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    "title": "Volume 649, July 15 – July 20, 1943",
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    "ocrText": "DIARY\nBook 649\nJuly 15-20, 1943\nRegraded Unclassified\n- A -\nBook Page\nAmerican Bankers' Association\nSee Financing. Government: War Savings Bonds\n(3rd War Loan Drive)\nAppointments and Resignations\nMaguire, John M. Consulting Expert on simplification of\nInternal Revenue laws - 7/15/43\n649\n48\nTenwell, Lewis (Collector of Internal Revenue, Montana):\nFDR-HMJr correspondence concerning reappointment -\n7/20/43\n333\nArabia, Saudi\nSee Saudi Arabia\n- C - -\nChina\nSee also Foreign Funds Control\nChiang Kai-shek's book on economics - Adler's review of -\n7/17/43\n182\n(Written by Tao, Chiang's aide)\nClark, Bennett C. (Senator, Missouri)\nSee Missouri\nCompulsory Savings\nSee Revenue Revision\nContracts, Renegotiation of\nSee Post-war Planning\nCorrespondence\nMrs. Forbush's mail report - 7/16/43\n120\n- D - -\nDoob, Oscar\nSee Financing, Government: War Savings Bonds\n(3rd War Loan Drive)\n- F -\nFinancing, Government\nFederal Reserve proposal for issuance of 9-months Treasury\nbills discussed in Haas memorandum - 7/19/43\n191\nAugust refunding discussed by Open Market Committee and\nTreasury group - - 7/20/43\n277\na) Press release - 7/22/43: See Book 650, pages 201 and 290\nWar Savings Bonds:\n3rd War Loan Drive:\nConference: present: HMJr, Bell, and Tickton - 7/15/43\n1\na) Ten key States: Allotment for discussed\nAmerican Bankers' Association confers with Treasury on\ntype of securities for drive - 7/15/43\n56.59\na) Memorandum for HMJr - 7/16/43\n111\nb) Discussion by Treasury group - 7/20/43\n297\nRegraded Unclassified\n- y - (Continued)\nBook Page\nFinancing, Government (Continued)\nWar Savings Bonds (Continued):\n3rd War Loan Drive (Continued):\nConference of Treasury group, Burgess and Rouse -\n7/21/43: See Book 650, page 4\na) American Bankers' Association/discussed memorandum\nb) Eccles fears \"tremendous oversubscriptions\":\nwants small banks given a break: Book 650, page 10\nConference of Treasury group and War Finance Committee\nofficers - 7/21/43: Book 650, pages 26 and 61\na) Burgess spokesman for suggestions: Book 650,\npage 40\nb) Comparison of original Treasury goals and those\nproposed by War Finance group: Book 650, page 43\nc) War Finance Committee suggestions accepted:\nBook 650, page 61\nd) Open Market Committee told of acceptance:\nBook 650, page 68\ne) Securities decided upon: Book 650, page 204\nConference of Treasury group and Rouse - 7/21/43:\nBook 650, page 44\nProclamation by FDR - draft of - 7/15/43\n649\n69\nHalifax script on \"We the People\" program\n73\nState Committeemen confer on type of securities -\n7/20/43\n226\nDoob, Oscar: HMJr asks Schenck to lend - 7/22/43\n31,295\na) HMJr thanks Schenck - 7/28/43: Book 652, page 52\nFood\nSee Office of Price Administration\nForeign Funds Control\nEffect of FDR's Order settling Wallace-Jones dispute -\nPaul memorandum - 7/16/43\n142\n\"Crowley will endeavor to get Foreign Funds Control under\nOffice of Economic Warfare\" - HMJr's prophecy - 7/20/43\n267\nChina: Remittances to enemy-occupied China - alternative\nproposal sent by Kung - 7/16/43\n146\nFrench North Africa\nSee Occupied Territories\n- G -\nGarrison, Lloyd K.\nSee United Mine Workers\n- H -\nHalifax, Lord\nSee Financing, Government: War Savings Bonds\n(3rd War Loan Drive)\nHotels\nSee Office of Price Administration\nRegraded Unclassified\n- I -\nBook Page\nInflation\nCompulsory Savings: See Revenue Revision\nItaly\nSee Occupied Territories\n- L - -\nLatin America\nMexico: See Silver\nLend-Lease\nUnited Kingdom:\nFederal Reserve Bank of New York statement showing dollar\ndisbursements, week ending July 7, 1943 - - 7/15/43\n649\n103\nAircraft despatched, week ending July 13, 1943 - British\nAir Commission report . - 7/19/43\n216\n- M - -\nMager, Harold\nSee Public Relations, Division of\nMaguire, John M.\nSee Appointments and Resignations\nMexico\nSee Silver\nMissouri\nTruman, Harry S. (Senator, Missouri): War Finance Committee\nheadquarters move from Jefferson City to St. Louis - -\nHMJr-Truman correspondence - 7/20/43\n315\n(See also Book 650, page 97 - 7/21/43)\na) Clark (Senator, Missouri)-HMJr conversation - 7/23/43:\nBook 650, page 260\nb) HMJr decides on branch office at Jefferson City -\n7/24/43: Book 651, page 10\n- N -\nNorth Africa, French\nSee Occupied Territories\n- 0 -\nOccupied Territories\nFrench North Africa:\nTangiers: State Department's authorization to Legation\nto act as intermediary for cashing United States\nGovernment checks disapproved by Treasury in letter to\nState Department - 7/20/43\n341\nItaly: Military operation expenditures - HMJr recommends\nto Hull unison in negotiations between United States and\nUnited Kingdom - 7/15/43\n97\nRegraded Unclassified\n- 0 - (Continued)\nBook Page\nOffice of Price Administration\nHotels and Restaurants - amounts of food served: Kades\nmemorandum - 7/19/43\n649\n209\na) HMJr's letter to Brown (OPA) - 7/29/43: See Book 652,\npage 211\n- P -\nPost-War Planning\nRenegotiation of Contracts: Patterson-HMJr conversation on\nAttorney General's memorandum - 7/20/43\n268\na) Memorandum for FDR from Patterson with HMJr's\napproval - - 7/20/43\n273\nPublic Relations, Division of\nTo clear through Fred Smith - - 7/20/43\n246\n(Mager, Harold\n(Schwarz, Charles\nOrder signed by HMJr - 7/20/43\n336\n- R - -\nRenegotiation of Contracts\nSee Post-war Planning\nRestaurants\nSee Office of Price Administration\nRevenue Revision\nVinson conference described to Treasury group by Paul\n(memorandum on page 42)- 7/15/43\n22\na) Excess profits tax (two types) discussed\nb) Compulsory savings strongly advocated by Vinson\n44\nStam's (Joint Committee on Taxation) request for all\nTreasury plans under consideration discussed by Treasury\ngroup - 7/20/43\n253\nd) Paul memorandum and copy of memorandum to Stam -\n7/20/43\n326\nb) Richard Gilbert (Department of Commerce) also\napproached by Stam - 7/21/43: See Book 650, page 86\nc) Treasury answer to Stam's request 7/23/43: Book 650,\npage 291\nWithholding Tax: FDR's exemption certificate sent over for\nsignature - 7/20/43\n329\na) Treasury's instructions - 7/29/43: Book 652, page 164\nRoosevelt, Franklin D.\nSee Revenue Revision: Withholding Tax\n- S -\nSaudi Arabia\nStrengthening of ties discussed by White and Treasury group -\n7/20/43\n256\nSchwarz, Charles\nSee Public Relations, Division of\nSilver\nMexico: Purchase of Mexicansilver by Bank of Mexico for\n7/20/43 coinage purposes discussed in Treasury letter to Crowley -\n344\nRegraded Unclassified\n- S - (Continued)\nBook Page\nStabilization Fund\nEarnings and expenses, May and June - White memorandum -\n7/17/43\n649\n173\n- T - -\nTangiers\nSee Occupied Territories: French North Africa\nTaxation\nSee Revenue Revision\nTenwell, Lewis (Collector of Internal Revenue, Montana)\nSee Appointments and Resignations\nTruman, Harry S. (Senator, Missouri)\nSee Missouri\n- U - -\nUnited Mine Workers\nDepartment of Justice investigation discussed by Treasury\ngroup - 7/15/43\n16,35\na) HMJr-Byrnes conversation - 7/20/43\n224\nb) FDR's talk with HMJr reported to Treasury group -\n7/20/43\n238\n- W -\nWar Savings Bonds\nSee Financing, Government\n\"We the People\"\nSee Financing, Government: War Savings Bonds\n(3rd War Loan Drive)\n*\nWartime 7/19/43 Reserves: Division of Tax Research report concerning\n195-B\nRegraded Unclassified\n1\nJuly 15, 1943\n8:40 a.m.\nTHIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Tickton\nH.M.JR: The thought that is running through my mind\nis, they tell me all the time that there are ten key\nStates where we have to get the money. How much money\ndo you have to get out of the ten key States?\nMR. TICKTON: Three-quarters of the money, pretty\nnear.\nH.M.JR: I think what we ought to do is, we ought\nto have whatever they call them - the chairmen of these\nten States - in next week, and lay this thing before them\nand find out on a quota basis. Say, \"Now look, if we\ngive Michigan so much, can you do it? If we give New\nYork so much, can you do it?\"\nNow, there is no use - if I were chairman of the\nState of New York and they gave me a thing which I felt\nwas impossible, it would kill my enthusiasm. On the\nother hand, if they gave me a quota which I thought was\npossible, I would go out to beat it and get more. I\njust put myself in the place - now, this is very nice -\nwith all due respect to Tickton, Lindow, and the rest\nof them - it is their job to set up the statistics, but\nit is somebody else's job to get it. I mean, after\nreading this thing, it just leaves me with the shudders.\nIt just leaves me with the shudders.\nNow, I told them yesterday that it was no good to\nhave four, and they put it down to three. Then they\ncome back this morning with four again.\nMR. BELL: I told you what you were up against\nyesterday was this increase in percentage.\nRegraded Unclassified\n2\n- 2 -\nH.M.JR: Well, that is all right, but the thing to\ndo is this: It is very nice to fix a quota. Any business\nhouse can fix a quota. Then the next thing to do is to\nget in your district sales managers and say, \"Boys, what\ncan you do?\" Before we fix this basket or anything else\nwe have got to find out and have these ten fellows in.\nYou take a fellow like Frank Isbey who did a real\njob in Michigan. He had sixty thousand people out selling,\nyou know. He may say to these fellows, \"Hell, I can do it.\nWhy don't you do what I do in Michigan?\"\nMR. TICKTON: That was Frank's argument when I talked\nto him a few weeks ago. He said among other things he\npulled his punches. He was afraid of trying to do so\nmany things. He did things you didn't get around to\napprove; he went ahead and did them. He was handing out\nbonds to people. He was having people take money; that\nwasn't approved by the Treasury.\nMR. BELL: As a matter of fact, it was disapproved.\nMR. TICKTON: It was against regulations.\nH.M.JR: He did it. We have do things like that.\nWe have to cut corners; we have to take chances. Un-\nfortunately I am all tied up with these damned foreigners\nthis morning - Panama and Uruguay - I have to waste my\ntime shaking hands with them and all the rest of this\nstuff.\nMR. BELL: I would like to have the ten people in.\nI just hate, at this stage of the game, to withdraw\nthem from their organization program. That is the most\nimportant thing they have.\nH.M.JR: Well, two days are better - they had better\nbe in here two days.\nMR. BELL: You are taking them right out of their\norganization program. That is the important thing, Mr.\nSecretary.\nRegraded Unclassified\n3\n- 3 -\nH.M.JR: It is very nice. You fellows - it is very\nnice to do the thing, but the trouble is, supposing I\nsay to Burgess, \"You are going to have forty percent.\nFour times seven are twenty-eight; you are going to have\ntwo billion eight of individual subscriptions in New York\nState.\nHe will say, \"Mr. Morgenthau, the least you can do\nis ask me.\"\nMR. BELL: You have fifty-one chairmen; it is going\nto be difficult to get an agreement.\nH.M.JR: I am not going to, but I want the ten key\nStates in.\nMR. BELL: I would like to have them in. I am just\nhesitating because I know how important it is that they\nget this organization working.\nH.M.JR: Now, we are behind schedule on this basket,\nand it is not my fault. I hear that we are not going to\nget together with the Fed until Friday.\nMR. BELL: We have the bankers here today, and I\ncouldn't get together with them today.\nH.M.JR: They ought to read that thing. They ought\nto read it before they see me. (Indicating financing memoranda.)\nMR. TICKTON: We made ten photostats of that last\nnight for distribution this morning, yes, sir.\nMR. BELL: We are going to give a copy of that to\nEccles.\nH.M.JR: Yes, sure.\nMR. BELL: But we are going over to see Eccles\ntomorrow at ten-thirty. That will be just two hours of\ntalk.\nRegraded Unclassified\n4\n- 4 -\nBurgess will be here Monday - he will be here\nTuesday and Wednesday - come down Monday night. That\nis crowding it a little, but you could have these others\nin, and we could--\nH.M.JR: He is coming when?\nMR. BELL: He will be here Tuesday and wednesday.\nH.M.JR: Maybe we ought to have the others here, too.\nMR. BELL: We could give them an hour--\nH.M.JR: Suppose you had the other nine in here.\nMR. BELL: All right.\nH.M.JR: I am being very honest and frank with you\nfellows. That has got me scared. I am not saying this\nis wonderful and we can do this thing, and all the rest\nof this business, but I want the thing set up, so I am\nletting my emotions run me so that - gee, this is wonderful,\nwe can put this over and get two or three billion over -\ninstead of that, it is just impossible.\nI want a quota which these fellows - which eight out\nof ten will say we can get - nine out of ten - \"And we\nwill do better, Mr. Morgenthau.\" But I don't want ten out\nof ten to say it is impossible. They will say, \"What is\nthe use, we can't do it anyway?\" I know sales psychology.\nMR. BELL: In your own mind, how sacred is this\nincreased percentage?\nH.M.JR: Nothing is sacred.\nMR. BELL: Then I would make the goal fifteen billion,\nand the individual five and a half.\nH.M.JR: Nothing is sacred.\nMR. BELL: I think the figures are going to be hard\nto make when you jump from three billion two to seven\nbillion.\nRegraded Unclassified\n5\n- 5 -\nMR. TICKTON: It is a tough jump; it isn't just\ntough on E bonds alone, it isn't easy for the others.\nH.M.JR: Tickton, you have worked around me, and you\nare doing a beautiful job, but it is one thing to do the\nthing, if you don't mind, on a theoretically ideal basis,\nand it is another thing to give it to them on a basis that\nthey can accomplish it.\nMR. TICKTON: This has been set up, really, with the\nidea that it is very important to be able to explain this\nto Mr. Byrnes and Mr. Baruch to show that we have a program\nthat is making progress. That is the fundamental assumption.\nIf you go on from there, you change it.\nH.M.JR: That is very nice, but--\nMR. TICKTON: It is a practical problem.\nH.M.JR: I am enough of a salesman, and I have done\nenough 8 elling in my life to know that you have to give\na fellow a chance to say, \"I can do at least as well or\nbetter,' and you can't have him licked, the way I feel\nright now, before you start.\nNow, I tell you what we can do: We will go into the\nnine o'clock meeting. That won't take SO long. As soon\nas that is through, I will go into War Finance.\nRegraded Unclassified\nS\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 14,1943\nTO\nSecretary Morgenthau\nFROM\nMr. Haas\nSubject: The Third War Loan\nSummary\n1. The first section of this memorandum out-\nlines a suggested financing program designed to\nyield $16.2 billions in a nonbenking drive conducted\nbetween September 9 and October 2, of which $7 b11-\nlions would come from individuals. This financing\nprogram plus the interim financing program set forth\nin our memorandum entitled \"A Suggested Program for\nMarket Financing Prior to the Sentember Drive\" would\nprovide a volume of funds sufficient to carry the\nTreasury until December. They would accuire for in-\nvestment in Gov rnment securities a volume of funds\nfrom individuals which would recresent 65 percent of\nthe amount of their new savings accumulating between\nMay 1 and September 30 (in place of the 60 percent\nwhich was 80 invested between Janu ry 1 and April 30),\n2.8 set forth in our memorandum entitled \"Financing\nRequirements and Sources of Funds for This Summer\nand the Third War Loan\".\n2. A number of technical and policy matters\nwhich recuire воше attention during your considera-\ntion of the September financing program are 018-\ncuss a in the second section of this memorandum.\nRegraded Unclassified\n7\n- 2 -\nI. General Outline of the Program\nThe financing program set forth below is designed\nto raise $16.2 billions of new money between September 9\nand October 2. These funds plus (1) the amounts of new\nmoney provided according to our memorandum entitled \"A\nSuggested Program for Market Financing Prior to the\nSeptember Drive\", and (2) the amounts derived from savings\nbonds and Treasury savinge notes sold after the September\ndrive should be sufficient -- if bill and certificate\nmaturities are rolled over -- to provide the Treasury with\na comfortable working balance until Docember.\nFinancing Program - Third War Loan Drive\n:\nAmount\nPeriod and Offering\n:\n(In billions\n:\nof dollars)\nA. September 9 to October 2\n1. Individuals:\n(a) E bonds\n4.0\n(b) F and G bonds\n.8\n(c) 2 percent bonds\n.8\n(d) 2-1/2 percent bonds\n1.0\n(e) Treasury savings notes\n.4\n(f) Subtotal\n7.0\nB. September 27 to October 2\n1. Insurance companies and mutual\nsavings banks:\n(a) 2 nercent bonds\n.6\n(b) 2-1/2 percent bonds\n1.7\n(c) 7/8 percent certificates\n.2\n(d) Subtotal\n2.5\n2. \"Other\" corporations:\n(a) F and G bonds\n.2\n(b) 2 percent bonds\n1.1\n(c) 2-1/2 percent bonds\n.7\n(d) 7/8 percent certificates\n3.0\n(e) Treasury savings notes\n1.7\n(f) Subtotal\n6.7\nC. Total program - Third War Loan\n16.2\nIt is pro osed to count all receipts from Treasury savings\nnotes and savings bonds deposited with the Treasury between\nSe tember 1 and October 9 as hart of the drive.\nRegraded Unclassified\n8\n- 3 -\nIn the financing program set forth above it is sug-\ngested that the entire $16.2 billions of new money raised\nby the Third War Loan come from a nonbanking drive, and\nthat about $7 billions of this amount be obtained directly\nfrom individuals. E bonds at 04 billions would provide\nthe major share of the individual money. Bank borrowing\nwould be divorced entirely from the drive,\nIn order to accomplish a war loan drive of the fore-\ngoing magnitude and composition it will be necessary, it\nappears at this time, to change the mechanics of the\noperation from those employed heretofore 80 as to place\nthe entire emphasis of the loan squarely on \"individual\nmoney\". It is suggested in this connection that the\nindividual part of the loan be set off by itself to be\nhandled as separately from the other parts of the loan\nas possible -- separately as to (a) the type of approach\n(b) the timing, end (c) the particular securities offered,\n(a) The type of approach\n(1) The individual part of the Third War Loan will,\nit appears, have to involve an intensified selling cam-\npaign that will dwarf all previous efforts to sell\nGovernment securities to individuals. The smount that\nwill have to be raised is huge when considered from the\npoint of view of subscriptions by the average man, but\nthe figures are disarming in their simplicity. The\ndifficulty of the accomplishment of the job is illustrated\nby the following example:\nAssume that all persons who buy any of\nthe issues other than E bonds have taken\ntheir share of the loan -- $3 billions as\nshown in the table above. Then every one of\nthe 60 million remaining Americans who will\nearn an income during the month of September\n(including the members of the armed forces)\nwill, on the average, have to ut up about\n$70 cash during that month for E bonds if\nthe gorl is to be renched. If the market\ncannot be expanded to beyond, say 40 million\npersons because of the impossibility of ob-\ntaining extended amounts from most of the\npersons with inc mes of $1,000 a year or\nRegraded Unclassified\n9\n- 4 -\nless (including most of the members of the\narmed forces), then the average requirement\nfor each of the 40 million persons will be\nAbout $100 oash during the period of the\ndrive.\nA drive that will reach tens of millions of persons\nand will obtain from them funds in the magnitudes set\nforth above will have to be a drive that is really b1g.\nIt will have to be a campaign which will involve house-\nto-house canverses in every one of the nation's counties;\nbench-to-bench canvasses in every one of the nation's\nfactories; and desk-to-desk CANVASSES nt every one\nof the nation's offices. Many people will have to be\ncanvassed three or four times and urged to subscribe\nthree or four times.\nIt is likely that a drive such as this will have\nto involve sales pressure such as has not been used\nheretofore in a war bond campaign. Security sales to\nindividuals in volumes AB large as those contemplated\ncan be accomplished only on the basis of a series of\ndramatic Appeals to patriotism. Accordingly, every\nperson must be urged to subscribe until it really hurts\nhis spending power -- a level of subscription which would\nbe far above the level a person would ordinarily consider\nas being representative of his ability to buy war bonds.\nA drive such as has been described will, in all\nlikelihood, require public approval by the Treasury and\nthe Federal Reserve of local activities encouraging\nindividuals to withdraw large portions of their bank\naccounts for investment in E bonds. The need for a\npolicy approving bank deposit withdrawals has become\nmore and more evident as the war financing program has\nprogressed, and it should be formulated completely\nbefore the start of the Third War Loan, inasmuch as\nthe success of the drive may well depend upon it.\nSome bankers question whether they can\nafford the drain on their deposits which\nwill result from a vigorous program of\nsales of Government securities to their\ndepositors, but their leaders, as repre-\nsented by the members of the Economic\nPolicy Commission of the American Bankers\nAssociation, are in favor of a deposit-\nwithdrawal-for-Government-security-invest-\nment policy. In the Commission's report\non the \"$100 Billions Budget, and The Banks\"\nRegraded Unclassified\n10\n- 5 -\na copy of which was sent you some months ago\nby Mr. Randolph Burgess, bankers were advised\nto look upon such deposit withdrawale with\ncomplacency. The report explained, you will\nrecall, that \"as the deposits go out through\ncustomer subscriptions for bonds or through\nGovernment withdrawals, there is reasonable\ncertainty that over A veriod they will return,\nthough usually under different ownership\".\n(2) The corporation eart of the Third War Loan will\ninvolve a different type of approach from the foregoing\nand might well be handled as a custom-made \"Special\nnames\" Job. The patriotic nopeal might be used, but\nthe investment approach would probably be adequate.\nIt is important, however, that every corporation that\nmight be a candidate for A subscription to the Third\nWar Loan be listed before the campaign starts and be\nassigned by name to a particular \"drive solicitor\".\nThis would eliminate duplicate solicitation, and would\nprovide an economy of effort. These representatives\nshould, moreover, be matched to the corporations in a\nmanner which would achieve the most effective use of\nsales personnel.\nThe Job of preparing lists of corporations and dis-\ntributing the names among salesmen 18 considerable, but\nit sounds larger than it really 18. There are, it is\nlikely, less than 100,000 corporations whose names would\nappear on lists of likely candidates for subscriptions\nto the issues offered in the Third War Loan, and 8. con-\nsiderable proportion of the names could be obtained\nfrom past records of subscriptions and from other sources.\n(b) Timing\nThe Third War Loan will involve some new angles\nwith respect to timing if the operation is divided as\nset forth above, because the two parte of the operation\nwill not be similar to each other. The corporation\npart will be one that can be accom lished within a\nrelatively short period of time - A week would prob-\nably be sufficient -- for there should be no obstacle\nto obtaining corporation subscriptions promotly. The\nsituation WAB well illustrated in April when 60 percent\nof the money obtained from nonbanking corporations was\nreceived during the first week of the drive, notwith-\nstanding the fact that there was an interest advantage\nto postponing the purchase of tax notes to the month end.\nRegraded Unclassified\n11\n- 6 -\nThe individual part of the Third War Loan will, on\nthe other hand, require three or four weeks to complete\nif the extensive canvasses that are suggested are to be\naccomplished. With this in mind, it is suggested that\nthe individual drive start on Thursday, September 9, and\nextend to Saturday, October 2, with accounting permitted\nuntil Saturday, October 9, to take in all the savings\nbonds sold during the drive. Books for the corporation\noffering might be opened on Nonday, September 27, it 1s\nsuggested, and close on Saturday, October 2, Advertising\ncould be coordinated so that it would introduce the cor-\nporation part of the drive at the same time that it\nserved to sour the wind-up of the drive for individual\nsubscriptions.\nTiming in the foregoing manner would make it pos-\nsible to conduct the individual campaign unclouded for\nthree weeks by a coincident appeal to corporation in-\nvestors. The public would thereby be spared the con-\nfusion that results when large figures are announced\nin a combined campaign as early subscriptions from\ninsurance companies and other corporations roll in.\n(c) The particular securities offered.\nIn a campaign directed toward extensive purchases of\nGovernment securities by individual investors it would be\ndesirable to offer as many securities as is necessary to\ncover the market. In the Third War Loan drive it is Bug-\ngested that individuals be offered:\n1. E, F, and G savings bonds for the\nsmaller purchasers;\n2. Scries C savings notes for the large\ninvestor who wishes a short-term security;\n3. An intermediate bond -- say a 2 percent\nissue -- for medium termed investment, and\n4. À 2-1/2 percent bond for the individual\ninvestor who desires a long-term instrument.\nThese Issues would satisfy the re uirements of most\nindividual investors. Two of them -- the E Lonis and\n2-1/2 percent issue -- accounted for 10 percent of the\nindividual money in April.\nRegraded Unclassified\n12\n- 7 -\nCorporations would be adequately provided for by an\noffer of:\n1. 7/8 percent certificates,\n2. Series C savings notes,\n3. F and G bonds,\n4. 2 percent bonds, and\n5. 2-1/2 percent bonds.\nBills are removed from the basket, it is noted and,\nif used at all, would be considered outside of the drive.\nII. Technical and Policy Matters Which\nWill Require Some Attention\nThere are a number of important technical and policy\nmatters which will require some attention during your con-\nsideration of the September financing. They are discussed\nbriefly in the following paragraphs.\n(1) Certificates in the basket. A 7/8 percent certi-\nficate is suggested for the basket in order to attract the\nfunds arising from current corporate accumulations -- funds\naccumulating in depreciation reserves which cannot Le rein-\nvested in new equipment, arisin from accounts receivable\nrepayments and 601ng into tax reserves. These accumulations\nare short-termed in nature and it cannot be expected that\ncorporations will wish to keep them invested beyond the\nduration of the war. Many corporations consiler a three or\nfour year note too long for these funds and accordingly,\nsuch a security 18 unlikely to attract as large E proportion\nof the funds available as a one ye 1\" certificate. Moreover,\neven if corporations were persuaded to purchase such a\nsecurity, the Treasury would have gained no real advantage\nfrom their action. Instead a future market problem would\nhave been insured should corporations wish to licuidate the\nbulk of the issue at some period prior to its maturity Le-\ncause of the termination of the war. With respect to\nSeries C notes, they too do not seem to be a wholly setio-\nfactory security for all corporate accumulations. Many\ncorporations prefer the certificate type of instrument and\ntheir wishes on this account mi ht well be respected. In\nApril, it 1s recalled, the certificates outsold Series C\nnotes by nearly vl billions.\n(2) Leakage to commercial tanks. Eliminative commer-\ncirl banks from participation in t.e T..ird Mar Loan will\nrise to a technical prollem with rer ect to the 1ssue of\n2 percent bonds and certificates -- ..SW to prevent banks from\nsetting out to acquire the 1sewer 13 entering subscriptions\nRegraded Unclassified\n13\n- 8 -\nindirectly through dealers and brokers or other inter-\nmediaries. This matter could be controlled, it 18 su_-\ngested, by eliming ting dealers and brokers from the\ndrive as far as the certificate and 2 percent issues are\nconcerned -- they could, however, enter subscriptions\nfor the 2-1/2 percent bonds. With respect to other in-\nvestors who m1,ht act as intermediaries, it is sug ested\nthat the matter be controlled by Federal Reserve policing,\noperating under a public announcement by the Secretary\nthat the certificates and : percent tonds issued during\nthe drive were intended only for nonbanking investors and\nthat one or both of the issues would Le offered to banks\nafter the drive closed.\n(3) Details of the 2-1/2's. The 2-1/2 agreent lond\nsu - ested for inclusion in the Fusket mint be a December\n1964-69 or a March 1965-70. The issue should Vear the\nconditions, includin restrictions as the ownership, AE the\n2-1/2 percent bond issued in April, and should Le dated\nSeptember 15 BO that interest calculations during the first\nweek of the drive might be eliminated. The September 15\ndating would, of course, mean that subscriptions for all\nP-1/2's sold during the corporation part of the drive would\nhave to be tendered at par and accrued interest. Some cor-\nporations might, of course, prefer that the issue be dated\nSeptember 30 and offered for subscription at par, lut it is\nexpected that no considerable objection to the suggested\ndating 1s likely to arise on this account. The September 15\ndating would permit sales of this issue to individuals to be\ndefinitely tied down during the early part of the drive.\n(4) 2-1/2's to refund the 1943-45 bonds. The 2-1/2\npercent bond offered in the drive would be made available to\nrefund such portion of the 3-1/4 percent bonds of 1943-45\ncalled for payment on October 15, as were tendered for ex-\nchange as discussed in our memorandum on \"A Subjested Program\nfor Market Financing Prior to the September Drive. The\namount of 2-1/2 percent bonds for which subscriptions were\nso entered would be excluded from the ures on the drive.\n(5) Free ride on the 2-1/2 percent bonds. The separate\ntiming of the individual part and the corporation part of the\nThird War Loan 80 that corporation subscriptions will be held\noff for about three weeks may give rise to a minor \"free ride\"\nproblem. Some individuals and dealers and brokers might buy\nthe 2-1/2 percent bond for the purpose of transferring the\nsecurities obtained immediately at & slight profit to insur-\nance companies and other corporations whose investment funds\nwould be waiting in the market. A deferment-in-trading-while-\nthe-books-are-open request may serve to reduce the volume of\nsuch transactions. With respect to large subscriptions, more-\nover, the Treasury could further control the problem by delay-\ning delivery on subscriptions specifying large denomination\nRegraded Unclassified\n14\na I I\n1.000 -- BES, 1000s of 100,000 or over -- until the\n100% of the cor voration portion of the Third War Loan\nmid Leen opened.\n(o) 2 tond ownership. It 1£ su gested th t con-\nsileration be Iven egain to opening E lon's to all\ninvestors other then commercial banks IIF of September 1,\n2947. No change in the limitation on the amount avail-\nalle for urchase from the present 13,750 issue price\nwill Le made. This proposal is in line with the ol Jeo-\nlive of mekin the E bond the \"poor man's\" security, and\nof sellin_ only E bonds to investors of this class until\nthe 11:11 of sure ases has been re: ched. Many clubs,\nassociations, unions, church or animations, women's _roups,\nolitional or unisations, Lenefit societies, and Craternal,\nCopel and recil roups, as well as many corporations\n...1c.. are the sursonal Businesses of small merchants, sales-\nme, endors have funce mich can well be placed in\nHany of the social and volitical Junes are active-\n:, remoting E jon's, and their efforts are likely to Le\n11.11 ted in the September drive. The availability of E bonds\nfor urchase by their own or animations may to much to gain\nentraciasm among colemen telen from these groups.\n(7) E bond promotion. The amount set forth as the\nStone yoal in September -- 24 billions -- 16 ore than\n2-1/2 times the amount of such bonds sold urine the Second\nMr Loan, This proposed volume of sales can Le accountished\nonly by concentr. ting the selling effort on $100 bonds for\nthe average man in place of 425 bonds. It would Le poor\nsales psychology and an obvious lack of economy in sales\nremotion and advertising effort to Luild a compaign that\nneeds to raise 24 billions around a denomination bringing\nDE little as 218. 75 from each viece sold.\n(=) E Lond delivery. Assuming that substantial pro-\nress 18 made in raising t..e number of $100 and higher de-\nnomination E bonds sold, the Third War Loan may still\ninvolve the issuance of as many as twice the number of\nvieces sold during the April drive. Accordingly, the Treas-\nury should be prepared for the issuance of more than 60\nmillion separate bends in the 3 or it weeks of the drive.\nThis 1s no small order and it will be made no easier by the\nfact that door-to-door compaigns depend for their success\non rapid delivery of Londs -- certainly delivery no later\nthan 48 hours after the application has been made. It 1s\nlikely that the operation will have to be still further\ndecentralized, and in large cities may have to be carried\ndown as for as to local neighborhoods. This extension of\nthe issuing operation may involve some liberalization in\nthe procedures new being followed.\nRegraded Unclassified\n15\n- 10 -\n(9) F and G bonds. We are withdrawing for the\nmoment our recommendation that F and G bonds be dis-\ncontinued and are, you will have noted, proposing that\nthey De included in the drive. We make this new recom-\nmendation because we feel that the proponents of a small-\ndenomination coupon bond would use the withdrawal of F\nAnd 3 bonds as a signal to intensify their demands for\nsuch denominations.\nIt is noted in this connection, there are a great\nny persons who have $5,000 to $10,000 idle cash avail-\nable, out whose income is less than $5,000 a year. Store-\nkeepere who have suffered inventory declines or reductions\nin their accounts receivable are in this class; so are\nmany members of the armed forces who have licuidated their\nbusinesses and disposed of their personal property or\nforms: nno any war workers who have moved to new commu-\nnitice ano are living in trailers or furnished rooms and\nnola in the bank the funds derived from the sale of their\nnomes and furniture. There eoble are not equipped to\nface the arket rick involved in the purchase of negoti-\nrule securities. The Third War Loan will, however, make\nan effort to obtain their funcs for investment in\nJoy rement obli tions -- if withorewel of bank balances\n19 nevocated. A security available in small denominations\nbeyond the E bond limit appears to be necessary, there-\nfore, incrmuch as aevoce tes of a low-denomination coupon\nis no will submit there Deople 80 examples of the market\nthat 1e not covered by a $500 minimum denomination nego-\ntiable bone.\n(10) Federal agencies and trust funds. The program\nfor the Third War Loan drive, set forth in this memorandum,\nexcludes any amounts that might be obtained in September\nfrom subscriptions by Federal agencies and trust funds.\nRegraded Unclassified\n16\nJuly 15, 1943\n9:00 a.m.\nGROUP\nPresent: Mr. Bell\nMr. Gaston\nMr. Sullivan\nMr. White\nMr. Haas\nMr. Thompson\nMr. Paul\nMr. Smith\nMr. Gamble\nCaptain Kades\nMrs. Klotz\nH.M.JR: Paul, have you seen this? (Indicating\nJuly 10 Chicago News clipping regarding United Mine\nworkers.)\nMR. PAUL: Yes, I sent it in to you yesterday.\nH.M.JR: Did you ever consult with that labor man?\nMR. PAUL: I just went over that letter yesterday -\nit proves--\nH.M.JR: What?\nMR. PAUL: It proves that there were plenty of other\nmotivations besides - concealment besides the income tax.\nH.M.JR: Is there any case?\nMR. PAUL: No income tax case.\nH.M.JR: No, but are there others?\nMR. PAUL: Yes, I think there are others.\nRegraded Unclassified\n17\n- 2 -\nH.M.JR: Where is the memorandum?\nMR. PAUL: It is on the way in.\nH.M.JR: To me?\nMR. PAUL: Yes. I told her to make a copy.\nH.M.JR: What I want to ask is this: I will be asked\nat press conference about the Chicago Daily News story which\nsays that--\nMR. FAUL: Read particularly the last paragraph.\nH.M.JR: Anyway, the gist of it is that there is a\nreport of an investigation of Mine B - you summarize the\nthing - there is a Treasury report investigating this whole\nquestion of Mine B, United Mine Workers, over in the\nDepartment of Justice. Now, I am going to be--\nMR. PAUL: There is 8 little implication that the\nJustice Department has been dilatory about it or is block-\ning it, or something of that sort.\nH.M.JR: That doesn't for the moment interest me. What\nI want to know is when the press asks me at ten-thirty, \"Is\nthere such a report, Mr. Morgenthau; is it over at the Depart-\nment of Justice, can I say, \"Yes\"?\nMR. PAUL: I don't see what else you can say if you\nsay anything. That is true.\nH.M.JR: Is it illegal to say yes? Any reason why I\ncan't say yes?\nMR. GASTON: The Department of Justice has already\nconfirmed that there is such a report over there through\ntheir Public Relations man. I would be inclined to say,\n\"I am sorry, I can't say anything about it.\"\nH.M.JR: That doesn't satisfy me, Herbert.\nMR. PAUL: I got a report yesterday that the Justice\nDepartment, which must have leaked this story - I don't\nRegraded Unclassified\n18\n- 3 -\nknow where it could have been leaked otherwise - is very\nsore about the way they have been treated here in this\nstory.\nH.M.JR: Who is sore?\nMR. PAUL: Justice, including the Attorney General.\nH.M.JR: And there must be a leak, you say, in the--\nMR. PAUL: I surmised that owing to the methods they\nhave of not taking care of papers and everything - our\nassistant general counsel was over there for six months,\nand he says that you can get anything out of the Justice\nDepartment just by walking around and looking on people's\ndesks.\nH.M.JR: I still come back to the fact that this is\nimportant, and I don't want to do anything - did you send\nme this?\nMR. PAUL: Yes, I sent that in to you. I had a lot\nof trouble getting a copy of it.\nH.M.JR: Now, is there any reason - if they ask me,\n\"Mr. Morgenthau, is there such a report, and is it over\nat the Department of Justice,' is there any reason why I\ncan't simply say, \"Yes. If you want to know anything about\nit you have to see the Department of Justice\"? What harm\nis there in that? Do you mind for one minute - before we\ncome to the public relations, let's get the law straight\non this thing.\nMR. PAUL: I am not sure. I think I had better check\non that legal end of it; I am not sure. I think that only\ncovers the disclosure of anything in returns and doesn't\nrefer to pendency of investigation. I think in view of the\nimportance of this I had better check.\nH.M.JR: Could you be back at ten-twenty-five and\nlet me know - you and Kades?\nMR. PAUL: We can check that in ten minutes.\nRegraded Unclassified\n19\n- 4 -\nH.M.JR: Yes, but I am going to be busy. I want to\nknow, because the St. Louis Post-Dispatch, which is just\nacross the border from this B Mine, and P.M., want to\nknow about it. They are going to ask me.\nI want to know if I can simply say, \"Yes, there is\nsuch a report.\" If they say, \"Where is it?\" I will say,\n\"Over at the Department of Justice.\" That is all I\ncan say, gentlemen. That is all I want to say.\nMR. PAUL: There is only one thing that might be\nsuggested. It hasn't been over there very long. One\nmight almost give the date if you are going to give\nanything.\nH.M.JR: No, I don't want to do that.\nMR. PAUL: That is only for their protection.\nH.M.JR: Why should I worry about protecting them?\nMR. PAUL: You shouldn't - you should; they would\nappreciate it.\nH.M.JR: What?\nMR. PAUL: I think they would appreciate your\nsaying that much about this, because this story sounds as\nif it has been over there for a year or something like\nthat and they were very dilatory.\nH.M.JR: Well, don't worry too much about the Depart-\nment of Justice on this thing. I mean, right in the room,\nI don't want to do anything to dampen this story. And I\nam not using my imagination. Now, Herbert?\nMR. GASTON: In the first place, you can't tell them\nanything they don't know. The Post-Dispatch man ran across\nour man while he was investigating the case. He knew from\nother sources that we were investigating. Hartman admitted\nto him that we were investigating the case. That has all\nbeen printed in the Post-Dispatch. Yesterday they confirmed\nRegraded Unclassified\n20\n- 5 -\nit at the Department of Justice that the Treasury had\ndelivered 8 report over there. It was officially con-\nfirmed through the Public Relations Office in the Depart-\nment of Justice.\nI don't think there is anything you can tell them\nthat they don't know. I think you can tell them, \"You\nknow everything about this case that I am able to tell you.\nThere is nothing I can ell you about the case that you\ndon't already know.\"\nH.M.JR: Now, Herbert, you are a newspaperman; this\nisn't going to satisfy you at all.\nMR. GASTON: As far as I can see, it has been admitted\nby the Department of Justice that the thing is over there,\nso there probably isn't any practical difficulty in your\nadmitting that it is over there. Whether there is a legal\ndifficulty or not if you wanted to admit - as I say, you\ncan't tell them anything they don't know.\nH.M.JR: Let's say, \"My General Counsel and my Special\nAssistant, Mr. Kades, tell me, legally, it is over at the\n\"\nDepartment of Justice, and that is all I can say, gentlemen.\nIs there any objection to that?\nMR. GASTON: Not the slightest.\nH.M.JR: Fred?\nMR. SMITH: If it is true they confirmed it, say, \"I\nunderstand they confirmed it.\"\nH.M.JR: I don't know; I haven't been advised officially\nthat they have or have not confirmed it.\nMR. GASTON: My only objection to that is that that\nwill lead to their asking -some more questions, \"What did\nyou find? Is there & tax case?\" and so on.\nH.M.JR: \"No, we followed the usual procedure and the\nmatter has been forwarded to the Department of Justice for\naction, or \"for such action as they deem fit.\" That is\nall I can say.\nRegraded Unclassified\n21\n- 6 -\nMR. PAUL: Mr. Garrison points out that there is a\npretty clear case against the employer for violation of\nthe Wagner Act. There might be a conspiracy on the part\nof labor to assist in the violation of that Act, and there\nis a possibility of conspiracy to restrain commerce in\nviolation of the Sherman Act, and there might be some\nviolation of some State prohibition against bribery.\nH.M.JR: Can I forward that to the President? (Indicating\nletter dated July 7, 1943, from Lloyd Gattison to Mr. Paul)\nMR. PAUL: Sure. I see that copies haven't been\nmade. I will rush a copy off to you.\nH.M.JR: Is there only one copy?\nMR. PAUL: That is all I have.\nMR. GASTON: If here is bribery, I don't see how\nyou can escape the conclusion that there is also tax\nevasion. If there is bribery, it seems to me there is\nconspiracy. If there is conspiracy, there is evasion of\ntaxes.\nMR. WHITE: He might have reported income under some\nother head.\nMR. GASTON: No he didn't; he admits it.\nMR. SULLIVAN: Of course, as you know, I agree with\nHerb. I thought we had a case of conspiracy to avoid the\ntax laws. I have nothing new to add.\nH.M.JR: I have been waiting for this (Indicating\nMr. Garrison's letter).\nMR. PAUL: I didn't know about it until yesterday.\nH.M.JR: This is hot, and I have been waiting for it.\nMR. PAUL: I think you might send along with it the\nletter to which this is an answer which summarizes the\nfacts.\nH.M.JR: All right.\nRegraded Unclassified\n22\n- 7 -\nMR. PAUL: You see, we have presented hypothetical\nquestions; otherwise we would be violating the law about\ndisclosure of returns.\nH.M.JR: Get it in. I have been awfully keen on\nthis thing. If I had had this earlier it would have been\nhelpful. Anyway, you come in at ten twenty-five, will you -\nyou and Kades - and let me know?\nMR. PAUL: All right.\nH.M.JR: And Kades, I tell you what you might do.\nBetween now and ten-thirty you might read both of those\nletters.\nCAPT. KADES: Yes, sir.\nH.M.JR: Now would you, Mr. Paul, tell this group -\nbecause I have the group down now to where we can talk\nabout important things - I would like to know what happened\nyesterday over with Fred Vinson. I would like the whole\nstory.\nMR. PAUL: I was going to write up 8 memorandum this\nmorning. The conference lasted from two-thirty to five-\nthirty. Vinson was there. Stam brought with him two of\nhis assistants - Pete - whatever his name is - and Randolph.\nH.M.JR: Talk a little louder.\nMR. PAUL: Stam brought with him two of his assistants.\nThere was a man there who was a new assistant to Vinson;\nI forget his name. There was 8 man named Stark, whom I\nthought was still with Byrnes; but it seems, when I raised\nthe point, that he has been assigned over to Vinson, at\nleast on tax matters.\nMR. BELL: He is the Federal Reserve man.\nMR. PAUL: Yes. He has been with Byrnes for some\ntime.\nRegraded Unclassified\n23\n- 8 -\nA long speech was made by Vinson about a united\nfront on taxation, and at the end of that I said, \"Well,\nsince Mr. Stark is here and we want to think about a\nunited front, I wonder what about Mr.\" - the Budget man -\n\"and also, would Marriner Eccles be interested in a con-\nference.' I was doing that partly to see if I could\nlead Vinson into a disclosure - more of 8. disclosure of\nwhat his position was.\nHe rose to that and seemed very annoyed. He said\nthat he didn't want to have any town meeting - the he\nwas always glad to hear from any of these people, but he\ndidn't see any reason for calling them into a conference.\nAfter that episode we went on and discussed the tax\nproblem.\nH.M.JR: That annoyed him?\nMR. PAUL: Yes, it did annoy him.\nH.M.JR: That is funny, isn't it?\nMR. PAUL: And he acted as if he was annoyed on the\nground that I was trying to tell him something about how\nyou operate on the tax bill. He referred at one time to\na postgraduate course - that he had to take time to take\na postgraduate course in getting a tax bill through.\nI said that we in the Treasury had always been careful\nto discuss these matters with all the different people in\nthe Administration who had a legitimate interest.\nThen we went into a long discussion of the excess\nprofits tax. We discussed two types of individual excess\nprofits taxes, the one that is usually thought of by people,\nwhich is a tax on increase in income; and also a tax from\nanother angle, putting the rates up, but giving relief to\npeople who had no increase in income, or decrease, or who\nhad debts to pay, or high medical expenses and such things.\nStark was very much in favor of the latter type.\nStam made the point that he - that the ways and\nMeans Committee had passed a resolution calling for a\nRegraded Unclassified\n24\n- 9 -\nreport from us and Stam on the possibility of such a tax.\nThe only references - I have never seen anything from the\nCommittee about that. The only thing I have ever seen\nabout it was in the newspapers.\nH.M.JR: May I interrupt you?\nMR. PAUL: But--\nH.M.JR: May I interrupt you, because I get the feeling -\nI am more interested in the personal relations angle. Did\nyou get the feeling that Vinson has sort of assumed the\nrole of leadership in this thing?\nMR. PAUL: I tried my best - at one time he made the\nstatement - and I noted it in my memory - - \"I don't want to\ndictate what is in the tax bill.\"\nH.M.JR: Could I again interrupt you? You see - let's\ngo back a little bit. Some of you know about this very\nunpleasant incident at Cabinet last week where the President\ncalled on Vinson and I thought he would say something about\nprices or something. Instead, he started to give 8 report\non the tax bill, how he had done this and done that. Well,\nI felt that the President had had enough fights 80 I kept\nquiet. It turned out all right. The President more or less\npicked up my fight for me before the thing got through.\nI have asked Paul to sort of sound this thing out,\nbecause I feel - and I think Paul agrees with me - that\nit is much better to have a showdown now with Vinson rather\nthan work all summer and find after we do all the work he\nhas no assistant - he uses our brain. Because, if he is\ngoing to do it, the time to know it is now.\nNow, I want to sit down and have a face-to-face talk\nwith him, because that isn't my understanding with the\nPresident at all.\nMR. PAUL: I couldn't tell; I tried several leading\nquestions--\nH.M.JR: Well, he is smart.\nRegraded Unclassified\n25\n- 10 -\nMR. PAUL:\nto get him to tell what he considered\nhis function, and the only word that he used that gave me\nany lead was this, that he didn't want to dictate the tax\nbill.\nH.M.JR: I think next week I had better just get hold\nof him some way or other and just have 8 face-to-face talk\nwith him. If necessary, I will go call on him, because I\nam not going to be in this--\nMR. PAUL: I got kind of an unpleasant taste in my\nmouth all through the conference. I felt that Vinson was\nbeing terrifically political about the thing and wasn't\nthinking - he made a lot of speeches against inflation,\ntrue, and he seemed to be at odds with Stam in that he\nwanted more taxes than Stam. But he didn't seem to have\nany grasp of the problem at all as he had seemed to have\nat the previous conferences when there have been two or\nthree of us at lunch together.\nH.M.JR: I am going to let you dictate this thing and I\nwill read it. If anybody in this group wants to read it,\nyou can lend them a copy. That will save time. They\ncan apply to you to borrow a copy if they want to read\nit. They can read it and then return it to your office.\nI think that will save time. But I would like a copy,\nand if you would - somebody - George and somebody else -\nis going to come up and see me Saturday on the farm.\nI want you (Haas) there Saturday morning and Sunday. You\nhad better get to Poughkeepsie Friday night, if you don't\nmind. Who will you take with you?\nMR. HAAS: I think I had better take the Source of\nFunds man, Lindow, probably.\nH.M.JR: What about Tickton?\nMR. HAAS: O.K. He is specializing on the quota\narrangement.\nH.M.JR: I think you had better have both. If you\ndon't mind getting there Friday night I will work with you\nRegraded Unclassified\n26\n- 11 -\nSaturday morning. Maybe we can put in a couple of hours\nSaturday morning, and then I will let you get through and\ngo to New York to see a show.\nMR. HAAS: That will be fine.\nH.M.JR: So I think - then if you could give it to\nGeorge, he can bring it up.\nMR. PAUL: All right.\nH.M.JR: What I would like to do is this: You give\nme that; I want to read it. Then if anybody else wants\nto read it, they can borrow it and read it.\nLet me go around briefly. How long would it take -\nI want, immediately after this meeting - I would like to\ntake ten or fifteen minutes - I have something which I\nthink is important to say to you people in connection\nwith War Finance.\nWho do you want over here from your organization?\nMR. GAMBLE: Louis and Coyne.\nH.M.JR: Herbert?\nMR. GASTON: I haven't anything special. I have a\nletter that I want to talk with you about sometime when\nit is convenient which you sent to me to talk to you\nabout.\nH.M.JR: Now, just so we know, I have told Mr. Bell\nbecause he will be Acting Secretary tomorrow and Saturday.\nHe knows the whole inside story about this John L. Lewis\nthing. I have told it to one person, so if anything\nbreaks on it or anything happens, Bell knows. He has to\nknow, because he is going to Cabinet.\nMR. BELL: I would like to read that report, if I\nmay, before I go.\nH.M.JR: All right. I think you ought to read the\nreport I send to the President.\nRegraded Unclassified\n27\n- 12 -\nMR. BELL: Is that Paul?\nH.M.JR: Elmer Irey. I think you had better send\nfor Elmer. There is some stuff going on which is all to\nthe good.\nMR. SULLIVAN: I don't understand. Last fall Biddle\nsaid, \"For heaven's sake, why can't we get this fellow\nLewis?\"\nH.M.JR: Who?\nMR. SULLIVAN: Biddle, to me in his own office.\nH.M.JR: They tell me he wants to run for Senator\nfor Pennsylvania. They also tell me there are quite a\nfew coal miners in Pennsylvania. (Laughter)\nMR. SULLIVAN: So I heard.\nH.M.JR: The unfortunate thing in this town, if I may\nmoralize a little bit, is that there are so many people\nwho have lightning rods up, and they are looking at the\nlightning, waiting for it to strike. If they only realized\nthat if they took a thing like this and did a bang-up job,\nthat would elect them to office. Instead of that, they\nare doing this and that - they are shadow-boxing. On the\nother hand, if they did a bang-up thing, hell, the people\nof Pennsylvania would sweep them into office. But he will\nnever be swept in if he dodges this one.\nHerbert, if it isn't too late, could you write to\nyour friend Saul Haas - I think it would be better to have\nthat special, special stuff sent here.\nMR. GASTON: All right.\nH.M.JR: You might send him another airmail letter.\nJohn?\nMR. SULLIVAN: I reached the Chief Justice. It was a\nvery good thing I did, because he was appalled at the idea\nRegraded Unclassified\n28\n- 13 -\nof his picture being used. As 8 matter of fact, he said,\n\"I am not too happy about the letter in an advertisement.\"\nI said, \"You remember I told you we were using the\nPresident's letter.'\nHe said, \"Oh yes, I can't object to that. I just would\nfeel happier - but I am not going to object to that.\" He\nvery definitely objected to the use of the picture.\nH.M.JR: O.K. Anything else?\nMR. SULLIVAN: I had lunch with Donald Nelson Tuesday.\nWe discussed the Procurement matter, and he was heartily\nin accord with my plans on that and offered the use of all\nof his facilities.\nH.M.JR: Thatis the surplus to be handled--\nMR. SULLIVAN: during the war on everything except\nArmy and Navy and such things as Army and Navy turn over.\nHe seemed particularly interested in my desire to talk\nwith the Army and Navy and see if we couldn't have a real\nsurvey of their inventories and shake loose from them the\nthings that they really don't need, at least for the present.\nHe feels very strongly that we, and not the Army and\nNavy, should dispose of it.\nMR. BELL: Does that include the plants?\nMR. SULLIVAN: We don't know, Dan. There are a lot\nof things on the fringe there.\nI had lunch with Jim Scott of the Bureau of the Budget.\nThe Budget and Mack hadn't been getting along too well. It\nlooked as though Budget was trying to horn in. I am pretty\nwell satisfied, after my conversation with Scott that we\nwon't have any substantial trouble with them for the time\nbeing--\nH.M.JR: I hope you are right.\nRegraded Unclassified\n29\n- 14 -\nMR. SULLIVAN:\non the disposal of the huge\nstocks after the war, but that is something else. But\nI think if we do a good job between now and the armistice\nand have a real plan and are ready to go to town, then\nit will have to come to us.\nFred and I have been talking about publicity on the\nSeptember 15 matter, and the Bureau and I feel very\nstrongly that there should be no publicity until the\nforms are out. Whenever there is any publicity, they\ncome after us for forms. If they are not there, they\nwrite to their Congressmen, and we have quite a time.\nFred feels that this should be divided into two\nparts: first start in now, telling them there is something\ncoming September 15; and when the tax forms come out,\ngive them the technical advice about filling them out.\nI understand he is getting out a memorandum on that today.\nMR. SMITH: Yes. The only thing is, you have two\nsurprises coming to the bulk of the people.\nThe first is that you have to do something on September\n15. Then what you are going to have to do - there are\ntwo separate and distinct surprises. Rather than wait\nand load them both on at once, it seemed to me there\nought to be some way we could break the news that on\nSeptember 15 something is going to happen, you are going\nto have to file and pay a tax. Some people are, and tell\nwho is and who isn't.\nBut, don't get into the details of it, and maybe not\nissue very much from the Treasury directly until you have\nreally got the forms and get into the discussion of what\nyou do about it.\nH.M.JR: My hunch is that we ought to begin to break\nthe news to them.\nRegraded Unclassified\n30\n- 15 -\nMR. SULLIVAN: I am just wondering what that is\ngoing to do to your payroll allotment. The forms aren't\nready - they won't be ready.\nH.M.JR: If you don't mind, after Smith gets into\nit, whatever he advises on that I am going to take his\nadvice.\nMR. SULLIVAN: That is all right, but I think that the\npeople who have been running this year in and year out\nought to have an opportunity to state their case, Mr.\nSecretary.\nH.M.JR: Oh, John, sure. And if I had followed\nwhat the people have been doing who have been running the\nthing I would be in such hot water - I mean, I would be\nas bad off as OPA.\nMR. SULLIVAN: What do you mean?\nH.M. JR: Just that. I mean, I gave the people a\nchance who have been running the thing, you and Internal\nRevenue, and look where I was on this business as of two\ndays ago.\nMR. SULLIVAN: I am the one who stopped it, Mr.\nSecretary.\nH.M.JR: How?\nMR. SULLIVAN: I am the one who brought it to your\nattention.\nH.M.JR: Oh, John, don't kid me.\nMR. SULLIVAN: Mr. Secretary, that form came to me\nfor the first time on Monday afternoon. It had gone\nthrough your shop on Thursday, hadn't it?\nMR. SMITH: The front page.\nRegraded Unclassified\n31\n- 16 -\nH.M.JR: And what did you do? You said, \"Here it is\nif you want to make out yours - it took me an hour and\nthirty-two minutes.'\nMR. SULLIVAN: Is there any more graphic way I\ncould describe to you what the ordinary person is going\nto be up against? Mr. Secretary, I have been a hundred\npercent with you in your reaction to what this was going\nto do to the people, and I have been a hundred percent\nwith you in your desire to get this thing cleaned up,\nand as a result of it--\nH.M.JR: What did you do about it? The so-called\npeople who are regular people - what did they do about it?\nIt was in the Bureau of Engraving. If I hadn't stepped\nin, what would have happened?\nMR. SULLIVAN: If you hadn't--\nH.M.JR: If I hadn't stepped in, what would have\nhappened?\nMR. SULLIVAN: It would have been printed as it was.\nThat is why I brought it to your attention.\nH.M.JR: You didn't say anything about it, John. You\nsimply said, \"Here it is. If you want to make out one\nof your own, here it is.\"\nMR. SULLIVAN: I beg your pardon. We were discussing\nthis, and in the discussion you said you wanted Fred and\nme to get together, and we got together.\nH.M.JR: In the morning - I don't know what the\noccasion was - Mrs. McHugh was here - and you said, \"Here\nis the thing. It took me an hour and thirty-two minutes\nto make it out. If you want to make it out, here is\nyours.\nMR. SULLIVAN: I think I told you what the reaction\nwas going to be to this thing, and in the course of that\ndiscussion you asked Fred and me to get together.\nRegraded Unclassified\n32\n- 17 -\nH.M.JR: If, in your mind, you feel that you did, I\nwill take your word for it because I have got too many\nthings--\nMR. SULLIVAN: I am not claiming any credit for it\nat all.\nH.M.JR: O.K. Fine. You brought it to my attention.\nLet's leave it that way.\nMR. SULLIVAN: I should have been fired if I hadn't.\nH.M.JR: Let's leave it that way. You are on my\nside. What about the people in the Bureau?\nMR. SULLIVAN: I think the people in the Bureau did\nwhat they were legally required to do. I think that the\nminute Randolph told them in here that afternoon that\nthe legality of the situation should be disregarded in the\ninterest of the convenience of the taxpayer - and from\nthat time on I think they have done a swell job. We\nwill have a form here where he will have to make seven\ncomputations instead of fifty-five.\nMR. PAUL: John, we told them a week or ten days ago\nwe were trying to get them to simplify that thing.\nMR. SULLIVAN: Surrey had approved it.\nH.M.JR: What I am getting back to is this. I don't\nknow who you refer to as the regular people, but if you\nrefer to Norman Cann, they were perfectly willing to let\nthe thing go through as is.\nMR. SULLIVAN: That is right.\nH.M.JR: They didn't have the initiative or the\nimagination to see what this would do to the Treasury.\nMR. SULLIVAN: That is right.\nRegraded Unclassified\n33\n- 18 -\nH.M.JR: So why is their advice any good to me?\nMR. SULLIVAN: I am talking about the publicity.\nH.M.JR: Who?\nMR. SULLIVAN: I an talking about the publicity\nwe give out every year before March 15.\nH.M.JR: Who were the people?\nMR. SULLIVAN: Bill Horne is the fellow who has\nbeen helping me on it.\nH.M.JR: He is not here.\nMR. SULLIVAN: I beg your pardon, if he isn't here\nhe will be here before noon.\nH.M.JR: I thought he went away.\nMR. SULLIVAN: He did.\nH.M.JR: And you sent for him?\nMR. SULLIVAN: Yes, sir.\nH.M.JR: How should I know that?\nMR. SULLIVAN: I was going to tell you.\nH.M.JR: I couldn't dream it. (Laughter) Look,\nlet's leave it this way. Don't let's either of us get\nexcited.\nMR. SULLIVAN: I am not.\nH.M.JR: We are both excited. We have got a very\ndifficult job to do. If you see this thing my way, or,\nI am glad you see it my way - either way you want to put\nit - if Bill Horne is around and can help, fine. But we\nRegraded Unclassified\n34\n- 19 -\nhave almost made one of the worst boners since I have\nbeen Secretary of the Treasury.\nNow, let's get together with Fred Smith and 'et's\ndecide what is the best way to approach the public.\nMR. SULLIVAN: That is right. I was merely trying\nto tell you that there was an issue coming up.\nH.M.JR: You didn't say Bill Horne; I thought what\nyou said was that I should sit down and be advised by\nNorman Cann as to how to approach the public. I didn't\nthink that that was very good. I am talking about the\nradio, the newspapers, the trade papers - all of the\nthings we do before March 15 - like the job we did on\nwithholding.\nAll right, bearing this in mind, that just as soon\nas we can coordinate this thing - not under Fred Smith,\nbut under the advertising manager for the Treasury -\nthe whole business - I want to get it under the whole\nthing so each one will all flow through the same person.\nI don't suppose Louis is ready for that.\nMR. SMITH: I think we will have to set it up--\nMR. SULLIVAN: Horne will be here this week end. He\nwill map out the program.\nH.M.JR: All right. Just so I don't have to get in\non it. The committee on the level of the Office of the\nSecretary of the Treasury will be you and Gaston and\nFred Smith and whatever the three of you decide is O.K.,\nbut I don't want it referred back to me.\nMR. SULLIVAN: That is perfectly all right. The\nonly issue at all between Fred and me is one of time -\nwhether we shall start in now or whether we shall wait\nuntil these forms are available. When 1 spoke about\nthe people who have been handling these things, I mean,\nevery time there has been any publicity about a tax,\nRegraded Unclassified\n35\n- 20 -\nbefore the instructions and the forms are ready, in come\nhundreds and hundreds of letters and then a week later\nin come the letters from the Congressmen and Senators.\nH.M.JR: All right. Now, there is the committee.\nYou fellows handle it and I don't want to hear about it\nagain.\nAll right?\nMR. SULLIVAN: Sure.\nH.M.JR: Finished?\nMR. SULLIVAN: Yes, sir.\nH.M.JR: Good.\nFred?\nMR. SMITH: Nothing.\nH.M.JR: Ted?\nMR. GAMBLE: I have nothing.\nH.M.JR: Kades?\nCAPT. KADES: Nothing.\nH.M.JR: Paul, would you take this back and give me\nthe complete thing? (Indicating material regarding United\nMine Workers.)\nMR. PAUL: Yes. I want to get a man named Maguire\nin to study simplification of the tax. He is a Harvard\nLaw School man. I think it will be a good thing to make\na short press announcement. If Herb and I get something\nup on it, will that be all right? - or Fred Smith or\nanybody you say?\nRegraded Unclassified\n36\n- 21 -\nH.M.JR: Yes, you don't have to bother Herbert on\nthat. Smith will do it. I don't want to start the\nwhole controversy again, but I take it you heard the\nremark that Sullivan made that Surrey passed on this\nthing ten days ago?\nMR. PAUL: He did not. If he passed on it, it must\nhave been the last couple of days because I had a. conver-\nsation with Surrey over the phone about a week ago\ntelling him to hold this up until I got back. So he may\nhave passed on it in the last couple of days - I don't\nknow.\nMR. SULLIVAN: The reason I was sharp, Randolph,\nwas because when I inquired into it I was told that your\nfellows and Blough's were--\nMR. SMITH: The suggestions made by Blough, and made\nby these other people, were about forty percent taken by\nthe Bureau. That is the answer.\nH.M.JR: Anyway, let's let it - from now on, we will\ndo it - we will pull ourselves out good.\nMR. SULLIVAN: The fault is in my shop, Mr. Secretary.\nThis thing never was brought to me until Monday afternoon.\nThey should have had me in on it in the first place.\nH.M.JR: The Commissioner, I gathered, didn't get it\nuntil Tuesday, according to him on the telephone.\nYour shop - what do you mean by your shop?\nMR. SULLIVAN: I mean the Bureau. They shouldn't\nhave waited until they had proofs at the printers before\nthey submitted to me.\nH.M.JR: Anyway, through combined efforts we caught\nit.\nMR. SULLIVAN: It is a narrow escape.\nRegraded Unclassified\n37\n- 22 -\nH.M.JR: Are you all right?\nMR. PAUL: I have a couple of things - no hurry about\nthem.\nH.M.JR: You (Haas) be at the Nelson House Friday\nnight.\nMR. HAAS: Yes, sir.\nH.M.JR: Harry?\nMR. WHITE: There are several things but they can\nwait. There is just one thing I want to get your reaction\nto. One Ethiopian has been in & number of times. We\nhave been going over their monetary plans which Britain\nhas outlined for them after we got permission from the\nState Department we could discuss it freely with them, be-\ncause there is some severe criticism we have of the British\nproposal.\nH.M.JR: Is there a nigger in the woodpile? (Laughter)\nMR. WHITE: There is a whole flock of them in this\none - thirteen million, to be exact. (Laughter)\nH.M.JR: Known as \"The Ethiopian\"? (Laughter)\nMR. WHITE: \"The Ethiopian.\" For obvious reasons\nthey want to do business with us. There are two obvious\nreasons. One is the possibility of lend-leasing them\nsilver, and the other is the possibility of a stabiliza-\ntion loan.\nBut the third thing I wanted to get your reaction to\nnow was that they have, he claims, a very substantial\nfood surplus there and if only they had some trucks they\ncould get some of that out and they could produce - they\nhave two crops a year, and they could produce a lot more\nif they had technicians, and so forth.\nRegraded Unclassified\n38\n- 23 -\nNow, they have approached Lend-Lease - first they\napproached the British and got nowhere; they approached\nLend-Lease and got nowhere, and you are the only one who\ncould do something if you are interested.\nH.M.JR: Yes, I am; you to Captain Kades to Marvin Jones.\nHe has an avenue to Marvin Jones, and Marvin Jones operates.\nI want to say so far, for Marvin Jones, that he is no\nFred Vinson. He likes help and wants help and welcomes it.\nI mean, he is an entirely different kind of fellow. So\nwill you tell Chuck the story? He can get it to Marvin\nJones.\nMR. WHITE: O.K.\nThe British Treasury would like to know whether the\nfour million ounce part--\nH.M.JR: If you don't know, Kades is an expert on\nfood - pigs and everything else. (Laughter)\nMR. WHITE: Every week he gets a new title. He\nmust be good. It is amazing what the Army will do with &\nman. (Laughter)\nWhat about the four million ounce part? Are you, in\nyour negotiations with Halifax, also including the four\nmillion?\nH.M.JR: I would hold everything on India.\nMR. WHITE: All right. They asked me, incidentally,\nwhat possibility there was of their getting an answer\nsoon. I suggested that they might speak to Halifax, who\nmay know something about it.\nH.M.JR: Wonderful. I think you got a memo, or will,\nfrom me this morning.\nMR. WHITE: On the Chinese gold?\nRegraded Unclassified\n39\n- 24 -\nH.M.JR: Letting the President know. You fix up\nsome letters for me. Get them to Mrs. Klotz by two\no'clock, please.\nMR. WHITE: We didn't have that meeting this week.\nH.M.JR: I know.