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Volume 675, November 10 – November 12, 1943
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Volume 675, November 10 – November 12, 1943
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 675
November 10-12, 1943
- C -
Book Page
Cables, Treasury
See State Department
China
Foreign Service Drafts: Cashing of discussed in cable
from American Embassy. Chungking - 11/12/43
675
287
Clarke, C. Dayton
Mrs. FDR-Treasury correspondence concerning assistant
to Collector of Internal Revenue, Third District,
New York City - 11/11/43
95
Correspondence
Mrs. Forbush's mail report - 11/12/43
249
Couve de Murville
See France
- D -
De Murville, Couve
See France
Donovan, W. J. ("Bill")
See Investigations and Surveillance
- X -
Enfield Rifles for England at time of Dunkirk
See Lend-Lease: Stettinius book
- F -
Financing, Government
Federal Reserve proposal to raise short-term rate of
3/8% on bills, i.e., to issue 9-month 3/4% bille
discussed by HMJr, Bell, Haas, Murphy. Lindow, and
Tickton - 11/11/43
39
Conference of Federal Reserve and Treasury officials -
11/11/43
45
a) "Federal Reserve System bill replacements":
Memorandum and draft of press statement on
63,65,66
b) "Credit Policy and Treasury Financing" - Federal
Reserve memorandum
68
Burgess-HMJr conversation - 11/15/43: See Book 676,
page 43
"Interest rates establishment of present pattern of
interest" - Murphy memorandum - 11/15/43: Book 676, page 193
Viner, Shields, Woodward, Warren and Seltzer in Treasury to
discuss Federal Reserve proposal 11/16/43: Book 677,
pages 93,97
a) Shields-Woodward-Warren-Seltser memorandum: Book 677,
page 114
American Bankers' Association Special Committee luncheon
with HMJr to discuss - 11/16/43: Book 677, page 94
a) Edwards' (B. M.) statement: Book 677, page 96
Regraded Unclassified
- 1- - (Continued)
Book Page
Financing, Government (Continued)
Conference: present: HMJr, Bell, Haas, Harrison, Fleming,
Wiggins, Spencer, Smith, Drew, Newell, Brown, Hall,
Edwards. and Potter - - 11/16/43: See Book 677, page 115
a) Suggested agenda: Book 677, page 140
Conference; present: HMJr, Haas, Murphy, Lindow, Tickton,
Thomas. Piser, Viner, Rouse, Shields, Woodward, Warren,
Seltzer, and Spencer - - 11/16/43: Book 677, page 141
a) Memorandum: "Proposed changes in the mechanics of
tenders for Treasury bills" - 11/16/43: Book 677,
page 142
Conference; present: HMJr, Bell, Haas, Murphy, Viner,
Rouse, Devine, Pope, Repp, and Levy - - 11/17/43:
Book 678, page 7
a) Rouse asked "to sell plan developed by Committee
to his bose": Book 678, page 8
1) HMJr-Rouse conversation - 11/18/43: Book 678.
page 161
Conference; present: HMJr, Bell, Gamble, Haas, Murphy,
Eccles, Sproul, Paddock, Viner, Hall, Rouse, Thomas,
Draper, McKee, and Piser - 11/17/43: Book 678, page 46
a) Recommendations: Book 678, pages 83,86
Security Market (High-grade) - current developments in:
Haas memorandum - 11/11/43
675
84
*
(See also Book 678, page 245 - 11/18/43)
France
Couve de Murville's dismissal as Minister of Finance
discussed in Bernstein memorandum - 11/10/43
12
a) Military Intelligence report concerning - 11/11/43
123
b) Mendes-France, Pierre: Report from American
Consulate General, Algiers - 11/11/43
125
French Government 7% Dollar Bonds due 1949: State-Treasury
correspondence concerning - 11/11/43
127
(See also Book 679, page 132 - 11/23/43)
- I -
Intelligence, Military and Naval
See Investigations and Surveillance
Investigations and Surveillance
Military Intelligence, Naval Intelligence, and Office of
Strategic Services ("Bill" Donovan): Activities discussed
by Treasury group - 11/10/43
2
a) Donovan's budget also discussed
4
- L -
Lehman, Herbert H.
HMJr's congratulations on appointment as Director General
of United Nations Relief and Rehabilitation Administration -
11/12/43
265
Fort Knox: Greenbaum comments on practice alarms; AMJr asks for
report concerning - 11/12/43
177A
Regraded Unclassified
- L - (Continued)
Book Page
Lend-Lease
Stettinius' book discussed by HMJr and Cox - 11/12/43
675
170
(See also Book 677, page 1 - 11/16/43)
a) Cox sends copy with Treasury references marked -
11/16/43: See Book 677, page 3
b) Enfield rifles in England at time of Dunkirk (700,000):
Report by Halifax - 11/30/43: Book 681, page 251
Liquor
Non-tax paid liquor traffic
Present status in relation to current shortage and black
market outlined by Commissioner of Internal Revenue -
11/10/43
22
(See also Book 678, page 272 - 11/19/43)
See also American Distilling Company: Book 677
George (Senator) plan: Liquor not to be held in private
warehouses over four years discussed by HMJr and
George - 11/18/43: Book 678, page 164
- M -
Mendes-France, Pierre
See France
Military Intelligence
See Investigations and Surveillance
Morgenthau, Henry, Jr.
Personal articles to be restricted even more in the
future - 11/10/43
1
- N -
Naval Intelligence
See Investigations and Surveillance
- o -
Occupied Territories
Relief and Rehabilitation: To be handled by Army in the
initial stages - FDR's letter to Secretary of War -
11/10/43
21
Office of Strategic Services
See Investigations and Surveillance
Office of War Information
See also Reader's Digest
African branch: Davis asks to see HMJr concerning -
11/12/43
169
- P -
Parran, Carroll K. (Mrs. Thomas)
-
See Reader's Digest
Regraded Unclassified
pt I .
Book Page
Reader's Digest
Smith memorandum concerning articles transmitted by
Office of War Information
675
37
a) Patterson-HMJr discussion - 11/11/43
36
b) Mrs. Thomas Parran-HMJr correspondence concerning
possible connection - 11/11/43
134
c) Sherwood-HMJr conversation - 11/11/43
136
d) HMJr's letter to Sherwood praising Mrs. Parran's
loyalty - - 11/13/43: See Book 676, page 10
1) Sherwood thanks HMJr - 11/16/43: Book 677,
page 169
e) Patterson reports conversation with Fred Osborne
to HMJr - 11/17/43: Book 678, page 1
Relief and Rehabilitation
See Occupied Territories
Revenue Revision
See also Statements by HMJr
Rebuttal of criticism of Treasury program - Paul memorandum -
11/11/43
89
a) Discussion by HMJr and Treasury group - 11/23/43:
See Book 679, page 53
Rifles (Enfield) for England at time of Dunkirk
See Lend-Lease: Stettinius book
- S -
Security Market (High-grade)
See Financing, Government
Sherwood, Robert
See Reader's Digest
State Department
Treasury Cables:
See also Book 664
U.S.S.R. invitation to HMJr: Harriman's explanation
of non-delivery - 11/11/43
132
a) Resume: See Book 676. page 1
b) HMJr's message to Molotov: Book 676, page 2
Statements by HMJr
Before Senate Finance Committee, on Revenue Bill: Draft 1..
151
a) Discussion by Treasury group - 10/12/43
143
Stettinius, 1. R.
For book on Lend-Lease see Lend-Lease
Surveillance
See Investigations and Surveillance
- T -
Taxation
See Revenue Revision
Telephone Operators, Treasury
Women operatore on at night: HMJr asks Thompson to
investigate - 11/12/43
127
Regraded Unclassified
- T - - (Continued)
Book Page
Treasury Cables
See State Department
Treasury Telephone Operators
See Telephone Operators, Treasury
- U -
U.S.S.R.
See State Department: Treasury Cables
United Nations Relief and Rehabilitation Administration
Lehman appointed Director General - 11/12/43
675
265
1
November 10, 1943
9:15 a.m.
GROUP
Present: Mr. Daniel Bell
Mr. Herbert Gaston
Mr. Randolph Paul
Mr. John Sullivan
Mr. Norman Thompson
Mr. Fred Smith
Mr. Roy Blough
Mr. Edward Bernstein
Mrs. Henrietta Klotz
H.M.JR: Mr. Gaston?
MR. GASTON: A few days ago, before you returned,
I had a request from a man named Beal, formerly of the
United Press. He was sent down to me by Chick. He
wanted to do something on this Rolls-Royce-Merlin motor.
He talked about a letter from Beaverbrook on that, that
he would like to get.
H.M.JR: I am not going to do any more of these
personality things. I'd give a good fat price to get
out of that profile business. Do you think we can?
MR. SMITH: Not at this late date.
H.M.JR: You can tell him he can have one more
session with me. It isn't worth the time to have a man
sit there and ask you one thousand personal questions.
MR. PAUL: Is that the New Yorker business?
H.M.JR: Yes.
MR. PAUL: They make you sign your life away, too.
MR. SMITH: Not so bad.
MR. GASTON: Who is doing the New Yorker thing?
H.M.JR: Hellman is, all right. But I am sorry I
Regraded Unclassified
2
- 2 -
have to do it. I won't any more.
MR. GASTON: Do you want to let this man Beal pursue
this thing? He wants to tell the Rolls-Royce-Merlin
story and something about your connection with it. He
spoke about a letter in connection with Beaverbrook that
I don't know about.
H.M.JR: It was a telegram. Packard has the whole
story in the House organ.
MR. GASTON: What he said he wanted particularly was
to get a copy of that cablegram.
H.M.JR: You ask him to talk to Mrs. Klotz, and she
will talk to me.
MR. GASTON: I will have Beal see Fred, then.
H.M.JR: Yes, because I am tightening up even more
than ever on my own stuff.
Norman, did you get your administrative people together?
MR. THOMPSON: Yes.
H.M.JR: Did you have a good talk with them?
MR. THOMPSON: Yes.
H.M.JR: I am going to get my people together. To
show you the length to which people will go to get infor-
mation, a group of four men appeared at the Glenn Martin
factory with a letter on White House stationery, signed by
Daniels, asking to take them through the factory and show
them everything; which they did. Then for some reason they
got suspicious and called up the White House, and Josephus
Daniels said he had never written anything like that.
The White House got excited and looked into it. A
couple of Donovan's men - like joining a fraternity - have
to crash a factory in order to get a job - to forge letter-
heads and signatures and everything else, in order to get
into a factory. That is part of their training.
MR. BELL: Nice post-war vocation:
Regraded Unclassified
3
- 3 -
H.M.JR: If they' do that--I was much worried about
Military and Naval Intelligence.
Now, I heard yesterday--he is coming in here today--
that Robert Sherwood had all of my cables on his desk that
I sent overseas. Why?
The whole time I was in Cairo I was shadowed by a
plain clothesman, Military Intelligence. Finally I said,
Come on over here; I want to talk to you. Who are you?"
Intelligence. I said, "We might as well get acquainted.
We might as well sit down and have a drink."
Good morning (indicating Mrs. Klotz).
MRS. KLOTZ: Good morning.
H.M.JR: The Navy people, military people, Donovan's
people--and then the unfriendly people. I am talking about
being careful about all these people, for instance, who were
trained to get into Glenn Martin. They counterfeited White
House stationery and asked to be taken through the plant.
They got suspicious and checked it. It is just training
they give their people in counterfeiting.
(Indicating Mr. Thompson) I am going to get all of
my people together and give them a little lecture, including
the operators downstairs. I want you to do the Administra-
tive Assistants. I just told Smith to get something from
you.
(Indicating Mrs. Klotz) I said you wouldn't get any-
thing out of my records without coming to me first. You
wouldn't take anybody's word.
If they go to that length, what will people on the
National Republican Committee do?
MR. THOMPSON: We have security officers, and I will
ask them to be on the look-out.
H.M.JR: To me, it is the stupidest thing about
Donovan I ever heard of--counterfeiting White House
stationery! It throws immediate doubt on anybody who
writes on White House stationery.
Regraded Unclassified
4
- 4 -
MR. GASTON: Maybe it was one of Donovan's men who
was & phoney press agent for Warner Brothers here.
H.M.JR: What was that?
MR. GASTON: The man got away with $20,000 acting as
a phoney press agent for Warner Brothers.
H.M.JR: Maybe it was one of Donovan's men. (Laughter)
Anyway, it makes you stop, look and listen.
Herbert?
MR. GASTON: I haven't anything else.
MR. SMITH: I have nothing.
MR. BELL: Speaking of Donovan, we are certainly
handing out some money to him that makes me shudder every
time we give it to him--unaccountable and individuals and
large sums. But he assures us it is all right.
MR. PAUL: We have a record on that.
MR. BELL: He says he has a very accurate record.
MR. PAUL: I mean, we have a record. It pretty well
protects us.
MR. BEIL: We have a record of the money we give, but
not of the expenditures.
MR. PAUL: We have a record from him saying there are
military purposes involved.
MR. BELL: Sure--all from Donovan. But just the same,
when you hand an individual $500,000 in currency or gold
it kind of makes you shudder.
H.M.JR: What authorization?
MR. BEIL: Well, Donovan wrote us a letter and said
anything of this character, any request of this nature that
came over from Bigelow.
H.M.JR: Who is that?
Regraded Unclassified
5
- 5 -
MR. BELL: His main assistant. We could honor him;
we are doing that.
MR. GASTON: It is an appropriation?
MR. BELL: It is money, I understand, allocated
from the President's fund. Of course, the President
doesn't have to account for it, and that is the reason
they get it. It is not audited.
H.M.JR: Hopkins was here for an hour and 8. half and
says he can't find out what Donovan is doing. He says he
has tried and can't find out.
MR. BELL: He was one of the first, I understand, to
land at Salerno with the boys, and went over the top.
MR. PAUL: Serving summons for people out of whom
they were trying to get some quid pro quo.
H.M.JR: Well, I'd watch it, anyway.
MR. PAUL: Every time we have gotten something from
him, the burden is on him. They have told us why they
wanted it.
H.M.JR: Donovan was going down the river with me and
Knox two or three years ago, and asked what I was doing to
protect myself. He said, "I did the investigating of the
Democrats for the Wilson Administration, and don't think
you are not going to be investigated. I hope you have got
a good record." I said, "I have got a good record.'
He said, "Be sure you have, because you are all going to
be investigated." Well, I hope he has a good record!
Frederick?
MR. SMITH: Nothing.
MR. SULLIVAN: Do you want a committee in the Senate
comparable to the House Committee on International Stab-
ilazation?
H.M.JR: I don't know why they ask me the question.
Regraded Unclassified
6
- 6 -
MR. SULLIVAN: I tried to get Barkley yesterday,
and couldn't. I'll try to get him today. It is a
liaison committee such as Sam Rayburn appointed from
the House. He appointed a committee of eight while
you were away and nothing was said about the Senate, so
I'll get hold of Barkley this morning.
H.M.JR: Harry asked whether we should meet together
or separately. I said that would be up to the Senate.
MR. SULLIVAN: I'll go ahead with Colonel Walsh
and that joint investigation. I had & memorandum copy of
Marshall's memorandum to you. I'll go ahead as we
outlined.
H.M.JR: But when we go in the door, let an Army
officer go in the door first. Let our fellows sort of hang
back. There'll be alcohol tax fellows, anyway.
MR. SULLIVAN: It is a joint operation.
H.M.JR: But somebody has to go in the door first.
Let it be an Army fellow.
MR. SULLIVAN: What does Emily Post say?
H.M.JR: A man in uniform should go first. Tell our
boys to hang back a little. I'm serious.
MR. SULLIVAN: All right.
H.M.JR: (Indicating Mr. Paul) Are your men getting
any suggestions to me?
MR. PAUL: I had some yesterday, but I held them
back when the meeting went over to Friday in order to
revise them a little bit.
H.M.JR: Could you get them to Smith today?
MR. PAUL: Any time, now. The only reason I held
back was for further revision, since the meeting was put
off. Smith has had the main body since Friday or Saturday
last week. All that I am doing is rehashing that.
MR. SMITH: The big rebuttal--yes.
Regraded Unclassified
7
- 7 -
MR. BLOUGH: I talked to Smith yesterday. What is
the time?
MR. PAUL: It is Friday now.
H.M.JR: As soon as Smith feels he has something.
MR. SMITH: I thought what we would do is work up a
framework and get together and argue it.
H.M.JR: Let Gaston sit in on it.
MR. SMITH: All right.
MR. PAUL: On that Agriculture thing I found Roy
had already talked with John, but we talked with him again.
He agreed to go along with this memorandum we had. I
called Wickard and told him about it. He was rather
pleased not to have our opposition. I didn't say we were
giving him affirmative support.
H.M.JR: Just what, roughly, is it that we're
supporting?
MR. PAUL: It is a tax, very high rate, intended to
be directed against speculators who buy up land for a
high profit. There is a lot of that going on.
H.M.JR: I mean, what is the description of land for
high profit?
MR. BLOUGH: Do you want me to answer?
H.M.JR: Go ahead.
MR. BLOUGH: Suppose hereafter I go into your county
and buy a farm. It doesn't matter who I am, whether a
farmer or a city slicker or what sort of fellow I am.
H.M.JR: We know what you are, see? (Laughter)
MR. BLOUGH: I'll not go into your county, then!
I sell that land within six years. I'll be subjected
either to my regular income tax on the profit or this
Regraded Unclassified
8
- 8 -
special tax, which would be ninety percent of the profit
if sold within the first two years, and then by varying
percentages down to thirty percent of the profit if sold
between the fifth and sixth years.
MR. PAUL: It is very much like that provision we had
in the 1934 Act.
MR. GASTON: Special capital gains tax.
MR. BLOUGH: It doesn't affect the first sale of the
real estate.
H.M.JR: It's all right with me. I never sell any
land. I just buy.
MR. PAUL: You understand we are not putting this
forward. Agriculture is sponsoring it.
H.M.JR: I think it is a very good idea.
MR. PAUL: It has a lot of difficulties about it, such
as the possibility of incorporation and evasion of the
tax.
H.M.JR: In principle it is all right.
MR. SULLIVAN: In objective it is all right.
MR. PAUL: The only thing you can say about it is
that nobody else has suggested any other remedy.
H.M.JR: I told you in principle I was for it.
MR. BLOUGH: I think we have guarded ourselves on our
position.
MR. PAUL: Over-guarded, probably.
H.M.JR: None of you fellows reminded me I should do
anything about Doughton's eightieth birthday. Did any of
you fellows do anything--a birthday cake or anything? A
case of liquor?
MR. PAUL: When was his birthday?
Regraded Unclassified
9
- 9 -
H.M.JR: Sunday or Monday.
MR. BELL: He said he went to his office to read
all of his congratulatory messages on Sunday.
MRS. KLOTZ: We never sent him a message?
H.M.JR: No.
MR. BELL: Send him a belated one.
MRS. KLOTZ: Say you were out of town.
MR. PAUL: He is a hard old guy.
MRS. KLOTZ: Send him a belated gift.
H.M.JR: I think I'll cail him up.
MR. PAUL: That would be better than a gift, I think.
Call him up.
H.M.JR: Okay.
MR. BLOUGH: I have nothing else.
H.M.JR: How far did I get?
MR. BERNSTEIN: I don't know what is the matter with
Harry. He was all right yesterday. He called you yester-
day afternoon to tell you about the resignation of Couve de
Murville. I am not sure that he got you.
H.M.JR: I read it in the papers. He was part of a
group that were kicked out.
MR. BERNSTEIN: One of three Commissioners--and some
other people, too.
H.M.JR: Have you contacted the State Department to
ask them to give me an interpretation of that?
MR. BERNSTEIN: We'll find out. Two people were in
yesterday from the French National Committee and told
White about that.
10
- 10 -
H.M.JR: No, but whom do you contact?
MR. BERNSTEIN: We could find out from the people
who have the liaison with North Africa.
H.M.JR: I'd like an interpretation of the whole
thing.
MR. BERNSTEIN: Yes, sir.
H.M.JR: Promptly; and also who is going in as
Minister of Finance.
MR. BERNSTEIN: Yes, sir.
H.M.JR: That is a funny one.
MR. PAUL: On the American end of it Currie is looking
for men very madly now at various posts over there.
H.M.JR: Tell him to keep out of the Treasury!
MR. PAUL: Well, I think he had his eye on John
Pehle, but he hadn't made any motions yet.
H.M.JR: Well, he had better keep out.
MR. GASTON: We have a lawyer in Foreign Funds who
is about to be drafted--a man named Lesser, a very good man.
MR. PAUL: Larry Lesser. He is a very good man.
MR. GASTON: Maybe Currie would claim nim and protect
him from the draft, or something.
MR. SULLIVAN: Generous guy! We've lost him, anyway.
MR. GASTON: We are going to lose him. He is going
to be inducted.
H.M.JR: Well, I hope Currie will keep his hands off,
seriously.
MR. PAUL: He has been talking with McCollester
again, trying to persuade him to make a move.
11
- 11 -
H.M.JR: Tell Harry to call them when Harry feels
well. Tell him to call up Lauch Currie and say I say he
should keep out of the Treasury, if he knows what's good
for him.
MR. BERNSTEIN: Yes, sir.
MR. PAUL: I can tell him that if you want.
H.M.JR. I'd rather have Harry do it, I think. Let
Harry do it. If he doesn't want to do it, I'll do it.
MRS. KLOTZ: I was going to say, why don't you do it,
yourself?
H.M.JR: I haven't enough evidence. This is all
just talk.
Is there anything else?
MR. BERNSTEIN: No, sir.
MR. BELL: I have nothing.
MR. THOMPSON: I have nothing.
Regraded Unclassified
12
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 10, 1943
TO
Secretary Morgenthau
Mr. Bernstein
FROM
Mr. White was advised late yesterday afternoon of the
dismissal of M. Maurice Couve de Murville as Minister of
Finance of the French Committee of National Liberation by
M. Alphand and M. Istel, representatives in the United
States of the Committee, but was unable to get in touch
with you. We have not received any comments from the
Treasury representatives in the field as to these develop-
ments.
One of the factors in Murville's dismissal appears to
be that he has been consistently out of step with the group
who are sympathetic to establishing an effective National
Committee in North Africa under the direction of General
deGaulle and who have desired to subordinate the French
Army to the will of the French Civilian Government repre-
sentatives. Though it has been known that Murville was
out of step with deGaullists in North Africa, it wa.6 not
known here that any action was contemplated against Murville
at this time. It would appear that your conversations with
Mr. Murphy and other officials in Algiers lent considerable
support to the liberal element in the Committee who have
been displeased by the refusal of the Ministry of Finance to
take effective action against the financial groups who have
collaborated with the enemy.
Prior to March 24, 1943, Murville was an important
official of the Ministry of Finance in Vichy and was respon-
sible for negotiations concerning financial and exchange
matters with the German Armistice Commission. He reportedly
obtained 8. German exit visa from France on the pretext of
continuing some official negotiations in Madrid.
On his arrival in North Africa, he was welcomed by both
groups of Frenchmen as a man who was particularly able in
his field and who had resisted the Germans in his duties
with the Vichy Government. The diplomatic representatives
of the United States and Great Britain in Algiers and London
were also unqualified in their recommendations of Murville,
both as to his abilities and as to his Allied sympathies.
Regraded Unclassified
13
- 2 -
However, during the time in which Murville held the post as
Minister of Finance in North Africa, he has lost the sympathy
of other French Government Departments and has resisted the
suggestions of American Government officials in respect to
taking effective economic warfare and financial measures.
Under his guidance, the Ministry of Finance has been extremely
reluctant to examine the financial manipulations of collabora-
tionists.
Murville's successor as Minister of Finance - Pierre Mendes-
France - was Under Secretary of State to Leon Blum in the Popular
Front Cabinet 1936-37. He was a member of the Chamber of
Deputies and a reserve lieutenant in the Army at the time of
the fall of France in 1940. On May 11, 1941, Mendes-France
was court-martialed and sentenced to prison for six years for
deserting the Army by embarking for North Africa with other
members of the Chamber in June 1940. On June 23, 1941, he
escaped from a military hospital at Clermont-Ferrand where he
had been transferred after receiving sentence. He was listed
on November 5, 1943, in e decree issued by the Vichy Government,
88 one of the Frenchmen deprived of their citizenship.
Regraded Unclassified
14
November 10, 1943
Fred Smith.
The Secretary.
(1) Would you please send a copy of the release that
you gave out to the newspapers about what I said before the
War Bond people yesterday to Mrs. Morgenthau?
(2) Whatever happened to that splendid statement you
prepared for me for the Russian meeting in New York? I saw
no reference to it in any paper. That's too good a statement
to have been lost. Finished
Regraded Unclassified
15
November 10, 1943
Robert McConnell.
The Secretary.
I saw General Greenbaum last night and he is entirely
familiar with this question of the disposal of surplus
Army plants and tools. He said he'd be very glad to discuss
it with you. He said, however, before the Treasury takes it
on, we'd better look at it twice because it's going to be a
terrific headache. General Greenbaum is Executive
Assistant to Judge Patterson.
Regraded Unclassified
16
WAR DEPARTMENT
THE CHIEF OF STAFF
WASHINGTON
November 10, 1943.
The Honorable,
The Secretary of the Treasury.
Dear Mr. Secretary:
I have your letter of November 6th
and am glad to know that you find the Joint
Intelligence Committee Weekly Summary of in-
terest.
I am sorry that we are unable to supply
a summary of the censorship of soldiers' mail as
you requested. Mr. Byron Price's Office of Cen-
sorship prepares a weekly summary of information
collected through censorship of civilian communi-
cations. Military censorship, however, is oper-
ated along different lines since the Army is pri-
marily concerned with the security of military in-
formation in theaters of operation, and no need
has arisen for a summary of the information along
the lines you indicated.
Faithfully yours,
Chief of Staff.
Regraded Unclassified
17
November 10, 1943.
My dear General Marshall:
I want to thank you for your kindness in making
such successful and efficient arrangements for my
recent trip to Africa and the battle front in Italy.
It would please me particularly if you would convey
to the officers and crew of the transport on which I
traveled and to those who had a part in the arrange-
ments my appreciation of their efficiency and their
personal courtesies to me.
Particularly I want to mention Major Henry T.
Myers, Captain of the flight; Captain Theodore J.
Boselli, the navigator; Lieutenant Elmer F. Smith,
the co-pilot; Captain John J. Farmer, the finance
agent; Master Sergeants Winslow and Horton and Private
Preydun, all of whom were good companions and did
everything possible to make the voyage 80 pleasant for
my associates and myself.
It was a trip from which I gained a great deal
of value to me in my work and one which I shall long
remember.
Sincerely,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
General George c. Marshall
Chief of Staff, United States Army
War Department
Washington, D.C.
wr
"Personal n envelye
18
My dear General Marshall:
I would like to let you know that the following members
of the crew of the ship that flew me to Cairo and back
were most efficient and expert at their jobs. They did
everything possible make me feel ===f=r=== comfortable.
I would appreciate your letting them know how much I
appreciated it.
Sincerely yours,
Guarg
General George C. Marshall,
Chief of Staff,
United States Army,
War Department,
Washington, D.C.
Regraded Unclassified
19
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
o Mrs. Klotz
November 8, 1943
ROM Fred Smith
You asked for the names of the crew members on the plane
that took us across. Here they are:
Captain of the ship
Major Henry T. Myers
Navigator
Captain Theodore J. Boselli
Co-Pilot
lst. Lt. Elmer Frank Smith
Crew Chief
Master Sgt. Frederick A. Winslow
Radio operator
Master Sgt. Charles A. Horton
Steward
Private John Preydun
Finance Agent
Captain John J. Farmer
FS
Regraded Unclassified
20
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
November 8, 1943
TO Mrs. Klotz.
FROM The Secretary.
I want to write a letter to General Marshall
complimenting the men of my crew on the plane. Let Fred
Smith get the names of all the men on the ship and then
I remember that I promised Major Meyers, my pilot, to
send him a box of apples.
Regraded Unclassified
21
COPY
The White House
Washington
November 10, 1943
Dear Mr. Secretary:
Although other agencies of the Govenment are prepar-
ing themselves for the work that must be done in connection
with the relief and rehabilitation of liberated areas, it is
quite apparent if prompt results are to be obtained the Army
will have to assume the initial burden of shipping and dis-
tributing relief supplies. This will not only be the case in
the event that active military operations are under way, but
also in the event of & German collapse. I envisage that in
the vent of a German collapse, the need for the Army to
undertake this work will be all th more apparent.
Therefore, I direct that you have the Army undertake
the planning necessary to enable it to carry out this task to
the end that it shall be prepared to perform this function,
pending such time as civilian agencies must be prepared to
carry out the longer range program of relief.
You may take this letter as my authority to you
to call upon all other agencies of the Government for such
plans and assistance as you may need. For all matters of
policy that have to be determined in connection with this
work, you will consult with the State Department for any
political advice; and upon the Treasury for such economic and
fiscal direction as you may need.
Very sincerely yours,
S/Franklin D. Roosevelt
The Honorable
The Secretary of War
Washington, D. 0.
Regraded Unclassified
22
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF
NOV 10 1943
COMMISSIONER OF INTERNAL REVENUE
ADDRESS REPLY TO
LUMBER OF INTERNAL REVENUE
AND REFER TO
ILS
Mt
Memorandum for the Secretary:
This memorandum relates to the present status
of the nontax-paid liquor traffic in its relation to
the current liquor shortage and the resulting black
market in taxpaid distilled spirits.
Sugar rationing and other war-time restrictions
have reduced nontax-paid liquor traffic to its lowest
level since repeal of national prohibition. "Mash
gallons" seized at illicit distilleries--which is
considered the best measure of the extent of the
nontax-paid liquor traffic--decreased from 21,000,000
gallons for the fiscal year 1935 to 7,500,000 gallons
for the fiscal year 1938. From that time the level of
yearly mash seizures changed little until after the
entrance of this country into the war. During the
fiscal year 1942, including six months of war-time
operations, mash seizures dropped to 5,400,000 gallons.
In the fiscal year 1943, during which year sugar
rationing was in full effect, mash seizures were further
reduced to 1,700,000 gallons (See Exhibit No. 1,
"Comparative Seizures and Arrests of the Alcohol Tax
Unit, by Supervisory Districts, Fiscal Years 1935 to
1943, Inclusive.") There has been no appreciable
increase in the nontax-paid liquor traffic during the
first three months of the fiscal year 1944 despite the
shortage in domestic whiskies in wholesale and retail
channels. (See Exhibit No. 2, "Comparative Statement
of Seizures and Arrests During Three-Month Period, July,
August, and September, 1941, 1942, and 1943.")
The above data forcibly portray the effect of
23
Memorandum for the Secretary
Page 2.
war-time restrictions on the nontax-paid liquor traffic
and lead the Bureau to conclude that the basic tax rate
on distilled spirits could be further increased for
the duration of the emergency without creating a law
enforcement problem which could not be attacked
successfully.
While there has been no appreciable increase in
bootlegging of nontax-paid distilled spirits, there has
in the past sixty days developed an extensive black
market in taxpaid domestic whiskies, due to the fact
that distillers--under self-imposed rationing--have
taxpaid and released for consumption only about 65 per
cent of the quantity taxpaid a year ago. The situation
is particularly bad in the monopoly states where, due
to the inability of state store systems to supply the
trade, racketeers have taken full advantage of the
situation. Black market prices range from $10 to $30
a case above ceiling prices in different sections of
the country, depending on the supply.
The Bureau is now making & survey to determine
the effect of industry-imposed rationing, and to
determine whether the industry is participating in black
market operations. This survey has included an
examination of the merchandising methods of distillers,
and wholesale and retail liquor dealers. Investigation
indicates that in license states wholesalers are
supplying fully the requirements of cocktail rooms and
bars and discriminating against the package stores,
with the result that this type of outlet can supply
only a small fraction of the demand. Dissatisfaction
of the public with this condition has undoubtedly
resulted in the wave of publicity relative to the liquor
shortage, black market conditions, and bootlegging. In
many articles the terms "black market" and "bootlegging"
are used synonymously without regard to their applica-
tion to taxpaid or nontax-paid liquor.
Regraded Unclassified
24
Memorandum for the Secretary.
Page 3.
While the Bureau is not charged with responsi-
bility of enforcing price ceiling violations, yet
because of the ultimate effect of black market
operations on law enforcement generally, every effort
will be made to suppress these operations through
enforcement of the applicable statutes.
Commissioner.
Enclosures.
Regraded Unclassified
25
Exhibit No. 2
COMPARATIVE STATEMENT OF SEIZURES AND ARRESTS DURING
THREE-MONTH PERIOD, JULY, AUGUST, AND SEPTEMBER, 1941, 1942, AND 1943
Stills
Mash
Vehicles
Persons
Year
Seized
(gallons)
Seized
Arrested
uly, Aug. & Sept.
1941
2,782
1,454,339
1,104
5,581
uly, Aug. & Sept.
1942
1,534
423,714
386
2,835
aly, Aug. & Sept.
1943
1,471
389,286
293
2,558
Prepared by:
Procedure Division,
Alcohol Tax Unit,
Bureau of Internal Revenue.
November 5, 1943.
Regraded Unclassified
RADE No. 1
- SECTIMES - - with TAX MIT, INVESTMENT
PERRAL TEAMS un, 115, 1157, 1135, 1999, 199, 191, 191, -
Total
Taxis
public
1
1235
in
140
28
1938
189
M.177
ind
347
199,740
⑉
1997
150
30,445
BI
10%
#
5,115
1938
IN
18
137,633
0,00
E
1,944
1939
in
455
1390
to
REPRESENT
1/95%
a
Regraded 2 Unclassified
193
1,180
SEP
1,671
1,0%
05,391
F
E
!
1935
676
$44,000
29,154
1,00,200
4936
570
133,445
you
188,343
4997
546
160,134
⑉
99,511
1,85,00
18,177
1334
1
105,986
ist
34,7%
$10,750
-
not
935
69,878
197
34,555
1990
**
60,177
159
17,510
5,009
1991
377
u.s.
154
19,714
4,119
350
50,633
(ii)
19,756
3,050
6.99
193
m
11,851
ut
6,881
10,00
151,783
MAR
1,913
3- Philadriphia
4935
MI
-
59,578
1936
you
76,405
34,700
360,184
1,343
5,837
1957
Not
38,957
333,443
48,711
1938
100
14,734
130,177
ISAB
1939
(9)
35,727
170,800
1999
13,000
4,113
$9,751
7,419
into
134
4,600
3,537
16,199
"
-
:
If
as
118,491
1936
111
38)
95,413
40,340
in?
n
20,500
307
133,500
115,455
7,340
1938
16,190
105
460,510
1139
19,179
168
14,354
47,983
1940
10,985
141
7,842
799,139
1991
1,000
153
4,447
194
=
1,357
116,500
19)
⑉
130
19,199
1,997
1,19
3-
1991
1,513
401,076
17)
1994
in
175,000
407,370
1937
3,406
$81,000
181
1,937
141
346,151
1931
1,368
308,809
IN
340,530
IN
156,500
N-!!!
1941
1,586
330,003
129
9,49
1942
in
-
(9)
1,189
187,109
II)
10,401
948,651
⑉
154,991
0,19
9,547
- stiente
1935
3,197
III
11,147
⑉
03,041
16,16
1936
1,797
055.370
18
37,415
1,819,731
1,109
176,635
1937
5,384
"
93,181
1,000
264,076
199,490
29,139
4,487
1,065,496
1,90
4,315
630,605
3,867
363,128
17,946
130,161
(99)
4,496
183,351
TAX
17:
1992
3,049
976,389
159
17,195
735,50
158,157
0,00
6,059
LIF
To indeville
1931
1,356
us
1936
1,135
157,506
us
31,307
843,242
1997
1,310
130,955
193
11,507
60,841
14,806
1938
1,133
135,531
101
0.99
$28,200
148,040
1,18
11,797
1935
1,307
199,887
107
17,443
457,507
147,000
11,241
1940
1,357
161,799
16,015
174,130
1,99
1991
1,18
160,411
200,204
194
1,377
189,154
137
4,85)
191
535
09,150
147
3,60
101,568
65,50
your
1,953
a.
1935
1,01
179,413
174
1,439,078
m.s.
1936
183
109,411
1,08,49
1937
Ma
⑉
49,055
655,990
1934
105
45,644
41,058
3,804
1938
483
115,495
51,999
31,153
1390
194
10,019
51,648
35,537
1991
age
15,070
7,445
18,134
IIIIII I INITED 14 ###### 16 20202 - : issued
1942
131
5,333
60%
1993
sig
1,175
6,991
1,197
any
N
1.
Chicago
1935
1,007
IN
101,054
1,053,551
157,451
1,135
NII
1336
ESA
21,135
1997
551
1338
NES
11.520
149
1932
387
35,759
15,300
477,375
1990
⑉
11,606
3,437
1991
169
11,460
1941
in
XM:
1993
19
1,038
197
1,363
1,85
14. See
1722
1,899
160,71)
93,445
199,145
3336
1,845
143,481
11,300
1992
1,765
563,000
6,540
1938
1,263
1929
1994
1,001
75,447
10,005
1,511
184
1,000
304
CGB
1995
934
31,205
1,786
75,130
1,331
a. time the
1335
1,131
128-727
100
135,660
1334
1,1%
197,951
$14,687
73,447
11.99
5,35%
1937
1,040
90,381
449,411
105,743
1938
877
141,539
1,18
1,4%
1932
497
2,311
1390
M.I.
1,40
LMI
1991
1994
1993
179
10,833
1,199
6,34
10,00
F
F
this
144
24,037
75,654
4934
#6)
17.722
75,448
1,831
1997
195
1958
60
4,450
5335
1,00
at
1390
1,40
1991
TAX
=
1,455
$
193
?
1935
13,407
11,130
194,119
144
15101
10.43
1936
as
10,640
1992
Hi
1,000
1,400
299
1938
503
1,493
1939
die
E
1,4)
1998
359
1,134
1991
114
12hr
1993
183
24. 3am
1725
ass
138
95,
1936
as
19,988
183
106,530
1992
164
15,149
9.13
1358
136
6,48
20,221
466
1139
184
3,414
1,138
33,523
11,177
1394
105
3,987
1941
100
4,177
18,159
181
=
1,00
1,17
1,1ki
(A)
413
199
in
us
MY
3.299
R
Lip
-
LIM
934
7,589
E
114
INI
i
=
1
19)
134
final
stars
"
plint
y
1954-
!
27
NOV 10 1943
Memorandum for the Secretary:
This memorandum relates to the present status
of the nontax-paid liquor traffic in its relation to
the current liquor shortage and the resulting black
market in taxpaid distilled spirits.
Sugar rationing and other war-time restrictions
have reduced nontax-paid liquor traffic to its lowest
level since repeal of national prohibition. "Mash
gallons" seized at illicit distilleries--whioh is
considered the best measure of the extent of the
nontax-paid liquor traffic--decreased from 21,000,000
gallons for the fiscal year 1935 to 7,500,000 gallons
for the fiscal year 1938. From that time the level of
yearly mash seizures changed little until after the
entrance of this country into the war. During the
fiscal year 1942, including six months of war-time
operations, mash seizures dropped to 5,400,000 gallons.
In the fiscal year 1943, during which year sugar
rationing was in full effect, mash seizures were further
reduced to 1,700,000 gallons (See Exhibit No. 1,
"Comparative Seizures and Arrests of the Alcohol Tax
Unit, by Supervisory Districts, Fiscal Years 1935 to
1943, Inclusive.") There has been no appreciable
increase in the nontax-paid liquor traffic during the
first three months of the fiscal year 1944 despite the
shortage in domestic whiskies in wholesale and retail
channels. (See Exhibit No. 2, "Comparative Statement
of Seizures and Arrests During Three-Month Period, July,
August, and September, 1941, 1942, and 1943.")
The above data foroibly portray the effect of
Regraded Unclassified
28
Memorandum for the Secretary
Page 2.
war-time restrictions on the nontax-paid liquor traffic
and lead the Bureau to conclude that the basic tax rate
on distilled spirits could be further increased for
the duration of the emergency without creating a law
enforcement problem which could not be attacked
successfully.
While there has been no appreciable increase in
bootlegging of nontax-paid distilled spirits, there has
in the past sixty days developed an extensive black
market in taxpaid domestic whiskies, due to the fact
that distillers--under self-imposed rationing--have
taxpaid and released for consumption only about 65 per
cent of the quantity taxpaid a year ago. The situation
is particularly bad in the monopoly states where, due
to the inability of state store systems to supply the
trade, racketeers have taken full advantage of the
situation. Black market prices range from $10 to $30
a case above ceiling prices in different sections of
the country, depending on the supply.
The Bureau is now making a survey to determine
the effect of industry-imposed rationing, and to
determine whether the industry is participating in black
market operations. This survey has included an
examination of the merchandising methods of distillers,
and wholesale and retail liquor dealers. Investigation
indicates that in license states wholesalers are
supplying fully the requirements of cooktail rooms and
bars and disoriminating against the package stores,
with the result that this type of outlet can supply
only a small fraction of the demand. Dissatisfaction
of the public with this condition has undoubtedly
resulted in the wave of publicity relative to the liquor
shortage, black market conditions, and bootlegging. In
many articles the terms "black market" and "bootlegging"
are used synonymously without regard to their applica-
tion to taxpaid or nontax-paid liquor.
Regraded Unclassified
29
Memorandum for the Secretary.
Page 3.
While the Bureau is not charged with responsi-
bility of enforcing price ceiling violations, yet
because of the ultimate effect of black market
operations on law enforcement generally, every effort
will be made to suppress these operations through
enforcement of the applicable statutes.
(Signed) Robert E. Hannegan
Commissioner.
Enclosures.
it
Regraded Unclassified
30
Ex.no.2
COMPARATIVE STATEMENT OF SEIZURES AND ARRESTS DURING
THREE-MONTH PERIOD, JULY, AUGUST, AND SEPTEMBER, 1941, 1942, AND 1943
Stills
Mash
Vehicles
Persons
Year
Seised
(gallons)
Seized
Arrested
July, Aug. & Sept.
1941
2,782
1,454,339
1,104
5,581
July, Aug. & Sept.
1942
1,534
423,714
386
2,835
July, Aug. & Sept.
1943
1,471
389,286
293
2,558
Prepared by:
Procedure Division,
Alcohol Tax Unit,
Bureau of Internal Revenue.
November 5. 1943.
Regraded Unclassified
Ex no.1
contain - - ARREETS - - name TAS BIT, ET REPRESENTE
FIRSAL THANK 2339, 1136, 1997, 1138, 1171, 184, 191, 196 - 1993
-
Time
strange -
--
false of
false of
of
dister
reported
Supervisory
Tears
INSURER
nais
sais -
wind
claims more
-
-
---
pr
signature
results
wind
-
-
Pagelar
regation
-
sprives
V
Tim
and
un
Lig
40,175
368
3
423,499
203
" -
iss
=
,
,
1334
134
48,117
ist
14,697
416,113
167
150,74
201
1397
150
259
17,047
308,493
LA
10,50
Mr
1-15
4,000
1234
us
san
11,126
137.44)
"
03,347
488
1,345
4333
LA
1,184
11.4)7
$1,143
ANS
LAP
1,447
1940
13/M
⑈
1,18
01.739
11/19
518
LIN
199
W:10
17.754
301
154
8
11:18
209
AND
IN
"
1,190
in
1,01
1,0%
29,kml
97,291
us
0,31
130
#
1. live this
un
$46,040
199
P.IN
1,133,411
46,00
1,174
14.117
1956
111,445
-
187,337
LAST
19,179
1957
544
140,134
in
IN
148,197
1,98
11,435
in
1934
548
105,344
139
111,794
197
$13,493
119,467
1200
EM
in
1137
435
197
11.555
091,786
I)
10,00
1,48
4.81
MM
199
434
68,177
159
17,500
70,444
867
171,40
33,53%
1,104
3-13
Les
1991
197
4,19
ist
10,718
the
101.17)
A/
1,272
4.73
1,18
UAT
354
10,613
in
15,75
vive
is
95,438
1,05%
4.18
6th
1993
in
11,852
115
(,Mi
20,65
91
131,783
sus
1,48
1,515
1.
1935
su
70,443
144
99,370
137
100,000
4-73
4,69
use
504
70,425
114
34,700
160,185
in
197,784
1,343
5,137
1937
5
00,156
100
19,257
133,863
149
1,477
4,079
1938
the
16,730
11,177
134,179
143,847
1,199
1,195
1939
203
15,999
14,837
170,606
122,024
1,392
1,537
1990
11,000
4,119
169,181
199
7,345
117,444
3.19
(9)
4,600
3,537
VGTA
"
0,00
R.M.
1.68
========
1993
"
667
1)
-
1-12
and
14
4,
1995
332
$
⑉
users
1334
128
46,681
49,452
34,685
88,560
3.54
11,947
1137
18,546
18,485
358,877
133,380
125,455
7,388
1938
16,850
11,338
443,310
33,347
18,163
170
1.10
1739
13.174
19,355
04,954
67,949
11,638
1.0
INI
10,545
iss
7,452
709,149
31,165
13,454
16,000
1994
8,001
151
5,417
11,152
11,141
I
1992
3,1%
1,347
17,100
NO
no
1.45
1:38
-
if
193
1,198
193
130
0,00
1,347
1,19
104
%
195
1,313
401,078
47)
63%
$48,334
313,356
4,865
13.19
state
114
1934
1-358
192
70,534
3-553-772
663
40,370
171,377
3.757
35.29
38,055
1997
3,406
141
79,915
3,007,450
in
137,147
5,187
37.93
33,900
1938
1,937
173,449
$8,800
346,151
161,403
4,381
31.05
16,793
1335
1,568
1,733,133
360,130
157,350
9,187
0.0
14,353
504
1390
156,000
1,867,536
255,000
1,00
11,350
106
Eyes
1,984
130,013
LES
$2,695
1,780,115
9,952
Code
1948
1,474
179
-
199,333
(A)
1,189
117,349
...
10,401
na
133,998
40,833
1,334
11,70
1,347
4. stiants
1955
3,337
###
31,147
3,514,310
⑉
au
01.00
10,16
13.07
55,233
1934
1,799
856,570
⑉
97,435
2,815,733
110
176,035
CA
44,63
33,490
1937
5.544
1,200,000
133
5,148,487
1,000
140
764,076
199,493
7,005
94,47
1938
5,087
265
97,338
4,307,313
1,005
191
6,00
M.M.
25,451
1999
5,145
1,005,400
147,158
1,500,000
1,409
670,605
244,655
5,490
33.48
25,018
un
1990
JUN?
353,208
07,348
8,067,196
130,001
7,400
34.14
18,403
III
1991
4,475
27,334
2,481,417
193,955
Los
kt.
BAR
Let
TAV
1,544,317
09,058
muys
4,432
DE
125
I
1943
3,043
976,189
us
17,159
75,30
198,157
0,00
1,599
6,018
434
7. Legistille
1935
1,356
179,941
344
14,779
1,003,469
END
200,135
1,300
17-335
1336
FLRS
157,506
124
31,207
179
115,431
33,406
1,287
it.it
19,145
1937
1,340
134,954
103
32,307
799,389
N°
179,642
60,841
603
H.R
14,506
1934
1,133
115,530
43,345
172
168,040
73,000
2,40
BLD
11,719
1939
1,387
140,187
$7,493
457,547
147,048
1,193
12-25
11,7%)
1340
1,357
141,791
88,215
175,199
174,930
29,164
ENE
10.18
City
1391
3,443
2,586
Biller
1942
1,377
18,84
137
18,555
179,351
nime
MM
Ch:
INT
135
89,250
147
3,447
101,761
0,10
35,531
741
14.19
1,953
1. beledit
1175
1,038
179,419
75,847
1,430,078
⑉
134,111
1,9%
1936
1,174
253,471
193
104,433
1,450,434
138,725
1,348
15.40
19,996
1932
43a
197,568
...
