Volume 692, January 7 – January 10, 1944

DIARY Book 692 January 7-10, 1944 - A - Book Page Argentina See Foreign Funds Control - B - Boettiger, Anna R. 51 citations for Victory Square participation signed - 1/7/44 692 59 Business Conditions Haas memorandum on situation, week ending January 8, 1944 - 1/10/44 361 - C - China Kung's reply to New Year's message - 1/7/44 108 Clark, Lieutenant General Mark W. Thanks HMJr for apples - 1/7/44 56 Mrs. Clark-HMJr correspondence - 1/10/44 352 Correspondence Mrs. Forbush's mail report - 1/7/44 79 - D - - Deferments, Military Conference; present: HMJr, HM, III, Gaston, Thompson, Pehle, and Wilson - 1/10/44 305 a) Deferments granted to Donovan, Michael J. (Bureau of Engraving & Printing) Jackson, Wilbur C. (Internal Revenue Agent) Madill, Edwin J. (Treasurer's Office) Russell, Timothy E., Jr. (Bureau of Mint) Saxon. James J. (Foreign Funds Control) (See also Book 694, page 9) Smith, Arthur C. (Internal Revenue Agent) Smith, Howard A. (Bureau of Engraving & Printing) Donovan, Michael J. (Bureau of Engraving & Printing) See Deferments, Military - y - Foreign Funds Control Argentina: Freezing of assets and proposed letter to State Department discussed by HMJr, Bell, White, Pehle, Luxford, and DuBois 1/8/44 200 a) Letter (proposed) 208 b) # discussed by Treasury group - 1/10/44 268 1) Hull asked for another conference 280 Gold shipments, November 4, 1943-December 31, 1943 reported - 1/10/44 389 Regraded Unclassified - I - Book Page India See Lend-Lease Italy LaGuardia's request concerning remittances to Sicily and postal communications with Italy - memorandum prepared for FDR - 1/7/44 692 92 - J - Jackson, Wilbur C. (Internal Revenue Agent) See Deferments, Military - K - Kung, H. H. See China - L - - Latin America Argentina: See Foreign Funds Control Movement of capital to, from United States: Memorandum to Hopkins - - 1/7/44 96 Leavitt, Moses A. See Refugees (Jewish) Lend-Lease Silver to India: War Production Board sees no objection - Crowley so informed - - 1/7/44 100 U.S.S.R.: Availability of cargo for January - 1/10/44 386 United Kingdom: Federal Reserve Bank of New York statement showing dollar disbursements, week ending December 29, 1943 - 1/7/44 102 Liquor Treasury. to require future daily reports of wholesale transactions in distilled spirits as a means of intensifying drive against black market: Release - 1/7/44 9,13 a) New York Herald Tribune article - 1/8/44 217 - M - - Madill, Edwin J. (Treasurer's Office) See Deferments, Military - P - Book Page Procurement Division Surplus Property Disposition Mack's resistance to statistical approach to entire problem discussed by HMJr, Sullivan, and O'Connell - 1/7/44 692 42 Conference; present: HMJr, Bell, Sullivan, and McConnell - 1/13/44: See Book 693, page 154 a) Sullivan's preparation for Hancock and Clayton of detailed classification of each item with indication of division or agency equipped to handle described by McConnell b) "Attempt to take over Procurement" predicted by HMJr": Book 693, page 159 1) HMJr promises that he will go direct to FDR 2) Patman's testimony on transfer to Reconstruction Finance Corporation discussed by 9:30 group - 1/18/44: Book 695, pages 8,76 Mack report with accompanying memorandum from Sullivan - 1/15/44: Book 694, page 164 . - R - Refugees (Jewish) France and Roumania: Winant's cable reporting talk with Eden - 1/7/44 32 a) Riegner plan: Breckenridge Long-Sir Ronald Campbell discussion of - 1/8/44 218 1) Conference in Hull's office discussed by Treasury group - 1/12/44: See Book 693, page 79 a) Memorandum on: Book 693, page 98 b) Hull does not know names of his own visa officers: Book 693, page 89 France Moses A. Leavitt memorandum on evacuation of 5000 children - 33 Leavitt 1/7/44 letter to British Embassy, Washington - - 1/7/44 38 Russell. Timothy 1., Jr. (Bureau of Mint) See Deferments, Military - S - Saxon, James J. (Foreign Funds Control) See Deferments, Military Silver See Lend-Lease Smith, Arthur C. (Internal Revenue Agent) See Deferments, Military Smith, Howard A. (Bureau of Engraving & Printing) See Deferments, Military Surplus Property Disposition See Procurement Division - U - U.S.S.R. See Lend-Lease 1 January 7, 1944 9:13 a.m. Robert Doughton: Hello, Henry. How are you? HMJr: Fine. I hadn't seen you in a long time. D: No. HMJr: I had nothing special but I just would kind of like to have the pleasure of your company. D: Well, that's very sweet and kind and thoughtful. I don't believe I can -- I appreciate it very much your thoughtfulness, your friendship and your hospitality, but I don't believe I can make it today. If you've anything you want to see me about, I'll try to run down this afternoon. HMJr: No, there's no hurry. I.... D: My folks are not very well, and I've got some appointments with the Departments this morning. HMJr: Well, we could -- how about Monday? D: Well, Monday I won't be here. HMJr: You won't be here? D: I could run down this afternoon. HMJr: All right. What time? D: Whatever time suits you this afternoon. HMJr: Well, let's say around... D: Two or three o'clock. HMJr: What's that? D: Two or three o'clock. Anywhere along there. HMJr: Three o'clock would be perfect for me. D: Be right at your office at three o'clock unless I let you -- notify you otherwise. HMJr: Thank you. D: Thank you. Good bye. Regraded Unclassified 2 Conference in Secretary Hull's Office January 7, 1944 9:30 A.M. Present: Secretary Hull, Dean Acheson, Mr. Crowley, Mr. Cox, Mr. Currie, Secretary Morgenthau and Mr. White The British representatives, Lord Halifax, Mr. Ben Smith and Sir David Waley joined the meeting at 10:00 A.M. The meeting was held in response to a request by Secretary Morgenthau made to Secretary Hull via Mr. Acheson. The request was pursuant to the suggestion of the President made in reply to the memorandum on the British dollar position which had been submitted to the President by Secretary Morgenthau and Mr. Crowley. Before the British arrived the Secretary briefly reviewed the situa- tion and suggested that when the British did join the meeting that there be submitted to them the recommendations which had been agreed upon in the memorandum submitted to the President. Mr. Currie distributed copies of a list of the items to be submitted to the British with the explanation that Mr. Crowley's organization had been reviewing the items being shipped under Lend-lease aid to the United Kingdom with a view to eliminating those items which in the light of the present situation it seemed advis- able to discontinue or curtail. (A copy of the list is appended) Mr. Acheson expressed the view that the British would want to know whether the program being suggested by the American Government was for the purpose of curtailing British gold and dollar balances or for the purpose of eliminating those items in Lend-Lease shipments which were deemed to be embarrassing to send for political reasons. He said it was important for us to have clearly in mind what the objective of the program really was and to indicate to the British candidly what we did have in mind. Secretary Morgenthau replied that he thought that decision had been agreed upon on the previous day and that Acheson had given his approval to the submission of the program to the British with the explanation as he (Secretary Morgenthau) had just stated it. Mr. Acheson repeated that there seemed to be some misunderstanding. He said he had given his approval to the presentation of the program 14 it were based on the assumption that we were not looking at it from the point of view of the British gold and dollar position but rather from the point of view of the political feasibility of including the indicated items in the Lend- Lease shipments. Regraded Unclassified 3 - 2 - White said that he didn't understand how the two aspects of the case could be kept distinct. He said that what might be regarded as political feasibility when the British Treasury had only several hundred millions in gold and dollar balances might well be politically indefensible if the British had several billions. The question of political feasibility, he stressed, was closely related to the size of the British balances. He said he couldn't understand why Mr. Acheson kept insisting upon the "either/or" interpretation. He thought it would be clear to all concerned that the political feasibility of including certain items in Lend-Lease to U.K. would depend in part on the size of the British balances and on whether they were increasing or decreasing. Acheson replied that it seemed to him that it was important to know now whether the list which we were submitting included everything or whether we intended to take other measures if action on that list failed to reduce the balances to some pre-conceived level. That, he believed to be the essential decision to be made now. The Secretary responded that he could only repeat what he thought he had made clear before, namely, that for the present this program was all they were going to undertake. What the circumstance would be later he could not say. In any case he did not intend to tie his hands now by any state- ment which would exclude the possibility of adopting additional measures if we later decided such additional measures were desirable. Secretary Hull stated that he knew very little about the financial aspects of the case and presumed that after this meeting that the Secretary of the Treasury would continue whatever discussions were neces- sary that related to the financial aspects of the problem. It was finally agreed that Mr. Crowley should submit the program to the British explaining that those were the items which under present circumstances it seemed wise to examine with a view to their elimination or curtailment for reasons of political expediency. When the British representatives arrived Mr. Crowley presented the case as agreed upon. Lord Halifax replied to Mr. Crowley. He said that in considering this problem his government would like to have before it the whole program and not isolated parts. He stated that the former Exchequer had written a letter to the Secretary of the Treasury setting forth the position of the British Government with respect to its international financial position but unfortunately had not yet received a reply to it. White remarked that there must be some misunderstanding inasmuch as he remembered that a reply to that. letter was sent to Sir Kingsley Wood soon after Secretary Morgenthau had received the letter. Secretary Morgenthau said we would be glad to furnish Lord Halifax with the file Regraded Unclassified 4 - 3 - on the matter and instructed White to see that Lord Halifax received a copy of our letter to Sir Kingsley Wood along with the pertinent dates of the correspondence. Lord Halifax went on to say that he was, of course, quite willing to accept the views expressed by this government as to the political difficulties involved in the inclusion of any particular category of items in the Lend-Lease