Japan 15
Aleutian Islands. It is possible that some of those interviewed
- 9 -
8 -
Regraded Unclassified
misunderstood the question and answered negatively on the assumption that
it referred only to those Aleutian Islands close to the Alaskan mainland -
EFFECT OF INFORMATIONAL LEVEL ON CONFIDENCE
rather than to the westernmost tip of the Aleutian chain.
There are other signs that the high confidence in our armed forces rests
more upon national pride than upon a sound foundation of information and
There 1s a direct relation between education and awareness that the Japan-
realism. On every phase of our military strength testad, the less edu-
ese have landed troops on American soil in the Aleutians. Among persons
cated groups showed the most overwhelming confidence.
at the lowest educational level, tro out of three were ignorant of this
fact. Even among people who had gone to college, two out of ten had no
As the following chart shows, college graduates were seven to one in rat-
knowledge of the Japanese footholds. The following chart illustrates the
ing the strength of Germany's aray over that 01 - own; in addition, they
extent of ignorance and the relationship between education and information
tended to credit the Nazis with more able generalship than their own coun-
on this particular subject.
try - and they were about equally divided on the relative strength of the
American and British air forces.
"From what you have heard or read, have the Japanese succeeded in occupying
any of the Alautian Islands -- that 10, our Islande near Alaska?*
"Which country has the strongest army?"
(Based on educational Levels of respondents)
57%
23%
Yes, they have
20%
No, they haven't
Don't know
Germany
United States
Russia
College graduates
725
10%
125
Educational level of those who answered "Yes"
Some college
60%
19%
135
College graduates - 84%
High school
graduates
48%
27%
15%
Some college - 78%
Some high school
44%
35%
155
Grammar school
graduates
34%
37%
16%
High school graduates - 68%
Some gramar school
or less
24%
435
115
Some high school - 52%
surspect for our allies and enemies was reflected in greater force among
Granmar school graduates 46%
the more educated groups with one exception: Evaluation of the power
Some grammar school or less - 33%
of the Russian army held practically constant on all educational levels.
Even among the most educated, however - though by a relatively small
- 10 -
11 -
Regraded Unclassified
margin -- the United States was considered to be the strongest naval power,
with the amount of training our soldiers are receiving before being dis-
to have the best equipment for its army, and to possess the outstanding
patched to foreign poste.
fighting spirit among the great world powers.
Even among those with immediate relatives in the arned forces, 79 per cent
had not heard of any discontent among our soldiers at hous. This group
SPECIFIC CRITICISMS OF THE ARMY
was no more critical of politics in the choice of officers than were per-
There was little evidence of any particular civilian criticism of the army
sons who had no close connection with soldiers. And they were even BOISS-
which might be influencing evaluation of our might and ability to launch
what more inclined than others to feel that our fighting sen were getting
an offensive. Although a fifth of the American public had heard of in-
anple training before being sent into battle.
stances of discontent in the army camps in this country, only three per
cent considered this discontent serious enough to hurt the fighting spirit
68 per cent of those with friends or relatives
in the armed forces, as compared with
of the army. Such instances as were recalled may have been conventional
58 per cent of those with no such connection with
grumbling or mere rumor.
the military, felt that American soldiers were
getting enough training before they go into
battle.
*Have you heard of any cases of discontent among soldiers In the army camps
Women were slightly more critical than men of the adequacy of army train-
here In the United States?"
ing. There was not more than six or eight percentage points difference
80%
20%
No
Yes
between the sexes, but it may furnish evidence of some need for greater
reassurance among women regarding the preparation given to soldiers.
Asked of those who had heard of discontent:
3%
15%
25
Not only did suspicion of the merit system within the aray seen to be con-
*Do you think this discontent is serious enough to
hurt the fighting spirit of our army as a whole, or
fined to a relatively small group, but the people who did have these
do you think It doesn't amount to much?"
Not
Don't
Serious serious know
doubts apparently did not look on the matter as affecting the army seri-
ously. At least, they did not differ from other civilians in their esti-
mates of either the strength of the army or the ability of United States
Less than a quarter of the people interviewed expressed any conviction
generals. However, impressions of discontent among our soldiers, though
that pull or influence is necessary for a person to become an officer in
certainly not widespread at present, are a factor to be reckoned with:
our army. Only about one out of five persons expressed any dissatisfaction
- 13 -
- 12 -
Regraded Unclassified
68 per cent of those who had not heard stories
of "discontent" in army camps, while only
pessimistic as they were in mid-August.
50 per cent of those who had heard of such
grumbling, rated the United States first
Americans appear to be imbued with the concept of their nation as the ar-
among world powers in fighting spirit.
senal of democracy. Even in August fifty-one per cent of then believed
that the United States was providing "more than half of the war materials
CONFIDENCE IN PRODUCTION AND SHIPPING
used by the allies." Eighteen per cent thought that "practically all" of
The behind-the-lines task of supplying and transporting war materials is
the United Nations' war equipment was made in the U.S.A. In view of the
vital to any serious consideration of a. successful offensive. And the
great productive efforts which are being carried on in Britain and Russia,
people's judgments of our progress in this direction will be a part of
these opinions seem somewhat unrealistic and perhaps reflect & widespread
their total attitude toward the subject.
failure to appreciate the contributions other members of the United Nations
The public's evaluation of our war production as measured in September was
are making to the common cause.
a mixture of strong confidence in the future, some reservations regarding
present achievements, and & good deal of ignorance concerning the actual
*From what you have heard, would you say the United States is producing
less than half or more than half of the war material used by the Allies?"
situation.
12%
51%
Less
18%
More
195
than half About half
than half
Don't know
Production in General
Almost half of the American public (44 per cent) felt in September that our
over-all production of war materials was progressing "only fairly well" or
Asked of those who answered "more than half"
18%
29%
4%
"poorly." This, however, represented & decided gain in confidence over
"Would you say the United
States is producing
the previous month when, apparently, news of WPB shufflings and the cancel-
practically all of It?"
Yes
No. Don'tknow
lation of war contracts for lack of materials had raised this critical group
from 25 per cent in June to 54 per cent in August.
EDUCATIONAL DIFFERENCES
In short, from June to August, there had been & marked increase in critical
Criticiam or production was distinctly 8 mark of the more educated groups,
thinking on the production picture, so that September showed the public to
however, for 55 per cent of the college graduates as compared with only
be more possimistic than they were earlier in the summer, but not as
30 per cent of those who had never completed grammar school said produc-
tion was going only fairly well or poo-ly.
- 14 -
- 15 -
Regraded Unclassified
Paradoxically, there was a striking inverse relationship between education
"In general, do you think that production of war materials In this country
1a going along very well, only fairly well, or poorly?"
and awareness of the urgent need for steel:
(Based on educational levels of respondents)
57 per cent of the college graduates, 88 compared with
Total who sald fairly 445
well or poorly
45 per cent of those who had never completed grammar
school, were of the opinion that we had enough
College graduates 55%
steel on hand to build the ships and other war
materials we need.
Some college 54%
High school
51%
Awareness of the steel shortage has undoubtedly been greatly advanced dur-
graduates
Some high school 425
ing the past weeks by the emphasis given by newspapers and radio broad-
Grammer school
casts to the campaign for the collection of steel scrap. The American In-
graduates
40%
stitute of Public Opinion reported early in October that 94 per cent of the
Some grammar school 30%
or less
American people said they have read about the scrap collection drive in
their newspapers. But it is significant that, on the eve of the scrap cam-
Steel Shortage
paign, such widespread lack of appreciation of the steel shortage should
have existed.
In September, the Bureau asked its national sample the question: "From
what you have read or heard, would you say we have enough steel on hand to
Shipping
build the ships and other war materials we need?" Half of the sample an-
swered the question affirmatively. Only a third indicated an awareness of
Seven in ten persons perhaps conditioned by stories of Kaiser record-
the steel shortage inhibiting production at that time.
smashing and the launching of 174 ships on Labor Day - believed that pro-
duction of ships was up to schedule or even ahead of schedule. On the
Quite naturally, those who were unaware of any steel shortage were better
other hand, most of them were aware that shipping is a major war problem
satisfied with the general progress of production:
today, for only about a quarter of the population maintained that we now
56 par cent of those who were unaware of the steel
have enough ships to carry our war materials to the fighting lines. And
shortage, but only
while only 14 per cant of them felt we could be doing more than we are to
46 per cent of those who realized a shortage ex-
meet the submarine menace, a little more than half were unwilling to say we
isted, felt that the production of war materials
was going very well.
would have Atlantic shipping under control within the next few months.
- 17 -
- 16 -
Regraded Unclassified
Furthernore, a Gallup poll published in early
August reported that people named shipping more
2. Lack of realism is especially prevalent among persons on the lower
than anything else (36%) when asked what con-
stituted the most important problem the United
educational levels.
States faces today in winning the war.
3. Americans tend to overestimate their country's contribution to the
Nevertheless, there was 8. slight but consistent increase in optimism from
production efforts of the United Nations. Moreover, they are not fully
August to September on all of the questions pertaining to shipping. Con-
aware of the shortages and other difficulties which impede production.
sidered individually, no one of them would be significant but taken to-
gether they probably indicate a distinct trend.
4. Sound informational measures are needed to temper the eagerness for
offensive action with realism and to provide & healthy public appreciation
August
September
Tie do not have enough ships
of the price which must be paid for victory.
to carry our whr materi-
als to the fighting lines
58%
54%
Production of ships is not
up to schedule
18
14
Be are not doing all we
possibly can to prevent
submarine sinkings in
Atlantic.
16
14
It will be over six months
before the submarine
menace will be under con-
trol
41
39
The direct bearing which shipping has upon the launching of a major offen-
sive may be inadequately understood.
CONCLUSIONS
1. The American public desires offensive action and believes it can be
undertaken soon. But its expectation appears to be based, in part, upon
unrealistic appraisals of our armed strength compared with that of our
enemies and upon overconfidence about the progress of the war.
- 18 -
- 19 -
Regraded Unclassified
117
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
October 22, 1942.
MEMORANDUM ON CABINET MEETING
The President said that Myron Taylor was just back
and he had a very good report to make. He said that the Vatican
apparently was not now in favor of a negotiated peace as it had
been in the past, but was more inclined to favor the side of the
Allies. Of course, he said, they are virtual prisoners, but
nevertheless they had a strong feeling that the Allies are going
to win.
He then went into a discussion of the huge tax bill
that was put on his desk and the lengthy report from the Treasury
on it. He said the bill might as well have been in B. foreign
language; that he didn't understand it and didn't think the
T: easury understood it. It was handed to him late in the after-
noon of Wednesday and told he had to sign it that day in order
to save some $60 million revenue, so he was forced to sign it
without reading it. He made quite B. joke of the whole thing.
He then turned to the Secretaries of War and Navy and
said he had a copy of a press release which Steve Early had drawn
up concerning the foot ball game between the Army and Navy Academies,
which stated that the game would be played at Annapolis, and that
tickets would be sold only to people in and around Annapolis. He
said to the two Cabinet Officers that he didn't want to pick up
the paper the following morning and see where the high ranking
officers of the Army and Navy were present at this game. Secretary
Stimson said he had already issued orders to his office and Secre-
tary Knox said he would do likewise.
Secretary Hull had nothing.
I had nothing to report.
Mr. Biddle said he had prepared El bill and submitted it
to Congress which would correct some of the authority that was
found lacking in the trial of the saboteurs. The President asked
him if it wouldn't take a long time to get such a bill through
PORDEFENSE Congress. Mr. Biddle said that curiously enough, there was an
interest in it and he thought Congress was going to pass it in B.
BUY
few days.
times
STATES
TWICE
FOUNDS
Regraded Unclassified
118
- 2 -
Frank Walker had nothing to report. The President asked
him if he had done anything to create a stamp which would honor
the United Nations which had been overrun by the Axis powers. He
said no he had not. Apparently the President had sent him a
memorandum which he had not yet received. The President then
said that arrangements are now being made to move Bolivar (he didn't
know where he was buried) to Caracas. He thought it might be well
to look into the matter of providing a stamp commemorating this
move. He said he thought it would be very popular in Bolivia, Peru,
Venezuela and the Central American States. Secretary Ickes then
spoke up and said he wondered why the Treasury didn't sell albums
with Savings Stamps in them to collectors. I said that we had
authorized the use of the stamps for collectors and we had authorized
the use of stamps to collectors' magazines, but I had not heard of
the suggestion of placing them in albums. I would look into it.
Secretary Knox said he had noticed in the morning paper
that Secretary Stimson had taken a rather strong stand on the
Liquor Bill pending in Congress. He thought it was an excellent
letter Secretary Stimson had written so he went to his office and
wrote one himself and joined in the recommendations of Secretary
Stimson. There was some discussion then between the President and
Jimmie Byrnes as to the procedure in getting a Lee bill or Lee
amendment, which covers this matter, eliminated.
Secretary Ickes said there were very few people in the
country who understand how to operate high octane gasoline plants.
There are several of them now under construction and will be
coming into production early next year. As this process is only
about three years old, he estimates there are about 100 men in
the country who understand it. Most of them are young men who
have gone into the Army and he is afraid the plants will be ready
next spring and no one to operate them. The President said he
should take it up with the Secretary of War and work out some
arrangement whereby these particular men can either be deferred or put
in uniform and detailed back to the plants.
Secretary Ickes then brought up the question of food in
Puerto Rico. The situation is quite bad because of lack of
shipping. The President said that something should be done to
get Puerto Rican families to grow their own food. Secretary Ickes
said they had done something along this line but they hadn't yet
been able to get all the land out of the hands of the large land
owners. What they would have to do would be to take care of the
immediate problem in some manner and adopt a long-range policy
of getting the local residents to grow their own food. He said
there is a resolution in Congress, introduced by Senator Chaves,
which authorizes an investigation of the Puerto Rican situation
aimed largely, he thought, at Rex Tugwell. The President asked
Regraded Unclassified
119
- 3 -
the Vice President and Jimmie Byrnes as a committee to see if they
couldn't have the proposed resolution shelved and not put through.
There was then quite a discussion of the fishing boats
which the Army and Navy had taken over from Interior. The President
raised the question as to whether there could not be a lot of fish
caught by local residents along the Atlantic Coast Line and stations
with refrigeration set up every few miles to buy this fish. He
knows there is a lot of fishing taking place just along the coast
lines and some very good fish are caught, but many of them are
thrown back because there is no market. He thinks that Secretary
Ickes should go into this.
Secretary Wickard again referred to the labor problem
that he discussed at last Cabinet meeting. He said they had about
sixty workers who had come to work down in Arizona on the basis of
the previous discussion. He hoped that it would work out all right.
Jesse Jones had nothing.
Madame Perkins referred to the Ramspeck bill which had
been introduced and had some support which attempted to cover
situations where employers and employees had come to some agree-
ment not to strike or ask for increase of wages during the emer-
gency. She thought the bill was all wrong and some attempt should
be made to get it killed.
There was then quite a discussion of the longer week which
the President said he had asked about on his recent trip. He found
than when a factory had longer weeks they had a great deal of sick
leave, When asked the cause of sickness, the answer in the majority
of cases was that they were just too tired. There was also a dis-
cussion of the matter of registering women and the whole manpower
problem. There was also a discussion of the public works such as
work that is now being carried on in Washington around the local
parks. It was the thought of the group that that could be done
away with during the war and the manpower used for it could be used
on something more vital to the war effort.
Mr. MoNutt discussed at some length the question of doctors.
He said there was certain to be a shortage of doctors within the next
year or so.
Jim Landis discussed the hospital facilities. He said it
appeared to him that there would have to be some drastic action taken
in certain sections. He referred to Jesse Jones' home town of Houston
Regraded Unclassified
120
4
where, he said, war factories had sprung up and hospital facilities
were not anywhere near enough to take care of the situation. He
said many of the towns were 80 small before the war factories came
along they didn't have a hospital and now they have several thousand
people thrown into the picture and with no hospital it becomes rather
serious.
John Blandford reported that he had gotten the $600 million
appropriation and they were now proceeding with their program. The
main question they would have to work out would be the priorities
with Donald Nelson.
Donald Nelson, Jimmie Byrnes and Vice President Wallace
had nothing to report.
The President then said there was one other thing he wanted
to refer to and that was the last borrowing of the Treasury which
was not a huge success. He said the Treasury borrowed $4 billion and
got it, but it didn't go over very well. He said he had been giving
it some thought and had talked to 8. number of people, particularly
labor people, and he felt there was 8 great need for a Government
annuity. He wanted the Treasury to study the matter. He said Great
Britain had had annuities for a long time and in England today you find
a great many old people who are living on annuities which they took
out in their younger days. I told him we had given a great deal of
thought to annuities and that the Savings Bond program grew out of
our consideration of that matter. Many people today are buying
Savings Bonds each month so that ten years from now they will have
an annuity paid to them on a monthly basis. I said that while the
British Government had sold Government annuities for a period of
fifty or sixty years, the last time I looked at their public debt
statement there was only eleven or twelve million pounds of annuity
liabilities outstanding. We had not felt that there was a great deal
of money in annuities and furthermore we did not feel that the Govern-
ment ought to get into the life insurance business. However, I said
that we would be glad to look into it again as we wanted to put out
every obligation that will siphon off some of the excess purchasing
power.
Henry Wallace brought up the question of the spendings tax.
I told him that one beauty about the spendings tax was that it didn't
necessarily freeze the present assets of an individual. I told him
we had $13 billion of demand obligations in the form of Savings Bonds
outstanding at the present time on which the holders have been
promised they can cash their securities at any time they want to
after sixty days. I believe that to tell them they couldn't cash
them, which we would have to do in case of enforced savings or
enforced lending, would be a distinct shock. The spendings tax would
have the advantage of merely putting 8 tax on the holders if they do
Regraded Unclassified
121
- 5 -
cash them and spend the money. I said it had the further advantage,
if the rates are high enough, of putting huge sums into the Treasury
in the form of taxes if the money is spent, and if the money is not
spent it creates a tremendous reservoir of savings for Government
securities. It also leaves with the individual the discrimination
as to what form his savings shall take: he can leave them in the
bank in the form of deposits; he can buy insurance; pay off debts,
or he can buy Government securities directly. If he chooses any
other method than the purchase of Government securities, then the
Government can borrow that money or its equivalent and it 1s not
inflationary. Secretary Wallace said he couldn't understand why
the people didn't like it because to him it was the best thing that
had been suggested yet for controlling inflation. He hopes that it
will be pushed.
DWB
Regraded Unclassified
122
BOARD OF GOVERNORS
OF THE
( THE 07 <<<<<<<00 I
FEDERAL RESERVE SYSTEM
WASHINGTON
M.S. SZYMCZAK
MEMBER OF THE BOARD
October 22, 1942
Dear Mr. Secretary:
For your information I am attaching a short biography
of the Polish Minister of Finance, Mr. Henryk
Strasburger, which was forwarded to Mr. Saymozak by
Ambassador Ciechanowski.
Cordially yours,
W.G. me heving han
unifted by
W. G. McLenighan
Staphers -
Secretary to Mr. Szymesak
Attachment
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
123
HENRYK STRASBURGER, POLISH MINISTER OF FINANCE
Born in Southern Poland in 1887, descendant of a family of mining
industrialists. Doctor of Law and Political Exonomy.
From 1918 to 1924 he was Under Secretary of State in the Polish
Ministry of Industry and Commerce, contributing much towards its on
ganisation and smooth running. During that time he negotiated several
commercial treaties.
In 1921 Mr. Strasburger took part in the Peace Negotiations with
Soviet Russia in Riga, where he represented the idea of economic col-
laboration with Russia.
In the following year he represented Poland at the International
Conference in Genoa, and later that year at & Conference for regulat-
ing reglations with Soviet Russia in the Hague, where he met and ex-
changed views with Mr. Litvinov, the present Ambassador of the U.S.S.R.
to Washington,
In 1924 he left the post of Under Secretary of State to become
Polish Commissioner General in the Pree City of Dansig, which post he
held until 1932. During this period he often represented Poland at the
Council of the League of Nations in egonomic matters as well as matters
concerning Dansig.
Mr. Strasburger frequently acted effectively in liquidating var-
ious serious disputes in Dansig which were instigated by the Germane;
in Dansig he stood firm by the authority of the League of Nations and
worked for the increase of shipments through Dansig and Gdynia.
Regraded Unclassified
124
- 2 -
From 1932 to 1939 he was President of the Central Organization
of Polish Industries and was on the Board of several companies. He
was also Polish Delegate to the International Chamber of Commerce.
Mr. Strasburger has written several books on political and econom-
ie problems, in which he has advocated the 1dea of international eco-
nomic cooperation.
Two years before the outbreak of the war he wrote a book on the
question of Dansig which aroused widespread interest among the Poles
and abroad, and in which he pointed out the threatening conflict and
aggression coming from Germany.
Mr. Strasburger has also published a book on the significance of
foreign trade for Poland. He was professor of economies at the Lwow
University and the Universal College in Warsow.
He has been also a strong supporter of closer Polish relations
with Czechoslovakia.
It was on the 16th of September 1939, that he crossed Poland's
southern frontier into Rumania and came to France.
After the collapse of France he left for Great Britain on the 20th
of June 1940, sailing from Bordeaux on the British destroyer H . W. S.
"ARETUSA".
Since 1939 he has been Minister of Finance in General Sikorski's
Cabinet.
Regraded Unclassified
125
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
THE PERFORM of I /
WASHINGTON
M.S. BZYMCZAK
MEMBER or THE BOARD
0000
*
October 15, 1942
Dear Mr. Secretary:
The Polish Minister of Finance, Mr. Henry Strasburger,
I am advised, will be in Washington from November 11th
to the 14th.
I have invited him to luncheon here at the Board, through
the Financial Counselor. He promises to be here on the
twelfth, at one o'clock.
Should like very much to have you attend, if at all
possible. Have conveyed this message to your office
this afternoon by telephone.
Cordially yours,
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Regraded Unclassified
126
11, Bruton Street
London, W.1.
May fair 4195
October 22, 1942.