47,495
635,500
1,734
10.38
520
1834
105
45,600
107,153
41,050
the
1939
MIL
12.751
14,300
115,000
33,453
3.43
1,99
1940
3N
13,348
37,510
11,040
5.66
will
use
190
15,070
visa
29,564
14,994
44d
4.48
1941
DE
5,333
15,492
56
No
348
all
193
##
995
1,179
4,395
1,397
⑉
as
, Things
1913
1,00
134,495
105,054
1,337,445
1,055,381
159,451
1,134
11,598
1934
856
149,350
63,817
1,304,337
163
70,605
1,289
11,39
111
1937
451
111,847
43,605
1,113,179
1,39F
9,011
113
1938
was
59,630
149
33,453
54,774
lis
1933
187
31,751
114
25,389
477,995
188,405
47,183
3-34
4,tit
1940
10,004
17,109
330,356
45.202
in
1.11
1,497
1941
169
11,440
1,451
2
in
%
GRS
543
=======
1993
1,038
187
1,36)
1,850
7,19
4,151
175
- ---
1935
Libe
33,445
327,073
157,953
3,963
15.14
11,509
1934
1,14
143,461
38,301
679,753
M3%
11.75
6,330
1107
1,765
14,477
23,366
149,000
90,000
1,435
10.17
6,940
1938
1,16)
15.147
13,400
304,052
15,000
15-35
139
1339
LIB
8.98
11,114
317,751
1,948
1,84c
1940
1,001
75,447
или
123,500
$3,404
1,331
5,511
1941
Latt
0.15
10,491
1941
M
%20
Code
1:00
CGI
193
518
11,48
1,716
19,199
00,739
15,459
1,00
1.38
1,331
the an
1935
1,191
137,777
36,121
19,14
197,431
98,314
3,117
17-18
11,735
1994
um
107,121
$24,647
128,549
73,447
1,00
15-35
6,39%
1937
1,80
8,417
$49,411
407
185,263
1,814
11.25
5,314
1931
897
A,IN
0,3%
112,199
47,873
1,18
10.0
1,474
1999
497
18,394
11,436
35,379
6,00
1.15
1,111
1990
199
4,18
7,639
156,754
1,935
7.88
1,957
1991
the
IN
4/4
MM
CIS
stat
foll
1993
171
10,133
1,199
8,311
10,00
01,100
es
1.17
11. as. Not
1335
114
29,037
13.190
119,749
1,14
3,777
4356
163
17,733
17,895
117,449
99,582
3,157
1,031
1337
in
7,111
10,400
48,347
94,513
59,537
1,1%
1938
to
4,450
5,906
11,300
35,500
30,845
222
317
1939
1,40
6,174
$4,000
15,183
Lill
115
1348
1,441
1,04
13.797
1991
1,046
1,487
1,94
4,455
1.00
-
GAT
ist
are
4,358
-13
1995
-
the
?
33. bower
1335
13,547
11,130
04.00
75,189
15,557
1,585
10.40
1,500
4336
ass
10,500
3.768
12,449
31,379
14,511
584
7.98
3932
1,149
a
1,428
18,145
10,500
15.053
34%
3-87
3338
2
1,111
1,093
17
1939
Na
444
sib
1,450
1.134
384
149
3340
35%
799
sus
1941
DE
114
5
1,40
LE
1394
ۤ
"
or
-
"
181
5e
=
MD
ik. -
1135
145
ist
NJH
1,004
1336
as
19,472
19,388
137,757
11)
136,330
87,393
200
4,461
1937
144
11,400
15,10
33,7%
34,533
442
1,138
1338
1,36
1.13)
11,194
36,181
NAM
1,305
1939
141
5,414
1,132
44,937
43,993
14,177
MI
1999
105
3,387
1,71
11,300
7,M)
6,99
1,833
1941
199
4,179
1,136
11,19
4,753
1290
NO
1.17
I.RI
11,6M
11.179
1.53
IRI
en
26
in
TA
4,00
11. Mettis
in
38,415
11)
11,991
in
1,854
1936
187
14,993
1,00
as
0.16
9f,549
1957
4,400
1,413
17,09
0,00
14,193
199
3338
E
1,477
603
5m
1,30
LMR
399
R$
1937
1,491
de
7,866
3,309
1,7%
IN
1-33
1250
=
1,1%
ass
Last
NAM
114
181
or
LE
1,985
111
1.43
193
1
was
3
THANK TIME
un
46,711
vo
1934
15,40
1937
16,141
NM
11,477
1,099
1931
15,497
use
1.11)
1,000
11,959
157
-
Code
3,009
um
1,91,75
-
m.st
1951
und
M
7,599
INI
13.1F
199
IN
90,90
7.19
Bet westlence la supervisity for Fished juro 1111 and 10%
Imited Não of 17,000 ted -
-
- -- of - My 1905
-
Immigations
I
i
settes
Regraded Unclassified
32
OFFICE
SECRETARY OF TREASURY
NOT TO BE RE-TRANSMITTED
1843
NOV:
11
PM
U.S. SECRET
BRITISH MOST SECRET
TREASURY DEPARTMENT
Optel No. 369
Information received up to 10 A.M. 10th Nevombor, 1943
1. NAVAL
Last night one of H.M. destroyers sank a patrol nd mmunition
corrior and captured motor Launch in the STRAIT OF OTRANTO, another motor
Lounch vas Mestroyed. Yesterday a U-Boat was sumk by an aircraft Northwest of
the AZORES.
2. MILITARY Italy 8th Army Indication: that the onemy has decides to limit
nio delaying operations East of SANGRO. 8th Indian Division
have advanced Test of GI631 end astride the Interal road et CASTIGLIONE. Canadians
entered CAROVILLI unopposed on 8th, but net major demolitions alon the roads,
2 places being still impossible even to curriers. Furth C loft troopa of 5th
Division have entered FORLI.
5th Army Determined enemy rusistance -11 .lon, the front.
Unlood Statos Divisions use counter attacked strongly on the 8th at MONTAQUILA
and SIGNANO, but the enom/ 13 Griven off with c naiderable Losses in killed and
prisoners. British form ti no also counter-ntt cked, cut now firm.
Nothing to report coastal sector.
3. AIR CP RATIONS lestern Front 9th Fighters damaged 14 locomotives in FRANCE
and BENGIUM. 4 fighter missing. b Mosquito
destroyed a ME 110 over DENMARK. 9th/10th. Aircraft despatchod: BOCHUM 15,
CHISBURG 3, Intruders 8 (1 missing), anti-ship ing.6.
Italy 8th. 81 ascorted Fortrosson boabed C. Boll-boaring
f' ctory as TURIN dropping 183 conr. Bevore damage
caused to the Inctory, lao. to reily liner n' buildings in the Fiat Works.
the of 153 fighters n° fighter-bunbers attacked objectives in the battle acos.
Albania 7th/8th 6 Bostoms attecked the ROCKS nd shipping at
DURAZZO
Aegean 8th. 4 bargos, 1 F-Boat no (1 ship VODE hit ith cummun
fire off AMORGOS ISLAND. at 300m BAY CRETE a 1000 ton
shi as bumbur and hit.
Dodécanese On 7th in 8th towi of 15 energy dircraft attacks
CEROS destroying D-W ammunition.
Regraded Unclassified
33
November 11, 1943
9:16 a.m.
HMJr:
Hello.
Operator:
Mr. Patterson will be there in about twenty
minutes.
HMJr:
How many minutes?
Operator:
Twenty.
HMJr:
Well, when he gets in I'd like to talk to him.
Operator:
Right.
9:41 a.m.
HMJr:
Hello.
Robert
Patterson: Hello.
HMJr:
Henry talking.
P:
Yes, Henry.
HMJr:
Have you got a moment?
P:
You bet.
HMJr:
How are you?
P:
Fine.
HMJr:
Bob
P:
I saw you in the distance after your return, but --
I saw you in the distance after your return.
HMJr:
Oh. Well, I haven't seen you at all.
P:
I was coming from a meeting at Harry White's
office and.
HMJr:
Oh.
P:
....you and General Marshall were just coming out
of your door.
Regraded Unclassified
34
- 2 -
HMJr:
I see. Well, I'm sorry.
P:
About three or four days ago.
HMJr:
Well, I'd like to throw something at you a
little bit out of my line but it disturbs me
and
P:
Want me to come -- want me to come over?
HMJr:
Oh....
P:
I'd be glad to.
HMJr:
Well, do you want to do that sometime?
P:
I'd be glad to, anytime. I can do it --
suppose I come at 11:00 o'clock. Is that
all right?
HMJr:
Well, McCloy and Hilldring are coming at 11:00
on AMGOT.
P:
Well....
HMJr:
What?
P:
Well, anytime you say.
HMJr:
How -- what -- is 2:30 good or bad for you?
P:
I've got to go down and talk to the Selective
Service State Directors this afternoon.
HMJr:
Oh.
P:
It's just a talk. I could come at 2:00.
HMJr:
Uh -- 2:00?
P:
2:00.
HMJr:
Would be perfect.
P:
2:00.
HMJr:
Yeah.
P:
I'll be there at 2:00.
- 3 -
35
HMJr:
Fine. -
P:
Thank you, Henry.
HMJr:
Thank you.
P:
Right. Good bye.
Regraded Unclassified
36
November 11, 1943
I took the attached memo up with Robert
Patterson, and Patterson said he is going to send
for Sherwood and talk to him about it.
37
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO Secretary Morgenthau
November 5, 1943
FROM Fred Smith
Attached is the Readers Digest in question.
You will recall that Alexander Kirk and Russell Barnes of
OWI Cairo both objected to printing this article in time to stop
it. Barnes' objection was based on the fact, he said, that it
is wholly untrue, and that its publication would, without a doubt,
undermine the morale of soldiers.
Readers Digest complained about censorship to Jim Linen, the
ONI man in charge here in Washington. Linen overruled the
objections. Linen is a Time, Inc. man.
You will recall that Readers Digest deal was cooked up by
Paul West of Time, Inc., who at that time was in OWI Cairo, and
another man whom I understood was connected with the Special
Service division. Russell reports that the latter gentleman
recently left the Special Service division and became a top
executive for Readers Digest.
You will also recall Barnes' report that Special Service is
now planning to buy thousands of copies of Readers Digest out of
Army appropriations and distribute them free of charge to soldiers.
At present they are being sold at a "non-profit rate" and the
Army is providing shipping space for paper to Cairo.
Please also note that copies are sold through retail book
sellers in Egypt for P.T.4, which would indicate that the whole
business is subsidized even for retail distribution.
The Arabic edition attached was given to me in Algiers by
C. D. Jackson of OWI (and of Time, Inc.), who said it was "an
OWI activity" there.
FS.
Regraded Unclassified
38
Message from Robert Sherwood via his secretary
to E. J. FitzGerald, November 11, 1943 - 1:57 p.m.
"Mr. Sherwood has received serious complaints
from O.W.I. representatives in Stockholm
and Chungking as well as Cairo and Algiers
against the Readers Digest.
Articles have been published in Swedish,
Chinese, Arabic, and English (for our own
troops) slurring Russia and China and our
own government. Indeed, in Sweden an anti-
Chinese article was published by the Readers
Digest which had previously been widely
circulated there by the German propaganda
machine."
Regraded Unclassified
39
November 11, 1943
3:00 p.m.
FINANCING
Present: Mr. Daniel Bell
Mr. George C. Haas
Mr. Henry C. Murphy
Mr. Wesley Lindow
Mr. Sydney G. Tickton
H.M.JR: (To Mr. Tickton) I want to talk to you about
airplane statistics.
MR. TICKTON: I was talking to War Finance.
H.M.JR: How about tomorrow?
MR. TICKTON: Yes, sir.
H.M.JR: Manana, that's tomorrow. Manana Manana, that's
day after tomorrow!
MR. BELL: If you say it enough, it's next week.
H.M.JR: And it usually is a week, in Spain!
Go ahead.
MR. BELL: Well, the Federal Reserve people are coming
in here at three o'clock, and they have quite a proposal
which I don't think we can settle today, and which I
think probably the best thing to do is for you to just
listen and say in the end, "Well, this is the first chance
I've had at it, and I'll be glad to go over it with the boys
and then maybe have another conference."
They want to raise the short-term rate of three-eighths
percent on bills. I think the Board favors this proposal
to issuing nine-month, three-quarter percent Treasury bills.
H.M.JR: Wait. They want to raise the three-eighths?
That is an old story.
MR. BELL: Yes. And they want to substitute for the
one-year certificate, seven-eighths; and for the present
40
- 2 -
Treasury bills a three-quarter percent, nine-month bill.
And they would establish 8. three-quarter percent posted rate
just like they have the three-eighths percent, with some
addition, as Eccles explained it, as an afterthought, that
they would have flexibility in that posted rate from time
to time.
The System voted to change the three-months bill, three-
eighths, to a half percent; or 8 four-months bill at five-
eighths percent. Now, the System, I think, favors that
scheme--keeping the two types of securities in the market,
Treasury certificates and bills, but lengthening the bills
by month and raising the rate by quarter. They claim that
there is too much of a spread between the three-eighths
percent rate at the low end of the curve and the two and a
half percent on the far end of the curve; that if they keep
the three-eighths percent rate there is going to be a down-
ward trend in the two and a half percent.
H.M.JR: What do you mean, "a downward trend"?
MR. BELL: Less yield on long-term securities, or
extending the securities so that they would have a post-war
problem maintaining that market.
MR. HAAS: Upward trend of prices.
MR. MURPHY: It is going to get too good.
MR. BELL: Then that will increase their problem in
the post-war period. They would like to keep the present
curve with the lower end of it raised a little and narrowing
the spread between the short-term and the long-term.
H.M.JR: It doesn't make sense to me. Listen! Are
any banks not earning enough money?
MR. HAAS: They have forgotten that argument now. They
have a post-war argument on the same problem.
H.M.JR: Aren't the banks doing all right?
MR. MURPHY: Even Chairman Eccles say 80 now. He says
he wouldn't like to sell this on the basis the banks aren't
earning enough money. They are doing all right.
H.M.JR: Wasn't that the argument a year and a half ago?
Regraded Unclassified
41
- 3 -
MR. TICKTON: But Mr. Ransom, who sat next to me at
lunch, apologized and said they had given up that argument,
except a scattered few.
H.M.JR: Isn't the Federal Reserve making plenty of
money? (Laughter) I couldn't do this without referring
this to Jimmie Byrnes and Vinson on stabilization of prices.
(Laughter)
MR. BELL: Well, that is one of our arguments. It is
breaking the line.
H.M.JR: Don't the Federal Reserves ever learn anything?
MR. BELL: Well, they have a lot of arguments. They
never run out of arguments.
H.M.JR: Different arguments, but the same result.
(The Secretary left the meeting to take a telephone
call) If these men should come, you show them in,
will you?
MR. BELL: Yes.
MR. MURPHY: You never need to run out of arguments
when you can roll the old ones over and get practically a
hundred percent exchange.
MR. HAAS: Most of the argument is the same argument.
MR. TICKTON: Post-war.
MR. HAAS: That post-war is a little current setting of
the thing, that is all.
MR. BELL: I think they would have & post-war problem
if the thing happened that they fear would happen. If you
go up to 1965 or 1970 on a two and a half percent basis,
you might have a post-war problem.
MR. LINDOW: I can't see the problem is any different
going from one rate to most any rate.
MR. BEIL: There'll be pressure to increase rates after
this war.
Regraded Unclassified
42
- 4 -
MR. LINDOW: That pressure will be there whether it is
two and & half or two and & quarter.
MR. BELL: That would be between two and a quarter, two
and a half, or three, wouldn't it?
MR. LINDOW: Even then the change is what is important.
If the change that is needed at the present time--if there
is any way of determining it was a half percent, it would be
B. half percent from two and a quarter to two and three
quarters or a half percent from two and a half to three.
MR. MURPHY: Except, Wes, people have gotten in the
groove at two and a half and have become psychologically
accustomed to it. It would take them another five years to
become accustomed to two and 8. quarter, and you would have
an unsettled situation. But the worst is that you might end
the war with that further than you have now. Nothing quote
worse unquote than that could happen.
MR. BELL: That is the way I feel about it. I don't
think that that place out there is going to get so rich with
gravy. I think it is going to stay pretty stable, because
everybody has been looking for another issue of two and half
for the last six months. It is going to stay there.
MR. TICKTON: They have it so closely figured among the
insurance companies, according to Colonel D'Olier, that when
we decided to move from December to January it made a definite
change in his forecast. They are figuring that the next
drive is coming, so how can you get such a lot of gravy. A
year doesn't make anough difference in that rate to cause
all that concern.
MR. HAAS: You have got the market separated. Those
are not available to bank purposes in the long run.
MR. BELL: I'd be more afraid of putting too many
securities out there in the same area with the limited market
and depressing the market, because the people don't want all
their basket out that far. They'd rather have something
back and have it diversified. I would be more scared of that
than I would of their fears.
MR. MURPHY: Absolutely.
Regraded Unclassified
43
- 5 -
MR. LINDOW: My view isn't that we ought to get the rate
down to two and a quarter, but I don't have as much of a
feeling on this changing from one given rate rather than
from another given rate. I feel the dynamics of the
thing will be the main problem in the post-war period, and
not the actual level. I grant Henry's point that people
are more accustomed to two and a half now, and if you change
it that adds uncertainty.
(Secretary returns to meeting)
H.M.JR: I'll just coast along until I see all those
people coming.
MR. BELL: I can just tell you two things: The Federal
Reserve System has maturing each week Treasury bills in the
amount of anywhere from about two hundred million up to
maybe five hundred million. There are some weeks that
they may have half of your offering maturing, or an amount
equivalent to half your offering, in which you are asking--
when you ask for tenders of bids on a billion dollars--only
half of that many in the market. People are only bidding,
really, on about half of the bills. So the Federal has the
other half. They haven't been bidding or exchanging, so it
means that the market has to buy a billion dollars worth of
bills when it may only want the half billion it has.
So they have to, in effect, have people put in bids and
take them off their hands. They want to come directly to the
Treasury and put in 8. bid--say 8. three-eights--and get the
maturing bills that way. If the market wants any more, of
course they put in less bids. They have a problem which I
think we have got to meet. The boys here feel that you are
going to get some criticism from the public, that here is
your first step, financing through the central banks.
H.M.JR: Well, we'll have to think about it. These
things don't have to be settled today.
MR. BELL: They have done & swell job in the last year,
I would say, in handling the excess reserve position, and I
don't think that has to be settled this week. It may have
to be settled, say, within the next week. I would suggest
that you just listen to them and then say all right, you have
got the story; you'd like to discuss it with your own people,
Regraded Unclassified
44
- 6 -
and then let the banking group take a look at it on Monday.
H.M.JR: I'll listen. I am not going to be rushed.
I sent you a message this morning. You may have gotten
it.
MR. BELL: I don't know what the matter was.
H.M.JR: You asked Heffelfinger--we won't talk about
it here.
MR. BELL: Then I think the other thing that we ought
to decide today is when you are going to meet these people.
H.M.JR: (Speaking over interphone) Is Mr. Eccles here?
MR. FITZGERALD: Right, sir.
H.M.JR: Show him in.
MR. BELL: Meet them about Thursday.
H.M.JR: I am going up Thursday night to make a speech
in New York. I hope to get a few days on the farm.
MR. BELL: You had better meet them Wednesday, then,
don't you think?
H.M.JR: Yes, sir.
Regraded Unclassified
45
November 11, 1943
3:30 p.m.
FINANCING
Present: Mr. Bell
Mr. Lindow
Mr. Murphy
Mr. Haas
Mr. Eccles
Mr. Rouse
Mr. Piser
Mr. Paddock
Mr. Goldenweiser
Mr. Sproul
Mr. Ransom
Mr. Evans
H.M.JR: How do you want to proceed, Mr. Bell?
MR. BELL: I just told the Secretary briefly, Marriner,
what the problems are that we have presented, largely in
your memorandum. And I thought maybe that the best thing
to do was for you to present your side of the case on the
question of short-term rate and your roll-over of bills.
You have also in the picture the question of providing
excess reserves, but I think it will come out in the
discussion.
MR. ECCLES: Yes. I think on the replacement of our
bills I would suggest that Allan present that problem,
because the press release proposed was prepared by the New
York Bank because they, as you know, have been for a long
while favorable to a direct replacement of our maturities,
and Allan has been opposed to that until recently and is
a more recent convert. You have heard my argument on it.
I thought that what he may have to say on that because of
his closeness to the market and because of his problem of
replacement each week devolves upon the New York Bank--
I would like him to give you the reasons why he feels he
is opposed to it, if it weren't such a necessitous situation.
Regraded Unclassified
46
- 2 -
MR. SPROUL: My opposition to it was because I felt
that we wanted to give no evidence at any time of an
eagerness on the part of the central banking system to
do direct financing of the Treasury to meet the deficit.
I think we have now reached the situation where our
holdings have become so large - our maturities run up to
five hundred million or above in a week - 80 we are asking
the market now to bid for an amount of bills far beyond
what it has any desire for or capability of holding. In
other words, we are asking the market each week to bid
for bills to replace those which it holds and to bid for
bills to replace those which we hold up to about half of
the offering.
We know that the market doesn't want that amount of
bills and can't hold them, that they must immediately sell
them to us. We know that between now and the end of the
year we are going to have to put into the market additional
reserve funds up to about two billion dollars or so to
meet the increased currency circulation and the increased
reserve requirements against deposits, so we will have to
replace our maturities.
It is a situation in which our present system of
talking to banks and dealers in the market and asking
them to be sure and put in bids or substantial amounts
no longer is practical, inmy opinion, because the amounts
involved are so large that we are asking them to do
something which is beyond either their capacity to hold
or their capacity to distribute. It is solely a con-
venience to us to run the bills through the market and
back to us. Therefore, I think under those circumstances
we can make a statement to the public telling the public
exactly what we are doing and why we are doing it, which
will disarm any honest criticism and dynamite any dishonest
criticism, and will enable us to replace our maturities
with you directly.
I think it is a proposal which the facts of the
situation warrant and will justify in the public mind,
in the Congressional mind, and in anybody's mind who
might raise any question about it.
Regraded Unclassified
47
- 3 -
H.M.JR: How are you going to prepare the public?
MR. SPROUL: By making a public statement as to just
what we are doing and why. We have drawn up a draft of
one which we think answers in advance the questions that
might be raised.
MR. ECCLES: Are you through?
MR. SPROUL: Yes.
MR. ECCLES: This is, it seems to me, unusual. We
have always been replacing bonds as they matured, and
we replaced notes; when a new offering was made, we refunded
what we had in our own portfolio, and more recently cer-
tificates when they matured. When they matured, we sub-
scribed directly, see. We didn't exchange.
We were permitted to subscribe to a new security
and we did subscribe directly only for an amount, however,
equal to what our maturities were, which is very different
from going and buying directly from the Treasury securities
that don't offset what we have already. In other words, we
then would be putting new money into the Treasury.
We are not proposing here to do any direct financing
for the Treasury, which, of course, we are authorized to
do up to five billion. But we are not proposing to use
any part of that authority to give to the Treasury any new
money. All we are proposing to do here in the case of bills
is what we have always done in the case of notes and bonds,
and, more recently, certificates, which merely is a refunding
or a replacement or an exchange of what we have bought in
the market. The money that is invested in these bills -
you have the money from the market, and then we bought the
bills from the market, 80 you didn't sell us direct at all.
All we want to do is replace that.
MR. BELL: The only difference is that we roll over
these bills every week in the market. We sell them for
cash and pay the others off for cash. It is not an
exchange. Whereas the bonds and notes in more recent
Treasury operations have been a straight exchange.
48
- 4 -
What Marriner is saying is that he proposes, in
effect, an exchange of Treasury bills for the new bills
that we would offer.
MR. ECCLES: Permitting it to everybody. What we
propose here is--
MR. BELL: (Interposing) It will be, in effect, an
exchange, although they would put in a bid like everybody
else. For the bills they got they would use the bills that
mature in payment.
MR. ECCLES: And permit everybody else to do like-
wise. You are not issuing any more bills; you have a
bill maturing a week. Any holder of bills would be per-
mitted to offer them in exchange for bills which were
awarded him, see, the bills which he had maturing. In
other words, Fed has so many bills maturing; we would be
permitted to exchange the bills that we have for any
bills that were allotted to us. That would be true with
every other bidder. We would put no bid in for any bills
in excess of our maturity. Therefore, at no time could we
be awarded more bills than we have maturing. Now of
course, the alternative - that is the question - when you
get to the alternative of this thing it is very much
worse and subject to far more criticism than this could
possibly be.
H.M.JR: Quite frankly, Bell walked in here at ten
minutes of three and tried to give me a resume of what
you people have been talking about, I don't know, for a
couple of days or weeks.
MR. SPROUL: Or years.
H.M.JR: Frankly, if I said I had it, you wouldn't
value my opinion very much. I have to listen this afternoon
and let it soak in and then talk about it some more. You
people have been thinking about it, but it wasn't brought
to my attention until just ten minutes of three. So be
8. little charitable with me and let it soak in a little
bit. I will give it & fresh look; I promise you that.
49
- 5 -
MR. SPROUL: I think if we give you this statement
and you read it at your leisure you will get the idea.
H.M.JR: You have a statement?
MR. ECCLES: It is a proposed press release that
explains it exactly.
H.M.JR: Do you have my name signed to it?
MR. ECCLES: We are taking the entire responsibility
for it. The Treasury won't release it, because it is the
Fed that is putting in the--
H.M.JR: (Interposing) Let me take it home and let
it soak in.
MR. BELL: Have you a revised statement on the whole
problem? You gave me a rough draft the other day, and you
were to give us a revised statement on the rate, financing,
and so forth.
MR. SPROUL: I have a statement I prepared which has
been discussed with the committee and not accepted or
approved by the committee, but it expresses my views.
And to a considerable extent, I think, it expresses the
views of the committee. I mean on this other thing.
MR. ECCLES: You saw the statement that was sent over
covering the question of the rates, and 80 forth. There is
no revised statement on that, because, as a matter of fact,
I think there was no disagreement in our discussion as to
what was said about everything that went in that statement.
MR. BELL: I will give that to the Secretary.
MR. ECCLES: Yes. I think the statement was sent
over.
MR. SPROUL: My statement expresses my views more
clearly and adequately than the other statement does. I
think in general they are in agreement.
Regraded Unclassified
50
- 6 -
H.M.JR: What is that?
MR. SPROUL: Eccles has it.
MR. ECCLES: Allan wrote a statement. The other
statement is a statement that was prepared for the basis
of a discussion at the meeting yesterday.
H.M.JR: Which is the one that Allan is so proud of?
MR. SPROUL: If it is given to you I want to be sure
you read it.
MR. ECCLES: You give him the statement, Allan.
H.M.JR: I will read it if it is written in good type.
(Reference C - Press Statement of November 6, 1943
released by the Board of Governors of the Federal Reserve
System - handed to the Secretary.)
H.M.JR: Does it say who this is by? This is by
Sproul in person?
MR. SPROUL: That is right.
MR. ECCLES: Well, I don't think there is any disagree-
ment at all on what Allan says in his statement. We didn't
see it until yesterday.
MR. SPROUL: I think that should be clear. It is
not a committee action.
MR. ECCLES: It doesn't mean that it is in any dis-
agreement. Is this also Sproul's, "System Bill" (Reference B)?
MR. RANSOM: That is another one.
MR. ECCLES: That is the background for the statement
that we have just made for the press release.
H.M.JR: I see where I am not going to be able to
read the Saturday Evening Post this week with the Rex
Stout story.
51
- 7 -
All right, does anybody else have any documents?
MR. ECCLES: Give the Secretary the statement I sent
over the other day, Dan (Reference A).
MR. BELL: No, I didn't, because that was & rough
draft.
MR. ECCLES: I say you can.
MR. BELL: All right. Why don't you go to point
number two on rates? I think he has this problem.
H.M.JR: That all has to do with the exchanging of
the bills.
MR. SPROUL: One is; the second is on the rates.
(Reference D - Credit Policy and Treasury Financing of
November 9 handed to the Secretary.)
MR. ECCLES: Well, the change is in the method of
acquiring by a direct replacement of our maturities,
that is all. That is what that press release is.
Well, we have been discussing the question of the
short rate. I think we have felt for some little time that
the spread between the short and the long rate was too
great and couldn't be maintained. The three-eighths bill
rate is an anchor to the short rate, and it tends, we think,
or it is likely to tend to pull down the long rate. The
long rate is, of course, the important rate, because the
two and one-half percent rate and the two percent rate
which are established have got to be maintained.
It isn't 80 difficult during & war period to meet
the rate problem, but what is done during this period will
have an important effect upon the whole rate picture of the
post-war refunding, which is of the greatest importance.
Anything that tends to pull down the long rate will make
the refunding job that much more difficult.
H.M.JR: You are talking about when they mature?
Regraded Unclassified
52
- 8 -
MR. ECCLES: That is right. You have a lot of re-
funding of short paper. You may have a lot of redemptions
of savings bonds and other things, and you want to put out
as much two or two and a half percent paper as possible.
You will have all that refunding to do, and I think it is
important that those rates don't go down. That is much
more important than not having the short rate go up. If
the short rate is tending to pull down the long rate, which
we feel certain at the moment it isn't, but it was the case
after the April drive, because the two percent bond went
to a substantial premium, and even the two and a half's
went to some premium, and there was & lot of free-riding
and it became necessary to increase the maturity of the
two percent bond from 8. seven to nine year to an eight to
ten year, if you will recall, because the bond had gone up
and the rate down. Now, that establishes a new floor. It
would be unfortunate if that trend continued, because you
may find--
H.M.JR: (Interposing) Unfortunate for whom?
MR. ECCLES: I think for the Treasury in its refunding
operations. And it would be unfortunate, I think, from the
standpoint of holding the market. Naturally, the higher
the price of the bond and the lower the rate, the more
difficulty you may have in holding and stabilizing the
market when the war is over.
The market has 8. lot of room to sag, and, of course,
it seems to me that it can't be permitted to sag from
wherever a rate is established. You can't have the last
issue of your securities go through par. So I feel that
to have an increase in price and a decrease in rate, which
the short-term rate tends to create, is a situation that
should be avoided.
H.M.JR: How are the bank earnings now?
MR. ECCLES: Well, the big banks are doing exceptionaily
well.
H.M.JR: I don't get a smile out of anybody.
Regraded Unclassified
53
- 9 -
MR. ECCLES: Some of the smaller banks are not doing
anything. The average earnings of the banks are somewhere
between six and seven percent according to Crowley's
report. An average of between six and seven percent for
a small bank is certainly not enough to enable it to
build up reserves to meet much of a loss in any deflation
period. I would say that the earnings of the small banks
at the present time are certainly not excessive. The
capital ratios are very bad.
MR. SPROUL: I don't think you should take the
Secretary so seriously on that. I don't think you should
be so serious about the earnings of the banks.
H.M.JR: I didn't get a smile out of anybody. I was
just going back to the earlier argument for increasing the
three-eighths rate. Allan got me.
MR. ECCLES: I see. Well, we didn't argue the
increasing of the rate to help the earning. We argue
that whether it is three-eighths or a half the earning
aspect would be negligible. We argued for the increase
in the rate to get a wider distribution of bills. What
we contended was that the three-eighths rate would not
induce a wide distribution of bills outside of the money
markets. That was really what our argument was about on
rates when we talked about a half; it was to help the
distribution of bills.
H.M.JR: Marriner, have you gentlemen got some
memoranda on this thing?
MR. ECCLES: Yes.
MR. BELL: I have a memorandum from Marriner which I
thought was a rough draft; but if he is satisfied with it
now, I will turn that over to you. (Mr. Bell handed
Reference A to the Secretary.)
MR. ECCLES: Yes.
H.M.JR: I would like to study that.
Regraded Unclassified
54
- 10 -
MR. BELL: I might briefly tell you just what their
proposal is. They have two proposals, one from the Board
and one from the System. Am I right?
MR. SPROUL: The Federal Open Market Committee con-
sidered both of them and passed them up as alternative
proposals, some preferring one, and some the other.
H.M.JR: Do you mean the Open Market Committee when
you say the System is opposed to it?
MR. ECCLES: The full committee. That is all of
the Board and the presidents combined.
H.M.JR: But there is another. What is this, the
executive committee?
MR. ECCLES: Yes, the executive committee of five,
and there is a full committee of five.
H.M.JR: Are there two memoranda, one from the full
System?
MR. ECCLES: It is all from the full. It is an
expression of the meeting of the full committee that they
authorized the executive committee to prepare a memorandum
in line with the memorandum we have prepared of the
expression of the views of the full committee.
MR. RANSOM: They suggested two possible methods
for arriving at approximately the same conclusion.
H.M.JR: I see.
MR. SPROUL: I would put it in a general approach
this way, that almost two years ago now we established
a pattern of rates when reserve funds were very large
and when demands were very much less than they are now
and confidence in the long-term rate was low. And we main-
tained those rates right through with minor fluctuations.
We are now in a position where the amount of excess
funds is greatly reduced in line with B. very definite policy
Regraded Unclassified
55
- 11 -
of yours and ours that the pressure on banks to participate
in the financing should be reduced. We want them to do
as little financing through the banks as possible where
the demand has greatly increased, and where the confidence
in the longer term rate has greatly increased. So we have
8 greatly changed situation from two years ago.
To maintain the present structure of rates much longer
would require that we recreate the conditions in which the
banks would be under pressure to buy Government securities;
to use the reserve funds made available to them would run
counter to the policy of keeping the banks out of the
financing. If we do not do that, then we- are faced with
an impossible situation of maintaining the present rate
structure; either the short rates must go up or the long
rates must go down. And we think it is preferable both
for the present situation and for the post-war readjustment
refunding period to have the short rates go up.
H.M.JR: I would like to ask you two questions. In
this recent move - I haven't watched it recently - the
stock market has gone down. They think the war is a short
war. Has there been any corresponding move in long-term
bonds?
MR. SPROUL: The Government bond market has shown
some. There has been some decline, but we are holding the
line on long-term Government bonds. There is no real
weakness there.
MR. ECCLES: But you have this factor that we discussed
this morning, aside from the feeling that the war will soon
be over, that in the April drive there was some free-riders.
They found that it was very profitable for them to buy a
two-percent bond and the two and a half's, not to hold,
but to sell. The market went up, if you will recall,
better than E. point very shortly after the sale, and so
they made very substantial profits by the free-ride.
So when the drive in September commenced, there was
an increasing number of free-riders; that is, speculators
in the market. There were & large number of two-percent
Regraded Unclassified
56
- 12 -
bonds in particular, and some certificates that were bought
without any idea whatever of holding them. So the sale of
nineteen billion - a substantial part of that - at least
a couple of billion, I would say - reflected the purchase
by people who thought they could sell them again and make
that profit. Now, you do have B certain amount of that
pressure. They still hold some of those securities. The
market hasn't absorbed them all yet, and that, I think,
has more of an affect possibly on the market than any talk
of peace. Those are, of course, gradually being absorbed.
H.M.JR: Could I ask Doctor Goldenweiser a question?
This may seem a silly question, but could you give in just
a short summary why in World War I they had to constantly
keep financing at increased rates and at this time money
has become cheaper and cheaper? What are the differences
between the money market of World War I and World War II?
MR. GOLDENWEISER: Well, I nave to get my thoughts
together for a second, but I should think that the principal
difference is that we had no open market operations and
no excess reserves, and no habit of saving had been developed.
So the whole war was financed on borrowing by the people
from the banks, and by the banks from the Federal Reserve.
They said the Federal Reserves were not exceedingly high
either. The concept of liquidity and the concept of
orthodoxy in the sense of not interfering with the market
in any way - all those things together resulted in having
the rate go up in the market as the demand for funds
increased. It was increasing rapidly, and the rates
differed. And the Treasury, not being willing to resort
to any drastic methods had no alternative but to meet the
market. That, I think, is the principal difference.
Whereas in this war we started with a very large amount of
excess reserves to begin with. In the second place, with
no particular respect for reserve positions and willingness
to support the market to the extent it was necessary to
finance it, if it was later decided to finance it. I
think that is the difference.
There is one other observation I would like to make,
and that is that the last war was financed, in spite of what
Regraded Unclassified
57
- 13 -
I said, at somewhat below what were then market rates,
and criticisms of the Treasury and of the Federal Reserve
were very rampant then at the fact that the market was
being pressed down. It sounds terribly high now; it
was four and a half, five, five and a half, but criticiams
were very common at the time, as many of the people present
may remember. It was an artificially low rate, at that;
but if you want to put it in one sentence, the reason why
we don't have the rate progressively increasing is that
the Treasury and the Federal Reserve decided not to let
it happen.
MR. ECCLES: You have an open market operation now,
and you didn't have one then. You didn't have an Open
Market Committee. The only control at all was the discount
rate that the Federal Reserve fixed; and if they fixed the
two percent or two and a half percent or three and a half
percent discount rate - I don't remember what it was - that
meant that a bank in order to get reserves had to go to
the Federal Reserve and borrow on three and 8. half to get
its reserves. Today it pays nothing. We create reserves
for it through an open market. Then it had to borrow and
pay a three and a half percent rate to get reserves.
Naturally the Treasury had to pay enough more than
the three and a half to make it profitable for the bank
or the individual to buy the bond.
MR. BELL: One reason for your short-term rates being
nigh is your long-term rates, your discount rate, and you
had to borrow at that rate.
MR. SPROUL: We didn't know as much then about managing
the market and didn't have the machinery for managing the
market.
MR. ECCLES: The central banking mechanisms didn't
function.
MR. RANSOM: It is summed up in one word, Mr. Secretary,
"management."
Regraded Unclassified
58
- 14 -
MR. HAAS: There was 8 group in the Treasury that
felt it could be done very similarly to the way it is
being done today, but they lost out in the debate. It was
felt that as you went out to get more and more money the
only way to get it is - you buy potatoes, and the more
you buy the scarcer the market, and the more you pay. It
was the same in the Treasury.
MR. ECCLES: We agreed with you two years ago when you
started the War Finance that the war had to be financed
not on increasing rates; we were against it as you were and
felt that the only way to do the financing was on a stabilized
long-term market.
Now, SO far as the bill rate is concerned, that isn't
& question of financing the war. That occupies quite another
position than your notes and your bonds do, and we felt
at the time you fixed the bill rate at three-eighths - it
was when there were large excess reserves and it was & much
higher rate at that time than it is today. We felt then
that it possibly should have been a half of one percent
rate. We have held it at three-eighths, but in holding it
at three-eighths the market has gone around the bill.
They just don't buy the bills. The bills are meaningless
insofar as holding the rate is concerned.
MR. RANSOM: We have felt that that short rate under
the existing conditions should be increased, that the spread
between the seven-eighths percent certificate and the
three-eighths percent bill is, of course, too great.
Immediately when a certificate is issued it goes right to
EL premium and sells at about three-quarters rate, and the
market does not differentiate between 8 ninety-day piece
of paper at three-eighths and a one-year piece of paper at
seven eighths, certainly to the extent that the established
rates would indicate.
H.M.JR: Marriner, I wish you people would let me
study this & little bit and try to catch up with you; I
don't know as I ever can. I have the points you have in
mind. If you have any doubts, or whatever I have we can
talk it over again with people here. Are we trying to
meet a date on this thing?
Regraded Unclassified
59
- 15 -
MR. BELL: No, not necessarily.
MR. ECCLES: Well, I think you have to meet a date
pretty quickly on the replacement of our maturing bills.
I think we are right square up against a snag right now.
I don't think you have any--
MR. ROUSE: Next week we have four hundred and sixty-
six million maturing, and the following two weeks each
run around five hundred and a quarter.
H.M.JR: Can I have a week, or is this a matter of
days?
MR. ECCLES: I would like to see us get at least the
replacement matter settled if we could next week.
H.M.JR: That is the most pressing?
MR. ROUSE: That really is very pressing.
MR. ECCLMS: So far as the rates are concerned that
isn't pressing.
H.M.JR: Do you know about going up on the Hill and
talking to some of the people up there?
MR. ECCLES: Personally I don't think it is necessary.
But you can read that memorandum, and then I would like to
talk to you about it again; and if you feel that it is
necessary, I certainly have no objection to it. But I
don't feel that it is necessary at ail. I think that what
we are proposing is completely and fully within the law,
and that the statement would frankly and fully explain it.
If we didn't make a statement explaining it, as we do, and
if it wasn t available to other holders of bills - if we
were ourselves getting some special direct purchase privilege
and we didn't explain it, then I think you would get a lot
of discussion, a lot of rumors in the market, and 8 lot of
criticism because there was no understanding of it - 8.
lot of misunderstanding.
Regraded Unclassified
60
- 16 -
H.M.JR: The replacement thing is bothering you the
most?
MR. SPROUL: That is the most immediate thing. The
risk you run there is that some week we won't have arranged
for enough bids as we thought we arranged for. They won't
come in, and you find you haven't a billion dollars of bids
or a billion dollars of issue; and then without preparation
we will have to rig up some scheme for our taking some
direct.
MR. BELL: You will have to put in a bid in that
case.
MR. ECCLES: That will be direct. That will be part
of the five billion authority which we got.
MR. SPROUL: After the hour for bidding and without
preparation of the market or anything else - I think that
would be a bad situation to get ourselves into.
H.M.JR: Of course it would.
Gentlemen, let me think this thing over a little bit.
If that one is pressing I probably can give you an answer
within a reasonable time.
MR. GOLDENWEISER: May I leave two thoughts in your
mind? One is that in my opinion those proposals of the
Federal Reserve for raising the short term rate would not
increase the cost of financing to the Treasury, because I
think that there will be more financing at short rates and
less at long rates with 8 consequence that your average
will not go up. Any security that you issue at less than
two percent reduces your average cost, and so I think that
your net result of this will not be an increase in the cost
of financing for the Treasury.
The second thought is that insofar as increasing the
short rate would increase the earnings of the Federal
Reserve System, there isn't anyone in the Federal Reserve
System who is interested in those earnings, and some plan -
Regraded Unclassified
61
- 17 -
any number of plans that we have - can be devised so that
any increase in the Federal Reserve earnings can in one
way or another be remitted to the Treasury.
H.M.JR: I would be glad if you would remit it in the
form of paying for banquets for these various meetings.
MR. SPROUL: Sales organizations?
H.M.JR: Yes, if you are going to take that, I might
really get interested. (Laughter)
MR. SPROUL: We might be able to do that.
H.M.JR: After all, if you get this thing really down
to a practical basis--
MR. BELL: Take some of the heat off.
H.M.JR: Why sure, pay for some of the posters or
something like that. Then we might really get interested,
but you people live in such rarefied air over there--
MR. ECCLES: You are not talking about the Board,
are you? The Board never did pay for that. All we do is
draw on the banks for our own operation.
MR. BELL: We had a good lunch today.
H.M.JR: I won't stall on this replacement thing.
I will study it very hard. If I don't understand it,
or I want more information, we will get together again.
How is that?
MR. ECCLES: That is all right.
H.M.JR: Well, thank you all very much.
MR. BELL: Do you want to meet these gentlemen sometime
about the drive, the securities?
H.M.JR: Let's do one thing at a time.
Regraded Unclassified
62
- 18 -
MR. ECCLES: I told Dan that although we had no
responsibility for the War Loan Committees to direct
distribution of securities, yet we couldn't help but be
tremendously interested in the whole thing because of
its relationship to the whole open market operation, and
likewise to a refunding operation that is coming here
`afterwards, because whatever is done through the drive,
of course, doesn't directly affect--
H.M.JR: Gentlemen, I made it very clear that I
want your assistance and cooperation. I would like to
consult you on that very much.
MR. BELL: I thought you would.
H.M.JR: If you will stay behind a minute, Dan, we
will look over the calendar and see how we stand.
Regraded Unclassified
nw 11, 1943.
Reference
B
63
SYSTEM BILL REPLACEMENTS
It is estimated that between now and the end of the calendar year
the System will need to supply about $2 billion of reserve funds to member
banks to offset an increase in required reserves and an increase in money
in circulation. In this situation, the System will undoubtedly replace all
of its maturing bills by new issues. The Federal Open Market Committee
feels strongly, therefore, that the Federal Reserve Banks should be permit-
ted to place a tender with the Treasury each week at whatever buying rate
for bills is established in an amount not exceeding the amount of bills
that mature in both the Open Market Account and the option accounts of the
individual Reserve Banks and that the Treasury should give to the System
the privilege of exchanging maturing bills for whatever amount of new bills
are allotted to it, adjusting the discount in cash.
We have shared the Treasury's concern about the dangers of creat-
ing the impression that the Treasury is resorting to direct borrowing at the
central bonks to finance the deficit. Our present situation, however, is
one in which the method used to avoid creating this impression is becoming
more likely than not to bring consure on the Treasury and the System, where-
as a change in method has the senction of the procedure already followed in
placing subscriptions for maturing issues of certificates of indebtedness,
and can be clearly and adequately explained to the public.
A auggested draft of & statement to the press, which answers in
advance the questions which might be asked, and meets the criticisms which
otherwise might be made, follows:
Draft of Press Statement
The Treasury Department this week revised its Treasury bill offer-
ing circular so as to permit bidders for Treasury bills to obtain new Treas-
ary bills by the exchange of an equivalent amount of maturing bills to the
extent that their tenders are accepted. Concurrently the Federal Open Mar-
ket Committee authorized the Federal Reserve Banks to place weekly tenders
for bills at a price approximately equivalent to a yield of 3/6 of 1% per
annum (99.905 for 91 day bills), in an amount not exceeding the amount of
their weekly maturities. The Federal Reserve Banks will receive the same
percentage allotment of bills as will other bidders at the same price. Ac-
quisitions of bills by the Federal Reserve Banks, in this manner, will rep-
resent the replacement of bills originally purchased in the market and, like
other exchanges of maturing securities for new securities, will not be sub-
ject to the limitation contained in subsection (b) of Section 14 of the
Fedoral Reserve Act (which limits to $5 billion the aggregate amount of gov-
ernment securities acquired directly from the United States which can be held
at any one time by the twelve Federal Reserve Banks).
No new credit will be made available to the Treasury by the Federal
Reserve Banks, as a result of this change in procedure, nor will new reserve
funds be placed at the disposel of the banks of the country. Reserves which
Regraded Unclassified
64
-2-
have already been provided to support B rising currency circulation and
rising member bank deposits will merely be maintained.
These related actions were taken to relieve a situation which
has become mechanically more difficult, as weekly maturities of bills held
by the Federal Roserve Banks have increased in recent months, until at
times they are equal to half or more of the weekly offerings. In the past
the market has taken all of each week's offerings of Treasury bills and
has promptly sold to the Federal Reserve Banks that portion of the offering
which it did not wish to hold. Thus the Federal Reserve Banks indirectly
replaced part or all of their Treasury bill maturities. This procedure
worked well when the amount of maturing bills held by the Federal Reserve
Banks was A relatively small proportion of the weekly offering, and allowed
the market to determine directly the amount of the new issue of bills it
wished to hold. Now that the amount of maturing bills held by the Federal
Reserve Banks ranges up to and above $500,000,000 each week, however, such
D procedure means that the market must place tenders for new issues of bills
in amounts substantially in excess of market requirements, the excess being
taken for the purpose of almost immediate sale to the Federal Reservo Banks.
In these circumstances, a more direct method of replacing maturing bills
held by the Federal Reserve Banks has been deemed desirable.
The test of the bill market will now be found in the bids of
investors other than the Federal Reserve Banks at prices slightly above the
price tendered by the Federal Reserve Banks, and in the allotment to the
Federal Reserve Banks and to others at the fixed price of the Federal Re-
serve Bank tenders. At times when there is reason to expect a substantial
increase in market demand, of course, the Federal Reserve Banks can tender
for less than the amount of their weekly maturities.
11/9/43.
Regraded Unclassified
Chairman Ecoles
musl,, 943 65
Reference
STRICTLY CONFIDENTIAL
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
R&S 100-826
November 6, 1943
Board of Governors
L. M. Piser
Replacement of Treasury bill maturities
Mr. Sproul has suggested one additional modification of the
proposal for replacing Treasury bill maturities, namely, that the privi-
lege of exchanging maturing bills be made available not only to the
Federal Reserve Banks but to other holders of maturing bills. It is
likely that the Treasury and the System would be subjected to less criti-
cism under such an arrangement. The attached draft of the proposed
press statement has been revised in accordance with this suggestion.