aid but he hoped that any such discussion would be against the background of the views of his government with respect to the international financial situation confronting the British Government. He hoped that discussion would be based upon the whole picture so that his government would not feel that measures were being considered which reflected a non-acceptance of the views of the British Government as expressed in the letter of Sir Kingsley Wood and other British Treasury representatives. Mr. Ben Smith spoke briefly in support of Halifax's position. He also added that difficulties were created in London for British repre- sentatives here when London read in the newspapers a report copied from U.S. press that the shipping of capital goods to U.K. under Lend- Lease aid had been stopped by agreement between the British and American Governments when in fact there had been no such agreement. Mr. Currie pointed out that the statement which appeared in the press did not emanate from the Lend-Lease Administration and was not to be regarded as official. He said there had been some discussions on that matter with the representatives of the British Supply Mission which had been going on for some time prior to Mr. Crowley's taking over the Lend-Lease Administration. Mr. Crowley added that under the powers which he was operating the decisions on what items to include or exclude were unilateral decisions and not decisions that required any agreement between the British and American Governments. However, he said that did not mean they were not eager to discuss each proposed step with the British, and expected that after such consultation there would usually be agreement on the desira- bility of making any change that the Lend-Lease people decided to make. Sir David Waley said that he was saddened at the trend of events with respect to Lend-Lease arrangements. He said that when he had discussed the reverse lend-lease of raw materials with Mr. Stettinius early in the year that ne thought that both countries were moving toward a real pooling of the resources of both countries in the spirit of the Lend-Lease agreement. He thought that the British had taken an important step in that direction when it had included provision for the lend-leasing in reverse of raw materials from the British Empire. He felt that the program now being suggested was a step in the opposite direction; while his government was moving forward by adding to its contribution to the war effort we were moving backward by considering measures for reducing our contribution. He emphasized that he fully appreciated the great generosity the United States had already displayed in its aid to the British people but felt deep concern that steps were contemplated purportedly on political grounds when the effect sought Regraded Unclassified 5 - 4 - for was to keep down British dollar and gold balances. He said that if the measures proposed were designed chiefly to curtail British dollar and gold assets that the procedure would "not be very tasty" to his colleagues and members of Parliament. The Secretary replied that it was for that reason that proposal was being presented in the terms in which Mr. Crowley had presented it. Mr. Waley asked whether it might not be possible for the Secretary to set his views down in writing 80 that he could transmit them to his government. The Secretary answered that he preferred not to; that he had made clear what his views were during the discussion and that Sir David should be able to explain to his government on his return to London just what views were expressed at this meeting. Waley then asked if he might not get a letter from the Secretary to the Exchequer explaining that he (Waley) had been given the views of this government and would transmit them to his government - or something to that effect. The Secretary replied that he would be glad to give him a letter of that kind and said if he (Waley) would come to his office at 4 o'clock that afternoon the letter would be ready. The meeting adjourned with the understanding that Mr. Crowley's organization was to begin discussions on the various items with the appropriate British representatives. H. D. White 6 COPY We believe that certain questionable items such as the following should be discontinued from Lend-Lease: A. Shipments of capital goods such as machinery, installations, etc. B. Off-shore purchases such as Iceland fish, Caribbean sugar, oil from outside the United States, etc. C. Civilian goods for Jamaica, Southern Rhodesia, the Middle East, etc. D. Pulp and paper. E. Tobacco for the armed forces. F. Certain other controversial items. 7 COPY CERTAIN OTHER CONTROVERSIAL ITEMS: Under this category are included such items as those parts of the rental or charter of vessels which are open to question, agricultural machinery and other types of equipment which have a relatively long life, certain raw, semi-fabricated and fabricated materials whose end use is subject to question, items procured from one part of the British Commonwealth for lend- leasing to another part in the same or similar form, and items lend-leased to the British Empire for which the United States has to make substantial imports from third countries, etc. 8 January 7, 1944 11:16 a.m. HMJr: Hello. Fred Smith: Hi. HMJr: Fred, that release you spoke of that you want to get out on alcohol. S: Yeah. HMJr: That's all right. S: It's all right? HMJr: I haven't read it very carefully. I'll have to rely on you. S: It's all right. It's.... HMJr: The only thing is you don!t, at all, mention the Commissioner Hannegan. He's taken a great interest in this thing. S: Well, this -- the reason for that was that it was done by the men upstairs who handle the Enforcement Agencies. HMJr: Yeah. S: And, I.... HMJr: But I'd like to.... S: I think we ought to -- I think that's right. We ought to.... HMJr: I'd like to bring Hannegan into the picture. S: Yeah. Okay. HMJr: And if you'll do that, it's okay. S: All right. HMJr: Thank you. S: Yep. 200 to release tely. being the " V to Fred Buith th Room agor ID 10 Secretary Morgenthau announced today that the Treasury henceforth will require daily reports of wholesale transactions in distilled spirits as a means of intensifying the Treasury's drive against Black Market conditions in the liquor industry. The daily reports, to be filed with District Supervisors of the Alcohol Tax Unit of the Bureau of Internal Revenue, will enable field officers to make immediate investigations as to the source and disposition of liquor moving into consumption. Names and addresses of all parties involved in such transactions must be reported, with amounts and kinds of spirits transferred. By enabling the Treasury to put tracers promptly upon every consignment of Tiquor where circumstances appear unusual or suspicious, the new regulations should contribute substantially to drying up sources of tax-paid spirits now entering the Black Market, Mr. Morgenthau said. Reports previously have been made to the Unit monthly. Stewart Berkshire, head of the Alcohol Tax Unit, said that the forms which importers, wholesalers, Po 11 - 2 - bottlers and rectifyers must file daily are known to the trade as the Records 52 series. The amend- ments to existing regulations àre set forth in Treasury Decisions 5314 through 5323. District Supervisors may waive the requirements for daily filing in specific cases. Mr. Berkshire said that in addition to scrutin- izing closely all transactions in the wholesale liquor field, the Unit is taking precautions to see that increasing quantities of inferior spirits coming on the market are released to the public only under labels that adequately describe them. Certain types of imports, particularly, are being checked. Many samples are too bad, in the opinion of Treasury chemists, even to be given the designation of "Imitation Whiskey." The description "Colored Distilled Spirits" has been devised for some such beverages whose chief claim to resemblance to whiskey is the presence of a little burnt wood or other flavoring. Labelling changes also have been forced in some instances on domestic bottlers of blended 12 - 3 - liquors, and close supervision is being maintained in this field. Criminal or civil actions have been instituted against alleged Black Market operators in a number of major cities throughout the country in recent weeks as the Treasury attacked the problem through regulations governing fair trade practices and other Internal Revenue laws, as well as under provisions of the Emergency Price Control Act. 13 TREASURY DEPARTMENT Washington FOR IMMEDIATE RELEASE, Press Service Friday, January 7, 1944. No. 40-16 Secretary Morgenthau announced today that the Treasury henceforth will require daily reports of wholesale transactions in distilled spirits as a means of intensifying the Treasury's drive against Black Market conditions in the liquor industry. The daily reports, to be filed with District Supervisors of the Alcohol Tax Unit of the Bureau of Internal Revenue, will enable field officers to make immediate investigations as to the source and disposition of liquor moving into con- sumption. Names and addresses of all parties involved in such transactions must be reported, with amounts and kinds of spirits transferred. By enabling the Treasury to put tracers promptly upon every consignment of liquor where circumstances appear unusual or suspicious, the new regulations should contribute sub- stantially to drying up sources of tax-paid spirits now enter- ing the Black Market, Mr. Morgenthau said. Reports previously have been made to the Unit monthly. Robert E. Hannegan, Commissioner of Internal Revenue, said that the forms which importers, wholesalers, bottlers and rectifyers must file daily are known to the trade as the Records 52 series. The amendments to existing regulations are set forth in Treasury Decisions 5314 through 5323. District Supervisors may waive the requirements for daily filing in specific cases. Mr. Hannegan said that in addition to scrutinizing closely all transactions in the wholesale liquor field, the Unit is taking precautions to see that increasing quantities of in- ferior spirits coming on the market are released to the public only under labels that adequately describe them. Certain types of imports, particularly, are being checked. Many samples are too bad, in the opinion of Treasury chemists, even to be given the designation of "Imitation Whiskey.' The description "Colored Distilled Spirits" has been devised for some such beverages whose chief claim to resemblance to whiskey is the presence of a little burnt wood or other flavor- ing. Regraded Unclassified 14 - 2 - Labelling changes also have been forced in some instances on domestic bottlers of blended liquors, and close super- vision is being maintained in this field. Criminal or civil actions have been instituted against alleged Black Market operators in 8. number of major cities throughout the country in recent weeks as the Treasury