\nMR. WHITE: Are you going to be back next week?\nH.M.JR: Yes, I will be here.\nMR. WHITE: We may not have it next week. We ought\nto have it.\nH.M.JR: We will have it.\nMR. BELL: Walter Stewart couldn't come. Bob Warren\nhas been down here working with us on these matters. If\nyou wanted him to go over the week end and discuss it\nwith Walter it might save time. My inclination is to just\nforget it as far as Walter is concerned.\nH.M.JR: All right.\nMR. BELL: Can I get your initial on this? (The Secre-\ntary initialed letter dated July 7, 1943, signed by\nArchibald MacLeish, approving sale of ground rent in Philadelphia.)\nJust as a matter of interest, the London, Midland,\nand Scottish Railway Company donated to the United States\nArmy the Coronation Scott train that was on exhibition\nhere. I don't know what they are going to do with it -\nprobably use it for troops.\nMR. SULLIVAN: The railroad expert, Kaptain Kades,\nworked it out. That was before he obtained the exalted\nposition of returning to the Treasury. (Laughter)\nCAPT. KADES: They will use it to house officers at\nJeffersonville Depot.\nRegraded Unclassified\n40\n- 25 -\nMR. BELL: We have a rather nice letter from Mr.Wood,\nwho is president of the company.\nH.M.JR: Let somebody take it up with General Suries.\nCAPT KADES: Mr. Secretary, when I was in the Army\nI cleared the fact that the Treasury could handle the\npublicity with General Gregory. (Laughter)\nMR. BELL: O.K.\nH.M.JR: All right?\nMR. BELL: I have got about a three-page memo on my\ndesk describing a very famous rug that has been donated.\nWhether we ought to waste paper putting out the publicity\nor not--\nH.M.JR: All right.\nMR. THOMPSON: Would you be willing to sign, without\nreading, this circular? (Department Circular No. 244,\n\"Supervision of Bureaus, Offices, and Divisions\" signed\nby the Secretary.)\nH.M.JR: John, I can't overemphasize the importance -\nthis thing is two o'clock in your office?\nMR. SULLIVAN: That is right.\nH.M.JR: I am leaving the Treasury promptly at three-\nthirty.\nMR. SULLIVAN: You want me to call you as soon as--\nH.M.JR: As soon as you need me.\nThose of you who are interested in Mrs. Morgenthau,\nshe had the best night she has had, and this third attack\nof phlebitis in her right leg seems to be disappearing.\nRegraded Unclassified\n41\n- 26 -\nMR. SULLIVAN: I just talked with Fred here a minute,\nMr. Secretary, and he and Herbert and Bill and I will sit\ndown with whoever the Bureau wants. They will present\ntheir side. Fred will have the memorandum. We will\nvote and it will be decided before I leave Friday after-\nnoon.\nH.M.JR: The reason I got excited, I thought I had\nto consult Norman Cann to get good ideas out. You didn't\ntell me you had Bill Horne.\nMR. SULLIVAN: How could I tell you? I didn't have\nhim.\nH.M.JR: You also notified me you are leaving Friday\nnight?\nMR. SULLIVAN: No, you were notified and signed a\nmemo on that two weeks ago.\nH.M.JR: Where are you going?\nMR. SULLIVAN: Home.\nH.MJR: For how long?\nMR. SULLIVAN: Two weeks.\nMR. BELL: Is that approved? (Laughter)\nRegraded Unclassified\n42-\n42\nJuly 15, 1943\nMA\nMEMORANDUM FOR THE SECRETARY'S FILE:\nI attended & conference yesterday afternoon at\nJudge Vinson's office, 2:30 p.m. The conference was attended\nby Judge Vinson and his assistant Mr. Underwood, Mr. Stam\nand his two assistants, Mr. Burgess and Mr. Price, Mr. Stark,\nand by myself and Mr. Surrey. (Mr. Surrey had to leave at\nabout 3:30 in order to attend a conference with you on the\nSeptember declaration forms.) The conference lasted until\nalmost 5:30.\nYou will remember that Mr. Doughton had recently\nsuggested to me that between now and September Mr. Stam\nand I (and our staffs) should confer from time to time on\nmatters to arise in connection with the forthcoming tax bill.\nMr. Doughton told me that at a recent luncheon in his Capitol\noffice attended by Senator George and Judge Vinson, the\nlatter had expressed a desire to be at the first meeting\nbetween Stam and me. Later, Judge Vinson, after a telephone\nconversation with me, arranged with Mr. Stam to hold a meeting\nat his office yesterday.\n1. At the beginning of the conference Judge Vinson\nmade 8. statement, apparently along the line of justification\nfor the meeting, as to the need of a united front. At this\npoint, thinking that Mr. Stark was connected as he formerly\nwas with Justice Byrnes' office, I raised the point as to\nthe propriety of having attendance from Mr. Smith's office\nand Marriner Eccles' office. Judge Vinson seemed somewhat\nannoyed at this suggestion saying that he did not want to\nhave B. town meeting, and once or twice later he referred\nwith some annoyance to post graduate courses in tax bills.\nWhile he said that he would be glad to discuss tax matters\nwith Harold Smith and Marriner Eccles he clearly evinced\nhis objection to having their representatives attend any\nfurther meetings. I pointed out to him that I was bringing\nthe matter to his attention partly on the basis of my mis-\napprehension as to Mr. Stark's status and that the Treasury\nRegraded Unclassified\n43\n- 2 -\nhad been very careful in the past to consult with other\nlegitimately interested agencies in connection with tax\nmatters.\n2. The first general point discussed was the\nindividual excess profits tax. This tax problem was raised\nby Mr. Stam and I gave a statement as to the difficulties\nof such 8. tax, including the administrative difficulties\nand the many injustices that would be involved. Mr. Surrey\nsupplemented this statement with one or two points including\nthe problem of over time.\nMr. Stam then brought out the point that under a\nresolution of the Ways and Means Committee introduced by\nRobertson, his staff and the Treasury staff had been asked\nto report to Congress in September on the practicability\nof an individual excess profits tax. Judge Vinson said he\nhad not heard of this resolution and I said that the Treasury\nreceived no notification from the Committee though I personally\nhad read something to this general effect in the newspapers.\nThe discussion of the individual excess profits tax\nprocesded at first along the lines of the conventional tax\non income increases over a pre-war period and Stam evinced\na great deal of interest and pre-possession in favor of such\na tax, though as usual he did not commit himself on the point.\nMr. Stark introduced into the discussion a point made by\nRoy Blough (and evidenced in the Times' recent story on this\nsubject) that the approach to such a tax should rather be\nfrom the standpoint of increasing rates by allowing for relief\nwhere there had been no increase or a decrease in income or\nextraordinary payments on account of fixed commitments or\nmisfortune or otherwise. Stark seemed to approve of this\napproach and I indicated that the Treasury would prefer such\nan approach to the subject. No decision was reached as to\nwhich approach was preferable.\nThere was some discussion in connection with the\nindividual excess profits tax of employing the expedient\nof compulsory saving. The thought was that what was taken\nout of increased incomes would not be taken as a tax but 8.8\na compulsory loan.\nRegraded Unclassified\n44\n- 3 -\n3. There was then 8 good deal of discussion of\nthe income tax rate increases. Stam and Price indicated\na good deal of doubt about the feasibility of increases.\nStam made his usual point about the necessity of consulting\nburden tables. He said that he doubted very much whether\nany substantial increases could be put through Congress.\nJudge Vinson here took a pretty firm position in favor of\nincreases though he seemed rather confused about 8. compulsory\nsaving aspect of the matter which will be referred to below.\nOn the whole, it seemed pretty clear that Judge Vinson is\nfor 8 substantial increase in individual income tax rates\nthough not of the magnitudes which seem to be called for\nfrom the inflation standpoint.\n4. Às an offshoot on the increased individual rate\nproblem there was some discussion of the matter of exemptions.\nI indicated the possibility that we would have to resort to\na lowering of the exemptions. Stam did not commit himself\non this point but he did come out strongly in favor of a\nchange in the exemption technique 80 that exemptions would be\na tax credit instead of a credit against income subject to\nthe normal tax. I suggested that the discussion continue to\nthe point of reduced exemptions leaving the problem of conver-\nsion to the credit against tax form to a later discussion\nbut Stark seemed to be the only person who completely grasped\nthis distinction.\n5. In connection with the discussion of individual\nincreases, Judge Vinson came out strongly for compulsory\nsaving. I must say that I had difficultyin following some\nof his reasoning in this respect. I pointed out the Treasury's\nobjection to compulsory saving and suggested that it was a\nbasic policy matter which should be discussed with the\nSecretary. Judge Vinson said he would be glad to have a.\ndiscussion with the Secretary on the point.\nSo far as I could understand Judge Vinson's approach\nto the question of compulsory saving, he thought in terms\nof a certain rate increase in terms of dollars and then\nseemed to believe that the more compulsory saving we had the\nless we would need in taxes. I pressed the point of view\nRegraded Unclassified\n45\n- 4 -\nthat we should get all we could in taxes and then (if we\nhad compulsory saving) it should be added to the highest\npossible tax rate increase.\n6. I brought up the question of the sales tax.\nBurgess gave some figures on sales tax yield which were\npretty much in line with although a little higher than\nTreasury estimates (I believe Mr. O'Donnell's office is\nrevising our estimates upward). Stam made perfectly clear\nhis belief that a sales tax should be enacted partly because\nhe did not believe that substantial individual income tax\nrate increases could be enacted. Indeed, he stated that\nmany people on the Hill talked in terms of B. $2 billion\nrevenue bill.\nI argued against the sales tax and Judge Vinson, so\nfar as I could tell, was pretty definitely opposed to such\na tax. His opposition was not based particularly on\nadministrative difficulties, but rather on the consideration\nthat the yield of such a tax would not be great, particularly\nthe net yield if we considered that such a tax would fore-\nclose the possibility of substantial excise tax increases.\nJudge Vinson also pressed the point in response to a sug-\ngestion made by Price that a sales tax would be a very bad\ntax to pass immediately before the year 1944.\n2\n7. We discussed excises to some extent though not\nin any real detail. The only specific excisesmentioned\nwere increase of the tax on distilled spirits and tobacco.\nStam was skeptical as to whether there could be any sub-\nstantial increases. Judge Vinson was quite confident that\nrates could be increased, particularly, I think, the rate on\ndistilled spirits.\n8. Corporation rate increases were not discussed\nin any great detail though, if my memory does not fail me,\nMr. Stam said at one point that he did not think the rate\ncould be increased beyond 45%. Judge Vinson said that both\nGeorge and Doughton, at the luncheon referred to above, had\nindicated tentative approval of corporate rate increases\nRegraded Unclassified\n46\n- 5 -\nyielding about a billion more revenue. This somewhat\nsurprised me but Judge Vinson was very clear on the point.\n9. There was considerable discussion of loophole\nplugging. Vinson expressed a strong objection to any\nrecommendations as to plugging of loopholes. I told the\nconference about a telephone call I had had the day before\nfrom Jere Cooper in which he suggested that it would be\nunwise to bring up loophole legislation in the next bill\nsaying it would start the bill off \"with & bad taste\" in\neverybody's mouth. I said I was inclined to agree in the\nloophole matter wholly about depletion because of the general\noil situation at this time. I said that I was very doubtful\non the point of tax exempts but that certainly serious con-\nsideration should be given to the whole matter of \"joint\nreturns.\" I said that I did not think we should advance the\nsubject of joint returns in exactly the same form as we did\nlast year but that we had a good plan which might be suggested\nto Congress. I explained the plan briefly. Price was\nfamiliar with the plan. I made the point that two additional\nStates had adopted the community property system, Oregon\nbeing the last State and that this fact might somewhat change\nthe picture. Vinson thought it would change the picture for\nthe worse since there would now be 20 Senators opposed to\nany change in the community property income tax requirements.\n10. There was no discussion of increases in the estate\nand gift tax rates or of social security. There was no\ndiscussion of the spendings tax except a collateral reference\nof a remark by Vinson that he did not think too many new\nthings should be sprung on Congress. I interpreted this\nremark to refer to the spendings tax.\n11. Stam suggested the possibility of additional revenue\nby limiting deductions. I asked him what deductions he\nreferred to and briefly indicated the problem arising in\nconnection with the interest deduction. Stam apparently had\nin mind limitations on advertising. I referred to the\ndifficulties which would be encountered with the press and\nJudge Vinson's assistant, Mr. Underwood, agreed on this point.\nJudge Vinson then recalled his attempt to limit depreciation\ndeduction by 25%.\n12. When the conference broke up, I made no attempt to\nRegraded Unclassified\n47\n- 6 -\nfix any date for further conference and none was suggested\nby anyone else. Judge Vinson suggested further consideration\nof the problem by the respective groups, particularly some\npencil pushing considerations.\n13. I find it difficult to summarize my impression\nof the conference from the angle of Judge Vinson's estimate\nof his function in the tax picture. Mr. Surrey had the\nimpression from the Judge's annoyance at the point I raised\nabout who should attend that the Judge thought himself\nconsiderably in charge of the tax front. I would not deny\nthis interpretation though B. possible other interpretation\nis that the Judge thought that no upstart like Randolph Paul\ncould tell him much about putting & tax bill through Congress.\nThe two reactions may go together. In spite of several\nattempts made by me to draw out the Judge, he said nothing\nfurther one way or the other except that incidentally at one\npoint he said something about not wanting to dictate the\ntax bill.\nFrom the standpoint of progress toward achieving a\ntax policy, I think very little was accomplished at the\nmeeting. Stam was evasive and non-committal though his\nskepticism as to the possibility of large additional taxes\n(except sales taxes) was clearly indicated. Judge Vinson\nwas more hopeful basing his hope upon his conversation with\nDoughton and George and the \"courage\" of Congress when\n\"the chips are on the table.\" But I gathered the impression\nthat Judge Vinson was much less aware of the problems and\nrealities of the tax picture than I had supposed from\nprevious conferences with him.\nR.E.P.\nRegraded Unclassified\n48\nJUL 15 1943\nMEMORANDUM\nTO:\nSecretary Morgenthau\nFROM:\nRandolph E. Paul\nI am recommending the appointment of John M.\nMaguire, Professor of Law, Harvard University Law\nSchool, and member of the law firm of Hale & Dorr\nin Boston, Massachusetts, as consulting expert to\nthe Treasury Department. Mr. Maguire would be\nengaged to prepare a report on the simplification\nof the internal revenue laws. This report would\nbe the basis of recommendations to the Congress\non this subject. It is expected that the report\nwill be finished the first part of 1944.\nBA\nSecretary\nRegraded Unclassified\n49\nJuly 15, 1943\n9:50 a.m.\nTHIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Smith\nMr. Gaston\nMr. Gemble\nMr. Thompson\nMr. Louis\nMr. Coyne\nMr. Haas\nMr. Lindow\nMrs. Klotz\nMr. Tickton\nH.M.JR: What I want to do, Ted, is this: I have\nbeen fussing with this thing since six o'clock this\nmorning. I tried to get you at seven, but they said\nyou wouldn't be in.\nMR. GAMBLE: You could have gotten me at three. I\nmissed the train in Philadelphia and didn't get home\nuntil three o'clock.\nH.M.JR: I read this report from Esas on the Third\n421° Loan and what they have got in it.\nNow, I think in my official family I can afford to\nbe honest, I hope. I know I can. And the thing - after\nthey read it I had to take a triple bromide, because, as\nI told Tickton - he was here - it is very nice for Tickton\nand Lindow and Haas to set up a theoretically perfect\nobjective, but the next thing is to give it to our sales-\nmen and tell them to go out and sell it. There is no\nsense in giving these people something they just can't\nsell.\nI should be here saying, \"You go out and do it,\"\nand all that. Now I am talking realities here. I don't\nRegraded Unclassified\n50\n- 2 -\nbelieve - they have got you down for four billion of E\nbonds. I don't think you can do it.\nMR. GAMBLE: I have contended that for three weeks.\nH.M.JR: Now, we have to make the basket. We have\nto get going, have a field organization. I am not going\nto give you this. I have sold - I have been out and\nsold space, and I know what it means. And if I am told\nto do this job, my reaction would be, \"It is too impossible;\nI am not even going to get started.\nI want to get you fellows in a frame of mind that,\n\"This is fair and we are going to show Morgenthau we can\nbeat it.\" But I don't want you licked before you start.\nThat is a language you can understand, isn't it?\nMR. COYNE: Right.\nH.M.JR: Now, with that in mind - I mean, it is all\nright for these fellows to set up something. There are\ntwo things; one is the quotas, and the other is the kind\nof merchandise.\nThe reason I called this meeting is that I want - I\ntalked to Bell, and he is convinced. I want the chairmen -\nor whatever you call them - the number one men in the ten\nStates that do the seventy-five - I want them here Tuesday\nand wednesday. Bell says it is going to take them away -\nwell, there is nothing more importent.\nThe reason I make it Tuesday and Wednesday is because\nthose two days we will be making up our minds both on the\nbasket and on the quota, and I think - and if you don't\nagree with me-- (Mr. Tickton and Mr. Lindow entered the\nconference.)\nTickton, I told them about our conversation this\nmorning. I only seid behind your back what I said to\nyour face. I think that these ten fellows in these States\nshould have 8 chance to sit in on the basket and on the quote\nRegraded Unclassified\n51\n- 3 -\nI want them to go out of here saying - all ten of them -\n\"Mr. Morgenthau, we will get you this.\"\nThen we will get people like Frank Isbey. He will\nsay, \"Don't tell me you can't do it in Pennsylvania. I\ndid it in Michigan. I broke all the Treasury regulations,\nand I delivered the bonds. I did what Mr. Bell said I\ncouldn't do, but I had sixty thousand people, and I did\nit.\"\nIn here they have down sixty million pieces. Let's\nsay it is fifty million pieces that have to ne delivered.\nIf it is true, Rell, who has the Bureau of Engraving under\nhim, had better put Mr. Hall on notice.\nBut the thing that I want, starting with me, all of\nus dragging our feet on this thing - we have got to lick\nthis thing into shape so we know where Ke are by the 23rd.\nThen we can leave you fellows alone and you can go out and\nsell. If you agree - and for God's sake, don't sit there\nlike a bump on a log if you don't agree with me, because\nI think - this is my idea, and I am just raising it - I\nsold it to Bell - that these fellows should be in here\nTuesday and Wednesday both to sit in on the basket and\non the quota.\nMR. GAMBLE: I have only one qualification, and that\nis that in some instances you bring in two men instead of\njust the chairman, in New Jersey, for instance--\nH.M.JR: That is immaterial.\nMR. GAMBLE: I agree they should be here. We have\nhad several meetings on this, and I am completely in your\ncorner on it. We have been arguing violently a bout this\nseven billion dollars.\nH.M.JR: Bell was opposed right along that I give out\nthese figures. I said that the public has to know them,\nand all the rest of that, and we did it. well, all right,\nthat is water over the dam. But I would much rather have\nto apologize to a few of these sharp-shooters in the left\nwing of the White House than I would to fall down with the\nRegraded Unclassified\n52\n- 4 -\nAmerican public or make the American public fall down by\ngiving them a hurdle that nobody can clear. You just\ncan't clear it.\nAll right, I made my speech in Newark, and I made this\nspeech and talked about twenty-five percent out of the\nseventy-eight billion dollars and all the rest. All right,\nmaybe it was wrong. I made my Kingston speech. Maybe\nthat was wrong, but it is water over the dam.\nNow I am faced right up against a reality, and that\nreality is, what is 8 fair amount to ask these fellows\nto give me. Then I want them to go out and beat it, but\nI don't want to do what Tickton gave me this morning, which\ncompletely sunk me. I told them yesterday that four billion\nwas impossible. They put it back to three, and they came\nright back with four this morning. Gosh, they are terrible.\nWhat we have to do is put those fellows out on the firing\nline and let them sell. (Laughter)\nMR. HAAS: Put them right here, Mr. Secretary. (Laughter)\nH.M.JR: I mean, the attack line - back the attack.\nliere it is right here. You corrected it to three billion\ndollars and they come right back this morning--\nMR. TICKTON: They tore me apart for doing it, for\npulling that down yesterday.\nH.M.JR: Tore you apart?\nMR. TICKTON: For putting that down to three.\nH.M.JR: Well, you will get torn apart if it stays\nat four. Well, anyway-- (Laughter)\nMR. BELL: That is all right on the basis of which\nyou have been traveling. Those figures are all right.\nH.M.JR: Bell asked if there was anything holy about\nwhat I have said. No. Now we are up against a grim\nreality. We have to go out. I have always said that I\nRegraded Unclassified\n53\n- 5 -\nwasn't going to make forecasts. Here I made some dumb\nforecasts. Well, it is too bad.\nMR. GAMBLE: I don't think it is too bad. You talked\nabout a second front just as we talked about a second front\non the military side. We don't have to get tied down on\nit.\nH.M.JR: The bankers are coming in. You (Gamble)\nshould be in at eleven o'clock and listen to this.\nHaas and his fellows are coming up Saturday and are\ngoing to have another run over this thing.\nI think you ought to get your people in. Do you\nagree, Coyne?\nMR. COYNE: Yes, sir.\nH.M.JR: Tuesday and wednesday. You be here.\nMR. LOUIS: I will be listening.\nH.M.JR: What I have said so far- does it make sense?\nMR. LOUIS: It certainly makes it essier.\nH.M.JR: Don't let any speeches I made bother you.\nIf they are wrong, O.K. To hell with them.\nMR. GASTON: They are not wrong, not in the way at\nall. But I believe in making a quota now that you can\nmake and go out and beat it a lot.\nMR. GAMBLE: To do what the Secretary has been talking\nabout, I suggest that we break down for them this seven-\nbillion-dollar goal; give it to them as an ideal goal, but\ngive them a quote they can make, not demoralize them.\nH.M.JR: Don't you see how completely demoralized I\nam? I had to give Tickton a second cup of coffee to\nrevive him. (Laughter)\nMR. TICKTON: You missed that first cup of coffee.\n(Laughter)\nRegraded Unclassified\n54\n- 6 -\nH.M.JR: O.K. Is everybody happy?\nFrom now through Tuesday and Wednesday I am going\nto settle the basket; we are going to settle the quota.\nThen we are going to town, and these fellows are going to\nrun a chart out here as to how your organization goes\nalong SO I can walk in there and see it. But I am going\nto give you a quota that you can make and beat, and these\nfellows have got to be willing to say SO. If it gets\ndown to fifteen billion, O.K., fifteen billion. Does\nthat satisfy you?\nMR. COYNE: Swell.\nH.M.JR: Just one split second - is it too early to\nsay anything about MoNamara?\nMR. COYNE: We put him in yesterday; he is doing\nfine. We got him right up to his neck. He seems to like\nthe job and seems to relish it.\nH.M.JR: Don't get him up to his nose. (Laughter)\nMR. COYNE: All right.\nH.M.JR: What did you do yesterday?\nMR. GAMBLE: We had a very good meeting with all\nthese entertainment councils. They have committed them-\nselves to a very fine program in September. There are a\nfew details to be worked out. For example, they have\nagreed to use three newsreel subjects, dates during the\ndrive, and to use all five of the newsreels every week\nduring the drive - each of them - that is just one thing\nthey have agreed to. They have a caravan that they want\nto send out.\nH.M.JR: What you want to do is to tag somebody in\nyour organization to give me spot bulletins of important\nthings, whether it is once a day or once & week, 50 I\nknow what is going on. If you can keep it on one page,\nI will read it.\nRegraded Unclassified\n55\n- 7 -\nMR. GAMBLE: Why don't I just talk to Fred Smith?\nLet him give it to you and keep you advised. We will\nuse him as a liaison.\nH.M.JR: That is all right. He sees me occasionally.\n(Laughter)\nMR. GAMBLE: I am not claiming him as a War Bond man.\n(Laughter)\nRegraded Unclassified\n56\nJuly 15, 1943\n11:00 a.m.\nTHIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Haas\nMr. Gamble\nMr. Lindow\nMr. Murphy\nMr. Tickton\nMr. Tom Smith\nMr. Spencer\nMr. Newell\nMr. Strickland\nMr. Fleming\nMr. Hemingway\nMr. Stonier\nMr. Brown\nH.M.JR: The reason that I asked you gentlemen to\ncome down to this very uncomfortable city in the middle\nof July was to help us on the question of what kind of\nsecurities we should offer in September, how much, and\nthe question of quotas.\nI think whatever we do we ought to fix it so that the\npeople in the field can be enthusiastic about the kind\nof securities and the amounts 80 they will say, \"It is\npossible to do it, and we will go out and do a little bit\nbetter\" - which they have every time.\nThere are some honest differences of opinion, as\nusual, between the Federal Reserve Board and ourselves as\nto this thing, the rate pattern, as they call it.\nI don't know how much Mr. Bell has told you or how\nmuch time you had. I have an open mind. I like to think\nI always have one. But I think the most difficult thing,\nDan, is this question of this rate pattern. Have you\ndiscussed this with them?\nRegraded Unclassified\n57\n- 2 -\nMR. BELL: They just came in and I had about five\nminutes with them. I think what--\nH.M.JR: You couldn't do it in five minutes. (Laughter)\nMR. BELL: I think what we should do is let them go\nto a room and look over the material we have - the memoran-\ndum from Marriner and our memorandum - and I think they\nwould like to talk to Marriner for a few minutes on the\nmemorandum and get the background. We should go over the\nfigures and then possibly you should see them right after\nlunch.\nH.M.JR: Here is my trouble. I don't like to talk\nabout personal things, but Mrs. Morgenthau is still in\nthe hospital in New York, and I have to leave at three-\nthirty this afternoon. But I an available right after\nlunch.\nMR. HEMINGWAY: What hour would you suggest?\nMR. STONIER: Is two o'clock all right?\nH.M.JR: Two-thirty would be a little bit better.\nI would have from two -thirty to three-thirty.\nMR. HEMINGWAY: Let's make it two-thirty, then.\nH.M.JR: Would that be a little bit better?\nThose are the things that I would like to get some\nadvice on.\nThey just got in now?\nMil. BELL: Yes.\nH.M.JR: Well, there is plenty of room in the Treasury.\nMR. BELL: Yes.\nRegraded Unclassified\n58\n- 3 -\nMR. HEMINGWAY: Then the sooner we get at it the\nbetter.\nMR. BELL: All right. I will call Eccles and have\nhim come over here.\nH.M.JR: Then they can hear both sides. This rate\npattern thing - I lay great stress on that because they\ndo, you see.\nI am sorry to sort of rush you this way--\nMR. FLEMING: I don't think that rushes us. It is\neleven o'clock now and we are all accustomed to taking 8.\nsandwich and eating in.\nH.M.JR: Shall we say two-thirty, gentlemen?\nMR. HEMINGWAY: All right.\nRegraded Unclassified\n59\nJuly 15, 1943\n2:30 p.m.\nTHIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Haas\nMr. Lindow\nMr. Tickton\nMr. Gamble\nMr. Murphy\nMr. Smith\nMr. Spencer\nMr. Newell\nMr. Strickland\nMr. Fleming\nMr. Hemingway\nMr. Stonier\nMr. Brown\nH.M.JR: I might look to you as President of the ABA--\nMR. HEMINGWAY: Mr. Secretary, we haven't very much\nto report. We have been in session ever since we left\nyou. Mr. Eccles came over and went over the recommenda-\ntions that he had made to you, and he posed two problems\nwhich we have been discussing. One is the undesirability\nof the bond market getting too strong 8.8 well as being\ntoo weak; and the other the danger that the banks will\nextend their maturities too much, being pressed into it\nby the decline in their loans and the need of earnings.\nWe have been talking about his suggestion of a three-\nquarters percent Treasury bill in view of those points\nthat he made. We talked it over with Mr. Bell and these\nother gentlemen, but our committee hasn't yet had an\nopportunity to get off to itself and talk it out in the\ncommittee. So we haven't yet crystallized our opinions.\nH.M.JR: Well, I am not surprised, because certainly\nmine aren't crystallized, and it is not--\nRegraded Unclassified\n80\n- 2 -\nMR. HEMINGWAY: not easy.\nH.M.JR: It is not easy. Have you people - why\nnot make this use of me, anyway - would you like to\nask me any questions?\nMR. HEMINGWAY: I think possibly some of the gentle-\nmen here would like to ask you some questions.\nH.M.JR: Supposing we go around the room.\nMR. HEMINGWAY: I would like to start it by asking\none question, and that is, to what extent do you feel the\nTreasury is obligated to help maintain the bank position\nas against having an easier bond market position?\nH.M.JR: You will have to explain that. I don't\nknow what you mean by helping the banks.\nMR. HEMINGWAY: What I am trying to say is, in order\nto hold the bank position, perhaps, in the strongest way -\nkeep the banks from going into the long maturities and\nkeeping them in shorter maturities - would require, per-\nhaps, some expenditure in the way of higher interest\nrates for the short maturities on the part of the Treasury.\nHow would you feel about that?\nH.M.JR: Let me answer it & little differently and\nsee if I can give you what you want without answering -\nyou've got me within too narrow a range. (Laughter)\nI think I can give you what you want. we are looking\nto the banks as underwriters of Federal financing to\nsee us through this war. We want to go to them just as\nlittle as possible, but we do look to you as underwriters,\njust as a matter of good common sense, to see that we\nkeep you fellows healthy. By that I mean, let you make\na good living. Now - I am being very frank - I want you\npeople to make & reasonable profit on your capital and\nsurplus. Now, that is why I don't want to answer.\nRegraded Unclassified\n61\n- 3 -\nNow, at the same time, I would like to hook on one\nother thing. We here in the Treasury think that & ten-\nyear security is long enough for the banks, and we don't\nfeel that because we don't want to increase interest\nrates - lowering them, rather - that the thing to do is\nto extend the life of a bond.\nBy that I mean, if this doesn't call for a ten-year\ntwo, then make it a twelve-year two, and the first thing\nyou know we will be way out. We don't think that a bank\nwith deposits should have more than a ten-year bond.\nNow, that is the way I look at the thing, and I am\nnot looking at it, just whether it should be a bill or a\nthree-quarters, nine-months, and so forth. That is why\nI didn't answer you. I would rather give you my over-\nall feeling.\nDoesn't that answer you better than telling you -\ndoes that answer what you have in mind?\nMR. HEMINGWAY: No, I don't believe I made my ques-\ntion very clear. What I was trying to say was this, that\nif the pressure to earn money continues, the tendency\nof the banks will be to extend maturities. Now then,\nthose who believe that the banks should not extend maturities\nmuch further, suggesting that it would perhaps be advisable\nfor the Treasury to offer them & shorter maturity - a real\nshort maturity - at a higher rate in order to keep some of\nthat money in the short bracket--\nMR. BELL: You mean a higher rate than the market, or\na higher coupon than what we have been offering?\nMR. HEMINGWAY: I am speaking now of these three-\nquarter bills.\nMR. BELL: I mean, do you want more certificates and\nless bills?\nMR. HEMINGWAY: More certificates and - well, we\ntaled about a nine-months certificate or & bill - call it\nwhatever you please.\nRegraded Unclassified\n62\n- 4 -\nMR. BELL: And less of the three-eighths?\nMR. HEMINGWAY: Yes.\nMR. BELL: Certainly they will get a lot of certifi-\ncates; there isn't any question about that.\nH.M.JR: I don't like to say this without Mr. Eccles\nbeing here, but I think I am being a little more realistic\nabout the thing than they are. They are talking about\na rate curb which doesn't particularly interest me. They\nwant to establish this rate curb. I want, as much as is\nin my power, as I say, to keep you fellows in a healthy\ncondition on the basis that you can make an honest living.\nLet's do the thing which is best to accomplish it. I\ndon't care what it is.\nMit. SMITH: Suppose that cost the Treasury a little\nmore money.\nH.M.JR: That is all right.\nMR.SMITH: That answers your question.\nMR. HEMINGWAY: That is what I was trying to draw out.\nH.M.JR: I can't have an ideal and then say I am\nnot willing to pay for it.\nMR. HEMINGWAY: That answers the question.\nH.M.JR: I am willing to pay for it because I think\nwhoever sits here after the war is \"over, I owe that much\nto the country to see that that is done in a wholesome\nmanner. If I have to pay 8. little more for that, I\nthink it is worth it.\nMR. NEWELL: I have no questions, Mr. Secretary.\nH.M.JR: I could trim it up and talk about - give a\nten-page memorandum on the thing, and when I got all\nthrough and done - why not deal it right across the table?\nRegraded Unclassified\n63\n- 5 -\nMR. HEMINGWAY: I think that is the answer.\nMR. STRICKLAND: I think the Secretary's statement\ncovers all the fundamentals. The group ought to be able\nto work within that, satisfactorily.\nI do think, Mr. Secretary, that it would be helpful\nif the banks would do more on their own part to keep\ndown some of the speculation in offerings because they\nexpect a little bit firmer terms on the part of the\nTreasury. I think this last one and a half - the terms\nwere conducive to speculation, and we ought to have a\nmeeting of minds on a mutual measure and try to make the\ninitial offerings a little more healthy. I don't think\nit is well for you to be able, or to have to report seven\nand eight times over subscriptions of that type of issue\nin the face of a constant pressure to sell small amounts\nof bonds to individual buyers.\nH.M.JR: We made a mistake in the amount we asked\nand we recognize it. We shouldn't ask anybody to sub-\nscribe with a two percent deposit. The mistake was ours.\nWe recognize it and won't do it again.\nMR. STRICKLAND: I think & healthful situation can\nbe created, and sounder, from the Treasury standpoint.\nH.M.JR: We made a mistake there and we recognize it.\nMR. STRICKLAND: That is the only comment I have, sir.\nMR. FLEMING: Mr. Secretary, I think your policy of\ntrying to keep within a certain range - the pattern of\nrates that you have devised - is a very wise one, but I\nthink there is just as much danger in having those rates\nget away from you on a lower basis, particularly the post-\nwar era and the sale of subsequent issues, than you have\nof a rising rate of interest which was unhappily done in\nthe first World War.\nNow, to the extent that means have got to be taken\nto control that, I think we have all got to get our\nRegraded Unclassified\n64\n- 6 -\nheads together and try to do that, because I think there\nis a certain amount of confidence that the public has\nnow gotten in the pattern of rates that are being put\nout, and I think that is the most priceless thing we\nhave in the huge sums that you have the obligation of\nfloating.\nH.M.JR: I thank my lucky stars that with all this\ntalk of inflation there is this steady demand for Govern-\nment bonds. That is something we want to nurture carefully.\nWe have to nurture that very carefully because it is\naviully easy to lose it.\nMR. FLEMING: Very. And it can be lost on the side\nof the rates getting down lower and lower all the time\nuntil they get - the top falls off, and then nobody wants\nto buy.\nH.M.JR: On the other hand, my having been entirely\nfrank - you fellows don't want to ride a good thing to\ndeath, and so forth. I mean, you want to see both sides\nof the picture.\nMR. FLEMING: Oh, yes.\nMR. BROWN : Nothing from me.\nMR. SPENCER: I think everything has been covered\nthat I have in mind.\nMR. SMITH: Nothing except that it will take a lot\nof will power, at times, to resist the temptation to\nreduce rates and extend maturities because when you have\nestablished this splendid bond market, buyers will go\nout - step out too far - banks will step out too far, buy\nlong-term bonds and force the prices up, and it will re-\nquire a lot of will power not to want to issue--\nH.M.JR: Well, I think the American Bankers Association\nand other State organizations can be very heipful.\nRegraded Unclassified\n65\n- 7 -\nMR. SMITH: I think so, too.\nH.M.JR: I think they can be very helpful, parti-\ncularly as the deposits constantly go up.\nMR. SPENCER: It wasn't more than six or seven months\nago when these two percent bonds weren't too generously\ntaken. That condition might come around again. (Laughter)\nMR. BELL: We haven't forgotten it, either. (Laughter)\nH.M.JR: And that was the fight that I made to\nestablish the two percent rate.\nMR. BELL: The ten-year maturity.\nH.M.JR: I know. And then I had my fight on the\nthree-eighths note.\nWell, we have been successful, and having been\nsuccessful, I haven't been pushed too hard - pushed the\nrates down, you know. When I came here in the middle\nof November, '33 - I think you (Smith) were here - I--\nMR. SMITH: I was thinking about that today.\nH.M.JR: The first issue I sold they told me I could\nsell a nine-months note. Then I remember they said, \"Now,\nthe next one we are going to sell a long one.\nI said, \"What is that? We can sell a long issue\nnow.\" The next one was thirteen months. That was the\nsecond issue I sold.\nMR. SMITH: Scared to death about the nine-month\nnote, too.\nH.M.JR: We sold a real long one; we sold a thirteen-\nmonths, and I don't forget those things. So I am very\nhappy at the present situation. If we can go through\nand finance this war - the public debt of the Government\nnow is just a little under two percent.\nRegraded Unclassified\n66\n- 8 -\nNow, if you people will continue to play as fair with\nme in the future as you have in the past, I will play fair.\nMR. SMITH: That is all that is necessary.\nH.M.JR: And don't let's either try to do the other.\nNow, we haven't in the past and we have got to raise &\nlot of money, and I think this picture that we have now -\ngetting less and less from the banks - each war loan\nlooks good.\nMr. HEMINGWAY: We have stressed that in all of our\nstatements and publications.\nWell, Mr. Secretary, if it is agreeable to you, we\nwill continue our discussions and leave a written memoran-\ndum with Mr. Bell\nH.M.JR: Would you do that?\nMR. HEMINGWAY:\n...on the conclusions that we reach.\nH.M.JR: Fine.\nRegraded Unclassified\nS7\nJuly 15, 1943\n3:30 D.M.\nJohn\nSullivan:\nsubstantial accord on the form. There were one\nor two very minor points that nobody's willing to\ndie for\nHMJr:\nYeah.\nS:\nand I think that I can assure you that this\nform will go to the printer tonight.\nHMJr:\nWonderful.\nS:\nMr. Cann has already made those arrangements. He and\nMr. Mooney, Captain Kades, Fred Smith, Surrey and Tom\nAtkinson are with me now and Judge Opper has just left.\nHMJr:\nWell, I'm delighted. I think that's 8 great job and\nshows that we still can pull ourselves out.\nis\nYes, it's still - it's still going to be somewhat\ncomplicated but it's an infinitely easier document\nHMJr:\nWell, I appreciate all your help, John.\nS:\nThat's what-I'm here for.\nHMJr:\nWhat?\nS:\nThat's what I'm here for.\nHMJr:\nAnd I hope you have A swell vacation.\nS:\nThank you, sir, I appreciate that and I hope you\nfind Mrs. Morgenthau very much better.\nHMJr:\nThank you.\nS:\nAll right.\nHMJr:\nGood bye.\nRegraded Unclassified\nS8\nJuly 15, 1943\n3:32 D.M.\nTed\nGamble:\nMr. Secretary, I just wanted to let you know that\nI was going to be away tomorrow afternoon for three\nhours.\nHMJr:\nYeah.\n3:\nI'm going to New York to meet with the Presidents\nof the victure companies to get them to prove\ntheir budget for the September drive of about\ne half million dollars.\nHMJr:\nOkey.\nG:\nI juet wented you to know that.\nHMJr:\nAll right.\nG:\nI'm flying uo and back and will be here other than\nduring those hours.\nHMJr:\nAll right.\nG:\nThank you.\nRegraded Unclassified\n89\nJuly 15, 1943\nMy dear Mr. President:\nI am sending you herewith a\ndraft of a proclamation which we\nwould like to use in connection\nwith our Third War Loan Drive.\nI hope that this appeals to\nyou 8.8 we are rapidly crystallizing\nour plans for our publicity, and\nwe would like to feature your procla-\nmation in our newspaper advertising\nand all other forms of publicity\nthroughout the country.\nYours sincerely,\n(Signed) H. Morgenthau, JT\nThe President,\nThe White House.\nRegraded Unclassified\n70\nBY THE PRESIDENT OF THE UNITED STATES OF AMERICA\nA PROCLAMATION\nRecognising the fact that in carrying the war into enemy territory,\nwe shall need greater amounts of money than any nation has ever asked from\nits citizens in all history, I, FRANKLIN D. ROOSEVELT, President of the\nUnited States of America, do officially proclaim that on Thursday, the\nninth of September, 1943, the Third War Loan shall be launched.\nAs Commander-in-Chief, I hereby invoke every citimen to give all\npossible aid and support to this Third War Loan drive, not only so that our\nfinancial goal may be reached, but to encourage and inspire those of our\nhusbands and fathers and sons who are under fire on a dosen fronts all over\nthe world. It is my earnest hope that every American will realise that in\nbuying War Bonds in this Third War Loan he has an opportunity to express\nvoluntarily and under the guidance of his conscience, the extent to which\nhe will \"back the attack.\"\nThe American people supported well the first and second War Loan\ndrives and in fact did even more than was asked of them. Our need for money\nnow is greater than ever, and will continue to grow until the very day that\nVictory is won; so we must ask far more sacrifice, far more cooperation even than\nin the past.\nIN WITNESS WHEREOF, I have hereunto set my hand and caused the seal\nof the United States of America to be affixed.\nDONE at the City of Washington, this fourteenth day of July, in\nthe year of our Lord, nineteen hundred and forty-three, and of\nthe Independence of the United States of America the one hundred\nand sixty-seventh.\nFRANKLIN D. ROOSEVELT\nBY the President\nRegraded Unclassified\n71\nBY THE PRESIDENT OF THE UNITED STATES OF AMERICA\nÀ PROCLAMATION\nRecognizing the fact that in carrying the war into enemy territory,\nwe shall need greater amounts of money than any nation has ever asked from\nits citizens in all history, I, FRANKLIN D. ROOSEVELT, President of the\nUnited States of America, do officially proclaim that on Thursday, the\nninth of September, 1943, the Third War Loan shall be launched.\nAs Commander-in-Chief, I hereby invoke every citizen to give all\npossible aid and support to this Third War Loan drive, not only so that our\nfinancial goal may be reached, but to encourage and inspire those of our\nhusbands and fathers and sons who are under fire on a dozen fronts all over\nthe world. It is my earnest hope that every American will realize that in\nbuying War Bonds in this Third War Loan he has an opportunity to express\nvoluntarily and under the guidance of his conscience, the extent to which\nhe will \"back the attack.\"\nThe American people supported well the first and second War Loan\ndrives and in fact did even more than was asked of them. Our need for money\nnow 1s greater than ever, and will continue to grow until the very day that\nthan ever before\nVictory is won; so we must ask far more sacrifice, far more cooperation oven than\nin the past,\nIN WITNESS WHEREOF, I have hereunto set my hand and caused the seal\nof the United States of America to be affixed.\nDONE at the City of Washington, this fourteenth day of July, in\nthe year of our Lord, nineteen hundred and forty-three, and of\nthe Independence of the United States of America the one hundred\nand sixty-seventh.\nFRANKLIN D. ROOSEVELT\nBY the President\nRegraded Unclassified\n72\nJUL 15 1943\nDear Dave:\nI wish I had heard Lord Helifax on \"No the\nPeople\", but unfortunately I was in New York and\nmissed it.\nI'm glad to know, however, that he agreed to\n8° on, and I can see from the script that it must\nhave made an interesting sequence.\nAs an ex-master of ceremonies, I am very much\ninterested in \"We the People\", and will keep it in\nmind, as you suggested.\nPerhaps there is something we can do together\nagain during the Third War Loan drive.\nSincerely,\n(Signed) M. Mergenthau, Jr.\nMr. David Levy,\nYoung & Rubicam, Inc.,\n285 Madison Avenue,\nNew York, New York.\nFS:mlf\n7-15-43\nRegraded Unclassified\n73\nYOUNG 5 RUBICAM, INC\nAdvertising\nNEW YORK CHICAGO - DETROIT SAN FRANCISCO HOLLYWOOD MONTREAL TONONTO\nNEW YORK 285 Madison Avenue\nJune 30, 1943\nMr. Henry Morgenthau, Jr.\nSecretary of the Treasury\nTreasury Department\nWashington, D. C.\nMy dear Mr. Morgenthau:\nI don't know whether or not you were able to\nfind time to listen to \"We the People\" this past Sunday,\nbut inasmuch as we presented Lord Halifax, I thought\nyou might like to see & copy of his script.\nI feel that to a large degree we owe\nLord Halifax's acceptance to appear on \"We the People\"\nto the conversation you held with him before your\nrecent trip to Cedar Rapids.\nThe statement which Lord Halifax delivered\nto the American people I think you will find a very\ntimely one which will do a great deal to cement\nBritish-American relationships. Knowing that you are\ninterested in the general aims of \"We the People\",\nnamely to confirm better relations between us and our\nAllies and a better understanding of the war, we hope\nthat you will feel free to further the appearance on\n\"We the People\" of any other leaders, such as Lord\nHalifax, whenever you so desire.\nI hope to have the pleasure of working\nwith you again.\nKindest personal regards.\nSincerely,\nYOUNG & RUBICAM, INC.\nDirector, \"We the People\nDavid Levy/jmp\nEnclosure\nRegraded Unclassified\n-25-\n74\nBOULTON\nLadies and gentlemen, WE THE PEOPLE present the British Ambassador to\nthe United States, Lord Halifax, in an exclusive interview. Lord\nHalifax speaks from the British Embassy in Washington. He will be\ninterviewed by Leigh White. We take you nov. to Washington.\nWHITE\nI suppose that's one of your favorite companions - that handsome\nlittle dachshund you have, Lord Halifax. Does your dachshund always\nstay in the study here with you?\nLORD HALIFAX.\nOnly when my wife is away. Then he spends his time dozing in that\nbig arm-chair across the desk from me. He probably hears as many\nsecrets as the President's scottie - Falla.\nWHITE\nWell, Lord Halifax, I see we're on the air now. Ladies and gentlemen,\nwe're in the beautifully panelled, spacious study of the British\nAmbassador to the United States here in the British Embassy. It's\njust as you would imagine the friendly living-room of an English\ncountry home to be - with a great fireplace, books lining the walls,\nand deep red hangings at the windows. From its windows you can\nlook out over the Embassy garden and across the countryside beyond,\nfor the Embassy is on the outskirts of Washington. Lord Halifax,\nI know that only recently Mr. Churchill was a visitor here in this\nvery study. Can you tell US what form he was in during his visit?\nRegraded Unclassified\n75\n-26-\nLORD HALIFAX,\nIn grand form, Mr. White. He rightly feels that he enjoys from\nthe British people greater confidence than any other Prime Minister\nin our history. Not only Britain, but the whole world, owes him an\nunpayable debt for the courage, tenacity and vision he showed in\nthe dark days of 1940 and has been showing ever since. On the\nhuman side, there could be no more genial friend. I like to\nremember how, the other evening, I looked down into the Embassy\ngarden, and there was the Prime Minister, surrounded by Members of\nboth Houses, to whom he was telling stories with great gusto,\nbrandishing the usual cigar in one hand and some light refreshment\nin the other.\nWHITE\nIn contrast with that wonderful picture one thinks of what kind of\nappearance Hitler must make these days. Lord Halifax, did you\never talk with him?\nLORD HALIFAX.\nYes, I did - at Berchtesgaden in 1937.\nWHITE\nWhat were your impressions of him then?\nLORD HALIFAX.\nHe talked at me, as if I were a party rally. I think Hitler was\nand is a fanatic. He seemed obsessed with a great sense of his\nown mission in the world. He believed he was a man of destiny.\nRegraded Unclassified\n-27-\n76\nLORD HALIFAX. (CONT'D)\nSo he is - but not quite in the sense in which he originally\nmeant it.\nWHITE...\nWhat do you suppose his feelings are about the talk of impending\ninvasion?\nLORD HALIFAX.\nMr. White, nothing delights me more than to imagine the contrast in\nhis mind and in the German mind between today and three years ago,\nwhen the Naxis were signing \"We Are Sailing Against England. If At\nthat time they were promised summer holidays in Hastings - since\nthen the only German visitors near Hastings have been occasional\nnuisance bombers. We talk about reciprocal lend-lease; I like\nto think of forthcoming events as \"reciprocal invasion.\"\nWHITE.\n.\nHave you anything to say about where that invasion might come, Lord\nHalifax?\nLORD HALIFAX.\nMr. White, let's all of us guess as much and as often as we like\nwhere the Allies' blow will fall. Because the more we guess, the\nmore guessing Hitler himself will have to do. And when we hear\nAxis propagandists talk about the fortress of Europe and the\ndifficulties of invasion, it is useful to recall this fact. There\nwas once a Maginot Line.\nRegraded Unclassified\n-28-\n77'\nWHITE.\nAs British Ambassador to the United States, what thought do you\nfeel is most important to express to the millions of people listening\ntonight about the relations between your country and ours?\nLORD HALIFAX.\nThere is one great purpose which I as His Majesty's Ambassador here\nnaturally feel, and which goes for the war, and for all time\nafterwards. That is the building up of an unlimited understanding\nbetween your great country and mine. The future of the world is\ngoing to depend largely on the four great powers and, within that\nquadrilateral, on the close friendship of the United States and the\nBritish Commonwealth. It is an inescapable law of life that, whether\nyou are a millionaire or a great nation, you cannot have power\nwithout responsibility. America has great power; so has the British\nCommonwealth; and it will be for each of our peoples to make up\ntheir minds how best they can discharge the great responsibility\nwhich goes with power.\nWHITE.\nLord Halifax, do you feel our nations will be drawn together more\nclosely even than they already have been?\nLORD HALIFAX.\nYes, I do. I have had reports of how British and American soldiers\nfighting side by side in North Africa have expressed admiration\nfor each other's ability and this is bound to reflect itself in the\nRegraded Unclassified\n78\n-29-\nLORD HALIFAX. (CONT'D)\nfeelings of those of US who have stayed home. The other day Drew\nMiddleton, the New York Times correspondent in Tunisia, remarked\nthat your boys now say \"we\" when speaking of British troops, and\nthat's just the way we all want to think of each other, in the\nfighting line and behind it, now and after the war. I do not\nsuppose that all the British and all the Americans are ever going\nto like each other all the time, but I do think that the best\nrelations between our peoples will be built on the mutual respect,\nwhich this war will bring.\nWHITE.\nHow about lend-lease? Do you think that has helped to strengthen\nthe feeling between our two nations?\nLORD HALIFAX\nThe British people will always be grateful for the impetus given\nour war effort by having America's gigantic production machine\nbehind them. But I am not sure that all Americans know that in\nEngland we have our own British lend-lease. In one war year alone\nwe exported to our allies four times as many aircraft as we\nreceived from other countries and fifteen times as many tanks.\nWHITE\nLord Halifax, what would you say was the feeling today of those\ncountries who are still neutral?\nRegraded Unclassified\n-30-\n79\nLORD HALIFAX.\nI can answer that best in this way, Mr. White. The wind has changed.\nIn 1940, most people, outside the British Commonwealth, were\nconvinced that Germany would win; later on they came to realize\nthat the forces against the Axis could not be beaten. Now I\nbelieve that everybody feels, the world over, that however long it\nmay take, the war will end with the utter defeat of Germany, Japan\nand Italy.\nWHITE.\nLord Halifax, I think Americans know that in addition to your own\nuntiring efforts in furthering the accord between your country and\nours, your personal sacrifice in the loss of your son, Lieutenant\nPeter Wood, at El Alamein last October, is one which you have shared\nwith many British and American parents. In the months to come, great\nand heart-breaking sacrifices will be asked of the parents of America -\nthe people to whom you are talking tonight. Have you any words that\nyou feel would have a personal meaning for them?\nLORD HALIFAX.\nWhen we measure OUT cause, with all that it means for the future\nof the world, against our losses, grievous as these must be, we\ncan only be proud for our sons and for ourselves. And we can find\nsome comfort, surely, in the thought that all those from whom\nmuch is asked share the pride and the sorrow together. I would\nlike to say this, too. When my youngest son came back badly\nRegraded Unclassified\n80\n-31-\nLORD HALIFAX. (CONT'D)\nwounded from North Africa the other day - for he has lost both his\nlegs - it was heartening to find that he - and I think he is\ntypical - is as much alive as your President or our Prime Minister\nto the necessity of keeping the unity between our two countries\nas close in peace as in war. For his is the generation that must\ndo this. I do not say that we can easily solve all our major\nproblems by cooperation; but I do say that there will be very few\nthat we can solve without it.\n(MUSIC CURTAIN)\nRegraded Unclassified\n81\nRegraded Unclassified\nJUL 15 1943'\nMy dear Mr. Secretary:\nThe Treasury Department is now revitalising the Mar Bond program\nto increase the sale of Har Bonds to the wage earners of this country\nthrough the Payroll Savings Plan. The financial demands of this war\nhave forced us to raise our sights and seek to increase the income from\nthe sale of Mar Bonds through the Payroll Savings Plan from approximately\n$420,000,000 a month to over $600,000,000 a month.\nTo reach this goal, it is vitally necessary that all employers in\nthe country engaged on war production make an earnest attempt to\nincrease by 50 percent their present record on War Bond sales.\nwith that in mind, I - writing you with & request that hereafter\nthe issuance of the Army-Navy Production Award include as one of the\nconditions of award the operation of a Payroll Savings Plan that\ncompares favorably with the national average, which is now approximately\n9.1% of payroll. (See in this connection attached copy of the President's\nletter dated June 24, 1943).\nAll too often we find employers engaged on governmental war contracts\nreluctant to provide the facil^ties for, or to conduct, an efficient\ncampaign to encourage their employees to invest as much as possible from\ntheir current income in War Bonds. It has been our experience that a\nproperly conducted vigorous Payroll Savings War Bond campaign invariably\nresults in increased production and at the same time decreases absenteeism\namong employees.\nBecause of the close relationship of the war financing program with\nthe war production program, I believe the honorary award issued for\nexcellence in production should be granted on condition that the company\nis also making & good record in the sale of Mar Bonds to its employees\nthrough the Payroll Savings Plan. Therefore, I would like to 800 a\ndirective issued to the officials of the Havy Department in charge of\nthese awards, instructing them that, before a company is nominated for\nthe Army-Havy Production Award, the company have in operation & successful\nPayroll Savings Plan for the sale of War Bonds.\nVery truly yours,\n(Signed) H. Morgenthau, Jr.\nSecretary of the Treasury.\nThe Honorable,\nFile copies to Thompson,\nThe Secretary of the Navy,\nCopy of ltr. and enclosure\nWashington, D. C.\nin Diary.\nRHO'Mard\nTyped 7/13/43\n82\nTHE WHITE HOUSE\nWASHINGTON\nJune 24, 1943\nMy dear Mr. Secretary:\nThrough you, as Secretary of the Treasury, I want to congratulate\nthe American people on the way in which they have supported the volun-\ntary payroll savings plan.\nI am proud of the fact that 27,000,000 patriotic Americans are\nregularly investing more than $420,000,000 a month to help pay the\ncost of the war. And since all of this money comes from wages and\nsalaries - nearly 90 percent from people earning less than $5,000,\nand the bulk of it from those working in war plants - I do not hesi-\ntate to say that the payroll savings plan is the greatest single\nfactor we now have in protecting ourselves against inflationary\nspending.\nThis is a great record, both from the standpoint of curbing\ninflation and from the standpoint of financing the war. However,\nI heartily endorse your present drive to improve that record, and\nI agree it must be improved if we are to keep pace with the\nincreasing demands of the war.\nI therefore join you in calling upon the American people --\nand upon labor and management particularly - to do still more. Addi-\ntional people should be convinced of the necessity of participating.\nEveryone now on the payroll savings plan should materially increase\nthe amount of bonds he is buying. We originally asked for 10 percent,\nbut now we need considerably more.\nI hope every American on a payroll will figure out for himself\nthe extent to which he can curtail his spending, and will put every\ndollar of additional- saving thus made into the payroll savings plan.\nSincerely yours,\nFinalitan Informato\nThe Honorable,\nThe Secretary of the Treasury\nRegraded Unclassified\n83\nJUL 15 1943\nBy dear Mr. Secretary:\nThe Treasury Department is now revitalising the War Bond program\nto increase the sale of War Bonds to the wage earners of this country\nthrough the Payroll Savings Plan. The financial demands of this war\nhave forced us to raise our sights and seek to increase the income\nfrom the sale of War Bonds through the Payroll Savings Plan from ap-\nproximately $420,000,000 a month to over $600,000,000 a month.\nTo reach this goal, it is vitally necessary that all employers\nin the country engaged on war production make an earnest attempt to\nincrease by 50 percent their present record on War Bond sales.\nWith that in mind, I an writing you with a request that hereafter\nthe issuance of the Army-Navy Production Award include as one of the\nconditions of award the operation of a Payroll Savings Plan that com-\npares favorably with the national average, which is now approximately\n9.1% of payroll. (See in this connection attached copy of the Presi-\ndent's letter dated June 24, 1943).\nAll too often we find employers engaged on governmental war oon-\ntracts reluctant to provide the facilities for, or to conduct, an\nefficient campaign to encourage their employees to invest as such as\npossible from their current income in War Bonds. It has been our 61-\nperience that a properly conducted vigerous Payroll Savings War Bond\ncampaign invariably results in increased production and at the same\ntime decreases absenteeism among employees.\nBecause of the close relationship of the war financing program\nwith the war production program I believe that the honorary award is-\nsued for excellence in production should be granted on condition that\nthe company is also making a good record in the sale of War Bonds to\nits employees through the Payroll Savings Plan. Therefore, I would\nlike to ⑉ a directive issued to the officials of the War Department\nin charge of these awards, instructing them that, before a company is\nnominated for the Aray-Navy Production Award, the company have in op-\neration a successful Payroll Savings Plan for the sale of War Bonds.\nVery truly yours,\n(Signed) H. Morgenthau, Jr.\nSecretary of the Treasury\nThe Honorable,\nThe Secretary of War,\nFile Copies to Thompson,\nCopy of ltr. and enclosures\nWashington, D. C.\nin Diary.\nRegraded Unclassified\n84\nTHE WHITE HOUSE\nWASHINGTON\nJune 24, 1943\nMy dear Mr. Secretary:\nThrough you, as Secretary of the Treasury, I want to congratulate\nthe American people on the way in which they have supported the volun-\ntary payroll savings plan.\nI am proud of the fact that 27,000,000 patriotic Americans are\nregularly investing more than $420,000,000 a month to help pay the\ncost of the war. And since all of this money comes from wages and\nsalaries - nearly 90 percent from people earning less than $5,000,\nand the bulk of it from those working in war plants - I do not hesi-\ntate to say that the payroll savings plan is the greatest single\nfactor we now have in protecting ourselves against inflationary\nspending.\nThis is a great record, both from the standpoint of curbing\ninflation and from the standpoint of financing the war. However,\nI heartily endorse your present drive to improve that record, and\nI agree it must be improved if we are to keep pace with the\nincreasing demands of the war.\nI therefore join you in calling upon the American people --\nand upon labor and management particularly - to do still more. Addi-\ntional people should be convinced of the necessity of participating.\nEveryone now on the payroll savings plan should materially increase\nthe amount of bonds he is buying. We originally asked for 10 percent,\nbut now we need considerably more.\nI hope every American on a payroll will figure out for himself\nthe extent to which he can curtail his spending, and will put every\ndollar of additional. saving thus made into the payroll savings plan.\nSincerely yours,\nFination Informato\nThe Honorable,\nThe Secretary of the Treasury\nRegraded Unclassified\n85\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 14, 1943\nTO Secretary Morgenthau\nFROM Fred Smith RS\nPayroll Savings people would like you to sign the attached letters\nto the Secretaries of War and Navy, asking them to make payroll deduction\nplans a part of the conditions upon which Army-Navy flags are awarded\nindustries.\nI asked for some research on present Army-Navy plants, and found\nthat less than a quarter of the sample taken can equal the National\naverage. About a quarter of them have no payroll plan at all. The\nrest are somewhere in between.\nThis is not very good, and we will probably have a job selling the\nArmy and Navy on putting this extra hurdle in the way of awarding flags.\nRegraded Unclassified\n86\nTREASURY DEPARTMENT\nFISCAL SERVICE\nWASHINGTON\nBUREAU OF ACCOUNTS\nOFFICE OF THE COMMISSIONER\nJuly 15, 1943\nTO MISS CHAUNCEY:\nWith Mr. Bell's approval, I am going to be out of\nthe city from July 18 to August 1. In case the Secretary\nshould want to know about the follow-up on his desire\nto stimulate War Bond sales among American citizens em-\nployed by foreign missions, tell him that I have already\nmade plans for follow-up and he can be assured that it\nwill be done.\nIf we get a favorable reply to the Secretary's letter\nto Secretary Hull, Miss White will send down to you identical\nletters addressed to the heads of the various missions. I\nhave procured a complete list of the persons in charge of\nthe various foreign missions.\nCommissioner of Accounts\nFORVICTORY\nBUY\nUNITED\nSTATES\nWAR\nBONDS\nAND\nSTAMPS\n87\n\\\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 15, 1943\nTO:\nSecretary Morgenthau\nFROM: John J. Louis\nAM\nI have sent your suggestions on \"Oklahoma\" to Roy Welch who\nis on his way West to supervise some Star Parade productions.\nRegraded Unclassified\n88\n7/15/43\nHarry White\nThe Secretary.\nPlease fix me up a memorandum that I can sign by noon\nThursday to the President notifying him what we have done with\nChina in regard to letting them have $200 million worth of\ngold. I want to send a copy of it to Mr. Cordell Hull.\nI'd like to have this by two o'clock, the latest -\ntwo oblock.\nI think we also ought to ask the State Department\nto send 8. cable to the American Minister or Ambassador, which\never it is, in China, letting him know. I also think we ought\nto let T. v. Soong, too.\nFranched\n)\nRegraded Unclassified\n89\nTreasury Department\no\nDivision of Monetary Research\nDate July 15, 1943\n19\nTo:\nSecretary Morgenthau\nFrom:\nMr. White\nChina\n1. Attached hereto are:\n(a) Memorandum to the President.\n(b) Copy of memorandum for Secretary Hull\ntogether with covering letter.\n(I had already informed Mr. Berle\nof this matter by telephone.)\n2. In accordance with your suggestion, I\nhave informed Dr. T. V. Soong of this\nmatter by telephone.\n3. With respect to the American Ambassador\nin Chungking, I am enclosing copy of\ncable which was sent to Treasury repre-\nsentative in China, which cable would\nautomatically be brought to the attention\nof the Ambassador.\n90\nJUL 15 1943\nMy dear Cordell:\nI an enclosing herewith, for your infor-\nmation, a copy of a memorandum I have presented\nto the President dealing with the Chinese №\nquest to purchase $200 million x gold out of\nthe $500 milliem finamcial aid as & means of\nhelping to check inflation in China.\nI an also enclosing & copy of cable, dated\nJuly 14. 1943, dealing with this matter sent to\nthe Treasury representative in China through\nyour Department.\nSincerely,\n(Signed) E. Mergenthou, Jr.\nSecretary of the Treasury\nThe Henerable\nThe Secretary of State\nEnclosure\nFile copies ret to White.\nCopy of ltr. and enclosures\nin Diary.\nISF/efs 7/15/43\nBy Messenger Sabey 4.10\nRegraded Unclassified\n31\nMEMORANDUM TO THE PRESIDENT:\non July 14, 1943, we sent a mossije to Dr. H. H. Kuns, the\nChinese Ninister of Finance, informing him that the Treasury is\nprepared in principle to agree to the Chinese request to purchase\n$200 million of gold out of the 8500 million financial aid as a moans\nof helping to cheek inflation in China. Dr. Kung was also informed\nthat & formal request was, of course, necessary before any definitive\ndecision and action could be taken.\nThe Chinese Government has already drawn on the Treasury to the\nextent of 4240 million out of the $500 million financial aid:- $200\nmillion has been set aside as backing for Chinese Government savings\ncertificates and bond issues; $20 million vas used to purchase gold,\nand $20 million is being used for the printing of banknotes and the\npurchase of relative materials. The perchase of gold with an addi-\ntional $200 million will mean that in total the Chinese will have\nused 8440 million out of the $500 million financial aid.\nIn the message to Dr. Kums, as well as in discussions with the\nrepresentatives of the Chinese Government in Washington, it has been\nmade clear that the Treasury is acquieseing to the Chinese proposal\nbecause the Government of China deems that the sale of gold to the\npublic will aid its war effort by helping to fight inflation and\nhoarding and that, therefore, the desision to purchase the gold is\nprimarily the respensibility of the Chinese Government. Furthermore,\nthe Chinese have been urged to give careful consideration to the\nbest ways of using the gold, particularly because of the great costs,\ndifficulties and dangers inherent in the use of gold as a means of\nchecking inflation under sonditions existing in China at present.