Regraded Unclassified
66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Pross
For immediate rolease
The Treasury Department this week revised its Treasury bill offer-
ing circular 80 as to permit bidders for Treasury bills to obtain new
Treasury bills by the exchange of an equivalent amount of maturing bills to
the extent that their tenders are accepted. Concurrently, the Federal Open
Market Committee authorized the Federal Reserve Banks to place weekly tendors
for bills at a price approximately equivalent to a yield of 3/8 of 1 per cent
per annum (99.905 for 91-day bills), in an amount not exceeding the amount of
their weekly maturities. The Federal Reserve Banks will receive the same
percentage allotment of bills as will other bidders at the same price. Ac-
quisitions of bills by the Federal Reservo Banks in this manner will represent
the replacement of bills originally purchased in the market and, like other
exchanges of maturing securities for now securities, will not be subject to
the limitation contained in subsection (b) of Section 14 of the Federal Re-
serve Act (which limits to 5 billion dollars the aggregate amount of Govern-
ment securities acquired directly from the United States that can be held at
any one time by the twelve Federal Reserve Banks).
No new credit will be made available to the Treasury by the Federal
Reserve Banks as a result of this change in procedure, nor will new reserve
funds be placed at the disposal of the banks of the country. Reserves that
have already been provided to support a rising currency circulation and
rising member bank deposits will merely be maintained.
These related actions were taken to relieve a situation that has
become mechanically more difficult as weekly maturities of bills held by the
Regraded Unclassified
67
- 2 -
Federal Reserve Banks have increased in recent months, until at times they
are equal to half or more of the weekly offerings. In the past, the market
has taken all of each week's offering of Treasury bills and has promptly
sold to the Federal Reserve Banks that portion of the offoring that it did
not wish to hold. Thus, the Federal Reserve Banks indirectly replaced part
or all of their Treasury bill maturities. This procedure worked well when
the amount of maturing bills hold by the Federal Reserve Banks was a relative-
ly small proportion of the weekly offering and allowed the market to determine
directly the amount of the new issue of bills it wished to hold. Now that the
amount of maturing bills held by the Federal Reserve Banks ranges up to and
above 500 million dollars each week, however, such a procedure means that the
market must place tenders for now issues of bills in amounts substantially in
excess of market requirements, the excess being taken for the purpose of al-
most immediate sale to the Federal Reserve Banks. In those circumstances, a.
more direct method of replacing maturing bills held by the Federal Reserve
Banks has been deemed desirable.
The test of the bill market will now be found in the bids of in-
vestors other than the Fedoral Reserve Banks at prices slightly above the
price tendered by the Federal Reserve Banks and in the allotment to the
Federal Reserve Banks and to others at the fixed price of the Federal Reserve
Bank tenders. At times when there is reason to expect a substantial increase
in market demand, of course, the Federal Reserve Banks can tender for less
than the amount of their weekly maturities.
Regraded Unclassified
By allan sproul - nw111183
68
CREDIT POLICY AND TREASURY FINANCING
Reference D
A reconsideration of certain major aspects of credit policy and Treas-
ury financing is necessary after two years of participation in the war, and in
the light of the changes which have taken place during those two years.
Such a reconsideration must keep in mind the main objectives of pol-
icy during this period and, assuming that these objectives still hold, our fu-
ture policy must contribute to their further attainment. These objectives, as
circumscribed by the overall and compelling need of financing the war in one way
or another, we conceive to have been:
1. Keeping the expansion of bank credit to a minimum.
2. Maintenance of an interest rate structure which would both
contribute to the successful financing of the war and be
tenable in the immediate post-war period.
A considerable degree of success has been achieved in both of these
greas. The adoption and gradual improvement of the drive method of Treasury
Cinancing, with increasing emphasis on sales of securities to non-bank investors,
has produced beneficial results, and it now appears that the present fiscal year
can be completed without further recourse to the banks for new money. At the same
time, the pressure for continued bank purchases of government securities, which
was inherent in the existence of 8 large volume of excess reserves, has been
greatly reduced by permitting excess reserves to decline from $3.5 billion to
81 billion. This has been accomplished while maintaining, in general, the
interest rate structure which existed at the time of our entrance into the war
and which, in the light of circumstances at that time, had to be accepted as the
rate structure to be maintained during the initial financing period.
If our objectives are now the same as they were two years ago, the
problems involved in achieving them are different. We no longer have to rely
on the banks for any substantial amount of new money, if at all, and we do not
want to recreate conditions which will again put pressure on all banks to in-
crease their holdings of government securities. It is claimed that a comfortable
margin of excess reserves is necessary to provide the "feel" of easy money. This
was the claim when excess reserves were 85 billion instead of $1 billion, but
the policy of allowing excess reserves to diminish gradually has demonstrated
its effectiveness. We no longer want to impress all banks with the "feel" of
easy money, and non-bank investors get that "feel" from idle holdings of cur-
rency and deposits, not from excess bank reserves.
We do have to contemplate some readjustment of the short term interest
rate structure if we are to avoid again putting the banks under pressure to buy
government securities, and if we are going to develop, gradually, a rate struc-
turo which will accommodate itself to the needs of the post-war situation. This
does not imply a change in the long term rate of interest either now or later;
quite the opposite - the long term rate is the key rate which, so far as we can
see, must be maintained. It is rather a recognition of the fact that present
Regraded Unclassified
69
-2-
short term rates will only maintain themselves, now, if bank reserves are main-
tained at or increased to levels which encourage banks to continue to bid for
government securities held by others, or if it is believed that a rise in long
term rates is likely. There is no reason for accepting very low rates at short
term, if the higher yields obtainable at long term can be had without serious
risk of a decline in price (rise in yields) of the long term obligations. The
task of financial statesmanship is to combat the belief in a higher long term
rate, by demonstrating that a narrower spread between short and long term rates
can be effected without changing the long term rate. In the future, this will
protect investors in long term obligations, and protect the Treasury in its
refunding operations in the post-war period, and currently it will protect the
smaller banks against an undue concentration of their holdings in the longest
term securities available to them, and to some extent, it will protect the
"pattern of rates" against abuse.
What are the immediate problems involved in developing such a pro-
gram? For the Federal Reserve System, primarily, there is the problem of supply-
the the additional reserve funds which will still be needed to support a con-
tinued rise in currency circulation and an increase in the required reserves of
member banks (as War Loan deposits are converted into private deposits). For
the Treasury, primarily, there is the problem of how best to bring about an ad-
justment in the interest rate structure 30 that it will be suitable to the present
dituation, and so that it could contribute to the development of a tenable post-
war situation. The two problems must be dealt with jointly.
METHODS OF SUPPLYING RESERVE FUNDS
The methods available to the Federal Reserve System in supplying
reserve funds to member banks remain the same - reductions in reserve require-
ments, advances and re-discounts, and open market operations.
Changing Reserve Requirements:
Further action to reduce reserve requirements appears to be inadvis-
able, at least until banks throughout the country have more generally shown a
disposition to use fully the funds they now have. Practically all of the exist-
ing excess reserves, amounting to about $1 billion, are held outside of the
central reserve cities. If reserve requirements were reduced for all classes
of banks, large amounts of reserves would be released at banks which would
probably contribute little to the improvement of the market for short-term se-
curities, and might accentuate the difficulty of maintaining an orderly market
for the longer term bonds available to banks. If reserve requirements were re-
duced only in central reserve cities, it would be difficult to secure accept-
ance of a lower reserve requirement for the biggest banks of the country than
for their smaller competitors in reserve cities, and only temporary relief would
be obtained in any case, If, for example, reserve requirements of New York City
Member banks were reduced from 20% to 18%, there would be released only about
8300 million of reserves. Most banks would probably use these funds to repur-
chase bills from the Federal Reserve Bank or to purchase other short term se-
curities in the market. As funds flowed out of New York to the rest of the
country (this continues to be the trend) the dose would have to be repeated.
Regraded Unclassified
70
-3-
Such repeated action with respect to one class of banks would hardly be feas-
ible, and such action applicable to all classes of banks, in the absence of
a general need for additional reserve funds, would throw doubt on the sincer-
ity of our desire to finance war expenditures, as largely as possible, outside
the commercial banking system. The desire of the Treasury to finance ita re-
quirements as cheaply as possible could be held to have taken precedence over
avoiding a potentially inflationary expansion of bank credit.
Advances and Rediscounts:
There has been some development of borrowing from the Federal Resorve
Banks during recent months (by large city banks no longer in a position to use
the bill window freely), but this method of making reserve funds available can-
not be relied upon to supply the needed funds in sufficient volume during the
Immodiate future. We should not be led away from the possible later use of this
method, however, by faulty deductions drawn from the experience of the last
decade when large excess reserves made each individual bank its own contral bank.
There is no tradition among bankers against borrowing either from correspondent
wanks or at the central bank ; there has only been 3 lapse in the use of a normal
mechanism during on abnormal period. In recent months many banks have been bor-
rowing from the Federal Reserve Banks in substantial amounts by use of the
Treasury bill purchase and repurchase arrangement. The large banks like this
mothod of borrowing because it onables them to borrow without showing bills
myable, but this does not change the essential character of the transaction, nor
is it dosirable, from the standpoint of credit administration, to enlarge the
field of this concealed borrowing. If this means of borrowing were no longer
open, or if particular banks lacked means of access to it, and if direct bor-
rowing could be done at a profit (by reason of a difference between the discount
rate and the coupon rate on the securities used as collateral) there would likely
to A resumption of direct and admitted borrowing. This is what has been happen-
ing in New York City and the example of the large city banks would, no doubt,
help others to overcome their reluctance to resume the practice. It would be
more of a brenk in tradition, in fact, if banks did not borrow funds from the
central bank when they can do 30 at a profit and when the purpose would be to
retain holdings of government securities in time of war. We need not be con-
cerned about a withdrawal of banks from the market for new securities because we
no longer need or want them there in any substantial way, and we do not have to
be seriously concerned about their selling their existing portfolios in prefer-
once to borrowing. It should not be forgotten, also, that the most direct way
for the Federal Reserve Banks to put funds into the banking system, where they
are needed, when they are needed, and in the amounts needed, is through member
bank borrowing. This is an important aspect of credit administration.
Open Market Operations:
Nevertheless, it appears that, for the immediate future, open market
operations must be the main reliance of the Federal Reserve System in supplying
reserve funds to the banks of the country, as they have been during past months.
Banks have been obtaining additional reserve funds mainly through selling Treasury
Vills to the Reserve Banks or failing to replace maturing billo, and by selling
asmo certificates of indebtedness (the Reserve Banks have sold Treasury bonds and
notes in order to maintain the pattern of rates, and this selling, of course,
took funds out of the market).
Regraded Unclassified
71
-4-
FEDERAL RESERVE HOLDINGS OF GOVERNMENT SECURITIES
January 1, 1943
October 31, 1943
Change
Bonda
$2,777,059
$1,505,582
-$1,271,477
Notes
1,323,799
685,900
- 637,899
Certificates
1,041,000
1,565,350
+ 524,350
Bills
1,009,996
5,546,634
+ 4,536,638
Guaranteeds
36,782
50,481
+ 13,699
Total
$6,188,636
$9,353,947
+$3,165,311
Entire System Account
(000 omitted)
Because of the mal-distribution of excess reserves and because present
short term rates of interest are no longer appropriate, it appears that the Fed-
oral Reserve Banks will have difficulty in continuing for long to put reserve
funds into the market in this way while maintaining the existing pattern of rates.
Banks in the principal money centers, which heretofore have been the chief buyors
of bills, now have no surplus funds, and banks with funds are generally not in-
terested in billa at 3/8 of 1%. As a consequence, the very short term market for
government securities appears to be satiated. From the end of May to the middle
of September, the outstanding amount of Treasury bills increased by $2.2 billion
and, during the same period, the Federal Reserve System's holdings increased by
$3.3 billion. After a temporary halt in this movement, resulting from changes in
reserve requirements associated with the Third War Loan drive, the System's
holdings of bills are again increasing. There has ulso been a lack of demand for
certificates of indebtedness of the shorter maturities at yields corresponding to
the pattern of rates.
The basic decision which must be made with respect to open market opera-
tions is whether we are going to try to force the maintenance of the short term
rate structure established nearly two years ago or whether we are going to pormit
A modification of that structure. The rate pattern we have been maintaining at
the short end of the curve does not appear to be tenable under present conditions.
It was adopted and was appropriate in B period when there were large amounts of
idle funds, a relatively limited domand for credit, and considerable uncertainty
about the maintenance or stability of longer term rates. It is not appropriate
now, when idle funds are more limited, demands are large, and a degree of con-
fidence in the stability of longer torm rates has been achieved. Only by forcing
additional funds into the market, and thus abondoning in an important degree the
policy of keeping to a minimum the use of bank credit in war finance, can we con-
trive to maintain the existing short term rate structure.
The suggestion that, in these circumstances, the cure is to increase
the weekly issue of Treasury bills, seems unrealistic. Combined with a prohibi-
tion against direct bidding for bills by the Reserve Banks, it is impossible."
As is developed in a separate memorandum on the question of direct bidding for
Treasury bills by Federal Reserve Banks, the present System whereby bids are in-
duced in the market to assure the sale of each week's offering of Treasury bills,
is becoming more and more unwieldy. To change the inducement to a promise of an
immediate small profit for bidding in behalf of the Reserve Banks, would not
greatly improve the situation. We have shared the Treasury's concern about the
Regraded Unclassified
72
-9-
It is argued that reserve bank purchases of government securities should be con-
centrated in bills; that bills are now importantly used by city banks as secondary
recerves; that they have taken the place of excess reserves in providing a margin
of safety for day-to-day operations; and that any substantial reduction in the
amount of member bank holdings would be dangerous. This is to repeat the error
which WHB implicit in an carlier insistence on a vory large volume of excess re-
serves, namely, that each individual bank, and the whole commercial banking sys-
tem, must protect its reserve position without regard to the existence of n
central bank. The fact is that Treasury bills are not a secondary reserve in the
usual market sense; they are a means of borrowing at the Federal Reserve Banks at
a proferred rate. No special amount, and certainly not $72 billion, of such ob-
ligations needs to be maintained in the portfolios of the banks, nor can be un-
less un excessive amount of bunk reserves is deliberately created, or unless bills
are mudo more attractive to banks outside the money markets.
RECOMMENDATIONS OF FEDERAL OPEN MARKET COMMITTEE
The Federal Open Market Committee has considered this problem. It be-
lieves that the only desirable approach to EL solution is to bring about a narrow-
ing of the present spread between long term and short term rates, by increasing
the rates at short term. Two alternative methods of accomplishing this purpose
were considered.
Under one approach, the present three-month bills and one-year certifi-
cates would be replaced by nine month billa. These bills would be issued in a
total amount of not exceeding a billion dollars a week, unless a demand developed
for o largor amount. Tenders for $100,000 or less would be allotted in full at
3/4 of 1 por cent, and larger tenders would be allotted to the highest bidders.
The Committee would establish a buying rate end repurchese option at 3/4 of 1 por
cent on the new nine month bills.
Advocates of this proposal believe that commercial banks would be much
more inclined to hold bills at 3/4 of 1 per cent than to hold bills at 3/8 of 1
per cent or certificates, which under existing practices command increasing pro-
miums. The now bills would attain a much wider distribution among smaller banks
than do the present three month bills at 3/8 of 1 per cent. The System would no
longer be faced with the increasingly difficult problem of maintaining a variable
pattern of rates on maturities of less than nine months. Speculators could no
longer make a profit by playing the pattern of rates on short term issues; most
of the playing of the pattern has been in short term issues, and an extension on
any large scale to longer term issues is unlikely because of the greater risk that
it involves. Finally, the proposal would simplify the Treasury's financing pro-
grem and eliminate a large refunding problem.
dangers of creating the impression that the Treasury is resorting to direct bor-
rowing at the central bank to finance the deficit. Our present situation, how-
ever, is one in which the method used to avoid creating this impression is be-
coming more likely than not to bring censure on tho Treasury and the System,
wheress a change in method can be clearly and adequately explained to the public.
A reference to conditions provailing in the London money market before the war,
and having regard for the substantial differences between the London money market
and our money morket and between the British banking system and our banking sys-
tem, is not decmed to be relevant.
Regraded Unclassified
73
-6-
Under the other approach, the problem would be met by continuing to
issue one year certificates at 7/8 of 1 per cent and at the same time diminishing
the spread in yields by substituting for the present bills four month bills at
5/8 of 1 por cent. Advocates of this proposal point out that the existing pat-
term of financing and types of securities would be maintained; that it would not
involve a drastic change in the one day interest rate; that it would permit of
some adjustment in the amount of the weekly bill offerings without a change in
the aggregate amount outstanding. They also suggest that it would help to widen
the distribution of short term securities among smaller banks, which have excess
reserves and whose deposits are increasing most rapidly; that it would make it
more expensive for banks to sell bills to the Reserve Banks than to borrow at the
differential rate of 1/2 of 1%; that it would not increase the amount of out-
standing securities on which "borrowing", without showing bills payable, is pos-
sible; that it would reduce the incentive for banks to shift from short term to
long term securities; and that it would also diminish the incentive for playing
the pattern of rates.
The Committee believes that a narrowing of the spread between short
end long term interest rates can be brought about without disturbing the entire
interest rate structure. Specifically, it believes that the steep forepart of
the present interest rate curve is no longer tenable, and that levelling this
secti on of the curve will confirm, not wenken, the stability of longer term
rates.
The Committee recommends to the Treasury that prompt consideration be
given to the policy which it suggests, and that action be taken to imploment the
policy at the first appropriate opportunity.
11/9/43
Regraded Unclassified
74
November 11, 1943
3:51 p.m.
Operator:
Go ahead.
HMJr:
Hello. Hello.
Mrs.
Murray:
Mrs. Murray speaking.
HMJr:
Who?
M:
Mrs. Murray, secretary to Mr. Sherwood.
HMJr:
Mrs. Murray, this is Mr. Morgenthau.
M:
Yes, sir.
HMJr:
Would you give Mr. Sherwood this message?
M:
Certainly.
HMJr:
I saw Mr. Patterson, Robert Patterson
M:
Uh huh.
HMJr:
about the matter Mr. Sherwood and I were
talking about
M:
Uh huh.
HMJr:
and Mr. Patterson is going to send for Mr.
Sherwood and talk to him about it directly.
M:
All right.
HMJr:
And that Mr. Patterson is wholly sympathetic.
M:
Yes, sir. Thank you very much.
Regraded Unclassified
75
November 11, 1943
3:52 p.m.
HMJr:
Yeah.
Ted R.
Gamble:
Hello, sir.
HMJr:
Yep.
G:
Mr. Secretary, I was going to be in Boston
tomorrow and I thought I'd better let you
know.
HMJr:
All right.
G:
We're having a little Chairman problem in
Massachusetts.
HMJr:
The home of the bean and the cod.
G:
You could add a few other things when you're
talking about Boston.
HMJr:
All right.
G:
When you're talking you could add those Boston
Catholics.
HMJr:
Oh, well, I wouldn't do that.
G:
No, I know you wouldn't.
HMJr:
What?
G:
I know you wouldn't.
HMJr:
No, I wouldn't.
G:
Well, we've had a lot of fun with them.
HMJr:
Okay.
G:
And we've got a reorganization problem there
and we're trying -- in the four states where
we have problems we want to clean them up as
fast as we can.
HMJr:
Righto.
G:
All right, sir. Right.
Regraded Unclassified
76
O-
TREASURY DEPARTMENT
OFFICE OF THE UNDER SECRETARY
To The Secretary
Do you suppose
the Could see
stary May tomorrow
or Saturday
morning? Monday
K Tues. will be
bad as Baukers
Committee will be
here.
DWB
11/11/43
Under Secretary.
, 19
U.S. GOVERNMENT PRINTING OFFICE 124681
77
November 11, 1943
TO:
Mr. Bell
FROM:
The Secretary
I would like to have Mr. Stacy May here at
3 P. m., Friday, November 12. Will you please tell
him what I want to see him about, viz:
1. Future expenditures beginning
with January 1.
2.
Cancellations of contracts. What
his estimate is, if we should have
an early peace, on how many cancel-
lations we will have. I am particu-
larly interested in how many people
would be laid off. I understand he
has made all these studies and has
rough estimates.
George Haas should be present also.
Regraded Unclassified
78-
the letter was Byrd and
com
Halley netd
NOV 11 1943
My dear Mr. Chairman:
Reference is made to the proposed additional Progress
Report of the Joint Committee on Reduction of Nonessential
Federal Expenditures which you forwarded with your letter
of November 4, 1943 for comments, suggestions and spproval.
It is my belief that, in general, it is a very able
report, and that it indicates beyond doubt that economies
can and should be made in nonessential spending.
However, there are two statements in the report to which
I, as a member of the Committee, can not wholly subscribe.
The first statement is in the second paragraph on page seven.
It is indicated that a specified amount can be saved through
the curtailment of nonessential expenditures. I am not prepared
to agree that any specified amount can thus be saved. I think
the setting of such a figure as a goal is practical; but the
establi shment of that figure as definitely attainable is un-
realistic.
of
Also, I can not wholly subscribe to the statement in
the last paragraph on page six, which opposes as "reckless
Federal spending" or as unwise, inexpedient and wasteful",
the program of consumer subsidies which has been recommended
by the President. I believe this to be far too general a
statement, and one which indicates by its wording that the
idea of subsidies, as well as the specific program under dis-
cussion, is "unwise, inexpedient and wasteful." I an not
ready to agree that this is an incontrovertable fact.
If the paragraphs which I question are left as they now
stand in the published reports, I would appreciate your making
my position clear in connection with the report.
Very truly yours.
(Mgned) III Merganthes. Jr
Secretary of the Treasury
Honorable Harry F. Byrd
Chairman, Joint Committee on Reduction
of Nonessential Federal Expenditures
Congress of the United States
Washington, D. C.
FSimlf
Regraded Unclassified
79
NOV 11 1943
My dear Mas Chairman:
Reference is made to the proposed additional report of the
Joint Committee on Reduction of Nonessential Federal Expendi-
tures with respect to Federal Land and Property which you
forwarded with your letter of November 4. 1943 for comments,
suggestions and approval.
It appears. from a general review of the proposed report,
that it brings up to date the data with respect to land owned by
the Federal Government which was originally included in a report
submitted to the Congress by the President on January 16, 1939.
entitled "Federal ovnership of real estate and its bearing on
State and local taxation", and which was based on a study made
under the direction of the Secretary of the Treasury, the Attorney
General and the Acting Director of the Buresu of the Budget.
I agree with the statement on page 25 of the proposed
Committee repert that particular care should be exercised in
granting of Federal aid to States so that such contributions do
not encourage needless extravagance or fiscal neglect on the part
of States or local governing bedies. I cannot agree, however,
that the tax value of federally-owned property should be -
sidered a factor in Federal aid programs generally. That value
is, of course, important in determining the specialised "grante"
Regraded Unclassified
80
- 2 -
on Federal properties commonly referred to as "payments in lieu
of taxes." But even in the field of in-lieu payments, care
must be taken to differentinte among different types of
holdings. Actual tax losses, local benefits derived from
Federal ownership, and demands on local governments for
services vary widely from one type to another. No blanket
formula can, therefore, cover Federal payments on all classes
of federally-owned property. Some of the principles which
should govera such payments are examined in the recent report
of the Committee on Inter-governmental Fiscal Relations to the
Secretary of the Treasury (Senate Document No. 69, 76th
Congress).
I agree with the proposed recommendation No. 2 to the
extent that it relates to an inventory of federally-owned and
controlled lands. I think that all information with respect
to such lands should be available in & central record office.
Nevever, I an not prepared at this time to endorse that part of
the recommendation pertaining to a central agency to exercise
exclusively all.eperational powers and duties in the consum-
mation of land acquisition and disposition. The latter
recommendation would vitally affect in & general vary not only
all Federal agencies having land acquisition functions, but
specific functions of the Attorney General and the Federal
Works Agency, Mereover, the question whether such a central
Regraded Unclassified
81
- 3 -
agency should be established is at present before the respective
Public Land Committees of the Senate and the House in the form
of bills (s. 1463 and H. 1. 3632) to establish such an agency
in the General Land Office of the Department of the Interior.
Continuing study of the effect of Federal holdings upon
State and municipal tax problems is undoubtedly necessary. as
contemplated in recommendation No. 3. but this recommendation
apparently overlooks the work that has been and is being done
by the Federal Real Retate Board at the direction of the
President in Executive Order No. 8034 of January 14, 1939.
It will be appreciated if you will include these
comments with the Committee report.
Very truly yours,
(Signed) II Morgenthan, "
Secretary of the Treasury
Honorable Narry F. Myrd
Chairman, Joint Committee on Reduction
of Nonessential Federal Expenditures
Congress of the United States
Washington, D. c.
VTHrm1h 11-10-2013
Regraded Unclassified
82
November 11, 1943.
My dear Mr. Chairman:
De
Reference is made to the proposed Progress Report of the
Joint Committee on Reduction of Nonessential Federal Expendi-
tures which vas forwarded with your letter of November 4 to
Secretary Morgenthau.
It is suggested that the following changes be made in the
figures appearing on page 6. The Federal debt is stated at 55
billion doblars at the start of the var and as 170 billion
dollars at the present time. The 170 billion dollar figure
includes the guaranteed obligations of governmental corporations
of about " billion dollars. In order to nake the debt at the
start of the var comparable the figure should be 61 billion dollars.
The statement in the sentence on lines 5 and 6, page 6, should
be changed to refer to "this nation" instead of "a nation". Other
nations have found it necessary to express their public debts in
terms of 12 figures in their local currencies.
In 1938 (June 30) the per capita public debt was $285 and on
October 31, 1943 11 was $1,204. The per capita debt following the
last var, on August 31, 1919. the highest point, was $250.
The estimated interest on the public debt during the current
fiscal year is 2,700 million dollars and not 2,759,million dollars
Regraded Unclassified
83
- 2 -
as shown on line 13, page 6.
It is estimated that during the fiscal year 1944 collections
from "pay-es-you-go taxes" will amount to about 7 billion dollars
and not 3 billion dollars as stated in line 15, page 6.
The sentence beginning on line 16, page 6. should be
clarified to read somewhat as follows:
"Randolph Paul, General Counsel of the Treasury
Department, on the basis of budget estimates
of January, 1943, pointed out that the present
deficit (for fiscal year 1944) will be 70
billion dollars, Stating *.*
I assume the amount of estimated savings in the personnel
reporting system, referred to at line 6. page 4, as 10 million
dollars, has been verified.
Very truly yours,
Dwrael
Under Secretary of the Treasury.
Honorable Harry 1. Byrd,
Chairman, Joint Committee on Reduction
of Nonessential Federal Expenditures,
Congress of the United States,
Weshington, D. C.
wth/wth
Regraded Unclassified
84
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE NOV 11 1943
TO
FROM
Mr. Hass
Secretary BA Morgenthau
Subject: Current Developments in the High-grade Security
Market
I. Prices of Government Securities Declined
Following Third War Loan
Since the clese of the Third War Loan on October 2,
the market for Government securities has been generally
weak. Treasury notes, both taxable and tax-exempt, showed
little change on balance but price declines were prevalent
among Treasury bonds, amounting to as much as 10/32 in the
case of taxable bonds, and to as much as 22/32 in the case
of partially tax-exempt bonds. Average lows for the period
since October 2 were reached by taxables on November 4, and
by partially tax-exempts on November 9. The general declin-
ing tendency was interrupted by moderate rallies, once in
the week ended October 23, and again in the last two days of
the week ended November 6. Net price changes for the first
three days of this week were small.
No open market support was given Treasury bonds - the
bulk of Federal Reserve purchases in the market being con-
fined to Treasury bills and certificates of indebtedness.
II. Corporate and Municipal Bonds Rose
During October
Righ-grade corporate bonds rose moderately in price
during October; while high-grade municipals reached all-time
highs only to decline sharply during the first week of
November. The decline in the stock market on Monday, Novem-
ber 8, extended to bonds of railroads in reorganization, but
had only a moderately depressing effect on high-grade cor-
porate and municipal bonds.
Regraded Unclassified
85
Secretary Morgenthau - 2
III. Third War Loan Issues Gain Less in Market
Trading Than Previous Drives' Securities
The three issues of marketable securities offered during
the Third War Loan drive were traded for the first time on
Monday, October 11. At the close of that day, the premiums
on these issues were only slightly less than the initial
premiums on the comparable securities offered during the
Second War Loan drive. However, the market for the seou-
rities offered in the Becond War Loan campaign improved sub-
stantially in the weeks immediately following the close of
that drive, which has not been the case with those offered
during the Third War Loan campaign. The following table
compares the premiums of the various marketable securities
offered in the three war loan drives on the first day of
trading after the closing of the subscription books and at
comparable later dates.
: Premiums on first day : Market premiums five
: traded after closing : weeks after closing
: of subscription books : of subscription books
Security
: First :Second : Third : First :Second : Third
: War : War : War : War : War : War
Loan : Loan : Loan Loan : Loan : Loan 1/
(In decimals)
7/8% certificate .014
.093
.039
.113
.127
.095
(In thirty-seconds)
1-3/4% bond
2
-
-
16
-
-
2% bond
8
7
-
21
6
-
2-1/2% bond
1
5
4
18
15
3
Subscription books for the Third War Loan closed October 2,
but trading in securities offered during the drive did not
commence until October 11.
IV. Post-drive Liquidation of Bank Loans Slow
Total loans of weekly reporting member banks increased
by $2.6 billions from the low point before the Third War Loan,
reached August 11, to & peak of $12.1 billions on October 6.
Presumably a major portion of the total increase, and not
merely the increase in security loans, was for the purpose
of financing purchases of Governments during the Third War
Regraded Unclassified
86
Secretary Morgenthau - 3
Loan. Liquidation of these loans in the four weeks follow-
ing October 6, amounted to only $0.4 billions, which is at
a much slower rate than during the comparable period follow-
ing the Second War Loan.
The table below shows the movements of loans of weekly
reporting member banks from August 11 to October 6, and from
October 6 to November 3:
:
August 11 -
October 6 -
October 6
November 3
(In millions of dollars)
Loans by weekly reporting member
banks in New York City to
brokers for purchasing or
carrying Government securities
+700
-290
Other loans to brokers and
dealers
+399
-97
Other security loans
+755
-190
All other loans
+720
+157
Total loans
+2,574
-420
V. Excess Reserves Again Near Summer Low Point
Excess reserves of all member banks declined $354 mil-
lions during the period September 8 through November 3, to
$1,084 millions, a point only moderately above the five-
year low of $1,020 millions established in July. This
occurred in spite of the large deoline, amounting to $927 mil-
lions, in required reserves, due primarily to the transfer of
deposits from private accounts to War Loan accounts. The
factors which were principally responsible for the decline
in excess reserves were increases of $614 millions in money
in circulation, $371 millions in Treasury cash and deposits
in Federal Reserve Banks, and $298 millions in nonmember
deposits and other Federal Reserve accounts.
During the same period, weekly reporting member bank
holdings of Treasury bills, which now serve largely 8.8
secondary reserves, increased by $835 millions, and Federal
Reserve Bank holdings of bills decreased by $213 millions.
Regraded Unclassified
87
November 11, 1943.
My dear General:
I wish to thenk you for your inspiring letter
received this day. I say inspiring for I feel that
a tremendous amount of productive work can be done
here at home through the exhibition of this materiel.
Your promptness and obvious efficiency in handling
this request of mine 1s but a further confirmation
of the kind of a job that I know 1s being done under
your command in that important theatre of action.
In closing, I want to thank you personally and
on behalf of our thousands of War Bond workers who
will be thrilled by the privilege of putting this
consignment to good use here.
with every good wish, I am
Sincerely yours,
(Signed) H. Morganthan. Jr.
A. W. Pence, Brigadier General,
AUS, Commending,
Headquartors Peninsular Base Section,
APO 782,
x Postmaster,
New York, Now York.
TRG:DFT
RD
Regraded Unclassified
HEADQUARTERS
88
PENINSULAR BASE SECTION
Office of the Commanding General
APO 782
31 October 1943
The Honorable Mr. Henry Morgenthau, Jr.
Secretary of the Treasury
Treasury Department
Washington, D. C.
Dear Mr. Secretary,
Pursuant to your personal request on your recent visit to
Naples, I am having shipped to the U. S., on the "S,S, Poinsette",
marked "For War Loan Drive", six Germen tanks described as follows:
a, Two Mark IV Medium Tanks weighing approximately 23
short tons each. Its principle armament in turrett
is one 7.5 cm high velocity long barrel gun.
b. Two Mark III Tanks, especially converted for use as
flame throwers, with large diameter flame thrower tube
projecting from gun turret in place of gun. Weight,
approximately 20 short tons each.
C. One 7.5 em Self-Propelled high velocity gun mounted
on Mark III tank chassis. Weight, approximately 21
short tons.
d. One 10.5 cm Self-Propelled Howitzer mounted on Mark III
tank chassis. Weight, approximately 25 short tons.
These tanks were knocked out by General Clark's Fifth Army
near Paestum, Italy, where the VI U. S. Corps under General Dawley
made its initial landing on the morning of September 9.
Sincerely yours,
aubam
A.W.PENCE
Brigadier General, AUS
Commanding
AWP/wam
Regraded Unclassified
89
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
November 11, 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
I attach hereto a summary memorandum of the
rebuttal of criticism of the Treasury tax program.
Fat
H
see Page #3
Regraded Unclassified
30
Summary of Points in Rebuttal of Chief Criticisms
of Treasury Program
1. Ie a reduction in Federal expenditures a
substitute for the tax program? Even 1f expenditures
could be reduced by a few billion dollars, the $10.5
billion tex program would still be necessary. It is
too small a pro ram for safety, under present estimates
of expenditures. It would have been set at 8. higher
level, except for the fear of doing substantial injustice
to certain groups of taxpayers. If expenditures are
reduced, the $10.5 billion tax program would have a
better chance of holding the line against inflation, but
even then there would not be much safety mergin. More-
over, every dollar of added tax now means E smaller debt
for the Government to handle in the future.
2. Is taxation a weapon against inflation? Some
critics have even gone so far as to cast doubt on taxa-
tion's role as a check to inflation. But such doubting
simply flies in the face of experience, in this country
and other countries, in this wer and former wars. Taxe-
tion 18 the treditional weapon to fight inflation. Price
control and rationing, and the voluntary purchase of
sevings bonds, are necessary too. But surely it 1s
obvious that additional tax revenue comes in part from
money that consumers would otherwise spend for scarce
commodities and services. In spending this money, con-
sumers would draw merchants' inventories down to
dangerously low levels and would patronize black markets
at high prices.
The amount of money that consumers now have avail-
able to spend is so large that it has no precedent,
here or abroad. For the past three and a half years,
January 1, 1940 - June 30, 1943, consumers increased
their holdings of currency and checking-account deposits
by $24 billion. On top of that, they will have another
$30 billion out of fiscal 1944 incomes that will go into
Federal securities, in part, and in part will be held 88
currency and checking-account deposits. So, even 1f the
large amount of $20 billion of Federal bonds, net, were
sold to individuals in fiscal 1944, there would be
$10 billion in currency and checking-account deposits
Regraded Unclassified
91
- 2 -
from that year piled on top of the 324 billion increase
since January 1, 1940. In the second half of calendar
1944, another $5 billion increase could occur.
We must slow down the rate of increase in this huge
accumulation of cash and checking-account deposits - -
slow it down by taxation, in addition to selling all the
bonds we can to individuals. Nobody knows when and now
fast consumers will draw on this accumulation in order
to spend, but it is taking too great a risk to assume
they will make no attempt to spend any of it, price con-
trol or no price control.
If we wait much longer, consumers will have piled
up so much cash and other liquid savings that they will
be able to keep on spending, almost regardless of any
tax measures of the magnitudes now under consideration.
It will then be too late to check inflation without tax-
ation much heavier than has BO fer been proposed. A
taxpayer with a cash accumulation of, for example, $5,000,
and an income of $3,000, could meet even 8. 100 percent
tax on his income, for one year at least, by simply draw-
ing on his savings, letting his spendings run along
unchecked. If we give him time to pile up still more
cash, it becomes correspondingly harder to check his
spending by taxation.
3. Can the country stand an additional $10.5 billion
in taxes? The figures show clearly that the people of
the United States can stand an additional $10.5 billion
in taxes. In calendar 1944 we shall have $135 billion
personal income after paying all existing personal texes.
We shall have $92 billion of consumers' goods and services
to spend it on. Our commitments for life insurance
premiums and debt repayments, and our deposits in savings
banks, will take no more than $8 billion. So, even after
the $92 billion spending and $8 billion ordinery saving,
we shall still have $35 billion left with which to buy
Federal bonds and pay more taxes. If 8. nation like this,
with B. free surplus of $35 billion, cannot stand additional
taxes, then no nation can ever stand them.
Regraded Unclassified
of Pant - se Post 2?
was one taten, why well < -
- 3 - a refunable
4. Would the lowering of the exemptions and the
repeal of the earned income credit unjustly burden the
low-income groups? The Treasury proposal to lower the
exemption of married persons to $1,100 (from $1,200)
and the credit for dependents to $300 (from $350), and
to repeal the earned income credit, would not unjustly
burden the low-income groups, because along with these
changes the Treasury recommends repeal of the Victory
tex. Moreover, the Congress may, 1f it wishes, make 8.
large part of the tax on the low-income groups refund-
able after the war. The earned income credit, as it
now stands, 1s a highly artificial device, with erratic
results, and 18 not restricted to truly earned income.
5. Do the Treasury proposals tax too lightly the
incomes under $5,000, since four-fifths of the total
income goes to that group? There is an impression that
the Treasury program increases little or not at all the
tax on incomes under $5,000. (These incomes account for
four-fifths the total income payments.) This impression
18, however, erroneous. Only in the lower part of the
$0 - $5,000 range are the increases light. At $4,000
net income, a married person's tax (no dependents) would
be increased from $647 to $999. Even under the postwar
refund suggestions, the net increase would be substantial.
At $3,000 net income, the net tax (under postwar sug-
gestion No. I) would be $532. This 1s a $127 net increase
on a married couple with $3,000 income - - not an insig-
nificant increase by any means.
Below $2,000, there is little if any margin of
income over basic family needs. Consequently, the
Treasury's program calls for only small increases in tax
(before postwar refunds) on these very small incomes.
6. Should a deduction be allowed for individuals
who buy Federal bonds? It has been proposed that a
deduction from net income be allowed to anyone who buys
a certain quota of Federal savings bonds. This proposal
1s unsound. The deduction would result in a reduction in
tax and this is of course 8. reward for buying the bond,
like interest. But it 1s a reward that 1s greater for
the high-income bond purchaser. The reduction in his
Regraded Unclassified
23
- 4 -
taxable income comes out of high surtax rates. The
low-income individual would gain little from a bond pur-
chase, since he has a small tax to pay and his tax relief
would be small. In effect, this proposel would give a
high rate of "interest" to high-income taxpayers and a
low rate to others. This 16 doubly unjust, since it is
easier for the high-income taxpayer to buy the bonds. He
usually has some other assete he can sell. The low-income
taxpayer usually has to cut down his spending to buy bonds.
7. Does the Treasury program take more than 100 per-
cent of some taxpayers' 1944 income? Some critics claim
the Treasury's program takes more than 100 percent of the
1944 income of certain taxpayers. This is not a correct
statement.
If it refers to the 12- percent of the uncancelled
tax on the 1942 income (or 1943, whichever 18 lower), it
18 misleading. It adds part of one year's tax (1942 or
1943) to another year's tax (1944) and compares the total
with one year's income (1944). By this kind of arithmetic,
of course, more then 100 percent taxation can be obtained.
If it refers instead to the combined amount of Federal
and State income taxes, it is still incorrect. The State
income tax paid can be deducted in computing net income
subject to Federal tax. Therefore the combined tax can
never be 100 percent of the income, no matter how near to
100 percent each of the two separate rates may be.
8. Are corporations being taxed 50 heavily that fur-
ther taxation would cripple them for war or postwar
effectiveness? Wartime profits of corporations, after taxes,
are larger, not smaller, than in the prewar years. For the
three years 1941-43 they will be $8.3 billion & year (yearly
average). This 18 $5.0 billion B. year more than the yearly
average of 1936-1939. It 1e an astonishing record, and
certainly shows that on an overall view the wartime tax
system is far from making corporate investors bear an undue
sacrifice, to say the least. The accuracy of those
estimates has been questioned by some critics, but their
data are less complete than those the Treasury uses. More-
over, the Treasury data agree substantially with the
estimates of all other government departments.
Regraded Unclassified
94
- 5 -
Small corporations are favored in the Treasury pro-
gram by a smaller rate increase. Deductions for reserves
are not needed, in view of the carry-back provisions,
especially if specific expenses like reconversion costs
and dismissel compensation are to be carried back.
9. Are the excise tax proposals unfair to low-income
groups, as the sales tex would be? Excise taxes are not
on the necessities of life. If the taxpayer's income 1e
very small, he can avoid the excise taxes by avoiding the
luxury items taxed by excises. He has a real chance to
avoid the tax in order to maintain a. minimum standard of
living. A sales tax gives him no real chance. It hits
necessities, and he must buy necessities.
10. Would the excise tax proposals bring on inflation
by raising prices, 28 the sales tax would? The excise
taxes would have a very much smaller effect in stimulating
demands for wage increases than a sales tax. The excise
tax proposals are almost wholly restricted to non-essential
commodities and services that do not enter into the Bureau
of Labor Statistics cost of living index. Similarly, they
do not appreciably affect farm parity prices. Moreover,
the excise tax proposals, with minor exceptions, do not
affect business costs, hence do not put pressure on ceiling
prices.
11. Would the excise proposals harm the business firms
that make and sell the taxed articles? Consumers have so
much money to spend that their demand for the taxed articles
is very strong. Demand exceeds supply. Little or no
reduction in the physical volume of sales of the taxed
articles would result from adopting the excise proposals.
Regraded Unclassified
95°
NOV 11 1943
My dear Eleanor:
I return Dayton Clarke's letter, which you
enclosed with your memorandum to me of November 6th.
Clarke was originally appointed as a Grade 1
employee at $1260 on January 16, 1940. Hie record
having justified advancement, be has had several
promotions to his present position as Zone Deputy
Collector in Grade 5 at $2000 per annum.
The position of Assistant to the Collector
which he is now seeking is the ranking position
in the Collector's organization and one which calls
for the services of a man of broad experience. In
view of Clarke's relatively limited service and
experience, Commissioner Hannegan seriously doubts
that he would be the most suitable and available
man for this position. The Commissioner, however,
is bringing the matter to the attention of
Mr. Johnson, the new Collector, for his considera-
tion in recommending the appointment of his assistant.
Affectionately,
(Signed) H. Morgenthau, Jr.
Mrs. Franklin D. Roosevelt,
The White House.
the
WNT:aja
Bylless 35
Regraded Unclassified
96
POLYTORY
BUY
TREASURY DEPARTMENT
-
WAR
have
APR
STANDS
WASHINGTON
25
CHICE OF
MISSIDNER OF INFERNAL REVENUE
November 10, 1943.
REPLY TO
COMMISSIONER - INTERNAL REVENUE
E I !
A&C:OD
MENORANDUM for Mr. Thompson,
Administrative Assistant to the Secretary.
Regarding the attached letter from Mr. C. Dayton Clarke, I
find that Mr. Clarke was appointed 8.8 a temporary office employee
in the Third New York Collection District, Grade CAF-1 at $1260
annual rate, on January 16, 1940. This appointment terminated
on June 30, 1940. On December 16th of the same year he was reap-
pointed as a temporary in Grade CAF-2 at $1440 per annum, and on
May 16, 1941, he was given 8. permanent appointment at the same
grade and salary. On March 1, 1942, Vr. Clarke WELS reassigned to
the position of Zone Deputy Collector, Grade CAF-4 at #1800 per
annum, and on September 1, 1942, he was advanced to Grade CAF-5
at $2000 per annum.
The position of Assistant to the Collector is the ranking
position in the Collector's organization and is one which calls
for the services of a nan of broad experience, a thorough know-
ledge of office organization and procedure and executive ability
of & high order. These qualities are especially important in view
of the heavy burdens imposed upon the Collector's office in connec-
tion with the administration of the current tax laws. In view of
Mr. Clarke's relatively limited service and experience, I seriously
doubt that he would be the most suitable and available man for the
position of Assistant to the Collector. Having in mind the
importance of this position and the fact that Mr. Johnson un-
doubtedly will be anxious to make B. good record as Collector, I
rather feel that we should await his recommendation for filling
the position in question.
Commissioner.
Attachment.
Regraded Unclassified
97
THE WHITE HOUSE
WASHINGTON
November 6, 1943.
MEMORANDUM FOR SECRETARY MORGENTHAU:
This is Tom Lynch's brother-in-law
and you know his record.
ELEANOR ROOSEVELT
2960 Decates avenue
New York, October31, 1943.
Dear Mrs. Roosevelt,
I under stand that due to the receat elevation
of Mr. James Johnson as Collector of our Third
District of Internal Revenue, there is a position open
as assistant Collector, and that this post has
yet to he filled
I have swen Cou siderable thought to the respons.
ibility of this position and purer that I am fully
eapable of filling it. I have been in this district
thought of by my Imperiors, although I have not
office, going on four years now, and am well
opoken to any of them of this m atter.
I can definitely promise you that any consideration
that is given me in the filling of this position will
he always greatly appreciated
Mother and Patsy form -me in seading our
kindest and seacere regards,
to
N
months
Yours, in respect.
Is
@ Saytem Clarke
before + we
Regraded Unclassified
COPY
99
2960 Decatur Avenue
New York, October 31, 1943.
Dear Mrs. Roosevelt,
I understand that due to the recent elevation of
Mr. James Johnson as Collector of our Third District of
Internal Revenue, there is a position open as Assistant
Collector, and that this post has yet to be filled.
I have given considerable thought to the responsibility
of this position, and know that I am fully capable of filling
it. I have been in this district office, going on four years
now, and am well thought of by my superiors, although I have
not spoken to any of them of this matter.
I can definitely promise you that any consideration
that is given me in the filling of this position will be
always greatly appreciated by me.
Mother and Patsy join me in sending our kindest and
sincere regards.
Yours, in respect,
(Signed) C. Dayton Clarke
Regraded Unclassified
100
MENORANDUM FOR THE SECRETARY'S FILES
Meeting in the Secretary's Office
Mr. McCloy, Assistant Secretary of War;
General Hilldring and Mr. White.
November 11, 1943
Mr. McCloy made some remark which prompted Secretary Morgenthau
to ask whether Secretary Stimson had adversely commented on his trip
to the front. Mr. McCloy replied no, the only thing Secretary Stimson
sala W&B the next time General Eisenhower says he cannot go to the
front, he will tell him to go to the devil.
Mr. McCloy said that Secretary Stimson had said that there were
some points that Secretary Morgenthau wanted to make with respect to
his trip in Europe which he, Secretary Stimson, came away from the
luncheon without hearing them. Mr. Morgenthau laughingly replied
that the reason was that Secretary Stimson spent almost the entire
hour telling him (Mr. Morgenthau) about the book "Garibaldi and his
Thousands."
Secretary Morgenthau in response to Mr. HcCloy's inquiry said
that he W&B very favorably impressed with Allied Military Government
Forward and with the work that Colonel Hume was doing, and also with
the work that Poletti was doing in Palermo. In fact, the one area
which he was troubled about was the Brindisi area. He thought the
AMG man there was not up to the job.
The Secretary also expressed the view that it might be a good
idea, though that was strictly the Army's responsibility, to have
General WcSherry come back here and explain to Congress the good work
ALG was doing. Mr. McCloy mentioned that they were thinking of having
Colonel Spofford come back and didn't the Secretary think he would do.
Secretary Morgenthau replied that he had not met Spofford, but he knew
that McSherry could do a good job of explaining to Congressional com-
mittees and the people here what AMG was doing.
Secretary Morgenthau also said that he had seen General Joyce
several times and for brief periods. He said that the Mission would
be up against some very smart Englishmen and he did not think General
Joyce was up to that kind of a job.