Dear Dr. White:
I should like you to have the enclosed
letter, which I transmitted to Sir Frederick
Phillips at the Treasury this morning, relative
to the British proposals for the release of the
impounded sterling of the film Companies.
I will keep you informed of further develop-
ments in this matter and trust that it will be
possible to reach a conclusion shortly.
With kind regards,
Sincerely yours,
s/s F. W. Allport
F. W. Allport.
Dr. H. D. White
Claridge's
LONDON W. 1.
COPY
Regraded Unclassified
127
11 Bruton Street
LONDON W.1.
October 22, 1942.
My dear Sir Frederick:
Mr. Hays has cabled me the text of the proposals relative
to the release of impounded sterling that were recently trans-
mitted to the Agreement film Companies in New York, and has
also sent me their reply to these proposals, as enclosed, which
I have been asked to transmit to you.
You will note that the Companies suggest in paragraph 4 of
their reply that the amount of the trensfer for 1942-43 be held
open for further discussion. If this suggestion meets with the
Tressury's approval, the Companies propose that all other pro-
visions of the 1941-42 Agreement should remain in force pending
such discussion and eventual agreement on the matter of the
1942-43 transfer. This suggestion is designed, of course, to
avoid the confusion that would arise if the present Agreement
should terminate before it is replaced by a further agreement or
by some other acceptable basis of operation.
It will be greatly appreciated if the Treasury will consider
the Companies' reply at an early date as the Companies are
naturally anxious to complete arrangements for the release of the
impounded sterling 88 promptly as possible. I shall be glad to
discuss the specific provisions of the release agreement as soon
as the Treasury is prepared to do so.
Yours sincerely,
F. W. Allport.
Sir Frederick Phillips, K.C.M.G., C.B.,
The Treasury
Whitehall
LONDON S.W.1.
COPY
Regraded Unclassified
128
1. All Companies will accept the proposal for altering the
quota regulations as set out in memorandum attached to the proposal
and hereto attached. It is respectfully pointed out that United
Artists is now using the footage quota basis and that Universal
Pictures cannot obligate its British licensee or distributor on
quota matters since such is the sole responsibility of such
licensee or distributor.
2. All Companies will agree to the suggested terms for the
release for transfer into dollars of the sterling balances
accumulated by the Companies at October 24, 1942. It is assumed
that the plan of procedure used by the Companies and accepted by
the Control Board and the Treasury for calculating the amount of
remittances under the Film Agreement 1941-42 (defreezing agreement)
will similarly be used in calculating the amount available for
transfer at October 24, 1942.
3. The Companies stand ready to discuss immediately any
technical details which may arise as to the date of the said
release of dollars. The Companies suggest that only a very small
percentage of the total sum should be retained after october 24
and then only for such period of time as will permit the individual
companies to submit necessary audited figures to substantiate the
exact amount due for remittance on the specified date.
Regraded Unclassified
129
- 2 -
4. We note the statement that the Chancellor of the
Exchequer cannot at this time undertake to provide facilities
for the transfer for the twelve months ending October 24, 1943,
in excess of the sum of $20,000,000. As we had been informed
at the last conference that the matter of the 1943 transfer would
be the subject matter of further negotiation, we suggest that
the matter of the transfer for 1943 be held open for discussion,
and that we be given the opportunity of presenting the reasons
why there shall be no restrictions placed upon the remittal of
our funds for the coming year.
5. The inherent right of Government to exercise its
powers of taxation is recognized. However, the Companies
respectfully suggest that they retain the right to protest any
proposed tax which might be unfair and or discriminatory.
6. All Companies agree that the detailed drafting of
the agreement may be done in London, concluding all matters
herein referred to except as to next year's transfers, which as
suggested above should be a subject of further Iscussions.
Regraded Unclassified
130
NOT TO BE RE-TRANSMITTED.
COPY NO.
BRITISH MOST SECRET.
U.S. SECRET.
OPTEL NO, 364.
Information received up to 7 A.M. 22nd Oct.
1. NAVAL.
NORTHERN WATERS: Photographic reconnaissance on
21st showed TIRPITZ, VON SCHEER and HIPPER under way at
Narvik.
BLACK SEA: 10th. A Russian submarine sank a
6,000 ton ship off River Danube,
ATTACKS ON SHIPPING: From 17th to 20th Oct.
(inclusive) 7 ships were reported to have been attached by
submarines, One U.S. ship sunk in northwestern approaches and
a Newfoundland Passenger Ferry sunk in the Cabot Strait. Off
Trinidad a British ship was sunk and a U.S. ship torpedoed but
reached port. A U.S. ship was sunk in the Guiana area and a
Dutch ship in the West Atlantic. A British ship was sunk on
30th September in the Freetown area. In addition a Russian
ship was reported mined in North Russia. One British ship was
reported overdue.
2. MILITARY.
MADAGASCAR: By 20th our advanced troogs were
20 miles south of Ambositra. Prisoners captured at Svato now
emount to 707.
3. AIR OPERATIONS.
WESTERN FRONT: 21st. 15 U.S. Fortresses
attacked Keroman Port area (south of Lorient) and nine bombed
Maupertus Aerodrome (Cherbourg). Hits reported on both
targets. Preliminary reports indicate nine enemy fighters
missing. 17 squadrons of Spitfires supported these operations.
destroyed, six probably destroyed and 6 damaged. 3 bombers
3 Mosquitos bombed a factory near Norden, Leeuwarden Aerodrome
and Stork works at Henglo. Mustangs attacked targets at Meppen
and Lathan (Northwest Germany). A Hampden torpedoed a 3,000
south coast. 1 destroyed, 1 damaged. Temporary dislocation
ton ship west of Mandal (Norway). Six enemy aircrait flew over
caused to railway.
21st/22nd. 7 aircraft (1 missing) despatched
sea mining. About 8 enemy aircraft flew over east coast.
Damage caused was not extensive.
fighters causing serious some damage. 1 enemy aircraft destroyed, 1 damaged.
carrying bombs attacked Luça and Takali without
MALTA: 21st. A total of 195 high flying
Harbour and misses made on three others. Landing grounds
EGYPT: 19th/20th. One ship bombed in Tobruk
at Sidi Haneiso near and El Daba were attacked. Enemy aircreft
sank a tanker in Gulf of Suez.
-1-
Regraded Unclassified
131
21st. Strong attacks made on enemy landing
grounds at Fuka and El Daba. Beaufighters destroyed or
damaged 26 M.T. Vehicles, 2 railway engines and a small W/T
station between Mersa Matruh and Gambut. 11 enemy aircraft
shot down and 5 damaged, 12 of our aircraft missing.
BURMA: 20th. 12 Blenheims bombed landing
grounds, railway sidings and buildings at Monywa.
RUSSIA: German bombers attacked strong points
in northern suburbs of Stalingrad. Russian transport train
and river transports were bombed in lower Volga area.
-2-
132
NOT TO BE RE-TRANSMITTED
COPY NO.
/3
BRITISH MOST SECRET
U.S. SECRET
OPT.L No. 372
Following is supplementary resume of operational events covering
period 15th to 22nd October, 1942.
1. NAVAL
Northern Waters. TIRPITZ, HIPPER, SCHEER and KOLN are still in
Norwegian waters. Russian submarines in the HALTIC have torpedoed the TRELLETORG
Ferry Steamor when carrying German troops.
MEDITERRANEAN. 1 Destroyer, 1 ship (8,000 tons), 3 medium sized
ships reported runk by British submarines, 3 small ships and 1 other medium sized
ship torpedoed, other attacks reported but details not available. Russian sub-
marines claim 2 Roumanian Destroyers and a 6,000 ton Houmanian ship sunk in BLACK
SEA.
Submarine Warfare. U-boats most active in North Atlantic. TRINIDAD,
WEST AFRICA and CAPETOWN areas quieter. 14 ships lost by U-boat during week. 4
ocean convoys totalling 79 ships arrived UNITED KINGDOM without loss but 9 ships
lost out of 2 other convoya. 3 outward bound convoys totalling 79 ships arrived
without loss. 1 promising surface attack and 2 promising air sttacks on U-boate
reported.
Trade. During week ending 17th imports in convoy into UNITED KINGDOM
684,000 tons, including 201,000 tons oil.
2. MILITARY
FAR EAST. BURMA. Small band of Allied guerrillas. attacked &
Japanese force which had penetrated into CHINA HILLS, casualties inflicted but later
our guerillas forced to withdraw. Japanese outposts north and west of MYITKYINA
recently withdrawn but some indication of Japanese intention to advance in FORT
HARTZ direction after the rains. Japanese strength in BURMA now estimated four
divisions. One believed at RANGOON, 1 in CENTRAL BURMA, 1 covering western frontier
and fourth stationed around MYITKYINA and along BURMA HOAD.
3. AIR OPERATIONS
WESTERN FRONT. LE CREUSOT. Course taken by Lancasters entailed a
round flight of about 1720 miles, including 660 over enemy occupied territory.
Identification easy. 81 aircraft dropped 256 one thousand lb. high explosive and
2,896 thirty lb. incendiary bombe. Works consist of two steel plants and 8. pro-
cessing plant. It appears all 3 factories were hit and some buildings completely
demolished. Other large scale daylight operation involved 90 United States bombers
to LORIENT submarine pens. Owing to deterioration in visibility 69 turned back
before reaching French coast. Remaining 21 were engaged in running fight with about
3 dozen Fooke Mulfa 190. 15 bombers attacked, dropping 30 two thousand lb. bombs.
Mosquitos continued light bombing attacks by day on various objectives in the Low
Countries and GERMANY, and single seater fighters, Amorican-built Mustangs, peno-
trated to GERMANY for the first time. One major night operation to COLOGNE was
made under poor bombing conditions. 190 sorties in search of U-boats and 30 BISCAY
patrols.
MALTA. Since 10th, casualties in the air. Enemy - 120 destroyed,
53 probably destroyed and 149 damaged. Ours - 31 Spitfiros, 17 pilots safe.
MEDITERRANEAN. At lesst 6 Axis shipe hit and 1 schooner sunk, in-
cluding a 7,000 ton ship, 5,000 ton tanker, a 6,000 and a 4,000 ton ship torpedoed
by naval aircraft.
RUSSIA. Oring to weather deterioration, less activity except in
STALINGRAD area. Marked Russian activity in MOZDOK - THREK sector, where bomburs
and fighters continuously attacked enemy land forces. KRASNODAR corodromo raided
3 times. German Air Force heavily attacked Russian troops in STALINGRAD and com-
munications on and east of the VOLGA. Railways behind most sectors of the front
were bombed and much damage claimed to Russian rolling stock.
Regraded Unclassified
133
- 2 -
L. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS
ON -21EMY TERRITORY IN EUROPE.
GENERAL NOTES. German Government has suspended all further insurance
against war risko of property in the HAMBURG and BREMEN districts. Reliable in-
forgant reports that recent attacks have caused panio in somo places in GERMANY,
ilso apprehension oven in towns not rnidod - for example, BADEN-BADEN where the
Geuloiter appoaled for calm and confidence. There in shortage of roof tiles and
almost completo lack of glass. Strutgart's omorgoncy food supplies stored in KARLS-
RUHE were destroyed. Special relief arrangements for bombad arons are delayed.
The first consignment of clothing, extra rations, stc., for KARLSRUHE arrived Come
nix works after the attack.
SEA MINING. Between August 21st and Suptember 23rd, 6 ships aggro-
gating 2352 tons and 3 small Danish ships reported sunk and 5 ships totalling
7889 tone plus one small Gorman ship damaged by mines in waters botwoon DEMMARK
and SWEDEN.
5. OPERATIONAL AIRCRAFT BATTLE CASUALTIES
METROPOLITAN AREA
British and Alliod
Enemy
Prob.
In the Air
Dept. Dost. Drimnged
Sombers
35*
Bombers
5
3
9
Fightors
2
Fighters
59
44
26
Constal
8
Miscullaneous
2
N11
Nil
Total
45
Total
66
47
35
# Includes 4 United States bombers
The totals for enemy righters includes
onitted last week.
48 destroyed, 38 probably destroyed and
19 damaged, claimed by United States
bombers, omitted last wook.
MIDDLE EAST (Incl. MALTA)
British and Allied
Enemy
Prob.
In the Air
On the Ground
Dest.
Dest.
Damaged
Bombors
4
1
Bombers
19
11
20
Fighters
33
1
Fighters
32
10
31
Others
1
Nil
Miscellenoous
1
Nil
1
Total
38
2
Total
52
21
52
Two crows and 10 pilots are safe.
of the above, anti-aircraft destroyed
4 and damaged 3.
FAR EAST
British and Allied
Enomy
In the Air
Destroyed
Prob. Dostroyed
Unspecified
5
Bombors
23
1
Fighters
6
Nil
Unspocified
22
311
Total
51
1
NOTE: No account in taken of enemy aircraft destroyed on the ground
in any theatre or of British naval aircraft casualties.
HOME SECURITY
Four factories damaged munufacturing brill bearings, are lights,
stool and boots, also a granary and El food store. Estimated civilian carualties
week ending 6 A.M., 21st - killed 41, seriously wounded 96.
Regraded Unclassified
13
NUMBER 54
SECRET
OFFICE OF STRATEGIC SERVICES
THE WAR
THIS WEEK
October 15-22, 1942
Printed for the Board of Analysts
Copy No. 6
of the Managery
OCTOBER 15-22, 1942
SECRET
Office of Strategic Services
THE WAR THIS WEEK
In the face of notable air and naval losses, the Japanese
continue their steady encroachment on the American posi-
tion at Guadaleanal, and events are now shaping a final
decision in the struggle for the southern Solomons. The
recent concentration of Japanese effort in Middle Melanesia
has been accompanied by withdrawals in New Guinea and
the Aleutians and by quiet elsewhere in the Far East.
The intensity and concentration of the current Japanese
offensive is a measure of the store they set by conquest of
this area-at once the base for harassment of the American
lines of supply to Australia and an essential protective
shield for the Japanese flank in the event of future offensive
action against Siberia, China, or India. With the end of
the monsoon, indeed, observers are canvassing the possi-
bilities of a limited Japanese offensive into Assam which
would seriously embarrass the already slender program of
Allied air supply to China.
In the northern suburbs of Stalingrad the Germans have
improved their position by driving a wedge through a factory
district to anchor their lines on the west bank of the Volga.
At the same time, northern Africa is prey to uneasiness:
Axis defensive preparations in Egypt suggest expectation of
a British attack, Nazi propaganda expresses "alarm" over
an Allied invasion of Northwest Africa, and French author-
ities appear worried lest Mussolini exploit possible Tunisian
disorders to invade that colony.
Suspense at Guadalcanal
The tempo of Japanese activity in the southern Solomons
has declined momentarily, but the battle for Guadalcanal is
1
SECRET
SECRET
apparently moving slowly toward a dramatic climax. The
possible damage to two cruisers and an undetermined number
Japanese 80 far appear to have been unable to render our
of cargo ships or transports. In the southern Solomons,
airfield untenable for any length of time, and for the present
torpedo boats, planes, and shore batteries since the night of
they have confined their efforts to occasional bombardment of
October 13-14 have reported damage to a battleship, two
our positions. This they have been able to accomplish with
cruisers, some destroyers (not specified), and perhaps five
a certain amount of freedom, apparently, but not without
transports, of which at least two were beached and destroyed.
suffering damage themselves.
But no warships have been sunk, and the Japanese still have
Little ground activity has been reported since October 15,
large forces available in this area for action, including both
when Japanese troops on the island were reinforced with men
battleships and aircraft carriers.
and artillery put ashore under the protecting guns of a naval
No fleet engagements have been reported, although we have
force, which included at least one battleship.
lost two destroyers. The Japanese shelled our Guadalcanal
Despite these reinforcements, the Japanese may still be
positions on the night of October 15-16 and again, October
slightly outnumbered on the ground, and it is likely that some
17-18, after our vessels had shelled Japanese positions the
additional troops will be landed before & full scale attack is
previous night.
launched. The Japanese may also wish to develop their
artillery positions further, since they appear to hold some
The Coming Decision
tactical advantages for the use of artillery fire. Heavy and
continued ground bombardment of our positions might well
The seriousness of the situation on Guadalcanal is self-
accomplish what Japanese bombers and Zeros have been
evident. In view of our present widely publicized handicap
unable to do. The Japanese positions, however, have them-
in fighting "a two-ocean war with a one-ocean navy," a
selves been under fire, both from our aircraft and our our
decision in our favor would weigh heavily in psychological
face vessels, and it is unlikely that the situation on the
as well as in military results.
ground will long remain static.
Since their defeat in the Coral Sea battle in early May, the
Japanese in the Southwest Pacific theater have revealed a
certain mental stasis. Their inability to proceed success-
Air and Sea Action
fully toward the occupation of Port Moresby and the con-
Air and naval forces meantime have borne the main burden
solidation of their positions in the Solomons apparently
of the action. Our air forces at Guadalcanal continue to
surprised them. They have for some time underestimated
shoot down a disproportionate number of Japanese planes
their foe. When they were surprised and set back in the
-19 out of 40 in one raid intercepted by Grumman Wildcats,
lower Solomons and at Milne Bay, the Port Moresby venture
with a loss of but 2 of our planes, and an entire flight of 14
by sea became next to impossible, but the Japanese still
bombers on another occasion, when anti-aircraft fire also con-
attempted to accomplish all results at once-the overland
tributed to the destruction.
capture of Port Moresby and the recapture of the Solomons.
Since October 15, our air attacks in the northern Solomons
In the latter project, they have wasted much air strength
have resulted in reported damage to one heavy cruiser, and
and have given our forces more time to prepare against a
2
3
SECRET
SECRET
serious counterattack than they had presumably anticipated.
The Japanese now apparently have decided to put all their
struction and improvement of airfields, but these activities
Southwest Pacific eggs in one basket, regain Guadaleanal
might be interpreted as indicating defensive rather than
and perhaps start again where they were six months ago-
offensive intentions, since Japanese installations in Burma
before they lost the naval battle for Port Moresby. Mean-
have been under increasing Allied air attack. The possi-
time they are showing indications of strain both in air power
bility of offensive action against India can not be ruled out,
and in shipping. On New Guinea, where they have been
however. While a limited offensive toward Assam would
pushed back to within six air-line miles of their main forward
meet severe obstacles of terrain and transport, it is believed
base at Kokoda, no Japanese air forces have attempted seri-
that these difficulties are not insurmountable (see Appendix
ously to challenge our air supremacy. At Kiska in the
III). By occupying northern Assam, the enemy would
Aleutians, air interception of our continued bombing attacks
double the length of our air route between India and China.
has been virtually non-existent. The appearance near Kiska
Payloads would be reduced, and the chances of successful air
this week of two destroyers carrying crated cargo may indi-
interception would increase to such an extent that even our
cate, not an attempt to "disguise" the destroyers, as press
present "token" aid might end.
dispatches suggested, but 8 possible shipping stringency.
Mounting Economic Hardships in China
Limited Campaign in India?
Such a reemphasis of Chinese isolation would come at a
difficult time for China. This would be notably true with
In India, where the end of the monsoon season again brings
respect to the Chinese economic position. Drought, spring
the threat of Japanese action, observers believe the enemy is
frosts, and locust plague have contributed to the develop-
still capable of a limited offensive. With the probabilities
ment of a severe famine in the province of Honan. Chekiang
of a major new campaign in Siberia steadily dwindling, and
and Kiangsi are suffering keenly from the looting and destrue-
with an all-out campaign against India also unlikely, the
tion of foodstuffs which accompanied the recent Japanese
Japanese might find their most favorable opportunity in &
campaign in those provinces, and difficulties of transporta-
limited land campaign against Assam and Bengal. Such a
tion have reduced the beneficial results of the good harvests
campaign would be designed to impede still further our aid
elsewhere in China.
to China and possibly to gain a foothold for a later concerted
Prices continue to spiral upwards. Heavy government war
sea-and-land attack against India, should Allied defenses be
expenditures, only partially covered by taxation, have been
disrupted by internal disorder.
met by the sale of bonds to official banks, which in turn use
While there were evidences of some troop movements into
the bonds as cover for the issue of paper currency. Difficul-
Thailand during September, no large concentrations have
ties of production have led to increasing scarcity of consumer
been reported in Burma. Some reports have suggested small-
goods. The index of prices has registered the results. Whole-
scale Japanese movements northward from Akyab, but an
sale prices, on the basis of an index of 100 for the first six
overland offensive of any size in India is not yet in sight.
months of 1937, rose to 1400 in June 1931; 2400 in December
The Japanese in Burma recently have been active in the con-
1941; 4300 in April 1942; and 5930 by the beginning of
September.
4
5
SECRET
SECRET
The cost of living is the chief topic of conversation in
On the British side there is still no hint of compromise.
Chungking. A bus ride of any distance in the city costa
But the arrival of General Auchinleck in India has aroused
$3 Chinese national currency (CNC$20 equals US$1) while a
speculation to the effect that his appointment as either
20-minute rickshaw ride costs from CNC$15 to CNC$20. Rice
Viceroy or Governor of Bombay is in the offing. The terms
costs about CNC$300 a picul (110 pounds). Matches of
of the incumbents of both these offices expire in April.
local manufacture are CNC$1 a box, cheap paper is CNC$.10
Such an appointment might be meant as a friendly gesture
a sheet, and local sugar CNC$25 a pound. During the part
toward India on the part of the London government, which
summer, which was one of the hottest in Chungking's history,
considers that Auchinleck had a liberal record when he was
ice sold at CNC$40 a 50-pound cake,
Commander-in-Chief in India. New Delhi observers suggest,
Imported goods are almost prohibitive in price. Coffee
however, that General Wavell would object to the appoint-
and cocoa are CNC$150 a pound; baking powder CNC$110
ment as Viceroy of an officer junior to himself, and that
a pound. A pack of American cigarettes, if it can be found,
hence the Governorship of Bombay is a more likely possibility.
costs CNC$100. Chewing gum is CNC$15 a pack, while ice
Meantime, one Indian member of the Viceroy's Council has
cream (illegal by government decree) is bootlegged at
predicted in confidence the further Indianization of that
CNC$10 a dish. Such luxuries can be dispensed with, but
body in the very near future.
to low salaried American missionaries and relief workers it is
a grim fact that evaporated milk is CNC$75 a can, and that &
Encirclement in the Stalingrad Suburbs
second-hand suit of Western-style clothes, in reasonably good
condition, costs CNC$2,000.
