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Volume 655, August 10 – August 12, 1943
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Volume 655, August 10 – August 12, 1943
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 655
August 10-12, 1943
Regraded Unclassified
- A -
Book Page
Army Planning Board in London. England
See Occupied Territories
- B -
Banking, Branch
See Branch Banking
Branch Banking
Michigan branch bank situation: Prentiss Brown's advocacy
discussed by Byrnes and HMJr - 8/11/43
655
172
a) HMJr-Delano-Bell conference - 8/12/43
242
1) Delano memoranda attached
249,252
2) Detroit Citizens League letters to Delano
255,256
3) Delano memorandum on outstanding shares of
Michigan National Bank, Lansing - 8/12/43
257
b) HMJr's letter to Byrnes - 8/12/43
260
(See also Book 656, page 67 - 8/16/43)
1) Brown's memorandum to Byrnes attached -
7/12/43
261
c) "American Banker" article - 8/17/43: See Book 656,
page 210
Brown, Prentise
See Branch Banking
- C -
China
1941 Stabilization Agreement - extension of:
See also Book 647
Adler resignation withheld temporarily in view of
possibility of renewal of Agreement - Kung informed by
Treasury - 8/10/43
87
Adler asked about newspaper reports that Agreement is not
to be renewed - 8/13/43: See Book 656, page 30
a) Adler reply - - 8/18/43: Book 657, page 111
Adler's future course reviewed in cable - 8/19/43:
Book 657, page 160
Adler taking two-weeks vacation in India - 8/20/43:
Book 657. page 217
Chairman Chen's resignation reported by Adler - 8/24/43:
Book 658, page 212
India trip: Treasury instructions on trip - 8/25/43:
Book 659, page 120
British Embassy (Livesey) asked to facilitate trip:
Book 659, page 124
(See also Book 660, page 8 - - 8/25/43)
- D -
Detroit Citizens League
See Branch Banking
- I -
Book Page
Eastman, Joseph
See Financing, Government: War Savings Bonds
- 7 -
Financing, Government
War Savings Bonds:
3rd War Loan Drive:
War Finance Bulletin No. 4: "Taxes and Bonds" 8/10/43. 655
3
Stimson asked to give instructions leading to better
cooperation in publicity - - 8/11/43
152
a) Additional captured enemy equipment to be loaned
to Treasury: See Book 656, page 207
Eastman and HMJr discuss travel for theatre people -
8/11/43
168
a) Up to ten cars by August 30: Book 660, page 33
Issues to be included approved by FDR - 8/11/43
188
Foreign Funds Control
Standard Telephone & Radio Company, Zurich, Switzerland:
Paul memorandum concerning - 8/12/43
291
- G -
Government Printing Office
See Revenue Revision
- H -
Hilldring, General
See Occupied Territories: Army Planning Board in London, England
Hoover, Herbert
"War Bonds not worth paper they are printed on" - HMJr to
check on authenticity of remark - 8/12/43
270
- I -
Internal Revenue, Bureau of
See Revenue Revision
- J -
Japanese in United States
Residents in Washington, D. C., metropolitan area sent to
HMJr by Commerce Department - 8/11/43
196
a) Treasury request for
198
Joint Committee on Taxation
For requests direct to Bureau of Internal Revenue see discussion
by Treasury group - 8/11/43
140
a) Sullivan-George talk at Mayflower reported to HMJr -
8/11/43
177
- L -
Lend-Lease
Purchases for week ending August 7, 1943 - 8/10/43
82
Regraded Unclassified
- L - (Continued)
Book
Page
Lend-Lease (Continued)
U.S.S.R.: Purchases and availability of cargo for August -
8/12/43
655
295
United Kingdom:
Gold and dollar figures for July - 8/10/43
84
Federal Reserve Bank of New York statement showing dollar
disbursements, week ending August 4, 1943 - 8/12/43
298
- M -
McConnell, Robert E.
See Post-War Planning
Michigan National Bank, Lansing
See Branch Banking
- N -
Narcotics
See Occupied Territories
- o -
Occupied Territories
Army Planning Board in London, England:
Financial member discussed by Walter Stewart and HMJr -
8/11/43
161
General Hilldring discusses entire set-up of Board with
HMJr, Bell, and White - 8/17/43: See Book 656, page 175
Narcotics: War Department comment to Treasury letter of
July 23 - 8/11/43
195
Office of Price Administration
Tokens of stainless steel in connection with point rationing:
HMJr asks consultation with Treasury officials before
proceeding 8/11/43
189
a) War Production Board-Treasury correspondence concerning.
190
- P -
Planning Board London, England
See Occupied Territories: Army Planning Board in London, England
Plant Conversion
See Post-War Planning
Post-War Planning
Conversion of Plants: FDR and HMJr discuss - 8/10/43
72
a) No military agencies to participate; Commerce or Treasury
to handle recommended by HMJr
b) Survey of departments concerned sent to FDR - 8/12/43
284
c) Rosenman-HMJr conversation ("FDR agrees with HMJr") -
8/17/43: See Book 656, page 178
d) Rosenman-HMJr-McConnell-Lynch conference at White House -
8/19/43: Book 657, page 113
e) Option terms seem to favor private companies - Lynch
memorandum based on Attorney General's opinion - 8/21/43:
Book 657, page 234
f) Rosenman given summary of Treasury post-war activities
after World War I - - 8/27/43: Book 659, page 249
Regraded Unclassified
- P - - (Continued)
Book Page
Post-War Planning (Continued)
War-time reserves (special) - a statement by Blough
supplementing Paul memorandum of July 19
(See Book 652. page 49) - 8/11/43
655
182
Committee of financial and industrial advisers discussed
in McConnell memorandum - 8/11/43
191
a) Names suggested: See Book 656, page 59
- R -
Revenue Revision
See also Post-War Planning
Printing of new forms and regulations - paper for: Discussed
by Treasury group - 8/11/43
90
Publicity man for Internal Revenue Bureau discussed - - 8/11/43
97
Joint Committee on Taxation: For requests direct to Bureau of
Internal Revenue see discussion by Treasury group - 8/11/43
140
a) Sullivan-George talk at Mayflower reported to HMJr -
8/11/43
177
1) Conversation reported to Vinson - 8/12/43
276
Withholding Tax: Table showing "How Retirement and Withholding
Deductions Affect Your Pay" - 8/11/43
180
- S -
Standard Telephone & Radio Company - - Zurich, Switzerland
See Foreign Funds Control
Stewart, Walter
See Occupied Territories: Army Planning Board in London, England
Switzerland
Standard Telephone & Radio Company, Zurich: See Foreign Funds
Control
- T -
Taxation
See Revenue Revision
"Taxes and Bonds"
See Financing, Government: War Savings Bonds (3rd War Loan Drive)
- U -
U.S.S.R.
See Lend-Lease
- W -
War Savings Bonds
See Financing. Government
Withholding Tax
See Revenue Revision
Regraded Unclassified
1
August 10, 1943
11:07 a.m.
HMJr:
Hello.
Operator:
Mr. Helvering. Go ahead.
HMJr:
Guy.
Guy
Helvering:
Yes.
HMJr:
Good morning.
H:
How are you?
HMJr:
Marvin McIntyre sent me over Norman Cann's resignation.
H:
Yes.
HMJr:
I didn't know it was going to go through. Hello.
H:
Yes.
HMJr:
Now
H:
He has to - he has to resign 88 Assistant.
HMJr:
Yeah. Yeah, but now he told me that he was out of
sympathy with what I was doing here. Hello.
H:
Yes.
HMJr:
I want to know just what he means by that. (Pause)
Or, did you tell me that? Hello? Either you or
Norman Cann told me that he's out of sympathy with
what I'm doing and that's why he wanted to resign.
H:
Well, I don't know what - I don't know about that,
Mr. Secretary. He told me that he - the situation
here - I think I told you under the situation exist-
ing here, he didn't want to stay in this particular
place.
HMJr:
Well, what situation?
H:
Well, the....
HMJr:
He doesn't even wait 'till I get a report from Den
Bell - he's - Dan Bell has spent hours on this thing.
H:
Uh huh.
Regraded Unclassified
2
- 2 -
HMJr:
I don't even - I haven't even had a chance to talk
with Bell to find out.
H:
Well, of course, I think his idea about that was
simply to go on giving a vacancy here in this place
so we could reappoint somebody else.
HMJr:
Yeah. Well, I don't think he should pick and choose
what he's going to get in the field. I mean, if
H:
He didn't. I picked a place I could use him.
HMJr:
Yeah.
H:
Of course, I don't know whether it satisfies him or
not, particularly.
HMJr:
Well, I think it's more important that it satisfy me.
I mean - - the man says he's out of eympathy - he gets
mad over a matter which he had considerable at fault
- he didn't conduct himself well in my office. I
mean - that 18 the first time this has happened to
me. After all, we are at war. Who the hell does
Norman Cann think he 18?
H:
Well
HMJr:
I mean he should control his temper.
H:
Yeah, that's true.
HMJr:
And he was at fault. You didn't like it. I didn't
like it. It was a lousy piece of work that they wer
going to send out.
H:
Yeah. Well, what he
HMJr:
And no matter how many people okayed 1t - - I haven't
seen Dan Bell - the man who is Assistant Commissioner
ought to have brains enough to know when something's
going to make trouble for you and me.
H:
Yeah.
HMJr:
And to have him come up here and argue with me for
forty-five minutes "it was all right" and 80 forth
and so on - I just had to pound it down his throat.
H:
Well, let's see have you that resignation there?
HMJr:
Yeah. It's just come back from the White House with
an - as a request to prepare an answer for the Presi-
dent.
Regraded Unclassified
3
- 3 -
H:
Well - uh - what does it say?
HMJr:
Well, it simply says, "This is respectfully referred
to the Secretary of the Treasury for preparation of
reply. Marvin McIntyre."
H:
Well
HMJr:
Oh, you mean what does Cann say?
H:
He told me he was simply sending over a resignation
to accept another appointment in the field service
to: the President so 88 to vacate
HMJr:
Yeah.
H:
the Assistant Commissioner. I don'
HMJr:
I know, but I don't see why he couldn't wait until
I got a report from Den Bell. We've taken all this
trouble to look into it. He said he wasn't at fault -
that other people had okayed it - and we're having an
investigation. But he doesn't wait - he goes right
ahead and resigns anyway. I don't like it.
H:
Well, of course I - - I asked you the other day if I
could - I thought he was too good 8. man to lose
HMJr:
I know.
H:
:
and I asked for the privilege of assigning him
someplace else.
HMJr:
That's right. And I granted that.
H:
Yeah.
HMJr:
But then, subsequently - subsequently to that I asked
Bell to look into the whole thing in view of Cann's
remark that he was being blamed for something which
he wasn't responsible for
H:
Yeah.
HMJr:
and I thought that, at least, he'd wait until Dan -
the Under Secretary gave me a report.
H:
Well, of course, he did say to me that he didn't feel
that he could stay here in this particular position
if the Treasury was going to take the attitude of
blaming him for things that they participated in
Regraded Unclassified
4
- 4 -
HMJr:
Well
H:
or something to that effect.
HMJr:
That's what you told me and as a result of that I
asked Bell to make a complete investigation which he
has and I haven't had a report yet.
H:
Uh huh. Well, of course, I agree with you - if -
of course, I didn't - I told you he had handed me
his resignation.
HMJr:
Excuse me?
H:
I say I told you, you know, that he had handed me his:
HMJr:
Well, I know, but I thought
H:
I asked him to hold it to see if we couldn't assign
him someplace else.
HMJr:
Yeah. But I - Maybe I - I thought that in view of
Bell going into the whole thing it would be held up
until Bell got through.
H:
Yeah.
HMJr:
Otherwise, I wouldn't have taken the trouble to - I -
I - Bell has spent hours on this - but
H:
I think the only thing he had in mind 88 far as any
statement he made to me, in sending his resignation
over to the President was that it was a Presidential
appointment and I had to reassign him or suggested a
reassignment and sent the fanfolds over for the re-
assignment
HMJr:
Well
H:
....and he wanted to vacate this position.
HMJr:
Would this be agreeable to you? As soon as I can
catch my breath, I'd like to sit down with Bell and
you and John Sullivan and hear what Bell has to say.
H:
Yeah.
HMJr:
Hello.
H:
Yes.
Regraded Unclassified
5
- 5 -
HMJr:
Let's say at ten o'clock tomorrow. Huh?
H:
All right.
HMJr:
Well, let's see. Is ten-thirty all right?
H:
Any time tomorrow morning except just before noon,
I have an
HMJr:
Well, let's say ten-thirty for Bell and you and
John Sullivan and let's get a report from Bell.
H:
Yes.
HMJr:
And I'll hold on to this thing of Norman Cann's from
the President until I see you tomorrow morning.
H:
All right.
HMJr:
How's that.
H:
Fine.
HMJr:
And in the meantime, will you hold up any assignment
to him?
H:
Well, it's - the fanfold is over in your office
making this change effective the 25th.
HMJr:
Who is doing that?
H:
Well, I want - you see there's a vacancy in a technical
staff job
HMJr:
Where?
H:
in San Francisco
HMJr:
Yeah.
H:
and I wanted to put Mr. Cann in charge of that
office.
HMJr:
Yeah.
H:
So I started the fanfolds through and I think they
are over there now if they haven't come back. We
made them up day before yesterday - Saturday, I think.
Regraded Unclassified
6
- 6 -
HMJr:
I can't understand. You - you....
H:
I say we made the fanfolds up Saturday and sent
HMJr:
Fanfolds?
H:
....
them over for approval.
HMJr:
What does that mean - fanfolds?
H:
Well, that's the appointment.
HMJr:
Oh.
H:
Transferring Mr. Cann from this job to the head of
the Technical Staff in San Francisco.
HMJr:
Is that a very choice job out there?
H:
Oh, no I think he'd rather have had some big agent in
Charles' office but I thought that was the place I'd
like to put him.
HMJr:
Well, can't you hold it up for twenty-four hours?
H:
Oh, sure, we can hold it up here right along.
HMJr:
Well, I mean until I see you tomorrow?
H:
Oh, yes.
HMJr:
Will you do that?
H:
Yeah.
HMJr:
Until I can get a report from Bell.
H:
Yes. All right.
HMJr:
Thank you.
H:
All right.
Regraded Unclassified
IN
7
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
August 10, 1943.
MEMORANDUM TO THE SECRETARY:
In accordance with your instructions, I have discussed with
Messrs. Cann, Blough, Smith, Surrey and Sullivan the matter of
clearing the Bureau of Internal Revenue income tax forms and in-
structions for use this coming September. Most of the information
I got from the individuals was, of course, based on memory of what
had taken place, but each one told about the same story regarding
the channels through which these forms passed.
Mr. Cann stated that when the Bureau first started to prepare
the instructions and forms its representatives felt that the whole
procedure should be simplified as much as possible. He discussed
the matter with the Commissioner before he left for his vacation
and he agreed with this approach. The Bureau representatives pre-
pared instructions and forms with tables attached which they thought
represented a simplified approach to the problem. (Others did not
think they were so simplified.) Those instructions and forms were
sent to the offices of the Legislative Counsel (Mr. Surrey) and Tax
Research (Mr. Blough) for comments, criticisms and suggestions. There
were some telephone conversations between Mr. Cann and Mr. Blough
regarding the use of gross income as against net income in the tables
as a basis for computing the estimated taxes. The Bureau was then
against gross income as a basis.
In 8. subsequent meeting in the Bureau of Internal Revenue, Mr.
Surrey, from the Legislative Counsel's office, stated that the Treasury
was not in favor of the Bureau's simplified approach 88 it raised the
question of legality. He stated his views before this committee, all
of whom were convinced that Mr. Surrey was correct in his interpreta-
tion of the law. (Mr. Surrey states that he did not say it was illegal
but that it WBS inadvisable to use the table in connection with the
type of form they were then discussing.) Anyway, upon further considera-
tion of the matter and also in view of the fact that a large part of the
14 million taxpayers who will file these forms have already had experi-
ence in filing the long form of income tax returns and would be required
to file such form on March 15, 1944, it WE.8 decided to adopt the more
technical approach. This apparently WRS the basis for the forms and
instructions submitted to you on July 13th.
VICTORY
In my discussion with Mr. Blough he states that the first set of
instructions and forms were submitted to his office and while the
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
8
- 2 -
Bureau felt that they represented a simplified approach, he did not so
feel. They made some suggestions for changes, many of which were accepted,
and thought the forms probably represented about the best that could be
had under all the circumstances. On July 5th he had luncheon with you
at the hospital in New York, He told you that the forms and instructions
were complicated and that you might get some unfevorable public reaction
to them. You told him to explain the whole matter to Fred Smith and ask
Fred Smith to go over these forms and instructions to see what could be
done to simplify them. This he did on July 8th. Mr. Smith made certain
changes in the instructions but made no changes in the forms. (Mr. Smith
says that he was only asked to go over the instructions.) These changes
were sent to the Bureau on Friday, the 9th; most of the changes were nc-
cented by the Bureau.
On Monday, July 12th, the forms and instructions, in what the Bureau
thought was final form, were sent to Assistant Secretary Sullivan, who
experimented with two experts on the time that it would take to make out
his own income tax return. It took him and hour and 8 half with these
two experts, with fifty-six computations, to make out his return. He
brought this matter to your attention at a staff meeting on Tuesday,
July 13th, and stated he wanted you to know that there would be some
miblic reaction to these complicated forms.
It was then that you began having conferences to simplify the pro-
cedure. You will recall at one of the conferences lr. Cann, just before
he was about to return to his office to work on the suggested simplified
forms, raised the question of statutory authority. Mr. Paul replied
that he had not "the slightest question about the legality of almost any
construction of the statute in the direction of simplicity." That state-
ment of Mr. Paul's apparently relieved Mr. Cann on this point, as the
Bureau had been previously working under the assumption that the simpli-
fied approach WA.B not in accord with the Act.
Mr. Blough states that he believes Mr. Cann had a right to feel that
he, as Acting Commissioner, took every step that was required of him to
get the views and suggestions of all concerned in the Secretary's office
before the papers were in final form to submit to Assistant Secretary
Sullivan for approval.
I understood that you only wanted me to cover the clearing of the
income tax forms and instructions and not the subsequent controversy
about the letter to go out over your. signature. I have not questioned
many people regarding the letter, but I understand that it is this contro-
versy which brought to a head the resignation of Norman Cann. I have,
however, heard enough about it in connection with the a bove investigation
to come to the conclusion that the whole procedure was a matter of mis-
understanding. Mr. Smith thought he had made it plain to Mr. Horne that
the letter was to come back through him for clearance with you, whereas
Mr. Horne thought he had complete authority from Mr. Smith to go ahead
and clear the letter, which was done.
Regraded Unclassified
9
- 3 -
I do not believe that any one person was at fault in this whole
controversy. Mr. Cann has submitted his resignation and has agreed with
Mr. Helvering to accept another position in the Internal Revenue on the
West Coast. He says that nothing can change his mind on his request
to be released from his present position as Assistant Commissioner. He
does not want anything done to hurt Mr. Blough or Mr. Surrey because of
their action in passing upon the forms and instructions. He says they
have been very helpful to him and he has had their complete cooperation
in the present as well as all past matters affecting the Bureau. He
thinks they are two very able men and he wants you to know that he does
not in any way blame them for his difficulty.
After reviewing the whole matter I am inclined to believe that it
is difficult at times for the head of a Bureau like Internal Revenue to
know just who is acting for the Secretary's Office. Mr. Cann apparently
assumed that Mr. Blough and Mr. Surrey were keeping Mr. Sullivan informed
and these two gentlemen probably assumed that Mr. Cann was keeping Mr.
Sullivan informed. There should be A clear line of authority between
the Secretary's Office and the Bureau of Internal Revenue and that line
should be through the Assistant Secretary in charge. It is up to that
Assistant Secretary, by constant contact, to see that this channel is
respected by all concerned.
DWB
Regraded Unclassified
10
August 10, 1943.
2:22 p.m.
Operator:
Go ahead.
HMJr:
Hello.
Jesse
Jones:
Hello.
HMJr:
Yes, Jesse.
J:
How are you?
HMJr:
I'm fine.
J:
You are in town, are you?
HMJr:
In person - in the flesh.
J:
In the flesh. Well, I'm coming over there at four
to a meeting.
HMJr:
That's right.
J:
Now, there's another meeting that Biddle and I wanted
to talk with you about on this - you know - import
duty business.
HMJr:
No, I'm not familiar with that.
J:
Do you know who is over there?
HMJr:
Yeah. Herbert Gaston would be.
J:
All right. Then maybe we could see him.
HMJr:
Is Biddle coming today?
J:
No, he - no, no, he was only going to come with me
to discuss this thing that I just mentioned.
HMJr:
Oh, well, he'd better not come today because this 18
a high powered meeting.
J:
Okay, then I'll
HMJr:
I mean - I'd be glad to have Biddle come to this
other meeting but
J:
Oh, no - no - no, I just
Regraded Unclassified
11
- 2 -
HMJr:
But we start on time and we've got an awful lot of
stuff - it's on a tax program.
J:
Okay, I'll be there at four o'clock.
HMJr:
And, but I'm afraid if Biddle came....
J:
Yeah. He might talk too much.
HMJr:
What?
J:
I say
HMJr:
No, I think it would be a mistake today. -
J:
Okay.
HMJr:
Any other time, at your convenience.
J:
I'll tell him.
HMJr:
Any other time.
J:
Thanks.
Regraded Unclassified
12
August 10, 1943
3:15 p.m.
TAXES
Present: Mr. Bell
Mr. Paul
Mr. White
Mr. Sullivan
Mr. Blough
Mr. Surrey
Mr. Lindow
Mr. Murphy
H.M.JR: What is this, a dress rehearsal?
MR. BLOUGH: This we thought - Mr. Paul and I thought--
H.M.JR: This fellow Jesse Jones, I can't figure him
out. He said, "Henry, I am coming to your meeting. I am
bringing Biddle with me. We want to talk about this Cus-
toms business - bringing goods into the country."
I said, "Wait a minute, Jesse, this is a high-powered
meeting. I will be glad to see you and Biddle any time
but I have no time to talk to Biddle at four o'clock."
He said, "I thought you could take a minute."
I said, "I can't take it; you had better postpone
it."
He said, "I will tell him."
Do you know about that?
MR. BELL: I suppose I do. It is the Commodity
Credit Corporation.
H.M.JR: But imagine bringing Biddle at four o'clock
where I have only got three minutes and Paul twelve.
Regraded Unclassified
13
- 2 -
Do you suppose Biddle has heard about the meeting
and wants to come? I should worry.
MR. PAUL: We invited their tax man. I don't think
we should go any further.
MR. BLOUGH: What we had in mind was that this is
the sheet we would hand the visiting firemen and that
this would represent a sort of an agenda. (Agenda handed
to the Secretary, copy attached.)
H.M.JR: Is Tickton on vacation?
MR. LINDOW: No.
H.M.JR: Somebody has to be there to defend the
volunteer plan.
MR. BLOUGH: We have Lindow.
H.M.JR: I can't count on anybody else. Where are
you, young fellow?
MR. MURPHY: I don't feel - I don't see quite eye to
eye with going the, shall I say, more extreme advocacy of
the volunteer plan. I feel a place can be made for both
points. There are--
H.M.JR: We don't want any--
MR. BELL: Middle-of-the-roaders. (Laughter)
H.M.JR: No mugwumps around here; you are either for
or against us. (Laughter)
MR. SULLIVAN: And if you are against us, shut up.
(Laughter)
H.M.JR: Well now, listen, before I read this very
complicated and impressive thing - has the plan been changed.
I get up and say, "Gentlemen, I invited you people to come
up here to consult with us on the next tax bill. We have
for you this afternoon a plan which will raise a billion
Regraded Unclassified
14
- 3 -
dollars a month of additional taxes, which Mr. Paul will
present to you.
"Then after Mr. Paul has done that we would like to
raise various methods of combating the inflation problem,
which will be presented to you by Mr. Blough. We figure
that this will take about an hour.
"After that the meeting is open for questions. We
hope that you will be interested. We hope that you have
thought about it; and we hope you have ideas of your own.
Mr. Paul and his staff will be ready all week for con-
ferences; and if you like this meeting and think we can
make progress, we would like to have you come back in a
week, after you have thought about this thing, and continue
this discussion."
That was my idea, whereupon I sit down, loud applause,
and so forth, and SO on. (Laughter) All right?
MR. BELL: Would there be any objection to your adding
that it is hoped that we can get an agreement by all of
the Executive end of the Avenue, and that when we get this
agreement everybody gets behind the program and fights for
it?
H.M.JR: All right. "I hope we can get an agreement.
Naturally we can't get 8. hundred percent, but we do hope
that - last year there was practically no sniping from this
end and I hope that there will be none this year, because,
after all, presenting a tax bill is one of the most difficult
and dirtiest jobs in the Administration. Once the thing
is settled we hope that people will do us the courtesy that
if they have ideas they want presented to Mr. Doughton on
the Hill they will do it through us and not do it directly
any more than if we have ideas concerning the work of any-
body in this room we will testify to Senators or Congressmen
on their work.
"There seems to be a feeling as far as taxes are con-
cerned that there is an open season anybody can take a
pot shot."
Regraded Unclassified
15
- 4 -
MR. PAUL: I think that is all right - 8. good approach.
There are a couple of items here I want to raise with
you.
H.M.JR: What part don't you like?
MR. PAUL:It isn't that I don't like it; I merely
want to clear up a couple of points. Under "I-D,"
entitled "Privileges and loopholes" - down there at the
end of Roman one - that has reference to depletion, to
tax exempts, and to what we called last year joint returns.
It was Roy's feeling and my feeling that we should
not do any more this year than bring the attention of the
committee to that. Our views on that subject are well
known. Possibly we might want to present something on
joint returns - want to leave that open - but on the other
two, depletion and tax exempts, we will just take up
time, and we wouldn t get anywhere with them. That would
be the way I would like to speak about that.
Under "D-1," "Relief for persons with fixed incomes
or heavy commitments, one of the best - probably the
best method of relief would be to sweeten the tax in the
lower brackets with a small amount of post-war rebate.
The reason why I am not interested in the rebate end of
it - the reason why 1 am interested in it as a relief
measure is that it would enable us to have people in debt
and people with no increased incomes or people with lower
incomes anticipate their post-war rebate, as is done by
corporations under the post-war rebate system. It makes
the neatest method of relief, and I know the President
is interested in that debt proposition. He spoke to us
several times about it.
H.M.JR: Well, Randolph, are you going to - how much
time are you going to give - do you want to do this?
MR. PAUL: I won't take more than fifteen minutes,
but I didn't want--
Regraded Unclassified
16
- 5 -
H.M.JR: Let's make it perfectly plain with everybody
that we are giving these things and the thing is still
fluid, even though Scripps-Howard doesn't like that word.
MR. PAUL: But I raised this particular item because
it has some similarity to compulsory lending. If Mr.
Tickton, who is completely opposed to - Lindow, I mean -
is for this - I don't think he objects to it.
MR. LINDOW: I think it is an entirely different propo-
sition.
H.M.JR: Maybe I don't understand it; say it again.
MR. PAUL: Well, you would incorporate in your tax
schedules a certain percentage - a certain very small
percentage with a maximum amount - which would be payable -
a refundable tax which would be refundable to the individual
after the war.
H.M.JR: Why?
MR. PAUL: The reason I am interested in it is not
from the compulsory lending standpoint, but because we
know no way of giving relief to debtors and such people
as that without discriminating against people who don't
have debts. So if we have that provision in the statute,
we have a mechanism for saying to debtors and people who
have fixed incomes, "Here, you don't have to wait until
after the war; we will give you your relief right away."
But the people who don't have the debts and who are in 8.
more fortunate position don't get the relief until after
the war. That mechanism enables us to give debt relief
without discriminating in favor of debtors. We have it
in the statute now for corporations.
H.M.JR: I am not sure I understand it, but let me
ask an advocate for volunteer. Do you smell anything?
MR. SULLIVAN: I think I do. I think that whatever
advantage that would have, Randolph, would very likely
be offset by Congress interpreting that as letting the
bars down on the way they would go with compulsory lending
Regraded Unclassified
17
- 6 -
all the way up and down the scale. I don't know; I
haven't studied this.
MR. BELL: Have you something akin to it in the
victory tax - post-war credit?
MR. SULLIVAN: That is what it is.
MR. BELL: You have the principle already laid down
there.
MR. PAUL: We also have--
MR. BLOUGH: The only reason for mentioning it here
is it is likely to be brought up in the discussion this
afternoon.
MR. PAUL: I wanted to know what accent to put on it.
It could be mentioned. It is just a question of how fluid
you want me to be about it.
H.M.JR: Well, in view of the fact that I haven't
had time to assimilate it, I would simply mention it, if
it comes up, as a method. Is that all right?
MR. PAUL: Yes, I can do it that way.
H.M.JR: This could be a device.
MR. LINDOW: I don't see any conflict in this and
the idea of being opposed to compulsory lending, because
compulsory lending, as I see it, means to apply a tax to
everybody which is refundable. Now, this is just to apply
a relief to & certain group of people in the lower income
brackets. That is a very different thing. I don't think
we will have anywhere near the repercussions on the volun-
tary program which we have to have if--
H.M.JR: Paul is leaning over backwards. He wants to
point out to me that this might be interpreted as an opening
wedge.
Regraded Unclassified
18
- 7 -
MR. PAUL: That is right.
MR. LINDOW: I don't think--
MR. PAUL: If Lindow is not opposed to it - it is in
the statute now, as a matter of fact.
H.M.JR: If you want to - say as a device. Should
Tickton be here today or not? You have the pay-roll
savings figures?
MR. LINDOW: No, he has the pay-roll savings figures.
MR. BELL: I don't think they will come up.
H.M.JR: I think he ought to be at that meeting.
MR. LINDOW: All right.
H.M.JR: What else, Randolph?
MR. PAUL: Those are the two points.
MR. BELL: May I raise the question about--
MR. PAUL: I am going to speak against the sales tax
and against the tax on increases in income.
H.M.JR: Against the increases?
MR. PAUL: As a tax, yes.
H.M.JR: Increases in what?
MR. PAUL: Tax on increases in income.
MR. SULLIVAN: Individual excess profits.
MR. PAUL: At least I want to point out the difficulties.
MR. BLOUGH: The reason it hasn't been incorporated
in this program--
Regraded Unclassified
19
- 8 -
H.M.JR: Fine.
Now, the thing - your part of it worries me the least
because it is more or less orthodox. Am I right?
MR. PAUL: Yes, it is a new role for me.
H.M.JR: What is that?
MR. PAUL: Orthodox. (Laughter)
H.M.JR: Are you all right on your stuff because you
have the difficult role?
MR. BLOUGH: Only time will tell. (Laughter) But I
think I can give & short discussion trying to point these
up as approaches to a problem, and possible complementary
alternatives to - alternative measures to the revenue pro-
gram which will have anti-inflation value in itself.
H.M.JR: Do them off on your fingers.
MR. BLOUGH: I am going to start with those tax pro-
posals which would have an especially discouraging effect
on spending; first, the spendings tax, the variety we were
interested in last year; second, the spendings tax with a
graduated exemption, which is the one Mr. Smith has been
suggesting; and third--
MR. BELL: Smith is supposed to be here.
H.M.JR: He is coming at four.
MR. BLOUGH: Third, the progressive sales tax "a la
Benjamin Cohen." (Laughter)
MR. PAUL: I hope you will land all over that one.
H.M.JR: I rather like it. (Laughter)
MR. PAUL: You wouldn't like it if you had to buy
some things in the store with that thing.
H.M.JR: I like particularly the loophole. (Laughter)
He has a wonderful loophole. The boys told us about it.
You sent a couple of smart boys up to see me yesterday. They
showed me the loopholes and everything. (Laughter)
Regraded Unclassified
19
- 8 -
H.M.JR: Fine.
Now, the thing - your part of it worries me the least
because it is more or less orthodox. Am I right?
MR. PAUL: Yes, it is a new role for me.
H.M.JR: What is that?
MR. PAUL: Orthodox. (Laughter)
H.M.JR: Are you all right on your stuff because you
have the difficult role?
MR. BLOUGH: Only time will tell. (Laughter) But I
think I can give a short discussion trying to point these
up as approaches to a problem, and possible complementary
alternatives to - alternative measures to the revenue pro-
gram which will have anti-inflation value in itself.
H.M.JR: Do them off on your fingers.
MR. BLOUGH: I am going to start with those tax pro-
posals which would have an especially discouraging effect
on spending; first, the spendings tax, the variety we were
interested in last year; second, the spendings tax with a
graduated exemption, which is the one Mr. Smith has been
suggesting; and third--
MR. BELL: Smith is supposed to be here.
H.M.JR: He is coming at four.
MR. BLOUGH: Third, the progressive sales tax "a la
Benjamin Cohen.' (Laughter)
MR. PAUL: I hope you will land all over that one.
H.M.JR: I rather like it. (Laughter)
MR. PAUL: You wouldn't like it if you had to buy
some things in the store with that thing.
H.M.JR: I like particularly the Ioophole. (Laughter)
He has a wonderful loophole. The boys told us about it.
You sent a couple of smart boys up to see me yesterday. They
showed me the loopholes and everything. (Laughter)
Regraded Unclassified
20
- 9 -
MR. PAUL: How do you think I get along? (Laughter)
MR. BLOUGH: The second general class of devices
would be measures to withdraw purchasing power. Of
course, taxation is the principal measure there, and the
other one is compulsory loans.
Now, at that point I have so little - here is what
I had thought of doing, and see whether this is what you
want done; to indicate that in brief the reasons why that -
the difficulties, just as with the others, what the things
to be said in favor of it are, and what the things to be
said against it are, not giving any conclusion there unless
you want a conclusion given as to why the Treasury has
not made that recommendation. But I thought this second
part was at this stage of the game sort of a group of open
alternatives.
It wasn't your wish to take any of them at this
stage and give & final judgment on them - this is finally
good and this is finally bad - but here are the things
that are said in favor or against these particular measures.
MR. SULLIVAN: Do we intend to commit ourselv to
the eventual adoption of any one?
H.M.JR: No.
MR. PAUL: This is more in part one than two.
H.M.JR: Have you talked--
MR. BELL: In other words, the discussion is wide
open under two, even though we are against compulsory
loans and compulsory savings - the discussion is open.
MR. SULLIVAN: Incidentally, Mr. Secretary - it may
be germane to the discussion that Roy is now talking
about - OPA is planning to give larger rationing coupons
and then have colored glass tokens that the merchants will
use as change.
Regraded Unclassified
21
- 10 -
MR. BELL: I have a letter on my desk that I want
you to sign on that.
H.M.JR: Against it?
MR. BELL: No, I want to be consulted because I
think they might interfere with the coinage system. I
want them to come to the Treasury before they put any-
thing in circulation.
MR. SULLIVAN: The repercussions of that will be
great after the housewife has gotten used to one system
and it is changed to another.
MR. PAUL: That is the argument I make against the
progressive sales tax.
H.M.JR: This other thing, which they tell me makes
me a Socialist and what not - (laughter) - these boys I
had up there - this thing of saying to everybody that on
rationed goods and scarce goods everybody across the board
can have so much special money to buy them, and they get
that special money three months in advance.
MR. WHITE: That is expenditure rationing.
H.M.JR: But with special money.
MR. BLOUGH: But the wrinkle about it was that every-
body gets the same amount, Harry.
MR. WHITE: I see.
H.M.JR: I mean, if it is eighty-five million dollars'
worth of goods and there a hundred and thirty million
people, give six hundred and fifty dollars to everybody;
and then they said those people who can't use the six
hundred and fifty dollars can sell what they don't want
to the richer people who want it. So it is the rich people
who would be subsidizing the poor people instead of the
Government doing it. (Laughter) It is not 80 crazy.
Regraded Unclassified
22
- 11 -
Instead of a black market you would have it legitimate,
where a person who had the money could buy from some poor
cuss who can't spend six hundred and fifty.
MR. SULLIVAN: The smart boys would go around to the
poor people and buy them up for nothing and make & kill-
ing selling to the rich boys.
MR. WHITE: There would be a market price just as
any other way - you have buyers and sellers. There would
be--
MR. SULLIVAN: Who is going to regulate the market,
Delano or Eccles? (Laughter)
MR. WHITE: Private enterprise - competition.
H.M.JR: After all, you said to everybody, irrespec-
tive of their income, that they could only have one pound
of coffee and one pound of sugar and one pair of shoes
over & given period. All I am saying is go a step further
and say that everybody in the country can only have so
much of the rationed and scarce goods.
MR. WHITE: That was the original idea which was
advanced, with some slight modification. I don't know
who was the first - it doesn't matter - but Kalecki was
one of those. Then because of the objection to that,
that was modified by scaling that and new wrinkles put
on expenditure rationing.
I remember when we were discussing expenditure ration-
ing that Hansen was one of those who strongly opposed it
on the grounds that the public would never stand for any
limitation on their spending power. So if he would oppose
that, or if he represents any group, they would be in-
finitely more opposed to the suggestion that you make,
although I think that the logic of the situation leads
one to the proposal that you suggested.
H.M.JR: All I am saying - I know there isn't a chance
of a snowball in hell to get it through, but if you wanted
Regraded Unclassified
23
- 12 -
to really be fair, eighty-five million dollars' worth of
civilian goods to be divided, the way to divide it is to
divide it equitably among the people the way you do coffee
and sugar, irrespective of their wealth. Then the rich
person is going to decide, "Do I want & sirloin steak, or
can I get along with a top round? I only have 80 many of
these red tickets left." And the housewife would know
she has so many tickets - they are going to last her for
three months.
MR. MURPHY: It is hard to persuade a man to work
overtime if he doesn't have anything he can spend his
money for. You have to have something to give you an
incentive to work.
H.M.JR: On that basis, don't let's do anything
against inflation. If you just want to carry that, then
let everything go up.
MR. SULLIVAN: I don't think that follows from
Henry's remarks.
MR. MURPHY: More tickets than there are goods and
services. You might buy your goods and services across
the board to an extent of a half or two-thirds of the
available supply of goods and services. After all, goods
and services are not particularly scarce; we merely have
a lot more money to bid for them than we had before.
H.M.JR: But the incentive of the fellow to get his
money - there are a lot of things that he can use it for
that aren't scarce.
MR. MURPHY: The figure that you mentioned - I took
it that practically the whole body of goods and services
except, say, rent that Harry was going to exclude--
H.M.JR: No, it is scarce and rationed goods. It
doesn't keep him, for instance, from taking dancing lessons
or violin lessons, or contributing to the Red Cross.
MR. SULLIVAN: Or ballet dancing-- (Laughter)
Regraded Unclassified
24
- 13 -
MR. MURPHY: As long as the body of unrationed things
is sufficient to induce people to put forth the extra
effort.
H.M.JR: Well, anyway, I am just kind of doing a
little talking here, which is a result of the association
yesterday with these boys. (Laughter)
MR. BELL: With a couple of Socialists. (Laughter)
H.M.JR: No, I rather shocked them, but that is the
fair way to do it.
MR. WHITE: That is liable to leave you in a dangerous
spot because if you assume it is fair to divide scarce
goods equally, it doesn't take much of a jump from that to
assume that each person has a claim, an equivalent claim,
on all scarce goods. If they weren't scarce they would
be free; because scarce, they demand a price. Therefore,
every man ought to have the same income - something like
that. (Laughter)
H.M.JR: That is all right. I have been going in
that direction for twenty years, and I told this to the
President some time ago - I said, "After all, is there
anything in the Socialist plan of twenty years ago that
you wouldn't subscribe to today?"
He said, "Yes, because practically all of them are
my laws."
MR. SULLIVAN: That is a fact. The Socialist plan
of twenty years ago has been enacted in the law, most of
which he signed himself.
MR. WHITE: You "ain't" kidding me. You are kidding
yourself. You read the wrong books. (Laughter)
H.M.JR: I am quoting the President of the United
States.
Regraded Unclassified
25
- 14 -
MR. SULLIVAN: You look at the platform in the
election of 1920.
H.M.JR: The platform, not the books.
MR. WHITE: Maybe you are right. I will read it.
H.M.JR: The platform - the published platform.
Well, I think we are all right. I am getting silly.
Anyway, this agenda is all right.
Have you been trying to say something?
MR. BELL: Not very much, but I-- (Laughter)
H.M.JR: What did you fellows do in your office
for three and a half hours? (Laughter)
MR. BLOUGH: Did you ever see a bunch of squirrels
in a cage? You work on it and work on it, and the cage
comes down. That was it. (Laughter)
H.M.JR: You and I and Surrey went places yesterday.
MR. SULLIVAN: But we were busy getting back today.
(Laughter)
H.M.JR: Do you feel badly about taking this route
instead of the route of your charts?
MR. LINDOW: No, sir. I think this should be explored.
H.M.JR: I think this is going to be - I am very
hopeful of this meeting this afternoon, particularly after
having seen the President this morning. I told him all
about the meeting. He likes it - he likes the idea. And
in the room here, he has given Paul and me a date of
August 24 to come to him with a program, and the interest-
ing thing - he said, "You bring to the meeting who you
want." So Paul is going to bring me, and I am going to
bring Paul. Is that right? (Laughter)
Regraded Unclassified
26
- 15 -
MR. PAUL: The blind leading the blind. (Laughter)
Is that a fixed date?
H.M.JR: He said to get in touch with him around
the 24th.
We go down there at four o'clock. Is everybody
all right?
MR. WHITE: Did you say there was going to be another
meeting a week following to which you are inviting the
same group?
H.M.JR: That is right.
MR. WHITE: And in the meantime the Treasury technical
staff is available for discussions with anybody?
H.M.JR: That is right.
MR. BELL: On "A" here - "I-A" - the amount, I take
it, Paul is going to mention is twelve billion dollars.
H.W.JR: Yes, sir.
MR. BELL: And "B" - Paul--
MR. PAUL: I will divide it up into those blocks.
MR. BELL: Those items represent more or less definite
commendations for a tax program?
H.M.JR: Yes, we are going through those motions.
I mean, we are not kidding anybody, but on the theory we
have to have a program, O.K., we have got a program.
MR. WHITE: I also understand that under "B-1" the
individual income tax, that there is going to be reference
made to the likelihood - if not stronger - of the probability
that in the lower income brackets there will be some rebate
features with that.
Doaradod
27
- 16 -
MR. BLOUGH: If not there, at "D-1".
MR. BELL: I should think it ought to be up there,
then two and three under "D" ought to be separate from
the relief.
H.M.JR: Let's let it go, Dan. This is going to be
a happy-go-lucky meeting.
MR. BELL: I hope SO. (Laughter)
MR. WHITE: That relief on the lower brackets,
exemption is important.
H.M.JR: I just wonder who is going to get to the
telephone first to give it to the Wall Street Journal.
Where is this room?
MR. BELL: Two hundred eighteen - just beyond Harry's.
28
AGENDA
I. Revenue Program
A. Amount of additional tax revenue to be requested
B. Proposed sources of additional revenue
1. Individual income tax
2. Corporation taxes
3. Estate and gift taxes
4. Excise taxes
C. Other revenue sources not proposed
1. Sales tax
2. Tax on increases in income
D. Problems of the individual income tax
1. Relief for persons with fixed incomes or
heavy commitments
2. Tax simplification
3. Privileges and loopholes
II. Discussion of complementary measures primarily for
curbing consumer spending
A. Tax measures to discourage spending
1. Spendings tax
2. Spendings tax with graduated exemptions
3. Progressive sales tax
3. Measures to withdraw purchasing power
1. Compulsory loans
C. Measures to limit spending directly
1. Extension of specific rationing
2. Expenditure rationing
3. Compulsory saving
August 10, 1943
Regraded Unclassified
29
August 10, 1943
4:00 p.m.
TAXES
Present:
Secretary Jones
Mr. 0. V. Wells
Mr. Bell
Mr. Garrison
Mr. Paul
Mr. Altmeyer
son
support
be
Mr. Gaston
Mr. Samuel Clark
Mr. Sullivan
Mr. Lubin
Mr. White
Proble
Mr. Hinrichs
Mr. Fred Smith
Mr. Harold Smith
Mr. Patterson
Mr. Colm
Bugst
Mr. Forrestal
Mr. Richard Gilbert
Judge Vinson
Mr. Helvering
Mr. Eccles
Mr. Lindow
Mr. Cohen
Mr. Tickton
Mr. Nelson
Mr. Surrey
Mr. Whiteside
Mr. Murphy
Captain Strauss
Mr. Shere
Mr. Currie
H.M.JR: Gentlemen, the reason I have asked you
people to come together is this: We have been working
for some time here on a tax program. We have what I
call, for want of a better name, an orthodox tax program
that will raise twelve billion dollars.
MR. JONES: How many dollars?
H.M.JR: Twelve billion, which Mr. Paul will outline
to you. He says he can do it in fifteen minutes.
After that for about forty-five minutes Mr. Blough
will present suggestions for combating inflation.
After that we would like very much to have & general
discussion and hear your ideas.
Regraded Unclassified
30
- 2 -
If you people like this idea, during the week Mr.
Paul and his staff are available for individual consulta-
tions and suggestions; and if the meeting goes well I
would like to have another one next week, with the idea
that out of these meetings of the various agencies repre-
sented we might get almost a meeting of minds on what we
might call an Administration tax program, and possibly
anti-inflation as well.
I had a chance to talk with the President this morn-
ing. I told him what we proposed to do, and he was very
happy at the idea; and sometime the latter part of this
month he would like to get the benefit of what we do.
I hope the meetings won't get into the papers, but
if they do I hope we get a favorable leak. If we are
going to have a leak, let's have a good one. (Laughter)
With those few remarks - one other thing, I would
like to say that last year I think everybody who was
interested in taxes played ball pretty well with the
Treasury, and if they had some ideas while the bill was
pending they were considerate and courteous enough to
consult with us and we were able to forward their ideas
to the chairmen of the specific committees.
I hope that once we settle on an Administration
program we can follow that plan. Presenting a tax
program, as Mr. Vinson knows from his end - he sat at
the other end of the table when we appeared before him -
I think is one of the most difficult, and, if I may say
it, dirtiest jobs, almost, of any in Washington. If
anybody wants it they can have it, but if we are going
to do it, once we get the stamp of the President's
approval, if we would all play together it would be
very helpful to us. As I say, last year was a good
year.
So, with those few remarks - I don't think I took
more than three minutes, did I?
MR. PAUL: I think we started late.
Regraded Unclassified
31
- 3 -
H.M.JR: We will charge that to me.
We will have Mr. Paul now, and then later on I am
going to ask Mr. Paul to act as master of ceremonies when
we have the questions and answers.
MR. PAUL: We have distributed a sheet (Agenda,
dated August 10, 1943, attached), and I am going to run
down number I on this sheet; and in doing so I am going
to give you what the Secretary called the orthodox tax
program.
This that we give under point I we feel is pretty
well congealed in our minds, and still I want to emphasize
the fact that in addition it is to a large degree fluid
so that the matter is in the discussion stage. However,
we do feel that most of these suggestions are pretty well
in shape.
You will notice under "A" we have noted the amount of
additional tax revenue to be requested, and the Secretary
gave that figure as twelve billion dollars. That will be
added to thirty-eight billion produced by our present
system for the fiscal year 1944; and the total, if the
revenue program were achieved, would be fifty billion,
which would be approximately half of our present contem-
plated war expenditures - not our total.
We are getting down to the bottom of the barrel on
sources of additional revenue, and we have listed here
four sources. I will give you first the totals that we
have planned for those four sources.
Under "Individual income tax" we have additional
taxes drawn up which will produce eight billion seven
hundred million dollars. That is the largest one of
the four items.