at- tacked the problem through regulations governing fair trade practices and other Internal Revenue laws, as well as under provisions of the Emergency Price Control Act. -000- 15 January 7, 1944 12:10 p.m. JEWISH EVACUATION Present: Mr. Pehle Mr. DuBois Mr. Luxford Mrs. Klotz MR. PEHLE: This has to do with a conversation Mr. Riegelman and I had yesterday. In the first place, Riegelman mentioned that you, Mr. Morgenthau, had Hull committed to discuss with Lord Halifax a revision of the British white Paper. H.M.JR: May I interject? That is wholly untrue. MR. PEHLE: I know. I will try to explain how I think that statement happens to be made. H.M.JR: That is wholly untrue. I wish it was true. MR. LUXFORD: Maybe it is truer than you think. MR. PEHLE: It may work out tnat way, Mr. Secretary. This is what seems to be the fact. The thing is moving very fast. Riegelman told me that following your call to Lord Halifax, Palin, of the British Embassy, called Riegelman and said that Lord Halifax was very worried, that he was going to have to discuss this subject with you; and Riegelman said the subject was the Reigner plan and the British attitude on it. Riegelman said that that had been changed now, and Mr. Hull was handling it and would take it up with Lord Halifax. Regraded Unclassified 16 - 2 - H.M.JR: How did he know? MR. PEHLE: Pecause Mr. Long had told him. H.M.JR: Let's get the record straight. Somebody told you? MR. PEHLE: Thorold. And I said to tell Thorold that the matter was now in Mr. Hull's hands and Lord Halifax should talk to Hull. As I recall, when we were in Mr. Hull's office you mentioned the fact that you had put in a call for Halifax, and the arrangement was made that Mr. Hull would take that thing over. In any event, Halifax was very disturbed that he would have to defend the British position to you, and he was told that Mr. Hull was going to talk to him about it. Now, the British position is that terrible cable that we got that said you couldn't find a place to put these people, and therefore you couldn't get them out. Now, if you are going to find 8. place to put them, there are several possibilities, but one of the possi- bilities is Switzerland. In connection with any of those neutral countries, Switzerland says, "We will take these people if somebody will guarantee to put them some place else at the end of the war," which we went into with Leavitt, and he is giving you 8. memorandum. Now, there are two posibilities about where to put them at the end of the war. One of them is for the United States and the British Government to make an agreement that they will take them. State has refused to do that. The other is to put them into Palestine. And so when the Dritish say that they don't know where to put these people, that has now come to be a discussion of whether the Palestine policy ought to be changed, as I get it. Regraded Unclassified 17 - 3 - And therefore Riegelman says that Hull is com- mitted to raise this thing with Lord Halifax. Lord Halifax knows that and he is getting from London all the documentation, and the State Department is pushing the British on the White Paper policy. I can't be more definitive. H.M.JR: The last time I went to see Hull - not this time - Hull said to me-- MR. PEHLE: Volunteered-- H.M.JR: Yes. "I am studying the White Paper and I hope to be able to do something." To get our record straight, when Rosenman was over here he asked me whether I was doing anything on that. I said I wasn't. He said he was and not to get crossed up on it. MRS. KLOTZ: Rosenman? H.M.JR: Yes. MR. PEHLE: Now, Riegelman talked rather frankly about some of the people over there. In the first place he said - some of this he may have told you already - some of it I don't think he has. He said that Breckinridge Long, he is convinced, as he told you, is not anti-Semitic. I told him I didn't care whether Breckinridge Long was anti-Semitic or not; the thing was, he wasn't doing what he ought to. He said Breckinridge Long wasn't very smart and was scared to death of the Treasury, and you, and that obviously your talking with him had given him a severe shock - when you talked to Mr. Long outside of Mr. Hull's office. Riegelman said, in his own words, that it got Regraded Unclassified 18 - 4 - now so every time my name, even, was mentioned, Long stood up and saluted. So you get the feeling. Riegelman said that Long had told him that any time any of these matters came in, he could break into the office to get his approval, and they are really very much on the defensive. H.M.JR: That just doesn't add up, that is all. 1 mean, if they are 80 scared, why do they send a sneaky cable out, like that (snaps fingers). MRS. KLOTZ: But it does add up. H.M.JR: No, I mean if they are 80 afraid they would say, "Well, we are so scared of Morgenthau we better not send something we know the Treasury doesn't like without first talking to the Treasury--" MR. PEHLE: Let me go a little further. H.M.JR: Either Riegelman is one of the smartest, trickiest fellows I have met in a long time, or one of the dumbest. MR. LUXFORD: I would put it that perhaps he is inexperienced. MR. PEHLE: ne is smart in many respects, but we all know that he misjudged State and their motives completely from the beginning. But I don't have much doubt that they are terribly worried. Now, let me explain more fully what I think they are worried about. They are not concerned that the World Jewish Congress plan for France and Rumania will get very far, and my own feeling is that it will never get very far. They are very concerned lest the one thing that is done to save the Jews is the J.D.C. plan. Now, remember, the J.D.C. plan is Treasury from the beginning, because when it started the cable came in here that raised these conditions. Regraded Unclassified 19 - 5 - We sent & memorandum to you on August 26 which you approved. In this office I asked you if I could bring those facts to the attention of the J.D.C. They had not been brought to their attention. So we got the J.C.D. into the picture. H.M.JR: MR. PEHLE: So, this much I knew. We got the J.D.C. into the picture. They have the money, they are experienced, and theyare driving ahead. Now, if the one thing that is done in this field is the thing that the Treasury pushed, and State has done nothing, they are very, very worried about the situation. MRS. KLOTZ: That makes sense. That adds up. MR. PEHLE: At least Riegeiman, I am convinced, thought that the second cable to Harrison was 8. good thing. I don't doubt he thought it was a good thing. They are so worried about the whole situation now that they will do panicky things. I have no doubt about that. But I know they are worried. He told me they were worried that the only thing that will be done is this thing that the Treasury came in - he said Mr. Labouisse told him after they left me yesterday - "How can we explain about the Treasury giving the State Department orders to send out cables? we haven't any plan of our own; we haven't accomplished anything. How can we say the Treasury views aren't right?" H.M.JR: What made him say that? MR. PEHLE: To Riegelman. MR. LUXFORD: They recognize they are vulnerable. MR. PEHLE: Labouisse I have only seen twice, I think. As far as I know, he is on the right side of Regraded Unclassified 20 - 6 - the fence. He works for Acheson, which to me is a good sign. Now, Riegelman says the he and Labouisse, when they cleared with Hull - the cable containing the text of the license - put at the end of the memorandum - I don't know who signed the memorandum - Long was away at the beginning of the day - "I think you ought to authorize 8. group of us to re-canvass these problems in the Department and to prepare some plans. H.M.JR: Who said that? MR. PEHLE: It was said in the memorandum to Hull which Hull approved. H.M.JR: Who drafted it? MR. PEHLE: It was drafted, according to Riegelman, by Riegelman and Labouisse. The group to work on it are Riegelman, Labouisse, Livingston, Merchant, and Travers. He said all those people recognize that nothing has been done, that the Intergovernmental Committee isn't func- tioning, that the State Department is in & terrible hole and something should be done. Labouisse, particularly, said he was going to get into it. He was mad about it, and he said when he got into it, he was going to get in up to his neck. Now, I am very pessimistic about their accomplish- ing much, but it is an indication of what is going on over there. H.M.JR: I will say this much for Riegelman, he does tell us a lot. MR. LUXFORD: Wonderful. MR. PEHLE: Yes, he does. That was not told on the record or 1 am sure he wouldn't speak as frankly. But he did teil us B. lot. And it is useful to have him tell us that. Regraded Unclassified 21 - 7 - Now, he also made this point, that State Depart- ment doesn't think much of the World Jewish Congress. To what extent he was expressing his own views and not other people's, I don't know. He said that everybody over there felt that the Joint Distribution Committee was a fine organization and did effective work. Now, that has B. lot of ramifications, too. It is a more conservative organization. MRS. KLOTZ: Well, I think he belongs to the school that would think well of the J.D.C. and not the other. H.M.JR: The very first time I had him at the house he started to say that he had been in Africa and Egype, and began to talk about the Arabs and all that, and the World Jewish Congress in Palestine. I said, "Look, Billy, I am not interested in whether you are Semitic or anti-Semitic, one bit. MR. LUXFORD: But that kind of a cross-current is used to stop these things from going forward. MRS. KLOTZ: Because, unlike you - I mean, you don't give two whoops about Lionism, but at the same time, you are interested in finding a place of refuge for these homeless people. Ldon't feel he is a bigger person, by any means. H.M.JR: I agree with you. Miv. PEHLE: He wasn't sure, he said, that we recognized the importance of that message that went out in a hurry to the British Government that said we viewed their comments with astonishment. He said that this Government has only viewed things with astonishment in half a dozen cases in its history, and most of those were when we were ready to declare war on somebody. That is the strongest diplomatic language that can be used. Regraded Unclassified 22 - 8 - H.M.JR: The last word on that: I got a note from Oscar Cox yesterday that Huil had answered. We called up Hull's office and found he didn't have an answer and said if he didn't have an answer, would ne please send another cable to Winant, which he said he would do. That was yesterday. MR. PEHLE: I got the message, and Riegelman was asked to draft that cable. H.M.JR: "e kept you posted. We are good up here. MR. PEHLE: Riegelman also admitted that Breckinridge Long's testimony before that House Committee was deliberately misleading. It contained false statements and they were made deliberately to cover up the inaction of the