The crushing German attack on the Dzerzhinski Tractor
Plant in the northern suburbs of Stalingrad has apparently
The Mahasabha Turns to the United States
outflanked the Soviet defenders of the Rykov factories just
In India the official policy of repression, while producing
to the south, and has given the Nazi attackers a northern
anchor on the west bank of the Volga. In these newly-won
a measure of outward calm, has as yet failed to eliminate
positions the Germans will probably emplace artillery for
popular discontent. Fabrication of bombs in the home is
counter-battery against the Russian artillery across the river.
apparently becoming a popular indoor sport, and reports tell
Meanwhile, the attackers have captured the Barricades Muni-
of the establishment of special classes in bomb-making at
tions Factory in the Rykov district. The defenders still con-
Bombay, and the planting of more than 20 bombs in one day
trol the Red October Metallurgical Plant and the nearby
in that city. Faced with this situation, the Hindu Mahasa-
bha has appealed to President Roosevelt to intervene in the
petroleum plant. But with the Germans again pressing the
interests of Indian independence and the formation of a
attack in the streets of the city proper, Stalingrad's chances of
national government. The use of India as an Allied military
continued resistance are apparently diminishing.
In the Groznyi area, the German advance toward Darg-
base, the Mahasabha warns, is no longer merely a domestic
Kokh has evidently reached the Russian main line of resist-
problem, and unless decisive action comes quickly, it may
ance. On the shore of the Black Sea the threat against
soon be too late for a friendly settlement between India and
Britain.
Tuapse from the east has grown, as the Germans have
6
7
SECRET
SECRET
The cost of living is the chief topic of conversation in
On the British side there is still no hint of compromise.
Chungking. A bus ride of any distance in the city costs
But the arrival of General Auchinleck in India has aroused
$3 Chinese national currency (CNC$20 equals US$1) while a
speculation to the effect that his appointment as either
20-minute rickshaw ride costs from CNC$15 to CNC$20. Rice
Viceroy or Governor of Bombay is in the offing. The terms
costs about CNC$300 a picul (110 pounds). Matches of
of the incumbents of both these offices expire in April.
local manufacture are CNC$1 a box, cheap paper is CNC$.10
Such an appointment might be meant as a friendly gesture
a sheet, and local sugar CNC$25 a pound. During the part
toward India on the part of the London government, which
summer, which was one of the hottest in Chungking's history,
considers that Auchinleck had a liberal record when he was
ice sold at CNC$40 a 50-pound cake.
Commander-in-Chief in India. New Delhi observers suggest,
Imported goods are almost prohibitive in price. Coffee
however, that General Wavell would object to the appoint-
and cocoa are CNC$150 a pound; baking powder CNC$110
ment as Viceroy of an officer junior to himself, and that
a pound. A pack of American cigarettes, if it can be found,
hence the Governorship of Bombay is a more likely possibility.
costs CNC$100. Chewing gum is CNC$15 8 pack, while ice
Meantime, one Indian member of the Viceroy's Council has
cream (illegal by government decree) is bootlegged at
predicted in confidence the further Indianization of that
CNC$10 a dish. Such luxuries can be dispensed with, but
body in the very near future.
to low salaried American missionaries and relief workers it is
a grim fact that evaporated milk is CNC$75 a can, and that &
Encirclement in the Stalingrad Suburbs
second-hand suit of Western-style clothes, in reasonably good
condition, costs CNC$2,000.
The crushing German attack on the Dzerzhinski Tractor
Plant in the northern suburbs of Stalingrad has apparently
The Mahasabha Turns to the United States
outflanked the Soviet defenders of the Rykov factories just
In India the official policy of repression, while producing
to the south, and has given the Nazi attackers a northern
a measure of outward calm, has as yet failed to eliminate
anchor on the west bank of the Volga. In these newly-won
popular discontent. Fabrication of bombs in the home is
positions the Germans will probably emplace artillery for
apparently becoming a popular indoor sport, and reports tell
counter-battery against the Russian artillery across the river.
of the establishment of special classes in bomb-making at
Meanwhile, the attackers have captured the Barricades Muni-
Bombay, and the planting of more than 20 bombs in one day
tions Factory in the Rykov district. The defenders still con-
in that city. Faced with this situation, the Hindu Mahass-
trol the Red October Metallurgical Plant and the nearby
bha has appealed to President Roosevelt to intervene in the
petroleum plant. But with the Germans again pressing the
interests of Indian independence and the formation of &
attack in the streets of the city proper, Stalingrad's chances of
national government. The use of India as an Allied military
continued resistance are apparently diminishing.
base, the Mahasabha warns, is no longer merely a domestic
In the Groznyi area, the German advance toward Darg-
problem, and unless decisive action comes quickly, it may
Kokh has evidently reached the Russian main line of resist-
ance. On the shore of the Black Sea the threat against
soon be too late for a friendly settlement between India and
Britain.
Tuapse from the east has grown, as the Germans have
6
7
SECRET
SECRET
advanced to a point almost within artillery range of the
port. The classic Soviet tactic of defense in depth, how-
and to the military system established after the purge of
ever, is apparently proving effective in the wooded hills
1937). In the view of an American observer, the insuring
around Tuapse, which afford the Germans little scope for
of unity of command was not the sole motive behind the
extended maneuver. North of Tuapse the Nasi column
present change. Stalin had apparently become convinced
advancing villages. toward the port of Gelendzhik has taken two
that officers of all ranks were loyal to him, and he had
developed personal ties with the principal generals. More-
Elsewhere on the front, rain and mud have paralyzed the
over, the line officers themselves objected to the system-
opposing armies. And with the continued resistance of
evidently feeling that they had proved their loyalty on the
Stalingrad, Helsinki observers are becoming less confident
field of battle. Lack of confidence between officers and com-
about predicting an attack on Leningrad this autumn.
missars was, moreover, impairing morale at the very time
The reported construction of fortified lines to the east of
that the government was seeking to build it up in preparation
Narva, Estonia, and along the Luga River across the Rus-
for B, winter of difficulties. Finally, there was a lack of
sian border may indicate that the Germans have abandoned
officer material to replenish the ranks of both line officers and
the idea of an assault and are making preparations for
commissars; under the new system, many of the military
another winter of siege. Reports further suggest that the
commissars, after a short period of training, can become
effective line officers.
low. number of Nazi troops garrisoned in Estonia is still very
The Second Front Again
The End of the Military Commissars
Agitation by the Soviet press and populace for a second
The decree of October 9 abolishing the institution of
front has not diminished during the past few weeks. The
military commissars is not 80 sweeping a change as one
chief notes still seem to be, first, that a second front is per-
might at first suppose. A supplementary order of the Com-
fectly feasible, in view of current German troop dispositions;
missariat of Defense, coupled with editorials in the official
second, that if Britain and the United States do not open a
press, have made it clear that political influence in the Army
second front this year they will be ignoring an implied prom-
is not a thing of the past, but will now be in the hands of line
ise. New themes have been added by one major-general,
officers (probably former military commissars), who will serve
who has attempted to explode the theory of victory through
as second-in-command of the various Army units.
air-power alone, and by the historian Eugene Tarlé, who has
The chief objection to the previous system was apparently
analyzed the miscalculations of British diplomacy in past
the division of command that it entailed. For this reason,
wars. At least one speaker has made capital out of Mr.
during the Winter War with Finland, Stalin deprived the
Willkie's statement that some people in Allied countries
commissars of their military authority (subsequently, after
might need to be "prodded" on the second front issue-
the defeats of 1941, he revived this authority-apparently
pointing out that Mr. Willkie was the personal representative
doubting the loyalty of some of the Army officers to himself
of President Roosevelt and the political representative of 22
million voters.
8
9
SECRET
SECRET
In analyzing the reasons behind this Government-spon-
sored agitation, one observer has suggested that it repre-
Aris Alarms Regarding Northwest Africa
sents both an effort to put all possible pressure on Britain and
Axis-controlled propaganda organs continue to voice their
the United States, and an attempt to deal with the disap-
alarm over a coming Anglo-Saxon descent on Northwest
pointment of the Russian people, whom the Government had
Africa, an attack which, it is alleged, will be coupled with a
led to expect a second front this year. By placing the
British offensive in Egypt in a grand effort to drive the Axis
blame on the Anglo-Saxon countries, and by indicating that
out of Africa. The collaborationists in Paris are reported
Russia is doing all in its power to induce them to open & new
to be urging the Germans to take over the defense of North
front, the Soviet Government may hope to deflect popular
Africa to forestall the Allies, and German officers on the
irritation from itself. Furthermore, the Government is 4D-
scene have frequently advised this step. Vichy, however,
parently making an effort to acclimate the Red Army to the
has as yet shown no sign of adopting such a program.
idea that it can expect no substantial relief from the West
French shipments to Dakar have increased markedly dur-
until next spring at the earliest.
ing October, but this may be only to compensate for previous
lags in supply. Meanwhile, Vichy has been developing air-
fields in the Dakar area. Rumors are circulating that Darlan
Preparations in Egypt
and units of the Toulon fleet may shortly move to North
Events in Egypt continue to indicate Axis defensive
Africa; but recent weeks have seen only very minor changes
preparations in anticipation of a possible British attack.
in the disposition of the French Navy. Press reports of
If such an attack should develop, observers suggest that in
major fleet movements are without foundation.
its early stages it will probably be far less & war of movement
than previous desert battles, because both ends of the battle
Problems in Tunisia
line are for the first time anchored to natural barriers.
The Bey of Tunis is becoming increasingly restive under
Moreover, both sides have organized defenses in some depth.
French control, according to several reports from Tunisia.
Infantry and artillery would play & major role in this period
His immediate efforts are directed at the removal of Admiral
of trench warfare, and the superior Allied supply situstion
Esteva and at greater Arab participation in the government
in ammunition would be a favorable factor. Axis strength
of the Protectorate. An American observer believes the Bey,
in medium tanks is now estimated at more than 500.
who came to power only in June, is well liked by the popu-
The continuing raids on Malta presumably have covered
lace. He and his entourage are reported to be willing to
shipments to Rommel and perhaps to Tripolitania. During
cooperate with Vichy, but they may be driven toward the
the first 6-day period of attack, small groups of JU-88's,
Axís by the persistence of French authorities in their tradi-
escorted by about 50 fighters, conducted a continuous
tional colonial policy. For his own reasons, Laval would
offensive against Malta that is estimated to have cost the
also apparently like to see Esteva displaced, though feeling
Axis 92 planes destroyed, 35 probably destroyed, and 109
that the latter's removal at this time might have the ap-
damaged. Planes from Crete and North Africa were brought
pearance of a concession to the Bey that would be detri-
to Sicily to participate in these raids.
mental to French prestige in the area.
10
11
SECRET
SECRET
At the same time French officials in Tunis have once again
Indeed, Laval has shown no inclination to use force, and has
expressed the fear that Mussolini is watching for any internal
apparently convinced the Nazis that the prestige of the police
plans. disorders in Tunisia which would favor his alleged invasion
would be shattered if they should enter workers' homes to
send the latter to the Reich. The Nazis are apparently not
anxious to take upon themselves the onus of labor conscrip-
Laval Cautious as the Labor Program Meets Resistance
tion, even in the Occupied Zone. They seem willing to
Laval's efforts to get French workers for the Nazis con-
secure what workers Laval can get, and in the meantime keep
tinue to meet serious obstacles, and it is quite evident that
him in power under continual pressure, according to advices
German demands will not be met, according to reliable
from Vichy. Pétain has expressed the pious hope that the
world will sympathize with the difficulties of his Government's
advices from Vichy. Strong methods are producing minor
results in the Occupied Zone, where the French Government
position.
is also resorting to heavy pressure to induce interned Spanish
Economic Aspects of the Occupation of Madagascar
refugees to work for the Reich. In Unoccupied France Laval
British forces this week pushed slowly south of Ambositra
has encountered a wave of slowdowns and strikes, spreading
into southern Madagascar, enveloping a minor French
from Lyon to almost a dozen other centers. Most of the
stronghold. Still ahead of them are understood to lie about
strikers have returned to work, but slowdowns persist.
3,000 French and native troops; the British, nevertheless,
An example of Laval's difficulties is the report of a plant in
have for some time enjoyed control of the important parts of
the Lyon area in which 700 workers out of 4,000 were desig-
the island.
nated to go to Germany. Only 30 actually agreed to go.
Allied occupation brings to an end the two-year blockade
The rest were deprived of their jobs (the only sanction used
of Madagascar. The simple native economy has not greatly
to date in support of the September 4 decree). Unemploy-
suffered during this period, but normal exportable surpluses
ment is a serious threat, and the workers are now prohibited
have decreased. Now the United Nations will have the op-
from enlisting in the French armed services as an escape.
portunity to replenish their low stocks of high-grade graphite
The Communists, however, promptly pledge up many of those
and mica, as well as to get small quantities of sisal, beeswax,
thrown out of work, and seem to have enough money to
and hides; and substantial quantities of foodstuffs should be
support them. This development worries conservatives,
obtainable for the use of our armies in Africa and the Near
already irritated by the Communist "monopoly" on patriot-
and Middle East. Increased production of these strategic
ism. Some industrialists are, therefore, themselves reported
materials for the United Nations can be obtained if fuel,
to be supporting their patriotic unemployed.
vehicles, machinery, and consumer goods are sent to Mada-
Sensing (with characteristic accuracy) the depth of feeling
gascar.
aroused by this issue, Laval is acting with great caution.
He is using police power to maintain order and minimise
Cabinet Crisis in Iran
sabotage; but he has taken no judicial action against the
The wheat problem has precipitated an acute internal
strikers, despite the "illegality" of strikes in Vichy France.
situation in Iran, with the Cabinet reported as likely to resign.
12
13
SECRET
SECRET
Increasing discontent over financial issues and the treatment
of Iran by the United Nations has been brought to a head by
week to the verge of a diplomatic rupture, as both Costa
the present failure of the British to meet Iranian demands
Rica and the United States made last-minute efforts to
for wheat, in the face of a shortage to which Allied con-
mediate the dispute. The publication of an attack on Somoza
in the government-controlled press of Guatemala City had
sumption has largely contributed. The British apparently
feel that supplies can be secured from the provinces and that
brought an energetic protest from the victim. As the alter-
wheat should be offered only on an exchange basis-to which
cation developed, Somoza indicated his willingness to accept
a token gesture of reproof against the author of the article;
one-sided. the Irani object that "exchange" thus far has proved highly
but Ubico remains adamant. Thus far, there is nothing to
indicate that the controversy involves anything more than a
personal and quite irresponsible feud between the two
Chile Changes a Cabinet and Perhaps a Policy
presidents. However, it has provided Axis agents and
Following arduous and skillful maneuvering by Chilean
sympathizers in Central America with a first-class opportunity
prodemocratic elements and an exchange of cordial messages
to increase hemispherical disunity.
between the Presidents of the United States and Chile, the
political struggle set in motion by Sumner Welles' Boston
Góes Monteiro Departs
speech has now developed its own momentum. As a result,
On October 20, the Brazilian Government announced that
former Foreign Minister Barros Jarpa has lost not only the
General Pedro Aurelio de Góes Monteiro, Chief of Staff, has
initial psychological advantage which he gained by exploiting
been granted an indefinite leave of absence "because of poor
wounded Chilean pride, but his position in the cabinet as
health". Since Góes has actually been ill for some time,
well. Without openly endorsing Mr. Welles' remarks and
observers are inclined to accept the official explanation. But
indeed explicitly rejecting their implied reflection on Chilean
this scarcely lessens the significance of his departure: the
honor, anti-Axis forces adopted the tactic of supporting
General had been until recently leader of the pro-Nazi bloc in
President Ríos and his decision to postpone his trip, but at the
the Vargas administration. His retirement from the scene
same time attacked Barros Jarpa as the chief obstacle to better
should give no little encouragement to democratic forces
relations with the United States. This pressure on Barros
within Brazil.
appears to be the immediate cause of the cabinet crisis which
has now given Ríos his opportunity of changing foreign
ministers and thereby taking a long step toward fulfilling
Cuba Establishes Relations With Russia
Chile's hemispherie obligations.
Cuba and Russia, hitherto estranged, have now established
diplomatic and commercial relations. Soviet assistance to
Central American Contretemps
the Loyalists in the Spanish civil war, and, more recently, the
gallant defense of Russian armies against Hitler, developed
A spat between Presidents Ubico of Guatemala and
widespread Latin American sympathy for the U. S. S. R.,
Somoza of Nicaragua brought their respective countries this
especially in countries with well-organized anti-fascist move-
14
15
SECRET
SECRET
ments. Recent statements by responsible political leaders in
Uruguay and Mexico indicate that these countries may soon
follow Cuba's example, and Colombia, according to its new
APPENDIX I
Foreign Minister, Turbay, will shortly exchange diplomatic
THE SOUTHERN RUSSIAN FRONT: SEPTEMBER 1-
representatives with the Soviet Union, implementing its
OCTOBER 21, 1942
1935 agreement.
The close of August 1942 brought with it a significant change on the Russian
front. The Sovieta abandoned their tactics of withdrawal, which had permitted
the Germans to advance at an average rate of 15 miles & day throughout July and
(in the Caucasus) through mid-August. Since the beginning of September the
Nazia have made no important territorial gains on the Eastern Front (see map),
Soviet strategy has been consistent since the beginning of the war, and the
campaign of 1942 has shown marked almilarities to that of 1941, In 1941, the
Russians made decisive stands, first to the east of Smolensk, and then at Lenin-
grad, Moscow, and Rostov. This summer the Red Army broke off ite retreat
at Voronezh, Stalingrad, Groznyi, and Tuapse, For two months the Germans
have been unable to capture any of these points, and the front is tending to become
as "positional" as modern mechanized warfare will permit. In 1941, the Sovieta
required five months' "withdrawal time" before they could contain the German
bilta. In 1942 they needed only two months,
Prolude to the Struggle for Stalingrad
On July 29, 1942, mobile German forces arrived in the vicinity of Kletskaya,
80 miles northwest of Stalingrad, after driving eastward for almost A month.
About the same time, German troops reached the west bank of the Don near
Kalach, 50 miles due west of Stalingrad. One week earlier, the Wehrmacht had
driven to Tsimlyanskaya, on the Don River midway between Rostov and Stalin-
grad, established n bridgehead in the face of stiff opposition, and struck south
into the Caucasus. Despite continued Soviet air and ground attacks on the
haetily constructed German pontoon bridges, the Nazio widened their bridgebend
near Telmlyanskaya. Fresh reserves turned toward the east and managed by
August 5 to reach Kotelnikovo, 95 miles southwest of Stalingrad on the Stalingrad-
Tikhoretak Railroad. The stage appeared net for a conventional pincer movement
with the points at Kletakaya and Kotelnikovo, perhaps buttressed by & German
drive due east from Kalach.
At this point, however, although beavy front-line clashes continued, the
German forward advance stalled. The necessity of converting the Likhaya-
Stalingrad Railroad as far as it had been esptured, of amassing supply reserves,
and of bringing up fresh forces probably all played a part in the delay, The
Stalingrad front did not change appreciably until August 21. Then the Rus-
sians acknowledged that German tanks had forced a break in their lines at
Kotelnikovo, and by August 25 the Germans were 25 miles southwest of Stalin-
grad. Northwest of the city, German tank and troop crossings of the Don
near Kletskaya began on August 20, and on August 25 the Russians admitted
German successes in the Don-Volgs corridor. August 25 is generally accepted
AS the date the direct push on Stalingrad began. By the end of August the
II Based so 6 memorandum prepared in the Research and Analysis Branch of the Officest Strategic Services.
16
17
SECRET
SECRET
full pincers while had the closed Germans to Kachalino and Abganerovo at least. Then came
as the final blow. gathered strength for what they had probably placed another
probably owing both to A lack of reserves and to stronger Russian resistance.
During September the Germans made no concrete gains. With the beginning of
The Battle of Stalingrad.
October, however, they began to exert stronger pressure along the railroad loop
east and south from Prokhladnaya. The Germans claimed to have stormed
hood the of defenders, the Germans struck in a frontal attack from the encirele
This Soviet blow came on September 7 when, abandoning their attempts to
Elkhotovo on October 3, and Malgobek, about 20 miles south of Mosdok, on
October 7. The Malgobek claim has been specifically denied by the Russians.
Kalach. German attacks from three sides followed In rapid neighbor.
The indecisive nature of the fighting in this area suggests that any concrete
of through the September 15. Then began the unparalleled house-by-house succession
German gains probably must await & decision at Stalingrad.
The Russians, as German forces finally drove into the city's outlying
tactical details of the Stalingrad struggle since mid-September streets do
Air Losses
increased streets and even in houses. During the first few days in October, literally
merit in extended discussion. Gains and losses of either side were measured tol
The following tables summarize the official communiqué figures on air losses of
both sides from late August to the present:
from the neighborhood of Kletskaya and Kaehalino, In an effort to drive striking In
Russian divisions from Western Siberia joined the defenders, perhaps Tm
Russian pressure began to make itself felt north of the city, howere,
A. RUSSIAN REPORTS
itaelf. Germans' exposed left flank and trap the Axis forces fighting within Stalingred the
Work ended
German losses
Russiso losses
claimed
admitted
had changed its tactica. The doggedness of Russian resistance and
On October 9 the Berlin radio announced that the German High Command
Sept. 6
460
250
Sept. 13
415
281
German casualties (Moscow claimed the latter had reached 200,000 mounting killed)
Sept. 20
310
205
compelled the utilization of heavy artillery and dive-bomber barrages to redux
Sept. 27
206
156
the city before German infantry could take possession. The threat on Stalingrad's
Oct. 4
257
137
north flank remained strong, and may well have been one reason for this Germac
Oct. 11
123
78
Oct. 18
130
49
move, October 11 marked the first lull at Stalingrad In 48 days. Four days
later, however, the Germans resumed the attack, with two infantry divisions and
100 tanks driving at the northern suburbe of the city.