MR. JONES: How much additional?
MR. PAUL: Eight billion seven hundred million.
Regraded Unclassified
32
- 4 -
MR. JONES: Additional?
MR. PAUL: Additional. I am talking now of building
up the twelve billion.
The second one is corporation taxes. We have con-
templated there a billion dollars additional.
The next one is rather small - estate and gift taxes,
three hundred million.
The last one, excise taxes, is two billion one hundred
million.
Now let's go to the constituency of those items. The
individual income tax is first. We contemplate a reduction
of the exemptions - personal exemptions - and the dependency
credit. They are now five hundred for a single person,
twelve hundred for a married person with no dependents,
and three hundred and fifty for each dependent.
We contemplate that in order to raise this additional
amount of revenue and to get down into the place where the
income is, that from the inflationary standpoint it is
necessary to reduce those exemptions - not the single-
person exemption, but the married person, from twelve
hundred to a thousand, and the dependency credit from
three hundred fifty to two hundred fifty dollars.
Of course most of the additional tax arising from
that reduction will come from the brackets now paying
tax, but it will bring in more taxpayers.
To give you an idea in two or three brackets of how
drastic this is, you will remember the present surtax.
The beginning surtax rate applicable to the first two
thousand dollars of income is thirteen percent.
In order to get this eight billion seven it will be
necessary to raise that to twenty-three percent - ten
points. And that would make a total tax rate - initial
tax rate, with the normal tax - of twenty-nine percent.
Regraded Unclassified
33
- 5 -
That is exclusive of the Victory tax. If you go up to the
ten thousand level of income, under the present law the
surtax rate is thirty-two percent. That would have to be
raised to forty-seven. There are raises in the bracket
rates all along the line. Of course when you get up higher
you can't raise them as much because they are already 80
high.
For instance, on a hundred thousand dollars you raise
the seventy-nine-percent bracket to eighty-six.
MR. JONES: Seventy-nine to eighty-six?
MR. PAUL: That is on a hundred thousand dollar
surtax net income. The highest rate I have here is, under
the present law, eighty-two, and that could be put up to
eighty-six in order to raise this eight billion seven. But
the preponderance of increased rate is in the lower brackets.
Now, how much tax - those are surtax rates - how much
tax does a man pay? In the two-thousand level under the
present law - not over two thousand - he pays two hundred
and sixty dollars. That is 8. married person with no de-
pendents. That would be raised to four hundred and sixty.
On ten thousand dollars a man's tax is now twenty-six
sixty; it would be raised to forty-three twenty.
The corporation tax I can go through very quickly by
saying that there are two rate increases, one from ninety
percent to ninety-two and a half percent, excess profits
rate. The present rate, combined normal and surtax, is
forty percent. That would be put up to fifty percent, and
as a result of those two changes it would be, at present
levels of corporate income, raising a billion dollars.
Our projected figures would seem to justify that
corporate increase on the theory that taxes have not kept
up with increased profits. We contemplate for 1943 a net
income of corporation earnings - net income - totaling
twenty-three and a half billion. The total tax on that
is approximately thirteen, three, leaving net income
after taxes of a little over ten billion.
Regraded Unclassified
34
- 6 -
Now, that ten billion, which is after our present
corporate taxes - for instance, you can compare it with
the net income after taxes in 1941 of eight billion eight,
or take '37, net income after the then taxes in existence
was only about six. So that even if we take another
billion dollars out of these corporate profits, corpora-
tions will have a hundred and fifty percent of the net
income after taxes that they had in 1937.
The estate and gift tax situation can be just dis-
missed with the thought that there is an increased rate
schedule and a reduction of the exemption from sixty to
forty thousand.
The excise taxes - I might mention a few of the
leading taxes - here are pretty fluid, and we would
particularly like to get a lot of suggestions.
Taking a few of the leading tax producers, the tax
rate on admissions is now one cent per ten cents. We
propose to double that. That would get a hundred and
thirty million.
Another big item is distilled spirits, which is now
six dollars per gallon. By the way, the equivalent rate
in Great Britain is twenty-two dollars per gallon. To
raise that six to ten dollars per gallon would bring in
four hundred million.
To raise beer, which is seven dollars, up to ten
would bring in a hundred and eighty million; jewelry,
raising from ten to twenty-five percent would bring in a
hundred million.
We have contemplated raising cigarettes from three
and a half a thousand to five, which I think is a three-
cent-per-pack increase. That would raise three hundred
and fifty million.
Candy and chewing gum, which is a new tax, will
raise a hundred and fifty. Soft drink taxes, if we can
get them through, will raise & hundred and fifty.
Regraded Unclassified
35
- 7 -
The total of these excises is about two billion
one, but there are a number of smaller taxes which we
may want to drop out of the list.
"C" under "I" mentions a couple of taxes we do not
want to propose - in fact, want to oppose. I want
briefly to give our reasons.
The sales tax we oppose not only on the old ground
that it is an inequitable tax because it bears most
heavily on the low brackets, but, in addition, in terms
of our present-day situation, for the reason that it has
an inflationary effect, or would have, in that it would
stimulate demands for increased wages much more than would
an income tax.
The second reason why we oppose the sales tax on
practical grounds today is that it would require an im-
mense increased organization in the Bureau of Internal
Revenue; a large number of additional employees; the
policing, in the case of a retail sales tax, of about two
million seven hundred thousand retail establishments,
which would require automobiles, tires, gasoline, and
personnel, which we just don't figure can be handled at
the present time.
The tax on increases of income has got a lot of
charm about it. A lot of people talk very glibly about
the tax because it gets at so-called war profit in the
individual field. That is the theory.
We feel that the tax is impractical because of the
difficulty or impossibility of getting at a basis for the
tax. Most people who had increases of income - and there
are many millions who would be hit by such a tax - do not
have the records which would permit us to construct a year
with which to compare the present year.
Another difficulty there is that it is almost im-
possible - practically - to distinguish between normal in-
creases which have nothing to do with the present economic
Regraded Unclassified
36
- 8 -
situation, and increases that are attributable to the
war situation. If this tax - I don't want to condemn
this tax in absolute terms - if we could work it out
practically, it might be used in some way as a refundable
tax. At least that idea was once advanced by Hansen, I
think, and we are studying it further.
The next subdivision "D" deals with two or three
special problems.
MR. JONES: On this "C-2", you do not favor the tax
on increases in income?
MR. PAUL: No, we do not favor that, nor do we favor
the sales tax. I tried briefly to give our reasons.
MR. JONES: That is what I understood.
MR. PAUL: The next subdivision gives you two or
three outstanding problems. The first one is relief
for persons with fixed incomes or heavy commitments.
Those heavy rates that I gave you are necessary to produce
eight billion seven hundred million additional and are
not so bad for the income which has risen, but they are
pretty tough rates for the stationary income which has
already been subjected to a certain increase in the price
level, and they are pretty tough for the declining income.
Vie contemplated softening the rates in the case of
people who had not - whose income had not risen, or who
had a smaller income, by some sort of - well, several
devices. One was a larger personal exemption if a
person has a fallen income. Another was the possibility
of putting in the statute a refund element in the lower
brackets which would have a maximum amount, something
like the Canadian and British refundable tax.
That would enable us to give relief by having persons
with fixed incomes or heavy commitments - debt commitments -
cash in on that relief immediately, and we wouldn't be
discriminating a ainst the persons who are not in that un-
fortunate position.
Regraded Unclassified
37
- 9 -
Tax simplification - I can simply mention one
or two items. The most important one, I think, is the
Victory tax. We would like very much, from the stand-
point not of equity - that is one thing, but I don't
want to mention it because I am approaching this tax from
the standpoint of a messy, complicated statute, particu-
larly where we get to the problem of withholding, and
we would like to see that Victory tax eliminated and the
three percent tax be put in on the regular income brackets
as an equivalent, which I think is much more justified
since we are reducing the exemptions - not down to the
level of the Victory tax exemption, but we are approach-
ing that.
We are figuring what we get out of people who are
subject to the Victory tax and who would not be subject
to the income tax with the reduced exemption, and we are
convinced that it is a very small sum.
MR. HINRICHS: Does that mean that your surtax will
become not twenty-three but effectively twenty-six?
MR. PAUL: You can forget the five. It is the net
three.
MR. VINSON: Does that go clear across the board?
MR. PAUL: The Victory tax, if you substitute some-
thing for it, that would have to.
MR. VINSON: That eighty-six would become eighty-
nine?
MR. PAUL: That is right. Whether or not you would
retain the present maximum limitation, which is now
ninety, is a matter - it is not 8. very important problem
because there are not many of those incomes. Tax simpli-
fication contemplates a thing like the elimination of
earned income credit. We tried to do that last year and
I doubt if we will be able to get it through this year,
but we would like to see that earned income credit, which
is a misnomer because it isn't an earned income credit
Regraded Unclassified
38
- 10 -
at all - would like to see that eliminated. Personally,
we hadn't covered this before the meeting, but last year
we fought for the efimination of the capital stock tax
on corporations, which just complicates the corporate
tax picture for very little reason at all. I would
like to see that done.
Privileges and loopholes - I am sure you are all
familiar with the three leading loopholes that were so
much discussed last year; one is tax exemption, one is
percentage depletion, and the third one is the joint
return situation.
One must say that those loopholes are more impor-
tant the more you raise the individual rates, but we
only have a short time. If we begin hearings in the ways
and Means Committee on the 15th of September our idea
would be to get through a bill before the end of the year
and my feeling is - and members of the Committee have
spoken to me along this line - that we can simply say
that our position on those points is well known and not
take up too much time of the committee rehashing the
issues of last year except perhaps in one instance where
we haven't finally determined on policy, and that is with
respect to the joint returns situation.
MR. FORRESTAL: Do you think that is more difficult
to get through than the exemptions - elimination of the
tax exempt?
MR. PAUL: I think the joint return would be much
easier to get through than the tax exempt. I would put
them in that order. The easiest one - they are all hard,
but the easiest one would be the joint return, the next
easiest would be depletion, and the hardest one would be
tax exempts.
One phase of the joint return really can be sub-
divided. One phase of that is the community property
situation, which of course doesn't cover the whole pic-
ture. I mean it doesn't cover the higher incomes in
the non-community property States where there is a lot of
income in the wife's hands.
Regraded Unclassified
39
- 11 -
The community property situation is becoming more
disturbing. Oregon has just passed a law; New York is
about to take up passing a community property statute.
But we have got to sacrifice something when we only have
three and a half months.
Now, I want to save plenty of time for Roy.
H.M.JR: Just before Blough, I want to say something.
It hasn't anything to do with this. I would like to say
something, gentlemen, and if anybody doesn't think what I
am asking you is fair, I would be glad to sit down with
you afterwards, or any day, privately.
I don't want to open the discussion, but everybody
that has been invited to this room is either a Presidential
appointee or represents a Presidential appointee, and for
good team play - I will go back. We had this very unfortu-
nate situation that Mr. Stam of the staff of the Joint
Committee on Taxation can get out a subpoena, subpoenaing
any department and ask for information on any tax plans.
Now, what we are trying to do, as I say, is to have
team play. We are all Presidential appointees. What I
would like to ask - and if anybody doesn't think it is
fair I will be glad to talk with you - is to do what the
Bureau of the Budget did when it got a subpoena. The
answer to the Joint Committee was, "We have no tax plan."
As I understand it, that is the answer they gave.
The thing that bothers us is that Mr. Paul - he gets
up there on the Hill and he begins to testify on what he
thinks is representing the President and the Administration,
and the Committee flashes out some other department's tax
plan; and, to put it mildly, it would be very embarrassing.
So what we are asking is that before any department
gives the Hill a tax plan, they would do us the courtesy
of sitting down with us. Now, if anybody thinks that that
is over-reaching or unfair, 80 forth and so on, I would be
very glad to sit down with the individual and talk it out.
Regraded Unclassified
40
- 12 -
But we can't go around with our hat in hand to every de-
partment in Washington and say, "Have you given the Ways
and Means Committee a tax plan?"
I asked Mr. Doughton how he felt about it. He said
it would be the same thing as though Mr. Knutson, the
minority member, asked me for some information and I gave
it to him and I didn't give it to the chairman of the
committee, and he flashed it on the chairman of the com-
mittee in the middle of a heated debate.
But the thing is there. We are up against it. If
we could all play together on this end, it would be very
helpful to us. As I say, if anybody thinks that isn't a
reasonable request, I would be glad to meet him and sit
down and talk it over with him.
The Bureau of the Budget set a good example.
MR. PAUL: I think I should say that Mr. Eccles
told me the same thing.
H.M.JR: I see - Mr. Eccles and the Bureau of the
Budget.
MR. ECCLES: I told Mr. Paul that if we sent up
anything, it wouldn't be sent up without discussing it
and letting him see it first.
H.M.JR: That is all I ask.
Mr. Blough, gentlemen, the head of our Tax Research.
You understand when he gets through we will be glad
to sit here as long as you want to ask questions, either
of Mr. Paul or Mr. Blough.
As I say, I have invited the Army and Navy here,
thinking they might be interested. If they are not
interested and they don't want to come to the next
meeting, my feelings won't be hurt.
Regraded Unclassified
41
- 13 -
Mile JONES: You invite him because he will be re-
quired to enforce the law. (Laughter)
H.M.JR: Which one - depletion or joint returns?
(Laughter)
MR. PATTERSON: We aren't likely to suggest to the
Ways and Means Committee a tax program. (Laughter)
H.M.JR: I don't know whether it interests you or
not. As I say, last year when we got down to increasing
corporation returns we did consult with you and you felt
at a certain percentage you could get production. Before
that, you couldn't. You have got certain incentive plans
which these high income individual taxes might interfere
with. I thought that I would like to have you hear them.
As I say, if you are interested, we hope you will
stay with us. If you are bored, I won't feel insulted
if you don't come the next time.
MR. BLOUGH: Perhaps we are coming to the section
now, Mr. Secretary, where the Army would be required to
help enforce the laws. I am not sure. I hope not.
If a tax program of sufficient magnitude, an equitable
tax program, and one without harmful economic repercussions
could be devised and put through the Congress, I should
think, from the fiscal point of view at any rate, that
would be the full anti-inflationary measure necessary for
consideration. But I believe that no one would feel that
a twelve billion dollar program would be sufficient for
that under existing economic circumstances.
For that reason I have been asked to discuss briefly
some of the types of measures which have been recommended
and discussed from time to time throughout the Executive
Branch of the Government and elsewhere, for the discourage-
ment or curbing of consumer spending by some measure other
than simply removing purchasing power through additional
taxes. These are just being thrown out for discussion.
Regraded Unclassified
42
- 14 -
I will try to indicate briefly what these measures
which are selected from a somewhat larger group are -
some of the things that have been said for and against
them - but leave it in a completely open position so
far as discussion is concerned.
They may be divided into three groups; those tax
measures which are primarily intended to discourage
spending rather than primarily intended to raise revenue,
and measures other than taxes for the purpose of with-
drawing purchasing power, and then measures to limit
spending directly.
Now, the tax measures to discourage spending naturally
must be imposed on spending. They must bear some relation
to spending. You have two general ways of approaching
spending. One is through the individual who is doing the
spending - through his total spending picture - and the
other is through the sales to him - through the purchases
which he makes.
Last fall the Treasury suggested to the Senate
Finance Committee a tax on spendings. It had the purpose
in mind there both of raising revenue and of discouraging
spending beyond the withdrawal of purchasing power.
There seemed to be at least some minor objections to that
proposal in some quarters. At any rate, it did not pass.
(Mr. Nelson entered the conference.)
MR. BLOUGH: There seemed to be two particular types
of objections to it. The first type of objection went
to the compliance problems on the part of the taxpayer -
the problem which the taxpayer would have in making out
his spendings tax return and in budgeting nis spendings
so as not to fall subject to the tax, or at any rate,
to the tax at high rates.
This compliance and administrative problem is an
undoubtedly serious difficulty with a great many anti-
inflationary measures, including a spendings tax, and if
we are considering it only from the point of view of
Deeraded
43
- 15 -
revenue, it may be that the public reaction to such addi-
tional work should be controlling.
If, however, the tax is being proposed on a much
larger scale, with a much larger purpose in mind, then
the comparison of the taxpayers' difficulties and the
Government's difficulties should be made with other
measures rather than - with other measures to fight in-
flation rather than other measures to raise some billions
of dollars.
The second objection which was made to the spendings
tax last year, although it was not made publicly to as
great a degree as this first objection, was the idea that
it would call for a very much more drastic curtailment of
expenditure on the part of the more well-to-do groups in
the community than on the part of the lower income
groups.
Itemarks were passed, for example, that certain high-
class New York hotels would be driven out of business if
the spendings tax were imposed in the form recommended
last year. To meet that, a shift might be made in the
exemption. The exemption might be put on a graduated
basis instead of on a flat basis. More exemption might
be allowed to persons in higher income brackets and
accordingly used to spending more than was allowed to
persons in low income brackets. Adjustment might thus
be made in the spendings tax to bring it more nearly
around to the ideas which have underlain some of the
expenditure rationing plans.
The general thought there is that we might set up
an exemption which would call, in effect, for a propor-
tionate decrease in expenditures for people throughout
the various income groups, instead of call for a greater
percentage in proportion on reduction of expenditures of
the higher income groups, which underlay the spendings
tax of last year.
The spendings tax, as you know, of course, applies
not to the total income of the person, nor to his total
outgo, but to the spendings for consumers' goods and
44
- 16 -
services with the exception of such goods and services as
it is desired to exempt because, perhaps, they are not
considered to be in the inflationary class.
Savings is certainly to be deducted in arriving at
your taxable base. So the way which was suggested last
year of arriving at the measurement of spending was to
take the income for the period of time during which you
are considering the tax, and from that subtract any
known inflationary spending which is specifically exempted
under the terms of the statute - perhaps rent, for example -
and subtract further any net increase which has taken
place in savings and investments during the period. The
net result is then the amount of spending which took
place. It is really a device through the changes in the
balance sheet to determine spending. It has its diffi-
culties, as you can well imagine, from the point of view
of the taxpayer, but it certainly is not an impossible
device.
Well, then, you will have these two modifications,
or two variations, of 8 spendings tax which could be
employed. The compliance problem and administrative
problem loom large here as they will throughout all of
these measures which I am going to discuss.
You can approach the spending, then, through another
side - through the sale itself - through the sales tax -
the sales tax being a sort of spendings tax, but the
sales tax in its usual form puts a very heavy burden on
the very low incomes, and a lighter burden on the higher
incomes, and if imposed without exemptions and without
graduation, at a rate heavy enough really to reduce
spending, would result in a very much heavier burden at
the bottom than could presumably be tolerated in attempt-
ing to meet the inflation problem.
And so some suggestions have been made in various
quarters for modifying the sales tax along two lines.
One, to allow personal exemptions for the sales tax in the
form of several methods suggested. One is to issue exemp-
tion coupons to people - say, allow two hundred dollars
Regraded Unclassified
45
- 17 -
per person as an exemption, and if the expenditures of
a person do not exceed two hundred dollars there would be
no tax payable because the exemption coupons would be used
to pay the sales tax instead of money. That suggestion
has been made.
There has been another suggestion added to it, namely,
that there be successive installments of coupons which
would be bought at increasing prices. For example,
suppose a single individual were given coupons repre-
senting the tax on two hundred dollars of sales - of
purchases by him - and that he then bought coupons on
another two hundred dollars at ten percent, and that he
then was permitted to buy coupons on a third two hundred
dollars, but at twenty percent, and on a forth two hundred
dollars, but at thirty percent; thus progressing up the
line each of these coupons usable to pay a sales tax,
but as the individual's purchases increased, he would
have to pay a higher and higher tax on eac successive
increment.
If that could be made to work successfully, it would
be & very great contribution, it would seem to me, at
any rate, to meet the inflation problem, although the
base is not all spending, but just the goods which would
be subject to the sales tax.
There appears to be, especially in the case of the
progressive rate, this very serious problem that it would
be extremely difficult to prevent persons who should be
paying the high rates of tax fromusing either exemption
coupons or coupons which were purchased at a very low
rate of tax by others who were in lower income brackets
and lower spending brackets, who sold or loaned or gave
their coupons to others.
The problem of policing a retailer and making sure
that he did not go into the market and buy low-priced
tax coupons and give them to people who would have, other-
wise - or sell them to people who otherwise would have to
pay a high rate, is another element of that problem.
Regraded Unclassified
46
- 18 -
That administrative and compliance loophole seems to be
practically fatal - I wouldn't say finally fatal, because
I know some of you don't believe that - but practically
fatal to the successful application of that tax.
Moving along to other of these measures, we come to
the measures for withdrawing purchasing power other than
taxes, and there, of course, you have the compulsory loan.
The compulsory loan is capable of being applied in any
way that 8 tax can be applied. So we have had proposals
made based on income tax, compulsory loans based on sales
tax, based on spendings tax, compulsory loans based on
taxes on increases in income, and practically any tax basis
that you can think of that applies to persons. There have
been suggestions made that that he the basis for & com-
pulsory loan.
The compulsory loan would involve in the first instance
the same problem of collection, and so on, as the tax at
the same rate and on the same basis, and it would require
then some machinery for the repayment of the loan and some
determination as to when to repay, and so on. Objections
have been - take the arguments which have been made in favor
of it first - the compulsory loan has been urged to a
very considerable extent on the ground that the Congress
would be willing to pass a substantially larger amount of
fiscal withdrawal of purchasing power through the compulsory
loan than through taxes, and that additional amount which
Congress would be willing to pass would represent an increase
in the effective control of the fiscal problem from the
point of view of interest on the debt, from the viewpoint
of control over the debt, and from the viewpoint of the
inflationary effect of that withdrawal.
There is also the argument that for the very low
income groups the compulsory loan can, in effect, take
the place of an income tax or other taxes on them which
we might feel desirable to levy during the period of the .
wer, but not to maintain as a permanent measure after the
war.
On the other hand, there are a number of rather serious
objections to the compulsory loan which have been made by
47
- 19 -
persons who take the opposite position. To begin with,
if the compulsory loan is to be really effective as &
method of taxing inflation, it would be necessary to have
an extremely large program, larger even than the necessary
tax program to do the same thing, the magnitude probably
running in the neighborhood of thirty-five to forty bil-
lions of dollars, depending somewhat on what your view of
the inflationary problem is. An amount of that size to
be levied even for the period of the war through compulsory
means would appear to require 8 degree of flexibility and
of adjustment to an individual set of circumstances almost
out of question for 8 tax measure, which is that it would
be in the first instance, and you would have a serious
problem of digging too deeply at some points in order to
get money of that amount.
On the other hand, if the amount of the compulsory
loan is relatively small, perhaps twelve billion dollars
or less, or in that general neighborhood, there seems to
be little reason - at least this is the position which
many take - to believe that you could sell any substantial
amount of compulsory lending to Congress beyond the amount
of taxes that Congress would be willing to impose. And
when you get down to that point it really isn't worth
while attempting to get a little more compulsory lending
than you could get taxes, because the compulsory lending
to a very considerable extent would replace the other
lending and the other saving which people are doing. A
compulsory loan is not a compulsory saving, except in those
areas where people otherwise are not saving and do not
have the wherewithal to save. There compulsory loaning
would be a compulsory saving, but elsewhere the compulsory
loan might represent merely a shift of assets from one form
to another.
Unless you are going to get a large program, you may
get very little in actual anti-inflationary effects. Then,
those who are selling the war bonds and who have that re-
sponsibility have the feeling - the very definite feeling -
that the compulsory loan would have a very serious effect
on the willingness of people to buy war bonds under the
Regraded Unclassified
48
- 20 -
war bond - voluntary war bond program.
They might very well consider that their duties
have been discharged when the amount of the compulsory
loan has been taken from them.
MR. JONES: What was that last?
MR. BLOUGH: They might consider their duties dis-
charged and not buy war bonds.
Then move on to the last set of measures, those
which would limit spending directly.
They get, really, somewhat outside of the fiscal
field, but I mention them because they are certainly
considered as being alternatives and in the same general
category.
There are three of them listed here. First, the
extension of specific rationing, which would mean, in
effect, rationing a very large number of items and
allowing points for each, as under point rationing, or
a similar method of that kind.
Thereby, you would cut down spending by limiting
the quantitative amounts that people could buy, and
then, of course, combining that with price control.
So therefore, you would put some limit on the
quantitative amount of money which that would permit
to be spent.
MR. JONES: It isn't quite clear to me about the
limiting of expenditures. What is that?
49
- 21 -
MR. BLOUGH: In this group C you have measures--
MR. JONES: Number one?
MR. BLOUGH: The present type of rationing of goods
is what that is and put into a lot of other fields where
it isn't now.
If clothing were rationed, if furniture were rationed,
if other kinds of foods were rationed than those now
rationed, you could do a great deal to limit expenditures
by placing quantitative limits on the amounts of things
people could buy through specific rationing. It is a goods
rationing device.
The second item, expenditure rationing, is a somewhat
different matter because there the limitation is not on
the quantities of goods that you can buy, but on the total
amount that can be spent on the goods. You have two general
approaches to that rationing.
In the original plan for expenditure rationing, as
drawn up, I believe, in Great Britain, it was proposed
that everybody have the same number of dollars of rationing,
regardless of their present expenditure and regardless of
their present income. In the discussions of expenditure
rationing which have been carried on here, it has been
with the graduated rationing in mind, 8 larger rationing
for people who have had larger incomes and have been used
to spending more than for people who have had smaller
incomes and have been used to spending less. And that
rationing, to be enforced - there are a number of ways,
but one of those which seemed to be most practical would
be through the issuance of coupons or B. sort of a second
type of money which would have to be used in the purchase
of certain types of articles in addition to the money which
we have to spend for it.
In other words, it would be a type of rationing coupon
which would have to be used in the purchase of goods, and
by policing those coupons the expenditure of any family
would be limited to the amount of the ration granted to
50
- 22 -
them. By getting directly at the volume problem, you
reach your end of cutting down spending by very direct
means.
The problem of deciding how much rationing to give
different families is a political problem of a very
serious character, as is readily seen, and the problem
of making sure that that rationing is adhered to despite
the considerable volume of money which would not be avail-
able for spending presents a policing and an administrative
problem of serious character.
MR. VINSON: We have had the Army, and we have had
the Navy. Is there any representative of the Marine Corps?
(Laughter)
MR. BLOUGH: I think, though, it is only fair to say
this, that any of these measures by which you really try
to cut down spending in substantial quantities below what
people want to spend and have the money to spend will
require much of the same difficulty whatever method is
used. Many people feel that the use of taxation is the
easiest of them, but essentially the problem is to try to
get people not to spend money that you leave in their
hands. And, of course, if they have it, it is awfully
hard to keep them from spending it some way or other or
trying to spend it.
The last measure - and my time has practically expired -
the last measure on this list is something which is
generally - given the general name of compulsory saving.
Now, compulsory saving is simply a method or an idea of
forcing everyone to save a certain amount. This isn't
lending to the Government; it has nothing to do with
the amount of Government bonds purchased or anything
like that. But it is a required saving of a certain
percentage of income within the period; and if it weren't
saved, presumably something very nasty would happen.
There is the problem of deciding what that nasty something
would be and of imposing it and of imposing it before the
end of the year so that the poor man would find that he
had spent his money, that he hadn't saved it, and now he
Regraded Unclassified
51
- 23 -
was going to be punished for it. He might feel a little
badly at that point if some plan weren't worked out. But
it is an idea, at least, that has possibilities, and that
is the reason it is mentioned in this list.
Now, there are others of the same general character,
but these are all that I have selected out for this
purpose. You will notice that they are of really two
general types. One is to take the money away, and the
other is to try to prevent people - or discourage them -
from spending it. Some of these measures do both, and
others do one and not the other. But they are all sug-
gested as possible approaches to a problem which remains
after all the taxes which appear to be politically
practicable have been imposed.
H.M.JR: Now, Mr. Paul will go back and act as
moderator, or umpire, or whatever you want to call it.
MR. PAUL: There ought to be plenty of questions,
after what Mr. Blough has said, anyway.
MR. LUBIN: I came in late, and I didn't hear what
you said about excise taxes, but has any consideration
been given to prohibitive excise taxes, or prohibitive
to the extent that they interfere with certain types of
spending? I have been very much impressed in the last
month by the tremendous extent to which our newspapers
are carrying advertisements for expensive furs. Apparently
the market is ripe for people to buy expensive fur coats.
MR. PAUL: We did have an additional excise proposed
on jewelry, but I don't think we did on furs.
MR. LUBIN: Is there any consideration being given
to, say, a hundred-percent excise tax on things which
we know are real luxuries that no person in time of war
should buy, and if he wants to buy should contribute to
the Government?
MR. PAUL: You are directing that not to the ad-
vertising but to the actual principle of spending money
Regraded Unclassified
52
- 24 -
for those absolute luxuries. We haven't gone that high.
On furs we raised it from ten to twenty. Maybe that
twenty is too low. We have to consider other phases of
the impact, the question of whether you would ruin an
industry.
MR. LUBIN: One of the most popular taxes in England,
I found, was the hundred-percent tax on luxuries.
MR. PAUL: You mean the British purchase tax.
MR. GASTON: I think Mr. Lubin came in after that
general schedule was discussed, but we are suggesting
there - Mr. Paul is suggesting there a much stiffer
excise tax on luxury items - perhaps not stiff enough.
M. PAUL: The fur is ten up to twenty; maybe the
twenty is too low. Jewelry is ten up to twenty-five.
We have here cabarets, now five percent; we have boosted
that to twenty percent. That one item gets you sixty
million dollars. Maybe those aren't quite high enough.
We have in the list here a tax which is simply luxury,
and perhaps can't be - we can't include it finally because
there is an administrative compliance problem. Beauty and
barber shop services, seventy-five million; toilet prepara-
tions we propose to increase here from ten to twenty-five
percent.
Now, maybe, as I say, those aren't drastic enough,
but most of those items - the answer is that most of those
items might be politically desirable from the standpoint
of morale, they might be popular, but none of them would
bring much money.
MR. JONES: Chewing gum?
MR. PAUL: Candy and chewing gum - there is no tax
on them now. We propose a tax here of thirty-five percent
of the manufacturers' sale price - 8. hundred fifty million
in that.
MR. HINRICHS: Have you considered in developing
those excise taxes the frequency with which purchases
Regraded Unclassified
53
- 25 -
are made? That is one of the repercussions you are going
to get from that - tobacco, soft drinks, and candy - the
feeling that there is part of our cost-of-living items
going up.
We have found in looking at the public reactions to
changes in prices that the item that is purchased every
day makes an all-out-of-proportion impression on people,
whereas the item that is purchased only once a month is
more or less overlooked, and granted equal funds from--
MR. PAUL: That is true, that is a matter of gaining
the public reception of the tax. There would be less
objection to something you might not buy in the whole
year than something you are buying every day.
MR. HINRICHS: It is not only - it is the public
reaction as the tax is being levied - I mean, not only
the public reception of the idea of the tax in the first
instance, but the way in which they react to it and what
they say to the War Labor Board after you put it on.
MR. BLOUGH: On the candy tax they wouldn't see it
except as it affected the price immediately, and that,
of course, would have the same effect as the price in-
crease in candy because it is a manufacturers' tax. The
soft drink tax would presumably show up right away.
MR. PAUL: The whole problem of soft drinks we had
up last year, and it is just a matter of how to tax the
over-the-fountain drinks. You can't tax just the soft
drinks in the bottles without equalizing on the others,
and then you have this problem of leaking drums, and all
that sort of thing. I think it is a magnified problem,
but it is there.
MR. HELVERING: We have a schedule worked out on
that about the syrup drums which I think is pretty good.
MR. PAUL: Marriner, how do you feel about some of
this program?
Regraded Unclassified
54
- 26 -
MR. ECCLES: I think it has been an excellent
presentation of the problem that we are all confronted
with. I think that the most equitable source of taxation
is the individual income tax, of course. It is the one
that everybody is used to, and it is the most practical
to collect. I am glad that you are proposing 8 reduction
in the exemptions and recognizing that the large increase
in income is in the lower groups.
MR. PAUL: I have some figures in passing.
MR. ECCLES: I think I r emember some of them, sixty
percent of the total income - individual income - is in
the group below three thousand dollars or less; end eighty
percent, according to the figures we get, is in a group of
five thousand or less. Of course, that group, the group
of three thousand or less or five thousand or less, are
the ones that spend practically all of their - that is,
they are more likely to spend 8 larger portion of the
income. Certainly to get an effective tax program you
have got to go to the group that is getting the income.
If that is correct - if eighty percent comes from the five
thousand or less, that is where you have to go to get
most of your taxes. I think that is a realistic approach.
MR. PAUL: You really have to go down lower than
that. Some figures here, which are very tentative, add
up to a hundred and twenty-five, and you would have to
increase that proportionately now. But I find that out
of a national income of a hundred and twenty-five, sixty-
four billion is in the brackets from nothing to two thou-
sand - over half the income.
MR. ECCLES: You have to reduce the exemptions, which
you are proposing to do.
MR. PAUL: At the present time on the basis of 8 hundred
and thirty-two billion net income we have, after the
deductions, a tax of about a hundred and twelve.
I gave you these figures, Judge, the other day. we
find that the amount received by persons subject to the
Regraded Unclassified
55
- 27 -
income tax out of that hundred and twelve is ninety-two.
Personal exemptions at the present time take away from
that phase forty-one, leaving only a surtax net income
base for the whole country of fifty-one billion.
Now, that would be raised if we reduced the exemp-
tions, as we have suggested here - that will be raised
to sixty-three or sixty-four. I am just fortifying your-
MR. ECCLES: I was just going to say that with refer-
ence to the cost of living the question, it seems to me,
in our present cost-of-living index is based largely upon
the way people spend money for normal or peacetime condi-
tions, with some modifications, but generally it seems to
me that we might think of a cost-of-living index based upon
& war condition and limit the items in that cost-of-living
index to the basic needs, food, clothing, and shelter, and
protect the price on that cost-of-living index but not
undertake to maintain the present cost of living as it
covers - for instance, we might say cigarettes. I don't
know whether it covers jewelry or not, but there are a
good many items that certainly We could not consider as
an absolute necessity during a war period.
It might be easier to maintain the cost of living on
basic needs, and certainly labor could hardly complain if
the cost went up on many other items through a very heavy
excise tax. And the heavy excise tax on items other than
those basically necessary would in itself not only give
the Government revenue but would greatly curb the ex-
penditure, possibly, for such items, and it would help
in the question of price control. Or it might well make
it possible to largely eliminate the price control in
the group other than the essential items, depending upon
the high enough excise tax in and of itself to effect a
control. I think that that might be a thought worth
considering in connection with your excise tax approach
to this thing.
MR. HINRICHS: Only two things have moved in the
cost of living in the last year. One is food, which most
people regard as essential; and the other is the service
items, medical expenditures, and the rather small item in
Regraded Unclassified
56
- 28 -
the budget on laundry and cleaning services, and barber
shops.
MR. VINSON: What about furniture?
MR. HINRICHS: It hasn't moved.
MR. VINSON: The figures I have seen show that.
MR. LUBIN: If you take out of the index everything
but the real essentials - granted clothing and food -
your index will be slightly higher than it is now.
MR. PAUL: Will you repeat that?
MR. LUBIN: If you take everything out of the index,
as suggested by Marriner, and leave only the essentials
in it, your index would be slightly higher than it is now.
MR. WHITE: The point he has to deal with is the
future.
MR. ECCLES: What I am talking about is your difficulty
of exercising a price control over everything. What we
are more concerned about in the protection of labor in the
lower income groups generally is in the essentials. To
maintain the cost of living you have got to control prices
and rationing in the essential category. When you get
beyond that, the prices likely would have gone up during
the past year on furniture and all of those items, had it
not been for the question of price control.
My point is that if the expendable income expands as
it is and the supply of goods diminishes as they are dimin-
ishing the job of price control of everything becomes
increasingly difficult, and the job of expanding the ration-
ing likewise is going to increase the problem.
But my point is, don't undertake the price control
beyond that, but meet it with a heavy excise tax; put the
effort on the maintenance of the price control of all of
Regraded Unclassified
57
- 29 -
the basic essentials, and the rationing on that instead
of trying to cover the--
(Mr. Vinson left the conference.)
MR. PAUL: We could do that to some degree. We could
increase some of these excises which are in the category
of luxuries, or at least semi-luxuries, but to undertake
to put an excise on practically everything outside of the
basic commodities of living would be an insuperable adminis-
trative problem.
MR. ECCLES: Say you are going to have & sales tax of
a certain figure, we might say, on everything except these
basic essentials, a very high general sales tax on everything
but certain items.
MR. BLOUGH: Let's see what would be left. The latest
figures we have on a sales tax base outside of sales to the
Federal Government amounts to about sixty billion dollars,
and some of that is probably not available because it is
sales to States and localities, and so on.
Now, of that, over one-fourth, or sixteen billion
dollars, is food other than restaurant sales. Undoubtedly
some food is in this luxury class, but the administrative
problem of trying to separate out the caviar and 8. few
other things like that seems pretty great in order to
arrive at the luxury items.
Another five billion dollars or more is restaurant
sales of foods. Now, you might say that all restaurant
sales of food are luxuries, but that hardly fits your
Government girls here in Washington, and so on. And how
to separate out & luxury sale of food in a restaurent and
one that isn't a luxury seems - perhaps there are ways of
doing it.
Another eight billion is liquor and tobacco, which are
subject to excises. Those can be increased as much as you
might desire.
Regraded Unclassified
58
- 30 -
A billion fifty-seven and a half is medicines and
drugs. Probably some of those are luxuries, but you
could hardly get anybody to admit that even some of the
patent medicines ought to go into the luxury class.
Then you have ten billion six hundred thousand of
wearing apparel. Now, that is about a sixth of the total.
But the great part of that, of course, is the basic wear-
ing apparel, and at what level are you going to say that
a pair of shoes becomes a luxury, and so on. We tried
during the last war, as you know, to put taxes on luxury
articles above certain prices. It proved to be a terrific
administrative headache, brought in very little money,
and was rather widely evaded.
Take the figures on house furnishings and equip-
ment - possibly that could all have been considered
luxury. I suppose newlyweds would hardly so consider
it.
The rest is chicken feed. When you look around and
say, "Where are these luxuries to which we can apply these
heavy excise taxes and have a substantial effect on in-
flation?" it looks like we would have to split some of
these categories, like food, and so on, and say, "This
is luxury, and this isn't" or, "This price class is luxury
and this isn't." That, of course, gets you into an
administrative problem which makes one wonder whether it
is really worth while.
MR. ECCLES: Of course there is no approach you can
make to the problem without getting into very great dif-
ficulties. Even in the case of the heaviest kinds of an
income tax or compulsory savings or a compulsory loan,
you don't get at the problem, it seems to me, at this stage
because you create an inflationary condition which is
reflected by very large holdings of cash, bank deposits,
and Government securities.
So if you put enough pressure through taxation on
people or you put pressure on them now for a compulsory
savings or lending, they may cash in the securities that
they have, or they may use the funds they have. So I
Regraded Unclassified
59
- 31 -
think that the 1940 - December 31, 1940 - during the past
three years up to the end of this year I think it would
figure approximately a hundred billion dollars of inflation
in the form of currency growth, deposit growth, and Govern-
ment bond growth in terms of the rank and file - the public,
I mean - other than bank Government securities or corporate
Government securities.
So you have this very large spending power that no
matter how heavy the taxes are - I am not saying that they
shouldn't be very heavy - but no matter how heavy the taxes
or how much enforced savings you put on, you still have
the problem of expanding need, increasing of black markets,
and all of these other problems that now have to be dealt
with largely, it seems to me, by direct means.
MR. PAUL: There isn't any question but what our
problem is much tougher.
MR. ECCLES: It has to be done by direct means.
MR. PAUL: In other words, we have accumulated nearly
forty billion of savings, or at the present rate we are
accumulating nearly forty billion of savings a year, and
that is a legacy of difficulty.
(Mr. Patterson left the conference.)
H.M.JR: Mr. Nelson, I wondered if you could tell us
this far in advance what are the chances of spending for
war purposes - have we reached the peak? Is it going to
be greater, or is it going to fall off? If you could
answer that question, because, after all, we are all talk-
ing about inflationary goods here, then you or Mr. Whiteside
could tell us after that what the chances are for more
or less civilian goods.
MR. NELSON: The production for war is at present
on et plateau - a pretty high plateau - but it is on a
plateau. It is very difficult to get off. I think it
will get off; I think we will go up. We are planning to
get up at the rate for 1944 of somewhere around eighty-
five billion. It is going now at the rate - strictly
Regraded Unclassified
60
- 32 -
-
munitions - of somewhere around sixty to sixty-five billion
the moment.
Now, I think there is some question as to whether we
can get up to the eighty-five billion, depending entirely
on the character of things that we make. But we are
certainly reaching the peak.
MR. PAUL: Are you speaking of the calendar year '44?
MR. NELSON: Yes.
Now, you are nearer the peak, whatever amount you put
it at. Answering your next question--
H.M.JR: Do I understand you think you may go from
sixty-five to eighty-five?
MR. NELSON: Yes, I think we can go up from sixty-
five to eighty or eighty-five.
H.M.JR: What is the rate right now?
MR. NELSON: I say right now it is running at the
rate of about sixty to sixty-five billion.
MR. PAUL: Does that cover all war expenditures?
MR. NELSON: That is munitions and construction.
That is not all war spending.
MR. JONES: Won't construction go off enough to
take care of the other?
MR. NELSON: It is going off quite markedly.
MR. PAUL: If you go to eighty-five in your terms of
production, what would that be in - can you translate that
into your total budget figure?
MR. NELSON: At eighty-five it would be a total
budget of somewhere around 8 hundred. That would be
total war spending, including subsistence.
Regraded Unclassified
61
- 33 -
H.M.JR: You don't mind my challenging you, do you?
MR. NELSON: No, sir, go right ahead.
H.M.JR: From what has happened - and Mr. Smith is
much closer to this than I am . but just from watching
the thing, it doesn't look as though we are going to
reach - it looks as though in many cases we are leveling
off, and in some cases we are falling off.
MR. NELSON: No, we are not falling off.
H.M.JR: On our dollars.
MR. NELSON: We are at a plateau that we are trying
awfully hard to get off of. You get, for instance, air-
planes - we got seventy-three hundred last month. Our
schedule for December - we are trying to get it up to
around ten thousand - now they run into money pretty
fast - and I believe it can be done, maybe not in December,
but it will be done in January or February. We are going
to put through at the rate next year of around ten thousand
a month. They run into money pretty fast, especially with
the equipment that is in them now.
You have some programs being cut back. You have
adjustments being made in this program. I think your
expenditure for munitions last month was up about three
percent for munitions.
MR. HAROLD SMITH: The total, as I recall it, was
six million point forty-three for all, and probably July
was something of an unusual - there were some unusual
factors in it.
MR. NELSON: There were a number of unusual factors
in July.
MR. SMITH: Substantially there is the beginning of
B plateau there.
MR. NELSON: You are certainly at the moment on a
plateau. I believe it can be gotten off that plateau,
Regraded Unclassified
62
- 34 -
but I think you have 8. lot of problems in June, July,
and August in getting it off. When you come to September,
October, and November it will begin to climb back up
again.
H.M.JR: It makes an awfully lot of difference,
MR. PAUL: Of course it is perfectly clear--
MR. NELSON: Your major items have all gone up in
total quantity, your major items of airplanes, ships,
merchant ships, and naval ships. Now, those are three
big programs. There are others that have been cut back.
H.M.JR: One other thing isn't quite clear. Where
you have these cancellations on plants, does that mean
that a plant gets another war contract?
MR. NELSON: In nearly every case. Out of some sixty-
five cancellations, for example, we put sixty-three back in
production on other things. Now, it takes time to make
those change-overs; and the program, while you are making
those change-overs, is temporarily halted from increasing.
But on the dollars, it just depends entirely on the quantities
we can get. That depends entirely on manpower today,
nothing else. There is no limiting factor.
H.M.JR: The reason I am asking this - if it isn't
obvious, I would like to make it obvious because it has
sort of gotten around that you have reached a plateau,
that it may drop off.
MR. NELSON: I don't believe that-
H.M.JR: I am just saying - but as that gets around,
it is more difficult for us to press for additional taxes.
That is the point. So if there is any evidence that it is
going to go up, it will help us in our fight before the
Committee.
MR. NELSON: The whole thing depends, Mr. Secretary,
upon the requirements of the armed services and of the
Regraded Unclassified
63
- 35 -
Lend-Lease countries. If their requirements are cut back -
if, for instance, for any reason they don't want these
quantities of eirplanes and decide we don't want ten
thousand airplanes a month - we only want seven - it would
be cut back. At the present there is no cutback in that
requirement of ten thousand airplanes & month, there is
no cutback in the requirement for merchant ships of twenty
million tons, there is no requirement of cutback on the
naval ships. All of those programs are being restudied
by the War Mobilization Committee and Mr. Byrnes.
What I am telling you now is only on the basis of the
requirements as they are actually given to us today. I
believe that they can be met. I think we are on a plateau
that we are going to get off of.
H.M.JR: Do you want to say anything on the civilian
goods side?
MR. WELSON: I can state it in general. Until the
requirements for the military services are cut back,
until and unless they are cut back, there will be no great
increase in the total volume of consumer goods that is
being made, because we are at the limit now of our materials.
And while there will be certain needs, it won't be large in
terms of total dollar volume.
H.M.JR: If what you say is correct, that we are going
to get off this plateau and increase by twenty billion
dollars, then the supply of civilian goods ought to go
down.
MR. NELSON: Certain ones will go down. Services, for
instances, will go down without any question if we can get
the manpower - the manpower has to be forced into these
other industries. There are certain of the civilian
service industries that will have to be cut down in man-
power if we are going to reach the goal. There is no doubt
about it.
H.M.JR: I wonder if Mr. Smith wants to say something.
Regraded Unclassified
64
- 36 -
MR. HAROLD SMITH: No, I don't really have any definite
observations on that, Mr. Secretary. I don't - it all
depends upon manpower, resources, and what not, whether you
can push it up farther than it is. I think we are obviously
reaching some sort of plateau if we are not already on it.
I don't think anyone can tell at the moment whether we are
or are not.
MR. PAUL: It certainly looks as if you are not going
to make the hundred for 1944 fiscal.
MR. HAROLD SMITH: I have serious doubts as to whether
we haven't overestimated our expenditures for next year.
I assume that one of these times we will begin to increase
the quantity of consumer goods, and 88 we increase them
on the up side we will begin to enter, slowly, without saying
much about it, a post-war economy before the war is over.
I assume that is going to be the case. It won't be running
along at the same rate of expenditure.
MR. nelson: That is my opinion, but when that will
be I don't know. On the basis of the present requirements
of the armed services for 1944 that would not be the case.
MR. HAROLD SMITH: That is right. Looking at the
dollar situation and the various factors that make that up,
it begins to look as if we had overestimated our next
year's expenditures.
MR. PAUL: Do you want to say anything, Mr. Whiteside?
MR. WHITESIDE: All I can say is that the aggregate
will be the same whether it is war or civilian. It doesn't
make any difference because the civilian economy can ab-
sorb considerably more than it is getting.
MR. PAUL: Will there be any increase in efficiency
of production of civilian goods?
MR. WHITESIDE: I don't think SO because of the man-
power situation.
Regraded Unclassified
65
- 37 -
The other part is that we will continue to produce
to the maximum of the productive capacity of the country
for export purposes. So your total volume, whatever that
peak is, is reached now and will stay there. It may be
one way or the other.