The Secretary said he thought the Army ought to give some more
thought to how long it was going to continue to pay out of their ap-
propriation for civilian goods sent to Italy to be distributed to the
civilian population. General. Hilldring replied that they had informed
the appropriate committee that some of their funds were being so spent.
That still left open the question as to how long they would continue
to do so.
Regraded Unclassified
101
Division of Monetary
Research
- 2 -
Secretary told then that he had approved having the British
PAY for wheat and cheese bought from the Argentine, inasmuch as we
were paying for the commitments 50 sent acquired in the United
States in order to make that a 50-50 arrangement. Secretary said
that he understood that was the Army's viewpoint too and McCloy
and Billdring assented.
Secretary Morgenthau told them that Murphy and Mclillan had
asked him for his view as to whether they ought to bring shout 8
change in the Italian Government now or wait until our troops got
into Rome. Secretary Lorgenthau told them they ought to do it now
and not to wait, as it may be many weeks before we got to Home.
The Secretary also recommended that the Army ought to have a
couple of Treasury accountants sudit the books of the AMG Government
merely to help them to get their accounts perfectly in order. Be
added that he would start them at Brindisi. Both McCloy and General
MillAring said they would be glad to have them. Secretary added
that General VcSherry had also thought it would be a good idea to
have such audits.
(The discussion was interrupted for a telephone call from
Secretary Stimson to Mr. HcCloy.)
After the call Mr. McCloy wanted to know whether we had any
general comments on the way the Army worked. The Secretary replied
the closer he got to the front the more impressed he was with the
efficiency and competence of our Army; that he thought our Army was
doing a first rate job at the front, but that in the rear be got
the impression that its personnel were more lax and more inefficient.
However, he added that as a layman he was not very competent to
judge on that matter and that the Army had plenty of its own men
who were going over that phase of the problem and doubtless with
much better information on it than any he had.
He did feel he said, that there were too many men under 25
who worked at jobs that should be performed by women. He mentioned
particularly work being done for the AMG and for the post exchanges.
Mr. McCloy replied that the trouble was they could not get enough
WACS to enlist.
The Secretary raised the question about the discussions going
forward with the British and on invasion currency. Mr. White had
some telegrams indicating that the British were insisting that
Eisenhower solve the problem with the French in Algiers. General
Hilldring went on to explain that since White raised the question
with him 8. few days ago they were going to try to settle the matter
in Washington. Unfortunately, however, there were no French to
Regraded Unclassified
102
Division of Monetary
Research
3 I I
whom they could officially talk to. Mr. McCloy said that Jean Monnet
had submitted his credentials for representing the French National
Committee but Lr. McCloy said that he could not talk to him officially
until the State Department had cleared the matter and he advised
Monnet to see the State Department.
McCloy went on to explain that there had been a change in the
trend of certain matters in the past month or SO. Formerly questions
relating to monetary, currency and directives to liberated areas were
settled by his Civil Affairs Committee (on which Mr. White represented
the Treasury and State Department also had representation) and matters
were settled fairly expeditiously. Then the British informed them of
an arrangement which the British had made with the Norwegians. When
he suggested they should meet to get American approval the British
said "Oh no," it was merely for American information and not for ap-
proval by the American Committee, that the matter had already been
approved by the British Government and the Norwegian Government.
McCloy said the British were trying to get more and more of the
decisions settled in London. With General Marshall there and the
exiled governments the center of authority seems to be shifting to
London and that the Civil Affairs Committee here under McCloy was
getting lost in the larger trend. An important development in this
trend was the acquiescence of the United States to have the head-
quarters of the important committee emerging from the Moscow conference
in London. Secretary Morgenthau remarked that he thought that was an
error and did not see why Hull committed himself to agree to that.
McCloy nodded and said he knew that was SO.
The Secretary stated that it was his view that the best currency
to be used in these operations was the allied military currency. Mr.
McCloy replied that that was their view except for the spearhead
currency. The British do not want U.S. dollar to be used as spear-
head but wanted to use the local currency. The matter was still
unsettled.
It was agreed that the exchange or views was very helpful and
they ought to meet again soon for another discussion.
H. D. White
Regraded Unclassified
103
November 11, 1943
ANDUM OR THE FILES
Meeting in Mr. White's Office
November 11, 1943
2:30 P. E.
Present: Mr. White
Sir David Waley
Mr. Friedman
Subjects: China; Imports of wheat and cheese into Italy from
Argentina; International Stabilization Fund.
China
Sir David Waley called to discuss question of the Stabilization
Board of China and to receive Mr. White's reaction to his letter
indicating that the British favored the continuation of the Board.
Mr. White indicated that the Treasury's position was still the same
ae at the time he had discussed this problem with Sir David Waley
prior to informing the Chinese representatives of the U. S. Treasury's
position. Mr. White explained again that the Treasury felt that it
was in the best interests of the United States and of China not to
renew the 1941 Stabilization Agreement. with regard to the British,
it was, of course, possible for them to continue their agreement
with China, if they so desired. Furthermore, it was the feeling in
the Treasury that, if the Chinese so desired, they could still con-
sider the matter under negotiation but that Adler would be asked to
resign and the 1941 Agreement was not to be renewed.
Sir David Waley expressed regret that the United States and
Great Britain did not have an identical policy on this matter. Mr.
White indicated that the Treasury would have no objection to the
British taking the same action as the U. S. Treasury. In this way,
the two Governments would have identical policies.
Sir David asked regarding the dollar position of the Stabili-
zation Board. It was pointed out to him that the Stabilisation
Board had no outstanding commitments to the U. S. Treasury. Mr.
White also indicated to Sir David that he believed that there was
no connection between the sterling and dollar accounts of the Board,
Regraded Unclassified
104
- 2 -
Division of Monetary
Research
Imports of wheat and cheese into Italy from Argentina
Sir David then raised the question of the wheat and cheese which
was being obtained for import into Italy from the Argentine. Mr.
Mite outlined the ituation as he had received it from the Army,
pointing out that the U. S. Army felt that the British should bear
the cost of such imports from the Argentine until the British had
horne up to 50% of the total cost of such type of imports into Italy.
!r. Willte also indicated that on the basis of information which he
had received from the Army he felt that this would be a reasonable
position. Sir David said that he disagreed with this position and
instead suggested that purchases of this sort from third countries
should be on a 50-50 basis. He commented that the decision in this
case light become a precedent for relief operations. Mr. White
pointed out that decisions regarding relief operations were being
made at Atlantic City and that this was purely a military problem.
Sir David then suggested that a provisional decision be made
and again made the svggestion of a 50-50 basis for purchases from
third countries, arguing the disparity of resources between the
United Kingdom and the United States. Some discussion regarding
the different contributions which were going to be made by the
United Kingdom and the United States then took place and it was
suggested by Mr. White that more information should be gotten regard-
ing the total picture before any definite decision was made regarding
the linancing of the wheat and cheese imports.
The question arose as to whether payments for this wheat and
cheese were to be made in sterling or dollars and it was agreed that
t.is would depend on who did the procuring. 3ir David indicated that
he understood that the wheat was to be paid for by the United States
and the cheese to be paid for by the United Kingdom. The cost of
the cheese would be considerably less than the cost of the wheat.
Mr. Mite indicated that he had informed the Army that in his
opinion financing should not stand in the way of consummating the
purchases. Sir David indicated complete agreement with this position.
International Stabilisation Fund
Sir David said that he proposed to visit Congressman Dewey to
discuss with him the proposals for international monetary statilization.
He informed Mr. White that Congressman Dewey had attempted to make an
appointment with Lord Keynes through Lord Keynes' nephew, but that Lord
Keynes had refused to make the appointment. Because of this, Sir David
wished to see Congressman Dewey. Dr. White indicated that Treasury
would have no objection to Sir David's calling on Congressman Dewey
and discussing with him proposals for international monetary stabili-
zation.
I. S. Friedman
Regraded Unclassified
105
TWELFTH REPORT TO CONGRESS
ON LEND-LEASE OPERATIONS
Reverse Lend-Lease Aid from the
British Commonwealth of Nations
Regraded Unclassified
TWELFTH REPORT TO CONGRESS
ON LEND-LEASE OPERATIONS
Reverse Lend-Lease Aid from the
British Commonwealth of Nations
"The President from time to time, but not less frequently than once
every ninety days, shall transmit to the Congress a report of operations
under this Act except such information as he deems incompatible with
the public interest to disclose."
[From Section 5, subsection b of An Act to Promote the Defense of
the United States" (Public Law No. 11, 77th Congress, 1st Session).]
Regraded Unclassified
To THE CONGRESS OF THE UNITED STATES OF AMERICA:
Since the enactment of the Lend-Lease Act in March of 1941,
I have transmitted to the Congress eleven reports describing
the lend-lease aid which has been furnished by the United
States. These reports have also included information with
respect to the types and quantities of reverse lend-lease aid
provided to the United States by the various lend-lease coun-
tries. While a complete account of the reverse lend-lease aid
which we have received is not yet available, the statements
recently received from the Governments of the United King-
dom, Australia and New Zealand and from our Army make it
possible for me to report to you at this time regarding a part
of the expenditures made by the British Commonwealth of
Nations for reverse lend-lease aid to the United States.
0
The overwhelming benefit which the United States has
received from its lend-lease program has, of course, been the
pooling of resources and the combined effort of the United
Nations against the Axis countries. Each of the United
Nations has contributed. There is, of course, no physical or
financial standard of value by which we can measure the mili-
tary contribution to the war on land or sea or in the air which
has been made by our allies or ourselves. One thing is clear:
by the help which our friends and allies have given us, and
by the help which we have given them in the common cause,
we have not only made progress in the war, but we have
saved the lives of many of our own boys as well as those of
our allies.
The Master Agreements entered into with Great Britain,
the Soviet Union, China and other United Nations receiving
1
Regraded Unclassified
lend-lease aid establish the principles which govern the lend-
of the British Commonwealth looking toward a like arrange-
lease relationship. The other United Nations, under the
ment for the provision of materials and foodstuffs as reverse
Master Lend-Lease Agreements, have agreed to contribute to
lend-lease aid.
the defense of the United States by providing as reverse lend-
As of June 30, 1943, the British Commonwealth of Nations
lease aid all articles, services, facilities or information which
reported that expenditures of about $1,171,000,000 had been
they can furnish. Under these agreements, all lend-lease
made for reverse lend-lease aid. The United Kingdom has
supplies, such as, for example, merchant ships or cargo planes,
expended about $871,000,000 of this amount; and Australia,
which are not used up in the war, can be required by the
New Zealand and India have expended approximately
President to be returned at the end of the present emergency.
$300,000,000. Based upon estimates for the first six months of
Article VII of the Master Agreements entered into with the
this year, expenditures by the British Commonwealth for
United Nations receiving lend-lease aid provides that they will
reverse lend-lease aid to the United States are now at an annual
join with the United States in working toward some of the
rate of about $1,250,000,000. This does not take into account
economic conditions which are a prerequisite to a secure
the anticipated exports of raw materials, commodities, and
foodstuffs for the account of the United States.
peace.
The Master Lend-Lease Agreements do not determine the
The data necessary for even an incomplete accounting of the
final settlement, but leave that for determination at some
monetary expenditures by the British Commonwealth for reverse
future date.
lend-lease assistance to the United States have been gathered
in the face of difficulties. British aid is rendered to the armed
As conditions have permitted, our allies have expanded the
scope and nature of their reverse lend-lease aid.
forces of the United States all over the world. Usually it is
During the past summer, the United Kingdom agreed to
under conditions very different from those surrounding lend-
extend reverse lend-lease aid to include not only goods, services
lease from the United States, which flows from a central source.
and information for our armed forces, but also raw materials,
Many supplies and services have been made available by the
commodities and foodstuffs hitherto purchased, for export, in
British to United States armed forces in North Africa, Sicily
the United Kingdom and the British Colonies by or on behalf
and elsewhere for which no report has yet been received.
of United States Government agencies. Discussions on the
The figures set forth in this report include expenditures
administration and procedure for the handling of the contracts,
made by the British Commonwealth for newly constructed
transfers and other details are now going forward.
barracks, military airports, hospitals and other military
facilities for our armed forces. They do not include such
This plan will make available to the United States, under
facilities made available to our armed forces where no out-of-
reverse lend-lease and without payment, such materials and
foodstuffs as rubber from Ceylon, Trinidad, British Guiana
pocket expenditures have been made for their construction
and British Honduras, sisal and pyrethrum from British East
since our entry into the war. These British expenditures
Africa, asbestos and chrome from Southern Rhodesia, cocoa
were from appropriated funds which required financing either
from British West Africa, tea and coconut oil from Ceylon,
through taxation or borrowing. They are comparable to the
and benzol and tar acids from the United Kingdom.
expenditures made by the United States from appropriations
British shipping for these raw materials and foodstuffs from
for lend-lease purposes which include funds for capital installa-
all parts of the British Commonwealth will also be made
tions in this country, such as munitions plants, shipyards and
other facilities. It has not yet been determined how such lend-
available under reverse lend-lease.
lease or reverse lend-lease expenditures will be entered or
Discussions are also under way with the other Governments
3
2
treated in the final settlement under the lend-lease agreements.
widely known that the operation of reverse lend-lease has
They will, of course, be considered when the final settlement
is made. The Master Agreement provides that in the final
made contributions to the outstanding performance of our air
forces based in the United Kingdom.
determination of the benefits to be provided to the United
Under reverse lend-lease, the British have provided our
States, "full cognizance shall be taken of all property, serv-
bomber and fighter commands with many necessary items.
ices, information, facilities, or other benefits or considerations
Specially heated winter flying clothing to protect bomber
provided by the Government of the United Kingdom subse-
crews from the intense cold suffered at high altitudes was
quent to March 11, 1941, and accepted or acknowledged by
supplied by the British to our air forces. When certain United
the President on behalf of the United States of America."
States fighter gun sights proved less effective than the sights
The Governments of the British Commonwealth have sub-
employed by British fighters, the Royal Air Force provided a
mitted their statement of expenditures for the reverse lend-
substantial number of British-type sights for immediate instal-
lease aid covered in this report in pounds. To make these
lation. American bombers have been equipped by the British
figures more intelligible to the American people, these expendi-
with photographic equipment effective in obtaining photo-
tures have been translated into dollars at the official exchange
graphs of the target during the bomb run. The British have
rates. This may be misleading because the rate of exchange
also provided facilities for the development and production of
used cannot, especially under war conditions, always reflect
a new type of protective body armor designed by our medical
comparable values in terms of purchasing power, man-hours
authorities.
of work or materials. But in spite of the misconception
A variety of other aid has also been provided for our air
which may result from translating the pound expenditure
forces by the United Kingdom. Mobile repair shops located
figures into dollars at the official rates of exchange, I think it
throughout the United Kingdom recondition American
is desirable to provide the Congress and the people of this
bombers forced to make crash landings. A one-man dinghy,
country with the best available indication as to the expendi-
developed by the British for parachute landings at sea, pro-
tures made by the British Commonwealth for reverse lend-
vides pilots of American planes with a one-man floating raft.
lease aid.
Specialized British radio equipment has been installed in
Exclusive of the expenditures [for supplies transferred in
American planes which has given greater safety to our bomber
Colonial theatres of war, American forces have received aid
crews, and has improved the effectiveness of our bombing
through reverse lend-lease channels for which the United
missions. For purposes of recognition training, the Royal Air
Kingdom made expenditures of $871,000,000 as of June 30,
Force has delivered to the United States Air Forces more than
1943 as follows:
60,000 items of aircraft, warship and armed vehicle recognition
Goods and services
$331,000,000
devices. These are but a few instances of the aid which' has
Shipping
169,000,000
been provided to our air forces under reverse lend-lease and
Airports, barracks, hospitals and other con-
without payment by us.
struction
371,000,000
Although Great Britain depends upon imports for a large
portion of her curtailed food supply, she is providing American
TOTAL
871,000,000
forces with substantial amounts of foodstuffs as reverse lend-
We are all familiar with the role which the Eighth Air
lease aid. These range from fresh vegetables, flour and pota-
Force has played, in collaboration with the Royal Air Force,
toes to corn-on-the-cob and soft drinks.
in preparing the way for the invasion of Europe. It is not as
Australia, New Zealand, and India have also provided
4
5
United States forces in those areas with substantial reverse
lend-lease aid, including most of their food.
Although clothing rationing has been introduced in Aus-
The Australian Government has officially estimated the
tralia, the Government has undertaken an extensive clothing
manufacturing program for the United States forces. This
expenditures for reverse lend-lease aid to the United States at
£A60,792,000 as of June 30, 1943. As the official rate of
program includes millions of pairs of socks and hundreds of
exchange of a LA equals $3.23, this indicates a dollar value of
thousands of shirts, jackets, trousers, pull-overs, undercloth-
ing, boots and shoes and blankets.
about $196,000,000. This sum is divided into the following
major categories:
Recreational needs of American soldiers have been met by
Stores and provisions
an Australian program which calls for every type of game and
$39,000,000
accessory from boxing gloves to medicine balls-in all, more
Technical equipment
7,000,000
than 420,000 items of such equipment.
Motor transport
14,000,000
Aircraft stores and equipment
Numerous hospitals, including the newest and most modern
16,000,000
in the country, have been made available to the United States
General stores
24,000,000
Army for its exclusive use.
Transportation and communication
21,000,000
Shipping
7,000,000
Official air, rail, and water passenger costs and freight, and
Works, buildings, and hirings
66,000,000
cable and telegraph expenses of our troops are paid by the
Miscellaneous
Commonwealth Government as reverse lend-lease aid.
2,000,000
TOTAL
A large number of small ships of various types has been
196,000,000
turned over to American authorities, and Australian shipyards
Australia and New Zealand have supplied American forces
are now turning out landing barges and small vessels for the
in the South and Southwest Pacific with the bulk of their
combat use of our forces.
foodstuff requirements on a ration scale comparable to the
On September 29, 1943, the Australian Minister of Finance
basic allowance of the American Army. This program
introduced the Commonwealth budget for the current fiscal
includes fresh, dried and canned products, and in some cases
year in the Australian Parliament. He estimated that
in the latter category requires amounts ranging up to 100%
Australia will spend approximately $323,000,000 for reverse
of total Australian production. The following are the quan-
lend-lease during the year July 1, 1943 to June 30, 1944.
tities of the principal types of foodstuffs the United States has
New Zealand, no less than Australia and the United King-
received from Australia as reverse lend-lease through June
dom, has supplied its share of reverse lend-lease aid. For the
30, 1943:
period ending June 30, 1943, the New Zealand Government
Meat
61,480,000 pounds
has officially reported having expended $51,000,000 for reverse
Bread, biscuits, and cereals
48,110,000 pounds
lend-lease aid to the United States, made up as follows:
Potatoes
29,762,000 pounds
Vegetables and fruit
49,931,000 pounds
Supplies, services, and foodstuffs
$24,000,000
Canned foods
28,340,000 pounds
Camps
6,000,000
Emergency rations
2,231,000 pounds
Hospitals
3,000,000
Sugar
11,782,000 pounds
Warehouses
5,000,000
Butter
6,628,000 pounds
Miscellaneous building projects
7,000,000
Condensed milk
8,711,000 pounds
Ship construction
6,000,000
Fresh milk
11,500,000 pints
Fresh eggs
TOTAL
51,000,000
22,000,000 dozen
6
7
New Zealand, with Australia, is the food basket of American
Military stores and equipment
$5,421,000
forces stationed throughout the South Pacific area. In order
Transportation and communication
3,161,000
better to provide for the needs of our troops in remote Pacific
Petroleum products
13,127,000
islands, New Zealand has greatly increased her capacity for
Construction
31,413,000
the packing, canning and dehydration of meats, vegetables
Subsistence
3,778,000
and dairy products. Although its population is less than
1,700,000, this Dominion has supplied the United States under
TOTAL
56,900,000
reverse lend-lease and without charge with more than
170,000,000 pounds of foodstuffs during the year ending June
We have received aviation gasoline, motor gasoline and
30, 1943, as follows:
lubricating oil, and lesser amounts of other petroleum prod-
Fresh meat
49,650,000 pounds
ucts from the Indian Government for use by American forces.
Canned and smoked meat
21,600,000 pounds
A part of the motor fuel has been used in a number of trucks
Potatoes
and passenger cars given our troops without payment as
9,150,000 pounds
Other vegetables
reverse lend-lease aid. In addition, United States Army
24,125,000 pounds
Fruit
groups have been afforded postal, telegraph, and telephone
10,825,000 pounds
Butter and cheese
facilities, water and electric power, furnishings for buildings,
12,550,000 pounds
Other dairy produce
and items of clothing, including mosquito- and gas-proof
10,000,000 pounds
Sugar
outfits.
7,100,000 pounds
Flour and other cereals
Canada has received no lend-lease aid from the United
13,725,000 pounds
Miscellaneous supplies
11,475,000 pounds
States. She has paid cash for the supplies obtained in this
country. It may be noted, however, that Canada has already
New Zealand also supplies numerous articles of clothing,
made a billion dollars worth of aid available without payment
including shoes and textiles, to United States forces as reverse
to the United Kingdom and is now engaged in making avail-
lend-lease aid. When American requirements were added to
able another billion dollars worth of aid to the United King-
those of local forces, New Zealand found it necessary to ration
the civilian supply of clothing to less than one full outfit per
dom, Russia, China and the other United Nations on a mutual
year.
aid program similar to our lend-lease program.
American requirements under reverse lend-lease have also
This statement of the expenditures made by the British
occasioned shortages in many other phases of New Zealand's
Commonwealth of Nations for reverse lend-lease aid furnished
civilian life. Nevertheless, the Dominion continues greatly
to the United States, and of the expansion of this program so
to expand the scope and volume of her reverse lend-lease to
as to include exports of materials and foodstuffs for the account
the United States, and during the present fiscal year about
of United States agencies from the United Kingdom and the
$65,000,000 has been budgeted for this purpose.
British Colonies, emphasizes the contribution which the
While no official report has yet been received from the
British Commonwealth has made "to the defense of the United
Government of India, our Army reports total expenditures by
States" while taking its place on the battlefronts. It is an
India for reverse lend-lease aid of approximately $56,900,000,
indication of the extent to which the British have been able
divided as follows:
to pool their resources with ours so that the needed weapon
8
9
may be in the hands of that soldier-whatever may be his
nationality-who can at the proper moment use it most
effectively to defeat our common enemies.
FRANKLIN D. ROOSEVELT.
THE WHITE HOUSE,
November 11, 1943.
10
U.S. GOVERNMENT PRINTING OFFICE, 1943
141
106
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE NOV 11 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
You inquired about the general status of Italian
prisoners of war, in view of the present relationships with
Italy.
Italian prisoners of war in custody of the United
States at the time of the armistice with Italy remain prisoners
of war pending further agreement between this government and
the Italian authorities. Neither the armistice concluded nor
the subsequent recognition of the co-belligerent status of
Italy affects the position of these prisoners of war.
For your information, there is attached a memorandum
which summarizes the position of Italian prisoners of war.
har
Regraded Unclassified
107
MEMORANDUM RE ITALIAN PRISONERS OF WAR
The status and treatment of war prisoners is
covered in great detail in the Geneva Convention signed in
1929 and proclaimed by the President as binding upon this
country in 1932. Article 75 of the Convention provides:
"When belligerents conclude 8. con-
vention of armistice, they must, in
principle, have appear therein stipula-
tions regarding the repatriation of
prisoners of war. If it has not been
possible to insert stipulations in this
regard in such convention, belligerents
shall nevertheless come to an agreement
in this regard as soon as possible. In
any case, repatriation of prisoners shall
be effected with the least possible delay
after the conc Insion of peace.
=
The armistice concluded between the United States
and Italy contains no provision dealing with Italian prisoners
of war held by any of the United Nations. Therefore they
remain prisoners of war pending an agreement between the
countries as contemplated by the Geneva Convention. In the
absence of such an agreement they remain prisoners until the
conclusion of a treaty of peace. Prior to the Geneva Con-
vention there was no suggestion in the authorities on inter-
national law that there be any liberation or repatriation of
prisoners during the period of an armistice. It was simply
required that they be liberated and repatriated to their own
countries upon conclusion of the peace treaty. 2 Oppenheim
International Law (Lauterpacht's 5th Edition) Sec. 132.
The Geneva Convention contains detailed provisions
to protect prisoners, insure humane treatment, require that
they be given adequate food, clothing and medical care, oppor-
tunity for worship, opportunity to communicate with relatives,
and an opportunity to present grievances. Officers and persons
of equivalent status shall be entitled to the pay given an
officer of equivalent rank in the military forces of the cap-
tor country, or his pay in his own army, whichever is lower.
Regraded Unclassified
108
- 2 -
Enlisted men may be required to work at tasks which
have no direct relation to war operations. The Convention
contains detailed provisions limiting the hours of work and
protecting prisoners against hazardous occupations. Prisoners
working apart from the administration, management and main-
tenance of prisoner camps are to be paid on a basis to be
fixed by agreements between the belligerents. In the absence
of agreement the Convention sets forth & standard for the
determination of wages.
I am advised informally by the War Department that
no such agreements have been concluded with either Italy or
Germany. We are paying prisoners ten cents a day and eighty
cents per day additional if they engage in work outside the
camps. These payments are not made in cash but are credited
to their accounts and can be spent in canteens.
The declaration of the United States, Great Britain
and the Soviet Union recognizing the co-belligerency of Italy
in the war against Germany specifically states that this de-
claration does not affect the terms of the armistice and that
such terms remain in full force and effect. Thus Italian
prisoners held here remain our prisoners, and this status is
not changed until we have either come to an agreement with
the Italian government, as contemplated by the Geneva Convention,
or until the conclusion of a treaty MR of peace.
109
NOV 11 1943
My dear Staydars
the Presidents has referred your Latter of Nevember 20 1943,
in regard to resistement to persons residing in the liberated
areas of Italy to - for reply. M an in complete accord with
your view that limited support recistences should be penditted
to ⑈ forward to realy - - M passible, both in that, from
the of verfore, 14 will be a fastor in
influmeting the people of Italy to identify themselves with the
I of the Allied Mations and also in that persons in this
country will therelay be musled to brying relief to their friends
and relatives in the liberated areas of Italy who have law been
suffering from peverty and 1 under the demande of Funcist rule.
I Impr you will be pleased to learn that on October 12,1943,
the Treasury and Departmento authorited a proposed procedure
authorising resistances to to nate from the United States to is
dividuals residing in statly to the Allied Commission in the
Thestre for his review, The Theatre Owner
has advised that the program - magneted appears to be feasible
and that are now being verited. out to place 1t into
effect in State the Treasury and Your Department have since
requested that the be against - that reditimes
my - formal imminiately. the presedure will m extended to
other liberated - of realy - the dentain of the theatre
Commins,
Your interest in this natter is approxisted and I will take
pleasure in informing you of to details of the ameguents to
offect to Statly 1mmittely - they are placed into
speration,
yours,
(Signed) H. Morgenthau, Jr.
submiry of the Treasury
The Namerable Tierelle 16 Internitia,
Mayer of the City of - -
Heir Yorks n the York
JOS
11/10/43
Regraded Unclassified
110
0
THE WHITE HOUSE
WASHINGTON
November 8, 1943.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY:
Will you reply to the
enclosed from Mayor LaGuardia?
F.D.R.
COST
1 THE THE
smet a
30
CITY OF NEW YORK
OFFICE OF THE MAYOR
NEW YORK 7. N.Y.
Nov RECEIVED 3 8 25 'E AM HOUSE 43
November 1, 1943. g
Honorable Franklin D. Roosevelt
President of the United States
The White House
Washington, D.C.
My dear Mr. President:
There are one hundred and one matters constantly
coming up that I purposely refrain from troubling you with for I
know the tremendous load you are carrying. Here is something
though that I am sure will not take much of your time and on which
you can easily give the Green Light so that it can get started
without the loss of precious time and weeks and months of inter-
departmental bickering.
The time is ripe right now for the remittance of
limited amounts of money to families in liberated portions of Italy
from their own relatives living in the United States. The mechanics
are very easy. It can be so controlled as to prevent any inflationary
effect in Italy and at the same time will have some slight effect
in preventing inflation in this country. I refer to inflation because
I have a hunch that the semi-colon boys will raise the point.
Now here is how it can be done. First, the amount
should be limited, say Ten Dollars A month to & family. I just
mention this amount, the exact amount can be determined. Payments
would be made in the banks here and the order would be for "the
equivalent of Ten Dollars, payable in the currency used by the United
States Army in Italy". That in and of itself, in addition to the
limited amount will in no way have an inflationary effect in Italy.
The people there are starving and the money received will partially
create a better and more equitable distribution of necessary food.
We must remember that the overwhelming majority of families who have
relatives here are of the small earning or lower wage groups.
Regraded Unclassified
Honorable F.D. Roosevelt
p-2
November 1, 1943.
The banks would remit the cash to the United
States Treasury as the currency to be used is that of the United
States Army there. You can readily see the advantage to ourselves
as well as the desirability of the purpose.
The sender would send either a. flimay duplicate order
or it could be microfilmed as are "V" letters and sent direct to the
families either from here or from Italy if the microfilm is used. On
presentation of this the military government, having received duplicates,
would authorize the payment through the post office (Italy has a. very
good Postal Savings System) and on presentation of the duplicate compared
with the original order, the money would be paid. I think the procedure
would be very simple, if not made complicated and difficult by bureaucratic
red tape. This should be avoided.
I present this matter with the request that if you approve
of it, it be set in motion right away. One money order of this kind will
do more good than a million speeches or tons of propaganda literature.
With kind personal regards,
Sincerely yours,
Regraded Unclassified
113
cent
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
NOV 11 1943
TO
Secretary Morgenthau
FROM
Handolph Paul
Subject: Gold Shipments to Argentina
As previously reported to you, two shipments of gold of
approximately $1,250,000 each, held by the Central Bank in
this country, have already left the United States bound for
the Argentine. The Federal Reserve Bank has advised that they
have instructions to make a shipment of approximately $1,250,000
of gold which they now hold for the Central Bank, on each of the
following boats which are scheduled to sail as indicated:
Iguazu
November 10
San Juan
November 12
Mendoza
November 15
Diamantes
November 20
Chico
November 25
Gallejos
December 2
Teuco
December 5
Chubut
December 9
But
Regraded Unclassified
114
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Nov. 11, 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
Attached are copies of despatches which we have
just received concerning the Argentine problem. The first
is a cable from Armour concerning a recent discussion with
the Ministers of Foreign Affairs and Finance concerning the
special blocking of the Banco de la Nacion and the Banco
de la Provincia. The second is from Winant and gives the
unofficial views of the British concerning the freezing of
Argentina.
You will be interested to observe the reaction
of the Argentine Government to the aide-memoire presented
by Armour concerning our action in blocking the Banco de
la Macion and the Banco de la Provincia. Instead of
violently objecting to this action, the Ministers of Foreign
Affairs and Finance concede that "questionable transactions"
have been taking place and, betraying an ignorance of the
obligations already assumed by Argentina, offer vague and
general assurances in an effort to have the banks unblocked.
Box
Regraded Unclassified
115
TM
This telegram must be paraphrased
Montevideo
before being communicated to
anyone other than a Governmental
Dated November 8, 1943
agency. (BR)
Rec'd 5:41 p.m.
Secretary of State,
Washington.
953, November 8, 5 p.m.
Unconfirmed rumors are circulating here to the
effect that the Banco de La Nacion Argentina is trans-
ferring dollar credits to the Banco de La Republica del
Uruguay.
Repeated to Buenos Aires.
DAWSON
JRL
Regraded Unclassified
116
PARAPHRASE OF TELEGRAM RECEIVED
FRON:
American Embassy - Buenos Aires
TO:
Secretary of State - Washington
DATE:
November 6, 1943
IMBER:
2626
SECRET
After reading the aide-memoire (see Embassy's cable of November
NO. 2619) the Minister of Finance stated that he agreed with us (I
was accompanied by Bohan) that undoubtedly questionable transactions
had been carried out, but that such things would not be permitted in
argentina under the new finance administration. Because he was central-
izing matters in his own hands and he could assure me that no operations
would be carried out in the future which would be objectionable, for
this reason he was not interested in the past history of the case.
At this point in the conversation, the Foreign Minister interrupted
to state "we give you our guarantees on this. That since these
guarantees had been given, the Finance Minister continued, the Treasury
undoubtedly would wish to unblock these two banks, especially as it
would be entirely agreeable to the Minister for the bank's correspond-
ents to submit informally full information regarding any future trans-
actions to the United States Treasury.
Throughout the entire interview the Ministers showed a complete
lack of understanding of the Rio and Washington resolutions and
their recommendations could have been interpreted as assurances that
such resolutions, providing the two banks are unblocked, would be
effectively implemented. Because of the bland assumption on their part
that everything would be all right once the banks were cleared, my
attempts to obtain more specific information were unsuccessful. Our
views are that such generalized statements mean nothing and I believe
the Department will concur. In view of its clear tendencies and
announced policies, I personally cannot see how this government could
be counted upon for any effective implementation. In a vain and
illusory attempt to secure such implementation, I furthermore, feel
strongly that under the circumstances we should not prejudice the
effective use of the material accompanying despatch No. 12448.
Regraded Unclassified
117
- 2 -
I would appreciate the Department's views with respect to the
next step to be taken as the Ministers clearly expect an early
reply to their naive proposal.
It may be the wish of the Department for me to see the Ministers
again and inform them that if they are willing officially to furnish
my government with concrete information as to the specific measures
their government is prepared to take in order to implement effectively
the pertinent Rio and Washington resolutions, the Treasury Department
will be happy to consider the elimination from the special blocked
nationals list these two banks. Frankly we can see no alternative
procedure although it is realized that this course of action may lead
to protracted discussions.
ARMOUR
Regraded Unclassified
118
PARAPHRASE OF TELEGRAM RECEIVED
ALENBASSY, LONDON
Secretary of State, Washington
November 5, 1943
7710
SECRET
Spiegel of END was asked by Bliss, high MEW official, to see
An regarding the proposed freezing of Argentine funds. It W&B stated
-- him that MEW had been asked for its opinion regarding joint action
for British and United States in freezing Argentine balances. MEW
conferred with Foreign Office and Treasury and it was decided that
the United Kingdom could not join the United States and freeze Argen-
time sterling balances.
According to Bliss, the position of British officials is that
from the British point of view the special account arrangement is
satisfactory and accomplishes everything which the British feel is
necessary. In this connection it was mentioned by Bliss that Argen-
tine sterling balances amount to about 50 million pounds. MEW feels
that since United Kingdom is now more than ever dependent on Argen-
tina for certain vital supplies, notably meat, unfortunate repercus-
sions might result should the United Kingdom take steps to freeze the
sterling balances. Evidently this position has been communicated to
the British Embassy in Washington. It is stated by Bliss that the
leak in the American press regarding the proposed freezing action
probably has lessened the effectiveness of the whole proposal. The
.merican story on this matter was copied by London papers.
It was indicated by Bliss that United States Treasury has recently
blocked on an ad hoc basis the balances of the Banco de la Nacione
und the Banco de la Provincia. It was suggested by him that sterling
funds in Argentine banks could not be blocked in this manner by the
United Kingdom because of the necessityof financing shipments of meat
to the United Kingdom from Argentina.
Evidently MEW had also received an inquiry from the British Embassy
in Washington regarding LEW's attitude to the United States
Regraded Unclassified
119
- 2 -
unilateral freezing action. It was indicated by Bliss at this
point that this may ultimately turn out to be an issue over which the
British and United States Governments may differ with the result that
each will follow its own policy. However, he wished to state that
in his opinion American freezing of Argentine dollar balances with-
out accompanying freezing by the British of sterling balances might
be exploited in Argentina as indicating a split in the United Nations
over this issue with the result that United States freezing action
might not have the desired policy effect in Argentina.
It was added by Bliss that the possibility that Argentina might
be driven in retaliation to create difficulties over meat supplies
for the United Kingdom was a second more important reason for question-
ing the desirability of unilateral freezing by United States. It
was pointed out by him that this would effect purely British civilian
and military supplies and also supplies for American army personnel
stationed in the British Isles.
It was further stated by Bliss that he was making this known on
a purely informal and unofficial basis but intimated that it might
be helpful if this opinion could be brought through appropriate channels
to the notice of the appropriate American officials.
No observations on the foregoing were made by Spiegel and he con-
fined himself to stating that the information would be transmitted to
the appropriate authorities by him. It is requested that we be sent
instructions if the Department desires any reply to be made.
WINANT
Regraded Unclassified
120
November 11, 1943
My dear General Strong:
Thank you very much for your letter of
November 10th in regard to the Argentine public
opinion. May I compliment you on this very
intelligent report. Until this question of
freezing the Argentine assets in this country
is settled, I would appreciate receiving 8.
similar report from you once a week.
Could you give me an interpretation of the
most recent move by General De Gaulle and General
Giraud, particularly with reference to the resig-
nation of Couve de Murville, the Minister of
Finance?
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Major General George V. Strong,
Military Intelligence Division G-2,
War Department General Staff,
Washington, D.C.
Regraded Unclassified
121
SECRET
WAR DEPARTMENT
methority
G-4
WAR DEPARTMENT GENERAL STAFF
Date 10 koo 43 GUS
MILITARY INTELLIGENCE DIVISION G-2
WASHINGTON
T
November 10, 1943.
The Honorable,
The Secretary of the Treasury.
My dear Mr. Secretary:
In accordance with your request of November 6, there is
submitted herewith a brief statement of the Argentine reaction
to the recent freezing of the two banks. In the preparation of
this statement, the Military Attache in Buenos Aires has been
consulted by cable.
There has been no expression of Argentine public opinion
except in the newspapers which, as you know, are fully controlled
by the government. Generally, among American and Argentine busi-
ness men, and particularly among officials of the Central Bank,
the reaction has been unfavorable and the belief is held that the
move serves no useful purpose as this country gains nothing beyond
administering A mild slap on the wrist while, at the same time in-
viting retaliatory measures which may be as strong as if we had
frozen all Argentine assets. The financial group in Argentina is
said to feel that a general freezing of all Argentine assets is
justified, but that the singling out of the two banks in question,
which are popular and which have branches almost everywhere, was
not justified. The Argentine Government is said to be disturbed
about the matter and still hopes to work out a mutually satisfac-
tory solution; it has, therefore, made no public statement on the
question, but has admitted privately that the two banks did vio-
late the Rio agreement but will avoid such violations in the fu-
ture. It is anticipated that, as soon as hope is abandoned of
persuading this Government to unfreeze the banks, the Argentines
will institute retaliatory measures which may include the placing
of interventors in American banks and business establishments, and
the refusal of export licenses. The present unfavorable reaction
against the United States engendered by the freezing is not con-
sidered of sufficient strength to affect Any possible revolutionary
FORVICTORY
movement against the Ramirez regime.
BUYdument contains information Sincerely yours,
defense of the United States within
WAR
the 2a lonage Act. DO U.S.C., 31
Its transmission or the
GEO. V. STRONG,
its contents in any manner to an
Major General,
mauthorized person is prohibited by lew.
A. C. of S., G-2.
SHORET
Regraded Unclassified
122
SECRET
Date other 43 grs
T
November 10, 1943.
The Honorable,
The Secretary of the Treasury.
My dear Mr. Secretarys
In accordance with your request of November 6, there 18
submitted herewith a brief statement of the Argentine reaction
to the recent freezing of the two banks. In the preparation of
this statement, the Military Attache in Buenos Aires has been
consulted by cable.
There has been no expression of Argentine public opinion
except in the newspapers which, as you know, are fully controlled
by the government. Generally, among American and Argentine busi-
ness men, and particularly among officials of the Central Bank,
the reaction has been unfavorable and the belief is held that the
move serves no useful purpose as this country gains nothing beyond
administering & mild slap on the wrist while, at the same time in-
viting retalistory measures which may be as strong as if no had
frozen all Argentine assets. The financial group in Argentina is
said to feel that a general freezing of all Argentine assets is
justified, but that the singling out of the two banks in question,
which are popular and which have branches almost everywhere, was
not justified. The Argentine Government is said to be disturbed
about the matter and still hopes to work out & mutually setisfac-
tory solution; it has, therefore, made no public statement on the
question, but has admitted privately that the two banks did vio-
late the Rio agreement but will avoid such violations in the fu-
ture. It is anticipated that, as soon as hope is abandoned of
persuading this Government to unfreese the banks, the Argentines
will institute retalistory measures which may include the placing
of interventors in American banks and business establishments, and
the refusal of export licenses. The present unfavorable reaction
against the United States engendered by the freesing is not 000->
sidered of sufficient strength to affect any possible revolutionary
movement against the Ramirez regime.
liThis document contains information affecting Sincerely
yours,
tional defense of the United States WIthin
Pueaning of the Espionage Act. 80 U.S.C., 31
32, as asended. Its transmission or the
elation of its contents in any manner to as
GEO. V. STRONG,
utherized persen in prohibited by lav.
Major General,
As C. of S., G-2,
SECRET
Regraded Unclassified
CONFIDENTIAL
123
WAR DEPARTMENT
WAR DEPARTMENT GENERAL STAFF
MILITARY INTELLIGENCE DIVISION G-2
WASHINGTON
11 November 1943.
The Honorable,
The Secretary of the Treasury.
Dear Mr. Secretary:
In accordance with your request, I have given instructions
that a summary statement of developments in Argentina be prepared
weekly, and will be pleased to forward it to you.
In response to your inquiry with respect to recent developments
in Algiers, the following information is submitted:
Developments in Algiers indicate that General de
Gaulle has obtained practical control of the entire French
Committee of National Liberation so that it is now a uni-
fied body responding to his leadership with the military
wholly subservient to the Committee's authority. These
changes were brought about principally by pressure from
the French underground which now receives greater repre-
sentation on the Committee. While some of the new appoint-
ees were affiliated with moderate conservative or center
parties in France, most of them were identified with Popular
Front groups so that as far as internal affairs are concerned
the complexion of the Committee is slightly more to the Left
than previously. This would presage continued and increas-
ing attacks on Vichy influences. In matters of external
affairs, the Committee is probably even more nationalistic
than before and it will continue to seek greater recogni-
tion and power among foreign countries and defend what it
considers to be the French National interest.
Couve de Murville is a young man formerly in the
French Ministry of Finance, originally appointed by Giraud
in June 1943 as Commissioner for Finances. His successor,
Mendes France, is a socialist and was under-secretary of
the Treasury in Blum's cabinet of March 10, 1938. He
participated in the attempt to move the French Government
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
AYE
STAMPS
CONFIDINTIAL
Regraded Unclassified
124
CONFIDENTIAL
to North Africa in June 1940, was arrested but escaped.
He has served as a Captain in the Fighting French Air
Force. There are no indications that the resignation
of Couve de Murville and his replacement by Mendes
France have any particular significance apart from the
general interpretation of these events above.
GEO. V. STRONG,
Major General,
A. C. of S., G-2.
CONFIDENTIAL
-2-
Regraded Unclassified
125
PARAPHRASE OF TELEGRAM RECEIVED
/
FROM:
AMERICAN CONSULATE GENERAL, ALGIERS
TO:
SECRETARY OF STATE, WASHINGTON
DATED: November 11, 1943
NUMBER: 1979
Information-
CONFIDENTIAL
no action.
FROM MURPHY FROM ROYCE FROM HOFFMAN FOR MORGENTHAU.
You may be interested in the following preliminary
and strictly informal information regarding Pierre
Mendes--France new Finance Commissioner of Comite.
Generally speaking, he is reputed to have been a
politician rather than a civil servant, although it is
stated that he was associated for a short time with the
Finance Ministry in a minor cabinet position under the
Government of Leon Blum. He is not an inspecteur de
Finance. For the past twelve years he has been 8. member
of the Chamber od Deputies. He 1s Jewish, thirty-five
years old, married to a daughter of a wealthy Egyptian
merchant, has a good war record and was Mayor of
Louviers and radical socialist from Department of Eure.
He was one of the Bordeaux group who thought that B.
refugee government should be set up by France in North
Africa after the fall of France. After the armistice
he escaped to Morocco where he was arrested and sent to
Metropols.
Regraded Unclassified
126
-2-
Metropols. He escaped to Switzerland and to England
from there. At the present time he is said to be
en route from London.
/8/ WILEY
Regraded Unclassified
127
Re funds to meet Dec. 1, 1943, service
r airements of the French Govt 7% dollar
bonds.
Mr. Bernstein's initials were on carbon
but you referred back to Dr. White for ap-
proval who made slight change in last sentence
on page 2.
128
NOV 11 1943
Ny dear Mr. Stettinius:
Receipt is acknowledged of the letter from your
Department of November 5, 1943 (FD), concerning funds
necessary to meet the December 1,, 1949, service require-
ments of the French Government 7% dollar bonds, due
1949.
AS your Department has been informally advised, the
French authorities in North Africa have recently issued
instructions to the French American Banking Corporation
for the ayment to J. P. Morgan and Co., Inc., for this
purpose, of the sum of $2,400,000, such funds to be trans-
ferred from the account of Tresorier General Aux State
Unis du Comite Francaise de la Liberation Nationale -
General Account. This Department is prepared to permit
the use by the French authorities in North Africa of such
funds for the purpose of servicing this issue of French
Government bonds. No reference was unde In your letter
to this proposal of the French North African authorities.
Ce would appreciate 6 prompt statement of your views on
such proposal. If your Department is opposed to this pro-
posal the Treasury would like definite instructions to
deny t:e application which is pending for the use of the
North African funds.
If North African funds are not to be used for the
servicing of these bonds, the question arises as to
whether or not a directive license should be issued for
the transfer of the necessary funds from the official
accounts of the former French Government or whether we
should refuse to take affirmative action to meet the
December 1, 1943 service requirements of such bonds.
By manger manim 4pm.
Regraded Unclassified
129
- 2 -
In weighing the advisability of using North African funds
against the advisability of issuing a directive, we would like
to call your attention to the fact that this is the first in-
stance in which Treasury has been called upon to use its extra-
ordinary directive powers in this type of case. If this action
is taken, there may be strong pressure on the Treasury to use
its directive powers to pay off other creditors - a policy
which we would be reluctant to follow unless it can be demon-
strated that it is important to the interests of the United
States Lo take such action. Accordingly, If you do not desire
the use of North African funds and request us to employ 8.
directive in this instance, we would appreciate receiving 8.
statement of the views of your Department in this connection.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Honorable E. R. Stettinius, Jr.,
Acting Secretary of State,
Department of State.
JWP:WHT:nrd - 11/9/43.
Regraded Unclassified
- MOR COMMUNICATIONS TO
THE DECRETARY OF STATE
- n. -
DEPARTMENT OF STATE
WASHINGTON
1 reply refer to
D
November 5. 1943
My dear Mr. Secretary:
I refer to recent conversations between officers
of the Treasury and State Departments concerning funds
necessary to meet the December 1, 1943 service require-
mente of the French Government 7% dollar bonds due 1949.
It 1s the understanding of the Department of State
that J. P. Morgan & Company, bankers for this issue of
bonds, have informed the Treasury Department that avail-
able funds held by them are insufficient to meet the
December 1, 1943 service requirements of these bonds.
It is understood that J. P. Morgan & Company have indi-
oated that they will require $2,400,000 in addition to
the funds now available, to meet the contractual obliga-
tions under the sinking fund provisions of the loan
contract and to meet the interest payments due December 1,
1943.
The Department of State, after a careful review
of the various considerations in this case, is of the
opinion that at the present time the foreign policy of
this Government would best be served by the issuance by
the Treasury Department of A directive lioense for the
transfer from official funds of the former French Govern-
ment a total amount of $2,400,000 from an account in the
name of the Payeur General with the French American
Banking Corporation to J. P. Morgan & Company in such a
manner that the funds so transferred will be dedicated
solely to the payment of French Government 7% bonde due
1949 which were drawn by lot for redemption on December 1,
1943. The effect sought by this provision 18 to assure
that,
The Honorable
EVICTORY
Henry Morgenthau, Jr.,
BUY
-
Secretary of the Treasury.
BONDS
STAMPS
Regraded Unclassified
-2-
that, upon receipt of satisfactory advices covering
payments made in France of bonds drawn for redemption
on December 1, 1943, the corresponding amounts trans-
ferred under such directive license would then be
credited by J. P. Morgan & Company to an account now
carried on their books, entitled, "French Government".