B. GERMAN REPORTS
Meantime, at Voronesh, the Russians maintained the initiative against the
northern anchor of the German offensive, This threat of a major action may
have prevented the Germans from shifting forces of significant nise to the Stalin-
Period
German Interes
Russian
admitted
slaimed
grad area.
Aug. 25-Sept. 4
49
1, 062
The Caucasus
Sept. 6-7
5
168
Sept. 9
4
137
By September 1 the German forces which had passed through Rostov on July 24
Sept. 10
8
128
had captured Tomruk and Kraenodar in the western portion of the North Cas-
Sept. 12-14
23
227
casus, had occupled most of the oil fielda of Maikop, and were advancing toward
Sept. 15-28
77
990
Sept. 29-Oct. 9
36
459
Novorossiisk and Tumpse. To the east, fighting had reached the vicinity of
Mozdok. In this sector the Russians had halted their withdrawal about the
middle of August, and German progress became slower and costlier. The battle
C. AIRPLANE LOSSES FOR THE MONTH OF SEPTEMBER 3
for Stalingrad, at the same time, did not permit the invaders to strengthen their
Caucasian armies,
Russian
German
On September 1, the Germans captured the small Black Sea port of Anspa.
Mopping up the Taman Peninsula, opposite Kerch, the Nazis entered Tamanakaya
German claims
Russians
German
Russian claims
on September 5. By September 6 the Germans had reached Novorcesllak. but
admissions
admissions
were unable to capture this important Black Sea port and naval base until the
twelfth. Fighting in this area has continued on a moderate level aloce mid-
2, 134
915
1,435
141
September, but the Germans have made no further substantial progress.
The eastern prong of the Caucasus drive has likewise made little headway,
I Occasional German reports furnish no data for Beptember a, #, 11.
I White Decemary, linear interpolation was used.
18
19
SECRET
during the first two weeks of September-including the first week of the mailt
Both sides agree that this summer's air conflict reached Its penk of intensity
on Stalingrad. Press reports of 1,000 German planes attacking Stalingrad check
with available information on Nazi air dispositions and with the Russian estimate
of 1,500 sorties on certain days. The Germans sustained activity at a high level
for a period of three weeks, after which they reduced their scale of air combat;
the Russian figures for the past week are, in fact, the lowest since mid-April,
It is possible that this reduction stemmed from & decision to shift planes held in
reserve near Stalingrad to other parts of the front, as, for example, Leningrad.
Yet in view of the Germans' apparent resolve to take Stalingrad at all costa,
such & supposition seems unlikely. One can reasonably conclude that heavy
losses and & lack of adequate replacements on the part of the Germans have been
the chief reason for the recent decline in air activity.
APPENDIX II
GREEK FOOD OUTLOOK FOR 1942-43
Last winter the Greek food situation was the most critical in all Europe.
Today, conditions are slightly less ghastly-not because there has been any basic
improvement, but because since last April the Greeks have been receiving monthly
shipments of wheat from Canada. Although the goal is 15,000 tons monthly,
shipments have probably not been up to that level. However, the fate of the
Greek people during the coming winter seems almost wholly dependent on the
continuance of such shipments, which, although meager, spell the difference
between life and death for the million inhabitants of the Athens-Piracus region.
It is in this urban area that suffering has been most intense. The self-suppliers in
the provinces have fared badly, but in general have managed to ward of
actual starvation.
Conditions, 1041-42
In the Athens-Piracus region last winter, death from starvation became very
common. The toll was heaviest among the homeless war refugees, many of whom,
weakened by undernourishment, succumbed to the cold. After & bitter night,
garbage trucks would gather up the stiff bodies from doorways and the recesses of
buildings, along with the refuse, for burial in mass graves. Among the regular
inhabitants the suffering was less spectacular, but little easier to bear. In the
popular quarters, about half the familes had one or more of their members in bed.
suffering from physical weakness and sometimes mental deterioration, due to
undernourishment. Among all classes were (and doubtless still are) found cede-
matie swellings, which begin at the extremities and gradually consume the entire
body. The simplest cure for these swellings is a small quantity of olive oil and
lemon juice; but olive oil, like all other fatty food, is unavailable in the urban
areas.
I Based on & memorandum prepared by the Economics Division of the Office of Strategie Services.
20
&
OF
SEA OF AZOV
CASPIAN
SEA
Elslyer
TURKE
SOUTH RUSSIAN FRONT
SEPTEMBER 1 OCTOBER 21
Line of September 1
-
Line of October 21
Area taken by Germone September 1 October 21
Area of German Machanized -
RAILROADS
STRATEGIC HIGHWAYS
Double Track
OR FIELD
Single Trock
PIPE LINE
Milles
R A N
so
-
10
46
- No. 125b Other 11, THE
- - all
SECRET
Rations
When one considers the meager rations on which the Greeks in this area have
been largely dependent, the record of mass starvation is not surprising. The only
food which the Greek Government has even attempted to distribute regularly is
bread. Normally, average bread consumption amounted to 160 kilograma a
year (about 438 grams daily), supplemented by 90-100 kilograms of other foods-
chiefly potatoes, meat, olive oil, and dried vegetables. Until May, 1941, the
Government managed to distribute a daily ration of 320 grams of bread. From
that time on, until December, the ration steadily decreased, and at times ceased
altogether. In mid-December the ration was 150 grams daily-about one-third
of pre-war consumption. Moreover, the quality of the bread had deteriorated
seriously, and consisted of 60 percent corn flour to 40 percent wheat flour. In
January, rations were reduced to 128 grams, and were made entirely from corn
flour. After that, distribution ceased altogether for several weeks.
During the summer and early fall of 1941 there were a few small distributions
of other foods, such as mest, rice, sugar, and olives. In November, 300 grams of
dried vegetables per person, from the International Red Cross Committee, were
disbursed. In December, 80 grams of olive ofl-the first in eight months-and
600 grams of sugar-the first in six months-were distributed.
Food from Other Sources
Besides the government's distributions, some non-rationed foods were available
and some rationed foods could be obtained on the black market during the summer
of 1941. There were enough of these in the Athens-Piracus area to enable the
average person to est fairly well-at prices five times higher than before the war.
Since last autumn, however, difficulties of communication and exhaustion of
reserves have about dried up these sources of supply.
Communal Feeding
During the winter months, communal feeding became increasingly important.
Soup kitchens for the people were operated in most urban areas, both before and
during the war. After the war, when famished and homeless refugees began to
flood the cities, an effort was made to extend these facilities. Most of the food-
stuffs which it was possible to centralize were set aside for these canteens. But
they by no means met the need. By the summer of 1942, some half a million
persons were being served-not always & meal each day, but in some cases a meal
every second day. The rations were small, of poor quality, and without any trace
of fat. But even operations on such a scale would have been impossible without
the shipments from the International Red Cross Committee, which sent in dried
vegetables, chiefly from Turkey.
Reasons for Food Crisis
In order to judge whether, in the coming winter, the food situation will show
any improvement, one must understand the reasons for the current shortages.
The very grave situation in 1941-42 resulted chiefly from:
1. complete cessation of commercial imports after the armistice;
2. greatly reduced domestic supplies;
3. the breakdown of the distributive system within Greece itself.
21
SECRET
SECRET
Even in peacetime the Greek people were less well pourished than those of
many other nations. Only 15 percent of the land was miltivated, and the na-
present, the only agreement in operation appears to be the one made through the
tion depended on importe for nearly half Its foud supply. Greece was milf.
International Red Cross Committee, for Canadian wheat; but Argentina has
anflicient only in fruits, fresh vegetables, wine, and olive oil.
also promised to send some. If 15,000 tons were distributed monthly in the
Comation of importe, then, bad very serious results for the Greek people,
Athens-Piraeus area, It would provide a bread ration of 450-500 grame dally-or
Before the Red Cross arranged regular shipmonte from Canada in the late winter,
about the pre-war average bread consumption. It would, bowever, constitute
no systematic provision was made for any food to be received from overwase.
virtually the entire diet of these people, with the exception of the meals served in
Germany and Italy apparently each sent small quantities. Berbia also may have
soup kitchens.
The continnance of these soup kitchen meals in at present not assured. Where
sent some. But total Axis shipments very probably were not more than Isun
sufficient to furnish 4 to 4% ounces of bread daily to the million inhabitants of the
the pens and beans to provide them are to come from is still unsettled. Last
winter, most of them came from Turkey; but available stocks there are now
Athens-Piraeus region.
Such Axis shipments as were made cannot be considered net additions to Grocoe's
exhausted, and blockade authorities refuse to admit them from other Middle-
Esetero enuntries. Recently, the Greeks proposed substituting 2,000 tons of
food supplies. Although the Italian army of occupation has been supplied from
dried vegetables for 2,000 tons of the whent from Canada. In September the
Italy, the German forces are living off the country. Moreover, the relief to the
Greek Legation asked for 2,000 tons of dried vegetables and besne 6 month from
food altuation expected in the summer of 1942 88 a result of seasonal vegetable and
Lend-Lease. But, 80 for as is known, no definite arrangement has yet been made,
fruit crops was lessened by the presence in Greece of a large number of German
If Greece received regularly the supplies asked for, the 1942-48 winter would
civilians, and by shipments to Rommel's army in Africa.
be somewhat better than 1941-42, especially if the Germans made some provision
At the same time, domestic production in 1941 was curtailed by an much M
for the Greeks to obtain control of olive oil supplies. With bread, dried vego-
one-third to one-half of the pre-war period. Perhaps the greatest blow to Circuse
tables, and olive oil, most of the population should be able to survive, At present,
was the cession to Bulgaria of eastern Macedonia and western Thrace, areas of
however, there is no certainty that even the Canadian wheat shipments will be
highest yields. These lands, in fact, had constituted Greece's granaries. They
continued-chiefly because their eontinuance depends on transportation in
had also accounted for over one-fourth of Greece's livestock. Even on the Greek
neutral Swedish vessels. If Sweden enters the war, the program will collapae-
territories remaining, crop yields fell very low, due to shortages of labor, draft
at least temporarily-until some other arrangement can be made. There is, in
animals, power, and fertiliser.
any event, no cause for optimism concerning the coming winter in Greece.
Even if domestic production had been considerably greater, the food situation
in the Athens-Pirseus area would not have been markedly different, because the
distributive system broke down almost completely. This breakdown was due
partly to lack of transportation facilities, which had been drastically reduced by
army requisitioning of vehicles and by the fuel shortage.
APPENDIX III
After the armistice, the Government was left with very low reserves; and
all its measures to proeure foodstuffs from producere-particularly cereals, oil,
ROUTES AND TERRAIN ON THE BURMA-INDIA BORDER'
dried vegetables, potatoes, and fruit-have failed completely. It is believed that
the Athens Government acquired virtually none of the 1941 harvest, and them
At à time when the Japanese may be very reluctant to undertako a full-scale
appears to be small prospect of ita faring any better with the 1942 crop. Of the
attack on India, they might well soon envisage a campaign of limited liability,
breadgrain harvest, now estimated to be about 300,000 tone, the government bes
calling for the occupation of the upper Brahmaputra Valley, with the objectives
requisitioned barely 35,000 tone. Such a quantity would be sufficient for only
of cutting the India-China air route, capturing India's main domentic source of
4 ounces of bread per person daily if the distribution were confined to the million
oil, and establishing A "jumping-off place" for & possible wider drive to the weet
inhabitante of the Athens-Piraous region. Spread over all the non-producers la
and south. Japanese occupation of northern Assam would almost double the
Greene, the daily ration would be Infinitesimal.
length of the air route between India and China and would 80 reduce pay-loads
It seems doubtful, however, whether the Government will be able to collert
and increase vulnerability as practically to eliminate even the token value of the
even this small requisition from the Greek pessants. The Government has also
reute,
requisitioned the entire 1942 olive erop, estimated at about 100,000 tons. But
Analysis of the terrain of the India-Burma borderland indicates not only that
lack of transportation, as well BS pessant resistance, is reported to be hampering
such a limited attack would be fessible from the viewpolnt of supply routes, but
lta movement, and the Germans shem to have made no attempt to remedy this
that once having seized this sector the Japanese would be hard to dislodge (see
situation.
accompanying map).
The most probable route for such a "limited offensive" runs from Ye-U in
Outlook for 1040-45
Burma to Manipur Road in Assam. This line, supplemented by the use of
The fate of the people in the Athens-Piracus region during the coming winter,
therefore, seems to depend chiefly on what can be acquired from overseas. At
Baned un . memorandam prepared by the Geography Division of the Office of Strategio Services.
22
23
SECRET
SECRET
water routes for the first 100 miles in the only one in this region which possemes
The Main Route
real military utility, and would apparently suffice to carry the volume of matériel
Starting from the Burma State Railway, the Ye-U-Manipur Road route la
necessary for an expedition of this scope,
passable in fair weather M far as Palel, across the border, and at all seasons from
Possibilities of Attack and Defense
Palel to Manipur Road-which is on the Bengal-Aesam Railway. Its total
length la 386 miles.
Once at Manipur Road, the Japanese would encounter no significant natural
The auxiliary water route, using the Chindwin River to Kalewa and Sittang,
obstacles to seising the oil fields and refineries at Digboi. To take Sadiya-the
is of great significance, since it would enable the Japanese to transport heavy
key landing area on the India-China air route-they would have to cross the
equipment to the base of the main mountain range without overerowding the
Brahmaputra by forry or pontoon bridge, not a particularly difficult feat, since
roads. In fact, if the Japanese do plan an attack here this fall, they will un-
the river here LA relatively narrow and in reported to have comparatively little
doubtedly already have shipped this matériel as far as Kalowa, since, during the
swampy land along its margins. Furthermore, in their advance into Assain,
dry season just beginning, the freight capacity of the river dwindles from 20,000
the Japanese would have greatly weakened the defenders in the upper Valley
toma a month to 3,000.
by capturing their supply routes: the Brahmaputra, the all-weather road south
A rough estimate of the volume of traffic which the road from Ye-U to Manipur
of It, and the Assam-Bengal Railway. Since Allied communications along the
Road can handle was obtained in the civilian evacuation of Burma last spring,
northern side of the river would be extremely tenuous, due to the dense tropies
when a espacity of 160 motor busines & day was reached, Subsequently, the
forest, the turbulent Himalayan streams, and the virtual absence of trails, the
section of the road still held by the United Nations was improved, and it can be
Japanese Invaders would have a strong strategical advantage.
assumed that the Japanese have worked on the parts which they control. The
Attempts by United Nations forces to oust the Japanese from the valley would
road, therefore, should be capable of accommodating moderate troop movements.
encounter tremendous natural obstacles If the enemy should succeed in pushing
Whether the section from Ye-U to Kalewa could carry the heavy equipment and
our covering forces from the Garo, Khasi, and Jaintia hills. On the south face of
the supplies required for a more ambitious Invasion of India proper is very dublous.
these Assam hills in a steep, rugged escarpment, 4,000 feet high in places and
covered with an extremely dense tropical forest. The rainfall here is very beavy
Section by Section
(424 inches annually at Cherrapunji compared, say, to approximately 40 inche
Ae of June, 1942, the condition of this road WAS reported to be as follows:
At Washington). Only two routes traverse the hills from south to north-the
1. From Ye-U on the Burma State Railway to Kaduna, about 20 miles north,
road from Gauhati to Sylhet and the railway from Lumding to Silchar. Both
the road was passable by motortruck all year.
these routes could be effectively blocked at the southern escarpment where the
2. From Kaduna 67 miles west to Kalewa on the Chindwin River the route
railroad passes through els vulnerable tunnels. Once established In this range,
was a rough track under construction but passable during the dry season.
the Japanese should feel relatively secure in their grip ou northern Assam.
3. From Kalowa to Tamu, 101 miles north, the road was under construction
through level to rolling country with dense jungle. Most rivers were fordable
Barriers of Weather and Terrain
during the dry weather, but ferries were needed at some points, and bamboo
One reason why Japan has not pushed this overland assault before now has been
bridges required reinforcement. The last 18 miles were metalled but so narrow
the weather over the Bengal-Assam area. During the rainy sesson all land
and winding that speeda in excess of 10 miles per hour were impractiesble.
approaches to the Brahmaputra région from Burma are impassable to wheeled
4. From Tamu to Palel (35 miles northwest) the road climba 4,500 feet to the
traffic; only pach animals and troops on foot can negotiate the roads, and the
chest of a mountain range, then descenda 2,500 feet to Palel at the edge of the
only with difficulty. In the mountains torrential rains destroy the light bamboi
valley in which Imphal is located. This section was dangerous at all times and
bridges, make crossing by raft. or boat exceedingly dangerous, and cause tandalides
became impassable during the rains. Where the road out through shale and rubble,
along the trails. Moreover, clothes tend to rot from constant wetting; weapons
serious landalides were expected during the wet weather. At the north end of
rust quickly; tropical diseases take their seasonal toll.
this section, the road descends steeply to Palel.
The monsoon, however, le now lifting. and the roads and trails of this district,
5. From Palel to Manipur Road, 163 miles north, the route in metalled and
such BA they are, will soon be usable, If the Japanese push is to occur, it can
open in all weather, Relatively level to a point about 20 miles north of Imphal,
begin at any time now,
the road then enters the Naga Hills, becoming narrow and winding. One-way
The area which the attack would traverse is sparacly populated. The valley
traffie operates on schedule to permit passing at a point 67 miles south of Manipur
of the Chindwin River makes up the eastern section. In the west an unbroken
Road. The highest elevation is 6,000 feet.
line of mountains extenda southward from the Himalayas. These ranges are
Good defensive positions on the route are located in the section between Tamit
narrow and at several places may be crossed at an altitude of about 6,000 feet.
and Palel and along the narrow mountain road between Imphal and Manipur
However, their steep alopes, constricted valleys, heavy rainfall, and inadequate
Road. There is some possibility that either defenders or invaders might utilize
A route leading from Imphal approximately 85 miles west to Silchar, which is on
roads have previously proved a formidable block to invaders.
the railroad and the navigable part of the Surma River. This route, which
24
25
SECRET
includes 55 miles of pack trail, climbe 2,500 feet over the mountains, and thes
descends 4,000 feet to the Surma Valley. It affords excellent defensive positions
but introduces serious transportation problems for all but light troops.
Alternative Routes
In general, routes from Burma to India lying north and east of the Ye-U.
Manipur Road decrease in military significance as one goes northward.
(a) The southernmost route, which starts from Kawlin on the Burms State
Railway, has been generally used by pack animals and pedestrians, and the
36-mile section from Sittaung to Tamu (described as a graded elephant path)
might be improved as a supply route from the Chindwin River.
(b) Part of the next route north might be used as & link between the Chindwis
at Homalin and the town of Imphal. As the distance in this case is 75 miles over
foot trail, it appears probable that this route would be used only by light troops
seeking to eut off defenders fighting farther south.
(c) Another trail from Tamanthi, head of wet-season navigation on the Chiss
win, to Kohima north of Imphal, joins the road at a critical point but is too leas
and difficult to be important (157 miles, half pack-trail, half foot-path).
(d) The next trail to the north leads from Mogaung 280 miles to Ledo, In
the dry sesson, motor trucks and bicycles use this route for about 75 miles to
Maingkwan, and carts can travel to Shingbwiyang, 30 miles farther. North
of this point the route becomes an extremely precipitous trail through the moun-
tains to an improved stretch of about 25 miles near Ledo. This route might be
made passable for vehicle traffic and one "jeep" is said to have traversed the
entire length during the dry season. However, unless improved since June, 1942,
it should be considered only & potential route for light troops attempting & diver-
ing attack on the defenders' rear.
(e) The northernmost route from Myitkyina through Monyak to Ledo is long
(393 miles) and is too difficult for any extensive military use, Large parts are
passable only on foot and a preliminary survey indicated that improvement for
military traffic was impracticable.
26
v.s. GOVERNMENT PRINTING OFFICE 1942
CONFIDENTIAL
8
N
-
94
96
90
Sodiya
R
Officer
Ladi
within
Branmapulic
Coolpers
MM
Ohubri
Rangeve
Nonizer
26
-
Shiftego
Kanima
a
Gonger
Mogoung
Sylbat
R
&
Silengt
Homalin
Hispital
Surma
24
Poungbying
firmings
Keles
Docco,
INVOICE
24
Rowlin
Chandpur
Kolawa
CALCUTTA
0.0
o
Rodund
Nookholl
Chilteg
Monywe
es
INDIA-BURMA BORDERLAND
ROADS
RAILROADS
ALL WEATHER
Pokoka
WIDE GAUGE (5'6")
TAIR WEATHER
NARROW GAUGE (IM)
PROPOSED
PROPOSED NARROW
PACK TRAIL
Maishing
HEAD OF NAVISATION
FOOT PATH
PROPOSED AIRLINES
o
to
8
Akyoh
MILES
Minho
92
94
96
I
- . 101 OCTOBER N, 1942
DRAWN - THE CEOGRAPHY DIVISION, ... 4.
135
October 23, 1942
MEMORANDUM
Because of the decrease in mail receipts this
week, and the fact that no new subjects were discussed
by correspondence, the weekly mail report will be
omitted. Statistics on the current week, together
with quotations from some noteworthy letters, will
be combined with those of the forthcoming week in the
abstract dated October 30.
Regraded Unclassified
136
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
October 23. 1942
CONFIDENTIAL
Received this date from the Federal Reserve
Bank of New York, for the confidential informa-
tion of the Secretary of the Treasury, compila-
tion for the week ended October 14, 1942, showing
dollar disbursements out of the British Empire
and French accounts at the Federal Reserve Bank
of New York and the means by which these expenditures
were financed.