MR. ECCIES: Doesn't it make a difference from this
fiscal standpoint if the civilian gets less, which they
must do if the war requirements are more, and if the war
requirements are more the inflationary problem becomes
increasingly acute?
MR. PAUL: That certainly is true.
MR. NELSON: On the basis of the present stated
requirements of the military, that certainly is true.
MR. PAUL: Do I understand you correctly in under-
standing that you think that the total production, however
you may divide production between civilian and military,
has about reached its peak?
MR. NELSON: Yes, I would say SO.
MR. WHITESIDE: The manpower situation tells you
that.
MR. PAUL: We didn't say anything in our list here
about social security. I don't mean to exclude it. It
would certainly be an anti-inflationary factor, but there
seems so little hope of getting the political action on
it at the moment that I wanted to explain why it wasn't
in the list.
MR. LUBIN: I wonder why this isn't the time to start
educating the American people to realize that this is the
time to take care of social security because of the war
being over in '44.
MR. PAUL: It is a problem of educating the American
Congress. The Secretary was present at one lunch where
Regraded Unclassified
66
- 38 -
some of the leaders were guests, and I think it looked
from that luncheon and talk that it was virtually impossible
to get any action out of Congress on that front.
H.M.JR: I don't know what luck Mr. Altmeyer has
but we have tried it again and again. He can talk better
than I. There is always some pressing bill that they have
to get out.
MR. PAUL: They always say--
H.M.JR: And Bob Doughton is like Coolidge against
sin. He is just against it; you just can't make him budge
on it. (Laughter)
MR. ALTMEYER: The two labor groups, of course, have
said that they are willing to pay the increased taxes,
which is something in favor of getting consideration by
Congress. The increase under the Wagner Bill for the
employees would be from one to six percent in both the
CIO and the AF of L. They have indicated that they are
prepared to support that increase. I suppose they are
hoping that perhaps they can keep the increase on the taxes
down or divert it, in other words, to social security
purposes. I haven't any doubt that is in their minds,
but they don't say that outright. And the fact that they
have indicated flatly that they are willing to pay the
increase seems to me a good argument for their not coming
along later and saying, "We have more social security taxes
to pay; therefore, we ought to have an increase in wage
rates. I think they are estopped from making that argu-
ment by their own position now.
MR. GARRISON: That won't stop them, though.
MR. ALTMEYER: But I agree it is a little discouraging
getting the committees of Congress to put attention on
dealing with social security.
H.M.JR: Has anybody any more--
MR. COHEN: Under the proposed increases in income
tax, what does it make the basic withholding tax?
Regraded Unclassified
67
- 39 -
MR. PAUL: You can lift your basic withholding tax
to that figure which represents 8. combination of the
normal and the first surtax brackets. It would be just
as easy to collect that as the present. It depends on
whether you include the victory - what you do with the
victory tax. The rate here would be twenty-three plus
six. That is twenty-nine.
MR. BLOUGH: Thirty.
MR. PAUL: Allowing for deductions a rate of thirty
percent would approximately be about as close as you can
get it, which is approximately the Canadian rate.
MR. GARRISON: You are already facing a - I haven't
the statistical figures, but there is quite a problem of
preventing employers from paying that tax for the workers.
MR. PAUL: We have looked into that - there are stories
in the New York Times, and as far as we have been able to
trace it through, there is not very much foundation for the
stories. If you have any proof on the subject, I certainly
would like to have it.
MR. GARRISON: We will get what we can.
MR. PAUL: If nobody else has anything to say I would
just like to repeat what the Secretary said, that we are
going to be here right along and would like to receive
suggestions and talk over any of the more detailed points
that can't be covered in B. meeting of this size. We will
be at your service right along.
MR. HAROLD SMITH: Would you like to have some memoranda
on some of these points?
MR. PAUL: Certainly we would. we have some memoranda,
for instance - that reminds me - we have some rather detailed
memoranda on the sales tax and various other aspects of the
program that anybody in this group is welcome to study.
All he has to do is call Roy Blough or me and we will send
them over to you.
Regraded Unclassified
68
- 40 -
MR. HINRICHS: Were your exemptions considered at
all in relationship to the needs of the labor market this
next year? You cut your exemptions back pretty sharply
on dependents, and except in the case of the woman who is
physically incapacitated to work there would seem to be
no reason for as large an exemption for a married couple
as you have unless you are thinking of the exemption for
the joint income.
On the other hand, you don't - there isn't an
opportunity, and you don't especially want to press the
woman with children at those income levels into the labor
market. And your joint exemptions now have gotten down
pretty close to bedrock minimum.
MR. PAUL: I might say that one of the reasons - we
have thought a great deal about that labor market phase
of it, but one of the things we have to face there is the
practical advantage of having those credits in a mathemat-
ical ratio. The two-fifty is half of the single person -
the two fifty we propose is half of the single person of
five, and the single person is half the married person of
a thousand. By adopting tables of that sort for temporary
withholding purposes in the last Senate bill, We reduced
the number of withholding taxes from about twenty-five to
five. And unless there is some very compelling reason why
those credits should be in some other than that precise
mathematical relationship, we tend to favor that because
it simplifies the whole withholding job.
MR. GASTON: Reduction of the married credit from
twelve hundred to a thousand goes a little way along the
line of Mr. Hinrichs' thought, I think. Your thought is
that the wife who does not work is a favored dependent
under the present setup.
MR. HINRICHS: That, as a matter of fact, doesn't
worry me. It is the three fifty to two fifty that is
questionable.
MR. PAUL: We did propose what we call a working
wife credit, a certain additional allowance for wives, the idea
Regraded Unclassified
69
- 41 -
being that any wife who went out of the home and worked
had greater expenses. Perhaps that might be renewed.
MR. LUBIN: If you want to use the tax system for
purposes other than revenue and to control inflation, tie
It up with manpower, you might have differential rates for
children of different ages. In other words, force mothers
with children over a certain age into the labor market.
MR. PAUL: It would be rather complicated. By the
way, the labor market situation enters into the problem
of the individual excess profits tax. One of the arguments
against that tax is that it would take away the incentive
on the part of 8 great many women to go into factories,
and SO on.
If no one has any questions, I think we will call it
an efternoon.
Regraded Unclassified
70
AGENDA
I. Revenue Program
A. Amount of additional tax revenue to be requested
B. Proposed sources of additional revenue
1. Individual income tax
2. Corporation taxes
3. Estate and gift taxes
4. Excise taxes
0. Other revenue sources not proposed
1. Sales tax
2. Tax on increases in income
D. Problems of the individual income tax
1. Relief for persons with fixed incomes or
heavy commitments
2. Tax simplification
3. Privileges and loopholes
II. Discussion of complementary measures primarily for
curbing consumer spending
A. Tax measures to discourage spending
1. Spendings tax
2. Spendings tax with graduated exemptions
3. Progressive sales tax
B. Measures to withdraw purchasing power
1. Compulsory loans
C. Measures to limit spending directly
1. Extension of specific rationing
2.° Expenditure rationing
3. Compulsory saving
August 10, 1943
Regraded Unclassified
Followed of 8/19.
71
Mrs. Klatz said
"File"
August 10, 1948
Mr. Paul
Secretary Morgenthau
8/30/73-
The President told me today that by the
24th of August he would be ready to see you and me,
and any one you wish to bring along, to go over the
tax bill with us and get his okay.
Regraded Unclassified
72
August 10, 1943
Mr. McConnelly
Captain Kades
Secretary Morgenthau
I talked with the President today about the
various departments that are interested in conversion
of plants. I told him I thought that none of the
military agencies should have anything to do with
it, and he agreed. I told him I thought that either
the Department of Commerce or the Treasury should
handle it.
The President has asked me to send him a
list of the departments which are interested in it.
Before I send him & memorandum on the subject, I wish
you would go over Mr. Lynch's memorandum to Mr.
McConnell of August 6th, and make sure that it is cor-
rect.
Frinched-
Regraded Unclassified
13
WAR FINANCE BULLETIN
Office of the Secretary of the Treasury
Issue No. 4
August 10, 1943
"Taxes and Bonds, Bonds and Taxes"
While the job of the War Finance Division is to sell
bonds, not taxes, the one does not preclude the other;
and our success in the months to come will be measured by
our ability to sell both. Taxes and bonds must be part-
ners, not competitors, in the nation's fight for life.
It is not a question today of more of one and less
of the other; it's a question of more of both -- taxes
and bonds. It would be tragic indeed if we allowed
pay-as-you-go or the current preoccupation with the
September 15 quarterly income tax payment to take the
edge off our determination to make the Third War Loan
Drive the greatest money-raising crusade in the history
of the world. This need not -- and should not -- happen.
Just as there is need for raising money from the
sale of War Bonds, so is there need for raising revenues
from taxes. While Government expenditures during fiscal
1944 will run at almost $9 billion a month, tax revenues
at prevailing rates will amount to something like $3 bil-
lion a month and receipts from the sale of Treasury issues
to nonbanking investors to about $4 billion a month. This
still leaves a difference of almost $2 billion a month to
be raised by sales of securities to banks -- and it is
precisely this $2 billion "gap" that might be further
closed by additional sales of War Bonds and/or additional
taxes.
Information Service for State War Finance Committees
Regraded Unclassified
74
- 2 -
CHART I
INCOME TAX FOR MARRIED PERSON.
NO DEPENDENTS
Present Rates. After Postwar Credit
$1,628
7/8 of U.S. Income goes to people
$1,378
earning less than $5,000
$932
1378
$231
188
UNITED
CANADA
UNITED
UNITED
CANADA
UNITED
STATES
KINGDOM
STATES
VK
KINGDOM
ns
$2,000 NET INCOME
$5,000 NET INCOME
*U.S. includes net victory for and N.Y. State income for
Chart 1 above shows the lower income tax rates in
this country in contrast with those of Canada and the
United Kingdom, by reference to two important income
levels. In the United States a married person with a net
income of $2,000 8 year and no dependents pays 8 total
tax (Federal and N.Y. State income tax) of $188; in
Canada, $231, and in the United Kingdom, $378. Were his
income $5,000 a year, he would pay $932 in the United
States, $1,378 in Canada, and $1,628 in the United Kingdom.
These figures take on added significance when it is borne
in mind that seven-eighths of this nation's income is go-
ing to individuals earning less than $5,000 a year.
Regraded Unclassified
75
- 3 -
CHART 2
WHAT PART OF OUR FEDERAL
EXPENDITURES IS PAID BY TAXES
As Compared With Other Countries*
FISCAL YEAR 1944(EST)
51.7%
50%
47.1%
40%
40%
35.9%
30%
30%
30%
20%
20%
20%
10%
10%
10%
UNITED STATES
CANADA
UNITED KINGDOM
. Excluding Social Security
Chart 2 above shows that tax dollars in fiscal 1944,
under prevailing rates, will meet only 36 percent of total
Federal expenditures in the United States, while in Canada
they will constitute 47 percent and in the United Kingdom
52 percent, of Government expenditures. We should be able
to do better - -- especially if we bear in mind that $36.8
billion of the approximately $38.7 billion to be received
in tax revenues this year will go toward the purchase of
guns, tanks, ships, and planes in order that decency be
restored to the world.
Regraded Unclassified
76
- 4 -
CHART 3
FEDERAL EXPENDITURES
Most of the spending is in FIGHTING DOLLARS
$1059
Billions
1797
Billions
95%
WAR
94%
$34.2
Billions
83%
17%
6%
5%
NONWAR
1942
1943
1944(Ext)
FISCAL YEARS
FEDERAL RECEIPTS'
Receipts are increasing but so is National Income
1387
Billions
$22.3
Billions
112.8
Billions
1942
1943
1944(Ent)
FISCAL YEARS
. Excludes public debt retirements; includes net expenditures of Government corporations.
, Total receipts less ner appropriation to Federal aid-oge and survivors insurance trust ford
Chart 3 above shows how Government receipts compare
with Government expenditures during fiscal years 1942,
1943, and 1944. Between fiscal 1942 and 1944 receipts will
have increased from $12.8 billion to $38.7 billion, ex-
77
- 5 -
penditures from $34.2 billion to $105.9 billion -- the
ratio of receipts to expenditures remaining 8 little
better than 1 to 3. While in 1942, however, 17 percent
of Federal spending was for nonwar purposes, in 1943 such
spending had declined to 6 percent, and in 1944 is esti-
mated to be only 5 percent. In other words, this year
ninety-five cents out of every dollar of Federal expendi-
tures is being routed directly into the war effort.
What does all this add up to? Simply this. What
we're putting into taxes and bonds is practically all
going to war but we're not putting enough in! What
we're contributing in the way of taxes and bonds compares
very favorably with our performance of a year or a year-
and-a-half ago but it doesn't compare so favorably with
the financial sacrifices of our Allies!
In spite of increased taxes, the vast majority of our
people last year had more money left to spend or to save
than the year before; and this year they will have even
more than last year. This year it is estimated there will
be the unprecedented total of $45 billion in "excess
dollars" -- the difference between income payments of
$130 billion after personal taxes and the available supply
of goods and services of $85 billion.
More of these "excess dollars" must put off the
civilian dress of peace and put on the uniform of war.
"Every tax dollar as well as every bond dollar," as
Secretary Morgenthau has pointed out, "does double duty;
it provides funds needed urgently for winning the war,
and checks the tendency toward rising prices." It is high
time we say to our money as we have begun to say to our
men, "Work or Fight."
-o0o-
Regraded Unclassified
78
WAR FINANCE BULLETIN
Office of the Secretary of the Treasury
Issue No. 4
August 10, 1943
"Taxes and Bonds, Bonds and Taxes"
While the job of the War Finance Division is to sell
bonds, not taxes, the one does not preclude the other;
and our success in the months to come will be measured by
our ability to sell both. Taxes and bonds must be part-
ners, not competitors, in the nation's fight for life.
It is not a question today of more of one and less
of the other; it's 8. question of more of both -- taxes
and bonds. It would be tragic indeed if we allowed
pay-as-you-go or the current preoccupation with the
September 15 quarterly income tax payment to take the
edge off our determination to make the Third War Loan
Drive the greatest money-raising crusade in the history
of the world. This need not -- and should not -- happen.
Just as there is need for raising money from the
sale of War Bonds, 80 is there need for raising revenues
from taxes. While Government expenditures during fiscal
1944 will run at almost $9 billion a month, tax revenues
at prevailing rates will amount to something like $3 bil-
lion 8 month and receipts from the sale of Treasury issues
to nonbanking investors to about $4 billion a month, This
still leaves a difference of almost $2 billion a month to
be raised by sales of securities to banks -- and it is
precisely this $2 billion "gap" that might be further
closed by additional sales of War Bonds and/or additional
taxes.
Information Service for State War Finance Committees
Regraded Unclassified
79
- 2 -
- 3 -
CHART I
CHART 2
INCOME TAX FOR MARRIED PERSON.
NO DEPENDENTS
WHAT PART OF OUR FEDERAL
Present Rates. After Postwor Credit
EXPENDITURES IS PAID BY TAXES
As Compared With Other Countries"
11,029
FISCAL YEAR 4(EST)
7/8 of U.S. Income goes to people
$1,378
51.7%
earning less than $5,000
50%
47.1%
1932
40%
40%
35.9%
30%
30%
30%
1378
sise
1231
20%
20%
20%
UNITED
CANADA
UNITED
UNITED
10%
10%
10%
CANADA
UNITED
STATES
KINGDOM
STATES
KINGDOM
25.80
DE
$2,000 NET INCOME
$5,000 NET INCOME
UNITED STATES
CANADA
UNITED KINGDOM
PPG
*us not entery NW - ** State income Pays
as
corp Ser-a Serurity
Chart 1 above shows the lower income tax rates in
this country in contrast with those of Canada and the
Chart 2 above shows that tax dollars in fiscal 1944,
United Kingdom, by reference to two important income
under prevailing rates, will meet only 36 percent of total
levels. In the United States 8. married person with a net
Federal expenditures in the United States, while in Canada
income of $2,000 a year and no dependents pays a total
they will constitute 47 percent and in the United Kingdom
tax (Federal and N.Y. State income tax) of $188; in
52 percent, of Government expenditures. We should be able
Canada, $231, and in the United Kingdom, $378. Were his
to do better -- especially if we bear in mind that $36.8
income $5,000 a year, he would pay $932 in the United
billion of the approximately $38.7 billion to be received
States, $1,378 in Canada, and $1,628 in the United Kingdom.
in tax revenues this year will go toward the purchase of
These figures take on added significance when it is borne
guns, tanks, ships, and planes in order that decency be
in mind that seven-eighths of this nation's income is go-
restored to the world.
ing to individuals earning less than $5,000 8. year.
Regraded Unclassified
80
- 4 -
- 5 -
CHART 3
penditures from $34.2 billion to $105.9 billion -- the
FEDERAL EXPENDITURES
ratio of receipts to expenditures remaining 8. little
better than 1 to 3. While in 1942, however, 17 percent
Most of the spending is in FIGHTING DOLLARS
of Federal spending was for nonwar purposes, in 1943 such
11059
Billises
spending had declined to 6 percent, and in 1944 is esti-
mated to be only 5 percent. In other words, this year
ninety-five cents out of every dollar of Federal expendi-
1797
tures is being routed directly into the war effort.
Birliam
What does all this add up to? Simply this. What
we're putting into taxes and bonds is practically all
95%
WAR
going to war -- but we're not putting enough in! What
we're contributing in the way of taxes and bonds compares
54%
1342
Billiours
very favorably with our performance of a year or a year-
and-a-half ago -- but it doesn't compare so favorably with
R3%
the financial sacrifices of our Allies:
In spite of increased taxes, the vast majority of our
17%
5%
NONWAR
people last year had more money left to spend or to save
1942
1943
1944(tel)
FISCAL YEARS
than the year before; and this year they will have even
FEDERAL RECEIPTS'
more than last year. This year it is estimated there will
Receipts are increasing but so is National Income
be the unprecedented total of $45 billion in "excess
4387
dollars" -- the difference between income payments of
lisna
$130 billion after personal taxes and the available supply
H223
Billing
of goods and services of $85 billion.
$12.8
More of these "excess dollars" must put off the
Billions
civilian dress of peace and put on the uniform of war.
1942
1943
1944(m)
"Every tax dollar as well 8.5 every bond dollar," as
FISCAL YEARS
Secretary Morgenthau has pointed out, "does double duty;
- nationality, / - of - corporations
Two revality - - - " Fateral - - services insurance trapt food
it provides funds needed urgently for winning the war,
and checks the tendency toward rising prices." It is high
Chart 3 above shows how Government receipts compare
time we say to our money as we have begun to say to our
with Government expenditures during fiscal years 1942,
men, "Work or Fight."
1943, and 1944. Between fiscal 1942 and 1944 receipts will
have increased from $12.8 billion to $38.7 billion, 0%-
-oUo-
Regraded Unclassified
81
OFFICE OF THE VICE PRESIDENT
WASHINGTON
August 10, 1943
The Honorable
The Secretary of the Treasury
Washington, D. C.
Dear Henry:
I have just returned to find your
very kind letter of July 27. I hope I can
measure up to your high expectations.
Sincerely yours,
Hawallau
H. A. Wallace
Regraded Unclassified
82
SECRET
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
August 10, 1943
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating
report of Lend-Lease purchases for the week
ended August 7, 1943.
Current excess production of 26 million
yards of drill cloth (used for making work cloth-
ing), has been taken over from the Quartermaster
Corps to fulfill requirements for the civilian
populations of North Africa and Australia
A. Walsh
Acting Director of Procurement
FORVICTORY
BUY
UNITED
STATES
pour
BONDS
ARD
STAMPS
Regraded Unclassified
83
SECRET
LEND-LEASE
TREASURY DEPARTMENT, PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
AS OF AUGUST 4, 1943
(In Millions of Dollars)
Administrative
Miscellaneous &
Total
U. K.
Russia
China
Expenses
Undistributed
Allocations
$3874.0
$1931.8
$1557.0
$103.4
$10.9
$270.9
(3873.8)
(1931.8)
(1557.0)
(103.4)
(10.9)
(270.6)
Purchase Authoriza-
$2954.8
$1574.9
$1222.9
$38.4
-
$118.4
tions (Requisitions)
(2942.6)
(1570.4)
(1216.7)
(38.3)
-
(117.1)
Requisitions Cleared
$2897.0
$1540.9
$1202.5
$38.3
-
$115.2
for Purchase
(2869.6)
(1538.2)
(1179.5)
(38.2)
-
(113.5)
Obligations
$2763.0
$1512.3
$1114.9
$38.2
$7.1
$90.2
(Purchases)
(2747.7)
(1506.6)
(1108.9)
(38.2)
(6.8)
(87.1)
Deliveries to Foreign
$1198.8
$830.9
$336.3
$18.6
-
$13.0
Governments at U. S.
(1192.2)
(826.0)
(334.6)
(18.6)
-
(12.9)
Ports*
#Deliveries to foreign governments at U. S. Ports do not include the
tonnage that is either in storage, "in-transit" storage, or in the
port area for which actual receipts have not been received from the
foreign governments.
Note: Figures in parentheses are those shown on report of July 28, 1943.
Regraded Unclassified
84
HE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680
ONE EXECUTIVE 2020
BENJAMIN FRANKLIN STATION
WASHINGTON, D.C.
August 10th, 1943.
SECRET
Dear Dr. White:
The gold and dollar figures for July 1943
are as follows:
Jul. 2
Jul. 9
Jul.16
Jul.23
Jul.31
Total Gold
977
969
973
975
969
Official Dollar Balance
361
391
392
424
431
Total Gold and Dollars
1338
1360
1365
1399
1400
Scattered Gold
184
184
185
184
191
Gold Reserve against
immediate liabilities
10
10
10
10
10
AVAILABLE GOLD AND DOLLARS
1144
1166
1170
1205
1199
Yours sincerely,
A.T.K.
A.T.K.G.V.
A.T.K. Grant.
H.D. White,
istant to the Secretary,
ited States Treasury,
Washington, D. C.
Regraded Unclassified
85
AUG 10 1943
My dear life Achesons
This will ack owledge your letter of July 31,
1943 containing corrections to the memorandum on
Dutch currency transmitted to no with your letter
of July 27.
Very truly yours,
(signed) H. Morgenthau, Jr
Secretary of the Treasury
The Honorable Dean Achesons
Assistant Secretary of State,
Washington, D. C.
File returned to Mr. White.
Photo of incoming and copy
of reply in Diary.
HT:Drl -3/5/43
Regraded Unclassified
76
or STATE
THE
p.c.
DEPARTMENT OF STATE
WASHINGTON
July 31, 1943.
My dear Mr. Secretary:
Referring to my note of July 27 transmitting a
copy of a memorandum of conversation held by officers
of the Department with the Minister of Finance of the
Netherlands regarding monetary questions that might
arise at the time of reoccupation, I wish to make the
two following corrections:
(1) The banknotes are being printed in Ottawa,
Ontario.
(2) The rate of exchange proposed by the Minister
of Finance 18 10.50 guilders to the pound (instead of
the 12.50 mentioned); the rate of 10.50 corresponds to
8. dollar-sterling crossrate of 4, about with the old
gold parity of the dollar and the guilder of approximately
2.50 guilders for a dollar.
Sincerely yours,
Oxan Gilson
Dean Acheson
Assistant Secretary
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Unclassified
87
SECRET
To:
Adler, Chungking, China.
From: Secretary of the Treasury.
Reference is made to your cables of August 6,
TF-150 and August 4, #1373.
Please inform Dr. Kungs
The Treasury instructed Mr. Adler to subsit
his resignation because the 1941 Agreement had lapsed
since no request was received for its renewal as pro-
vided in paragraph 9 of the 1941 Agreement. Dr. Kee
and Mr. Est have just informed W that Dr. Kung wishee
Mr. Adler to withdraw his resignation issumes as the
Ministry of Finance is now considering revisions to
the 1941 Agreement to be submitted to the Treasury.
The Treasury is therefore asking Mr. Adler to withdraw
temporarily his resignation.
ISF/efe 8/10/43
Regraded Unclassified
88
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
August 10, 1943
FROM Frances McCathran
PLANE LOSSES FROM JANUARY THROUGH JUNE 1943
The United States - 846 (Figure obtained
from Haskin Information Service, which quoted a War
Department Air Force release.)
*Axis - 4905
*R.A.F. - 2289
*These figures obtained from British Information Ser-
vices and include planes destroyed over Great Britain,
Europe, Tunisia and the Middle and Far East.
NOTE - All figures are approximates.
Regraded Unclassified
89
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 263
Information received up to 10 A.M., 10th August, 1943.
1. NAVAL
On 9th one of H.M. Submarines torpedoed an Italian 6"
Cruiser off SPEZIA. Ex-French tanker FIROZ, 7,300 tons, flying the
German Flag arrived at ISTANBUL on 6th badly damaged after having been
torpedoed at the entrance to the BOSPORUS.
2. AIR OPERATIONS
WESTERN FRONT. 9th. Operations consisting of minor
bombing missions with fighter cover resulted in enemy casualties 7, 2,
1, for 4 missing.
9th/10th. 523 aircraft sent out - MANNHEIM 457 (9 missing),
DUISBURG 6, seamining 10, Intruders 30 (2 enemy aircraft destroyed), anti-
shipping 6, leaflets 14. Preliminary reports indicate successful attack
on MANNHEIM, one large explosion occurred near the railway station and
most crews report good fires both sides of the river.
TREASURY
1943 AUG
SECRETA
Regraded Unclassified
90
August 11, 1943
8:45 a.m.
GROUP
Present: Mr. Bell
Mr. Paul
Mr. Gaston
Mr. White
Mr. Sullivan
Mr. Thompson
Mr. O'Connell
Mr. Smith
Captain Kades
Mr. Gamble
Mr. Blough
Mrs. Klotz
H.M.JR: I am having this early for two reasons:
One, to have a little fun; and, two, Mr. Hopkins is
coming in at nine-twenty.
Norman, will I be correct if I tell the Commissioner
today that we have been doing his work for him on checking
up on all of his paper and all of that kind of stuff, and
that is something they should do themselves? He is coming
over at ten-thirty.
MR. THOMPSON: I think perhaps the situation reached
a point where he was justified in giving in on it. They
needed a lot of assistance, perhaps. Normally they would
have their own people do that.
H.M.JR: Why didn't they this time?
MR. THOMPSON: They were in on it, and they were
handling the forms, but we got in on the letter and ran
into the paper situation when--
Regraded Unclassified
91
- 2 -
H.M.JR: Yes, but Gamble, who has a much smaller
operation, has his people out in the field, and he has
got his paper and dealt with the Public Printer, and he
is all right.
But Sullivan and the Commissioner and their crowd -
they have no paper, and we have to do the footwork.
MR. SULLIVAN: Just a minute, Mr. Secretary, this
is a very small job compared to the one that we did in
June. It is small compared to the one we did last March.
We have handled this before.
H.M.JR: But what is the matter on this one?
MR. SULLIVAN: I understood you put Charlie Bell
in charge of it.
(Mr. Smith and Mr. O'Connell entered the conference.)
H.M.JR: Do we have to have another investigation?
MR. THOMPSON: Of course the letter was late because
of the rewriting of it, and you wanted Mr. Bell to follow
through. We got to checking it with the Government Print-
ing Office and found - they were going to do the job, and
we checked there and found they had no paper.
H.M.JR: But who made the arrangements?
MR. THOMPSON: For the printing?
H.M.JR: I put Charlie Bell on it to follow on the
trail of Internal Revenue.
MR. SULLIVAN: The original contract was made by
the Bureau and the Government Printing Office. Then this
was stopped. At the time it was stopped I understood that
Charlie Bell was put in touch with the Government Printing
Office.
Now, in the past we have just had to live with the
Government Printing Office. They will make all kinds of
Regraded Unclassified
92
- 3 -
promises and won't fulfill them. And we are with them
every day all along during one of those things.
Now, Charlie started going and got the plates ready
on Monday, I think, the 2nd of August. They were all
delivered. The Government Printing Office had told them
that everything was all set, and then Monday afternoon
Charlie's fellows found out that they hadn't even gotten
their contracts.
(Mr. Blough entered the conference.)
H.M.JR: From whom?
MR. SULLIVAN: From the Government Printing Office.
H.M.JR: But from whom?
MR. SULLIVAN: From the Government Printing Office.
H.M.JR: Who hadn't gotten their contracts?
MR. SULLIVAN: The printers - the private printers
around the country.
H.M.JR: But the point I am making is that Charlie
Bell was following through - I mean, after all, there
was going to be a letter, and I was told that this letter
was all ready when I first was told it was with the
printer and that we would have to remake the plates.
MR. SULLIVAN: That is correct.
H.M.JR: Well, when they went to the printer it was
the same size letter and everything else - the same number
of letters - all we did was to change the letter and have
the plates remade.
MR. SULLIVAN: That is right.
H.M.JR: Sure. Then I said to Charlie Bell, because
everybody was trying to get something on me, "You had better
follow through and try to hurry the thing up." When he
Regraded Unclassified
93
- 4 -
started to follow through, he found this was 8. mess.
MR. SULLIVAN: I don't know about that, Mr. Secretary.
This is a very small job compared with those in the past,
and we haven't had any trouble in the past.
H.M.JR: Every time I go after the Bureau everything
is perfect, and every time I touch it personally I find
there is something wrong, and I am saying that the letter -
all we did on this letter was to change the letter and
change the plate. And when we wanted to get the thing
printed 80 that some two-by-four person wouldn't try to
hold me responsible, we found that the contracts and the
paper didn't exist. You always want to make & fight out
of it, John.
MR. SULLIVAN: No, I don't, Mr. Secretary.
H.M.JR: I was asking him a simple question. You
always get so excited about these things. Why can't you
once say that maybe it is wrong, and so forth. I had to
do the same thing with Norman Cann. It took me forty-five
minutes to pound before he admitted that the sun didn't
rise and set with the Bureau. I always have the same thing.
After all, let's put it this way - always getting
excited about it - supposing we hadn't checked the letter
and the same letter had gone out?
MR. SULLIVAN: You would. have had it on time.
H.M.JR: Where was the paper?
MR. SULLIVAN: We would have had the paper.
H.M.JR: Who would have gotten it?
MR. SULLIVAN: Norman Cann and myself and the fellows
who elways take care of that. We have had the same--
H.M.JR: That is ridiculous.
Regraded Unclassified
94
- 5 -
MR. SULLIVAN: All right, Mr. Secretary, we haven't
had that trouble before.
H.M.JR: They go out - do you know what happened
out in the field - what they found?
MR. SULLIVAN: Yes.
H.M.JR: And you fellows would have cleaned it all
up? There was nobody there from the Bureau.
MR. SULLIVAN: We wouldn't have relied on the Govern-
ment Printing Office's word the way Charlie did.
H.M.JR: I am not - I won't get angry; I won't bring
it up. Look, John, if something is going to happen - I
can't always get in trouble. I can't get in trouble -
everything that you or the Bureau does is always right.
MR. SULLIVAN: Oh, no, that is not true.
H.M.JR: That is your position.
MR. SULLIVAN: I beg your pardon?
H.M.JR: That is your position.
MR. SULLIVAN: No, it isn't my position at all.
H.M.JR: Well, let's change the subject. I am sick
and tired of it. I mean, the fact remains that when
Charlie Bell went out - it had nothing to do with changing
the letter - the contracts weren't there; the paper
wasn't there.
MR. SULLIVAN: That is correct.
H.M.JR: You take the position that if we hadn't
changed the letter the paper would have been there.
MR. SULLIVAN: I say this, Mr. Secretary, going along
in normal channels we would have been with them every day
Regraded Unclassified
95
- 6 -
and gotten the amount of paper that is involved here - it
is a very small fraction of the paper we had to get last
year.
Now, I don't come running to you when things go wrong.
We lost a whole carload of paper in the flood in St. Louis
last May when we were trying to get out these exemption
certificates, We have all kinds of trouble. I was spend-
ing a great deal of my time with the Government Printing
Office. That is a very ineficient organization; you can't
believe them. You have to follow them up all the time.
Now, Charlie is just having some of the same trouble
that we always had with them, but we followed them very
closely because we knew we couldn't rely on them.
H.M.JR: Why didn't you follow it this time? Because
I changed the letter you just lay down on the job.
MR. SULLIVAN: I don't know; I was away.
H.M.JR: Then why get in on the argument? I don't
think you do know, now.
MR. SULLIVAN: Well, Mr. Secretary--
H.M.JR: The inference is that because I got in on it
the Bureau laid down and said, "Let the thing go to hell."
MR. SULLIVAN: Not at all. I do think - I wouldn't
be doing my duty to you, sir, if I sat here and listened
to things that I thought were not correct.
MR. THOMPSON: I think normally Internal Revenue
would have run into the same situation, but I doubt if
they would have gotten the expeditious action we got,
because it needed a little higher level with the Printing
Office because of the need of getting the job out.
H.M.JR: Where were the people from the Bureau who
normally follow printing in this situation?
Regraded Unclassified
96
- 7 -
MR. THOMPSON: I suppose if they ran into this
shortage of paper they would have had to have the col-
lectors get in touch with the forty plants.
H.M.JR: They didn't do it.
MR. GASTON: Wasn't it the understanding that
Charlie had taken over this with the--
MR. THOMPSON: He found the form was in the same
difficulty, but not until he got on the letter. At
Norman Cann's--
H.M.JR: Well, the impression I get about the
altercation of Sullivan is because I stepped in and wanted
the letter the Bureau just sat down and said, "Well, let
him stew in his own fat."
MR. SULLIVAN: I beg your pardon; that isn't 80,
Norman Cann has been working with Charlie Bell even
after he was supposed to leave here. He cancelled his
reservation and stayed over and worked on this thing.
Isn't that correct, Norman?
MR. THOMPSON: Yes.
H.M.JR: Then Charlie Bell wasn't responsible.
MR. SULLIVAN: No, I didn't say that Charlie Bell
was responsible.
H.M.JR: You did at the beginning. You said that
Charlie Bell was responsible for getting the letter out,
that he took it out of the hands of the Bureau.
MR. SULLIVAN: I thought you meant responsible for
the delay.
Regraded Unclassified
97
- 8 -
H.M.JR: I mean, I am responsible for changing
the letter.
MR. SULLIVAN: I understand that, sir.
H.M.JR: Then I wanted to see that the letter got
out, so I asked Charlie Bell to check up on the Bureau
and make sure that everything had clicked, because every-
body was doing business on a pinhead basis. Everybody
was trying to get something on somebody else.
MR. SULLIVAN: I don't know about that.
H.M.JR: Well, I do. And Norman Cann says he is
out of sympathy with me and he is resigning. It is
just too bad.
Well, anyway, I was just trying to get some facts
before I saw the Commissioner.
(Mr. Gamble entered the conference.)
MR. THOMPSON: I think the whole thing has been
definitely expedited by having Charlie in on it because
they listen to him more than they do the Printing Office.
(Mr. Paul and Captain Kades entered the conference.)
H.M.JR: Well, BS long as we are on this thing
we might just as well clean this thing up. I gave some
orders the other day and they haven't been carried out,
and I want them carried out. That goes for you (Sullivan),
too.
I said I wanted a man put in this vacancy in the
Bureau at sixty-five hundred who would be responsible to
Chick Schwarz. That hasn't been done.
Regraded Unclassified
98
- 9 -
MR. SULLIVAN: I talked with the Commissioner about
that Friday.
H.M.JR: Where does that stand?
MR. SULLIVAN: I don't know. I haven't talked with
him since Friday.
H.M.JR: That is something that I want done. I want
a man in there, or a woman, and I want that man responsible
to Chick Schwarz. And then when this stuff flows from
this person to Chick Schwarz, then we can make arrangement -
we don't have to have any written memorandum. If Schwarz
has anything from the Bureau that you want to see, Schwarz
can check it with you - check it with Smith - Paul if
necessary, or anybody else. I don't need any fancy
written memorandum.
But certainly somebody can be put into that Bureau
who will be there, and John, I don't want a little
publicity bureau in your office.
MR. SULLIVAN: That is perfectly all right with me.
There never has been one there.
H.M.JR: Yes, but I said that all once before and
I am just where I am. I can't see that I have made any
progress.
MR. SULLIVAN: I told the Commissioner Friday
exactly what you said, that you wanted that filled and
you wanted it filled right away, now.
H.M.JR: Now, what is going to happen to Horne?
99
- 10 -
MR. SULLIVAN: Horne is only here on a part-time
basis. We don't need to worry about Horne. Horne is
making a very considerable sacrifice to come back here.
We don't need to worry about him at all.
H.M.JR: But this thing I am worried about and I
want it settled 80 I can forget about it. If this stuff
is going to originate in the Bureau, where does Horne
fit in the picture?
MR. SULLIVAN: He is just here to do this particular
job.
H.M.JR: What particular job?
MR. SULLIVAN: The publicity on the September 15
declarations.
H.M.JR: When that is finished, what happens?
MR. SULLIVAN: He goes back running his business.
H.M.JR: All right. Now, do we understand each
other?
MR. SULLIVAN: Completely.
H.M.JR: I will say it again. I don't need any
order. I want a man - maybe this woman we have got up-
stairs - she might be the woman - and this person will be
over in the Bureau responsible to Schwarz.
The understanding is that - what I am trying to do
here is - and I want the cooperation of everybody - I
am trying to get one person who will look for me on the
over-all policy, so that we are not two people trying to
do the same thing at the same time.
100
- 11 -
Now, for example, I understand that you (Paul)
saw the Time people, Monday.
MR. PAUL: Yes.
H.M.JR: Now, did you know that Gamble is trying to
get something out of the Time-Fortune people?
MR. PAUL: No.
H.M.JR: You see. de is trying his best to get
something - you go up - I don't know about it. I do
know what Gamble is doing. We might be at cross-purposes.
I am just using that as an example.
MR. PAUL: I would lay off that subject, of course,
because I don't know anything about it.
H.M.JR: But the point I am trying to get at, I
brought Smith down here for me - to work with me, personally -
to assist me, 30 we have one approach to the public on
public relations, and I am asking everybody to cooperate
on that line.
Now, Herbert did it for me for & long time. He did
it at the beginning, he dropped it, and did it again
after Kuhn left. I tried to have Kuhn do it. Now I
have relieved Herbert of that and I have got Smith down
here. Now I am going to ask everybody to cooperate with
him so at least - I may not have time - he knows and can
make suggestions and advise everybody on what the Treasury
is doing in its contact with the public. That is what I
want. Now, it is better for everybody.
MR. SULLIVAN: Correct.
H.M.JR: So if everybody will cooperate - I mean, he
is doing it for me, and I am trying to do it for the
Treasury. Why did I get in on the September 15 withholding?
Because I wanted it to go smoothly so there would be no
conflict between our Third War Loan and the September 15
withholding - and there isn't going to be. It is working
very well.
Regraded Unclassified
101
- 12 -
But there are 30 many things with such a broad
field. I just don't want to have conflicts in the
Treasury. So if you people - again I am repeating my-
self - would cooperate on that it would be helpful.
Now, we don't need any order, do we?
MR. THOMPSON: I don't think we need an order because
existing orders provide for that liaison with the public
relations officers in the Bureau.
H.M.JR: Can I count on your cooperation?
MR. SULLIVAN: Entirely, sir.
H.M. JR: Is there anything about it - say it now -
if there is anything you don't like, say it, John.
MR. SULLIVAN: Not a thing, sir.
MR. BELL: I would like to ask a question.
H.M.JR: Excuse me one minute.
MR. SULLIVAN: You think get excited and perhaps
I do, but the thing that gets me excited, Mr. Secretary,
is when people who have been doing a job are assumed not
to know anything about it.
As I said before, the job we had to do for July 1 was,
I understand, the second or third largest printing job the
Government has ever had, and there are a million and one
headaches.
Now, I think that one very good result that might
come out of this very unfortunate affair is some sort of
an overhauling of the Government Printing Office, or
permission for the Treasury to do its own printing out-
side, because what we are experiencing now we experience
every year when we are trying to get the forms out for
March 15. Every time we have a job to do we have trouble
with them. They are inefficient, they are conceited,
they are arrogant, and they are independent.
Regraded Unclassified
102
- 13 -
H.M.JR: They are nice people, in other words.
(Laughter)
MR. SULLIVAN: I mean, it got to the point where I
had to call up at least once a day through May to con-
gratulate them on what a fine job they had done on some
minor phase of the thing and try to butter them up so
they would try to do a better job on something else.
You have to take your hat in your hand, get down on one
knee, and just pray to them. And they are not doing a
good job.
H.M.JR: No question about it. I think it is a
shame if the other departments are going through the same
thing we are. I don't see anything about the Government
Printing Office's - there is a lot of work to be done,
but there are a lot of printers around the country to
help them.
If out of this we can have some sort of an over-
hauling of that outfit, or permission to cut loose and
go on our own, I think that is swell.
MR. BELL: They do go outside more than they did
before.
MRS. KLOTZ: Terribly slow.
MR. BELL: They take their time about getting the
work out.
H.M.JR: What Thompson told me yesterday about the
experience we have had in the field on this letter, it is
shocking. I mean, anybody in business who would run it
like that would get fired.
MR. THOMPSON: I think we can follow through on this
and get some good out of it.
H.M.JR: I wonder - you have to go through the Bureau
of the Budget to try to get out from under them?
103
- 14 -
MR. BELL: Joint Congressional Committee.
H.M.JR: Why not let's go up there and talk to them?
MR. BELL: It is a closed corporation. It is pretty
tight. It always has been.
MR. THOMPSON: I am just wondering if we would get
in a worse position, because the Government Printing
Office is supposed to have contracts with the largest
printing companies in the country. If they have contracts
and we can't get in, we might find we are frozen out.
MR. SULLIVAN: I agree the problem isn't as simple
as I indicated, but we do think a little fuss here would--
MR. THOMPSON: I plan when Mr. Beil gets back to-
morrow to get the exact facts and go to Giegengack and
show nim the picture.
H.M.JR: Would you (Thompson) take it on and follow
through with it? Will you please?
Bell?
MR. BELL: I just wanted to ask what the relationship
of this publicity man in the Bureau had to the head of the
Bureau. Does he have any responsibility to the head of the
Bureau? Does he get anything out he wants to and it comes
to Chick and it is Chick's responsibility?
MR. GASTON: It is not a new plan, and it is not
new either in the Treasury or outside the Treasury. The
relationship is somewhat similar to the relations of the
Chief Counsel over in the Bureau to the General Counsel.
The relationship is the same as the man who is the
publicity man in a particular plant of a large organization
to the general head of publicity of the organization. He
is there to serve that particular organization. He doesn't
put out anything that is inaccurate with respect to that
organization. He checks carefully with all the people
Regraded Unclassified
104
- 15 -
that are concerned with that organization before he
puts out anything. But he also has directions and his
understanding from his OWD chief as to this general
policy of the sort of thing he puts out. And it is some-
what similar to the relation - a type of this is our
friend - Fred's friend - who is with duPont.
MR. SMITH: George Albee.
MR. GASTON: He works for Young and Rubicam. He
is there to serve that particular client. He checks
very carefully. lie should check with everybody in the
Bureau that he puts out nothing that is inaccurate or is
going to cause trouble, but also he generally works under
the public relations director and is guided as to general
policy by the man who supervises public relations.
MR. BELL: I agree with that over-all control in the
Secretary's office. Nothing should 6° out that isn't
checked by Schwarz or Smith, or whoever is in charge.
But I don't think that any publicity man in a Bureau, or
General Counsel, or whatever you have, should come between
the head of that Bureau and the man in charge in the
Secretary's office, like an Assistant Secretary in charge
of Internal Revenue. I don't think the publicity man
ought to come between the Commissioner and an Assistant
Secretary.
MR. SULLIVAN: I think that is bad organization.
MR. GASTON: What do you mean - come between?
MR. BELL: He goes down and gets something approved
in the Bureau, then he puts it through to Schwarz and out
it goes. I think the Assistant Secretary has got to
approve it and I think he ought to approve it before it
goes to Mr. Smith.
MR. GASTON: That is right. It certainly wants to
be checked before anything is put out. It wants to be
checked with Mr. Sullivan.
Regraded Unclassified
105
- 16 -
H.M.JR: I can answer that. I thought about it and
I checked this with Gaston last night. I agree with you.
Before the thing comes over, no matter who it is, it
ought to be cleared by somebody in the Bureau - the
Commissioner or somebody. Then when it comes over here
I want it to go directly from there to Schwarz' office.
Now, Sullivan is .a part of my office, the way everybody
in this room is.
MR. BELL: That is right, and you are looking to
him for administrative supervision.
H.M.JR: But it is publicity, and I want it to go
from one publicity man to another, then if Schwarz -
if it is Internal Revenue, I would think - I would want
Schwarz to clear it first with Sullivan before he showed
it to anybody else.
MR. PAUL: That would apply all along the line,
wouldn't it?
MR. THOMPSON: That is the procedure that Schwarz
operates under.
H.M.JR: I think, if you are going to get down to -
I thought quite a lot about this - I am not making any
accusations, but I mean I have been blocked on it for a
long time.
MR. SULLIVAN: Not here.
H.M.JR: All right. You can relax - you and I can
get along well. (Laughter)
MR. SULLIVAN: I am having a wonderful time - com-
pletely relaxed.
H.M.JR: I am not. I get excited and I don't enjoy
it. I am afraid you do and I don't. (Laughter)
MR. SULLIVAN: No I don't. I was just kidding you.
(Laughter)
106
- 17 -
H.M.JR: Just take it a little easier. I always
feel badly afterwards. I don't enjoy them at all. I
don't know how you feel.
But I mean, this vacancy has been there how long -
over in the Bureau?
MR. SULLIVAN: Over a year, sir.
H.M.JR: So I say I have been blocked on the thing.
I would like it to go - to have a man known as somebody
from Schwarz' office - before the thing comes over it has
to have Mr. Helvering's initial; or somebody he designates -
it comes to Schwarz and Schwarz takes a look at it. It
may be something out of the General Counsel's office
which wouldn't necessarily affect you. It could perfectly
well be an income tax case. I mean it might first go to
Paul, but if it is something in the Bureau, a man -
Schwarz has got to see it. He has to keep Sullivan happy.
Those are my instructions.
MR. SULLIVAN: The most important thing is that one
definite procedure be established and followed. Then
just so long as the Commissioner cleared and I clear, 1
don't care what the procedure is as long as those two
things are performed.
H.M.JR: Well, then, let's go - if you don't mind
my differing with you (Bell)--
MR. BELL: Well, no, certainly not. You are the
umpire. But in all of my offices the press releases come
to me first from the head of that office, then I send
them to Mr. Schwarz. If he and Mr. Smith don't like them
they are subject to change, of course, but they all come
to me first.
H.M.JR: That is a little bit different. This is
something from your office. If Smith - if he has somebody
write something for him, it comes to him direct, but this
is something from the Bureau.
Regraded Unclassified
107
- 18 -
MR. BELL: That is right.
H.M.JR: But this is something from the Bureau.
MR. BELL: I am speaking of something from Public
Debt Service - Accounts, or any place else. It comes to
me first. I go over it as a matter of policy as to
whether I want that thing to go out or want it to go out
in that form. I sit down with my people and go over the
press statement and then it goes to Mr. Smith for final
clearance for you. It goes to Mr. Schwarz and then he
takes it. I think that is the channels.
MR. PAUL: I think that is a good system.
MR. GASTON: I think the situations vary in different
cases. Sometimes, for instance, myself, although I have
very little publicity from the bureaus under me - some-
times I suggest a story to Schwarz, he puts a man on it,
writes it up, and checks it with me before he puts it
out. In other cases a man runs onto a story, brings it
to Schwarz, and if Schwarz thinks it is a story, he brings
it down to me - "Is it all right to put this out?" He
calls me up to ask me - "Somebody has asked a question
and what shall we say?" "What ought we to say about this" -
something relating to Customs. So I tell them what I
think they ought to say.