I will appreciate it if you will be kind enough
to inform me when the Treasury Department has acted on
this matter.
Sincerely yours,
For the Acting Secretary of State:
Adolf accreasy A. Berle, Jr.
Assistant Secretary
Regraded Unclassified
132
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
AMERICAN EMBASSY, MOSCOW
TO:
Secretary of State, Washington
DATE:
November 11, 1943
NUMBER: 1910
The following is a personal message from Harriman for
Morgenthau.
I repeat a cable I sent you November 1 in care of the
Legation, Caire with request that it be forwarded, on the chance
that it has not reached your
"Molotov asked no this evening whether there was any chance
you would be willing to come to Moscow now that you were so
close. He said Mikoyan was most anxious to 500 you and discuss
matters of mutual interest. I feel strongly that it would be of
real value for you to accept the invitation to come if it is at
all possible. The conference has been a great success and even
a brief visit by you at this moment would carry on where the
conference left off. It is needless to say that It 10 uld be a
real pleasure to have you stay with me."
Kirk has informed me and I have informed Moletov that you
left Caire before receiving by cable. However, I believe it
would be useful for you to cable me for me to deliver to Molotov
In your name some courteous expression of your appreciation of the
invitation and your regrets.
HARRIMAN
Regraded Unclassified
133
NOT TO BE RE-TRANSMITTED
U... SECANT
COPY NO
12
MANE MULT SECRET
OFFICE 110. 370
Informal ion received up to 10 - 11th November 1943.
1. N.V.E Levant During 9th/10th LEVIIRA ISLAND 138 combarden by two of
R.M. Destroyers in company 1th 12 Polish Destroyer. These
100% subsequently combed off STAMPALIA during 10th and one was hit being
AH tow. During past law days large number enemy as ault craft reported
loving estwards in Aegeen towards KOE and KAYMHOS,
wil-Submaring Operations 10th U-boato probably unk by aircraft
off CAPE
, MILITARY Italy 8th Army Ducing 9th and 9th/10th patrole crossed RIVER
SANGRO near Con to without making contact 1th
anom/- further Inland our troops are operating in direction of ATLESS (8 miles
east of CASOLI) on extrome left, e roached RIODERO ( 9 miles north noot of
1 Ferther by: on 'nole front with nnow felling in mountain areas.
5th Army 10th. memy will offering stiff resistance.
U.S. /roops drove enesy from south east slopes of
400ml (s miles south most of VENAFRO).
(luscin 10th. Hussions captured several localities vest and
northwest of NEVEL AD- made further progress in KIEV Sector.
:- AIS Oparations estern Pront 10th. 119 Ascorted Typhoon pombers (1 mi. inj)
and 22 Mitchells (B25) attacked Military
sujectives near Chindre and GRIE NEZ. Escorted Maraudors (B26) dropped 78 tons
in CHINGES Mirfield.
Wth.lith. Aircraft despatched - MODANE 313 (thout loss, DORTMUND 2,
Bus-mining 7, Leaflots 25, Intruders 28 (? missing), anti-shipping 16.
Prelisinery report indicates concentratad attack with target identified
visually.
Italy 8th/9th. Vellingtons hit millay bridge over River
(South of GROBSETO).
>th. 46 U.S. Heavy Bumbers attacked factories near TORIN mu GENUA. 128 Light
Imobers nd Fi hters attacked targots in Battle Area.
ADSAM 9th. 28 escorted enemy Dombers attacked airfields it
IMPRAL and PALED. Enomy casualties 2.1.1.
OFFICE
ECRETARY OF TREA SURY
NOV 12 28
EASURY DEPARTMENT
Regraded Unclassified
134
November 12, 1943
My dear Mrs. Parran:
I received your letter this morning.
I think there was some misunderstand-
ing about what was said in the meeting.
I shall be very glad to see you if
you will give me a call and set a time.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mrs. Thomas H. Parran
3734 Oliver Street, Northwest
Washington, D. C.
(Envelope was addressed: Mrs. Carroll K. Parran
Office of War Information
marked "Personal"
Del. by hand (Schey) at 10:45
F5:gr
to
Regraded Unclassified
135
OFFICE OF WAR INFORMATION
WASHINGTON
November 11, 1943
Kr. henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Mgr denr Hr. Secretary:
When our third son enlisted last fall I went down
to Civil Service and E. liea for a government job in the
10.18 of replacing an able-bodied men for combat duty. Civil
Service sent me to the Office of War Information where I WRB
iven a modest post in the Management Services Branch. In
the course of & few months, I was transferred to the Overseas
Branch where I now an an assistant in the Office of the Director,
Mr. Robert E. Sherwood.
I have worked with all my heart and soul to do an
honest job on the home front for the sake of your sons and mine
and the millions of others on the fighting front. How effective
that job has been I do not know. I do know that none of my
superior officers have questioned my loyalty and devotion until
this norning when Mr. Shervood told me that you--of all the
people in the world!--had intimated that because previously I
had done some work for Reader's Digest, it might be through be
that the Reader's Digest organization was informed of incoming
cables concerning them.
Since I have had no communication of any kiná with
any Reader's Digest representative since the war began, it is
difficult to understand upon what evidence you could have made
such a statement so damaging to my reputation for integrity.
Will you give me the opportunity of clearing that regutation by
telling ne what your evidence 1s?
Very truly yours,
Causee Panan
Carroll K. Parren
POLYICTORY
BUY
PRITED
STATES
WAR
BONDS
-
STAMPS
Regraded Unclassified
November 12, 1943
136
9:26 a.m.
HMJr:
Hello.
Operator:
Mr. Sherwood.
HMJr:
Hello.
Robert
Sherwood:
Hello.
HMJr:
Bob.
S:
Yes, Henry.
HMJr:
What a pal you are.
in
What?
HKJr:
I got a long letter this morning from Mrs.
Parran.
S:
Oh, well, I spoke to her the minute I got
back.
HMJr:
But why did you drag me in the picture?
S:
Well, hell, I wanted to find out what -- what
was in back of it all.
HMJr:
Well, are you satisfied?
S:
Well, I certainly am. I'm sure of it because
of all people she 18 one that I just could not
believe would be guilty of anything like that
that un.
HMJr:
Well
S:
necessarily on a charge of disloyalty but
on a charge of such terrible indiscretion.
HMJr:
Well, Bob, all I said was that she had been
very close to Readers Digest.
S:
Yeah.
HMJr:
And I said to you
S:
And you said that un -- she had seen those
cables so undoubtedly they had already got back
to the Readers Digest.
Regraded Unclassified
137
- 2 -
HMJr:
Did I Bay that?
S:
Yes, sir. And that 1s a grave charge.
HMJr:
Well, I don't remember saying that. I don't
remember saying that she'd get in touch with....
S:
Well, I may have misunderstood but that certainly
was the impression I got, Henry, and that's a
thing you can't let go.
HMJr:
No, I don't remember saying that. I do say --
did say that she had been very close to them.
S:
Oh.
HMJr:
And had seen the -- evidently seen the cables and
you said, "Oh, my God, has she seen the cables --
all the stuff that I've said about them?"
S:
Yeah.
HMJr:
And I said, "You
S:
No, I said, "If the Readers Digest has seen those
cables
HMJr:
That's right.
S:
they've seen all the stuff that I've said, too."
HMJr:
That's right. And, so you -- I said, "Well,
you'd better check up for yourself."
S:
Yeah. Well, that's exactly what I did.
HMJr:
Well, are you satisfied?
S:
Oh, sure.
HMJr:
Well, she has asked to see me and I'm going to
see her.
S:
Well, I should think you don't need to bother
with that. I think that's
HMJr:
Well, she's written
Regraded Unclassified
138
- 3 -
S:
Yeah.
HMJr:
Well, what did she tell you?
8:
Oh, she told me that she had not seen anybody
from the Readers Digest for a couple of years
and she said, "I admit I may have been naive
and I may have been slow but it wasn't until
about six months ago that I caught on to the
trend that the Readers Digest was taking of
terrible disloyalty and even sabotage. If And
she said she wouldn't have anything to do with
them.
HMJr:
Well, I think I'd better see her. I mean, the
woman writes me a letter and demands to see me,
I'd better see her. But I
S:
Well, I should think that
HMJr:
I -- I
S:
Oh, I'll speak to her and tell her I spoke to
you and
HMJr:
If she wants to come over at 11:30, I'll see
her.
S:
Well, I don't think she can today, Henry,
because we've got to go up before the Senate
HMJr:
Yeah.
S:
and she has to stay here in the office in
case -- uh --
HMJr:
But
S:
we have to call back for any material on
embarrassing questions.
HMJr:
Yeah.
S:
You know how those things are.
HMJr:
Yeah. I -- but I think you could have asked
her about her connections without dragging me
into it.
Regraded Unclassified
139
- 4 -
S:
Well, I'm sorry if I embarrassed you but I didn't
know
HMJr:
Well, you have terribly -- I'm terribly upset
over the whole thing, because I thought everything
we were saying was sort of under the rose, but
S:
Well
HMJr:
You tell her whenever she's ready I've got the
time. I'll see her anytime that she wants to
come over.
S:
All right. Oh, I should think that -- hell --
you don't have to be bothered with that but I
can speak to her and a telephone call would
HMJr:
Well, I
S:
finish the matter.
HMJr:
Well, if it doesn't and she wants to see me, I'm
available.
S:
Yeah.
HMJr:
But my own recollection was that I was simply
trying to say that if she saw the cables and
was friendly to the Readers Digest that you'd
better check up on how friendly she still was.
S:
Yeah.
HMJr:
And, but I thought that you would sort of do it
with less of a sledge hammer.
S:
Well, I'll tell you, Henry, I, myself, would
like very much to see you again because there
were some pretty serious charges yesterday and
I feel God damn badly about them and I just
cannot -- cannot let them stand without further
clarification.
HMJr:
Yeah. What are you referring to?
S:
Well, Smith said to me, "There's not one person of
any competence in that whole North African set-up."
Regraded Unclassified
140
- 5 -
HMJr:
Well, he
S:
And all that stuff about 800 people on the
payroll -- My God, I -- uh
HMJr:
Well, I'm available. No, we were very enthusiastic
about your man in Cairo.
S:
Yeah, I know, but I'm talking about the other one --
the man in Cairo is part of the same thing. He's
under Jackson in Algiers and Italy and now Jackson
is being moved up by agreement with the highest
authorities to a much more important post which
I'll tell you about.
HMJr:
All right, Well, I'm of the
S:
There were such charges of incompetence that
involve a hell of a lot more than anybody as
insignificant as I am.
HMJr:
Well, anyway, I'm available but I'm going to ask
you please to tell Mrs. Parran -- because I
don't -- anybody asks to see me, they can always
see me.
S:
Yeah.
HMJr:
I wish you'd tell her I'm available anytime.
S:
Yeah. Okay, Henry, I'll tell her.
HMJr:
Thank you.
S:
All right.
HMJr:
Bye.
Regraded Unclassified
141
November 12, 1943
10:00 a.m.
HMJr:
Hello, Fiorello.
Fiorello
LaGuardia:
Gee, I'm glad you're back safe.
HMJr:
Thank you. How are the Sunday spaghetti dinners?
L:
(Laughs) They're going on. That's what I want to
talk to you about.
HMJr:
Yeah.
L:
Henry, I got your very encouraging letter
HMJr:
Yeah.
L:
in reference to remittance.
HMJr:
Yeah.
L:
This is what I want to ask you. If, without any
definite assurance but that this is in the works,
could I use that on my short wave? I've just got
to give them something. I've run out of bedtime
stories. It's not published here, you know.
HMJr:
You'd better read Ilka Chase's "I Cry in Bed."
L:
(Laughs) Is that what he says?
HMJr:
Ilka Chase -- she's this woman writer.
L:
Yes.
HMJr:
She's written a book. I think it's called
"I Cry in Bed.'
L:
Well, I think both of us have done that, too.
HMJr:
Uh
L:
What do you think of it?
HMJr:
Well, I'd have to check it -- uh -- I'll get --
you go on Sunday, do you?
L:
Well, I make my record tomorrow morning.
Regraded Unclassified
142
- 2 -
HMJr:
Oh, we work fast -- we'll get you word sometime
today.
L:
Yes, I make the record and then it's used
short wave and it's not used here at all.
HMJr:
I'll get our -- I'll have word to you positively
this afternoon
...
L:
Yes. And tell them, Henry, that it will be very
helpful because all we've been giving those
people 1s a lot of axioms and mottos and epigrams
and here's something concrete.
HMJr:
Okay.
L:
Thank you very much.
HMJr:
Thank you.
143
November 12, 1943
10:30 a.m.
TAXES
Present: Mr. Herbert E. Gaston
Mr. Fred Smith
Mr. Randolph Paul
Mr. Stanley S. Surrey
Mr. Roy Blough
H.M.JR: (To Mr. Paul) Are you interested in this
contract termination business?
MR. PAUL: I talked about it up at the Murray Committee.
H.M.JR: I told Joe O'Connell to be in on it. I told
Joe to be here at a quarter of twelve. I don't know what
it is all about.
MR. PAUL: I'll come in if you want. You can't keep
away from it.
H.M.JR: It is a question of who is to represent the
Treasury on a committee.
MR. PAUL: I know. I'll come in. I really think Joe
would be pretty good for that. He has been doing a lot of
work on it--but let's see. I'll come in and learn what it
is all about.
H.M.JR: At a quarter of twelve.
I haven't read this thing (referring to Draft #1 of
the speech before Members of the Senate Finance Committee -
attached). I got all upset over another matter this morning.
When do you people think I am going to have to appear?
MR. SURREY: It is uncertain. They may try to pass the
Bill some time next week--Thursday of next week.
MR. PAUL: The following Monday, then?
MR. SURREY: In which case it might be the following
Monday. On the other hand, if they can't pass it around
Regraded Unclassified
144
- 2 -
Thursday, they won't bring it up in the House until about
the following Monday.
MR. PAUL: That would be the 22nd, wouldn't it?
H.M.JR: Have you people got a copy of this? (General
agreement) Do you want to read it out loud?
MR. SMITH: This is a very rough thing.
H.M.JR: Why not read it out loud, and I'll have to
listen.
MR. SMITH: Poor you!
MR. GASTON: I think it is a very good job.
H.M.JR: Read it, then. You do think it is a good job?
MR. GASTON: Yes.
(Mr. Smith reads paper aloud. At the close of the
first paragraph on page 6 the following comments are made:)
H.M.JR: Didn't they put a tax of three percent on these
people?
MR. PAUL: That was in lieu of the Victory.
MR. GASTON: On the minimum, yes.
H.M.JR: They'll have to pay a three percent on what--
exemptions?
MR. GASTON: Five hundred; seven hundred for married
and one hundred exemption per dependent.
MR. PAUL: Same impact. A total of about three hundred-
odd million on the nine million.
H.M.JR: Where will they start to pay?
MR. SURREY: A married person would start paying at
seven hundred dollars; if he had two children, he would
Regraded Unclassified
145
- 3 -
start paying at nine hundred dollars.
H.M.JR: A single person would start where?
MR. SURREY: Five hundred dollars.
H.M.JR: And a married person?
MR. SURREY: Seven hundred; with two children, nine
hundred. He gets a hundred dollars for each child.
H.M.JR: If his income was nine hundred and a thousand--
on that hundred dollars he'd pay what?
MR. SURREY: Three percent.
H.M.JR: Up to a thousand dollars a married man with two
children would pay three dollars?
MR. SURREY: No, a married man with two children--
the regular income tax doesn't come on until a thousand
dollars.
MR. GASTON: Under our proposal it would come on at
eleven hundred.
MR. PAUL: No, eleven hundred, plus.
MR. BLOUGH: Seventeen.
MR. GASTON: Yes, that is right: for the two children,
seventeen hundred.
H.M.JR: At a thousand dollars a married man with two
children would pay three dollars. Try and collect it!
MR. SURREY: Yes, sir.
MR. PAUL: When you get right above that, they begin to
pay.
H.M.JR: But our exemptions for married men with two
children start at eleven hundred.
MR. GASTON: Eleven hundred for the married man without
Regraded Unclassified
146
- 4 -
dependents; seventeen hundred for the married man with two
children.
H.M.JR: Do you have some tables? You could have those
early next week?
MR. BLOUGH: Yes.
MR. GASTON: These figures may not be accurate; they
were taken off the tables.
(Mr. Smith completes reading of the draft)
H.M.JR: Well, I like the tone very much just the way
Gaston does. I would suggest, Paul, if these two men
(indicates Mr. Blough and Mr. Surrey) have the time today
that they get together with Smith and sort of sweat this
thing out and get the thing going. How are you two?
MR. PAUL: The Committee is not meeting.
MR. SURREY: I can work part of the day.
H.M.JR: How are you fixed right now?
MR. SURREY: This morning I can do it.
H.M.JR: How about you? (Indicates Mr. Blough)
MR. BLOUGH: All right.
H.M.JR: Why don't you do this Sunday night, leaving
me out at this stage?
MR. PAUL: I would like to raise a couple of basic
questions--not the details.
H.M.JR: All right, go ahead, please.
MR. PAUL: There are a lot of things about this I like.
The chief fault I have to find is it doesn't meet certain
issues which have been discussed in the Press. We have to
deal with the economy arguments, to say something about that.
I think we have to deal with the argument a little more specif-
ically--that five thousand dollar argument--because they have
Regraded Unclassified
147
- 5 -
tried to turn that against us, "Why don't you tax down
there?" I think we have to deal somewhat more specifically
with the capacity to pay, the fact that the people are able
to pay.
Those are some of the things.
H.M.JR: I think that those are all important. I think
this economy thing--I mentioned that to Smith, myself,
that even if you cut twenty million dollars off at the top,
it still wouldn't make one bit of difference as far as in-
flation and scarcity of goods are concerned.
MR. PAUL: Yes, I think it is important to scotch that
thing.
MR. SMITH: I think that ought to go in, too.
MR. GASTON: Those are all good points. Fred does
deal with this five thousand dollar income class, the fact
that we are lifting the tax; but you can perhaps strengthen
that.
MR. SMITH: The one basic thing, the only thing that I
feel about this whole business is that it would be wise to
pitch the whole thing on the amount of money, and try not to
get tangled up in details and technicalities, because as
soon as you do that then you give them an opportunity to
obfuscate the whole business with arguments about little
things. And the big point is whether they will raise the
money or not. I don't think they want to raise the money.
What is happening now, as you know, is that they are trying
to say if we will let them have a sales tax we get more
money. I think, actually, if we told them to go ahead, they
still wouldn't vote the sales tax, but just an alibi to get
out of the amount of money.
MR. SURREY: Doesn't that raise a question as to whether
there should be a second statement? The Senate does not know
what the program is.
MR. SMITH: I think that is true. I think there should
be a statement or some mimeographed thing that would have
the whole problem in it.
Regraded Unclassified
148
- 6 -
MR. SURREY: The Senate is getting to be a pretty
peremptory group now--the Senate Finance Committee. In the
pay-as-you-go session, they didn't even listen to us. In
executive session they spent about half an hour on the whole
thing.
MR. BLOUGH: They left a lot of stuff to executive
session, and then there was no executive session.
H.M.JR: On the pay-as-you-go they had a sub-committee.
MR. SURREY: I mean, on this Ruml plan business.
H.M.JR: Yes, they had a sub-committee of three.
MR. PAUL: That was way back, the year before.
H.M.JR: Yes, but they did go into it before. That
committee reported back to the whole Committee.
MR. PAUL: They turned it down, thirteen to three. That
was the year before.
H.M.JR: Go ahead.
MR. SURREY: Then there is another aspect of it. Assuming
they don't want to raise any money, the House Bill with the
so-called minimum tax is going to leave us with all the
complications, practically, we have today with respect to
the difficulties of the income tax. It will get rid of the
Victory Tax, but put in another system that is nearly as bad.
H.M.JR: Do you want me to hit back--criticize it?
MR. SURREY: It would have to be done in some detail,
think. It is & question of whether it should be done in
this statement or in a statement by, say, Randolph. It
hasn't been done at all by the Committee.
MR. GASTON: I think both, Stanley. I think that is
basic. What they have before them is a House Bill. There
needs to be some more specific reference to the House Bill.
I think that needs to be elaborated by Mr. Paul's statements
and your statements to follow. But I think there should be
some reference in here to the House Bill, itself.
Regraded Unclassified
149
- 7 -
MR. PAUL: I think you ought to take advantage, in the
Secretary's statement--even if I have a statement that
follows going into some detail, I think the Secretary should
go into detail.
H.M.JR: May I say something, Stanley? I think you are
raising 8 good point. I think for me to say that this thing
that the House has done from the standpoint of simplification
isn't any better--or just as strong as you want to make it--
than the Victory Tax is just swapping one horse for another
and not a very good bargain. We could say, "Now this is
& complicated subject, and the experts of the Treasury will
be glad to go into the thing."
MR. SURREY: You mean, put that in a statement? You
say the experts of the Treasury will be glad to go into it.
You mean in a separate statement before the Committee? You
see, we were not given a chance in the House to criticize
the House Bill. It has never been done yet.
H.M.JR: Let me make the thing plain, and then I want
to stop this discussion. You fellows can discuss this thing
and we'll have another meeting.
I, as Secretary of the Treasury, am always glad to be
the spearhead, and I should in my statement lay down what
the Treasury policy is. Then it is up to you fellows to
follow through and amplify it. Now, I'd like to have the
first brush among the three of you. I don't mean to exclude
Paul, but I am trying to save Paul's time. It will save me
a lot of time. You may find Smith will say, "Sure, the
boss should say this." But I am saying to you, whatever
the Treasury position, whether it is on that or whether they
have done something else, I am more than willing to say it
in my statement. Then if they come to me afterwards and say
"Explain it," and I'll say, "I am not going to explain it.
The Treasury people are here to explain it."
MR. BLOUGH: I think that is right. I think it is im-
portant to this case that you don't wait for questions, but
indicate that you would like to have the detail of this
position discussed.
MR. PAUL: In a formal statement.
MR. GASTON: I am inclined to think the Secretary should
Regraded Unclassified
150
- 8 -
have first a review of what the Treasury first proposed,
and then a review of what is in the House Bill and what,
in general, the Treasury finds wrong with it.
H.M.JR: I would love to find something wrong with the
House Bill!
MR. GASTON: There is a good memorandum from the Bureau,
by the way, on the difficulties of this stand on amalgamation.
MR. SURREY: You can find something wrong with it, all
right!
H.M.JR: I think this time--we haven't ever done it
before, I haven't--the new Commissioner should have a
look at this thing. I think we should pull him more into
this picture. We have never done it, and I think he should
be pulled in at this level at this time.
MR. PAUL: He is away until Tuesday. We will get him
in at that time.
H.M.JR: Yes, I think he should be pulled in.
Now, look, gentlemen, I'll meet with you as frequently
as necessary, but I do think if you people had an hour or
two hours together you would get along faster.
All right, Herbert?
MR. GASTON: Yes.
Regraded Unclassified
151
Draft 11
Members of the Senate Finance Committee:
At the time I presented to the House Ways and Means
Committee the Administration's suggestions in connection with a
new tax bill, I made it clear that the Administration felt
we should ask for an additional 10.5 billion dollars in taxes
next year.
The additional levies necessary to secure this large amount,
it was stipulated, were to be strictly temporary, and were to be
eliminated after the war.
Our basic reason for making this suggestion arose out of
the quite obvious fact that the war is costing 200 million dollars
a day more than our present tax receipts, and thus we are piling
up a debt of 200 million dollars a day which some day must be
paid -- perhaps by American taxpayers far less able to pay it than
we are today. The time to pay for the war is while we are fighting
it, and while the stimulation of war production has expanded the
incomes and tax-paying ability of a majority of taxpayers.
It is vital to the maintenance of a sound Covernment fiscal
policy, that we finance a much greater portion of the war through
taxation than at present. Every dollar that we raise through
taxation is a dollar less that will have to be returned, with
interest, when the war is over. Therefore, securing additional taxes
at this time would not only improve our present position, but
Regraded Unclassified
152
- 2 -
would put us in a far better position at the conclusion of the
war, when we will be faced with vast and expensive problems in
connection with reconstruction and the readjustment of the
economic system.
The Administration had 8. second major reason for asking 10.5
billion dollars; and that was to help hold the line on inflation.
You all know the facts about inflation, which threatens more
seriously each time that our price and wage structure are threatened,
as they have been over and over again in recent weeks.
It seems obvious that out of our huge national income, only
a small portion can be spent without driving prices upwards; and
that at least one satisfactory way of keeping this money from being
spent, and causing trouble, is to take it out of circulation before
it has a chance to be spent; to drain it off in taxation which,
nowever painful it may seem to the taxpayer during 1944, will
certainly help to make times easier for him in 1945, and perhaps
1955, and throughout future generations.
So, for these two reasons -- to raise money that is badly
needed, and to protect ourselves now and in the future against
the ravages of inflationary price rises, we suggested that the
Congress raise these 10.5 billion dollars.
Nothing has happened since I made that presentation to the
Ways and Means Committee to change our minds, or to amend our
Regraded Unclassified
153
- 3 -
estimates of the amount needed. The fact that the Committee
could not agree in principal with our thesis does not in any
way" change the facts in the case. We still need the money,
and we believe it advisable to collect the money now, when it is
available, and when there is a scarcity of consumer goods to spend
it on. And we still must fight inflation.
Since making the presentation to Congress, I have been
abroad and have talked to our soldiers -- to the men who are
actually fighting the war -- men living for the most part on
$50 a month and trying to hold together their families until they
can get back, get jobs, and pick up the broken threads of their
lives.
I can tell you that if they had the power to pass a tax bill,
it wouldn't stop at 10.5 billion dollars. And I think they have
earned the right to have their feelings in the matter considered
seriously.
All of you know the nature of the suggestions which we made
to the House Ways and Means Committee. Let me outline them: We
suggested a rise of
millions in selected excises;
millions
in corporation taxes; and
billions in increased income taxes.
Regraded Unclassified
- 4 -
154
However, I want to put all the emphasis here today on the
necessity for raising a substantial amount of revenue rather than
on any particular plan to raise it. That is, I sincerely believe,
the basic problem, and the basic source of disagreement on this
proposal.
You know, and the public knows, that the war is costing us
El fantastically large amount of money. It is mounting into a bill
that we and our returning soldiers and our children will be paying
off for the next quarter or a half century unless far more of it is
paid off currently than we are now doing.
It is not comforting to project your vision so many years
ahead and see little possibility of relief from high taxes, regard-
less of the state of our national income or whether we happen to
be in periods of prosperity or depression. It certainly seems
neither intelligent nor very fair to mortgage the futures of our
children without having a better idea than we have of what that
future may bring.
We have asked for 10.5 billions. In many quarters this
request has been held as thoroughly unreasonable, and the protests
have been long and loud. Obviously, it was not a popular request
to make. We knew that when we made it. Obviously, it could be
considered politically unwise to suggest raising taxes to such an
extent in an election year. We also knew that. But the question
Regraded Unclassified
- 5 -
155
is not one of political expediency, but of financing the war,
and of reducing as much as possible the national debt, so that
soldiers returning from the battle fronts could concentrate on
the reconstruction of their lives and business and the re-establish-
ment of their incomes without having hanging over them, like the
sword of Damocles, a huge bill for the costs of the war, which
we refused to pay when we had the money to do it.
And we do have the money to do it.
I am as aware as anyone that we are faced with great problems
in setting up a system of taxation that will get this money without
injustice; and that we have reached the saturation point ón taxation
in the case of many people throughout the Nation. There are
literally millions of people whose incomes have not increased as a
result of the war; and there are millions whose wages are so low
that they can not maintain even a reasonable standard of living, and
still pay the taxes which are even now levied against them.
I have said many times before that four-fifths of our entire
national income rests with those people earning less than five
thousand dollars a year. I should like to make it very clear,
however, that among those people earning less than five thousand
a year, there are 21.5 million people -- a third of all the Nation's
salary and wage earners -- who make less than a thousand dollars
a year. These 21.5 million people earn 8. total of only 18.5 million
Regraded Unclassified
- 6 -
156
dollars. Thus, it is obvious that these 21.5 millions who earn,
On an average, less than $18 a week must be given special considera-
tion in times like these, when we speak of tax programs. In fact,
some of them -- nine million of them now paying Victory taxes whose
incomes are pitifully small, we should relieve even of their present
taxes. I don't believe that is an unreasonable request. I believe
it is 8. case of simple justice.
And because of these millions with sub-standard earnings, we have
consistently opposed the sales tax as a means of raising additional
revenue. The cold facts are these: on a straight dollars and
cents basis, a sales tax on all commodities including food and the
necessities of living would fall with a devastating thud on these
21.5 million people earning less than a thousand a year. From the
standpoint of food, which is usually the largest item in & low-
Income budget, perhaps it would fall even more heavily, for the
simple reason that most of these people are laborers whose food and
basic requirements are greater than those of the higher income groups.
The percentage of their earnings paid in taxes, in relationship to
their incomes, would be, of course, entirely out of proportion.
There is only one way of sparing these 21.5 million people
an inexcusable injustice under any sales tax scheme -- and that is
by eliminating from taxation food and the necessities of life --
Regraded Unclassified
157
- 7 -
and that, gentlemen, would make the revenue to be secured from the
sales tax almost too small to be worth the bother. An over-all,
unjust sales tax might get us about six billion dollars. If the
necessities of life were eliminated, we would be fortunate to get
two billion dollars, much of which we propose to get anyway through
selected excise levies. Most of that extra four billion would
come from the blood and sweat of people who honestly can't afford
It. It's unthinkable. Badly as we need the money, we can not
take it from those who would face certain hardship as a result of
new taxation.
The bulk of the money, therefore, must come from those outside
of lowest income group, yet within the up-to-$5,000-a-year group.
And lacking any more precise method of separating out the ones who
have the greatest ability to pay, we believe we must resort to an
increase in income taxes.
Of the total of 8 billions of new income taxes in our suggested
program,
billions would come from those 43 millions of tax-
payers who earn, after present taxes, between $1,000 and $5,000 --
or a total of 97 million dollars. At present, these taxpayers
are paying a total of about 10.6 millions, or a little more than
half of all the income taxes levied against all taxpay ers. Under
the suggested new plan, they would be paying a slightly higher
proportion of the total -- the increase being due to 8. smaller in-
crease in the lowest and the higher brackets.
Regraded Unclassified
158
- 8 -
I hope you will consider the long-term significance of this tax
bill before you decide upon a course of action. I hope you will
never lose sight of the fact that to the extent that the 10.5 billion
figure is reduced, just to that extent we will be levying additional
taxes upon the men who are now fighting the war and upon their
children and ours. We can not forever put off the payment of the
huge war bill which is accumulating at the rate of 260 million
dollars a day -- less than a third of which is being met in
Government revenue at the present time.
And I hope you also will remember that every dollar tak en in
texos is one less dollar which can cause an inflation that will
burden us, that will unnecessarily increase our war bill, and that
will make the job of reconstruction infinitely harder once the war
is over.
I should like to say one thing more. On my recent trip to
Europe, I spent a great deal of time investigating our war expen-
citures abroad. I wanted to know whether or not reasonable care was
being given to the spending of money at the front. I did not, of
course, make a detailed study, but I came away with the distinct
impression that the war is being fought as economically as it is
possible to fight against Nazi fanatics who are perfectly willing to
throw their every resource into battle.
Regraded Unclassified
159
- 9 -
I am convinced that our commanding Generals are not wastrels
elther of money or men, which is a comforting thought. And I
gained the distinct impression that our money, translated into
war equipment, and into the training which makes our soldiers
the best in the world, is winning the war for us, and it is our
noney and resources which turned away the huge tidal wave of Nazi
oppression which, not so long ago, seemed irresistible.
That is certainly ample recompense for any sacrifice we may
have made or will be called upon to make.
Tigher taxes are little enough of a sacrifice if it means
Victory, and a sound peace and the opportunity to rebuild our
Ratron as we want it, not as some dictator wants it.
Eigher taxes are little enough compared to the hardships that
most of our allies are facing today. We have no bombs dropping
on our homes. Our friends and neighbors have not been lined up
against a wall and shot, as literally hundreds of people in Naples
were viciously murdered by the Nazis. Our streets are not filled
with rubble like I saw obstructing the streets of Malta.
In short, we have been spared the horrible destruction of war,
20 very horrible that no one who has not seen it can possibly
imagine it. For this, we must be truly thankful -- so thankful that we
will willingly tighten our belts and pay whatever it costs to fight
the war to a finish -- to so complete a finish that it can never
happen again.
Regraded Unclassified
160
- 10 -
These are the things I hope you will bear in mind above all
else when you are debating the disposition of the tax program for
1944.
161
November 12, 1943
11:45 a.m.
COMMITTEE REPRESENTATION
Present: Mr. Daniel Bell
Mr. Randolph Paul
Mr. John L. Sullivan
Mr. W. N. Thompson
Mr. Joseph J. O'Connell, jr.
Mr. Robert McConnell
H.M.JR: Norman, I thought you might as well get in
this thing, because somebody is going to go on a committee
of some kind. I don't know what it is.
MR. SULLIVAN: Well, you recall walking back from the
Statler the other day I discussed with you Mr. McConnell's
position on all this post-war stuff, and I understood from
you that he--
H.M.JR: (On the inter-phone) If Dan Bell is not busy,
ask him to step in a minute.
MR. SULLIVAN: My understanding of Bob's situation was
that he was the overall man on all post-war things in which
the Treasury was interested, and that in all of these meet-
ings that are to be held over there Bob would attend all of
them and he would take with him the particular fellow who
was specifically interested in the problem that was then
under discussion--just as the other day he took me to the
discussions on the contract terminations.
H.M.JR: Can I interrupt you?
MR. SULLIVAN: Yes.
H.M.JR: You are giving me a little bit more than I
want to get.
(Mr. Bell enters meeting)
Sit down, Dan. Some new committee is up. You have been
in on part of this. What I am saying and what Bell has said
is this. You don't want to quote me. Mr. McConnell will
represent the Treasury, vis-a-vis Mr. Baruch and Mr. Byrnes
Regraded Unclassified
162
- 2 -
on what they are doing over there, see? That doesn't nec-
essarily mean that that includes all post-war things, because
there are a lot or monetary things--stabilization, world
bank, etc.
MR. SULLIVAN: I think that amendment is proper, and
that is what I had in mind.
H.M.JR: When you said he does everything post-war, I
don't think anybody can do that. I don't think he wants to
get on Harry's world bank or stabilization of currency, and
so forth.
MR. SULLIVAN: They spoke of this meeting this week as
one of twenty-eight different things they had on their calendar.
Now, insofar as those are concerned, I think Bob should
attend all of them-some one man follows the whole business
through, just as Dan said.
H.M.JR: Bell and I discussed it.
MR. SULLIVAN: If it is post-war tax, he will take
Randolph; if it is post-war procurement, he will take me.
He will take a particular fellow with him.
Now, there is B. committee of seven set up to handle this,
called the Joint Contract Termination Board. It cails for
the appointment of a member and an alternate.
MR. MCCONNELL: That is & sub-committee of the Baruch
committee?
MR. SULLIVAN: That's right. Now, we talked in there,
and whereas Bob attended the meeting that set this up,
this is more or less a sub-committee, an operating committee,
to put into effect the things that were decided at the bigger
meeting. Our view was that I should be the member of that
and that Joe O'Connell should be the alternate, because the
work of that Termination Board will be procurement work. We
just wanted to discuss the matter with you and see if it was
in accord with your ideas that we follow the general principle
that Bob be in on the overall and when it got down to an
operating level it would be the fellow who was concerned with
that specific problem.
H.M.JR: Let me restate the thing: Mr. Bell and I have
Regraded Unclassified
163
- 3 -
talked the thing over, and we agreed that in setting up this
thing under Byrnes, McConnell would represent the Treasury
and would take people along on the various things. Is that
right, Dan?
MR. BELL: That is right.
H.M.JR: So far, so good. I don't think there is any
disagreement as to that. I called up Mr. Baruch and asked
him whether Mr. McConnell would be agreeable to him. He
said, "None better."
Now, I gather there is a sub-committee.
MR. McCONNELL: That is right; chairmanned by John Hancock,
Baruch's assistant.
H.M.JR: Have you an opinion as to who you think should
be there?
McCONNELL: On contract terminations, I think Mr. Sullivan
should be a member of the committee and Mr. O'Connell should
be his alternate on the committee, because it concerns
immediately drafting of uniform clauses of contract.
MR. BELL: You are going to have a lot of sub-committees,
no doubt, if they are going to tackle these twenty-eight
different problems and Mr. McConnell just couldn't attend
anywhere near all of them, so he is going to have to have
representatives around the Treasury to sit on these sub-
committees and keep him advised and go with him when they
discuss this particular probiem in the full committee.
H.M.JR: Is this contract thing in the Bill?
MR. PAUL: No, it comes in incidentally. We have been
fighting against reserves and for quick terminations, and I
think essentially that is a good arrangement.
H.M.JR: Does that fit in all right with your work?
MR. PAUL: Yes, it does.
H.M.JR: Have any of you any ideas?
MR. THOMPSON: That is proper.
Regraded Unclassified
164
- 4 -
MR. O'CONNELL: It is all right with me.
MR. PAUL: I assume that as you get different sub-
committees you are going to make some different arrangements?
MR. SULLIVAN: Yes, we are not asking the Secretary to
referee a difference of opinion; we are just wanting to set
the pattern that will be followed in many, many other instances.
MR. PAUL: This affects procurement, so it is logical
you should take it and have counsel available or as an
alternate. You will be working together on everything. If
some other thing comes up there will be somebody else.
MR. MCCONNELL: I think the second one is also the
same pattern, because it looks as though they will take
up surplus property taxes.
MR. O'CONNELL: Yes, which really ties in with termin-
ation and also is a procurement problem from the standpoint
of the Treasury, because that is where our problem is.
H.M.JR: I like to have a happy family and I want
to know.
MCCONNELL: It is very happy as far as I am concerned.
H.M.JR: That is all. I was attracted to John Sullivan
in the first instance because of the contract he handled
with Consolidated Aircraft.
MR. SULLIVAN: I saw Fleet at the Washington Hotel
dining room the day before yesterday, and he looked at me and
sort of blinked. I hadn't seen him since December, 1939. I
waved to him and he waved back, and then he had to call over
the waiter to find out who I was. He didn't even remember
me.
H.M.JR: He knew you then, all right.
MR. SULLIVAN: I'll say he did!
H.M.JR: Well, is there anything else on this Baruch
work involving Byrnes?
Regraded Unclassified
165
- 5 -
MR. McCONNELL: I think there will be when they get
moving. Byrnes has been acting as Chairman at the first
meeting.
H.M.JR: Is there anything else you wanted to bring up:
MR. McCONNELL: There is only one question in my mind.
I don't think we are going to get an agenda of the group
meetings. Without an agenda it is going to be kind of hard
to keep the individual men posted.
H.M.JR: The way to do, send & memorandum to me with
copies to the other people.
MR. O'CONNELL: It will all have to be after the meet-
ings. You will sometimes go there without the fellow that
you find when you get there you need, because he wouldn't
be sure each time.
H.M.JR: I have never seen Byrnes or Vinson have an
azenda.
MR. SULLIVAN: We are luckier than anybody else that it
is across the street. Bob can phone anybody.
MR. BELL: I think sometimes they can call the man who
is going to handle it and ask them what they are going to
discuss, and he might be able to tell you. I think that is
Lubeil.
MR. PAUL: Sam Lubell.
H.M.JR: Isn't he a writer for the Saturday Evening
Post?
MR. O'CONNELL: That is right.
MR. PAUL: Yes, he has a piece coming out very shortly
in the Saturday Evening Post on the program.
H.M.JR: The Treasury?
MR. PAUL: Yes, we gave him an enormous amount of help
on it. He is a little fellow. He wrote the rubber report.
Regraded Unclassified
166
- 6 -
H.M.JR: Okay - if everybody is happy.
MR. PAUL: Did you see the amusing thing in the Post
this week? A story about seeing the President. Pictures
of Connally and everybody waiting to see the President.
MR. SULLIVAN: By Norman Rockwell. It is very much
worthwhile.
MR. PAUL: They have a little square in the illustrations,
and they put in that square our meeting with the President-
Dyrnes and you.
Regraded Unclassified
167
November 12, 1943
12:00 Noon
HMJr:
Hello.
Operator:
Go ahead.
HMJr:
Hello.
Lord
Hallfax:
Hello.
HMJr:
Morgenthau.
H:
Good morning, Halifax here.
HMJr:
How are you?
as
You told me to call you on Friday morning.
HMJr:
Oh, that's right.
H:
Now, any chance of seeing you over the week-end?
I'm -- I seem to be tied up in the evening tonight
and tomorrow night.
HMJr:
I see.
H:
But, would there be any chanoe of seeing you
quietly on Sunday evening?
HMJr:
Uh
H:
Will you -- I could either offer you a quiet
dinner here or offer you a drink here before
dinner or let me come and have a drink with
you.
HMJr:
I see. Well, could I call you back this
afternoon?
E:
Yes, surely.
HMJr:
Because my wife's had a very bad cold.
H:
Uh huh.
HMJr:
And she seems to be better and I would know
better this afternoon.
H:
Righto.
HMJr:
And I will, if I may, call you back and I am
available Sunday afternoon 88 far as I know --
or evening.
Regraded Unclassified
168
- 2 -
H:
It would be later -- rather sort of after
sixish.
HMJr:
I see.
H:
As far as I am concerned, I think -- if
HMJr:
Right. Well, if you
H:
....
that's possible for you.
HMJr:
keep that open E. little bit and then
I'l get in touch with you later.
H:
Good. Lovely.
HMJr:
Thank you for calling.
H:
All right. Good bye.
HMJr:
Bye.
Regraded Unclassified
169
November 12, 1943
4:28 p.m.
HMJr:
Hello.
Elmer
Davis:
I wonder if I could see you the end of this
evening or tomorrow morning.
HMJr:
Sure. What have you got on your mind?
D:
Well, our work in Africa.
HMJr:
What?
D:
Our work in Africa.
HMJr:
I see. Uh -- I'm just trying to think --
has Sherwood been talking to you?
D:
Very little.
HMJr:
Yeah. (Pause) Hello.
D:
Yeah.
HMJr:
I'm just trying to think
D:
Would you be free around six o'clock this
evening?
HMJr:
No. You and I work opposite ends of the day.
D:
I see.
HMJr:
How about 9:30 tomorrow morning?
D:
9:30 would be fine.
HMJr:
Thank you very much.
D:
All right. Thank you.
Regraded Unclassified
cc-Fred Smith
170
November 12, 1943
4:52 p.m.
HMJr:
Hello.
Oscar Cox:
Hello, Mr. Secretary.
HMJr:
Oacar.
C:
Yeah.
HMJr:
Somebody has just sent me over "Lend-Lesse
for Victory" by E. R. Stettinius.
C:
Yeah. Harry White told me that you hadn't
seen it yesterday and asked me if I could
get a copy of the manuscript for you and
a copy for him.
HMJr:
He -- well, he certainly did a beautiful job
on leaving me out of the picture.
C:
Well, I kept telling him all the way through
that if there's any guy that did a job for
his country in that thing, his name is Henry
Morgenthau.
HMJr:
Well, you wouldn't know it from this story.
Why, just the thing of how we got the weapons --
the rifles and all that after Dunkirk
:
Yeah. Well, that's in there.
HMJr:
Well, I know, but the whole meeting, Marshall
and Biddle and the whole thing took place in
my room.
C:
That's right.
HMJr:
Stettinius had no more to do with that than
the Cop on the corner.
C:
That's right. Well, except on the follow-up
which was after the tough job was done.
HMJr:
No, we gave his Company an order at that time.
C:
That's right.
HMJr:
He didn't -- but the things -- we got the stuff in
the boat and got the boat and it got over there.
He had nothing to do with that.
Regraded Unclassified
171
- 2 -
C:
That's right.
HMJr:
What did he have to do on the follow-up? The
stuff was there before he had anything to do
with it.
C:
Oh, the only minor thing in that thing was U.S.
Steel Export.
HMJr:
Yeah, but that was his Company.
C:
That's right.
HMJr:
And he wasn't even connected with the Company
at that time.
C:
That's right.
HMJr:
And he doesn't claim it for his Company.
C:
Oh, no, he -- what he -- of course, on all the
past stuff when he's writing the book, he's
talking about stuff he had nothing to do with.
HMJr:
No, but it's -- God, he does -- he must break
his arm patting himself on the back.
0:
Yeah.
HMJr:
I suppose the book is all finished.
C:
Well, I don't know -- I think we can probably
do something about it. I've been telling them--
all those fellows that were working on it.
HMJr:
Stettinius gave me all that talk of -- he
talked to me and so forth and so on but.
C:
Yeah. Well, I'll tell you what I think 1s the
way to possibly straighten that out. I think
there are two or three spots where the impression
is that the guys who really were dragging their
feet did this job. I mean, you take some of
those references to the War Department people
and State people -- well, anybody that was in
it knows that the only thing they couldn't stand
was the pressure and the success of the thing --
that as far as initiation and contribution was
concerned, you could charge it up to zero.
Regraded Unclassified
172
3 -
HMJr:
Well, Monnet's coming over -- he said, "Hello"
to me and that's all. Well, my God, I lived
with that fellow for a year and a half.
C:
That's right. Well, I think the way, probably,
to straighten it out would be if you could get
somebody in your shop to point out in terms of
the record of the thing that some of the emphasis
18 wrong and I'll do the same because I -- I
don't think it
H/Jr:
Well, who's writing the book anyway?
C:
Most of the writing is being done by a fellow
named Louis Hector.
HMJr:
Who?
C:
Hector, H-e-c-t-o-r.
HMJr:
Yeah.
C:
He's a good man.
HMJr:
Who 1s he?
C:
He's over on the Land-Lease Staff.
HMr:
I see,
C:
And he's a competent fellow but the one thing
I've said to Stettinius all the way through on
this book is, "I don't think it's worth publish-
ing unless you give a correct impression, and if
you don't want to knock the fellows who were
dragging their feet, the way to do that 1e not
to mention them, but for God's sakes mention the
guys that really did 8 super-human job."
HMJr:
Well, it's the -- it's the most glowing thing --
he takes credit onto himself when he had absolutely
nothing to do with the thing.
C:
That's right.
HMJr:
God damn it! When he -- whey doesn't he -- when
this thing was happening he was on raw materials
which he was wrong on.
Regraded Unclassified
- 4 -
173
0:
Yeah.
HMJr:
Then they kicked him out of that thing and they
put him into priorities and in front of Knudsen,
Knudsen told him that he was nineteen thousand
priorities behind.
C:
Uh huh.
HMJr:
When Knudsen took it over.
8:
Yeah.
HMJr:
And it's very unsportsmanlike, the whole book
I mean.
C:
Yeah.
HMJr:
I mean -- but maybe this -- well, I don't care --
it's what I would expect.
C:
Well, I care on it because I....
HMJr:
It's what I would expect.
C:
How about
HMJr:
I mean, I've just been glancing at it and you
wouldn't know that you and McCloy or Ed Foley
had anything to do with it.
C:
Uh -- how far did you glance? I think
HMJr:
I just was glancing at the part of -- Just the
beginning.
C:
Yeah.
HMJr:
Before lend-lease came into existence. Then he
gives the stuff about how he opened up the
hearings. Hell, he never appeared at the hearings
on lend-lease.
C:
That's right. Why, he doesn't -- does he say
that?
HMJr:
Yeah, about what he said before the Committee.
Christ, he never was -- he never had anything to
do with it.
C:
That's right. I haven't seen that part.
Regraded Unclassified
174
- 5 -
HMJr:
It's just 88 bad BS the cicture Mission to
Moscow.'
C:
Yesh. Well, that's bad business. Has Miss
Kistler got a lot of corrections she has in
mind? I think
HXJr:
I don't know.
C:
Well, maybe between the two of us we can get some
of that prior stuff straightened out.
HMJr:
Well, it takes hours to do the thing but --
well, I didn't expect that of Stettinius.