(Init) E. m. B.
imc:10/26/42
Regraded Unclassified
C
137
0
P
Y
FEDERAL RESERVE BANK
OF NEW YORK
October 22, 1942
CONFIDENTIAL
Dear Mr. Secretary:
Attention: Mr. H. D. White
I am enclosing our compilation for the week ended
October 14, 1942, showing dollar disbursements out of the
British Empire and French Accounts at this bank and the means
by which these expenditures were financed.
Faithfully yours,
/3/ L. W. Knoke
L. W. Knoke,
Vice Presi dent.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Enclosures
Copy:ima:10/26/42
Regraded Unclassified
deter -
(In Millions of Dollars)
Strictly
Week Ended October 14, 1962
Conf idential
BANK OF ENGLAND (BRITISH COVERNMENT)
BANK
OF
FRANCE
DEBITS
CREDITS
DEBITS
Proceeds of
CREDITS
Net Incr.
Gov't
Sales of
(+) or
Gov't
Net Incr.
Proceeds
Total
Expendi-
Other
Total
Securities
Other
Decr. (-)
Total
Expendi-
Other
(+) or
Total
PERIOD
of Gold
Other
Debits
tures(a)
Debits
Credits
Gold
(meial)(b)
Credits(c)
in $ Funds(s)
Debits
tures (e)
Decr. (-)
Debits
Credits
First year of ware
Sales
1,793.2
605.6
1,187.6
Credits
1,828.2
1,356.1
52.0
420.1
+ 35.0
866.3(f)
416.6(f)
in 8. Funds (d)
449.7
War period through
1,095,3(f)
900.2
195.1(1)
+229.0
December, 1940
2,792.3
1,425.6
1,356.7
2,793.1
2,109.5
108.0
575.6
+ 10.8
878.3
421.4
456.9
1,098.4
900.2
198.2
Second year of war**2,203.0
+220.1
1,792.2
410.8
2,189.8
1,193.7
274.0
722,1
- 13,2
38,9
4,8
Third year of *******1,235.6
26.1
8,8
-
8.8
904.8
330.8
1,361.5
21.8
- 30.1
5.5
1,334.2
+125.9
18.5
-
1942
18.5
4-4
-
4.4
- 14.1
Sept. 3 - Sept. 30
56.1
37.1
19,0
81.6
-
0.5
81.1
+ 25,5
10.1
-
10.1
Oct. 1- Oct, 28
0.4
-
0,4
- 9.7
Oct. 29 - Dec. 2
Dec. 3- Dec. 30
/
NEEK ENDED:
Sept. 23
11.8
7.2
4.6
11.1
-
-
11.1
- 0.7
-
-
-
3
-
30
12.3
7.9
6.6
21.0
-
-
21.0
Val
+
+ 8.7
0.1
10.1
-
10.1
(1.)
I
Oct, 7
21.6
15.3
6.3
14.6
-
I
14.6
-
- 7.0
-
-
-
n.l
14
6.3
3.8
2.5
14.6
14.6(f)
et
.1
-
-
+ -8.3
+ 0.1
-
I
-
0.1
.
+
Average Weekly Expenditures Since Outbreak of War
Transfers from British Purchasing Commission to
France (through June 19, 1940) $19.6 million
Bank of Canada for French Account
England (through June 19, 1940) 27.6 million
Week ended October 14, 1942
-
England (since June 19, 1940) 34.3 million
Cumulation from July 6, 19
million
*For monthly breakdown see tabulationsprior to April 23, 1941
162.7
million
407or sonthly breakiom ⑉ tabulations prior to October 8, 1941.
***for monthly breakdown - tabulations prior to October 14, 1942.
(See attached shoet for other footnotes)
Regraded Unclassified
(a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of
Supply Timber Control, and Ministry of Shipping.
(b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
proceeds of official British sales of American securi ties, including those effected through direct negotiation. In addition
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the
early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation
of our securities through December, 1940 amounted to $334 million.
(c) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks,
presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
1939 receipts. apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar
(d) Reflacts changes in all dollar holdings payable on demand or maturing in one year.
(e) Includes payments for account of French Air Commission and French Purchasing Commission.
(f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(g) Includes: $4.9 million received from Defense Supplies Corporation in connection with the purchase of
$4.5 million deposited by British Ministry of Supply;
$1.0 million to be held for credit of U. S. Army.
Regraded Unclassified
AMLYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS
(In Millions of Dollars)
Strictly
Week Ended October 14, 1942
Confidential
BANK
OF
CANADA (and Canadian Government)
DEBITS
CHEDITS
COMMONW The BANK OF AUSTRALIA (and Australian Government)
DEBITS
CREDITS
Transfers
to
Proceeds
Transfers from Official
Transfers
of
British A/C
Net Incr.
to
Proceeds
Official
(+) or
Official
Net Indr,
of
Total
British
Other
Total
Gold
For Own
(+) or
For French
Other
Decr. (-)
Total
British
Other
Total
Gold
Other
PERIOD
Debite
A/C
Debite
Credits
Sales
A/C
A/C
Credits
in $ Pendit
Debits
A/C
Decr, (-)
Debite
Credits
Sales
Credits
in Runde(s)
First year of sare
323.0
16,6
306.4
504.7
412.7
20,9
38.7
32.4
+ 181.7
31.2
3.9
27.3
36.1
30,0
6.1
+ 4.9
Nar period through
December, 1940
477.2
16,6
460.6
707.4
534.8
20.9
110.7
41.0
+ 230.2
57.9
14.5
43.4
62,4
50.1
12.3
+ 4.5
Second year of 1
460.4
-
160.4
462.0
246.2
3.4
123.9
88.5
+ 1.6
72,2
16,7
55.5
81,2
62,9
18,3
- 9.0
indire year of wares*
525.8
0.3
525.5
566.3
198.6
7.7
-
360.0
+ 40.5
107.2
57.4
49.8
112.2
17,2
95.0
- 5.0
1942
Sept, 3- Sept. 30
46.3
-
46.3
53.6
13,2
-
-
40.4
+ 7.3
28,0
20.5
7.5
18,1
-
18.1
- 9.9
Oct, 1- Oct. 28
Oct. 29 Dec. 2
Dec. 3 3- Doc. 30
WEEK ENTED
+
Sept. 23
9.3
-
9.3
9.8
3.6
-
-
6.2
+ B.S
0.7
-
0.7
0.5
-
0.5
- VAR
30
17.0
17.0
20.0
4.5
-
-
15.4
- 3.0
13.0
10.5
2.5
-
-
14.5
14.5
- 1.5
Oct. 7
8.2
I
8.2
11.0
3.0
I
M
8.0
+ 2.9
0.6
-
0.5
1.9
-
1.0
- 1.3
14
20.1(a
20.1
16,6(a)
9.8
-
-
E.8(b)
-
- 3.5
0.8
-
0,8
10.7(c)
1
10.7
+ 9.9
Weekly Average of Total Debite Since Outbreak of War
Through October 14, 19/2 $ 8.4
million
*For monthly breakdown see tabulations prior to April 23, 1941.
otfer monthly breakdown see tabulations prior to October 8, 1941.
***For monthly breakdown noe tabulations prior to October 14, 1942.
(a)Reflects changes in all dollar holdings payable on demand or maturing in one year.
(b)Does not reflect U. S. Treasury bill transactions.
(e)Includes 62.7 million representing proceeds of 11. S. Government checks deposited by War Supplies, Ltd.
(d)Includes $10.0 -illion to be held for credit of 11. S. Armv.
Regraded Unclassified
141
NOT TO BE RE-TRANSMITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 367
EGYPT.
Eighth Army offensive started at ten p.m. 23rd according
to plan after 20 minutes intensive artillery bombardment by 800 guns.
Northern Sector. By three thirty a.m. 24th our troops
had captured their first objective and by five thirty a.m. succeeded
in the main in reaching their final objectives. By six twenty a.m. a
Dortion of our armoured formations with one brigade of Second New
Zenland Division were starting to pass through the gaps in the enemy
minefields created by our initial advance. At ten e.m. Ninth Australian
Division, First South African Division and 51st Highland Division of
Thirtieth Corps had reached points three and hulf miles west of TEL KL
LISA and one mile south east of DEIR EL DHIB.
Central Sector. Fourth Indian Division of RUWEISAT
RIDGE raided as far as one mile south east of DEIR EL SHEIN.
Southern Sector. By five twenty-five a.m. 24th our
advenced elements had reached three miles west of QARET EL HIMEIMAT but
later were heavily counter attacked by tanks and forced to withdraw.
Our troops in this sector were delayed by machino guns and anti-tank
guns in the foremost enemy minefield and had some difficulty in
clearing the second minefield.
Regraded Unclassified
142
NOT TO BE RE-TRANSMITTED
COPY NO.
BRITISH MOST SECRET
U.S.SECRET
OPTEL NO. 365
Information received up to 7 a.m. 23rd October.
1. NAVAL.
A Fighting French sloop developed a serious fire from
unknown cause and is being towed to Capetown.
2. MILITARY.
RUSSIA. Little more than local activity on the whole
front north of Stalingrad apart from several Russian attempts
to cross to the western bank of the Don. Weather conditions
are deteriorating. At Stalingrad the Russians continue to
attack the German northern flank while they appear to have
slowed down German progress in the factory area. Little
German advance in the western Caucasus where weather con-
ditions are impeding operations.
3. AIR OPERATIONS.
WESTERN FRONT. 22nd. 9 Tellingtons taking advantage
of cloud conditions bombed Essen and 4*attacked Lingen from a
low level, all returned safely. 44 Spitfires and Mustangs
made low level attacks on shipping and minor military
objectives in the low countries and northern France. One
Spitfire is missing. 22nd/23rd. 124 bombers were despetched--
Genoa 112 Lancasters, sea-mining 12 Stirling. All aircraft
returned safely. 100 attacked Genoa in perfect weather and
bright moonlight, operation considered most successful with
large concentrations of fires at the aiming point. Three very
large fires seen in the docks area.
GIBRALTAR. On the evening of the 20th and =1st, a
total of 6 Italian aircraft approached and bombs were dropped
hermlessly east of the rock and in Spanish territory.
MALTA. 22nd. 7 high flying formations totalling 165
fighters and fighter bombers operated against 3 aerodromes.
Spitfires destroyed 3 enemy aircraft, probably destroyed one
and damaged 7 without loss. Our A.A. destroyed 1 German
fighter.
LIBYA AND EGYPT. 20th/21st. Tobruk Harbour was
bombed 21st. Light and fighter bombers attached enemy landing
grounds and objectives in the coastal sector. Excorting
fighters destroyed 3 enemy fighters and Jamaged 8 more, 2 are
missing. Beaufighters destroyed 8 M.T. vehicles near Cambut.
4. HOME SECURITY.
22nd. Resulting from bombs dropped in widely separ-
ated coastal districts casualties so far reported 20 killed,
26 seriously wounded.
Regraded Unclassified
143
10.23.42
INTELLIGENCE REPORT 46
AS of is 5
contains the sication n any relating Act, os 10 amended. 10 any v. s. defenso, Code person d Sections - " Arobibited United 31 States.
This within document aning - of
3
OFFICE OF
WAR INFORMATION
BUREAU OF
INTELLIGENCE
COPY No.
7
Henry Morgenthau, Jr.
Regraded Unclassified
CONTENTS
Page
EDITORIAL ATTITUDES
1
Swing
1
Diplomacy
2
Home Front
3
Information
4
POPULAR REACTIONS
5
Civilian Defense
5
Enemy Air Attacks
6
Road to Victory
7
Production Shortcomings
9
Drafting Youth
10
Loose Talk
10
Realism and the Offensive Spirit
12
ENEMY PROPAGANDA
14
Attacks on the United States
14
Goebbels Takes the Defensive
15
Enemy Versions of the Military Situation 16
Regraded Unclassified
EDITORIAL ATTITUDES
SWING
The news of mounting enemy strength in the Solomons
prompted a sudden swing away from the optimism which
characterised editorial comment during the precedine week. A. major battle
for Guadalcanal is expected. Press and radio are waiting grimly for word
as to its outcome.
Commentators are decidedly uneasy about the South Pacific situation. While
they do not concede victory to the enemy, they are by no means optimistic
in regard to the pending engagement. Like Major George Fielding Eliot,
they feel that "the present Japanese operations in the Solomons represent
a full-dress attack intended to expel us from the Guadalcanal-Tulagi area
at any risk and regardless of cost." Our recently reported naval losses,
together with admissions that the Japanese have repeatedly landed reinforce-
ments and have been able to employ surface craft against our shore instal-
lations, have had a thoroughly disheartening effect.
Some commentators, viewing the situation darkly, tend to blame American
"military and naval leaders for putting our forces into an untenable posi-
tion; a few reproach Secretary Knox and Admiral Nimits for their optimistic
statements. Others, however, point out that we are doing the best we can
The period covered by this report Is the
with the men and munitions at our disposal in the Pacific and that the tak-
week of October 15 through October 21, ex-
ing of risks is essential to sound strategy.
cept where otherwise specifically stated.
In many observations about the Solomons, there is an undercurrent of feel-
ing, inspired perhaps by the belated announcement of our losses in the
- 1 -
Regraded Unclassified
original attack, that the full facts about the situation are not being
The letter was also assailed vehemently as unfair to the British people.
disclosed. Fletcher Pratt, for example, discussing the loss of our three
Indeed, it evoked the warmest expressions of esteen and admiration for
cruisers, raises the questions "Must every victory or gain, every achieve-
England which have been expressed by American commentators since the mass
ment we have, end in a sour note of doubt whether we are being given the
German air attacks on London.
whole story and given it accurately?"
Wendell Willkie's return from his round-the-world cruise was greeted by a
burst of applause. Even the Scripps-Howard papers, heretofore extremaly
DIPLONACY
caustic, had a good word to say about him this week because of his support
Editorial analysts continue to discuss our relations with Argentina and
of a unified command, Host commentators agreed that Willkie had given
Chile. Most of them have expressed approval of the rebuke administered to
expression to the hopes and aspirations of the common people of the world.
these republics by Under Secretary of State Summer Welles. The prevailing
"It is probable," observed the Portland (Maine) Press Herald, "that Mr.
view is that the attitude of Argentina, and to a lesser extent Chile, in-
Willkie's visit did more to make the United Nations really united than all
perils the safety of their neighbors in the Western Hemisphere and that it
the official, cautious exchanges that have been made by ambassadors and
is necessary to prod them off the fence.
legates in the last ten months."
Novertheless, a critical minority feels that we have no rignt to force
HOME FRONT
other nations into a decision. Some fear that the Welles statement may
carry implications of North American imperialism to our neighbor republics.
Taking a cue, apparently, from the resident's recent praise of Congress,
The Detroit Free Press, for example, observed that the Welles speech had
commentators who, until very recently, were harshly critical of the
"grossly and unnecessarily offended the very peoples whose good will and
legislative branch began referring to it in much more friendly fashion.
cooperation we have been trying to win."
Ernest Lindley, for example, observed that the recent behavior of Con-
gress "is restoring the prestige of the legislative branch and confidence
The open letter to the British people by the editors of Life focussed edi-
in our political system." He attributed the change to "the President's
torial attention once more upon Anglo-American relations. Overwhelmingly,
reassertion of leadership" and to the prodding of press and radio.
newspaper commentators condemned the Life letter. The objection most fre-
quently raised regarding it was representatively expressed by William L.
The dominant current issue in editorial minds continues to be the man-
Shirer, who pointed out that it gave the Nasi propagandiste useful -
power problem. Response to the President's call for voluntary rationing
tion to hurl over the airwaves to Britain.
of manpower in industry was rather lukewarm and somewhat confused.
- 2 -
- 3-
While commentators were glad that be elected to postpone compulsion, the:
facts." In most comments, there was a plain implication that this sort of
tend .to feel that voluntary measures will prove ineffectual.
reporting is considered entirely atypical.
There was general satisfaction with the statement issued by Secretary
Mr. Davis' compliments to Canada on the "candor and comon sense" of its
Stimson as to the size of the United States Aray. Mark Sullivan called
information policy seemed to the Washington Post to be an "indictment
it a "tonic for the country's morale." According to the Chicago Sun,
of our own policy for the lack of both qualities." Commentators continue
it has "laid at rest the alarming, and in our opinion, nonsensical
to insist angrily that war news in general is being spoon-fed to the
reports that the army might reach from 10 million to 13 million in
American people.
1943....."
A good many comments, however, questioned the wisdom of raising an Army
as large as 7,500,000. Some suggested that it would be wiser to put
POPULAR REACTIONS
more of our manpower into arming and equipping our allies. The New York
CIVILIAN DEFENSE
Times argued that economic and industrial experts must have an equal
Public confidence in the management of civilian defense
voice with the military in deciding the size of the Army.
activities has increased appreciably since the period
INFORMATION
last winter when OCD was under vigorous attack in the newspapers. Inter-
viewing in October showed that more than half the people throughout the
Commentators gave warm praise to the Office of War Information report
United States think that civilian defense is being run "very well" in
on American military and naval aircraft and to Elmer Davis' speech in
their communities. An additional quarter of the public say at least that
Canada, But they employed these as occasions for renewed attacks on
it is being conducted "fairly well." A small minority of eight per cent
Government information policy.
continues to feel that local civilian defense activities are "poorly"
The New York ?ines cited the Office of War Information report as a model
handled. A like percentage expressed this disapproval when questioned
for future Government statements on the progress of the war and the New
on the subject last February. It is significant, however, that, while
York Herald Tribune called it "an example of the effective way in which
in February nearly a third of the public said they didn't know if these
to provide information, in times when ballyhoo 1a not wanted or needed,
civilian efforts were being managed satisfactorily, only half as many
to a public which is sufficiently adult to understand and respect the
express such doubt today.
- 4 -
- 5 -
The following chart presents a cosparison of opinions registered in res-
ponse to an identical question posed to national samples in February and
Now much chance do you think there la of an anemy
in October:
air raid within the next few wooke...
on the PACIFIC COAST?
very probable
How do you think Civillan Defense In your community
fairly probable
don't
not probable
know
is being run?
January
23%
40%
26%
115
very well
fairly well poorly
don't know
March
February
25%
45%
18%
125
425
20%
8%
30%
October
October
10%
35%
42%
135
54%
24%
85
145
on the ATLANTIC COAST*
very probable fairly probable
not probable
don't know
ENEMY AIR ATTACKS
January
8%
32%
48%
Public interest in one phase of civilian defense activity has waned
125
considerably. The fear of enemy bombing attacks which prompted energetic
March
12%
37%
37%
ISS
air raid precaution efforts early in the year has strikingly decreased.
October
Today, less than half the public thinks there is much likelihood that
6%
25%
55%
145
the enery will bomb our West coast cities any time in the near future.
ROAD TO VICTORY
Only about a third of the public sees any imediate probability of bonb-
Americans tend to doubt the efficacy of air attack as a means of over-
ing raids along our Atlantic coast.
coming Germany's hold upon the continent of Europe. Three-fifths of them
The development of opinion about enemy air raids on our shores is
believe that the road to victory must be opened through a land invasion by
the allies. The following chart shows the division of responses to a
indicated in the chart on the opposite page, which shows the responses
question on this subject asked early in October.
given by national samples to identical questions asked in January, in
March and in October,
- 6 -
- 7 -
PRODUCTION SHORTCOMINGS
To beat Germany, do you think the Allies will have to
Invade the continent of Europe, or do you think we can
defeat her by just Increasing our air attacks?
American confidence in the efficiency of our production program has mounted
slightly since mid-summer, although it is not now at the high level of last
Invade continant
Strong air attacks
Don't
know
spring. In September, 53 per cent of the public said they thought the pro-
duction of war materials was progressing "very well." An additional 41 per
60%
28%
125
cent said they thought production was going "only fairly well." Only three
per cent declared that production is going "poorly."
This belief that the Nazia can be conquered only through the comparatively
Despite the emphasis which has been placed lately on difficulties in the way
hard, slow advances of ground troops seems a great deal more realistic than
of production arising from raw material shortages, Americans tend to put the
a concurrent feeling now widespread in America that the German people are
chief blame for production shortcomings upon labor. When they were asked
out of sympathy with Hitler and may revolt against him in the near future.
in September, "What do you think is the chief reason why war production is
As is indicated below, only a minority of the public is convinced that
not going as well as it might?" the explanations most frequently offered
the enemy 1a strongly united. Almost as many take the optimistic view
centered around labor difficulties, strikes and the self-interest of workers.
that the German people themselves will contribute to a United Nations victory
This tendency of the public to find fault with labor is indicated by the an-
by overthrowing their Government. These opinions suggest strongly that in-
swers to another question asked in October, "Do you think strikes are hold-
formational neasures are needed to promote greater popular awareness of
ing back war production now?" There was an almost precisely even division
the difficulty of the military task ahead.
of opinion on this topic: 46 per cent answered "Yes"; 45 per cent answered
"No"; nine per cent had no opinion.
When the same question was asked in June, however, only 38 per cent said
The way things look now, do you think there is . good
chance of the German people revolting against Hitler
"Yes," while 53 per cent said "No." Apparently public confidence in labor
in the next year?
Don't
is waning, in spite of the general adherence of workers to their no-strike
Yes
No
Depands
know
pledge - perhaps because newspapers have focussed attention upon occasional
work stoppages.
375
425
7%
145
- 8 -
- 9 -
DRAFTING YOUTH
showed complete unawareness of what topics ought to be avoided.
As previously reported, eight out of ten people interviewed in September,
said they thought that the Government should draft 18- and 19-year
The topics most frequently mentioned as taboo centered around military
olda bafore drafting married men with children. Further analysis shows,
affairs. Production problems were also cited by many members of the sample.
naturally, that people were influenced in this choice by the presence
Multiple answers were permitted. The following table shows the percentages
of an 18- or 19-year old boy in the home. Women over 40 who had 18- and
which recommended caution against careless conversations in regard to several
19-year olda in their families (presumably mothers) voiced the greatest
broad, general subjects.
opposition to this proposal. But even in this group, almost two-thirds
Should not discuss:
Per cent of people
preferred the drafting of young boys to married men with children.
mentioning
Military matters
54%
Production and supplies
40
The boys themselves, according to a Gallup release this week, are over-
Shipping affairs
15
Low morale
13
whelmingly in favor of the new draft.