H.M.JR: Take Customs or Narcotics, if they have a
story does it come to you 11rst?
MR. GASTON: Routine stuff, no. They put it out
without questioning me at all. But if there is anything
that Schwarz thinks is new, or anything there is a ques-
tion of policy on, he asks me about it. But we have
routine things - the cattle quota - that go out as a
matter of routine.
H.M.JR: But he is thinking of specific - on account
of having had so much trouble and so much delay, we will
have to just lay it down fairly straight.
Regraded Unclassified
108
- 19 -
MR. GASTON: I think it would be a very logical
arrangement to have him show the story to - not only to
the bureau, but to Mr. Sullivan before he submits it to
Schwarz.
H.M.JR: That is all right with me. If that is what
you all think--
MR. BELL: That seems to me to be good organization
channels, and I think there are situations that you have
to deviate from that, like the invasion currency story.
That wasn't written in my shop. Mr. Schwarz came to me
and said, "How about it?" I said, "Go ahead and write
the story." Then he contacted the Bureau of Engraving
and Printing, the War Department, and wrote it.
H.M.JR: Just as long as this person realizes, though,
that he has a joint responsibility, and that he is out of
Schwarz' shop--
MR. GASTON: He is working under the publicity
organization and the Bureau, and Mr. Sullivan and his
Bureau are their clients.
Now, they may turn down something, or want to have
something written in a way he doesn't like, he will go
to his superior and talk it over. His superior may come
and argue with Mr. Sullivan on it.
H.M.JR: Just as long as they know that Schwarz is a
service agency and this is part of Schwarz' organization,
and if he wants to look at it - you put it very well,
Sullivan and the Bureau as his clients - that is all
right with me. Is that all right with you?
MR. SULLIVAN: Sure. I still don't know which system
we are going to use.
MR. THOMPSON: I don't think it is very material.
H.M.JR: Bell's.
Regraded Unclassified
109
- 20 -
MR. THOMPSON: If Schwarz is sure he gets the
initials--
H.M.JR: Is it all right with you?
MR. SMITH: Sure.
H.M.JR: The way Bell - I mean, as long as the
majority is against me, I will go with the majority.
It is not terribly important. If I hadn't been blocked
SO long--
MR. THOMPSON: It is important that Schwarz sees
that the Under Secretary initials it.
MR. SULLIVAN: Helvering's and Sullivan's initials -
then he knows it is cleared.
H.M.JR: But the important part is that this person
over there is part of Schwarz' organization.
MR. WHITE: Then I gather that the important part
is that if he doesn't get your initials or Helvering's
initials, he can go to Fred. That is the important thing
with it, because that is what a service organization
does, and I gather that is what you want to do - to
have sufficient independence so that you have this service
organization.
H.M.JR: No, no, you are just muddying the waters,
Harry.
MR. WHITE: I don't think so, but if you think so -
I think that is the vital difference between the two
proposals.
MR. GASTON: There isn't any vital difference.
MR. SMITH: I don't see any difference, frankly.
Regraded Unclassified
110
- 21 -
MR. GASTON: It is a routine of checking. I will
say this: In the early days when I was here I ran onto
this situation that I wanted certain information out of
certain bureaus. The Bureau of Internal Revenue was
one of them. They say, "We don't want to talk about
this." I said to any man, "You tell me what the facts
are and I will decide whether we want to talk about it
or not." And that is--
MR. WHITE: That is exactly what I am saying.
MR. GASTON: That final decision has to be made
by the man in charge of public relations.
MR. WHITE: Which is Smith. That is why I said if
it is disapproved by either Helvering or John, under
normal circumstances, if you follow Dan Bell's routine,
which, if I understand Dan Bell's routine it would stop
with Dan Bell. If Dan Bell, in other words, said, "I
want it this way," or "I don't want it this way, it
would go as Beil wanted it to Fred, and I am suggesting
that what I thought your reasoning is that you want to
service--
MR. BELL: I said subject to Fred's change.
MR. GASTON: I said that if there is any question -
if Mr. Sullivan disapproves something the man thinks
ought to go out, or the contrary, then he goes to Smith
to tell him the situation.
MR. WHITE: That is right. I think this thing
applies to all the agencies.
H.M.JR: Where are we? I don't want to cut you off.
MR. WHITE: I understand it and I think that is the
way it should be.
H.M.JR: I don't know now - are you satisfied or not
satisfied?
Regraded Unclassified
111
- 22 -
MR. WHITE: I am satisfied that they agree with me,
and I agree with me, and I think that is the way it
should be. (Laughter)
H.M.JR: I said I can't fight - I can't fight any
more. So you are satisfied?
MR. WHITE: I am perfectly satisfied.
H.M.JR: I have to stop. I am sorry it has taken
SO much time. It is really important.
What I really got you people together - I just
made this remark because I am going to see the Commissioner -
I have got to make a speech. I am exhausted now. I have
got to make a speech before some Negro businessmen on
the 26th.
I read this thing (indicating draft of speech) and 1
didn't like it at all. And from a remark that Altmeyer
dropped last night to me, I wanted to ask this group
what they would think if I would back up the President
and devote my speech on the 26th at Baltimore to social
security and the Wagner bill.
I mean, there is seven billion dollars' worth of
revenue in that thing and it is all anti-inflationary.
MR. PAUL: It isn't exactly revenue, but it certainly
is anti-inflationary.
H.M.JR: It certainly is anti-inflationary. Why not
get behind the President on this thing? It is of interest
to everybody - certainly of interest to black, white, and
brown, and nobody has had the courage to back up the
President. Altmeyer could help us, and make a speech on
that. That is what I had to say this morning.
MR. PAUL: Lubin feels the same way.
H.M.JR: I am going to stop. Think it over and I
will talk to you later in the day.
112
August 11, 1943
9:50 a.m.
THIRD WAR LOAN DRIVE
(Re: Discussion with Mr. Harry Hopkins)
Present: Mr. Gamble
Mrs. Klotz
H.M.JR: Mr. Hopkins was here, and I suggested to
him that we would like to get General Montgomery and
General Patton for a couple of weeks during our War
Bond Drive, provided, of course, that they are through
in Sicily.
I said that this wasn't just for War Bonds. I
said I didn't know whether he agreed with me, but I
felt the country had gone into a sort of lethargy.
He said, "No question about it."
I said, "You bring these people and we can put them
in the war plants, and so forth. It can't help but
electrify the country." I told him how successful we
had been with the English heroes, which he didn't seem
to know about.
He said, "Do you think they would want an English-
man?" I said, "They really want Montgomery. It would
just take Patton to sort of offset it."
I said, "From the English standpoint it would be
awful good because with the Lend-Lease in Reverse picture
so poor, coming out in September, this would put the
country in a good frame of mind to receive a poor Lend-
Lease in Reverse picture.
But he didn't know anything about the Lend-Lease in
Reverse. He is going to go and see Stettinius. I told
him about that. He didn't know about that. Everything
I told him, he liked.
Regraded Unclassified
113
- 2 -
So I said, "Now, for instance, we could send them
up to Boeing where production is SO poor."
He said, "Don't send Patton up there. He is a very
colorful fellow, but he is very anti-labor, and you don't
know what he would say."
I said, "Would you rather not have him?"
He said, "No, you ought to have Patton."
Then I said, "This isn't just War Bonds. If the
idea is any good it is for the whole country."
Well, Hopkins got hold of the idea right away. Then
he said, Of course Eisenhower would be good, but he can't
be spared."
So I said, "I think the way to do this thing is to
get Churchill to agree to let us have Montgomery first,
and then if we get Montgomery, they will say that we
can't send Montgomery around the country alone, that we
will have to send somebody along with him like Patton."
Then after a while Hopkins said, "You know, that
idea of going to Churchill first is good." He said,
"Churchill will see the importance of building up the
English good will in this country."
He said, "I will find out from Marshall whether
Patton can be spared."
I said, "Don't ask Marshall to let us have Patton
because he would say no."
He said, "No, no, I will just see whether he is going
to need him. Then he said, "You ought to get somebody
like Admiral Halsey." He went on, "You can't insult the
Air people. We have to get somebody from the Air. I
will get you a bomber crew that has been over Germany,
maybe on twenty-five different missions somewhere. We
Regraded Unclassified
114
- 3 -
will bring them over." Then he said, "If we do that we
will have to get a submarine crew.
So he--
MR. GAMBLE: Sparked?
H.M.JR: Sparked. He got the idea. Then I took him
upstairs to show him the advertising - which I would
like Mrs. Klotz to see.
So Hopkins said he would talk with Churchill and
the President and he would give me a ring.
MR. GAMBLE: He seemed to be impressed and seemed
to be interested, and seemed to know what he was talking
about.
H.M.JR: I feel good about it.
Regraded Unclassified
115
August 11, 1943
9:58 a.m.
HMJr:
Hello.
Operator:
Mr. Forrestal is out of the city until tomorrow
morning.
HMJr:
la somebody there in his office? Has he got B....
Operator:
I have his orderly on the line.
HMJr:
His orderly?
Operator:
Yes. Master Sergeant Elder.
HMJr:
Okay. (Aside: These are the boys that do their
work)
Operator:
Go ahead.
HMJr:
Hello.
Master Sgt.
Elder:
Good morning, Mr. Secretary.
HMJr:
Hello, Mr. Elder. Look, I spoke to Mr. Forrestal
last night about wanting this film on - that the
Navy 1s sitting on in connection with Sicily
E:
Yes, sir.
HMJr:
and he said I could have it to show in my own
projection room over here.
E:
Yes, sir.
HMJr:
Did he do anything about it?
E:
That I am not sure but I will check, sir. Captain
Lovett here in our Press Section, I am sure, will
know about it if he contacted him, sir, and I'll
have the Captain call you.
HMJr:
Now, wait a minute - Wait a minute - somebody is
sitting here telling me that we may have it. Do
you want to wait just one minute?
E:
Yes, sir.
HMJr:
Just hold on. Maybe we have it.
Regraded Unclassified
116
- 2 -
E:
All right, sir.
HMJr:
(Aside: Find out.) Oh, they say Mr. Duffield
called and said that it is available.
E:
All right, sir. Mr. Duffield 1s Mr. Forrestal's
Assistant.
HMJr:
Yes.
E:
All right, sir.
HMJr:
So it is available. All right. I didn't know
it.
E:
Very well, sir.
HMJr:
I'm sorry. We - evidently we've got it.
E:
All right, sir.
HMJr:
Thank you.
Regraded Unclassified
116
- 2 -
is
All right, sir.
HMJr:
(Aside: Find out.) Oh, they say Mr. Duffield
called and said that it is available.
E:
All right, sir. Mr. Duffield is Mr. Forrestal's
Assistant.
HMJr:
Yes.
E:
All right, sir.
HMJr:
So it is available. All right. I didn't know
it.
E:
Very well, sir.
HMJr:
I'm sorry. We - - evidently we've got it.
is
All right, sir.
HMJr:
Thank you.
Regraded Unclassified
117
August 11, 1943
10:30 a.m.
TAXES
Present: Mr. Bell
Mr. Paul
Mr. Sullivan
Mr. Thompson
Mr. Helvering
Mr. Smith
Mrs. Klotz
H.M.JR: Have you had a chance to see Bell's report
on this (indicating Memorandum of August 10, copy attached)?
MR. HELVERING: No.
MR. BELL: No, he has not. I have shown it to the
people that are named in there - Sullivan, Smith, Surrey,
Blough, and Cann. No, I didn't show it to Cann because
he had left town.
H.M.JR: It would have saved me if he had seen it.
MR. BELL: I could have done that, yes.
H.M.JR: Let me read the last paragraph and you
(Helvering) get a copy of this afterwards. Have you
seen this, Paul?
MR. BELL: No, he has not.
H.M.JR: "I do not believe that any one person was at
fault in this whole controversy." This is the Cann, Blough,
Surrey business. "Mr. Cann has submitted his resignation
and has agreed with Mr. Helvering to accept another
position in the Internal Revenue on the West woast. He
says that nothing can change his mind on his request to
be released from his present position as Assistant Commis-
sioner. He does not want anything done to hurt Mr. Blough
Regraded Unclassified
118
- 2 -
or Mr. Surrey because of their action in passing upon
the forms and instructions. lie says they have been very
helpful to him and he has had their complete cooperation
in the present as well as all past matters affecting the
Bureau. He thinks they are two very able men and he
wants you to know that he does not in any way blame them
for his difficulty.
"After reviewing the whole matter I am inclined to
believe that it is difficult at times for the head of a
Bureau like Internal Revenue to know just who is acting
for the Secretary's Office. Mr. Cann apparently assumed
that Mr. Blougn and Mr. Surrey were keeping Mr. Sullivan
informed and these two gentlemen probably assumed that
Mr. Cann was keeping Mr. Sullivan informed. There should
be a clear line of authority between the Secretary's
Office and the Bureau of Internal Revenue and that line
should be through the Assistant Secretary in charge. It
is up to that Assistant Secretary, by constant contact,
to see that this channel is respected by all concerned."
This is Bell's memorandum. I take it you have seen
this.
MR. SULLIVAN: Yes, Dan read it to me.
H.M.JR: Well, I agree with everything that is said
nere. Now, I think that evidently from what Mr. Beil
says, that Mr. Cann contacts Blough and Surrey and Mr.
Sullivan isn't informed and I gather that things happen -
in other words, the line of authority isn't clear.
Now, the whole purpose of having the Assistant
Secretary who is over the Bureau of Internal Revenue is
that he should service both ways. he should make it easy
for me and he should make it easy for the Commissioner.
Now, the thing that I would like to do, and decided
I wanted to do this morning - using that as an example -
is this question of publicity, you see. I don't know
whether I told you a week or ten days ago - was it you?
(Helvering)
Regraded Unclassified
119
- 3 -
MR. HELVERING: It was reported to me what you said
about this vacancy.
H.M.JR: Didn't I tell you direct? Anyway, using
that as an example, I would like to have that position
filled by somebody who is agreeable to you (Helvering).
When there is publicity - let's say it is Mr. Jones -
Mr. Jones fills that position - in the first place he
will have to satisfy you (Helvering) and the people over
there, but when they have something that you want to get
out it will come over ere after it is cleared with you.
Then it will go to Sullivan and Dullivan will clear it, and
then it will go up to Schwarz' office and Schwarz will
clear it with the various people whom I have.
Now, Smith's position - before I come to Smith, this
man over there will be attached to Schwarz' office, but
nothing can leave the Bureau unless it has your initials
on it or somebody that you designate. Do you see what
I mean, Guy?
MR. HELVERING: Yes.
H.M.JR: Then, as far as Schwarz is concerned - where
Smith comes into the picture - I am trying to coordinate
all Treasury publicity so that it is some one person. It
used to be Gaston, then it was Kuhn, and then it was Gaston
again. Now it is Smith who will know the relation of the
Treasury with me. Now, after reading this thing, it seems
to me, if it is agreeable to you, that you would tell
your people if there is something that you want out of the
Secretary's Office, please clear it through Duilivan.
Make sure that Sullivan knows. If there is something that
I want from the Bureau I will go through Sullivan. So
Sullivan should know anything that I want or anybody who
is attached to me, you see. But Sullivan should know
what is going on as between the Office of the Secretary
of the Treasury and the Commissioner.
Now, where are the exceptions, Paul?
Regraded Unclassified
120
- 4 -
MR. PAUL: Well, there is another type of case
where you have a bill in process, and all kinds of
suggestions are made by outsiders and some suggestions
we make where problems come up - before the committees.
We can't make a suggestion without checking it with
the Bureau to see the administrative end of it. There
is a legislative type of problem which constantly has
to be checked with Mr. Helvering's office, and I am
raising the point.
Our practice has been to try to keep John informed,
but, frankly, in the lower brackets our men will talk
with Atkeson - you know, a lot of your (Helvering's)
men.
I don't know whether it is feasible to have every
sort of - to have everything go through John. It will
be a great burden on John. If there is any major deci-
sion I think John ought to be informed, but I don't know
whether it is practical--
H.M.JR: Let's ask John.
MR. SULLIVAN: I know exactly what Randolph is
talking about. I have been through the same thing. Very
frequently along about half past four in the afternoon
some member of the committee will say, "How about so and
so?" It is something that is new and that you don't dare
give them an answer on without talking to the Bureau.
Suppose I was over at Procurement, or some place like
that. Randolph means that to give the committees service
he has to get quick action, and certainly in that type of
case I think he should go directly to the Commissioner.
MR. PAUL: Below that there is constant discussion
between our men and the Bureau men - the lower level. I
can remember a lot of them last year. I can't keep track
of them myself. You (Sullivan) would be swamped.
MR. BELL: It seems to me those are suggestions at
the technical level, and when they get into more or less
policy levels, then I think Sullivan certainly should be
brought in at that point for the Secretary.
Regraded Unclassified
121
- 5 -
H.M.JR: There are three men here, Paul, the Commis-
sioner, and Dullivan. Let's settle it now, once and
for all.
MR. SULLIVAN: What do you think about it, Guy?
H.M.JR: I mean the Commissioner, Paul and you (Suilivan).
Let's settle this thing once and for all so that it is
agreeable to everybody.
MR. HELVERING: Of course, if there is a bill sub-
mitted up in Congress, Mr. Paul - I have an idea that
those various bills - he sends them to Mr. Wenchel and
Mr. Wenchel carries on discussions with me, and all that.
But I don't know whether that is the thing that is of
preliminary discussion--
MR. PAUL: Lots of our discussions are between
my men and yours,not with Wenchel. We are talking with
Atkeson and various men all the time.
MR. BELL: I don't think there is any question
about reports on bills. They follow regular channels.
MR. PAUL: They go to Wenchel.
Mr. HELVERING: That would be an exception to the
rule of the Secretary.
MR. PAUL: He gets those bills because they are
legal and he is your attorney.
MR. THOMPSON: And those bills come through Sullivan
in the end.
MR. PAUL: That is a pretty established procedure.
MR. BELL: No question about the bills.
MR. THOMPSON: On this proposed order the other day,
We said there would be an exception on legislative problems,
that they wouldn't go through Mr. Sullivan, they would go
through Paul.
Regraded Unclassified
122
- 6 -
H.M.JR: I want to know whether it is agreeable
to these three men.
MR. PAUL: John and I havephrased that thing.
H.M.JR: Is that agreeable to you gentlemen?
MR. SULLIVAN: Yes, if it is all right with Guy.
H.M.JR: That legislative problems are excepted?
MR. GASTON: I don't think this covers legislative
problems at all. This is a second problem we are intro-
ducing. The publicity matter is all settled. This is a
matter of contact on the legislative front.
H.M.JR: No, there are a thousand and one things,
evidently, that go on which are at loose ends. I want to
make it easier for everybody involved and have the
authority clear cut SO if I want to know what is going on
and I call Sullivan and Sullivan knows, and if Blough and
Surrey are passing on some forms, or something or other,
then I can say, "Well, John, that is your responsibility;
you ought to know." And if they don't inform him, then
he can give them hell, you see. But the way it is now--
MR. PAUL: Of course, on that part of it I wouldn't
have assumed that they had any more than an advisory
function on that because after a bill is passed it is
John's problem, not mine.
MR. BELL: I think that is what Roy and Surrey would
assume - that what they did was advisory. It is unfortu-
nate that possibly people in Internal Revenue feel that
when Roy and Stan went over these forms and instructions,
that it had the O.K. of the Secretary's Office. That
was wrong, but nevertheless it did exist. That is what I
think the Secretary is trying to straighten out.
H.M.JR: Well, yes, I am. Let's go back to the
legislative thing.
Do I understand on the legislative
Regraded Unclassified
123
- 7 -
thing, if you, Paul, in your capacity as tax advisor
handling legislation, if you want something from the
Bureau you go to whom in the Bureau?
MR. PAUL: It depends on what you want. It depends
on what level it is. If it is purely informational, we
wouldn't bother Mr. Helvering with it. If it were some
question involving policy, we would. If it is an important
question like, for instance, you remember last year we
got in a jam on inventory reserves - things like that
where the fundamental administrative machinery is con-
cerned - but there are constant requests for information -
constant minor technical points.
MR. GASTON: I think Mr. Paul has given the answer
there. He calls up the Bureau in a hurry for some point
of information. It is not a point of policy at all. The
custom is all right when he wants to get information in
a hurry. But if there is & policy question involved, I
should think it ought to be taken up with Mr. Sullivan.
H.M.JR: Could I make it a little bit differently?
Would this be a fair division - while it is in a legisla-
tive status, that Paul will contact the Bureau - contact
Helvering or whoever Helvering wants, once it becomes
8. law, then from that time on, all contacts with the
Bureau should be through Suilivan.
MR. SULLIVAN: That is it, with one exception.
H.M.JR: Would that be a clean-cut provision?
MR. SULLIVAN: That phase of it, and that is what
Randolph and I and the Commissioner have been in accord
with on this order that was prepared last week. I think
the only remaining question is the level at which Randolph
will contact the Bureau.
MR. PAUL: You can't have a rule for that. You
have got to have good faith. Even on some of these
legislative problems, John, I wouldn't think of depending
on a contact with some subordinate of Mr. Helvering's.
We have to use our judgment all the time - is it something
which Mr. Helvering should pass on?
Regraded Unclassified
124
- 8 -
MR. BELL: Where there are major problems.
MR. PAUL: So even if you say legislative, it
doesn't answer the problem. You always have to use
your judgment.
MR. GASTON: If something is being proposed on the
Hill that poses an imoortant administrative problem in
the Bureau, I think John should certainly get in on it.
H.M.JR: You are the ham in the sandwich, SO talk
up, (Laughter)
MR. HELVERING: I would like - we are continually
asked by various fellows - by Mr. Biough's office -
Mr. Paul's office through Mr. Surrey - to give them a memo on
administrative problems on certain tax matters. I will
just take my hair down and tell you, some of those are
30 absurd that I think that it wastes the time of our
boys who work day and night over there, to be asked to
write up a long memorandum showing the futility of that
particular thing.
MR. PAUL: But we have got to show that to Congress.
We have got to have material from that end in order to
get it licked.
MR. HELVERING: AS 1 stated to you the other day,
here comes a memorandum over there to consider the propo-
sition of the tax on cut flowers and potted plants.
H.M.JR: You told this to somebody else. I would
have remembered that.
MR. HELVERING: would you? I thought I told you.
H.M.JR: You must have used that on somebody else.
(Laughter)
MR. HELVERING: Well--
Regraded Unclassified
125
- 9 -
H.M.JR: You must have used that on somebody else.
(Laughter)
MR. HELVERING: For me to designate Capt. Bliss'
office - it goes direct to his office - he thinks
it comes from the Treasury - - that that is something that
ought to be studied - a tax problem.
On first blush we know that the administrative
difficulties will make it absolutely impossible.
I think, if Mr. Sullivan was clearing that, or
somebody, before it came over there to take up our time
with it, that he wouldn't send it to us.
MR. PAUL: If I were in charge and you had called
me about that and told me it vias absurd - I wouldn't
know from looking at that, that it was absurd - I
couldn't dismiss that. You would dismiss it immediately.
We could have eliminated a lot of work.
H.M.JR: I still haven't got it clear. I mean,
which way this thing should go. I would like to clear it
up SO that everybody will work under less tension and
more efficiently.
It still isn't clear in my mind.
MR. HELVERING: When Mr. Farioletti says, "Write me
a memorandum on this" - or Mr. Surrey, or anybody else -
I don't care who it is - what I would like to have is
somebody in the Treasury that I can send this to and I
won't have to look up to see who it is that this goes to,
and what the question is.
MR. PAUL: Maybe the answer is to route all those
memoranda to me. It means a whole lot of extra work on
details.
Regraded Unclassified
126
- 10 -
H.M.JR: It means that - the work falls on somebody,
and I think it should fall on the person who originates it.
MR. PAUL: Yes, but there are a lot of them that are
not important enough.
H.M.JR: Then they fall on the Commissioner. I mean,
if you could weed them out before they went over there,
then he wouldn't be bothered with them.
MR. PAUL: It still doesn't solve your problem, because
I wouldn't be able to - take this potted plant thing - I
wouldn't be able to dismiss that. There is nothing in the
orbit of my experience that shows that is a silly tax -
the Commissioner who gets it can see it is & silly tax on
the basis of his experience and tell me that there is no
use of working on that.
H.M.JR: Would you know that it was & silly tax?
MR. SULLIVAN: Certainly.
Now, for instance, yesterday morning in this tax
program that was presented, there was not only that - and
I hadn't seen that at all until we were in Mr. Bell's
office - but there was also a tax on photographic studio
services and a tax on beauty shops and barber shops. I
mean, it would take an army to supervise those.
I asked Roy not to divulge to anybody that those three
were in the program, and you will notice when Randolph was
asked about the different increases in excises he very
carefully refrained from referring to those, because that
is the type of thing that you immediately recognize the
impossibility of policing. You wouldn't put that in.
MR. BELL: Why shouldn't those memoranda of the
character you have been talking about go to the Commissioner
through Assistant Secretary Sullivan?
MR. GASTON: That is very definitely my opinion - very
definitely. After all, it is an administrative problem,
and you are looking to Mr. Sullivan for administration of
the Bureau for you.
Regraded Unclassified
127
- 11 -
H.M.JR: That is right.
MR. BELL: And he ought to say first, it seems to
me, whether or not the Bureau's time ought to be tak en
up working on a matter of this kind. If it requires a
conference then he calls the Commissioner and Mr. Paul's
office, whoever wrote the memorandum.
MR. GASTON: I think that when Captain Bliss or the
Commissioner gets 8 request for the administrative report
on a certain tax, for instance, that if they think that is
absurd, that it is clearly on the face of it administratively
impossible, then they should check back with Mr. Sullivan
and have him speak to Mr. Paul about it.
MR. RELVERING: The trouble is this one I refer to -
I refer to that particularly because I saw the memorandum.
It didn't come to me at all; it went direct to Captain
Bliss. And coming from the Treasury Captain Bliss thought
he would have to prepare a memorandum showing - which took
some time - and to make it effective he would have to make
a survey of the number of people affected by that all over
the country, and all those things.
MR. GASTON: I think you should post him that in a
case like that he should consult you and you report to John
on the thing.
H.M.JR: What is the matter with this? I mean, supposing
we tighten the thing up. Then you can always make exceptions
if it gets too tight?
MR. PAUL: That is what I am afraid of, it will get
too tight.
H.M.JR: After I read this report of Bell's - I
mean, there are too many loose ends and too many people cutting
corners and there are too many people putting work - asking
for unnecessary work. Then this whole business of Norman
Cann and this darned letter and everything else has taken
hours and hours of my time because there isn't a smooth
organization. Now, I pride myself on having & smooth
Regraded Unclassified
128
- 12 -
organization, and having to bother the people as little
8S possible, and evidently - I mean, Blough and Surrey
go to people down the line, the Commissioner doesn't know
about it, Paul doesn't know about it, Cann comes back and
goes to people, people in the Office of the Secretary
don't know about it, so on both sides it is bad. If it
were channelized - I mean, it works both ways. We bother
your people, your people bother us. We send Charlie Bell
into the field to see whether he can find some paper to
print the letter on so that they don't think we are holding
the thing up, all the stuff - I am sure there are people
to do it. If it were said, "Now, a S far as the Office of
the Secretary is concerned if something comes out of the
Office of the Secretary it has got to have Sullivan's
stamp on it," then I can look to Sullivan; and if it is
wrong, I can hold him, and Sullivan can say, "I am
responsible, that is my responsibility. Nobody else is
responsible; I am personally responsible."
But on this other thing there are about ten people
and I get in a mire, and I get all worked up. I don't
want to. I haven't the time; I haven t enough energy,
and everybody spends hours investigating who is to
blame.
MR. GASTON: It is all due to lack of proper coordina-
tion. This whole thing was due to lack of proper coordina-
tion.
MR. BELL: That is right. It is just a result of a
system that has sort of grown up.
H.M.JR: I don't want it to happen again. Everybody
here wants to be helpful. That is the purpose of this
meeting. The purpose of Bell's report is to see that this
doesn't happen again.
MR. HELVERING: That is what I was trying to say the
other day. We must assume when stuff comes over from the
Treasury that that is something you want information on.
If that could come from some coordinated head - I don't
care where, just so they decide on it - I would put the
Regraded Unclassified
129
- 13 -
man to work on it, and we get the report of what we
think the Treasury wants. But, if these are just
fellows sent out by different fellows, here to there, to
find out whether or not this thing, we have to go to
the trouble of analyzing the whole thing and preparing
reports on it, showing the futility of it, which all
takes time.
MR. THOMPSON: We should have everything flow through
Mr. Sullivan and let Mr. Sullivan make the exceptions as
they come along. You just cannot write down in black and
white that this goes here and that there. The problem is
SO great, and a number of questions come up. You have to
have it all or none.
MR. HELVERING: You have to have an exception on this
legislative stuff.
MR. THOMPSON: Then the question arises of legislative--
MR. PAUL: I think the best you can do - you can't have
it in black and white - I think the best you could do would
be to have the legislative go through me so that Guy will
have a responsible head, with the idea that if there is
anything of basic policy in it I should talk with John
about it.
There aren't enough hours in my day or John's day
for us to talk over every one of these little requests.
It would satisfy Guy if we have some responsible head as
a conduit for any requests.
H.M.JR: That isn't going to solve it.
MR. GASTON: I think that anything that attains the
dignity of a written memorandum ought to go through John's
hands both going and coming. The idea is, as far as is
possible, to clear all questions that may affect administration
in the Bureau through John's office. Of course, there will
have to be some judgment exercised. There will be occasions
when Randolph's men will want to call up in a hurry to get
some informational material, as Randolph himself has
Regraded Unclassified
130
- 14 -
mentioned. And, naturally, you will have to do this in 8.
hurry, and it is all right for the man to respond. But
if the man who gets that inquiry senses some serious
question of administrative difficulty, then he ought to
take it up with Guy, and Guy will want to talk with John
about it.
H.M.JR: I don't think it is as simple as that,
Herbert. The trouble is, using the case that you give,
somebody in Paul's office calls up somebody in Helvering's
office and between them they say that this is all right.
Then the thing turns out that I am not satisfied.
Then they say, "Well, somebody in Helvering's office
said somebody in Paul's office cleared it." Paul knows
nothing about it; Sulliven knows nothing about it; but I
am not satisfied. And the chances are nine out of ten that
the Commissioner doesn't know anything about it and we are
right back where we were before.
The Commissioner says, "I don't like that form."
I say, "I don't like the form."
Then we spend two weeks trying to find out who
O.K.'d it and we are right back where we were.
Regraded Unclassified
131
- 15 -
MR. GASTON: I was speaking about facts only. For
instance, Surrey calls up Captain Bliss and says, "How
much did you collect last year on cigarette taxes?" That
is just & question of fact.
But if Surrey calls up Captain Bliss and says,
"What would be the administrative difficulty of a tax
on andirons?" that is another matter, and it should come
through - the reply on that, if a memorandum is required,
should come through Sullivan's office, in my opinion.
H.M.JR: I have a suggestion. Supposing the Commis-
sioner designates somebody close to him who would handle
all inquiries that have to do with legislation, and anybody
who wanted to call up to get information on legislation
would have to call that person. Then that person would be
instructed by Helvering. He would say, "Wait a minute,
that isn't legislative, that is administrative. That re-
quest has to come to me through Sullivan.'
But have one person in your (Helvering's) shop, and
all inquiries concerning legislation have to go through
that person. He would have to devote his whole time to
it.
MR. HELVERING: The question might involve legisla-
tion which would be both legal and factual, that is,
administrative. For instance, we haven't had a bit of
trouble by Mr. Paul referring stuff to Mr. Wenchel on
bills and things like that.
MR. BELL: That channel is pretty well set on bills.
There is a very definite channel.
MR. HELVERING: Of course there are many, many
recommendations as to change in law, for clarification,
and all that.
H.M.JR: Well, how would it be, Guy, they wanted
to find out something - supposing it does slow it up a
little bit? It can't be helped. In the long run there
Regraded Unclassified
132
- 16 -
would be less irritation. Supposing Paul wants some-
thing that has to do with legislation or something to
do with alcohol - he wants some information - or if
Blough wants something, and so forth, that has to do
with legislation, it will have to go through Wenchel.
He is there; he is set up, and it is up to Wenchel to
get it.
MR. HELVERING: Of course Wenchel wouldn't be
equipped to get them information on the amount of tax
brought in and the number of people.
H.M.JR: Could he get himself an assistant?
MR. HELVERING: That isn't really the function of
Mr. Wenchel's office at all.
H.M.JR: Then have somebody attached to you so
that all the requests from Paul and Blough and Surrey
go through somebody in your office?
MR. HELVERING: If they would come directly to
me through somebody who cleared them over here - if Mr.
Sullivan should be the clearance man and he sends over
a memorandum on legislation, we will know then that you
really are interested in a report on that thing and get
busy and handle it.
H.M.JR: It is all right with me if it is all right
with Paul.
MR. PAUL: Somehow I think - I don't think that is
going to work. I think it is going to enormously increase
John's work and slow up the whole thing.
H.M.JR: Well, let's find out if John is willing.
MR. SULLIVAN: I beg your pardon?
H.M.JR: Let's first find out if you would be
willing to take on that responsibility.
Regraded Unclassified
133
- 17 -
MR. SULLIVAN: If they feel that will clarify
the situation, I will be very happy to.
MR. HELVERING: If it is just a matter of statistics,
as Mr. Paul said a while ago, that is just a matter of
information. Anybody who handles that particular line
will give this to anybody if it is statistics.
H.M.JR: Where do you want the line drawn? You get
it one place, then go back again. If you had to write
the ticket, how would you want the ticket written, just
from your angle, let's say?
MR. HELVERING: I would like to have some one man
over here who would send everything over to us that has
been approved by the Treasury for consideration; that
is, whether we adopt it or not, that isn't the question.
It is whether or not it is for consideration, except as
to bills and legal matters which go direct to Mr. Wenchel,
who talks every one over with me.
H.M.JR: Except as to bills?
MR. HELVERING: We never have a bit of trouble that
I can recall about that at all.
H.M.JR: Then everything that has gone through
Wenchel would continue to go through Wenchel, is that
right?
MR. HELVERING: Yes.
H.M.JR: So we leave that channel the way it is.
Now, what would go through Sullivan?
MR. HELVERING: All other stuff that the Treasury
wants absolutely considered by the Bureau except
statistics.
MR. SULLIVAN: Factual information.
Regraded Unclassified
134
- 18 -
H.M.JR: And how will they handle it?
MR. HELVERING: The statistics are all confined
to Dr. Atkeson's office except, of course, where it
has to do with the number of people employed at a
collector's office, and things like that.
H.M.JR: Let me see if I get it. All legal matters
or legislative matters that are going to Wenchel now
will continue to go to Wenchel from Paul. Right?
MR. HELVERING: Yes.
H.M.JR: All requests for statistics would go
directly to Atkeson?
MR. HELVERING: Yes.
H.M.JR: And any other problems would go through
Sullivan? Is that right?
MR. HELVERING: ..Well, that will help quite a bit.
H.M.JR: I am asking you. First I will see if I
can get you satisfied. Would that help?
MR. HELVERING: Yes, indeed.
H.M.JR: What do you think?
MR. SULLIVAN: O.K.
H.M.JR: What do you think?
MR. PAUL: I don't think it will work, but we can
try it and see. I am afraid it will slow up the work
very considerably. Then I get up on the Hill, and
because I haven't got a report on something--
H.M.JR: Let's try it.
Regraded Unclassified
135
- 19 -
MR. PAUL: Things come up at four-thirty or five
in the afternoon and John is in New York or something,
or John has a string of important appointments, and we
can't get to him to argue something out and discuss it.
That is what I am afraid of. But go ahead and try it.
We may be able to work it.
MR. SULLIVAN: It seems to me we can have this pro-
cedure, with the understanding that on anything that is
urgent and I am not available you go directly to the
Commissioner. Wouldn't that help?
MR. GASTON: Or the Acting Commissioner. If it is
anything involving a written report back, it should come
back through you (Sullivan) and then you will know about
it.
MR. PAUL: I am not trying to keep John from knowing
about these things.
MR. SULLIVAN: I know that, the same as everybody
else.
H.M.JR: Well, look, the spirit I like is, let's
try it, and if it doesn't work we can meet again. How
is that? We don't need anything in writing on this thing.
We all have it in our heads. I don't want to put it down
in writing.
What do you think?
MR. THOMPSON: I think it is 8. perfectly good
arrangement.
MR. BELL: It is all right. Everybody understands
it, and as we go along Mr. Sullivan can make exceptions.
H.M.JR: And will you accelerate this thing of
getting somebody on publicity in your shop?
MR. HELVERING: I have offered the place to two men.
I am not taking any exceptions to your desire to have it
Regraded Unclassified
136
- 20 -
filled, but here is the problem. Anything we write up
over there is written in the unit that handles the
problem. If it is miscellaneous tax, it is in Captain
Bliss' office; if it is an income tax matter, it is in
Mr. Mooney's office; if it is alcohol tax, it is in Mr.
Berkshire's office; if it is procedures and collections,
it is in Mr. Schoeneman's office. They have to really
prepare these memoranda.
Now, it seems to me, Mr. Secretary, that with the
clearance you have over here we have no need at all for
that person over there. If everything we send over here
is sent direct to Mr. Sullivan, because, as I understand
it, all the publicity is to be coordinated here - and I
agree to that - so if we have a publicity item on income
taxes and it is written up, sent to Sullivan, and he sub-
mits it - he agrees to it and he submits it to Mr. Smith,
that is a matter of public policy and that is all that is
necessary.
MR. GASTON: Excuse me, I don't think that is all
that is necessary. I think we want a specialist on the
Bureau of Internal Revenue problems. That man should be
familiar with what goes on in the Bureau. He should
inform us of what goes on. If he gets an idea that a
certain thing ought to be publicized he ought to talk
to you and the men involved in the Bureau and maybe work
up something on it and get your approval.
On the other hand, Captain Bliss' office may prepare
something, they submit it to him and he thinks it ought
to be presented in a little different form; so he talks
to you about it and prepares something in a little
different form. If it gets your approval, then it will
go over here.
You want a specialist who is well acquainted with
what is going on in the Bureau and can check matters
directly with the Bureau to see that a satisfactory story
is prepared.
Regraded Unclassified
137
- 21 -
MR. HELVERING: My point is it takes just as much
time for these men to write a memorandum telling the
other men what it is as to write it themselves. That is
what I am getting at.
MR. PAUL: I get your point.
MR. HELVERING: The fact of the matter, Mr. Secretary,
is that I would abolish that job entirely. But taking
your cue, I have offered this to two men.
Mr. Irey recommended a man to me, a Mr. Smith, who
has been Senator Glass' secretary for a number of years.
H.M.JR: What is his name?
MR. HELVERING: Rixey Smith. He is a man about
fifty-four years old. I had a conference with him, and
he seems to have his feet on the ground pretty well. He
was previously a newspaperman.
H.M.JR: He is a good man?
MR. BELL: A very good man. I don't know about his
publicity capabilities, but he is a good man.
MR. HELVERING: I had him down and had a talk with
him. There was some talk that Senator Glass was going
to resign. I asked him, and he said there is some talk
of it. He said, "I don't think he is." He said, "If he
does I would like to have this place.
I would like to have given it to him, but Senator
Glass called him up a few days after that and told him
a program he had in mind for several months ahead. So
he said his first duty was to Senator Glass.
I offered it to Mr. Irwin over at the ONI, whom
Mr. Schwarz recommended to me, and Mr. Irwin was over to
see me the last of June. I authorized him to go ahead
and file his application and that we would make the job
Regraded Unclassified
138
- 22 -
effective August 1st. While I was away I had the usual
investigation made, and during this investigation Mr.
Irwin advised me that the OWI didn't want to release
him and that he had thought previously that was going
to be cut down and he would want another place. So he
declined it.
I asked Mr. Graves a few days ago, after Mr. Cann
told me you wanted this place filled, to contact Mr.
Schwarz again and have a talk with him when he was over
here and see if he had somebody else to suggest.
Now, that is the status of it. Of course my own
feeling about it is, from my experience, that it is
absolutely unnecessary to fill that place.
MR. GASTON: My feeling is, to be quite frank, that
that is not going about it in the right way. My opinion
is it should be Mr. Smith's responsibility to find a man
because the man is going to work for him. He is going
to be a public relations man who is going to specialize
in the Bureau of Internal Revenue matters and treat the
Bureau of Internal Revenue as his client.
I think Mr. Smith should take the initiative of
finding a man who is acceptable to Mr. Helvering for
that position.
(The Secretary held a telephone conversation with
Mr. Stimson.)
H.M.JR: Where were we?
MR. HELVERING: Have you somebody in mind?
MR. SMITH: There are a couple of people we might
investigate. I hadn't done anything in particular about
it.
H.M.JR: What about this woman?
Regraded Unclassified
139
- 23 -
MR. THOMPSON: Mr. Paul doesn't want her to leave
up there. She is too valuable to him.
MR. PAUL: My point was she has been working very
hard getting the whole legislative tax, and I don't want
to throw away that and put her in another angle.
MR. SMITH: Mr. Shaeffer has suggested 8. man by
the name of Perlmeter.
MR. BELL: Everett Perlmeter.
MR. GASTON: He is a good, conscientious, able boy.
He used to be the Associated Press man in the Treasury.
H.M.JR: He is a good man. If you get Perlmeter,
he would be a good man. If you can't get Perlmeter, we
can always take that woman from upstairs. I found her.
MR. PAUL: And I approve of her. You and are the
same. (Laughter)
H.M.JR: What is her name?
MR. THOMPSON: Mrs. Mannon.
H.M.JR: As a matter of fact, I don't think I did
pick her. It was--
MR. GASTON: Genevieve Herrick.
H.M.JR: Well, anyway, let's do it the way Gaston
said and see if we can pick somebody who would be
acceptable to you (Helvering). O.K.?
MR. HELVERING: All right.
H.M.JR: In a pinch we have always got this woman
upstairs.
MR. PAUL: I was wondering what would happen in the
remote eventuality that we might have some matter where
John and I felt differently about. What do we do then?
Regraded Unclassified
140
- 24 -
H.M.JR: You can come and see papa. The main thing,
I think, is that the three of you (Paul, Sullivan, and
Helvering) work together as a team. If there is anything
that doesn't work you can ask to have another meeting like
this. There is nothing more important than that this
should work smoothly, with the minimum of friction on all
of this.
MR. HELVERING: I just want to say I have another
matter I would like to take up.
H.M.JR: I have the matter I called this meeting
on that I haven't yet discussed, this Norman Cann thing.
MR. HELVERING: I think while we are all in here
this would be the time. I am put right square in the
middle, Mr. Secretary, on the proposition of this
committee up on the Hill and the Treasury Department.
Now, here comes down a request from Mr. Stam, and
approved by Senator George, in which they quote the law
and which I have to transmit for action. They say for
me to send them any alternative suggestions of our staff
for raising revenue or combatting legislation, with
accompanying data and statistics. There is a note that
the source of the information will be kept confidential.
MR. PAUL: Not the information, but the source.
H.M.JR: Could I see the form of that letter?
(Letter dated July 14, signed by Mr. Stam, handed
to the Secretary.)
MR. HELVERING: That said to report not later than
sixteen days. I haven't reported on it yet, but I have
started - I have contacted the heads of the units and
told them to prepare something and submit it to me.
H.M.JR: You heard me yesterday on that subject?
MR. HELVERING: Yes. That came down while I was
away.
Regraded Unclassified
141
- 25 -
H.M.JR: Well, do you want to say something, because
I have an answer to this thing.
MR. HELVERING: They quote the law to me and say I
have got to do it.
H.M.JR: Well, I have got an answer.
MR. PAUL: Was it a request for suggestions?
MR. HELVERING: They just quote the law and say--
MR. PAUL: "Any suggestions of your staff for
raising additional revenue or combatting inflation" -
you don't have to make suggestions, do you?
MR. HELVERING: Of course they know we are.
Then it comes down to specific requests to study -
here is one, to study postwar reserves.
H.M.JR: What was your answer going to be, Herbert?
MR. GASTON: Well, the answer is going to be this,
that in the first place any reply made by Mr. Helvering
should be a reply by the Secretary, "Complying with your
request to Commissioner Helvering
H.M.JR: That is the way we have been doing it.
MR. GASTON: Yes. Now, if there are some new sug-
gestions I would also incorporate in that reply a statement
like this, "The Bureau of Internal Revenue has examined the
suggestions heretofore submitted by the Treasury Department
and is in agreement with them." If there is anything new
then I think you can submit that.
H.M.JR: I may have to postpone this. This thing has
been running much longer than I contemplated, and I am
way overdue now.
Regraded Unclassified
142
- 26 -
I think that the thing to do - I talked with Doughton,
and he was sympathetic - the thing to do is for Paul and
Helvering and Sullivan and me to sit down with George and
Doughton and have a heart-to-heart talk.
I think if Sullivan would draft a letter for me to
George and to Doughton and show it to these two people,
saying, "These things are up. We want to cooperate, but
the situation is such that we have to have a face-to-
face talk with the two of you - the situation is getting
impossible."
MR. SULLIVAN: I will be very glad to prepare that
letter. I think it might be just as well if I talked to
each of them.
H.M.JR: Anyway, if you would think about it and
then see me some time this afternoon with a recommenda-
tion, and before you bring your recommendation to me
would you mind talking on the phone to Helvering and
Paul?
MR. SULLIVAN: Yes, sir.
H.M.JR: I think we can take this thing off your
(Helvering's) shoulder by asking for a chance for the
four of us to sit down with George and Doughton. When
I talk with each of them they are always decent about
it.
So will you mind letting it wait - not wait - we
will take action.
MR. HELVERING: Mr. Stam called me yesterday and
said he would like to come down and talk it over with us.
H.M.JR: We will move this afternoon on it. It
will either be a telephone call or & letter from me.
Now, the next thing is on Norman Cann, this request,
and I take it in view of everything that is said - you
(Sullivan) prepare a letter, and we will accept his
resignation.
Regraded Unclassified
143
- 27 -
Now, the thing I don't understand - and I wanted to
ask you - is what did Norman Cann mean when he told some-
body he was out of sympathy with my office.
MR. HELVERING: Well, I don't know what he meant,
but what he said to me was that if he couldn't assume
that stuff coming from the Secretary's office - that they
could work on it and take that as a basis to work on and
have the Secretary's office stand back of it that he had
lost his effectiveness over there in that particular
place, that he would rather be relieved.
H.M.JR: While I have given you my word, and the word
stands - you asked me if you could give him an appoint-
ment in the field, and I said yes, and I also said that
was your responsibility. I haven't changed. I can't
change. I have given the word, and you passed it on.
But before you give him an important position I would like
you to send for him and ask him - say that the Secretary
is bothered - "What do you mean, that you are out of
sympathy with the Secretary's office?" Just say, "What
do you mean by that?"
That is a perfectly fair request, I think.
MR. HELVERING: Now, he hasn't said to me he is out
of sympathy with your policies or anything like that. The
only thing he said to me was that you blamed him for a
thing before you knew that the other boys had come over
and insisted on certain things going in there.
H.M.JR: Well, we now have the Bell report which he
can read, but what I am asking you, his boss, is that
before I give him another position I want him to know -
I must know whether he can be loyal to me as long as I
am here. When I say "me" I mean the Office of the
Secretary, which includes the people in this room.