State Department. MR. LUXFORD: I think we haven't any people over here, Mr. Secretary, that talk as freely to State people. MRS. KLOTZ: I was going to say before, I don't think he is very clever, because he can be loyal. H.M.JR: That worries me. If he talked that freely - I don't say anything to him - I don't want to say anything to Hull - but I know that there are people around who are friendly, who report things back, but I am always worried about - if they are going to be friendly, they can also be unfriendly. MR. PEHLE: I would be very careful, Mr. Secretary. It is also known around the Foreign Funds Control that he sees you socially. He mentions in every conversa- tion, "Well, when I see the Secretary next week" - he makes a point of mentioning it. I am sure he talks loosely. H.M.JR: Well, I don't know whether it is good or bad. MR. PEHLE: It is useful as long as we use him. Regraded Unclassified 23 - 9 - H.M.JR: You and I were both hot under the collar yesterday, but whether we moved too quickly-- MR. PEHLE: No, I think this is very good to have in the record, because it shows that not only is this man over there not a spy for the Treasury, but that we are mad at him. It is a wonderful thing. MRS. KLOTZ: I agree with that. It worked out that way. H.M.JR: You think so? MRS. KLOTZ: Oh, yes. MR. LUXFORD: By all means, give it to him. H.M.JR: You can't refuse not to. MR. PEHLE: May I say one more thing? H.M.JR: One more thing. MR. PEHLE: Mr. Leavitt said to me that he knew from sources outside the Treasury that you and Long had had & very strong talk about these things, and that Mr. Long was very affected by it. In other words, that is known now. H.M.JR: I didn't talk. MR. PEHLE: I didn't mean that. MRS. KLOTZ: That is the point, that they are doing the talking. MR. PEHLE: It is known outside the two Departments and it will have a very healthy effect. H.M.JR: You know he asked to see me. You were there. Regraded Unclassified 24 - 10 - MR. PEHLE: Yes, sure. Oh, I think all that is to the good, Mr. Secretary. H.M.JR: I did it very pleasantly. MR. PEHLE: Well, you must have been reasonably firm. H.M.JR: I was. You know what I told him, don't you? MR. PEHLE: Yes, you told us. MRS. KLOTZ: Would you repeat it again? H.M.JR: Well, what he told me, he said, "You know everybody thinks I am an anti-Semite." I said, "Not only that, but they think you are the number one in the State Department." So he said, "Well, you help to change that opinion. I said, "I don't know whether I can or not." MRS. KLOTZ: He said, "Will you help"? H.M.JR: Yes. I said, "They consider you the number one in the whole Department." The part that I thought of at the time - I told him this country was founded by religious refugees coming over from perse- cution all over the world, and it was founded as a refuge, and that was the concept of this country. He said, "Well, I agree." I said, "That is wonderful; we agree." It is true, you know. Regraded Unclassified 25 - 11 - MR. LUXFORD: Someone emphasized that in a news- paper column in the last two or three days. H.M.JR: People forget. MRS. KLOTZ: Yes, in another connection. H.M.JR: They forget why people came to this country in the first place. Every one of them were religiously persecuted people. Well, now when are you gentlemen going to have your opus on the State Department? MR. DuBOIS: Probably early next week, Mr. Secretary. H.M.JR: What is taking you so long? MR. DuBOIS: We have already gotten our material together. MRS. KLOTZ: There is a memorandum to you saying it will be ready next week. MR. PEHLE: It is a very vital document, Mr. Secretary, and the more we talk to the World Jewish Congress, and these people come in - it just adds to the evidence that you can build. H.M.JR: Did you get a good story from Leavitt on the children? MR. PEHLE: He is sending a memorandum on that. We are also asking him to come down. H.M.JR: You see - would you make a note to find out how many committees there are in existence to bring child refugees over here? I know there is a Marshall Field Committee, but how many more are there? Let's get that straightened out. I don't know whether they are all coordinated. You might find out from what's his name - the attorney for Marshall Field. Regraded Unclassified 26 - 12 - MR. PEHLE: You want to know the name? H.M.JR: Don't you know it? I will tell you in a minute. (The Secretary calls Miss Thompson on the White House phone.) Heilo, Tommy. Good morning. Tommy, on bringing refugees into this country - I know how much interest Mrs. Rooseveit has had. Is Marshall Field the only committee on this thing - the Marshall Field Committee - on bringing child refugees over here? Yes. Well, now who is the spark plug there? I mean, Marshall Field doesn't do it. The man who does the work. Could you let Mrs. Klotz know? Who is Marshail Field's attorney? Lewis Weiss. Just your own impression - does Mrs. Roosevelt have confidence in that Committee? Have they done much? Yes, well, I want to get the story. But what I want to know, who is the best person to talk to? Is it Weiss, or this other person? Would you let Mrs. Klotz know? I thank you. (End of conversation) 27 - 13 - H.M.JR: I think you will find that Leavitt said something about having gotten the attorney when he wanted the money. The attorney is Lewis Weiss. Don't you know who he is? MR. PEHLE: He belongs to a very good law firm in New York. H.M.JR: Yes, he is one of the best lawyers in New York. He is the attorney for "PM" and Marshall Field. The story is that it was he who got Marshall to go into these newspapers. MR. PEHLE: Oh, oh, I have seen a write-up. H.M.JR: Psychoanalysis, and all that - that they needed something to express themselves. MR. PEHLE: There is a very interesting article on that. H.M.JR: Well, somebody once said of him that he said, "Through psychoanalysis I got some of my best clients.' MRS. KLOTZ: Oh, yes, he and Marshall Field. H.M.JR: Then he got Marshall Field to do this to express himself. It has done wonders for Marshall Field. MRS. KLOTZ: And for everybody else. H.M.JR: What is the name of Marshall Field's psychiatrist? It is a foreign name - anyway, I don't know but what Weiss wouldn't be as good an approach as any. Mrs. Roosevelt is going to town on this thing. MR. DuBOIS: You would be surprised, Mr. Secretary, at the amount of Congressional interest and criticism of the State Department. We have been going through the Congressional record on this thing. There have been a lot of speeches by various Senators and Congressmen. 28 - 14 - H.M JR: Good, there is nothing now; we are sitting tight. Did the J.D.C. cable go? There are three now; the one for the World Jewish Congress, the one for the children of France - was there a third one? MR. PEHLE: Yes, the one through the Vatican. I don't know whether it has gone yet, but it is going. We'll keep after it. H.M.JR: All right. Now go back and take care of I.T. and T. MR. LUXFORD: We will. H.M.JR: Well, I did, you know. I told them when they were about to sell the thing for nineteen million dollars-- MR. PEHLE: The Spanish thing-- H.M.JR: The Spanish thing was stopped? MR. PEHIE: The Rumanian thing they got through when nobody else did. It was before the policy was fixed and they went to the President. H.M.JR: Are you sorry? MR. PEHLE: Oh, sure. H.M.JR: But we did stop the Spanish. MR. PEHLE: Yes. H.M.JR: What are they trying to do now? MR. PEHLE: They want to borrow twenty million dollars from the Swiss, and the Swiss are interested that they get paid back in free dollars so it will be exempt from our control. So they are working out a big deal that involves the U.S. Commercial Company and pesetas and gold. But if we understand it, the crux of the matter is that I.T. and T. are trying to get favor- able terms from the Swiss because they can deliver it free from the U.S. Government control. 29 - 15 - H.M.JR: Just remember, Leo Crowley is now in a position - at no time was he in so much of a position to like the Treasury. Not only have we got all this other thing, but this "Q" regulation of the Federal Reserve Board - it is a life and death fight between him and the Federal Reserve. Whichever way we go, it will be settled. But don't use that unless it is something good. Wait a minute, didn't I send one of the three of you something about Gillette getting safty razors out of Germany? MR. PEHLE: You sent it to Mr. Paul. MR. LUXFORD: That was signed by Mr. Paul last night. MRS. KLOTZ: Yes. MR. PEHLE: We figured out Mr. Riegelman must have told you about that. H.M.JR: That is right. MRS. KLOTZ: They are spies, Mr. Morgenthau. MR. PEHLE: I am going to tell him not to tell you things and require us to do a lot of work. H.M.JR: Are they doing things? MR. PEHLE: Swedish subsidiary, in defiance of our orders and the orders of the head office, got razor blades from Germany. They sell them to Sweden. H.M.JR: Oh, I was afraid I was using some the Nazis made and might cut myself and bleed to death. MR. PEHLE: Selling them in Sweden. H.M.JR: A Gillette branch? 30 - 16 - MR. PEHLE: They have branches all over the world. H.M.JR: But when I get a Gillette blade made in U.S.A., it is made in U.S.A.? MR. PEHIE: Yes. MR. LUXFORD: It is still contrary, though, to our Trading with the Enemy provision. H.M.JR: All right. MR. LUXFORD: It is not all right, out we can't do anything about it. H.M.JR: Incidentally, we had Lord Halifax and Mr. Ben Smith, who I thought might be the American specula- tors. He is the new head of Procurement for the English, and Sir David Waley, and according to Harry White and Oscar Cox - about dollar balances - we just gave them the works this morning. We had 8. very successful meet- ing on dollar balances. Acheson was there. Waley just left himself wide open and I picked it up and both Cox and White were very pleased. We did a beautiful job. MR. LUXFORD: Is this the one Preston said you had a month on? H.M.JR: Yes. MR. LUXFORD: You didn't waste any time. H.M.JR: No, no, Waley is leaving tonight. We did a beautiful job. The thing they said was really very funny - just to gossip 8. minute - "You are doing it for Russia, why not for us?" Crowley said it was a good answer. I said that when Stalin met with these people and they started talking, Stalin said, "How many English divisions are fighting the Germans today?" They said, "About three." Stalin said, "United States, how many have you got?" "About three." So then he told them how many the Russians have - three hundred, or whatever it is. 31 - 17 - So then he said, "How many casualties have you had since the beginning of the war?" Each country told him. Then Stalin said, "Every morning before breakfast we Russians have that many casualties." And today - because we didn't want to be rude - but when they ask why we don't question the Russians, when the English - how many years have they been in the war? Four years? And they have got three divisions facing Germans today - maybe four. I don't want to exaggerate. That is all they have got fighting the Germans. MR. PEHLE: That is the bestanswer, too. H.M.JR: They beat their breasts - why don't we question the Russians. MR. LUXFORD: You didn't get a chance to read that memo on the Russian matter, did you? H.M.JR: Which one? MR. LUXFO RD: The one we were talking about the other day. H.M.JR: I have got to go downstairs. You fellows approached that thing wrong. MR. LUXFORD: We understand that fully. H.M.JR: I want to see the economic thing first. We will find a legal way to do it. MR. DuBOIS: We have got it, Mr. Secretary - the appendix. It has got the economic and political and military all in there. H.M.JR: All right, but I want to find out what is the potential trade. You fellows missed that. MR. LUXFORD: In the analysis we made of it, it didn't make any difference. The military and political signifi- cance is greater than the other. 