I thought that he would -- I -- you know the
stuff -- I thought you would tell it to him,
too.
C:
Well, I told it to him about -- those fellows --
about fifty times and I can keep on doing it
the fifty-seventh time.
HMJr:
Yeah.
C:
Because I think it's bad, quite agide from the
uestion of "credit where credit is due", I think
the impression that this thing may give in terms
of the historical thing is that it ought to be
right.
HMJr:
Well, it 1sn't right -- it's wholly unfoir --
it puts him in a position which he doesn't
deserve and the people that sweated the thing
through and got the legislation through and
all that just don't get any credit at all.
C:
Well, the only chapter I've been over semi-care-
fully 18 the Chapter Six which -- they intended
to put some of that stuff in
HMJr:
Yeah.
C:
and I haven't reread the redraft of the
other chapters yet which I am going to do over
the week-end, so maybe I can get them to get the
impression straight.
HMJr:
They never asked to see any of my stuff as far
8.8 I know. Did they?
Regraded Unclassified
175
9 I I
C:
I think they did.
HMJr:
Did they?
::
Yeah. But I think one way of curing it might
be to let a fellow like Louis Hector look at
parts of it if you feel free to do it.
HMJr:
Louis Hector?
8
Hector, H-e-c-t-o-r. Because he's en honest,
able guy.
HMJr:
Well, anyway, I feel better but I don't expect
anything to happen out of it.
C:
Well, we'll try.
HMJr:
Well.
C:
I just wanted to tell you we've done a little
more checking on this Culbertson thing.
HMJr:
Yeah.
C:
And he didn't make the statement in the C.C.& A.
meeting
HMJr:
Yeah.
C:
but he made it in passing to one of the
State Department fellows as he was walking --
as he blustered out of the meeting.
HMJr:
I see.
C:
So, I'll follow that up.
HMJr:
Well, it's only a pin-prick.
C:
Oh, I know, but those things aren't right.
HMJr:
Okay.
C:
Thanks.
HMJr:
Bye.
C:
Bye.
Regraded Unclassified
176
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
November 12, 1943
TO
Secretary Worgenthau
FROM
Fred Smith
Two things for your consideration:
1. Montagu Norman has been elected Governor of the
_ank of England for the twenty-fifth consecutive time.
Do you want to do anything about it?
2. J. L. Houghteling is having in his labor represen-
tatives for a conference the first three days of next week.
Ince
He would like to have you say a few words to them on one
of the days. He can assemble them in the Chart Room.
That do you think?
The
Regraded Unclassified
177
November 12, 1943
Norman Thompson
The Secretary
Please speak to me about why there are women operators
on all night on the switchboard. I don't like it. Done-
Regraded Unclassified
177-A
November 12, 1943
Herbert Gaston
Secretary Morgenthau
I don't know who is in charge of Security at Fort Knox
but General Greenbaum was down there and he says that all
the practice alarms are on the hour and if anybody wanted to
steal some gold, if they did it one minute after the hour
they would have ten minutes in which to get away with it.
He, therefore, suggests that each week the time be changed
for the test because everybody down there knows that the
test is on the hour. Please have somebody look into this
and make a report to me. Thank you very much. Carton
says finished -
Regraded Unclassified
178
NOV 12 1943
Dear Mr. Lilienthal:
I have just learned that the Tennessee Valley
Authority is the first Federal agency or department
whose employees are regularly devoting over 15 per
cent of their pay checks for the purchase of war
bonds. I want, through you, to congratulate your
entire organization for this outstanding achievement.
Last February, the President expressed a desire
that Government employees lead the way in this essential
part of our war program. Applying 15 per cent of every
pay check to the purchase of war bonds is not only a
sure method for the individual to accumulate financial
reserves, but it also is a positive means whereby every
citizen can render an additional essential service to
his country at home and abroad. I hope that this
standard of investment in war bonds achieved by
Tennessee Valley Authority employees will soon be
attained throughout the Federal service.
I wish to commend you and your entire organization
of over 24,000 employees for the whole-hearted support
of this part of our national program to defeat tyranny
abroad and to combat inflation at home.
Sincerely,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
Honorable David E. Lilienthal,
Chairman,
Tennessee Valley Authority,
Knoxville, Tennessee.
EFB:FS:gr
11/12/43
Regraded Unclassified
179
November 12, 1943
Dear Mr. Harrison:
I want you to know that I appreciate your
letter concerning my visit to the Evansville
shipyard.
I am glad to know that telling the story
of the LST's had a good effect on your people.
I am quite sure that more of this sort of thing
should be done. In fact, in a speech which I
am making on November 18, I an going to urge that
advertisers and advertising people consider this
one of their major jobs.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mr. Frank Harrison, General Manager
The Missouri Valley Bridge & Iron Co.
Evaneville, Indiana
FB:gr to
11-12-43
Regraded Unclassified
179
November 12, 1943
Dear Mr. Harrison:
I want you to know that I appreciate your
letter concerning my visit to the Evansville
Shipyard.
I am glad to know that telling the story
of the LST's had a good effect on your people.
I am quite sure that more of this sort of thing
should be done. In fact, in a speech which I
am making on November 18, I am going to urge that
advertisers and advertising people consider this
one of their major jobs.
Sincerely,
(Signed) H. Morgentham, Jr.
Mr. Frank Harrison, General Manager
The Missouri Valley Bridge & Iron Co.
Evaneville, Indisna
FS:gr to
11-12-43
Regraded Unclassified
180
THE MISSOURI VALLEY BRIDGE & IRON CO.
(SHIPBUILDING DIVISION)
P. O. BOX 59
101NT VENTURERS
JOINT VENTURERS
WINSTON BROS. COMPANY
EVANSVILLE 6. INDIANA
BECHTEL-MCCONE-PARSONS CORP.
CF HAGLIN AND SONS. INC
SOLLITT CONSTRUCTION COMPANY. INC
November 9, 1943
Address Reply To Office
Net To Individuals
in Reciv Refer To
The Honorable Henry Morgenthau, Jr.
Secretary, United States Treasury
Treasury Department
Washington, D. C.
Dear Mr. Morgenthau:
You will undoubtedly be gratified to know
that your recent visit to the Evansville Shipyard has accom-
plished much more than its primary purpose of announcing to
the nation the success of the Third War Loan Drive from the
locale of one of the vital war industries. Since your address,
which revealed to the Evansville Shipyard employees how the
LSTs they build came into being, the details of how these ships
had acquitted themselves in action and their vital importance
in the pattern of Victory, we have had the opportunity to eval-
uate the effect of your personal appearance upon production by
our workers.
It is our observation that there has been
a definite strengthening of determination and morale among our
employees, inspired by your story of the importance of our ships
and the manner in which you impressed upon each individual his
responsibility not only to produce, but also to help to pay for
the ships he builds with his war bond investment.
It was an honor and a pleasure to have you
with us for the day and we assure you that your visit has con-
tributed greatly toward a fuller appreciation of our deep respon-
sibility to the war effort.
Sincerely yours,
THE MISSOURI VALLEY BRIDGE & IRON CO.
(Shipbuilding Division)
Trank
Frank Harrison,
Copy to
Thomas Lane,
Treasury Department,
Washington, D. C.
Regraded Unclassified
181
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
November 12, 1943
FROM Fred Bulth
after you presented the tax bill to Congress, I had Secret
Service send us leading newspapers from throughout the country
from October 5 to October 16. We received 108 newspapers
regularly, and in these were 117 editorials about the tax
proposal. Mrs. Bowman of Public Relations made on analysis,
"nd Lere are the highlights:
1. 92 editorials (78% of the total) immediately blasted
the program, chiefly because "it fails to spread out
the taxes to All in proportion to ability to pay; it
would do much to discourage the spirit of individual
enterprise.
2. Of these unfavorable editorials, 25 (21%) said point-
blank that the country would be unable to meet the
new tax demands that the saturation point 18 About
reached in all brackets.
3. One reason for the great editorial unpopularity of
the program may be found in the fact that 53% of the
editorials (included among the 78% unfavorable) called
for & sales tax, and criticized the Treasury program
because it did not include 8. sales tax. Only % of
the editorials made any unfavorable comment about
sales tax. It 1s interesting to note that the Gallup
poll on November 3 found that 53% of the public pre-
ferred a sales tax to increased income taxes.
4. 15 editorials (13%) said that the Treasury deserved
commendation for & courageous tax plan.
5. 10 editorials (9%) said the program appeared to be a
mixture of good and bad proposals, and the Congress
should only make practical and helpful changes.
6. 9 editorials (8%) strongly disapproved of Secretary
Morgenthau. All but three of these, however, appeared
in the Scripps-Howard press, or originated with the
Scripps-Howard management.
Regraded Unclassified
182
- 2 -
Five columnists; Lawrence, Krock, Mallon, Gould, and
Porter, also commented on Morgenthau, personally.
Lawrence said that Morgenthau was an excellent manager
of the Treasury Department, but complained of his
staff, and indicated that he shouldn't delegate to
his subordinates the responsibility of dealing with
Congress.
Krock complained that the idealogical factor in tax
bills has always guided Morgenthau, and still does.
Hollon said "Mr. Morgenthau is unpopular with the
legislators, but in a mild way.'
Gould said "while Morgenthau takes the rap for much
that comes out of the Treasury, the man responsible
for the tax programs is a little ex-Wall Street
lawyer -- Randolph E. Paul."
Porter said "Morgenthau walked into this. He certainly
Laked for a Congressional attack when he presented a
bill with such rough edges so obvious that even &
casual observer could find them."
7. 10 editorials (9%) discussed Vinson, and none was
friendly. The Scripps-Howard newspapers who nomi-
nated him for Secretary of the Treasury, refreined
completely from comment after his appearance. The
lst of the criticisms are as follows:
"It doesn't seem probable that a change of Secretaries
would make much difference." (San Diego Tribune Sun).
"He had no better arguments to offer in justification
of the measure than did Mr. Morgenthau." (New York
Herald Tribune)
"He doesn't believe it possible to hold the line against
inflation if a sales tax is enacted ... this newspaper
doesn't believe that. Furthermore, it suggests that
anyone who really does believe it and who 1s willing
to accept and give way to such a condition, comes
pretty near a state of mind which unfits him to hold
the office which Judge Vinson does hold." (Wall Street
Journal)
"Judge Vinson came off second best in his Ways and
Means colliquy on taxes with Representative Knutson."
(Washington Post)
Regraded Unclassified
183
- 3 -
"He had no ready answer." (Philadelphia Inquirer)
"Congress should not, and it looks now as if it
will not, accept the Treasury's blue print just
because Judge Vinson and other Administration
spokesmen say the country will go to the dogs if
the dot on an I or the cross on a T is changed."
(Detroit Free Press)
"Judge Vinson, who 1s an assistant to Economic
Stabilizer Byrnes, has been nominated to front man.
So he comes out swinging. The sales tax, he says,
will be bad because it will tax the consumer. It
would, in fact, be inflationary because it would
set in motion & series of demands for compensatory
wage increases, which (Judge Vinson implies) the
Government would be unable end unwilling to resist.
And that 1s one of the strangest arguments of the
year.' (Omaha World Herald)
The full*report is attached.
If
Regraded Unclassified
184
ANALYSIS OF EDITORIAL COMMENT
ON THE
TREASURY TAX PROGRAM
Based on 117 editorials appearing in 108 leading newspapers
throughout the country. (This includes 13 Scripps-Howard
and 5 Hearst newspapers.) From October 5, to October 16,
inclusive.
Regraded Unclassified
185
THE TREASURY TAX PROGRAM
Favorable - 13%
(15 editorials)
The Treasury's tax plan merits more serious consideration than members
of the Pouse Ways and Means Committee seem disposed to give it. It is
a courageous tax plan and the Treasury deserves to be commended. The American
people will meet any sacrifice necessary for the winning of the war, and if
hi cher taxes are imposed they will be paid.
General - 9%
(10 editorials)
The Treasury tax program appears to be a mixture of good and bad proposals.
Congress should make sure that only helpful and practical changes are made.
Unfavorable - 78%
(92 editorials)
The Treasury tax program causes deep concern because it is believed that
it fails to spread out the program to all in proportion to ability to pay;
it would do much to discourage the spirit of individual enterprise; neither
Congress nor the Administration is forgetting that 1944 is an election year.
INABILITY OF THE COUNTRY TO MEET NEW TAX DEMANDS - 21%
(25 editorials)
This group believes that the saturation-point is about reached in all
brackets, and any assumption that increased rates will bring proportional
revenues must be seriously challenged. They suggest that the proposed bill
mistakes willingness for ability to pay.
PERSONAL CRITICISM OF SECRETARY MORGENTHAU - 8%
(9 editorials)
Scripps-Howard and Hearst editorials voice the strongest disapproval of
Secretary Morgenthau. They accuse him of playing politics, shirking his duty,
inability to lead and demand an explanation of why he is allowed to continue
as head of the Treasury.
CRITICISM OF THE TREASURY DEPARTMENT - 4%
(5 editorials)
They say the Treasury lacked the vision and leadership which Congress and
the public had the right to expect.
REACTION TO VINSON'S TESTIMONY - 9%
(10 editorials)
Judge Fred M. Vinson may have helped the cause of the Treasury's tax
program, but he had no better arguments to offer in justification of the
measure than did Mr. Morgenthau.
Regraded Unclassified
185
THE TREASURY TAX PROGRAM
Favorable - 13%
(15 editorials)
The Treasury's tax plan merits more serious consideration than members
of the House Ways and Means Committee seem disposed to give it. It is
a courageous tax plan and the Treasury deserves to be commended. The American
people will meet any sacrifice necessary for the winning of the war, and if
hi her taxes are imposed they will be paid.
General - 9%
(10 editorials)
The Treasury tax program appears to be a mixture of good and bad proposals.
Congress should make sure that only helpful and practical changes are made.
Unfavorable - 78%
(92 editorials)
The Treasury tax program causes deep concern because it is believed that
it fails to spread out the program to all in proportion to ability to pay;
it would do much to discourage the spirit of individual enterprise; neither
Congress nor the Administration is forgetting that 1944 is an election year.
INABILITY OF THE COUNTRY TO MEET NEW TAX DEMANDS - 21%
(25 editorials)
This group believes that the saturation-point is about reached in all
brackets, and any assumption that increased rates will bring proportional
revenues must be seriously challenged. They suggest that the proposed bill
mistakes willingness for ability to pay.
PERSONAL CRITICISM OF SECRETARY MORGENTHAU - 8%
(9 editorials)
Scripps-Howard and Hearst editorials voice the strongest disapproval of
Secretary Morgenthau. They accuse him of playing politics, shirking his duty,
inability to lead and demand an explanation of why he is allowed to continue
as head of the Treasury.
CRITICISM OF THE TREASURY DEPARTMENT - 4%
(5 editorials)
They say the Treasury lacked the vision and leadership which Congress and
the public had the right to expect.
REACTION TO VINSON'S TESTIMONY - 9%
(10 editorials)
Judge Fred M. Vinson may have helped the cause of the Treasury's tax
program, but he had no better arguments to offer in justification of the
ceasure than did Mr. Morgenthau.
Regraded Unclassified
186
VARIOUS THINGS ABOUT TAX BILL WHICH WERE CRITICIZED
Corporation Taxes
Increased corporation and profits taxes are opposed on the ground
that they would weaken incentives to efficient production, reduce needed
reserves, threaten post-war unemployment, and be of no aid against
inflation. Justice to business, not subsidies, should be the goal of
our law-makers.
Life Insurance Policies
This is no time for reforms which are political.
Luxury Taxes
Luxury taxes would increase imposts on a few articles already
over taxed, leaving without any tax whatever other articles which cannot
be classed as necessities. Mr. Morgenthau is destined for disappoint-
ment on returns. The luxury tax would discourage production of needless
things, thereby defeating the revenue purpose.
Refundable Taxes
Confuses revenue with borrowing. Any refundable tax is in the
category of borrowed money. There is reason to believe that the confusion
of the two may dry up tax sources without increasing lending. Any money
for refunds could be had only by collecting it in more taxes.
Social Security Taxes
This tax is, and always has been, only a subterfuge to raise money to
be spent by the Government. It is not true war finance, since a new debt
in equal amount would be created for future Social Security benefits.
Victory Taxes
The political usefulness of shifting the $300 million levy upward
along the income levels need not go unobserved. Tinted by consideration
of politics to bolster New Deal vote getting strength in the pre-
election year.
Withholding Taxes
The American wage earners cannot well stand another withholding tax.
There are millions whose salaries have not gone up.
Regraded Unclassified
187
SURVEY OF EDITORIAL COMMENT ON SALES TAX
Based on 117 editorials appearing in 108 newspapers
throughout the country, from October 5, to October 15,
inclusive.
Favorable
61 editorials
53%
Unfavorable
7 editorials
6%
General
9 editorials
7%
No opinion
40 editorials
34%
Regraded Unclassified
188
NEWSPAPERS INCLUDED IN SURVEY
OF
TAX PROGRAM
Regraded Unclassified
189
NEWSPAPERS INCLUDED IN SURVEY OF TAX PROGRAM
ALABAMA
Birmingham News
Birmingham Post - (Scripps-Howard)
Mobile Register
ARIZONA
Phoenix Arizona Republic
ARKANSAS
Little Rock Arkansas Gazette
Little Rock Arkansas Democrat
CALIFORNIA
Los Angeles Examiner - (Hearst)
Los Angeles Times
Redwood City Tribune
San Diego Tribune-Sun
San Francisco Chronicle
San Francisco Examiner - (Hearst)
San Francisco News - (Scripps-Howard)
COLORADO
Denver Rocky Mountain News - (Scripps-Howard)
CONNECTICUT
Hartford Courant
New Haven Journal Courier
New Haven Register
DELAWARE
Wilmington Journal-Every Evening
D. C.
Washington Post
Washington llews - (Scripps-Howard)
Washington Star
Washington Times-Herald
FLORIDA
Miami Herald
Miami News
GEORGIA
Atlanta Constitution
Atlanta Journal
ILLINOIS
Chicago Daily Times
Chicago Sun
INDIANA
Indianapolis Star
Indianapolis Times - (Scripps-Howard)
KENTUCKY
Louisville Times
LOUISIANA
New Orleans States
New Orleans Item
New Orleans Times-Picayune
MARYLAND
Baltimore Sun
Regraded Unclassified
130
MASSACHUSETTS
Boston Globe
Boston Traveler
Boston Daily Record
MICHIGAN
Detroit News
Detroit Free Press
Minnesota
St. Paul Pioneer Press
MISSISSIPPI
Jackson-Clarion Ledger
MISSOURI
St. Louis Globe-Democrat
St. Louis Star-Times
Kansas City Star
Kansas City Times
MONTANA
Butte Montana Standard
NEBRASKA
Omaha World-Herald
NEVADA
Reno Gazette
N. H.
Manchester Union
NEW Jersey
Newark Star-Ledger
Haboken Observer
Hackensack Bergen Evening News
NEW MEXICO
Albuquerque Journal
Albuquerque Tribune - (Scripps-Howard)
NEW YORK
New York Times
New York Post
New York Herald Tribune
Buffalo Courier-Express
Utica Rome Daily Sentinel
New York Journal of Commerce
Buffalo News
New York Sun
New York Journal and American - (Hearst)
Utica Observer-Dispatch
Poughkeepsie New Yorker
New York Daily News
Wall Street Journal
New York Daily Mirror - (Hearst)
Syracuse Herald-Journal
New York World-Telegram - (Scripps-Howard)
NORTH CAROLINA
Raleigh News and Observer
Charlotte Observer
NORTH DAKOTA
Fargo Form
Regraded Unclassified
191
OHIO
Columbus Evening Dispatch
Columbus Ohio State Journal
Cincinnati Post - (Scripps-Howard)
Cincinnati Enquirer
Cincinnati Times-Star
Cleveland Press - (Scripps-Howard)
Cleveland Plain Dealer
Cleveland News
OKLAHOMA
The Daily Oklahoman, Oklahoma City
Oklahoma City Times
OREGON
Portland Oregon Journal
PENNSYLVANIA
Pittsburgh Press - (Scripps-Howard)
Philadelphia Inquirer
Philadelphia Record
Philadelphia Evening Bulletin
Scranton Tribune
RHODE ISLAND
Providence Journal
Providence Evening Bulletin
SOUTH DAKOTA
Sioux Falls Argus-Leader
TENESSEE
Memphis Press-Scimitar - (Scripps-Howard)
Memphis Commercial Appeal (Scripps-Howard)
Nashville Banner
Nashville Tennessean
TEXAS
Dallas Morning News
El Paso Times
El Paso Herald Post - (Scripps-Howard)
Fort Worth Press - (Scripps-Howard)
Houston Chronicle & Herald
Houston Press - (Scripps-Howard)
San Antonio-The Light - (Hearst)
San Antonio Evening News
San Antonio Express
VIRGINIA
Richmond Times-Dispatch
WASHINGTON
Seattle Times
WISCONSIN
Milwaukee Journal
No coverage from the following states:
IDAHO
SOUTH CAROLINA
IOWA
UTAH
KANSAS
VERMONT
MAINE
WYOMING
WEST VIRGINIA
Regraded Unclassified
192
The New Bork Times.
NOV 3- 1943
for that the extra amount PIP
SALES TAX LEADS
rained by a national enter Tax on
everything people buy or that the
PRYTA amount he raised by increase
IN GALLUP'S POLL
ing everybodye income taxes
The vite
Prefer national anica tax
57
Prefer increasing throme TAX 74
It is Preferred to a Rise in In-
No Optnion
13
In surveys taken during the last
come Levy by 53% of
two years the institute has from
Persons Quaried
that the public does not oppose the
nales tax 18 such The mayority
of voters have been willing to N/A
rept a national anles tax of 2 per
These aurreys are made by o
rent but have consistently opposed
sales taxes calling for larger
system nf highly selective -
amounts
phage in each of the faity-eight
With nearly seven out of even
States in proportion 18 toting
len families in the country Now
pepulations. thereby. the Ameri-
paying income taxes resistance De
one /natttute of Public Openion
higher sales taxes " - means of
raising revenue may he expected
holds. Le obtained di result which
to decline
would not rary from that of e
When the question in the present
murh larger
survey is limited in these who pay
Income taxes. the vide in favor of
the national anica tax is higher
By GEORGE GALLUP
than that of the entire voting propise
Director, American Institute of
lation This is shown -- follows by
Public Opinion
vote of income taxpayers
Prefer national sales the
NT*
PRINCETON N. J., Nov. If
;
Prefer increasing income tax 11
Congress follows President Roose-
No opinion
12
velt . suggration to increase taxes
The majority of persons in all
this year and the decision has to
occupations with the exception et
be made between a national sales
the unakilled labor group favor
the sales tax Even among the 10.
tax and increased income tax rates,
boring group more persons prefer
the public can be counted nn to
the sales tax than prefer the in-
favor a sales tax
creased income tax
This fact is brought to light in
Although the House Ways and
a natinn-wide study of public opin-
Means Committee recently voted
lon in which field reporters put
against a sales tax in next year's
revenue bill, observers say a 10 per
this question:
eent sales tax may be proposed
"If the Government decides
when the bill gries to the Senate
FAIRP taxes. which would you pre-
Regraded Unclassified
193
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
NEWS STORIES
Regraded
194
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
NEWS STORIES
10/6/43 - United Press Service - Congressional sentiment for the re-
moval of Secretary Morgenthau increased today as rebellion
over the Administration's program spread to Democratic and
Republican House Leaders.
The Favorite to replace him is Economic Stabilizer
Fred M. Vinson, former member of the House Ways and Means
Committee and one of President Roosevelt's chief advisers.
At least three committee members and one House
Democratic leader have expressed belief that relations be-
tween Congress and the administration on fiscal matters
would be clarified if Morgenthau did not head the Treasury
Department.
Carried by the following newspapers:
Brooklyn Eagle
Los Angeles Herald Express
San Antonio Evening News
Fort Worth Press
El Paso-Herald Post
Philadelphia Inquirer - Hugh Morrow - It looks as if the
President had better get a new Secretary of the Treasury
if the Administration is going to get anywhere with
Congress on tax questions.
Congressional candidate to succeed Secretary
Morgenthau appeared to be Economic Stabilization Director
Fred M. Vinson.
10/7/43 - Pittsburgh Press - Morgenthau tax plan stirs calls for his
dismissal.
Scranton Times - Ouster by Congress of Morgenthau is talked
as tax revolt grows. The favorite to replace him is
Economic Stabilizer Fred M. Vinson.
Regraded Unclassified
195
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
EDITORIAL COMMENT
Regraded Unclassified
196
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
DITORIALS
0/5/43 - Twenty Two Months Late - There is one gleam of hope. Congress has tired
of letting Secretary Morgenthau fix fiscal policy. Congress has waited
for Mr. Morgenthau to provide leadership. It is now quite apparent that
Mr. Morgenthau doesn't know how to lead. So it is likely, yea imperative,
that Congress itself write the ticket.
Carried by the following newspapers: (Scripps-Howard)
Houston Press
Memphis Press-Scimitar
Birmingham Post
San Francisco News
Albuquerque Tribune
Pittsburgh Press
Cincinnati Post
Cleveland Press
New York World-Telegram
El Paso Herald-Post
6/43 - Washington News
-
Denver Rocky Mountain News
0/7/43 - Indianapolis Times
0/8/43 - Fort Worth Press
Regraded Unclassified
197
New
York
-Telegram
OCT 5
22 Months Late.
One thought keeps coming to mind as we read of the
Treasury's war tax program submitted to Congress
yesterday:
So far as revenue is concerned, and so far as the
impact upon individual taxpayers is concerned, there is
not a thing which the Treasury proposed yesterday which
might not just as well have been proposed on the day
after Pearl Harbor.
And with much better prospects of enactment.
Twenty-two months have passed while the Treasury
has diddled-putting through one puny tax increase and
wasting much precious time delaying Congressional
action in placing our tax system on a pay-as-you-go basis,
which was something that had to be done before B. real
war tax program could be considered. And largely because
of the Treasury's opposition to a clean-cut pay-as-you-go,
there is still a 25 per cent lag which many taxpayers must
meet in addition to the higher rates now suggested.
Little and late the Treasury proposes a tax increase
of 10½ billions, to boost total revenues to around 50 bil-
lions, or about half as much as the government is spending.
Around Pearl Harbor time individual taxpayers could
have accepted this proposed increase with much less hard-
ship. Millions of taxpayers who have profited from the
war boom, and whose incomes have jumped 25 or 50 or
100 or 200 per cent, or more, can pay the higher levies
without much belt tightening. But other millions of tax-
payers, whose incomes have not increased one dime, face
a grim prospect. Their living costs have spiraled upward.
Their wages and salaries buy less in pork chops, beef-
steak, ham and eggs and rent-that is if they can find
pork chops, beefsteak, ham and eggs to buy, and & home
to rent. The irony of it is that this rise in living costs
has been promoted largely by the absence of an adequate
fiscal program to siphon off the accumulating excess of
spending money which has forced prices upward.
On the Pearl Harbor day the public debt was around
55 billfons. It is now above 162 billions. If an adequate
revenue program had been put into effect then, the rise
in the public debt would. have been much less, not only
because greater revenues would have been collected, but
also because the government would have had to pay a
lot less for the things it has bought.
There is the tragedy: The absence of a realistic fiscal
policy has made it all the harder for taxpayers of fixed
incomes to bear the added burden now to be imposed,
and has needlessly swollen the public debt burden which
future taxpayers must support.
Yet there is one gleam of hope. The Congress has
tired of letting Secretary Morgenthau fix fiscal policy.
Congress has waited for Mr. Morgenthau to provide
leadership. It is now quite apparent that Mr. Morgenthau
doesn't know how to lead. So it Is likely, yea imperative,
that Congress itself write the ticket.
There to no escape from higher taxes. Taxpayers will
just have to grin and bear it. But fortunately both the
Constitution and the situation that has developed dictate
that Congress, rather than the Secretary of the Treasury,
shall say how much the tax shall be, and how it shall be
laid.
Regraded Unclassified
198
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
DITORIALS
0/6/43 - Why Not Save 10 Billions - It is about time for Mr. Morgenthau, the
politician, to confess to Mr. Morgenthau, the revenue searcher, that
after he has extracted all the blood out of the one-fifth turnip, he
will still have to get the bulk of revenue from the four-fifths.
Mr. Morgenthau tries to juggle the rates to keep the people from
learning the truth. People are not as dumb as he thinks.
Carried by the following newspapers: (Scripps-Howard)
Albuquerque Tribune
El Paso Herald-Post
Houston Press
Birmingham Post
Memphis Press-Scimitar
Columbus Citizen
Pittsburgh Press
Cleveland Press
Cincinnati Post
17/43 - Rocky Mountain News
Fort Worth Press
Regraded Unclassified
199
THE COLUMBUS CITIZEN - October 6, 1943
WHY NOT SAVE 104 BILLIONS?
lars, with only a few dollars' profit on
each model-T or model-A.
Secretary Morgenthau thinks we should
If Mr. Morgenthau were thinking In
realize there is A war on. Bo he proposes
terms of taxes for revenue Instead of
10½ billion dollars in new taxes. The
taxes for politics, he would frame a tax
fact that we're already paying 10 times
program to fit the market-to get the
revenue where the money is. If the
as much in taxes as we were paying
Treasury in ever to get Itself in a sound
three or four years ago doesn't faze the
position. It will have to do as Henry Ford
secretary.
did-fashion a product which the mass
But Mr. Morgenthau also knows that
of people will buy and pay for and be-
an election is coming on. And apparently
Lleve is giving them their money's worth.
he in bothered by the realization that
(Their money's worth"-ah. there's
the number of direct taxpayers likewise
the rub! All the taxes that Mr. Mor-
has multiplied. Forty million taxpayers
genthau has persuaded Congress to
in voting booths could do wrong. So
enact add up to only a ititle more them
one of Mr. Morgenthau's proposals is
one-third as much as the Government
that nine million people be relieved of
is spending. And If he were to get
the obligation of contributing directly to
this additional 10-billions-plus, that
the Government's support. That would
would still be less than one-half the
be done by the process of merging the
spending. Present indications are that
victory tax Into the income tax in such
if the war ends two years hence the pub-
a way that nine million of the victory
lie debt will be around 300 billions. At
taxpayers would not become income tax-
3 per cent interest, that would mean,an
payers. The $300,000,000 loss in revenue
annual carrying charge of nine billions-
would be more than recovered by higher
as much as the whole wasteful pre-war
rates on those who remain in the tax-
New Deal cost per year.
paying fold.
The people who get $1000, $2000, $3000,
Mr. Morgenthau's politics, however,
$4000 a year-which means more than
run counter to his own statistics of in-
05 per cent of us-are not so dumb but
come, He admits that four-fifths of all
that they know this will mean food out
the people's Income is received by per-
of the mouths and clothes off the backs
sons getting less than $5000 a year.
of all off them and their children and
Yet Mr. Morgenthau's new tax program,
their children's children.
like all of his others-and he has pro-
So we ask: Why is It that the United
posed at least one & year since he became
States La spending more money on this
Treasury chief-is aimed primarily at
war than all of our Allies combined?
the other one-fifth of the total Income.
Why is It we must continue to pay cost-
It is about time for Mr. Morgenthau, the
plus-fixed-fee prices for things the Gov-
politician, to confess to Mr. Morgenthau,
ernment buys, and time-and-a-half for
the revenue searcher, that after he has
overtime labor? Why not buy the mate-
extracted all the blood out of that one-
rials of war at what they are worth,
fifth turnip, he will still have to get. the
rather than submit to this hijacking?
bulk of revenue from the four-fifths. or
And why this swarm of bureaucrats
course, most of the revenue he's now
feasting on our taxes and our credit
getting comes from the four-fifths, by
while you preach sacrifice?
The people are willing to pay for every
indirect taxation.
President Roosevelt never spoke truer
gun," every bullet, every plane, bomb,
than when he said "Taxes are paid in
tank, cargo vessel and warship, and all
the sweat of every man who labors," but
the food needed to supply our troops,
Mr. Morgenthau still tries to juggle the
and to provide our share of the sup-
rates to keep the people from learning
plies to our Allies. We're ready to spend
that truth. The people are not as dumb
any amount of money actually needed
to save a single life or to shorten the
as he thinks.
war one minute, But couldn't we shed
One think this country learned and
a few parasites from the payroll and
taught the world is the Jesson of mass
get just a little commonsense manage-
ment? Couldn't we adjourn New Deal
production. A lot of wise guys tried to
politics for the duration?
get rich manufacturing automobiles to
Wouldn't it be a good idea for the
sell for $5000 with a profit of $3000 on
committee on ways and means, consid-
each vehicle. They all went broke. But
ering the 10½ billion in new taxes, to
Henry Ford became IN billionaire mak-
resolve itself into a committee on ways
ing cars to sell for a few hundred dol-
and means of not wasting 10% billions?
200
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
DITORIALS
0/7/43 - Not Even Smart Politics - The deeper the Ways and Means Committee
delves into the Treasury's Tax Program, the more obvious it becomes
that the measure was not designed primarily to raise revenues or
curb inflation but to get votes. Mr. Morgenthau seems to have for-
gotten what Abe Lincoln said: "You can't fool all the people all
the time." Taxpayers are not as dumb as Mr. Morgenthau thinks.
(Or as Mr. Morgenthau.)
Carried by the following newspapers: (Scripps-Howard)
New York World-Telegram
Washington News
Pittsburgh Press
Houston Press
/8/43 - Memphis Press Scimitar
/9/43 - El Paso Herald-Post
Regraded Unclassified
L PASO HERALD-POST - October 9
943
201
Poor Politics
HE deeper the Ways and Means Com-
mittee delves into the Treasury's
tax program the more obvious It be-
comes that the measure was not de-
signed primarily to raise revenue or to
curb inflation, but to get votes.
Its first purpose is to unbroaden the
tax base-to diminish the number of
voters who contribute directly and con-
sclously to the Government's support.
By merging the victory tax into the in-
come tax It would completely relieve
9,000,000 voters of their obligation to
pay direct taxes. Then through the op-
erations of a "refundable tax"-the
Treasury's pet name for forced savings
-It would decrease the net contribu-
tions of 14,000,000 more taxpayers. In
all, 23,000,000, out of a total of 43,000,-
000, would get their backs "scratched
In the year of the fourth-term cam-
paign.
But we doubt that this clever little
trick will work. Those 23,000,000 tax-
payers are not as dumb as Mr. Morgen-
thau thinks. (Or as Mr. Morgenthau.
Period.) They understand simple arith-
metic. They know that a government
borrowing two-thirds of the money it
is spending is piling up a mortgage
against their future. They know that
when their backs are being scratched
with one hand their pockets will be
picked with the other. The people un-
derstand the workings of hidden taxes.
They see through the political hokum
of soaking-the-rich and socking-the-
corporations-knowing that in the end
the bills are paid by the rank and file
in higher prices and lower wages-
that, as President Roosevelt himself
said, "Taxes are paid in the sweat of
every man who labors."
Mr. Morgenthau seems to have for-
gotten that Abe Lincoln said: "You
can't fool all the people all the time."
Regraded Unclassified
202
New York -Telegram
OCT 7
Not Even Smart Politics.
'The deeper the Ways and Means Committee delves
into the Treasury's tax program, the more obvious it be-
comes that the measure was not designed primarily to
raise revenue or to curb inflation, but to get votes.
Its first purpose is to unbroaden the tax base-to
diminish the number of voters who contribute directly
and consciously to the government's support. By merg-
ing the Victory tax into the income tax it would com-
pletely relieve 9,000,000 voters of their obligation to pay
direct taxes.
Then through the operations of a "refundable tax"
-the Treasury's pet name for forced savings-it would
decrease the net contributions or 14,000,000 more tax-
payers. In all, 23,000,000, out of a total of 43,000,000,
would get their backs scratched in the year of the fourth-
term campaign.
But we doubt that this clever little trick will work.
Those 23,000,000 taxpayers are not as dumb as Mr. Mor-
genthau thinks. They understand simple arithmetic.
They know that a government borrowing two-thirds of
the money it is spending is piling up a mortgage against
their future. They know that when their backs are being
scratched with one hand their pockets will be picked with
the other. The people understand the workings of hidden
taxes. They see through the political hokum of soaking-
the-rich and socking-the-corporations-knowing that in
the end the bills are paid by the rank and file in higher
prices and lower wages-that, as President Roosevelt him-
self said, "taxes are paid in the sweat of every man who
labors."
Mr. Morgenthau seems to have forgotten what Abe
Lincoln said: "You can't fool all the people all the time."
Regraded Unclassified
203
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
TORIALS
19/43 - Repudiation of Administration - Promptly and contemptuously the Ways &
Means Committee has dismissed the fantastic new tax measure proposed
by the Secretary. Had such an incident occurred in England, even
Winston Churchill would have been forced to resign as Prime Minister
unless he immediately reassured the House of Commons and the English
people by the acceptance of the resignation of the Chancellor of the
Exchequer.
Apparently the Secretary of the Treasury, attuned to New Deal philosophy,
sees no virtue in economy and being utterly lacking in business experi-
ence does not even sense the danger of breaking the back of industry
and individuals while they are engaged in the greatest production job in
the world.
Certainly it is time for the American people to demand an explanation
of why Henry Morgenthau Jr. occupies the seat of Alexander Hamilton
while Bernard M. Baruch occupies a park bench in the city of Washington.
Carried by the following newspapers: (Hearst)
19/43 - Milwaukee Sentinel
12/43 - Boston Record
San Antonio Light
Los Angeles Examiner
San Francisco Examiner
New York Journal American
Regraded Unclassified
MILWAUKI SENTINEL - October 9, 1943
204
Repudiation of Administration
P
ROMPTLY and contemptuous-
80 transparently designed for po-
ly, the democratic ways and
litical purposes as to rouse disgust
means committee of the
even among the administration's
House of Representatives has dis-
most ardent supporters.
missed the fantastic new tax meas-
While concealing the fact that
ure proposed by the democratic
the drastic tax measure enacted
secretary of the United States
only last year will probably yield
treasury.
seven or eight billion dollars more
Had such an incident occurred
than was estimated, and while the
in England even Winston Churchill
country is not yet advised whether
would have been forced to resign
the third war loan of $15,000,000,-
as Prime Minister unless he imme-
000 was over-subscribed by $3,-
diately reassured the House of
000,000,000 or $4,000,000,000, the
Commons and the English people
treasury evolved a new tax meas-
by the acceptance of the resigna-
ure which has all the earmarks of
tion of the chancellor of the ex-
a campaign document in an elec-
chequer.
tion year.
However, we have become cal-
In view of the probable excess
loused to the spectacle of the repu-
of the treasury estimates of seven
diation of the administration by
billion dollars in tax revenue and
the members of its own party in
three billion dollars over-subscrip-
the legislative branch of the gov-
tion of bonds, ordinary common
ernment, and of a defiant bureau-
sense dictated a policy of conserva-
cracy flouting not only sound tra-
tive increase, if any, at this time.
ditions but even statutory enact-
ments.
Unfortunately, in the rubber
F
OR more than two years past
such outstanding democratic
stamp days the congress, with a
senators as Byrd, of Vir-
reckless disregard of its own con-
stitutional responsibility, blindly
ginia, and George, of Georgia, have
pointed out that several billion dol-
voted great powers to the execu-
lars a year could be saved by re-
tive branch of the government and
simultaneously voted blank checks
ducing some of the profligate
for billions of dollars which were
waste in Washington.
used to build up a bureaucracy
Apparently the secretary of
more costly and incompetent than
the treasury, attuned to New Deal
has ever burdened any people in
philosophy, sees no virtue in econ-
the history of the world.
omy and being utterly lacking in
business experience does not even
sense the danger of breaking the
T
ODAY that bureaucracy, even
back of industry and individuals
while the nation is at war
while they are engaged in the
and is being drained of its
greatest production job in the his-
youth and treasure, cynically and
tory of the world.
sneeringly ignores every demand
Democratic Chairman Dough-
for economy while recklessly de-
ton, of the house ways and means
vising new tax measures which are
Regraded Unclassified
205
committee, pointed out this
danger.
the conduct of the British treasury
The incident is one which might
or of the Bank of England, and
well give the country a shiver of
that this highly efficient team
works under the direction of Win-
dread as to possibilities.
ston Churchill, who did an out-
standing job as chancellor of the
I
T SHOULD be borne in mind
exchequer.
that the very treasury officials
who have demonstrated such
an utter lack of judgment are
R
EPRESENTING the United
States in conference, insofar
those who administer the fiscal
as the public knows, there
policies of the United States and
has not been one single individual
are now engaged in conversations
who was ever identified as an ex-
affecting American currency and
perienced or outstanding financier.
our whole position in the postwar
And it is an accepted fact that in
world.
money matters the President is not
Fortunately, in relation to do-
only inexperienced but seems
mestic financial matters the pro-
bored by the whole subject.
posals must be submitted to the
The most tragic aspect of the
congress and there is an opportu-
situation is that the nation has at
nity to examine them before the
its disposal men of worldwide
country is committed. On inter-
reputation and vast experience,
national matters, however, it
but they are either ignored entire-
should be borne in mind that secret
ly or consulted grudgingly because
conferences have been in progress
of political considerations.
for more than a year, in which the
Certainly it is time for the
United States may be committed
American people to demand an ex-
normally, at least, to agreements
planation of why Henry Morgen-
which might spell disaster.
thau Jr. occupies the seat of Alex-
Every person of the slightest
ander Hamilton while Bernard M.
experience knows that the English
Baruch occupies a park bench in
government is represented by men
the city of Washington.
who have achieved distinction in
Regraded Unclassified
206
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
ITORIALS
16/43 - Newark Star-Ledger - Tax Program - The Treasury, under Mr. Morgenthau
has suffered a growing loss of confidence.
Providence Bulletin - How Much Taxes? - The core of the tax problem,
as related to individuals, is to develop some plan for adequately
taxing the whole national income now being paid to them without
economically strangling those whose incomes are virtually the same
as when the national income was half its present size or less.
Regrettably enough, Mr. Morgenthau did not point the way.
Oklahoma City Times - Beware of the Last Straw - If Mr. Morgenthau
had his way, some people, because of state and other taxes, would
have to pay more than 100 percent of their incomes to the tax
gatherers, and if that makes sense, let's hear how.
/7/43 - San Diego Tribune-Sun - Taxes and Election - Morgenthau receives
a verbal trouncing and not without reason. Congress always waves
Morgenthau away with one hand while writing its own tax bill with
the other. However, it does not seem probable that a change in
secretaries would make much difference. Were Fred Vinson to succeed
Morgenthau, as has been suggested in Congress, the White House would
continue to dictate the general outlines of Treasury tax proposals.
1/12/43- Baltimore Sun - Powerful New Support for a Federal Sales Tax -
Vr. Morgenthau pictured the inflation danger and then shirked the
precautions which the danger required.
Regraded Unclassified
207
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
it
COLUMNS
Regraded Unclassified
208
PERSONAL CRITICISM OF SECRETARY MORGENTHAU
ON THE
TREASURY TAX PROGRAM
COLUMNS
10/6/43 - David Lawrence - Henry Morgenthau, Treasury Secretary, is, of course,
an excellent manager of the Treasury Department but until quite recently
he has had a staff which followed the original New Deal practice of
soaking the thrifty and the successful. Mr. Morgenthau has been dele-
gating to his subordinates the responsibility of dealing with Congress.
Taxation should not be a political football and in time of War it is
most regrettable that politics in either the legislative or executive
branch of the government should interfere with the levying of the highest
taxes commensurate with the capacity of business and individuals to pay
such taxes.
Carried by the following newspapers: Washington Star, Phoenix (Ariz.)
Republic, New York Sun, Newark Evening News.
10/8/43 - Arthur Krock - New York Times - Senator George once said the Democratic
concept of law was that it must be written as equitably for the one as
for the ninety-and-nine, and this concept must guide any taxation which
is honest and nonpolitical. But the contrary has been the Treasury's
guide ever since Mr. Morgenthau became Secretary, as the records amply
disclose. An analysis shows that the ideological mentor remains the
same in time of war, despite the fine words uttered during the bond
drive.
10/9/43 - Paul Mallon - Mr. Morgenthau is unpopular with the legislators, but in
a mild way. The Senate and Finance Committee especially is personally
antagonistic. Yet he is regarded as such a close family friend of both
Mr. and Mrs. Roosevelt, that most congressmen would as soon demand the
President's resignation.
Carried by the following newspapers: Newark Star Ledger, Boston Herald,
Cleveland Plain Dealer, Poughkeepsie New Yorker, Philadelphia Inquirer.
10/10/43 - Leslie Gould - While Mr. Morgenthau takes the rap for much that comes
out of the Treasury, the man responsible for the tax programs is a little
ex-Wall Street tax lawyer - Randolph E. Paul.
Carried by the following newspapers: New York Daily News and New York
Journal-American.
10/14/43 - Sylvia Porter - New York Post - Morgenthau walked into this. He virtually
asked for a Congressional attack when he presented a bill with rough edges
50 obvious that even a casual observer could find them.
Regraded Unclassified
209
CRITICISM OF THE TREASURY DEPARTMENT
EDITORIAL COMMENT
Regraded Unclassified
210
CRITICISM OF THE TREASURY DEPARTMENT
DITORIALS
15/43 - N.Y.H.T. - Mr. Morgenthau on Taxes - The fact is that the Treasury
Department, under Mr. Morgenthau, has ceased to determine, or even
constitute the major influence in determining, the nation's tax
policies.
N.Y.World-Tel. - Twenty Two Months Late -
0/6/43 - Newark Star-Ledger - Tax Program - The Treasury, under Mr. Morgenthau,
has suffered a growing loss of confidence. Certainly the Department
has not manifested the vision and leadership the Congress and the
public had the right to expect.
Manchester Union - The New Tax Program - Treasury of ficials appear
unable to think in any other terms than the methods of taxation that
are already employed.
0/9/43 - Milwaukee Sentinel - It should be borne in mind that the very Treasury
officials who have demonstrated such an utter lack of judgment are
those who administer the fiscal policies of the United States and are
now engaged in conversation affecting American Currency and our whole
position in the postwar world. Fortunately, in relation to domestic
financial matters the proposals must be submitted to Congress and
there is an opportunity to examine them before the country is committed.
Regraded Unclassified
211
REACTION TO VINSON'S TESTIMONY
EDITORIAL COMMENT
Regraded Unclassified
212
REACTION TO VINSON'S TESTIMONY
TORIALS
7/7/43 - San Diego Tribune-Sun - Taxes and Election - Congress always waves
Vorgenthau away with one hand while writing its own tax bill with
the other, However, it does not seem probable that a change in
secretaries would make much difference. Were Fred Vinson to suc-
ceed Morgenthau, as has been suggested in Congress, the White House
would continue to dictate the general outlines of Treasury tax
proposals.
N.Y.H.Tribune - Confused Tax Thinking - Judge Fred M. Vinson,
Director of Economic Stabilization, may have helped the cause of
the Treasury's tax program by his personal appearance on its
behalf yesterday before the House Ways and Means Committee, but
he had no better arguments to offer in justification of the measure
than did Mr. Morgenthau.
0/8/43 - Wall Street Journal - A Defeatist Statement - Vinson told the Ways
and Means Committee that he does not believe it possible to hold
the line against inflation if a sales tax is enacted. This news-
paper does not believe that. Furthermore it suggests that anyone
who really does believe it and who is willing to accept and give
way to such a condition comes pretty near a state of mind which
unfits him to hold the office which Judge Vinson does hold. We
venture to suggest that he does not hold the beliefs his statement
implies. He is in the uncomfortable position of having to defend
a tax plan which does not make sense and under the circumstances
it is not difficult to see why he has resorted to forensics in
place of sound reason.
Richmond Times-Dispatch - Sales Tax Alternatives - Mr. Vinson knows
that the tax bill presented by Mr. Morgenthau, and backed by him,
bears most heavily on those with incomes from $5000 to $25,000.
Yet he calls a sales tax, which would drain off the surplus incomes
of those under $5000 "inflationary."! Why does he think it would
be less inflationary if this low-income excess purchasing power
was left practically untouched, while great additional burdens
were piled on elements of the population which, according to
Mr. Vinson's own ally, the Secretary of the Treasury, are not the
chief source of inflation?