Miscellaneous mentions
8
LOOSE TALK
It seems significant that most people put their emphasis on the kind of
There is widespread recognition throughout the United States that careless
loose talk which might give information of strategic value to the enemy.
conversations on certain subjects should be avoided in war time. Americans
There was much less awareness of the danger involved in loose talk in the
are not accustomed to guarding their words. They have always lived in an
form of rumors and idle gossip. This latter consideration may have been
atmosphere of freedon, and the current necessity for caution is probably
in the minds of the 13 per cent who urged the avoidance of careless talk
not fully understood. But interviewing conducted with a small national
about matters of morale.
sample during the second week of October indicates a prevailing recognition
Most of the responses, however, referred to such things as
that loose talk is dangerous, at least in regard to military, shipping
Information about battleships
and production topics.
Troop train movements
Debarkation of soldiers
Location of troops
Interviews on this subject were introduced by the assertion, "The Govern-
Production of war plants
New inventions and patents
ment is trying to get people not to talk about certain things that will get
Materials used in war work
Ship departures
back to the enery." Each respondent was then asked, "What sort of things
Movement of war materials
do you think people should be careful not to talk about?" Only 13 per cent
Among those who stressed the avoidance of discussion about morale, typical
- 10 -
- 11 -
Regraded Unclassified
strictures suggested were, in contrast:
The pronounced inclination among Americans to consider Germany a more for-
Stories about Government inefficiency
midable foe than Japan may reflect an unhealthy tendency to underrate the
Arguments about the second front
Criticism of the Government's handling of defense work
military potency of the Japanese. It seens probable that the focussing of
Criticism of our allies
interest in recent weeks upon the problem of opening a second front in
It is evident, of course, that the statement with which these interviews
Europe has diverted attention from the seriousness of the war in the Pacific.
were introduced encouraged responses about the type of loose talk which
Confidence in production and shipping appears to be on the increase, al-
night give information to the enemy. The question asked does not reveal
though the public does seem to have a fairly clear realization of the seri-
the degree to which people realize the danger lurking in their own words
out shipping problem we now face. The belief held by a majority that
nor give any measure of their actual behavior in a conversational situation.
America is now the chief source of supply for the United Nations war ef-
Apparently, however, the public has an appreciation of a large number of
fort suggests a need for informational efforts to promote understanding of
things which should not be discussed and is receptive to further reminders
the contributions made to the common cause by other members of the United
that "loose talk costs lives." There seems to be a. special need, in addi-
Nations.
tion, for informational efforts to promote an understanding that loose talk
In general, the public shows a high degree of satisfaction with the Army's
of a sort which does not involve information of interest to the enemy may
treatment and training of its troops. Few feel that there 1a any serious
have injurious effects upon national unity and public confidence in the
discontent among enlisted men; only a small minority is critical of Army
Government.
training.
REAL I'SM 'AND THE OFFENSIVE SPIRIT
A need for greater understanding of the war's problems is especially pro-
Confidence in American military strength and a prevailing recognition that
nounced among people on the lower educational levels. These people are
the war can be won only through offensive action have promoted & general
peculiarly susceptible to the overconfidence which derives from blind pa-
expectation that the United Nations will soon be able to wrest the initia-
triotic fervor. They are more prone than persons of superior educational
tive from the energy. Many Americans believe that the war can be won with-
background to think that American military strength is greater than that
in a period of two years. This hopefulness, together with the belief that
of our allies or our enemies. And they also tend, in much greater degree,
American military might is far superior to that of the enemy, may lead to
to anticipate a war of short duration.
dangerous complacency.
- 12 -
- 13 -
Regraded Unclassified
Information policy should be designed to place national pride and confidence
the United States habitually conceals its losses. To increase dissension
on a basis of solid realism. There is need for fuller explanation of the
within the United States, the Axis attacked the "cheaply sensationalistic"
magnitude and complexity of the military task ahead in order to promote
American press, claiming that it is manipulated by Roosevelt and the Jews.
full public recognition that strategic decisions must be left in the hands
of qualified military and naval authorities.
Axis broadcasts also made much of troubles in the United States on the
economic front. Again a defeatist note was strucke it was claimed that
(These findings summarize the principal implications of
a Special Intelligence Report, Realism and the Offensive
stringent restrictions loon ahead and that war production cannot proceed
Spirit, issued October 21 and available to authorised in-
dividuals upon request to the Bureau of Intelligence.)
because of lack of material. Criticism of domestic economic policies
from American sources was used in distorted fashion in order to appeal
ENEMY PROPAGANDA
to the Roosevelt haters.
ATTACKS ON THE UNITED STATES
The Axis also attacked Communists and Willkie as a means of widening cleav-
Axis propagandists are paying growing attention to the
ages. To arouse anxiety and prove America's immorality, Radio Debunk and
United States. In the past week the proportion of broad-
Radio Manila both attempted to show that promiscuity, prostitution and ven-
cast time devoted to attacks on America increased significantly.
creal disease abound in Army camp regions and in port cities.
The basic nature of the attacks remaine unchanged. The week's broadcasts
GOEBBELS TAKES THE DEFENSIVE
were aimed at two perennial Axis propaganda objectives: defeation and
The primary purpose of Goebbels' Munich speech of October 18 was evidently
divisionism. The draft of 18- 19-year olds was treated in such a way as to
to deal with the complaints which are arising in Germany over the difficul-
serve both purposes. The Germans grieved that "young, ill-trained men"
ties of daily life. Goebbela asserted that the Germans are not fighting
would have to be pitted against seasoned AXIS troops. To heighten contro-
"for regional interesta for Socialism, and for National Socialism; for
versy about the seasure lowering the draft age, the Axis contended that it
questions of proletariat and bourgeoisie today it is for more important
represented a fresh betrayal of President Roosevelt's promise not to macri-
things we are fighting: for coal, for iron, for petroleum, and above all,
fice American youth.
for wheat for our daily bread." The claim that the Hasis are not fighting
for territorial, ideological and political ends is, of course, not to be
The Havy's delay in announcing the loss of three cruisers during the occupa-
taken seriously. It is significant, however, that Goebbels felt that empha-
tion of the Solonons was given somewhat similar treatment. The Axis attempted
sis had to be placed at this time on those war objectives most likely to
to prove the superior truthfulness of its military reporting and charged that
- 14 -
- 15 -
Regraded Unclassified
still the swelling volume of complaints within the Reich. In effect,
Goebbels attempted to show the German people that victory would preclude the
possibility of Germany's suffering in the future as she is suffering today.
ENEMY VERSIONS OF THE MILITARY SITUATION
Nazi short-wave broadcasts and German domestic media this week emphasized
German submarine "successes" to the neglect of the Russian front. The
Germans claimed to have extended submarine operations to the Western and
Southern coasts of Africa and to have sunk British troop transports one
Capetown. Since the "destruction" of the recent United Nations' Arctic
convoy, America and England have not dared to send more supplies to Russia
by the Northern route, the Nazis boast.
Following its usual policy of silence during the early stages of a campaign,
Tokyo has not made any mention of Guadalcanal since the beginning of its
strenuous attempt to retake the island. The Japanese-controlled station
at Saigon made a laconic statement on October 18 to the effect that the
Japanese have landed on Guadalcanal but that no important land battles
have occurred. It should be remembered that the Japanese have never
acknowledged the loss of the Guadalcanal air field.
---***---
- 16 -
144
FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES
hape 1
Column A shows Federal lessers operations
is millions of dollars as follows:
Market purchases 1/
Market sales y
Column $ shows price changes is 32nds, essays
Maturities Direct purchases from Treasury
for certificates which are true declare.
7
STRICTLY CONFIDENTIAL
last Yesk
Oct. 12
13
14
15
16
17
Index
This Yesk
A
B
&
3
A
3
A
3
Description
A
3
Oct. 19
A
20
3
21
22
23
-
Holiday
A
3
&
3
A
a
&
=
A
3
-
3
+42.8
+266.9
I. Summary
+183.4
-6.1
+33.9
+63.4
-10.0
-67.2
Market purchases
-5.0
-9.4
+43.0
+49.4
Market sales
+67.7
+32.6
+28.6
$21.6
-9.3
Mreet purchases free Treasury
-5.5
-10.0
-10.5
-=60.6
-21.7
-17.1
+36.7
+196.3
+116.2
Maturities
+25.9
+54.0
-a46.3
3809.0
Total net increase or decrease (-)
+33.7
+43.9
+11.4
+22.1
Wednesday report of total perifolio
+6.9
44.7
4225.0
II. Temble Securities
+2.6
+110.2
+17.7
Bills - all issues combined
+.3
+1.6
-6.1
-10.0
-67.2
-4.0
Market purchases
+3.9
+29.6
-9.4
+49.6
+1.9
+1.1
-a60.6
Marbet sales
+15.7
-9.3
-5.5
-10.0
-10.5
-21.7
-3.5
Maturities
-17.1
+39.6
-49.5
-3.7
el6.3
-7.6
Total net increase or decrease (-)
-5.4
+24.1
-6.7
-4.6
-1.4
+2.0
Certificates
-001
+1.0
-001
1/25 A- 11-1 42
4002
+.5
+.7
-.001
-001
+4.3
5/8 1 - 2-1 43
+7.7
4001
+5.4
204
+.2
+.4
+.3
4,002
+2.5
+.8
-00%
.65 0 - 5-1 43
+.6
+.001
2011
+3.9
4001
+.7
+.002
+1.0
+.2
7/8 1- 8-1 43
+,005
$005
+1.5
4005
+2.1
+.005
+5.3
42.2
Treasury notes
12
3/4% D - 3-15 43
+1
19
3/4
+6.6
D - 9-15 MA
+1
+7.9
+4.9
+6.7
N 11
1-1/4 0- 3-15 kg
*.7
+2.0
+.7
+23.8
....
+1.1
N 12
3/4
3 12-15 45
+1.0
+2.0
W 13
1
A - 3-15 46
+9.1
+92.6
+150.8
+1.2
+2.2
N 14
1-1/2 12-15 46
+4.2
+,6
+7.3
+.5
49.5
+1.3
Treasury bonds
+.4
+,6
+1.7
+.5
3 12
X
- 3-15 48-50
N16
4.5
2
- 6-15 49-51
+1
+2
4.5
+,8
+.1
+.4
+.3
+,2
+.3
+1.0
1
317
2
- 9-15 49-51
+,6
+1
+.4
+5.8
+7.7
+.7
4.2
+.5
+1.3
328
2
- 12-15 49-51
+9.0
+2.4
+3.2
+1.2
(11.9
+3.5
+9.9
+29.2
-1.0
+54.6
321
2
- 3-15 50-52
+14.6
+1.3
+1.1
+1.3
+.9
+.7
+.2
3 26
2
- 12-15 51-55
+1.5
+.4
+2.3
+1.0
+1.1
+,4
+2
+1.0
27
2-1/2
- 3-15 58-54
+3.0
&
6
+.8
:-
+1
+.8
-1
18
2-1/4
- 6-15 52-55
+1
+2
-1
L
+.1
332
2-1/2
- 3-15 56-58
+1
+2
=
7
7
+3
+1
+2
36
2-1/2
- 6-15 62-67
+2
7
37
2-1/2
- 9-15 67-72
+1
+2
....
2
Quaranteed securities
-1
APO 7/85 U - 10-15 42
07
RFC 1-1/8 7-15 43
-1
08
RFO 1
Y - 4-15 lake
-1
+1
02
000 1-1/8 - 2-15 kg
All tarable securities
+38.9
+256.8
180.6
+26.4
+60.8
Market purchases
+37.5
+48.4
+66.0
+51.5
487.4
+21.8
-6.1
-10.0
-67.2
-5.0
-9.4
Martet sales
-9.3
-5.5
-10.0
-10.5
-a.7
-17.1
Direct purchases from Treasury
a60.6
Maturities
446.3
+32.6
+156.2
+113.4
+21.4
+51.4
Total net Increase or decrease (-)
*
+42.9
+9.7
+E1.0
+5.7
+4.7
Office of the Bearetary of the Treasury, Division of Research and Statistics.
Purchases and sales recorded as of day of transaction 1 1 day of delivery. Transactions after 3a. e'alade are included is the and w.
Less them $50,000.
145
45
FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES
hgo 2
Column A above Federal Reserve operations
in millions of dollars as follows:
Market purchases 1/
Market sales 1/
+
Column 3 showe price changes is 32ads, except
Naturities Direct purchases from Treasury
-
I
for certificates which are true decimale.
1
last Vesk
STRICTLY CONFIDENTIAL
Oct. 12
13
24
15
16
A
3
A
3
17
A
Index
this Yesk
a
A
3
A
a
Description
A
3
Oct. 19
20
21
Holiday
22
23
2%
A
3
&
3
A
3
A
3
A
3
&
3
III. Tax-exampt securities
-1
Treasury notes
-1
If 1
+1
1-3/45 C - 12-15 42
+1
I 3
If &
1-1/8 A - 6-15 43
-1
+1
1
c - 9-15 43
+1
La
If ?
I
1-1/8
3 - 12-15 43
+1
1
1- 3-15 44
....
I 7
+1
3/4
-1
A - 6-15 lale
"
1
-1
C - 9-15 lake
. 10
3/4
+1
A- 3-15 45
....
......
L
-1
****
-1
+.1
Treasury bonds
-1
+.2
-1
3 1
.
3-3/8%
- 6-15
43-47
-1
+1.3
3 2
3-1/4
+,2
+1.0
- 10-15 43-45
+.7
-1
+.3
-1
+.5
-1
-1
B È
D
3-1/4
- 4-15 44-46
+,2
-1
+,2
+1.0
-1
-1
+3.3
- 12-15 44-54
+.7
+1.0
-1
-1
+1.5
-1
+1.0
+1
+.1
-1
+.5
3
-1
+,4
+.8
2
our
2-3/4
-1
- 9-15 45-47
2-1/2
+.3
. 12-15 45
-1
+.1
-1
+1
+.1
a 7
7
-1
3-3/4
- 3-15 46-56
+.1
3 8
-1
+1.5
3
+,4
- 6-15 46-48
+1
-2
39
3-1/8
-1
- 6-15 46-49
+.1
3 10
+,2
4-1/4
- 10-15 47-52
+.1
-1
+1
+1
3 11
2
- 12-15 47
-1
313
2-3/4
+.8
....
- 3-15 48-51
-1
+1.0
314
2-1/2
$
- 9-15 45
+1
-1
B 15
2
- 12-15 48-50
-1
+1
+1
19
3-1/8
+.5
- 12-15 49-52
+1
320
2-1/2
+.5
- 12-15 49-53
+1
+1
322
2-1/2
+1
-1
- 9-15 50-52
+.1
+1
3 23
2-3/4
+1
-1
- 6-15 51-54
+1
+1
124
+1
3
-1
- 9-15 51-55
+1
+1
+.1
-1
325
2-1/4
+1
-1
- 12-15 51-53
+1
+1.4
+1.0
+1.0
329
2
- 6-15 53-55
+1
+1
-1
30
2-1/4
7
- 6-15 54-56
+1
7
+.5
+.3
" 31 .
2-7/8
- 3-15 55-60
+.5
+1
+,2
33
2-3/4
L
- 9-15 56-59
..
+1
+1
....
+.5
+.5
&
+.5
34
2-3/4
+.5
- 6-15 58-63
5
+1
+.2
+.1
+2.0
-1
-1
35
2-3/4
- 12-15 60-65
+.5
+1
+.3
....
Quaranteed securities
01
000 3/4% , 5-1 43
0 10
USEA 1-3/8
- 2-1 44
2
+1.0
-1
+.6
-1
:
- 3-15 44-49
-1
FFNO 3
&
-2
03
FINO 3-1/4
-
3-15
4-64
la
un
-1
+.1
+.1
-1
o 2
HOLO 3 A - 5-1 44-52
-1
....
....
+.1
7
+,1
....
o
HOLC 1-1/2 6-1 45-47
-1
All tex-exapt securities
+3.9
+6.1
+2.#
+7.5
+2.6
Market purchases
+5.5
+1.0
+1.7
+1.1
+1.2
......
....
....
Market sales
......
HILL
Direct purchases from Treasury
......
....
Naturities
....
+3.9
+6.1
+2.5
+7.5
+2.6
Total net increase or decrease (-)
+5.5
....
+1.0
+1.7
....
+1.1
....
+1.2
Office of the Secretary of the Treasury, Division of Research and Statistics.
V
Purchases and sales recorded as of day of transaction and not day of delivery. Transactions after à o'clook are included is the and day.
Less than $50,000.
Regraded Unclassified
146
October 24, 1942
Gentlemen:
In the absence of the Secretary
this will acknowledge the receipt of
your letter of October 13, 1942. Upon
his return I shall be glad to bring it
to his attention.
Very truly yours,
(Signed) D. W. BELL
Under Secretary of the Treasury
Morgan Stanley and Company,
2 Wall Street,
New York, N. Y.
NLE
Regraded Unclassified
4
Original to Mr. Bell 10/15
(
MORGAN STANLEY & co.
Two Wall Street
New York
New York, October 13, 1942
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
On behalf of Dillon Read d. Co. and our-
selves we are enclosing herewith copies of letters received
from Mr. Hugh A. Fulton, Counsel for the United States
Senate Special Committee Investigating the National Defense
Progam, of which Senator Truman is Chairman, making cer-
tain inquiries regarding the American Viscose Corporation
transaction. In view of our past discussions of this
matter and the reference to the Treasury Department in
the letters we thought we should advise you of their
receipt. We are preparing answers to the inquiries,
which we expect to communicate to the Committee shortly.
Very truly yours,
hergan Hanley Co
Regraded Unclassified
October 8, 1942
Dillon, Read & Co.
28 Nasau Street
New York City
Dear Sirs:
The Committee 16 informed that you and Morgan, Stanley
and Co., Inc. headed groups which purchased the controlling inter-
est in the American Viscose Corporation from British interests
and which sold the securities represented thereby to the American
public.
If you have a bound volume containing the papers with
respect to the transaction, such as the bankers' urchase contract
and underwriting agreement, opinions of counsel, registration
statement, etc., the Committee would appreciate it if you would
loan it a copy of the bound volume, In the event that you do not
have such 8. volume, please furnish the Committee with copies of all
of the important papers.
The Committee would also appreciate it if you would
furnish it with the statement showing the gross amounts made by the
banking group as a result of the American Viscose transactions,
broken down to show the amounts received by each of the members of
the group. The Committee would also appreciate receiving a state-
ment of the expenses incurred by the banking group and the break-
down indicating the nature thereof. The Committee understande that
the Department of the Treasury requested the banking group to
consider a reduction of their profits, and would appreciate being
informed as to whether and when such a reduction was made and the
amount thereof and the mechanics by which it was made.
The Committee would also appreciate being informed as to
how the transaction first came to your attention and as to who
first proposed the banking group and how it was organized.
In addition, the Committee would appreciate receiving a
list of the other instances, with dates, in which Morgan, Stanley &
Co., Ino. and Dillon, Read and Co. acted as joint managers of a
banking group. The Committee would also appreciate being informed
as to any other transactions in which Dillon, Read and Co. has
participated in the banking group, dealing in any way with the
acquisition of British or other foreign securities in the amount
of $5,000,000.00 or greater since September, 1939.
A copy of this letter is being sent to Morgan, Stanley &
Co. Inc. with a request for similar information from it, but
information received from either company need not be duplicated by
the other.
Very truly yours,
HUGH A FULTON
HAP:mt
Chief Counsel
Regraded Unclassifie
ry S. Truman, Mo., Chairman
Tom Connally, Tex.
(COPY)
James M. Mead, N.Y.
Mon. C. Wallgren, Wash.
rl A. Hatch, N. Mex.
UNITED STATES SENATE
Myde L. Herring, Iowa
Harley M. Kilgore, W.Va.
Special Committee Investigating
Joseph H. Ball, Minn.
the National Defense Program
Ralph O. Brewster, Maine
Harold H. Burton, Ohio
h.A. Fulton, Chief Counsel
October 8, 1942
rlea P. Clark, Assoc. Chief Counsel
nne L. Campbell, Clerk
Morgan Stanley & Co.
2 Wall Street
New York City
Dear Sirs:
The Committee 18 interested in the transactions involving
the controlling securities of the American Viscose Corporation and
understands that together with Dillon, Read and Co. you headed a
banking group to acquire such securities and to sell them to the
American public.
The Committee would appreciate receiving from you copies
of the bankers' contract, opinions of counsel, registration statement
and other important papers relating to such transactions, together
with a statement of the gross profits of the banking group broken
down to show the amounts received by each and a statement of the
expenses incurred by the banking group, broken down to show the
nature thereof.
The Committee would also appreciate being informed as to
how the transaction first came to your attention, who proposed that
the banking group be headed by Dillon, Read & Co. and your company,
and how the members of the banking group were selected.
The Committee has been informed that the Department of the
Treasury requested that consideration be given to a return of a
portion of the profits made by the banking group in the transactions
involving the American Viscose Corporation and would appreciate being
informed 8.8 to whether and when and in what amount and by what method
such profits were returned.
The Committee would also appreciate being informed as to
any other acquisitions of foreign securities since September, 1939
in an amount in excess of $5,000,000.00 which you have made or in
connection with which you have participated in the banking group.
Very truly yours,
/8/ Hugh A. Fulton
HUGH A. FULTON
Chief Counsel
HAF:mt
HH
Regraded Unclassified
151
BRITISH AIR COMMISSION
1785 MASSACHUSETTS AVENUE
WASHINGTON, D. C.
TELEPHONE HOBART 9000
PLEASE QUOTE
REFERENCE NO.
"ith the compliments of British Air Commission
who enclose Statement No. 56 - Aircraft Despatched
- for week ended October 20, 1942.
The Honourable Henry Morgenthau, Jr.