32 Mr. Riegelman of State dictated over the telephone late Saturday, January 8, 1944, the following paraphrase of a cable from Winant: London 139 January 7, 1944 8 P. M. Referring to my 8826 dated December 19 I held further dis- cussions personally with Mr. Eden relevant to the problem of issuing licenses covering the financial transactions involved in the evacuation from France and Rumania of certain Jews re- ferred to in Department's 7506 of November 27 and 7969 of December 18 and Mr. Eden has just addressed a letter to me in this connection. The foreign office, he advises, has contacted its Embassy in Washington regarding this topic and Lord Halifax has received instructions which, in his conversa- tions with Mr. Morgenthau, indicate the lines which he is to follow. The following is a quotation from Mr. Eden's letter which I offer for the purposes of the record: "Briefly stated this Government finds itself in agreement with the United States Government insofar as the financial aspects of the question are con- cerned. It is our feeling nevertheless that re- sulting from the proposed financial measures trans- portation and accommodation problems may develop which might be embarrassing not only to this Govern- ment but to your own. Subject to this reservation and to the indicated safeguards this Government is prepared to agree with the financial proposals. It is my presumption that no further detail in this connection is required at this time in view of the fact that the question will now be directly dis- cussed by Mr. Morgenthau and our Embassy and it is my hope that the results of such discussions will be to our mutual satisfaction." You are requested to inform Secretary Morgenthau. Winant. Regraded Unclassified H 33 33 January 7th, 1944. Memorandum on the Evacuation of 5,000 Children From France In July and August, 1942, large scale deportations of refugee Jews from France took place. At that time parents were given the choice of either taking their children with them or leaving them in the custody of child care organizations. Vany parents chose the latter alternative and as a result thousands of children became a charge upon an organization known as the OSE, a medical and child care agency which has been subventioned by the J.D.C. for many years. Efforts were started immediately, as a result of requests from France, that a 1,000 children be brought out of France to the U.S. The U.S. Committee for the Care of Euro- pean Children was approached and agreed to sponsor the admission of these children, giving the requisite guarantees for their maintenance and care. The State Department agreed to authorize the issuance of quota visas for the chil- dren on the basis of a letter of guarantee sent to the Attorney General by the U.S. Committee. The J.D.C. agreed to underwrite 4/9ths of the cost of trans- portation and maintenance of the children. As the deportations increased in volume there were many more children for whom it was deemed imperative that visas be secured. The matter was again dis- cussed with the State Department and visas for an additional 4,000 children were promised by the State Department under the same conditions as before. In the meantime, during the months of August, September and October, the problem of getting the first group of one thousand children ready for emigration, having them brought to the American Consulates for medical examination, and securing the personal data, was being carried on by representatives of the Quakers and JDC in France. Other organizations keenly interested in the evac- uation of the children included the International Y.M.C.A. and the local French refugee bodies. Although permissionhad been secured in principle from the Vichy authorities for exit visas for the children, this was renewed and revoked during the month of October. Finally, as a result of the strong pressure of the American Charge d'Affairs, Mr. Pinkney Tuck, the authorities agreed to let the first 500 children leave the country. The children were all assembled, baggage packed, train travel arranged for, the snip chartered for their passage. A group of 28 escorts consisting of pediatricians, child care workers and trained social workers was assembled to be sent to Lisbon to escort the chil- dren to this country. The boat on which the escorts left departed for Lisbon on November 7th, 1942. The American invasion of North Africa on November 7th closed the borders of France with the complete occupation of the so-called un- occupied section of France. Despite the efforts of the local French committees to secure exit visas for the children, they were not forthcoming. Donald Lowrie, who was in charge of the International Y.M.C.A. working in France, went to Switzerland and from there undertook to secure the entrance of the children into Switzerland. The Swiss authorities took the position that they would have to have the guarantee of a responsible government that the children would be re-evacuated after the war. This request of the Swiss government was taken up with the State Department and with the British government. The State Department pointed out that it was impossible for it to give such a guarantee Regraded Unclassified 34 - 2 - to the Swies government since it meant in effect binding a subsequent admin- istration for the issuance of visas to children who might by the end of the war become adults. It is believed that this problem was discussed at the Bermuda Conference on Refugees. The suggestion that arose from the Bermuda Conference was that the Allied Nations join in a declaration to the neutral countries pledging that they would re-admit to their respective countries all refugees who were forced by reason of persecution to leave those countries. It took many months to secure the consent of all the governments concerned to subscribe to such a declaration. The text thereof has not yet been made public. We believe that the Swiss government was persuaded to approach the Vichy authorities to permit the children to leave France by via of Spain. This request of the Swiss government, which was based entirely upon humanitarian grounds, was refused by the French. Nevertheless, Donald Lowrie and repre- sentatives of the JDC and other agencies in Switzerland have continued to press the Swiss government to make a second demarche to the effect that Switzerland herself would be prepared to give asylum to the children. Swit- zerland has continued to request the formal guarantee of re-evacuation. On November 11th, 1943, the Colonial Secretary announced to the House of Commons that the unused portion of the Palestine certificates authorized under the White Paper, viz. 30,000 immigration certificates, would remain available for use after March, 1944. The Colonial Secretary stated that due to the war, it was not possible to fill the quota under the White Paper and therefore the life of these certificates would be prolonged indefinitely. On the basis of this announcement the JDC approached the State Department and asked whether there was any objection to our going to the British Embassy requesting that the British government set aside sufficient Palestine certi- ficates to assure the evacuation from Switzerland of the children after the war. In this matter a requisite guarantee could be given to Switzerland. The State Department interposed no objection whatsoever to such a proposal and this was made to the British Embassy on November 23rd, 1943. Mr. Hayter of the British Embassy agreed to transmit this suggestion to the Foreign Office in London. Subsequently, we were advised that the State Department had associated itself with this request and had likewise communicated with the Foreign Office to have such certificates set aside for these children. On January 3rd, 1944 (letter dated Dec. 31, 1943) the JDC received a letter from Mr. Hayter, copy attached hereto, pointing out that the Palestine gov- ernment would find difficulty in reserving such certificates until after the war and expressing the hope that the general assurance given to the neutral states about the eventual repatriation of refugees might be sufficient to meet the requirement of the Swiss government. The JDC replied as per copy attached. On December 28th, 1943, the JDC was asked by the State Department whether the guarantee which had been given by the U.S. Committee for the maintenance of 5,000 children in this country was still valid and whether reaffirmation of this guarantee would be given. Such a reaffirmation was agreed to by the U.S. Com- mittee and a letter sent to the Attorney General confirming the readiness of the Committee to provide for 5,000 children in the event they were admitted to the U.S. The JDC agreed to underwrite approximately $2,000,000 of the estimated cost of some 4-41/2 million dollars which the guarantee entailed. On the basis of this reaffirmation, the State Department notified the British government that Regraded Unclassified 35 - 3 - it stood ready and renewed its offer to take 5,000 children under the original plan which it had approved in October, 1942. The whole question of the guarantee and of the children was to have been discussed at the meeting of the Intergovernmental Committee on January 4th, 1944, but the outcome of that meeting is not yet known to us. We have recently been receiving urgent cables from Switzerland requesting that the necessary guarantee be given to the Swies government. Such a guarantee can only be given by a responsible government since no private agency would be in a position to assure the Swiss authorities that it would be able to move the children out of Switzerland when the war is over. It is of interest to record that during the period when the plight of these children was made known in the Fall of 1942 other countries came forward to guarantee asylum to the children. For example, Canada stated it would take 1,000; Argentina agreed to take 1,000; several other South American countries agreed to take smaller numbers. The President of the Dominican Republic offered to take 3,500. At one time, counting certificates available to the Hadassah, that there were 