MR. SULLIVAN: Norman talked pretty frankly with
me, Mr. Secretary, and at no time did he ever say
anything that implied what you are implying.
Regraded Unclassified
144
- 28 -
H.M.JR: Well, there is no harm, John, in letting
the Commissioner ask him this thing. I mean, let him
give us - I mean, can he be loyal to my office, and that
includes Thompson, Bell, and every one of you. That has
been raised in my mind by somebody. I am not trying to
withhold it, but somebody in one of these many conversa-
tions said that one of the reasons he wanted to resign
was he was out of sympathy, and so forth, with what I was
trying to do. I don't know what that means.
MR. HELVERING: I don't think it means he is out of
sympathy with the way you are trying to collect taxes or
trying to sell bonds, or anything like that. I think he
is out of sympathy with the idea of people coming over
there and doing this, that, and the other.
H.M.JR: Would you find out, and would you mind
calling me back on the phone?
MR. HELVERING: He went on vacation before taking
his other assignment. He is in Boston.
H.M.JR: Well, you can call him, can't you?
MR. HELVERING: I can talk to him tomorrow. He is
on his way up there now.
H.M.JR: Will you do that for me because I want to
satisfy myself. I am not questioning you, John.
MR. SULLIVAN: I understand that.
H.M.JR: But this is his immediate superior, and
he makes the assignment, and I told him he could make
the assignment. You (Helvering) made the request - you
came to me and said, "Can I do this?" I told you yes and
said it was up to you to decide what you wanted to do.
So would you call him and then call me back.
Now, let's try this thing, everybody, and if it
doesn't work, if there are some things you think should
be excepted, let's have another meeting.
Regraded Unclassified
145
- 29 -
MR. SULLIVAN: I have Mr. Cann's new appointment
on my desk. Am I to hold that until you have had this
talk with him?
H.M.JR: Yes.
MR. SULLIVAN: Then I will sign it as of the day
it came to me - yesterday.
H.M.JR: I told the Commissioner and I told Thompson
to hold it.
MR. SULLIVAN: Is there any lapse in salary there?
MR. HELVERING: No.
MR. BELL: Did he resign as of August 21?
MR. HELVERING: The appointment was to take effect
the 26th and his resignation the 25th. But there are
other changes to be made, Mr. Secretary, that I feel I
am impelled, if I am going to make those, to--
H.M.JR: What?
MR. HELVERING: Well--
H.M.JR: You don't usually consult me on those
things, do you?
MR. HELVERING: No, but if Mr. Cann's--
H.M.JR: It is only being held up twenty-four
hours, just so you can talk to him on the phone.
MR. HELVERING: What I am trying to say is that
he is going to take the place of a man by the name of
Virgil Bean who is in San Francisco. Mr. Bean is a
married man with children, and I would like to notify
him of this change because Mr. Bean has a home here in
Washington and I am assigning him to the Baltimore
146
- 30 -
office. He can commute back and forth from his home
out here in Silver Spring. At least Mr. Myers, the
head of the unit, assures me that will be agreeable
to Mr. Bean, and I would like to notify Mr. Bean.
H.M.JR: I held it up two days. I held it up
today thinking Cann was in town. He is not, and I am
holding it up forty-eight hours, which can't make or
break the Bureau.
MR. HELVERING: Let me understand it. Do you want
to see him?
H.M.JR: Cann?
MR. HELVERING: Yes.
H.M.JR: No. I just want you to call him up on
the telephone and say to Norman Cann, "Mr. Morgenthau
somehow or other has gotten this impression, and before
he gets you in a responsible position do you feel you
can carry out his policy? What did you mean? He got
the impression from somebody that you were out of
sympathy - didn't have confidence in the Secretary."
MR. HELVERING: It isn't confidence in the Secretary,
as to your intentions of doing everything right.
H.M.JR: I want to know - I want a declaration of
faith from him; that is what I want. If he satisfies
you, that satisfies me.
MR. HELVERING: Well, I will--
H.M.JR: I don't want to see him. If you say to
me, "Morgenthau, I am satisfied this fellow will be a
loyal public servant and do what you or your associates
want while you are in office" that is all I want.
MR. HELVERING: I will call him tomorrow morning,
and I will tell him of our conversation.
H.M.JR: That is right.
Regraded Unclassified
147
- 31 -
MR. HELVERING: And I will tell him that there is
no question about the Secretary going through with
this but he wants some assurance as to whether he agrees
with the general policy of running the Treasury or
whether it is just some incident coming up here that
he didn't want this particular assignment.
Of course he told me he thought his effectiveness
would be lost in this particular assignment after the
controversy had about this.
MR. BELL: That is what he told me; also the fact
that he said, "Maybe I am making this decision because
I am so worn out that I don't want to go through another
two weeks like I went through in the last two weeks."
He said, "I am just tired and worn out."
H.M.JR: The point is, with the Commissioner away
and with Sullivan away he wasn't a big enough man. That
is what it gets to - to handle me. (Laughter) We are
at war, and for the fellow to quit like that - if he
said to me, "Look, Mr. Morgenthau, I would like to have
a talk with you" - he has never done that, you see. And
under great pressure he finally did admit that this was
an improvement that we got out.
But I don't want to go over the whole business.
The man has made his decision, and I think less of him
for it.
MR. HELVERING: I want to cure you of one impres-
sion. I got from the conversation yesterday that he
had picked out the particular job. He didn't do that.
H.M.JR: Well, that is all right, but I think less
of him. He has gone down in my estimation. He was
here acting, with you and Sullivan away. He couldn't
handle the job, in my estimation. Then when he got the
pressure put on him he couldn't take it.
Regraded Unclassified
148
- 32 -
MR. HELVERING: He doesn't understand your psychology
of the thing.
MR. SULLIVAN: I think that in fairness to Norman,
Mr. Secretary, I should tell you that here is a fellow,
and for many years he has been contributing substantially
to the support of older relatives. It isn't any question
of his loyalty to the Bureau or you. He is taking a
fifteen-hundred-dollar cut in salary. Last Thursday
afternoon he was offered fifteen thousand dollars on a
part-time job. That would have been disloyal to you, and
he turned it down.
H.M.JR: From whom?
MR. SULLIVAN: I can't tell you. The next afternoon
he was offered a three-year contract at thirty thousand
dollars a year.
Now, I think he is a pretty loyal fellow, Mr.
Secretary. I doubt very much if Norman Cann has been
able to save any money in the last twenty years.
H.M.JR: Well, if you don't mind, I still want the
Commissioner to have this talk with him.
MR. SULLIVAN: I wasn't saying that to dissuade you
from that.
H.M.JR: I still want that.
MR. SULLIVAN: I thought in justice to Norman that
you should know what I told you.
MR. PAUL: Those figures are being offered to
everybody in the Bureau, in Wenchel's office and in my
office. It is terrible the way - a man making seven
thousand dollars in the General Counsel's Office can
walk out and get fifteen or twenty thousand any day.
H.M.JR: O.K.
Regraded Unclassified
149
August 10, 1943
MEMORANDUM TO THE SECRETARY:
In accordance with your instructions, I have discussed
with Messrs. Cann, Blough, Smith, Surrey and Sullivan the matter
of clearing the Bureau of Internal Revenue income tax forms and
instructions for use this coming September. Most of the infor-
mation I got from the individuals was, of course, based on
memory of what had taken place, but each one told about the same
story regarding the channels through which these forms passed.
Mr. Cann stated that when the Bureau first started to pre-
pare the instructions and forms its representatives felt that
the whole procedure should be simplified as much as possible.
He discussed the matter with the Commissioner before he left
for his vacation and he agreed with this approach. The Bureau
representatives prepared instructions and forms with tables
attached which they thought represented a simplified approach
to the problem. (Others did not think they were 80 simplified.)
Those instructions and forms were sent to the offices of the
Legislative Counsel (Mr. Surrey) and Tax Research (Mr. Blough)
for comments, criticisms and suggestions. There were some
telephone conversations between Mr. Cann and Mr. Blough regarding
the use of gross income as against net income in the tables
as a basis for computing the estimated taxes. The Bureau was
then against gross income as a basis.
In a subsequent meeting in the Bureau of Internal Revenue,
Mr. Surrey, from the Legislative Counsel's office, stated that
the Treasury was not in favor of the Bureau's simplified approach
as it raised the question of legality. He stated his views
before this committee, all of whom were convinced that Mr. Surrey
was correct in his interpretation of the law. (Mr. Surrey states
that he did not say it was illegal but that it was inadvisable
to use the table in connection with the type of form they were
then discussing.) Anyway, upon further consideration of the
matter and also in view of the fact that a large part of the 14
million taxpayers who will file these forms have already had
experience in filing the long form of income tax returns and
would be required to file such form on March 15, 1944, it was
decided to adopt the more technical approach. This apparently
was the basis for the forms and instructions submitted to you
on July 13th.
Regraded Unclassified
150
- 2 -
In my discussion with Mr. Blough he states that the first
set of instructions and forms were submitted to his office and
while the Bureau felt that they represented a simplified approach,
he did not 80 feel. They made some suggestions for changes,
many of which were accepted, and thought the forms probably
represented about the best that could be had under all the
circumstances. On July 5th he had luncheon with you at the
hospital in New York. He told you that the forms and instructions
were complicated and that you might get some unfavorable public
reaction to them. You told him to explain the whole matter to
Fred Smith and ask Fred Smith to go over these forms and
instructions to see what could be done to simplify them. This
he did on July 8th. Mr. Smith made certain changes in the
instructions but made no changes in the forms. (Mr. Smith says
that he was only asked to go over the instructions.) These
changes were sent to the Bureau on Friday, the 9th; most of the
changes were accepted by the Bureau.
On Monday, July 12th, the forms and instructions, in what
the Bureau thought was final form, were sent to Assistant
Secretary Sullivan, who experimented with two experts on the
time that it would take to make out his own income tax return.
It took him an hour and a half with these two experts, with
fifty-six computations, to make out his return. He brought this
matter to your attention at a staff meeting on Tuesday, July 13th,
and stated he wanted you to know that there would be some public
reaction to these complicated forms.
It was then that you began having conferences to simplify
the procedure. You will recall at one of the conferences Mr.
Cann, just before he was about to return to his office to work
on the suggested simplified forms, raised the question of
statutory authority. Mr. Paul replied that he had not "the
of the statute in the direction of simplicity." That statement
slightest question about the legality of almost any construction
the Bureau had been previously working under the assumption that
of Mr. Paul's apparently relieved Mr. Cann on this point, as
the simplified approach was not in accord with the Act.
Mr. Blough states that he believes Mr. Cann had a right to
feel that he, as Acting Commissioner, took every step that was
required of him to get the views and suggestions of all concerned
in the Secretary's office before the papers were in final form
to submit to Assistant Secretary Sullivan for approval.
Regraded Unclassified
151
- 3 -
I understood that you only wanted me to cover the clearing
of the income tax forms and instructions and not the subsequent
controversy about the letter to go out over your signature. I
have not questioned many people regarding the letter, tut I
understand that it is this controversy which brought to & head
the resignation of Norman Cann. I have, however, heard enough
about it in connection with the above investigation to come to
the conclusion that the whole procedure was & matter of mis-
understanding. Mr. Smith thought he had made it plain to Mr.
Horne that the letter was to come back through him for clearance
with you, whereas Mr. Horne thought he had complete authority
from Mr. Smith to go ahead and olear the letter, which was done.
I do not believe that any one person was at fault in this
whole controversy. Mr. Cann has submitted his resignation and
has agreed with Mr. Helvering to accept another position in the
Internal Revenue on the West Coast. He says that nothing can
change his mind on his request to be released from his present
position as Assistant Commissioner. He does not want anything
done to hurt Mr. Blough or Mr. Surrey because of their action
in passing upon the forms and instructions. He says they
have been very helpful to him and he has had their complete
cooperation in the present as well as all past matters affecting
the Bureau. He thinks they are two very able men and he wants
you to know that he aoes not in any way blame them for his
difficulty.
After reviewing the whole matter I an inclined to believe
that it is difficult at times for the head of & Bureau like
Internal Revenue to know just who is acting for the Secretary's
Office. Mr. Cann apparently assumed that Mr. Blough and Mr.
Surrey were keeping Mr. Sullivan informed and these two gentlemen
probably assumed that Mr. Cann was keeping Mr. Sullivan informed,
There should be a clear line of authority between the Secratary's
Office and the Bureau of Internal Revenue and that line should
be through the Assistant Secretary in charge. It is up to that
Assistant Secretary, by constant contact, to ... that this
channel is respected by all concerned.
(Initialed) D.W.B.
Regraded Unclassified
152
August 11, 1943
11:15 a.m.
HMJr:
Hello. Hello.
Operator:
Go ahead.
HMJr:
Hello.
Harry
Stimson:
Hello.
HMJr:
Harry.
3:
Henry, look here.
HMJr:
Yeah.
S:
Your Bartelt, Commissioner of Accounts
HMJr:
Yeah.
S:
is going to - has had a conference already today
with General Arthur H. Carter, our Fiscal Director on
this same subject.
HMJr:
No, that isn't what I want to see you about.
S:
You want to see me about - well, I'm told it 18
the same subject. What's
HMJr:
What's that?
B:
Isn't this - I want - I didn't - I want to get out
of an interview on the subject of Bonds if I can.
I'm awfully busy. This - you know what's going on.
HMJr:
Well, it's - we can't - it isn't - that isn't what
I wanted to see you about at all. There are & half
a dozen things that we've been trying to get the
Army to do to help us raise this money and we - we're
just pushed around from pillar to post.
S:
Well, the other night, I thought you gave me a very
good report of the Army.
HMJr:
I said on the question of delivering the bonds -
they're current on the present bonds. This - I'm
talking about the Third War Loan. We need a lot of
things to help us sell these things and the Army
could be very helpful if they wanted to. Now, if
you're too bush - if Bob Patterson isn't too busy -
somebody at the top go that they don't keep stalling
us all the time.
Regraded Unclassified
153
- 2 -
S:
Well, I know I want - I don't want them to stall you.
HMJr:
Well, they're stalling us all the time and We can't
get any decisions out of them and they always come
back and tell me I should write a letter. Well, I
don't want to be writing a series of letters. Now,
if you haven't got the time - if you'll tell Bob
Patterson
S:
All right.
HMJr:
If you'd give me
S:
He has - he has almost less than I have.
HMJr:
Well, I've got to raise this money and I should think
that the Army would want to help us.
S:
They do.
HMJr:
But they are not, Harry.
S:
Don't put it that way.
HMJr:
But they are not helping us, and
S:
Are you sure about that?
HMJr:
Well, if you'd done - I'll put it all in a letter
end I'll send it over to you in hand - the things
that I want and they - my War Bond people tell me
We usually end up with some Second Lieutenant.
S:
No. (Laughs) That's an exaggeration.
HMJr:
No. Well, all right, I'll - I'll put It all down
S:
I'll bet it's a First Lieutenant anyhow.
HMJr:
I don't even know whether it's Fl First Lieutenant -
personally if they'd give me a Top Sergeant with
3:
Henry, I - you know me - that I don't really - that
my bark is worse than my bite.
HMJr:
Yeah.
S:
I don't want to be tied up with this engagement this
afternoon. In the stuff that I've got on here
HMJr:
Well, will you send General Surles over here with
authority?
Regraded Unclassified
154
- 3 -
5:
Yes, I think - perhaps I could do that - yes, he's
as good a man - a much better man than I to talk to
about it.
HMJr:
Well, I - I want to talk with somebody that can say
"yes" or "no".
8:
Well, I'm going to see him in about - just about twelve
minutes. I'll try to out that down and tell him.
HMJr:
Will you?
S:
Yes.
HMJr:
Will you - uh - So I - - I've been holding my afternoon
sort of free but do you suppose three o'clock for
General Surles?
S:
I guess BO. Yes. Wait 8 minute. Hold the wire.
(Pause) (Question: Are you free to spell me this
afternoon at the Treasury? Secretary Morgenthau
is calling me and wants me to come to see him this
afternoon. It's about getting better response to
his Bond Loan. Answer: Yes, sir. - Q: I would
appreciate it very much if you would spell me for
our people. A: Very well, sir. Q: He has suggested
that you are the only man in the Department that can
take the place of me. A: All right, sir. I'll
cover that. Q: Is three o'clock all right? A: Yes,
sir. Q: All right, fine.) Hello.
HMJr:
Hello.
8:
That's - uh - he - I just talked with him over my
box here and he says that he will be over there at
three o'clock.
HMJr:
Three o'clock. And will you give him power to act.
S:
Yes. I told him that you wanted
HMJr:
What?
3:
I told him that he was the only man in the Department
that you would take instead of me.
HMJr:
That's right. (Laughs) Well, God bless you.
S:
All right.
Regraded Unclassified
155
- 4 -
HMJr:
It'll take more than this to make you and me have
a fight.
S:
(Laughs) Oh, there's no fighting in this.
HMJr:
No. Now, when we need help
8:
I'm just trying to squirm out of it.
HMJr:
I know what you are doing and - you're trying to
pull an old Army game on me. But it's all right
and Surles can give me what I want.
S:
All right.
HMJr:
Thank you, Harry.
S:
Good bye.
August 11, 1943
156
2.34 p.m.
HMJr:
Most likely you have already thought of this but if you
haven't I would like you to take the initiative in
talking to various technical people of the various Depart-
ments represented there yesterday.
Randolph
Paul:
Well, of course, I'll be glad to do it from now on. I
have been doing it, you understand.
HMJr:
I know.
P:
Uh
HMJr:
I would do it even more 80.
P:
Yeah. Well, I, for instance, had a conference after
that one last night with Hinrichs of Labor and, 88 a
matter of fact, tonight - this 1s & little off the
path but tonight I'm having the C.I.O. people up to my
house for a conference.
HkJr:
Well, the point is - will you make 8 point sometime
tomorrow to talk to me about when we should call the
next meeting?
P:
Yeah. Yeah. I'll put it down. I
HMJr:
will you please?
P:
I thought the other meeting died out a little bit
but I think we - I'll talk with you tomorrow about it.
HMJr:
Thank you.
P:
Okay.
Regraded Unclassified
157 L
August 11, 1943.
3:35 p.m.
HMJr:
Hello.
Renfie
Likert:
Hello, Mr. Morgenthau.
HMJr:
How are you?
L:
Fine, thank you. How are you?
HMJr:
Fine. Dr. Likert, how far are you along with your
Buffalo survey?
L:
Why, they are in the field now - uh - in the inter-
viewing on both the sales tax and the - uh - oh, that
whole expenditure and savings study.
HMJr:
I see. How much could I get out - if I went up there
and spent an evening with your people - how much could
I get out of it personally?
L:
Well, I have this - this has been the experience - I
know Mr. Stewart was very much impressed
HMJr:
Yeah.
L:
with the session that he had with some of the
people in the field.
HMJr:
Yeah.
L:
It - it - it gives you 8. - well - the grass-roots
feeling so-to-speak. Uh - now, what we could do, if
you want to - We could arrange 8 meeting down here
and save you the trip to Buffalo.
HMJr:
How many people have you got in Buffalo?
L:
Well, there are - I think there's around twelve to
fifteen people that are working there.
HMJr:
Yeah.
L:
And rather than bringing them all down, I think we
could bring down a small group of about three or four
and give you - in fact, even two or three could give
you the
HMJr:
Yes.
Regraded Unclassified
158
- 2 -
L:
the bulk of what
HMJr:
Well, how far along are they? Because Stewart got 80
much out of that.
L:
I beg pardon?
HMJr:
How far along are they?
L:
Well
HMJr:
How many days have they been working?
L:
They have been working about ten days now.
HMJr:
Have you seen any of the reports?
L:
Not much. Most of it - they've been organizing the
work out on the job and we've - we've received some
but not much and we were going to get in touch with
them tomorrow to check up on how things were and what
the developments were.
HMJr:
I see.
L:
Uh
HMJr:
Well, what I had in mind was - I might want to go up
there tomorrow afternoon.
L:
Yes.
HMJr:
Do you have to give these people any notice?
L:
Well, I'd be glad to. And I'll be glad to have it
arranged for - for a meeting for you tomorrow evening
or whenever it suite your convenience.
HMJr:
How much notice do you need?
L:
Any time - it doesn't matter - one hour or less.
HMJr:
I mean - do I have to let you know tonight or do I
have to let you know tomorrow?
L:
Tomorrow is plenty of time.
HMJr:
Would you want to go up with me?
1:
I'd be delighted to.
Regraded Unclassified
159
- 3 -
HMJr:
I'm going - if I go up I'm going to fly.
L:
All right.
HMJr:
I think I can go up in two hours.
L:
Fine, indeed.
HMJr:
You think about it, because - uh - these people will have a
lot of questions and stuff won't they?
L:
They'll have some. Now, I think the chief value of it to
you would be this - In talking with the people that have
done the interviewing, you get a chance to sort of get the
earthy feel so-to-speak.
HMJr:
Yeah.
L:
If you can get just how the people that they have talked
to - the experiences that these people have had - the
kinds of problems they have faced
HMJr:
Yeah.
L:
the concerns that they are expressing and in what
terms - in other words, for example, if they are worried
primarily about just what kinds of adjustments they are
going to make - uh - you'll get the - the everyday point
of view and experience of the fellow who says, "Gosh, I
just can't do it. Can't cut down our grocery bill when
grocery prices have gone up. I just don't see how we're
going to make the adjustment." And the other fellow that
says, "Well, yeah. We're getting along pretty well. I
think we could do it. It might mean that we'll have to
pull the belt in a little bit here." Uh - 80 that it
would give you just the way the fellow - the rank and
file - the fellow on the streets 1s thinking and talking
and the way he views this - the types of problems that
are - that you face in this whole tax policy problem.
HMJr:
What hotel - is the hotel in Buffalo - - when you stay
there
L:
I beg your pardon?
HMJr:
What hotel do you stay at when you are in Buffalo?
L:
Oh, I don't know.
HMJr:
Where would the meeting be?
Regraded Unclassified
160
- 4 -
L:
Well, we could arrange it anywhere. I think most of
them are probably
HMJr:
well, I can find out.
L:
yeah, scattered. I don't know the address right
now of the group. What generally happens when they
go to a place for a while - they take some place in
some of the less expensive hotels on a weekly basis.
HMJr:
Well, I'll let you know. Is - would tomorrow morning
be time enough.
L:
That will be plenty of time?
HMJr:
I mean to get your men together and all that?
L:
Yes.
HMJr:
Well, I mean, you don't have to reach them tonight?
Why don't you put them on notice that I may
L:
I was going to say - I'll out them on notice and -
60 they will be prepared.
HMJr:
Put them on notice.
L:
And we can do it within very short notice to
HMJr:
Why don't you say the chances are - the chances are
two out of three that I'll be up there tomorrow night?
L:
All right. Fine.
HMJr:
See?
L:
Fine, indeed. And I'll let them know.
HMJr:
Thank you.
L:
Thank you, Mr. Morgenthau.
Regraded Unclassified
August 11, 1943
161
4:31 p.m.
Operator: Go ahead.
HMJr:
Hello.
Walter
Stewart:
Hello, Henry.
HMJr:
Hello, Walter?
S:
Yes.
HMJr:
Well, I miss not seeing you or hearing from you.
S:
Yes, I'm sorry not to see you.
HMJr:
How are you?
3:
Well, I've - when I stay quiet, I'm all right. When
I move around too much, I'm not.
HMJr:
Yes.
3:
I'm sorry to say. I've tried New York and Princeton
and neither one of them worked very well for me at
the moment.
HMJr:
Are you home?
8:
Yes.
HMJr:
Well, Walter, could I give you something to think
about? That won't
S:
Yes, sir. I'd like it.
HMJr:
Well, this is awfully confidential
S:
Right.
HMJr:
but the Army is going to set up a sort of a
Planning Board in England. You see?
S:
Yes.
HMJr:
To handle - to think - what happens and when we go
into Europe. You see?
S:
I see.
Regraded Unclassified
162
- 2 -
HMJr:
And they want a really able financial fellow that we've
got confidence in
S:
Right.
HMJr:
who can advise them on all of Europe
S:
Right.
HMJr:
and he's got to be vis-a-vis the English and all
these governments in exile.
S:
Right.
HMJr:
He has really got to be 8 top flight fellow.
S:
Right.
HMJ:
And, by God, I'm stumped.
8:
This 18 the thing they talked with me about, Henry.
HMJr:
What's that?
S:
They sent 8. man up and talked with me about this.
HMJr:
Well, it's General Hilldring.
S:
That's right. I had a letter from him afterwards.
HMJr:
Yeah. They wanted you.
S:
Yeah. Uh huh. God, that's the first thing I've seen
that I really would like to do.
HMJr:
(Laughs)
3:
That's the first time I - - I - really, these other
things I could turn down easy, but that I think is a
honey.
HMJr:
Yeah.
S:
And it's really one of the few things that I really
feel I could be of some help in.
HMJr:
Yep.
S:
Well, now
Regraded Unclassified
163
- 3 -
HMJr:
Well, Hilldring just left here and
5:
Yeah.
HMJr:
he said he understood that you weren't well
enough to do it.
S:
That's right.
HMJr:
And I told him, of course, as far as I was concerned
no one would please me more than you.
3:
Of course, I would have - I would have come to you
first of all if anything - if I thought there was
anything in it
HMJr:
Yeah.
S:
to see whether it did suit you.
HMJr:
Yeah.
S:
Uh - I suggested a few names.
HMJr:
Yeah.
S:
My inclination, Henry
HMJr:
Yeah.
S:
if they cannot find someone who combines a sense
of affairs
HMJr:
Yeah.
S:
with a technical knowledge
HMJr:
Yeah.
S:
1s to get a man who has some sense of affairs
HMJr:
Yeah.
S:
and let him get some technical knowledge from his
advisors.
HMJr:
Yeah.
S:
I'm a little frightened of these men who - who believe
they have technical competence but don't know how to
handle themselves
Regraded Unclassified
164
- 4 -
HMJr:
Yeah.
S:
in a situation that will be as complicated as that
1s.
HMJr:
Yeah.
3:
They had one or two names
HMJr:
Yes.
S:
which wouldn't have occurred to me
HMJr:
Yeah.
S:
but when they mentioned them, they struck me as
pretty good.
HMJr:
Yeah.
is
One of them was Dorsey Richardson.
HMJr:
Who?
S:
Dorsey Richardson, whom you probably don't know.
HMJr:
No.
S:
He's either a member of the firm of Lehman or he's
their counsel.
HMJr:
Yeah.
S:
He was in the State Department in the old days.
HMJr:
Yeah.
S:
He's thoroughly upright, straightforward - I think
unbiased - kind of person.
HMJr:
Yes.
S:
If you don't know him that's a handicap because.
HMJr:
They didn't mention him to me.
S:
I see; well, they had him on - the man that saw me had
him on their list.
Regraded Unclassified
165
- 5 -
HMJr:
No. Well
S:
Of course, if a man could have had some experience
with you there
HMJr:
Yeah.
5:
and at the same time have some connection abroad
HMJr:
Yeah.
B:
then he really could clear things fast.
HMJr:
That's right. And they don't want - they don't want
anybody that isn't sympatheticus to the Treasury.
3:
That's right. Oh, it's very important.
HMJr:
Yeah.
S:
It's the sort of thing where decisions will have to be
taken 80 fast
HMJr:
Yeah.
S:
frequently, that you've got to have confidence in
the man and know how he thinks.
HMJr:
That's right.
S:
I didn't feel that there was anyone in your immediate
setting there that you
HMJr:
No.
3:
could spare and that would fill the bill.
HMJr:
That's right.
S:
And my colleague who 18 in London has - you know, Winn
Riefler
HMJr:
Yeah.
S:
has some brilliant aspecte to him
HMJr:
Yeah.
S:
but would not, I think - I would regard him as ad-
visor rather than a person of affairs.
Regraded Unclassified
166
- 6
HMJr:
Check.
3:
Jack 18 a little the same way.
HMJr:
Check.
S:
Well, now that rather exhausts the people that you -
you've gone through the shop there
HMJr:
Yeah.
S:
that you have 8 first-hand feel for - the technical
people.
HMJr:
Yeah.
S:
Have you - have you anyone on your mind?
HMJr:
No, I haven't.
S:
Uh huh.
HMJr:
No, 1 haven't.
S:
They - they want to have it on a military basis, don't
they?
HMJr:
Yeah.
3:
I mean
HMJr:
You got to put on a uniform.
S:
That's what I thought. Yes.
HMJr:
Yep.
S:
And I think that's right.
HMJr:
You've got to put on a uniform.
3:
I think that's right. I also would be glad to see it
handled that way in the interim period but when it's
handled that way, it meane an awful lot of future de-
cisions
HMJr:
Yeah.
S:
are taken as immediate decisions.
Regraded Unclassified
167
- 7 -
HMJr:
Yeah. Well, think about it and if you get any ideas
call me on the phone collect
S:
I certainly will, Henry.
HMJr:
Will you?
S:
I certainly will.
MJr:
Because it's
S:
I think it's by way of being the most important
HMJr:
Yeah.
S:
single post in that area
HMJr:
Yeah.
S:
that has to be filled.
HMJr:
I've got to move fast.
3:
Right.
HMJr:
So, if you get any ideas, will you use the phone?
S:
I will.
HMJr:
You can call me collect.
S:
Right. All right, Henry.
HMJr:
All right.
S:
Thank you. Good bye.
HMJr:
Good bye.
Regraded Unclassified
168
August 11, 1943.
4:39 p.m.
HMJr:
Hello.
Coerator: Mr. Eastman. Go ahead.
HMJr:
Hello.
Joseph B.
Eastman : Hello.
HMJr:
Henry Morgenthau.
E:
Yes, sir.
HMJr:
How are you?
E:
Pretty good.
HMJr:
Good. Look, Eastman, it's in regard to this thing of
our getting the theatre people to help us sell fifteen
billion dollars worth of bonds to the people.
is
Yeah.
HMJr:
I got your letter. See?
is
Yesh.
HMJr:
And while I realize that you tell me I can go ahead,
I'd kind of like to have your blessing
E:
(Laughs)
HMJr:
because this is the thing - it's - as I have
explained first this morning to Mr. Hopkins and then
to General Surles this afternoon, and they've all
seen it. It isn't - the country 18 in the doldrums
E:
Yeah.
HMJr:
and production is going down. They think the war
18 won. Now we've got an opportunity in September to
wake this country up through the medium of this Third
War Loan.
E:
Yeah.
HMJr:
And it isn't just to go out and try to sell forty million
people each a $75 bond - $75 worth of bonds - is what
we are going to do - but we are going to try to wake the
whole country up and get them back to production the
Regraded Unclassified
169
- 2 -
HXJr:
Cont'd:
way they were and everybody I've talked to said, "Fine,
and we'll help you." Now, these theatre people that We
want to send around attached to a special train - I mean -
they are part of the picture to set this country afire
E:
Yeah.
HMJr:
and the country is just dead-ripe now. And
E:
You don't think that they couldn't do it without this
special train?
HMJr:
No. You've got these people earning two and three
hundred thousand dollars apiece. They are going out
and they make taIks all day long something they are
not accustomed to do and they Just work themselves
down to skin and bones and they are doing it for their
country. It's - and we have to keep them as a group -
and it's a thing that they hate to do, this personal
appearance stuff. They are not used to it
E:
Yeah.
HMJr:
and we've got to give them some kind of semblance
of comfort and it - it's & physical torture to them
E:
Yes.
HMJr:
and we can't send them around in a lot of upper
berths and we've got to keep them in a group.
is
Yeah.
HMJr:
We don't want & special train - we just want to attach
these cars to a through train.
E:
Yeah.
HHJr:
Now, beginning with the President with his proclamation -
the only proclamation he has given since he 1s President
other than Thankagiving - from the President down -
everybody 18 going to help us.
E:
Yes.
HMJr:
And, we are actually going to try to sell forty million
people a $100 bond and the banks are excluded - and it's -
I mean - everybody we've talked to say, "Well, we need
Regraded Unclassified
- 3 -
170
HMJr:
Cont'd
something like this right now to wake the country up.
2:
Well, I can see your point of view on the thing. Of
course, I have to look at it from the point of view of
the Pullman care.
HMJr:
Sure.
is
And many people think we should have rationing which
I think 1s impossible but even if We had it, it would
hardly affect the Pullman cars at all because all our
tests show that they are being used for necessary
travel.
HMJr:
Yes.
2:
And, furthermore, we've got the Army seeking a lot more
than we can give them.
HMJr:
Yeah.
E:
The situation. I hate to see - care used for other
purposes.
HMJr:
Well, this is strictly a war operation. I mean, every-
body that we've talked to from the President down said
they're giving us the green light - the OWI, everybody
is making way for us in September.
E:
Yeah.
HMJr:
And it isn't just the question of going out raising
money which 1s important but it's the whole morele
at home, and these people are going to work like hell
for us for nothing and we can't get them around - I
mean, if we started to send them around in individual
groups, depending upon upper berths and that kind of
thing, we'd just lose them.
5:
Yes. Well, I - I shan't criticise you if you decide to
do that.
HMJr:
You won't?
is
No.
HMJr:
Well, I hope you do better than that.
E:
(Laughs)
Regraded Unclassified
171
- 4 -
HMJr:
I hope you might even give me 8 pat on the back.
E:
(Laughe) Yeah. Well, I don't know that I can do that.
HMJr:
Yeah.
E:
But at any rate I certainly shan't criticise you. You -
you understand that end of it much better than I do.
HMJr:
Well, I'm - I'm willing to take full responsibility
because I've got the President back of us with a proclama-
tion.
E:
Yeah. Yeah.
HMJr:
And I want to go to town but I'd like everybody that's
in this thing - I'd like to feel they're back of me....
E:
Yeah.
HMJr:
and not too far back either.
E:
(Laughs) Well, I'm part of the way up anyhow.
HMJr:
Well, I'm going to - how shall I say - your silent
blessing - how's that?
E:
Yes.
HMJr:
Okay?
E:
All right.
HMJr:
Thank you.
Regraded Unclassified
172 -
August 11, 1943
5:49 p.m.
HMJr:
Hello.
James
Byrnes:
Henry?
HMJr:
Yes, Jimmy.
B:
The matter I was talking to -- about Brown.
HMJr:
Right. To Brown or to the President?
B:
I was talking to the President, I say, about Prentiss
Brown's matter.
HMJr:
Yes.
B:
Oh, Prentise has been having a fit from time to time
about a bank a plication and as far back as July 12th
he gave - he had talked to me about it and he gave me
a memorandum - which he wanted me to give to the
President and I thought - I have a memorandum to the
President dated on that date which I sent and I told
him, "I first thought of sending it to Henry
HMJr:
Yeah.
B:
Morgenthau but Brown has such strong feelings about
the matter that I knew he would never be satisfied if
I didn't submit it to you. I promised him I would. If
HMJr:
Yeah.
B:
Here's what - here's all that I can add to the memoran-
dum which I am going to send you. He says that there
was a very understandable attitude on the part of the
Comptroller that as long as there was legislation pending
in Michigan
HMJr:
Yeah.
B:
to prohibit chain banks, that no action should be
taken and - but that the legislature did not pass the
bill which was then pending
HMJr:
Yeah.
B:
that the other argument that was advanced BE a
reason for not approving the application was that
Delano feared that it would give to Giannini in Cali-
fornia a basis for his demand for the further extension
Regraded Unclassified
173
- 2 -
B:
of his tremendous bank system which Brown said he
Cont'd
thought ran into five hundred branches.
HMJr:
Yeah.
B:
But in this - in this Michigan case that they allow
but six branches and the request was for one and that
he thought, therefore, that it could be distinguished
from cases like the California Bank with five hundred
or thereabouts. He urged that the controlling interest
in one of the banks in Detroit is substantially General
Motors and in the other the Ford interests substantially
had control.
HMJr:
Yeah.
B:
Outside of those interests the motor companies have a
very bad time and that the - 80 far 88 labor organiza-
tions go - that they, too, do not like the controlling
interests with the - having no other competitive - any
other comparable institution to which they can go -
that from the standpoint of competition that he thought
it could be justified 88 a matter of public interest
HMJr:
Yeah.
B:
that - he saye the two institutions controlled by
these two companies control approximately - that they
had more than half of the total bank deposits
HMJr:
Yeah.
B:
in the entire state
HMJr:
Yeah.
B:
and that these other motor companies and parts
manufacturere who want substantial credit must go to
them and reveal their financial situation. If his
facts are right and I, of course, know nothing about
that
HMJr:
Yeah.
B:
it looks like Delano might review the thing in the
light of the fact that the legislature did not take the
action that was considered when it was - when the appli-
cation W88 rejected six months or more ago.
Regraded Unclassified
- 3 -
174
HMJr:
Well - yeah - do I understand, Jimmy, you're going to
send me
B:
I'm going to send you the memorandum because there
isn't any use to
HMJr:
All right.
B:
take your time and mine. It's get out by him
HMJr:
Well
B:
in the memorandum which he asked that I send to the
President and I'm just going to send the two pages over
there
HMJr:
Okay.
B:
aná then you'll have really all that I know about
it.
HMJr:
Well, I
B:
He does say this - that in this - that I - he asked me
to say to the President.
HMJr:
Yeah.
B:
because he couldn't say it there - he says that
these two banks with more than half the deposit have
been antagonistic to the Chief and that it hasn t -
it has embarrassed all of his friends up there at
times and I told him that he couldn't put that in any
memorandum to the President.
HMJr:
No. Well, I
B:
That's what the Chief had in mind
HMJr:
Well, that
B:
roughly that the officers and the - that the personnel
has been such that
HMJr:
Yeah.
B:
according to him, the banking institutions have
been used in a political way against us. Now, I know
that's always charged by people about the banks and it
may not be susceptible to proof but I'm giving you the
Regraded Unclassified
175
- 4 -
B:
(Cont'd)
whole story
HMJr:
Well
B:
....and then you can look into it.
HMJr:
I've already asked Bell and the Comptroller to ger
me up a memorandum and have it ready the first thing
in the morning.
B:
Fine. Well, I'll just have this mailed to you.
HMJr:
Yes. Uh - Brown
B:
I feel very badly that I did not take it up with him
before. It's since July - I sent it to him July 12th
HMJr:
Yes.
B:
and he sent me a note that he'd talk to me about it
HMJr:
Yeah.
B:
sometime and not until today did I do it.
HMJr:
There's a lot more to the story, Jimmy, than that. It
1sn't as simple as that.
B:
Not that simple, et?
HMJr:
Oh, no. These - there are ten or twelve members of
legislature who were bribed to vote the way they did.
B:
What do you mean - to vote against the bill that was
pending?
HMJr:
Not to vote.
B:
Not to vote?
HMJr:
Not to vote. And which caused the legislation to fail
and that is all being gone into. I'll get the whole
story for you.
B:
All right.
HMJr:
And, even to please Prentiss Brown, we don't want to
walk into a mess.
Regraded Unclassified
176
- 5 -
B:
Oh, no.
HMJr:
And Bell and Delano by tomorrow noon will have the
whole thing.
B:
All right. The
HMJr:
I'd like for you to have it because Brown has been on
our neck and, frankly, I don't think he's been fair
about it and I'll let you decide that when you get all
the facts.
B:
Well, that I know nothing about. He'd never - he did
mention to me when he first
HMJr:
Yeah.
B:
was up here about his interest in it and the interest
of people around the state to - un - the thing that 1m-
pressed me is the fact that if it 18 a - the fact that
these two banks with more than half the deposits are
controlled by two interests
B:
All right.
HMJr:
Yeah. That would be perfectly well but as I say I'll
get all the facts down
B:
All right.
HMJr:
and we'll get them to you
B:
And I'll get this over to you.
HMJr:
after you've seen them
B:
All right. You and I can chat about it.
HMJr:
That's right.
B:
Good bye.
HMJr:
Good bye.
Regraded Unclassified
177
MEMORANDUM
M
August 11, 1943.
TO:
The Secretary
JLS
FROM:
Mr. Sullivan
I saw Senator George at the Mayflower this afternoon. I
explained to him your reluctance and mine to intrude upon him at such
a time as this. He said that he rather welcomed a diversion.
I advised him that Mr. Stam had made certain demands for
memoranda upon Commissioner Helvering and that this demand arrived
while Mr. Helvering was away on vacation. I stated that all of the
information which the Bureau of Internal Revenue had was now being
put into memorandum form but that the Commissioner was reluctant to
send that directly to Mr. Stam and that you did not wish to have
memoranda forwarded out of the Treasury Department without your knowl-
edge. I said that you were willing and anxious to give Mr. Stam the
benefit of all information possessed by the Bureau, as well as your
own staff, and would be glad to forward to Mr. Stam such proposals
as the Bureau forwarded to you.
I told the Senator that it was your conviction that the
inter-departmental squabble had had a serious effect upon the morale
of the country and if there was any ground for suspicion that all
parts of the Treasury were not in accord, this might have a further
bad effect upon the country. The Senator readily agreed and stated
that of course if the Commissioner was forwarding material to Stam
without your knowledge and approval and not sending it through you.
that might give rise to the very suspicion I referred to.
I suggested to the Senator that if the Commissioner were to
be required to forward material to Mr. Stam direct and without the
Secretary's knowledge, that would be similar to our giving to minority
members of the Senate Finance Committee material which we were not
giving to the Chairman.
The Senator recalled that he had signed the demand which
was made upon the Commissioner but that he did not care to have the
Commissioner placed in the position which he now appeared to occupy.
I told the Senator that you were hopeful that this matter
could be held in abeyance until sometime next week when you and he
could discuss it together. The Senator suggested that he advise Stam
Regraded Unclassified
178
- 2 -
that he was most anxious that there be complete cooperation between
the Bureau, the Treasury, and the staff of the Joint Tax Committee
and that he did not want Stam to take any hasty or drastic action.
He added that this was a situation which grown men should be able
to solve without any sparks flying.
The whole situation is held in abeyance until the middle
of next week and if there is any difficulty at that time the Senator
will call me. He felt that the best solution would be for you to
forward such information as the Commissioner presented to you in
the hope that this would be accepted as adequate by Mr. Stam.
It was concluded that if this method proved satisfactory
to Mr. Stam it would be unnecessary to discuss, the question further.
Regraded Unclassified
179
Mr.
Smith
Dow-Jones
August 11, 1943
11:28 A.M.
TAX CONFERENCES
Washington - D.J. - Treasury Department would like the
Administration to present a unified front on the multi-billion dollar
tax program which will go to Congress next month.
Secretary of Treasury Morgenthau, it was disclosed today, is
conducting a series of inter-agency conferences on tax program. The
first of these discussions took place at Treasury Department late
Tuesday afternoon.
This meeting was described as "exploratory." Discussions, it
was said, centered on proposals which would increase federal revenue re-
ceipts and at the same time draw off excess purchasing power as a safe
guard against inflation.
In addition to Secretary Morgenthau, Undersecretary Bell and
their staffs of experts, those participating in yesterday's discussions
included Director of Economic Stabilisation, Vinson; Office of War
Mobilisation General Counsel, Ben Cohen; War Production Board head,
Donald Nelson; Civilian Requirements Director, Arthur Whiteside; Budget
Director, Harold Smith; Secretary of Commerce, Jesse Jones; Federal
Reserve Board Chairman, Marriner S. Eccles; Undersecretary of the Navy,
Forrestal; Undersecretary of War, Patterson; and Bureau of Labor
Statistics Chief, Lubin.
While official comment on the gathering was skimpy, it was
understood that the primary purpose is development of a tax program
which will be as near satisfactory as possible to all branches of the
Administration.
Regraded Unclassified
180
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
August 11, 1943
TO Secretary Morgenthau
FROM Fred Smith
To let you know what's going on before it happens:
We have had some trouble in the Treasury, particularly in
the lower brackets, with people not understanding their deduc-
tions on withholding. Mr. Brodsky brought this to my attention
last week.
We went to work with Banyas to try to figure some fool-
proof way of showing actual deductions, and the attached poster
is 2 result. It is based on the Comptroller General's table
for making deductions, so it has to be right.
This 1s just a proof. If you think it 18 a good idea, we
will get copies made for use throughout the Treasury and its
field offices and make it available to other Government offices,
where the same scale 1s used.
-
I think it is pretty good.
12 CP
yes / Phoned Smith 8/11/43-
Attachment
Regraded Unclassified
HOW RETIREMENT AND WITHHOLDING
DEDUCTIONS AFFECT YOUR PAY
This declaration which you filed
amount
fails how much of the exemption you
cloim and the number of dependents
-
you have
Your deductions ore bosed on this
declaration.
Read down to find
Read across for the
your STATUS
number of DEPENDENTS in each sintus and then down
SINGLE
o
I
2
3
4
5
5
7.
MARRIED,
Find
o
no exemption
I
2
3
4
5
€
7
This
8
is
This
This
9
your
Net
ANNUAL
your
is
(5%) is
before
MARRIED.
TOTAL
dedus-
half the exemption
o
I
2
3
4
5
6
7
SALARY
SEMI-
your
EARNED
led for
TAX
here
MONTHLY
OVER-
DEDUC-
RETIRE-
MARRIED,
then
TIME
PAY
TION
o
all the exemption
I
2.
3
4
MENT
5
read
across
HEAD of FAMILY
0-1
2
3.
4
5
6
WITHHELD for taxes
7.00
*.*0
1,80
-30
30
is
.30
is
2
sob
25.00
6,25
31.25
1,25
30,00
Your PAY, before
23,70
29,60
28,20
29,70
24,70
2
580
27.50
6,87
34.37
1,38
12.00
26.57
31.29
12.89
12,50
12.60
0,00
War Bond deduction
720
10,00
7.50
37.30
1,50
56,00
29.00
32,40
34.80
35.70
IN
30.70
WITHHELD for taxes
5.00
K.AC
5,80
LE
,50
is
750
32.50
8,2
-
1.63
38,99
Your PAY, before
29.99
30,09
35,29
38,79
-
35,00
5.75
*3.75
1,75
42.00
33.00
35,60
M.20
No.sc
22,40
War Bond deduction
act
37.50
9.37
46.87
1,88
35.99
38.59
41.19
43,79
44,30
HAVE
WITHHELD for taxes
11,00
8,40
5.00
1,20
70
À
X
,20
néa
40.00
10,00
50,00
2,00
48.00
37.00
39,60
42,20
44,80
47,50
1,000
10.62
50.99
Your PAY, before
42,50
53.18
2.13
39.99
42.49
45.19
47,79
50,00
11.25
56.05
2.25
54.00
War Bond deduction
+3,00
45,60
$5,00
48,20
90.80
53.10
51.10
0,2
+3.10
1,080
1,340
*1.50
11.67
59.37
1.35
56,99
45.99
-8.99
51479
56.29
WITHHELD for 10000
14,00
1,50
1.21
1.40
1.5
1,50
1,50
1,50
1-50
1,200
90,00
12,50
62,50
5.30
R0,00
45.00
18.60
51,20
53,80
56,70
51,70
52.90
12,50
65.50
2,63
62.17
46.37
10,97
33.57
56,17
54,77
61.07
1,260
1,320
55,00
12,50
67.50
2.75
64,75
Your PAY, before
50.75
53.35
45.95
58,55
61.45
55,40
97,40
67,12
53,12
95.74
58.32
60,92
65,52
55.50
---
3.380
57.50
12.50
10,00
2.88
Wor Bond deduction
1,440
60.00
13,00
73.00
3.00
10.00
56,00
54.60
61.20
63,80
66.40
64,70
M.M
1.500
62.50
0.9
76.34
3.13
72.93
56,91
51.51
64,11
66.71
60.11
1,500
55.00
14,04
79,06
3.21
M.R.