Washington Post - Tax to Cure - Judge Vinson came off second best
in his Ways and Means Committee colloquy on taxes with Representative
Knutson.
Regraded Unclassified
213
REACTION TO VINSON'S TESTIMONY
DITORIALS
0/8/43 - Philadelphia Inquirer - Director Vinson on a Hot Spot - While members
of the House Ways and Means Committee generally agree that Mr. Vinson
has done his best to support the Treasury's tottering tax program,
it's not strange they remain unconvinced that it would help to curb
inflation. When asked how the anti-inflation fight would be helped
by the Treasury plan to exempt 23 million persons from any additional
taxes, "he had no ready answer."
Detroit Free Press - Vinson on Taxation - Congress should not, and it
looks now as if it will not, accept the Treasury's blueprint just
because Judge Vinson and other Administration spokesmen say the
Country will go to the dogs if the dot on an "i" or the cross on a
"t" is changed.
Indianapolis Star - Sales Tax the Answer - Mr. Vinson apparently
overlooks the fact that the increased tax proposal, primarily sup-
posed to get the surplus cash of war workers, would bear heavily
on millidas whose income has not kept pace with wages in the munitions
industries. They practically would be asked to pay taxes they cannot
afford.
0/9/43 - Scranton Tribune - Vinson Favors Treasury Tax Plan - Fred M. Vinson,
economic stabilization director, has joined the lists in behalf of
Secretary Morgenthau's new tax program, describing the Treasury
proposal as the minimum fiscal assistance needed to prevent runaway
prices. Vinson viewed the Morgenthau. tax proposal as a bar to
inflation.
1/12/43 - Omaha World-Herald - The Dreadful Truth - Judge Vinson, who is assist-
ant to Stabilization Director Jimmy Byrnes, has been nominated as
front man. So he comes out swinging. The sales tax, he says, would
be bad because it would tax the consumer. It would in fact be
inflationary because it would set in motion a series of demands for
compensatory wage increases which (Judge Vinson implies) the govern-
ment would be unable or unwilling to resist. And that is one of the
strangest arguments of the year.
Regraded Unclassified
214
THE TREASURY TAX PROGRAM
FAVORABLE EDITORIAL COMMENT
Regraded Unclassified
215
THE TREASURY TAX PROGRAM
EDITOMIALS - FAVORABLE
10/5/43 - N.Y.T. - The Treasury Tax Program - Calls tax program courageous
In much detail too, the Treasury deserves to be commended. 3ut the
Treasury proposals will require the closest critical study.
N.Y. Post - Bigger and Better Tax Proposals - We certainly are not
going to boggle over higher taxes. We know they are necessary and we
are glad that this time the Treasury has a definite plan,
Chicago Sun - The Tax Alternatives - There are two good reasons for
a tax program of the magnitude proposed to Congress yesterday by
Secretary Morgenthau. First, we are spending this year 105 billion
dollars, and collecting under the present tax laws only 38 billions.
Second, individuals are receiving income payments totaling 150
Billion, while goods and services available total only 89 billion.
Louisville Times - Not Without Merit - Despite all its harshness
the Treasury's tax plan contains suggestions that merit more serious
consideration than members of the House Ways and Means Committee
seem disposed to give in their haste to reject the program in toto,
Detroit News - Heavier Taxes - Secretary Morgenthau has one
compelling argument in his demand for higher taxes - the fact
that millions of people still have money to spend on unnecessaries,
and do so spend it. His problem is to get as much as possible of
that "loose" money for the Government, for the conduct of the war.
The difficulty is that to get a good deal of it, he will also have
to hit plenty of people whose incomes are not going into luxuries
or unneeded goods.
Cincinnati Enquirer - Principle for Taxation - The administration is
taking action which has been too long delayed in advocating & tax
program which is in closer relationship to the actualities of war
than have been in our past efforts.
St. Paul Pioneer Press - The Treasury's plan for new taxation, steep
as it is, does not exceed the requirements of sound finance, out
probably does run well beyond what Congress is willing to vote this
year.
Cleveland News - The New Tax Bill - The administration has produced
its tax bill recommendations. Congress ought to lose no time in
starting them through the legislative mill. The taxpayer is
entitled to know as soon as possible what is going to happen to
him in 1943.
Miami News - Unbearable Taxes - The man who goes into the Army after
making any of the above incomes in civilian life has his income cut
to 350 a month. Do the congressmen still say the taxes outlined
cannot be borne by the American Public?
Regraded Unclassified
THE TREASURY TAX PROGRAM
p.2.
216
ITORIALS - FAVORABLE
10/5/43 - EL Paso Times - Higher, Higher Taxes - The American people might as
well make up their minds that the cost of this war is going to be
tremendous and that they will have to pay the bill. Higher and
higher taxes in all forms may be expected.
Birmingham News - The Tax Issue - There is no doubt that sound pro-
cedure, with respect both to the nation's financial position and to
control of prices, calls for additional levies against the greatly
increased income of the American people.
Providence Journal - As to interfering with war production as little
as possible, it can only be said that both corporate industry and
individual citizens long since recognized that burdensome taxes are
a natural part of war. What they ask of the Government is that the
money raised will not be wastefully spent.
10/6/43 - Portland Oregon Journal - Congress Is Still Out of Step with the
Nation on War Taxes - Congress has yet to prove, when it comes to
taxes, that it has caught up with the country, which, all along has
been more willing to buy, pay and give than vote-conscious legisla-
tors have thought possible.
Atlanta Constitution - Spreading the Cost - Large segments of the
population are already burdened about as close to the limit as pos-
sible without causing wide-spread suffering and economic breakdown.
Nevertheless, there is no American worthy of the name who is not
prepared to meet any sacrifice necessary for the winning of the war,
If higher taxes are imposed they will, somehow, be paid.
10/7/43 - El Paso Times - Lives Better Than Taxes - Taber's statement sounds
more like Republican doctrine than a winning war doctrine. Being
practically unversed in painting an entire picture of the required
tax structure, we will sign off with the admonition that it is pre-
ferable to pay taxes in dollars rather than in men in uniform.
Regraded Unclassified
217
THE TREASURY TAX PROGRAM
GENERAL EDITORIAL COMMENT
Regraded Unclassified
218
THE TREASURY TAX PROGRAM
DITORIALS - GENERAL
0/5/43 - W.S.J. - The Treasury Tax Plans - The Treasury program appears to this
newspaper to be a mixture of good and bad proposals.
Houston Chronicle and Herald - Treasury Tax Program - While there
probably will be no such long drawn-out and bitter battle over the
Treasury's tax program as occurred when the most recent revenue measure
was complicated by the fight over the pay-as-you-go principle, a lengthy
and rocky road no doubt lies ahead of the administration proposal.
Indications thus far have been that Congress may not agree to increases
totaling more than $5,000,000,000, or approximately half of the Treasury
goal.
Buffalo Courier Express - New Taxes and Foxholes - No matter what at-
titude one takes toward these proposed new taxes, they are not conducive
in themselves to happiness. They sting like an adder. But, there is no
getting away from the fact that the war must be financed and that excess
purchasing power must be siphoned off to prevent runaway inflation and
ruin for all.
Detroit News - Low Incomes Hit Hardest - Morgenthau urges heste in
strengthening the Treasury to meet the huge war costs. While we agree
that there should be all possible haste, we foresee a justified struggle
perhaps continuing into 1944 before a tax bill of this type is enacted.
St. Louis Star-Times - New War Taxes - In other words, Congress had
better make up its mind to face the inescapable--to collect the money
from those who have it, to collect it fairly, and to eliminate waste
so that it will not have to collect a penny more than is necessary.
0/6/43 - Los Angeles Times - Doughton Takes Snap Judgment on Tax Program - The
details, rather than the over-all productivity, of the Treasury plan,
should be the subject of criticism.
Sioux Falls Argus Leader - Higher Taxes - Fault may be found wi th some
of the specific details of the new tax program but no one can say with
logic that the goal is too high. If anything, it is too low.
0/7/43 - Little Rock Arkansas Democrat - Four Billion-Dollar Economy - The American
people have given evidence that they are willing to pay anything within
reason to help win the war. But that hasn't carried assurance that they
will stand for an orgy of spending, even though the money might come out
of a supposed "surplus." Congress knows that, Furthermore, it knows
there is an election next year. We shall wait and see what happens.
Regraded Unclassified
219
2.
THE TREASURY TAX PROGRAM
DITORIALS - GENERAL
1/7/43 - Raleigh News & Observer - The Income and the Out-go - The income mist
be increased, but the outgo should not be neglected. Every dollar of
taxation that is used unwisely and extravagantly is indefensible and
wrong. But nothing but eternal vigilance will reduce expenditures and
thus reduce taxation.
/10/43- Milwaukee Journal - Taxes and General Policy - The important thing for
Congress to do at this time is to consider our whole fiscal policy and
to make sure that only helpful and practical changes are made.
Regraded Unclassified
220
THE TREASURY TAX PROGRAM
UNFAVORABLE EDITORIAL COMMENT
Regraded Unclassified
THE TREASURY TAX PROGRAM
221
RIALS - UNFAVORABLE
5/43 - Wash. Post - The taxes suggested by Secretary Morgenthau can be more
accurately described as "mild," "moderate" and "inadequate." Citizens
who are called upon only to pay these taxes ought to realize that the
sacrifice they are making is, comparatively speaking, a privilege.
N.Y.H.T. - Mr. Morgenthau on Taxes - The newest Treasury proposals will
do little to increase its prestige in the field of revenue legislation.
J. of C. - An Income Redistribution Program - Adoption of the Treasury's
latest proposals would set a precedent for EO far-reaching an extension
of the progressive principle that it would cause deep concern to those
who fear for the future of private enterprise system and profit motive.
N.Y.World-Tel. - Twenty Two Months Late - So far as revenue is concerned
and 50 far as the impact upon individual taxpayers is concerned, there
is not a thing which the Treasury proposed yesterday which might just as
well have been proposed on the day after Pearl Harbor. And with much
better prospects of enactment. Twenty-two months have passed while the
Treasury has dawdled. Millions of taxpayers have profited from the war
boom. But millions of others, whose incomes have not increased one
dime, face a grim prospect. There is the tragedy: The absence of
a realistic fiscal policy has made it all the harder for taxpayers of
fixed incomes. There is one gleam of hope - that Congress will write
its own ticket. Carried by the following newspapers: N.Y.W.T., El Paso
Herald Post, Houston Press, Memphis Press Scimitar, Birmingham Post,
San Francisco News, Albuquerque Tribune, Pittsburgh Press, Cincinnati
Post, Cleveland Press.
Albuquerque Journal - Stiffer Taxes - The Treasury proposal probably
faces revision downward.
Seattle Times - Country Confident Congress Will Keep Lid on War Taxes -
Immediate reactions to the plan of Secretary Morgenthau to raise 102 bil-
lion more a year in wartime taxes, are such as to suggest that Congress
isn't likely to adhere strictly to the lines Mr. Morgenthau has laid
down. Congress, we may be sure, will provide all that is necessary. The
spread of the additional load, however, calls for 8 degree of discrimina-
tion to avoid injustice and an adverse effect upon the whole domestic
economy.
New Haven Register - Icy Reception - The need for large revenues and for
prudent inflation-deterring measures is plain. It ought to be just as
plain, however, that the country will be just as far behind in the long
run, and farther, if taxing is extended into confiscation and the result
is industrial paralysis. It ought to be just as plain, also, that
demoralization in family budgeting is just as evil when caused by steepar
tax increases than can be borne when there has been no rise in income, as
when caused by inflation.
Regraded Unclassified
222
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
1/5/43 - New Haven Register (cont'd) - Together with its sprinkling of financial
hypocrisy in the form of "refunds" which can be refunded only through
taxes anyway and "paid-up life insurance" which of course would have to
be paid all over again over the years, the Treasury program well deserves
the going-over which the House committee evidently is about to give it.
muffalo Evening News - The Treasury's Tax Program - From the immediate
reaction in Congress to the Treasury's 10 billion program for additional
taxes, it is apparent that the proposals, calling for the stiffest tax
levies in our history on incomes and luxury consumption articles, is
unacceptable. The feeling in Congress is that income taxes have reached
the point of diminishing returns in the upper brackets and a point where
further general increases would work social and economic inequalities in
the middle and lower brackets.
Columbus Evening Dispatch - The Power to Tax - New Deal Subverts It -
Congress can serve the nation well if, in devising a federal tax bill,
it devises one to raise money for the prosecution of the war and the
operation of necessary federal functions of government, and eliminates
any tendency in the bill to raise money for reforms which are purely
New Deal of purposes which obviously are political.
Columbus State Journal - Honest Tax Bill Needed - The need an honest
straightforward tax bill. It should speak plainly and be simple.
Proper authorities should set the amount we have to pay, tell us exactly
what it is, do away with the confusing and complicated types of tax
forms we had to fill out last Sept. 15, and let it go at that. The
people will pay necessary tax levies. They will pay quicker and with
a great deal less reluctance if they know where they stand and what
they are paying. The political and economic chicanery being practiced
in Washington smells to high heaven.
Cincinnati Times Star - Mr. Morgenthau's "Cold, Hard Facts" - The cold
cold hard fact of the Morgenthau program is that it would not only
annihilate the wealthy but would also annihilate the middle class, the
most numerous class of people in the country. These are the people
who, by and large, have not profited at all from the war, whose saving
habits and whose enterprise in the professions, in white-collar jobs,
in little businesses and on small farms, have made them, in a peculier
sense, the backbone of America.
Mr. Morgenthau would not dare to offer such an inequitable tax plan
if the American middle class knew what was happening to it. But Congress
cares about the future of average Americans even if the Administration
does not. "ith a promptness and vigor unique in our history, Representa-
tive Doughton has denounced the program as unreaschable, unbearable and
unfair. This Congress will not permit the needs of war finance to be
made an excuse for overturning the free economy of the United States.
Regraded Unclassified
223
THE TREASURY TAX PROGRAM
TORIALS - INFAVORABLE
15/43 - Nashville Banner L Keep Politics Out - There is not, we have said and
we repest, room in a tax bill for vote pendering, or for cutely contriv-
ing to play the "haves" against the "have-nots." The very idea of that
is repulsive, and endangers that unity of effort, unity of sacrifice,
unity of burden-bearing on which victory depends, to say nothing of that
individual and national self-respect which alone will make victory
worthwhile.
San Francisco Chronicle - Taxes and Candor - What we do object to is
dealing the cards off the bottom of the pack; trying to pretend that
taxes are not taxes, and setting up a mumbo jumbo of equivocation. We
know taxes have to be raised, but we are utterly opposed to letting
this necessity be used to put the social schemes of zealots over on us,
and we should like to see the Secretary of the Treasury deal with this
necessity as squarely as the citizens have to meet it.
Wilmington Journal-Every-Evening - Indefensible Is the Word for It -
Chairman Doughton is guilty of no extravagance of statement when he
characterizes Secretary Morgenthau's new tax program as "indefensible."
It is indefensible because it would lay upon the backs of the people
of this generation a burden which they could not bear without extreme
suffering. It is indefensible because it would weaken the national
morale and tend to destroy individual and corporate initiative. It is
indefensible because, through its failure to include a sales tax, it
ignores and rejects the experience of every other nation at war.
Cleveland Plain Dealer - Back to Taxes - It is indeed a sad commentary
on the financial leadership of the country, with expenditures for the
current year estimated at 109 billions, and tax revenues somewhat below
40 billions, that serious consideration of a revenue program that will
more adequately meet the costs of the war should be delayed until the
last quarter of the year. Even worse is the fact that the program of
taxation recommended by the Secretary of the Treasury contains nothing
new.
St. Louis Globe-Democrat - Belt-Tightening Tax Plan - Whatever measures
Congress sets up for passage should be most carefully framed. With heavy
taxation already scraping bottom in some categories, further levies de-
mand extreme caution to prevent injustices and a tax saturation that
would imperil production.
Kansas City Star - Taxes - How Much and What Kind - As to ability, the
Treasury, like mo st Washington spokesmen, greatly overestimates the
surplus cash from national income.
Milwaukee Journal - The Treasury Tax Plan - The Treasury seems to forget
that many states also have income taxes and that in 1944 the taxpayer
will be required to pay 123% of his 1942 tax.
Regraded Unclassified
224
THE TREASURY TAX PROGRAM
DORIALS - UNFAVORABLE
15/43 - Phoenix Republic - Congress Must Determine How Far It Can Go in Added
Taxation - Congress must solve a problem which apparently doesn't concern
tax experts of the Treasury Department. It must determine the point of
saturation beyond which it cannot go without breaking down the domestic
economy of the nation.
Detroit News - Low Incomes Hit Hardest - The additional tax on corporations
is sought notwithstanding that many businesses are finding it impossible
under their present taxes to amass reserves they will need to finance con-
versions to postwar conditions. Morgenthau urges haste in strengthening
the Treasury to meet the huge war costs. While we agree that there should
be all possible haste, we foresee a justified struggle perhaps continuing
into 1944 before a tax bill of this type is enacted.
St. Louis Star-Times - New War Taxes - Last year Congress spread the in-
come tax to everybody receiving $600 or more a year. It is obvious, in
the light of wartime living expenses, bond purchases and the like, that
there is no sense of adding very much to the rates on the lower-bracket
incomes. People in these groups simply do not have the money to pay.
16/43 - Miami Herald - Sales Tax Solution - How drastic the proposed measure is
can be best judged from the opposition of Chairman Doughton. With both
Democrats and Republicans condemning the measure and the sentiment of
the Senate already reflected in Finance Chairman Walter F. George's
declaration that the Treasury's goals are too high, the Treasury's tax
plan is apparently doomed.
Denver Rocky Mountain News - Twenty-two months Late.
Cincinnati Post - Saving 10 Billions - If Mr. Morgenthau were thinking
in terms of taxes for revenue instead of taxes for politics, he would
frame a tax program to fit the market-to get the revenue where the
money is. Wouldn't it be a good idea for the committee on ways and means,
considering the 101 billion new taxes, to resolve itself into a committee
on ways and means of not wasting 10 billions?
Carried by the following newspapers: Cincinnati Post, Albuquerque Tribune,
El Paso Herald-Post, Houston Press, Birmingham Post, Memphis Press-Scimitar,
Columbus Citizen, Pittsburgh Press.
Newark Star-Ledger - Tax Program - Almost invariably submission of a tax
program by the Treasury Department in recent years has been immediately
provocative of protest and opposition. The Treasury, under Mr. Morgenthau
has suffered a growing loss of confidence.
Detroit Free Press - Wholly Indefensible - The Ways and Means Committee
will write the next tax bill. Secretary Morgenthau's suggestions are not
very helpful. They fail to face realities. Congress should face reality
even if the Administration won't.
Regraded Unclassified
225
THE TREASURY TAX PROGRAM
ITORIALS - UNFAVORABLE
16/43 - Oklahoma City Times - Seware of the Last Straw - Why not have some govern-
ment economy, already badly overdue, instead of the never-ending assault
on the taxpayer.
Indianapolis Star - Tax Bill Inequalities - The position taken by Chairman
Doughton of the House Ways and Means Committee on the proposal of another
Federal tax increase totaling 101 billion is much more realistic than that
of Secretary Morgenthau of the Treasury Department. In the effort to get
at the swollen incomes of one class the proposed tax increase would
seriously penalize those who already are paying a burdensome percentage of
normal incomes.
Tallas News - Heavier Taxes - There has been a tremendous waste of money.
Some of it was unavoidable because of the greatest speed that has been
necessary in the building of the war machine. But this does not mean that
improvements cannot be made. It is obvious that we cannot go on very long
maintaining the 100 billion dollars a year national budget without resort-
ing to totalitarian control of the national economy.
San Antonio Express - Still Clumsily Evading a Federal Sales Tax -
Mr. Doughton is right. Though one sees virtually no limit to the
Government's war needs, there is an obvious limit to the masses'
ability to pay. The citizen is willing, no doubt; but there is such
a thing as riding a willing horse to death.
Kansas City Times - A Tax Principle to Follow - The fact is that the
Treasury or administration bill is extreme to the point of impossibility
and violates the principle of "equitable" taxes which its framers assume
they are applying. For it fails to spread out the program to all in
proportion to ability to pay.
Seattle Times - Mr. Morgenthau in Need of Arithmetic Lessons - It is easy
to understand that Congress will completely by-pass the Treasury proposal
and will enact a tax bill more in accord with the actual necessities of
the case and with the ability of the people to pay.
Utica Observer-Dispatch - Tax Bill Slapped Down - Nobody wants to shirk
a war duty and everybody should desire to back the attack with all possible
dollars. The Treasury, however, hasn't gone at the job the right way, or
used judgment on the amounts to be levied. It's unfortunate the Treasury
has wasted time on this sort of bill.
Arkansas Gazette - Democracy Asserts Itself on Taxation - It is heartening Means
to democracy in action at Washington. We have seen the "ays and in all
Committee see of the House, which. represents the people and holds, as
Anglo-Saxon government, control over the public purse, virtually rejecting
the oppressive tax bill proposed by the Roosevelt administration.
Regraded Unclassified
226
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
/6/43 - New Haven Register - As Good As Taxing - Instead of trying to figure out
ways in which to tax the people more, U.S. Representative Taber, of
New York, proposes to get rid of the cause of some of the taxing. Saving
is just as good as taxing.
New Haven Journal Courier - Treasury's Tax Proposals Call for Congressional
Scrutiny - It is entirely possible that Congress will add to the taxes pay-
able in 1944, but if it does, it is likely to write its own revenue
measure. This latest Treasury plan hasn't aroused the enthusiasm of the
Ways and Means Committee, and it isn't probable that it will enlist much
support in the country.
Milwaukee Journal - Is the Treasury Blind - The people of the country,
whatever their opinion of Congressional perspicacity in other directions,
will join Congress in this particular protest. So far as they have ex-
amined the plan, they just cannot understand what Mr. Morgenthau and his
assistants were thinking of when they conceived it. When will the Treasury
stop pretending that conditions are normal though needs are increased?
Philadelphia Inquirer - Because There's No Ruml Plan - In asking for six
and a half billion dollars of additional revenue from individual income
taxes, Secretary Morgenthau made no mention of the 12 percent extra levy
to be imposed on 39,000,000 taxpayers next March 15, which is to be re-
peated on the corresponding date in 1945. Congress should think twice
before approving the Treasury's enormous program as it stands.
Philadelphia Record - Treasury Tax Plan Meets a Welcome Demise - The
Treasury's proposal has apparently died a-borning. Most taxpayers will
welcome the forthright opposition of Chairman Doughton. "Any benefit
which might arise from the effect of the Treasury's plan in curbing in-
flation would be more than offset by such unbearable increased burdens,
which may well have a tendency to break down the morale of the taxpayer."
In short there's a limit to what the citizen can pay in taxes and still
pay his bills.
Jersey Observer - Administration's Astronomical Tax Proposal - What the
country needs at this time is a drastic curb on governmental spending,
otherwise we shall soon reach the point where we shall find the pocket-
books in America as bare as Mother Hubbard's cupboard.
Wash. Times-Herald - How About Some Economies - Taxes and war bond contri-
butions are biting now into virtually everybody. Isn't it conceivable
that a lot of people would welcome some genuine gestures of forcing some
Government economies?
Also carried by N.Y. Daily News.
Regraded Unclassified
227
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
16/43 - Nashville Tennessean - There Are Limits - Already, the people are digging
down into their pockets to finance the war, and it must be said that they
are doing this with a minimum of complaint. They are ready to do more,
but they are not prepared for a stratospheric rise, along the whole line.
Cincinnati Enquirer - Mr. Doughton Speaks Out - No tax, however necessary
the income it might bring, can accomplish any worthy purpose if, by its
very nature, it strikes at the heart of the economy which our soldiers
are fighting to protect. Excessive levies, such as suggested by
Vr. Morgenthau, would do much to kill completely in America the spirit of
individual enterprise and the principle of industrial order through
profit system.
Poughkeepsie New Yorker - New Taxes - The problem facing the country today
is not 50 much income as it is spending. Since that is so, why not direct
corrective measures at the latter?
Boston Globe - Taxes, Taxes - It seems 88 if we were just recovering from
one tax headache, and here is another.. Ead news any way we look at it.
Butte Standard - New Taxes Would Hit Where It Hurts - The Morgenthau tax
should remove the threat of inflation in the higher paid war production
industries, but at the same time it would come as a crushing blow to the
middle class, the professional man, the salary workers, and the white
collar class.
Manchester Union - The New Tax Program - One would wish that the Treasury
would show a little more ingenuity in devising methods of raising this
volume of taxes.
7/43 - Wall Street Journal - Taxes and Lending - Indeed its deficiencies are so
glaring that Congress will have none of it and Washington dispatches
question whether the Secretary himself did not entertain unexpressed
reservations.
Cleveland Press - Why Not Save 10g Billions?
Carried by Cleveland Press, Rocky Mountain News, Fort Worth Press.
Indianapolis Times - Twenty Two Months Late.
N.Y.World-Tel. - Not Even Smart Politics - The deeper the Ways and Means
Committee delves into the Treasury's Tax program, the more obvious it
becomes that the measure was not designed primarily to raise revenue or
curb inflation but to get votes.
Carried by the following newspapers: N.Y.W.T., Pittsburgh Press,
Houston Press.
San Diego Tribune-Sun - Taxes and Elections - Apparently neither Congress
nor the Administration is forgetting that 1944 is an election year, and the
prospects of a tough but fair tax bill are accordingly rather dismal.
Regraded Unclassified
228
THE TREASURY TAX PROGRAM
YORIALS - UNFAVORABLE
17/43 - Philadelphia Inquirer - Economy Before Higher Taxes - Representative
Taber's economy program, which includes Navy yards, barracks and
military posts as well as numerous independent agencies, may be too
sweeping. But if only half the savings he outlines could be effected,
the morale of millions of taxpayers, now facing the future with fear
and forebodings, would be materially strengthened.
Miami Herald - Sales Tax Solution - There is no question about the
American people's willingness to sacrifice everything for victory. The
proposed Administration bill mistakes willingness for ability to pay.
Fort Worth Press - Sales Tax Support - Objections are evident against
the Treasury tax plan and against a flat sales levy of 10 per cent.
Both are evidence of inexpertness which is ill-befitting the war and
the necessity of financing it and averting inflation.
St. Louis Star-Times - Time and Taxes - The politicians-for their own
sakes-ought to consider whether keeping the voters on tenter-hooks may
not be as costly at the polls as breaking bad news cleanly and promptly.
And, further, they had better find ways of eliminating the waste which
makes tax rates inordinately high rather than ways of camouflaging the
burden by postponing part of it.
El Paso Herald-Post - New Move for Economy - Economies in the Army and
Navy are just as useful to the taxpayers as economies in the civil
functions of the Government. And economies anywhere in the Government
are quite as effective as new taxes in the same amount.
New York Daily Mirror - True to Form - The Congress, in revolt against
it, recognizes the program for just what it is. Another timid and
paradoxical attempt to meet an emergency by avoiding the issue.
San Antonio Evening News - Tax Framers' Choice - If they would avoid
lowering living-standards to a dangerous minimum even for wartime-
when the people naturally expect and prepare for privations--thereby
undermining civilian morale, the revenue bill-framers at Washington
will go slowly as to increasing income taxes. In fact the saturation-
point is about reached in all brackets.
Atlanta Constitution - Federal Sales Tax - The American wage earners
cannot well stand another withholding tax or additional "victory taxes."
There are millions whose salaries have not gone up along with those in
war plants because their businesses were not enjoying war contracts
and profits.
Kansas City Star - Save More and Tax Less - Taxpayers should demand
economy in the Government before another huge tax bill is laid on
their backs.
Regraded Unclassified
229
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
1/7/43 - San Antonio Express - Federal Economy: More Power to Byrd, Taber, et al -
To be sure, a nation at war cannot pinch pennies, but it need not throw
away money excessively on contracts and the like.
Cincinnati Times Star - How About the Middle Class - There has been a con-
siderable increase in the cost of living and a tremendous increase in the
burden of taxation. The middle class has often been called the back-bone
of America. If things continue as they have been going, America will have
to get on without that backbone before long.
Cincinnati Enquirer - Postwar Cash Reserves - Te would suggest a middle
course which takes into consideration both these important factors. Law-
makers must not devote so much of the new program to current income that
they build bleak and barren depression years ahead. Industry must bear
its fair share of the immediate tax load, but to dip too deeply into the
financial blood of our industrial structure would be a most unwise and
short-sighted move.
N.Y.H.Tribune - Confused Tax Thinking - The weakness of Mr. Morgenthau's
program, in short, is that it is an economic anachronism. It has just
about as much relation to the 1943 economic scene as a policy of drastic
disarmament would have as an expression of 1943 military policy.
New Orleans Item - Stop This Waste - Winning the war is not enough. We
must win it and stay solvent. To defeat our enemies is not enough if we
impoverish ourselves and go down with them to all the miseries and dis-
orders that national penury begets.
0/8/43 - Little Rock Gazette - Closing That $4,000,000,000 Gap - By the simplest
arithmetic we see that a saving of $4,000,000,000 would close the gap
between the $10,000,000,000 Mr. Morgenthau and Mr. Roosevelt are de-
manding and the $6,000,000,000 that Congress spokesmen say is all the
new tax bill should attempt to raise.
Washington Post - Tax to Cure - There is no alternative, it seems to us,
but to put a brake on this spending and mop up the dangerous money by
means of a general sales tax. As far back as January 5, 1942, the
President himself envisaged such a levy as a temporary wartime necessity.
Yet nearly two years later the Treasury still is unable to shed business-
as-usual idea in tax policy.
N.Y.Times - What Limit to Taxes - The Treasury has been squeezing close
to the last drop of revenue out of the highest incomes. Any assumption
that increased rates will bring proportional revenues must be seriously
challenged.
Memphis Press-Scimitar - Not Even Smart Politics -
Fort Worth Press - Twenty Two Months Late -
Regraded Unclassified
10.
230
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
18/43 - New Orleans States - Accept His Offer - Representative Taber's implied
offer to point out how expenses could be reduced 4 billion should be
accepted with alacrity. Let economies be effected before the new tax
measure is drawn.
Indianapolis Star - Sales Tax the Answer - Mr. Vinson apparently over-
looks the fact that the increased tax proposal, primarily supposed to
get the surplus cash of war workers, would bear heavily on millions
whose income has not kept pace with wages in the munitions industries.
They practically would be asked to pay taxes they cannot afford.
Dallas Morning News - Slash in Spending - There will certainly be no
handicap in ability to contend that the war was maintained in full
speed on reduced expenditures.
Syracuse Herald Journal - Treasury Tax Proposals Should Be Killed -
High taxes are an inevitable concomitant of modern war. - But not even
the American people with all their genius have yet been able to perfect
a system in which they can pay taxes that exceed their earnings.
Philadelphia Inquirer - Director Vinson on a Hot Spot - The natural
conclusion is that the Government should "go where the money is" and
tax proportionately the possessors of this four-fifths of the income.
But instead of pursuing that sound policy, the Treasury has proposed
to lay the heaviest burden on one-fifth of the income and on the per-
sons whose spending has the least effect in causing inflation.
Carried by the Cincinnati Enquirer.
Omaha World-Herald - The Treasury Plan - It is not unreasonable to con-
clude that this is more than the result of the Treasury tax plan. It
is deliberately intended for a purpose. That purpose is to reduce, as
drastically as is at all practical, private sources of capital for in-
vestment in industry and commerce. From that would follow, necessarily,
the eventual elimination of private enterprise. That is the goal toward
which many of the bright boys in Washington have been directing their
efforts ever since 1933.
Cincinnati Inquirer - Let's Cut the Budget - We agree with Mr. Taber
that costs must be out if we are to head-off national bankruptcy and
chaos.
Fargo Forum - Taxes and Policy - It is necessary to do more than lay
additional taxation, since the debt will be stupendous in any event.
We must know whether we intend to have prudent management or follow
the no-limit theory. Certainly, we should get on as solid ground as
we can as quickly as we can.
Regraded Unclassified
231
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
18/43 - Detroit Free Press - Vinson on Taxation - Congress should not, and it
looks now as if it will not, accept Judge Vinson and other administra-
tion spokesmen say that the Country will go to the dogs if the dot on
an "i" or the cross on a "t" is changed.
Cleveland Plain Dealer - Why Congress Balks - The sad truth of the
matter is that Congress does not have, and the nation as a whole does
not have, much confidence in the Secretary of the Treasury and his
present advisers. In both matters of taxation and in public borrowing
they lend their support to measures and policies which bear much less
relation whatever to total war than they do to the political considera-
tions which 80 profoundly affect public finance.
19/43 - E1 Paso Herald Post - Poor Politics -
Vilwaukee Sentinel - Repudiation of Administration - Certainly it is
time for the American people to demand an explanation of why Henry
Morgenthau, Jr. occupies the seat of Alexander Hamilton while Mr.
Bernard Baruch occupies a park bench in the city of Washington. (Also
carried by the following newspapers: San Francisco Examiner,
Los Angeles Examiner, New York Journal American.)
New York Daily News - The Tax Fight - For our part, we think several
of Morgenthau's proposals are foolish; and we don't like the manner of
their presentation to Congress. Revenue bills, according to the
Constitution, are to originate in the House. The proper function of
the Treasury Department, if it is to be heard from at all when the
House is considering a revenue bill, is to advise and furnish statistics.
Boston Traveler - Treasury Tax Plans - Congress has been writing the
tax bills and apparently intends to continue doing so.
Charlotte Observer - An Exception Noted - Some scheme should be devised
by which the government would get most of its new revenue from those
groups who are immune from the repressions and restrictions imposed
upon the frozen-income bloc whose tax burdens have already reached
back-breaking weight.
N.Y.W.Tel. - The New Move for Economy - Economies in the Army and Navy
are just as useful to the taxpayers as economies in the civil functions
of the government. And economies anywhere in the government are quite
as effective as new taxes in the same amount.
N.Y.Sun - Taxes and Politics - It may be asking a lot of Congress and
of the Administration to ask them to forget politics and write a tax
bill. It may be expecting a lot to expect the American people to insist
that a realistic tax bill be written. But it is neither asking nor
expecting more than the situation demands.
Regraded Unclassified
232
12.
THE TREASURY TAX PROGRAM
TORIALS - UNFAVORABLE
/10/43 - Cincinnati Enquirer - Base for a Tax Program - Let's cut out the b11-
lions of dollars in unessential spending first, Then we can find
exactly where we stand. We can build a sane, sound taxation program
on that foundation.
Washington Star - Tax Fantasy - It probably will not happen, hut just
in case the Administration's newest revenue program should be adopted
by Congress without a change, we shall see the poor, underprivileged
rich walking around the streets dressed not in fine clothes but in
barrels.
Philadelphia Inquirer - The Answer to the Tax Problem - The Treasury's
specific program has been weighed and found wanting. Except for the
staggering amount of revenue demanded, it seemed to have been framed
for peacetime, without regard for special wartime conditions.
Charlotte Observer - New Taxes and Federal Economies - It is the busi-
ness of the Congress, in its consideration of the new tax bill, to
explore every possibility of intelligent economy that can be made and
then to have the courage to face the issue fairly and squarely and
gauge its final action accordingly.
11/43 - Chicago Sun - Needless Tax Wrangle - The Secretary might just as well
make up his mind that the House, not he, is going to frame the tax
policy, and act accordingly.
Boston Traveler - Taxes Are Already Up - In asking for a ten per cent
rise in the income tax rate, has Mr. Morgenthau forgotten the joker
in the withholding tax system? Only seventy-five per cent of the past
year's tax was "forgiven."
12/43 - Omaha World-Herald - The Dreadful Truth - Still of ficial Washington
refuses to face the dreadful truth. The dreadful truth which is that
the people will be obliged to pay for this war out of their own
standard of living.
Boston Daily Record - Why Do We Tolerate Incompetency - or - Repudiation
of the Administration.
Also carried by San Antonio Light.
Memphis Tenn. Commercial Appeal - Secretary Morgenthau now appeals to
Congress with a tax plan which is not only economically reprehensible
but politically vicious.
Regraded Unclassified
233
THE TREASURY TAX PROGRAM
COLUMNS
Regraded Unclassified
234
THE TREASURY TAX PROGRAM
COLUMNS
10/4/43 - Sylvia Porter - New York Post - Unquestionably there'll be a terrific
amount of opposition from our vote conscious legislators and the big
insurance companies to the Administration's tax bill introduced into
Congress today.
10/5/43 - Sylvia Porter - New York Post - Even a casual study of the bill sub-
mitted by the Treasury to the House Ways and Means Committee reveals
its hodge-podge aspects.
Leslie Gould - New York Journal-American - If the schedules proposed by
Mr. Morgenthau yesterday are enforced, the white collar class which is
not sharing in this war boom had better get ready to peddle apples.
For they are on the way out. They are being liquidated as surely as
they were in that revolution that made comrade Stalin.
10/6/43 - Danton Walker - Washington Times-Herald - Tax recommendations have
become so snarled up between Marriner Eccles, Vinson and Morgenthau
that Barney Baruch may have another headmaster's task on his hands.
David Lawrence - The Treasury makes its own studies and keeps its own
figures, works them up in estimates, which are held for release at a
given time, and then a program is announced which, on its face, is
unscientific, and therefore has the effect of producing alarm, if not
confusion, in the economic world.
Carried by the following newspapers: Washington Star, New York Sun,
Newark News.
10/7/43 - Paul Mallon - The Congressional committee attitude is not hard to explain.
The Morgenthau plan seemed to lack a convincing ring of either sense or
security. Indeed, it appeared to have only a feeble political justifi-
cation.
Carried by the following newspapers: New York Journal-American, Syracuse
Herald-Journal, Boston Herald, Chicago Herald-American, Birmingham News,
Memphis Commercial Appeal, Little Rock Arkansas Democrat, San Francisco
Examiner, Seattle Post Intelligencer, New Orleans Item, Fargo Forum,
Omaha World-Herald, New York Daily News, Butte Standard.
Walter Lippmann - What is lacking in the Treasury tax program is a con-
vincing and intelligible explanation of the problem which it is designed
to deal with. The program cannot be supported effectively or criticized
constructively until there is a general understanding and agreement on
what we are trying to do and why.
Carried by the following newspapers: New York Herald Tribune, Washington
Post, New Orleans Times-Picayune, Los Angeles Times, Memphis Commercial
Appeal, Chicago Sun.
Regraded Unclassified
p.2
235
THE TREASURY TAX PROGRAM
COLUMNS
10/7/43 - Raymond Clapper - Both the Administration and Congress are doing some
politicking with the new tax program and it is important not to allow
outselves to be deceived by any of this.
Carried by the following newspapers: Washington News, New York World-
Telegram, Syracuse Herald-Journal, Boston Traveler, Chicago Times,
Kansas City Star, St. Louis Star-Times, Minnespolis Star Journal,
Memphis Press-Scimitar, Albuquerque Tribune, Fort Worth Press, Oklahoma
City Oklahoman, Charleston News & Courier, New Orleans Times-Picayune,
Fargo Forum.
10/8/43 - Ernest Lindley - The bias of the Treasury and the weakness of Congress
combine to frustrate the prospects of getting taxation that is compre-
hensive and tough, that imposes the hardships which a great majority
of civilians are doubtless willing to bear-so long as they feel that
all are sharing alike--and narrows the disparity between the contribution
of those who are in the armed forces and those who work at home.
Carried by the following newspapers: Washington Post, Newark Star-Ledger,
Brooklyn Eagle.
Leslie Gould - New York Journal-American - The man most responsible for
the Treasury's new income program is a little lawyer out of Wall Street
by the name of Randolph E. Paul. There must be something the matter
with the air of the Wall Street law offices, for it is hard to see how
any man who knows anything about business could draw up such a tax
program. It isn't a tax program. It's a social reform.
Arthur Krock - New York Times - As the plan has been subjected more and
more to analysis-by members of Congressional committees, by commentators
who hoped the Treasury was turning over a new leaf by the public-the
familiar outlines of politics and social-economic "ref "rm" via taxation
route have again emerged.
10/10/43 - Leslie Gould - It is one of the trickiest and most deceptive pieces of
figuring attempted in Washington. It is so flagrantly a reform measure,
that even such an all out New Deal Congressman as Doughton squawked.
Carried by the New York Daily News and New York Journal-American.
10/11/43 - Paul Mallon - Sub-surface evidence also indicates the Treasury tax
program was not a personal Morgenthau opus, Most congressmen fervently
suspect Mr. Roosevelt had as much of a hand in it as anyone else.
Carried by the following newspapers: Newark Star-Ledger, Boston Herald,
Cleveland Plain Dealer, Poughkeepsie New Yorker, Philadelphia Inquirer.
Frank R. Kent - The sad truth is that the Administration's war time
financial leadership is political, hypocritical, hollow, unsound and
inadequate. It reflects credit upon neither the President nor
Mr. Morgenthau.
Carried by the following newspapers: Washington Star, Baltimore Sun,
Louisville Courier-Journal, Des Moines Register.
Regraded Unclassified
b.3'
236
THE TREASURY TAX PROGRAM
COLUMNS
10/14/43 - Sylvia Porter - New York Post - The Administration's $10,000,000,000
tax bill has been drowned in a torrent of abusive words. The tax
situation as it shapes up today is in a bigger mess than at any time
in recent months.
Regraded Unclassified
237
SALES TAX EDITORIALS
Favorable
Regraded Unclassified
238
SALES TAX
EDITORIALS - Favorable
10/5/43 - JOURNAL, Wilmington, Del. - Chairman Doughton of the House
Ways and Means Committee is guilty of no extravagance of
statement when he characterizes Secretary Morgenthau's new
tax program as "indefensible". It is indefensible because
it would weaken the national morale, and because through
its failure to include a sales tax, it ignores and rejects
the experience of every other nation at war.
10/5/43 - TIMES-PICAYUNE, New Orleans, La. - Congress seems to favor
either a retail sales tax or a "spending tax" over the
Treasury proposal to sharply increase the income tax rates.
10/5/43 - ST. LOUIS GLOBE-DEMOCRAT - A far more satisfactory plan,
from every angle, would be a sales tax on all spending except
food, medicine, rents and other absolute necessities of living.
This has beenopposed by the administration consistently.
10/5/43 - J. of C. - A general retail sales tax of, say, 10 per cent
would be one way to raise up to half the money required
without altering the pattern of national income distribution
in fundamental respects.
10/5/43 - PLAIN DEALER, Cleveland - The persistent opposition of the
Treasury to a Federal sales tax, and also to enforced saving
in any form must be due also to political factors.
10/6/43 - THE EVENING BULLETIN, Providence - National necessity dictates
that a penalty should be placed on unnecessary individual
spending now. That is the virtue of a stiff general sales tax,
discriminatingly applied to selected types of merchandise.
10/6/43 - REDWOOD CITY TRIBUNE, California - By all means, let us have
the luxury tax with its stiff increases in levies. But since
it can be no effective substitute for the general federal
sales tax, let us have the latter levy as well.
10/6/43 - THE DETROIT NEWS - Occasionally a Treasury spokesman calls
the sales tax itself inflationary, which is simply not true,
unless the reference is to a tax at other than the retail level.
10/6/43 - SAN ANTONIO EXPRESS - He would tax all sales a flat 10 per
cent, to raise an estimated 5 billion dollars a year.
Regraded Unclassified
239
SALES TAX
EDITORIALS - Favorable
10/6/43 - MIAMI HERALD - The sales tax is fair. It requires no costly
machinery to collect. It would provide a steady flow of
revenue to the Treasury and in all liklihood would make a
greater return than the proposed income tax bond increases.
10/6/43 - NEWARK STAR-LEDGER - It is not surprising that in the
circumstances the plan of a general sales tax, estimated to
produce $6,000,000,000, should be revived with increasing favor.
10/6/43 - CINCINNATI ENQUIRER - Perhaps an over-all sales tax will
present itself as a channel through which a great portion of
the necessary increases may be raised.
10/6/43 - GLOBE, Boston - Sales tax advocates say it is the easiest to
collect, reaches a lot of income now untouched, and as a
direct tax on expenditure, it is a sure safeguard against
inflation.
10/6/43 - THE DETROIT FREE PRESS - Why does the Administration refuse
to expand excises into a general sales tax, which would
relieve tax pressure in other directions? The answer is
political expediency.
10/6/43 - THE SUN - Criticisms of the general sales tax voiced before
the Ways and Means Committee by Mr. Randolph Paul, General
Counsel of the Treasury, were far from convincing. In an
emergency like the present, when purchasing power threatens
to burst all bounds, a sales tax is urgently needed not only
as a means of providing the Treasury with revenue but also
as a means of bringing demand into balance with supply.
10/7/43 - BERGEN EVENING NEWS, Hackensack, N.J. - There is one tax
which would cut simply and easily into the bulk of the new
money which has come into being as a result of the war.
10/7/43 - FORT WORTH PRESS - Objections are evident against the
Treasury tax plan and against a flat sales levy of 10 per
cent. Both are evidence of inexperience which is ill-
befitting the war and the necessity of finishing it and
averting inflation.
Regraded Unclassified
240
SALES TAX
EDITORIALS - Favorable
10/7/43 - NYT - Since the presentation of the drastic Treasury tax
plan, sentiment is reported to be growing in Congress, in
spite of Treasury opposition, in favor of a general sales
tax.
10/7/43 - DAILY MIRROR, N.Y. - "If ever a Federal sales tax is
justified, now is the time."
A general sales tax is anti-inflationary!
10/7/43 - NYT - Among the very few important sources of revenue that
remain are a general sales tax and higher excise taxes.
We must never forget, as the doctrinsire opponents of a
sales tax do forget, that one of the alternatives to a
general sales tax which would really reach mass income is
inflation.
10/7/43 - P.M., New York - It's those guys in the lower brackets who
are making more money than they ever saw before. Let's put
on a sales tax and get some of that money.
10/7/43 - N.Y.SUN - Some members believe that a general sales tax
would be better than sharp increase of tax rates on a few
categories. There are many excuses, but only one reason
for delaying action on excise taxes. That one reason will
be provided by serious consideration of a sales tax.
10/7/43 - THE SUN, Baltimore - There remains the question of taxes
aimed at draining off inflationary purchasing power. For
this purpose, no tax would be more effective than the general
sales tax, the very logic of which seems to be gaining fresh
support for it in Congress.
10/7/43 - EVENING BULLETIN, Phila. - Sentiment for a sales tax arises
from its largely voluntary character. If an individual
reduces his buying he can avoid by so much the payment of
the tax.
10/7/43 - BULLETIN, Providence - An estimate that a ten per cent
general sales levy would yield six billions annually has
been submitted to Congress.
Regraded Unclassified
241
SALES TAX
EDITORIALS - Favorable
10/7/43 - MIAMI HERALD - The sales tax is fair. It requires no costly
machinery to collect. It would provide a steady flow of
revenue to the Treasury and in all likelihood would make a
greater return than the proposed income tax bond increases.
10/7/43 - THE ATLANTA CONSTITUTION - A Federal sales tax, for the
duration of the tax emergency brought on by the war, now
seems the most practical and sonsible plan.
10/7/43 - SAN ANTONIO EXPRESS - The Taber Plan-economy plus a sales
tax-first would lighten the load and then distribute it
over the broadest base possible. Both effects would be
salutary, indeed.
10/8/43 - TIMES-DISPATCH, Richmond - The Times-Dispatch has fought the
sales tax consistently in the past, for in the depression
years it was an aid to deflation, and it placed a dis-
proportionate burden upon the poor. But this is not a time
of depression.
10/8/43 - WASH. POST - There is no alternative, it seens to us, but to
put a brake on this spending and mop up the dangerous money
by means of a general sales tax.
10/8/43 - HERALD TRIBUNE - The Chamber of Commerce of the State of
New York yesterday urged the Federal government to adopt
a general retail sales tax as a means of raising revenues and
combating inflation.
10/8/43 - SYRACUSE HERALD JOURNAL - The sensible thing for Congress to
do would be to kill the proposals submitted by the Treasury
on behalf of the Administration, and adopt a national sales
tax.