\n16 especially stressed the fact that the Chinese Government will by\nthis step be scorificing large amounts of foreign xchange, which\ncould be used in the post-war period to pay for imports needed for\nreconstruction and rehabilitation.\nThe use of gold coins as against bullion for the purpose W&B\ncarefully considered. It was felt both by us and by the Chinese\nGovernment that this technique for selling the gold to the public\nwould not be feasible in the present instance, primarily because it\nwould be necessary to give the gold coins a fixed monetary value,\nwhile it is contemplated that the price of gold in terms of yuan\nwill change frequently and substantially as time goes on.\nThe suggestion was therefore made to the Chinese representatives\nin Washington that the gold might be sold to the public in China in\nsmall bars of one or two ounses in order to reach the widest pos-\nsible sestion of the Chinese public and such bare might have some\nengraving which might suggest the United States origin of the f1-\nmancial sid, If the Government of China 80 wished.\nSecretary of the Treasury\nRegraded Unclassified\n92\nSECRET\nJuly 14, 1943\nTo:\nAdler, Changking, China.\nFrom: Secretary of the Treasury.\nPlease transmit the following message to Dr. Kung:\n1. The Treasury has considered the proposal of the Government\nof China to purchase $200 million of gold from the U. S. Treasury\nout of the 8500 million financial aid, which gold will be sent to\nChina for sale to the public as a means of helping to check\ninflation.\n2. Be presume that the costs, difficulties and dangers inherent\nin the use of gold as a means of checking the present inflation in\nChina have been fully taken into consideration.\n3. Since the Government of Chima doess that the sale of gold\nto the public will sid its war effort by helping to achieve greater\nmonetary stability, the Treasury is prepared in principle to agree\nto its proposal. It will be necessary, of course, for the Treasury\nto have a formal request from you before any definitive decision\nand action can be taben.\nRegraded Unclassified\n93\nJuly 15, 1943\nMy dear Mr. President:\nUndoubtedly you will remember\nthat when you had Madame Chiang\nKai-shek for lunch, you asked me\nto see representatives of China in\nregard to giving them assistance.\nThe enclosed memorandum is the re-\nsult of several conferences with\nthem, and I understand they are\nvery pleased.\nSincerely yours,\n(Signed) H. Mergenthau, Jr.\nThe President,\nThe White House.\nCopy of ltr. and\nenclosure in Diary.\nRegraded Unclassified\n94\nMEMORANDUM TO THE PRESIDENT:\nOn July 14. 1943, -- sent a message to Dr. H. H. Kung, the\nChinese Minister of Finance, informing him that the Treasury is\nprepared in principle to agree to the Chinese request to purchase\n$200 million of gold out of the $500 million financial aid as a means\nof helping to sheek inflation in China. Dr. Kung was also informed\nthat a formal request vas, of course, necessary before any definitive\ndecision and action could be taken.\nThe Chinese Government has already drawn on the Treasury to the\nextent of $240 million out of the $500 million financial aid:- $200\nmillion has been set aside as backing for Chinese Government savings\ncertificates and bond issues; $20 million was used to purchase gold,\nand $20 million is being used for the printing of banknotes and the\npurchase of relative materials. The purchase of gold with an addi-\ntional $200 million will mean that in total the Chinese will have\nused $440 million out of the $500 million financial aid.\nIn the message to Dr. Kung, as well as in discussions with the\nrepresentatives of the Chinese Government in Washington, it has been\nmade clear that the Treasury is acquieseing to the Chinese proposal\nbecause the Government of China doems that the sale of gold to the\npublic will aid its var effort by helping to fight inflation and\nhearding and that, therefore, the decision to purchase the gold is\nprimarily the responsibility of the Chinase Government. Furthermore,\nthe Chinese have been urged to give careful consideration to the\nbest ways of using the gold, particularly because of the great costs,\ndifficulties and dangers inherent in the use of gold as & meme of\nchecking inflation under senditions existing in Chima at present.\nVe especially stressed the fact that the Chinese Government will by\nthis step be sacrificing large amounts of foreign exchange, which\nis\ncould be used in the post-war period to pay for imports needed for\nreconstruction and rehabilitation.\nThe use of gold soins as against bullien for the purpose was\ncarefully considered. It was I alt both by 18 and by the Chinese\nGovernment that this technique for selling the gold to the public\nwould net be feasible in the present instance, primarily because it\nwould be meassary to give the gold coins a fixed monstary value,\nwhile it is contemplated that the price of gold in terms of yuan\nwill change frequently and substantially as time goes on,\nThe suggestion was therefore made to the Chinese representatives\nin Washingtom that the gold might be sold to the public in Chima in\nmall bare of one or two comeo in order to reach the videst pos-\nsible section of the Chinese public and such hars might have some\nengraving which might suggest the United States origin of the fi-\nnancial aid, if the Government of @hina ao wished.\n(Signed) E. Morgenthau, Jr.\nSecretary of the Treasury\nI/ISF/efs 7/15/43\nRegraded Unclassified\n95\nSECRET\nJuly 14, 1943\nTo:\nAdler, Chungking, China.\nFrom: Secretary of the Treasury.\nPlease transmit the following message to Dr. Kung:\n1. The Treasury has considered the proposal of the Government\nof China to purchase $200 million of gold from the U. S. Treasury\nout of the $500 million financial aid, which gold will be sent to\nChina for sale to the public as a means of helping to check\ninflation.\n2. We presume that the costs, difficulties and dangers inherent\nin the use of gold as a means of checking the present inflation in\nChina have been fully taken into consideration.\n3. Since the Government of China deems that the sale of gold\nto the public will aid its war effort by helping to achieve greater\nmonetary stability, the Treasury is prepared in principle to agree\nto its proposal. It will be necessary, of course, for the Treasury\nto have a formal request from you before any definitive decision\nand action can be taken.\nISF/efs 7/12/43\nRegraded Unclassified\n96\nBOARD OF GOVERNORS\nOF THE\nFEDERAL RESERVE SYSTEM\nWASHINGTON\n25\nOFFICE OF THE CHAIRMAN\nJuly 15, 1943.\nDear Dan:\nThis is in response to your letter of June 25, 1943, con-\ncerning the tentative Executive Order, \"Regulation of Credit Under\nNational Stabilization Program\".\nIf the Order should be issued, the Board and its staff\nwould wish to keep in close touch with the Treasury on any points\nwhere regulations under the Order would touch functions of the\nTreasury and its operations. I think this is evident from the\nready acceptance of the suggestion made by the Treasury at the meet-\ning in the office of the Director of Economic Stabilization. How-\never, when the matter of an order was first broached to me, I stated,\nand I think you will agree, that, because of the difficulty of ad-\nministering an order of such breadth, there would have to be some\nfreedom of action subject, of course, to the overall control of the\nDirector of Economic Stabilization as contemplated in the Executive\nOrder which created that office. Accordingly, if the Order is is-\nsued, I doubt if it would be practicable for the technical staff of\nall of the agencies which night be affected to work on the regula-\ntions with our staff, although the Board, of course, would expect\nits staff to consult with the staff of any agency whose functions\nwould be affected by a proposed regulation. Furthermore, I am sure\nthat satisfactory liaison could be established and maintained with\nthe Treasury without unnecessarily burdening your technical staff\nwith work on all regulations. Within these limitations I am sure\nwe can set up an entirely satisfactory working arrangement and you\nhave my assurances that we would do SO.\nMarrimer Sincerely yours,\nHonorable D. W. Bell,\nUnder Secretary of the Treasury,\nWashington, D. C.\nRegraded Unclassified\n97\nJUL 15 1943\nky dear Mr. Secretary:\nIn connection with the financial directives for the\nOperation Itusky, I propose, with your concurrance, to\nobtain through the British Treasury the agreement of the\nBritish Covernment to the following understandin\nThe United States and British Dovernments will not\nin unison in negotiations with occupied Italy concerning\nthe allocation 05 the tarden of military occupation ex-\npenditures. Haither Covernment will undertake separate\nnegotiations or conversations with Italy and will, through\nadvice and consultation, keep each other fully informed on\ncurrent and prospective developments.\nThis matter has already boon discussed with 115. Vete\nof your Department and be is familiar with its background.\nI would appreciate being advised of your concurrance M\nnonts as possible.\nVery truly yours,\n(Signed) E. Mergesthan, Jr.\nSecretary of the Treasury\nThe Honorable,\nThe Secretary of State,\nBy Messenger Givens\nFile copies ret to\nWhite's office -\nCopy in Diary.\nSTATE\n1/12/43\nRegraded Unclassified\n38\nJUL 15 1943\nby dear Senator:\nThis 18 to acknowledge your letter of July 9, 1943, enclosing a\nletter to you from Senator McCarran regarding the lend-leasing of 100\nmillion ounces of silver to the Government of India to be returned to\nthe Treasury after the war on an ounce-for-ounce basis.\nLe I explained in the meeting with the Senate Special Silver Com-\nmittee, it is my opinion that the lend-leasing of this silver bullion\nto the Government of India will be helpful to the war effort of the\nUnited Nations. India is an important source of supplies for the forces\nof the United Nations in the Pacific areas. Large forces are now\nstationed in India, and it is quite likely that India will soon become\nthe base for important military operations. Under such circumstances,\neverything necessary should be done to assure the fullest possible\nutilization of the resources of India in the war.\nThe people of India have from time immemorial been accustomed to\nholding art of their savings in the form of silver. If silver bullion\n18 not available for this purpose, silver coin will be hoarded. Already\nlarge quantities of the old silver rupee coins have been melted down.\nAny substantial and further rise in the price of silver will lead to\nthe withdrawal and disappearance of even the new rupee coins which\nhave a much higher selting point than the old rupee coins.\nIn some of the rural areas of India, the hearding of silver coin\nand the consequent shortage has resulted in a premium on silver coin\nand has to some extent haspered the production and marketing of crops.\nif the rural public cannot get silver bullion or silver coin to heard,\nthey will tend to heard more wheat and other agricultural products\nthat are essential to supply the people and the armies in the Pacific\nareas. Furthermore, the hearding of coin, according to the Indian\nGovernment has increased the difficulty of meeting industrial payrolls\nand has led to dissatisfaction among factory workers. It is expected\nthat the sale of additional amounts of silver bullion to the public\nwill help stop the hearding of coin and reduce the hearding of goods.\nThere is another important aspect to the provision of silver\nbullion. The people of India are extremely sensitive psychologically\nto the price of silver. A repidly rising price of silver would mean\nto them & deterioration in the quality of Indian currency. If the\nBy Messenger Givens\nPHOTO File in Diary.\nOris.\n\" ret'd to White's Office\nRegraded Unclassified\n99\nIndian public should loss confidence in the soundness of their currency,\nthe effect would likely be an extremely sharp inflation, with unfortunate\nconsequences on industrial and agricultural production BO important for\ncivil and military supplies in India and in other Pacific areas. To have\nbeen informed that the rise in prices in India has been accelerated in\nrecent conths, in DONO part due to the sharp rise in the price of silver.\nIt is the opinion of persons /amiliar with the economy of India that the\nrise is prices and the deterioration in the supply situation can be\nretarded by the sale of silver to the Indian people.\nit LB the intention of the Indian Government to sell silver bullion\nexclusively for the purpose of limiting an inflationary rise in commonity\nprices and in the continued production of agricultural and\nindustrial (code. This can 16 accomplished by preventing a FUNNARY end\npanteky rise in the price of silver without at U.S same time depressing\nthe price of silver to undestrable levels. For several years it has bean\nthe policy of the Indian Government to saintain the price of silver in\nIndia as a level considerably above that in other parts of the world.\nThe lend-leasing of silver bullion to india will not modify this policy\nof saintaining & high price for silver in India.\nIt should be pointed out that the lend-leasing or silver to india,\nfor from impairing the world position of silver, will certainly\nstrengthen it. The silver that is lend-leased to the Indian Devermment\nmust - returned on an ounce-for-ounce tests after the war. Any silver\nsold by the Indian Government will have to be repurchased after the was.\nThis will serve to sustain and strengthen the world demand for silver\nafter wartine industrial uses have declined. Further are, the waintenance\nof - high regard for silver arong the peoples of the last Le not without\nits advantages to all silver-producing countries.\nThe Government of India, through its representatives here, have\nsade strong presentation of the importance of obtaining the additional\namount of silver as - means of preventing a deterioration of the Indian\neconomy. The importance of celutaining a strong economy in India in the\ninterest of the war effort of the United Nations impels we to the con-\nclusion that it is desirable to lend-lease silver bullion to India, and\n1 an recommending such setion to the Land-Lease Administration. You\nwill remember that the general consensus of the senbors of the Senate\nSpecial Consittee on Silver who ware present visin 1/7. Stettinium and I\nappeared before then to discuss this natter last week was that vis step\nwas worranted in the light of the situation. in 4 opinion nothing in\nSenator McCarran's letter warrants B change in that conclusion.\nSincerely yours,\n(Migned) M. Morgenthon, Jr.\nSecretary of the Treasury.\nconcrable Amer Thomas,\nUnited States Senate,\nTechington, 2, C.\n7/15/43\nRegraded Unclassified\nUnited States Senate\nF\nCOMMITTEE ON APPROJRIATIONS\nJuly 9, 1943\nble Henry Morgenthau, Jr.,\ncretary of the Treasury,\ngton, D. C.\nDear Mr. Secretary:\nour conference on Wednesday Senator McCarran addressed a\nunication to me giving his viewpoint with respect to one of\nthe\nissues raised. The letter is self-explanatory and in order\nthat you may know of his viewpoint I am forwarding the letter\nyou.\nIth every good wish, I am\nYours most cordially,\nEleum thomas\nElmer Thomas\nTH 1800 GR\nrequired VIDARST'L\nEACH\nRegraded Unclassified\n101\nMARK\nUnited States Senate\nF\nCOMMITTEE ON APPROPRIATIONS\nJuly 7, 1943\nmorable Elmer Thomas, Chairman\nmate Special Silver Committee\nwington, D. C.\ndear Senator:\nAt our meeting with the Secretary of the Treasury and\nRobert\nLend-Lease Administrator this morning I was greatly shocked\nJum of the proposal to lend-lease 100 million ounces of Treasury\nFilver to the Government of India for the purpose of \"stabilizing\"\nthe market price of silver in India.\nI wish to go on record as opposing any such proposition.\nBuch a. large amount of silver-more than twice the amount now\ntarried as a. reserve by the Government of India--is sufficient,\nin\nopinion, to depress the market price of silver in India.\nI\nDayo it is intended to be used for that purpose, rather than\nto\nabilize the present price in the Bombay market\nI invite your attention to the fact that the Bombay bai-\nLes: market quite recently passed a resolution restricting forward\nTiton deals for the purpose of reenforcing the anti-inflation\nsenres previously taken by the Government of India. The result\nDis resolution has been to check speculation on the Bombay bul4\nin mrket.\nWithin the past year the price of silver in Bombay has\nstuated from 60 cents to $1.20 an ounce, United States money\n&\nthe exchange value of the rupee has fluctuated very State\nthat period, it is noteworthy that the current exchange will\nfrection over 30 cents, while the par value of the rupee 14\n/2 cents. At the present rate of exchange silver is quote? in\nat approximately $1.02 an ounce. If the rupee were\ngaable at parity, silver would be selling in Bombay\nvalent of $1.20 in our money.\nThe British Government thinks this price is too kigh. 2b\nin given. Sometimes we hear that the price of stime to on\nRegraded Unclassified\n102\nKlmor Thomas\nspproaches the melting point of the coin. In this in-\nvian of the reduction of the fineness of the rupee in 1940\nto .500 (ine, this excuse would be inappropriate.\nthe truth is that the authorities in India are disappointed\nE\nter quantities of the rupees of .916 fineness were not de-\nprior to May of this your when those rupees were deprived of\nstatus, especially in view of the fact that the Bombay\nprice of silver has risen considerably higher than the melting\nincreximately 87 cents) of those coins. The authorities were\nthey counting on large receipts of these coins in order to in-\nLast reserve stocks of silver used to swamp the market.\nThis is simply another occasion of furnishing the materials\neidek to build our own guillotine. As I have stated on many\nscions, I M heartily in favor of utilizing a substantial part of\nTreasury silver B.S. a means of aiding the war effort. I do not\nthat the 100-million-cunce stockpile now desired by the Govern-\nRIN < mations. I on agreeable to lend-leasing reasonable amounts\nIndia would aid, to any appreciable degree, in the defeat of\nminary from silver for legitimate coinage purposes to Governments\nStated with the United States in our common cause, but I am\nto placing in the hands of Government officials of other\nany of our Treasury silver to be used by bullion brokers and\nwilliaborators whose chief aim is to relegate silver to the\nof an industrial metal and deprive it of its monetary status.\nYo should not put our Treasury at the disposal of any foreign\nninent to be used for the purpose of beating down the currency of\nfriendly nation,\nST I have no objection to the submission by you to the Secretary\nmasury and to the Lend-Lease Administrator of copies of this\nTat Sincerely, miCarran\nRegraded Unclassified\n103\nTREASURY DEPARTMENT\nOFFICE OF THE SECRETARY\nJuly 15, 1943\nCONFIDENTIAL\nReceived this date from the Federal Reserve\nBank of New York, for the confidential informa-\ntion of the Secretary of the Treasury, compila-\ntion for the week ended July 7, 1943, showing\ndollar disbursements out of the British Empire\nand French accounts at the Federal Reserve Bank\nof New York and the means by which these ex-\npenditures were financed.\n8MB\nRegraded Unclassified\n104\nFEDERAL RESERVE BANK\nof NEW YORK\nJuly 14, 1943\nCONFIDENTIAL\nDear Mr. Secretary:\nAttention: Mr. H. D, White\nI am enclosing our compilation for the week ended\nJuly 7, 1943, showing dollar disbursements out of the British\nEmpire and French accounts at this bank and the means by which\nthese expenditures were financed.\nFaithfully yours,\n/s/ L. W. Knoke\nL. W. Knoke,\nVice President.\nThe Honorable Henry Morgenthau, Jr.,\nSecretary of the Treasury,\nWashington, D.C.\nEnclosure\nRegraded Unclassified\nANALYSIS UF CANADIAN AND AUSTRALIAN ACCOUNTS\nStrictly\n(In Millions of Dollars)\nWork Ended July 7, 1943\nConfidential\nBANK\nOF\nCANADA (and Canadian Government)\nDEBITS\nCOMMONWEALTH BANK OF AUSTRALIA (and Australian Government)\nCREDITS\nDEBITS\nCREDITO\nTransfers\nTransfers from Official\nTransfers\nto\nProceeds\nBritish A/C\nNet Incr.\nto\nProceeds\nNet Incr.\nOfficial\nof\n(+) or\nOfficial\nof\n(+) or\nPERIOD\nTotal\nBritish\nOthers\nTotal\nGold\nFor Own\nFor French\nOther\nDecr.(-) (-)\nTotal\nBritish\nOther\nTotal\nGold\nOther Dec. (-)\nDebits\nA/C\nDebita\nCredits\nSales\nA/C\nA/C\nCredits\nFirst year of war (a)\nn$ Funds(c)\nDebits\nA/C\nDebits\nCredits Sales Credits in $ Funds (d)\n323.0\n16.6\n306.4\n504.7\n412.7\n20.9\n38.7\nWar period through\n32.4\n+ 181.7\n31,2\n3,9\n27.3\n36.1\n30.0\n6.1\n+ 6.9\nDecember, 1940\n477.2\n16.6\n460.6\n707.4\n534.8\n20.9\n110.7\n41.0\n+ 230,2\n57.9\n14.5\n43.4\n62.4\n50.1\n12,3\n+ 4.5\nSecond year of war(b)\n460.4\n-\n460.4\n462.0\n246.2\n3.4\n123.9\nThird year of war (c)\n88.5\n+ 1.6\n72.2\n16.7\n55.5\n81.2\n62,9\n16,3\n+ 9.0\n525.8\n0.3\n525.5\n566.3\n198.6\n7.7\n-\n1942\n360.0\n+ 40.5\n107.2\n57.6\n49.8\n112,2\n17.2\n95.0\n- 5.0\nSept. 3- Sept. 30\n46.3\n-\n46.3\n53.6\n13.2\n-\n1\n40.4\n+ 7.3\n28.0\n20.5\n7.5\n18.1\n-\n18.1\n- 9.9\nOct, 1 - Oct, 28\n44.9\n-\n44.9\n51.5\n16.6\n-\n1\n36.9\n+ 6.6\n14.3\n12.0\n2.3\n14.6\n-\n14.6\n+ 0.3\nOct. 29 - Dec: 2\n56.5\n-\n56.5\n80.8\n14.4\n-\nI\n66.4\n+ 24.3\n10,2\n5.5\n4.7\n9.4\n-\n9.4\n- 0.8\nDec. 3- Dec. 30\n48.2\n-\n48.2\n43.9\n2,9\n-\n-\n41.0\n- 4.3\n14.1\n8.0\n6.1\n11.7\n-\n11.7\n- 2.4\n1943\nDec. 31 - Feb. 3\n52.5\n-\n52.5\n217.1\n-\n125.0\n-\n92.1\n. 164.6\n16.2\n8.0\n8.2\n17.3\n-\n17.3\n+ 1.1\nFeb, 4- Mar. 3\n35.1\n-\n35.1\n101.2\n-\n37.7\n-\n63.5\n+ 66,1\n15.9\n15.0\n0,9\n16.0\n-\n16,0\n+ 0.1\nMara 4- Har, 31\n36.2\n-\n36.2\n51.6\n-\n-\n-\n51.6\n+ 15.4\n7.1\n5.0\n2.1\n6.7\n-\n6.7\n- 0.4\nApr- 1 - Apr. 28\n29.0\n-\n29.0\n39.6\n-\n-\nin\n39.6\n+ 10.6\n16.4\n15.1\n13\n19.3\n-\n19.3\n- 2.9\nApr. 29 - June 2\n79.9\n.\n79.9\n95.8\n.\nIl\n95.8\n+ 15,9\n21.8\n19.0\n2.8\n20.1\n-\n20.1\n- 1.7\nJune 3 June 30\n53.8\nI\n53.8\n77.2\n-\nIf\nI\n77.2\n+ 23.4\n20.0\n20.0\nH.\n27.3\n-\n27.3\n+ 7.3\nWEEK ENDED:\nJune 16\n17.3\n-\n17.3\n14.6\n-\n-\n-\n14.6\n- 2.2\n4.0\n4.0\nI\n0.1\n-\n0.1\n- 3.9\n23\n9.0\nIf\n9.0\n10.3\n.\n.\nIf\n10.3\n+ 13\nIf\n*\n0.3\nE\n0.3\n+ 0.3\n30\n19,9\nIl\n19,9\n16.5\n4\n.\nI\n16.5\n- 3.4\n1.0\n1.0\n-\n8.6\nI\n8.6\n+ 2-6\nJuly 7\n15.7(a)\n-\n15.7\n18.6(e)\n-\n-\n-\n18.6(f)+ 2,9\n8.3\n7.0\n1,3\n11.6(d)\n-\n11.6() + 3,3\n6,2 million.\n(a) For monthly breakdown see tabulations prior to April 23, 1941\n8.9 million.\n(b) For monthly breakdown see tabulations\n8,\n1971\n10.1 million.\n(c) For monthly breakdown\n8,9 million.\n(d) Reflects changes\n(c) Does not\n(c) Itoludes\nfrom New York accounts\nbanks,\n(g) Includes $5.0 million held for credit of S,\nand $6.0 willion-grodited to\nto\nagainst 0 Ja currency\nANALYSIS OF BRITISH AND FRENCH ACCOUNTS\n(In Millions of Dollars)\nStrictly\nWeek Ended July 7, 1943\nConfidential\nBANK OF ENGLAND (BRITISH GOVERNMENT)\nDEBITS\nBANK OF FRANCE\nPERIOD\nGov't\nCREDITS\nTransfers to\nProceeds or\nExpendi-\nTransfers\nNet Incr (+)\nOfficial\nSales of\nNet Incr, (+)\nTotal\nfrom offi-\nOther\ntures\nCanadian\nor Decr.(-)\nTotal\nOther\nTotal\nTotal\nSecurities\ncial Aus-\nor Decr. (-)\nDebits\n(a)\n(Official)\ntralian\nCredits\nin $ Funds\nDebits\nAccount\nDebits\nCredits\nCredits\nin $ Funds\nGold\nFirst year of war (g)\n1,793.2\n605.6\n(b)\nAccount\n(c)\n(d)\n20,9\n1,166.7\n(e)\n(e)\n1,828,2\n(d)\nWar period through\n1,356,1\n52.0\n3.9\n416,2\n+ 35.0\n866,3(f)\n1,095.3(f)\n+299.0\nDecember, 1940\n2,782.3\n1,425.6\n20.9\n1,335.8\n2,793.1\n2,109.5\n108.0\nSecond year of war (h)\n2,203.0\n14.5\n1,792,2\n561.1\n+ 10.8\n878.3\n3.4\n407.4\n1,098.4\n+220.1\n2,189.8\nThird year of war (1)\n1,193.7\n274.0\n1,235.6\n16.7\n904.8\n705.4\n- 13.2\n7.7\n223,1\n38.9\n1,361.5\n8.8\n- 10.1\n21,8\n1942\n5.5\n57.4\n1,276.8\n+125.9\n18.5\n4.4\n- 16.1\nSept. 3- 3 - Sept, 30\n56.1\n37.1\n-\n19.0\n81.6\n-\nOct, 1- Oct, 28\n0,5\n46.7\n20.5\n60.6\n27.4\n+ 25.5\n10.1\n19.3\n0.4\n-\n57.5\n- 9.7\n-\n-\nOct, 29 - Dec. 2\n12,0\n96.6\n45.5\n+ 10.8\nI\n35.5\n61.1\n0,3\n63.7\n+ 0.3\n-\n-\n-\nDec. 3 - Dec. 30\n5.5\n30.4\n78.2\n13.3\n- -12.9\n17.1\n0,2\n0.3\n+ 0.1\n-\n1943\n51.9\n-\n-\n8.0\n43.9\n+ 21.5\n-\n-\nDec. 31 - Feb. 3\n168,6\n-\n20.9\n125.0\n22.7\n58.9\n-\n-\nFeb. 4- Mar. 3\n8.0\n87.2\n17.8\n50.9\n37.7\n-109.7\nI\n32.7\n-\n120.8\n-\n-\n-\n15.0\n105.8\nHer. 4- Har. 31\n35.3\n12,9\n+ 33.6\n-\n22,4\n-\n64.4\n-\n-\n-\n-\n5.0\nApr. 1- Apr. 28\n37.0\n59.4\n16.3\n+29.1\n.\n1\n20.7\n-\n-\n87.4\n-\n-\n15.1\nApr. 29 - June 2\n90.4\n72.3\n74.3\n+ 50.4\n16.1\nE\n-\n-\n103.4\nIN\n-\nE\nJune 3 - June 30\n19.0\n31.6\n8/4/20\n11.6\n+ 33.0\nE\n.\n20.0\nE\nR\n130.7\nE\n-\n20.0\n110.7\n+ 99.1\n-\n-\na\nWEEK ENDED:\nJune 16\n6.7\n3,2\n-\n3.5\n32.0\n-\n-\n4.0\n28,0\n23\n6.2\n+ 25.3\n,\nE\n1,9\n-\n4.3\n38.3\n-\nil\n-\n30\n6.3\n38.3\n# 32.1\n3.5\n-\n-\n-\n2.8\n19,2\nIl\n-\n1.0\nJuly 7\n18.2\n5.1\n2.9\n+ 12.9\n#\n2,2\n18.2(f)\n-\n-\nIl\n-\n7.0\n11,2(1)\n+ 13.7\n-\n5\nWeekly Expenditures Since Outbreak of Bar\nJune allice\nSee attached sheet for foolastes.\n19/0) $27.6 willion\n$56.3\nmillion\nRegraded Unclassified\n(a) Includes payments for account of British Ministry of Supply Mission, British Supply Board, Ministry of Supply Timber\nControl, and Ministry of Shipping.\n(b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the\nproceeds of official British sales of American securities, including those effected through direct negotiation. In addition\nto the official selling, substantial liquidation of securities for private British account occurred, particularly during the\nearly months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According\nof our securities through December, 1940 amounted to $334 million.\nto data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation\n(c) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks,\npresumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,\n1939 receipts. apparently represent current acquisitions of proceeds of exports from the sterling area and other accruing dollar\n(d) Reflects net change in all dollar holdings payable on demand or maturing in one year.\n(e) For breakdown by types of debits and credits see tabulations prior to March 10, 1943.\n(f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.\n(g) For monthly breakdown see tabulations prior to April 23, 1941.\n(h) For monthly breakdown see tabulations prior to October 8, 1941.\n(1) For monthly breakdown see tabulations prior to October 14, 1942,\n(j) Includes $4.3 million apparently representing current and accumulated dollar proceeds of sterling area services and merchandise.\nRegraded Unclassified\n108\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Chungking, China\nDATE: July 15, 1943, 2. D.M.\n10.: 1189\nThis is Adler's cable no. TF-139 which is a secret\nAnd strictly confidential massage for the Secretary of\nthe Treasury only.\nFrom n reliable source I learn that Dr. Kung announced\net & meeting of monetary experts which he called yesterday\nthat the Chinese reoresentatives at the monetary discus-\nsions in Washington informed him that until the Allied\nCovernments are in agreement on the following points no\nconference will be held:\n1. That 1t 18 vital that an international rund be\n#stablished and that the contribution of the U, S. to\nthe fund should be limited to 02 or 13 billion;\n2, That contribution to the fund should be made by\nevery country that participates;\n3. That the initial rate of exchange between members\nbe fixed;\n4, That the quota be the basis, not wholly but to\n8 certain extent, of the voting nower.\nStrong opposition 428 expressed to ouint S around\nwhich most of the discussion at the meeting centered. The\nmajority present spid that until some internal stability,\nboth financial And economic, wer assured 1% would be 1m-\npoesible to decide rationally upon the Chinese exchange\nrate. However, Dr. Kung insisted that China agree to All\nfour points and overrode All objections. Re argued that\nit would not be appropriate for China, because it would\nnot assent to point 3, to hold us the conference.\nIt VAR also apreed At the menting that instructions\nbe given to the Chinese delegation to recommend that\nonly two-thirds instead of three-cuarters of 30 percent\nof the gold holdings of the member nations which have\nbeen wholly or partically oscupied ty the enemy be required,\nThe\nRegraded Unclassified\n109\n-2-\nThe fact that the Generalissimo is strongly in favor\nof & stringent foreign exchange control and foreign trade\nin the post-wer period P8 well AB at present WAB indicated\nby Dr. Kung during the course of the meeting.\nATCHESON\nRegraded Unclassified\n110\nNOT TO BE RE-TRANSMITTED\nCOPY NO.\n13\nBRITISH MOST SECRET\nU.S. SECRET\nOPTEL No, 232\nInformation received up to 7 A.M., 15th July, 1943.\n1. AIR OPERATIONS\nWESTERN FRONT. 13th/14th.\nAACHEN. 812 tons dropped including 10 8,000 pound and a few\n4,000 pound H.E. and 505 tons of incendiaries. In spite of considerable\ncloud many crews could see the ground marker bombs which had been well placed,\nbut results cannot yet be estimated in absence of photographs. A photographic\naircraft at about 8 A.M. following morning however reported heavy smoke up\nto 20,000 feet which almost hid the town and stretched as far east as he could\nsec. Many fires were still burning.\n14th. Following raids on airfields by U.S. Fortresses:\nVILLACOUBLAY. 96 aircraft dropped 198 tons. Excellent\nweather, bombing good, moderate A.A. and fairly strong fighter opposition,\n3 missing.\nLE BOURGET. 55 aircraft dropped 118 tons. Clear weather,\nbombing on whole good, moderate A.A., strong fighter opposition. 4 missing.\nAMTENS. 53 aircraft dropped 57 tons, Bombing good, moderate\nA.A. some enemy fighters, 2 missing, one crew safe,\nEnemy casualties reported:\nFortresses\n48, 35, 13\nBy supporting fighters\n6, 3, 5\n5 fighters missing.\nBeaufighter and Typhoon bombers attacked airfields at ABBEVILLE\nand TRICQUEVILLE. A trainer Beaufighter destroyed a German bomber over the\nNorth Sea.\nSICILY AND SOUTHWEST ITALY. On 12th/13th and 13th heavy\nbombers attacked airfields at VIBO VALENTIA, CROTONE, CATANIA, GERBINI and\nTRAPANI, dropping a total of about 400 tons, Several aircraft were destroyed\nor damaged on the ground. 13th. 921 fighter and 141 bomber sorties were\nflown, Enemy communications were attacked and many vehicles destroyed.\nEnemy casualties during these operations:\n26, 5, 24\nAllied\n6 missing.\nAll airfields in SICILY are now reported clear of enemy air-\ncraft. Our aircraft are now operating from PACHINO, COMISO and LICATA.\nEASURY DEPARTMENT\nS 21 Wd 91 100 29\nRegraded Unclassified\n7/16/70\nMEMORANDUM\nFor The\nSECRETARY OF THE TREASURY\nBy The\nSPECIAL COMMITTEE ON TREASURY WAR BORROWING\nOf The\nAMERICAN BANKERS ASSOCIATION\nAs requested by you we have reviewed the memorandum submitted by\nthe Federal Reserve Board, and in this connection discussed the matter with\nMr. Eccles and also with Mr. Bell, Mr. Haas and their associates in the\nTreasury Department. The Federal Reserve and the Treasury both agreed that\nthe general present pattern of rates on government securities should be\nmaintained within limits that, while permitting some market fluctuations,\nwill not vary up or down to a degree that will shake the confidence of the\npublic in the general stability of the rate structure. With this be fully\nagree.\nFederal Reserve Memorandum\nAt the present time the supply of short-term Government securities\nrunning up to 10 years which are particularly suitable for bank investment\nis not, except in the case of 90-day bills, equal to the demand. The supply\nof 90-day bills at the present rate of 3/8 of 1%, even with the agreement of\nthe Federal Reserve banks to purchase them at this rate, has reached the\nsaturation point. At the present time it is obvious that any increase in\nthe amount of bills outstending will find their way into the Federal Reserve\nbanks. This lack of short-term investments, other than 90-day bills, suit-\nable for bank's investment, has caused many banks to buy long-term government\nRegraded Unclassified\n112\n2,\nsecurities which were designed primarily for other investors and has put an\nundesirable pressure on the whole rate structure, tending to dislocate it\nand to lower the rate on long-term government securities to a point where\ninvestors other than banks will not buy them.\nThe Federal Reserve suggests that no more bills or year certifi-\ncates be issued, but that instead 9 months bills or certificates, bearing\n3/4% interest, be issued into which the present outstanding bills and 1-year\ncertificates would be refunded as they mature and that the Federal Reserve\nbanks would agree to purchase such 9-month bills or certificates at 3/4 of 1%.\nWhile the proposal of the Federal Reserve System would tend to\nalloviate the present pressure for short-term securities available for bank\ninvestment, we believe that the same result might be obtained by not enlarg-\ning the amount of 90-day bills outstanding until the market has clearly\ndemonstrated its ability to absorb them, and increasing the supply of 1-year\n7/8 certificates, and supplying more 1 1/2% notes having a maturity of\n5 years or less and of 2% bonds having a maturity of 10 years or less when\nthe next offers designed primarily for banks are made by the Treasury. We\nbelieve it better to try this program to see if it would not remedy the\nsituation rather than at this time adopt the Federal Reserve Board's sug-\ngestion.\nIf this does not remedy the situation, then some plan slong the\nlines of the Federal Reserve should be given serious consideration. The\nobjectives of the Federal Reserve and the Treasury are so nearly identical\nthat close cooperation between the two in adopting a common objective and\nmaking effective a program should bring success.\nIn regard to the specific questions which are contained in the\nRegraded Unclassified\n113\n3.\nmemorandum submitted by the Under Secretary and on which we were requested\nto give our recommendations, they are made in the general light of the fore-\ngoing conclusion.\nTHIRD WAR LOAN\n1.\nWhat securities should be in the basket for each\nclass of investor?\nWe recommend for the basket the following:\n7/8% 1 year Certificates of Indebtedness\n2% Bond due 10 years callable 8 years\n2 1/2% Bond due Dec. 15, 1969 callable Dec. 15, 1964\nE, F, and G Savings Bonds\nPresent Series C Tax Savings Notes\nWe recommend the inclusion of 7/8 one year certificates because we\nbelieve that without them, it would be difficult and probably impossible to\nget corporate subscriptions to the amount estimated.\nSimultaneously with the announcement of the basket we think that\nFL statement should be made that the 7/8% Certificates of Indebtedness and the\n2% Bonds will be offered to banks only not earlier than October 15 nor later\nthan November 1 in a minimum amount of 2 1/2 billions, this amount to be in-\ncreased as may be needed, of which a substantial amount will be of the 2%\nbonds. We believe such an announcement would tend to reduce the pressure\nfrom banks seeking to invest excess reserves during and immediately after\nthe period of the drive.\n2.\nShould the timing of the corporation part of the\ndrive be separated from the individual part?\nAnswering question two we think that the corporation part of the\ndrive should not be separate from the individual part.\nRegraded Unclassified\n114\n4.\n3.\nShould banks be offered the marketable securities\nissued in the drive after the close of the drive?\nThe third question has been answered in connection with question\none.\n4.\nShould a partial payment system be established for\nthe 2-1/2's; for large denomination E bonds?\nAnswering the fourth question there should be no partial payment\nplan for the 2 1/2's particularly if G's are offered and we see no practi-\ncal way to provide for partial payment of E bonds on account of administrative\nexpense, shortage of manpower and difficulty of policing.\n5.\nShould the Treasury and the Federal Reserve publicly\nencourage the withdrawals of bank deposits for the\npurchase of war bonds during the drive?\nAnswering number five we recommend that that question be left\nto the State Chairmen and their committees acting in collaboration with the\nbanks and because of the varied conditions that prevail throughout the\ncountry. This is particularly important in states where there are Mutual\nSavings Banks.\nINTERIM FINANCING\nShould a limitation on bank and other subscriptions\nbe established on the August 1 issue; should sub-\nscriptions of $100,000 be allotted in full with 100\npercent down payment required; should this offering\nbe open only to banks?\nWe recommend that 3 billion of new 7/8% 1-year Certificates of\nIndebtedness be issued to take up the certificates maturing August 1, 1943\nand to provide one and one-half billion new money. We suggest that holders\nof maturing certificates be permitted to exchange them for the new ones,\nRegraded Unclassified\n115\n5.\nAnswering your question, we suggest that bank subscriptions be\nlimited to 100% of capital funds or 5% of deposits, whichever is higher,\nas shown by the last published figures, except that bank subscriptions up\nto $100,000 be alloted in full. As to subscribers other than banks, we\nthink subscriptions of $100,000 should be allotted in full and down payment\nof 100% be required and that above $100,000 10% be required. Subscriptions\nshould not be limited to banks.\nQUOTAS\nNo. 1 - Over-all quotas.\nThere should be an overall quota. We haven't sufficient\ninformation to advise as to the amount, but it should not be set higher than\nyou can reasonably expect to attain. It appears to us that the amount of\n7 billions for individuals is too high.\nNo. 2 - Should over-all quota be broken down\nby States and other political sub-divisions?\nWe think state quotas should be fixed and that any further\nbreakdown should be left to the State Chairmen and their committees.\nNo. 3 - Should any quota or quotas be broken\ndown by types of securities?\nNo. We think impractical.\nNo. 4 - Should the total be broken down by classes\nof investors?\nWe think should be done for benefit of State Chairmen but not\nmade public.\nNo. 5 - What quota or quotas should be made\npublic?\nTotal quota should be announced and any other publicity on\nquotas should be left to the State Chairmen.\nFiled 4:00 p.m. 7-16-43\nRegraded Unclassified\n116\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 16, 1943\nTO\nMr. George Haas\nFROM Fred Smith BE\nAttached is copy for the third issue of the War Finance bulletin.\nThe Secretary asked that you take it with you to the farm so he can\ncheck it before we go any further.\nIf you will notice, there are some figures in piece, based upon\nthe $25 billion goal for the year. If you change the figures at the\nfarm, this will have to be changed.\nAttachment\nRegraded Unclassified\n117\nIssue No. 3\nJuly 16, 1943\nCompulsory Lending\nFew things that might happen can cause us as much trouble\nin the Third War Loan Drive starting September 9 as the\npublicity which is appearing at this time about compulsory\nlending.\nCongress having decided that there are to be no additional\nlevies this year, either 88 additional income tax or in the\nform of a refundable tax such as compulsory lending, there is\nnothing to be gained, and much to be lost, by discussing com-\npulsory saving and failing to give the voluntary bond program\nthe support it needs and deserves. Publicity for the compulsory\npurchase of War Bonds, while it will raise not one dollar toward\nthe financing of the war, can -- and 1s -- doing great harm to\nthe voluntary bond program.\nTo talk 8.8 if compulsory lending could be substituted\nfor voluntary lending, which 1s happening in some places, is\nto endanger & going concern for one which even if established\ncould not reasonably be expected to do the job we have to do,\nif we are to raise the funds needed to finance the war from\nnon-inflationary sources. No plan for compulsory lending that\nmight conceivably be adopted would eliminate the necessity for\na steady and periodically intensive appeal by the Treasury to\nindividuals to invest in War Bonds -- an appeal that might be\nfruitless in the face of compulsory savings.\nCompulsory savings can't get us as much money net; nor\nwill it reach the inflationary money in the magnitude that is\nrequired, and perhaps even in the magnitude which we are now\nreaching it.\nBy its very nature compulsory lending is forced to\noperate like a tax, and because it operates like a tax the\namount that can be levied on any income group is limited by\nthe capacity to pay of those in the group least able, not\nmost able, to pay. Our goal this year 18 to raise $25 billion\nfrom the sale of War Bonds to individuals and an estimated\n814 billion in taxes from individuals -- $39 billion in all.\nTo obtain $39 billion through taxes and compulsory loans\npresent tax rates would have to be multiplied on the average\nalmost three times. What is more, it would be impossible to\nlevy such high rates in the upper brackets without going over\n100 per cent, with the result that levies in the lower brackets\nwould have to be more than three times present rates on the\naverage - and this of course 1s obviously impractical when you\nconsider that many people in the lower brackets still get\npre-war incomes.\nRegraded Unclassified\n118\nra\nWhile a goal of $25 billion in War Bonds for individuals\nin 1943 is simply the height of fantasy on B. compulsory basis,\nit 18 sound and sensible on & voluntary basis. Why? Because\nthe voluntary method offers 8 flexibility of adaptation to the\nindividual's varying circumstances utterly lacking in the com-\npulsory method. The voluntary method differentiates between\nthe var worker whose income has skyrocketed in recent years and\nthe worker on fixed salary whose income has increased little if\nat all; between the individual already burened with heavy life\ninsurance premiums and mortgage debt and the individual free\nof such contractual obligations; between the individual who is\nc. member of B. family of employed workers all living under the\nsame roof and the individual who is the sole breadwinner of\nthe family.\nMaking none of these distinctions, the compulsory method\nis bound to be clumsy and inequitable; a method designed to\nproduce & minimum rather than a maximum of funds for the\nGovernment. The voluntary method 1s capable of making these\nvitally important distinctions, and thus of obtaining a maxi-\nmum of funds with a minimum of hardship.\nIn much of the current popular discussion in favor of\ncompulsory lending there has been a deplorable tendency to\nignore these considerations. It 18 our job to bring them to\nthe fore. Only by so doing can we demonstrate that there are\nno simple solutions to complex problems and, more importantly,\nthat there 1s no substitute for the voluntary program.\nA recent Gallup poll indicates that while 81 per cent\nof American familles have purchased bonds and stamps \"since\nthe Treasury first began to issue them several years ago,\"\nonly 60 per cent of America's families have purchased War\nBonds or stamps since January 1 and that, from the point of\nview of the Treasury, the results \"may be disappointing.\"\nWhatever the truth of the figures, the impression they leave\n1s false and misleading. Advocates of compulsion may think\nthis 1e grist for their mill. We don't. The 81 per cent\nfigure is for two years; the 60 per cent for 5 months --\nhardly comparable periods. What 18 more, millions of American\nbusiness men and farmers, whose source of income is not as\nregular as that of salaried and working people, may well be\nexpected to purchase War Bonds as income becomes available to\nthem later in the year.\nIn the final analysis, the real answer to compulsory\nlending will be the success of the Third War Loan drive --\ngo let's get on with the job!\nRegraded Unclassified\n119\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 16, 1943\nTO\nMrs. Klots\nFROM Fred Smith\nThe Secretary asked me to remind him to see that no new tax bill\nis introduced during the Third War Loan Drive, or at least not on\nSeptember 8, which is the present Congressional schedule.\nI don't know what he intends to do about this, and my function\nconsists solely in reminding him. I am gladly sharing this function\nwith you.\nHast\nRegraded Unclassified\n120\nMEMORANDUM FOR THE SECRETARY.\nJuly 16, 1943.\nMail Report\nSlogans for the Third War Bond Drive were\nsprinkled thickly through this week's mail, which\nwas even heavier than that of last week. A few\nletters last Saturday, 30 on Monday, and 15 or 20\neach day thereafter, contained from one to a dozen\nslogans each. The recent announcement of the slogan\nselected has not deterred those with others to offer.\nOne writer amended the adopted slogan to read: \"Back\nthe attack with a barrage of Bonds\". Altogether,\nseveral hundred, including some also working out\nposter suggestions in detail, have gone to the War\nSavings Division for acknowledgment and consideration.\nBonds of smaller denomination, not redeemable\nuntil maturity, continue to be suggested as an\nespecially appropriate gift while goods are scarce,\nand further inflation is a threat.\nFewer Bonds were submitted for redemption, and\nreports of failure to receive interest due on Bonds\nwere only a third of the number received last week.\nOn the other hand, complaints about delayed delivery\nof Bonds purchased through various branches of the\nWar Department jumped from 44 to 72 during the past\nweek. One letter on the subject, from the Office of\nthe Area Engineer, Oakland, California, carried 17\nsignatures. A number of the letters spoke of the\nwriter's complaint as being made on behalf of many\nothers in the same group.\nMost of the correspondence in regard to taxes\ndealt with questions about the withholding tax, or\npersonal problems in connection with tax payment.\nDuring the first part of the week the proposed tax\nRegraded Unclassified\n121\n- 2 -\nMemorandum for the Secretary.\nJuly 16, 1943.\non excess profits of individuals threatened to be-\ncome a general controversy but interest seemed to\nfade quickly, leaving the score even as to pros and\ncons. Aside from the high rates of the withholding\ntax, subjects of complaint included the discontin-\nuance of tax notes of low denominations, loopholes\nopen to corporations converting to partnerships,\nand the necessity for notarizing certain tax forms.\nLetters dealing with Foreign Fund matters in-\ncreased considerably during the week. There was a\nslight falling off in the objections to the new\npennies, while protests about fees charged for cash-\ning Federal checks, or for redeeming Bonds remained\nabout as usual.\nGabritte E. Fortust\nRegraded Unclassified\n122\nGeneral Comments\nDr. Richard Altgenug, Norwood, Mass. Enclosed please\nfind check of $10.00 as a small contribution for the\nwar effort. I shall repeat sending checks to you for\nthe same purpose as often as I have the possibility\nto do SO. Although we, my wife and myself, are enemy\naliens, coming almost five years ago to the U.S.A.\nfrom Germany, we do not feel like enemies of this\nwonderful country, and to tell the truth, we even do\nnot feel like aliens any more. Being over the draft\nage and not in the best of health, I can only do a\nlittle bit to help the war effort, such as buying War\nBonds and helping in the civilian defense, but we feel\nthat this isnot enough done for the privilege to be\nable to live in this blessed country. * # # Will\nyou\ntherefore please accept this money and may it help to\nspeed the victory for the United Nations?\nG. O. Thacher, Corvallis, Mont. I have recently\nlearned that I have the privilege of contributing to\nthe cost of purchase ofwar munitions for my country.\nI therefore take very real pleasure in enclosing my\ncheck to your order for $50.00, toward same, as an\nunconditional gift. May it help lick the Japs!\nThe faithful Melchor Leòn is with us as usual -- With\nreference to your letter #7092, I take the pleasure\nto inclose herewith New York draft in the amount of\n$187.48, equivalent to $909.27 Mexican pesos (at the\nrate of exchange of $4.85 pesos for $1.00), to which\namounted the 25% of all purchases made by American\ncitizens in this store, during the month of June, 1943,\nthat is donated to the United States Government for\n\"National Defense\".\nRegraded Unclassified\n123\n- 2 -\nF. G. Davidson, Seattle, Wash. I wish to enter a\nprotest, brief so as not to waste your time, but just\nas seriously felt as if I should write a long letter.\nThe protest is about your new penny. There is not 8.\nweek that passes that I can now say I have no loss on\nchange. I honestly believe that these errors are real\nmistakes due to speed and poor lighting, yet I am out\njust as definitely as if a \"con\" man were dipping into\nmy small cash each week. Won't you please do some-\nthing to make the penny readily distinguishable from\na dime? I'll gladly use wood or a coin with a hole\nin it -- which will stretch the metal supply -- or any\nother material that is for the assistance of our war\neffort. The only request is please do not continue\nour present losses by confusion.\nRegraded Unclassified\n124\n- 3 -\nFavorable Comments on Bonds\nMadame Blanche, (Specialist in Wedding Cakes), N.Y.C.\nI have a valuable idea in regard as to the Bond sell-\ning campaign for the month of July. Trying to do my\npart in this effort I wish to offer you this sug-\ngestion -- I will very gladly donate a three tiered\nwedding cake to any bride in any part of the country\nwhose family will buy the largest Bond for either the\nmonth of July or August, and will send it anywhere to\nher in the United States in time for her wedding.\nH. Beatrice Logan, Toronto, Canada. A newspaper item\nre your War Savings Staff's search for a slogan for\nyour Third War Loan Drive stirred a bit of 8. whimsy\nwithin me to offer these in the spirit of friendli-\nness from one United Nations member to another.\nShould the idea back of any of them appeal, a member\nof your staff could give the necessary \"twist\" for\npublicity uses. # * % With every good wish for success\nin that Third War Loan Drive. \" * #\nRegraded Unclassified\n125\n- 4 -\nUnfavorable Comments on Bonds\nAlfred A. E. Hansen, Attorney & Counselor at Law,\nDetroit, Mich. This morning the writer appeared at\nthe U. S. Post Office Station, Fisher Building,\nDetroit, Michigan, to buy fourteen $100 Defense Bonds\nand was told by Mr. Birch, Acting Station Manager,\nthat they could not issue that amount, but that the\nwriter would have to obtain them at the Main Post\nOffice (which is about a two hours' round trip by\nstreet car). \" * * However, when we wanted to invest\n$1,050.00 in Defense Bonds at one time at the Bank,\nwe were told that we must buy a $1,000 Bond, and they\nrefused to sell us any lesser denomination. Not\nsucceeding in buying at the Post Office, I put the\napplication through the Red Cross Booth in the lobby\nof the Fisher Building, and they were quite happy to\nadd as large B. purchase as $1,050.00 to their credit,\nbut when the Red Cross applied for them at the Wabeck\nState Bank, the same thing happened over again -- the\nBank refused to issue less than a $1,000.00 Bond on\na purchase involving $1,050.00. It appears to me\nthat the attitude of both the Post Office Station in\nthe Fisher Building, and that of the Wabeck State\nBank is one that would discourage a great many people\nfrom investing their savings, when the right to choose\nthe size of Bonds they desire is denied them.\nC. E. Broughton, Sheboygan, Wis. (Telegram) I am\nadvised this afternoon that upon your order Mr. Walter\nKasson becomes the State Chairman of the War Bond\nsales in Wisconsin, replacing myself. This information\nwas given to me by Frank J. Kuhl, Collector of Internal\nRevenue, who acted as State Administrator with me.\nThis seems & round-about way to replace a Chairman.\nI am very happy to have served in that position because\nit was a patriotic duty, and yet there are some things\none cannot understand, and this happens to be one of\nthem. As a member of the Elks Board of Grand Trustees,\nRegraded Unclassified\n126\n- 5 -\nI am leaving for Boston. Hence, this telegram rather\nthan 8. letter. I think Wisconsin can be more than\nproud of the record it has made, and I am proud of\nthe Committee that I had to serve with me, as Chairman.\nI had every opportunity to bring the radio stations\nand the newspapers into line because that was my forte.\nWe have given thousands of dollars of space in my news-\npaper, and time over my radio station, for the cause\nof the Government, but it seems these things don't\ncount. With events transpiring as they are, perhaps\nthere is no need of tendering my resignation, but in\norder to keep the record straight, I em as of this\ndate resigning as State Chairman of the Wisconsin War\nSavings Staff.\nCleve H. Park, San Diego, Calif. In an effort to\ncomply with \"pressure requests\", I was induced to\nagree to deductions from my meager salary for sub-\nscriptions to one $18.75 War Bond each month while\nworking for the U. S. Engineers during the time I was\nassigned at the Deming, New Mexico, Air Base last\nyear. This was handled by the Albuquerque, N. M.,\nOffice of the U. S. Engineers, and deductions were\nmade for June, July, August, and September of 1942.\nWhen no Bonds were received, I cancelled the obliga-\ntion and purchased at the Post Office where I got the\nBonds on purchase, same as postage stamps, and without\ndelay. These Bonds have never been received and I am\ngreatly concerned and much disappointed at the care-\nless manner in which this matter has been handled, for\nI have written many letters without results and now am\ndetermined to write several more, but not to you un-\nless a satisfactory reply is forthcoming. There is\nno sense in this delay, and if you cannot handle this\nkind of transaction -- why don't you let them alone?\nI propose to have these Bonds and am determined to\nwrite letters to parties there who will look into such\nmatters and get them for me.\nYours for better\nservice and fewer bureaus.\nRegraded Unclassified\n127\n- 6 -\nAlbert A. Fair, President, California Builders Company,\nInc., Oakland, Calif. Stories have been passed around\nthe Bay Region to the effect that, in a conversation\nbetween you and a prominent citizen recently, you\nstated to him that if you had your way, after the war\nis successfully concluded, you would say to the pur-\nchasers and holders of your present Defense Bonds,\n\"Thank you very much; you have made a fine contribu-\ntion to the war effort\". First, let me say that I am\nsure you have made no such statement; and I am equally\nsure that you have never had any such thought in your\nmind. This does not alter the fact, however, that if\nthe story should be passed around quite generally,\ngreat harm would be done to our war effort. I am there-\nfore passing it on to you quickly so that you may take\nany steps you deem necessary to counteract such an\nabsurd rumor.\nArthur H. Jones, Berkeley, Calif. One of the handi-\ncaps we Democrats will carry in the 1944 campaign\nwill be that we will be held accountable for a jillion\nmistakes being made by round pegs in square holes. %\nEarly in 1942 I was employed as a Civilian (Civil\nService) by the U. S. Engineers, Galveston, Texas,\nand was assigned to Ellington Field. \" * * On advice\nfrom the Galveston Office, Major Olmstead called a\nmeeting of the personnel (civilian employees), out-\nlining to us the advisability of all employees to buy\nVictory Bonds. We responded to his offer to collect\non the salary deduction plan, he promising that delivery\nwould be made as Bonds were paid for. I signed up be-\ncause I have confidence in our Government, our President,\nour Secretary of the Treasury. # # \" I worked for $600\na year less than I was offered in nonessential war work.\nAfter I had paid for five $25 Bonds and didn't get any\nof them, and after getting three letters stating I\nshould buy more Bonds, that those already paid for\nwould be delivered soon -- I became discouraged and put\n8. \"stop\" on my deduction plan, and thereupon started\nbuying for cash from my bank -- which seems to be able\nRegraded Unclassified\n128\n- 7 -\nto deliver what they collect for. Well, my dear Mr.\nSecretary, when I left Ellington Field on June 15,\n1943, I could get no authentic information on my\nBonds. Many rumors exist there, all the way from the\nstory that they are stored in Ft. Knox, to the story\nthat they are \"frozen\" for the duration as a guarantee\nfor payment of income taxes. In response to 8. letter\nI wrote, I am informed the whole matter is in the hands\nof the Commanding Centralized Field Offices, F.D. 366\nWest Adams Street, Chicago, where a force of 2,500\npeople have been employed! # # # I wonder, Mr. Secretary,\nif this thing has worked out this way: that I worked\nfor the Government for $600 less than I could have\nearned; that this $600 yearly helped support a Govern-\nment Agency; that I paid income taxes which also helped\nsupport the Government Agency; that I paid cash in\nadvance for Victory Bonds to support the Agency still\nfurther; and now the Agency tells me they have passed\nthe matter along to a new Agency which has been set up?\nRegraded Unclassified\n129\n- 8 -\nUnfavorable Comments on Taxation\nJohn P. Gaty, Vice President-General Manager, Beech\nAircraft Corporation, Wichita, Kan. * # # The Manage-\nment of this corporation is very proud of its record\nof its cooperation with the Treasury to further the\nsale of War Bonds to its employees. # # * This amounts\nto an average of almost $730.00 per employee, which\nwe consider to be an outstanding record. However,\nour employees are quite disturbed about recent actions\nof the Treasury and the vacillating policy of the\nTreasury agents upon two occasions. There is a con-\nsiderable amount of talk of cancellation of payroll\ndeduction authorizations, and of other acts of\nreprisal by our employees. * The first action\nwhich they resent is that taken in January to make\n8. deduction of 5% Victory Tax from their efficiency\nincentive payment that month, after advices previously\nwere received from the Treasury Department that no\nsuch deduction would be made. The second is the recent\nreversal of the Treasury's ruling that payments of\nwages made after July 1 for the periods prior to\nJuly 1 would not be subject to the 20% deduction. In\nboth cases, the employees were interested in these\nmatters and at their behest we obtained advice from\nthe local office of the Treasury and submitted this\ninformation to the employees through the medium of\nour open house organ. On both occasions, later rul-\nings of the Treasury reversed the decisions to the\ndisadvantage of the employees, Therefore, our em-\nployees feel that the Treasury Department makes up\nits own rules as it goes along, in accordance with\nits own advantage, and that it is not proceeding in\naccordance with law. They feel that no law can be SO\nloosely written that you can say one thing one day\nand exactly reverse yourself the next day. 4i- * #\nIt is our opinion that the Treasury would gain if they\nadopted the most consistent attitude possible and\nrefrained from these disturbing reversals of policy.\n# *\nRegraded Unclassified\n130\n- 9 -\nMrs. John C. Duane, Brooklyn, New York. When I filed\nmy income tax in March this year, I sent a letter\nwith same stating my inability to pay my tax. Reason\nbeing that I had to leave my position last November\nto stay at home to take care of my small daughter.\n4b H In previous years I have always paid my tax out\nof my income. I have no resources to meet $389.42\nas tax on the $2,255.00 I earned in the first 11\nmonths of 1942. Isn't there some way this amount of\ntax could be charged to me to be paid when and if\nI were able to be employed again -- that is, without\ninterest piling up into 8. stupendous sum? My husband\nmerely has his income as 8. New York City policeman,\nso it is impossible for him to help me. # # # I have\nreceived several communications from the Collector of\nInternal Revenue, and have replied to the same each\ntime. Today I received a notice and demand for my tax.\nIt is impossible to get blood out of a stone, and\nI have no money. I'm certain I'm not the only American\nin some such position -- isn't there some provision for\nus? I'm not attempting to evade my tax. If I had had\nthe money, it would have been paid.\nWilliam G. Thumm, Jr., Certified Public Accountant,\nBaltimore, Md. I understand from the local branch of\nthe Federal Reserve Bank that the sale of Tax Notes in\ndenominations of less than $1,000 has been discontinued.\nTo individuals like myself, who are not subject to with-\nholding, this is a decided hardship. I could, of\ncourse, put so much aside every month to take care of\nmy income taxes; but I am sure you understand human\nnature well enough to know that this doesn't work.\nTherefore, the only thing I see to do is to buy War\nBonds monthly, and then cash them in when the time\ncomes to pay my income taxes. I am sure that sufficient\nconsideration was not given to those who are in my\nposition (and there must be thousands of us) by those\nwho were responsible for the discontinuance of the sale\nof the small denomination Tax Notes, and I trust some-\nthing will be done to aid us in meeting our obligations\nto the Government.\nRegraded Unclassified\n131\n- 10 -\nC. Harrison Mann, Jacksonville, Fla. I have been\nmost interested for some time in the brillient\nliterature issued from your office -- now I feel it\nwould be unfair if I failed to compliment you on the\nlast paragraph of page 10, of your latest issue,\nunder the title, \"Collection of Income Tax at Source\non Wages\", as follows: (Quotes above-mentioned para-\ngraph.) Certainly this is a masterpiece that will\nlive forever. The composer should take his place in\nour Hall of Fame -- and his glorious achievement\nheralded from the housetops of America. # # # Fearful\nthat this marvelous composition escape the attention\nof the literary world, I am taking the liberty of send-\ning a copy of this letter to the Honorable Senator\nGeorge, Chairman of the Senate Finance Committee, our\nlocal Collector of Internal Revenue, and \"Time\". #\nJohn J. Kessel, Miami, Fla. You will probably never\nsee this because you are either too busy, or some\nsecretary will throw it in the waste basket for you,\nbut I'd like to \"get it off my chest\", and put in my\ntwo cents. I have just finished trying to get some-\nthing out of the pay-as-you-go tax plan as furnished\nby my employer. If you know what it's all about,\nplease tell me. Don't keep it 8. secret. I don't know\nwhere I stand. I don't mind paying taxes. I'm glad\nI live in a country where I can pay them. Glad that\nI don't live somewhere where they just take all your\nmoney. Here's what I'm griping about -- why make it\nso complicated? # * * Why make a lot of bookkeepers\nout of us? I should have said chiselers. You know\ndamn well a lot of income tax reports show a lot of\nmoney given to churches and charities which stayed\nright in the taxpayers' pockets. I can't see how such\nloopholes should be allowed. Maybe a straight 20% in-\ncome tax (less exemptions of course) would hit the\nlittle fellow too hard, or the big fellow not hard\nenough. Well, why not get more out of the big fellow?\nSock him for 30, 40, 50%, or whatever you need. Ho'll\nget along. Maybe I didn't make any sense in this\nletter but I feel better.\nRegraded Unclassified\n132\n- 11 -\nAlbert I. Stix, Jr., Life Insurance Estates, St. Louis,\nMo. Many corporations are interested at the present\ntime in providing Pension Plans for their employees.\nA great many of these companies have fiscal years\nending in the middle of the calendar year, and they\nwould like to complete these Plans before their fiscal\nyear ends. However, since the regulations with respect\nto the 1942 tax law have never been issued, they do not\nfeel justified in going ahead with these Pension Plans,\nsince the penalties for violating the wage regulations\nare very severe. It has now been seven months since\nthe last Revenue Act was passed, and it would seem\nreasonable to suppose that the regulations concerning\nit should be published by now. Anything you can do to\nexpedite this matter will be of great assistance to\nboth employers and employees. # # #\nRegraded Unclassified\n133\nIMPEDIATE RELEASE\nJULY 16, 1943\nSTATEMENT BY THE PRESIDENT\nI have today signed House Joint Resolution No. 147,\nwhich continues the Commodity Credit Corporation.\nThe bill includes an amendment to the Emergency Price\nControl Act of 1942 which prohibits the use of grade labeling\nto inform consumers and which restricts the use of standards in\nmaximum price regulations.\nThe language in the bill relating to standards is\nso ambiguous that misconceptions have already arisen as to its\neffect. The matters involved are of the utmost public concern.\nThe legislation was adopted after only fragmentary debate. In\nview of the uncortainty created, I feel it necessary to state\nmy own understanding of the amendment, as drawn from the ex-\npressed intent of its sponsors.\nThe language of the bill appropriating funds for\nthe Office of Price Administration was construed as prohibiting\nthe Administrator from making use of standards in any case re-\ngardless of how essential they were to price control unless\nsuch standards had been previously established by industry\nacceptance or by government action. Such a construction would\ncripple price control because trade standards are frequently\nlacking or, as in the case of the grades of meats, incompletely\nestablished.\nI am satisfied this bill has no such meaning. It\nwas presented to the Senate and House to avoid the consequences\nthat would have followed the adoption of the language in the\nappropriation bill. Senator Taft, who sponsored the language\nin the appropriation bill and the modification in this bill,\nstated expressly that the modification preserved power in the\nAdministrator to \"standardize\" & commodity in any case in which\nthis was \"absolutely essential to an offective system of fix-\ning prices\". Them assurances are in accord with the purpose\nand the terms of the compromise amendment and must be taken as\ncontrolling. It is with this understanding that I have signed\nthe bill.\nRegraded Unclassified\n134\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE\nTO Secretary Morgenthau\nJuly 16, 1943\nFROM Ir. O'Connell\nIf you have an opportunity between now and your\nlandlieon date with Mr. McConnell next Tuesday, I think\nyua sught to read the attached memorandum which he pre-\npered some weeks ago.\nAs you will see, it makes some interesting suggestions\nwith respect to ways of keeping the peace after the termina-\nlion of present hostilities. In general, McConnell believes\nthat by taking away Germany's facilities for the production\nof synthetic gasoline and nitrogen, and by prohibiting\nit from accumulating stockpiles of raw materials essential\nfor the prosecution of a war, we will render Germany\nimpotent, militarily speaking, regardless of what the will\nof the people in the country may be.\nI realize that this is a far cry from the post wer\nproblems that have been concerning you, but it will give\nyou something of a slant on the way McConnell has been\nthinking.\nlle is what you might call a \"raw material\" man, and\nbelieves very sincerely that control of raw materials is\nthe key to a lasting peace. His whole background has helped\nto produce this. He is, as you know, a mining engineer by\nprofession; has been, over the years, very active in the\ndevelopment of oil properties; played an importent part, at\nthe end of the last war, in getting out of Germany the\ntechnical information which formed the basis for the German\n.ynthetic nitrogen industry during the last war; was one of\na group of engineers who urged the stockpiling of stragetic\nand critical materials as long ago as 1935; and in the early\nsays of CP. was one of those who took the lead in urging that\nDID supplies of strategic and critical materials, such 8.8\nrulier, quinine, quartz crystals, and the like, be built up.\nRegraded Unclassified\n135\nCOPY\nJune 25, 1943\nThe first interest of Americans today is in a victory\nas & means to the end of establishing and maintaining a lasting\npeace. We do not want an armistice or a peace agreement which\nis designed for any other purpose than a lasting peace on earth.