20,000 visas available for the children, although the top number of children who could be evacuated was probably not more than half that number. It should finally be recorded that about 120 children from Spain and Portugal were brought to the U.S. under the guarantee of the U. S. Committee. Restrictions as to the children were set up: children of enemy nationality had to be less than 14 years of age; children of Allied nationalities had to be less than 16 years of age. There was no minimum limit on the age of the children. As of the date that this memorandum is being dictated, it is unknown whether the requisite guarantees have been or will be given to Switzerland so that she could make the necessary approach to the French authorities to permit the children to leave either via Spain, from which they could emigrate to the U.S., or to enter Switzerland for the duration. At the present time, children are being deported from France and there is a relentless hunt being conducted by the Gestapo to locate the children hidden in private homes in order to intern them into concentration camps in preparation for their deportation eastward. Moses A. Leavitt MAL:JO Regraded Unclassified ABLINE ENDED 36 British today that 5 legally en- but have of the war tions Oliver who House indicated, however, wold be M change in laid down in the May, I for the admission to of T8,000 Jewish tmml- period of five years $1, 1944, sub- ject to the eriterion of the segnom- to absorytive especity of the coun- try," Partiament. "It was contemplated that Charo should quots of 10,000 and addition, as B contribution toward the solution of the Jewish problem, $5,000 would be as adequate pro- maintenance was the ful- The entered Magally up against & be admitted system. 01,078 before with has I and empluation that it to close the Chose persons - accessed factor," COPY 37 BRITISH EMBASSY WASHINGTON 8, D. C. December 31st, 1943 (Received Jan. 3, 1944) Ref: 608/26/43 Dear Mr. Leavitt, We have now had a reply from London about the suggestion you made to me for a guarantee to the Swiss Government that a cer- tain number of Immigration Certificates into Palestine be re- served for refugee children who escape to Switzerland. The Foreign Office tell us that there would be difficulty in committing the Palestine government to guarantee the reserva- tion until after the war of a number of Immigration Certifi- cates. They hope, however, that the recent assurance to neutral states about the eventual repatriation of refugees should meet the requirement of the Swiss Government to some extent. I believe that the whole subject is to be considered by the Executive Committee of the Inter-governmental Committee on refugees at its meeting on January 4th. Yours very sincerely, W. G. Hayter Mr. Moses A. Leavitt, Secretary The American Jewish Joint Distribution Committee, 270 Madison Avenue, New York, 16, N. Y. 81708 Regraded Unclassified Regraded Unclassified January 7th, 1944. Mr. W. J. Hayter British Embasay Washington 8, D. C. Ref: 608/26/43 Dear Mr. Hayter: It was with the greatest disappointment that we received your letter of December 31st advising us that your Foreign Office stated that there would be great difficulty in committing the Palestinian Government to guarantee the reservation of a number of immigration certificates until after the war. The suggestion which we made to you was based on the assumption that if these children who are now in dire danger of deportation and death were in a nou- tral country there would be no question but what Palestine certificates would be available to them for entering Palestine. In effect, we were asking for these certificates to be issued to the children now, with the reservation that they would be - route to Palestine only after an indefinite stay is Switserland. The lives of the children would in that way be saved. We have just recently received word from our correspondent in Switserland that deportations of Jews free France are continuing, that there are now 1,500 new children whose parents have been deported and for whom there is the gre- vest danger of being picked up and likewise deported. To understand that our Department of State has just renewed its offer to take 5,000 children from France under the original plan for accepting such refugee children from that country which had been agreed to by the United States Government before the rupture of relations with France in November, 1942. Be would take the liberty to urge you as strongly as we can to communicate with your Foreign Office again for a reconsideration of the position taken, as outlined in your letter to se. To very such doubt that the general assurance, which I as glad to note, has been given about the eventual re- patriation of refugees, would meet the special request which has been made by the Swiss Government that the United States and British Governments guarantee the evacuation of the children after the war. When we discussed 3 Ir. ". s. Hayter 2. January 7th, 1944. this suggestion with our overseas Chairman, Dr. Schwarts, he stated that when he was in Switserland and conferred with the Swiss authorities on this problem, they were adamant on the condition that a responsible govern- ment extend such a guarantee. They were not prepared to take the guar- antee of either & private agency or of a provisional government. Sincerely yours, Moses A. Leavitt Secretary MAL:JO Regraded Unclassified 40 January 7, 1944 2:27 p.m. HMJr: I have an idea which I think might interest you. Fred Smith: Good. HMJr: As a result of this release on liquor, see? S: Yeah. HMJr: And when they talk about liquor not even being imitation whiskey, but it's just colored distilled spirits. S: Yeah. HMJr: Now, I know that when they started to clean up Georgia, because I got a memorandum on it, they found that a house in Brooklyn was sending stuff down to Georgia, and from there it was being sold. S: Yeah. HMJr: I wonder why we can't, in my chart room, get some of this stuff, show what it looks like, have a little picture, map of Brooklyn, and show how it goes down to Georgia and then what it sold for and the whole thing, you see? What it needs is a good window-display man. S: Yeah. HMJr: You can get one from the department store here -- what's the one that's so cooperative? S: I know there is one. Ted will know. HMJr: Yeah. And put on a little exhibit. S: Uh huh. HMJr: And if it looks all right -- Hecht's is the one, I think. S: Yeah. HMJr: We could then bring in the boys and say, "This 18 the way the thing is done, and this is what we are doing about it." S: Uh huh. Regraded Unclassified 41 - 2 - HMJr: And show them -- they'd love to see the kind and what it sells for -- how it goes from Brooklyn down to Georgia and what happens to it. S: Yeah. HMJr: One of the things I think you'll find is that when they put on a label "Colored Distilled Spirits" it's most likely so small that nobody will be able to see it. S: Yeah. HMJr: That's one of the things we can change because we control the labels. S: Uh huh. HMJr: See? S: Yeah. HMJr: And, supposing -- if we're going to do something I want to do it quick. See? S: Okay. HMJr: Now, the case -- the report the stuff that they did down in Georgia recently would be as good as any. S: Yeah. Well, I'll get right on it, right now. HMJr: And contact somebody and let's see how it looks. S: Okay. HMJr: But this 18 straight public relations a la Morgenthau. S: A la Morgenthau. (Laughs) On pie. HMJr: On pie. S: (Laughs) Okay. We'll get right at it. HMJr: All right. Regraded Unclassified 42 January 7, 1944 3:30 p.m. DISPOSITION OF SURPLUS COMMODITIES Present: Mr. Sullivan Mr. O'Connell Mrs. Klotz MR. SULLIVAN: And I fought for an hour and a half with him. He said, "It is altogether too much work. You have these eleven regional offices; there will be 80 many thousands of items in each one." I said, "Cliff, if you are going to sell a million suits of underwear in New York, doesn't it make any difference to you whether you have five million in Philadelphia or not?" He said, "It might, but it is an awful lot of work getting the statistics together. That is the basic thing you go ahead on, and you never can map out with any intelligence, merchandise--" H.M.JR: What is the matter with the man? MR. SULLIVAN: When we got out of the hearing this morning, he said, "I am inclined to think you may be right about that. There is such a thing as being too close to the Treasury." H.M.JR: I am trying to get the man from Portland, Oregon. Did Ted tell you? MR. SULLIVAN: No. H.M.JR: He has a store out there - the best department store - the most successful on the whole Regraded Unclassified 13 - 2 - Pacific Coast. It may not be the biggest, but it is the most important. He owns it. The fellow lost his wife. I just had & feeling he might want a man about fifty - very, very able merchant. But he has no ties. He must be terribly rich, because - I don't know, a store like that, I wouldn't be surprised, would make a half million dollars a year. MR. SULLIVAN: We are going to need three or four people like that. H.M.JR: He knows where we could get merchandising fellows, because I imagine, in his store - twenty-five million a year, which for Portland is something-- (Mr. O'Conneil entered the conference.) MR. SULLIVAN: The more I get into this the more convinced I am that we need a chain-store fellow, too. H.M.JR: This fellow has no connections, no Wall Street connections - nothing. That is what I was looking for. I think the fellow is Frank, of Meier and Frank. MR. SULLIVAN: That is what you had in mind when you said I shouldn't go any further with calling those people? H.M.JR: Yes, because I don't want to get people connected with Lehman Brothers, and all the rest. This fellow doesn't have to be financed. You might get hold of Meier and Frank. Hewas married. He married the boss' daughter and finally has the whole business himself. Regraded Unclassified 44 - 3 - MR. O'CONNELL: I don't have much of a gang. Lynch went home sick and Mac left a few minutes ago. Mac wanted us to get together with you today, and I suggested putting it off until Monday because there were a couple of subcommittees tomorrow. MR. SULLIVAN: Joe is right. H.M.JR: You want me to set a time now? MR. O'CONNELL: Certainly Monday we will be ready. There are several meetings tomorrow. Mac wanted it today, I think - I know he did, in fact. MR. SULLIVAN: They only had one they could report on. H.M.JR: How about three o'clock Monday? MR. O'CONNELL: Sure. H.M.JR: What do I call it? MR. O'CONNELL: The Baruch Committee or contract termination. MR. SULLIVAN: It is your post-war group. MR. O'CONNELL: Then I will tell McConnell. MR. SULLIVAN: Norman Cann is coming back. Bob rushed the news over here yesterday thinking we might want to give a press release, because one part of the Knutson story was that the key men had left. I told Bob to keep the information to himself, that if it was ever to be used for that purpose, the time to use it was after