Secretary of the Treasury
WASHINGTON, D. C.
October 24, 1942.
Regraded Unclassified
152
3
MOST SECRET
152
STATEMENT NO. 56
AIRCRAFT DESPATCHED FROM THE UNITED STATES
WEEK ENDED OCTOBER 20TH. 1942
TPE
DESTINATION
ASSEMBLY POINT
BY
BY
FLIGHT DEL'D
SEA
AIR
FOR USE IN CAN.
CONSOLIDATED
Catalina IB
U.K.
Canada en route
2
BOEING
FortressIIA
U.K.
Canada en route
2
DOUGLAS
Boston IIIA
U.K.
Canada en route
1
FAIRCHILD
Cornell PT 26
Canada
Canada
10
BREWSTER
Bermuda
U.K.
U.K.
10
GRUMMAN
Martlet IV
U.K.
U.K.
13
LOCKHEED
Hudson VI
Middle East Middle East
1
#
West Africa
Freetown
14
Ventura
South Africa South Africa
6
GLENN MARTIN
Baltimore IIIA
Middle East
Middle East
2
NORTH AMERICA
Canada
Canada
1
Mitchell II
Harvard II
India
Bombay
9
STEARMAN
1
Stearman PT 27
Canada
Ganada
32
28
12
TOTAL
BRITISH AIR COMMISSION
OCTOBER 24th, 1942.
153
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Chungking, China, via N. R.
DATE: October 24, 1942, 9 a.m.
NO.1 1216.
The following message, TF64, 10 the weekly economic
report for the Secretary of the Treasury from Mr. Adler.
1. September prices in Chungking!
Wholesale: (spproximately 7 per cent more than in August)
General
6330
Food
4050
Retail: (approximately 4 per cent more than in August)
General
5980
Food
4540
It should be noted that 5720 is the revised retail general
index for August.
2. I have been informally asked by Dr. Kung to raise
the question of the Government of China buying from the U.S.
Treasury U.S. dollars 20million of gold with funds from the
American loan to China. Subject to the consent of the
Treasury this purchase of U.S. dollars 10 contemplated
independently of whether or not scheme 18 adopted for a free
gold market as mentioned in 2 and 3A of TF63 of October 8.
I was informed by Dr. Kung, in respect to this scheme, that
Chiang Kai-shek has stall not consented to it due to the
possibility that some of the gold might get into the hands
of the enemy.
The Ministry of Finance, Monetary Division, has made
available the following information in respect to an inquiry
on the currency situation in territory occupied by the enemy.
The information is based on the National Military Council's
intelligence reports.
(a) At the end of August faci exchanged for currency of
puppet government or other puppet government assets by popula-
tion of Anhivei, Shanghai, Chekiang, Nanking and Kiangsu
amounted to ON$1,215,000,000.
$262,000,000; on August 10, 1942 Central Reserve Bank $922,00,00 of
Central Reserve Bank currency in circulation was approximately
(b) On the 3rd of January 1942 the amount of puppet
September. The rapid rise of currency in circulation of
the currency was appreaching 700,000,000 at the end the
Central
Regraded Unclassified
154
÷
Central Reserve Bank reflects both the inflationary develop-
ments and economic deterioration in occupied territory and
the determined efforts of the Japanese to drive fapi out of
circulation in those territories.
(e) Federal Reserve Bank of North China currency in
circulation:
Amount
Year
FRB $922,000,000
1942
FRB $966,000,000
1941
FRB $715,000,000
1940
FHB $468,000,000
1939
m FRB $182,000,000
1938
(a) As to amount of military yen notes in circulation,
there is no information. Due to the fact that issues are not
numbered ST is difficult to estimate possible circulation.
GAUSS
Regraded Unclassified
TREASURY DEPARTMENT
155
INTER OFFICE COMMUNICATION
DATEOct.24,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Japanese and United States Pacific Naval Losses
1. U. 8. Naval communiques dated October 17 - 22, 1942,
reveal the following additional Japanese and U.S. naval losses
in the Pacific:
(a) Japanese
(1) Solomons. Damaged - 2 cruisers, one destroyer,
2 transports.
(2) Aleutians. Probably sunk - 3 destroyers;
damaged.-one destroyer, one cargo
ship.
(b) United States
Solomons. Sunk - 2 destroyers.
2. Losses announced in U.S. Naval communiques since
Pearl Harbor total:
(a) Japanese: 171 vessels sunk, 36 probably sunk,
150 damaged.
(b) United States: 52 vessels lost, 12 damaged.
Regraded Unclassified
- 2 -
156
Table I
Total Japanese Vessels Sunk and Damaged
to October 22, 1942
Combatant Vessels
Probably
Type
Sunk
Sunk
Damaged
Total
Battleships
0
0
6
6
Aircraft Carriers
6
1
4
11
Cruisers
13
3
35 #
51
Destroyers
30
12
18
60
Submarines
6
1
7
14
Tenders
1
1
5
7
Others
13
2
14
29
Totals
69
20
89
178
Non-Combatant Vessels
Fleet Tankers
11
o
7
18
Transports
27
7
21 #
55
Cargo and Supply
50 #
7
22
79
Miscellaneous
14
2
11 *
27
Totals
102
16
61
179
Total all types
171
36
150
357
.
Also several additional vessels.
Regraded Unclassified
- 3 -
Table II
157
American Naval Vessels Sunk and Damaged
to October 22, 1942
Demolished
to prevent
Type
Lost
capture
Damaged
Total
Battleships
1
o
1
2
Air craft Carriers
2
O
o
2
Cruisers
4
o
2
6
Destroyers
14
1
6
21
Submarines
3
1
o
4
Motor Torpedo Boats
2
1
0
3
Submarine Tender
0
1
0
1
Aux. Seaplane Tender
1
0
1
2
Mine Craft
5
2
o
7
Gunboats
3
1
0
4
Tankers
3
0
0
3
Tugs
0
1
0
1
Transports
4
O
2
6
Target Ship
1
o
0
1
Floating Drydock
0
1
0
1
Total
43
9
12
64
Regraded Unclassified
- 4 -
158
Table III
Japanese and American Vessels Sunk and Damaged
in the Solomon Islands (Aug.7-0ct.22,1942)
Japanese Losses
Probably
Type
Sunk
Sunk
Damaged
Total
Battleships
o
o
2
2
Aircraft Carriers
o
o
2
2
Cruisers
1
o
18 #
19
Destroyers
5
2
6
13
Submarines
1
O
o
1
Tenders
0
o
2
2
Tankers
o
o
1
1
Transports
2
1
6 -
9
Cargo and Supply
0
0
6
6
Miscellaneous
4 #
o
6 *
10
Total
13
3
49
65
American Losses
Cruisers
4
2
6
Destroyers
5
2
7
Transports
4
1
5
Total
13
5
18
*
Also several additional vessels.
Regraded Unclassified
- 4 -
159
Table IV
Japanese Vessels Sunk and Damaged
in the Aleutian Islands
(June 15 - Oct. 22, 1942)
#
Probably
Type
Sunk
Sunk
Damaged
Total
Cruisers
1
o
5
6
Destroyers
6
4
3
13
Submarines
o
1
5
6
Transports
2
1
6
9
Cargo and Supply
4
1
7
12
Minesweepers
2
o
0
2
Miscellaneous
1
o
1 **
2
Total
16
7
27
50
#
No American Vessels have been reported lost and damaged in this
area to date.
** Also several additional vessels.
Regraded Unclassified
160
NOT TO BE RE-TRANSMITTED
U.S. SECRET
COPY NO. 13
BRITISH MOST SECRET
OPTEL No. 366
Information received up to 7 A.M. 24th October,
1942.
1.
NAVAL
On the 8th and 9th one of H.M. Submarines sank a
3,000 ton ship laden with petrol, a southbound coaster
and a schooner off Tunisia; on the 19th she sank a ship
in south-bound convoy and one of the escorting destroyers
near Lampedusa. On the 20th one of H.M. Submarines sank
an escorted ship laden with motor transport north of
Tripoli (L).
21st/22nd
One of H.M. trawlers was torpedoed and sunk by
enemy aircraft at the Northern end of the Red Sea.
French Equatorial Africa
Yesterday morning one of H.M. Cruisers was
torpedoed by submarine off Pointe Noire but reached port.
A British ship independently routed outward bound
with war stores was torpedoed 550 miles north of the Azores
on the 23rd.
2.
MILITARY
RUSSIA
Local fighting continues on the Don Front with
the Russians trying to extend their Bridgehead in the
Yelansk area. The Germans are making only very slow
progress in their attack on the northern part of Stalingrad.
A slight German advance has been made towards Tuapse.
Heavy rain is falling in the Western Caucasus.
3.
AIR OPERATIONS
WESTERN FRONT
22nd/23rd. Genoa.
About 180 tons dropped from about 10,000 feet in
equal proportion H.E. and incendiaries, also many flares.
Excellent visibility, no cloud, streets and buildings
easily seen. One aircraft which did the whole journey
out and back on 3 engines and consequently arrived late
reported fires had taken firm hold. Smoke screen drifting
out to sea therefore ineffective.
23rd.
Seven Wellingtons attacked Essen and four Krefeld.
Cloud prevented observation. All returned safely. Three
mosquitos bombed the Diesel Engine Works at Hengel, one
is missing. Fighters carried out harassing operations
over Holland and France. Twelve locomotives were damaged.
One spitfire is missing.
- 1 -
Regraded Unclassified
161
23/24th
139 bombers were sent out-Genoa 112, including
91 heavy, sea-mining 17. Attack on Genoa from preliminary
reports believed successful though weather less favourable
than previous night. Some aircraft attacked Turin and
Savona. Numerous fires resulted. 3 aircraft missing,
one crashed.
EGYPT
21/22nd
Our aircraft attacked Maleme Aerodrome, Crete
and landing grounds, Camps and M.T. in the El Daba-Fuka
area.
22nd
Allied aircraft continued their operations over
the battle area, 6 enemy fighters were destroyed and 6
probably destroyed, 8 lorries and a tractor towing a large
gun were set on fire. 7 aircraft missing.
MALTA
23rd
Between 5.30 A.M. and 3 P.M. 171 enemy sorties,
spitfires destroyed June enemy aircraft and damaged 3.
A.A. destroyed two more. One spitfire missing. Several
enemy formations were intercepted and turned back before
reaching the Island. Takali Aerodrome cratered.
162
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 368
Information received up to 7 A.M., 25th October, 1942.
1. NAVAL
Attacks on Shipping. During three days 21st to 23rd October four
ships were reported attacked by submarines. Two British ships in outward bound
convoy were torpedoed in North Western Approaches, one of which was sunk and the
other a tanker is still afloat, one U.S. ship was torpedoed in West Atlantic and
one British ship in Gulf of Oman. A British ship torpedoed on 13th October in
Indian Ocean has reached port in tow and a Greek ship reported torpedoed in home-
bound convoy on 14th October has arrived undamaged. One British ship is overdue
at BOMBAY and & U.S. ship is overduo at NEW YORK.
2. MILITARY
EGYPT. See OPTEL No. 367.
MADAGASCAR. By 23rd evening our forward troops were 35 miles
south of AMBOSITRA and meeting some French resistance. Obstructions on the road
are delaying our advance.
3. AIR OPERATIONS
WESTERN FRONT. 23rd/24th.
GENOA. About 145 tons of H.E. and incendiaries were dropped 24th.
88 Lancasters escorted by Fighters as far as the French Coast set, out for MILAN.
73 of them attacked in the ovening and dropped about 127 tons of H.E. and incon-
diaries including twelve 4,000 lb. bombs from between 4,000 and 100 feet. Opera-
tion considered most successful and photographs confirm many bursts in the town.
Three Aircraft are missing and one crashed on return. Spitfires damaged a 1,000
ton dredger off OSTEND and a 900 ton ship off DUNKIRK. 24th/25th. 107 bombers
wore sent out - MILAN 71, sea mining 25, leaflets, occupied France 11. Weather
over MILAN WELS very cloudy and most aircraft bombed on estimated time of arrival,
7 are missing and 1 crashed. About 12 onemy aircraft flow over northeast ENGLAND,
night fighters probably destroyed 1 and damaged another.
EGYPT. 22nd.23rd. Our aircraft bombed enemy landing grounds.
23rd. A total of 84 escorted fighter bombers made 4 attacks on EL DABA landing
ground. 234 fighters flow offensive patrols over the forward area and destroyed 8
enemy aircraft, probably destroyed 2 and damaged 3 for the loss of 5 of our Fighters.
Regraded Unclassified
163
- 2 -
MALTA. 24th. 124 enemy fighters and fighter bombers were
operating. Only very minor damage was done to our aerodromes. 58 Spitfire
sorties were flown, three enemy aircraft were destroyed including one by A.A.
and another was probably destroyed for the loss of one Spitfire.
4. HOME SECURITY
24th/25th. Some bombs were dropped in LINCOLNSHIRE. There
was a direct hit on a shelter at GRANTHAM. Casualties reported 35 killed
including nine service.
164
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Monday, October 26, 1942.
No. 33-81
The Secretary of the Treasury today announced the offering, through
the Federal Reserve Banks, for cash subscription at par and accrued intorest,
of $2,000,000,000, or thereabouts, of 7/8 percent Treasury Certificatos of
Indobtedness of Series D-1943. In order to insure widesproad participation
not only on the part of banks, but by corporations and others who may be
interested in this type of socurity, the subscription books will romain opon
two days. There will be no restrictions as to the basis for subscribing to
this issue. At their maturity, the certificates will be redeemed in cash,
and will carry no exchange privileges.
The certificates will be dated November 2, 1942, will be payable on
November 1, 1943, and will boar interest at the rate of seven-cighths of
one percent per annum, payable on a semiannual basis on May 1 and November 1,
1943. They will be issued in bearur form only, with two interest coupons
attached, in denominations of $1,000, $5,000, $10,000 and $100,000.
Pursuant to the provisions of the Public Debt Act of 1941, interest upon
the certificates now offered shall not have any exemption, as such, under
Federal Tax Acts now or hereafter enacted. The full provisions relating to
taxability are set forth in the official circular released today.
When the Treasury resumod the offoring of Cortificates of Indobtedness
in April 1942, the securities industry was asked by the Secretary to call
attention of nonbanking investors to the issue. This procedure resulted in
considerable distribution outside the banking system. It is expected the
Victory Fund Committee will approach the same types of purchasers, calling
attention to the new serios now offored.
Regraded Unclassified
165
- 2 -
Subscriptions will be received at the Federal Reserve Banks and
Branches, and at the Treasury Department, Washington. Banking institu-
tions and securities dealers generally may submit subscriptions for
account of customers, but only the Federal Reserve Banks and the Treasury
Department are authorized to act as official agencies. Subscriptions from
banks and trust companies for their own account will be received without
deposit, but subscriptions from all others must be accompanied by payment
of 2 percent of the amount of certificates applied for.
Subject to the usual reservations and within the amount of the offering,
subscriptions for amounts not exceeding $25,000 from banks which accept demand
deposits, and subscriptions in any amount from all other subscribers, will be
allotted in full; subscriptions for amounts over $25,000 from banks which
accept demand deposits will be allotted on an equal percentage basis, to be
publicly announced.
Payment for any certificates allotted must be made or completed on or
before November 2, 1942, or on later allotment. As previously announced,
Treasury Certificates of Indebtedness of Series A-1942, which maturo November 1,
carry no exchango privileges, but such maturing certificates will be accepted
at par in payment for any certificates of the series now offered which may be
allotted.
The text of the official circular follows:
Regraded Unclassified
166
UNITED STATES OF AMERICA
7/8 PERCENT TREASURY CERTIFICATES OF INDEBTEDNESS OF SERIES D-1943
Dated and bearing interest from November 2, 1942
Due November 1, 1943
1942
TREASURY DEPARTMENT,
Department Circular No. 700
Office of the Secretary,
Washington, October 26, 1942.
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF CERTIFICATES
1. The Secretary of the Treasury, pursuant to the authority of the
Second Liberty Bond Act, as amended, invites subscriptions, at par and
accrued interest, from the people of the United States for certificates
of indebtedness of the United States, designated 7/8 percent Treasury
Certificates of Indebtodness of Serics D-1943. The amount of the offering
is $2,000,000,000, or thoreabouts.
II. DESCRIPTION OF CERTIFICATES
1. The certificates will be dated November 2, 1942, and will bear
interest from that date at the rate of 7/8 percent per annum, payable on a
semiannual basis on May 1 and November 1, 1943. They will mature November 1,
1943, and will not be subject to call for redemption prior to maturity.
2. The income derived from the certificates shall be subject to all
Federal taxes, now or hereafter imposed. The certificates shall be subject
to estate, inheritance, gift or other excise taxes, whether Federal or State,
but shall be exempt from all taxation now or horeafter imposed on the
principal or interest thereof by any State, or any of the possessions of
the United States, or by any local taxing authority.
3. The certificates will be acceptable to secure deposits of public
moneys. They will not be acceptable in payment of taxes and will not bear
the circulation privilege.
4. Bearer certificates with two interest coupons attached will be
issued in denominations of $1,000, $5,000, $10,000 and $100,000. The
certificates will not be issued in registered form.
Regraded Unclassified
167
- 2 -
5. The certificates will be subject to the general regulations of the
Treasury Department, now or hereafter prescribed, governing United States
certificates.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and
Branches and at the Treasury Department, Washington. Subscribers must
afroo not to sell or otherwise dispose of their subscriptions, or of the
securities which may be allotted thereon, prior to the closing of the
subscription books. Banking institutions and socurities dealers generally
may submit subscriptions for account of customers, but only the Federal
Reserve Banks and the Treasury Department are authorized to act as official
agencies. Others than banking institutions and securities dealers will not
be permitted to enter subscriptions except for their own account. Sub-
scriptions from banks and trust companies for their own account will be
received without deposit. Subscriptions from all others must be accompa-
nied by payment of 2 percent of the amount of certificates applied for,
2. The Secretary of the Treasury reserves the right to reject any
subscription, in whole or in part, to allot less than the amount of
certificates applied for, and to close the books as to any or all sub-
scriptions at any time without notice; and any action he may take in these
respects shall be final. Subject to these reservations, and within the
amount of the offering, subscriptions for amounts up to and including
$25,0 from banks which accept demand deposits, and subscriptions in any
amount from all other subscribers, will be allotted in full; subscriptions
for amounts over $25,000 from banks which accept demand deposits will be
allotted on an equal percentage basis, to be publicly announced. Allot-
ment notices will bo scnt out promptly upon allotment.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for certificatos
allotted horounder must be made or completed on or before November 2, 1942,
or on later allotmont. In every case where payment is not so completed,
the payment with application up to 2 percent of the amount of certificates
applied for shall, upon declaration made by the Secretary of the Treasury
in his discretion, be forfeited to the United States. Treasury Certificates
of Indebtedness of Series A-1942, maturing November 1, 1942, will be ac-
copted at par in payment for any cortificates of the series now offered
which shall be allotted.
Regraded Unclassified
168
- 3 -
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are
authorized and requested to receive subscriptions, to make allotments on
the basis and up to the amounts indicated by the Secretary of the Treasury
to the Federal Reserve Banks of the respective districts, to issue allot-
ment notices, to receive payment for certificates allotted, to make delivery
of certificates on full-paid subscriptions allotted, and they may issue
interim receipts pending delivery of the definitive certificates.
2. The Secretary of the Treasury may at any time, or from time to
timo, prescribe supplemontal or amendatory rules and regulations governing
the offering, which will be communicated promptly to the Federal Reserve
Banks.
D. W. BELL,
Acting Secretary of the Treasury.
ded i
169
October 26, 1942
CABLE TO THE SECRETARY OF THE TREASURY:
Sent requested papers today.
Treasury misses its Chief. Best
regards.
HENRIETTA S. KLOTZ
170
Mar Department
Office of the Thief of Staff
SECRET
October 26, 1942
memorandum FOR Mrs. H. Klotz
Paraphrase of radio received from Mr. Morgenthau:
"Feeling fine. Please send TIME, LIFE, interesting
clippings, and latest newspapers. Best regards.
Please answer."
FRANK T. HURLEY,
Major-A.S.C.,
Exec. Asst. to Secretary, Gen. Staff.
SECRET
171
October 26, 1942.
Boar Mr.
in behalf of the Constory, who 10 any
from the city, I - acknowledging your Letter
of October 23, melesing a personal copy of
the report n the otabes of the Seviet AM
Program. This material vill be placed is
Me Just as - ⑉ be returns to Me
office.
Sincerely yours.
(Signed) H. S. Klotz
R. 8. Bots,
Private Secretary.
Homerable 22. Stettinies, Jr.,
Giften of
Washington, 2. 6.
1 :
.
Returned to Stettinius at his request, 8/24/43
B/dbs
IP/dbs
Regraded Unclassified
SEC
OFFICE OF LEND-LEASE ADMINISTRATION
172
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
E.R. Stettinium, Jr.
Administrator
October 23, 1942
The Honorable Henry Morgenthau
Secretary of the Treasury
Room 280, Treasury Department
Washington, D. C.
Dear Mr. Secretary,
Attached herewith is your personal and
private copy of the report on the status of
the Soviet Aid Program, as of September 30,
1942.
Needless to say, you will recognize the
extreme secrecy of the data contained therein.
Sincerely yours,
E. R. Stertinius,
JL
Enclosure
Page 173
Report on status of Soviet Aid Program
as of 9/30/42: Returned to Stettinius
at his request, 8/24/43
174
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Oct.26,194
TO
Secretary Morgenthau
Mr. Hoflich
FROM
Subject: Shipment of Planes to British Forces
During the week ending October 20, 1942,
only 72 planes (52 combat planes and 20 trainers)
were sent to British forces from the United States.
This is substantially below the weekly average of
117 planes during the first six months of 1942.