\n...e do not wish to reap vengeance on the German people. We do\nnot want to restrict or interfere with the lives of German\npeople except to preclude in SO far as possible their ability\nto start another war. We are honestly anxious to establish\nworld conditions which will effectively prevent another war,\nwith as little disturbance to German economy and the German's\nway of life as possible.\nThe technicians and the industrialists who know\nthe requirements of modern war in essential raw materials can\npoint out procedure which will prevent Germans from equipping\nfor war for generations, but such procedure must be practical\nto administrate. To initiate and firmly establish the system\nof administrating, it will be necessary to extend the armis-\ntice period over a long enough period of years to firmly estab-\nlish the succeeding civilian administration. There will always\nbe grave danger of eventually relaxing control measures as\nRegraded Unclassified\n136\n- 2 -\nyears go by. The more firmly any control is established during\nthe armistice period the longer that control will function.\nTherefore, the longer the armistice period, within reason, the\nlonger the succeeding peace will last. The perquisiteof a\nlasting peace is the acceptance of the concept of a long armis-\ntice.\nAn examination of the essential raw materials for war leads\nto the inescapable conclusion that there are several materials\nwithout any one of which a successful war could not be waged.\nIf such materials do not occur in the natural state within the\nterritorial limits of a country, that country to start a war\nmust either (1) conquer a country at the outset that does have\nthe essential material or (2) manufacture that material synthetic-\nally or (3) import a stockpile in peacetimes sufficient to last\nfor the duration of the war.\nThe outstanding example pertaining to Germany, of course,\nis oil. It is essentialin large quantities. Germany has\npractically no production and there is very little available in\nall of Europe. Further, it is essential in such large quantities\nthat it cannot be stockpiled in sufficient quantities to meet\nwar requirements. Synthetic oil and gasoline is produced from\ncoal in Cormany in quantities sufficient to supplement the\nrelatively small supply obtained from the Rumanian oil fields.\nRegraded Unclassified:\n137\n- 3 -\nThe synthetic product is of poor quality, it is expensive to\nproduce and requires large and complicated chemical plants.\nSynthetic gasoline of an inferior quality costs Germany\nabout four times as much as the superior gasoline costs the\nAllies who have access to the world's oil fields. However,\nwithout the existence of these non-commercial German synthetic\njasoline plants to augment the meager production from Rumania,\nGermany would have been defeated in 1940.\nThese plants are war plants built for war purposes. Ger-\nnan submarines, airplanes, tanks, trucks and guns would be\nuseless without gasoline and oil. It is inconceivable that\nthe next Allied peace commission will allow such plants to\nremain. They should be dismantled and removed out of reach\nof the German government. Also the plants which are necessary\nto make the equipment required by a synthetic gasoline plant\nshould be restricted in their equipment and. operations so that\neven after restrictions are relaxed after a long term of peace\nyears, it would still require several years to reinstall\ngasoline plants in Germany.\nThe Germans can sustain the operations of such uneconomical\ngasoline production only through government subsidy. Either\nby direct subsidy or through exorbitant tariffs on imports of\nEasoline and oil. There is no purpose of such subsidy except\nRegraded Unclassified\n138\n- 4 -\na war purpose. The German people pay for such subsidy either\nin taxes or in higher prices for gasoline and oil. The elimi-\nnation of such a burden on the German people would benefit the\nnational economy and raise the German standard of living. So\nthat this essential war preventative measure is an actual material\nbenefit to the German people.\nNow this credit may be applied toward another war preven-\ntion measure -- the removal of all NITROGEN fixation plants\nfrom the continent of Europe. No nation could now conduct a\nlarge scale war without using a large tonnage of atmospheric\nfixed nitrogen, even though she could import nitrates freely.\nThe entire production of all Chile's capacity in natural ni-\ntrates would not supply one half Germany's present wartime\nrequirements. Nitrogen in one combination or another is the\nessential base for practically all modern explosives and\npropellants. There are only two ways to get it -- from the\nmines in Chile or by fixation of the nitrogen in the air. In\n1914 Germany prefected efficient and economical processes of\nnitrogen fixation by combining nitrogen with hydrogen at very\nhigh pressures to form ammonia which is easy to convert into\nT.N.T., gun cotton, nitrocellulose and all propellants and\nexplosives. High pressures and heavy equipment are essential\nto handle gasses at high pressures. This requires heavy forgings\nRegraded Unclassified\n139\n- 5 -\nof special steels. The same plants that make the equipment for\nthe nitrogen plants can make the big guns and heavy plate for\nthe army.\nFixed nitrogen is also universally used in peace times for\nfertilizer and many other uses. For many purposes and in many\nplaces the artificial atmospheric nitrogen may be produced at\nmuch lower costs than the natural Chilean nitrate can be imported.\nThe fixation plants are complicated to build but require but\nlittle labor or power to operate. The dismantled German plants\ncould be readily moved to Allied countries and their production\nsold competitively to fulfill German peacetime requirements.\nWhile a few hundred German operators and technicians would\nbe thrown out of work and be required to find similar occupa-\ntions in other plants, such a disturbance would effect only a\nfraction of one percent of German economy and to the German\npeople would be outweighted many times by the advantages gained\nthrough cheaper gasoline and oil. The fact that ocean freight\nfrom the Western hemisphere or Asia may increase by 10% or 20%,\nthe cost of fixed nitrogen to Germany may be offset every year\nby one day of war.\nThe third freedom from threat of war is the prohibition of\nstockriling of materials beyond normal efficient peacetime re-\nquirements. Every industrialist knows the unnecessary burden of\nRegraded Unclassified\n140\n- 6 -\ncarrying excessive inventories. Large inventories and slow turn\nover increases costs of production, increases the hazard of price\nfluctuations and is in every way. an uneconomical policy which\nhas been resorted to by the central powers for war purposes.\nIn times of peace the Germans, Japanese, and the Italians\nhave accumulated immense stockpiles of essential war raw ma-\nterials. Germany waged World War No. 1 on stock piles. When\nthe stockpiles were exhausted the war was ended. World War No.\n2 is being fought by Germany on her stockpiles accumulated in\nthe thirties. When they are exhausted this war will be over.\nA partial list of important raw materials of which Germany\nrequires large quantities in stockpiles before starting a war\nwill include iron and steel, scrap iron, copper, nickel, mica,\ntin, sulphur, tungsten or molybdnum, manganese, platinum,\nbauxite, antimony, quartz, crystals, chromite, diamonds, graphite,\nlead, mercury and vanadium.\nGermany, Italy and Japan are \"Have not\" nations in the\nsense they do not have within their own territories a great\nmajority of the minerals and materials essential for the con-\nduct of war.\nControl of the Allied sea power of the sea transport and\nimport of these minerals and materials above peacetime requirements\nRegraded Unclassified\n141\n- 7 -\nwould not be complicated or expensive.\n[sic from]\nIn resume the four requirements for freedom/for future wars\nare:\n1. A long armistice.\n2. Dismantle and remove synthetic gaso-\nline plants which would reduce the\ncost of gasoline to Germany from $1\nto 20c\n3. Dismantle and remove synthetic nitro-\ngen plants which will increase the\ncost of fertilizer to Germans 10% to\n20%.\n4. Prohibition of excessive stockpiles of\ncertain raw materials which will lower\nthe cost of production of many products.\nRegraded Unclassified\n142⁻\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 16, 1943\nTO\nSecretary Morgenthau\nFROM Randolph Paul\nEffect on Foreign Funds Control of\nPresident's Order Settling Wallace-Jones Dispute\nForeign Funds Control is not directly affected by the\nExecutive Order of July 15, 1943. The Order contains no\nreference to either the Treasury Department or Foreign\nFunds Control. It relates primarily to defining the\nrespective functions and responsibilities of the Board of\nEconomic Warfare (now Office of Economic Warfare), the\nReconstruction Finance Corporation (and its subordinate\nagencies), Office of War Mobilization and State Department\nin the field of foreign economic matters.\nThe Order does affect the Treasury (and Foreign Funds\nControl) in the following respects:\n(1) It abolishes the Board of Economic Warfare\non which you were a member and makes Leo\nCrowley the Director of the Office of\nEconomic Warfare with the powers formerly\nvested in the Board.\n(2) It gives Leo Crowley control of the Export\nImport Bank (Harry White is a member of the\nBoard of Trustees), with the power to\nreconstitute such board.\n(3) It provides in section (4):\n\"The functions of the Office of War\nMobilization shall include the authority\nto arrange for the unification and co-\nordination of the activities of the\nFederal Government relating to foreign\nRegraded Unclassified\n143\n- 2 -\nsupply, foreign procurement and other foreign\neconomic affairs in conformity with the\nforeign policy of the United States as\ndefined by the Secretary of State. In\nproviding for such unification the Office of\nWar Mobilization may utilize the facilities\nof other departments and agencies, including\nthe machinery for the coordination of foreign\neconomic affairs established in the Department\nof State.\" (Underscoring added)\nUnder this provision it is at least theoretically\npossible for the Office of War Mobilization, with\nthe approval of State, to arrange for the\nunification of Foreign Funds Control with the\nOffice of Economic Warfare or to arbitrate\npolicy disputes between such agencies. In the\nsame sense, however, the Office of War Mobiliza-\ntion has the theoretical powers over all of\nTreasury's functions in the foreign economic\nfield.\nOf course, the implications of the Order may be much\nbroader. For example:\n(1) Crowley could say that both Foreign Funds\nand the Office of the Alien Property\nCustodian should be made a part of the\nOffice of Economic Warfare and push for a\nnew Executive Order to such effect. On the\nother hand he may find himself so absorbed\nin his new responsibilities that the\nForeign Funds Control-Alien Property\nCustodian friction will disappear.\n(2) Crowley may very well play the State Department\nline against Treasury. There has been recent\nindications of this and the Order certainly\nreflects that possibility.\nRegraded Unclassified\n144\n- 3 -\n(3) Crowley, through the Office of Economic\nWarfare, will now be in on the reoccupation\nprogram and this may have repercussions on\nthe cooperative attitude toward Treasury\nwhich BEW has in the past evinced in this\nfield.\n(4) Crowley no doubt will want a larger voice\nin the field of post-war planning in the\nforeign economic Bro field.\nRegraded Unclassified\n145\nPARAPHRASE OF TELEGRAM SENT\nTO: American Embassy, Chungking, China.\nDATE: July 16, 1943, 9 p.m.\nNO.: 911\nFOR ADLER FROM THE SECRETARY OF THE TREASURY.\nPlease transmit the following message to Dr. Kung:\n1. The Treasury has considered the proposal of the\nGovernment of China to purchase $200 million of gold from\nthe U. s, Treasury out of the $500 million financial aid,\nwhich gold will be sent to China for sale to the public\nna n means of helping to check inflation.\n2. We presume that the costs, difficulties and dangers\ninherent in the use of gold RB n means of checking the present\ninflation in China have been fully taken into consideration.\n2. Since the Government of China deems that the sale of\ngold to the public will aid its war effort by helping to\nschieve greater monetary stability, the Treasury 16 prepared\nin principle to agree to its proposal. It will be necessary,\nof course, for the Treasury to have a formal request from\nyou before any definitive decision and action can be taken.\nHULL\n(ЛАВ)\nRegraded Unclassified\n146\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM:\nAmerican Embassy, Chungking, China\nDATE:\nJuly 16, 1943, 1 p.m.\nNO.:\n1200\nThis refers to the Department's telegram no. 658,\ndated May 24, 1943.\nThis is a. strictly confidential message, TF 38, from\nMr. Adler for the Secretary of the Treasury only.\n1. I have been requested by Dr. Kung to submit for\nyour consideration an alternative proposal outlined as\nfollows:\n(a) The Bank of China in Chungking is to be allowed\nto transmit remittances, including airmail and telegraphic\ntransfers, to people in enemy occupied China from the Bank\nof China in New York, these two banks being the Central\nBank of China's designated agents.\n(b) The procedure prescribed in General License 75\nwould be observed in effecting these remittances. It\nwould be the function of the Central Bank of China in\nChungking, as the designated agent of the Chinese National\nGovernment, to be accountable for determining the desira-\nbility of the beneficiaries receiving these remittances\nand for reviewing each remittance. Caution to make sure\nthat hostile forces would not derive benefit from the\nremittances would be exercised by the Government of China\nthrough its designated agent, the Central Bank of China,\nor such other agent or agents as the Chinese Government\nmay deem proper to designate from time to time.\n(o) The same as outlined in the Treasury proposal.\n(a) In the event the Hong Kong Bank makes a direct\napplication to the Central Bank, the Central Bank of China\nwill at that time take under consideration the designation\nor the Hong Kong Bank as an agent to make remittances as\nset forth in paragraphs (a) and (b).\n2. Dr. Kung's proposal will be seen to project the\nentral Bank into the most prominent position and stress\nits importance as the Ohinese Government's appointed agent,\nwhich\nRegraded Unclassified\n107\n-2-\nwhich is the chief deviation from the Treasury proposal.\nThis fortifying of the strength of the Central Bank is\nin accord with a present tendency which has heretofore\nbeen reported.\n3. The Chinese members refrained from commenting on\nthe proposal when it was presented for disoussion at the\nmost recent Board meeting, because the Board members knew\nthat Dr. Kung had previously made known his thoughts on\nthe proposal. The Chinese members abstained from commit-\nting themselves other than to state that the plan was\ntaken note of by the Board. In private talks prior to\nthe meeting, however, the Chairman suggested general\napproval of the Treasury proposal, while Pei recommended\nthat the Board be named reviewing agent, with the Bank\nof China extending its facilities to the Board to meet\nits requirements. A compromise might be to retain the\nessentials of the Treasury proposal, while adding the\nprovision that the Board act as reviewing agent and\naccording some recognition to the Central Bank by refer-\nring to it in one or two places.\n4. Because of doubt as the the Board's future\nChairman, the meeting was called more than a month late,\nthus occasioning delay in replying to your telegram.\nATCHESON\nRegraded Unclassified\n148\nNOT TO BE RE-TRANS\nCOPY NO. 13\nBRITISH LOST SECRET\nU.S. SECRET\nOPTIL 20. 233.\nInformation received up to 7 a.m., 16th July, 1943.\n1. AIR OPERATIONS\nESTERN FRONT. 15th. Escorted Typhoon and Boston Bombers\nattacked POIX and ABBIVILLE Airfields. On these and other operations enemy\ncasualties - s, 2, 6. Ours - 7 missing.\n15th/16th. Aircraft despatched: MONTBELIARD near BELFORT\n(Peugoot Lotor Works) - 165 Halifax's (5 missing), MUNICH - 6 Losquitos,\nIntruders - 3B, Anti-shipping - 4 (1 missing). Proliminary reports indicate\nsuccessful attack on eontbeliard. 8 Enery aircraft operated over kint and\nLS.EX. One was destroyed by a hosquito.\nSICILY and SOUTHERN ITALY. 13th/14th. Night Fighters shot\ndown 6 enemy aircraft. Wellingtons dropped 55 tons at PALERMO and also bombed\nESSINA, 3 missing. 28 medium and light bombers raided ENNA and 48 attacked\nroad targets and M.T. in CENTRAL SICILY.\n14th. 184 heavy and 86 medium bombers with escort were sent\nto ISSINA where 525 tons were dropped. 74 tons were dropped at INIA by\nmedium bombers. PALERIO, Northwest of CATANIA, was also bombed. 143 Mustangs\nattacked objectives at ILAZZO, SCALIETA, SAN CATERINA and BRONTE. Beaufighter\nsank a ship in convoy off CORSICA and destroyed a tanker and left another on\nfire off SARDINIA. Spitfires flew 264 Sorties over beaches and on escort\nduty. Enemy casualties: 5, 2, 1. Allied: 9 missing.\nRegraded Unclassified\n149-\nJuly 17, 1943\n10:00 a.m.\nHMJr:\nAre we making a record?\nD. W.\nBell:\nYes, sir.\nHMJr:\nWell, now I've got these boys here and we're getting\nalong. Now the main thing I wanted to say to you\nand Gamble\nHello?\nB:\nYes, sir.\nHMJr:\nWhen Haas gets back - they started to tell me - it's\nthe only - they had a steak at half past one in the\nmorning in Poughkeepsie - I don't what they did before\nor after\nB:\nA steak?\nHMJr:\nYeah.\nB:\nMy God! They can't get that in Washington.\nHMJr:\nGeorge looks good, too.\nB:\nThat's fine.\nHMJr:\nWhen he gets back to Washington Monday I think if\nyou and Ted and whoever Ted wants should sit down\nand have an agenda for Tuesday and Wednesday.\nB:\nOh, yes.\nHMJr:\nHello?\nB:\nYes, sir.\nHMJr:\nI'm very anxious to have that\nB:\nAll right.\nHMJr:\nand particularly on the quotas.\nB:\nYes, sir.\nHMJr:\nNow, what we're talking about here 1e - the boys\nhave got a State quota - and then I used the example -\ntake the steel industry for the State of New York.\nI suppose there'll be some one person representing\nthe steel industry - and then each steel mill in New\nYork, I think, should have a quota. Hello?\nRegraded Unclassified\n150\n- 2 -\nB:\nYes.\nHMJr:\nAnd then after all - we get this industry going and\nif the Lackawanna Steel in Buffalo has a quota, those\npeople know what's expected of them, they'll go to\ntown and they'll generate their own salesmanship\nwhich is far better than anything - pressure we could\nput on them from the outside.\nB:\nWell, isn't that something that the State Chairman\nshould work out with the steel\nHMJr:\nYes, but we should give it to them as a policy.\nB:\noh, in the meeting on Wednesday you mean.\nHMJr:\nTuesday isn't it?\nB:\nTuesday and Wednesday they'll be here.\nHMJr:\nYeah but we should have that as a policy. I think\nwe should not only tell them we expect to have a\nstate quota but we ought to tell them that every\nfactory in the state should have a quota.\nB:\nAll right.\nHMJr:\nAnd every industry should have a quota. The boys will\ntell you. They're with me on it - I think Gamble will\nbe too.\nB:\nI think Gamble has already done something on it.\nHMJr:\nIs he there?\nB:\nHe's shaking his head. He has already had some thoughts\non it.\nHMJr:\nWell, let me just talk to him 8 minute.\nB:\nAll right.\nTed\nGamble:\nHello.\nHMJr:\nTed.\nG:\nGood morning, sir.\nHMJr:\nGood morning. If - - I don't know there are five steel\nmills in the State of New York - I don't know where\nthey are\nRegraded Unclassified\n151\n- 3 -\nG:\nYes.\nHMJr:\nand one man 1s appointed chairman for the five\nsteel mills\nG:\nYes, sir.\nHMJr:\nand each steel mill has a quota\nG:\nYes, sir.\nHMJr:\nthose boys can generate far more enthusiasm and\nsalesmanship than we could ever organize between\nnow and September 9th.\nG:\nWe couldn't even do a job on them if you didn't give\nthem a quota.\nHMJr:\nRight.\nG:\nThey wouldn't - it wouldn't mean anything - the whole\ndrive would be meaningless as far as those plants are\nconcerned.\nHMJr:\nWell, we didn't have it last time\nG:\nAnd that was the missing link.\nHMJr:\nAll right.\nG:\nFor we had it in the Kaiser Ship Building Company\nand we did a good job.\nHMJr:\nYou're with me on it?\nG:\nWell, 100%. I talked to Tickton about it, too.\nHMJr:\nYeah. The boye here are with me.\nG:\nYes.\nHMJr:\nAnd they say that that's the way they got the payroll\nsavings thing up.\nG:\nWell, that's correct.\nHMJr:\nThey said the only industry that's behind\nG:\nYeah.\nHMJr:\nin proportion 1s the railroad industry.\nRegraded Unclassified\n- 4 -\n152\nG:\nThat's correct.\nHMJr:\nWell - my bean is working as good 8.8 it can this\nmorning.\nG:\nWell, I'm not only with you on that but do you know\nthe hope that we have with these two organizations\nthat we're bringing in - the retailers and the movies -\nis to hang a quota on every one of them.\nHMJr:\nWell, I - I think that they - I may repeat myself -\neach industry within a state should have a chairman.\nG:\nThat's\nHMJr:\nEach - uh - say there are five steel mills and each\nsteel mill should have an independent quota.\nG:\nThat's correct.\nHMJr:\nAnd then we can say to Mr. Jones who is looking after\nfive mills, \"How are you going?\"\nG:\nThat's right. And anything short of his quota - he's\nnot going 80 well.\nHMJr:\nRight.\nG:\nThat's right.\nHMJr:\nAnd I think that all of Monday should be spent on this.\nG:\nYes.\nHMJr:\nGetting it ready for Tuesday.\nG:\nI agree with that.\nHMJr:\nNow, the boys tell me the thing that they are really\nworrying the most about 1s the farming thing.\nG:\nYes.\nHMJr:\nAnd I wonder if Bill Meyers is going to be down Monday,\nTuesday and Wednesday.\nG:\nWell, we'll see if we can get him here.\nHMJr:\nOrder him here.\nG:\nYes.\nRegraded Unclassified\n- 5 -\n153\nHMJr:\nI mean, if he's going to be there, he just - now is\nthe time.\nG:\nYes.\nHMJr:\nAnd I'm very much interested in this partial payment\nplan for farmers\nG:\nYes.\nHMJr:\nthat the boys had.\nG:\nYes.\nHMJr:\nSee?\nG:\nYes.\nHMJr:\nBut as I say, I think all of Monday I'd forget about\nposters and every other thing and just get ready for\nyour Tuesday meeting.\nG:\nThat's correct. Although you have no objection on\nTuesday and Wednesday if we also plan as a part of\nthis agenda to show these people how far we've ad-\nvanced with the promotional material?\nHMJr:\nI - I - if you don't mind, I'd do that at the end.\nG:\nWell, I'll do it - that's fine.\nHMJr:\nI want to get them\nG:\nYou want to get them saturated with this first?\nHMJr:\nWell, I want to get the quota thing\nG:\nYes.\nHMJr:\nand the basket settled first.\nG:\nI'm agreeable to that, sir.\nHMJr:\nAnd then whatever time you've got left over you can\ndo on the other.\nG:\nFine.\nHMJr:\nHow's that?\nG:\nFine.\nRegraded Unclassified\n154\n- 6 -\nHMJr:\nWhat?\n6:\nWe added a little word of warning to these fellows\nwhen sending these invitations to be here that we\nalso wanted to find out how far along they Were with\ntheir organization plans.\nHMJr:\nWell, that's all right. But I think the first crack\nout of the box should be on the baskets and on the\nquotas.\nG:\nI agree on that, sir.\nHMJr:\nAnd then we should have a plan and I'm all for this\nplan for every factory and every industry in every\nstate.\nG:\nRight. It's the only ultimate solution, Mr. Secre-\ntary.\nHMJr:\nI don't see anything else.\nG:\nThere's no other answer to it. You'll do more - then\nit doesn't make any difference regardless of what\nanybody says, how many quotas you have within a state\nfor industries or for businesses.\nHMJr:\nRight.\nG:\nBecause they won't work without them.\nHMJr:\nRight. Well, now that was my reaction. The main\nthing I wanted was to have you fellows set aside Monday\nto work on an agenda.\nG:\nRight.\nHMJr:\nand then to get Meyers down.\nG:\nWell, we'll do that. We'll do both of those things.\nHMJr:\nAnybody want to say anything to me?\nG:\nYes, I do. I want to tell you that I have an idea\nthat I'd like for you to be turning over in your mind\nabout an advertising man.\nHMJr:\nGo ahead.\nG:\nI - when I was in New York yesterday - I talked to these\npeople - we had the representatives there of 8200 theatres.\nRegraded Unclassified\n155\n- 7 -\nHMJr:\nWhat's that?\nG:\nWe had the representatives there of 8200 theatres.\nHMJr:\n8200 dead?\nG:\nTheatres.\nHMJr:\nTheatres?\nG:\nYes, sir. In New York - this meeting yesterday\nHMJr:\nYeah.\nG:\nas well as the presidents of this company - these\nvarious picture companies.\nHMJr:\nYeah.\nG:\nThey voted these funds to do this job - the industry\nitself.\nHMJr:\nYeah.\nG:\nThey're going to put up the money.\nHMJr:\nYeah.\nG:\nThe 8200 theatres, representing over half the theatres\nin America\nHMJr:\nYeah.\nG:\nas well as the Trade Association representatives\nwere there of the other 8000 theatres\nHMJr:\nYeah.\nG:\npledged their 16,000 theatres to go all out in\nthis September drive.\nHMJr:\nYeah.\nG:\nI tell you this just by way of background. At this\nmeeting also were the leading advertising men of the\nmotion picture industry\nHMJr:\nYeah.\nG:\nas well as the theatre industry and I got an idea\nthere about the possibility of taking the head of the\nLoew's Theatre Advertising Department for this job\nRegraded Unclassified\n- 8 -\n156\nHMJr:\nHead of Loew's Theatres?\nG:\nAdvertising Department.\nHMJr:\nYes.\nG:\nIt's the most successful chain of theatres in\nAmerica.\nHMJr:\nYes.\nG:\nThey have all - nothing but metropolitan theatres\nin large cities.\nHMJr:\nYeah.\nG:\nThey are great users of space - they are the people\nwho originated years ago Major Bowes' Program, The\nCapital Theatre Program.\nHMJr:\nYeah.\nG:\nThey've owned portions of radio stations in various\ncities. They are great users of radio space. They\nare great users of newspaper space. They are great\npurchasers and users of outdoor advertising.\nHMJr:\nYeah.\nG:\nThey use all the media.\nHMJr:\nYeah.\nG:\nThe men are not people who have been specialized in\none field or the other but they have general back-\nground of knowledge and information in the advertising\nfield, because they have to use all the media.\nHMJr:\nYeah.\nG:\nIn other words, they know how to turn to good people\nin these different fields to get what they want.\nHMJr:\nYeah.\nG:\nNow, this man that I'm thinking of will require, I\nthink, a call from you if we're going to get him.\nHMJr:\nYeah.\nG:\nHis name is Oscar Doob.\nRegraded Unclassified\n- 9 -\n157\nHMJr:\nOscar who?\nG:\nDoob. D-o-o-b.\nHMJr:\nD?\nG:\nD-o-o-b.\nHMJr:\nThe second or fourth letter in the alphabet?\nG:\nD is the fourth.\nHMJr:\nYeah. That's D double-0?\nG:\nD double-o-b.\nHMJr:\nIt ien't Boob?\n6:\nNo, it's Doob.\nHMJr:\n(Laughs)\nG:\nAnd he is the dean of all of the practical advertising\npeople in the theatre industry.\nHMJr:\nYeah.\nG:\nAnd in addition to that, he 18 a very cultured little\nfellow, and I think a happy balance of the kind of 8.\nman that we want for the job.\nHMJr:\nWell, why not telegraph him and see whether he wouldn't\ncome down to see me.\nG:\nWell, I can get Doob if you could get Nick Schenck to\nlet him come, but I don't think we can get him - I don't\nthink we can even\nHMJr:\nOh, I don't think Schenck can afford to turn me down.\nG:\nHe wouldn't turn you down.\nHMJr:\nNo.\nG:\nHe wouldn't turn you down, but he would - I think - turn\nanybody else down, Mr. Secretary.\nHMJr:\nLook what Schenck did on that picture - you know\nG:\nYes, inflation film.\nRegraded Unclassified\n158\n- 10 -\nHMJr:\nWell, what did - where did Howard Dietz figure\nG:\nWell, you see Howard is in the publicity department\nof the picture company.\nHMJr:\nYes.\nG:\nHoward is the director of publicity for Metro-Goldwyn-\nMayer.\nHMJr:\nWell, is Doob under him?\nG:\nDoob is in the theatre department.\nHMJr:\nBut does Doob come under Dietz?\nG:\nNot - not - no, they are two different departments,\nMr. Secretary. Doob is the - as a matter of fact -\nDoob would be a greater loss to Schenck than Dietz would\nbe, because Dietz has kind of graduated into the elder\nstatesmen's class. He's not one of the working men.\nHMJr:\nHow old a man 18 Doob?\nG:\nI should say Doob is 46 years old - Or 47 years.\nHMJr:\nWell, get him down and we'll talk to him.\nG:\nAnd, I'll have him come down Monday 80 you can see\nhim.\nHMJr:\nI won't be there Monday.\nG:\nTuesday. If you can squeeze in a minute.\nHMJr:\nYeah.\nG:\nI think we ought to get him 8.8 quickly as we can. Now,\nthat's the only nomination I have made for this job.\nHMJr:\nYeah.\nG:\nAnd I do it with some apprehension because\nHMJr:\nLet's have him down Tuesday.\nG:\nAll right, sir. I'll have him here.\nHMJr:\nLet's say Tuesday afternoon.\nG:\nI've talked to Fred about him. Fred thinks that he's\ngot Just the kind of background - - he thinks that's the\nanswer to the kind of a fellow we want.\nRegraded Unclassified\n- 11 -\n159\nHMJr:\nWell, it sounds interesting to me.\nG:\nYes.\nHMJr:\nFred likes the idea?\nG:\nHe likes the idea because he knows this fellow has a\nnose for news and he's got some showmanship and that -\nwe've got all the counterbalancing effects we need\nwith the groups that we've set up like the Advertising\nCouncil.\nHMJr:\nWell, you've told me enough now.\nG:\nAll right, sir. (Laughs)\nHMJr:\nWhat else?\nG:\nThat's all I have to say to you this morning. You\nmight be interested to know we settled our application\nforms and our training manuals and our descriptive\nfolder problems and have them all going into the mill\ntoday.\nHMJr:\nGood. Now let me talk to Fred a minute.\nG:\nAll right, sir.\nFred\nSmith:\nHello.\nHMJr:\nFred.\nS:\nYeah.\nHMJr:\nDo you like the sound of Doob?\nS:\nI like the sound of the job that the guy's got. I\ndon't know him but if he's a good man - his background,\nI think, is made to order.\nHMJr:\nNow, one thing that I want to have you be thinking -\nyou to be thinking about over the week-end.\nS:\nYeah.\nHMJr:\nand that is once we get these forms out on the\nwithholding tax\nS:\nYeah.\nRegraded Unclassified\n160\n- 12 -\nHMJr:\nwhat we're going to do to bring that to the people\nand educate them.\nS:\nThat's right. Well, that already has been - we're\nworried about - we're worrying about that. I had a\nmeeting yesterday for about three hours with Bill\nHorne and Chick Schwartz and three men from the O.W.I.\nHMJr:\nGood.\nS:\nAnd We are planning a - a campaign that will - uh - do\na good job after the forms are out and then we are\nconsidering a campaign early in August before the\nforms are available just on the business of taxes and\nwhy taxes and war finance - and why people ought to pay\ntaxes and like to pay them and stuff like that - without\nparticularly referring to the - to the September 15th\noperation. See?\nHMJr:\nYou're on top of it? What?\nS:\nWhat? Sure, we're on top of it.\nHMJr:\nAll right then I'll forget about it 'till I get back.\nS:\nOkay.\nHMJr:\nHas Mr. Bell got anything.\nS:\n(Aside: Mr. Bell, you got anything?) He'd just like\nto know how Mrs. Morgenthau 1s.\nHMJr:\nWell, she's coming along nicely, thank you.\nS:\nAll right.\nHMJr:\nThat's all, thank you.\nS:\nOkay.\nHMJr:\nAll right.\nS:\nAll right.\nRegraded Unclassified\n161\nJuly 17, 1943.\n11:54 a.m.\nOperator: All right, sir.\nDan\nBell:\nHello.\nHMJr:\nHello, Dan?\nB:\nYes, sir.\nHMJr:\nIs - uh - is\nB:\nTed and Smith?\nHMJr:\nYeah. Is\nB:\nRight here.\nHMJr:\nIs Charlie Bell in there?\nB:\nNot in here. No.\nHMJr:\nWell, just - would you have somebody just ask for\nhim to come in? I want to ask him a question.\nB:\nAll right. Done.\nHMJr:\nWhat?\nB:\nIt's already done.\nH\nHMJr:\nAll right. Now, the boys have left and the reason\nwe're 80 short is because BO much progress has been\nmade\nB:\nUh huh.\nHMJr:\n....and I'm very much pleased.\nB:\nGood.\nHMJr:\nOne thing - uh - I think is terribly important and\nI know - is Gamble around?\nB:\nYes, right here.\nHMJr:\nI'm going to have a little trouble with him but he's\na nice fellow and I think he'll be amenable - and that\n1s, I think that we're going to be able to say, \"This\n1s going to be an intermediate bond - say, somewhere\nbetween seven and ten years or something like that -\nyou see?\nRegraded Unclassified\n162\n- 2 -\nB:\nUh huh.\nHMJr:\nAnd we're able - going to be able to say, \"It's going\nto be a 22% long bond.\" See?\nB:\nYeah.\nHMJr:\nBut I dont think we're going to be able to tell them\non the 23rd the exact terms. I think it's too dangerous\nbecause it's two months off and we just don't - we can't\nhit it, and I think he'll have to be thinking about -\nafter all it's instructing the salesmen. If they want to\nteach them how to sell a long 21 whether it's 65, 69 or\n64, 68 doesn't make an awful lot of difference.- - if it's\nan intermediate bond as long 8.8 they know how to sell a\nbond between seven and nine years. But I think we ought\nto not fix the definite price for another month. At\nleast that's the way I feel today.\nB:\nOh - I - - uh-uh - no.\nHMJr:\nWell, sleep on it. That's\nB:\nYeah. I will. I don't like that.\nHMJr:\nAll right.\nB:\nUh - the only thing I'd like to see done 1s - have this\nwait and the types of securities rest on the market for\na couple of days and then see what reaction we get.\nHMJr:\nWell, you think about this one, will you?\nB:\nYep.\nHMJr:\nBecause, as they pointed out, this situation in the\nbill market has all developed in the last two months.\nB:\nYeah, but that really doesn't affect this bond a bit -\nuh - 80 much.\nHMJr:\nWell, you got - think about it over the week-end.\nB:\nI will.\nHMJr:\nYeah.\nB:\nWell, I have already thought about it as a matter of\nfact, and\nRegraded Unclassified\n163\n- 3 -\nHMJr:\nAnd you're also going to have trouble with me to\nselling more than 21 billion of notes in August -\nthat's certificates, I mean.\nB:\nYou won't have any trouble with me.\nHMJr:\n(Laughs) Wonderful.\nB:\n(Laughs) Because that was my recommendation but I -\nI wouldn't feel too strong about going to three\nbillion.\nHMJr:\nWell, I want them to go into September with their\ntongues hanging out.\nB:\n(Laughs) They will have to wait 'till October.\nHMJr:\nUh\nBi\nBut that's all right. I don't think that a half a\nbillion dollars makes a lot of difference to tell you\nthe truth.\nHMJr:\nI feel lote better since I've had this - the progress\nall of you made - I can see daylight now.\nB:\nUh huh. Well, I think we're in pretty good shape as\nfar as our end of it's concerned. I have a little\nfeeling here for Ted. He's being crowded into 8 very\nshort space of time to do an awful lot of work - par-\nticularly on the printing and you know every printing\nhouse in the country is sewed up\nHMJr:\nWell, We\nB:\nand we're having a little trouble with that but I\nthink that\nHMJr:\nI'll bet you I could go into New York City and find\nfellows that haven't got any work.\nB:\nWell, not to do - not to put out ten million pamphlets.\nHMJr:\nWell, on the lower east side they'd just grab some of\nthis work.\nB:\nYeah. The Government Printing Office has pretty well got\nthe printing plants of any size sewed up through October.\nHMJr:\nWell, there are a lot of little jobbers. I'll bet you\nif we went to New York we could find 8. flock of little\nfellows - they'd each take a piece of it.\nRegraded Unclassified\n- 4 -\n164\nB:\nUh huh.\nHMJr:\nI'm serious.\nB:\nWell, maybe.\nHMJr:\nHave - let Hall look into that for us in New York.\nB:\nWell, I think the Government Printing Office has\nalready had a complete report on the printing facili-\nties of the country.\nHMJr:\nWell, let them take\nB:\n(Clears throat) Hall has seen that report.\nHMJr:\nLittle fellows?\nB:\nWell, Hall has seen the full survey.\nHMJr:\nAll right. Uh\nB:\nAnd that's the reason I went to Boston last week to\nsee about Forbes Company. We got that from the\nPrinting Office report.\nHMJr:\nIs Charlie Bell there?\nB:\nYeah.\nHMJr:\nLet me\nB:\nOkay.\nCharlie\nBell:\nYes, sir.\nHMJr:\nCharlie.\nB:\nYes, sir.\nHMJr:\nBy God, you had me embarrassed this morning.\nB:\nHow?\nHMJr:\nWell, George Haas and the boye thanked me so\nprofusely for my treating them to tickets Sunday\nnight.\nB:\n(Laughs) Well, you know, I got an indirect order that\nthey wanted to go to a show.\nRegraded Unclassified\n165\nin I I\nHMJr:\nWell, how indirect was it?\nB:\nVery indirect. You said that you would release them\nSunday in time to go to a show.\nHMJr:\nWell, who told you that?\nB:\nWhat?\nHMJr:\nWho told you that?\nB:\nThe grapevine.\nHMJr:\nWell, who's the grapevine?\nB:\nI guess Norman Thompson\nHMJr:\nWell, anyway, they thanked me first for getting the\ntickets and second for treating them.\nB:\nWell\nHMJr:\nSo I said, \"Well, I'll be honest. I don't know any-\nthing about it but it's on me and I'm delighted.\"\nB:\nWell, swell. It's not on you though.\nHMJr:\nOh, yes.\nB:\nOh, we don't do all of this for Milton Schubert who\nowns that theatre for nothing - - he's just giving them\npasses.\nHMJr:\nOh.\nB:\nYou know Milton Schubert?\nHMJr:\nNo.\nB:\nHe's the fellow we've been working with on the Theatre\nWing Canteen.\nHMJr:\nOh.\nB:\nSo there's no cost on it.\nHMJr:\nWell I didn't know. I told them that if that's what\nyou said, I'd stand by them and I was delighted. We\nhad quite a lot of fun about it.\nB:\n(Laughs) Okay, sir.\nRegraded Unclassified\n166\n- 6 -\nHMJr:\nWell, if they cost or don't cost - either way - I told\nthem I'd be glad to pay for them.\nB:\nOkay, sir. The move 1s coming along good.\nHMJr:\nThe what?\nB:\nThe move.\nHMJr:\nGood.\nB:\nHe gave me seven days. I'll give you two of them back.\nHMJr:\nWonderful. But we had a lot of fun joking about it.\nAs a matter of fact - Is Bell listening?\nB:\nYes, sir.\nHMJr:\nThe boys didn't get in until - last night until I don't\nknow what time in Poughkeepsie and they had a supper-\nbreakfast at 1:30 in the morning. They had steak and,\nof course, George has a weak stomach\nB:\n(Laughs)\nHMJr:\nand then the American Legion were there singing all\nnight. So George wanted to know couldn't he show up\nMonday noon. I told him, \"No\", I was very sorry. He\ndoesn't like to ride on a sleeper, 80 I told him I\nneeded him there Monday morning. and he could stay over\nsome other time. I don't know whether the man will\nspeak to me or not.\nB:\nSo they'll be back Monday morning.\nHMJr:\nWell, yeah. I can't - if George gets sick on a sleeper,\nthat's just his bad luck.\nB:\nWell, we'll get them fixed up on that 12:50.\nHMJr:\nYeah, but George won't ride on a bleeper. I think the\nother boys will.\nB:\nWell, if he wants to fly down, I'll fly him down.\nHMJr:\nWell, let him - he's up at the Nelson House. I don't\nknow that he flies. Let him work it out himself, will\nyou?\nB:\nAll right, sir.\nRegraded Unclassified\n167\n- 7 -\nHMJr:\nBut anyway, thanks for looking after them.\nB:\nOkay, sir. Anything more?\nHMJr:\nThat's all, thank you.\nB:\nWell, here's Fred Smith.\nHMJr:\nAll right.\nFred\nSmith:\nHello.\nHMJr:\nYeah.\nS:\nSay, you remember that stock telegram that you have\nbeen signing a lot of about 10% payroll?\nHMJr:\nYeah.\nS:\nWell, I rewrote it and I want to check it with you\nso Ted can get it out.\nHMJr:\nWell, how long is it?\nS:\nOh, about ten lines.\nHMJr:\nWell, if you fellows agree on it it's all right.\nS:\nOkay.\nHMJr:\nI don't want to do any more business. I'm exhausted.\nS:\nAll right. That's fine.\nHMJr:\nIf you and Dan Bell and\nS:\nTed.\nHMJr:\nit's all right with me. You can show it to me\nTuesday.\nS:\nAll right.\nHMJr:\nCheeric.\nS:\nCheerio.\nRegraded Unclassified\n7am 168-\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE JUL 17 1943\nTO\nSecretary Morgenthau\nFROM Captain Kades\nAttached hereto is a draft of a letter to Judge Jones\nsending him a copy of the cable from Casaday on the food\ndistribution system used in England.\nIn my memorandum to you of July 14th, I stated that\nthe schemes used in England for the purchase and distribu-\ntion of various food items differ widely from commodity to\ncommodity, but that in general the British use area or re-\ngional or local offices in allocating supplies. You asked\nme to expand on this local allocation method. The purpose\nof this memorandum is to indicate the method used in con-\ntrolling the distribution of meat.\nAs you know, the Ministry of Food is the sole purchaser\nand distributor of all meat in the United Kingdom. Meat is\ndistributed on the basis of the actual number of individuals\nregistered with retail butchers in each local food area,\nbut not on any broad regional or county basis. The indi-\nvidual ration is fixed according to value. The mechanism\nfor distributing meat to consumers is complex but operates\nroughly in the manner described below.\nRetail butchers have set up voluntary organizations\nknown as retail buying committees. There is usually one\ncommittee for each local food office. All retail butchers,\nlarge caterers and other groups which normally buy meat at\nwholesale are members of this committee. The main functions\nof the committee are (1) to appoint allocation officers,\nand (2) to supervise generally the process of all sales and\npayments to be made by retailers.\nThe allocation officer of the retail buying committee\nmakes known to the manager of the wholesale depot how much\nmeat the retailers in his committee will require for the\nweek. There are 913 wholesale meat depots in the United\nRegraded Unclassified\n169\n- 2 -\nKingdom. The functions of these depots include (1) split-\nting carcasses into sides and quarters, (2) making working\narrangements for transporting meat to retailers' shops,\nand (3) keeping track of the amounts of meat sent and money\nowed.\nThese wholesale meat depots operate on behalf of whole-\nsale meat supply associations. There are 8 such associa-\ntions in the United Kingdom. These associations are made\nup of all firms and individuals who were engaged in the\nwholesale meat trade just prior to the war. They function\nas agents of the Ministry of Food and they are reimbursed\non a fixed commission for the volume of meat they handle.\nThis commission is sufficient to cover all reasonable ex-\npenses of the associations and to leave a small surplus\nfor the reimbursement of its members on a pro rata basis,\nbased on the proportion of the total turnover which each\nfirm handled during a prewar period.\nWhen the manager of one of the wholesale meat depots,\ncarrying out the actual work of such an association, re-\nceives from the allocation officer of the retail buying\ncommittee the amount required for the week, he forwards\nthis requirement, together with others, for his collection\nof butchers (normally 50) a week in advance to the area\nmeat and livestock officer. This officer in turn computes\nthe total demand for his area and forwards it to the cen-\ntral office of the Meat and Livestock Division of the Min-\nistry of Food. These requirements are reasonably accurate\nbecause they are based upon amounts determined by the num-\nber of individuals rationed with the retailers of each\nretail buying committee.\nThe area meat and livestock officer then tries to fill\nthe needs of the wholesale depots with the forthcoming sup-\nply of meat from collection centers nearest the depots.\nThis officer knows how much domestic meat will be coming\nforward in each locality from notices compiled by collec-\ntion centers. These collection centers, of which there are\nabout 600 in the country, are places to which farmers bring\ntheir livestock for the purpose of having it graded by a\n\"certifying authority\". This authority is made up of the\nRegraded Unclassified\n170\n- 3 -\nauctioneer, a farmer and a butcher. The grading is done\nto ascertain the deadweights of the live animals and not\nfor quality, since payment is made on a liveweight basis\nexcept in the case of pigs.\nThe farmers must make it known to the head officer\nof the nearest collection center that they desire to bring\nforward livestock at least 12 days before it is scheduled\nto be sold for slaughter. All such notices are summarized\nin each collection center and are passed on to the area\nmeat and livestock officers. These officers make summaries\nfor the whole area under their jurisdiction and pass them\non to the central office of the Meat and Livestock Division\nof the Ministry of Food. It is from these notices that the\narea meat and livestock officer knows whether the forth-\ncoming supply of each collection center will meet or exceed\nthe needs of the wholesale depots nearest to it, and if\nthere is a surplus, arrangements are made to have the excess\nmeat sent to the next nearest depot in the area which has\na deficiency. If there is a deficiency which cannot be\nfilled by surplus of a depot, the area meat and livestock\nofficer then gives directions for imported meat to be\ndelivered from nearby stores of the Meat Importers National\nDefense Association, Ltd. to the wholesale depots. Since\nhome-killed supplies are usually less than demand, it is\nusually necessary to introduce imported meat to the distri-\nbution system through this Association which is made up of\nall prewar importers of meat and is responsible for handling\nthe meat on arrival, storing it and finally delivering it\nto the wholesale meat depots as needed. This Association\nis under control of the Ministry of Food which acquires\nthe meat abroad.\nAfter the wholesale meat depot manager physically\ncollects the necessary home-killed and imported meat to\nsatisfy the requirements of the butchers in his area, the\nallocation officer of the retail buying committee decides\njust which kinds and qualities of meat and which specific\nsides or quarters or whole carcasses are to go to each re-\ntailer. The retailers rely on the allocation officers'\nRegraded Unclassified\n171\n- 4 -\njudgment entirely and express no choice with regard to the\ntype of meat they would like, but the allocation officers\ntry to secure an equitable adjustment of the proportion of\ngood and poor meat going to each retailer over a period.\nSome retail buying committees at their own expense\nhave established reallocation depots where some of the\nmeat may be cut up more meticulously than at the depot.\nFor example, a butcher who wants to concentrate on steaks\ncan get steaks by swapping at a reallocation center other\nmeat which he obtains there with a fellow retail butcher\nwho wants fewer steaks and more soup bones.\nIt is noteworthy that, when the meat is sold to the\nretail buying committee, it leaves the direct ownership of\nthe Ministry of Food for the first time. The Ministry of\nFood purchases the livestock either abroad or at the col-\nlection center (through county auctioneers who act as agents\nfor the Ministry of Food) and slaughters such livestock at\nslaughter houses managed by full time officers appointed by\nthe Ministry. The actual slaughtering is done by contrac-\ntors working on a fee basis. There are only 700 slaughter\nhouses now in the United Kingdom, as against 16,000 before\nthe war.\nThis results in a bottleneck through which the whole\nsupply of meat flows. This bottleneck, combined with the\nlicensing of all handlers of meat through the mechanism\nsummarized above, permits manageable and efficient control\nof the distribution of meat there.\nAttachment\n&.K.\nRegraded Unclassified\n1724\nJuly 17, 1943.\nMEMORANDUM FOR THE FILES:\nA letter dated June 29, 1943 was received by Mr. White,\nsigned by Secretary Hull, advising that he believed special\nattention should be given to problems of international arrange-\nments relating to long-term international investment. The\nletter stated Secretary Hull was asking Warren Lee Pierson,\nMarriner S. Eccles, Lauchlin Currie and Mr. White to accept\nmembership on a Special Committee on Long-Term International\nInvestment and report conclusions to the Interdepartmental\nCommittee on Post-War Foreign Economic Policy, and that\nMr. Berle would maintain contact between the State Department\nand the Committee. Secretary Hull said he would appreciate\nMr. White's acceptance.\nMr. White brought the letter to the attention of Secretary\nMorgenthau, telling him he thought this was a Treasury matter\nwhich required decision by the Secretary. The Secretary stated\nthat he would take the matter up with Mr. Hull personally. When\nhe subsequently called on Secretary Hull he took the letter with\nhim. Secretary Hull asked him to leave the letter, which\nSecretary Morgenthau did. We therefore do not have a copy of\nthe letter in our files.\nH. D. White\nRegraded Unclassified\n173\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 17, 1943\nTO\nSecretary Morgenthau\nFROM\nMr. White HDW\nThis is a comparative statement of the earnings and\nexpenses of the Stabilization Fund for the months of May\nand June, 1943.\nEarnings\nMay, 1943\nJune, 1943\nInterest earned on investments\n$ 20,220.69\n$ 19,514.93\nProfits on handling charges on\ngold\n111,678.62\n112,464.41\nHandling charges on gold\n(Stabilization) accrued\n---\n12,500.00\nMiscellaneous profits\n3.92\n6.03\nTotal\n$131,903.23\n$144,485.37\nExpenses\nSalaries\n$ 21,845.49\n$ 22,123.66\nTravel\n82.57\n159.89\nSubsistence\n389.00\n216.50\nTelephone and telegraph\n1,143.71\n3,977.73\nStationery\n21.91\n105.40\nAll others\n469.71\n516.73\nTotal\n$ 23,952.39\n$ 27,099.91\nNet earnings\n$107,950.84\n$117,385.46\nThis report was completed from figures supplied by\nMr. O'Daniel.\nRegraded Unclassified\n174\nJUL 17 1943\nTo: Adler, Changicing, China.\nFrom: Secretary of the Treasury.\nReference is made to your sable of March 28, 1943,\nNo. TF-103.\n1. Treasury has received a under of applications to\nrelease U. S. dellar presseds of U. So dollar-backed\nsavings certificates. Some of the applications would\n1 1 $ 1 x I\n2. The Treasury would, therefore, appreciate receiving\na definitive reply to its eable of March 50 1943,\nNo. 300. Treasury is holding - these applications\nand no action has been taken with regard to 1\nISF/efe 7/16/43\nRegraded Unclassified\n175\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM:\nAmerican Embassy, Chungking\nDATE:\nJuly 17, 1943, 1 p.m.\nNO.:\n1209\n1\nFrom Adler to Secretary of Treasury only. Strictly\nconfidential and urgent. TF141.\nReference is Section 2 of State Department's telegram\n882 of July 9.\nSECTION I\n(a) Beneficial effects in checking inflation would\nundoubtedly be produced by the institution of an effective\nscheme for this use of gold in China - with adequate controls.\nFor the scheme to yield significant advantages, it is\nclear that the gold would have to be sold in China at a\nprice or prices which must never fall below approximately\n5000 on dollars per ounce. Also, it is impossible to\nmake even a rough estimate on the basis of existing information:\n1. or the scale on which there would be absorption\nof gold by the Chinese public at a price or prices which\nwould make the sales a worthwhile means of combatting inflation;\ntentatively it is suggested that sale of gold at less than,\nsay, 7 to 10 times the price equivalent at the official rate\nof exchange to 35 U. S. dollars per ounce would not be\nworthwhile.\n2. of the extent of decline in current prices of gold\n(see D, 2, below) which would be caused by substantial\nimports of gold.\nNecessarily, therefore, in its initial stages a ra-\ntional scheme for selling gold in China would have to be\nexperimental,\nIn view of this and in order to increase the\nchances of maximum advantages accruing to China, I would\nventure to suggest that before the Treasury agrees in prin-\nciple, and certainly before it makes any specific commitment\nto sell substantial amounts of gold to China, it should\nawait the submittal by the Chinese Government of a concrete\nplan to the Treasury. It appears from the information\navailable\nRegraded Unclassified\n178\n-2-\navailable here that as yet the Chinese authorities have\nnot worked out any such plan. Perhaps the Treasury could\ndiscreetly ask the Chinese Government for information con-\ncerning its specific plans.\n(b) 1. Reference your (b) 1. It is my impression\nthat there 1s a rather vague anticipation of selling the\ngold to bullion dealers and the banks as well as to the public.\n(a) As the Central Bank could expand the note issue\nfor the specific purpose of acquiring gold, a course which\nwould defeat the whole point of selling gold to China, and\nthe other Government banks could use their facilities for\nborrowing from the Central Bank to acquire gold, which also\nwould lead to an increased issue of notes by the Central\nBank, it would be desirable from the point of view of obtain-\ning the maximum anti-inflationary effects to prohibit the\nGovernment banks from buying gold except as intermediaries\nfor reselling it to the public. The Chinese Government\nwould probably be reluctant to adopt a measure prohibiting\nall Government banks from buying gold to hold - this is\nespecially the case because of the current trend to strengthen-\ning all Government banks in relation to commercial and private\nbanks and to strengthening the Central Bank in relation to\nthe other Government banks. Such a prohibition could be\ncircumvented by the Government banks having private agents\nbuy the gold for them, but to some extent the prohibition\nmight serve as a deterrent.\n(b) The sale of gold to modern style commercial banks and\nto native style private banks or to the bullion dealers, or\nto the public, would not be open to the above objection.\nYour (b) 2. Watertight controls to prohibit any\n(repeat any) of the gold from getting into Japanese hands\nwould be impossible to adopt. However, given the whole-\nhearted cooperation of the central Government's special\nservices and of the various authorities of the provincial\ngovernments, such leakage could be kept to fairly low levels.\nHow far such wholehearted cooperation would be received is\ndoubtful, particularly in the case of such provincial govern-\nments as that of Yunnan. The registration of all purchasers\nis an additional suggested check. However, some prospective\npurchasers might fear that the information in the registra-\ntion records might subsequently be used by the authorities\nto obtain the gold from them on terms disadvantageous to\nthem but advantageous to the authorities, and this fear\nwould tend to discourage purchasers.\nATCHESON\nRegraded Unclassified\n177\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Chungking, China\nDATE: July 17, 1943, 2 p.m.\nNO.1 1209\nCONTINUED FROM SECTION I.\nFor your relevant information:\n(a) It is reliably reported that recently there has\nbeen smuggling of formall amounts of @ld from India to\nYunnan and thenee into Indo-China.\n(b) It is currently reported that recently an agent\nor agents were sent into Free China by Chinese in Shanghei\nwith 25 million a Mollars with which United States dollar\nbacked savings certificates were to be bought.\n3. Reference is siede to your (b) 3. On this point\nalso no clear view 19 held here as to whother gold should\nbe sold in form of bare or should be winted into gold coins,\nIn view of the difficulties of giving gold eeins a fixed\nvalue in OH dollars and in view of the danger that coins\nwould probably be in smaller denominations than bars and\nwould have a tendency to displace FAPI as a medium of\nexchange and circulation, sale in the form of bare would\nappear to be preferable. Some indication that the gold\ncoin or bare constitute part of U. S. financial aid to\nChina might most appropriately be imprinted on them.\nSECTION II.\nI would like to submit the following for your con-\nsideration in view of the fact that in its first stages\nA antisfactory scheme would be experimental and in view\nof the need for cheeks and safeguards:\n1. If and when decision was taken by the Treasury\nto agree in principle to sell gold to China, it might\nsuggest that R beginning be made by the Chinese Govern-\nment by selling the 48,000 cunces of gold which is now\nin the possession of the Contral Bank and such other\namounts of gold acquired from current production as the\nGovernment now has. (See D, 3, below).\n2, During\nRegraded Unclassified\n1/8\n-2-\n2. During the sale of the gold now in China the\nTreasury might agree to sell say U. 8. $10,000,000 of\ngold to the Chinese Government and (?) observe how the\nsale in China of this gold good before it makes any\nfurther sale of gold to the Chinese Government. As a\nsaving in transportation expenses, a swap, preferably\nwith the Indian authorities and alternatively with the\nAustralian or South African authorities, whereby India\nor South Africa or Australia would send the gold to\nChina while the same amount could be earmarked with the\nFederal Reserve Bank of New York for the sender would\nbe desirable.\n3. It would certainly be desirable from the point\nof view of the interests of China, and it might be\npossible, to tie up the Board with any arrangement for\nselling gold to China and to give power to the Board to\nfix price or prices of the gold and to have some super-\nvision over its sale. The Board is goven power by para-\ngraph one (c) of the 1941 Agreement to deal in gold for\naccount of the fund; in any revision of the 1941 Agree-\nment this power could perhaps be breadened to onable\nthe Bourd to exercise these functions.\nBringing the Board into the picture would have\nadvantages which are obvious as its participation would\nincrease the chances of success and curtail abuses of\nany scheme that is worked out. In case objection were\nraised by the Chinese Government to participation of the\nBoard in any plan for selling gold in China on the ground\nthat the British member had nothing to do with the sale\nof the gold, the objection sould perhaps be overoome by\nhaving a committee or the Board consisting of the American\nrepresentative and the Chinese member function for this\npurpose\nATCHIS ON\nRegraded Unclassified\n1/9\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Chungking, China\nDATE: July 17, 1943, 1 p.m.\nNO.1 1209\nSECTION III.\nI have been gathering together all the scenty informa-\ntion on gold market in China that is available but it is\nnot such as to illuminate the main question of how much\nthe market can absorb at a price or prices which would\nmake the project worthwhile. I shall of sourse transmit\nany further data that can be obtained. I summarize as\nfollows the main items which are of interest:\n1. Gold markets exist in Chungking, Kunming, Kweilin,\nChengtu, Kweiyang and Sian.\n2. At Chungling the \"agreed\" price of gold currently\nis 11,500 ON dollars buying and 13,000 ON dollars selling\n(the unit being the sueliang or Chinese sunce equal to\n1.00471 troy ounces). At Kunsing the price 10 about the\nsame as at Chungking. The Price at Kwailin is lower.\nThere is a drain of gold from these centers to Chengtu\nwhere the price is now 12,000 ON dollars buying and\n15,200 selling. It is safe to assume that the price in\nFree China will continue to & up concomitantly with other\nrising prices unless and until it leaks out that siseable\nimports of gold are impending or there is actual importation\nof gold for sale.\nRecent reports from Shanghai indicate that recently\nthe Shanghai gold market has become more active as the\nresult of relaxation of Japanese control over it. The\nprice there is 6,500 CRB dollars per Chinese ounee. At\nlast reports the Central Reserve dollar was exchanging\nin Shanghai for 1.4 on dollars.\n5. No ostimates are available on the amount of gold\ntraded in in Free Ohina. However, the amount is quite\nsmall absolutely and in comparison to other amounts which\nChina contemplates purchasing the volume traded in is\nnegligible. Neither is there any estimate of the actual\namount of gold in Free China.\nA. The supply that goes into the markets comes from\nprivate hearders of jewelry and gold bars plus what can\nbe\nRegraded Unclassified\n180\n-8-\nbe smuggled from current Chinese production and some\nsmuggling from India.\nB. I am forwarding by pouch & translation of an\narticle published by the Head of the Chinese Geological\nSurvey in December 1942 in the magazine MINING AND\nMETALLURGY. According to the article there was an increase\nin production of gold in Kweiehow, Szechwan, Yunnan, Kwangei\nand Sikang from 39,200 Chinese ounces in 1935 to 69,200\nounces in 1939. Gold is also purchased in Kiangei, Hupch,\nFukish and Hunan and the northwestern provinces. The\narticle states that efforts of the Government since 1937\nto encourage gold production have resulted in annual gold\nproduction reaching 300,000 Chinese ounces in 1939 and\n1940, but it is not indicated whether production of\nShanghai and Sinkiang, where control of gold supply\nwas and still is monopolized exclusively by the provincial\ngovernments, is included in this figure. As a result of\nthe maintenance of the official price of gold while all\nother prices were rising since the outbreak of the Pacifie\nWar, gold prices have fallen off. But--the article suggests--\nannual production might again reach 300,000 Chinese ouness\nwith the lifting of the old official price.\nThe article also indicates that in the last few years\nthe Government banks have bought about 1 willion ounces\nof Chinese gold which the author assumes would be now at\nthe disposal of the Government in China. This assumption,\nhowever, is at variance with statements of a number of\nresponsible officials to the effect that no gold is at\nthe Government's disposal except the 48,000 eunoes in the\nCentral Banking Division. These officials say that the\nrest of the gold was transported before the Pacific Ver\nbroke out and that the Government has since purchased little\nor none.\n0. I on reliably informed that Dr. Kung 10 quite con-\nfident that large amounts of gold will be sold to China\nby the Treasury, the basis of his confidence being his under-\nstanding that when Madam Chinng Kai-Shek submitted the\nproposal to the President that China purchase large amounts\nof gold from the United States the President gave his\nconsent.\nEND OF MESSAGE\nATCHESON\nRegraded Unclassified\n181\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM:\nAmerican Embassy, Chungking, China\nDATE:\nJuly 17, 1943, 3 p.m.\nNO.1\n1211\nReference State Department's 882 of July 9, Part 1.\nDuring a call on Dr. Kung on July 15, I took the\nopportunity, in accordance with your suggestion, to have\nan informal discussion with him to make sure he fully\nunderstands the position of the Treasury with regard to\nthe revision of the 1941 agreement. The impression he\ngave - deliberately, I think - was that China was not par-\nticularly anxious to have & stabilization loan. In this\nI presume he may largely be jockeying for a bargaining\nposition. He intimated also that certain specific\nchanges in the 1941 agreement would be asked for by\nChina, but he gave no indication what these changes\nwould be.\nATCHESON\nRegraded Unclassified\nCOPY\n182\nSTRICTLY CONFIDENTIAL\nPARAPHRASE\nA telegram of July 17, 1943 from the American Embassy at Chungking reads\nsubstantielly as follows:\nMr. Adler of the Treasury Department has been kind enough to furnish us\nwith a summary of Generalissimo Chiang Kai-shek's book on economics. We expect\nto send this summary to the Department by mail soon and also to send our\ntranslation of the book in due course when it is completed. In the meantime,\nthe following memorandum of comment on the book has also been furnished to us\nby Mr. Adler.\n(BEGINNING OF COMMENT).\n1. The book was written by Tao, a graduate of the Imperial University\nof Tokyo and former Professor of Economic History at the National University\nof Peking. He is also the author of China's Destiny. Tao feels entipathy\ntoward both Westerners and returned Western students, which may be due to his\nbeing a. Japanese returned student. His book on Chinese Economic History is very\nuneven. He has a reputation in the academic world of being somewhat crack-\nbrained and of being plagiaristic and sciolistic. Both of these books, Chinese\nEconomics and China's Destiny, are poorly written.\nAt the present time Tao is living with Chang Kai-shek's closest secretary,\nP.L. Chen. During the early 1930's he was the right-hand man of Wang Ching Wei.\nIn 1940 he came back to the Chungking fold. His reason for doing so was that\nthe Central Government gave him more money than he received from the puppet\ngovernment, according to popular report. The revelations which he made concerning\nNanking sold successfully.\n2. Tao's latest book and also the one which preceded it are a part of e.\nsystematic and deliberate campaign to maintain that the culture of China is\nsuperior to that of Western countries. The Government is actively promoting\nthis campaign, and Tao is its chief theorist. It is another reflection of the\nphases of mordant and morbid nationalism which are being currently experienced\nby the Kuomintang. If this kind of nationalism is persisted in and encouraged,\nit will not be very conducive to China's wholehearted cooperation in the period\nfollowing the war. Those who take part in this campaign, it should be noted, do\nnot take the trouble to assay proofs but stick to assertion and reiteration.\n3. The book shows a definite Fasciatic tendency in ideology. Mention of\nofficial attitudes with which the book is permeated is not encouraging from the\nstandpoint of the development of China's democracy.\" Romantic idealism is the\ndominant note with ludicrous falsification of the history of China. There is sig-\nnificance in this connection in the fact that the Western economist whom the author\n*Repetition has been requested.\nRegraded Unclassified\n183\nsingles out for praise is the Austrian fascist who discovered in Adam Muller's\nromantic mediaevalism e. justification for a Fascist stand. Adam Muller was an\nextreme German nationalist of the early nineteenth century, and, incidentally,\nbis doctrine is considered as beneath contempt by all competent Western economists.\n4. The intellectual level of the book 18 extremely low. It contains no\nsign of any appreciation that economics is an integrated and coherent discipline\nand no sign of reasoned or systematic analysis. The whole approach is pre-\nscientific. Following are the most important points which are worth commenting\nupon!\nA. In general the economics discussion is based on Chi Wu Chi, Chinese\ncharacters which were first used by the Japanese to translate economics into\ntheir language. Translated literally, these characters mean the supply of\nthings and the management of the world. When these characters are taken\nlitterally, as is done in Tao's book, the result is an erronsous impression\nconcerning the content and scope of economics as the Western world understands\nthem.\nB. The book bases its discussion of economics in China principally on\nscattered comments concerning economic policy contained in the classics and\nhistories of China. By no means systematic, these comments do not justify in\nany way the thesis that there was a school of economics in China or that this\nschool of economics is superior to the economics of the West. Using the Old\nTestament's sporadic comments on economic policy as a basis for an inference that\na Hebrew school of economics existed would be just as logical, and it would be\nmore logical to infer from Plato's and Aristotle's discussions concerning the\ntheory of value and of economic policy that B. Greek school of economies existed.\nA complete lack of understanding of economics as a science is also betrayed by\nthe listing of a few prime ministers as typifying Chinese economics. Besides,\nSun Yat Sen's writings and their bearing on economic policy are frequently\nreferred to. However, that & separate Chinese science of economics_existed\nwould never have been claimed by Sun Yat Sen.\n(c) The book's discussion of economics in the West is little more than a\ncatalog and is sophomoric if not infantile. The conclusion reached by the reader\nis that Tao did not take the trouble to become familiar with the actual works of\nthe principal economists of the West but merely leafed through an elementary\ntextbook on the history of economic theory. He makes no effort to classify\nWestern economics according to schools, and his discussion is insccurate in the\ndetailed evaluation of individual Western economics as well as on general principle.\n5. The publication of this book would add nothing to the reputation of its\nactual author or its ostensible author, and it is not surprising that it has been\nwithdrawn from limited circulation.\n(END OF COMMENT).\nA paraphrase of this telegram should be sent to the Treasury Department.\nCopy:bj:7-27-43\nRegraded Unclassified\n194\nNOT TO BE TRANSMITTED\nCOPY NO.\n13\nHRITISH MOST SECRET\nU.S. SECRET\nOPTEL No. 234\nInformation received up to 7 a.m. 17th July, 1943.\n1. NAVAL.\nEarly this morning Motor Torpedo Boats torpedoed an\nItalian Cruiser which had passed through MESSINA Strait\nmaking for TARANTO. One E-Boat has been sunk; one\nprobably sunk and two severely damaged by Motor Torpedo\nBoats in actions in the Strait of MESSINA. On 15th\none of H.M. Destroyers drove off E-Boats attacking shipping\neast of Sicily and sank one of them. Anti-aircraft and\nCoastal Defence Batteries are now operating at AUGUSTA.