10/9/43 - N.Y. DAILY NEWS - A general sales tax would slow down some of
the warplant workers' buying which is such an inflationary
influence; but, as always, the Administration is dead set
against that.
(TIMES HERALD)
10/9/43 - MEMPHIS COMMERCIAL APPEAL - The sales tax is direct and it
is sure. It is reasonable easy to collect, and the amount of
it is in direct ratio to the money spent by the individual.
Regraded Unclassified
242
SALES TAX
EDITORIALS - Favorable
10/10/43 - PHILA. INQUIRER - No tax is painless, but the sales tax is
the least burdensome of all, and for three good reasons.
10/11/43 - WSJ - Mr. Robertson said a 10% Federal retail sales tax
would yield $6 billion and permit present income tax exemptions
to be raised instead of lowered, thus simplifying the entire
tax structure.
10/11/43 - HERALD TRIBUNE - From a practical standpoint, such a tax
measure coupled with an increased drive to place war bonds in
the hands of those with war-created excess incomes, would be
at least as anti-inflstionary and far less disruptive
economically than the seemingly more ambitious program of
Mr. Morgenthau.
10/11/43 - NYT - It seems clear, therefore, that the bulk of the new
taxes must come from those earning under $5,000 and that they
are in a position to pay them. The most effective way of
reaching these incomes would be through a general sales tax.
10/12/43 - NYT - The present unbalance can be in part corrected only
by a general sales tax.
10/12/43 - COMMERCIAL APPEAL, Memphis - A sales tax is a good remedy
for inflation because it taxes spending.
10/12/43 - PHILA. BULLETIN - A sales tax would put a needed brake on
spending by this considerable part of our population.
10/12/43 - BALTIMORE SUN - Mr. Robertson now says that a retail sales
tax is the method by which excess purchasing power in the
lower brackets can best be drained out of the restricted
market for consumers' goods.
10/12/43 - WORLD-HERALD, Omaha - We are trying to dry up the huge
pool of spendable money which has gathered in the land-
which certainly the sales tax would help to do.
10/12/43 - BALTIMORE SUN - Sentiment favorable to a sales tax has been
heard from members since the hearing on the Treasury's new
revenue bill began.
10/13/43 - BALTIMORE SUN - The principal argument for a general retail
sales tax now, the organization spokesman asserted, is that
it is "definitely deflationary," and "would spread the
burden of any new revenue fairly throughout the population
of the country."
Regraded Unclassified
243
SALES TAX
EDITORIALS - Favorable
10/14/43 - WASH. POST - Edward Ryan - One member predicted the committee
would approve a sales levy before agreeing to the Treasury's
program of increased income rates.
10/14/43 - HERALD TRIBUNE - John Hanna - The sales tax is the best
method to reach the flush spenders of war profits. It bears
upon those who spend in proportion to their spending.
10/14/43 - W.St.J. - Hardly any other tax follows so closely the principle
of taxing according to ability to pay. It leaves the taxpayer
some power to adjust his tax bill to his means. It taxes most
those who spend most, who are necessarily those who have most
to spend.
10/14/43 - W.St.J. - If all retail sales are taxed the rate can be so
low as to inflict no excessive hardship upon anyone and
still yield a substantial amount of revenue.
10/15/43 - NYT - As a matter of fact, the elimination of the Victory Tax
will modify the impact of a general sales tax upon many in the
lower incomes group by furnishing a partial offset to the
payments they would have to make.
10/15/43 - BALTIMORE SUN - We must reach the untaxed purchasing power
and the sales tax is the best way to do so.
10/15/43 - TIMES HERALD - A 10 per cent sales tax would raise about
$5,000,000,000-the figure House and Senate tax leaders
consider a satisfactory goal if Federal economics can be
achieved.
10/17/43 - NYT - Let us all work for the speedy enactment of a progressive
sales tax. As a producer of revenue, it will tax new sources
which to date have unjustly escaped direct taxation. Nine out
of every ten people with whom I have discussed the sales tax
favor its adoption. It is high time that the general public
makes known its wishes to Congress.
10/18/43 - J. of C. - President Philip Murray of the Congress of
Industrial Organization has served an ultimatum on the
House Ways and Means Committee to the effect that enactment
of a Federal sales tax would bring demands for compensatory
wage increases, in defiance of the economic stabilization
program, Unfortunately, he is very badly advised in the
Formal ation of his stand on the fiscal program.
Regraded Unclassified
244.
SALES TAX
EDITORIALS - Favorable
10/18/43 - BALTIMORE SUN - And yet Mr. Philip Murray, the head of the
CIO, says the unions, whose members are usually paid better
than the average, will not stand for a sales tax.
10/19/43 - WSJ - J. Cheever Cowdin, spokesman for NAM, urged Congress
to reject all proposals for new taxes, but added that if the
legislators decide more revenue is essential, then
a national retail sales tax should be imposed.
10/19/43 - NYT - (President Roosevelt) "All through the years of the
depression I opposed general excise and sales taxes, however,
we may be compelled to reconsider the temporary necessity of
such messures."
It is now twenty-one months later. Has not the time come, if
ever, to reconsider the temporary necessity of such measures?
10/19/43 - HERALD, Miami - The national sales tax is the sensible
approach to setting up any new revenue source.
10/19/43 - POST-DISPATCH, St. Louis - If Congress does think more
revenue is needed, there is one mighty good way to get it.
How? Yes, it's the national retail sales tax.
10/21/43 - NYT - I am among the growing number to favor a retail
sales tax, believing that the impost should logically fall
upon consumption and spending, rather than upon savings
and thrift.
10/22/43 - NYT - The argument that a sales tax would be "inflationary"
does not deserve serious discussion. It is, in fact,
perhaps the greatest single weapon remaining to us to curb
inflation.
Regraded Unclassified
245
SALES TAX EDITORIALS
General
Regraded Unclassified
246
SALES TAX
EDITORIALS - General
10/5/43 - PIONEER PRESS, St. Paul - Fundamental to the Treasury's plan,
and evidently one of the controlling motives behind it, is its
well known wish to avoid a sales tax. And all this is done to
get away from a sales tax on social grounds, the validity of
which during wartimes is questionable to say the least.
10/5/43 - EVENING NEWS, Buffalo - There is more than a suspicion that
the Treasury, in proposing to multiply the so-called luxury
tax rates, is trying to "get out from under" the political
consequences of a general sales tax.
10/5/43 - THE BIRMINGHAM NEWS - The administration still is standing
out against proposing a general sales tax, although the
excise taxes on "luxury items" are special sales taxes.
10/5/43 - DETROIT NEWS - No mention is made of the general retail
sales tax as an available substitute for the enormous
addition to income taxation.
10/6/43 - COURANT, Hartford - Under a progressive sales tax those
persons wishing to buy luxuries would pay more than those
confining their purchases to essential commodities,
10/6/43 - INDIANAPOLIS STAR - It is significant that the Treasury
Department and the Administration have consistently opposed
the sales tax which has been urged by many in Congress and
out as the most effective and easily administered method of
reaching those who have money to spend and are spending it.
10/8/43 - CLARION-LEDGER, Jackson, Miss. - Mr. Taber, however, also
endorses a ten per cent Federal sales tax to raise new revenue
and because it "would have a greater effect than any other
means of curbing inflation." That will be far less popular
than his proposal that government expenditure be reduced.
10/9/43 - INDIANAPOLIS STAR - The factor that seems to have controlled
in the fight against a Federal sales tax is that it would be
paid by all the people.
10/10/43 - BUTTE STANDARD - Preliminary congressional sparring revealed
some opposition because a federal sales tax-which chiefly
affects low-income groups - had not been recommended.
Regraded Unclassified
247
SALES TAX EDITORIALS
Unfavorable
Regraded Unclassified
248
SALES TAX
EDITORIALS - Unfavorable
10/7/43 - NEW YORK POST - A sales tax is a device for making the poor
pay a disproportionate part of their incomes in taxes as
compared with higher income groups.
10/6/43 - CHICAGO SUN - They prefer to complain about "staggering"
income taxes and to exploit the wartime emergency to saddle
the nation with a sales tax.
10/9/43 - EL PASO TIMES - The Administration is solidly opposed to
the sales tax, and Economic Stabilization Director Fred M.
Vinson, advised the House Ways and Means Committee Thursday
that such sales tax "would break the Government's 'hold the
line' home-front policy and open the way for wild inflation."
10/9/43 - SCRANTON TRIBUNE - The Administration isn't enthusiastic
about a general excise and sales tax, in fact the President
last year pointed out in his budget message that throughout
the depression he opposed any such measure.
10/10/43 - COURIER-EXPRESS, Buffalo - The Administration won only in
opposing a general sales tax.
10/10/43 - THE SUN, Baltimore - The Treasury is fervid in opposition to
open sales taxes on the workers who are to be paid $127,000,-
000,000 in 1944, but the Treasury is able to recommend savage
hidden sales taxes on these same workers.
10/11/43 - NYT - Some Congressmen revived the demand for a Federal sales
tax. This idea the Administration has consistently opposed on
the ground that taxing necessities would mean a disproportionate
burden for people with low incomes.
10/16/43 - CHICAGO SUN - Philip Murray of the C.I.O. has given notice
that general wage increases will be demanded if a sales tax is
imposed.
10/21/43 - THE SUN, Baltimore - The statement issued by Representative
Knutson yesterday makes it appear that the House minority is
not only opposed to the Treasury program but to any substitute
program calling for tax increases, including sales taxes.
Regraded Unclassified
249
M
MEMORANDUM FOR THE SECRETARY.
November 12, 1943.
Mail Report
This week's light fan mail was counterbalanced
by an unusually heavy official mail, much of it re-
lating to bankruptcy and reorganization proceedings.
There were therefore very few quotable letters.
For the fourth week, interest in tax matters re-
mained low. Only a dozen correspondents expressed
opposition to the Treasury's new tax measures, or to
higher rates in general. A few pointed out sources
of additional taxes, particularly stressing the profits
of bowling alleys, beauty parlors, and barber shops.
A number of letters and wires from church affiliates
solicited support of the Congressional Bill providing
that gifts to churches and charity be deductible before
the withholding tax is levied.
Except for occasional amusing or pathetic human
interest stories revealed through some of the inquiries,
Bond mail definitely lacked interest. Questions about
procedures end suggestions for new types of Bonds or
promotional techniques were just what they have been
for a number of weeks. There are now no new angles to
the complaints from War Department personnel. The
latter were low again this week, while reports of in-
terest not received dropped from 30 to 23. Bonds sub-
mitted to the Secretary for redemption totaled 92, with
no community particularly represented.
Two or three comments about the recent trip abroad,
several communications in regard to the census of Foreign-
owned property, 5 detailed and well prepared protests
against the Salary Stabilization Amendment, and 8 number
of inquiries from school children about the work of the
Treasury Department made up the miscellaneous mail.
Regraded Unclassified
250
General Comments
Senator W. Warren Barbour transmits the following
letter he has received from F. C. Jones, President of
The Okonite Company, Passaic, N. J.: Attached to my
letter you will find copy of Treasury Department letter
to The Russ Building Company in San Francisco. # +> *
My company has its Sen Francisco office in the Russ
Building, where we have been for many years. The bulk
of our business on the Pacific Coast, which necessitates
this ffice today, is Navy and Maritime Commission
business with the yards up and down the Pacific Coast,
together with considerable business with the airplane
companies on the Pacific Coast. You can realize how
essential our products are, either directly or indirectly
to the war, when I tell you every pound of copper we
use is allocated to us by the War Production Board.
It looks to us from this letter that we would probably
be dispossessed from the Russ Building, and not only we,
but a good many other companies who are engaged in criti-
cal war work may also be dispossessed. * 41 * There is
ample office space in other downtown buildings in San
Francisco, at much lower rentals than the Russ Building
rentals, to take care of the Treasury Department; but
apparently, as is evidenced by everything our present
Administration does, any saving of money is to be ignored,
and the desire of some Treasury Department bureaucrat
to be in the Russ Building is of paramount importance.
I object seriously to this whole-handed, wasteful propo-
sition, and am requesting that you look into this and
see what can be done to stop it.
Rose of My Heart, N.Y.C. PEACE I thank Father to give
to our country two more Bonds, making $425 so far at
maturity to be paid to our U.S.A. This, with other
goodly sums, pays for the fraudulent business carried
out years ago in the Southlands. Yours in Bonds of
Peace for the whole world -- under our documents, living
them, not pretending to do SO. P.S. Please send receipt
for $75 in Bonds to Rev. M. J. Divine, Philadelphia, Pa.
Regraded Unclassified
251
- 2 -
Favorable Comments on Bonds
H. R. Hollenbeck, For the Executive Committee,
National American Balloon Corps Veterans Association,
Battle Creek, Mich. This letter is not written in
the spirit of braggadocio but merely as a statement
of what a small group can do as an organization to
help the War effort. # # * During our reunion at Omaha,
Nebraska, September 21, 22 and 23, our organization
purchased a $1,000 War Bond. # # * The purchased Bond
not only emptied our treasury, but actually created a
deficit of nearly $50. It was our second Bond in less
than a year. With an annual dues income of less than
$1,000, this action might appear to be foolhardy from
a strict business standpoint, but we are confident
that our members will come through and provide us with
operating funds for the coming year. Knowing our
members as we do, we also predict that our organization
will be on the "Bond Wagon" again before the year is
out. * * *
Regraded Unclassified
252
- 3 -
Unfavorable Comments on Bonds
J. Francis Potter, Real Estate - Insurance, Los Angeles,
California. # # Frankly, many of us are beginning to
worry about the future value of all United States War
Bonds. We see the Government squandering billions of
dollars in the War effort, apparently without any
thought of repayment. We are not unmindful of the
fact that the 41 United States Liberties of 1947 issued
during World War I, sold at below 90 within a few years
after the War. It would appear that unless the United
States Government immediately enacted a rigid policy
of economy in Governmental expenditures, that these
present Bonds, bearing approximately 21% interest, can-
not possibly be worth par after World War II. # # #
Mrs. Mary Chelle, R.D. #2, Camp Meeting Road, Sewickley,
Pa. My husband left me with B. six weeks' old baby, and
my two Bonds disappeared at the same time. I have
given him a chance to return these Bonds, but no such
luck. How will I go about locating the Bonds and him,
too? # # &
Mary B. Thomas, Taunton, Mass. For the period July 1,
1942, to November 15, 1942, the amount of $180.00 was
deducted from my pay under the Class "A" pay reserva-
tion plan while an employee with the United States
Engineers at Camp Miles Standish, Mass. * * * To date
I have neither received Bonds nor refund for the amount
deducted. * * * After contacting various War Bond
officers including the U. S. Engineers Office in
Providence, R. I., and the War Bond Division in Chicago,
Ill., and not having received a coherent explanation,
I have decided to write to you since you are the
Secretary of the Treasury, and the one person who can
straighten things out for me. I would like to continue
buying War Bonds to do my share in the winning of this
horrible war, but how can I do so when the Bonds paid
for a year ago haven't been received? # *
#
Regraded Unclassified
253
- 4 -
Favorable Comments on Taxation
Copy of letter addressed to Hon. Robert L. Doughton,
House of Representatives, by P. W. Hutson, Pittsburgh,
Pa. I write to express my long pent-up feelings of
dismay -- yes, despair -- at the deplorable weakness
of the Congress in meeting the numerous crucial issues
which face the country. How could anything be more
apparent than the necessity of taking more of our
excess money by taxation in order to cut down the in-
flationary danger? The figures of excess income have
been given to us over and over again. Yet you and
your Committee cringe before your obvious duty for all
the world like a child with an aching tooth who can't
bear to go to the dentist. You whimpered, Mr. Doughton,
about how you could face your constituents back home if
you recommended the Treasury tax program. Now, I haven't
had time to evaluate the various elements of Mr. Morgen-
thau's plan, but I do know that the refusal of you and
your Committee to recommend substantially increased
taxation is nothing short of criminal. You are willing
to sell the country down the river in fear of next
year's election, not realizing that the country is way
ahead of you and believes in the necessity for higher
taxes. # * "
Regraded Unclassified
254
- 5 -
Unfavorable Comments on Taxation
Miss Helen Attwell Miller, Newark, N.J. Will you
please do whatever is in your power to render me some
assistance in a financial matter? In September 1943
one of the clerks in the Internal Revenue Bureau com-
puted my income tax for me. His deductions were
grossly wrong. He computed my September tax as $87.95.
After I paid the tax, I learned of the mistake he had
made. The Chief Clerk figured my tax and said I should
have paid absolutely nothing. I applied for B. refund
but to date have received none. I would like very much
to have the refund because I borrowed the money from a
loan company and am paying a high interest rate on it.
Will you please assist me in getting the refund? * * #
M. A. Pollak, Vice President, Draper and Kramer (Real
Estate Management and Sales), Chicago, Ill. The taxing
policy of the Internal Revenue Department in connection
with reorganized real estate bond issues is proving to
be manifestly unfair to thousands and thousands of
people who have actually suffered tremendous losses
because of having invested in real estate bonds. The
Administration has done many things to help the home-
owner and small investor by the creation of the Home-
Owners' Loan Corporation and the Federal Security &
Exchange Commission, while, at the same time, the Bureau
of Internal Revenue has so interpreted the law as to tax
unfairly the same type of individuals who, during the
1920's, put their life savings into real estate bonds.
Almost without exception these real estate bond issues
were foreclosed, and the title to the property vested
in corporations or trusts. # # 4 The earnings were such
over the years that the dividends received by these
former bondholders have been negligible. Many of the
properties are now being sold at prices which will pay
the former bondholders anywhere from 40 to 70 cents on
the dollar on their original investment. The sale price,
Regraded Unclassified
255
- 6 -
naturally, is in excess of the value at the time the
property was foreclosed. * The ruling of the Internal
Revenue Bureau is that these former bondholders, while
actually having B. substantial loss on their original in-
vestment, in addition to having practically no interest
over a ten-year period, must now pay a tax on the dif-
ference between the value of the building at the time
of reorganization and the sales price today. It is
true that had these bondholders known at that time, they
could have taken a loss; however, not one in a thousand
knew that he was entitled to such a loss and it is
questionable whether lawyers would have so advised the
bondholders at that time, because no one then antici-
pated that the tax law would be so construed. You do
not create good citizens by forcing people to pay a
profit tax when they are actually sustaining a loss,
and unless something is done to change this, we can
expect that there will be thousands of otherwise honest
people who will endeavor to find some way of beating
the tax laws. #
Frederick Waite, Orange, N.J. We all are willing
to pay taxes and buy Bonds, but we are not feeling
happy about the way we are being wiped out by reckless
Governmental spending. We all want to win the war, and
we will win the war, but we will win it by the long
steady pull, and not by this constantly changing pace
of taxes. % 42 11 Let me say that the attitude that
Congress took recently on your multi-billion dollar
tax bill is just a sample of what we the people think.
Congress knows that sometime they will have to go home
to live with us, and they want to live in peace with us.
They will have no peace at home if they pass any such
tax bill as that.
Regraded Unclassified
256
ALLIED FORCE HEADQUARTERS
Office of the Commander-in-Chief
12 November, 1943.
Dear Mr. Secretary:
I have just received your note expressing your feeling
of satisfaction with the opportunities you were afforded
for looking around while in this theater. As I assured
you while here, you were 6. most welcome visitor and I am
delighted that the arrangements made suited your con-
venience.
At the time of your departure I was still absent from
Base Headquarters but hurried through several errands
I had in an effort to get back before you left. They
tell me I missed you by only a few hours. I should very
much have liked a chat with you to learn your personal
impressions of the things you saw. In any event, it was
nice to have had one good talk with you.
With best wishes,
Very sincerely,
N wig nt Dhan hown
The Hon. Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington, D.C.
Regraded Unclassified
257
HEADQUARTERS FIFTH ARMY
Office of the Commanding General
A. P. 0. #464
November 12, 1943
Hon. Henry W. Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Mr. Morgenthau:
Your letter of November 6th reached me yesterday,
the 11th. It certainly came in fast time. I was de-
lighted to hear from you and to receive the clippings.
I deeply appreciate the nice things you have said with
regard to our conduct of the war in Italy, and I appre-
ciate your passing them on to the President, Secretary
Stimson and General Marshall.
I wrote you on November 4th, telling you of the
shipment of six tanks for your war bond effort. I
hope they reach you, for they should stimulate inte-
rest in the States. We knocked them out on the Salerno
beaches.
The clippings from the NEW YORK TIMES are most in-
teresting and flattering. It helps us to go on when we
know the people at home are satisfied with our efforts.
Sincerely, W. Clark.
MARK W. CLARK
Lieutenant General, USA,
Commanding.
Regraded Unclassified
258
November 12, 1943
Dear Paul:
I thought you would like to know
that the moving pictures you were kind
enough to take have turned out very well.
I have not forgotten my promise, and I
will give you a copy when you get back
home.
I want to take this opportunity to
thank you for the excellent care which
you took of me while you were acting in
the capacity of Aide. I had the pleasure
of talking to your mother and letting
her know that I found you well and hearty.
With kind regards,
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Captain Paul S. Warburg, 0-885629,
Civilian Affairs Section,
Force Headquarters,
APO 512,
c/o Postmaster,
New York, New York.
air mail
Regraded Unclassified
259
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
November12, 1943
TO Mrs. McHugh.
FROM The Secretary.
Please see that I write e letter to Captain Paul
Werburg today. I want to tell him that the motion picture
turned out very well.
Regraded Unclassified
Dr Ernest Linz
261
(Mrs. Linz is a relative of wer
Henry morgenthan family Levinger,
address: - Romeina
formerly munich)
Najjar Home
interview appointment
262
Henry Morgenthan Esg.
Secretary of State
Ting David Hotel
Mrs Harmam STEIN
263
née Rugelmann
Jerusalem
Can Rehavia Enterned
Cousin of Lii Charley Riogelmann
160 Buradway New York
exhund their best greetings to you
and world be very glad to meet your
263
Mrs. Stein can also be reached by tele-
phone - No. 2172, Dr. Michman - son-in-
law of Mrs. Stein.
Regraded Unclassified
11/12/43
260
THE FOREIGN SERVICE
260
OF
THE
RUN UNITED STATES OF AMERICA 'r. STOP Henry Morganthau. IMA
from FC
(Messages left at the
Consulate General, Jerusalem.)
Regraded Unclassified
Photostat Cault
264
JOHN CLIFFORD FOLGER
730 FIFTEENTH STREET
1/15/43.
WASHINGTON,D.C.
November 12, 1943
Dear Mr. Secretary:
Thank you very much indeed
for your thoughtful and generous letter of
November 6th commenting on my election to
the Presidency of the Investment Bankers
Association of America.
I was very much impressed
with your talk at our meeting last June. It
has been my earnest belief that investment
bankers should support the Treasury in every
way possible.
My predecessor, Jay Whipple,
has agreed to serve as Chairman of the National
War Finance Committee, the purpose of which
will be to cooperate with your Department and
aid the Treasury in its war effort. My office
is right across the street and I am desirous of
helping out in every way possible.
With assurance of my high
esteem, I am
Sincerely yours,
Jc-70ez folger
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Regraded Unclassified
265
mo
3
November 12, 1943.
Dear Herbert:
As you might guess, Elinor and I were most
deeply pleased to read this morning that you had
been elected Director General of the United Nations
Relief and Rehabilitation Administration.
It is hard to think of any greater opportunity
to work for the general good of humanity than this
place offers you and we know that you will be more
than equal to it.
We are happy over the appointment but are sure
we'll have greater occasion to be happy over the
record you will make in doing the job superlatively
well.
Sincerely,
(Signed) Henry
Honorable Herbert Lehman
Director General
United Nations Relief and Rehabilitation Administration
Washington, D. C.
ver
e nuelys
Regraded Unclassified
266
November 12, 1943
Dear Herbert:
Elinor and I were simply delighted to read
in this morning's paper that you have been appointed
Director General of the United Nations Relief and
Rehabilitation Administration. We are confident
that you are the best person for the job, and that
in the difficult period following he Armistice, with
millions of people without homes or sufficient food
or clothing, you, of all persons, will see that
everything is done to bring them relief and succor.
Sincerely yours,
Honorable Herbert Lehman,
Director General,
United Nations Relief and Rehabilitation Admin.,
Washington, D.C.
Regraded Unclassified
267
UNITED NATIONS RELIEF AND REHABILITATION ADMINISTRATION
Atlantic City, New Jersey
November 14, 1943
Dear Henry:
Many thanks to you and Elinor for your note
of congratulations which I much appreciate.
I think we are off to a good start here.
The feeling seems to be a friendly and cordial
one and the delegates, I think, are taking a
realistic and practical point of view of what
we hope to accomplish.
With affectionate greetings to you and
Elinor, I am
Sincerely,
The Honorable
The Secretary of the Treasury,
Washington, D. C.
Regraded Unclassified
268
November 12, 1943
Copies to Mr. Sullivan
Mr. McConnell
(Mrs. Klotz notified Mr. Byrnes' office
that Mr. Sullivan would attend the
meeting)
269
OFFICE OF WAR MOBILIZATION
WASHINGTON, DC
November 11, 1943.
lames F. Ayrnes
Director
MEMORANDUM FOR THE SECRETARY OF THE TREASURY
SECRETARY OF WAR
SECRETARY OF NAVY
SECRETARY OF COMMERCE
THE ATTORNEY GENERAL
FOREIGN ECONOMIC ADMINISTRATOR
I am enclosing a memorandum of the Attorney General
to which is attached a memorandum of Assistant Attorney General
Berge raising a number of very serious points with respect to
the administration of the renegotiation statute.
I should appreciate it if you would study the criticisms
of the existing practice of administering the renegotiation statute
which have been made by the Attorney General and meet with me in my
office next Wednesday, November 17, 1943, at 2:30 P.M. to consider
what action if any should be taken in view of the position taken
by the Attorney General.
Janan Hagrnes
POPYICTORY
BUY
UNITED
STATES
WAR
BONDS
---
STAMPS
Regraded Unclassified
270
C
OFFICE OF THE ATTORNEY GENERAL
0
P
Y
Washington, D. C.
November 8, 1943.
MEMORANDUM FOR MR. BYRNES
I am attaching a memorandum prepared by Assistant Attorney
General Berge that raises a number of points with respect to
the administration of the renegotiation statute. It occurred
to me that you would be interested in this and that you might
wish to give the agencies which are renegotiating contracts an
opportunity to study the criticisms made in the memorandum.
/sgd/ Francis Biddle
Attorney General
Regraded Unclassified
271
Wendell Berge
COPY
Assistant Attorney General
DEPARTMENT OF JUSTICE
Washington
October 4, 1943
MEMORANDUM FOR THE ATTORNEY GENERAL
Since your memorandum to the President of July 15, 1943 on the
subject of the then proposed renegotiation of the aluminum purchase
contracts with the Aluminum Company of Canada, Ltd., we have been
gravely concerned to discover that the misinterpretation of the re-
negotiation statute described in that memorandum and certain other
misinterpretations thereof, are having the effect of exempting from
renegotiation a substantial portion of the excessive profits which
should be renegotiated.
The salient portions of the renegotiation statute are as follows:
Section (c)(1) directing the secretary of a department
to require renegotiation of the contract price whenever in
his opinion "the profits realized or likely to be realized
from any contract ... or from any subcontract thereunder
whether or not made by the sub-contractor, may be excessive;"
Section (c)(6) making this requirement applicable "to all
contracts and subcontracts hereafter made and ... heretofore
made" unless (a) final payment thereunder was made prior to
the enactment of the statute, or (b) the contract itself or
certain other sections of the act specifically exempt them
or give the agencies authority to do so, or (c) the aggregate
sales thereunder do not exceed $100,000. The exemptions re-
ferred to in Section (c)(6) are the only exemptions to be
found in the act.
Section (A)(5) defines sub-contract to mean:
Any purchase order or agreement to perform all
or any part of the work, or to make or furnish
any article, required for the performance of any
other contract or subcontract ... The term
'article' includes any material, part, assembly,
machinery, equipment, or other personal property.
Section (1)(1)(ii) provides:
(1)(1) The provisions of this section shall not apply to -
******
Regraded Unclassified
272
(11) Any contract or subcontract for the product
of a mine, oil or gas well, or other mineral or natural
deposit, or timber, which has not been processed, re-
fined, or treated beyond the first form or state suit-
able for industrial use; and the Secretaries are author-
ized by joint regulation, to define, interpret, and
apply this exemption.
The misapplications of these provisions which seem to be operating
most seriously to the detriment of the United States are found in the
Joint Statement of the War. Navy and Treasury Departments and the Maritime
Commission of March 31, 1943, as amended, interpreting the Renegotiation
Act. These misapplications are (1) the classification as exempted products
under Section (1)(1)(ii) of a long list of commodities which have clearly
been treated beyond the first form or state suitable for industrial use,
(2) appraisal of the products so classified at their market price rather
than their actual cost when renegotiating contracts for commodities pro-
duced out of them by the same concern which produces the exempted product,
(3) exemption under Section (a)(5) of subcontracts for the furnishing of
personal property which is to be incorporated in the real estate of a
prime contractor and of subcontracts for the performance of work on such
real estate, (4) exemption under Section (a)(5) of subcontracts for the
furnishing of personal property, such as coke products, fuel, power and
tools and equipment for use in the manufacture of other tools and machinery,
assumed to be employed only indirectly in the processing of a final product
covered by the prime contract.
(a) In your memorandum to the President of July 15, 1943 you pointed
out that by the Joint Regulation of February 1, 1943, which classifies a
large number of commodities as exempted products under Section (i)(1)(ii),
the departments involved may have exceeded their power by exempting from
renegotiation contracts for materials falling within the express terms and
intended operation of the statute. You pointed out specifically the mis-
application of the regulation to aluminum ingot, since it is abundantly
clear that both bauxite and alumina are prior states in the industrial
process. We are informed, however, that the Secretaries and other agencies,
to which the renegotiation statute as amended applies, refused to amend
the Joint Regulation pursuant to the suggestions contained in your memo-
randum, chiefly for the reason that although both bauxite and alumina are
suitable for industrial use, some 90% thereof goes into the production of
aluminum. Hence, it was thought that the remaining 10% could be disregarded
and the ingot classified as a product of a mine which had "not been processed,
refined or treated beyond the first form or state suitable for industrial
use." No warrant can be found for avoiding the plain dictates of the statute
because the product is not equally distributed between industries using it
for different purposes.
2
Regraded Unclassified
273
The interpretation of the statute moreover does not turn upon whether
given products are employed for industrial uses other than further process-
ing toward the final product. It depends solely upon an interpretation of
the words "first form or state suitable for industrial use." "Industrial
use" in this clause cannot refer to the use of & final product, since this
would vitiate the entire renegotiation statute. I have been unable to
conceive of any industrial use of a product intermediate between the point
of severance or extraction and the final product which could be more properly
defined as an "industrial use" than the first use to which the product is
put in industry upon its severance or extraction. It therefore seems in-
disputable that the form of the product immediately upon severance or ex-
traction is in all cases "the first form or state suitable for industrial
use." Such an interpretation, moreover, gives purpose, not otherwise
present, to this exemption by excluding contracts involving depletion of
natural resources-a technical consideration which might unduly complicate
renegotiation. The statute 1a unambiguous. Congress by authorizing the
Secretaries "to define, interpret and apply this exemption" cannot be
thought to have intended to authorize them to alter the plain meaning of
the Act, but only to apply it by defining and naming the products which are
exempted because they are the first form or state upon severance or ex-
traction.
It should also be pointed out that the term "joint regulation" as used
in Section (1)(1)(11) requires unanimous concurrence by the departments in-
volved in the formulation of regulations definingand interpreting the ex-
emption. It would, therefore, further seem that the Joint Regulation can
have no validity until the four corporations brought within the statute by
the amendment of July 1, 1943 have given 1t their concurrence. I am informed
that this has not been done as yet.
(b) The second misapplication of the statute above referred to results
from the provision of the Joint Regulation, as amended, which permits pro-
ducts therein classified as exempted to be taken at their established market
price rather than their actual cost in the renegotiation of the price of a
subsequent product (J-PAB-2(b)(ii)). In the common case of an integrated
concern which produces the natural products out of which it also manufactures
the final product, this regulation often results in exempting from renegotia-
tion a substantial portion of the profit on the final product, - a result
surely nowhere authorized in the statute.
For example, the profits of Wheeling Steel Corporation on $73,427,000
of renegotiable sales were $10,220,000. By adjusting the difference between
actual cost and the market price of pig iron, pursuant to the above regulation,
$8,550,000 of these profits were eliminated (by War Department Renegotiation
Contract dated May 12, 1943) with the result that the $1,670,000 readjusted
profits were determined to be not excessive. Similar results have been or
are being obtained in the American Rolling Mill Company War Department re-
3
Regraded Unclassified
274
negotiation contract of July 1, 1943 and the Wickshire-Spencer Steel
Company War Department renegotiation now pending.
(c) A good example of the abuses resulting from the first, third
and fourth of the above listed misapplications of the statute is the War
Department renegotiation contract with Koppers United Company of July 26,
1943. Out of total 1942 non-commercial sales of $86,600,000, $47,200,000
were exempted as a result of such misapplications. $29,300,000 of such
sales were exampted in whole or in part because deemed related to products
exampted under Section (1)(1)(11). Of this $29,300,000, $16,100,000 repre-
sented the construction of coke plants to make coke which is used by the
pig iron, an exampted product; $3,900,000 represented commodities such as
valves, couplings, wood preservatives and coke products to be used by the
prime contractor in the making of an exempted product and $9,300,000 repre-
sented sales of pig iron and other molten metals, pitch and coke products,
all of which had been refined or processed beyond the first state upon
extraction or severance. Strangely enough, even the Joint Regulation of
February 1, 1943 does not purport to classify pitch and coke products as
exempt.
Of the $86,600,000 of non-commercial sales of the Koppers Company
$32,300,000 were exempted in whole or in part because they were considered
subcontracts for "realty" exempted from renegotiation under the misinterpre-
tation of Section (a)(5). Articles classified as "realty" in the Koppers
United renegotiation included road tar, roofing, pipe coating, the con-
struction of coke plants upon real estate of the prime contractor, valves,
couplings, and wood preservatives. It is not clear how the exemption can
be made to apply to materials destined to become a part of the realty, yet
delivered by the subcontractor in the form of personal property, nor how
it can be made to apply to a construction contract which is clearly an
"agreement to perform all or any part of the work" within the statutory
definition.
(d) Of the non-commercial sales, $10,900,000 were exempted in whole
or in part under the fourth of the above mentioned misapplications of the
statute on the theory that the article contributed only indirectly to the
processing of a final product. Examples of items deemed to fall under this
exemption are: wood preservatives, coke, tar and pitch products and gas
apparatus.
It is obvious from the above that the operation of the renegotiation
statute is being subjected to serious abuses and I would therefore recom-
mend that the President be requested to ask the Secretaries of the War
Navy and Treasury Departments, Chairman of the Maritime Commission and
4
Regraded Unclassified
275
the Boards of Directors of Defense Plant Corporation, Metals Reserve
Company, Defense Supplies Corporation and Rubber Reserve Company to
conform their Joint Regulations and practices to the requirements of
the statutes.
/sgd/ Wendell Berge
Assistant Attorney General
NOA is WI 8 02
7.0
RECURITIONS
OLLICE
Regraded Unclassified
276
NOV 12 1943
My dear Cordell:
As previously reported to you, two ship-
ments of gold of approximately $1,250,000
each, held by the Central Bank in this country,
have already left the United States bound for
the Argentine. The Federal Reserve Bank has
advised that they have instructions to make
a shipment of approximately $1,250,000 of
gold which they now hold for the Central Bank,
on each of the following boats which are
scheduled to sail as indicated:
Iguasu
November 10
San Juan
November 12
Mendoza
November 15
Diamantes
November 20
Chico
November 25
Gallejos
December 2
Teuco
December 5
Chubut
December 9
Thus the total of $10,000,000 in Argentine
gold is scheduled to leave the United States
by December 9.
Sincerely,
(Signed) Henry
Hon. Cordell Hull
Secretary of State
Washington, D. C.
S.Welcome home ! at your convenience swould see like to
you
REP/hkw
11-11-43
Regraded Unclassified
277
THE SECRETARY OF THE TREASURY
WASHINGTON
by dear Cordell:
As previously reported to you, two ship-
ments of vold Oj approximately 31,250,000 each,
held by the Central Bank in this country, have
already left the United States bound for the
Argentine. The Federal Reserve Bank has advised
that they have instructions to make a shipment
of approximately $1,250,000 01 gold which they
now hold for the Central Bank, on each of the
following boats which are scheduled to sall as
indicated:
Iguasu
November 10
San Juan
November 12
Mendoza
November 15
Diamantes
Movember 20
Chico
November 25
Gallejos
December 2
Teuco
December 5
Chubut
December 9
Thus the total of $10,000,000 in argentine
gold is scheduled to leave the United States by
December 9.
Sincerely,
Hon. Cordell Hull
Secretary of State
washington, D. C.
P.8. Welcome home. at y our convience
I would like to call on you.
Regraded Unclassified
278
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
NOV 12 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
There is attached a letter from Congressman
A. C. Schiffler suggesting that the Argentine gold
in this country be frozen.
There is also attached a proposed reply to
Congressman Schiffler, together with a memorandum
to the Secretary of State transmitting the letter
and proposed reply for his hr consideration.
Attachments.
Regraded Unclassified
279
NOV 12 1943
MEMORANDUM FOR THE SECRETARY OF STATE
I an forwarding to you herewith for your
consideration a copy of a letter from Congressman
A. C. Schiffler suggesting that the Argentine gold
in this country be frozen. There is also attached
a reply to this letter which we propose to send,
unless you perceive some objection.
As you have already been informed, Argentina
is moving gold out of this country on each Argentine
ship leaving the United States and by December 9
the total contemplated withdrawals will aggregate
$10,000,000.
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Enclosures.
JEDuBois:ecr
11/12/43
Regraded Unclassified
280
My dear Mr. Schiffler:
Reference is made to your letter of November s,
1943 suggesting that the Argentine gold in this country
be frozen.
For your information the question of the freezing
of Argentine assets in this country, including the
old held by the Argentine Central Bank and the other
dollar assets held In this country by Argentina and
her nationals, has been and still is the subject of
careful consideration by the State and Treasury De-
partments.
Although there are cogent reasons for the freezing
of Argentina on economic warfare grounds since Argentina
is recognized as the base from which the Axis conducts
its financial operations throughout the Western Hemisphere,
you will appreciate that there are important political
considerations involved in any such action by this
Government. Since the evaluation of these political
considerations is the responsibility of the State
Department, I have referred your letter to the Secre-
tary of State for his consideration.
I appreciate your interest in this matter and
will keep you informed of any developments in connection
therewith.
Very truly yours,
Secretary of the Treasury.
Hon. A. C. Schiffler
House of Representatives.
JEDuBois:ecr
11/12/43
Regraded Unclassified
281
25
In reply please
refer to: 55954
My dear Mr. Schiffler:
For the Secretary I wish to acknowledge and thank
you for your letter of November 8, 1943, suggesting that
the gold in this country belonging to Argentina be fromen.
This matter is receiving our attention and you
will be further advised as promptly as possible.
Sincerely yours,
Administrative Assistant
to the Secretary
Honorable A. C. Schiffler,
House of Representatives.
LSolomonigr 11/10/43
Regraded Unclassified
55954
SCHIFFLER
COMMITTEE NEEDS
WHAT VISSONA
TO: Meil & @11a,
Addition
É
VA.
CONGRESS OF THE UNITED STATES
are.
HOUSE OF REPRESENTATIVES
80 405. RBQ.
INITIAL
WASHINGTON, D.C.
DATE
November 8, 1943
The Honorable Henry worsenthau, Jr.
Secretary of ine Treasury
Wrshington, D. C.
Ay deir ar. worgentheu:-
I The intersely interested in winning
the vor, and Fle) equally interested that
nothing in this country that would be helpful
to the AXIF Patient PPPCARE them.
In VI of the attitude of argentine
Lowerds the United Entione P.O its present
efforts to PROVE its gold from tnls country,
"nich *111 undoubtedly be used to = 1d the Ax1s
Freen, F I une+ 15 L Fuen cold be frozen in the
correction of Itr r sent custodians, in that
It shall ..ot In my wonner be of pid to the
AX15 Powere 1:10 their vor Emoinst the United
Nations.
wost Respectfully Yours,
A. askliffler C. Schiffler, n.C.
S:L
Regraded Unclassified
283
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
November 12, 1943
FROM
Randolph Paul
As you are aware, Mayor LaGuardia wanted to
give a statement of his own wording in his short
wave broadcast to the people of Italy. His :
secretary read the statement, which is attached,
over the telephone. We have no objection to it.
It has been cleared with the Office of War Informa-
tion and the War Department is also aware of its
contents.
This information has been transmitted to
Mayor LaGuardia's secretary, Mr Miss Cohen.
Attachment
Regraded Unclassified
284
In these days we must think not only of the
destruction of the enemy but of the reconstruction of
countries and of the welfare of the people. I am sure
that the Italian people are thinking about their internal
problems and about the preparation of a new Italy. As
I have told you time and again it is our desire to come
to you with succor, not suggestions; bread, not politics.
Last Thursday the new world-wide Institution for
the Relief of Occupied and Liberated Countries was formed.
This agency under the auspices of the Government of the
United Nations will be ready to start work just as soon
as military conditions permit. The leaders of this
organization will know what to do. But we have to think
of the present and do everything possible to send you
immediate aid knowing that these are the most difficult
days of all. As you well know, President Roosevelt,
having the interest and well-being of the Italian people
at heart, now has a plan in preparation for permitting
the sending of money from residents of the United States
to families and relatives in Italy. According to the
Regraded Unclassified
285
- 2 -
decision of the American Military Command, it will be
possible for people here in America to send money to
their families in Sicily. This is the beginning, and I
am sure that as soon as established the plan will be
extended to other parts of liberated Italy. According
to the decision of the Military Command the plan provides
for the sending of limited support remittances for the
purpose of aiding distressed families. I also hope that
as soon as the military situation will permit it will
be possible to reestablish postal service between the
United States and liberated Italy. This too is being
prepared. You see, therefore, that conditions are
beginning to show an improvement, slowly perhaps, but an
improvement nevertheless, and the reestablishment of
normal conditions between the two countries is developing
day by day. The Secretary of the Treasury, the Honorable
Henry Morgenthau, has just returned to the United States
and has first hand information of the civilian situation
in Italy. This alone makes it very helpful.
Regraded Unclassified
286
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATENovember 12, 1943
TO
Secretary Morgenthau
FROM
Randolph Paul
We see no objection to Mayor LaGuardia using a.
statement along the following lines in his short-wave
broadcast:
"I am advised by the Secretary of the
Treasury that the policy of permitting the
remittance of funds by persons in this country
to their friends and relatives in Sicily has
been approved by the Treasury Department.
Secretary Morgenthau expects that satisfactory
arrangements will shortly be worked out in
Sicily for effecting these remittances."
BAK
Regraded Unclassified
287
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
AMEMBASSY, CHUNGKING
TO:
Secretary of State, Washington
DATED:
November 12, 1943
NUMBER:
2138
CONFIDENTIAL
I herewith refer to my previous telegram dated November 5. 1943,
no. 2095.
It 1s reported by the Consul at Kunming that there is unwillingness
on the part of APO Kunming to cash Foreign Service drafts other than his
own for Kunming needs as a special exception and that it is stated by the
Finance Officer of Aray at Kunming that he cannot cash Foreign Service
drafts because of regulations. Neither of these sources would have suf-
ficient funds for the purpose of cashing checks or drafts in the amount
required for civilian agencies concerned. However, it is understood by
us that if War Department were to issue instructions and authorizations to
finance officers or APO, sufficient funds might be available from Karachi.
It would be preferable that the funds be sent to Kunming for cashing
checke and drafts there as resulting United States currency proceeds would
have to be sold in the black market there to obtain Chinese national
currency to meet menthly requirements for Embassy and other civilian
agencies for balances of salaries and allowances. Since new personnel
for other agencies is arriving, possibly more may be needed.
It is suggested by the Naval Attache that Havy Department might
be disposed to cooperate if War Department is unable or unwilling to.
We might possibly be denied special exchange rate equal to about
30 to 1 now granted to diplematic and consular establishments and
missionaries if vo use United States currency for salaries and allowances.
United States Army using United States currency for pay and allowances
receives only 20 to 1 for its expenditures for other purposes through bills
or checks sold to government banks.
Possibly it would be desirable to consider the possibility of en-
cashment of checks and drafts in India for Indian rupees and the sale of
these rupees in Kunsing market for Chinese currency either by telegraphic
arrangements or by sale of checks on rupee accounts in India. Unfortunately
no information concerning financial regulations and controls of the Indian
Government which might have bearing on any such procedure is possessed by
me. At the present time we cannet consult Adler of Treasury, who recently
made & study of India's financial situation, as he is absent from Chungking.
Our use of actual United States surrency would be avoided if any arrange-
ment such as this could be made and it is felt by me that Indian rupees
would be as equally saleable as United States currency in the Kunsing black
market. Can consultation regarding this suggestion be held with Treasury
by the Department?
GAUSS
shroopy 11-20-43
Regraded Unclassified
287
NOT TO BE RE-TRANSMITTED
COPY NO.
12
BRITISH MOST SECRET
U.S. SECRET
OPT&L NO. 371
Information received up to 10 N.M., 12th November, 1943.
1. NAVAL
LEVANT. 10th/11th. KOS Roads and MORT KALYRINOS were each
bombarded by 3 destroyers.
EAST INDIES. 11th. One of C.M. Submarines sank a medium sized
ship off PENANG,
FREECH FORCES. After repair in UNITED STATES, Battleship (Fronch)
is working up from Vest African ports prior to joining operational sougdron.
11th. 5 shipa totalling 38,000 tons hit by (lider bomb or torpedo in air attual
on east bound convoy off ORAN.
2. MILITARY
ITALY. 8th Army. 10th. he carried out successful reconnaissance
in Constal area and improved our positions near ALLSSA. Progress on central
mountain road hampered by bad weather and demolitions.
5th Army. Stiff enemy resistance continued but counter-attucks
against U.S. forces comminding MIGNANO-CANO road from north and against r1ght
flank of British forces were ineffective.
RUSSIA. Russians occupied important communication contres 55
miles west, 45 miled west-south-vest and 50 milas nouthmest of KIEV.
3. AIR OPERATIONS
WESTERN FRONT. 10th/11th. 1,122 tono were dropped at MODANE.
11th. 293 medium bombarn dropped 409 Lone on silitory objectives in CHERBOURG
Peninsula with "fuir to good" results and 5.6. of GRIS NEZ 1th hits in centro
target. 58 escorted Fortresses (1. 17) dropped 111 tons on MUNSTER in cloudy
weather with unobserved results. Enamy ensualties 20, 3, 2. Ours 4 Fortresses
and 3 Thunderbolts (2. 47). In addition 1,164 fighter sorties vero flown.
11th/12th. Aircraft despatched - CANNES Marshalling yards 134
(5 missing); Antheor Vieduct (near CANNES) 10; DUSSELDORF 12; BERLIN 8; HANOVE
6; BOCHIM 3; Intruders 22; anti-shipping 11; ser-mining A5 (2 missing); leaflits
6. Antheor Vinduct not hit but first reports on CANNES indicate attack concern-
trated and successful.
ITALY. 9th/10th. 10 tons were dropped nt PONTASSIEVE (9 milus
east of FLORENCE) hitting railway bridge. 10th. 131 tons were dropped nt
BOLZANO (90 miles N.W. of VENICE) outting railway lines and damaging much
rolling stock. Invaders (A. 36) successfully attacked targets in battle are
And south of ROME.
ALBANIA. 10th. 12 Mitcholls (B. 25) attacked docks and shipping
at DURAZZO.
YUGOSLAVIA. 10th. 18 tons Пгоррад on harbour area at SPLIT
TREASURY DEPARTMENT
where large ship and several smill craft wre hit.
DODECANESE. 10th. LEROS 10.1 Wd attack El AON 5061 70 sortics by JU 3 and
JU 87 (1 destroyed).
SECRETARY OF TREASURY
Regraded Unclassified