Congress got back and not while they were away. H.M.JR: I just sort of mentioned in passing - old man Doughton was down today. He walked in here Regraded Unclassified 45 - 4 - with what looks like a five-pound box of candy for Mrs. Morgenthau. So that is how he feels. I simply mentioned it. "Well," he said, "that is the kind of thing you have got to expect. You can't get anything out of the Bureau." He gave me case after case of waiting three and four months. I told him - I said, "Look, the next time that you have got something you don't think is right, will you call me on the phone?" He said, "Absolutely." I got the word from somebody - - oh, you told me-- MR. SULLIVAN: Last night. H.M.JR: I am not going to worry. MR. O'CONNELL: Did you talk to Stanley? MR. SULLIVAN: Yes. MR. O'CONNELL: Surrey made such checks as he could on the staff working with the Minority, and he was convinced it was a one-man show on Knutson's part. H.M.JR: Surrey didn't get that? MR. O'CONNELL: No, Surrey talked to the Minority Clerk, and that sort of thing. H.M.JR: Nobody reported to me. MR. O'CONNELL: I just learned it late last night and was going to report it to you today, and when Randolph left he told me what Hannegan told you (Sullivan) last night - all in the same tenor, that Knutson was on his own, that he hadn't talked to the other members of the Minority on the Ways and Means Committee as far as the Clerk knew, though he didn't write them. (Mrs. Klotz entered the conference.) Regraded Unclassified 46 - 5 - MR. SULLIVAN: George was very cordial this morning, personally. H.M.JR: Did he call you John"? MR. SULLIVAN: Yes. (Laughter) H.M.JR: Have we sold our horses yet? MR. SULLIVAN: We have been doing all right on them. This meeting this morning was a good meeting. H.M.JR: What committee was that? MR. SULLIVAN: It is the subcommittee on this particular subject, and it is a part of Senator George's post-war committee. The main issue they are going to decide is whether or not Congress should set up an over-all commission to decide general policy questions in directly operational agencies. MR. O'CONNELL: In all post-war matters. MR. SULLIVAN: Disposition of surplus materials and plants. H.M.JR: Are they going along the same track as Mr. Baruch? MR. SULLIVAN: Fairly parallel, I think. (The Secretary had a telephone conversation with Mr. Doughton, as follows:) Regraded Unclassified cc-D. W. Bell 47 January 7, 1944 3:50 p.m. HMJr: Hello. Robert Doughton: Hello. HMJr: Henry talking. D: Yes, Bob Doughton. There's a matter I forgot that I aimed to mention to you, Henry, and that is the Federal Reserve Board has recently promul- gated an order, or is promulgating one, requiring the State Banks to clear their checks at par. HMJr: Yes. D: Now, they don't allow -- they can't get any interest on their deposits from their correspond- ing banks and to go -- they're very much upset about it down there. I've got a brother who 18 President of a chain of small State Banks and I had a letter from Mr. W. H. Wood today sending a copy of a letter he had sent to Mr. Spence, Chairman of the Banking and Currency Committee here. HMJr: Yeah. D: Mr. Wood is President of the American Trust Company, the largest bank in our State, at Charlotte. And they are very much upset about it, and it's going to knock a lot of the small banks out of business. Above all things, that ought not to be done right now. We've got enough trouble down there without putting any more salt in their sores, and if that could be headed off at least until after a certain date later on this year -- at least. HMJr: I see. That date wouldn't be November, would it? D: How's that? HMJr: That date wouldn't be November, would it? D: That's what I had in mind. If it has to be done, you know, it would be a most inopportune and unfortunate time now. Regraded Unclassified - 2 - 48 HMJr: Yeah. D: Get all the little banks, you know, mad and they've got a lot of influence. With all the other trouble we've got, I don't know where we'd be. I just thought maybe you'd be able to get in a word somewhere about it high up. HMJr: Well, I've been a kind of a by-stander. This 18 something between the Federal Reserve Board and Crowley. We've been sort of on the side- lines, but I'll look into it, Bob. D: I understand that the F.D.I.C., Federal Deposit Insurance Corporation, which has, you know, the responsibility for these bank -- insuring these bank deposits. HMJr: Yeah. D: that they are very much opposed to it. That's what Mr. Spence told me today, the Chairman of the HMJr: That's correct. D: ....Committee on Banking and Currency. HMJr: That's correct. D: Yeah. I do hope they won't put that order into effect right now if there's anything that can be done. It's really serious. HMJr: Well, right now, I'm kind of the ham in the sandwich -- I'm in between two pieces of bread on that. D: Yes. Well, I just called it to your attention. I don't know whether you should do or could do. I just thought I'd familiarize you with it. HMJr: Well, now that you've called me, I'll look into it much more than I have. D: Well, I thank you very much. HMJr: Righto. D: Good bye. Regraded Unclassified 49 - 6 - H.M.JR: I haven't had good reason to take sides; now I have. MR. O'CONNELL: That is quite a fight. H.M.JR: Oh, boy, oh boy! When Leo gets mad he gets red in the face. Leo pulled & fast one. He has got about all he can swing. MRS. KLOTZ: I am going to sit down and cry. It breaks my heart, it is 80 sad. H.M.JR: Crowley said, "I tell you what I have de- cided to do. It is very embarrassing for you to have to make up your mind and advise Preston Delano what he should say when he testifies for Banking and Currency, on this "Q" regulation, so," he said, "I went around to see the Chairman and I told him I thought it was & waste of time to call Delano." He said, "That will sort of relieve you of trying to make up your mind. MR. SULLIVAN: Leo did this? H.M.JR: So I said to Leo, just as we were going into the State Department, on English dollar balance, I said, "You know, Leo, I have kind of got my mind on something else, it may slip me. Would you mind telling Bell about this yourself?" "Why," he said. "This confidence man, Ransom, runs up there and they tell him to take five or ten minutes. He has been there ten days testifying." I can say this for Leo, that has been on the books for ten years. Now they suddenly dig it up just as soon as Steagall dies. Why it has been on the books ten years-- MR. O'CONNELL: It has, too. Regraded Unclassified 50 - 7 - H.M.JR: I have been kind of leaning a little bit Leo's way. I think that Preston Delano, down the hail there - it does look to me as though it is the last thing for the little banks. What it is, is this: The little banks - I think you have to pay ten cents on & check. MR. O'CONNELL: Five, I think. H.M.JR: So the Chase Bank says, "You send it in to us and we will clear it for you and not charge you anything. MR. O'CONNELL: They will absorb the charge. H.M.JR: "Leave the extra money you have on deposit with us." The law says you can't pay interest on demand deposits, but if they clear all their checks for them and absorb that five or ten cents, it is equivalent to paying interest. What I am telling you, Ransom took a half hour to explain and then I didn't understand it. It does help the little banks, and the banks like to take it in their stride. It is a nice convenient thing. But one bank down in Jacksonville had seven hundred thousand deposits and decided to do the same thing, and over night it got seven million deposits on it. Whichever way I go, I am in the soup. How do you know so much about this? MR. O'CONNELL: Norm Tietjens taiked to Cy Upham about it. We are having our lawyers look into the thing a little bit from the legal angle. H.M.JR: Now it is political. Just stall it until a certain date. Regraded Unclassified 51 - 8 - MR. SULLIVAN: Incidentally, when you see the President you might remind him that it is just five weeks from Tuesday until the slate is filed in New Hampshire. Dogradod 52 Treasury Department Division of Monetary Research D Date Jan. 8, 1944 19 Yes Miss Chauncey The original of this letter was handed to Mr. Fitzgerald yesterday just prior to the Secretary's appoint- ment with Sir David Waley (at 4:00). The Secretary signed the letter and handed it to Sir David. L. Shanahan MR. Branch 2058 - Room 2141 53 January 7, 1944. Dear Sir Johns You have doubtlessly been informed of the conference held in Secretary Hull's office this morning on the subject of lend-leasing certain categories of items to the British Empire. is you know, in addition to Secretary Hull, there were present among others Lord Halifax, Sir David Walay, Mr. Crowley and myself. I an glad that Sir David Welgy will be able to explain to you personally and in detail the views which we expressed at the conference. I should like to take this opportunity to express our admiration for the effective manner in which Sir David has carried out his difficult duties in Washington. With best wishes for the New Year. Sincerely, Sir John Anderson, Chancellor of the Exchequer, London, England. 1/7/44 - Miss Ayers handed to Mr. Fitzgerald. HDW:grs 1/7/44 FILE COPY Regraded Unclassified 54 January 7, 1944 4:11 p.m. Operator: Operator. HMJr: Hello. Operator: Yes, sir. HMJr: Mr. Gray, from the State Department -- he's on the wire -- Fitz' wire. Operator: There you are. David Gray: Hello, Mr. Secretary. HMJr: Mr. Gray. G: Yes, sir. HMJr: What I find is this -- we got a memorandum, at least I did, from the President on the question of French currency. G: That is -- that 18, after operations or something? HMJr: Well, no, the question of printing it, you see? G: Uh huh. HMJr: What should be on it. G: : Yes. HMJr: Mr. White was trying to get hold of Mr. Dunn and has been unsuccessful, trying to explain to Mr. Dunn what it was. You see? G: Uh huh. HMJr: As I understand, heretofore, our contact on this has been with Mr. Dunn. G: Yes, sir. HMJr: And it's a question of our printing currency, and for some reason, to our surprise, the President has taken some very strong personal position. G: I see. Regraded Unclassified 55 - 2 - HMJr: Now, what I will do is, I'll have Mr. White send over to Mr. Hull, attention of you, right away.... G: All right, sir. HMJr: ....a copy of this memorandum which came in to me and it's based on that. G: I see, sir. HMJr: Now.... G: Well, then I'll take it right in and then I'll call.... HMJr: I had thought that that had gone, but the reason it hadn't gone was that Mr. White hadn't been able to get Mr. Dunn. G: I see, sir. HMJr: But, I'll.... G: I'll just wait for the memo, Mr. Secretary, and then I'll -- we'll call you back as to who'll be there. HMJr: I thank you: G: Thank you very much, sir. HMJr: Bye. 56 January 7, 1944. My dear General Clark: It was 8. pleasure to receive your letter of December 27 with the news that the apples arrived in good order. You were more than kind to tell me that the Drew Pearson column