\nOne of H.M. Cruisers was torpedoed 16th east of SICILY but\nreached port under her own power. 14th/15th one of our\nMotor Gun Boats was sunk by gunfire from shore batteries\nin MESSINA Strait.\n2. AIR OPERATIONS.\nWESTERN FRONT. 15th/16th.\nMONTEBELLIARD. 374 tons dropped. Bright moonlight\nclear visibility. Bombing well concentrated on markers\nground defences negligible no searchlights. Four transformer\nstations in Northern Italy each attacked by six Lancasters,\ntwo of which were lost by collision over objective. The\nremainder landed safely in North West Africa. 16th.\nMarauders dropped fifteen tons on ABBEVILLE Railway Centre\nand Spitfires provided cover and flew diversionary sweeps\nscoring 3. 1. 5. without loss. 16th/17th. Aircraft\ndespatched transformer stations near MILAN 18 MUNICH 6\nLeaflets 7 intruders 12. No landing reports yet from MILAN\nAircraft. All others returned safely.\nSICILY AND SOUTHERN ITALY\n14th/15th and 15th Allied Bombers dropped total of 324\ntons on NAPLES Harbour and Airfields causing considerable\ndamage. 14th/15th. 48 Medium Bombers attacked PALERMO.\nWellingtons sank a ship and set on fire a destroyer North\nEast of SARDINIA. Twenty fighters patrolling over Eastern\nSICILY destroyed 12 enemy aircraft. 15th. 595 Bomber\nand Fighter sorties flown, Radio Location Station MARSALA\nbombed and communications continuously attacked, many enemy\nvehicles destroyed or damaged. TORMINA Harbour also\nbombed.\nCASURY DEPARTMENT\n2 6 MY 6 inc\nRegraded Unclassified\n185\nNOT TO BE RE-TRANSMITTED OFFICE\nSECRETARY OF TREASURY\nCOPY\nNO.\n13\nPM\n12\nMILISH NOST SECRET\n21\nU.S. SECRET\nTHE No. 237\nCASURT DEPARTMENT\nFollowing in supplementary resume of operational evente covering the\nperiod 10th to 17th July, 1943.\n1. NAVAL\nThe Home Fleet operated off NORWAY 83 E diversion to Sicilian opera-\nLions. It WELL sighted and reported by a reconnaissance aircraft which was later\nshot derm by in aircraft from one of H.M. Ships. Sicilian landings were covered to\nwestmind and in IONIAN SEA by H.M. Battleships, aircraft carriers and cruisers.\nClore (pun support was provided by H.M. and U.S. cruisers, destroyers and light\nforces. CATANIA, AUGUSTA and many smaller targets have been bombarded as required.\nAlthough heavy chips have been seen with steam up nt GENOA, SPEZZIA and TARAN TO, the\nhas been no interference by the Italian Fleet. H.M. Destroyers Bank one E-boat er.en.\nof SICILY. H.M. M.T.B's. torpedoed one Italian Cruiser, destroyed three E-boats\nprobably sank another and damaged three. Enomy aircraft sank one U.S. Destroyor\none Fully lighted British hospital ship 10th (all patients rescued), and there have\nbeen a few casualties among transports and light craft. H.M. Submarinos report two\nshipo sunk cast of CORSICA, one escorted tanker sunk off DARDANELLES, three caiques\nsunk in DODECANESE.\nSUBMARINE WARFARE. Summary of anti-culmarine attacks in July report\nup to noon 14th July. Number of attacks by aircraft 38, by carrier-borne aircraft\nall, by warships 25. Sunk and probably aunk by aircraft 9, by warships nil. PoB-\n(1bly zunk by warships 2, probably damaged by aircraft 7, by warships 3. Possibly\ndanaged by aircraft 4.\nSHIPPING CASUALTIES. From 10th to 16th 10 ships were reported to have\nbrien torpodood. A British ship east of the CANARY ISLANDS; a U.S. ship, probably\nby submarine in the South Atlantic; a British, B. Greek and a U.S. ship in South\nIndian Occan; in the Moditorranean & British ship was sunk probably by submarine;\none Uritish and 2 0,8. ships in convoy were torpedood but reached port safely and B.\nannil Turkish ship was sunk in Turkish territorial waters. The U.S. ship reported\nlast woek torpedoed with a Norwegian ship in convoy off the ST. LAWRENCE but still\nefloat was torpodoed off the AMAZON and has now sunk. Two largo British linors and\nsnother British ship in convoy were set on fire by aircraft west-southwest of CAPE\nFINISTERRE. The first two wore sunk by our forces but the third reached port. A\nBritish ship was damaged by aircraft off CAPE ST. VINCENT but able to proceed. In\nJune, EL Norwegian ship in now known to have boen sunk by a Raider northwest of\nand a Portuguese ship was sunk by mine or torpodo near the HAIPHONG Estuar\nIn Sicilian operations casualties by aircraft were one British Hospital\nShip sunk and another damaged, one British, one Dutch and one U.S. Ship sunk, and\nano U.S. ship damaged in convoy and one U.S. ship sunk by an unknown cause. Ship,d.:\nloanes in June from enemy action at 118,000 tons were the lowest since November, 196\nT-bosts accounted for 101,000 tons of total. Only one ship sunk by U-boat in Noral\nattantic. 5 tankers lost, totalling 33,000 tons. 32 ocean convoys arrived at den-\n:ination without loss.\nTRADE. Imports in convoy into UNITED KINGDOM week ending 9th -\n947,000 tons, of which 330,000 oil. Gorman tanker which entered AEGEAN 6th reporto\nAlank off TENEDOS on 7th.\n2. MILITARY\nSICILY. Gurman forcus in SICILY at start of operations amounted to\ntwo divisions with about 200 tanks. Herman Gouring Division in Eastern SICILY\nrecently reconstituted aftur losing half its strongth in TUNISIA.\n15th Ponsor Division in Westorn SICILY bolloved to be formed from\nvarious units, most of which arrived in Island during past tro months. Hovival of\n15th Panger Division which was totally Lort in Tunicia prosumibly duo to reasons ot\nprostige. At outbrenk of operations Italian Garrison In SICILY concisted of 5 Piold\nDivisions situsted strategical joints inland in counter attack rolo and la first 11m\ndefence provided by five Constal Divisions, strongth of latter estimated at 114,000\nRegraded Unclassified\n186\n2\n10 far one Field Division and at least one Coastal Division routed. Solection of\nCouthoust cornor of SICILY due to necessity of having continuous fighter cover over\nSuches during initial landings. U.K. and Canadian Forces (reconstituted 8th Army\nunder general MONTGOMERY) given task of seizing East Coast southward from SYRACUST\nto include PACHINO Poninsula. U.S. 7th Army under GENERAL PATTON given the task\nof landing further west and saizing airficlds at COMISO, BISCAAI, PONTZ-OLIVO and\nLICATA. Assoult proceded by landing of British glider-borno troops buhind SYRACUSE,\nall 0.3. perschutists north of GELA. In spite of high wind lossos remarkably light\nand most objectives coptured. Seaborne landings slightly dolayed but within 3 hour\nof landing tanks and artillery were boing put ashore. Enemy undoubtedly unprojr\nand confused NS to extent of attack. Resistance small on beaches and only slight\nopposition encountored and that chiafly by U.S. troops in GELA arca. Shipping\nlosses unexpectedly light.\nBURMA. Successful raid on MAUNGDAW on 8th by one company of U.K.\ntroops. About 20 Japanese killed.\n3. AIR OPERATIONS\nWESTERN FRONT. Night. 1,084 cortion, 42 aircraft missing. Vury\nsuccessful attacks on AACHEN and TURIN. Latter the heaviest operation by home-\nand aircraft on ITALY yet undertaken. MONTBELLIARD raid also successful.\nSeveral direct hits on essential parts of Pougoot Works.\nDay. Hoavy attacks by Fortrasses on Franch airfields, total tonnago\ndroppod exceeded 500 tons. Smaller raid by R.A.F. light and fighter-bombers on air\nfields and ruilway centres in FRANCE. Beaufighters struck constal shipping off\nNORWAY and Northarn FRANCE.\nEnemy. Over 3 nights total of about 56 aircraft operated over\n(estom and Southeastern Counties, No effective concentration was achieved and 5\nmy aircraft were shot down.\nMEDITERRANEAN. In support of our landing operations upwards of 1,000\nmorties a day were flown by fightors, protocting convoys, patrolling landing beacher\nand herbours, escorting bombers and attacking enemy troops, M/T and gun concentra-\nlions, Alliod Bomber Forcos maintained heavy attacks against airfields, ports,\nPorty terminals, railways and military concentrations in ITALY and SICILY, and in\nMupport of military operations, Outstanding were the successful attacks on MESSINA,\nWPLES, REGGIO and SAN GIOVANNI, and the destruction by U.S. Liberators of the\nmemy's Sicilian R.Q. at TAORMINA. Of the very small bomber forces which the enemy\noperated at night, 6 aircraft were destroyed by night fighters. At ses aircraft\nMrk this cargo ships and one tanker and loft another tanker and one destroyer on\nfire, From all these operations 47 Alliod aircraft are missing.\nRUSSIA. Over the KURSK Salient the Russian Air Force was heavily\nin defensive fighter operations and in close support of their ground troops\nGreat activity was maintained until the and of the week when bad weather set in.\nThe Russians have succeeded in holding their OWTL against the German Air Force.\nCurren cir operations wore also intenso and during the first few days of their\noffensive probably oxcooded 1500 corties por 24 hours, Although later reports\nE-RB this senlo has subsequently fallon by half.\ndes EXPRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS OF ALLIED AIR ATTACKS\nWUPPERTAL. Now confirmed that rimost antiro moight of honvy atten\non 29th/30th May fell on BARMEN where damage is among grantont yot soon. 90 per\ncent of the fully Muilt up areas and more than half of the loss congosted srone\n120 dovantated.\nDUSSELDORF. Final assessment of damage shows that the town hus been\nhavily dovastated by firo end H.E., especially in the business centre. Out of An\ndamaged inctorive, 5 are of greet Importance and include londing producers of now\nmachins tools and hanvy armements. Entimated 35 per cunt of built up urons des-\ntroyad and 26,000 familios homeless.\nAACHEN. Although in first photographs After attack the town is\nlargely hiddon by smoke 16 is obvious that drimi g in vory heavy especially to in\nductry and includes Inclorios saking taxtile machinery, option1 glass and visatrin\nsquipment.\nVILLACOUPLAY. Day attack 14th July, About 420 cratera within the\nirficld boundary. Severe damage to large hanger and 10 damaged aircraft Rmong\nwreckage Direct hits on runway and an air raid shelter.\nLE BOURGET. Day attack 12th July. thany crators on Airfield and\nTARMAC. Some Hangura damaged.\n5/ HOME SECURITY\n2stimated civilian cosunities muck miling Regraded Unclassified\nonly vounded 256,\n187\nNOT TO BE RE-TRANS, ITTED\nCOPY NO.\n13\nSECRETARY OF OF TREASURY\nBRITISH OST SECRET\nU.S. STCRET\n1913 JUL 19 AM 11 55\nTIL 110, 235\nup to 7 a.m., 18th July, 1943.\n1. RAVAL\nEarly 17th, our light forces attacked a convoy of 3 Coasters\nescorted by 2 Trowlers off the DUTCH Coast and sank 1 ship. Later other\nenemy vessols apparently engaged survivors of enemy convoy and set 2 on fire.\nOn the night of the 15th, 2 of H.M. inesweopers were slightly damaged in\nan air raid on SYRACLSE. 2 U.S. Cruisers with one of H... Monitore bombarded\nPLDOCL and AGRIGENTO. During the action with the Italion Cruiser in TESSINA\nStrait 17th morning, referred to in Optel No. 234, one of our ::otor Torpodo\nBoats was sunk by gun fire.\n2. AIR OPERATIONS\nTSTERN FRONT. 17th. At 4.30 a.e., escorto( Special Beau-\nfighters off NOR AY made several hits smidships on a 2,000 ton ship which\nvaa left will on fire. A total of 329 Fortresses were sent out but owing to\nadverse weather were recalled and 275 made no attack. 31 dropped 65 tons\non objectives in Northwest GERRANY and 21 dropped 45 tons at the Fokker air-\ncraft factory, a sterdai . 1 Fortress missing and 1 crashed. Crew safe.\n17th/18th. Aircraft despatched: Intruders - 23 (1 missing),\nAnti-shipping - 7, Leaflets - 4.\nNORTHERN ITALY. 16th/17th. Rome based Lancasters dropped a\ntotal of d'out 48 tons on transformer stations nor ILAN and PAR A. One\naircraft bombed SPEZZIA Harbour causing two large fires. Crows report\nsuccussful attacks. 1 aircraft missing.\nSICILY and SOUTHEAN ITALY. 15th/16th. ellingtons attacked\n4 sirfields on the mainland. 110 medium bombors attacked railway communications\nand bombed and machine gunned motor transport in Central and Northeast SICILY.\nRailway crossing at ADRANO was hit.\n16th. Liberutors dropped 100 tons at BARI airficld. 102\nFortressus bombed the ferry terminus at SAN GIOVAINI. [scortoc Atchnilla\nattacked VIDO VALE TUA airfield and Ritchells bonbed VALGUARITA. Enery\ncesualties: 13,7,2. Allied: 5 daming.\n1. HAVAL (Additional)\n16th/17th. In enemy air raid on AUTOSTA, houvy service casual-\nthes caused in one of L.S's.I.\nRegraded Unclassified\n188\nJuly 19, 1943\nDear George:\nI have referred your letter of July 5, to Fred,\nTed and fellow members of the last minute planning\ncommittee for speeches. Tie all think the plan set\nforth is a good one, and hope it works.\nWe all know you are not complaining, and we all\nshare your desire to have them done shead of time.\nHowever, there seem always to be complications that\nkeep us from doing it, but it is a. worthy aim.\nI think we will have to get together very soon\nto get ready for the first speech in the Third War\nLoan. As soon as we decide under what circumstance\nthe speech will be made, Fred will give you a call.\nSincerely,\n(Signed) H. Morgenthau, Jr.\nMr. George Albee\ncopyito of reply Thompson.\nWhite Stone House\nFile in Diary.\nRoute 1\nAccord, New York\nFS:gr\n7-19-43\nRegraded Unclassified\n189\nWHITE STONE HOUSE ROUTE 1 ACCORD, NEW YORK\n5 July 1943\nHon. Henry Morgenthau Jr.,\nSecretary of the Treasury\nMain Treasury Bldg.,\nWashington, D. C.\nDear Mr. Secretary:\nI have received your kind notes - with\nmy usual astonishment that you should be able\nto find the time to dictate them.\nIf THE CLUE TO HISTORY does as much for\nyou as it did for me, in revealing the deep\nsprings of motive underlying this war, perhaps\nyou will also care to read another book I have\nfound helpful. CONDITIONS OF PEACE, by Carr\n-- both of the authors, 1 believe, are Scotsmen\n- Is the exact opposite of this first book.\nIt is as objective as an engineer's blueprint;\nIn fact, it is exactly that: a blueprint of\na plan for the postwar world. There have been\nplans aplenty; but Carr tells how we may arrive\nas a pos twar balance. He offers a method and a\n'state of mind' necessary for the method's suc-\ncess.\nI wonder If you will ask Fred, Ted and\nfellow members of the Last-Minute-Planning Com-\nmittee For Speeches (speaking of plans) If the\nfollowing meets with their approval:\nAs soon as It becomes clear what points\nyou wish to get across in the first speech open-\ning the new drive, I would be very happy to come\nto Washington and work with Fred roughing them\nRegraded Unclassified\n190\nWHITE STONE HOUSE ROUTE 1 ACCORD, NEW YORK\n-2-\nout. Then, taking them home with me, I would\nprepare a sort of basic manuscript, crammed\nwith Churchillian figures of speech and sundry\nother splendid bits of literature.\nIt would then be possible to use this\nbasic manuscript as the central foundation-pier\non which to build the actual speech, with its\nnew material, when we all go to work later.\nI hope nobody will Interpret this offer\nas a complaint, on my part. Fred knows me well\nenough to know that it is nothing of that sort.\nIt is only that speeches put together at the last\nminute sometimes sound as If they were put to-\ngether at the last minute -- and that is some-\nthing we do not want to happen to anything re-\npresenting the Treasury Department, of all Depart-\nments! The Treasury, like the Supreme Court,\nstands for solidity.\nI may be in Washington on Wednesday the 7th.\nIf I get there I'll try to telephone to you. I\nhave a new story for you.\nKindest\n8 wishes Jern\nGeorge Albee\nRegraded Unclassified\n191\nTREASURY DEPARTMENT X\nINTER OFFICE COMMUNICATION\nDATE July 19, 1943\nTO\nFROM\nMr. Secretary Haas GA\nMargenthau\nSubject The Proposal of the Federal Reserve Board for the\nIssuance of 9-Month Treasury Bills\nThe Federal Reserve memorandum of July 13 recommends\nthat the entire outstanding amount of bills and certificates\ncombined be stabilized, for the time being, at ite present\nlevel and be refunded into B. new series of 9-month bills, for\nwhich a buying rate of 3/4 of 1 percent would be established.\nThe new bills would be issued a.8 the outstanding securities\nmature, but at a rate not to exceed $1 billion a week. The\nmemorandum also recommends that the maturity of new 2 percent\nbonds be extended from 7-1/2 - 9-1/2 years to 8-10 years and,\nif necessary, to 9-11 or 10-12 years.\nThe purpose of these changes 18 to narrow the total\nspread in the pattern of rates of securities available for\nbank purchase by increasing short rates and decreasing long\nrates (or at least increasing the term of long securities\nof the same rate). Such a reduction in the spread between\nshort and long rates 18 stated to be necessary in order to\nmaintain the existing pattern to which the System 18 com-\nmitted.\nAe evidence of the necessity of a reduction in the spread\nof rates, the memorandum points out (1) that the Federal Re-\nserve System has had to absorb the entire increase in the\nsupply of Treasury bills (about $2 billions) since the end of\nApril, and (2) that the 2 percent sector of the market has\nbeen very strong during the same period and has now absorbed\nthe entire Federal Reserve portfolio of long 2 percent taxable\nbonds.\nIn our opinion, the proposed consolidation of outstanding\nbills and certificates into new 9-month 3/4 percent bills\nwould be an unwise move for the following reasons:\n(1) The pattern of rates is & means and not an end. It\nwas generally agreed by the Treasury and the Federal Reserve\nSystem e. long time before Pearl Harbor that this war, if it\nRegraded Unclassified\n192\nSecretary Morgenthau - 2\nshould occur, should not be financed upon the basis of rising\ninterest rates, as was the case in World War I. Rising rates\nduring a wartime period not only increase war costs directly,\nbut also discourage subscriptions to Government securities as\npurchasers tend to await more favorable terms on later issues.\nThis desire to avoid a. progressive increase in interest rates\nduring the wartime period is the cornerstone for the mutually-\nagreed-upon policy of the Treasury and the Federal Reserve\nSystem. In order to implement this policy, the Federal Reserve\nSystem has established and maintained a \"pattern of rates\" in\nthe Government security market. This pattern of rates, how-\never, should be viewed strictly as a means and not B.B an end.\nThe end is orderly and economical war finance, not the main-\ntenance of any particular pattern of rates.\n(2) The difficulty alleged to exist in the present\npattern of rates 18 not new. The difficulty inherent in a\nrigid \"pattern of rates\" has been recognized by both the\nTreasury and the Federal Reserve System from the beginning\nand, in consequence, the Treasury has consistently urged that\nthe rigidity of the pattern be de-emphasized and that the pat-\ntern be kept a.s fluid 8.8 consistent with the underlying ob-\njectives of financing the war 8.8 cheaply as possible and of\nmaintaining the demand for Government securities.\nThe fundamental difficulty of a pattern of rates is, of\ncourse, that if confidence in the pattern becomes perfectly\nestablished in the market, buyers will tend to crowd into the\nlonger maturities where the return 16 higher, while the shorter\nmaturities at lower returns will find no purchasers. The effect\nof this would be to increase substantially the average cost of\nborrowing without reducing the real obligation of the Govern-\nment to maintain the liquid character of the outstanding debt.\nThis difficulty is a long-run difficulty, however. It\nhas existed ever since the pattern of rates was established,\nand its importance at the present time is unduly magnified\nin the Federal Reserve memorandum. Actually, the spread\nbetween short and long rates 18 much less now than it was\nduring most of the Thirties, and the profits from \"rolling\ndown the curve\" are consequently smaller. While it 18 true\nthat such profits are more certain than they were in a free\nmarket, it must be recognized that B. great many investors\nhave not adapted their market policy to the existence of a\npattern of rates; and others, who have thought the matter\nthrough, are simply unwilling to take & chance on the\nRegraded Unclassified\n193\nSecretary Morgenthau - 3\npermanence of the pattern, and consequently prefer the con-\ntractual protection of & short-term obligation. Such fric-\ntions and doubts will probably continue for a long time to\ncome and will make possible the continuance of a. substantial\nspread between short and long rates.\n(3) The recent absorption of Treasury bills by the\nFederal Reserve System is not conclusive evidence of unwill-\ningness of the market to absorb additional short securities.\nThe fact that the Federal Reserve System has absorbed the\nentire increase in the amount of Treasury bills since the\nend of April does not mean that the market wants no more\nshort securities. The market for certificates and notes\ncontinues very strong -- in fact, as strong, relative to\nthe pattern of rates, as that for bonds. The current eit-\nuation in bills does indicate that the market has enough,\nat least for the time being, but this situation does not\nextend to short paper generally. Treasury bills have become\na sort of secondary excess reserves, and commercial bank\nholdings of them vary inversely with their need for reserve\nfunds. It is not surprising, therefore, that commercial bank\nholdings of Treasury bills have run off during the past two\nmonths as their required reserves have risen, due to the\ndrawing down of War Loan Deposits, while the Federal Reserve\nSystem was supplying additional reserve funds in no other\nway than by purchasing bills at the posted rate. As of\nJuly 14, the most recent reporting date, 65 percent of the\noutstanding amount of Treasury bille Was still held outside\nof the Federal Reserve Banks.\nThe evidence submitted in the Federal Reserve memorandum\nseems to indicate that the bill market needs a rest, but goes\nno further.\n(4) The Federal Reserve Banks ought to purchase at\nleast enough bills to cover the increase in Federal Reserve\nnotes outstanding. The Federal Reserve Banks must acquire\nsome asset dollar-for-dollar for every increase in Federal\nReserve notes outstanding. Sound central banking policy\ndictates that the assets 80 acquired should have a low earning\nrate, or none at all. During the Thirties the asset acquired\nby the Federal Reserve Banks per contra to the increase in\nFederal Reserve notes was gold. During the war period 3/8 per-\ncent Treasury bills provide a satisfactory alternative. Fifty-\nfour percent of the increase in Federal Reserve holdings of\nbills 80 far this year can be set off against the increase in\nRegraded Unclassified\n184\nSecretary Morgenthau - 4\nFederal Reserve notes outstanding. If the proposal to issue\n9-month bills were adopted, the lowest rate in the market\nand the rate against which currency would be issued would be\n3/4 of 1 percent. This 1s an unconscionable rate to pay for\nissuing paper money.\n(5) The proposed bills would reduce the effectiveness\nof Federal Reserve control of the money market. As was pointed\nout above, Treasury bills are being used to an increasing\nextent as quasi-reserves. Treasury bills are now outstanding\nin the amount of about $12 billions, thus providing potential\nquasi-reserves of this amount. Certificates of indeptedness,\nwhich are not at the present time considered equivalent to\nreserve funds, are outstanding in the amount of more than $16\nbillions. If the present amount of bills and certificates\nwere converted into 9-month Treasury bills with a. posted rate,\nthe potential amount of quasi-reserves would be increased to\nabout $28 billions, or more than double the present amount.\nObviously, the existence of such an increased amount of instru-\nments available for use B.8 quasi-reserves would increase the\ndifficulty of changing the reserve position of member banks\nby the use of the customary instruments of Federal Reserve\npolicy.\n(6) The issuance of the proposed bills would weaken the\nposition of the New York and Chicago money markets. The pro-\nposed use of 9-month Treasury bills would create an important\nincentive for the removal of bankers' and other balances from\nNew York City and Chicago by providing an alternative employ-\nment for these balances at a guaranteed rate of 3/4 of 1 per-\ncent. Such withdrawals might well be sufficiently large to\nremove the New York City and Chicago banks from the market for\nGovernment securities for some time to come. This would have\nconsequences beyond its dollar amount, because of the position\nof leadership in the Government securities market customarily\nexercised by central reserve city banks.\n(7) Bank earnings are adequate. The Federal Reserve\nmemorandum states that one reason for the proposed change 18\nan extension of maturities by commercial banks because\nof the need for larger earnings, particularly by the smaller\nbanks.' A press release by Mr. Crowley, dated June 22, refer-\nring to all insured commercial banks, states:\n\"At $441 million, net profits after taxes but\nbefore dividends represented 8. return of 6.3 percent\non total capital funds. This rate of return has\nRegraded Unclassified\n195\nSecretary Morgenthau - 5\nbeen exceeded only twice since the establishment\nof the Federal Deposit Insurance Corporation:\nin 1936 when unusually large profits and recov-\neries on securities were reported, and in 1941.\nIt 18 estimated that net profits before income\ntaxes were higher than in any other year of\ndeposit insurance except 1936.\"\nAs far as the situation of small banks is concerned, the net\nprofit for 1942, after income taxes, for all insured commer-\ncial banks with deposits of under $1 million amounted to 6.5\npercent of capital funds.\n(8) The issuance of the proposed bills would itself\nconstitute a substantial \"breach\" in the pattern of rates.\nFinally, it is important to note that, although the stated\npurpose of the issuance of the proposed bills is to preserve\nthe existing pattern of rates, such issuance would, in fact,\nbreach the existing pattern very materially. The argument\nseems to be that it is necessary to change the pattern in\norder to maintain it. We see no merit in this argument. The\nwhole business of maintaining & pattern with a substantial\ndifference between short and long rates is essentially B. rear-\nguard action, in which it is unwise for the rear guard to\nretreat any faster than necessary -- since, when it does, it\nmust recommence the action all over again on the new line.\nThe longer the retreat from 3/8 to 3/4 can be postponed, the\nlonger it will be before a new action will have to be started\nto defend the 3/4 line against a further retreat to 1 or 1-1/4.\nThere is no point in taking time by the forelook, for time is\nof the essence, and & successful rear-guard action will greatly\nreduce the ultimate cost of war finance.\nRegraded Unclassified\n195 - A\noriginal was returned to Mr. Paul\nNot read by the Secretary and the\n195-\n-\nB\nStatement on special wartine reserves\nTable of Contents\nPage\n1, Summary of statement\n1\nII. The accounting approach\n2\nA. Reserves recommended by American Institute of\nAccountants\n2\nB. Bearing of accountants' recommendations on tax\npractice\n4\nC. Discussion of proposed specific reserves\n5\n1. Items deductible for tax purposes under present\nlaw\n5\n(a) Losses from destruction of property as a\nresult of the action of armed forces or\nfrom seizure thereof by the enemy\n5\n(b) Amortization of the cost of additional\nfacilities acquired red, the usefulness of\nwhich is expected to be substantially\nreduced at the termination of the war\n5\n(c) Amortization of the cost of rearrangement\nand alteration of existing facilities\nwhich will probably be rearranged in the\npostwar period\n6\n(d) Accelerated depreciation of facilities as\na result of intensive use and of opera-\ntion by less experienced personnel\n7\n(e) Accelerated obsolescence of facilities due\nto intensive research during the war in an\neffort to increase productive efficiency\n7\n2. Items of an immeasurable character non-deductible\nfor tax purposes\n9\na. Decline in the useful value of plant and\nequipment due to excess capacity resulting\nfrom war construction\n9\nRegraded Unclassified\n195 - C\n- 11 -\nPage\nb. Losses which may be sustained at the end\nof the war in the disposal of inven-\ntories useful only for war purposes, or\nin the adjustment of purchase commitments\nthen open, including any amounts paid for\nthe cancellation of such commitments\n10\n0. Deferred advertising\n11\n3. Items non-deductible for tax purposes for which\nthe establishment of reserves should be oon-\nsidered\n11\na. Losses which may be sustained in the disposal\nof inventories not necessarily applicable to\nwar production, due to decline in the price\nlevel, which, on the busis of past experience,\nusually follows a pronounced rise in prices\n11\nb. Repairs and maintenance deferred as a result\nof pressure for war production\n12\n0. Restoration or alteration of facilities to\npeacetime production at the end of the war,\nif it is reasonable to assume that such\nrestoration and alteration will then be\nmade\n13\nd. Separations allowances which may be paid to\nemployees who are discharged at the termi-\nnation of the war\n14\nIII. The cash approach\n14\nIV. The incentive approach\n16\nV. Implications of reserves for the postwar competitive\nstructure\n17\nRegraded Unclassified\n195 D\nStatement on special wortine reserves\n1. Summary of statement\nThis statement consists primarily of an analysis of specific\nreserves which have been advocated as allowable deductions in the\ncomputation of taxable income. As a. background for the discussion\nof these specific reserves, the general reasons for which special\nwartime reserves have been proposed are considered. Reserves have\nteen advocated: (1) to secure equitable taxation by allowing costs\nclearly attributable to the war to be charged against war revenues;\n(2) to make certain that the resumption of peacetime production will\nnot be retarded by cash shortages; and (3) to weaker. incentives for\nmking uneconomic expenditures during the war. These three approaches\nare identified in this statement as the accounting approach, the cash\napproach, and the incentive approach.\nAt. authoritative statement on the accounting approach to the\nproblem of postwar reserves has been made by the American Institute\nof Accountants. The desirability of recognising their proposed list\nof 11 specific reserves, plus one other, as deductions in computing\ntaxable income is given detailed consideration. The basic test which\nsuch reserves must satisfy is that of accounting acceptability in\nprinciple and feasibility in practice.\nMost of the present statement consists of a discussion of the\nextent to which the proposed specific reserves meet this test. Con-\nsideration is also given, however, to the other two general approaches\nunder which reserves have been proposed and to the probable effect of\nreserves on the competitive structure of industry.\nThe principal conclusions of the statement are that: (1) ade-\nquate statutory authority is now available for the deduction of the\ncosts and losses for which five of these specific reserves have been\nproposed; (2) of the remaining specific reserves, three provide for\ncosts and losses which are not sufficiently measurable to constitute\nallowable deductions for tax purposes; and (3) further detailed\nexamination should be given the four remaining reserves, namely, (a)\n& reserve for inventory price declines, (b) a reserve for deferred\nminterance, (o) a reserve for postwar reconversion costs, and (d) a\nreserve for separation allowances to employees discharged at the\ntermination of the war. The case for these four reserves is suffi-\nciently strong that the Treasury may desire, after further examina-\ntion, to propose that they be authorized as allowable deductions for\nRegraded Unclassified\n195-E\n- 2 -\ntax purposes. 1/\nThese conclusions have been based primarily on an accounting\nanalysis, but they receive additional support from an examination of\nthe effect of reserves on the cash problems and prospective postwar\ncompetitive structure of industry.\nII. The accounting approach\nA. Reserves recommended by American Institute of Accountants\nThe accounting approach is the basic test which any reserve for\n6. specific purpose must meet. Unless the costs or losses for which\nreserves are set up can be measured and allocated to fiscal periods\nwith reasonable precision, they do not constitute legitimate account-\ning charges to ourrent income. 2/ Deductible reserves for tax pur-\nposes which cannot be 80 allooated partake of the character of general\nsubsidies and must be judged on grounds entirely different from re-\nserves designed to refine the definition of taxable income. Indeed,\nnon-allocable reserves would probably create more inequities than they\nwould alleviate, since no objective oriteria for the amount of reserve\nto be given to each taxpayer would be available.\nAn authoritative statement on the accounting approach to the\nproblem of postwar reserves has been made by the Committee on Account-\ning Procedure of the American Institute of Accountants. 3/ The Com-\nmittee recommends, primarily as a guide to the accounting policies of\nindividual enterprises, that serious consideration be given to the\nestablishment of special reserves for costs and losses arising out of\nthe war. The Committee further recommends that at least some of these\nreserves be recognised by the Government as deductions in the determina-\ntion of taxable income.\n1/ The reserves for inventory price and for deferred maintenance were\nproposed by the Treasury in 1942 but were not accepted in Congress.\n2/\nwartine revenues should be charged with all reasonably deter-\nminable costs and losses fairly applicable thereto. Specific charges\nin the income statement should, however, have a. reasonable basis of\nmeasurement and of allocation to fiscal periods.\" Accounting Research\nBulletin No. 13, published in The Journal of Accountancy, February\n1942, P. 158.\n3/ Loc. cit.\nRegraded Unclassified\n195- F\n- 3 -\nEleven specific reserves are recommended. 1/ They may be\nclassified as follows:\nReserves for depreciation, obsolescence, and maintenance\n:\n1. Accelerated depreciation of facilities as & result of in-\ntensive use and of operation by less experienced personnel.\n2. Accelerated obsolescence of facilities due to intensive\nresearch during the war in an effort to increase productive offi-\nciency.\n3. Amortization of the cost of additional facilities acquired,\nthe usefulness of which is expected to be substantially reduced at\nthe termination of the war.\n4. Decline in the useful value of plant and equipment due to\nexcess capacity resulting from was construction.\n5. Repairs and maintenance deferred as a result of pressure\nfor war production.\nInventory reserves\n6. Losses which may be sustained at the end of the war in the\ndisposal of inventories useful only for war purposes, or in the ad-\njustment of purchase commitments then open, including any amounts\nwhich may be paid for the cancellation of such commitments.\n7. Losses which may be sustained in the disposal of inventories\nnot necessarily applicable to war production, due to decline in the\nprice level, which, on the basis of past experience, usually follows\na pronounced rise in prices.\nRearrangement and alteration of facilities\n8. Amortisation of cost of rearrangement and alteration of\nexisting facilities which will probably be rearranged in the postmar\nperiod.\n9. Restoration or alteration of facilities to peacetime pro-\nduotion at the end of the mar, if it is reasonable to assume that\nsuch restoration and alteration will then be made.\nV\nThe order in which these reserves are listed in the Bulletin has\nbeen revised. However, the description of the individual reserves\nhas been directly quoted. The Bulletin states that these suggested\nreserves are presented as an illustrative list rather than as an\nexhaustive compilation.\nRegraded Unclassified\n195- G\n- 4 -\nOther reserves\n10. Separation allowances which may be paid to employees who\nare discharged at the termination of the war.\n11. Losses from destruction of property as a result of the\naction of armed forces or from seisure thereof by the enemy.\nOne other proposal, namely, a reserve for deferred advertising,\nwill also be considered in this statement.\nB. Bearing of accountants' recommendations on tax practice\nSome of the proposed reserves are allowable under the existing\nlaw. However, special legislative authority would be necessary for\nothers. From the point of view of accounting theory, the suggested\nreserves are, for the most part, reasonable. The most difficult\nproblem in the use of these reserves, as the accountants emphasize,\nis the determination by acceptable, objective oriteria of the amounts\nproperly applicable to ourrent revenues. The accountants, themselves,\nstate that some of the listed reserves do not meet this requirement\neven for the published or internal accounts of individual firms. For\ntax allowances more severe standards of measurability must be required.\nIf the decisions of individual firm for their own reports are unduly\nconservative, competitors will not be harmed. Excessive tax deductions\nby one taxpayer, however, mean that a disproportionate relative burden\nis placed on other taxpayers.\nNevertheless, too rigid insistence on the danger of tax avoidance\nmy impede rather than further the cause of tax equity. A reserve\nwhich would improve the definition of taxable income for most taxpayers\nshould not be refused recognition merely because under it relatively\nsmall numbers of taxpayers would receive somewhat excessive deductions.\nIn this regard, it should be recognized that errors in amounts deducted\nas reserves are partially self-corrective. Since all allowable deduo-\ntions in the form of credits to a reserve must eventually be offset by\nequivalent charges against the reserve, excessive deductions in one\nyear will result in higher incomes or smaller losses in a later year.\nWith this background the specific reserves previously listed may be dis-\ncussed.\n1/\nHowever, if excessive mounts credited to the reserve are eventually\ntaxed at loss than wartine rates, or perhaps not at all if postwar\nlosses exceed these amounts, tax liabilities may be unjustifiably\nreduced. Moreover, regardless of the rates at which the unused re-\nserve balance is taxed, expenditures properly allocable to postwar\nrevenues will actually be offset against wartine revenues to the\nextent that excessive amounts are accumulated in the reserve.\nRegraded Unclassified\n195-H\n- 5. -\nC. Discussion of proposed specific reserves\nThe proposed specific reserves my be divided into the following\ncategories: (1) items deductible for tax purposes under present law,\n(2) items of an immessurable character non-deductible for tax purposes,\nand ($) items non-deductible for tax purposes for which the establish-\nment of reserves should be considered.\n1. Items deductible for tax purposes under present law\n(a) Losses from destruction of property as & result of\nthe action of armed forces or from seisure thereof\nby the energy\nThe deduction of war loases was provided for in the Revenue Aot\nof 1942. Under this Act property destroyed or seized by military\noperations after December 6, 1941, and property within or under con-\ntrol of enemy countries, may be treated as an allowable deduction in\nthe computation of taxable income. However, if such property is sub-\nsequently recovered, it must be included in gross income in the year\nof recovery.\n(b) Amortization of the cost of additional facilities\nacquired, the usefulness of which is expected to\nbe substantially reduced at the termination of the\nwar\nAdequate provision for amortization of emergency facilities is\nprovided in Section 124 of the Internal Revenue Code. Reserves are\nnot needed for this purpose. Indeed, excessive amortigation deduc-\ntions against war revenues are allowed if the facilities have any post-\nwas value, since the law allows amortisation against war revenues of\nthe full oost of the facilities.\nThe anomalous situations arising from this provision in the event\nthat the emergency facilities do have a substantial postwar value are\nillustrated by the following examples. Suppose that a manufacturer\ncontinues in peacetine to produce his warting product with his emer-\ngenoy facilities and scraps his old facilities. Under the present law\nthe cost of conversion to wartime production is deductible from wartine\n1/ This statement is highly simplified. The details of the statutory\nrequirements are given in Section 127 of the Internal Revenue Code\nand in Section 19.127 of Regulations 103 as amended by T.D. 5258.\nIt should be noted that taxpayers may receive a. substantial wind-\nfall under Section 127. If the tax rate is lower in the year of\nrecovery than in the year of loss the taxpayer will receive a tax\nbenefit that may amount to a substantial percentage of the value\nof his property.\nRegraded Unclassified\n195-1\n- 6 -\nrevenue, the new facilities are completely amortisable against such\nrevenues, and the value of the old facilities my be deducted when\nscrapped. The manufacturer would enter the pascetime period with\nthe depreciable basis of his facilities reduced to sero, Clearly,\nthis practice does not result in a correct accounting allocation of\ncosts against revenue.\nThe manufacturer my decide to sell his emergency facilities\nrather than to continue to operate them in the postwar period. Since\nthe basis of these assets will have been reduced to sero by the amor-\ntisation claimed, the full sales price will be reported as a capital\ngain and taxed at the rates applied to capital gains. The manufacturer\nobtains a substantial windfall. Be is allowed to write off the full\ncost of the assets against wartine revenues and probably to reduce his\ntaxable excess profits by this amount, even though the assets have a\nsubstantial postwar value. When the assets are sold in the postwar\nperiod, he will be taxed only at the relatively low capital-gains rate.\nThis windfall conceivably may amount to more than 50 percent of the\nsales value of the asset. 1,\n(o) Amortisation of the oost of rearrangement and\nalteration of existing facilities which will\nprobably be rearranged in the postwar period\nThe cost of rearranging and altering existing facilities in the\ntransition from peacetime production to wartine production constitute\ndeductible expenses in the year of rearrangement if they do not add to\nthe life of the rearranged assets. 2/ Section 19.23(a)-4 of Regula-\ntions 103 provides: \"The cost of incidental repairs which neither\nmaterially add to the value of the property nor appreciably prolong\nits life, but keep it in an ordinarily efficient operating condition,\nmay be deducted as expense.. ⑇ The costs of rearranging property\nfor war production are wholly analogous to such incidental repairs.\n1/ For example, the full oost of the asset may have been offeet\nagainst revenues that otherwise would have been taxed at an 81-\npercent rate. Under present law gain from the sale of this asset\nis taxable at 25 percent. The windfall to the taxpayer under those\nconditions will be 56 percent of the sales value of the asset.\n2/\nConceivably sufficient wartine revenues may not be available in the\nyear of rearrangement to absorb these costs. However, the carry-\nover of net-operating losses and unused excess-profits credits will\nalmost always make adequate adjustment for this temporary inequity.\nRegraded Unclassified\n195-J\n- 7 -\n(d) Accelerated depreciation of facilities as a\nresult of intensive use and of operation by\nless experienced personnel\nThe present law is broad enough to allow deductions for accel-\ncrated depreciation. The Bureau of Internal Revenue has specifically\nrecognised this fact. 1/ However, cases undoubtedly will arise where\nthe Bureau and the taxpayer will differ as to the reasonable amount\nof accelerated depreciation. Such differences in judgment, however,\ncannot be completely removed by additional statutory provisions.\nAn attempt to resolve these differences by an arbitrary statu-\ntory formula providing for increased depreciation allowances would\ncreate more inequities than it would remove. Such a formula would\ngive 60399 taxpayers more adequate allowances but only at the OX-\npense of granting grossly excessive deductions to many other taxpayers.\nBy their very nature, equitable accelerated-depreoiation allowances\nmust be based on careful investigations of individual cases and not on\n& rigid overall formula.\n(o) Accelerated obsolescence of facilities due to\nintensive research during the war in an effort to\nincrease productive efficiency\nExtraordinary obsolescence resulting from war research presents\nsubstantially more difficult conceptual problem than accelerated\ndepreciation of equipment resulting from more intensive use. Acceler-\nated depreciation obviously takes place at a definite time, while the\nspecific date at which obsolescence actually occurs is much more diffi-\noult to determine. Generally speaking, if the retirement of old equip-\nment is mandatory within a short time because superior new equipment is\n1/\nThe following statement of the Bureau position is taken from\nBulletin \"P\" (pp. 3-4) on depresiation and obsolessence, revised\nJanuary 1942:\n\"It is recognized that the useful life of some depreciable\nproperty, or items thereof, may be affected by a radioal\nincrease or decrease in plant activity, or diversion in use,\nextending over a period of time so that depreciation in ex-\n0000 of, or less than, the amounts allowable under normal\noperating conditions or use may be sustained. Such increase\nor decrease in depreciation is dependent upon the decrease or\nincrease, respectively, in the normal useful life resulting\nfrom the exceptional operating conditions or use. However,\nwhere factors of obsolescence and inadequacy and decay oon-\ntrol the useful life of property, no increase or decrease\nfrom norml depreciation will be allowed.\"\nRegraded Unclassified\n195-K\n- a -\nbeing introduced by competitors, current charges for the obsolescence\nof the old equipment are justified. However, under more complex oon-\nditions the appropriate allocation of obsolescence is much less deter-\nminate.\nSuppose, for example, that material shortages have forced the\ntemporary discontinuance of the production of a given peacetime product,\nand that the peacetime productive equipment has been stored. During the\nwar advances in technique make the early replacement of the peacetime\nequipment almost certain, once production is resumed. However, this\nequipment is not scrapped, since it may be useful for a. year or two while\nthe improved equipment is coming on the market and changeovers are taking\nplace. Is the obsolescence properly charged to the year in which the new\ninvention 1s made or to the year in which the new equipment is actually\ninstalled, either by the taxpayer or by his competitors? The problem is\ndifficult to decide on logical grounds. The case for delayed recognition\nof such obsolescence is at least as strong as that for its immediate\nrecognition.\nThe Internal Revenue Code is sufficiently inclusive to allow at\nleast the first of these instances of unusual obsolescence. However, the\nBureau places rigid restrictions upon the allowance of unusual obsoles-\ncence charges. The Bureau requires that the taxpayer prove his claim for\nobsolescence \"by facts and evidence that are definite and indisputable.\"\nMoreover, the date at which the facilities will be retired must be\nclearly predictable. Finally, no obsolescence can be allowed retro-\nspectively in the light of subsequent events not anticipated during the\nperiod for which obsolescence is claimed.\n1\n1/\nThis quotation, taken from Bulletin \"P\" (pp. 1, 3), States the Bureau\nposition with reference to obsolescence deductions.\n\"Obsolescence may be defined as the process of becoming obsolete\ndue to progress of the arts and sciences, changed soonomic eon-\nditions, legislation, or otherwise, which ultimately results in\nthe retirement or other disposition of property.\n\"Extraordinary or special obsolescence rarely can be predicted\nprior to its occurrence. However, this does not necessarily\nimply that the asset already must have been completely dis-\ncarded or become useless, but nerely that a point has been\nreached where it can be definitely predicted that its use for\nits present purpose will be discontinued at a certain future\ndate. Deductions for obsolescence of this type my be taken\nover the period beginning with the time such obsolescence is\napparent and ending with the time the property will become\nobsolete. In every case the burden of proof is entirely upon\nthe taxpayer to establish a claim for obsolescence by facts\nand evidence that are definite and indisputable. No amount\nmy be charged off in any year merely because, in the opinion\nof the taxpayer, property my become obsolete a number of years\nlater. Nor can obsolescence be allowed retrospectively in\nthe light of subsequent events or happenings not anticipated\nduring the period for which the obsolescence is claimed. In no\ncase may the deduction for obsolescence be extended to include\nshrinkage in value due to other causes, as, for instance, a\ngeneral drop in the price of commodities.\nRegraded Unclassified\n195-\n- 9 -\nIf these requirements are strictly enforced, many legitimate\ndeductions for obsolescence will be denied by the Bureau. Obsoles-\ncence, by its nature, often cannot be demonstrated by \"facts and\nevidence that are definite and indisputable.\" Moreover, sufficient\nobsolescence may 000 ur to reduce substantially the value of an asset\nwithout making the date when the asset will be discarded definitely\npredictable. On the other hand, if the Bureau did not judge claims\nfor obsolescence by severe standards, many taxpayers would be allowed\nexcessive deductions.\nAt the present time, when tax rates are highly variable and\nobsolescence may be expected in unusually large amounts, the possi-\nbility that obsolescence may be inadequately recognised should be\nreflected in the formulation of tax policies. However, a. specific\nreserve for obsolescence would not remedy the situation. The basic\nproblem are not legal but administrative in nature.\n2. Items of an immeasurable character non-deductible for\ntax purposes\na. Decline in the useful value of plant and equipment\ndue to excess capacity resulting from war construo-\ntion\nDecline in value of plant and equipment may result directly from\nthe excessive quantity of plant and equipment, itself, or indirectly\nfrom the excessive output of such plant and equipment. In the latter\nevent, the loss due to the decline in the price of the product as a\nresult of its oversupply cannot be imputed with even moderate preoi-\nsion to individual assets or classes of assets. In the former event,\nexcess capacity of the facilities themselves would probably result\ndirectly in a decline in the market value of the plant and equipment.\nThis situation may develop in many areas if wartime facilities are\nthrown on the market.\nThe Bureau does not allow deductions for shrinkage in value\nresulting solely from price fluotuations. The disallowance of such\ndeductions is consistent with accounting principles and tax proce-\ndures, both of which base depreciation deductions on cost rather than\non current market value.\nOn theoretical grounds, it is doubtful if deolines in value be-\ncause of excess capacity should be recognised when the additional\ncapacity was built, or when it became excessive, that is, when demand\nfell back to a. pescetime level. Moreover, if such deductions were to\nbe allowed at all, consistency would demand that income be reported\nfor increments in value as a result of decreases in capacity, increases\nin cost of production, and even, perhaps, increases in demand.\nRegraded Unclassified\n195-M\n- 10 -\nDeclines in the value of facilities resulting from excess\ncapacity could not even be approximately measured. 2/ To segregate\nsuch declines, full knowledge of the other economic variables affect-\ning the problem, such as conditions affecting the demand for the\nassets, would be necessary. The administrative difficulties that\nwould be encountered in such an endeavor would be insuperable. The\naccountants themselves list losses due to excess capacity after the\nwar as not constituting legitimate deductions from income computed\nin the oustomary manner. 21 If such losses are not sufficiently\ndeterminable to constitute legitimate accounting deductions, clearly\nthey would not satisfy the more rigorous requirements which must be\nset for tax deductions.\nb. Losses which may be sustained at the end of the\nwar in the disposal of inventories useful only\nfor was purposes, or in the adjustment of pur-\nchase commitments then open, including any amounts\npaid for the cancellation of such commitments\nLosses on surplus inventory stocks are clearly chargeable to war\nrevenues. However, the taxpayer will suffer such losses only if the\nGovernment fails to reimburse him for them on war-contract termination.\nSince contractors operating under cost-plus-fixed-fee contracts\nwill ordinarily suffer no inventory losses, no reserves need be ⑉\ntablished for such losses. Inventories held by these contractors are\nactually owned by the Government.\nHowever, contractors operating under fixed-price contracts may\nsuffer inventory losses. The present termination clauses in contracts\n1/ For example, in recent testimony on renegotiation before the House\nNaval Affairs Comittee, Mr. Gibbons, Senior Vice-President of the\nAluminum Company of America, stated that the two major postwar\nproblems of this company would result from:\n(1) overexpansion of facilities; and\n(2) wartime growth of substitute products.\nBe was asked: Do you think it is possible at the present time\nto anticipate and forecast the exact amount, or to an approximate\ndegree, of reconversion and adjustment whi 6 company such as\nyours will have to go through?\"\nMr. Gibbons replied: \"In the case of our own company, I could\nunqualifiedly answer that in the negative.\" (Underscoring sup-\nplied.) Proceedings of Committee on Naval Affairs of House of\nRepresentatives, June 22, 1943, as published by The Bureau of\nNational Affairs, Ino., P. 765.\nThe Journal of Accountancy, op. cit, P. 158.\nRegraded Unclassified\n195 N\n- 11 -\nprovide that reimbursement will be mde for inventories as well as for\nsettlement of comitaints to subcontractors; that is, fixed-price\ncontracts become cost-plus contracts. However, the Government may\nrefuse to reimburse contractors for some inventories, olaiming that\nthe inventories are sub-standard, that the purchase price was too high,\nor that the purchase of an item for & specific contract has not been\nproved. The extent of these losses, therefore, will depend upon the\nrigor of the contraet-termination audit. In principle, contractors\noperating under fixed-price contracts may legitimately establish re-\nserves for their inventory losses. However, since the magnitude of\nthese losses will be determined by the auditing policies of the mili-\ntary establishment, their amount cannot now be ascertained with suffi-\ncient precision to justify a ourrent deduction for tax purposes.\n0. Deferred advertising\nIf normal advertising expenditures are ourtailed during the war\nbecause of material and manpower shortages, it may be equitable to\nallow a deductible reserve for deferred advertising. Such adver-\ntising may be necessary in order to keep a company's name in the pub-\nlio wind.\nAlthough a reserve for deferred advertising my be acceptable in\nprinciple, the insoluble administrative problems which it raises\nnecessitate its rejection. In the first place, it would be impossible\nto define advertising expenditures. Advertising takes multifarious\nforms, such as, newspaper and periodical advertisements, extensive\nreliance on salesmen, pleasant shopping environments, special services,\nspecial discounts, and special packaging. In the second place, even\nif advertising could be defined, the amount necessary to maintain a\nfirm's goodwill without improving it could not be determined. Such a\ndetermination would be necessary to administer the reserve in an\nequitable manner. Because of these administrative difficulties such\na reserve is impracticable.\n3. Items non-deductible for tax purposes for which the\nestablishment of reserves should be considered\na. Losses which may be sustained in the disposal of\ninventories not necessarily applicable to war\nproduction, due to deoline in the price level,\nwhich, on the basic of past experience, usually\nfollows a pronounced rise in prices\nDuring consideration of the Revenue Act of 1942 the Treasury\nproposed that a deductible reserve for inventory price declines be\nestablished. Such a reserve, if operated efficiently, would clearly\nimprove the definition of taxable income. The Treasury proposal was\nnot accepted by Congress, largely because of its administrative diffi-\nculties. In place of an inventory reserve, and of other specific\nreserves, Congress enacted & general carry-back of losses and unused\nRegraded Unclassified\n195- 0\n- 12 -\nexcess-profits credits.\nThe theoretical case for an inventory reserve 10 as strong now\nas it was in 1942. In practice, however, in many industries the need\nfor such a reserve is now at least temporarily less acute. In large\nareas of the economy, partial inventory liquidations are taking place\nbecause of the shortage of peacetime commodities. Moreover, price\nrises in 1943 will probably not be large because of Government price\ncontrols. If the anti-inflationary program should prove to be in-\nadequate, however, the need for inventory reserves may again become\naoute. Unless the inflationary controls do break down, the carry-\nback of net-operating losses and of unused excess-profits credits\nshould constitute an adequate substitute for an inventory reserve,\nprovided that they are not also foroed to offset too many other\nlosses.\nb. Repairs and maintenance deferred as a result of\npressure for war production\nMaintenance expenditures are necessary to insure an asset's\nproductivity over its economic life. These expenditures represent\nreasonable charges against current revenues, if they do not prolong\nan asset's life or increase its capacity. If maintenance expendi=\ntures are postponed as a result of material or manpower shortages,\nor because the pressure for production does not permit maintenance\nwork, reasonable maintenance expenses will not be charged against\nourrent revenues. Current income will be overstated during the war\nand understated in the postwar period, provided that the previously\npostponed maintenance is then made good.\nThe problem may be even more severe for railroads and other\nindustries employing replacement, rather than depreciation, account-\ning. Under replacement accounting, the replacement cost of assets\nis deducted in the year of replacement and not depreciated over the\nlife of the asset. Inability to replace as well as to maintain\nassets may result in a sharper distortion of income in the war period\nthan mere postponement of mintenance.\nAccountants and informed Government officials have expressed\nthe opinion that ourrent undermaintenance is limited to particular\nassets and firms and does not constitute a general problem of signi-\nficant magnitude. Undoubtedly, many individual assets are being\noperated under such pressure that adequate maintenance is impossible.\nHowever, other assets of a firm may receive more than adequate main-\ntenance. Undermmintenance of specific assets will result in an\noverstatement of taxable income during the war period only if it is\nnot offset by overmaintenance of other assets owned by the same firm.\nIn those instances where net undermintenance is present, it will\nprobably be limited in amount.\nRegraded Unclassified\n195- P\n- 13 -\n0. Restoration or alteration of facilities to\npeacetime production at the end of the mar, if\nit is reasonable to assume that such restors-\ntion and alteration will then be made\nRecomversion costs, in the narrow sense of the term, are clearly\nproper charges against war revenues. Such costs would be limited in\nthe simplest situation to the restoration of a plant to its prewar\ncondition in order to produce the prewar product. No increase in the\ncapacity or life of an asset would be involved in the pure case. For\nexample, the band-instrument industry has shifted its production\nalmost completely to war products, necessitating the removal and\nstorage of the band-instrument equipment. At the end of the war,\nresumption of peacetime production will require the removal of war\nequipment, partitioning and space reallocation in the plant, and re-\ninstallation of machinery.\nThe situation is slightly different, however, if wartine facili-\nties remain in use during the postwar period. Even though these\nfacilities remain in use, reconversion oosts may be necessary before\npeacetime production can be resumed. The disoussion of the deduction\nfor the amortisation of emergency facilities has pointed out the ex-\ncossively generous treatment which taxpayers may be allowed. For this\nreason, it may be desirable to require taxpayers to capitalize recon-\nversion costs pertaining to martine facilities, NO distinot from peace-\ntime facilities, even though such reconversion costs do not prolong the\nlife of the wartine facilities. However, reconversion costs in the\ntechnical sense would often constitute only & small percentage of the\npostwar value of wartine facilities. In such instances the recommended\ntreatment would only partially offset the excessive deduction against\nwartine revenues allowed on emergency facilities with substantial peace-\ntime values.\nThe proper treatment of reconversion dosts becomes more and more\ndifficult to determine as situations such as improved productive\norganisations, outlays for recapturing markets, and developmental\ncosts necessary for new peacetime products, are considered.\nThese broader reconversion costs will undoubtedly be of much\ngreater quantitative importance than more narrowly conceived recon-\nversion costs. However, the uncertainty with respect to the nature\nand size of such costs makes the establishment of reserves meeting\nminimum accounting standards of measurability administratively in-\npossible. Aside from these administrative difficulties, many of these\n1/\nFor this and similar examples of reconversion, ... Hearings before\nthe House Naval Affairs Committee on Renegotiation, June 10 1943-\nJune 30, 1943.\nRegraded Unclassified\n195- G\n- 14 -\nreconversion costs in the broad sense do not constitute appropriate\ncharges against wartine revenues and should be regarded as new capi-\ntal expenditures to be written off against subsequent peacetime pro-\nduction. Moreover, diaregarding these objections, reconversion oosts\nin the broad sense could be consistently charged to war revenues only\nif offsets to such deductions were made for the creation of new mar-\nkets by the war, for developmental costs of war products which will\nhave peacetime uses, for benefits from improved productive techniques\ndeveloped during the war, and for other similar benefits derived from\nthe firm's wartine activities.\nIn summary, reconversion costs in the narrow sense of restoring\nfacilities to their prewer condition clearly constitute appropriate\ncharges to war revenues. Moreover, such costs may be sufficiently\ndefinite to make the accumulation of reserves to meet them feasible.\nIf the reconversion costs pertain to wartine facilities, however, it\nmay be preferable to capitalize them rather than to charge them\nagainst war revenues. Às soon as the concept of reconversion is\nbroadened, the administrative and conceptual difficulties to an ac-\nceptable accounting reserve become insurmountable.\nd. Separations allowances which may be paid to\nemployees who are discharged at the termination\nof the war\nDiemissal compensation for workers in war industries may consti-\ntute & postwar expense of major magnitude. Wartine employment in\nmany industries is greatly in excess of the levels of employment\nwhich can be expected to prevail in peacetime. Workers who have been\nbrought into defense centers to take war jobs will, in many instances,\nhave to look elsewhere Tor work once war orders cease. Whether or not\n& wartime employer has entered into contracts to pay separation allow-\nances to workers dropped from his payroll at the end of the war, social\npressures may require such payments.\nDismissal compensation paid to workers no longer needed in war\njobs constitutes a proper charge against wartine revenues, since it is\nan expense which 1a directly attributable to war production. No -\nployer can, of course, predict either the date of termination of the\nwar or the exact number of employees whom he will be obliged to diemiss\nat that time. Nevertheless, if reserves for dismissal compensation\nwere allowed as a. deduction for tax purposes, rough approximations of\nthe probable magnitude of dismissal wages could be made. Furthermore,\ntaxpayers' accounts could easily be audited after the war to determine\nwhether the reserves set aside for separation allowances were actually\nused for this purpose.\nIII. The cash approach\nThe cash approach to the problem of special wartine reserves sees\nRegraded Unclassified\n195 - R\n- 15 -\nin such reserves a. guarantee that the resumption of peacetime produc-\ntion will not be impeded by cash shortages in the immediate postwar\nperiod. Business firms will need funds at that time for a multitude\nof purposes. Unless adequate funds are readily available, the smooth\ntransition to a peacetime economy will be impaired.\nWhile corporations in general appear to be in an unusually liquid\nposition at the present time, undoubtedly cash shortages will present\nserious difficulties to many individual firms and to specialized in-\ndustries. Firms which have expanded many times their peacetime level,\nand are consequently operating with 9. very small margin of equity capi-\ntal, are most likely to be in a stringent cash position in the ime-\ndiate postwar period if their inflow of funds is even temporarily held\nup. Such firms my find it difficult or impossible to meet their\ncurrent liabilities immediately after the termination of their wartime\nproduction. The need for cash will, therefore, depend largely on the\npromptness with which contract-termination payments are made.\nWartins reserves to provide for postwar cash needs have been\nadvocated on two sharply divergent principles. The first approach\nemphasises the necessity of mking funds available to firms out of\nwartine revenues to the full extent of their claims on the basis of\nequity and accounting principle. The second approach, emphasizing\nthe economic importance of large business expenditures in the postwar\nperiod, advocates large-soale distribution of funds to business,\nirrespective of equity considerations. In this way, it is hoped that\nthese funds will be used for employment-oreating purposes.\nReserves recommended for consideration on an accounting basis in\nthe preceding section receive additional support from the cash ap-\nproach. Cash needs for separation allowances, in particular, will be\naoute immediately upon the cessation of war production. Funds will\nalso be needed, although generally in much smaller amounts, for re-\nconversion purposes, narrowly conceived, and for restoring under-\nmaintained plants. On the other hand, an inventory reserve for price\ndeclines would relieve cash shortages when prices are rising rather\nthan in a. postwar period of declining prices. Indirectly, however,\nsuch a reserve would strengthen the postwar financial position of busi-\nnees. The taxpayer has a legitimte claim on funds to be used for all\nof these purposes, since such expenditures constitute costs properly\nchargeable to wartime revenues.\nPostwar needs for cash will not be limited to the above purposes.\nAdditional funds will be needed for the purchase of new machinery and\nother equipment, for the development of products for peacetime markets,\nand for the aoquisition of inventories. These needs will be no less\nreal than those mentioned above. However, funds spent for these pur-\nposes constitute costs which should be borns by peacetime products. If\nsuch funds were provided tax-free out of wartine revenues, they would\namount to aubsidies.