6..8)
64.41
67.03
67,63
79.52
WITHHELD for taxes
18.38
15,00
10.00
10,20
1,60
8.00
2.40
1,90
1,80
1,420
67.40
14,58
50.00
1.30
26,14
63.34
65.94
66.54
71,18
16,19
76,84
1,660
70.00
14,16
0.00
3.50
$5.66
63.66
66.26
68.85
71.46
74,06
16.06
PLIN
10.76
1,740
72,50
15.70
3.63
#9.57
Your PAY, before
66,57
64.17
71.77
74,37
76,47
74.03
0.07
N.17
11.47
1,500
75,00
14.7+
5,25
3,75
$7.50
War Bond deduction
69.50
72,15
74.70
11.30
79,95
42.99
85,20
M.B.
1,860
17.50
15,10
-,29
3.00
No.41
72.41
79,01
17.61
60,21
82.6.
48,51
M.S.
45,41
1,420
40.00
nas
ann
4.00
05.33
75-33
17.93
80.53
$3.13
45,73
11,37
WITHHELD for Faxes
22.7%
30,00
16.00
14.20
11.40
5,00
5.40
1.80
LIA
P.SC
1,980
62,50
17.87
10.0
*.11
$6,24
76,84
70,44
82.04
84.66
0.24
11,7%
2,000
53.35
18.05
101.38
with
77.6
80,41
83.01
$9.61
M.I.
NO.ML
2,040
$5.00
18.41
103.41
1,25
09.16
77.16
79.76
106.45
4.38
Your PAY, before
$2.16
84.96
57,34
W.M.
9,76
= 16
2,100
67.50
18.05
122.07
60,117
62.67
15.27
87.87
40,47
11,000
35.67
4,27
90,00
19.50
109.50
4.50
2,160
105,00
Wor Bond deduction
83.00
85.60
68,20
90,80
93.00
46,00
98,63
(01,20
2,900
91,66
19.86
111,50
4,59
106.93
62.93
90.25
92.73
55,11
00.43
7,200
92.50
20.04
112.54
9.63
197,91
45.9L
91.11
36.31
1,300
93.03
20,76
116.99
4.80
111.79
89.79
98.35
94.04
97,44
100.00
105.14
WITHHELD for Taxes
20.00
15.40
13,00
[0.40
1,60
5,20
3.10
2,400
100.00
21,66
123,00
5.00
116.46
92.26
104.16
22.37
126.73
121,62
Your PAY, before
95.86
48,46
101.00
101.66
106.26
104.85
110.00
2,500
5.21
36,12
100.72
103.32
Wor Bond deduction
105.40
108,57
13.72
116.32
2,600
104.53
23.47
111.00
1.42
124.34
105.58
108.16
110.70
115,38
114.00
110.00
101.10
128,24
2,700
112.50
24.37
116,57
5.51
031.24
110.44
113.04
$15.50
118.24
120.84
23.54
126,08
WITHHELD for loses
B.M.
19,60
17.00
14.40
11.80
4,20
5,60
2,600
116,66
19.29
141.99
115.15
113.90
147.01
14.96
(16,40
124.30
2,900
120.43
25,18
5.05
125,00
25,18
6,85
your PAY, before
116.16
(18,76
121,16
121.05
226.95
120.25
191.1*
130.53
133.13
DESE
3,000
Wor Bond deduction
120.13
122.73
1,100
124.16
25,14
165.35
5.45
146.88
125.17
107.93
121.48
U4.08
125.68
133.33
26.18
159.52
0.07
152.84
120,78
131.85
14,48
157,05
3,200
130.64
use
115,50
135.00
8124
WITHHELD for isses
03.50
11,44
13.20
10.40
3.300
437,50
26.18
163.68
5.18
30.60
3,400
26.18
36°.84
7.09
160.75
Your PAY, before
BLD
34.95
147.55
3,500
145,83
25,18
175.01
7.30
164.75
Wor Bond deduction
137.15
135.91
194.11
3,600
150,00
26,18
174.18
1.50
164,40
39.58
A2,45
152,68
155.46
145.00
WITHHELD for 10000
3,700
159,16
25.18
in
172.43
158.03
3,500
156.33
26.18
184,50
7.4
176.59
188.68
1.33
Your PAY, before
135.59
143.70
146.39
151.99
162.50
148,13
3,100
25,1f
10.55
$6.15
165.95
4,000
166,64
26.18
192.64
1.5
164.50
War Bond deduction
150.35
4,300
170.83
26,18
197.01
5,14
186.46
155.46
156.26
WITHHELD for taxes
4,200
175.00
26.18
201,18
190.43
183.33
26.18
"
Your PAY, before
166.03
4,400
209,5%
200.19
8,600
191,66
26.18
217.64
War Bond deduction
163,54
166.14
168,74
28.75
168.85
178.05
KEEP BUYING WAR BONDS
Back the Attack egraded
Unclassified
182
August 11, 1943
MEMORANDUM FOR THE SECRETARY
About two weeks ago Mr. Paul sent you a
memorandum on special wartime reserves, prepared
in the Division of Tax Research. That memorandum
was somewhat lengthy and did not have & summary.
The attached memorandum, "A Statement on
Special Wartime Reserves", 1s a summary of the
earlier memorandum of the same title.
RoyBlough BK 8.49 65
Attachment
Regraded Unclassified
183
August 9, 1943
MEMORANDUM FOR THE SECRETARY
A statement on special wartime reserves
Postwar reserves have been advocated as a
means of (1) improving the definition of taxable
income by deducting from wartime revenues certain
costs resulting from the war even though actual
payments will not be made until after the war;
(2) providing firms with cash for reconverting from
wartime operations to peacetime operations; (3) in-
ducing firms to postpone, until peace, unnecessary
use of scarce resources. While business concerns
may, of course, deduct such reserves from the income
they report to stockholders, they also want to de-
duct these reserves in computing net income subject
to wartime tax rates.
Several specific reserves have been proposed.
Some of them make provision for costs that can
already be deducted under present law, and hence
raise no tax problem. Some of the others refer to
costs that are too difficult to estimate in advance.
Four of the reserve proposals, however, deserve
special study. They are: (1) a reserve for inven-
tory price declines, (2) a reserve for postwar
reconversion costs, (3) a reserve for deferred main-
tenance, and (4) a reserve for dismissal wages.
Inventory reserves were recommended last year
by the Treasury but rejected by Congress in favor of
the carry-back of losses and of unused excess-profits
tax credits.
Current determination of the amount of recon-
version costs and of deferred maintenance presents
problems which, while perhaps not insoluble, are
extremely difficult. Furthermore, unless reconver-
sion costs are narrowly defined, business may be
directly subsidized under the guise of reserves.
Regraded Unclassified
184
- 2 -
Reconversion costs necessary to restore facilities
to their prewar condition are clearly proper de-
ductions from wartime revenues. In contrast,
expenditures for the development of peacetime prod-
ucts and for similar purposes are not justifiable
deductions from wartime revenues.
The deferred-maintenance reserve might also
induce postponement, until peace, of some main-
tenance expenditures that are not essential during
wartime. In practice, however, the amounts involved
and the incentives for postponement are probably not
great enough to make this purpose an important con-
sideration.
A reserve for dismissal wages is a proper charge
against wartime profits, and in some cases may be
capable of fairly accurate determination in advance.
Allowance of any of these four postwar reserves
would probably strengthen the postwar cash position
of business. But to use these grounds to grant re-
serves beyond what would be justified on 8. sound
accounting basis would be to use the tax system to
grant hidden subsidies to business.
(Note: This memorandum is a summary of a longer
memorandum of the same title, dated
July 19, 1943.)
RB
Regraded Unclassified
185
August 11, 1943
MEMORANDUM FOR THE SECRETARY
About two weeks ago Mr. Paul sent you a
memorandum OR special wartime reserves, prepared
in the Division of Tax Research. That memorandum
was somewhat lengthy and did not have a summary.
The attached memorandum, "A Statement on
Special Wartine Reserves", is & summary of the
earlier memorandum of the same title.
Attachment
RB:dsd
8/11/43
Regraded Unclassified
186
August 9, 1943
MEMORANDUM FOR THE SECRETARY
A statement on special wartime reserves
Postwar reserves have been advocated as a
means of (1) improving the definition of taxable
income by deducting from wartime revenues certain
costs resulting from the war even though actual
payments will not be made until after the war;
(2) providing firms with cash for reconverting from
wartime operations to peacetime operations; (3) in-
ducing firms to postpone, until peace, unnecessary
use of scarce resources. While business concerns
may, of course, deduct such reserves from the income
they report to stockholders, they also want to de-
duct these reserves in computing net income subject
to wartime tax rates.
Several specific reserves have been proposed.
Some of them make provision for costs that can
already be deducted under present law, and hence
raise no tax problem. Some of the others refer to
costs that are too difficult to estimate in advance.
Four of the reserve proposals, however, deserve
special study. They are: (1) a reserve for inven-
tory price declines, (2) a reserve for postwar
reconversion costs, (3) a reserve for deferred main-
tenance, and (4) & reserve for dismissal wages.
Inventory reserves were recommended last year
by the Treasury but rejected by Congress in favor of
the carry-back of losses and of unused excess-profits
tax credits.
Current determination of the amount of recon-
version costs and of deferred maintenance presents
problems which, while perhaps not insoluble, are
extremely difficult. Furthermore, unless reconver-
sion costs are narrowly defined, business may be
directly subsidized under the guise of reserves.
Regraded Unclassified
187
- 2 -
Reconversion costs necessary to restore facilities
to their prewar condition are clearly proper de-
ductions from wartime revenues. In contrast,
expenditures for the development of peacetime prod-
uots and for similar purposes are not justifiable
deductions from wartime revenues.
The deferred-maintenance reserve might also
induce postponement, until peace, of some main-
tenance expenditures that are not essential during
wartime. In practice, however, the amounts involved
and the incentives for postponement are probably not
great enough to make this purpose an important con-
sideration.
A reserve for dismissal wages is & proper charge
against wartime profits, and in some cases may be
capable of fairly accurate determination in advance.
Allowance of any of these four postwar reserves
would probably strengthen the postwar cash position
of business. But to use these grounds to grant re-
serves beyond what would be justified on a sound
accounting basis would be to use the tax system to
grant hidden subsidies to business.
(Note: This memorandum is a summary of a longer
memorandum of the same title, dated
July 19, 1943.)
Treasury Department
Division of Tax Research
ECB-JKB:CS--emb
8/9/43
Regraded Unclassified
AUG 11 1943
Dear lir. 1 resident:
Subject to your approval, I propose to offer for cash sub-
scription, under authority of the 'econd Liberty Bond Act, as
amended, an issue of 2-1/2 percent Treasury Bonds of 1964-69 and
an issue of 2 percent Treasury Londs of 1951-53 in amounts which
will net be specifically limited. At the same time, I propose
to offer for cash subscription 7/8 percent Treasury Certificates
of Indebtedness maturing eptember 1, 1944, also in an amount
which will not be anecifically limited. Subscriptions will not
be invited from connercial banks for their own account for any
of the three issues at this time. In general, the terms and
conditions of the new 2-1/2 percent bond will be similar to the
2-1/2 percent Treasury Bonds of 1964-69 issued in April in the
Second ar Loan `rive. The other two issues will be conventional
market issues. All three lesues -ill be dated September 15, 1943.
These three Issues, ories :. F and o avings Bonds, and
Treasury Cavings Notes, will constitute the securities available
in the Treasury's Third -AP Loan Trive, with en objective of
$15,000,000.000. I propose to start the Drive, and make the new
securities available for subscription, or. September 9.
The authorizing act provides that bonds may De issued only
with the approval of Lhe resident. accordingly, I trust that
the proposed losses will meet with your approval.
Faithfully yours,
(Signed) H. Morgenthan. JT
Secretary of the Treasury.
The resident,
The white House.
APPROVED:
Regraded Unclassified
189
AUG 11 1943
Hon. Prenties M. Brown,
Administrator, Office of Price Administration,
Washington, D. C.
My dear Mr. Browns
There has come to the attention of this Department
through the Stainless Steel Branch of the Var Production Board,
information which indicates that your Agency is contemplating
issuing token pieces made of stainless steel to be used in can-
nection with point rationing.
Although detailed information is lacking relating to
the proposed manufacture of these tokens it is understood that
consideration is being given to making then the same sise as the
one-cent and five-cent pieces.
As the introduction of any metal piece to be used in
point rationing would interfere with the circulating media of the
country, I should appreciate your technicians discussing this
problem with officials of this Department before proceeding
further.
Very truly yours.
(Signed) H. Mergenthau, as
Secretary of the Treasury
File copies to Thompson
LEabl
Regraded Unclassified
190
AUG 11 1943
Hon. Donald M. Nelson,
Chairman, Var Production Board,
Washington, D. 0.
My dear Mr. Nelsons
There has come to the attention of this Department
information from the Stainless Steel Branch of your Agency that
the namifacture of stainless steel tekens is being considered,
the size of the one-cent and five-cent pieces, to be used w
the office of Price Administration in connection with point
rationing.
Although information is lacking as to the details in
connection with this coinage, I - sure you realize that the 10-
suches of any metal piece for this purpose night seriously inter-
fere with the circulating media of the country.
For this reason I should appresiate your having the
matter discussed with members of my staff before approving an
allocation of metal for this purpose.
Very truly yours,
(Signed) H. Morgenthau, Jr
Secretary of the Treasury
File copies to Thompson
Mill
Regraded Unclassified
191
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE AUG 11 1943
TO Secretary Morgenthau
FROM R. E. McConnell
A number of the individuals on the list of the proposed
financial and industrial advisory committee have, in the last
few months, spoken to me with approval of the Treasury Depart-
ment. They have endorsed your policies and I believe they
would cooperate with you in a friendly and helpful manner.
If this idea of an advisory committee appears to you to
possess possibilities and you care to explore it further, I
would suggest that I arrange a short meeting for you with
George Moffett and Gordon Rentschler, who would be instrumen-
tal in helping to organize the group if you then wish to pro-
ceed. I have taken the liberty of discussing this proposal
briefly with Messrs. Bell, White and Paul, who have not seen
the attached list, but who I believe agree in principle.
The following are some of the advantages which occur to me:
1. They would act independently as a sounding board for
industry on any suggested procedure the Treasury may wish to
refer to them.
2. Most of them are the heads of large and efficient
organizations which would in each instance be on call for the
Treasury for work on specific problems connected with demil-
itarization.
3. Formal public announcement during the early days of
confusion which would follow the Armistice would in itself
inspire confidence in the minds of the industrialists because
of the high character of the group.
4. If you wish, I could assume the responsibility of
organizing the group and later of channeling their advice and
help to you and your staff so as not to divert attention and
time of Treasury people from other duties.
There is attached a revised list, which, of course, is
subject to further discussion and revision.
Attachment
TR.E.M.
Regraded Unclassified
192
Number
1
Commercial
Gordon Rentschler - Chm. National City, N.Y.
Banking
Sloan Colt - Chm. Bankers, N. Y.
Wm. Potter - Chm. Guaranty, N. Y.
Henry Bruere - Pres. Bowery Savings, N. Y.
1
Investment
Clarence Dillon, New York
Banker
Bayard Pope - Stone & Webster and Blodget, N.Y.
1
Venture equities
Emil Schram - Pres, N.Y. Stock Exchange, N.Y.
Floyd Odlum - Pres. Atlas Corp., N. Y.
1
Treasury
R. E. McConnell
1
Insurance
M. J. Cleary, Pres. Northwestern Mutual
Life Ins. Co., Milwaukee, Wis.
1
Utilities
Joe Gill - Pres. Elec. Power & Light, N. Y.
Curtis Calder - Pres. Amer. & For. Power, N.Y.
1
Publishing
Hugh Baillie, Pres. United Press, N. Y.
1
Construction
Carlton Proctor - Engineer, N. Y.
1
Mining & Oil
E. L. deGoyler - Independent - Texas
John Lovejoy, Pres. Seaboard Oil Co., N. Y.
C. F. Kelley, Chm. Anaconda Copper, N. Y.
1
Education
Harry Rogers, Pres. Brooklyn Poly.
2
Manufacturing
Zay Jeffries - Tech. Dir. G.E., Schenectady.
Norman Russell - Pres. U.S.Pipe Corp., Phila.
Grant Simmons, Pres. Simmons Company, N. Y.
C. L. McCuen - V.P. General Motors, Detroit
George Moffett - Pres. Corn Products, N. Y.
James Adams - Pres. Standard Brands, N. Y.
M. C. Whitaker, V.P. Amer. Cyanamid Co. N.Y.
Regraded Unclassified
8/17/43
193
Mr. Gamble and Mr. Coyne saw Professor
lch, and he decided that he would remain
with the Treasury.
194
TREASURY DEPARTMENT
WASHINGTON
August 11, 1943
Var Finance Division
Dear Mr. Morgenthau,
Let me confirm my telegram to you of last
Friday evening in which I asked you to release
me from the Treasury as soon as may be conven-
ient. This request is the result of & long study
of my functions which has convinced me not only
that I should resign, but that, of the entire staff,
I Am the one whose opinion with regard to my decision
should prevail.
My associations here have been entirely pleasant
and I shall leave with regret. I shall never cease to
be grateful to you for creating an opportunity for me
to have e. part in the magnificent work you are doing.
As I said in my telegram, you may count on me to give
any help I can At any time as special need may arise.
I shall return to Princeton, where I may easily be
reached.
My cordial greetings to Mrs. Morgenthau, who, I
trust. is finally on her way to recovery.
Very sincerely yours,
May Welch
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
ORDEFENSE
BUY
min
-
Regraded Unclassified
WAR DEPARTMENT
WASHINGTON
AUG 11 1943
the Honorable,
The secretary of the Pressury.
Dear us. Secretary:
You kindly sent mu with your note of July 23 à copy of your
letter of the same date to the Secretary of State on the subject
of an appropriato policy with respect to the narcotics problem
in occupied territories.
with reference to the surrestion mado on page 4 of your
letter to the becrotary of State that we enunciate to the Chinese
our policy on this problem and send them copies of our military
orders to suppress opium monopolies, I have no hesitation in
assuring you that it will be the military policy of any expedi-
tionary forces under American command to take all practicable
measures to suppress any existing opium traffic and opium agencies
and all non-scientific use of opium and its dorivatives.
Expeditionary forces under allied command will be subject to
directives approved jointly by the participating governments of
the United Nations. Presumably the Chinese Government will par-
ticipate in formulating such directives concerning areas to which
you refor. If the United States policy prevails, these directives
will provide for the supprossion of opium monopoly. Subject only
to controlling uirectives, American Commanders will be instructed
to suppress such monopolies wherever found in areas to be occupied
in consequence of military operations.
when the time comes to consider directives and orders on this
subject, I shall be glad to send complete documentary information
to the Secretary of State for transmission to the Chinese Govern-
mont.
I eam sending the Secretary of State n. copy of this letter.
Sincerely yours,
Henry L Struson
Secretary of War.
4.
Regraded Unclassified
THE SECRETARY OF COMMERCE
WASHINGTON
August 11, 1943.
ty dear Mr. Secretary:
The list of Japanese residents in the
Washington Metropolitan Area which you requested
under date of August 4, and to which I referred in
my reply of August 7, has now been completed by the
Bureau of the Census and is transmitted herewith.
I hope that this information may be of service for
the purposes mentioned in your letter requesting it.
Sincerely yours,
ACTING Secretary of Commerce
sayer esaybr
Enclosure
The Honorable
The Secretary of the Treasury,
ashington, D. C.
VICTOR
BUY
STATE
BOND
Regraded Unclassified
@
New of de Catima
Compider
RESIDING DI TO AREA If D.C., APRIL 1, 1940
in mé sete
Address
Marital
Seg
40
Citizen-
statu
Nork status
ship
Cerupation et inturary
MEDICTOR, n.c.
ensaire, Rentishi
Presilis has Brtal
Vala
04
Married
Alles
Team J.
Employed
Proklin has Hotel
Purfuner Bestre
Vala
El
Single
Henry
Native
1237 Les 54, N.T.
Seeking not
Performer Theatre
Vale
se
Married
Alien
Kishi
Employed
On ecempt Retail store
1031 Ist 31,, S.P.
Penal
54
Married
Allen
Time
Not LA labor for
Bount At has
1227 let St., S.V.
Female
29
Single
Retive
:,
Employed
Clark Retail sture
1385 10th St., N.F.
Male
de
Married¹
Alien
shin, Genichire
Employed
Clark Delicatement store
1800 140., N.W.
Vals
55
Married
Alien
Niys
Employed
Artist et Postngraphy
1900 Are., N.W.
-
4º
Marcial
Alian
Not to labor ford
As time
Bethe
1500 Are., N.W.
Single
Native
Not Le labor fort
Student
Banko
1800 Ave., N.W.
Female
18
Single
Native
Not to labor ford
Student
Sankie
1800 Ave., N.W.
[
17
Single
Fative
Not to labor free
Student
Pred N°
1436 a St., N.W.
Mala
»
Single
Retive
Employed
Writer Semspapera end Hagazinen
list, Trangh o.
600 20th 34, 3.9.
Male
47
Married
Alien
Employee
Payabologist Science
Ruby 1,
600 20th 31., N.W.
Penalls
29
Married
Fative
Not la labor fred
Bousework As bow
give, Minota
1785 Massachmasts Ave., N.V.
Vale
54
Married
Alien
Employed
One account - Wetchmster
Elime
1785 Manaciment te N.W.
Tenalis
55
Married
Alien
Employed
Maid Apartment house
Margaret
1705 Ave., N.W.
Female
22
Single
Native
Employed
Secretary U.S. Public Health
Dow
1724 P St., 5.3.
Vale
-
Married
Native
Exployed
Architest Building
Katherine
1726 7 St., N.W.
Penalip
24.
Married
Retire
Not to labor form
Bousework M -
Rend
T.N.C.A. (17th and I Sta., St.W.)
Free
==
Single
Alima
Not in labor form
Student
Take
3124 F 8t., N.W.
Teach
60
Single
Alien
Seeking work
Trained surve
louin, 1. I,
2225 , 31.,
Vala
so
Married
Retive
Employed
Chemist v.s. Dept. if Interiet
E.
1225 I St., S.W.
Femaly
-
Married
Native
Not in labor form
Rousevork At -
Mas
1881 Tetterson Place, N.W.
=
Single
Native
Employed
Recomist Research work
J.
118 Kentucky eve., S.I.
Male
45
Single
Alien
Exployed
Translator Library of Coupons
made, Value
115 Kentucky Are., S.B.
Vale
$9
Married¹
Alien
Employed
Libraries
NO. Temphine E.
181 12th St., S.L.
Penale
as
Divorced
Retive
Employed
Typist Newyajer office
- 7.
1614 Decetrur St., N.A.
Male
37
Divorced
Alim
Not La 1sbor force
Major Tepaness Imperial are
most?
2101 Forhall Real, 3.7.
Mala
2
Single
Alien
Employed
Talet Private home
sue, Banchine
2436 271h St., N.W.
Male
41
Married
Allen
Employed
Artist Fatl. Geographic Security
Nas
2436 37th 34., S.V.
Family
53
Married
Alien
Not to labor force
Rousework - AS home
Butemol
2436 07th St., D.W.
Male
at
Single
Native
Net in labor force
Student
Submiets, Skin
sall If 31., N.W.
Female
29
Single
Allen
Employed
Librarian Library of Coupres
September, Eiyando
3402 of st., N.W.
Male
Single
Native
Reployed
Houseboy Private time
- Kiywaht
3729 Morrison 91., N.W.
fale
5.
Married
Alles
Employed
Correspondent Newspaper
Martin
3729 Morrison St., N.W.
Female
DE
Single
Native
Not in laker farm
Costile se work
Tate
4901 48rd Place, N.W.
Male
46
Married
Alien
Replayed
Date - - sun stay
Ril4a
4901 48rd Place, N.W.
Fusale
12
Single
Native
Jeka
4901 437d Place, N.W.
Male
to
Single
Native
Doubent
Richard
4901 48rd Flace, S.W.
IF
Single
Native
Box in Isher cave
iss,
8801 Rock Creek Drive, N.W.
Female
so
Single
Native
Employed
Maid Private -
2801 Book Creat Drive, N.W.
Pendo
#
Single
Retive
Employed
Maid Private has
- Twicike
Theys, 1.
0411 Are., E.W.
Male
as
Single
Alien
Employed
Code Private family
1113 2rd 84, N.I.
Male
37
Married
Allen
Employed
Own worms
Inst, Sadayoshi
Married
Retive
Not in labor force
AS bone
48.
-
lasys
1118 Brd Stay 5.3.
1118 trd St., N.Z.
Nali
5.
Single
Native
I
1115 Brd St., N.Z.
For
5
Single
Belive
in. - Tushire
Sei
1
1119 are 35., 5,1,
Single
Native
M. - Issia
Two
TE
Ridowed
Native
Not in later forms
locemerk Own bome
49. Appo14, Laura I.
1108 D St., N.E.
Mail
42
Single
Native
Seeking work
Clark Retail party
50, -
Ragar M.
1100 D St., N.E.
Mai
24
Married
Native
Employed
Clark Part Office
61.
Roger
1108 D St., N.E.
Mal
45
Married
Native
Employed
Partender Cafe
50. May, Barry
509 10th St., N.E.
Fel
2
Single
Native
DE. - Bhota
809 10th St., E.E.
Mei
so
Single
Alien
Employed
Picture number Govt. Art Sallary
BA. Kinoskita, Tokicki
1350 Shephard St., N.W.
va
14
Marriet1
Uter
Not to labor fores
Patient a. Elizabeth's
= Payer, James
Salas Elizabeth's Hospital
Mai
AE
Ridower
Allen
Not in labor force
Patient St. Elizabeth's
56. Saso, N.
Saint Elizabeth's Hospital
Tvl
AT
Vidor
Allen
Not in labor form
Browners Own home
57. Tuki, To Masski
2946 Carlina St., N.Y.
E
a
Ringle
Alian
Net to Labor form
Student
58, Exteims, Pater 3.
Catholic University of Aperion
34
Married
Alien
Exployed
Conk Emberty
59. Funanto, Rinza
1975 California st., S.N.
52
Narried
alien
Not in labor form
Bounswork Dec. have
no. - Tem
1775 California and 5.3.
Alien
Employed
Valer Private faily
Ma
==
Single
11. Tenayana, Socitar
1630 Crescret Flass, N.W.
MA
49
Marziel
alima
Exployed
One socame Landroom
se. Taxaba, Sakio
1009 "Tos" 51., N.W.
ne
43
Married
(liss
Employed
Cashier
53.
Taro
1009 "You" st., N.W.
Mail
if
Stagle
Settre
14.
1009 "You" 34, 5.3.
7a
B
single
Natire
65,
Katisko
1009 "You" St., N.W.
Single
Native
Employed
Gevernment Berwei
Inco
1971 Massachusetts 278.. S.W.
Mal
al
VIRIDIA
Mail
⑈
hingle
alima
Exployed
Private family
44. Missas,
1219 South Arlington Ticad
(Red. Karty Ford).
Mail
37
Married
Alima
imployed
Service Private family
M. Tenneski, Hiend
qualet Lane, Alaxandria, Pa.
(Bes. of Lower13 Wellett).
MARTLAND
Nontgimery County
Retheada
Male
as
Married
Alles
Exployed
Clark Naval Attache's office
M. Units, Rerio 1.
041 Malrose 4ve., M4.
1
34
Single
Desire
Employed
Translator brew
19, - Barah A.
241 Matrosa ive.,
70,
Male
=
Single
Retire
Employed
Chauffeer Tapeness Tabletry
I
Mari T,
541 Melrose - Bethinds, M.
71,
male
R
Single
Native
flot D labor form
-
Charles T.
DAL Welrose AVE., Md.
Mala
19
Single
Retive
Not is labor form
gradent
el
-
Taxis 1.
241 Welsome NA.
Curry Date
11. Date, Trassees
male
31
Single
Alim
Employed
Tapenher Neval Officer
12 East Bradley Labe, Chary Change, M4,
75, Ein, F.
Male
N
Single
also
Regiored
Becretary Diplematic Ser.
= Banz Tradley Lane, Cheer Charge, us.
Regraded Unclassified
Prime George Creaty
76. n. Nationales, Rinjim
male
23
Employed
Paymenter hetail dept. sum
208 Mells MR., ca.
-
as
Married
Extire
Employed
Petater Printing office
libert
79.
206 Valle MA.
-
permit
5
Single
Salim
birth
78.
to Valla MR., NO.
3z,
GW
single
Extire
- Palls and vd.
: 917e it Prices mean,
this - - line. - - reperted ht the - is spoish.
198
AUG 4 1943
My dear Mr. Secretary:
It will be appreciated if you will cause to be
released to this Department under the provisions of
Executive Order 9157, for the exclusive and confi-
dential use of the U. S. Secret Service in connection
with the protection of the President of the United
States, a list of all Japanese residing in the Metro-
politan Area of Washington, D.C., as recorded in the
last census of 1940, including information as to ad-
dresses, occupations and whether citizens or aliens.
In view of the fact that this information is
deemed essential to the protection and security of
our Chief Executive, I trust that this request may
have your early favorable consideration. You are
assured that the information will be handled under
rigid confidential restrictions.
Sincerely yours,
(Signed) H Morgenthan. Jr
Secretary of the Treasury
Copy in Diary.
File copies to Mr. Gaston.
The Honorable Jesse H. Jones
Secretary of Commerce
Washington, D.C.
Regraded Unclassified
199
PARAPHRASE OF TELEGRAM SENT
TO:
American Embassy, Chungking, China
DATE: August 11, 1943, 8 D.M.
NO,: 1088
Reference 18 made to your cables of August 5, TF-150
and August 4, $1373.
Please inform Dr. Kung:
The Treasury instructed Mr. Adler to submit
his resignation because the 1941 agreement had Inpeed
since no recuest was received for ite reneval RA pro-
vided in paragraph 9 of the 1941 ngreement. Dr. Fue
and Mr. Rei have just informed us that Dr. Kung ishes
Mr. Adler to v1 thdrew his resignation inasmuch ne the
Ministry of Finance 18 now considering revisions to
the 1941 agreement to be submitted to the Treasury.
The Treasury in therefore seking Mr. Adler to withdraw
temnorerily his resignation.
WELLES
(ACTING)
Regraded Unclassified
LU
200
NOT TO BE RE-TRANSMITTED
COPY NO. 13
BRITISH MOST SECRET
U.S. SECRET
OPTEL NO. 264
Information received up to 10 a.m., 11th August, 1943.
1, AIR OPERATIONS
WESTERN FRONT. 9th/10th. MANNHEIM. 1684 tons dropped including
275 4,000 pound H.E. and 849 tons of incendiaries in 40 minutes. Some
cloud otherwise good visibility. Two main fire areas developed. Ground
defences slight and searchlights ineffective. Two enemy aircraft claimed
destroyed.
10th/11th. 695 aircraft sent out: NUREMBERG - 653 heavy (16
missing), COLOGNE - 3, DUSSELDORF - 3, MANNHEIM - 2, Sea Mining - 18,
Intruders - 16. NUREMBERG results difficult to assess owing to cloud
conditions.
TREASURY DEPARTMENT
1943 AUG 12 PM I I I
SECRETARY OF TREASURY
OFFICE
Regraded Unclassified
201
August 12, 1943
8:45 a.m.
GROUP
Present: Mr. Gaston
Mr. Sullivan
Mr. Paul
Mr. Bell
Mr. Blough
Capt. Kades
Mr. Smith
Mr. White
Mr. Thompson
Mr. Lindow
Mrs. Eaton
Mrs. Klotz
H.M.JR: I had a couple of things, because I am going
away this afternoon, that are of interest generally.
I saw the President yesterday and evidently he has
seen the Netherlands Minister and the Netherlands Finan-
cial Minister. The President said that he was asking for
a loan in order to buy material for the Netherlands for
postwar.
So I said, "Yes, I know about it, but we in the
Treasury feel that it is a mistake to begin to make post-
war loans to foreign countries, and furthermore, we have
no authority."
The President said, "Well, Jesse Jones can do it."
I said, "I don't know whether he can do it or not, but I
certainly don't think he should do it without consulting
Congress."
So the President said, "Well, the man is here and he
can't 8° home until he gets an answer."
Regraded Unclassified
202
- 2 -
So I said, "It is my impression that the State
Department is in agreement with us. They don't want to
start it. If we once start it there is no end."
Am I right?
MR. WHITE: Not wholly - partly.
H.M.JR: After I am going to call up Mr. Hull. I
said I wouldn't see him. Then I saw the President and
I had this conversation, so I flip-flopped.
I said, "After all, what do they want?" He said,
"Locomotives." I said, "Heavens, we have all the locomo-
tives in the world."
He said that they want to buy Swedish locomotives now
and have them ready when the war is over.
I said, "I don't think that is very good because
if they shut down our locomotive plants and the armament
plants, and we lend money to help the Swedish workmen,
what are our workmen going to say? If there are any
orders, I think our workmen ought to have them and not
the Swedish workmen."
He said, "Well, you better see him, anyway. He
can't go home until he gets an answer."
My feeling is - this is very much in the room - I
think the President went and told him he could have it,
but we will see him, and I would like both Bell and White
here at eleven, so that these two men will know what I
say. I thought I would call up Mr. Hull as soon as he
gets in.
MR. WHITE: Are you just going to give him an
answer, or do you want to give him the reasons why, be-
cause one of the big reasons is they have got plenty of
money.
203
- 3 -
H.M.JR: Now I am on the receiving end. What are
some of the answers? I would like to hear. That is the
purpose of this meeting.
MR. WHITE: Well, there are several answers. One
is that they have a great deal of money. They have got
over a billion dollars. To be sure, a great deal of it
is owned by the Central Bank, but it is our feeling that
they ought to resort to that.
You remember that the Dutch Minister has already
been to Jones. Jones said he would be glad to lend it
to him.
H.M.JR: I didn't know that. If I did--
MR. PAUL: There is a memorandum Harry White and I
sent you about a week or ten days ago.
MR. WHITE: It is just two pages. You might want to
run over it before--
H.M.JR: Do it verbally.
MR. WHITE: The history was that van den Broek
came over especially for that purpose, though nominally
to discuss questions of invasion currencies. He has
been to the State Department, he has been to Jones, and
here, and possibly elsewhere, because they are very eager
to get this.
Jones said that it was all right with him if it was
all right with the Treasury, that he would make the same
arguments with the Dutch that he made with the British in
which the British left with Jones securities owned by
British citizens as collateral against the loan.
The Dutch said that they would also like to leave the
securities owned by the Dutch citizens as a basis for a
loan, and the reason why Jones, among others, said, "Well,
you will have to see what the Treasury says on that" is
because the Treasury has the authority with respect to
the vesting of those securities.
Regraded Unclassified
204
- 4 -
Therefore, if the loan is to be made that way, the
Treasury is a necessary part of the machinery. That is
why he is bringing pressure to bear on the Treasury.
Now, the Treasury has felt, first, that it would be
very unwise to permit the Dutch Government to take over
the securities of the Dutch nationals, and in that point
of view the State Department is in complete agreement.
However, the State Department had another suggestion
which would avoid the necessity for that, and that is to
have Crowley's outfit, the Alien Property Custodian, to
take hold of it, and then if they did that it might be
possible to make the loan.
H.M.JR: You mean take over Dutch securities in this
country?
MR. WHITE: Yes.
MR. PAUL: Which are now in Foreign Funds. Of course
the trouble with that collateral arrangement first suggested
is that it allows recognition.
MR. WHITE: That was the reason why the State Depart-
ment doesn't want it and is in agreement with the Treasury.
They found a way out, the way out being to turn it over
to the Alien Property Custodian.
MR. PAUL: That involves no recognition of any authority.
H.M.JR: Recognition of what?
MR. WHITE: The present Dutch Government.
H.M.JR: Who handles that?
MR. PAUL: We have blocked all these.
Regraded Unclassified
205
- 5 -
MR. BELL: Alien Property is supposed to take over
alien property stuff.
MR. PAUL: No, his is broader. He is discussing
taking over all occupied areas.
MR. WHITE: Therefore, on those grounds alone, the
Treasury had recommended that we not go forward, but even
if that were out of the picture, in other words, if you
are willing to turn these securities over to the Alien
Property Custodian, and if that were done it has a lot of
ramifications which are extremely important.
H.M.JR: Hull is out until this afternoon.
May I just say this without going into all the
ramifications? There is a way to find out - to do it if
you want to do it. I don't want to do it.
MR. WHITE: Let's give the reasons why in addition
that could be advanced.
H.M.JR: You are just giving me the mechanics - how
it could possibly be done.
MR. WHITE: And also why we wouldn't like to do it
that way. But there are other reasons why we wouldn't
like to do it which has nothing to do with the mechanics -
why I don't think we should.
One is that they have got plenty of money of their
own. The only reason they don't want to touch it is be-
cause they say it is part of their monetary reserves.
England and 8. lot of other countries have tapped their
monetary reserves, and we feel they ought to go to that
before they go to foreign countries - to the United
States - for loans.
Secondly, their claim that they want to buy locomotives
in Sweden, and other goods, is, we feel, merely camouflage
because they would have absolutely no difficulty in placing
Regraded Unclassified
206
- 6 -
such orders in Sweden, or here, on credit. The credit
of the Dutch Government is excellent, and they can make
a small down payment if they want to. They can't begin
to work on the orders until after the war - shouldn't
begin to until after the war.
Thirdly is the point you raise, that we are not
certain whether we want them to place orders here or
whether we would want them to buy in Sweden with American
money. Everything depends upon the situation after the
war. And there is no reason why a loan should be made
with American money, at this time, to permit production
after the war of items that are going to be very scarce,
and we want to allocate among various countries. Or if
they are going to be not scarce, if there is going to be
unemployment, we would want the American money to be used
as you stated, for domestic production.
So for those reasons; a, that they have got plenty of
money; b, that they could place orders if they wanted to
without any money; and c, that we are not sure we want
them to place orders with their money.
H.M.JR: And four - under those circumstances, under
any guise or camouflage, ought we make a postwar loan
without first consulting Congress.
MR. SULLIVAN: That is what I was going to say.
You committed yourself to that, absolutely, in the hearing
on International Stabilization. You were asked - there
was one question there as to whether or not this contem-
plated postwar rehabilitation--
MR. WHITE: This wouldn't come from the Stabilization
Fund.
MR. SULLIVAN: I understand that, but the answer the
Secretary made was that he would in no way commit himself
on anything like that without telling the Congress about
it in advance.
Regraded Unclassified
207
- 7 -
H.M.JR: I think you are confused. I think, John -
would you check up on that?
MR. WHITE: I will check up, but I am pretty sure
you refer to the Stabilization Fund.
MR. BELL: Anyway, you are right; you ought to go to
Congress.
MR. SULLIVAN: It came in one way or the other, there.
H.M.JR: I think you are right on your conclusions,
but I think the examples you give--
MR. SULLIVAN: I thought there was a commitment.
MR. WHITE: There is a fourth reason there. The
British loans which Jonesis using as a pattern, and which
the Dutch are referring to as a pattern, you remember
were created for very different purposes. That was to
provide Britain with funds to carry on the war and to
protect the domestic market by not throwing those securi-
ties on the market. None of those prevail with regard
to Holland.
H.M.JR: And complete payment on outstanding con-
tracts in the United States prior to Lend-Lease.
MR. BELL: Yes.
H.M.JR: I would give that as number one.
MR. GASTON: The primary thing is they are not for
rehabilitation, they are loans for carrying on the war.
H.M.JR: They were loans to complete payment to
American manufacturers.
MR. WHITE: They were loans which didn't have & time
element. The Dutch want a fifteen or twenty-year loan,
and that is definitely a long-term investment.
Regraded Unclassified
208
- 8 -
Moreover, I think that private investors would
seriously complain about the American Government making
a loan to a government that has adequate credit to float
a loan after the war from private sources. It is a
definite illustration of the Government interfering
with, and competing with, private investors.
H.M.JR: Harry, I am surprised. (Laughter)
MR. WHITE: I feel very bad about that last part.
(Laughter)
H.M.JR: What are we coming to - Harry protesting
about Government loans. (Laughter)
MR. WHITE: I am protecting American bankers.
(Laughter)
H.M.JR: And here I asked Paul the other day to
present the orthodox Treasury tax program. (Laughter)
He said that would be a novel experience for him.
MR. GASTON: What would be our answer if they make
this statement, that if the Swedes start to build loco-
motives for the Dutch now, it will take them out of war
production for Germany?
The only way you can take the Swedes out of making
steel machinery for German war use is to give them out-
side contracts now.
MR. WHITE: I should think the answer--
H.M.JR: I will give you the answer - "Skoal!"
(Laughter)
MR. WHITE: If they felt that way they should have
done it a long time ago because they have adequate money
to do that. Since they are interested in winning the
war, why didn't they do it before?
Regraded Unclassified
209
- 9 -
MR. SULLIVAN: It would be dangerous to have so many
nearing completion in Sweden - Germany might grab them.
MR. WHITE: I think they must recognize that this is
for purposes of camouflage. They want their government
to be strong. They want to convince their people that
they are taking care of them ahead of time, and they
want to get a loan which they would want after the war
at a low rate of interest, because if they borrow from
the RFC they will get it at very low rates, and they
want this vested privilege which they have been fighting
for for two years, isn't it, Dan?
MR. BELL: Yes.
MR. WHITE: They are trying to vest these securities.
MR. PAUL: Every angle there--
MR. WHITE: I think almost two years.
MR. BELL: Private funds.
H.M.JR: Is there any memorandum from us to the
State Department on this, along the lines you have been
talking about?
MR. WHITE: To the State Department - there are a
number of them, and we discussed at great length the
question of vesting, but the question of whether or not
to give them the loan, I don't think 80.
H.M.JR: I tell you what I think you should do,
Harry. I wish you would prepare a letter for me ving
all these data - start off this way: "Why I do not believe
we should make a loan to the Netherlands Government" -
then give the reasons. Then say, "Dear Cordell: I would
appreciate it if you would go into this matter because
the President has asked me to look into it, and I would
like to recommend to him that no agency of the Government
Regraded Unclassified
210
- 10 -
make any loan, for the following reasons
Would
you please let me know whether you concur?"
I think we will send it over because I found this
now. I have been doing something new. You see, I have
been sending these things right to Cordell, personally,
and I have got good service when I dealt with him direct.
I had Luxford in yesterday.
It was a funny thing - that memorandum on that loan--
MR. PAUL: I think that certainly meant he was not
going to object.
H.M.JR: No, no, but I want a memorandum and it
will be time enough when I get back Tuesday to be in the
works. But I will explain to Welles what I am going to
do. I think it ought to be a very careful memorandum.
I would like Bell and Paul to see it and initial it, and
anybody else who is interested, then I will send it over.
I will say, "This is a memorandum I would like to send
to the President saying why I don't think we should name
a loan. This should be a policy of the Administration.
But I would like to know if you concur, and if you don't,
where do you differ?"
MR. WHITE: If you start doing it with Holland,
why won't Belgium, and France, and every other country
who is eager, both to get loans at low rates now, and get
the vesting of their private securities all thrown in, in
which case the Government is embarking on & policy which,
as you say, they should never do without consulting
Congress first.
H.M.JR: Do that first.
MR. WHITE: Are you going to tell van den Broek -
if you are seeing him?
211
- 11 -
H.M.JR: He has asked to see me. He says he can't
get home. Now, all right, I am going to tell Welles -
I am going to ask Welles' advice - "What should I tell
van den Broek?" I am going to tell him this memorandum
is in preparation and tell him I saw the President last
night, and I will have this memorandum over to Mr. Hull
not later than Wednesday. I am going to allow myself
enough time. And should I tell van den Broek to go home,
or should I tell him to wait another week? lie has nothing
to do, anyway. (Laughter) What have these fellows got
to do except pester us? (Laughter)
MR. PAUL: Molekamp was in yesterday.
H.M.JR: Who is Molekamp?
MR. WHITE: He is his financial advisor.
MR. SULLIVAN: A resourceful fellow, too.
MR. WHITE: They are all--
H.M.JR: Do you agree on this, that this is an im-
portant matter, that this is a good way to provide--
MR. BELL: Yes.
MR. WHITE: What you tell van den Broek will depend
on your conversation with Welles.
MR. BELL: How about sending a copy of that to Jesse
Jones and let him know how you feel about this?
H.M.JR: I want to wait until I get Hull's, first.
I don't see why I should ask Jesse Jones. I mean, I am
going to assume that as the Secretary of the Treasury
it is my responsibility to decide whether or not we make
inter-Governmental loans - Hull has always taken that
position, you see--
MR. WHITE: That was the basis of the British loan.
Jones did it at your request.
Regraded Unclassified
212
- 12 -
H.M.JR: Sure.
MR. BELL: I was thinking more of putting him on
notice as to how you feel, rather than--
H.M.JR: Let me see, after my talk with Welles.
Well, that is that. Let me go to the next thing.
MR. WHITE: Don't leave the Dutch because there is
another point he is going to see you about. Van den Broek
is coming in for two things. That is the real thing but
there is also something else which he would like an
answer on from you.
H.M.JR: What is that?
MR. WHITE: That is the exchange rate which would
prevail in the event of invasion. They have made a
recommendation. Now I would like to get your reaction to
the following so that you might be able to tell him.
They want a higher rate than we think is in their own
interest or in our interest. However, our interest is
very slight during the war. It is in our interest after
the war to let them have the higher rate.
H.M.JR: I can answer before you - the reason I
don't want to go into it is I can't answer him now. I
have very good reasons for not answering.
MR. WHITE: Then you will be able to tell him that.
H.M.JR: Military reasons, and so forth and so on.
MR. WHITE: That is all; those are the two things.
H.M.JR: After all, General Hilldring is setting
up this planning board in London, and I can't make any
commitments because the final say will be the Army's,
anyway. They will ask for our recommendations, but
they are going to make the final decision. So I can't
make any commitments.
Regraded Unclassified
213
- 13 -
MR. WHITE: I didn't think you would make the
decision, but just--
H.M.JR: I am going to tell him I can't say anything -
not even argue. For military reasons I can't argue, I
will say.
MR. WHITE: That will be all right.
H.M.JR: I mean he will come over here and pester us -
take all our time for nonsense. I am not going to give
him a run around, I am going to give him a clean cut
answer.
To come back to this question - I wrote a memo - you
most likely haven't got it--
MR. PAUL: About Rosenman?
H.M.JR: Yes, that is service for you.
MR. PAUL: It is better in that direction. (Laughter)
H.M.JR: Did I tell you about my conversation with
Rosenman?
MR. PAUL: No.
H.M.JR: Let me do it now. I forgot about it. I had
another reason to talk to Judge Rosenman over the week
end, and incidentally, I brought in this question of
Crowley again trying to bring up this thing that Judge
Rosenman settled. I would like to get him in the picture.
You remember I told you (Paul) last week to go to
him. I asked him if he had heard from you and he said no.
He said if I would write a letter to the President
and simply say, "Dear Mr. President: Mr. Crowley has
brought up a matter which was settled when you got out
your Executive Order. Judge Rosenman spent months and
Regraded Unclassified
214
- 14 -
months on this, and I would appreciate it if you would
refer this matter again to Judge Rosenman, who is entirely
familiar with it and who, I understand, would be glad to
go into it."
MR. PAUL: All right, I will get that right out.
Assuming there has been no - I have got to check it on
the other end. We may have stopped it anyway.
H.M.JR: If you haven't you will have to get it to
Mrs. Klotz by two.
MR. PAUL: That is easy.
H.M.JR: Well, that takes care of that.
I have got still another thing.
MR. PAUL: You asked me to bring up with you today
the question of another meeting.