- 2 -
175
Table A - Shipments by Area
Week
Total Shipped Total Shipped
Ending
in 1942
since
Oct.20,1942
to date
Jan. 1, 1941
To the United Kingdom
Light and medium bombers
11
666
1,827
Heavy bombers
2
148
252
Naval patrol bombers
2
83
185
Pursuit
13
1,016
1,327
Army Cooperation
O
119
150
Trainers
0
0
24
Total to the United Kingdom
28
2,032
3,765
To the Middle East
Light and medium bombers
23
560
890
Heavy bombers
0
9
5
Naval patrol bombers
o
6
5
Pursuit
o
704
1,552
Army Cooperation
0
58
58
Trainers
0
231
373
Total to the Middle East
23
1,559
2,884
To the Canadian Forces
Light and medium bombers
1
80
248
Heavy bombers
O
1
1
Naval patrol bombers
0
23
31
Pursuit
o
30
72
Trainers
11
676
1,917
Total to Canadian Forces
12
810
2,269
To the British Pacific Forces
Light and medium bombers
0
145
245
Naval patrol bombers
0
0
27
Pursuit
0
200
363
Trainers
0
12
117
Total to Pacific Forces
o
357
752
To the British Indian Forces
Light and medium bombers
o
174
174
Pursuit
O
40
40
Trainers
9
62
62
Total to Indian Forces
9
276
276
To the British West Indian Forces
Army Cooperation
0
20
20
Total to West Indian Forces
o
20
20
Totals
Light and medium bombers
35
1,625
3,384
Heavy bombers
Naval patrol bombers
non
2
149
258
112
249
Pursuit
13
1,990
3,354
Army Cooperation
0
197
228
Trainers
20
981
2,493
Grand Total
72
5,054
9,966
- 3 -
176
Table B - Shipments by Types
Week
Total Shipped
Total Shipped
Ending
in 1942
since
Oct.20, 1942
to date
Jan. 1, 1941
teht and Medium Bombers
Boeing Boston III
0
15
39
Brewster Bermuda
10
32
32
Douglas Boston I,II,III
1
27
519
Lockheed Hudson
15
577
1,547
A29A (AC-151)
0
1
1
Ventura I
o
12
12
Ventura Bomber
6
320
320
Martin Marauder 8-26A
o
57
57
Baltimore
2
287
355
Maryland
0
0
150
North American B-25
1
118
118
Northrop Vengeance
0
144
144
Vought-Sikorsky Chesapeake
0
0
50
Vultee Vengeance
o
40
40
eavy Bombers
Boeing B-17
2
44
64
Consolidated Liberator
0
105
194
laval Patrol Bombers
Consolidated Catalina PBY-5B
2
112
249
Pursuit
Bell Airacobra
0
315
469
Brewster Buffale
O
o
168
Curtiss Kittyhawk
o
905
1,287
Tomahawk
0
0
544
Grumman Martlett II
0
57
98
Martlett IV
13
140
140
Lockheed Lightning
0
3
3
North American Mustang
0
565
645
my Cooperation
Fairchild 24 R-9
0
117
139
Pitcairn Autogiro
0
0
5
Vought-Sikorsky 0S2U
0
70
70
Vultee Stinson 049
0
10
14
rainers
Cessna Crane I-A (AT-17)
0
97
97
T-50
0
86
700
Fairchild PT-26 Cornell
10
149
149
North American Harvard II
9
351
1,248
Stearman PT-27
1
298
299
Total
72
5,054
9,966
- 4 -
177
Table C - Plane Shipments to the British by Weeks
Light and
Naval
Army
Week
medium
Heavy
patrol
Coopera-
Ended
bembers
bombers
bombers
Pursuit
tion
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
o
30
141
July 14, 1942
42
11
3
24
o
1
81
July 21, 1942
66
OR
3
0
2
4
83
July 28, 1942
39
0
2
0
6
46
93
August 4, 1942
32
0
4
27
38
8
109
August 11, 1942
59
9
6
70
OR
19
171
August 18, 1942
60
3
7
20
o
11
101
August 25, 1942
25
0
11
26
o
26
88
September 1, 1942
33
o
OR
81
17
28
167
September 8, 1942
31
o
13
11
0
6
61
September 15, 1942
57
o
4
139
6
36
242
September 22, 1942
58
2
2
36
20
35
153
September 29, 1942
30
1
2
9
o
106
148
October 6, 1942
11
1
10
56
0
47
125
October 13, 1942
29
0
4
39
17
81
170
October 20, 1942
35
2
2
13
0
20
72
Total Shipments
since Jan. 1, 1941
to date. 1
3,384
258
249
3,354
228
2,493
9,966
Total includes planes shipped in 1942 prior to March 17 which are not included in the weekly
totals up to that date.
Regraded Unclassified
178
OCT 26 1942
By dear Mr. President:
I - snelesing report on our experts
to some selected countries for the period
ending October 10, 1942.
Faithfully,
(SIGNED) D. W.BELL
Acting Secretary of the Treasury.
the President,
the White House.
MB
FILE COPY
Regraded Unclassified
SECRET
179
October 21, 1942
Experts to Russia, Free China and selected blooked
countries as reported to the Treasury Department
during the ten-day period ending
October 10, 1942.
1. Exports to Russia
Exports to Russia as reported during the ten-day
period ending October 10, 1942 amounted to $14,564,000
as compared with $30,947,000 during the previous ten-
day period. No planes or tanks were reported as ex-
ported during this period. (See Appendix 0.)
2. Exports to Pree China
Exports to Free China as reported during the
period under review amounted to $1,885,000. Military
equipment accounted for sixty-two per cent of the
total. (See Appendix D.)
3. Exports to selected blocked countries
Exports to selected blocked countries are given
in Appendix A. Most important were exports to Switser-
land amounting to $237,000.
ISF/efs
10/23/42
Regraded Unclassified
SECRET
180
APPENDIX A
Sumary of United States Exports to Solected
Countries as Reported to the Treasury Department
from Export Declarations received
During the Period Indicated
(In thousands of dellare)
Total
Total
1.0-day
10-day
Donsatic Exports
Domestic Exports
Period ended
Period ended
Aug. 2, 1942 to
July 28, 1941 to
Date 10, 1942
Sents 30, 1943
Oct. 10. 1942
July Re 1962
3. s. R.
$ 14,564
8 30,947
& 265,071
$ 742,942
China
1,885
902
6,903
97,720
y
3/
ao
394
2,858
itserland
237
338
1,244
11,537
den
3/
1
2,508
18,056
rtagel
2
254
563
9,743
meh North Africa 2/ -
47
2,088
6,305
asury Department, Division of Monotary Research
October 21, 1942
Many of the export declarations are received with a lag of several days e mere.
Therefore this compilation dues not accurately represent the actual shipment of
& particular period.
Includes Merceco, Algeria and Tunisia.
Less than $500.
/ate 10/21/42
Regraded Unclassified
SECRET
APPENDIX B
181
Exports from the U. S. to Free China and U.S.S.R.
ad reported to the Treasury Department
July 28, 1941 - October 10, 1942 z
(Thousands of Dollars)
Exports to
Exports to
Free China
U.S.S.R.
July 28, 1941 - Jan. 24, 1942
8 32,758
$ 98,902
1942
Jan. 26 - Jan. 31
6,938
9,608
feb. 1 - Feb. 10
2/
4,889
13,315
eb. 10 - Feb. 20
4,853
26,174
Feb. 20 - Feb. 28 3/
2,921
28,119
for. 1 - Mar. 10
2,879
32,509
lar. 10 - Mar. 20
8,058
28,556
Mar. 20 - Mar. 31 w
2
42,435
Apr. 1 - Apr. 10
4,836
51,698
.pr. 11 - Apr. 20
5,335
66,906
Apr. 21 - Apr. 30
2,827
50,958
day 1 - May 10
5/
296
28,652
day 11 - May 20
1,872
18,000
7 21 - May 31
4/
2,533
26,180
une 1 - June 10
3,399
12,764
June 11 - June 20
2,707
53.799
June 21 - June 30
1,664
49,919
July 1 - July 10
7,900
35,657
July 11 - July 20
590
33,940
July 21 - July 31 4/
3,066
35,669
Aug. 1 - Aug. 10
208
14,970
lug. 11 - Ang. 20
192
23,325
Aug. 21 - Aug. 31 4/
2,850
112,492
Sept. 1 - Sept.10
855
24,339
Septhill - Sept.20
11
44,434
Bept.21 - Sept.30
902
30,947
Oct. 1 - Oct. 10
1,885
14,564
TOTAL
$ 107,226
$1,008,832
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.
B. 8-day period.
+- 11-day period.
5- Due to changes in reporting procedure by the Department of
Commerce, this report is incomplete for the period indicated.
asury Department, Division of Monetary Research
October 20,1942
ISF/efe 10/20/42
Regraded Unclassified
SECRET
APPENDIX e
182
Principal Exports from U. s. to U. S. S. k.
as reported to the Treasury Department
during the ten-day period ending
October 10, 1942
Value
Unit of
Thousands
Quantity
Quantity
of Dollars)
TOTAL EXPORTS
# 14,564
Principal Items:
Industrial machinery and parts
-
-
2,696
Aluminum and aluminum alloys
Lb.
6,524,920
1,907
Aircraft parts and accessories
-
-
1,746
Copper, brass and bronze bars,
plates, sheets, etc.
Lb.
4,603,687
1,046
Meat products
Lb.
3,707,041
854
Electrical machinery and apparatus
-
-
821
Motor trucks, automobile replacement
parts, engines, etc.
-
-
614
Ammunition
558
.30 caliber balls
No.
978,000
.45 caliber balls
No.
1,646,000
.50 caliber tracers
No.
286,000
.50 armer piereing
No.
300,000
75 mm. high explosive shelle
No.
12,000
Wire and manufactures
-
-
554
Iron and steel billets, bars,
rods, plates, ets.
-
-
497
Dried 065 products
Lb.
455,271
456
Lead, nickel, sine, quick silver
or aeroury
Lb.
1,124,256
365
Leather and manufactures
-
-
287
Explosives
-
-
263
Regraded Unclassified
SECRET
183
PPENDIX e (Con't)
Page 2
Value
Unit of
(Thousands
Quantity
Quantity
of Dollars)
Military trailers
No.
27
136
Sub-machine guns .45 caliber
No.
5,850
118
Parts and accessories for tanks
-
-
37
Parte and accessories for bridge
building
-
-
20
Links and belts for small area
ammunition
No.
100,000
7
Nilitary equipment, n.e.s.
-
-
3
reasury Department, Division of Monetary Research
October 21, 1942
7/efe 10/21/42
SECRET
184
APPENDIX D
Principal Exports from U. S. to Free China
as reported to the Treasury Department
during the ten-day period ending
October 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 1,885
Principal Items:
Military equipment
1,161
Printed matter
255
Tools
146
Electrical machinery and apparatus
83
Lubricating oils
50
Truck, bus and other easings and tubes
45
Wire rope, cable & electric welding rods & wire
40
Writing paper
38
Automobile replacement parts, hand trucks
and push earts
the
Scientifie, surgical and medical instruments
11
Steel bars, plates, ete.
10
Chemicals and related products, n.e.s.
9
Industrial machinery and parts
3
Treasury Department, Division of Monetary Research October 21,1942
MVF/efs 10/21/42
Regraded Unclassified
185
OCT 26 1942
My dear Mr. Secretary:
I as enclosing report on our exports
to some selected countries for the period
ending October 10, 1942.
Sincerely yours,
(SIGNED) D.W. BELL
Acting Secretary of the Treasury.
The Monorable,
The Secretary of State,
Washington, D. 0.
Enclosure
10/21/48
MB
FILE COPY
SECRET
186
October 21, 1942
Exports to Russia, Free China and selected blooked
countries as reported to the Treasury Department
during the ten-day period ending
October 10, 1942.
1. Exports to Russie
Exports to Russia as reported during the ten-
day period ending October 10, 1942 amounted to
$14,564,000 as compared with $30,947,000 during the
previous ten-day period. Military equipment accounted
for G.) about twenty per cent of the total. (See Appendix
2. Experts to Free China
Exports to Free China as reported during the
period under review amounted to $1,885,000. Military
equipment accounted for sixty-two per cent of the
total. (See Appendix D.)
3. Exports to selected blocked countries
Exports to selected blooked countries are given
in Appendix A. Most important were exports to
Swityerland amounting to $237,000.
ISF/efs
10/21/42
Regraded Unclassified
SECRET
187
APPENDEX A
r I Itste I I s
Comtries as Reported to the Treasury Department
from Expert Declarations Reselved
During the Period Indicated
(In Thousands of Dellaws)
Total
Total
10-day
10-day
Exports
Dennstic Reports
Pariod ended
Period ended
mg. 1, 1948 to
July 25, 1941 to
Origher 20,198
s. 8. B.
8 14,964
8 30,947
6 ms,072
s 748,941
- Chian
1,005
908
6,903
97,500
8
394
2,050
seriend
237
330
1,244
11,997
1
2,500
18,056
a
254
see
9,743
rendle Borth Africe a -
47
2,058
6,305
reasery Department, of Montary Records
October 11, 2048
Many of the export declarations are reselved with a lag of several days w mm.
Therefore this compilation does not accurately represent the actual shipment of
a particular partod.
Includes Hursen, Algeria and Tunisia.
Less then 0900.
7/020 10/20/42
Regraded Unclassified
SECRET
APPENDIX B
188
Exports from the U. 5. to Free Chima and U.S.S.R.
as reported to the Treasury Department
July 28, 1941 - October 10, 1942 w
(Thousands of Dollars)
Exports to
Exports to
Free Chim
U.S.S.R.
July 28, 1941 - Jan. 24, 1942
8 32,758
6 98,902
1942
Jam. 26 - Jan. 31
6,938
9,608
Feb. 1 - Feb. 10 3/
4,889
13,315
Feb. 10 - Feb. 20
4,853
26,174
Feb. 20 - Feb. 28 3/
2,921
28,119
Mar. 1 - Ear. 10
2,879
32,50
Mar. 10 - Mar. 20
8,058
28,55
Mar. 20 - Mar. 31
2
42,45
P. 1 - Apr. 10
4,836
2,6
Apr. 11 - Apr. 20
5,335
66,90
Apr. 21 - Apr. 30
2,827
50,9
May 1 - May
10
5/
296
28,6
May 11 - May 20
1,672
18,000
May 21 -
May
31
y
2,533
26,100
June 1 - June 10
3.392
12,764
ao 11 - June 20
2,707
53.79
June 21 - June 30
1,664
July 1 - July 10
7,900
35,657
July 11 - July 20
July 21 - July 31
3,056
Aug. 1 - Aug. 10
208
Aug. 11 - Aug. 20
192
23,329
Aug. 21 - Aug. 32
2,850
118,49
Sept. 1 - Sept.10
855
84,33
Sept.11 - Sept.20
if
44,434
Bept.21 - Sept.30
902
30,947
Oet. 1 - Oct. 10
1,809
100
Total
$ 107,226
$1,006,832
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. 5-day period.
4. 11-day period.
5. Due to changes is reporting procedure by the Department of
Connerce, this report so incomplete for the period indicated.
Treasury Department, Division of Monstary Research
October 20,1942
ISF/efe 10/20/42
Regraded Unclassified
SECRET
189
APPENDIX 0
Principal Exports from U. s. to U. a. 9. R.
as reported to the Treasury Department
during the ten-day period ending
October 10, 1948
(Thousands of Dellars)
TOTAL EXPORTS
# 14,564
Principal Items:
Military equipment
Industrial machinery and parts
2,696
Aluminum and alusinum alleys
Meat preducts
1,907
Electrical machinery and apparates
Meter trucks, auto replacement parts, engines,ete.
Copper bars, pipos, tubes, wire, etc.
wire and manufactures
Iron and steel billets, bare, rode, plates, etc.
Brace and bronse plates, sheets, etc.
Dried $68 products
Lead, nickel, sime and quick silver or sereury
365
Leather and manufactures
287
Rubber and manufactures
234
Gotton manufactures
219
Holybdonum ore and other metal, n.e.s.
216
Toels
174
Geal-tar products
112
Textile manufactures, n.e.s.
102
Dairy products
"
Relief supplies
91
Industrial chemicals
Grains and preparations
RK
Treasury Department, Division of Monetary Research
October 21,1942
MVF/efe 10/21/42
Regraded Unclassified
SECRET
APPENDIX D
190
Principal Exports from U. s. to Free Ohina
as reported to the Treasury Department
during the ten-day period ending
Ceteber 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
6 1,885
Principal Items:
Military equipment
1,161
Printed watter
255
Tools
146
Electrical machinery and apparatus
83
Lubricating oils
50
Truck, bus and other easings and tubes
45
wire repo, cable a cleetrie welding reds & wire
40
Writing paper
38
Automobile replacement parts, hand trueks
and puch earts
24
Scientific, surgical and medical instruments
11
Steel bars, plates, etc.
10
Chemicals and related products, n.e.s.
9
Industrial machinery and parts
3
Treasury Department, Division of Monetary Research October 21,1942
T8962742
Regraded Unclassified
191
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 369
EGYPT.
24th. In the extreme North an enemy counter attack WAS repelled
and our troops mopped up isolated resistance in their original final objective. One
of our armoured brigades was engaged in the evening with German tanks in the area
some 5 miles West of TEL EL MAKH-KHAD but the engagement was inconclusive owing to
poor visibility. The passage of our arsoured forces during the night 24th/25th
through the gap made in the minefield was delayed somewhat by enemy air and artillery
action but eventually. it was completed soon after dawn 25th. There has boen no
major tank battle 80 far but an armoured brigade of the First Armoured Division
was reported in action against German tanks 25th morning and claimed several des-
troyed. In the Southern Sector early on 25th en armoured formation passed through
the gap made in the minefield by our Infantry but WAS held up by anti-tank gun
fire from about 30 German tanks in hull-down position and by intense artillery find
Numorous enemy prisoners were taken during this operation.
OPTEL No. 370
Information received up to 7 A.M., 26th October, 1942.
1. NAVAL
MEDITERRANEAN. A Naval demonstration simulating a sea-borne
landing was timed to co-operate with advance of the Eighth Army at 10 P.M. 22nd.
Three destroyers with eight motor torpedo boats, some tank landing craft and a con-
voy of 4 ships took part. The motor torpodo boats were attacked by aircraft and one
was hit but all ships and craft returned safely.
BLACK SEA. 21st. A Russian submarine sank a medium sized oscorted
ship off the SULINA CANAL.
2. MILITARY
BURMA. 25th. Japanese occupied BUTHEDAUNG and MAUNGDAW, a small
force of our troops opposed them and then with drew across the NAAF RIVER.
3. AIR OPERATIONS
WESTERN FRONT. 24th/25th. MILAN. About 55 tons of bombo were
dropped. 5 New Zealand aircraft took part, two emong those missing. 25th. 1 JU 88
was damaged over this country and 1 Beaufighter destroyed, crew safe. 25th/26th.
A Hudson attacked a tanker off ST. NAZAIRE obtaining near misses.
EGYPT. 23rd/24th. Bombers and Fighter Bombers attacked enemy
gun positions, mechanical transport and camps securing many hits. Bostons laid
smoke screens in front of our troops. 24th. Our main bember offort directed
against enemy mechanical transport near grips in their minefields. Many direct hits
TO vehicles. Our Fighter Bombers successfully attacked mechanical transport in the
bettle area and landing grounds at EL DABA. Special Hurricanes obtained hits on
..B tanks. During this 24 hour period a record of over 1,000 sorties were flown.
any air opposition slight, one Mosserschmidt destroyed. 11 of our sircraft are
bissing.
MALTA. 25th. 160 enemy and 65 Spitfire sorties were flown. At
airdrome one Beaufighter was destroyed and 1 Spitfire damaged. 3 enomy air-
craft were destroyed including 2 by anti-aircraft, one probably destroyed and one
unerged. One Spitfire is missing.
6. HOME SECURITY
Bombs dropped in TORQUAY area killed 18 persons. 6 others were
Lilled and 6 are missing at SEAFORD.
Regraded Unclassified
192
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Oct.26,1942
TO
Secretary Mergenthau
Mr. Heflich
FROM
Subject: United States Military Strategy
The following summarizes briefly the grand military
strategy for the United States as advocated by Colonel
Ivan D. Yeaten of Military Intelligence Service (in
conversation on October 22, 1942):
1. The United States should abandon the policy
of wide dispersion of its ferces. We should concentrate
our full military and naval strength in one area where
it can be effective.
2. We can make most effective use of our full
striking power by concentrating our forces in the Pacific
to deliver a knock-out blow to Japan. This calls for
(1) withdrawing Lend-Lease aid from other areas, includ-
ing Great Britain and Russia, (2) concentrating virtually.
the entire U. S. fleet in the southwest Pacific, (3)
gathering together a great invasion force in Australia,
(4) making our way to Japan step by step, and (5) finally
defeating the Japanese on their own soil. This process
might require a year, possibly longer.
3. After eliminating Japan, we would be in a
position to move through India, Iran, Iraq, Turkey and
the Caucasus, and attack Germany on her eastern front
with our full military strength.
4. This 1s the only possible way to attack Germany.
The Nazis are 80 well prepared all along the European
coastline that an invasion 1s impossible. We cannot
establish an effective second front now in the Middle
East because we cannot transport armed forces to that
area as fast or in as great numbers as Hitler can.
Regraded Unclassified
193
- 2 -
5. It will make little difference if the Nazis, in
the meantime, defeat Russia and Great Britain, and fully
consolidate their grip on all of Europe. Additional man-
power, productive facilities and natural resources have
no military importance for the Nazis, who are already
manufacturing military equipment faster than it is being
destroyed.
Comments: It is interesting to note that Colonel Yeaton's
strategy does not envisage a coalition war, but a. war in
which the United States would proceed entirely on its own,
and, if successful, would emerge as the sole victor.
It would seem that this proposed strategy would fit
perfectly into Hitler's strategy of defeating his enemies
one by one.
No comment is required on (1) the great difficulty of
defeating Japan single-handed in the manner proposed by
Colonel Yeaton, and (2) delaying the attack on German Europe
until our British and Russian allies, with their present
great military strength, have been defeated or greatly
weakened.
Regraded Unclassified