\nRegraded Unclassified\n195-S\n- 16 -\nIf the postwar needs of enterprise are to be net by Government\nsubsidies, reserves providing for expenditures allocable to peacetime\nproduction constitute one method of administering such subsidies.\nSimilar results could be achieved by partial cancellation of wartine\ntaxes levied on business profits, or by overt Government grants to\nenterprise. The essential difference between these methods of sub-\nsidizing business lies in the extent of Government control over the\nuse of funds.\nDirect cancellation of tax liabilities would place no restrio-\ntion on the use of funds by the taxpayer. Taxpayers would receive\nsuch funds even though the funds were not needed and were not used\nfor employment-oreating purposes. Subsidies in the form of reserves,\nhowever, could be restricted to employment-oreating uses. Although\nthe Government could control the employment-oreating uses of such\nfunds, it would be impossible to delimit the areas in which the in-\nvestment could be mde.\nNeither of these two methods of subsidization would limit funds\nto taxpayers with no alternative financial resources. Consequently,\nthe amounts expended from accumulated reserves would not all repre-\nsent net additions to employment-creating expenditures.\nAs opposed to these two methods, the Government might make direct\ngrants to specific enterprises for investment in designated areas.\nThis method of subsidization provides the Government with the maximum\nopportunity to determine the areas in which investment will be made\nand to control the amount of this investment.\nRegardless of the position taken on granting subsidies to private\nenterprise for postwar uses, if the need for cash in the immediate\npostwar period arises primaril from delays in settlement and payment\nof terminated war contracts, interim loans and not subsidies consti-\ntute the proper corrective.\nIV. The incentive approach\nAnother possible objective of special wartine reserves is to\nremove incentives which lead taxpayers to make socially unnecessary\nexpenditures during the war. Incentive considerations apply only to\ntwo of the proposed specific reserves, namely, the reserve for de-\nferred maintenance and the reserve for deferred advertising. Expendi-\ntures for maintenance and advertising constitute deductible expenses\nunder the existing tax law. With tax rates as high as 81 percent,\ntaxpayers may be induced to spend more than the absolute minimum neces-\nsary to maintain wartins production. If deductible reserves could be\nestablished for deferred maintenance and deferred advertising, the\nincentive to make these particular expenditures in excessive amounts\nduring the war would be reduced or eliminated. Às a result, badly\nRegraded Unclassified\n195-T\n- 17 -\nneeded resources might be released for more useful participation in\nthe war effort.\nHowever, there are serious limitations to the efficacy of special\nreserves in inducing the postponement of expenditures for advertising\nand maintenance. If a firm can obtain the resources necessary for such\npurposes, its tax liabilities will be the same as if it postponed them\nand took a reserve deduction. Moreover, its productive equipment and\ngoodwill will be benefited at least to some extent by these outlays.\nMaximum postponement of this type of outlay would probably require some\nform of tax premium, such as an allowance of, say, 120 percent of the\npostponed outlays as a deduction from wartine revenues.\nV. Implications of reserves for the postwar competitive structure\nThe allowance of postwar reserves may have an important bearing\non the competitive structure of industry. Consequently, final judg-\nment of these reserve proposals must take these effects into account,\nThe refinement of the definition of taxable income resulting\nfrom appropriate reserve deductions would be particularly beneficial\nto firms with highly fluctuating incomes, In general, the incomes\nof small firms tend to fluctuate more severely than those of large\nenterprises. Moreover, small firms have less accoss to outside onpi-\ntal resources, and consequently their expansion tands to be more\nnearly limited to their retained earnings. Discriminatory taxation\nwill also have particularly severe effects on firms that have greatly\nexpanded on a small margin of equity and have, therefore, been placed\nin a highly unstable financial condition. If discriminatory tax bur-\ndens are removed, additional funds will be made awailable to such\nfirms as these and will enable them to compete more effectively for\npostwar markets.\nUnless the cash approach is extended to include subsidies, it\ndiffers from the accounting approach only as it emphasizes the impor-\ntance of the prompt availability of funds. However, subsidies in the\nform of reserves, granted in the name of the oash approach, may have\nmarked effects on the industrial competitive structure. Firms with\nthe highest rate of wartime profite will receive relatively larger\nsubsidies than firms with more moderate profits. War-casualty con-\ncerns and concerns with wartime losses will receive no funds whatso-\never from these indirect tax reductions; thus they must compete under\na double handicap with prosperous firms for postwar business. New\nfirms organized after the war will also have to overcome the competi-\ntion of entrenched enterprises receiving subsidies.\nIt seems clear that the maintenance of a competitive structure\nin the postwar years can be furthered by G. judicious use of special\nwartime reserves. Reserves set aside out of wartime revenues will\nRegraded Unclassified\n195- U\n- 18 -\nundoubtedly be of help in effecting a smooth and speedy transition\nfrom wartime to peacetime production. Without such a cushion, small\nbusiness, in particular, may find its competitive position weakened,\nor even its survival threatened.\nOn the other hand, the allowance of excessive reserves as deduo-\ntions against wartime profits would be likely to enhance the position\nof those firms which profited most from the war, while denying equal\nopportunities to those adversely affected by wartime conditions. Even\nafter paying high wartime taxes, current business profits are at\nrecord levels. The further subsidization of war businesses by allow-\ning them a larger share of their war profits may therefore be unjusti-\nfied.\nJuly 19, 1943\nTreasury Department\nDivision of Tax Research\nECB:JKB\nRegraded Unclassified\n196\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nCONFIDENTIAL\nDATE July 19, 1943\nTO\nSecretary Morgenthau\nFROM\nMr. 900\nSubject: The Situation,\nWeek ending July 17, 1943.\nSummary\nPrice control: Further efforts to reduce living costs are\nindicated in Price Administrator Brown's recent statement\nthat 8 fundamental aim of the OPA 18 to resstablish the\ngeneral relationship of prices and wages which prevailed\non September 15, 1942. Despite C: decline in food costa\nin June, the BLS index of living costs for the month will\nstand at least 5 percent above last September's levels.\nCommodity prices: Although prices of whest, steers and\ncotton declined further last week, the RLS index of basic\ncommodity orices showed only & slight decrease. After\ndeclining 1 percent in the previous 3 weeks, the BLS\nall-commodity index in the week ended July 10 VAS un-\nchanged at 103.0 percent of the 1926 average.\nStock prices: Industrial, railroad and utility stock price\naverages all rose to new highs for the year last week,\nalthough the net advance was relatively moderate despite\nincreased trading activity. Insustrial stock prices in\nLondon, after an extended period of narrow price changes,\nadvenced last week to the highest level since September\n1937.\nDepartment store stocks: At the end of May, department store\nstocks were 30 percent below last year's level, with ell\nunjor items showing declines except furs and women's\ndresses. The WPB has launched E) six-point program designed\nto forestall the necessity of clothes retioning. In addition\nto other features, retailers will be expected to discontinue\n\"scere\" skles talks and undue advertising and promotional\nactivity.\nOil supplies: East Coast stocks of petroleum products available\nfor civilians have continued to rise, end in the week ended\nrecord low of 25.5 percent in the first vee% of May. Sharp\nJuly 10 reached 34.0 percent of normal, 88 compared to D.\ndifferences of ovinion continue to exist between the OPA and\nthe PAW with respect to gasoline rationing and the need for\nhigher crude oil prices.\n-\n-\nRegraded Unclassified\n197\n- 2 -\nPurther outs in living costs sought by Price Administrator\nIn reply to charges of confusion and lack of policy in the\nOPA, Price Administrator Brown indicated last week that the\nbasic aim of the OPA 18 to reestablish the general relation-\nship of prices and wages which prevailed on September 15, 1942.\nThis will obviously be a difficult task. Despite some re-\nduction in June resulting from lower food costs, the BLS\nindex of living costs for the month will still show an\nincrease of at least 5 percent over last September. The\nPrice Administrator states that this increase must be\nerased to avoid unfairness to labor; consequently he will\npress the subsidy rollback program on meats and butter,\nalong with other measures, in order to out back living costs.\nIn this connection, President Murray of the CIO stated\nloot week that his organization will withhold for the present\na threatened campaign against the \"Little Steel\" formula\nand the hold-the-line order. Last month the CIO leader\nissued a virtual ultimatum to the effect that unless an\neffective rollback of prices were carried out by mid-July\nhie union would demand that the \"Little Steel\" formula be\nscrapped.\nCommodity prices stendy\nCommodity price averages show little net change in the\nlatest weeks reported. The BLS index of basic commodity\nprices sagged fractionally last week, with further declines\nin wheat, steers, and cotton, which were largely offset by\nRA upturn in hog prices and a continued advance in the price\nof rosin. (See Chart 1.)\nWheat prices declined last week under increased hedge\nselling, more favorable crop reports, and on the Price\nA ministrator's statement that no increase in the corn\nceiling was contemplated. A group of wheat state senators,\nhowever, led by Senator Reed of Kansas, last week called for\nen increase in the present \"clearly illegal\" flour ceiling\nand an advance of about 20 cents in wheat prices to the\nparity level. Apparently influenced by this pressure, the\nPrice Administrator said at 8. press conference on Thursday\nthat forces beyond his control might bring about a price\nincrease on wheat, but that Commodity Credit funds would be\nused, if necessary, to stabilize bread prices within hold-\nthe-line limits.\nRegraded Unclassified\n198\n- 3 -\nThe BLS all-commodity index in the week ended July 10\nheld unchanged at 103.0 percent of the 1926 average, after\nthe substantial decline of 1 percent in the previous three\nveeko. (Bee Chart 2.) The earlier downturn had been due\nAlmost entirely to the rollbacks in meat and butter prices,\ntogether with weakness in live hog prices and a seasonal\nrice decline for fruits and vegetables.\nCorn-hog price problem somewhat less urgent\nA decline of fully 2 cents E pound in hog prices over\ntime onst 3 months has reduced the profit in feeding corn to\n4056, and should thereby help, at least temporarily, to make\nmore corn available for other uses. The waning of agitation\nfor E hicher cash price for corn may also bring some increase\nin sales by farmers. Price Administrator Brown said last week\nthat the corn price ceiling would be kept at the present level,\nand that corn is moving to market \"now that price uncertainties\nhave been eliminated.\" Food Administrator Jones also mentioned\nan accelerated movement of corn from farms. However, the\netatistics on corn receipts at leading mid-western markets\nshow no recent increase.\nAs an aid in correcting the corn-hog price disparity,\npreco reports last week indicated that the OPA and WFA may\nannounce soon that they do not intend to support hog prices\nat 13.75 after September 30, 1944, when the present commitment\nexpires. An announcement of this intention nov would tend to\ndiscourage a further expansion in the hog crop, and perhaps to\ndiscourage the feeding of hoge to heavy weights. Some such\nchange in feeding habits, and probably even more drastic changes,\nwill be necessary to prevent a more serious corn shortage\nnext year.\nHeavy hog marketings congest packing plants\nThe continued heavy marketings of hogs, which have been\nchiefly responsible for the declining trend of hog prices over\nthe past three months, reached proportions early this month\nthat taxed the capacity of packing plants. The situation\nover the Fourth of July holiday, according to the latest\nDepartment of Agriculture report, \"proved too much for many\nplants throughout the country, when capacity became congested,\nand prices declined badly. Not in years has such a condition\nexisted, evidencing the toll of war in man-power from the\nmacking industry, labor apparently being the main bottleneck. If\nThe extent of the decline in hog prices over the best 3\nmonths is indicated in Chart 3, which shows also the effect\nRegraded Unclassified\n199\n- 4. -\nof recent rollback on wholesale prices of hog products.\nThe packers' gross margin on pork products for civilian use,\nP.E. shown by the lower line on the chart, has again reached\n\" relatively profitable level after allowance for the subsidy\npayment.\nIncreased food goals for 1944 announced\nThe Department of Agriculture announced last week its\nvoneral food production goals for 1944, apparently those\nfor ely formulated under the previous Food Administrator.\nA record croo area of 380,000,000 acres is called for, as\ncompared with 364,000,000 acres this year. The principal\nincrease will be in the acreage of wheat--an increase\nprobably easiest to attain--for which the goal is set at\n20 percent above that of the current year.\nSpecific goals for other crops and for livestock will\nbe announced later, when the feed supply and crop production\nfigures for the current year are more accurately known.\nFurther sharp acreage increases for such important war\ncroos as beanuts, soy beans, flaxseed, and potatoes are\nexpected. Press reports indicate that the Food Administrator\nintends to present the detailed plans to Congress before\noutting the program into effect.\nStock prices advance to new highs\nThe Dov-Jones average of railroad stock prices finally\nrose above the previous 1943 high on Tuesday of last week,\nfollowing previous new highe for the industrial and utility\ngroups. Some observers interpreted this move as a signal\nfor a further general rise in stock prices, but despite\nfairly active trading, prices on the whole were unable to\nmake any further real headway during the week. At the\nclose on Saturday industrials were only fractionally higher\nthan a week earlier, while railroad and utility stocks showed\ngains of 2 percent and 1 percent, respectively. (See Chart 4.)\nSince last January, industrial stock prices in the\nLondon market have levelled out, while industrials on the\nNew York exchange have continued to advance. As a result,\n1941 has now been substantially reduced. (See Chart 5.)\nthe disparity which began to develop in the closing months of\nHowever, aided by the favorable course of war developments,\nthe London market recently has shown some signe of resuming\nits earlier rise. Thus 0.8 a result of steady gains last\nRegraded Unclassified\n200\n- 5 -\nrock, industrial stock prices in London on Friday touched\nthe highest level since September 1937. (The persistent\nrise in our market since early May last year, when the war\nnews took & more favorable turn in the battle of the Coral\ndes, 1111 be particularly noted on the chart.)\nDepartment store stocks much below 1942 levels\nAlthough seasonally-adjusted department store sales in\nrecent months have fallen below the boom levels of the early\nof the year, they have continued to make E strong showing,\n11th to FRB index of sales in June rising to 129 from 125\nin May. (See Chart 6.) The continuing strong pace of sales\n140 operented any significant recovery in the FRB index of\ndepartment store stocks, which on an adjusted basis declined\nalmost without interruption from the peak of 140 last July\nto 07 in April. A slight recovery carried the adjusted index\nof stocks up to 89 in May, with figures for June not yet\navailable. (Refer to Chart 6.)\nAt the end of May, department store stocks were 30 per-\ncent below the corresponding date in 1942. The widest decline\noccurred in stocks of major household a pliances, which were\nform 73 percent from last year's level. Of all items\nseverately classified, only women's dresses and furs showed\npins over stocks on hand at the end of May 1942.\nWPB launches program to forestall clothes rationing\nAsserting that there 18 a supply of textiles end textile\nproducts adequate to meet all military and essential civilian\nneeds, WPB Chairman Nelson last week announced E. six-point\nprogram intended to make clothing rationing unnecessary. A\nfeature of the program will be an attempt to accelerate output\nof mass produced low-priced clothing, in contrast with recent\ntrenda toward emphasis on expensive fabrics. Production of\ncasential textiles 18 expected to be maintained at present\nrecord levels, and wherever possible it will be stepped up.\nIn addition to other measures, burlap imports are to be\nincreased DB a result of the reopening of the Mediterraneen,\nand this 18 expected to release cotton now going into the\nmanufacture of bage for farm crops. In order to achieve\nadecuate and orderly distribution of available goods, a\norogram 16 also under way in the retail field whereby stores\nHill agree to discontinue \"scare\" sales talks as well as ac-\nvertising and promotional activity designed to incite un-\nvarrented consumer buying.\nRegraded Unclassified\n201\n- 6 -\nEast Coast oil supplies improved\nAfter falling to a record low of 25.5 percent of\nnormal in the first week in May, East Coast stocks of\nvetroleum products available for civilians have shown a\nstendy rise in recent weeks and reached 34.0 percent of\nnormal in the week ended July 10. (See Chart 7.) In\nview of the recent improvement in supplies, Price Administrator\nBrown expressed the opinion last week that gasoline supplies\nof Eastern motorists have been cut too sharply. However,\nthis point of view was promptly challenged by the Petroleum\nAdministrator, who stated emphatically that East Coast\ncivilian consumption of gasoline cannot be increased except\nnt the expense of military operations. To further emphasize\nthe divergence of viewpoints on the East Coast gasoline\nsituation, Transportation Coordinator Eastman has just\nstated that the present reduced gasoline allotment for\ncivilians impairs essential transportation, and that he is\nin favor of doubling the present A coupon allotment.\nIn a new effort to get at the root of the problem, the\nDirector of War Nobilization last week opened what vas\ndescribed 2.8 & thorough investigation of the domestic\ngasoline and fuel-oil situations. In addition to conflicts\nover rationing, the controversy over crude oil prices 18\nstill hanging fire. Two Congressional committees recently\nadded their recommendations to that of the Petroleum\nAdministrator that crude oil prices be raised as a\nstimulus to production. However, OPA has refused to\nrecede from its position that EL general crude oil price\nadvance is unwarranted, and would constitute a violation\nof the hold-the-line policy.\nRegraded Unclassified\nMOVEMENT OF BASIC COMMODITY PRICES\n1942\n1943\n1944\nPERCENT\nPERCENT\nAUGUST 1939-100\n220\n220\n210\n210\n200\n200\n9 Uncontrolled Commodities\n190\n190\n180\n180\n28 Commodities\n170\n170\n19 Controlled Commodities\n160\n160\nOCT\nDEC\nFEB\nAPR.\nJUNE\nAUG\nOCT\nDEC.\nFEB\n1942\n1943\n1944\nPERCENTAGE CHANGE DEC 6, 1941 TO JULY 9, AND JULY 16, 1943\nPERCENT\nPERCENT\n19 Controlled\n9 Uncontrolled\nFlaxseed 6462\nCommodities\nCommodities\n+60\n+60\n+50\n+50\nBarley 46/2\nCarn 44,6%\n+40\n.40\nMage 3752\n-30\nLord 288%\n+30\nResin 28.2%\nWheat 2222\nShallac 12.3%\nSteem 21.4%\nLood IIIX\nPrint Cloth 782\nCotton 2002\n.20\n.20\nSugar 69%\nButter 188%\n202\nWool Tope 62 :\nCottonseed ON 59%\nline 3 I\n+10\n0% Change\n.10\nMides. S.A.\nTin, Rubber,\nCoffee, Copper,\nSt Screptom,\no\no\nIt Screp.exp\nCocoo -8%\nVallow 4/2\nBurlop 4,3 2\n10\n10\nDec 6\nJuly 9\nJuly 16\nDec. 6\nJuly 9\nJuly 16\n1941\n1943\n1943\n1941\n1943\n1943\n\"20 Controlled 8 Uncontrolled previous to June 26, 1942\nOffice of N Secretary of the Treasery\nServices el Reserved - term\nP-244-A\nRegraded Chart 1 Unclass\nCOMMODITY PRICES\n1926 . 100\nPERCENT\nPERCENT\nWeekly\n110\n110\n108\n108\n106\n106\n104\n104\n889 Commodities, B.L.S.\n102\n102\n100\n100\n98\n98\n28 Basic Commodities, B.L.S.\n96\n96\n94\n94\nChart 2\n92\nAPR.\nJUNE\nAUG.\nOCT.\nDEC.\nFEB.\nAPR.\nJUNE\nAUG.\nOCT.\n92\nDEC.\nFEB.\n1942\n1943\n1944\nof the Sunday of the Incory\n- of - - -\nP-198-F\n203\nRegraded Unclassified\nHOG PRICES, VALUE OF PORK PRODUCTS, AND GROSS MARGINS\nWeekly, January 1942 to date\n1942\n1943\nAPR.\nJUNE\nAUG.\nOCT.\nDEC.\nFEB.\nAPR.\nJUNE\nFLB.\nDOLLARS\nDOLLARS\nPER\nPCA\n100 LBS.\n100 LBS.\n16\n16\nCOMPOSITE WHOLESALE\nVALUE OF HOG PRODUCTS*\n15\n15\n⑇\n14\n14\n..\nWHOLESALE PRICE or LIVE Hous\n13\n13\n12\n12\n11\n11\n10\n10\nGROSS\nGROSS\nMARGIN\nMARGIN\n(CENTS)\n(CENTS)\nMARGIN\n100\nAFTER SUBSIDY\n100\n0\no\nAPPARENT\nMARGIN\n100-\n-100\nJUNE\nAUG.\nOCT.\nDEC.\nFEB.\ni\nJUNE\nFEB.\nAPR.\nChart 3\n1942\n1543\n. WHOLESALE VALUE or ALL COIBLE PRODUCTS IN 100 LS. OF LIVE HOGS.\n.. GOOD CHOICE, 180-200 LBS.\nSOURCE: U.S.D.A\nOffice of the Secretary of the Treasury\n204\nDivision of Research and Statement\nP. 246 - A\nRegraded Unclassified\n205\nSTOCK PRICES, DOW-JONES AVERAGES\n1 I\nDaily\n1941\n1962\ni\n(\n-\nMAY\n1943\nMPT.\n-\n(\n-\nMPI,\n-\n-\n1943\n-\nand\n-\n-\n14\n-\nJULY\nAUBIET\nREFTERBER\nMALARE\n21\nHILLARS\n16\n39\n13\nN\nIf\nis\nis\nis\n\"\nM.M.\n&\n- Industrial Blocks\n180\nChart 4\n155\n139\n-\n150\n30 Industrial Stecks\n130\n_________________________\n150\n-\n140\n-\n1.30\n145\n140\n5\n130\nHD\n140\n19\n110\nIM\n1.35\n-\n-\n.\nso\nuse\n130\n.\n-\nus\nus\n.\nse\n120\n120\n45\n45\n- Refirents\n-\n38\n40\n-\n30\n~~~~~~~~~~~~~~~~~~~~~~~~~\n.\nM\n#\n#\nx\n20\na\n24\na\na\nas\nM\n20\n20\nsu\n-\nIN\n18\n28\na\n.\nso\n15 Utilities\n24\n1\na\na\nIf Vilities\na\n.\na\nX\n20\nR\na\n19\n-\n18\nIII\n16\n-\nBARRES\n-\nVolume of Trading\n-\nRILLISM\nI\n! I I\nName of truitag\nI\n- MILT)\na\n,\na\nI\nI\n1\nE\n.\na\na\na\n1\n-\ni\nMPT.\nI\n7\n14\na\n.\n25\n/\nDI\n13\n20\n27\n.\nII\n.\n25\n.\n=\n1941\nBEFT.\n22\n29\n.\n12\n19\na\n1943\nAPRIL\n-\n-\nANY\n-\nSEPTEMBER\n....\n-\nI\nel\nI\n-\n-\nI\nles\nRegraded Unclassified\nINDUSTRIAL STOCK FRICES IN U.S. AND U.K.\nAUGUST 1936 . 100\n1941\n1942\n1943\nPERCENT\nPERCENT\nWeekly (Average of Daily)\n115\n115\n110\n110\n105\n105\n100\n100\n95\n95\n90\n90\nU.K. 56 Industrial-\n85\nStocks\n85\n80\n80\n75\n75\nU.S. 30 Industrial\n70\nStocks (Dow-Jones)\n70\n65\n65\n60\n60\n55\n55\nChart 5\n50\nOCT.\nDEC.\nFEB.\nAPR.\nJUNE\nAUG.\nOCT.\nDEC.\nFEB.\nAPR.\nJUNE\nAUG.\n50\nOCT.\nDEC.\n1941\n1942\n1943\n208\nOffice of the Secretary of - Insury\n- - - - -\nRegraded Unclassified\nDEPARTMENT STORE SALES AND STOCKS\nDollar Values, 1923-25 - 100, Adjusted\nPERCENT\nPERCENT\n160\n160\n150\n150\n140\n140\n130\n130\n120\n120\n110\n110\n100\n100\nSales\n90\n90\n80\n80\nStocks\n70\n70\n60\n60\n50\n1936\n1937\n1938\n1939\n1940\n1941\n1942\n1943\n50\nSource: Federal Reserve Board\n- - the Security - - Income\nChart 6 20\n- - -\nC-430\nRegraded Unclassified\nPETROLEUM PRODUCTS SUPPLY\nCivilian Supply on East Coast as Percentage of \"Normal\".\" * July 1942 to Date\n1942\n1943\nPERCENT\nPERCENT\n60\n60\n55\n55\n50\n50\n45\n45\n40\n40\n35\n35\n30\n30\n25\n25\n20\n20\n15\n15\n10\n10\n5\n5\nChart\no\no\nOCT.\nNOV.\nDEC.\nJAN.\nFEB.\nMAR.\nAPR.\nMAY\nJUNE\nJULY\nAUG.\nSEPT.\nOCT.\nNOV.\nDEC.\n1942\n1943\n\"Normol\" Supply for corresponding month in year beginning July 1940.\n7 20\nOffice of the Secretary of the Treasury\nDivision of - Statistics\nC-474 Regraded Unclassified\nFarm\nTREASURY DEPARTMENT\n209\nINTER OFFICE COMMUNICATION\nAM\nDATE\nJUL 19 1943\nTO Secretary Morgenthau\nFROM Captain Kades\n1. You have asked how much beef, pork, and lamb is\neaten at hotels and restaurants. It has been roughly esti-\nmated at OPA that about 13% of the existing total civilian\nsupply of meat is consumed at restaurants and by institu-\ntional and industrial users. In other words, about 171,000,000\npounds of meat (carcass basis) out of a total of 1,273,000,000\npounds (carcass basis), is eaten at meals served at hotels,\nrestaurants, cafeterias, hospitals, and other institutions.\n2. You have also asked about the possibilities of put-\nting restaurants on a point ration system so far as beef,\npork, and lamb are concerned. There seem to be four main\nreasons why this has not been done, as follows:\na. There is a definite recreational value\ninherent in eating out during wartime. If meat\nwere rationed in restaurants, it would be less\ndesirable to eat out and this form of recreation\nwould be discouraged.\nb. Many administrative difficulties are\ninvolved, such as weighing portions of meat\nserved and requiring fractional points.\n0. The meat situation is not sufficiently\ncritical to warrant point rationing in restaurants.\na. Communal feeding, such as takes place in\nhotels, restaurants, and cafeterias, is the least\nwasteful method of utilizing food supplies because\nthe waste per person served is less than at meals\nserved at home.\n3. OPA regulations restrict the amount of meat\nand other rationed foods which may be obtained by any\nRegraded Unclassified\n210\n- 2 -\ninstitutional user. A base has been established for each\ninstitutional user for rationed foods based upon the amount\nof such food used and the total number of persons served\nduring December 1942.\nIn addition, no wholesaler, hotel supply house, or other\nsimilar selling institution is allowed to sell fabricated meat\ncuts exceeding in volume 70% of the total volume by weight of\nall kinds of meat sold from September 15, 1942 through Decem-\nber 15, 1942. Hotel supply houses which customarily select,\nage, bone, and fabricate primal cuts into roasts, steaks, and\nstews, may, however, charge 20% more than the zone price for\nthese services.\nIn the case of lamb and mutton, fabricated cuts are not\navailable to retailers.\n4. Any solution of the problem of eliminating the dis-\ncrimination between those who eat at hotels and those who eat\nat home tends to become very complicated as an administrative\nmatter and might well encourage black market operations on\nthe part of expensive hotels and restaurants which would seek\nto keep their well-to-do clientele satisfied.\nIt is difficult to suggest a substitute for OPA's policy\nof allowing restaurants to serve rationed food without requir-\ning coupons. The principal objection to this policy is that\nit tends to favor higher income groups. This criticism would\nlose considerable force if industrial canteens and communal\nfeeding centers were subsidized, as in England, because this\nwould bring eating out within the means of practically every\nincome group.\nAs a possible alternative, it is suggested that the\namount of choice cuts of meat available in hotels and restau-\nrants could be reduced by imposing price ceilings on the\nmeals served. This would probably result in limiting the\nnumber of courses, the size of the portion, and the quality\nof the meat.\nlook\nRegraded Unclassified\n211\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE 7/14/43\nTO\nCaptain Kades.\nFROM The Secretary.\nAll of these people who live at hotels or eat at lunch\nrooms are getting away with murder and I don't see why they\nshouldn't have to give up points, more particularly for meat.\nI remember during World War I when I was in Paris if you wanted\nbread when you went to a restaurant or hotel you had to give up\nnoints before you could get bread and it would be interesting\nif you could find out from O.P.A. how much beef, pork and lamb\nis eaten, in other words are consumed at hotels and restaurants\nend the posibilities of putting those on points if it would\nhelp the shortage situation greatly. It seems to me that they\nhave left a great big wide gap in the dem which ought to be\nstopped up. I'd appreciate it if you would look into this\npromptly and let me know.\nRegraded Unclassified\nyou plane\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE\nJUL 19 1943\nTO\nSecretary Morgenthau\nFROM\nRandolph Paul\nThe Attorney General has written the President\ncriticizing the action taken by the Secretaries of\nWar, Navy and Treasury and the Chairman of the Maritime\nCommission in defining the so-called \"raw materials\"\nprovision in the renegotiation statute.\nThe President sent the Attorney General's letter\nand memorandum to Under Secretary of War Patterson\nwith instructions to \"clear\" it with the other interested\nagencies. Judge Patterson is to talk with the President\nabout the matter Wednesday morning.\nMr. Marbury, Chief Counsel of the Purchase Division\nof the War Department, and Mr. McIntosh, Counsel for the\nWar Department Price Adjustment Board, were in to see\nme this afternoon about the matter and I told them I\nwould try to have some word for them as to your position\nbefore Judge Patterson talks with the President.\nIt seems to me very important that the agencies\nresponsible for the interpretation with which the\nAttorney General has taken issue present 8. united front\nin this matter. The interpretation in question was made\nlast January, after several weeks of discussion, during\nwhich time the interpretation suggested by the Attorney\nGeneral was given careful consideration and discarded.\nHave I your permission to tell the Under Secretary\nof War that the Treasury Department is in its corner on\nthis matter?\nArt\nRegraded Unclassified\n213\nSECRE\nTREASURY DEPARTMENT\nPROCUREMENT DIVISION\nOFFICE OF THE DIRECTOR\nWASHINGTON\nJuly 19, 1943\nEMORANDUM TO THE SECRETARY:\nSupplementing report to you of July 12, 1943,\nthe purchases against the African Program from\nJuly 12, 1943, to July 18, 1943, totaled $1,886,964.20\nor 8. total of purchases for the program thus far of\n$43,850,007.94.\nPlease note the commodities on the attached report\ngiving status of shipping against these purchases have\nbeen consolidated under certain headings, due to the\ndiversified and numerous items now being reported.\nFuture reports will be submitted in this manner\nas the list of items will increase from week to week.\nJune Crifton E. Mack\nDirector of Procurement\nPOBVICTORY\nBUY\nUNITED\nSTATES\npersons\nBONDS\nARS\nSTAMPS\n(37861)\nRegraded Unclassified\n214\nIPPING REFORT AS OF JULY 17, 1943\nSECRE\nTonnage\nTonnage\nTonnage\nTonnage\nShipped to Date\nUnder Load\nOn land at Yort\nn Route\nCommodity\nFrom U. S. A.\nAt Port\nWaiting Vessels\nTo Port\nAgricultural achinery &\n1234\n305.63\n473.33\nImplements\nAutomotive Eq ipment it Parts\n558.74\n45\n155.92\n93.51\nBatteries\n82.76\n42.99\n7\nBearings\n1.5\n1.57\n1.26\nBrass or Bronze\n288.4\n64.5\n75.6\nBrushes & Brooms\n.75\nBuilding Hardware & Material\n174.71\n4.5\n23.54\n57.5\nChemicals\n13,641.21\n1668.72\n2417.27\n4757\nClothing, notions & Textiles\n14,831.19\n223.62\n1754.9\n4282.45\nCopper in Various Forms\n208.04\n106.6\n56.07\nElectrical Equipment & Supplies\n48.82\n7\n15.2\n16.8\nExplosives\n1.4\nFerro-Alloys\n44\nFood & Food Products\n6032.25\nFurniture & Office Equipment\n.5\nGlass\n99.6\n28\n38\n195.3\nGraphite Products\n18.41\n10.78\n5.5\nHand & Cutting Tools\n586.32\n18.5\n421.7\n564.8\nIndustrial achinery\n25.16\n4.5\n18.12\nIron\n65\n490\n121\nJute Bags\n751.19\n33.55\n555\nLead & Lead Alloys\n53.85\nMedical Supplies\n41.12\n28\nNon-Ferrous etals, Other\n64\n322\n24\nPaper Faper Products\n2861\n190.6\n581.49\n128.67\nRope & Twine\n241.65\n28.95\n26\nSubber\n599.57\n76.87\n256.21\n372.66\nShoes soots\n226.75\n24\n173.18\n105.5\nStoel, Carbon\n144.34\n211.5\n3421.43\n1250.79\nclassified\n215\n-2-\nSECRE\nTonnage\nTonnage\nTonnage\nTonnage\nShipped to Date\nUnder Load\nOn Hand at Port\nEn Route\nCommodity\nFrom U. S. A.\nAt Port\nWaiting Vessels\nTo Port\nSteel, Pipe & Tubing\n200\n16\n27.91\nTin Plate\n845\nZinc\n27.5\nTotals\n48,973.18\n3,393.76\n10,470.69\n12,638.26\nRegraded Un classified\n216\nBRITISH air COMMISSION\n1785 MASSACHUSETTS AVENUE\nWASHINGTON, D. C.\nTELEPHONE HOBART 9000\nASE QUOTE\nERENCE NO\nWith the compliments of British Air Commission\nwho enclose Statement No. 94 - Aircraft Despatched\n- for week ended July 13, 1943.\n=\nThe Honourable Henry Mergenthau, Jr.\nSecretary of the Treasury\nWASHINGTON, D. C.\nJuly 19, 1943.\nRegraded Unclassified\n217\nOST SECRET\nSTATEMENT NO.94\nAircraft Despatched from the United States\nWeek Ended July 13, 1943\nASSEMBLY\nBY\nBY\nFLIGHT DELIVERED\nTYPE\nDESTINATION\nPOINT\nSEA\nAIR\nFOR USE IN CANAT\nDA\nCONSOLIDATED\nLiberator GR V\nU.K.\nU.K.\n1\nCURTISS\nKittyhawk\nAustralia\nMelbourne\n30\nKittyhawk\nAustralia\nSydney\n8\n{ittyhawk\nM.E.\nPort Sudan\n61\nDOUGLAS\nDakota III\nN.E.\nM.E.\n3\nFAIRCHILD\nCornell PT 26\nIndia\nBombay\n1\nGRUMMAN\nHellcat\nU.K.\nU.K.\n2\nLICKHEED\nLodestar\nNew Zealand\nAuckland\n1\nGENN MARTIN\naltimore V\nM.E.\nM.E.\n3\nWRTH AMERICAN\nMitchell II\nU.K.\nU.K.\n1\nHargard\nN.E.\nPort Sudan\n6\nHarvard\nU.K.\nU.K.\n4\nMustang\nU.K.\nU.K.\n1\nVEGA\nVentura GR V\nCanada\nCanada\n6\nVULTEE\nVengeance\nIndia\nKarachi\n6\nBritish Air Commission\nTotal : 120\n8\n6\nMovements Division\nJuly 17, 1943.\nRegraded Unclassified\n218\nTREASURY DEPARTMENT\nM\nINTER OFFICE COMMUNICATION\nDATE\nTO\nSecretary Morgenthau\nJUL 19 1943\nFROM\nRandolph Paul\nReference is made to the previous memorandum\nsent to you on July 1, 1943, with respect to the\nproposal of the World Jewish Congress dealing with\nthe evacuation of several thousand Jews from Rumania.\nThis matter has been thoroughly discussed here\nin the Treasury and we have advised State informally\nthat Treasury is prepared to approve the necessary\ntransactions on the basis of the facts now before us.\nWe shall keep you advised of developments.\nHer\nRegraded Unclassified\nCOPY\n219\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: AMERICAN EMBASSY, CHUNGKING\nTO:\nSECRETARY OF STATE, WASHINGTON\nDATED: JULY 19, 1943\nNUMBER: 1199\nCONFIDENTIAL\nGiven below is the summary by the Commercial Attache of the newly instituted\nmonthly economic review for Free China.\nThroughout Free China crop prospects were greatly improved by the widespread\nrains in June, thus relieving fears of a shortage of food and causing prices of rice\nand wheat to decline from the extreme peaks reached in early June. Although an\nincreased production of cotton has been expected in 1943 as results of efforts by\nthe Government, the prices of cloth continued to rise with an advance in the\nChungking black market prices of 17% in June, Prices of food in Chungking were\ngenerally moderate and there was a 20% advance in coal prices. It was reported\nthat price advances were greater in other centers notably Honan and Shensi where\nlarge numbers of troops were stationed. Although figures for June were lacking it\nie estimated that monthly (*) while increase continued around 10% in the general\nprice index and 7 to 8% in note circulation.\nOn June 1 the Chinese Government offered a new victory bond issue of three\nbillion Chinese dollars at 6% interest. It will probably remain largely in\nGovernment bank portfolies like previous issues and have no significant effect on\ninflation. A temporary suspension of restrictions against domestic trading in gold\nand organization by Central Trust of an investment trust were among other moves\nundertaken in June to stem inflation but neither of these ie expected to be very\neffective. Currency inflation continued in the mean time to increase at a rate\nof over three billion Chinese dollars monthly.\nNew industrial enterprises started in June included a cigarette factory and a\nten thousand spindle cotton mill, both at Yunnan. In Yunnan several small alcohol\ndistilleries were closed and it was reported that the remaining distilleries in\nYunnan were operating at a small fraction of capacity because of shortages of raw\nmaterial. On June 3 a complete reorganization of Chinese industrial cooperatives\nwas begun.\nIt was announced that on July 1, two leading government owned bue companies,\nSouthwest Transport Company and China Transport Company, would merge in the interest\nof economy and efficiency. There has been a. suspension of commercial air service\nto Kweilin. The 1943 export quota for tea was fixed to 200,000 chests but the\nquantity shipped will depend on shipping priority and markets. On June 1 chartered\nbank opened Chungking branch making the second British bank branch in Chungking.\nFrom June 1 to June 9, the production conference which the Government called\nmeans of increasing production. During the conference many resolutions were passed\nmet at Chungking with a. prependerance of the private industrial delegates to diemuss\nbut it is doubtful if they will carry much weight with the Government. Preparatory\nto drawing up comprehensive post-war reconstruction plans for the northwest provinces,\na commission of twenty experts in various fields was sent by the Central Planning\nBoard to make a thorough study of those provinces.\nATCHESON\n(*) Apparent ommission\nRegraded Unclassified\n220\nJUL 19 1943\nTos Mr. Livesey\nFrom: Mr. White\nWill you please send the following telegram to the American\nEabasay, Chungking, Chinas\nSECRET\nTO ADLER FROM THE SECRETARY OF THE TREASURE:\n1. A number of reports have been received to the effect\nthat Japanese have gone in for large scale counterfeiting of\nChinese currency.\n2. If the reports are true, have there been, as yet, any\nobservable consequences and what neasures lave been taken by the\nChinese Government to cope with the problem?\n3. The Treasury would appreciate receiving my information\nand views you my have regarding this matter.\nISF/efe 7/17/43\nRegraded Unclassified\n221\nSECRETARY OFFICE OF TREASURY\n93 JUL 20 AM 11 37\nNOT TO BE RE-TRANSIVITED\nCASURY DEPARTMENT COPY NO. 13\nBRITISH MOST SECRET\nU.S. SECRET\nOPTEL NO. 236.\nInformation received up to 7 a.m., 19th July, 1943.\n1. NAVAL\nConsiderable damage and casualties were caused when a ship\nloading mines and other captured German war material blew up in ALGIERS\nHarbour on the 16th. Two Norwegian ships of 7,000 and 2,000 tons respectively\nbecame total losses as result of explosion.\n2. AIR OPERATIONS.\nWESTERN FRONT. 18th. Escorted Typhoons bombed ABBEVILLE\nAirfield and Railway Centre and escorted Beaufighters attacked a convoy off\nDEN HELDER, damaging 1 ship. Enemy casualties - 8, 0, 3. Ours - 9 missing.\n18th/19th. Aircraft despatched: Sea-mining - 16,\nIntruders - 12. All returned safely.\nSICILY AND SOUTHERN ITALY. On 16th/17th and 17th, 6. total\nof 693 tons were dropped on NAPLES. Night attack by \"ellingtons. Day\nattack by Fortresses, Liberators and Medium Bombers with escort of 174\nLightnings. Hit registered on Railway Centre Royal Arsenal and Oil Storage\nArea.\n16th/17th. Our fighter S damaged 2 schooners in the GULF\nOF TARANTO and light and medium bombers dropped 55 tons on CAPODICHINO\nAirfield and 32 tons on CATANIA.\n17th. Mitchells dropped 34 tons on PATERNO. During these\noperations enemy casualties - 39, 10, 13. Allied - 9 Bombors missing.\nRegraded Unclassified\nJuly 20, 1943\n222\n9:50 a.m.\nHMJr:\nHello.\nJames\nByrnes:\nHenry?\nHMJr:\nIn person.\nB:\nHow are you?\nHMJr:\nFine.\nB:\nYesterday I had the representatives - the heads of\nthese agencies buying stuff abroad - BEW and Rocke-\nfeller and Ed Stettinius here with State Department\nHMJr:\nYeah.\nB:\nand State Department had 8 suggestion as to the\nrelations existing between those agencies and the\nState Department which when I considered them, I saw\nwould also affect some of the departments like Army\nand Navy and Treasury\nHMJr:\nRight.\nB:\nand I'm going to send - I asked them to put in\nwriting\nHMJr:\nYeah.\nB:\nthat\nwhat they had in mind after the discussion\nyesterday. I'm going to send you a copy of it and\nthen I thought next Monday when we meet, I would like\nto ask you, or if you don't want to come to send\nsomebody to represent your views.\nHMJr:\nGood.\nB:\nIn sending it I was going to ask though that you ask\nyour fellows if they wouldn't send me in letter form,\nas promptly as they could, before the meeting because\nI want to get these fellows working and they 11 probably\nget together on it among themselves this week\nHMJr:\nGood.\nB:\nand I wanted the departments like Army, Navy and\nTreasury to see if they had any objections\nHMJr:\nWhen will I receive it, Jimmie?\nRegraded Unclassified\n223\n- 2 -\nin\nThey were to send it to me today and\nHMJr:\nYeah.\nB:\nI'll promptly send it over to you.\nHMJr:\nWell, we'll give you twenty-four hour service.\nB:\nAll right. I telephoned you yesterday and they\nsaid you were out of town.\nHMJr:\nWell, I've been . - I'm up there with Mrs. Morgenthau\nB:\nTell me, how is she?\nHMJr:\nShe's still at the hospital. I try to spend Mondays\nthere.\nB:\nRight you are.\nHMJr:\nWell, we hope\nB:\nIs she improving?\nHMJr:\nYes, we hope she will go up home Saturday.\nB:\nGood.\nHMJr:\nAnd I'll most likely stay up there over Monday again\nwith her.\nB:\nWell, after a long stay\nHMJr:\nIt's almost.\nB:\nshe'll be delighted to get back home.\nHMJr:\nIt's almost nine weeks now.\nB:\nGood gracious.\nHMJr:\nIt's been terrible for her.\nB:\nYeah. I everybody has - it's been terrible on you\nand everybody else, too.\nHMJr:\nWell, I - it's worse on her.\nB:\nOh, the person in the hospital has my sympathy always.\nHenry.\nRegraded Unclassified\n224\n- 3 -\nHMJr:\nYes.\nB:\nI sent you - I got Mr. Russell to take over to Fitz-\nGerald\nHMJr:\nYes.\nB:\nthat - those papers.\nHMJr:\nOh, yeah.\nB:\nI determined that - after I had read them through -\nthat\nHMJr:\nYeah.\nB:\nI'd better not do - better not talk to those\nfellows about it.\nHMJr:\nI see.\nB:\nIt's one of those things you - you never know how they\nHMJr:\nYeah.\n3:\nthey get mad about an appointment tomorrow\nHMJr:\nYeah.\nB:\nand with the Boss\nHMJr:\nYeah.\nB:\nand then they - you don't know how they act and\nyou better not - I think we better let them alone.\nHMJr:\nDid you get a - did you get a - I sent you a copy of\nwhat I sent to the President on this - uh - from the\nLabor Council.\nB:\nI didn't get....\nHMJr:\nLast week\nB:\nWell, I'll inquire.\nHMJr:\nWhat's his name - the man who's counsel for the - oh,\nhe comes from Wisconsin. He was the dean out there.\nB:\nWith who?\nRegraded Unclassified\n225\n- 4 -\nHMJr:\nThe dean of Wisconsin Law School.\nB:\nOh, Lloyd Garrison?\nHMJr:\nYeah. I sent you a memorandum from him.\nB:\nOn this?\nHMJr:\nYep.\nB:\nI didn't - I'll get my secretary here. It must be\nHMJr:\nYeah. I sent copies to the President and then\nB:\nFine.\nHMJr:\nI wrote the President and I sent you copies of\nwhat I sent him and I marked it\"Extra Confidential. If\nB:\nFine.\nHMJr:\nAnd\nB:\nI bet it's in my lock drawer.\nHMJr:\nAnd there was a hypothetical question we put up to\nLloyd Garrison and he answered\nB:\nYes.\nHMJr:\nand when you see what he said, I think you'll be\ninterested.\nB:\nI will. Thanks, Henry.\nHMJr:\nRight.\nB:\nI'll look for it. Good bye.\nHMJr:\nGood bye.\nRegraded Unclassified\n226\nJuly 20, 1943\n10:20 a.m.\nTHIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Gamble\nMr. Smith\nMr. Haas\nMr. Coyne\nMr. Burgess\nMr. Myers\nMr. Moore\nMr. Trounstine\nMr. Pulliam\nMr. Head\nMr. McClintic\nMr. Isbey\nMr. Roberts\nMr. Collins\nMr. James\nMr. Mayer\nMr. Ball\nMr. Corbin\nMr. Kelley\nMr. Potter\nH.M.JR: We asked you gentlemen to come in today to\nreally work with us. We are trying, between now and\nFriday, to fix what we call the basket and, after all, if\nwe don't give you the right kind of merchandise, the\nbest salesman in the world can't sell it. We wanted to\nbe sure that it was right.\nNow, we have two objectives here; one is to get the\nright kind of money from the right people. By that we\nmean the people who have incomes of five thousand dollars\nor less, and they will show you that that takes care of\nabout seven-eighths of the people.\nRegraded Unclassified\n227\n- 2 -\nThe other thing in getting this money, we want to\nget the money from the people who have gotten the\ngreatest increase in salary since Pearl Harbor. In that\nway we can siphon it off into the Government and keep\nthem from spending it and competing for the scarcity of\ngoods.\nSo we have asked you - I am sure you will, anyway -\nplease to keep that in mind. It was demonstrated that\nwe can get all the money we wanted in the offering of\ntwo weeks ago when we asked for two and & half billion\nand got bids for nineteen and a half. So there is no\ntrouble getting the money. But that isn't the kind of\nmoney we want.\nNow, the other thing is, Mr. Haas and his group have\nset up a quota which I would like very much to get. In\nfact, I have made public statements to the effect that we\nwould get eighteen billion dollars. I don't know whether\nwe can get it or not, but we are going to put all the\ncards on the table and what I want you men to do when you\nget ready to leave town is to be in this frame of mind:\nWe can get that, and we will show him how much more we\ncan get, rather than to give you something 80 that you\nleave town saying, \"It is just impossible; they are\nasking too much. So we would like to feel that when you\nleave town you are saying, \"Well, that at least is fair,\nand we will show him how much more\" - when I say \"him\"\nI mean the country - it all gets down to what the people\ncan do. I am not going to spoil Haas' and his crowd's\nstory, but they will show it to you. I mean, I am\nsaturated with it myself, but at the first blush, some\nof the figures will stagger you.\nAnd I asked Myers to be here particularly because,\nafter all - if he doesn't mind my saying so - we have been\nmaking the slowest progress in getting the farmers. I\nthink that is true, isn't it?\nMR. MYERS: Sure.\nRegraded Unclassified\n228\n- 3 -\nH.M.JR: And his advice I regard as the best of\nanybody in the country as to how to get it. I hope\nyou will speak up the way he always does. But we have\ngot to do something about the farmers. Whether it is\nletting them buy a five hundred dollar bondand give\nthem three or four months to pay for it, if that is\nthe way to do it - I don't know. We certainly don't\nwant them to go into another orgy of buying land and\nthen go through all those troubles. Those from Ohio,\nIllinois, and Iowa know what I am talking about.\nBill Myers and I took the repercussion on the chin in\nFarm Credit on that one, and 30 did the insurance com-\npanies and all other savings institutions. So we\nhave got that.\nThis is very serious business, but I feel with your\nhelp - and, after all, all we can do is lay down the facts -\nwhether New York or Ohio, the way it is set up now - and\nwe want to give you all the autonomy - all the responsi-\nbility you will take. That is why we have forty-eight\nState chairmen. That is why we set this thing up.\nWe are not going to sit here and say, \"This is it\nand you have to do it.\" We want you to tell us and we\nare ready to listen.\nWe didn't ask you here to sweat in Washington; we\ncan do that for you. (Laughter) So you tell us what\nyou think you can do. I know you will be fair. We\nwant at least the minimum that you can guarantee us.\nI won't get mad if Frank Isbey goes out and gets a\nhundred thousand people and delivers them the bond and\nbreaks all the Treasury regulations, as long as he comes\nthrough the way he did last time. I mean, more power\nto him.\nAs I say, don't hesitate - and I am sure you won't -\nif we don't get out the material to you in time, you tell\nus. That is our job. If you don't think we are printing\nenough bonds, or there are enough issuing agents, tell us.\nRegraded Unclassified\n229\n- 4 -\nThis is your field day and we have asked you to\ncome down. And Gamble is young and energetic, and he\nwants to be told. Isn't that right?\nMR. GAMBLE: That is correct.\nH.M.JR: So this is a partnership, and as the day\ngoes on, if there is something that you want to ask me,\nparticularly, it is just across the hall and I will be\nglad to step in there.\nOne thing, just before you get on to your work,\nand that is this; there seems to be a misunderstanding\nwhich we might just as well clean up in the beginning.\nI did it in New York but it came up again.\nYou men, and the men in the other States - and women -\nare going to be held responsible for the entire selling\njob this time. The Federal Reserve presidents and\ntheir organizations aren't going to sell anything in the\nThird War Loan. It is all you people. I mean, if there\nis something to sell the insurance companies, you are\ngoing to sell it.\nI mean, the Federal Reserve in this Third War Loan,\nhave no part in this drive other than to cooperate and\ngive us all the assistance, all the mechanics, and all\nthe facilities that they have, which they have promised,\nand I know they are going to live up to it. I am not\nworried a bit about the Federal Reserve, and whatever\nlittle arguments we have, I think they have forgotten.\nCertainly the Federal Reserve Board is acting fine.\nMr. Gamble and Mr. Gaston did most of the work.\nWherever they went the bank presidents have been fine.\nSo we can forget that and lean heavily on them. But\nthe actual selling in this thing is entirely your job -\nnot theirs, yours.\nSo, with those few remarks I think Mr. Bell will\ntake over.\nRegraded Unclassified\n230\n- 5 -\nMR. BELL: Right.\nH.M.JR: And if there is something - which I can't\nimagine - that you can't understand, you can call on\nme any time during the day and I will step across the\nhall.\nMR. BELL: All right.\nRegraded Unclassified\n231\nJuly 20, 1943.\n10:38 a.m.\nHMJr:\nHello.\nOperator:\nHere 18 Mr. Schenck.\nHMJr:\nHello. Hello.\nNick\nSchenck:\nHello. Good morning, sir.\nHMJr:\nHow are you?\nS:\nI'm fine, thank you, sir.\nHMJr:\nMr. Schenck.\nS:\nYeah.\nHMJr:\nI'm calling up on behalf of your government\nS:\nYep.\nHMJr:\nin regard to Mr. Doob\nS:\nYeah.\nHMJr:\nwho I like very much\nS:\nYeah.\nHMJr:\nand I like his frankness when he said to me that\nhe thought he could do the Treasury a better job\nthan anybody else in America.\nS:\nYeah.\nHMJr:\nNow, we've got the biggest selling job here in the\nworld.\nS:\nThat's right.\nHMJr:\nAnd we've got to reach every man, woman and child.\nS:\nYeah.\nHMJr:\nand I want you to lend this fellow to your govern-\nment - to help us now.\nS:\nFor how long?\nRegraded Unclassified\n- 2 -\n232\nHMJr:\nWell, I'll tell you what we'll do. I'll \"hundle\"\na little with you. How's that?\nS:\n(Laughs) Yeah.\nHMJr:\nYou know what that 1s, don't you?\nS:\nYes, indeed.\nHMJr:\nWhat?\nS:\nYes, indeed I do.\nHMJr:\nWell, we'll start - say, we'll go through the Third\nWar Loan and then we'll talk about it afterwards.\nS:\nUh huh. Well, let me think about that\nHMJr:\nNo, it's just\n8:\nHow fast must you have an answer?\nHMJr:\nExcuse me.\nS:\nHow fast must you have an answer?\nHMJr:\nOh, you don't have to think it over very long.\nS:\nOh, yes I do. It's a question - I'll tell you -\nit's a very serious thing for us, too. He's a very\nvaluable man.\nHMJr:\nYeah.\nS:\nWe have given up a lot of our people, you know.\nHMJr:\nSurely.\nS:\nA lot of our people\nHMJr:\nWell, you just\nS:\nI'd be glad to do it. Of course, I'm not\nHMJr:\nI know.\nS:\ntrying to use that 88 a - you're glad to do it\nwhen you can, but there comes a point where you -\nwhere you ought to stop. There are some very good\nmen in other companies\nRegraded Unclassified\n233\n- 3 -\nHMJr:\nYeah.\n8:\nand it seems that we are the ones that are\ncontinually giving up.\nHMJr:\nWell, maybe that's because you make more money than\nany other company.\nS:\n(Laughs) Anyway, you give me a couple of days\nHMJr:\nI want an answer tonight.\nS:\nYou want an answer tonight.\nHMJr:\nSure, yes.\nS:\nThat's awfully hard.\nHMJr:\nOh, sure.\nS:\nWell, how does he himself - you realize that he hasn't\ngot very much to live on, you know.\nHMJr:\nWell, he can - if you are willing to give him 8. leave\nof absence\n8:\nYeah.\nHMJr:\nand - but - listen, we've got the enemy on the\nrun and let's keep him that way.\n=\nS:\nYes, there's no doubt about that.\nHMJr:\nWhat?\nS:\nAnd glad to do it\nHMJr:\nYou and I have got lots to be thankful for.\nS:\nYeah.\nHMJr:\nNow, this fellow's got a peculiar training\nS:\nYeah.\nHMJr:\nand from your business standpoint you don't have\nto advertise. You can't find a seat in your theatres\nanyway.\nS:\nYeah. Well, that ien't connected. There's a lot of\nfine work outside of advertising.\nRegraded Unclassified\n- 4 -\n234\nHMJr:\nI know. But this fellow, they tell me, is the best\ntype in the profession and if you don't mind my saying\nso, I think I'm paying your company a compliment.\nS:\nThat's true, you are.\nHMJr:\nAnd we've got to sell forty million people 8. $100\nbond in September.\nS:\nYeah.\nHMJr:\nNow, that's our job.\n3:\nYeah.\nHMJr:\nAnd it almost sounds impossible but if everybody\npitches in and helps the Government, we can do it.\nS:\nYeah. Well, I'll call you back.\nHMJr:\nYou do\nS:\nI'll call you back, sir.\nHMJr:\nAnd make it \"yes\" now.\n3:\nWell, I'm going to do the best I know how.\nHMJr:\nWell\nS:\nI'm going to call a quick meeting about that\nHMJr:\nYeah.\nS:\nbecause he'e under a contract and that means that\nI have to get my board to consent, you know.\nHMJr:\nWell\nS:\nIt is not just a one-man job.\nHMJr:\nI know, but they - they'll listen to you.\nS:\nI beg your pardon.\nHMJr:\nThey'll listen to you.\nS:\nI hope 80. I hope 80. I'll - I'll - I'm going to\ncall you back, sir.\nHMJr:\nDo that.\nS:\nThank you, sir.\nRegraded Unclassified\n- 5 -\n235\nHMJr:\nGood bye.\nS:\nBye bye.\nRegraded Unclassified\n236\nJuly 20, 1943\n11:00 a.m.\nGROUP\nPresent: Mr. Bell\nMr. Paul\nMr. Gaston\nMr. Gamble\nMr. Smith\nMr. White\nMr. Charles Bell\nMr. Haas\nCaptain Kades\nMrs. Klotz\nH.M.JR: I said that I would do Gamble first 80 he\ncan go back.\nMR. GAMBLE: I don't have a great deal to report\nother than what I mentioned to you this morning.\nI might say that we moved into the Washington Build-\ning. The quarters are very good.\nH.M.JR: You have moved?\nMR. GAMBLE: We have moved in. Several departments\nare completely moved in and are operating. We had two\nstaff meetings yesterday of all the employees, including\nstenographers and clerks. I think we have our people\npretty well stabilized.\nH.M.JR: Wonderful.\nMR. GAMBLE: I think Mr. Charles Bell is entitled\nto some credit for his good job of moving us in.\nH.M.JR: If I say anything more nice to him I will\nspoil him. (Laughter) He said he was going to beat my\nrequest by two days. Are they all in now?\nRegraded Unclassified\n237\n. 2 -\nMR. CHARLES BELL: They are all in but one unit -\nthe Women's Division upstairs.\nH.M.JR: They are going?\nMR. CHARLES BELL: Yes, they are going; we have the\nspace for them.\nMR. GAMBLE: We have some air-conditioned units for\nthe women. We have all of our top people together.\nH.M.JR: I am sure Mr. Paul is pleased. (Laughter)\nMR. PAUL: I like to see you have good space, but I\nthink there is a problem on Foreign Funds, and I was think-\ning of that - the possibility of grabbing away from Ickes\nthat building on Fifteenth Street. The Bituminous Coal\nDivision had that.\nH.M.JR: They mentioned that to me.\nMR. PAUL: Has Ickes got that?\nMR. CHARLES BELL: We are afraid he is going to take\ndown the coal sign and put up a petroleum sign. (Laughter)\nMR. PAUL: I was wondering if we could beat him to it.\nMR. CHARLES BELL: I am working on it with Bill\nReynolds, and if there is a Chinaman's chance, we will get\nit.\nH.M.JR: Here is a very interesting thing. It is for\nyou, Ted. (The Sunday New Yorker, dated July 18, 1943,\nhanded to Mr. Gamble.) This one plant in Poughkeepsie\ngets an E flag and every other advertiser in town advertises\nthe fact that this one plant - those things just don't\nhappen on their own.\nMR. GAMBLE: That is very good.\nH.M.JR: Somebody has done an awfully good selling\njob up there. I wondered who and how. Here this one plant\ngets an E and every merchant in town congratulates him.\nRegraded Unclassified\n238\n- 3 -\nMR. SMITH: They have special people who go out from\nthe Army and Navy and work those things up.\nH.M.JR: That is what I wondered.\nMR. SMITH: They tell you how much you can spend on\na celebration and everything.\nH.M.JR: If they have that, I wonder if we couldn't\nget a free ride.\nWhat else, Ted?\nMR. GAMBLE: I don't want to change the subject, but\ndid you see the eight New York newspapers yesterday?\nH.M.JR: Yes.\nMR. GAMBLE: Did you see the President's letter in all\neight of them?\nH.M.JR: Very nice.\nWhat about Chicago - did it happen in Chicago?\nMR. GAMBLE: Yes, but not as uniform. This new\nadvertising program of ours is an outgrowth of Don\nBridge's program. They now have lined up the New York\nnewspapers 80 we will be able to use them from time to\ntime for such special advertisements as we want to run.\nH.M.JR: Will you want me this afternoon at any time?\nMR. GAMBLE: I think not; I think tomorrow morning\nat eleven o'clock.\nH.M.JR: You will let him (Smith) know about the show?\nMR. GAMBLE: Yes, sir.\n(Mr. Gamble left the conference.)\nH.M.JR: I wanted to tell you people about this; this\nis the John L. Lewis thing. The President asked me to\nsee the Attorney General.\nRegraded Unclassified\n239\n- 4 -\nMR. PAUL: I have another thing with the Attorney\nGeneral.\nH.M.JR: So he said would I please personally see the\nAttorney General. I immediately got in touch with his\noffice, and they said they thought he would be out of\ntown. I gave him practically all afternoon in which he\ncould come over to see me. You heard Fitz - he said he\nwas terribly busy.\nMR. PAUL: I have another item that the Attorney\nGeneral--\nH.M.JR: Excuse me, do you think I should go any\nfurther? I sent the President this thing of Lloyd\nGarrison's - your hypothetical questions of Lloyd Garrison\nand the answers.\nThe President said, \"I wish you would talk this over\nwith Francis Biddle in person.\nI gave him all afternoon to come over and see me. If\nhe isn't going to come, I don't think I will do anything\nelse unless you people advise me to do something else.\nMR. PAUL: You have made your motion. I wouldn't\nadvise you to I wouldn't advise you to do anything. It\nis his move.\nMR. GASTON: Did this statement that he is terribly\nbusy apply to your effort to speak to him on the telephone?\nH.M.JR: No. I gave him an hour and a half Saturday\nafternoon - whether he could come over at any time between\nthree and four-thirty this afternoon. The answer was that\nhe was most likely going to go out to Colorado and they\nwouldn't know.\nSo I told Fitz this morning to find out whether the\nAttorney General was in town and whether he was coming\nover. The answer is, they thought I was going to phone\nhim or something.\nRegraded Unclassified\n240\n- 5 -\nMR. PAUL: I think it is his move.\nMR. D.W.BELL: When is he going to Colorado, today?\nH.M.JR: He didn't go. So that our record is clear,\nI am going to check with Miss Chauncey.\nMR. PAUL: If you are going to see the Attorney\nGeneral I want to catch up on this other thing.\nH.M.JR: All right, let's catch up. That is the pur-\npose of staff.\nMR. PAUL: The Attorney General has written a memorandum\nto the President without consulting either the War Department\nor the Navy Department, or us.\nH.M.JR: Talk a little louder.\nMR. PAUL: The Attorney General wrote E memorandum\nto the President criticizing our interpretation of the\nrenegotiation statute. Our interpretation, which was a\njoint interpretation, as the statute requires, by War,\nNavy, Maritime Commission and the Treasury, all being\nconcerned - our interpretation was in connection with the\naluminum industry, and it ruled out of renegotiations a\npart of the raw materials phase of the business. The War\nDepartment was very strong for that interpretation.\nWe were a little - at first me considered it rather\narguable.\nH.M.JR: May I interrupt you? I thought you said\nGeorge Haas couldn't come to this meeting.\nMR. D.W.BELL: He sneaked out. Lindow is going on.\nH.M.JR: I think you had better go back, George. Lindow\nis in the middle of his stuff, isn't he?\nMR. HAAS: Lindow or Murphy.\nH.M.JR: You had better go back.\nRegraded Unclassified\n241\n- 6 -\n(Mr. Haas left the conference.)\nMR. PAUL: This interpretation was made last January,\nI think, but anyway, quite a while ago. Thousands of\nthese contracts have been renegotiated on that basis -\nall forty-two contracts that they renegotiated. I don't\nknow how it happens, but the Attorney General communicates\ndirectly with the President criticizing this interpretation.\nHe didn't consult us at all.\nThe President then got in touch with Patterson. He\nsent the Attorney General's letter and a memorandum to\nPatterson, saying that he would like to talk with him\nWednesday morning . - that is tomorrow morning - he would\nlike to have Patterson talk with him.\nH.M.JR: The President would?\nMR. PAUL: Yes - talk with him tomorrow morning about\nthis thing. Patterson sent Marbury, the Chief Counsel of\nthe Purchasing Divison, and Mr. Mackintosh, Counsel for the\nWar Price Adjustment Board, over to see us yesterday after-\nnoon.\nH.M.JR: To see you?\nMR. PAUL: Yes. And Patterson wants to know if we\nare with him on that interpretation. He wants - the\nPresident said to clear it with you. That is, instructions\nin the memorandum to the Under Secretary are to clear it\nwith the other interested agencies. He has cleared it\nwith the Maritime Commission and Navy, and they are all in\nagreement.\nHe wants permission to say that you stand by this\ninterpretation.\nH.M.JR: How do you advise me?\nMR. PAUL: I advise you to stand by it, I think, for\nthis reason, that it is somewhat arguable; it was one of\nthose things you couldn't be absolutely sure about. We\nRegraded Unclassified\n242\n- 7 -\ndid the best we could to determine what was the intent of\nCongress, but now with thousands of contracts renegotiated\non this basis--\nH.M.JR: You mean they already have been?\nMR. PAUL: Already have been, for months and months.\nYou would upset all these renegotiations, and I think you\nwould endanger the whole renegotiation statute if you\nstirred up that mess now, because you would provide exactly\nthe kind of fuel these people want who want to eliminate\nthat provision from the statute. They would run up to\nCongress in the fall.\nH.M.JR: Now, would you mind, so it is clear in my\nmind - this is something that Sullivan has or has not had\nanything to do with?\nMR. PAUL: I don't think Sullivan was in that meeting.\nEddie Greenbaum was in it.\nH.M.JR: That would be Army.\nMR. PAUL: I think - as I recollect, we had & big\nconference, but Joe O'Connell and I were the ones who\nworked on it.\nMR. D.W. BELL: I think Sullivan is just beginning\nto get in on the renegotiations.\nMR. PAUL: He was on the other end of it.\nMR. D.W.BELL: Since he has taken charge, I mean. But\nI don't know whether he was in on the original conference\nor not.\nMR. PAUL: I remember the conference.\nMR. GASTON: He had been in on some other renegotiations\nbefore he got in on the Procurement picture.\nH.M.JR: What I was trying to get at - he hasn't\ncommitted us in any way?\nRegraded Unclassified\n243\n- 8 -\nMR. PAUL: No, I am sure not. As a result of this\nbig meeting - we had a meeting attended by - there must\nhave been twenty-five people there - all these agencies -\nas a result, we published and distributed thirty thousand\nsets of instructions to these boards on how to renegotiate.\nIt was a joint enterprise of the four Departments.\nWe at first, in this particular issue, took the other\npoint of view, and then we felt that it was so close and\nthe War Department was 80 insistent and 80 much more inter-\nested than we were and they conceded to us on another more\nimportant issue.\nMR. GASTON: You haven't talked to Biddle 80 he\nwould know what you want to talk about?\nH.M.JR: I would almost swear that I told Chauncey,\nwho is on a holiday - - that I told her to say what the\nPresident had said.\nMR. GASTON: Would it be advisable to get Biddle\non the phone?\nH.M.JR: No, I am willing to gamble he knows what\nthis is about. He doesn't want to come to my office. He\nis standing on his dignity.\nMR. GASTON: Grant went over to talk to him - he had\n8. story in the Post Dispatch. He said that Biddle was\nvery, very much incensed at the Treasury.\nH.M.JR: And in the meantime a letter went over to\nhis office in which I said that there was no leak in the\nTreasury. He asked me - he said that he had investigated\nhis place. He said that there was no leak there. I sent\nhim a letter saying that I had investigated and there was\nno leak in the Treasury.\nMR. GASTON: I am satisfied there.\nH.M.JR: So all I want to be able to do is - I am\nwilling to wait - I want to wait; and if Chauncey says\nRegraded Unclassified\n244\n- 9 -\nthat she told him that, as far as I am concerned the next\nmove is up to him. I have asked him to come over here.\nIf he is too busy, I should worry. Let it ride. If the\nPresident ever says anything - well, I asked Biddle to\ncome over and I never heard.\nMR. D.W.BELL: You are carrying out his instructions;\nhe said to get in touch with him.\nH.M.JR: \"I wish you would talk this over with Biddle\nin person.\" I can't do any more than ask him if he will\ncome over to see me.\nMR. GASTON: You would be doing one thing more if\nyou got him on the phone and told him you would like him\nto come over and talk a bout it.\nH.M.JR: I don't think it is necessary. He has told\nmy office that he is too busy.\nMR. D.W.BELL: I think I would wait. Is he going to\nbe gone tomorrow? I think I would wait until tomorrow.\nH.M.JR: What can you do? Supposing it was the other\nway around? Supposing Mr. Hull, who ranks me in Cabinet,\nsays, \"I have a letter from the President saying he would\nlike us to get together. Could you come over any time\nnext Tuesday?\" Then I send word back that I am too busy.\nMR. GASTON: Wouldn't you expect Hull to call you\nyourself and tell you that?\nH.M.JR: Not if I am out of town.\nMR. WHITE: Might it not be appropriate to give him\na little leeway? You said next Tuesday. Maybe he is\nvery busy Tuesday.\nH.M.JR: But he didn't say - look, let's wait and\nfind out what Chauncey says.\nMRS. KLOTZ: It could be that he is busy.\nRegraded Unclassified\n245\n- 10 -\nH.M.JR: Well anyway, I will back you up. What I\nthink you should tell Bob Patterson is this - I would be\nglad to call Bob - that I think it would have much more\nweight with the President if when he goes to 800 the\nPresident he has a document signed by War, Navy, and\nthe Treasury. The President likes those kinds of things.\nMR. PAUL: If you can get such a document.\nH.M.JR: Let me call up Patterson. Do you mind?\nMR. PAUL: No.\nMR. GASTON: Would Biddle be able to show that the\nAluminum Company of America is making extortionate profits\nby reason of this ruling?\nMR. PAUL: Perhaps in the raw material end of the\nthing, but the War Department was unwilling to undertake\nall that, and I don't know - what they are interested in\nis this Canadian thing that appeared in the newspaper.\nH.M.JR: Who is interested?\nMR. PAUL: That is what the Attorney General and the\nPresident are really interested in, I think. They couldn't\ndo anything about that anyway, because that was all a\nCanadian operation. So as soon as they find that out they\nwill lose interest in this.\nH.M.JR: Why is the President 80 interested in that\nif he is not interested in telling the Attorney General\nto do something about John L. Lewis? That doesn't make\nsense.\n(The Secretary held 8. telephone conversation with\nUnder Secretary of War Patterson.)\nMR. PAUL: Mr. Marbury said yesterday that this whole\ndeal was made very carefully - everything about it was\nCanadian - that you couldn't touch it with our statute.\nThey were very careful to make the contract up there,\nRegraded Unclassified\n246\n- 11 -\n8 Canadian company, completely beyond our jurisdiction.\nH.M.JR: Well, you got your answer, didn't you?\nMR. PAUL: Yes, I will go over that memorandum\nwith Patterson.\nH.M.JR: Mr. Gaston?\nMR. GASTON: I haven't anything except two or\nthree matters that you sent in to me to talk to you\nabout.\nYou may have read a story in the papers about\nCustoms holding up the import of thrashing crews from\nCanada.\nH.M.JR: No, sir.