H.M.JR: Yes. When do you think we ought to have
another meeting?
MR. SULLIVAN: Have you had any response from those
fellows?
MR. PAUL: The only one that has responded at all is
Hinrichs of Labor. He had certain ideas and we stopped
and talked after the meeting, and he is coming over at
twelve o'clock today.
MR. SULLIVAN: Did you get Harold Smith's memorandum?
MR. PAUL: No. I should think if we are going to
have any more meetings we had better have one next week
about Wednesday.
H.M.JR: All right. What would the agenda be?
MR. PAUL: I don't think we ought to have so much
agenda. We ought to try to stir up response from them.
We didn't get much the other time.
Regraded Unclassified
215
- 15 -
H.M.JR: I don't think you can just call them together
again and say we want more palaver.
MR. PAUL: We can get up some specific questions
and ask them.
H.M.JR: We could boil this thing down further and
be 8. little bit clearer ourselves on which one of these
devices we wanted to take.
MR. BELL: Get up a list of questions.
MR. PAUL: You mean on the second part - the controls?
H.M.JR: Yes.
MR. PAUL: We can do that.
MR. BLOUGH: I heard a couple of them talking after-
wards and one - well, there was Eccles and I think Ben
Cohen - one of them said, Well, it is really too late
to do any of that sort of thing now. A year ago last
spring was the time to do it, but it is too late, now."
MR. PAUL: It depends upon what you regard as the
purpose of these meetings. If you expect to get much
out of them, I think you are living under an illusion.
The only reason for having the meetings is so they never
can say we didn't consult them.
MR. WHITE: It is more than that. It appears to me
that here is an opportunity to get them to say one of
two things - either "We agree with you that nothing more
can be done, and this is the thing" - or they ought to
say they are in favor of pushing this. And I think you
could approach - this may be a possibility - to have Roy
get in touch with the technical men in each one - the
highest technical man - and say, "I want to go over our
program with you and your staff" - each one separately,
and when they discuss it here, ask the specific and definite
questions - finding out, and so forth, and say you wish
that insofar as they can, they speak for their chief.
Regraded Unclassified
216
- 16 -
In other words, if you do it at that level, by the
time of the next meeting - I would postpone it to a little
later on to give Roy that chance - when that meeting comes
you will have before you the definite opinions of the
various important groups. Then you call the chiefs
together and you raise that summary. That summary then
becomes the agenda. So by the time the second meeting
is over, the Secretary will be able to know whether
Eccles has to say - either "Nothing further can be done
and we agree with you that this is the only thing that
can be done," or he will have to say, "We think you ought
to fight for this."
If you have something definite of that character,
you have a basis for discussion - a basis for operation -
and you gain a great deal.
H. JR: I would like to - I am glad that Harry said
what he said, but I would like to supplement the thing.
In this talk with the President I think that it would be
good bail if we sort of consulted with Vinson, you see.
Now, I would like to make this suggestion, that you (Sullivan)
would get in touch with Vinson and say, "Could you and I
and somebody from OPA sit down and discuss these particular
devices? Are any of them acceptable - has OPA got anything
in mind? Would OPA consider any of them?" - you see?
I mean, if you could do that this week - say to
Vinson, "Now, look, Fred, won't you ask whoever you think
to get together and we would like to get - eliminate them.
Is there a chance - should we go further - explore them
further?" I would like to push on that front.
MR. GASTON: I think there are important preliminaries
to that. It seems to me the question is whether they
agree on a program of stiff additional income taxes, both
corporate and individual, stiff additional luxury taxes -
as stiff as we have proposed - or would they want to com-
promise.
Then, second, in the light of such & drastic program
of income and luxury taxes, do they think any other devices
Regraded Unclassified
217
- 17 -
directly addressed to the inflationary front are neces-
sary? My answer would be no, and I believe that the
answer of a good many of them would be no. But then,
"If you believe that something more, directly on the
inflationary front, is necessary in addition to this
kind of a drastic program, what do you prefer?"
MR. WHITE: Then if they come out with some specific
provisions, then there will be real hot discussion at the
next meeting, because they will have to defend their
position.
MR. GASTON: I would like to see a questionnaire of
that kind addressed.
MR. BELL: That is what I would like to see, a series
of questions put to all these people.
MR. PAUL: I can tell you what Vinson and Eccles
will say to this. I have talked to all of them.
H.M.JR: I can't help it if you have, Paul, you have
to do it again. I mean, because--
MR. PAUL: That is all right.
H.M.JR: We are not making any progress.
MR. WHITE: They have to say it to the Secretary. I
think that is the important thing.
H.M.JR: They have. got to say it to this group out in
the open.
MR. WHITE: That is right, so there is no way of
their hedging on it.
MR. GASTON: I would like to go through - not make just
a gesture out of this thing - go through and make something
real out of it.
Regraded Unclassified
218
- 18 -
H.M.JR: I would. What objection can you have to
calling up Vinson and saying--
MR. PAUL: I don't have any objection. I don't think
we will get many of those people to state publicly what
they really feel, but I certainly don't have any objections.
MR. BLOUGH: Speak now or forever hold your peace.
(Laughter)
MR. WHITE: The Secretary could ask them definitely
at that meeting, say, "We have to operate," and they will
have to say how far they are qualified - Eccles will have
to say, "You should have done it last year, this and that,
but he will have to say that in this next proposal, "I
agree with you, there is nothing further we can do," or
something else.
MR. GASTON: You want to ask them, "Is this schedule
too heavy? Have you something else to propose?"
MR. SULLIVAN: Suppose they ask us, Harry--
MR. WHITE: I think we ought to have our mind made
up. I agree to that.
H.M.JR: I am coming back to this. I don't want to
have one meeting and say that this is a publicity meeting
of Morgenthau's. I would like to have Paul, because I
talked with Vinson - I want to say, "Can't we agree on a
set of questions which we will ask at the next meeting?"
"Now, let's get out in the open. Does OPA want to do
something more, or don't they want to do anything more?
Do you want to do anything more? Do you want to rely just
on taxes? Do you want some other devices?" And then throw
that into the meeting. I don't think we should do it with-
out consulting with them first.
MR. PAUL: I don't have any objection to that. I am
not too optimistic about what we will get out of them, but
we can try.
Regraded Unclassified
219
- 19 -
H.M. JR: Supposing we get nothing? Then I can again
say to the President, I have done everything I can, Mr.
President, I have seen this thing," and so forth, and 80
on.
There are certain things that happened again last
night. They keep needling the President about the Treasury
all the time. Now I will be able to tell the President -
might as well tell it--Jimmy Ryrnes evidently saw the
President after I did and told him that Doughton had told
Vinson that he, Vinson, was one man. he had to lean on
he just needed him so badly.
So the President said that he thought we ought to
encourage Vinson to work with Doughton because the old
man needed him so badly.
So I told the President that between you and myself
we see Vinson two or three times a week.
MR. PAUL: That is correct.
H.M.JR: So I just thought now you should have this
meeting and say - maybe nothing will happen, but you go
over again and say, Now, look, here are these things.
Won't you have somebody from OPA present? Let's get some
questions and answers. Let's get it out on the floor.
Let's see - somebody has got to decide."
He won't discuss it at his meeting. Shall we go along
just with our tax program or this, that, and the other
thing, and then after we have those things, we have another
meeting and put it before this group?
MR. BELL: Let's send these questions out ahead of
time. Let them have a chance to study them, then have a
definite answer.
H.M.JR: But, Dan, as a matter of courtesy you certainly
ought to work out those questions with Vinson and with
Nelson. I just think out of courtesy you ought to.
Regraded Unclassified
3
220
- 20 -
MR. PAUL: You mean Brown?
H.M.JR: I mean Brown.
(The Secretary held a t elephone conversation with
Mr. Welles.)
MR. PAUL: I guess the Dutch are going to be out of
luck. (Laughter)
H.M.JR: Well, Randolph, are you and I together on
this or not?
MR. PAUL: Yes, I think SO.
H.M.JR: What are you going to do?
MR. PAUL: I am going to get hold of Vinson and we will
draw up some questions and Roy - in some cases Roy and in
other cases I will discuss them with various people in the
other departments. Then the only thing that remains open
is the date of the meeting.
H.M.JR: Well, I would like to have as much time as
possible when I come back. Shall we say next Thursday?
MR. PAUL: That will be all right. I think that is a
good day.
MR. WHITE: I think it will take more time if you think
particularly if Roy is going to see the technical men.
They will want to go back to their chiefs and they can
easily occupy a week.
MR. PAUL: Ought to have it by next Thursday.
MR. BELL: Why couldn't the questions get out pretty
quickly and then let the discussion go along after the
questionnaire gets out. Let them be working on what you
are thinking about.
MR. PAUL: We can get it out tomorrow.
Regraded Unclassified
221
- 21 -
H.M.JR: Roy is going up with me this afternoon.
MR. BLOUGH: We can get some tentative questions.
H.M.JR: Roy has twenty-three assistants I found out.
MR. PAUL: He has a good organization down there.
MR. BLOUGH: They are not all as good as I am, Mr.
Secretary. (Laughter)
H.M.JR: Roy, I wish you would go once & month to
Indiana. That is the best thing that happens to you.
I want you to go back once a month to Indiana. (Laughter)
MR. PAUL: I think I had better go there. (Laughter)
MR. WHITE: Are you beginning to think your men are
as good as you are? (Laughter)
H.M.JR: Getting low?
MR. PAUL: No, I think Harry's point is well taken.
I am beginning to think my men are as good as I am. (Laughter)
MR. WHITE: That is the time to go away. (Laughter)
(Mr. Lindow and Mrs. Eaton entered the conference.)
H.M.JR: What I want - whoever knows - to tell me,
because I want it on account of my press conference, is
what is, very briefly, going on in Buffalo in regard to
this questionnaire.
MR. LINDOW: Well, it is a study of 8. number of
families, running close to three hundred, as a matter of
fact, at different income levels. The idea is to take
three income levels, fifteen hundred, three thousand,
and five thousand, and have a check of about fifty families
in each one on the side of people who haven't had any
increases or any extra income, and also take about fifty
families who have had extra income. In other words, it
ties in pretty closely to that chart analysis we had.
Regraded Unclassified
222
- 22 -
Then there are the sets of questions asked these
people. One set concerns itself with savings, how much
has been deducted from your check in June for various
items, social security, and so on. Then the other set -
then there is another set of the same questions for
January 80 you have some comparison of what has happened
during the year.
The other set of questions concerns itself with
spendings. The idea is to ask a smaller number of people,
those who seem most cooperative, to fill in a budget for
two weeks of their spendings so that the effect of a sales
tax can be analyzed.
H.M.JR: Well now, the point is Smith last night
thought I ought to say something at my press conference
at ten-thirty about my going up to Buffalo.
Now, Smith, you tell them why you think I should.
And let's see whether these people--
MR. SMITH: I think it is an awfully good story to
have you up there actually finding out what the impact of
taxes will be on people. We can do it statistically.
Now, you have gone out on the end of a limb here with
twelve billion dollars, and Doughton says that you can't
get more than four billion or something, and both of you,
as far as the public is concerned, are guessing - are you
doing it statistically? This is an evidence that you are
really making a pretty thorough investigation of what the
actual reaction of the people will be.
H.M.JR: Let me ask you - will I get that answer when
I go up there?
MRS. EATON: I think you will get it when we have
finished our survey. I am not sure we will get the full
from the interviews covering what they have already studied.
enswer now, but you will get something interesting on it
Regraded Unclassified
223
- 23 -
H.M.JR: What risk am I taking in announcing that I
am going up there before I know what the answers are?
MR. LINDOW: The risk you take, it seems to me, is
that we don't have the data yet; and once you say that you
are having the survey made and that you are going up to
see what is happening on it, there are going to be requests
for some of the figures. I think there is some argument
for waiting on any pbulic announcement of it until we have
some of the figures.
How do you feel, Roy, especially on the sales tax
part of it?
MR. BLOUGH: I think I see some point on both sides
of that particular one. Of course, there are only about
three hundred families all together.
MR. LINDOW: Less on the sales tax.
MR. BLOUGH: That is sort of standing on your little
finger at best. (Laughter)
MR. PAUL: I agree with Lindow.
MR. BLOUGH: We are not even on that little finger
yet. We are in the early stages of the study, and there
certainly is a risk there. It will probably turn out all
right.
H.M.JR: Standing on your little finger- is that
an Indiana colloquialism?
MR. BLOUGH: No, I invented that to apply to a certain
person, and I use it sometimes.
MR. PAUL: Treasury?
MR. BLOUGH: No, he is in the Bureau of the Budget.
(Laughter)
Regraded Unclassified
224
- 24 -
H.M.JR: How many guesses can we have? (Laughter)
MR. BLOUGH: Three. (Laughter)
MR. GASTON: That is a stormy weather expression.
MR. SULLIVAN: Do you think there would be any risk
that the publicity of this would color the response you
would get from those three hundred families?
MR. LINDOW: It might. They are told that we don't
want their names, that we will not keep any check of who
they are, that the results will only be used statistically.
I have the feeling that you will get better results if
there isn't something in the papers.
MR. SMITH: The interviewing is done, isn't it?
MR. LINDOW: I don't think the interviewing is
finished.
MRS. EATON: No, it isn't completed.
H.M.JR: How many more days?
MRS. EATON: They expect to finish this week.
MR. LINDOW: It is close to the end now, but I didn't
know they were that close to being finished. The last time
I talked to Likert he wasn t absolutely sure they would be
finished.
MRS. EATON: It is just a hope that they will finish.
MR. SMITH: Let me uphold my end just once more.
H.M.JR: On your little finger? (Laughter)
MR. SMITH: On both my little fingers and my thumbs.
the sales tax or anything like that. What I see in this
(Laughter) I don't think you ought to go into details on
is that you said here a week or so ago that you were consulting
Regraded Unclassified
225
- 25 -
everybody, that this was a very cooperative venture, and
so on, and you came out with the meeting and that was a
very cooperative venture. The newspapers liked it; thought
it was fine. Now you are going still further and cooperat-
ing with the public at large, which is not accustomed to
being cooperated with in tax matters - I mean, that is the
appearance the thing gives.
MR. WHITE: The Secretary of the Treasury is going to
Buffalo to ascertain what the impact of taxes is on VO rkers.
It sounds to me ridiculous. (Laughter)
MR. SMITH: No, he isn't going to do that, he is
talking to these people, you see, we have--
MR. WHITE: What is he going to find out, do you
like to pay taxes, could you pay more?
MR. SMITH: He is finding out what the impact of taxes
will be.
MR. WHITE: What does that mean? That is a statistical,
professional job; and if the Secretary can't pick in the
country persons who are more competent than he is to find
that out, it is very unfortunate.
MR. SMITH: He isn't going to ask any questions, he
is just going up and talk to the people who are finding out.
He has these surveyors out for Likert.
MR. WHITE: Excuse me, I thought he was going to talk
to the workers. He is going to talk to the surveyors? Why
doesn't he get the surveyors down here and talk to them?
MR. SMITH: Because he wants to go up there where
they are on the job.
MR. WHITE: It sounds very fishy to me. (Laughter)
MR. SMITH: He is going up.
MR. WHITE: I know he is going up.
Regraded Unclassified
226
- 26 -
MR. PAUL: God help us if we get the wrong answer,
MR. WHITE: How about San Francisco? If that is an
impact in Buffalo, how about St. Louis, Boston - they are
all different impacts.
H.M.JR: Mrs. Eaton doesn't know what to make of this.
This is just typical. (Laughter)
MR. WHITE: I know Fred doesn't mind this.
MR. SMITH: I think you are wrong.
MR. WHITE: I think you are, or I wouldn't have spoken
up. I think a sample of three hundred is unfortunately
small. It is all right for your own information, but if
you are going to attempt to base any remarks you make upon
a survey, and you have to make public that survey which is
based on three hundred out of a hundred and forty million,
or out of forty families, I think there will be & lot of
shooting at it on the grounds that from any statistical
point of view - and I am sure Mrs. Eaton will agree with
me - that that sample cannot be taken as anything like
adequate. It is possible for them to increase that and
make it larger, or is it impossible?
MR. LINDOW:
In the time limit the idea was - see,
we wanted to get something by the first of September, and
the idea of the sample is not to make any claim for it as
being representative, but merely to get some idea of the
variation of the situations of different people, so the
thing was streamlined. It makes no attempt to be another
RLS survey or anything of the kind.
MR. WHITE: What you are saying is--
MR. LINDOW: In Buffalo we had five fifty, five
forty-eight--
MR. WHITE: What you are saying is inconsistent. You
find out if it is representative. That is another way of
are saying that you are taking a sample; you only want to
Regraded Unclassified
227
- 27 -
saying you are taking a sample, but don't want to use the
sample.
H.M.JR: Don't end up on Smith's side. (Laughter)
MR. WHITE: I am pleading for a larger survey if
possible. I think it is an excellent thing, very revealing,
and very useful, but I think its usefulness will be very
greatly enhanced - and you can use it if you wish as a
basis for any conclusions that you come to - if the sample
is larger.
If the sample is as small as that, you are stopped
from using it publicly.
MR. LINDOW: Everybody would like to have the sample
bigger and probably more ambitious. It is an attempt to
get a little something where we have nothing now. We talk
about these differences in family situations, and we have
very little to go on that is up to date, practically nothing.
We had a little information from Buffalo last year.
Now, this is merely an idea to get some of that same
information a little more up to date.
MR. WHITE: You feel it is impossible, in other words,
to get 8. much larger sample within the time?
MR. LINDOW: Within a month, yes. It was just begun
in July. We wanted to get something by the first of
September so it was deliberately streamlined.
MR. WHITE: This is all in one area?
MR. LINDOW: Yes, sir.
MR. SMITH: We have the check we made last year, too,
only we got people in Buffalo as they were last year, and
then this year is an indication of what is happening to the
people generally.
MR. WHITE: In Buffalo?
Regraded Unclassified
228
- 28 -
MR. SMITH: That is right, but the change is fairly
typical, because we have gotten a wide variety of people
and 8 wide variety of circumstances.
Now, if it should come out that - as I say, that is
an indication, that is all, it is just 8 trend. It is
something to stack up against your statistical evidence
that there is forty-five billion dollars that we ought
to be able to get. Mr. Doughton doesn't believe that,
and the public doesn't, either - you haven't any loose
money hanging around, and yet everybody reads in the
newspapers that there is.
MR. WHITE: Obviously there is a great deal to be
said for the sampling. It is an excellent idea. If the
sample can't be larger, it is better than nothing, too,
but to revert to your own idea - how many surveyors do you
have?
MR. LINDOW: About a dozen.
MR. WHITE: The Secretary is going up to Buffalo to
see a dozen people and make that public. It seems absurd
to me
MR. GASTON: I don't think SO.
MR. LINDOW: The survey will be just as good a month
from now when you have something to look at.
MR. GASTON: I don't agree with Harry.
H.M.JR: You have to talk louder if you don't agree.
(Laughter)
MR. WHITE: I don't hear you if you don't agree with
me. (Laughter)
MR. GASTON: I think you can give this & little broader
wants to know something more about tax distribution,
implication than just a study in Buffalo. The Secretary tax
burden, tax impact, and the relation to the sale of bonds.
Regraded Unclassified
229
- 29 -
We are starting some studies, some field investigations.
This is one of the first of them. The Secretary is going
to go up there to talk to the workers about the method
they are using and how it is working out. he is not going
to have any statistics to report as 8. result of this visit.
He is just going to see how the method - what the prospects
and the promises are of this method of inquiry. For that
purpose he would like to talk to the worker on the ground.
H.M.JR: The thing that I am afraid of the most in
this thing is that if I announce that I am going up I am
immediately going to be bombarded with stuff.
MR. GASTON: You will be interviewed up there. You
will have to face newspaper reporters up there and you
will have to give them a lot of particulars about what
you are there for.
H.M.JR: I don't think I want to do it.
Harry, just SO that you don't think I am only going up
for that, tomorrow I am going through Bell Aircraft and
Curtiss-Wright. I am just doing this tonight, and tomorrow
Bell Aircraft and Curtiss-Wright.
MR. SULLIVAN: You might want to refer to this in
your testimony before ways and Means. If it comes fresh,
that would have an effect.
H.M.JR: We don't know. I know what Smith is trying
to do, but--
MR. BLOUGH: If you like what you see, won't Monday be
as good, or next week be as good as this week to say, "I
have been there," instead of, "I am going"?
MR. SMITH: It wouldn't make anywhere near as good B
story.
H.M.JR: You will know after this story. If we announce
from photographers around. Then you watch Smith. (Laughter)
here that we are going, then there will be a lot of
Then Smith always gets his picture, whether coming out of
Regraded Unclassified
230
- 30 -
a hospital or something - you will always see Smith's
picture. (Laughter)
Now, the photographers won't be there unless I make
this announcement. You watch them now.
MR. SMITH: You just think they won't be there.
(Laughter)
MR. GASTON: It is fixed already? (Laughter)
MR. WHITE: I think Fred has a good idea there about
having you see the taxpayers, but I think it ought to be a
larger program. I think there ought to be something more
specific that you can talk to them about, and I think it
ought to be more than one city - it ought to be three,
four, or five.
I don't know how it could be worked out, but the
idea of your coming into contact more with the taxpayer
with respect to the problems before you, I think, is all
to the good, but I don't think this particular vehicle is.
MR. SMITH: I had one other idea that I think would
click beautifully. If it did, it might be worth while to
send five groups out to do this same thing. It might
look like it was that profitable to do it.
MR. LINDOW: You know the BLS survey was cut off
because Congress refused to give them any money to continue
it. I think we ought to go a little easy on this to see
where we are at.
H.M.JR: If it looks good we can break it from up
there. O.K. Thank you.
(Mr. Lindow and Mrs. Eaton left the conference.)
H.M.JR: Now, I have taken one hour. Does anybody
else have anything?
MR. BELL: I just wanted to tell you that Delano and
I are ready whenever you are.
Regraded Unclassified
(14
231
- 31 -
H.M.JR: Eleven-thirty?
MR. BELL: That is all right.
H.M.JR. Van der Broek - I can say no to him in
fifteen minutes. Let's say eleven-fifteen.
MR. GASTON: Have the Attorney General and Jesse Jones
been pressing you on that question of imports free of duty?
H.M.JR: Jones wanted to bring Biddle over here the
other day to that meeting. I told him to see you.
MR. GASTON: The answer is very simple; we just want
one thing from the Attorney General.
H.M.JR: What is that, his scalp? (Laughter)
MR. GASTON: I want his statement in writing that
we don't have to look over, or under, or beyond the certificate
of the agency that these are war materials. That relieves
us of all further liability that we don't have to inquire
as to what the use is they are to be put. If he tells us
that, then we can say all right.
H.M.JR: If I don't have to learn this thing I would
rather not. I told Mr. Jones that the matter was entirely
in your hands.
MR. BELL: There is one more hurdle.
MR. GASTON: I am the fellow who caused all the
trouble; I stopped them.
H.M.JR: One other thing - again trying to keep Vinson
happy within the reasonable limit - I thought you (Sullivan)
might tell Vinson that I asked you to tell him about our
conversation, about our troubles with Stam, and that you
went to see Walter George - what his attitude is - and
I also up mentioned it to Doughton. But if Doughton should
Regraded Unclassified
232
- 32 -
mention it to him, I would like to have his support in
this matter. You know what I am talking about?
MR. PAUL: I talked to John this morning.
Before you have that meeting with them I would like
to have a chance to catch you up on several little things.
MR. SULLIVAN: It looks now as though there may not
be that meeting. We are going to try the other way.
H.M.JR: But I would like you to tell Vinson this
thing.
MR. SULLIVAN: I will, sir.
H.M.JR: I want to service him and keep him happy.
If he will meet me thirty percent of the way, I will
meet him sixty-six and two-thirds.
MR. WHITE: There are a couple of things, Mr. Secretary
H.M.JR: All right, please.
MR. WHITE: One is, we are getting Senatorial letters,
and I am sure the Army is, and there may be a lot of other
letters coming in with respect to the use of the invasion
currency.
There is a draft which has been agreed on at this end
and is now being considered with the British, 80 there will
be an adequate answer to them.
of silver to Iraq. We are willing to go along, but there
Secondly, we are being urged to make & Lend-Lease
is this element in it that needs your approvel - there is
much more risk in this loan than there is in any we have
made or any we would contemplate. In other words, the
prospect of getting this silver back is not good. Now,
what do you want before you agree to make it under those
conditions?
Regraded Unclassified
233
- 33 -
H.M.JR: What I would like you to do is - frankly, I
am tied up now. You are going to be up to the farm Monday.
I would like to take up that and take up the question of
the loan of silver to India. So if you bring up all un-
finished business, before you get back Monday night we
will clean it up.
I would like to stop now. I will clean you up or
clean you out on Monday. (Laughter)
Regraded Unclassified
August 12, 1943 234
9:23 a.m.
Sumner
Welles:
Hello.
HMJr:
Sumner.
W:
Good morning, Henry.
HMJr:
How are you?
W:
Fine. I hope you are. How is Mrs. Morgenthau, Henry?
HMJr:
Oh, she's getting along very nicely. She's back in
the country.
W:
I'm awfully glad to hear that.
HMJr:
What I called up about is - I want a little advice.
I don't know how familiar you are with the constant
pressure on all of us from the Netherlands to lend
them some money for post-war purchases.
W:
Yes, I am.
HMJr:
And the President mentioned it to me last night without
making any recommendation
W:
Yes.
HMJr:
but evidently the Dutch or Netherland Minister
brought in a Finance Minister to see him.
W:
Yes.
HMJr:
And apparently went all through the thing about us
lending them money to buy locomotives in Sweden.
W:
Yes.
HMJr:
Now, he's coming in at eleven to see me. He asked to
see me and I wouldn't have seen him unless the President
raised the question.
W:
Yeah.
HMJr:
Now, what I thought I would do was this - I thought I
would prepare a very careful memorandum why we in the
Treasury don't think we should make any postwar loans
at this time.
W:
Yes.
Regraded Unclassified
235
- 2 -
HMJr:
Anybody - Jesse Jones or anybody.
W:
Yes.
HMJr:
And send it over to Hull
W:
Yes.
HMJr:
and say if he concurs in this thing I would like
this to be the Administration policy and send it over
to the President.
W:
I think that is an extremely good way of handling it.
We have taken the position here that this is a questions
of financial policy that the Treasury Department 1s
primarily called upon to determine to the President.
HMJr:
Yeah.
W:
So I think that will work out just - just right.
HMJr:
Good. Well, now in view of that - it will take us
several days because it's a very difficult memorandum
to prepare.
W:
Yes. Naturally.
HMJr:
What should I tell this fellow at eleven o'clock?
W:
Well, my suggestion would be that you should tell him
that the matter 18 now under consideration
HMJr:
Yes.
W:
and that within a day or 80 you will give him 8.
final statement of policy.
HMJr:
Good. Well, I'll tell him within - I'll tell him
some time next week.
W:
Uh huh. I think that will take care of it all right.
HMJr:
You do?
W:
Yeah.
HMJr:
How is your own feeling on the matter?
W:
I'm completely in accord.
Regraded Unclassified
236
- 3 -
HMJr:
That we should not make any loans?
W:
Absolutely. I think in the case of the Netherlands
particularly.
HMJr:
Yeah.
W:
Public opinion here would realize that it is not
essential to them.
HMJr:
Yeah. That they have the money - you know.
W:
That's what I mean. And I think it would simply cramp
your style in things that you might feel that you
really should do from the standpoint of post-war policy.
HMJr:
Right. Thank you.
W:
I'm whole-heartedly in agreement, Henry.
HMJr:
Thank you, very much.
W:
Thank's for calling.
HMJr:
Good bye.
W:
Good bye.
Regraded Unclassified
237
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
August 12, 19/3
MEMBRANDUM FOR THE SECRETARY'S FILES
At the request of the President the Secretary had A conference
this morning with Mr. Van den Brook, Minister of Finance of the
Nethorlands Government in Exile, and Mr. de longh, Financial Adviser
to the Notherlands Government in Exile. They had elso previously
requested R. conference.
The Finance Minister said that be would like to discuss three
matters with the Secretary:
First, were the rate of exchange in Holland whenever the United
Nations get ready to move into that territory. He said he had dis-
cussed the matter with Mr. Finletter and Mr. Feis of the State
Department and with General Hilldring of the Civil Affairs Division
of the War Department. He said he had gotten some encouragement
from them and their point of view. He said that his Government had
had new currency printed for use in that territory which would be
ouite distinctive from the currency now in circulation in Holland.
He sald he wanted the gold parity rate to be the new rate of
exchange. He was asked if the old currency in circulation would
be exchanged on an equal basis with the new currency. He said he
hoped that would be the case.
The Secretary told them that he could not give them any
decision on this noint; that he had not been naked by the Wer Depart-
ment for any recommendation; we have many other matters under considera-
tion at this time which seem to be more imminent than the case of
Holland. He said he would be glad, when the time came, to sit down
and talk to these gentlemen about the economic conditions in their
country and obtain whatever information they had before he made his
recommendation to the War Department. He assured them that he was
sympathetic with their problem but he was sure they could see why
he could not make any definite decision at this time.
The Minister then passed to another question. Ho said he had
up before the Lend-Lease Administration the maiter of obtaining
silver for coinage purposes. He said it would be quite necessary
for them to have a rather large amount of silver coins when they
went back into their country. The Secretary seid he had not heard
FORVICTORY
about it, but if it was in the hands of the Lend-Lease Administra-
tion he we mite sure it was being given proper consideration.
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
Regraded Unclassified
238
- 2 -
He then raised the real question about which he apparently came
to see the Secretary - that was to obtain a credit in this country
for his Government against collateral which is now in the form of
blocked funds and securities belonging to the Central Bank and private
citizens of Holland. He said his country was in favor of a world-wide
stabilization plan (he did not say whether it was the British, American
or some other plan he was in favor of). He said they had little money
left so far na the Government was concerned, but the Central Bank and
the citizens of the country had substantial amounts of money, gold,
bank deposits and securities in this country end they would like to
obtain 8 credit from the Reconstruction Finance Corporation with these
funds and securities as collateral. He said the governing authorities
of Holland would be in a rather embarrassing position if they went
back into Holland and had to tell their citizens that they had not
bought the things that Holland needed to restore the country. He said
they were particularly anxious to move at once to buy locomotives in
Sweden with these funds.
The Secretary told them that this was quite an important policy
matter and what we do in the case of the Netherlands will set a pattern
for the other governments in exile. He said he had directed that B.
formal memorandum be prepared setting forth the policy of this Govern-
ment end when that memorandum was completed and had his approval, he
would send it to Secretary Hull for his approval. If they both agreed,
it would then become the policy of the two Departments in this matter.
The Finance Minister asked the Secretary if he could tell him whether
or not that policy would be favorable to his request. The Secretary
said "No, I can not tell you that at this time." He told him he
hoped he would be able to advise him on this matter possibly some time
next week.
DWB
Regraded Unclassified
239
August 12, 1943
11:25 a.m.
HMJr:
Hello.
Operator:
Mr. Jones.
HMJr:
Jesse.
Jesse
Jones:
Yeah.
HMJr:
Henry talking.
J:
Yeah.
HMJr:
This Netherlands Finance Minister just left here
J:
Yeah.
HMJr:
and he BAW the President yesterday and the President
asked me to see him.
J:
Yeah.
HMJr:
Now, what we are doing is this - we are oreparing a
formal memorandum on this question which I am going
to send over to Cordell Hull for his approval or
disapproval
J:
Yes.
HMJr:
and I just thought I'd like to let you know that
that is in the wind.
J:
Okay.
HMJr:
We here - this is just for you - feel that we shouldn't
do anything because the whole question comes up of
recognition of these governments in exile
J:
Yeah.
HMJr:
and, but anyway, it's going to take us & couple
of days. I'm going to send it over to Cordell and
if he approves it, I'll let you have a copy of it.
J:
Okay.
HMJr:
But it will be by next week so you just hold them off
until then.
Regraded Unclassified
240
- 2 -
J:
All right. I'll - of course, I'm not hurrying about
it. He's just been anxious to get back.
HMJr:
Yeah.
J:
And
HMJr:
Well
J:
I had thought this, Henry
HMJr:
Yeah.
J:
in connection - I had thought I'd - I called you
a time or two and maybe you were out of town. Then
I called Harry and he was out or I would have talked
to you long ago.
HMJr:
Well, 1 never got your message you had called me or I
would have called you right back.
J:
Now
HMJr:
Better leave your name next time.
J:
Well, of course, I used the board and I suppose they
do.
HMJr:
Well
J:
Sometimes, they don't maybe.
HMJr:
No, I don't think
J:
Oh, maybe I guess I usually use the White House phone
in calling you. Maybe.
HMJr:
Well
J:
There I don't have any check on that.
HMJr:
I see.
J:
Anyway
HMJr:
Yeah.
J:
That will be all right and - now on the - when can we
have a little meeting on this - should we meet with
Gaston on that other thing.
Regraded Unclassified
242
August 12, 1943
11:30 a.m.
Re: MICHIGAN NATIONAL BANK
Present: Mr. Bell
Mr. Delano
MR. DELANO: I don't like this.
H.M.JR: This is all right. This doesn't worry
me.
MR. DELANO: Frankly, it worried me. Maybe I am
borrowing trouble.
H.M.JR: Let me read this. (Indicating memoranda
dated August 11, 1943, copies attached.)
Why do you bring in the city of Lansing, seventy-
seven thousand?
MR. DELANO: Just to show the relative size between
this and Detroit. Lansing is a small city and that makes
it a country bank. The whole theory of branch banking is
that you go from a big city to a small city.
H.M.JR: I see.
MR. BELL: They would have to put in quite a bit
more capital, wouldn't they? They are right now almost
thirty to one.
MR. DELANO: One of the aspects of this thing is, of
course, that they haven't any idea of giving capitaliza-
tion factors that we would require.
H.M.JR: Write a letter to the Honorable James
Byrnes - "My dear Mr. Byrnes: As a result of your
telephone inquiry yesterday, plus the memorandum of
July 12 from Prentiss Brown to you, I am sending you
Regraded Unclassified
243
- 2 -
herewith a confidential report from the Comptroller of
the Currency.
"Entirely aside from the merits of the case as to
whether or not the Michigan National Bank should be
granted a branch in Detroit, I strongly recommend that
this whole question be kept in abeyance until the Detroit
Citizens League has completed their investigation, and
until the Attorney General of the State of Michigan has
completed his investigation. Yours sincerely."
MR. BELL: The Attorney General has made a decision
as to what action should be taken on the case. Well,
that is all right. You have got two investigations in
there.
H.M.JR: Well, there are two.
MR. DELANO: That is right. I see Dan's point. It
is just a question of - he may complete his investiga-
tion then, and not have his decision as to what he is
going to do.
H.M.JR: There is another thing. Supposing his in-
vestigation finds that they are not guilty - well, he
doesn't prosecute. But if he prosecutes, then I can say,
"Well, he isn't going to be technical."
MR. DELANO: I see.
H.M.JR: I say wait until - you can put the two
things together - "until the Detroit Citizens League and
the Attorney General have completed their investigations."
MR. BELL: That is all right.
H.M.JR: I don't want to say, "See what action they
take.' If I would put it strictly confidential. I don't
want him to show this to Prentiss Brown.
Regraded Unclassified
244
- 3 -
MR. DELANO: I would be very anxious not to have it
go to Prentiss Brown because Ferguson asked me to keep
it confidential.
MR. BELL: That ought to be marked "strictly confidential."
(The Secretary held a telephone conversation with
Mr. Byrnes, as follows:)
Regraded Unclassified
August 12, 1943 245
11:38 a.m.
James
Byrnes:
Hello.
HMJr:
Hello, Jimmy.
B:
Yes, Henry.
HMJr:
This afternoon there will be over in your hands a
memorandum from us
B:
All right.
HMJr:
on this Michigan bank thing.
B:
All right.
HMJr:
But I 'm going to ask you a favor - that you don't
show it to Prentiss Brown.
B:
No.
HMJr:
Because there are certain things in it which I'm glad
to give you....
B:
No. He's not here.
HMJr:
But there's a - you'll see the State's Attorney of
Michigan is making an investigation and I don't want
that information passed back to Michigan.
3:
No. No.
HMJr:
No. You'll see from the
B:
I will. I'll do that in any event.
HMJr:
And it will be in your hands this afternoon.
B:
Fine.
Thanks, Henry.
HMJr:
Thank you.
Regraded Unclassified
246
- 4 -
MR. DELANO: There is one other thing. About six
weeks ago the Michigan Tradesman, which is a paper
devoted to any branch bank interest, ran a little bit of
a quip about the fact that such an investigation was
taking place and that there was considerable talk about
corruption, not only about this but about other matters
in the legislature.
Now that has stimulated some of these banking fellows
to bore in a little bit, and this story may break. It
may get public for the reason that Ferguson is out there
now and they are buzzing him and he is talking.
He said the other day - for instance, he told one
of these newspapermen who came in - they tried to get
something out of me - that Ferguson had intimated he had
been to us here and put us on notice. That has been done.
Now, the story - you may not be able to hold the story.
I don't know whether We want to hold the story.
H.M.JR: I wouldn't do anything from here to stimu-
late it. In fact, I wouldn't talk about it. But if the
story breaks--
"
MR. BELL: All the better.
H.M.JR: Listen, the chances are nine out of ten that
Jimmy Byrnes will do what I ask - keep the thing in
abeyance.
MR. DELANO: I wanted to emphasize that, Mr. Secretary,
because the one dangerous thing is that Ferguson, who has
a nose for corruption and was elected on that ticket, you
know, in Michigan, will try to make an issue out of this.
H.M.JR: All right.
MR. DELANO: Another thing, this last letter from
these people states that they are sending us along some
copies of some of the evidence submitted to the Attorney
General of the State, and when we went over that in the
past we thought it was pretty skimpy and didn't have much
dynamite in it.
Regraded Unclassified
247
- 5 -
We took another look this morning and I got Roberts
to work on it. He was a pretty clever attorney and used
to be with the FBI here, whose judgment I trust, and he
said he thinks there is more in that thing than we
thought, and that if the Attorney General uses the leads
that are in there he might very well develop a case.
Now, that is the
H.M.JR: A case against whom?
MR. DELANO: A case against the Michigan National
Bank.
H.M.JR: Now, another thing, while you are at it,
will you see - when you say the "Bohn interests" - suppos-
ing they say to me, "The Bohn interests - you say they
control this bank. Who? What does that mean?" I want
to know - to be ready to answer.
MR. DELANO: You want to know the individuals?
H.M.JR: When you say the "Bohn interests" - Mr. "X" -
Mr. "Y" - when you say the "Bohn interests" what do you
mean?
MR. BELL: Isn't there one particular family or
individual?
MR. DELANO: An individual who is the head of the
Bohn Company is the man behind the gun in this bank.
H.M.JR: Have it on a piece of paper, and have also
on a piece of paper what the Bohn people have been indicted
for.
MR. DELANO: I understand.
H.M.JR: "The Bohn interests represent Mr. so-and-so.
He controls fifty-one percent of the Bohn Company and he
controls fifty-one percent of the bank. The same man
controls the Bohn, and this is what he was indicted for:
Regraded Unclassified
248
- 6 -
MR. DELANO: Right.
There was one other thing I would like to put in
the record here. He makes the statement - Prentiss Brown
does - that there isn't proper bank competition in
Detroit, that it is all in the hands of General Motors
and Ford. As a matter of fact, there are twelve banks
there, and there is plenty of competition.
H.M.JR: That is all right.
MR. BELL: There is one independent bank that is
almost as big as the others - three hundred million
dollars of deposits.
MR. DELANO: Yes, there is about five hundred million
of deposits out of a billion and a half of deposits that
are independent, outside of these so-called--
H.M.JR: Don't let this worry you. I have got lots
of worries much worse than this, and I have been able to
handle them.
MR. DELANO: Mr. Secretary, I, frankly, was worried
because I thought he might throw some dirt successfully
at us in case we did this thing.
H.M.JR: Who?
MR. DELANO: Ferguson.
H.M.JR: I think he would.
MR. BELL: Yes, if it comes out they actually did
bribe these people, we would be in an awful position.
H.M.JR: I know we would.
Regraded Unclassified
249
August 11, 1943
MEMORANDUM TO THE SECRETARY:
On May 17, 1943, Senator Homer Ferguson of
Michigan called me on the telephone and stated he
understood that the request made by the Michigan
National Bank for branches at Detroit and Bay City,
and denied by the Comptroller in December 1942, had
been renewed.
He further stated he understood this
renewal of the applications had been made because of
the failure of the 1943 Legislature to pass the anti-
branch bank measure, as had been confident ly e xpected.
In the light of this fact, Senator Ferguson
said he thought it was his duty to inform me that
responsible quarters in Michigan believed there had
been corruption in this action of the Legislature and
that officials of the Michigan National Bank had dis-
tributed money to certain members of the Senate to
refrain from voting when the anti-branch banking bill
was presented for passage (the Upper House of the
Regraded Unclassified
250
Michigan Legislature registered twenty votes in favor
of the anti-branch bank bill, with one vote against,
and eleven not voting. Twenty-two votes, or two-
thirds of those present, were necessary to pass the
legislation.)
The Senator added he had satiffied himself
that this was the case, and he felt strongly that any
contemplated action by the Treasury tending to reverse
its previous decision should be held in abeyance until
sufficient time had elapsed to permit a full investi-
gation. He further advised that a citizens committee
in Detroit was now engaged in such an investigation and
expected that indictments would result.
Senator Ferguson requested that this informa-
tion be considered confidential for the present. He
has several times reiterated his conviction that the
matter will ultimately result in indictments, and on
June 3rd Mr. W. P. Lovett and Mr. M. N. Wendell of
the Detroit Citizens Committee called on me and orally
confirmed the Senator's advice.
By letter of July 16, 1943, the Detroit Citizens
Committee advised me that the evidence concerning the
Regraded Unclassified
251
-3-
alleged corruption of certain members of the Legisla-
ture by the Michigan National Bank had been assembled
and delivered to the Attorney General of the State
for his consideration. It is my understanding that
the Attorney General still has the matter under study
and as yet has reached no decision as to his action.
Inasmuch as Senator Ferguson has brought these
facts to our attention, and has several times reiterated
his opinion that indictments would eventually result, I
feel very strongly that until this entire matter is
cleared up we should make no move to reconsider our
action in the case.
Irrespective of the situation created by Senator
Ferguson's intervention, valid reasons exist for re-
fusing to permit the Michigan National to make an entry
into Detroit either through a branch, or a new charter
which would later be made a branch of the system already
existing. These reasons are briefly outlined in the
attached memorandum.
Preston Delano
Regraded Unclassified
252
August 11, 1943
MEMORANDUM TO THE SECRETARY:
The Michigan National is a branch banking system
operating in Michigan, with its head office at Lansing,
and branches at Saginaw, Grand Rapids, Flint, Marshall,
Port Huron (4) and Battle Creek (2). The system, which
is controlled by the Bohn Aluminum interests, has
deposits of something over $80,000,000, and a capital
structure of some $3,000,000.
Late in 1942 the management of the Michigan
National system informally approached the Office of the
Comptroller with a request for two branches, one in
Detroit and one in Bay City, both of which were to be
consummated by the purchase of small existing banks in
those areas.
At this time Senator Prentiss Brown
approached the Comptroller of the Currency, requesting
that the bank's applications be granted. He further
requested prompt action because of the impending meeting
of the State Legislature and the probability that that
Regraded Unclassified
253
-2-
body would pass legislation prohibiting any further
expansion of existing branch systems in the State of
Michigan.
The request for branches in Detroit and Bay
City were both denied. The reasons follow:
(1)
The granting of these two applications
of the Michigan National, particularly in the
matter of the one for Detroit, would be en-
tirely inconsistent with the policy of this
office toward the expansion of branch systems
at the expense of independent banks in the
localities affected.
(2)
In Detroit there are 12 banks with over
100 banking offices. The approval of the
application of the Michigan National Bank to
enter Detroit would be tantamount to author-
izing a new national bank in that city where
there is certainly no need of additional bank-
ing facilities. This would violate the well-
established practice of the Comptroller's
Regraded Unclassified
254
-3-
office in refusing to authorize additional
banking facilities in communities which are
already adequately served.
(3)
The population of Lansing is about 77,000
and the population of Detroit is approximately
1,600,000. Even assuming that the City of
Detroit has need of additional banking facilities,
it would be contrary to sound banking supervisory
policies,a well as the theory and function of
branch banking, to permit a bank located in a place
the size of Lansing to establish a branch in a
large industrial center.
(4)
Any further expansion of the Michigan
National at this time raises serious questions
of technical capitalization factors which could
only be resolved by & much larger increase in
capital structure than the bank has indicated
its willingness to make.
Preston Delano
Regraded Unclassified
255
DETROIT CITIZENS LEAGUE
C
0
1021-1023 Dine Building Detroit, Michigan
P
Y
July 21, 1943
Hon. Preston Delano
Controller of the Currency
Treasury Building
Washington, D.C.
My dear Mr. Delano:
Since writing to you July 16, I have again
conferred with Senator Ferguson, and with other citizens
interested in the subject which we discussed with you in
your office. I also have talked by telephone with Hon.
Herbert J. Rushton, Attorney General of Michigan, Lansing.
Mr. Rushton is making a study of the documents
and written statements which I gave him, when I requested
that he initiate a grand jury proceeding for investigation
of matters of grave importance now in controversy in this
state. Because of the Detroit riot problems of June 21
Mr. Rushton has been delayed, but will give me his answer
as soon as possible.
Meantime I an taking the liberty of sending
you copies of some of the important documents and reports
that bear on this case. These are for your information,
so that you may know a little of the reasons and motives
which prompt some of our citizens to request official in-
vestigation in this state.
Yours sincerely,
(signed) W.P.Lovett
Regraded Unclassified
256
C
DETROIT CITIZENS LEAGUE
0
P
1021-1023 Dime Building, Detroit, Michigan
I
July 16, 1943
Hon. Preston Delano,
Controller of the Currency
Treasury Building
Washington, D.C.
Personal
My dear Mr. Delano:
Today Senator Homer Ferguson talked with me on
the subject which he and I discussed with you and Mr. Upham,
in your office, not long ago. Because of my recent absence
from Detroit, Senator Ferguson, much to his regret, was un-
able to see no, and that explains delay in this letter,
which I also regret.
Since I saw you our committee have continued with
vigor the investigations which we discussed in your ffice.
We then consulted authorities at Lansing. As & result the
documentary data, giving information, all has been placed in
the hands of Ron. Herbert J. Rushton, Attorney General of
Michigan. In an interview with him June 29 it was agreed
that he would study the evidence and as soon as possible
decide whether he, in his official capacity, would initiate
a grand jury proceeding for the State of Michigan.
I expect to consult Mr. Rushton next Monday on
this subject. He may then inform - what are his conclu-
sions and what he may have decided to do in these circum-
stances.
As soon as I shall have secured this information,
I will be glad to re-lay it to you, so that you may know
our exact situation in Michigan.
Yours sincerely,
(signed) W.P.Lovett
WPL/OC
Regraded Unclassified
257
August 12, 1943
MEMORANDUM TO THE SECRETARY:
There are 150,000 outstanding shares of the
Michigan National Bank of Lansing, Michigan.
Of
this amount, 56,743 shares are in the hands of Mr.