\nMR. GASTON: Well, it isn't worth bothering you\nabout. Anyway, the Agriculture Department got all\ntangled up in their own coordination.\nH.M.JR: Can I do this semi-publicly, or semi-\nprivately - may I thank you publicly for having carried\nthe ball on Chick Schwarz from Kuhn on, and is it\nagreeable to you if I now turn it over to him (Smith) ?\nMR. GASTON: I would be delighted. I think that\nis 8. much more logical setup.\nH.M.JR: That is all right with you?\nMR. GASTON: Yes, indeed.\nH.M.JR: I held up a memorandum until I could\ntalk to you. You carried that additional--\nMR. GASTON: I didn't carry much, but--\nH.M.JR: Have you seen the memo - I think you\ninitialed it - giving Schwarz and Mager to this fellow\n(Smith)\nRegraded Unclassified\n247\n- 12 -\nMR. GASTON: Yes. I think you might want to\nconsider making it more general.\nH.M.JR: We will see, But that is all right with\nyou?\nMR. GASTON: Yes.\nH.M.JR: Fred?\nMR. SMITH: The only thing I have here is that Mr.\nHoughteling is very anxious to have you address the\nNational Negro Business League in August.\nH.M.JR: In August?\nMR. GASTON: In Baltimore.\nMR. SMITH: It isn't far away. Mr. Gaston thinks\nmaybe it would be - that there would be something to be\ngained here on Treasury morale.\nH.M.JR: A Negro league in Baltimore in August?\nMR. SMITH: It is the big Negro business league. It\nis the number one group.\nMR. WHITE: I think you ought to make another speech\nsomething like the one you made a couple of years ago in\na different field. I think that the President has been\nquiet on this Negro question when he shouldn't be quiet\non it, and I think that somebody ought to speak up and I\nthink you should begin.\nFred canwrite & whacking good speech on it, and it\nshould have nothing to do with war bonds.\nMR. SMITH: They bought fifteen million dollars'\nworth of bonds.\nRegraded Unclassified\n248\n- 13 -\nMR. WHITE: Well, that is all right. That is un-\nimportant. The other is very important. (Laughter)\nMR. SMITH: They claim they can have a thousand to\ntwo thousand people there.\nMR. WHITE: They will buy bonds, anyway. They will\nbuy more.\nH.M.JR: You are sacrilegious when you say fifteen\nmillion dollars is nothing. (Laughter)\nMR. WHITE: I thought he said fifteen million.\nMR. SMITH: \"Fifteen million dollars' worth of\nwar bonds have been sold through its efforts and its\ninfluence.\"\nMR. WHITE: I thought that was small compared with\nwhat you expected to sell. (Laughter)\nSpeaking for myself, I am serious. I think you\nought to make a great speech. There is room for it\nthere.\nH.M.JR: Don't you think that we might have--\nMR. WHITE: I don't know what is coming, but it\nis going to be good. (Laughter)\nH.M.JR: I was going to say we might have a little\ntrouble with our legislation next fall, with the southern\nCongressmen.\nI tell you what let's do. You think I should do\nit?\nMR. WHITE: It is an opportunity for a great speech,\nand I think you ought to do it; and it ought not to be on\nbonds except very indirectly, if at all. But I think the\neffect on bonds will be very excellent, though I again\nRegraded Unclassified\n249\n- 14 -\nrepeat I think that is of minor consequence compared to\nthe - nobody has spoken up, Mr. Secretary.\nH.M.JR: How about Ickes? Hasn't Ickes talked?\nMR. WHITE: If he has, it escaped my attention. I\ndidn't see it. It may be.\nMR. GASTON: It has to be handled carefully, but\nthe appearance would count for a great deal.\nH.M.JR: When is it in August?\nMR. SMITH: They say the 26th, but that wasn't\ndefinite. That was just an indication.\nH.M.JR: I tell you what I would like to do if I\nwere going to do it. I would like Tydings to be on the\nplatform with me. What do you think?\nMR. GASTON: You could certainly get them to\ninvite him.\nMR. BELL: Radcliffe, too. He is the administra-\ntion man.\nMR. PAUL: Radcliffe is on the Finance Committee.\nI hope you won't slight him.\nMR. GASTON: You might get one of the southerners\nto be on the platform with you - Walter George or\nsomebody.\nMR. PAUL: Did you read \"Time\" this week on Walter\nGeorge?\nH.M.JR: I didn't read it, no.\nMR. PAUL: I seem to recall some sentence of his\nabout Negroes. I would like to check it before I asked\nhim to be on that platform.\nRegraded Unclassified\n250\n- 15 -\nMR. WHITE: It is a chore, Mr. Secretary, and I\nthink it is a courageous act. Everybody has dodged it\nfor that reason.\nH.M.JR: Is that 8. national thing, or a State?\nMR. SMITH: It is national.\nMR. GASTON: The organization was formed by Booker\nT. Washington.\nMR. SMITH: It is the best colored group there is.\nMR. GASTON: It is the Negro Businessmen's League.\nH.M.JR: I would kind of like to do it.\nMR. GASTON: I kind of thought you would.\nH.M.JR: Let's call it a deal. Would you fuss around\nwith the two Senators or not?\nMR. WHITE: I think it would be nice if you could get\nthem on there. I don't know how they might feel about it.\nI don't know enough about the political situation there,\nbut I think it would certainly add dignity to the occasion.\nMR. PAUL: I wonder if Huntington Cairns would know\nabout that.\nMR. SMITH: It might be somebody good not representative\nof the Administration. The only fear I have is that if you\nmake a speech to them, then it is the Administration inciting\na riot again as far as the underground discussion is con-\ncerned.\nH.M.JR: All right, let's ask Wendell Willkie to go\non the platform. What do you think?\nMR. SMITH: That would be good. It would take care\nof the only objection I have to it.\nMR. GASTON: I think not. They will think that we have\nto have a bodyguard before we speak to the Negroes.\nRegraded Unclassified\n251\n- 16 -\nH.M.JR: Have to have what?\nMR. GASTON: A bodyguard. We have to have somebody\nto take the curse off before we speak to them. I don't\nthink that is good.\nH.M.JR: I don't follow.\nMR. GASTON: Taking Wendell Willkie would be obviously\na device to divide the burden - the onus - the stigma of\nhaving spoken to a group of Negroes. I don't think you\nwant that.\nMR. PAUL: I agree with that, with Herb there. He\nsays it is a device to divide the stigma, and we ought to\ndo it ourselves. We ought to take the rap on it.\nMR. SMITH: I don't agree. The reason I don't agree\nis because I know the minute that the Administration steps\nout again, then you have got thirty thousand people in the\nRepublican party who are going to be handed something under\nthe table to go out and spread. I don't think that that is\n8. good thing.\nMR. WHITE: Willkie wouldn't stop them, certainly.\nMR. SMITH: Yes, he would.\nMR. WHITE: I think there is something in your idea,\nbut if you could pick on somebody besides Willkie - Willkie\nhas 80 obviously taken a position of this kind coupled\nwith his relationship to the Republican party that I think\nthere might be a better choice - some other Republican, if\nyou like - some other local Republican.\nMR. BELL: How about Hoover?\nH.M.JR: No, he knows the tricks of the trade, and I\nam going to take his advice (Smith's.)\nMR. SMITH: I don't believe that you would get the\noriticism of the onus, as you say, half so much as you\nRegraded Unclassified\n252\n- 17 -\nwould get awfully patted on the back for building up this\nmeeting by bringing another good man to it. Why don't we\nreally do & job on it?\nYou could approach it that way, through our crowd\nthat has been working with them, and really do a good job\nfor them.\nMR. WHITE: Is it your idea that he would make 8\nspeech, too?\nMR. SMITH: Whoever is there ought to make some kind\nof a speech, not just have him sit there.\nH.M.JR: All right.\nIf you don't want - how about Senator Ball of\nMinnesota to talk about post-war?\nMR. SMITH: He is 8. good Republican.\nH.M.JR: Liberal.\nMR. WHITE: How about smoking out Senator Vandenberg\nor Senator Taft?\nMR. SMITH: If you smoke out Senator Taft you are\ndoing pretty good.\nH.M.JR: He (Smith) knows the tricks of the trade,\nbecause he has used them. I will leave it with you, Fred.\nMR. PAUL: If you decide on Vandenberg, will you talk\nwith me about it?\nMR. GASTON: The invitation would come through by\nsuggestion by our men to the leaders of this group, and\nof course they would invite him.\nH.M.JR: I would much rather have somebody like Ball,\nwho is a liberal, talk on post-war, and 80 forth.\nMR. SMITH: Somebody who would have good reason to\ntalk. I wouldn't hold out for Willkie.\nRegraded Unclassified\n253\n- 18 -\nH.M.JR: I would much rather have Ball than a pro-\nfessional like Vandenberg. You would have a reason, take\na good stand on the post-war, and so forth, and so on.\nVandenberg would think - well, he would laugh. He would\nsay, \"Well, Henry is just trying to duck this thing.\"\nThink about it; I will talk to you about it.\nWhat else?\nMR. SMITH: That is all.\nCAPT. KADES: I don't have anything, Mr. Secretary.\nMR. PAUL: I received a summons from Mr. Stam to pro-\nduce all the revenue plans that we have in gestation here\nnow. I took it up - I worked out an answer that wasn't\ncompletely evasive and put it up to Dan. I am about to\nsend it off today. I didn't think it was propitious to\nstart a constitutional fight with Stam at this time.\nH.M.JR: Are you going to give it to him?\nMR. PAUL: We are going to give him a lot of material,\nbut we say that they are not plans, they have not - that\nthey are being studied.\nH.M.JR: He just wrote it, Stam?\nMR. PAUL: It is really in the form of a summons.\nMR. BELL: Approved by George, too.\nMR. PAUL: It has to be approved by George or\nDoughton. He quotes this statute that they passed last\nyear.\nH.M.JR: How do you know it is approved by George?\nMR. PAUL: It is signed by him.\nRegraded Unclassified\n254\n- 19 -\nMR. GASTON: Why would it not be well to have the\nSecretary sign that letter and say, \"I have your request\ndirected to Mr. Paul for this information and I am happy\nto supply it,\" and evade putting us in the position of\ncomplying with an unconstitutional statute.\nH.M.JR: I think he is right.\nMR. PAUL: There isn't an unconstitutional statute;\nthat is the only difficulty. It is only unconstitutional\nif applied in certain ways, and it is only unconstitu-\ntional when it would be against public interest to give\nthis information.\nMR. GASTON: My opinion is that when the committee\naddresses an inferior officer of the Treasury - the law\nwouldn't permit them to go to any clerk or assistant\ncommissioner and say, \"You supply us this stuff as\nprovided by this statute.\"\nMy opinion is that they are demanding something\nwhich they have not 8. right to demand, and that we should\nnot comply with it in that form as a compliance with that\ndemand by that man.\nH.M.JR: What do you think, Chuck?\nCAPT. KADES: I agree with Randolph, Mr. Secretary.\nI think that Herbert's suggestion might be & good sugges-\ntion, but I don't think it is unconstitutional to ask for\nthe material.\nH.M.JR: No, but I like Gaston's way of doing it and\nkeeping it on that level so that they can't say, Here is\na precedent; you did it once, what are you kicking about\nnow?\"\nThis is the first time?\nMR. PAUL: Yes, but my objection to the statute is\nnot based on that point. It is based on the point that\nthey shouldn't go down to the Bureau.\nRegraded Unclassified\n255\n- 20 -\nH.M.JR: But I am not--\nMR. PAUL: So we can't coordinate our work.\nH.M.JR: Purely aside from the legality, I don't\nwant to establish the precedent.\nMR. PAUL: I can simply write this letter from you.\nThe thing is addressed to me.\nH.M.JR: I would do it just the way - why don't you\ncollaborate with Herbert?\nMR. PAUL: I will send him the letter and he can\nwrite it.\nH.M.JR: That is the advantage of these staff meetings.\nO.K. Anything else?\nMR. PAUL: That is the main thing.\nH.M.JR: Harry?\nMR. WHITE: I thought there never was any question\nabout the propriety of any outside agency communicating\non anything of any significance to anybody except the\nhead of the Department.\nH.M.JR: You had better read the statute. They have\ngot a special statute.\nMR. PAUL: The Chief Counsel of the Bureau mentioned in\nthe statute - he is mentioned.\nH.M.JR: There is a special statute.\nMR. WHITE: The Dutch request for three hundred\nmillion dollars has been tentatively considered by the\ngroup here and I think that we are going to not be in\nfavor of it. Would you like to receive a memorandum or\nsuggestions in the form of 8 memorandum, or would you like\nto have a meeting and listen to the pros and cons?\nRegraded Unclassified\n256\n- 21 -\nH.M.JR: I haven't got time, Harry. I would rather\ntake a memorandum, and if you bring it in I will read it\nwith you present. If I don't understand it--\nMR. WHITE: There will probably be a little bit of a\nfight on it later. That is why I thought you might want\nto get in on it, because they have got Jones' approval\nand they are pushing it.\nH.M.JR: In the first instance, let's do it via\nmemorandum.\nMR. WHITE: All right.\nWe had a meeting with the head of the Middle East\nand several of the men in the State Department here on\nsome problems with respect to the Middle East. One of\nthem was with regard to Saudi Arabia.\nH.M.JR: How do you spell \"Saudi\"?\nMR. WHITE: I spell it S-a-u-d-i. Apparently the\nPresident and the State Department are both keenly\ninterested in strengthening the ties between the two\ncountries.\nI suggested certain ways in which it might be done,\nand the State Department was terribly enthusiastic about\nus doing it. They say that the stakes are infinitely\nlarger than any of the small financial risk that would\nbe involved.\nSaudi Arabia doesn't have any representative here\nat all. We were sending & man, Treasury man - one of my\nmen - to Turkey. He was waiting for the boat on which\nhe was to leave that next morning. The State Department\nasked us to pull him off, and they would send him by\nplane.\nHe is going to Saudi Arabia and make certain in-\nquiries with regard to a lend-leasing of silver which\nthey requested; but in the course of those inquiries\nRegraded Unclassified\n257\n- 22 -\nother things are going to develop. If that happens,\nwe will hear more about it. But there is no decision\nbeing made yet.\nHe is also going to visit Iran, in which the\nPresident and the State Department are likewise inter-\nested in strengthening the ties, from a different point\nof view. We will hear more about it. I am letting\nyou know 80 that in the event the subject comes up you\nwill know we are in on the matter.\nThe British are interested in what we are going\nto do for Saudi Arabia and asking questions, and we\nare giving evasive answers in the meantime.\nThere are a couple of other things. We have the\ndraft of the letter that we would like you to sign for\nthe various Congressmen and Senators. This is just a\ndraft. If you are satisfied with the draft, then we\nwill prepare the letters. (Draft of letter regarding\nInternational Stabilization Fund handed to the Secretary.)\nH.M.JR: It is all right with me, but do you mind\nletting Fred Smith take a look at it?\nMR. WHITE: He has already. We will let him look\nover the final draft.\nDo you know a Mr. Herman Wells? We are to vote\non him, whether he is to be the area director for Italy.\nNo one knows him here, 80 we are going to go along.\nMr. McCollester is going to be voted on for France,\nand we are going to support him.\nMR. PAUL: I think you ought to know before this\nlast decision is reached that this man was formerly a\npartner of mine. That is pretty bad. (Laughter)\nRegraded Unclassified\n258\n- 23 -\nMR. WHITE: But he was recommended by Randolph,\nand he came down here and several of us talked with\nhim. Dean Acheson talked with him. We think he is\nall right, notwithstanding his background. (Laughter)\nH.M.JR: Well, I appreciate Randolph's standard\nof ethics. If you fellows think he is all right, it\nis all right with me.\nMR. WHITE: He is a very nice fellow, a very\nstaunch liberal, and he has been in France a good\ndeal. He knows the language and has had a good deal\nof experience running railways in France, and so on.\nMr. Royce, who is the man who was appointed, you\nremember, in charge of North Africa, has returned here\nto take up B. large number of matters. In discussion\nbefore a large group he complimented the Treasury on\nthe competence of the men, and he said that the Treasury\nwas the only agency that was greatly understaffed.\nH.M.JR: I got that the first time you told it to\nme last week. (Laughter)\nMR. WHITE: I wasn't sure you read it.\nThe South African Minister of Finance is here. He\ncame up special from South Africa to discuss these\nmatters and some others. I think it would be a nice\nthing if you could see him for a few minutes.\nH.M.JR: How about ten o'clock Friday?\nMR. WHITE: You couldn't make it Thursday? It\nwouldn't take more than five minutes.\nH.M.JR: Eleven-thirty, Thursday.\nMR. WHITE: Fine.\nRegraded Unclassified\n259\n- 24 -\nWe haven't heard from China on the revision of\ntheir stabilization arrangement.\nWe would like to send a cable to Adler asking\nhim to resign from the board - stabilization board -\nwhich has no status now. Our keeping him on there is\nrather undignified on our part, I think. Is that all\nright?\nH.M.JR: Yes.\nMR. WHITE: Mr. Soong is leaving for England to\nreopen the question of the fifty-million-pound loan\nwhich was never effected, and he asked me to be sure and\npay his respects to you. He inquired very closely about\nMrs. Morgenthau.\nH.M.JR: Does he want to come in?\nMR. WHITE: He has gone - this morning.\nMR. PAUL: Is Mrs. Morgenthau better?\nH.M.JR: Mrs. Morgenthau is well enough, we hope,\n30 that she will move to the country Saturday morning.\nMR. WHITE: There is one bill here that you might\nwant to know about, if you don't already. Senator\nMcCarran submitted a resolution creating this committee.\nNothing has been done about it.\nThat is all I have.\nMR. BELL: Harry, do you want to tell the Secretary\nabout that silver arrangement with WPB?\nMR. WHITE: Yes, I think we might want to inform\nhim about it.\nMR. BELL: Go ahead.\nRegraded Unclassified\n260\n- 25 -\nMR. WHITE: We had a large meeting in Mr. Bell's\noffice in which we discussed a request of the WPB\nSilver Committee that I think you would like to know\nabout because it will be the first instance of the\nsale of silver by the Treasury and because it also repre-\nsents a somewhat new departure.\nThey are going to sell silver - the seventy-one cent\nsilver - under the Green bill, but there will not be\nenough of the forty-five cent silver to go around to all\nthe important users. They want to give some of them the\nseventy-one cent silver.\nThere are & number of ways of working it out. Most\nof them are very troublesome. The simplest way is that\nthey will pick out three concerns and give them the\nseventy-one cent silver. They in turn, producing for the\nArmy and Navy, will add the additional cost onto the\nprices as & routine thing. It is nothing to do with this;\nthey do that anyhow. That has nothing to do with the\nTreasury. But this has to do with the Treasury, and\nthis is the new departure, that in order to prevent those\nparticular concerns from kicking about discrimination\nagainst them, the Treasury has agreed to repurchase from\nthem the silver in their inventory which they have left\nat the end of the war. There are a number of safeguards\nso that they can't buy more than the amount that they\nneed tokeep up their production.\nH.M.JR: It sounds like a phoney to me. Has Paul\nreviewed this thing?\nMR. WHITE: His man was in the meeting.\nH.M.JR: Supposing you take a look at this from the\nstandpoint of ethics and daylight.\nMR. BELL: It is just a matter of protecting the\ncontractors.\nH.M.JR: Take 8. look at it personally, will you please?\nMR. PAUL: Yes.\nRegraded Unclassified\n261\n- 26 -\nMR. BELL: It looked about the only way to do it to\nprotect the contractors.\nH.M.JR: I don't like it. Let Paul take a look at\nit. He may agree with you, I don't know.\nMR. BELL: The lawyers said you had ample authority\nunder the law to make such a contract providing, of\ncourse, the authority is there at the end of the contract.\nYou would have to put something in the contract to that\neffect.\nMR. WHITE: WPB has asked us to re-examine with the\nhope that we will change our mind about the thirty million\nounces of silver. We will answer them in another letter\nfor your signature - it is concerning thirty million ounces\nof silver to Mexico - turning them down.\nMR. BELL: Mr. Young from Chicago and Paddock and\nRouse of the Executive Committee are in town. You remem-\nber, you asked them to be here. They are waiting in the\nBoard for further instructions.\nH.M.JR: Well, not having heard from the Attorney\nGeneral, I will be glad to see them at three o'clock.\nMR. BELL: I don't know whether we could make 8\ndecision today or not on the August 1 refunding, but\ntime is rather short. We ought to announce it Thursday\nmorning. If we leave it open three days--\nH.M.JR: Let's talk about that - I will do that this\nafternoon.\nMR. BELL: If we could get the wires out tonight SO\nthey get it tomorrow, which has been the usual custom, I\nwould like to do that.\nH.M.JR: From three o'clock - the Attorney General\nwon't come - I am confident he isn't coming.\nMR. BELL: I have some letters here - the editor of\n\"Field and Stream\" has been putting on quite a campaign\nRegraded Unclassified\n262\n- 27 -\nto get donations to the Government, particularly to pur-\nchase Garand rifles. Here is a lady that sent in eighty-\nfive dollars to purchase one. She wants a certificate.\nHe would like a letter signed by you. He also would like\nyou to say you would award similar citations to any citi-\nzen who donates money. I see no objections to stating it.\n(Letter to Mr. David Newell signed by the Secretary.)\nI am signing it as Ex-Conservation Commissioner of\nNew York State.\nMR. BELL: You know him?\nH.M.JR: We used to have all kinds of troubles.\nMR. BELL: This is a memorandum to the President\nsending him 8 draft of the letter which he should sign\nand return to you on the withholding tax. (Memorandum\nto the President dated July 20, 1943, signed by the\nSecretary.)\nAnd this is a letter to Frank Walker on the Payroll\nSavings in the Post Office. (Letter to Mr. Frank Walker\nsigned by the Secretary.)\nH.M.JR: He is not very good, is he?\nMR. BELL: No, we have written him several letters\nand had several conferences.\nWe want to announce changing the size of the Savings\nBonds from the present size to about one-half. (Draft\nof press release handed to the Secretary.)\nH.M.JR: Who didn't want that - Army and Navy, or somebody?\nMR. BELL: Yes, but we are going to give them the old\nsize until such time as they can rearrange their equipment.\nH.M.JR: You are really going to do this?\nMR. BELL: Yes, we will be ready by the end of August to\nstart on production of the small size. We have the plates\nready.\nRegraded Unclassified\n263\n- 28 -\nH.M.JR: We have to get in there something about\nsaving money and the number of hours saved.\nMR. BELL: Do you want to do all that?\nH.M.JR: Sure.\nMR. SMITH: Make the best of it.\nH.M.JR: Make a nice build-up - \"How to save money -\ngood old conservative Morgenthau - the next thing he is\ngoing to do is cut the dollar in half\" - if they haven't\nalready done it for us. (Press release handed to Mr.Smith.)\nIs it below ninety cents?\nMR. WHITE: Compared with the cost of living, I\nsuppose it would be an appropriate comparison.\nH.M.JR: This is just & matter of interest about\npeople having their points when they go to hotels or\nrestaurants.\nWe were in a restaurant yesterday and Henry said to\nthem, \"Do you still send food out to private homes?\"\nThey said, \"Oh, yes, anything you want.\"\nHe said, \"Would you have to have your points?\"\n\"No, just tell us what you want, where you live, and\nwe will send your meals to your home.\"\nIf a person has the money he can call the restaurant\nand order a couple of steaks and have them sent up to\nhave at the house.\nHave you had your answer on that?\nCAPT. KADES: Yes, sir. It is not an answer, but\nthe answer that is given.\nRegraded Unclassified\n264\n- 29 -\nThere are four main reasons why they won't point\nration in restaurants. One is the administrative diffi-\nculties, which I thought they would mention. For example,\nthey say they would need fractional points and have to\nweigh the portions of meat in order to determine what\npoints should be required.\nSecondly, they want to encourage people eating out.\nThey say it is good for morale purposes to have people\neat away from home. It would discourage them eating out,\notherwise.\nMR. WHITE: Nothing breaks morale quicker thaneating\nout these days. (Laughter)\nCAPT. KADES: The reasons get worse. Thirdly, they\nsay that the situation isn't critical.\nH.M.JR: It is not critical? Have they said this\nin writing?\nCAPT. KADES: No, sir. And fourth, they ration\nrestaurants now on allocation basis, based upon the number\nof meals served and the number of persons served in\nDecember 1942, 60 there is a ceiling over which restaurants\ncan't go.\nH.M.JR: Well, I will read the memorandum and I am\ngoing to write a letter to Mr. Brown on the thing. But\nI am convinced of the fact that the people have got the\nmoney and they certainly - in New York they can eat\nanything and just as much as they want. And it certainly\nis discrimination in favor of the rich.\nCAPT. KADES: Thirteen percent of the meat goes to\nrestaurants and hotels and hospitals and institutional\nusers. In England the only way that they tried to solve\nthe problem was by having restaurants available to the\nlower income groups where they could eat off the ration;\nand the English use the same argument, that it is & good\nthing for people to eat out rather than at home during\nwar time.\nRegraded Unclassified\n265\n- 30 -\nH.M.JR: We will talk about it some more. I am\nnot satisfied.\nMR. GASTON: That was Walter George's chief argument\nagainst the spendings tax. He didn't want to stop people\nfrom spending money in the good restaurants and night\nclubs in New York.\nMR. PAUL: I wrote you 8. memorandum about this\npractice - about the business of controlling who are em-\nployed as Treasury attorneys. I have talked it over\nwith Herbert.\nH.M.JR: I approved that memorandum.\nMR. PAUL: I didn't get it.\nH.M.JR: Last week.\nMR. PAUL: I didn't get it.\nH.M.JR: I approved it, definitely. I approved your\nmemorandum.\nMRS. KLOTZ: Thursday.\nMR. PAUL: I don't understand why it isn't back.\nH.M.JR: Better look at your desk.\nMR. PAUL: My desk is clean.\nH.M.JR: Jimmy Byrnes called me up. I said, \"Have\nyou got my letter about the correspondence between Randolph\nPaul and Lloyd Garrison?\" He said, \"No, did you write me?\"\nI said, \"Yes, I sent it over by hand last week.\" He said,\n\"I never got it.\"\nI said, \"It is on your desk somewhere,\" and he said,\n\"Most likely.\"\nMR. PAUL: You are not comparing me with Jimmy Byrnes,\nare you? (Laughter)\nRegraded Unclassified\n266\n- 31 -\nH.M.JR: Well, what he did - it seems that at this\nmeeting yesterday, due to certain questions raised by\nthe State Department, they suddenly discovered that the\nWar, Navy, and Treasury have an interest in Europe.\n(Laughter) And he has asked the State Department to put\nit in writing and he will send it over to me - certain\nquestions that were raised - and he would like to have\nan answer. I promised him it would be answered.\nHe wants somebody from the Treasury - he said, \"I\nsuppose you won't want to come to our meeting.\" I said\nthat I would be out of town but that we would send somebody.\nSo when they come I will see what the questions are.\nBut I am going to make a little prophesy: You (Paul) said\nthat you wanted to take a personal interest in Foreign\nFunds. I will make you a little bet that there will be an\nExecutive Order transferring Foreign Funds to Crowley.\nMR. PAUL: I wrote you a memorandum to that effect.\nH.M.JR: That it would come?\nMR. PAUL: That it might come. It is on your desk.\nMRS. KLOTZ: No.\nMR. PAUL: You will find it. It is already written,\nanyway.\nH.M.JR: You mean you dictated it. (Laughter)\nMR. PAUL: No, I signed it and sent it out yesterday.\nCAPT. KADES: Mr. Secretary, Randolph wants me to\nmake a matter of record that I got 8 copy of the memoran-\ndum he signed. (Laughter)\nRegraded Unclassified\n267 -\nJuly 20, 1943\nHM Jr prophesied today that Crowley's next\nmove will be to try to get an Executive Order to\ntransfer Foreign Funds to the Office of Economic\nWarfare.\nRegraded Unclassified\n268\nJuly 20, 1943.\n11:23 a.m.\nHMJr:\nHello.\nDerator: Mr. Patterson.\nMJr:\nHello.\nRobert\nPatterson: Hello, Henry.\nEMJr:\nHow are you, Bob?\ne:\nI'm fine.\n4XJr:\nWell, Randolph Paul has been telling me about this\nmemorandum that the Attorney General has written\non renegotiation of contracts.\nP:\nYep. We discussed it yesterday.\nHMJr:\nYeah. Now, I understand you're seeing the President\ntomorrow.\nP:\nI think, Henry, that 1t 18 part of the meeting of\nthe office of War Mobilization.\nHXJr:\nUh huh.\nn.\nThe Jimmy Byrnes outfit.\nHMJr:\nYesh.\nP:\nI think that is the meeting that the President\nreferred to in his little memorandum.\nMJr:\nI see. Well\nis\nThere is a meetin of that Board tomorrow, and\nHMJr:\nWell, now Paul\n5:\non the assumption that it was that, I took the\nthing up with Jimmy Byrnes 88 well as the people\nhe mentioned in this memorandum.\nHMJr:\nUh huh. Well, we're ready to back you up.\ne:\nThanks. That's good.\nHMJr:\nNow\nRegraded Unclassified\n- 2 -\n269\nP:\nIt's unanimous.\nHMJr:\nWell, what I was going to suggest to your consideration\nwas that you present a written opinion and let us all\nsign it.\nP:\nThat's right. I think that's a good thing to do.\nHMJr:\nI think that's better.\n?:\nI do, too. I'll see that we get it up.\nHMJr:\nNow, just one thing\nel\nThe whole thing, in my opinion, 1s this, the power\nto adopt that definition, no matter what the memorandum\nfrom Biddle says, 18 very plain and clear. Now, the\nwisdom of it 1A this, I've always viewed this contract\nrenegotiation as a Valuable thing if kept within proper\nbounds.\nHMJr:\nUh huh.\n2.\nBut if they want to dish on to us the job of oricing\nevery eingle thing in the whole economic structure\nHMJr:\nYeah.\nP:\nwhy it's a flop - another flop - and my tendency\nhas always been in everything having to do with any\nprice adjustment work by the War Department to narrow\nthe bounds of it and keep - confine ourselves AB\nnearly as we can to immediate contracts We have and\nwith the bigger concerns and let the small fry go.\nThe job's too big.\nHMJr:\nNow, that's\nP:\nAnd, along these lines, if we adopt definitions that\nchase everything back to the forest or the mine\nHMJr:\nUh huh.\nP:\nor the farm - well, We might 63 well throw up our\nhands and call it a day.\nMJr:\nWell, OPA tried to do it and couldn't get anywhere.\nP:\nDon't you agree?\nHMJr:\nWell, I don't know an swful lot about it. Paul's\nhandling it and I'm perfectly willing to let him\nRegraded Unclassified\n270\n- 3 -\nHMJr:\n(Cont'd)\nhandle it, you see?\n2:\nYeah.\nHMJr:\nNow, I've just got - I want to arrange it - somebody\nin my office said that the President, they thought,\nwas gunning out - after this aluminum company up in\nCanada.\nF:\nWell, that may be.\nHMJr:\nWell, can he do it through renegotiatiation?\nP:\nNo.\nHMJr:\nHe can not?\nP:\nI don't think SO.\nRMJr:\nI see.\nP:\nI don't know anything about the terms of that con-\ntract. It was made between Jesse Jones end\nHMJr:\nYeah.\nP:\nthat company. Now\nHMJr:\nWell, could\nP:\nI'm satiefied of this, though - that if there's\nenything raw in the contract\nHMJr:\nYeah.\nP:\nI think that Jesse, as a voluntary matter, can\nget them to renegotiate.\nHMJr:\nWell - I mean - couldn't Jesse do it anyway? I mean,\nif the President wants that, can't he simply tell Jones\nto renegotiate that?\nP:\nWell, I don't - I don't know, Henry.\nHMJr:\nHuh.\nP:\nI don't know. The thing 1s bound up with Canadian\ninterests and the Canadian Government to some degree\nand - uh - it was, 8.9 I understand it, kind of a\npayment he made down to promote aluminum production\nRegraded Unclassified\n- 4\n271\nP:\n(Cont's)\nin Cenada - uh - to spur it on\nHMJr:\nWell, he\nP:\nI don't know enough about it.\nHMJr:\nWell, the easiest way - the Canadian minister here\nin Washington was a former General Counsel for the\naluminum company, so you could take it up with him.\n?:\nMcCarthy?\nHMJr:\nSure.\nP:\nAll right.\nHMJr:\nSure.\nP:\nWell, there's no doubt of the fact - we've had no\ntrouble ourselves with the Canadians on any deals\nWe have had with them. They came in and gave me\n8 check that I sent over to you for fifty million\ndollars\nHMJr:\nYesh.\nP:\nthe other day. They found that on some contracts\nwe'd placed there on lend-lease account for production\nin munitions, they'd made too much money\nHMJr:\nWell\nPt\nend they just voluntarily came in and\nHMJr:\nYeah.\nP:\ngave me the check.\nHMJr:\nWell, I think if\nP:\nThey don't need to - they don't need to goto law and\nall that kind of stuff about a thing like that.\nHNJr:\nWell, from what Paul tells me, rather than to upset\nall these contracts which you have renegotiated, that\nthey want to just aim at the Aluminum Company of Canada.\nI think there's 8 much easier way to do it.\nP:\nI have no doubt at all that it can be handled amicably.\nHMJr:\nYeah.\nRegraded Unclassified\n- 5 -\n272\nP:\nwithout any disruption like this. The - the man\nwho drew that memorandum for Biddle just didn't know\nenything of the practical situation.\nHMJr:\nYeah.\nP:\nI think I will write a little memoranda.\nHMJr:\nOkay.\nP:\nThank you, Henry.\nHMJr:\nGood bye.\nRegraded Unclassified\n273\nJuly 20, 1943\nMEMORANDUM FOR THE PRESIDENT\nCareful consideration has been given to the memo-\nranda from the Attorney General relative to the exemption of\naluminum ingots from contract renegotiation. The following\ncomments are submitted for your information and consideration.\n1. With respect to the authority of the Departments\nto make the exemptions, including the exemption of aluminum\ningot, embodied in the Joint Statement by the War, Navy and\nTreasury Departments and the Maritime Commission, it is our\nconsidered judgment that these exemptions are clearly within\nthe authority granted to these agencies under the Renegotia-\ntion Statute. In the case of aluminum the uses of bauxite\nand alumi\nreferred to by the Attorney General were con-\nsidered, but they were of such a minor and incidental character\nthat they did not affect the primary conclusion that aluminum\ningots represent in a broad sense the first stage at which the\nproduct is suitable for industrial use. At no time during the\nmonths that this matter was under active consideration was\nCoubt expressed by any of those concerned with regard to the\nlegal authority of the Secretaries to fix the exemptions\nRegraded Unclassified\n274\nembodied in the Joint Statement, particularly in the light\nof the broad authority granted by Congress to the Secretaries\nto \"define, interpret and apply\" this particular provision of\nthe Statute.\n2. There were, in addition, strong practical reasons\nwhich supported the decision of the Secretaries to place the\nexemption stage where they did place it. In the first place,\nit appeared to be desirable and in accord with the intent of\nCongress to eliminate from renegotiation industries concerned\nprimarily with the extraction and severance of raw materials\nmill the early stages of refining or processing, thereby avoiding\nthe necessity of grappling with the many problems connected with\nthe determination of costs and profits on these basic processes.\nPurthermore, this interpretation eliminated the danger of con-\nfliet with OPA policies and price objectives with respect to\nwh products.\n3. As to a possible modification of the Joint\nStatement on aluminum ingots, there are further objections.\nIn the first place, the exemption of aluminum ingots was made\n00 the basis of a policy of interpretation which included the\nexemption of numerous other products. It would not be prac-\nticuble to change the a luminum ingot exemption without changing\nthe status of many other products.\nRegraded Unclassified\n275\nThe Joint Statement of March 31, 1943 was issued\nnot only for the guidance of the Price Adjustment Boards but\nalso for the use and information of war contractors generally.\nOver thirty thousand copies of the statement have been dis-\ntributed, and these statements have been applied in a large\nnumber of renegotiations and are now being used and applied\nin substantially all pending renegotiations. It is believed\nthat a change in the Joint Statement of the scope and character\nsuggested would have the effect of irretrievably confusing\nthousands of pending cases. Such a change would not only\nimpair the progress of renegotiation but would constitute &\npowerful argument for repeal of the act in the hands of those\nin industry who are trying to persuade Congress that the act\nis impossible of administrative accomplishment and therefore\nshould be repealed.\nFor the reasons indicated, the undersigned respect-\nfully submit that the suggested amendment to the Joint State-\nment is not required as a matter of law and is altogether\nundesirable as a matter of policy.\nRespectfully,\n/s/ ROBERT P. PATTERSON\nActing Secretary of War\nRegraded Unclassified\n276\nSecretary of Navy\n/s/ H. MORGENTHAU, JR.\nSecretary of Treasury\nChairman of Maritime Commission\nRegraded Unclassified\n277\nJuly 20, 1943\n3:10 p.m.\nFINANCING; THIRD WAR LOAN DRIVE\nPresent: Mr. Bell\nMr. Haas\nMr. Murphy\nMr. Viner\nMr. Eccles\nMr. Young\nMr. Evans\nMr. Paddock\nMr. Rouse\nMr. Piser\nMr. Ransom\nMr. Goldenweiser\nH.M.JR: If we could settle this afternoon this\nAugust refunding, I think it would be very helpful to me.\nBell, do you want to state the problem?\nMR. BELL: I think the first problem is what amount\nof certificates we are going to issue to refund - or pay\noff - the August maturity amounting to one billion six\nhundred nine million dollars. The question is whether\nit should be two and a half or three billion dollars.\nAnother question in connection with that is as to\nwhether we should pay off the certificate in cash or allow\nexchange privileges to the holders of the maturing certifi-\ncates.\nThen there are other questions, once those are settled.\nH.M.JR: You think this should be announced when?\nRegraded Unclassified\n278\n- 2 -\nMR. BELL: I, would like to see it go out to the\nFederal Reserve Banks tonight in order to give them 8.\nday to have it printed and in the mail, and announce it\nThursday morning.\nMR. ECCLES: Since I talked to you, Dan, I agree\nwith that, because--\nMR. BELL: The mail is really terrible.\nMR. ECCLES: That is right. The time element - if\nit goes out tomorrow night, Friday and Saturday just\nisn't enough. It would be better to let it run over to\nMonday. You would have to do it, I think - you would\nhave to leave it open Friday and Saturday, and stragglers\non Monday could get in because there will be some of it -\nmost of it can get in on Friday and Saturday, but I think\nbecause of the mail you would find you couldn't close it\nuntil Monday.\nMR. BELL: We can't do it Monday because that just\ngives us a week and then after you leave the books open\ntwo days, or three days, which even cramps us more be-\ncause we couldn't make allotments before Thursday or Fri-\nday--\nMR. ECCLES: If you closed it Monday you couldn't\nmake allotments before when?\nMR. BELL: You mean to open it Monday? I don't\nthink it would give us time enough either.\nH.M.JR: Is it your idea to announce it Thursday\nmorning?\nMR. BELL: Yes, and close it Saturday night.\nH.M.JR: Would there be any harm of announcing it\nin the papers tomorrow morning for Thursday and in that\nway get an extra day?\nRegraded Unclassified\n279\n- 3 -\nMR. BELL: You mean announce it before the circulars\nare printed and mailed?\nMR. ECCLES: I don't see any harm.\nMR. YOUNG: It would be helpful.\nH.M.JR: That just helps.\nMR. BELL: That would be helpful.\nMR. ECCLES: I don't think it needs any help.\nMR. BELL: I wonder if you would confine the sub-\nscriptions to two days, Thursday and Friday, or would you\nwant three days? I think twois enough on the certificate.\nH.M.JR: I would have it in the papers tomorrow and\nthen they would get their circulars Thursday, wouldn't\nthey?\nMR. BELL: Thursday morning.\nMR. ECCLES: Those that didn't get them Thursday,\nthey would get them Friday. Some won't get them before\nFriday - a lot of places. But that gives them a day.\nMR. YOUNG: We will wire about a hundred banks,\nanyway.\nMR. ECCLES: The worst is down in the South and the\nWest Coast.\nMR. BELL: We always send night letters to those\nbanks that are beyond twelve hours.\nH.M.JR: You wouldn't have to settle it tonight if\nyou felt - if everything was all right you could close\nit Friday; if not, Saturday. You would like to close it\nFriday?\nRegraded Unclassified\n280\n- 4 -\nMR. BELL: It gives us a little more time and two\ndays is enough, I think. Practically all of these certi-\nficates are held by the banks. Three hundred million,\nI think, are outside of the banks.\nMR. ROUSE: You have the possibility of processing\nthe mail subscriptions at the close of the books on\nSaturday and Sunday instead of having to do it on Monday\nand Tuesday. You get the benefit of Sunday, which will\nfacilitate the reserve bank operation.\nH.M.JR: As far as I am concerned, it is all right\nto have it in the papers tomorrow night, have it open\nThursday and Friday, close it Friday midnight. Is that\nall right with you?\nMR. PADDOCK: O.K.\nH.M.JR: At least we got one idea here anyway.\n(Laughter)\nNow, how much is it going to be?\nMR. BELL: Two and a half or three. I had in my cash\nestimates two and a half billion dollars extra money, but\nthere have been suggestions of adding another half a\nbillion to that in order to help our balance a little\ngoing into the next drive. The bankers recommend a three\nbillion dollar offering, and also it would help the market\na little by giving a little larger amount.\nH.M.JR: Let's start and go around the room.\nChairman Eccles?\nMR. ECCLES: I would like to discuss this in connec-\ntion with the basket because I think they are so closely\nrelated. In other words, if you are going to include a\nseven-eighths certificate in the basket, then I would\nhave one recommendation; if you weren't going to include\nit, I would have another. I think that it makes a very\nimportant difference.\nRegraded Unclassified\n281\n- 5 -\nMR. BELL: I might say before Mr. Eccles starts that\nwe sent out two hundred and twenty-five telegrams to\ncorporations and others buying securities in the April\ndrive;and we got 8. hundred and fifty replies up to date,\nand a hundred and twenty-five of them wanted certificates.\nSome wanted both certificates and notes; some wanted just\nnotes. But a hundred and twenty-five definitely wanted\ncertificates to put their funds into. Particularly they\nstressed the fact that these were short-term funds and\nthey didn't want to tie them up for more than a year.\nH.M.JR: These were people who had bought before?\nMR. BELL: Yes, they were the people who bought in\nthe April drive.\nMR. ECCLES: My answer to that was this, that naturally\nthey would prefer the certificate, but I think that they\nwould take the Series C tax note because they have got\nshort paper - either six months, nine months, 8 year, what-\never they want it. If you took the thirty-day notice out\nof it after the year - and, of course, on that they can't\nspeculate - they can't get a profit out of it except the\nactual interest that they are entitled to for the time they\nleave their money with the Government.\nMR. BELL: I question whether we ought to force them\ninto something they don't want to go to. Now, all of these\npeople in here this morning--\nMR. ECCLES: We forced the insurance companies into\ntwo and a half when they wanted three. (Laughter)\nMR. BELL: It is not analogous. (Laughter)\nMR. ECCLES: I agree that it makes & little easier\nselling job, but is it a sounder long-range program? I\ndon't think we have ever made 8 real sale of the savings\nnotes. I don't think we have ever done a lot to sell it.\nThe last time we had the certificate in the basket. That\nis perfectly easy to sell because it immediately sells\nat a premium on the market whenever they buy it, so a\ncorporation would be foolish to buy a C Note if they can\nget a year paper like the certificate.\nRegraded Unclassified\n282\n- 6 -\nI think that the great majority of them would pre-\nfer the certificate. On the other hand, I do think that\na real selling job could be done on the Series C note\nand then you wouldn't have to sell every year. The thing\nwould carry through for the life of the note as long as\nthey had the money. You would only get it at such time as\nthey needed the money, which is, of course, when you want\nthem to have it.\nI do think the thirty-day notice after six months -\nas it is now we provide they have to hold it six months\nwhich I think is proper. They shouldn't just buy it and\nthen turn it in. But I don't think the six months is the\ndeterrent. In fact, the fact they have to give & notice\nis somewhat of a deterrent. If they could turn it in--\nMR. BELL: Some of the men said the deterrent is\nthe fact they have to come to Washington any time they\nwant their money.\nMR. ECCLES: Just send it through the banks for\ncollections if you didn't have the notice.\nMR. BELL: That is what they do, send it through the\nbanks, but the fact that it is recorded in \"ashington or\nrecorded some place along the line is a deterrent to the\nsales.\nH.M.JR: They don't like Washington?\nMR. BELL: They don't like to come to Washington and\nlet you know every time they want a few dollars to spend.\nThey want a negotiable security, 80 the salesmen tell us.\nMR. ECCLES: They prefer it, but they have bought\nquite & lot. There are seven or eight billion out without\nvery much selling effort.\nWell, I would say this, that if you are going to\nput the quota at sixteen billion on 8. non-bank thing--\nRegraded Unclassified\n283\n- 7 -\nH.M.JR: Well, that hasn't been fixed, Marriner.\nMR. ECCLES: If you do, I would include the certifi-\ncate. I think if you are going to try to raise sixteen\nbillion that you possibly need the certificate in the\nbasket. You would need the easiest way to get 8. lot of\nmoney.\nBut I would personally like to see the quota set at\nsubstantially less the first time so that the next time\nyou have a drive - this is the first time when you have\na non-bank drive. It is the time that you have got a new\nState organization. You would be thoroughly justified\nin putting it, say, to thirteen billion.\nNow, thirteen billion was the quota last time in-\ncluding the banks. That is all you had including the\nbanks, last time. And if you put your quota at, say,\nthirteen billion, and then maybe run over a little and\nleave the certificate out, then the next time you have a\ndrive you could increase it to, say, fifteen billion\nif the situation warranted, instead of establishing it\nwith a - if you establish it at sixteen with a certifi-\ncate, it seems to me you have established a pattern for\nthe future. Then the next drive that you have you can't\nwell have it less than sixteen billion. You possibly\nwould want to go to seventeen or eighteen billion and\nyou would have to include a certificate again.\nYou are establishing a pattern now for the first\ntime with a non-bank drive, and I would be conservative.\nI would put it down to the point where I could raise it\nnext time, and I would get it on a basis of 8. sound pro-\ngram of really selling a security that doesn't come\nback at you in a year, and do a selling job - A real non-\nbank financing job.\nNow, if you do that - if you follow that sort of a\npattern and you don't put a certificate in, then you\nwould - with the certificate, now, I would make it three\nbillion, if it wasn't going to be in the basket, and I\nwould offer it to everyone.\nRegraded Unclassified\n284\n- 8 -\nI don't think it makes much difference whether you\ngive an exchange for the outstanding certificates or\nwhether you pay them. I wouldn't care one way or the\nother. I would make it three billion dollars because\nyour quota would be a little less for the basket and\ntherefore, if the certificate isn't in it, I would make\nit three now.\nThat would be a billion and a half of new certifi-\ncates on the market which I think would pretty largely\nmeet your certificate situation. And I would allocate\nin full up to a hundred thousand, and I would make\nthem pay in full with the subscriptions up to a hun-\ndred thousand 80 that there won't be any speculating\nin it.\nIf they are going to be allocated in full there\nis no reason they shouldn't pay for them. The subscrip-\ntions above a hundred thousand, I would require a pay-\nment of at least ten percent, so that the thing that\nhappened when the last issue was made of one and a half\npercent notes couldn't happen here.\nI think that had a very bad effect. When you get\na huge over-subscription I think it has this psychology -\nI have heard it from quite a number of sources - it gives\nthe impression to a lot of people that this huge over-\nsubscription is a legitimate sale - that it is a natural\ndemand on the part of the public for Government securities.\nThey don't realize that it is a padding process and it\nreally doesn't represent a legitimate sale or a legiti-\nmate demand.\nRegraded Unclassified\n285\n- 9 -\nA lot of the little people - the rank and file of\nthe people say, \"My gosh, if the Government can get all\nof this money that easy, then why all this appeal to\nus?\" I think it has that effect.\nSo, in putting out the certificate now, three billion,\nI think I would hold it down - not only hold it down by\nrequiring cash up to a hundred thousand, which would get\nrid of the speculator, but possibly provide a formila\nfor banks so that the banks' subscriptions would be\nlimited.\nAnd subscribers outside of banks, we should under-\ntake to limit those as well, and police them, and possibly\nleave the dealers out because they only buy to resell,\nand thus--\nMR. BELL: In other words, you would go back to the\nold restriction.\nMR. ECCLES: I think 80. Go further than the re-\nstriction because you never did have a hundred thousand\ncash payment before and an allocation to the banks.\nMR. BELL: Would you have exchanges?\nMR. ECCLES: I don't care. I don't think it makes\nmuch difference.\nMR. BELL: If it is going to be in the basket, what\nwould you do, cut down the amount?\nRegraded Unclassified\n286\n- 10 -\nMR. ECCLES: No, if you were going to put it in the\nbasket - yes, I think I would. If it is going to be in\nthe basket I wouldn't put out more than two and a half.\nI wouldn't offer it to the public at all. I would give\nan exchange for the billion six hundred million that is\nout, and I would give to the banks only the other billion,\nbecause the public is going to come in and get it in the\nbasket, and I think that if you are going to expect the\nbanks to not try to indirectly buy the certificates out\nof the basket - they will do that anyway to a certain\nextent. But certainly if you are going to offer this\nto the public now, it will cut the banks' allotment down\nvery greatly, and I think there would possibly be more\nreason for the banks indirectly buying certificates out\nof the basket.\nMR. BELL: You would throw that three hundred million\ndollars already outside of the banks into the banking system?\nMR. ECCLES: Well, two and a half billion, and keep\nthem out of the basket. I mean, keep them from getting\ntheir directors to subscribe for them, their affiliated\ncompanies to subscribe for them, or brokers to subscribe\nfor them. What I am afraid of is, if you put the cer-\ntificate in the basket you will likely have 8. lot of\ncertificates which were sold last time - you will have &\nlot of certificates sold last time - at least some of\nthem - bought by corporations now sold to buy the new\nones again.\nH.M.JR: I gather you haven't had any preliminary\ntalk on this?\nMR. BELL: Yes, we had one the other day and discussed\nthis whole thing. We had one over in the Board. I feel\nthat the certificate should be in the basket, because I\nthink there is some money there that we should go after in\nthat form of investment.\nI don't think that the salesmen ought to go around\nto a corporation and ask them to subscribe and let them\nsay, You haven't got the kind of paper that I want. We\nRegraded Unclassified\n-2\n287\n- 11 -\ndon't want your tax notes; we have all those we need to\npay our taxes. We want a negotiable security, and it\nshouldn't be over a year.' I think you will find a lot\nof them that will say that.\nH.M.JR: What is the hurry? You didn't tell me there\nwas such a hurry about this refinancing.\nMR. BELL: August 1 is coming along here.\nH.M.JR: Yes, but I haven't had any warning on this\nthing.\nMR. BELL: Yes, I warned you last week. I said that\nwe had to do this this week - the middle of this week.\nMR. ECCLES: You talked of the 19th as the date.\nMR. BELL: We talked about it last week.\nH.M.JR: It didn't register.\nMR. BELL: I am sorry. I said we would have to make\nthis decision this week.\nH.M.JR: It is just coming to me out of 8. clear sky.\nYou didn't talk to me about this, Haas, up on the farm\nSaturday.\nMR. HAAS: No, that didn't come up.\nMR. BELL: That is in his memorandum.\nH.M.JR: I had the three men up there Saturday. They\nnever mentioned it to me.\nMR. BELL: It was mentioned at our conference last\nweek that this was one thing we had to do the middle of\nthis week.\nH.M.JR: They never discussed it with me.\nRegraded Unclassified\n3\n288\n- 12 -\nMR. HAAS: We discussed it here, but not up at the\nfarm.\nH.M.JR: I think it rushes me 80. It is a lot of\nmoney. I don't want to make any mistakes. We have these\nother people in here and are waiting to get their advice.\nI don't know how they are going to advise me.\nMR. BELL: That is on the basket.\nH.M.JR: Yes, but Eccles says--\nMR. ECCLES: I think it makes a real difference.\nH.M.JR: He says how he advises us makes a difference\non how we go on the basket. We haven't decided it.\nMR. ECCLES: I think we all feel that way - the Fed,\nHap, and all feel the same way, that if the certificate\nis to be in the basket it calls for a different program\nthan if it is going to be left out of the basket.\nMR. RANSOM: Mr. Secretary, I don't see how you can\ndecide one without deciding the other.\nH.M.JR: I can't decide the basket for another day\nor two.\nMR. BELL: I don't see as they are tied in so closely.\nH.M.JR: You have all of next week.\nMR. BELL: Yes, but remember, if you are going to\nleave it open Monday and Tuesday and then you close the\nbooks, you don't make your allotment until all of your\nmail subscriptions are in, which is about Thursday. Then\nyou mail that to your banks and they have to mail out their\nnotices of allotment and you have to get your money back\nby the following Monday. There just isn't time enough.\nH.M.JR: Where is Viner? Somebody said he was here.\nRegraded Unclassified\n289\n- 13 -\nMR. BELL: He is in the meeting across the hall.\nH.M.JR: Eccles, do you mind if I ask some other\npeople?\nMR. ECCLES: Not at all. Maybe I have taken up too\nmuch time now.\nH.M.JR: Frankly, I didn't know this was - as I say,\nI didn't know I had to decide this today. I don't see\nhow we can decide it today.\nGoldenweiser?\nMR. GOLDENWEISER: I haven't given it a great deal\nof thought. I confess I don't think that the difference\nbetween the two and a half billions and the three billions\nto be offered now is as big a difference as that, and\nyou could decide either way without making a mistake,\nregardless of what you decide for your basket.\nI would be rather favorable to & larger subscription,\nmake it three billions, and then because you have an\nawfully lot of money to get anyway, you might as well get\nit.\nI would favor, of course, not including it in the\nbasket; but if you are not prepared to make your decision,\nI would decide on three billions now, anyway.\nMR. ECCLES: Would you offer it to the banks only?\nMR. GOLDENWEISER: Yes.\nH.M.JR: How about you?\nMR. EVANS: We talked this over this morning, Mr.\nSecretary, and I agreed exactly with the Chairman's point\nof view on the whole thing.\nH.M.JR: You have nothing else to offer?\nRegraded Unclassified\n290\n- 14 -\nMR. EVANS: Nothing else, no, sir.\nH.M.JR: How about Boston?\nMR. PADDOCK: As far as details are concerned, I\nagree with the Chairman. I think three billion dollars'\nworth of certificates if you put it out at this time -\nI think that is what the salesmen want. I would leave\nthe certificate out of the drive, and I would have a\nsmaller total in the drive. I think that is 8 pretty\nlarge amount to figure on getting without the banks.\nH.M.JR: Would you open it to the public, or just\nconfine it to the banks?\nMR. PADDOCK: Banks.\nMR. RANSOM: I have no different opinion than the\nviews the Chairman has expressed. We have given a lot\nof thought to it, Mr. Secretary, and I feel that the\ncertificate ought not to be in the basket. I think\nthat that being the case you come out at the other con-\nclusion that Mr. Goldenweiser says, you might as well\noffer the three billion now. Frankly, I think that\nwill contribute to keeping it out of the basket.\nM.JR: George, what do you people think?\nMR. HAAS: I would go two and a half and then I\nwould put rights on it - I would put some controls on\nit - a formula on it - and also full cash for the hundred\nthousand, and ten percent on the other outside the banks.\nH.M.JR: You mean open it to the public?\nMR. HAAS: Yes, not banks alone. And I would stay\nat two and a half, on the smaller side, because we are\nexperimenting with the new controls and I would favor\nputting - another reason I would favor putting it in\nthe basket - I do recall you did discuss this up there.\nYou raised it up at the farm. What I outlined there is\nidentical to the bankers' recommendation, except that\nthey ask for three. Isn't that right, Dan?\nRegraded Unclassified\n6\n281\n- 15 -\nMR. BELL: They ask for three, yes.\nMR. HAAS: But the only difference in my recommenda-\ntion was to drop the amount.\nMR. PISER: I have nothing to add to what the Chairman\nsaid.\nH.M.JR: Murphy?\nMR. MURPHY: I would agree with what Mr. Haas said,\nexcept that I think I would lean toward the three. The\nconsideration that would cause me to lean toward the\nthree is that I would like to see somewhat more of a\nbalance right at the beginning of the drive than we would\nhave otherwise. That is, I wouldn't like to see us come\nright down and scrape bottom on our working balance.\nI don't think, however, that there will be much\nmarket difference between two and a half and the three,\nand it may be that Mr. Haas' caution would be justified\nby the circumstances, although personally I would be\nquite confident of the three.\nMR. YOUNG: I would rather see you put out three\nbillion dollars and confine it solely to the banks with\na formula of about seven percent of their net demand -\nnet deposits, with the same restrictions that Chairman\nEccles mentioned.\nH.M.JR: Seven percent?\nMR. YOUNG: Yes, as far as banks are concerned. Seven\nnet on net demand deposits would be about seven percent -\nabout eighty-five million - - 80 that won't be too much out\nof line with three billion dollars. That would be fifteen\npercent, then allotment if they all came in and subscribed\nfor what they were allowed to.\nIf you sell the three billion dollars then and reduced\nyour estimated quota - your proposed quota - then I don't\nthink it is necessary to have it in the drive. But it is\nRegraded Unclassified\n2S2\n- 16 -\ntrue that the corporations that we have talked to would\nrather have the seven-eighths - that is, for their current\nfunds.\nMR. ECCLES: Don't you think, Hap, that as to whether\nit is in the drive or not depends on what you are going to\nraise? I mean, that is the big factor.\n(The Secretary left the conference temporarily.)\nH.M.JR: Got it all settled?\nMR. BELL: Do you want to ask Rouse?\nMR. ROUSE: In view of the situation as it has pre-\nvailed here this afternoon, Mr. Secretary, it seems to me\nthat a decision has to be made on this before you decide\non your basket. In the light of that, either amount, two\nand a half or three billion, seems to me not material.\nH.M.JR: I agree with you.\nMR. ROUSE: You can easily go to the three and have\nthe assurance that Mr. Murphy mentioned. In view of that\nand the other situation, I would be inclined to give rights\non the - give an exchange against the billion six to any\nholder, whether it is a bank, a corporation, or an individual,\nas the case may be. I would offer the balance to the banks\nfor subscription on a yardstick basis.\nH.M.JR: May I interrupt you? How did we do the last\none, give rights or pay it off?\nMR. ROUSE: On the last one we gave rights.\nMR. BELL: That was in the drive.\nMR. ROUSE: During this subscription this week you\nwould announce the terms of the basket so that others\nwould know they were going to be taken care of and how.\nIt seems to me you could make that decision tonight or\nthe first thing in the morning.\nRegraded Unclassified\n293\n- 17 -\nH.M.JR: On what?\nMR. ROUSE: On this offering, without having to\ndecide the basket at the same time. You have to decide\nthat in the next day or two. That is what I was referring\nto as circumstances.\nIf you do it on the basis I suggest I don't see as\nyou are compromising anyway.\nH.M.JR: You are suggesting that we give people the\nrights for the billion six?\nMR. ROUSE: Yes, sir.\nH.M.JR: And then offer the nine hundred or a billion?\nMR. ROUSE: Yes, for cash subscriptions.\nH.M.JR: What basis would you do it on?\nMR. ROUSE: I would do that on the basis of only\nbank subscriptions.\nMR. ECCLES: On the formula.\nH.M.JR: What was the formula?\nMR. ROUSE: I didn't suggest & formula. You have any\nnumber here. As long as there is one, it is all right\nwith me. I would do it on the basis of a percentage of\nnet deposits, and capital and surplus; whichever is greater\nwould be the one I prefer, designed at the maximum to\nproduce an allotment of forty to sixty percent in relation\nto the amount offered. If you choose the seven percent\nof assets, it is equally good with me.\nH.M.JR: What about the old formula, fifty percent\nof capital and surplus?\nMR. ROUSE: It doesn't meet the situation in the\nbanks, the new big banks, the banks in the southwest,\nRegraded Unclassified\n234\n- 18 -\non the Coast, and the south generally where the new deposits\nare going. It isn't 8 fair thing to those banks.\nMR. ECCLES: They have had the big growth and not the\nmoney, 80 you have to base it on the deposits, I think.\nMR. BELL: The bankers suggested a hundred percent of\ncapital funds, or five percent of deposits, whichever is\nhigher, for the formula.\nMR. ECCLES: That would meet it. It is 8 little more\ncomplicated having two different formulas.\nMR. BELL: It gives the high capital ratio banks 8\nlittle--\nMR. ROUSE: There is no problem about it, because I\nthink generally speaking, bankers read and figure it--\n(Laughter)\nMR. ECCLES: Generally speaking - (Laughter) I agree\nwith Bob. If you can't decide the basket, I think that is\nthe other alternative.\nH.M.JR: Well, how long will you be at your office\nthis evening?\nMR. ECCLES: Until seven.\nH.M.JR: If I could - I am at 8. disadvantage - if I\ncould go into a huddle with my own people, then either Bell\nor I call you a little later - I will try my best to settle\nthis this afternoon.\nMR. ECCLES: All right.\nH.M.JR: Could you stay around in Bell's room and wait\na little bit?\nMR. ROUSE: I will be glad to.\nRegraded Unclassified\nco-Mr. Gamble.\n2S5\nJuly 20, 1943.\n3:46 p.m.\nOperator:\nGo ahead.\nHMJr:\nHello.\nNick\nSchenck:\nHello, Mr. Secretary.\nHMJr:\nYes, Mr. Schenck.\nS:\nof course, it's all right.\nHMJr:\nGood.\n8:\nWhen do you want him?\nHMJr:\nOh, I want him today but what's reasonable?\nis\nWell, I don't think that he can get there today\nbut how about tomorrow?\nHMJr:\nTomorrow would be wonderful.\nS:\nI beg your pardon?\nHMJr:\nTomorrow would be wonderful.\nin\nWell, I'll see to it that he closes his things up\nas fast 88 he can and gets there and reports to\nyou\nHMJr:\nIs he coming to me tomorrow - can he get here\ntomorrow morning?\nS:\nWell, I don't 1 know if he can there, but I'll try it.\nHMJr:\nIf he needs any helo on a seat on A plane, we'll get\nit for him.\nS:\nFine.\nHMJr:\nLet him call up Gamble. He'll get him a seat on the\nplane.\nS:\nAll right. I'll do that.\nHMJr:\nWell, I appreciate that very much.\n3:\nYes, Well, you know how I feel about the whole thing\nand especially since you called me for it\nRegraded Unclassified\n296\n- 2 -\nHMJr:\nWell, I\nS:\nI appreciate a great deal what you did, you know.\nHMJr:\nWell, it helps.\nS:\nAll right, sir. I'll get him over then and you give\nhim a few minutes 80 he can talk to you.\nHMJr:\nTomorrow.\nS:\nYes.\nHMJr:\nOh, definitely.\nS:\nAll right, sir.\nHMJr:\nThank you.\nS:\nGood bye.\nHMJr:\nGood bye.\nRegraded Unclassified\n297\nJuly 20, 1943\n3:50 p.m.\nFINANCING\nPresent: Mr. Bell\nMr. Haas\nMr. Gamble\nMr. Murphy\nMr. Lindow\nMr. Tickton\nMr. Rouse\nMrs. Klotz\nMR. BELL: Can I read the bankers' recommendations\njust the interim financing? (Copy of Memorandum of American on\nBankers Association attached.)\nH.M.JR: I wish you would.\nMR. BELL: This was the question, \"Should a limitation\non bank and other subscriptions be established on the\nAugust 1 issue; should subscriptions of $100,000 be allotted\nin full with 100 percent down payment required; should this\noffering be open only to banks?\"\n\"We recommend that 3 billion of new 7/8% 1-year Certifi-\ncates of Indebtedness be issued to take up the certificates\nmaturing August 1, 1943 and to provide one and one-half bil-\nlion new money. We suggest that holders of maturing certifi-\ncates\"\nH.M.JR: What did they say?\nMR. BELL: Three billion dollars, which would be a\nbillion and a half new money. \"We suggest that holders of\nmaturing certificates be permitted to exchange them for\nthe new ones.\n\"Answering your question, we suggest that bank sub-\nscriptions be limited to 100% of capital funds or 5% of\ndeposits, whichever is higher, as shown by the last published\nfigures, except that bank subscriptions up to $100,000 be\nallotted in full. As to subscribers other than banks, we\nthink subscriptions of $100,000 should be allotted in full\nand down payment of 100% be required and that above $100,000\n10% be required. Subscriptions should not be limited to\nbanks.\nRegraded Unclassified\n298\n- 2 -\nH.M.JR: Well, look, let's go along point by point.\nMy own opinion is that it should be - when I say my own\nopinion - I think it should be limited to the banks.\nMR. BELL: You think it should?\nH.M.JR: I do.\nMR. BELL: I don't have as much objection to it as I\ndid. I was opposed to the other one, and I think that\nthe fact that you are going to announce the basket about\nthe same time or in a day or two takes that curse off of\na banking issue only. I wouldn't feel badly if it went\nto banks only, although I was opposed to it strenuously\nbefore.\nH.M.JR: Let's each one say what he thinks. Don't\nsay, \"I agree with Chairman Eccles.\" Either have 8 mind\nof your own, or you are of no use around here. (Laughter)\nMR. LINDOW: I think it is better to let everybody\ncome in. I think the public effect is better than to\nhave an offering at this time solely confined to banks.\nNow, after the drive I think it might be all right\nto have an offering confined to banks, that is, within\ntwo or three weeks; but I think it may be misinterpreted\nand that the Treasury may be criticized. I don't see any\nparticular gain in trying it.\nH.M.JR: All right, Henry?\nMR. MURPHY: Is it permissible for me to agree with\nLindow? He is different from Chairman Eccles. (Laughter)\nI go along with him. I think it might be unfortunately\ninterpreted. I think the public is - after the emphasis\nwe have had on trying to reduce bank subscriptions, I\ndoubt if an offering solely to banks would be correctly\ninterpreted. After the drive, yes, but I prefer it not\nnow.\nH.M.JR: Say it again.\nRegraded Unclassified\n299\n- 3 -\nMR. MURPHY: You will notice, Mr. Chairman, that\nthe bankers themselves-- (Laughter)\nH.M.JR: Pardon me - Mr. Chairman? (Laughter)\n(Mrs. Klotz entered the conference.)\nMR. MURPHY: You will notice the bankers themselves,\nwho would be the principal beneficiaries in an offering\ndirected solely to banks, are afraid of the psychological\neffect, and that their official committee has recommended\nto you that they should not be singled out. They feel\nthat the psychological effect would be unfortunate. I\nam inclined to believe they are the best judges. There\nis nothing wrong with it mechancially or intrinsically;\nit is just that I don't think it would strike the public\nright.