Charles B. Bohn and other officials of the Bohn
Aluminum & Brass Corporation, as follows:
Charles B. Bohn, Chairman of the Board
of the Bohn Aluminum & Brass Corpor-
ation, and Chairman of the Board of
the Michigan National Bank
40,469
Geo. M. Endicott, an officer of the
Bohn Aluminum & Brass Corporation
and a director of the Michigan
National Bank
12,600
Leo M. Butzel, Attorney for the Bohn
Aluminum & Brass Corporation
2,674
Simon D. Den Uyl, Secretary-Treasurer
of the Bohn Aluminum & Brass Cor-
poration, and a director of the
Michigan National Bank
1,000
56,743
This total of 56,743 shares constitutes practical
although not actual control of the bank, particularly
Regraded Unclassified
258
-2-
when considered in connection with the holdings of
Howard Stoddard, President of the Bank, and of Waldo
I. Stoddard, totaling over 15,500 shares.
The
Stoddards are close associates of Mr. Bohn.
There
are no other concentrated holdings of stock in this
bank.
In regard to civil and criminal suits against
the Bohn Aluminum & Brass Corporation charging the
manufacture of defective motor parts for planes, the
Department of Justice advises as follows:
Indictments were returned on the ground
of sabotage against Frederick M. Eaton, Assistant
Manager of Plant No. 2, Paul Cordess, Plant
Superintendent of Plant No. 2, George King,
Foreman, Trim Room of Plant No. 2, and the Cor-
poration itself. An attempt was made to obtain
an indictment of Emerson Frantz, a Vice President
of the Corporation, on the ground of conspiracy,
but no indictment was returned.
A civil action was also filed by the Govern-
ment against the following persons for the
Regraded Unclassified
259
-3-
purpose of recovering $14,000,000: T. A.
Markey, President, J. D. Leavitt, Vice President,
Emerson Frantz, Vice President, S. D. Den Uyl,
Secretary-Treasurer, as well as the corporation
itself, the three individuals against whom indict-
ments were returned, as aforementioned, and other
very minor officials and employees of the corpor-
ation.
Preston Delano
Regraded Unclassified
260
August 12, 1943
My dear Mr. Byrnes:
As a result of your telephone inquiry,
plus the memorandum of July 12 from Prentiss
Brown to you, I am sending you herewith a
confidential report from the Comptroller of
the Currency.
Entirely aside from the merits of the
case as to whether or not the Michigan National
Bank should be granted a branch in Detroit, I
strongly recommend that this whole question be
kept in abeyance until the Detroit Citizens
Committee and the Attorney General of the State
of Michigan have completed their investigations.
Yours sincerely,
(Signed) H. Merganthan, Jr.
Honorable James F. Byrnes,
Director, Office of War Mobilization,
Washington, D. C.
HMJr/mcd
Regraded Unclassified
July 12, 1943
261
EMORANDUM
To:
James F. Byrnes
From:
Prentiss M. Brown
In furtherance of our conversation of yesterday, I an giving you in writing
as concise a summary 8.8 possible.
The Michigan National Bank has branches in six of the principal out-State
cities of Michigan, with its main office at Lansing, the State Capitol. In May of
last year, it asked the Comptroller for authority to take over an existing bank in
Bay City, with part of its deposits withheld. The proposition involved full payment
of the deferred deposit liability. In September it asked for the opening of a branch
in Detroit for reasons of economy of operation, as well as convenience to the general
public. Its capital compares very favorably with existing institutions in Detroit.
The bank is progressing rapidly. Both applications were denied. They were renewed
in April, 1943, but have not been formally acted upon. Comptroller Delano tells me
they will be denied again. No new reasons for the expected denial were given.
The Federal law permits branch banking wherever the State law permits
branch banking. Michigan permits it. Among other reasons given for the previous
turndown of the two applications was the statement by opposing banking groups that
the Michigan Branch Bank law would be repealed in the 1943 legislature. A previous
attempt to repeal it had been defeated in the 1941 legislature. The 1943 effort
was defeated. Other than the above, a major reason for the refusal given by the
Treasury was that the Treasury disliked to take any action that would give Mr. Giannini
of California B. basis for his demand for the extension of his already tremendous
branch system, I think running into five hundred branches. The Michigan National
Bank has six branches. Obviously the conditions are vastly different. Deposits in
Detroit have increased tremendously. Substantial addition to the capital assets
would certainly improve the general banking picture in Detroit. The bank will comply
with any reasonable conditions required by the Comptroller.
The basic facts that impel me to go to the President are these,
(1) The two great banking institutions of Detroit are almost completely owned by
two motor interests - General Motors and Ford. These two institutions have
more than half the total bank deposits in the entire State of Michigan. Other
motor companies and parts manufacturers who want substantial credit must go
to them and reveal their situation. This is unhealthy. The new bank would not
be connected with these interests. I think such competitive addition valuable.
(2) Since the Federal law permits new charters and branches, the Comptroller should
not deny men the right to compete in the business world except in the public
interest. In this case the public interest will be served by additional capital
to back the tremendous increase in deposits and supply needed competition.
Regraded Unclassified
STRICTLY CONFIDENTIAL
262
August 11, 1943
MEMORANDUM TO THE SECRETARY:
On May 17, 1943, Senator Homer Ferguson of
Michigan called me on the telephone and stated he
understood that the request made by the Michigan
National Bank for branches at Detroit and Bay City,
and denied by the Comptroller in December 1942, had
been renewed. He further stated he understood this
renewal of the applications had been made because of
the failure of the 1943 Legislature to pass the anti-
branch bank measure, as had been confidently expected.
In the light of this fact, Senator Ferguson
said he thought it was his duty to inform me that
responsible quarters in Michigan believed there had
been corruption in this action of the Legislature and
that officials of the Michigan National Bank had dis-
tributed money to certain members of the Senate to
refrain from voting when the anti-branch banking bill
was presented for passage (the Upper House of the
Regraded Unclassified
263
-2-
Michigan Legislature registered twenty votes in favor
of the anti-branch bank bill, with one vote against,
and eleven not voting.
Twenty-two votes, or two-
thirds of those present, were necessary to pass the
legislation.)
The Senator added he had satisfied himself
that this was the case, and he felt strongly that any
contemplated action by the Treasury tending to reverse
its previous decision should be held in abeyance until
sufficient time had elapsed to permit a full investi-
gation. He further advised that a citizens committee
in Detroit was now engaged in such an investigation and
expected that indictments would result.
Senator Ferguson requested that this informa-
tion be considered confidential for the present. He
has several times reiterated his conviction that the
matter will ultimately result in indictments, and on
June 3rd Mr. W. P. Lovett and Mr. M. N. Wendell of
the Detroit Citizens Committee called on me and orally
confirmed the Senator's advice.
By letter of July 16, 1943, the Detroit Citizens
Committee advised me that the evidence concerning the
Regraded Unclassified
264
-3-
alleged corruption of certain members of the Legisla-
ture by the Michigan National Bank had been assembled
and delivered to the Attorney General of the State
for his consideration. It is my understanding that
the Attorney General still has the matter under study
and as yet has reached no decision as to his action.
Inasmuch as Senator Ferguson has brought these
facts to our attention, and has several times reiterated
his opinion that indictments would eventually result, I
feel very strongly that until this entire matter is
cleared up we should make no move to reconsider our
action in the case.
Irrespective of the situation created by Senator
Ferguson's intervention, valid reasons exist for re-
fusing to permit the Michigan National to make an entry
into Detroit either through a branch, or a new charter
which would later be made a branch of the system already
existing.
These reasons are briefly outlined in the
attached memorandum.
Pier
Preston Delano
Regraded Unclassified
265
August 11, 1943
MEMORANDUM TO THE SECRETARY:
The Michigan National is a branch banking system
operating in Michigan, with its head office at Lansing,
and branches at Saginaw, Grand Rapids, Flint, Marshall,
Port Huron (4) and Battle Creek (2). The system, which
is controlled by the Bohn Aluminum interests, has
deposits of something over $80,000,000, and a capital
structure of some $3,000,000.
Late in 1942 the management of the Michigan
National system informally approached the Office of the
Comptroller with a request for two branches, one in
Detroit and one in Bay City, both of which were to be
consummated by the purchase of small existing banks in
those areas.
At this time Senator Prentiss Brown
approached the Comptroller of the Currency, requesting
that the bank's applications be granted. He further
requested prompt action because of the impending meeting
of the State Legislature and the probability that that
Regraded Unclassified
266
-2-
body would pass legislation prohibiting any further
expansion of existing branch systems in the State of
Michigan.
The request for branches in Detroit and Bay
City were both denied.
The reasons follow:
(1)
The granting of these two applications
of the Michigan National, particularly in the
matter of the one for Detroit, would be en-
tirely inconsistent with the policy of this
office toward the expansion of branch systems
at the expense of independent banks in the
localities affected.
(2)
In Detroit there are 12 banks with over
100 banking offices. The approval of the
application of the Michigan National Bank to
enter Detroit would be tantamount to author-
izing a new national bank in that city where
there is certainly no need of additional bank-
ing facilities. This would violate the well-
established practice of the Comptroller's
Regraded Unclassified
267
-3-
office in refusing to authorize additional
banking facilities in communities which are
already adequately served.
(3)
The population of Lansing is about 77,000
and the population of Detroit is approximately
1,600,000. Even assuming that the City of
Detroit has need of additional banking facilities,
it would be contrary to sound banking supervisory
policies, as well as the theory and function of
branch banking, to permit a bank located in a place
the size of Lansing to establish a branch in a
large industrial center.
(4)
Any further expansion of the Michigan
National at this time raises serious questions
of technical capitalization factors which could
only be resolved by a much larger increase in
capital structure than the bank has indicated
its willingness to make.
PresiteDelans
Preston Delano
Regraded Unclassified
268
DETROIT CITIZENS LEAGUE
C
0
1021-1023 Dime Building Detroit, Michigan
P
Y
July 21, 1943
Hon. Preston Delano
Controller of the Currency
Treasury Building
Washington, D.C.
My dear Mr. Delano:
Since writing to you July 16, I have again
conferred with Senator Ferguson, and with other citizens
interested in the subject which we discussed with you in
your office. I also have talked by telephone with Hon.
Herbert J. Rushton, Attorney General of Michigan, Lansing.
Mr. Rushton is making a study of the documents
and written statements which I gave him, when I requested
that he initiate a grand jury proceeding for investigation
of matters of grave importance now in controversy in this
state. Because of the Detroit riot problems of June 21
Mr. Rushton has been delayed, but will give me his answer
as soon as possible.
Meantime I am taking the liberty of sending
you copies of some of the important documents and reports
that bear on this case. These are for your information,
so that you may know a little of the reasons and motives
which prompt some of our citizens to request official in-
vestigation in this state.
Yours sincerely,
(signed) W.P.Lovett
Regraded Unclassified
269
C
o
DETROIT CITIZENS LEAGUE
P
Y
1021-1023 Dime Building, Detroit, Michigan
July 16, 1943
Hon. Preston Delano,
Controller of the Currency
Treasury Building
Washington, D.C.
Personal
My dear Mr. Delano:
Today Senator Homer Ferguson talked with me on
the subject which he and I discussed with you and Mr. Upham,
in your office, not long ago. Because of my recent absence
from Detroit, Senator Ferguson, much to his regret, was un-
able to see me, and that explains delay in this letter,
which I also regret.
Since I saw you our committee have continued with
vigor the investigations which we discussed in your o ffice.
We then consulted authorities at Lansing. As a result the
documentary data, giving information, all has been placed in
the hands of Hon. Herbert J. Rushton, Attorney General of
Michigan. In an interview with him June 29 it was agreed
that he would study the evidence and as soon as possible
decide whether he, in his official capacity, would initiate
a grand jury proceeding for the State of Michigan.
I expect to consult Mr. Rushton next Monday on
this subject. He may then inform me what are his conclu-
sions and what he may have decided to do in these circum-
stances.
As soon as I shall have secured this information,
I will be glad to re-lay it to you, so that you may know
our exact situation in Michigan.
Yours sincerely,
(signed) W.P.Lovett
WPL/GC
Regraded Unclassified
270
August 12, 1943
12:00 Noon
HMJr:
Hello.
David
Niles:
Hello, Mr. Secretary.
HMJr:
Good afternoon.
N:
This 18 Dave Niles.
HMJr:
Right.
N:
From two - what I consider reliable sources.
HMJr:
Yeah.
N:
I am told that the former President of these here
United States at an off-the-record Press Club Luncheon
in Los Angeles said, "The Bonds are not worth the
paper they are printed on."
HMJr:
That's nice.
N:
And I thought you ought to know about it and probably
get somebody to really check on it, but I
HMJr:
Now, Hoover said this at a lunch club in
N:
In Los Angeles - a Press Club Luncheon.
HMJr:
At a Press Club Luncheon?
N:
Yes, sir.
HMJr:
Recently?
N:
Yes, sir. Within the last ten days.
HMJr:
We have some very good men there.
N:
Yes, sir. And I think you ought to check about 1t.
One of them happens to be the Public Relations fellow
for 20th Century Fox and he was in to see me yesterday.
He was there and he heard it.
HMJr:
Uh huh.
N:
And then I got it from a lawyer friend of mine and
that's why
I....
HMJr:
What was the name of the 20th Century fellow?
Regraded Unclassified
271
- 2 -
N:
It's - well, I don't think he'd want to
HMJr:
All right. Because I have movie people here of my
own, you see?
N:
Yeah.
HMJr:
Well, I'll just eay that somebody from 20th Century
Fox heard it.
N:
Yeah, that's right.
HMJr:
What?
N:
Yes, sir.
HMJr:
You consider it's on the way - it's done.
N:
Righto. Fine.
HMJr:
Thank you.
Regraded Unclassified
272
Aug. 12, 1943
Ted Gamble
Secretary Morgenthau
Ex-President Hoover, at a Press Club Dinner about
10 days ago in Los Angeles, made the statement that
our bonds were not worth the paper they are printed on.
I would like you to check up on this. If he did make
such 8. statement, I think we ought to do something
about it, and the way to do it would be to get him to
make a statement in favor of our Bond Program. Gamble talked to Hing ?
8/14- Pinished
The President suggested that we get Charles Evans
Hughes to make 8. two-minute record for us for our
Third War Loan. I think the idea of getting him to do
something is swell. T his will k made 9/10/2.
Please follow through, and give me a report on
both of the things I have mentioned in this memo.
Regraded Unclassified
273
List of those to attend meeting with Secretary, Thursday, August
12th, at 2:30 PM, on promotion ideas:
Howard Dietz
Metro-Goldwyn-Mayer
Arriving on 9:30 AM plane
Book-of-the-Month Club
n
Harry Scherman
with Mr.Dietz
Max Shuster
Simon & Shuster
If
with Mr. Dietz
Edward L. Bernays
Coming on 10 AM train
Holcomb Parkes
Southern Railway
Here in Washington
Mr. Slater
Kings Features (for Joseph
Connelly)
B. Lewis Posen
Promotion Director of National
Retail Dry Goods Ass'n.
Coming from Baltimore
Mort Blumenstock
Warner Bros. Theatres
Coming by train
Max Cook
Scripps-Howard Newspapers
Coming by noon plane
Regraded Unclassified
274
August 12, 1943.
2:13 p.m.
HMJr:
Hello.
Guy
Helvering: Mr. Secretary?
HMJr:
In person.
H:
(Laughe) Yeah. Why, I had an opportunity to talk to
Mr. Cann by telephone
HMJr:
Oh, yes.
H:
and he said that he was surprised that anybody
would question his loyalty. I told him
HMJr:
Yeah.
H:
nobody was questioning it
HMJr:
Yeah.
H:
and what we wanted to know if his humor was such
as a result of this little incident that he could go
ahead and carry out the policies as he had before
this came up.
HMJr:
Yes.
H:
Well, he sald, or course, he felt that he wouldn't be
justified in taking the job unless he could do that.
HMJr:
Yeah.
H:
And I told him that we had talked the matter over and
you had agreed all along the line to a different
assignment for him
HMJr:
Yeah.
H:
and - but somebody had dropped the hint that you
weren't in agreement - he wasn't in agreement with
the policy.
HMJr:
Yeah.
H:
And I said, "We both want to be assured on that."
HMJr:
Yeah.
Regraded Unclassified
275
- 2 -
H:
And he said, "On that there 1s no question at all
and self." you can so tell the Secretary and know it your-
HMJr:
Yeah.
H:
So
HMJr:
Everything 18 in the clear?
H:
Yes, I think it's all right.
HMJr:
Well, thank you 80 much.
H:
All right.
HMJr:
Now I hope that our new system works and if it doesn't
we'll have another meeting.
H:
Yes. All right.
HMJr:
It'll take a little time but I - don't you think it's
to the good?
H:
Yes, indeed.
HMJr:
Yeah. You're satisfied aren't you?
H:
Yes.
HMJr:
Fine. Of course, if you and John had been around here
the thing never would have happened.
H:
I think not.
HMJr:
No.
H:
I know if the former was here to come over, he wouldn't
have come.
HMJr:
No. Okay.
H:
All right.
HMJr:
Thank you.
Regraded Unclassified
276
MEMORANDUM
August 12, 1943.
TO:
The Secretary
FROM:
Mr. Sullivan
Ths
In accordance with your request, I called on Judge Vinson
to acquaint him with our general problem arising out of Mr. Stam's
demands for information direct from Commissioner Helvering and also
to tell him about my conversation yesterday afternoon with Senator
George.
Judge Vinson said that he was disturbed about the attitude
of the Committee and was afraid that the fact that they had specif-
ically named the Internal Revenue Bureau in the resolution might be
interpreted as a Congressional directive that information should be
transmitted directly from the Commissioner to Mr. Stam. I explained
to Judge Vinson that you had no desire to withhold from Mr. Stam any
recommendations the Bureau of Internal Revenue wished to make but
that you felt it would be very unfortunate if these recommendations
were not transmitted with your knowledge and through you. Judge
Vinson recognized what an uncomfortable position this would be not
only for you but also for the Commissioner. However, he added that
it might be well to anticipate the trouble that anti-administration
members of the Committee would cause by insinuating that since the
Commissioner's recommendations came through you they had been
censored by you. In other words, the right to transmit implied
control of the substance of the memoranda transmitted.
I told Judge Vinson I thought that that question could not
be decided until we had had some experience of transmitting the
Commissioner's recommendations through the Secretary and that if
Mr. Stam was persuaded that he was receiving the Commissioner's un-
censored recommendations and getting them promptly he should be
satisfied with that arrangement.
He said he felt that Stam's attitude was important and
that he was sure he could find out from time to time whether
Mr. Stam was satisfied with the arrangement without indicating to
Mr. Stam that he had talked with me or knew anything about the
controversy. He added that he would be very glad to try to be
helpful in this matter and to try to smooth out irritations which
did not exist when he was on the Committee and with which he had
no patience.
Regraded Unclassified
277
Randolph Paul
August 12, 1943
Secretary Morgenthau
Will you please speak to me today - I can't remember
whether I told you about my conversation with Judge Rosenman
about the disposition of the disagreement again between
Crowley's organization and ourselves on foreign funds.
Anyway, be sure and get to me before noon today, because
I want to talk to you about it. Faniached-
Su Group 8/12-
Regraded Unclassified
278
August 12, 1943
Mr. Fred Smith.
The Secretary.
Please ask Shaeffer if he has read Jerry Klotz' Column
in today's Washington Post with reference to a conversation
I am supposed to have had with Mr. Byrnes. It never took
place. He 18 all wet. I think Shaeffer knows him well
enough that he can tell him that. Funished-
Regraded Unclassified
279
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE August 12, 1943
TO
Secretary Morgenthau
FROM
Fred Smith
A
I heard Morgan Beatty on the air telling about soldiers
buying Bonds. It was wonderful, so I had a transcription
made. It is probably three or four minutes long, and worth
listening to if you want to take the time to do it. If you
don't, attached 1s a transcript of what he said.
280
MORGAN BEATTY'S BROADCAST ON THE
ATTITUDE OF THE MEN IN SERVICE
TOWARD WAR BONDS
FROM LONDON, DURING THE ALKA SELTZER
(DR. MILES LABORATORY) PROGRAM OVER
THE NATIONAL BROADCASTING COMPANY
NETWORK FROM 7:15 TO 7:30 P. M., EWT.
ON MONDAY, AUGUST 9, 1943.
This is NBC in London. Today I set out to look for a few
reasons why you folks back home might be interested in buying more
War Bonds. I thought I would get a few factual stories--you know,
Private Smith or Able Seaman Jones has decided to buy War Bonds--
and then tell you why. Well, sir, as the day wore on, the crop of
stories began to pile up but they were the same stories you have all
heard before--invest in Uncle Sam, and that kind of thing. The
trouble with telling you stories like that 18 that you know them all.
So I checked back through for something different. It wasthen I
discovered what I thought Was an overwhelming amount of looking into
the future in our Army camps and naval zones in Great Britain, a
mature kind of thinking you don't expect of young soldiers.
One Navy man said he thought the money he put in Navy War Bond
allotment plans would go a long way toward tiding him over the shoals
in Case of unemployment after the war. Another fellow Vas speaking
of his pescetime craft. He is an ornithologist. He sald his equip-
ment would be dated by the time the war Was over. He is buying Bonds
so he can modernize his gear. Private J. F. Roebuck said if this
wasn't war he would be back in the States making payments on a home
now; he is making the payments in advance, as it were, through War Bonds,
Now all this set me hunting for totals. In the Navy over here,
the men are not limiting themselves to ten percent of their pay, as
many citizens do. They are putting up 16 percent, money deducted at
their own request from their pay checks. What's more, they are handing
Regraded Unclassified
281
-2-
over another 13 percent of their pay in cash and ask the paymaster
to give them bonds for it. In the European theater the Navy Len
9.79 signed up for War Bonds allotment purchases- that 1s, regular
-urchases--95 percent strong.
The Army, since the first of June, has more than doubled the rate
of purchases of War Bonds now that special offices have been act up
to handle the Job. And 80 all day the evidence kept piling up that
this Was no ordinary thing, that it Was not getting material for &
pep talk to you folks back home. I Was running into a news story.
So I telephoned to one of our big camps where Colonel J. Fulton of
Seattle, Washington, runs the finencial offices for the European
theater of operations. He was out to dinner when I celled but a
few minutes ago he returned it, and I said, "Colonel, what's all the
fever about buying War Bonds among soldiers over here?"
"You're mistaken," sald the Colonel, "it's not a fever. It's
part of the saving program of the men in this theater. You see,"
he explained. "I was in France during the first World War. The men
didn't want to buy bonds--or rather they simply were not interested
then. They came over to fight the war, and they didn't look much
further ahead--or many of them didn't. But these boys in this generation
have more of an eye for their future. We have merely made it easy for
the men to save. No high pressure stuff, just ordinary reasoning and
reminders. Funny thing," said the colonel," "1f it isn't a fever, it's
catching--this savings idea. Apparently some of the boys--well, anyway--
every once in a while, some fellow comes in and says something about
his luck last night and plunks down a sizeable sum for Bonds and savings.
Regraded Unclassified
282
-3-
The Colonel confirmed 9. hunch that these men in uniform are
building fo the future, their future, and it's the kind of building
and thinking that is necessary if we are to solve the problem of
unemployment and rehabilitation, 38 one of them put it. Not long
agn, the Lord Meyor of London invited me to a reception for enlisted
men, and I went down to Mansion House. I asked some of the staff
how these men of this generation compare with the men of the first
World War. "Oh," sald the Lord Mayor's secretary, "they are about
the same in spirits, I guess, but there's one difference. These
youngsters have a greater sense of responsibility tan their elders
to my way of thinking.'
"How do you know?" I asked.
"Well," he said, "do you see the little receptacles for cigarette
ends, those things tied to the posts?"
"Yes," I said. "What about them?"
"Well, If he said, "this generation actually uses them, and not
the floor of Mansion House." And he went on, "I have looked for
some differences among the nationalities because we get them all
-Americans, French, Poles, Norwegians, Czechs and so on. But
it's the same with all of them."
The other day Admiral Harold Stark of our Novy put it this
way: Just because we Servicemen wear uniforms, it does not mean we
are not a part of the civilian population of the United States.
And that is a plain fact. These soldiers are a long way from home,
ne they are in all the theaters of war. They are more conscious
of their citizenship and the responsibilities of the future than most
Regraded Unclassified
283
-4-
of us, I think, because they are so close to Europe's disaster.
They know the value of America's future. They are merely expressing
their confidence and their hope in dollars and cents through war bonds
And now this is Morgan Beatty switching you to the NBC news room in
Washington.
Regraded Unclassified
284
August 12, 1943
My dear Mr. President:
You asked me to let you have a survey
of the various departments that are working
on conversion of industry from war to peace.
I am enclosing herewith such a list.
After you have read it, you will see
that the efforts of these departments should
be co-ordinated, and I would be glad to dis-
cuss it further with you at your pleasure.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
by agent 8/12/43
Regraded Unclassified
285
Secy. asked Mr. McConnell and Captain Kades
to go over the attached memo before he
sends it to the President.
McConnell and Kades would like to see the
Secy. before he forwards the memo to the Pres.
286
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE August 11,1943
TO
Secretary Morgenthau
FROM
R. E. McConnell T2.E.M.
I believe the attached memorandum prepared by Mr.
Lynch listing the several Departments of the Government
which are actively studying post-Armistice plans and
conversion of plants is substantially correct. There
may be some omissions which a further search would dis-
close but I do not think they will be important.
We have been unable to find a central group concerned
with the larger aspects of this problem and believe it
will probably be necessary to establish such an over-all
viewpoint in order to integrate the various departmental
procedures into a unitized policy. I have discussed this
subject at some length with Mr. O'Connell, Captain Kades
and Mr. Lynch and suggest that we see you for ten or
fifteen minutes before you send the memorandum to the
President.
Regraded Unclassified
287
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM Mr. McConnell R.E.M
A preliminary survey reveals that the following Government
Departments are engaged in consideration of various problems
relating to conversion from 8. wartime to a peacetime economy:
War Department
General Tompkins is charged with
responsibility to the General Staff
in this field.
George Harrison, President, Federal
Reserve Bank of New York, acts in 8.
general consultative capacity.
Major General Clay is responsible for
policy and procedure in connection
with termination of war contracts.
Navy Department
Admiral Bowen is charged with the
disposition of facilities.
Arthur 0. Dietz, President of
Commercial Investment Trust Cor-
poration, is charged with policy
and procedure in connection with
termination of war contracts.
RFC
The Chairman of the RFC has spoken
publicly on policy with respect to
the disposition of Government-owned
facilities. No special policy unit
exists in the RFC.
Maritime Commission
The Commission has established a
Post-War Policy Committee.
WPB
WPB has established an Interdepartmental
Procurement Policy Board which is
giving particular study to termina-
tion of war contracts and reimburse-
ment of war contractors.
Regraded Unclassified
288
- 2 -
Department of Commerce
The Department is studying the over-
all problem of conversion to &
peacetime economy under immediate
direction of Morris Livingston,
Director of the National Economic
Unit.
The Secretary of Commerce has sponsored
and made available the facilities of
the Department to the Committee for
Economic Development, a private or-
ganization dealing with all aspects
of the conversion problem.
Labor Department
Engaged in studies of problems involved
in the demobilization of ex-servicemen
and war workers and related problems
involved in the demobilization of war
industries and of wartime controls.
Dr. Donald H. Davenport, Chief of
the Employment and Occupational Outlook
Branch of the Bureau of Labor Statistics
is immediately in charge of these ac-
tivities.
Bureau of Selective
Col. Lewis E. Sanders is Chief of the
Service
Reemployment Division of Selective
Service.
Social Security Board
Representatives of the War Manpower
and Federal Security
Commission and the Federal Security
Agency
Agency served as members of the
Conference on Post-War Readjustment
of Civilian and Military Personnel,
which reported to the President on
June 30, 1943. The report embraced
consideration of the many aspects of
the reconversion problem.
Bureau of the Budget
Mr. Louis Bean has been acting on be-
half of the Bureau in sponsoring
meetings between representatives of
the several Federal Departments en-
gaged upon various aspects of the
reconversion problem.
Regraded Unclassified
289
- 3 -
State Department
Problems of foreign trade and commerce
which relate to specific aspects of
our domestic economy, such as policies
with regard to metals and minerals,
etc., are lodged with the Economic
Advisor's Office headed by Herbert
Feis, and with the Division of Defense
Materials headed by Henry Labouisse.
These staff officers are responsible
to Adolph Berle, Assistant Secretary,
with reference to long-term financial
policy, and to Dean Acheson, Assistant
Secretary and Chairman of the Board
of Economic Operations with reference
to general economic policy.
Deeraded
tiel calmalar 290
JOHN CLIFFORD FOLGER
730 FIFTEENTH STREET
WASHINGTON,D.0
August 12, 1943
lAy dear Mr. Secretary:
Under Secretary Bell was
kind enough to act as my emissary in
extending an invitation to attend a
luncheon in the private dining room
of the Metropolitan Club on Wednesday,
August 18th, at 12:30 P.M., to meet
Edward Hall of Chicago, who is arriving
next week to work at the Treasury.
I am delighted that you
are planning to attend.
The luncheon will be small
and informal and includes a number of
those interested in the War Bond Program.
With assurance of my high
esteem, I am
Sincerely yours,
golgen
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Regraded Unclassified
291
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
14
DATE
TO
Secretary Morgenthau
AUG 12 1943
FROM
Randolph Paul
You may recall that on November 6, 1943, Dean Acheson
spoke to you about a matter regarding which there had been
considerable discussion between Treasury and State. The
question involved was whether under the Trading with the
enemy Act the Standard Telephone and Radio Company of Zurich,
Switzerland, which is wholly owned by the International
Standard Electric Corporation of New York, should be li-
censed to carry on certain transactions with enemy territory.
An integral part of these transactions was the import from
enemy territory by Standard Telephone and Radio Company,
Zurich, of materials which were processed in Switzerland by
that company and returned to Germany in the form of radio
telephone transmitters for trucks, for German military use.
In spite of the fact that these transactions require licenses
under the Trading with the enemy Act, the American Legation
in Switzerland had permitted the company to continue to en-
gage in these transactions since May 1, 1942, pending a
decision as to whether a license would be issued. Foreign
Funds Control considered the continuation of such unlicensed
transactions highly undesirable and had long endeavored to
have State transmit the necessary instructions to the Ameri-
can Legation in Switzerland which would result in the termi-
nation of such transactions.
You will be interested to know that the continued ef-
forts of Foreign Funds Control, recently supported by BEW
(now OEW), resulted in the transmission by State on July 17,
1943, of an instruction to be relayed by the American Embassy
in London to the American Legation in Switzerland, ordering
the company under penalty of appropriate sanctions by this
Government to cease at once the delivery of such radio trans-
mitters to Germany, subject to the British authorities or
the American Embassy in London having no serious or compel-
ling objections to such discontinuance. Further, this in-
struction indicates that, if the Swiss Government questions
the discontinuance of such transactions by the Standard Tele-
phone and Radio Company, Zurich, and reveals an inclination
Regraded Unclassified
292
- 2 -
to interfere with their discontinance, State would be willing
to exercise such pressure on the Swiss as may be feasible in
the light of this Government's over-all economic warfare
program in order to obtain the acquiescence of the Swiss
Government in the abandonment by the company of the transmitter
transactions.
In connection with this matter you will be interested in
the text of a cable sent at this Government's request to
Colonel Sosthenes Behn, Chairman of the Board of the Inter-
national Standard Electric Corporation, to the managing
director of Standard Telephone and Radio, Zurich, through
State Department communication facilities, in connection with
the manufacture of such radio telephone transmitters for de-
livery to Germany:
"Referring to your message of June 17, we are again
informed that you are delivering radio transmitters
to Germany. You are instructed to cease immediately
any and all deliveries of radio equipment as such
equipment is understood to be for ultimate use by the
German army. We cannot under any circumstances con-
sent to Standard sending equipment to the Axis to be
used against the United States, and it must stop at
once regardless of any other considerations."
Ast
Regraded Unclassified
293
AUG 12 1943
My dear Mr. President:
Mr. Crowley has brought up a matter which was
settled when you issued the Executive Order defining
the respective fields for the Treasury and the Alien
Property Custodian. Judge Rosenman spent months and
months on this and I would appreciate it if you
would refer this matter again to Judge Rosenman who
is entirely familiar with it and who I understand
would be glad to go into it.
Faithfully yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
The President,
The White House.
JUP
B3D goci->
Regraded Unclassified
294
copy sent to Major Gen. J. H. Burns
by Messenger Manus 4:08 8/12/43
Regraded Unclassified
295
SECRET
AUG 12 1943
My dear Mr. President:
There is attached & report of Lend-Lease
purchases made by the Treasury Procurement
Division for the Soviet government indicating
the availability of cargo for August.
The inventory of materials in storage as
of August 1st was 543,985 tons or 25,085 tons
less than the July 1st inventory. Production
scheduled for August shows an increase of
9,334 tons as compared with July.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
The President
The White House
J.Y.R. HAV The from
Regraded Unclassified
TREASURY DEPARTMENT - U.S.S.R.
MATERIALS AVAILABLE FROM STORAGE AND PRODUCTION DURING AUOUST. 1943
PRIORITY CARGOES
TO PORT AREAS
STORAGE
PRODUCTION
SPECIFIED TO
COMMODITY
AUGUST 1. 1943
DURING AUGUST
TOTAL AVAILABLE
DATE FOR AUGUST
AGRICULTURAL MACHINERY
AND IMPLEMENTS
17
17
ALUMINUM
357
7,143
7,500
7,500
AUTOMOTIVE EQUIPMENT
AND PARTS
129
129
BEARINGS
334
747
1,081
150
BRASS AND BRONZE
17,585
1,059
18,644
CHEMICALS
5,175
381
5,556
CLOTHING AND TEXTILES
5,000
4
4
CONSTRUCTION MACHINERY
4,140
4,140
COPPER IN VARIOUS FORMS
61,197
9,550
70,747
3,520
FERRO-ALLOYS
5,735
5,735
GRAPHITE PRODUCTS
1,520
264
1,784
HAND AND CUTTING TOOLS
2,403
2,403
100
INDUSTRIAL MACHINERY
AND EQUIPMENT
134,194
23,673
157,867
33,688°
LEAD AND LEAD ALLOYS
35
35
LEATHER AND LEATHER
PRODUCTS
11
11
MEDICAL SUPPLIES
21
21
NICKEL AND NICKEL
PRODUCTS
424
7
431
150
SECRE
296
Regraded Unclassified
SHEET so. 2
PRIORITY CARGORS
TO PORT AREAS
STORAGE
PRODUCTION
SPECIFIED TO
COMMODITY
AUGUST 1. 1943
DURING AUGUST
TOTAL AVAILABLE
DATE PUR AUGUST
NON-FERROUS METALS,
OTHER
154
617
771
687
PAPER AND PAPER PRODUCTS
2,856
2,856
PLASTICS
7,120
7,120
RUBBER AND RUBBER
PRODUCTS
10,221
8,274
18,495
6,670
STERL, ALLOY AND SPECIAL
68,471
11,167
79,638
1,890
STEEL, CARBON
129,780
14,030
143,810
4,834
STABL, PIPES AND TUBES
90,915
4,354
95,269
1,000
STEEL, BAILS
5,939
10,000
15,939
TIN PLATE
15,939
1,973
987
2,960
500
ZINC
1,000
1,000
1.000
TOTAL
543,985
99,978
643,963
82,628
.
In addition, all available tonnage applicable to the Oil Refinery Program is classed as priority
carge for prempt shipment to ports.
SECRET
297
Regraded.Unclassified
298
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
August 12, 1943
CONFIDENTIAL
Received this date from the Federal Reserve
Bank of New York, for the confidential informa-
tion of the Secretary of the Treasury, compila-
tion for the week ended August 4, 1943, showing
dollar disbursements out of the British Empire and
French accounts at the Federal Reserve Bank of
New York and the means by which these expenditures
were financed.
EmB
Em
#
Regraded Unclassified
299
FEDERAL RESERVE BANK
OF NEW YORK
August 11, 1943.
CONFIDENTIAL
Dear Mr. Secretary:
Attention: Mr. H. D. White
I am enclosing our compilation for the week
ended August 4, 1943, showing dollar disbursements out
of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.
Faithfully yours,
/s/ Robert G. Rouse
Robert G. Rouse,
Vice President.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Enclosure
COPY
Regraded Unclassified
ANALYSIS OF BRITISH AND FRENCH ACCOUNTS
Strictly
(In Millions of dollars)
Week Ended August 4, 1943.
Confidential
BANK OF ENGLAND (BRITISH GOVERNMENT)
BANK OF FRANCE
PERIOD
DEBITS
CREDITS
Gov't
Transfers to
Proceeds of
Transfers
Net Incr.(+)
Net Incr. (+)
Expendi-
Official
Sales of
from Offi-
Other
or Deer.(-)
Total
Total
or Decr. (-)
Total
tures
Canadian
Securities
cial Aus-
Other
Total
(Official)
tralian
Credits
in $ Funds
Debite
Credits
in $ Funds
Debits
(a)
Account
Debits
Credits
Gold
(b)
Account
(c)
(d)
(e)
(e)
(d)
First year of war (g)
1,793.2
605.6
20.9
1,166.7
1,828.2
1,356.1
52,0
3.9
416,2
+ 35.0
866.3(f)
1,095,3(f)
-299.0
War period through
December, 1940
2,782.3
1,425.6
20.9
1,335.8
2,793.1
2,109.5
106.0
14.5
561.1
+ 10.8
878.3
1,098.4
+220,1
Second year of war (h)
2,203.0
1,792,2
3.4
407.4
2,189.8
1,193.7
274.0
16.7
705.4
- 13.2
38.9
8.8
- 30.1
Third year of war (1)
1,235.6
904.8
7.7
223,1
1,361,5
21.8
5,5
57.4
1,276.8
+ 125.9
18.5
4.6
- 14.1
1942
Sept. 5- Sept. 30
56.1
37.1
-
19.0
81.6
-
0.5
20.5
60.6
+ 25.5
10.1
0.4
- 9.7
Oct. 1- Oct. 28
46.7
27.4
-
19.3
57.5
-
-
12.0
45.5
+ 10.8
-
0.3
C.O +
Oct. 29 Dec. 2
96.6
35.5
-
61.1
83.7
-
-
5.5
78.2
- 12.9
0,2
0.3
+ 0.1
Dec. 3.- Dec. 30
30.4
13.3
-
17.1
51.9
-
-
8.0
43.9
+ 21,5
-
-
-
Dec. 1941 II- Feb. 3
168,6
20,9
125.0
22.7
58,9
-
-
8.0
50.9
- 109.7
-
-
-
Feb, 4- 4 Mar, 3
87.2
17,8
37.7
31.7
120.8
-
-
15.0
105.8
+ 33.6
-
I
-
Mar. 4- Mar. 31
35.3
12.9
-
22.4
66.6
-
-
5.0
59.6
+ 29.1
-
-
-
Apr. 1- Apr. 28
37.0
16.3
-
20,7
87.4
-
-
15.1
72.3
+ 50.4
-
-
-
Apr, 29 June 2
90.4
74.3
-
16,1
103.4
-
-
19.0
84.4
+ 13.0
-
-
-
June 3- June 30
31,6
11,6
-
20,0
130.7
-
-
20.0
110.7
+ 99,1
-
-
-
July 1- July 28
33.0
18,2
-
14.8
100.5
-
-
16,0
84.5
+ 67.5
-
-
-
WEEK ENDED:
July 14
9,2
5.3
-
3.9
30.3
-
-
6,0
24.3
+ 21.1
.
-
-
21
9.4
4.3
-
4.5
23.6
-
-
3.0
20.6
+ 14,2
-
-
-
28
9.3
5,1
4.2
28.4
-
-
-
+ 19.1
.
-
1
*
28.4
Aug. 4
8.5
5.1
-
3.4
14.0(j)
-
-
1.0
13.0(J)
+ 5.5
-
-
-
-
Average Weekly Expenditures Since Outbreak of War
See attached sheet for footnotes.
France (through June 19, 1940) $19.6 million
England (through June 19, 1940) $27.6 million
England (June 20, 1940 to March 12, 1941) $54.9 million
England (since March 12, 1941)
21.6 million
Regraded Unclassified
ANALYSTS OF GANADIAN AND AUSTRALIAN ACCOUNTS
(In Millions of Dollars)
Strictly
Week Ended August 4, 1943.
Confidential
BANK
OF
CANADA (and Canadian Government)
COMMONWEALTH BANK OF AUSTRALIA (and Australian Government)
DEBITS
CREDITS
DEBITS
CREDITS
Transfers
Transfers from Official
Transfers
to
Proceeds
British A/C
Net Incr.
3
Proceeds
Net Incr.
Official
of
(+) or
Official
of
(+) or
PERIOD
Total
British
Others
Total
Gold
For Own
For French
Other
Decr.(-)
Total
British
Other
Total
Gold
Other
Dec. (-)
Debits
A/C
Debits
Credits
Sales
A/C
A/C
Credits
in$Punds (d)
Debits
A/C
Debits
Credits
Sales
Creditain $ Runds
Pirst year of war (a)
323.0
16.6
306.4
504.7
412.7
20.9
38.7
32.4
+ 181.7
31,2
3.9
27.3
36,1
30.0
6.1
+ 4,9
way period through
December, 1940
477.2
16,6
460.6
707.4
534.8
20.9
110.7
41.0
+ 230.2
57.9
14.5
43.4
62.4
50.1
12.3
+ 4.5
Second year of war(b)
460.4
-
460.4
462.0
246,2
3.4
123,9
88.5
+ 1,6
72,2
16.7
55.5
81,2
62.9
18.3
+ 9.0
Third year of war (c)
525.8
0.3
525.5
566.3
198.6
7,7
-
360.0
+ 40.5
107,2
57.4
49.8
112,2
17,2
95,0
- 5,0
1942
Sept. 3- Sept. 30
46.3
-
46.3
53.6
13.2
-
-
40.4
+ 7.3
28,0
20.5
7.5
18.1
-
18,1
- 9.9
Oct, 1- Oct, 28
44,9
-
44.9
51.5
16,6
-
,
34.9
+ 6.6
14.3
12,0
2.3
14.6
-
14.6
+ 0.3
Oct. 29 Dec. 2
56.5
-
56.5
80.8
14.4
-
-
66.4
+ 24.3
10.2
5.5
4.7
9.4
-
9.4
- 0,8
Dec. 3 3 - Dec. 30
48.2
-
48.2
43.9
2.9
-
#
41.0
- 4.3
14.1
8.0
6.1
11.7
-
11.7
- 2.4
1943
Dec. 31 - Feb. 3
52.5
-
52.5
217.1
-
125.0
1
92,1
+ 164.6
16,2
8.0
8,2
17.3
-
17.3
+ 1.1
Feb. 4- Mar. 3
35.1
-
35.1
101,2
-
37.7
1
63.5
+ 66,1
15,9
15,0
0,9
16,0
#
16,0
+ 0.1
Mar. 4- Mar. 31
36,2
-
36.2
51.6
-
-
-
51.6
+ 15.4
7.1
5,0
2,1
6.7
-
6.7
- 0.4
Apr. 1- Apr. 28
29.0
-
29,0
39.6
-
-
-
39.6
+ 10.6
16.6
15.1
6.3
19.3
-
19.3
+ 2.9
Apr, 29 June 2
79.9
-
79.9
95.8
-
-
-
95.8
+ 15.9
21.8
19.0
2.8
20.1
-
20,1
- 1.7
June 3. June 30
53.8
-
53.8
77.2
-
-
-
77.2
+ 23.4
20,0
20,0
-
27.3
-
27.3
+ 7.3
July 1 1- July 26
102.1
I
102,1
61.8
-
-
-
61.8
- 40.3
19.2
16,0
3,2
12.5
-
12,5
- 6.7
USE ENTED:
July 14
68.5
-
68.5
8,9
-
-
-
8.9
- 59.6
7.8
6.0
1.8
0.5
.
0.5
- 7.3
21
11.4
-
11.4
25.0
-
-
-
25.0
+ 13.6
3.0
3r0
.
0.1
-
0.1
- 2.9
28
6.5
-
6.5
9-3
-
-
-
9.3
+ 2.8
0.1
-
0,1
0.3
-
0,3
+ 0.2
Ave. 4
6.1(a)
-
6,1
15.9(e)
-
-
-
15.9(f)
+ 9.8
2.3
1,0
1.3
20.5(g)
-
10,5(g)
+ 8.2
Average Neckly Expenditures
First year of war
6.2 million.
(a) For monthly breakdown see tabulations prior to April 23, 1941,
Second year of war
8.9 million.
(b) For monthly breakdown see tabulations prior to October 1941,
third year of war
10.1 million.
(c) For monthly breakdown, tabulations prior to October 1, 1972
Fourth year of war (through August 4, 1943)
million.
(d) Reflects changes in dollar holdings payable on desend or Maturing in Other year.
9.2
(e) Does not reflect transactions in short term 0. 5. securities,
(f) Includes $ 4.2 million deposited by War Suppliss, Ltd. and $10.1 million 70-
ceived from N. Y, accounts of Canadian Chartered Banks,
(g) Includes $1000
Regrad Unclassifi ed
(a) Includes payments for account of British Ministry of Supply Mission, British Supply Board, Ministry of Supply Timber
Control, and Ministry of Shipping.
(b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
proceeds of official British sales of American securities, including those effected through direct negotiation. In addition
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the
early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation
of our securities through December, 1940 amounted to $334 million.
(c) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks,
presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
1939 apparently represent current acquisitions of proceeds of exports from the sterling area and other accruing dollar
receipts.
(d) Reflects net change in all dollar holdings payable on demand or maturing in one year.
(e) For breakdown by types of debits and credits see tabulations prior to March 10, 1943.
(f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(g) For monthly breakdown see tabulations prior to April 23, 1941.
(h) For monthly breakdown see tabulations prior to October 8, 1941.
(1) For monthly breakdown see tabulations prior to October 14, 1942.
(J) Includes: $4.2 million apparently representing current and accumilated dollar proceede of sterling srea services and merchandise
exports.
43.0 million to be held for the credit of the J. s. army.
Regraded Unclassified
303
OFFICE
SECRETARY OF TREASURY
NOT TO BE RE-TRANSMITTED
1943 AUG 13 AM it 480PY NO. 13
BRITISH MOST SECRET
U.S. SECRET
TREASURY DEPARTMENT
OPTEL NO, 265
Information received up to 10 a.m., 12th August, 1943.
1. MILITARY
RUSSIA. 11th. KHARKOV SECTOR. Further Russian advance cut
railway between KHARKOV and POLTAFA about thirty miles West of KHARKOV. In
BRYANSK-OREL Sector further advances of 4 - 6 miles.
2. AIR OPERATIONS
WESTERN FRONT. 10th/11th. 1608 tons dropped at NURNBERG.
11th, Whirlwind bombers and Spitfires destroyed 4 E-boats and an armed trawler
North of BREST.
11th/12th. Aircraft despatched: COLOGNE - 4, DUISBURG - 4,
Mine laying - 23 (1 missing), Leaflets - 19 (1 in sea), Intruders - 16,
Anti-shipping - 7.
PLYMOUTH attacked by H.E. and incendiary bombs from 20 aircraft.
45 fires started. Considerable damage to house property but little to
Public Utilities. Casualties reported: 20 killed, 79 seriously injured.
BOURNEMOUTH attacked by H.E. bombs from 15 sircraft.
Residential property damaged. Casualties: 6 killed, 14 seriously injured.
Other minor incidents on seattered points on South Coast. 1 JU 88 destroyed
by 8 fighters.
PACIFIC. 8th. 11 tons dropped on SALAMAUA and adjacent
villages. 65 escorted bombers attacked BAIROKO Herbour and Vila.
Regraded Unclassified