\nMR. BELL: I think it would need explaining, too.\nMR. HAAS: You would have to say that the banks are\nnot going to be in the drive, and try to hook it up. It\nwould bring up the question--\nMR. MURPHY: An offering to the people of the United\nStates does not have to be explained, but an offering\njust to the banks will. It seems to me that the thing\nthat should be done would be the thing that requires - that\ndoesn't have to be explained away, rather than the thing\nthat has to be explained away.\nH.M.JR: All right, Mr. Piser. (Laughter)\nNow, Doctor Goldenweiser, what have you got to say?\n(Laughter)\nMR. HAAS: I think that before you do a job solely\nfor banks you must have first done a real job on individuals.\nThen I think it will go ahead all right. What I think is\na perfectly safe thing to do is the thing I suggested, keep\nthe two and a half and take the bankers' suggestion - the\nwhole thing, except the three billion - cut it down. And I\nRegraded Unclassified\n300\n- 4 -\nthink it leaves you open - you undoubtedly will put the\nseven-eighths in the basket.\nH.M.JR: Yes.\nMR. HAAS: Everybody is recommending that, except\nthis - I mean - I won't mention it. (Laughter)\nH.M.JR: I am just doing one thing at B. time. It\nhas been crowded here. So much for this for the minute.\nMR. TICKTON: The only reason that you would have it\nfor banks is the assumption that you are going to sell an\nimportant portion of this to non-banks and take it away\nfrom the drive. There is no evidence that & very important\nvolume of these certificates gets sold to non-banks in &\ntwo-day offering.\nAlso, I gather from having listened to these salesmen\nfor 8. little bit this afternoon, and after talking about\nquotas, that as soon 88 the idea gets around that there are\ngoing to be very large quotas in September, your corporations\nwill want the publicity of coming in on the drive and will\nnot show up for a seven-eighths-percent certificate the 1st\nof August. So the advantage that might otherwise seem a\nlarge one, really will be discounted by the activities of\nthese salesmen who are amazed at the size of the quotas and\nare going to be telling everybody, \"Boys, wait for September.\"\nThey discussed a few minutes ago how the pay-roll\nsavings drive is getting in the way of September. They\nthink that is bad. There shouldn't be anything to take\noff of September. I think they will get that around.\nH.M.JR: Pay-roll savings is bad; I will agree with\nthat.\nMR. TICKTON: There was a union statement on Sunday.\nThey said that that was going to get in the way of the\ndrive. But they are BO bowled over by the size of the\nfigures that they will get the word around pretty soon,\n\"Please save your subscriptions for the September drive.\"\nI think that will prevent, in some important cases, any\nsubscription for certificates in August.\nRegraded Unclassified\n301\n- 5 -\nH.M.JR: Now wait & minute. The consensus here is -\nplus this report from the Bankers which I just got now -\nthat we should have the billion six; it should be turned\nover.\nMR. BELL: Exchanged.\nH.M.JR: We agree on that?\nMR. MURPHY: Check.\nMR. HAAS: I do.\nMR. LINDOW: Yes.\nMR. TICKTON: That is all right.\nH.M.JR: Then my own feeling is that we make it\nnine hundred million for cash. If we make it, how much\nwould you have? Let's call it a billion. Why don't we\ncall it a billion cash?\nMR. BELL: It would be two billion six. That is\nwhat you would get out of it really.\nH.M.JR: Say a billion cash; if you had that, how\nmuch would you have?\nMR. BELL: We would go into September with a little\nover three billion dollars.\nH.M.JR: Is that all right?\nMR. BELL: Yes, that will last us. But in the next\nperiod - in the cash estimates there is an increase of\nfive hundred million in the November certificate. I\ndon't know whether we can increase the certificate of five\nhundred million any more the way theysubscribe for it.\nH.M.JR: Why not - let's say we will offer them the\nrights. That is simple, isn't it? They just exchange\nthe billion six for--\nRegraded Unclassified\n302\n- 6 -\nMR. HAAS: That gives the banks a break, because\nmost of them are now held by banks, and they just turn\nover.\nH.M.JR: Then we are going to offer a billion dollars\nmore for cash. Is that right?\nMR. BELL: Yes.\nH.M.JR: A billion dollars?\nMR. BELL: That is all right.\nH.M.JR: A billion dollars for cash, all right?\nMR. BELL: Yes.\nMR. MURPHY: Or a billion and a half, it doesn't\nmatter.\nH.M.JR: That extra half a billion dollars may look\nawfully good in September.\nMR. MURPHY: Could I raise a question? Mr. Bell\nspeaks of going into September with three billion. What\nI am thinking of is the working balance on the 15th. I\nhave the theory - which may not be a good one - that\neven immediately upon the eve of the receipt of the large\namount of money we ought to keep a more or less appreciable\nworking balance.\nH.M.JR: The drive opens on the 9th - don't we begin--\nMR. BELL: We don't get any money until the 15th,\nbut the three billion three will be ample to carry us\nthrough the 15th. I haven t figured just what it will be,\nbut we ought to spend possibly two and & half billion up\nto that date, and we will begin to get taxes along about\nthe 10th. Your taxes will come in heavy between the 10th\nand the 20th.\nH.M.JR: Are you satisfied?\nRegraded Unclassified\n303\n- 7 -\nMR. BELL: Yes, I am satisfied. It wouldn't worry\nme any if we had to borrow a little at that point.\nH.M.JR: I mean, half a billion dollars may not sound\nso important here; but if we are going to need it for the\ndrive, I would rather-\nMR. HAAS: You want this to go over with a bang\npreceding the drive.\nH.M.JR: Let's keep it to 8. billion dollars, a\nbillion dollars of certificates for cash, everybody can\nsubscribe.\nMR. BELL: Open to everybody?\nH.M.JR: Open to everybody?\n(Group indicated affirmatively.)\nH.M.JR: Why give any preferred allotment?\nMR. BELL: I would rather not make any preferred\nallotment - ten percent downpayment on all.\nH.M.JR: I would make it--\nMR. BELL: If you are going to give any preferred\nallotment, I would like to reduce the hundred thousand\nto fifty thousand, and I would like to use our old wording\nof \"preferred allotment,\" rather than \"allotment in full.\nH.M.JR: No, I wouldn't give any preferred allotment.\nMR. MURPHY: One difficulty with a billion is that\nthe allotment for general allotment is liable to be zero;\nthat is, preferred allotment may take up the whole billion.\nIt will look kind of foolish.\nH.M.JR: No preferred allotment?\nMR. MURPHY: At a billion I think you are more or\nless forced to abandon it because there is an important\ndocument for it - you are squeezed out of it.\nRegraded Unclassified\n304\n- 8 -\nH.M.JR: You are taking care of the banks that have\nalready subscribed. If the fellow wants to get something\nhe can go out and buy & few rights, can't he?\nMR. BELL: Yes.\nH.M.JR: My inclination is for no preferred allotments\nand twenty-five percent down.\nMR. BELL: Twenty-five? I had ten. Twenty-five\npercent ondown payment?\nH.M.JR: Yes, sir.\nMR. BELL: The trouble with that is you have to\nrefund a lot of money if the allotments are less than\ntwenty-five percent.\nMR. MURPHY: One purely psychological difficulty\nwith it, it seems to me, is that the allotment - the down\npayment is 80 small this time; and to put it from way\ndown here (indicating) to way up here (indicating) sort\nof looks as if you are--\nH.M.JR: Ten percent - I will go along with ten\npercent. How are you going to let banks subscribe,\nuse this formula of the bankers?\nMR. BELL: The bankers suggest a hundred percent of\ncapital funds or five percent of deposits, whichever is\nhigher. I take it the Board liked that. That deposits\nmeans total deposits, I take it, including the war loan\nand including inter-bank.\nMR. MURPHY: And capital funds includes undivided\nprofits.\nH.M.JR: How much would we get under that?\nMR. BELL: A hundred percent would give you about\neight billion.\nRegraded Unclassified\n305\n- 9 -\nMR. MURPHY: We figure the deposits were about a\nhundred million and the capital funds seven billion,\nabout, 80 you get five billion on one basis and seven on\nthe other. But each bank can elect to take the higher of\nthe two bases, 80 your total permissible subscriptions\nwould be seven and a half to eight billion with only a\nbillion of new cash. That is a pretty loose-fitting\ngarment.\nMR. BELL: It would be somewhere between S even and\nfive.\nMR. MURPHY: They would have to be a bit higher than\nseven, because they have the choice of the two bases. In\none it is seven because capital surplus and undivided\nprofits will be about seven.\nMR. BELL: This certainly would be ample for the\namount of money.\nMR. MURPHY: Of course, you won't get that many sub-\nscriptions; but if everybody subscribed their limit, you\ncould get between seven and eight billions.\nMR. HAAS: That is just for the banks alone, too.\nMR. MURPHY: That is right, and only a billion to go\nfor, 80 you are all right.\nMR. BELL: If you are going to open it to the public,\nit wouldn't do any harm to take a billion and a half.\nH.M.JR: A billion is plenty.\nMR. BELL: From the standpoint of the cash I think\nit is. From the standpoint of allotting and subscribing--\nH.M.JR: Well, it will be eleven hundred million.\nI think what I am going to do 80 we don't get this\nthing - last time we let something get through our fingers.\nI am going to ask Mr. Bell and his staff to write this\nRegraded Unclassified\n306\n- 10 -\nthing up tonight. We will meet here again at nine o'clock\ntomorrow. Everybody sleep on it and get a chance - we\nwill review the thing again at nine tomorrow. If it is\nall right, we can give it out by ten o'clock.\n(Mr. Rouse entered the conference.)\nH.M.JR: Do you think that is all right?\nMR. BELL: Yes. I think it crowds us a little tomorrow.\nH.M.JR: You mean you want to get it out tonight?\nMR. BELL: I did.\nH.M.JR: I won't stop you. I am all right if you\nfellows are all right.\nIf we got it to you by ten o'clock, could you print\nit and get it in the mail tomorrow afternoon?\nMR. ROUSE: I believe SO.\nH.M.JR: You might send them the preliminaries\ntonight and get ready for final word by ten tomorrow morn-\ning.\nMR. ROUSE: We could do that, Mr. Secretary. They\ncould have it put in type for the form you sent up, which\nwe received yesterday - which I recall the banks received -\nhave that put in type, and any changes you have ready\ntonight, and then the final thing the first thing in the\nmorning would be all right.\nH.M.JR: As I say, it is nobody's fault but my own,\nbut they rushed me a little bit. I want to get it in\nshape and then have a fresh look at it tomorrow morning.\nIt is a lot of money. I would feel better about it.\nMR. ROUSE: We can handle it.\nH.M.JR: Give it for immediate release to the\nnewspapers at ten o'clock.\nRegraded Unclassified\n307\n- 11 -\nMR. ROUSE: The thing will be very widely spread\npromptly over the telephone wires.\n(Mr. Gamble entered the conference.)\nH.M.JR: I want you to know about this. Rouse\nhasn't heard about it. What we think of doing is - a\nbillion six hundred million dollars' worth of certificates\ncome due on August 2. We are offering to present holders\nthe right to subscribe to a new issue of the same amount.\nThat is number one.\nThen, number two, we are proposing to offer a billion\ndollars for cash of new certificates, one-year, seven-\neighths, with no preferred allotment to anybody. Everybody\nhas 8 right - open it to the public.\nMR. BELL: Down payment--\nH.M.JR: Down payment of ten percent. And then for\nthe banks, five percent of their total deposits or their\nsurplus deposits, either one, whichever is the higher.\nThey can have their choice. They say this roughly makes\navailable about eight billion dollars' worth of subscriptions.\nMR. ROUSE: From a Reserve Bank standpoint, would you\nwant us to place - have any ceilings on subscribers other\nthan banks?\nH.M.JR: I don't think I understand. You mean, do we\nexpect you to do policing?\nMR. ROUSE: Yes, to have restrictions on subscriptions\nfrom other than banks.\nH.M.JR: Yes, you make your house rules.\nMR. ROUSE: We had rules which Dan has there that\nyou published about a year and a half ago before the\nadvent of war financing.\nRegraded Unclassified\n308\n- 12 -\nH.M.JR: Look, if it is all right with you fellows,\nit is all right with me.\nMR. BELL: I hate to go back to those restrictions.\nMR. HAAS: Let's try the ten percent first.\nMR. ROUSE: I am willing to try it and see if we have\nto do it.\nH.M.JR: What I would do is this - are you satisfied\nso far?\nMR. ROUSE: Yes, sir.\nH.M.JR: Are you satisfied?\nMR. GAMBLE: Yes, sir.\nH.M.JR: They wanted three billion, but I want to keep\nit down to two billion six so we will have them with their\ntongues hanging out in September.\nIf you will adjourn this meeting to your (Bell's)\nroom and get the thing all fixed up, Mrs. Klotz will put\nit down for nine o'clock tomorrow morning and we will\nhave a fresh look at it.\nMR. BELL: You want a formal release tomorrow by ten\nor just an informal one?\nH.M.JR: You mean all?\nMR. BELL: Yes.\nH.M.JR: I think just the stuff for Schwarz to give.\nMR. BELL: Then a formal release Thursday morning\nannouncing it in the usual way, or would you rather have\na complete release?\nMR. ROUSE: I would put a little more in than usual,\nbut you mean the substance of the terms tomorrow morning\nwith all the additions Thursday morning - that is fine.\nRegraded Unclassified\n309\n- 13 -\nMR. BELL: It will probably get a little better play\nbecause your morning papers will carry it.\nH.M.JR: Are you satisfied on this?\nMR. ROUSE: Yes. It isn't exactly what I suggested.\nRegraded Unclassified\n310\nMEMORANIUM\nFor The\nSECRETARY OF THE TREASURY\nBy The\nSPECIAL COMMITTEE ON THEASURY HAR DORROWING\nor The\nAMERICAN BANKERS ASSOCIATION\nis requested by you 10 have reviewed the memorandum submitted by\nthe Federal Reserve Board, and in this commestion discussed the matter with\nMr. Feeles and also with Mr. Bell, Mr. Heas and their associates in the\nTreasury Department. The Federal Reserve and the Treasury both agreed that\nthe general present pattern of rates on government securities should be\nwaintained within limits that, while permitting some market fluctuations,\nwill not very up or down to a degree that will shake the confidence of the\npublic in the general stability of the rate structure. with this we fully\nagree.\nInderal Reserve\nAt the present time the emply of short-torm Government securities\nrunning up to 10 years which nzo porticularly subtable for bank investment\n1s not, except in the one of 90-day bills, equal to the demand. The supply\nof 90-day bills at the payment rate of 3/8 of 18, - with the agreement of\nthe Federal Reserve banks to purchase them at this rate, has reached the\nsaturation point. At the present time it to obvious that any increase in\nthe amount of bills outstanding will find their my into the Federal Reserve\nbanks. This lask of abort-term investments, other then 90-day bills, sult-\nable for bank's investment, has enused may banks to buy long-term covernment\nRegraded Unclassified\n2.\n311\nsecurities which were designed primarily for other investore and has put -\nundesirable (wessure on the whole rate structure, tending to dialcoate it\nand to lower the rate on long-term government securities to & point where\nInvestore other the banks will not buy them.\nThe Federal Reserve suggests that no nore bills or year certifi-\nontes be 1ssued, but that instead 9 months bille or certificates, bearing\n3/45 interest, be issued into which the present outstanding bills end leyear\ncertificates would be refunded as they mature and that the Federal Reserve\nbanks would agree to purchase such 9-month bills or certificates at 3/4 of 1%.\nWhile the proposs] of the Federal Receive System would tend to\nallevinte the present pressure for short=torm securities available for bank\ninvestment, we believe that the - result wight be obtained by not onlarg-\ning the amount of 90-day bills outstanding until the mrket has clearly\ndemonstrated its ability to absorb them, end increasing the supply of 1-year\n7/8 certificates, end supplying more 1 1/26 notes having a naturity of\n5 years or less and of 25 bonds having a musity of 10 years or less when\nthe next offers designed primarily for banks nre made by the Trensury. le\nbelieve it better to try this program to see if it would not remedy the\nsituation rather than at this time adopt the Federal Beserve Board's sug-\ngestion.\nIf this does not remady the situation, then sono plan clang the\nlines of the Federal Reserve should be given serious consideration. The\nobjectives of the Federal Reserve and the Treasury are 80 nearly identical\nthat close cooperation between the two in adopting a a objective and\nmking effective a progres should bring success.\nIn regard to the specific questions which are contained in the\nRegraded Unclassified\n312\n3.\nexecutive submitted by the Univer Secretary and on which 16 were requested\nto give our recommendations, they are made in the (mere) light of the fore-\ngoing consumsion.\nTHING WAR LOAN\n1.\nNost securities should be in the basket for each\nclass of investor?\nno resormend for the basket the following:\n7/85 1 year Certificates of Indebtedness\n2% Bond due 10 years callable 8 years\n2 1/2% Bond due Dec. 15, 1969 callable Dec. 15, 1964\nB, F, and G Sevings Bonds\nPresent Series C Tax Sevings Notes\nno recommend the inclusion of 7/8 one year certificates because -\nbelieve that without them, it would be difficult and probably impossible to\nget corporate subscriptions to the amount estimated.\nSimultensously with the amountment of the banket we think that\ne statement should be made that the 7/8% Certificates of Indebtodness and the\n2% Bonds will to offered to banks only not ecrlier then Detober 15 ner later\nthen November 2 in a minimum - of 2 1/2 billions, this amount to be in-\ncreased as may be needed, of which a substantial amount will be of the 2%\nbonds. No believe such en amount would tend to reduce the pressure\nfrom banks seeking to invest I reserved during and imediately after\nthe period of the drive.\n2.\nShould the timing of the corporation part of the\ndrive be seperated from the individual part?\nAnswering question two W think that the corporation part of the\ndrive should not be separate from the individual parts\nRegraded Unclassified\n313\n4.\n3.\nShould banks be offered the marketable securities\nissued in the drive after the cless of the drive?\nThe third question has been answered in commotion with question\none.\n4.\nShould a partial payment system be established for\nthe 2-1/2'01 for large demoxization = bonds?\nhameering the fourth question there should be no partial payment\nplan for the 2 1/2's particularly if 0's are offered and 10 000 no prooti-\ncel my to provide for partial payment of 24 bonds on account of administrative\nexpense, shortage of mapower and difficulty of policing.\n5.\nShould the Treasury and the Federal Reserve publicly\nencourage the withdrawale of bank deposits for the\npurchase of was bonds during the drive?\nAnswering number five we recement that that question be left\nto the State Chatresn and their comittees soting in collaboration with the\nbanks end because of the varied conditions that provail throughout the\ncountry. This is particularly important in states where there are Natual\nSavings Banks.\nINTERIM PIRANCING\nShould a limitation on bank and other subscriptions\nbe established on the August 1 Lanues should ab-\ncoriptions of $100,000 be allotted in full with 100\npersent down payments required; should this offering\nbe open only to banks?\nNo recommend that 3 billion of new 7/8% 1-year Certificates of\nIndebtedness be issued to take up the certificates enturing August 1, 1943\nand to provide one and one-half billion now many. Re suggest that holders\nof naturing certificates be permitted to enchange them for the new -\nRegraded Unclassified\n314\n5.\nAnswering your question, - suggest that bank subscriptions be\nRegraded Unclassified\nlimited to 100% of capital funds of se of deposits, whichever 10 bigher,\nas shown by the last published figures, except that bank subscriptions up\nto $100,000 be alloted in full. As to subscribers other than benks, we\nthink subscriptions of $100,000 should be allotted in full and down payment\nof 100% be required and that above $100,000 10% be required. Subscriptions\nshould not be limited to banks. clokect\nNo. 1 - Overwall quotas.\nThere should be - overall quota. He haven't sufficient\ninformation to advise as to the amount, but it should not be not higher than\nyou can reasonably expect to attain. It appears to us that the amount of\n7 billions for individuals is too high.\nno. 2 - Should over-all quota be broken dom\nby States and other politionl sub-divisions)\nThe think state quotes should be fixed and that any further\nbroakdown shown be left to the State Chairmen and their comittees.\nNo. 3 - Should any quota or quotas be\ndoen by types of securities?\nNo. le think imprectical.\nNo. 4 - Should the total be broken down by classes\nof invetors?\nFe think should be done for benefit of State Chairman but not\nende public.\nNo. 5 - that quota of quotas should be made\npublic?\nTotal quota should be ennounced and any other publicity on\nquotas should be left to the State Chairman.\nFiled 4:00 Della 7=16=43\n315\nJuly 20, 1943\n4:15 p.m.\nRe: Request of Senator Truman regarding\nlocation of War Finance headquarters.\nPresent: Mr. Gamble\nMrs. Klotz\nH.M.JR: I got all excited. Senator Truman\ncalled me up - this is from the sublime to the\nridiculous - and said he would consider it a great,\ngreat favor if I would not move the War Finance\noffice from Jefferson City to St. Louis.\nHow important is it to you?\nMR. GAMBLE: It is very important. We have al-\nready moved it, as a matter of fact.\nH.M.JR: You already moved it?\nMR. GAMBLE: But we can keep a district office -\nas a result of his interest we can keep an office in\nJefferson City. We have already rented the space in\nSt. Louis.\nH.M.JR: Have you given up the other?\nMR. GAMBLE: I don't know that we have given up\nthe other space, but even if we have we can maintain\n8 district office.\nH.M.JR: I wouldn't do it if it is--\nMR. GAMBLE: It is very impractical. I will tell\nyou what happened. There was a little bit of a political\nRegraded Unclassified\n316\n- 2 -\nsituation. Our man located this office in Jefferson\nCity, with the story they didn't want to be in either\nKansas City or St. Louis. It is ridiculous, with St.\nLouis one of the financial centers of the country, not\nhaving State headquarters there. But Mr. Head is\nchairman, and we moved the--\nH.M.JR: I will send him a telegram. Say, \"Have\nlooked into the question that you telephoned me about\nand find that the decision had already been made to\nmove the State headquarters of War Finance to St. Louis.\nI find that this is in the interest of efficiency and\neconomy. Kindest regards.\"\nRegraded Unclassified\nEXPENSES OF LOANS\nJuly 20, 1943\nSENATOR HARRY S. TRUMAN\nPRESIDENT HOTEL\nKANSAS CITY, MISSOURI\nAM SORRY I DID NOT HAVE YOUR VIEWS BEFORE TODAY CONCERNING LOCATION OF\nTHE WAR FINANCE HEADQUARTERS, I FIND THAT CONSIDERATIONS OF ECONOMY\nAND EFFICIENCY HAD DICTATED THE MOVE TO ST.LOUIS WHICH IS NOW UNDERWAY\nAND WHICH COULD NOT BE RECONSIDERED WITHOUT SETBACK TO THE ORGANIZATION\nWHICH IS IN ADVANCED STATE OF FORMATION. KINDEST REGARDS\nHENRY MORGENTHAU, JR.\nSECRETARY OF THE TREASURY\nRegraded Unclassified\n318\nJuly 20, 1943\n4:15 p.m.\nMrs.\nFour:\nHello, Mr. Secretary.\nHMJr:\nTell Mr. Smith this, that he should get in touch\nwith Mr. Bell when he gets in - we'll have a release\non - financing which should be typed tonight - we're\nhaving a meeting at nine c'clock on It tomorrow\nmorning but I want all the work done tonight.\nF:\nYes, sir.\nHMJr:\nHe should see Mr. Bell BE soon 85 he comes over\nbecause I want the thing released before ten o'clock\ntomorrow.\nF:\nAll right, sir. I certainly will.\nHMJr:\nHave you got that?\nF:\nYes, sir, I have.\nHMJr:\nThank you.\nF:\nThank you.\nRegraded Unclassified\n319\n25\nJUL 20 1943\nDear Frank:\nThe Third War Loan Drive, beginning September 9. 1943. will\nair at raising the largest amount of money from individuals that\nany drive has raised in the history of the world.\nBetween July first and the end of the calendar year, ve will\nspend about 35 billions of dollars more than we will take in.\nIt is costing $240 millions a day to equip our armed forces and\ntake care of other necessary war expenditures. This is nearly\n$100 million a day more than we were spending last year at this\ntime.\nIn the September drive, we vant to get from individuals a\nsubstantial part of the money necessary to carry on the war.\nSelling the huge amount in bonds called for in our new pro-\ngram vill require a. more determined effort than we have ever\nexerted before. We will have to well bonds to nearly every can,\nVOMAR, and child in America.\nWe will have to promote the sale of bonds 24 hours a day\nand solicit - and follow up these solicitations - from house to\nhouse, from bench to bench in factories, and from desk to desk\nin offices, Ve need the cooperation of all the people every-\nwhere, for to do the job ahend ve must not only extend the pay-\nroll anvings plan, but ve must also sell more extra bonds every\npay day to more people.\nDuring the last six months of this calender year, we must\nsell more than twice as much in bonde to individuals as we did\nin the first of the year. Asking for twice as much money from\nindividuals may look at though we are setting an impossible\ntask, but it is possible. The earnings of individuals during\nthe last half of the year will be about $72 billions and the\navailable savings from these earnings of individuals will be\nabout 823 billions. We are going after the greater portion of\nthese savings because it is necessary for us to get this money\neither through bonds or taxes, not only to finance the var,\nbut also to protect ourselves against inflationary spending.\nOne of the main channels for selling bonds to salaried\nand wage earners is through the pay-roll givings\nemployees system. At the present time, 27,000,000 employees in Government\nInitialed copy to Thompson.\nCopy of ltr and enclosure\nin diary.\nRegraded Unclassified\n320\n- 2 -\nment and industry are purchasing $420 millions of War Savings\nBonds a month through the pay-roll savings plan. Our new objec-\ntive 10 to increase this to $600 millions a month.\nCivilian employees of the Federal Government are now invest-\ning approximately $35 millions a month through the pay-roll savings\nsystem. This does not include bond purchases by employees of the\npost offices throughout the country because they have not as yet\ninstalled the pay-roll allotment method. However, I am informed\nthat you have approved the installation of the pay-roll savings\nplan in the post offices at Washington, D. C. and Baltimore with\nthe understanding that 12 it proves successful in operation it\nwill be extended to other post offices.\nThe purpose of this letter is to ask if you would be good\nenough to release a. statement in the near future concerning the\nWashington, D. C. and Baltimore installations, and that you would\nconsider extension of the plan to post offices in other cities as\nrapidly no possible. In this connection, I as enclosing for your\nconvenient reference a copy of & letter recently addressed to ne\nby the President saying that \"the pay-roll savings plan 1s the\ngreatest single factor ve now have in protecting ourselves against\ninflationary spending.\" In an sorlier letter, the President said\nthat \"The wholehearted support of the voluntary system of pay-roll\nsavings by employees of the Federal Government will have a most\nstimulating effect on our soldiers, mailore, and marines, ne well\nas the millions of war workers in private industry: while our\nindifference seriously affects the support of those who look to\nus for guidance.\" The President then added that \"It would please\nme very much if the employees of the Federal Government should\nlend the vay in the development of n. systematic nethod of sus-\ntained savings through the pay-roll allotment plan.\"\nIn the absence of a general pay-roll savings plan in the\npost offices, I would appreciate it if you would designate some-\none to confer with Mr. E. F. Bartelt, Chairman of the Interdepart-\nmental War Savings Bond Committee with a view to stimulating cash\nmales of war Bonds to Postal employees during the Third Var Loan\nDrive.\nI hope you will give this matter your personal consideration.\nSincerely yours,\n(Rigned) M. Morgenthau, J)\nSecretary of the Treasury\nHonorable Frank 0. Walker\nPostmaster General of the U. S.\nWashington, D. 0.\nartelt:JM\n16/43\nEnclosure\nRegraded Unclassified\n321\nTHE WHITE HOUSE\nWASHINGTON\nJune 24, 1943.\nKy dear Hr. Secretary:\nThrough you, as Secretary of the Treasury, I want to congratulate\nthe American people on the way in which they have supported the volun-\ntar. payroll savings plan.\nI An proud of the fact that 27,000,000 patriotic Americans are\nregularly investing more than $420,000,000 a month to help pay the\ncost of the war. And since all of this money comes from wages and\nsalaries -- nearly 90 percent from people carning less than $5,000.\nand the bulk of it from those working in war plants -- I do not hesi-\ntate to say that the payroll savings plan is the greatest single\nfactor we now have in protecting ourselves against inflationary\nspending.\nThis is a great record, both from the standpoint of curbing\ninflation and from the standpoint of financing the war, However,\nI heartily endorse your present drive to improve that record, and\nI agree it must be improved if we are to keep pace with the\nincreasing demands of the war.\nI therefore join you in calling upon the American people - and\nupon labor and management particularly - to do still more. Addi-\ntional people should be convinced of the necessity of participating.\nEveryone now on the payroll savings plan should materially increase\nthe amount of bonds he 1e buying. We originally asked for 10 percent,\nbut now we need considerably more.\nI hope every American on a payroll will figure out for himself\nthe extent to which he can curtail his spending, and will put every\ndollar of additional saving thus made into the payroll savings plan.\nSincerely yours,\nFinalitan Informato\nThe Honorable,\nThe Secretary of the Treasury.\nRegraded Unclassified\n322\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE\nTO:\nThe Secretary's Office\nJuly 20, 1943\nFROM:\nMr. Delehanty\nI am attaching E copy of the material included in the\npromotion built sround the letters from the Chief Justice and\nthe members of the Internal Revenue Taxation Committee.\n1. The full-page newspaper ad together with the 1000 line,\nadaptation wore sint to 3,000 newspapers, with a\nrequest to insert this advertisement at the very first\npossible moment.\n2. 250,000 copies of the attached postor were mailed\nfrom Chiongo to every plant on the Tickton list.\nAdditional copies were sont to each State Administrator\nfor 6. supplementary distribution in his State.\n3. The three-column rat release of each lotter was railed\nto approximately 2500 company publications und 50\nLabor Pross papara.\nL. Reproductions of each letter were cont to approximately\n30,000 plants throughout the country using the Tickton\nlist.\nRegraded Unclassified\nTo Newspaper Advertising Manager\nHere is an important message concerning the\nPayroll Savings Plan. It will obtain an unusually high\nreadership because it will be of interest to every\nAmerican. We suggest that you insert it in the\nearliest convenient issue as a replacement for another\nadvertisement in your War Bond advertising schedule.\nWar Finance Division\nU.S. Treasury Department\nTO THE AMERICAN PEOPLE\nSUBJECT:\nA RECOMMENDATION\nFROM THE CHIEF JUSTICE OF THE U.S.\nFROM THE CONGRESS OF THE U.S.\n/\n/\n/\n- - - - - -\n- Empress - - of - the Haven States\n/\n/\n/\n\\\n-\n-\n-\nV\n- 29, 1943\n- 29, 19(3\n-\n-\nDear Mr. Secretary\n-\nTreasury\n- write the The - drive you for blood wating - Us - - the description or your expended Par-\n-\n-\nI\nof\nI\n3\n- are NAME - to 4nd - Committee - - is Dat\n-\n-\ncongrator\nLated deal' - goth Decretary - and - - country of UM are voluntary williem Payrell -\nsurvices earners - - - $620,000,000 ** PLan. - are of of virtaine replarit primary - tapertance - Lawesting \" sgainst $4 - as \" - - all une Government all non - to of withing citizens per - use \" - - se - -\n- - - of - one\nalso - that - an of - - 10 my\n- - to diverted Not financing the - mily \" nos - May the dies - have the Md. - the in perchasing Treasury - that inflation. like - the - American - - - address 4bt de Less that - people funds, - and pails be - \"Ill - be participation may la ap metribution dallar materialis. for la the\n- This pardams partent plan - sillice of has or or American Fresh Mar *ith already Serious 700, Pay achieved working envelope - - Bonde Manager - the Fine - promote Missy - receipt. the Are - the The the - to Part Seriage - increase **ide Use Please Plan, Itemis, - class the\nPRIVINE - - Treatment DP - of to - -\n- of something - - Any\npast,\n1\nto\nà\n1 -\nHow\nMarian\n-\nBill the Treasury fr.\nMembers\nof\nthe\nJuint\nCommittee\n-\nRevenue\nValter\nGewrge,\nII.\nBes.\nBehert\nL\nL\nF.\nI\n($)\n- a.\nlive\nL\n(KC)\n3\nBesil\n(Min.)\nFejo\n1\nMonne\nFIGURE IT OUT\nYourself! BUYING THE PAYROLL SAVINGS PLAN\nBOOST YOUR BOND\nSPONSORS NAMES HERE\nRegraded Unclassified\nTo Newspaper Advertising Manager\nHere is an important message concerning the\nPayroll Savings Plan. It will obtain an unusually high\nreadership because it will be of interest to every\nAmerican. We suggest that you insert it in the\nearliest convenient issue as a replacement for another\nadvertisement in your War Bond advertising schedule.\nWar Finance Division\nU.S. Treasury Department\nTO THE AMERICAN PEOPLE\nSUBJECT:\nA RECOMMENDATION\nFROM THE CHIEF JUSTICE OF THE U.S.\nFROM THE CONGRESS OF THE U.S.\n//\n-\n- - - - -\n- Compress - of INTERNAL the United States\n/\n/\n/\n\\\n1\n1\n-\n1\n- 29. 1943\n- 29, tky\n-\n1\n-\n/ il /\n/\n-\nHospitale\n-\nTreasury\nI\nof\nThe\nV\né\nc.\n\"\nbe\ncongrato\"\nMY - Mr. Both Secretary vursing - - - - country of the - - million Payroll -\nThis\n- Pall Alan write The - or are from - already happy drive you Serings for to haved achieved and - milling Bonds - - Line through the as Committee - the - description the *Fleare Payments drive - the It to or Due Smite Increase your formir, Finance expended 1 the Pay-\n2000 - - year- - - regilarly - Investing 14 twenty-seves - is - - - of bands - - - -\n- $620,000,000 1. of primary lagortance - to as Inflation - ast to winning put \" 14\nThe against citizens\n- - - esteguard that - - of service - - - marridnes. are -\n- Important the forgotten an of - 18 de - 18 by\ncampular to directed Not financing the les - miy \" Apr percess - they from No sillia does or - Attes have the this - of the American la my purchasing with Treasury - that inflation, Too, should Pay the wickings - survaloge hower, American rine be \" added - . lato 4Nd that fine Niet people and funds, m and - public record. be - bist statemed by - la participation my The assure in - contribution - fart this dollar Service asterially. uside that for In Plan, - the\nreviving - of treatom from - prop pilenty of\nde part,\n-\na\nseving\nwe\n- sincerely,\nHow\n/\nBarlan\nghom\nI F $ / il I ,\na\nc,\nMembers\nof\nthe\nJain\nCommittee\n-\nInternal\nTasation\nValter\nF.\nGoorge,\nArther\nB.\nHas\nRobert\nL\nand\nBen.\n-\n(Ca)\nal\n(KC)\nlis\nRevil\nEmail\ni\n1\nCommittee\nFIGURE IT OUT\nYourself! BUYING THE PAYROLL SAVINGS PLAN\nBOOST YOUR BOND\n-\nSPONSORS NAMES HERE\nRegraded Unclassified\n324\nTo Newspaper Advertising Managers:\nHere is an important message concerning the\nPayroll Savings Plan. It will obtain an unusually high\nreadership because it will be of interest to every\nAmerican. We suggest that you insert it in the\nearliest convenient issue as a replacement for another\nadvertisement in your War Bond advertising schedule.\nWar Finance Division\nU.S. Treasury Department\nTO THE AMERICAN PEOPLE\nSUBJECT: A RECOMMENDATION\nFROM THE CHIEF JUSTICE OF THE U.S.\nFROM THE CONGRESS OF THE U.S.\n- - - - -\n- Com - of / 4 - - -\n/\n/\n- a. 1947\n-\n-\n(\n1\nmy\n-\n\\\ná\n-\n1\n1\n/\nI\nmis\nhe\nthe\n-\nTreatment\n-\n-\nor\nI'\n-\na\n=\n-\n/\nIl\na\n/\n-\n=\nVi\n-\nI\n/\n\\\n-\n-\n-\n-\nthe\n1\n-\n-\nwill\n-\n-\nnords\n-\n/\n/\n-\n-\n-\n-\n-\n/\nwithin\n-\n-\nI\n-\n/\n-\nin\n\"\n-\n-\nClass\n/\n1\n-\n-\n-\nla\n1\n-\nthe\nne\n-\n/\n-\n-\nthe\nthat\n-\n-\nI\n-\n1\n/\n/\nregulaily\n-\nof\n====\n-\naté\n-\n/\n1\n/\n-\n/\n/\nfar\n\\\n-\npromit\n-\n1\n-\nof\n-\n-\n/\n-\n/\n-\n1,\n-\n1\n1\n-\n/\n-\n-\nF\n-\n-\na\n/\n4\n-\n-\n-\n-\n-\nRese\nI\nI\n/\n-\n/\n-\n-\n-\n-\n-\n-\n-\n-\n-\nNet\n7\n-\n1\n1\nthe\n/\n/\n/\n-\n-\n-\n-\nhave\n-\n4a\nI\n-\nE\n-\n/\n-\n15\n-\ni\n/\n&\n1\n-\n-\n/\nla\né\nMembers of the Joint\nCommittee on Internal\nRevenue Texation whose\nsignatures appear above\nares Senator Walter F.\nIF F.\nlim.\nL\nMinnesse\nGeorge, Semater Arthur\nChairman,\nWays\nII. Vändenberg, Hoa,\nCommittee\n1\nRobert L Doughton, and\nHas\nHarold\nKoutson.\nFIGURE IT OUT!!\nYourself! BUYING THROUGH THE PAYROLL SAVINGS PLAN\nBOOST YOUR BOND\nSPONSORS NAMES HERE\nRegraded Unclassified\nTO THE AMERICAN PEOPLE\nSUBJECT:\nA RECOMMENDATION\nFROM THE CHIEF JUSTICE OF THE U.S.\n- FROM - THE CONGRESS OF THE U.S.\n/\n/\nfrom\nSuprese - of the \"Amil+8 B.C. Sixtre\nCongress COMMITTEE of the United\n/\n- Mastington On INTERNAL REVENUE States TAXATION\nIn THE\nJune 29, 1943\n-\nDear Mr, Secretary:\nJune 29, 1963\n/\nE- 0.\nof\nthe\nTreasury\nMy dest Mr.\npurchases Committee roll or are Thank au happy you Sevings to #ipport Moans the Committee propert and the It Senate Out Increase fourselfs, Finance\nsavings the House drive for based and sending - the us theme the description \"Figure of your expanded pay-\nSecretary's and the country are to - congratur Payrell\nBoth striking you success of the Voluntary million n°\nlated an Flan. the regularly Through invoice it twenty-seven in the Dovernment 000% et hands not\ntan terms percest - or agree has or American may - already you, pay achieved workingson however, envelope a through and fine end salary - record. the are check Payroll The notting fact Sevings and that Plan. almost twenty- the\nearners than This war and $420,000,000 1ª are of \" primary . sefeguard that & importance sonth ed against sany to anot of \" siving inflation. our an fellow aid [rom to citizens winning earning* But is \" - - DOB\ndiverted Not materially.\nPinamaine only for In Stamir. the\nThis from does Also the the this purchasing Treasury mar should New be Bonds added 4nd are that funds, be public stepped participation drive contribution up speaks to\nalso important forgotten art of \" by\nreviving securing the freedom from ent in today. she two\nany saving of something (TOM the plenty of\nappeal campaign to the 4a fight and Way - have against know 4a that the inflation. Past, the American otreas No Wish into people you assings *ill success but 1a respond every 4n à this dollar to this\nYours sincerely,\ntheir\nSincerely,\nHarian\n7.\nstone\nMembers of the Juint Committee on\nInternal Revenue Taxation whose\nsignatures are Senator\nWalter F. George. Segator Arthur H.\nVandenberg, Hon- Habert L. Dough\nSending # offer George (Ga)\nSignature dether N. Fundenberg,\nfan, and How. Harold\nChairmen\nNon. Return L (X.E.)\nMichigan\nNon. Harold Knurson (Minn.)\nSente France Committee\nChairman\nVinerily Ranking Member\nMember House Ways and\nNouse Vegional Means Commiter\nMana Committee\nFIGURE IT OUT\nBOOST YOUR BOND\nYourself! BUYING THROUGH THE PAYROLL SAVINGS PLAN\nRegraded Unclassified\n326\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 20, 1943\nTO\nSecretary Morgenthau\nFROM\nMr. Paul\nFor your information, on July 14, 1943, Mr. Colin Stam,\nChief of Staff of the Joint Committee on Internal Revenue\nTaxation, submitted three formal requests to obtain data\nunder the additional powers which were conferred upon him\nby the Revenue Act of 1942, Section 5012 of the Internal\nRevenue Code.) The requests are as follows:\n1. Within five days from July 14, 1943 furnish \"Any\nsuggested alternative plans already prepared by the Treasury\nDepartment in 1943 for raising additional revenue or combat-\ning inflation, together with accompanying schedules.\"\n2. Within seven days from July 14, 1943 furnish for\nthe calendar year 1943 a series of detailed estimates relat-\ning to the number of returns, income tax base, and tax yield\nof the individual income tax, corporation income tax, declared\nvalue excess profits tax, and the capital stock tax, distributed\nby income classes.\n3. Within five days from July 14, 1943 furnish for the\ncalendar years 1940, 1941 and 1942, a series of detailed data\nrelating to the number of returns, tax base, and tax for the\nindividual income tax, corporation income tax, declared value\nexcess profits tax, the excess profite tax, and capital stock\ntax, distributed by income classes.\nThe attached copy of the letter to Mr. Stam was cleared\nwith Under Secretary Bell and indicates the material which I\nam forwarding to him in compliance with his first request.\nSo far as practicable, the data for the two remaining\nrequests are being prepared and will be submitted as soon\nas they are ready.\nBP\nAttachment\nRegraded Unclassified\n327\nJUL 20\nDear Mr. Stam:\nIn accordance with your request of July 14, 1943,\naddressed to Mr. Paul, I am enclosing material that is\nbeing studied by the Treasury Department respecting\npossible alternative plans for raising additional reve-\nnue or combatting inflation.\nThis material consists of (1) two possible cor-\nporation surtax schedules; (2) four possible individual\nincome tax schedules; (3) 8. series of possible excise\ntax changes and additions; (4) a possible schedule of\nrate increases and exemption decreases for the estate\nand gift tax; (5) memoranda and three tables covering\nvarious aspects of 8. Federal retail sales tax; and (6)\nthree possible spendings tax schedules.\nI trust that this material will be helpful for\nstudy purposes by your staff. In this Department the\nmaterial is at the study and discussion stage, and does\nnot represent a program officially sponsored by the\nTreasury Department. Rather it is a collection of some\nof the materials out of which a revenue program might\nultimately be constructed. It does not cover all the\nmaterials that will be relevant since the Treasury is\ncontinuing its intensive research in this field. The\nmaterial is, of course, confidential not only as to\nsource but also as to contents.\nI should be greatly obliged if you could, on your\npart, supply Mr. Paul with whatever estimates and memo-\nranda you may have prepared on alternative plans for\nraising additional revenue. This reciprocal inter-\nchange of information would expedite the work on the\nforthcoming revenue act. As with the material that\nyou have requested, these estimates and memoranda would\nSent by Messenger from Paul's office\nat 5:15 - File retained in Paul's\nOffice - Copy of reply in Diary.\nRegraded Unclassified\n328\n- 2 -\nbe used only for purposes of study by the research\nstaff and would be kept confidential.\nSincerely yours,\n(Signed) H. Morgenthau, Jr.\nSecretary of the Treasury.\nMr. Colin F. Stam\nJoint Committee on Internal Revenue Taxation\nRoom 1336, House Office Building\nWashington, D.C.\nEnclosures.\nRegraded Unclassified\n329\nJuly 20, 1943\nTO THE PRESIDENT:\nThere are attached hereto draft\nof a letter addressed to me and an\nemployee's withholding exemption\ncertificate, both for your signature\nand return, in order that we may take\nsteps with respect to your salary to\ncomply with the applicable provisions\nof the Current Tax Payment Act of 1943.\n*Signed) I. Morgenthau, Jr.\nDWB: NLE\nFile in Diary.\ndecle, by sa ast 7/21 at 10:33 am.\nDWB\nsent by I agent\n14 th reseive\nin to wa 4/-\nRegraded Unclassified\n330\nDear Mr. Secretary:\nIn order to comply with applicable provisions of\nthe Current Tax Payment Act of 1943 (Public Law 68-\n75th Congress). approved June 9. 1943, I am enclosing\na duly executed Employee's Withholding Exemption Certi-\nficate for use in connection with deductions from my\nsalary as President.\nI would thank you to handle future payments of\nmy salary so as to comply with the above-cited law.\nVery truly yours,\nEnclosure\nHonorable Henry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\n&\nLLCollie:JM\n7/15/43\nN7 DWB\nRegraded Unclassified\n331\nDear Mr. Secretary:\nIn order to comply with applicable provisions of\nthe Current Tax Payment Act of 1943 (Public Law 68-\n78th Congress), approved June 9. 1943. I as enclosing\na duly executed Employee's Withholding Exemption Certi-\nficate for use in connection with deductions from my\nsalary as President.\nI would thank you to handle future payments of\nmy salary so as to comply with the above-cited law.\nVery truly yours,\nEnclosure\nHonorable Henry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\nLLCollie:JM\n7/15/43\nRegraded Unclassified\nFORM W-4\nU. S. TREASURY DEPARTMENT\nEMPLOYEE'S WITHHOLDING EXEMPTION CERTIFICATE\n332\nINTERNAL REVENUE SERVICE\n(Collection of Income Tax at Source on Wages)\nName\n(Print full name)\nAddress\nSocial\n(Print home address)\nSecurity\nNo.\nI. Check the box in the line below which applies to you on the date this form is filled in:\nMarried person living with husband or wife but claiming none of the personal exemption\n(1)\nMarried person living with husband or wife but claiming half of the personal exemption\n(2)\nSingle person (not head of a family) or married person not living with husband or wife (not head of a family)\n(3)\nMarried person living with husband or wife and claiming all of the personal exemption (spouse claiming\nnone of the exemption)\n(4)\nHead of a family (a single person or married person not living with husband or wife who exercises family\ncontrol and supports closely connected dependent relative(s) in one household)\n(5)\nII. Number of dependents receiving chief support from you who are either under 18 years of age or incapable of self\nsupport because mentally or physically defective\nI declare that the entries made herein are a true and complete statement as of the date indicated, pursuant to the Internal\nRevenue Code and the regulations issued under authority thereof.\nDate\n194\n10-34596-1\n(Signature)\nRegraded Unclassified\nThe personal exemption for withholding is an amount of wages on which no tax is withheld. The\nexemption is larger for married persons living together and for heads of families than for single persons\nwho are not heads of families or married persons not living together and not heads of families. If a hus-\nband and wife living together both receive wages, they may divide the exemption equally, or one may take\nall and the other none, as they agree. An additional exemption for certain dependents is allowable to the\nperson furnishing the chief support of such dependents.\nAn Employee's Withholding Exemption Certificate shall be filled in by the employee and furnished\nimmediately to each employer. In case of a change in marital or dependency status, a new exemption cer-\ntificate shall be filled in and furnished to the employer not later than 10 days after such change occurs.\nUpon commencement or change of employment, an exemption certificate shall be furnished the new\nemployer on or before the date of such employment.\nIf no exemption certificate is filed by the employee with the employer, no withholding exemption is\nallowable.\nSevere penalties are imposed for willfully supplying false or fraudulent information or for willful\nfailure to supply information which would reduce the withholding exemption.\nU.S. GOVERNMENT PRINTING OFFICE 1943 16-34500-1\nRegraded Unclassified\n333\nJuly 20, 1943.\nMemorandum to The President:\nThis is in reference to your pencil memorandum\nabout Lewis Penwell, Collector of Internal Revenue in\nMontana.\nPenwell is not regarded as a first rank collector\nand we see no objection to his displacement. Senator\nMurray, in a letter to you dated December 30, 1942, sug-\ngested the appointment of Iver M. Brandjord of Ronan,\nMontana, to succeed Penwell. We were informed that the\nNational Committee a few days later sent you a memorandum\nto the effect that they had no recommendation to make,\nthat the matter was up to the Senators and that there\nwould be no objection on the part of the Committee to\nany action taken. Subsequently, however, Frank Walker\nasked that the matter be held in suspense. We are now\ninformed that Chairman Walker is on his way out to\nMontana, where he is to arrive tomorrow, Wednesday,\nJuly 21, and that his hope is that he may compose the\ndifferences between the Senators so that 8. number of ap-\npointments may be cleared. Ambrose 0' Connell suggests\nthat nothing be done until we have some word from Walker.\n(Signed) I. Morgenthau, Jr.\nSecretary of the Treasury.\nwr\nDeldy agent 7/01/13 10:33\nRegraded Unclassified\nHmg\nJhonson L. Pensonal les kift\nhe Jrthr fall. in Illentone\nHe is old a faith X We should\nChange if he is\na blo Xdi to jrb =\n335\n7/20/43\nMr. Fred Smith.\nThe Secretary.\nI'm writing this memo to you as though I had already put\nChick Schwarz under you.\nOver the week-end I read & little squib in the paper that\nsomebody in the Treasury had announced that the goal for the\nthird war loan drive 18 going to be sixteen billion dollars.\nT don't know where they not it but I do wish the people in the\nTreasury who don't know what they are talking about would keep\nquiet.\nThis morning on the financial page of the New York Tribune\nunder \"Wall Street Comments\" there was a long squib saying the\nSeptember Drive would be about sixteen billion dollars. I think\nthis 18 most unfortunate and I wish you would trace down where\nthe \"Sixteen Billion Doller\" story comes from. The first time\nyou see me this morning let me know.\nI think that Schwarz ought to tell the boys that the amount\nfor the September Drive has not yet been set and when it 18 I\nwill give out a formal statement over my own name. Until that\nappears, anything that they hear 18 just pure unadulterated gossip.\nThis information came\nfrom Wilcox of the\namerican Bankeis association\nRegraded Unclassified\n336\nTHE SECRETARY OF THE TREASURY\nWASHINGTON\nJUL 20 1943\nORDER\nEffective this date, Mr. Charles S. Schwarz, Director\nof Public Relations, and Mr. Harold Mager, Consulting Expert,\nwill perform their official duties under the general super-\nvision of Mr. Fred Smith, Assistant to the Secretary, to whom they\nwill report directly. Order of February 24, 1943, placing these\nassignments under the general supervision of Assistant Secretary\nGaston is hereby rescinded.\nParagraph 2 of Order of April 1, 1943, on the subject of\nspeeches or public addresses, provides that the text of a\nspeech or public address for which clearance has been obtained\nfor delivery shall be submitted before release to Assistant\nSecretary Gaston for approval. The text of any such speech\nor public address before it is submitted to Mr. Gaston for\napproval shall first be submitted to and cleared by Mr. Fred Smith,\nAssistant to the Secretary.\nSecretary of the Treasury.\nFORVICTORY\nBUY\nUNITED\nSTATES\nWAR\nBONDS\nAND\nSTAMPS\nRegraded Unclassified\n336\nTHE SECRETARY OF THE TREASURY\nWASHINGTON\nJUL 20 1943\nORDER\nEffective this date, Mr. Charles S. Schwarz, Director\nof Public Relations, and Mr. Harold Mager, Consulting Expert,\nwill perform their official duties under the general super-\nvision of Mr. Fred Smith, Assistant to the Secretary, to whom they\nwill report directly. Order of February 24, 1943, placing these\nassignments under the general supervision of Assistant Secretary\nGaston is hereby rescinded.\nParagraph 2 of Order of April 1, 1943, on the subject of\nspeeches or public addresses, provides that the text of a\nspeech or public address for which clearance has been obtained\nfor delivery shall be submitted before release to Assistant\nSecretary Gaston for approval. The text of any such speech\nor public address before it is submitted to Mr. Gaston for\napproval shall first be submitted to and cleared by Mr. Fred Smith,\nAssistant to the Secretary.\nSecretary of the Treasury.\nFORVICTORY\nBUY\nUNITED\nSTATES\nWAR\nBONDS\nAND\nSTAMPS\nRegraded Unclassified\n337\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE July 20, 1943\nTO\nSecretary Morgenthau\nFROM Fred Smith TRSD\nOne man who doesn't want to stay with the Bureau of Economic Warfare\nunder the new set-up might be a good fellow for us, on a dollar a year\nbasis, to take over the project of Socialized Medicine (which you mentioned\nto me once) or to help on the Business Group. He is No Wharton. He is\na New York lawyer, about fifty, very liberal and very patriotic. He could\nprobably bring together a good group of people to investigate any of our\nprojects. He is Bob Sherwood's lawyer, if I recall correctly, so you\ncould get a pretty honest line on him from Sherwood.\nI saw him the other day, and he was bemoaning the fact that \"the\nTreasury is about the only liberal and thoroughly honest agency or Govern-\nment department that we have left.\"\nHe 18 no Communist, and in fact is apparently very wealthy. He raised\nmost of the money to start PM because he felt it was a \"needed\" institution.\nHe has since been very unhappy about PM because he feels it hasn't fulfilled\nits promise.\nIf you would like to take a look at him, I could get him around almost\nany time. He looks like a farmer.\nDu for A\nRegraded Unclassified\nSECRET 338\nTREASURY department\nPROCUREMENT DIVISION\nOFFICE OF THE DIRECTOR\nWASHINGTON\nJuly 20, 1943\nMEMORANDUM TO THE SECRETARY:\nThere is submitted herewith the operating\nreport of Lend-Lease purchases for the week\nended July 17, 1943.\nIt is anticipated that there will be in-\ncreased shipping facilities available in the\nnear future, in which event materials now in\nstore can be released to the extent space is\nprovided.\nton E. Mack\nDirector of Procurement\nFORVICTORY\nBUY\nUNITED\nSTATES\nBONDS\nAND\nSTAMPS\n(37861)\nRegraded Unclassified\n339\nSECRET\nLEND-LEASE\nTREASURY DEPARTMENT, PROCUREMENT DIVISION\nSTATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND\nDELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS\nAS OF JULY 14, 1943\n(In Millions of Dollars)\nAdministrative\nMiscellaneous &\nTotal\nU. K.\nRussia\nChina\nExpenses\nUndistributed\nAllocations\n$3958.5\n$1926.8\n$1557.0\n$103.4\n$10.9\n$360.4\n(3958.5)\n(1926.8)\n(1557.0)\n(103.4)\n(10.2)\n(361.1)\nPurchase Authoriza-\n$2880.1\n$1545.7\n$1181.4\n$40.3\n-\n$112.7\ntions (Requisitions)\n(2834.1)\n(1543.1)\n(1140.2)\n(40.5)\n-\n(110.3)\nRequisitions Cleared\n$2761.9\n$1500.8\n$1116.2\n$40.2\n-\n$104.7\nfor Purchase\n(2750.2)\n(1493.1)\n(1112.5)\n(40.0)\n-\n(104.6)\nObligations\n$2680.7\n$1471.3\n$1078.8\n$40.0\n$6.6\n$84.0\n(Purchases)\n(2660.4)\n(1461.0)\n(1070.7)\n(40.0)\n(6.6)\n(82.1)\nDeliveries to Foreign\n$1169.0\n$817.0\n$320.6\n$18.6\n-\n$12.8\nGovernments at U. S.\n(1160.3)\n(811.6)\n(317.3)\n(18.6)\n-\n(12.8)\nPorts*\n*Deliveries to foreign governments at U. S. Ports do not include the\ntonnage that is either in storage, \"in-transit\" storage, or in the\nport area for which actual receipts have not been received from the\nforeign governments.\nNote: Figures in parentheses are those shown on report of July 7, 1943.\nRegraded Unclassified\n340\nSECRET\nEXPLANATION OF DIFFERENCE.\nThe decrease in China requisitions is a\nresult of the cancellation of three requisitions.\nRegraded Unclassified\n341⁻\nJUL 20 1943\nMy dear Mr. Secretary:\nI - enclosing herewith copies of a letter, dated June 7,\n1943, written w a Treasury Department representative in French\nNorth Africa. It is stated in this letter that shortly after\nthe fall of France, on July 4, 1940, your Department cabled\nauthorization to the Legation in Tangiers to act as intermediary\nfor the cashing of U.S. Government checks on behalf of State\nDepartment personnel located in other areas in Africa. In usage\nthis authorization has been extended to include Army-Nevy per-\nconnol and locally-hired employees in French North Africa. U.S.\nGovernment checks have been sold at the black market rates in\nTanglers and, on eccasion, the checks have been officially\nrouted to the Lisbon black markets because of the attractiveness\nof higher rates,\nThe facts u net forth in this letter have been verified\nthrough dismissions with members of the U.S. Consulate General\nin Casablance end Mr. Childs of the Tangiers Legation.\nSince November 8, 1942, the French African frano-Acierican\ndollar rate has been established under Presidential approval.\nThis Department is working with the French African financial\nauthorities to chamelise transactions through approved banks\nat the official rates, and it is our view that no agency or\nofficer of our Government should incourage transactions outside\nof the official rate.\nIt would be appresiated if you would keep 20 advised about\nany action that you may take concerning this matter.\nVery truly yours,\n(Signed) M. Mergunthau, Jr.\nSecretary of the Treasury\nThe Henerable,\nThe Secretary of State.\nBy Messenger Bundy 5:15\nFile copies ret. to White.\nHT:Drl-7/15/43 inclesure.\nCopy of ltr. and enclosure\nin Diary.\nRegraded Unclassified\n342\nHEADQUAINEIRS ATLANTIC MASE EXCTION\nOFFICE OF CIVIL AFFAIRS\nA. P. O₂ 759\nJune 7s 1943.\nMr. Harold classer,\nFinance and Checkens's Division,\nA.F.E.G.,\nA.P.O. 52.\nDear Harold,\nThere has - to my attention a situation in commetion with Covern-\n- checks and drafts that I think I should bring to your notice,\nIt appears that the markers Legation in Tangier is cashing at the\nprovailing free market rate in Tenigier United States Covernment chesks\nand drafts sent to the Legation w State Department and other personal\nconneted with considates throughout North and Heat Africa,\nI have discussed this netter with Mr. Hamely the Consul Owneral in\nCasablanca and with me. Brooks, also of the Consulate in Camblenea -\nwall as with Mr. Childs, Charge d'Affaires at our Legation in Tangiar.\nThe adtustion us I underwtand 1t 1s th BI\nOn July 4 1940, serve than two years before the condung of the Allies\ninto Harth Africano the State Department, by a telegram, authorised the\nLegation in Tenanter to ast - an internation for the cashing of State\nDepartment drufts ats. on bohalf of the State Department personal in\nother areas in Africa. These instructions, which have never been resultated,\nwere 1ssued visits the rate on American checks - extremely favorable in\nTangier and when the official ruben provat.ling in other areas botre little\nor no relationship to the true worth of the fram vis a vis the dollar.\nup untill emparatively recently, checks and drafts were brought into\nTangier from time to time by personal of the State Department who, them\nselves, shopped around for the nost favorable rate for their checks and who\nsold them personally to the highest bidder. This prastice has now been die-\ncentinued, in a result of instructions issued by Mr. Childs, all checks\nnow earing into Tengless for sming are handled w a designated person in\nthe Legation, Mr. Childs has also insued instructions which INSN prohibit\nAny and Mary personal from sending drafts to Tangier for cashing by the\nHilitary and Naval Attention. (A certain mmber of such cheeks had been finding\nthair way to Tangier).\nIn dissussing this unster with Mr. Childs, he told - that, at the\npresent time, all chestes and drafts are sold to either Moment Pariente, the\nDank of British 1 Africa, David 8. Hargal or Jospah Toledano (the last\ntwo being Amriem protegon).\nRegraded Unclassified\n343\n- 2 -\nIt appears that the vast bulk of the checks are sold to Moden Pariente.\nThe rate of sale various, but at the present time is committe around 86\nfrance to the dollar.\nHr. Childs told 110 that be was sure that the Treasury Department and the\nState Department ware Ally with the sibuation. in said that 18\nwas his underwtanding that Homes Parlente had undertakens to purchase State\nDepartment drafts from the Legation in order to build up dollar balances to\nbe used in the United States and that he had undertains to send directly to\nthe United States all drafts which he purchased and not to re-negosiate them\nin Tangier or elembere.\nAt the present time, the consulates outside of Zangler nost a cortain\namounts of thair regular expenses from the proceeds of chesks negociated in\nVengiar. It su also sustomery for the subaries of State Department employees\n(including locally hired help) to be paid in drafts which are then sent up\nto leagier for sale, the result of this procedure is that the expenses of\nthe consulates are, to a certain actent, leasened and the salaries of people\nworking for them are accombed enhanced. In polish of faot, 11 - probable\nthat for of the State Department personsed receive their entire sularies in\nthis - I underwarted that most of them have a certain proportion of\ntheir pay deposited for them in the United States and, therefore, any advantage\nin the rate of exchange obtained in Tengfer is only applicable to a part of\ntheir salaries and expense. Any change in the present cet-up would probably\nbe 12019 important in its offects on locally hired personal than on personnel\nconding from the States.\nInthis consection, as further thing should to address. Tres time to time,\nin the past, it has boen possible to obtain the best combinings rate by conding\nthe drafts from Tengior to Lisbon, melling then there for essudos, and then\nbringing the esoudos to Tangiar to be sold for france. At the present time,\nhowever, this davide is not profitable and It is not now being wood by the\nLegations\nI told Mr. Childa that I would lay this nater before you for transfertion\nto Washington ao that the State Department and the Treasury wight have the\nopportunity to consider Jointly whether the presently outstanting State\nDepartment should in revised.\nRegards\nsigned m\n7. -\nU. 3. Treasury Representative\nCivil Affairs -\nRegraded Unclassified\n344\nRegraded Unclassified\nJUL 20 1943\nDear Mr.\nA recent airgram from the American Embassy at Mexico (A-1517,\nJune 29) refers to an oral understanding between Mr. Bateman of\nthe Board of Reonomic Marfare and the Bank of Hexico on the purchase\nof liexi.can silver by the Bank for coinage purposes to meet Mexico's\nneed for additional silver coins.\nAs we are informed, it was proposed by Mr. Bateman that the\nBank of Mexico refrain from purchasing part of the output of silver\nin Mexico. Otherwise, the absorption of some 40 million ounces of\nsilver for Mexican coinage would seriously reduce the supply of\nsilver for industrial uses in the United States. To provide Mexico\nwith the silver needed for coinage, it was proposed by Mr. Bateman\nthat an equivalent amount of silver be lond-leased to Mexico for\nits coinage needs out of the Treasury's stock of frue silver bullion\nin the General Fund, the silver to be returned to the Treasury after\nthe war on an ounce-for-ounce basis.\nThe necessity of any such arrangement has definitely passed\nwith the enactment of the law permitting the sale of Treasury\nsilver by the Secretary of the Treasury for purposes approved by\nthe Mar Production Board. If imports of Mexican silver fall off\nbecause of the acquisition of silver by the Bank of Hexico for\ncoinage purposes, it will be possible for the Treasury to offeet\nthe deficiency in the supply of silver from abroad.\nThere is no sound reason for lond-leasing silver to Mexico\nnow that the law permits the sale of treasury silver for war\npurposes. The Treasury could not justify the lend-leasing of\n40 million ounces of silver to Mexico to enable that country to\nsell a corresponding amount of silver in the United States when\nthe law permits the Treasury to sell all the silver needed at\n71.11 cents an ounce. The sale of the silver by the Treasury\nwould bring some $28 million in funds that could be used to\nneet the wartine expenditures of the Covernment.\nCopy of ltr. and copy of\nAirgram from Am. Embassy,\nMexico City, in Diary.\nFile copics ret'd to White soffee\n345\n- 2 -\nFor these reasons 1 believe 16 is necessary_not to encourage the\nments. Hundrean deverment to request Treasury silver under lond-lesse arrange-\nVery truly yours,\n(Signed) H. Morgenthau, Jr.\nSecretary of the Trunsury\nMr. Leo To Crawley,\nDirector, Office of Reonamic\nWarfare,\nd s\n18/jm\n7/19/43\nRegraded Unclassified\nC\no\nAIRGRAM\n346\nP\nY\nFrom: American Embassy\nMexico City, Mexico\nDated: June 29, 1943.\nRec'd. July 1, 11 a.m.\nCONFIDENTIAL\nSecretary of State,\nWashington, D.C.\nA-1517, June 29, 11 a.m.\nReference Embassy's despatch No. 10,627 of June\n23, 1943, concerning silver.\nBank of Mexico's confidential daily reports of\nsilver coins held by central bank and branches showed\ntotal on June 26th of 1,230,000 pesos. Comparative totals\nduring last year were: 52,800,000 pesos on January 3rd;\n43,200,000 pesos on June 27th; 42,500,000 pesos on July\n3lst; and 19,200,000 pesos on December 30th.\nThe present shortage is particularly severe in\n50-centavo and 20-centavo silver pieces, of which the\nBank of Mexico had only 160 pesos' worth on June 26th.\nThe public is necessarily being turned away in whole-\nsale fashion.\nThe Mint has silver on hand with which to continue\noperations for approximately 20 days, after which it\nwill be compelled to close for lack of silver deliveries\nfrom the mines. Bank of Mexico is refraining to buy\nsilver for the present, in accordance with oral under-\nstanding with Dr. Bateman.\nPlease inform Dr. Bateman, Board of Economic War-\nfare, and caution that above information is not for\npublication.\nMESSERSMITH\nFile 863.5\nWFB:RK:EU\nCopy:bj:7-6-43\nRegraded Unclassified\n347\nNOTICE\nRBS:jm:90- R-4-2\nWright Field, Dayton, Ohio\nDate 20 July 1943\nTO:\nAll Concerned.\nSUBJECT: Correction of A. E.P.C.R., Combined Propeller Report,\nBook 103, data as of May 31, 1943.\n1. The summary of 23E50 Propellers ahown on page 42 of the subject\nreport should be corrected to include \"23EX Nash\" requirements found on\npage 41.\na. Add total \"Nash 23EX\" monthly requirement (page 41) to\ntotal 23E50 Monthly Requirement (page 42).\nb. Recompute total 23E50 cumulative requirements.\n0. Subtract revised total cumulative requirements line\nfrom total cumulative capacity line to obtain revised\ncumulative surplus or deficit.\nfor Corps captac\nChief, Resources\nControl Section\nRegraded Unclassified\nC\n348\n0\nP\nY\nTELEGRAM SENT\nMC\nJuly 20, 1943\nThis telegfam must be\nparaphrased before being\n1 p.m.\ncommunicated to anyone\nother than & Governmental\nagency. (BR)\nAMERICAN EMBASSY,\nCHUNGKING.\n925\nFOR ADLER FROM THE SECRETARY OF THE TREASURY\nYour cable of March 28, 1943, No. TF-103.\n1. Treasury has received a number of applications\nto release U.S. dollar proceeds of U.S. dollar-backed\nsavings certificates. Some of the applications would\ninvolve transfer of funds to London.\n2. The Treasury would, therefore, appreciate re-\nceiving a definite reply to its cable of March 5, 1943,\nNo. 300. Treasury is holding up these applications\nand no action has been taken with regard to them.\nHULL\n(FL)\nFD:FL:JD FL EA\nRegraded Unclassified\n349\nNOT TO BE RE-TRANSMITTED\nCOPY NO. 13\nBRITISH hOST SECRET\nU.S. SECRET\nOPTEL NO. 238\nInformation received up to 7 a.m., 20th July, 1943.\n1. NAVAL\nDischarge of ships at AUGUSTA has begun satisfactorily but\nat SYRACUSE a petrol fire delayed unloading. Discharge of vessels has been\nspeeded up by the use of EMPEDOCLE and LICATA as well as GELA.\n2. MILITARY\nRUSSIA. The Russians have recaptured among many other\nlocalities MALOARKHANGELSK on the railway 40 miles South of OREL.\n3. AIR OPERATIONS.\nWESTERN FRONT. 19th. Fighters damaged two 1,000 ton ships\noff TEXEL.\nITALY. No dotails have yet been received regarding the\nbombing of 2 railway centres and the CLAMPIRO Airport at ROME.\nSICILY AND SOUTHERN ITALY. 17th/18th. 57 Wellingtons bombed\nairfields near NAPLES. On the same night and next day a total of 203 medium\nand light bombers attacked CATANIA and transport in SICILY. Lightnings scorting\nan Air-Sea rescue Sunderland intercepted and destroyed 14 JU 52's off Northern\nSICILY.\nBURMA. 18th. Fighters damaged 64 trucks and 10 locomotives\nin the MANDALAY area and about 50 small river craft near AKYAB.\nCASURY DEPARTMENT\nRegraded Unclassified"
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