was not based on anything you had written. I was entirely sure that it was not and I regret only the annoyance it may have caused you. I continue to draw inspiration from my visit to the front with you. It gave me a point of view that enables me, I think, to keep my eye on the ball and to work more effectively. We are just about to enter on the Fourth War Loan campaign with good prospects; for I think there is a good deal more realization now than a few months ago that we at home are an essential part of the team with you at the front. The tanks went to Aberdeen for a looking over. We expect to get them soon. I send most sincere regards coupled with most fervent and prayerful good wishes for all that lies ahead of you and your men. Sincerely, (Signed) Henry Morgenthan, Jr. Secretary of the Treasury. Lieutenant General Mark W. Clark, USA Headquarters Fifth Army A.P.O. #464 c/o Postmaster New York, N. Y. wr Regraded Unclassified 57 January 7, 1944 My dear Mrs. Clark: I thought you might be interested in the letter which I received from General Clark; also a copy of my reply to him. With kindest regards, Sincerely yours, (Signed) H. Morgenthau, Jr. Mrs. M. W. Clark, Kennedy-Warren Apartments, Washington, D.C. Regraded Unclassified 58 HEADQUARTERS FIFTH ARMY Office of the Commanding General A. P. 0. #464 December 27, 1943 Hon. Henry W. Morgenthau Secretary of the Treasury Washington, D. C. Dear Mr. Morgenthau: The beautiful box of apples arrived today in fine condition, and I want to thank you for sending them to me. They will be & great treat for me and my immediate staff. Although some apples are now coming into the market in Italy, they do not compare with our American fruit, and particularly the ones which you have sent. I hope the tanks which we sent to you finally reached their proper destination and that you were able to make use of them in your War Bond drives. I was shocked yesterday to receive & clipping of an article by Drew Pearson in which he quotes me as resenting official visi- tore coming into the Fifth Army area in Italy. He inferentially indicated that I was referring to your visit here. Needless to say, I have never made such a statement, for my views are entirely the opposite. I have always felt that it w&s advantageous for both civilian and military officials to visit this theater in or- der to obtain first hand information on the situation and of the difficult terrain through which we are fighting. Besides, visi- tors like yourself, when appearing among the troops, are & stimu- lus to their morale for it makes them realize that the people in official positions at home are interested in their welfare and are here to see how they can help. As a matter of interest, I am always consulted before visitors come and have in every case in- dicated my desire to have them visit our area. Our progress has been slow for, as you know, the terrain has been difficult. However, we are advancing and will continue to do so, Again thanking you for the fine present, I an Yours sincerely, mark W. Charly MARK W. CLARK Lieutenant General, USA, Commanding. Regraded Unclassified 59 January 7, 1944 Dear Anna: I was delighted to sign the 51 citations which you sent me on January 4th. I hope that the Victory Square meets with great success. Affectionately yours, (Signed) Fenry Mrs. John Boettiger, The White House, Washington, D.C. Regraded Unclassified RO THE WHITE HOUSE WASHINGTON Jan. 4", '44 Dear Henry - Here is some thing I wrote you about a louf time afo, and which to take care of. I hate you said you would try to be a pest but we (John & I) did jet this damn victory S guare started and it has done a food job If to 4.4. in the a.m, but will be back Saturday. Love toyou and This It Anna 61 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau January 7, 1944 FROM Fred Smith Here are the Fourth War Loan speeches that we have agreed upon: January 17, 9:00 - 10:00 PM, will be the opening broadcast. Dudley is working on he show, of which you will be a major part. It will not be & speech, as such. January 19: You are to speak in Cincinnati, in the evening. The audience will consist of several hundred of our bond workers from that area. Some time between the 20th and 23rd you are making a. five minute speech as one of the governmental leaders who are scheduled to plug the War Loan Drives. On January 30, we will take over "We the People." At present that is scheduled for Springfield, Illinois, but Levy is coming to Washington Monday and we think we can find a better place, to develop a newer and better story than Lincoln. The above are the only speeches so far scheduled. Ted wants you to speak sometime during the drive in New England, and in New Orleans or Texas. You would like to go into the far middle west. Ted would also like you to do a report to the nation in the closing of the drive. Regraded Unclassified WAR FINANCE COMMITER UNITED STATES TREASURY 62 WAR FINANCE COMMITTEE FOR OHIO Third Area Committee Cin'ti Gas and Electric Building Fourth and Main Sts. eha J. Rowe, Chairman CINCINNATI, OHIO Roy D. Moore, Ohio State Chairman Incinnatt. Ohio Phill J. Trounstine, Attociate Chair MAin 1101 January 7 1944. will The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Dear Secretary Morgenthau: I want to express our great pleasure that we will have the honor of having you with us as the main speaker at our War Finance dinner for workers on the evening of January 19th. We appreciate your acceptance of our invitation tremendously and we will do everything we can to have a representative at- tendance of our workers, paying particular attention to geographic distribution 80 that we will have representa- tion from every suburb and every township, as well as a few from neighboring counties. I will much appreciate it if you will let me know when you will arrive and what time during the day or afternoon before the dinner you will have available, and whom you would like to meet. I understand that Phil Trounstine would like to arrange a little reception before the dinner in your honor. Yours Jhong very truly, Chairman Third Area Committee JJR:es Regraded Unclassified 63 January 7, 1944 TO THE BANKS OF THE UNITED STATES: The Treasury Department again is counting on your indispensable aid in a great War Loan campaign. From the reports of State and local War Finance Committees, I know with what fine spirit your employees and officers have served in previous sue- cessful Drives. Everywhere, from the smallest village to the largest city, your people have been in the fore- front of these efforts, accepting this task of war financing as a special opportunity for service. In the Fourth War Loan Drive which starts January 18, more emphasis than ever before will be placed on borrowing the largest possible amount from individual investors, and thorough, systematic, personal solicitation of your depositors and neighbors 1a essen- tial to success. With colossal military operations imminent in both Europe and Asia, the oversubscription of every Fourth War Loan quota--National, State and local--18 of vital importance. Our fighting men are looking to us to back them up. We must not--we dare not--fail in our responsibility. Sincerely, (Signed) H. Morgenthan, Jr EBH:dft Regraded Unclassified 64 From: The National Broadcasting Co. Trans-Lux Bldg. Washington, D.C. Address of the Honorable Walter F. George, United States Senator from Georgia and Chairman of the Senate Committee on Finance, delivered over the National Broadcasting Compuny network Friday, January 7th, at 10:45PM. During the month just ended, our Federal government spent nearly 78 billion dollars. Excluding Christmas Day and Sundays, this was an average of about 287 million dollars each business day, or approximately 36 million dollars for each working hour, Over 90 centa of every dollar spent in December went to pay war costs. According to the latest official estimates, Federal expenditures will run almost a fifth higher during the next six months than they have since last June. During the current fiscal year, the government will spend 57 billion dollars more than it will receive in taxes. The necessity of borrowing most of this aum will raise the national public debt on next June 30 to around 200 b11- lion dollars, or to practically one thousand, 500 dollars for each man, woman and child in this country. In view of those astronowical figures, which dwarf our experience in any previous war, it is no smell wonder that the American people have been asked to pay taxes which in many cases, I am sure, seem almost unbearable, and that the Congress is devoting its attention to raising still more revenue- In these times, we often find ourselves faced with two evils batwoen which we must choose. We must fight the enemies of mankind or lose our freedom; likewise we must each of us pay our share of the tremendous cost of this war or suffer the much worse consequences of serious inflation. The Constitution places upon the Congress the responsibility of deter- mining the manner in which the revenue needa of the government should be met. Any suggestion that taxation become B. political issue, or that tax policies either within the Congress, or within the Departments, be considered as such, must necessarily make it extremely difficult, 15 not impossible, to arrive at a con- structive, or equitable tax program, particularly in time of war. However, one must not lose sight of the fact that the power to tax our- ries with it the power to destroy; therefore, those of us charged with the responsibility of levying taxes would be derelict in our duty if we were blindly to accept and place our stamp of approval upon each and every Departmental pro- posal advanced. In placing additional tax burdens upon the American people, especially at this time, Congress must give careful consideration to the existing tax burden on our people, the repidity with which this buden has been increased in the past few years, and the effect additional burdens would have on our imrodiate and post-war economies, Congress has, without stint, appropriated practically every dollar saked for by those charged with the responsibility of directing and prosecuting the war. The huge expenditures can only be met by taxation and borrowing. Everyone agrees that, without disrupting our economy, as much AS possible of these expenditures should be paid for by taxation. Few people, however, realize the extent of the increase in tax burden in recent years. Since 1940, Federal tax collections have risen approximately 600 percent. For the fiscal year 1940, total Federal tax collections amounted to 5 billion, 925 million dollars, whereas for the fiscal year 1944 they will approxi- mate 41 billion dollars. In the period from 1936 to 1939, prior to the start of our defense end programs, a married person with two dependents having a net income of 4 thousand dollars paid an annual income tax of 12 dollars. Today such an individual pays 484 dollars and 97 centa on the same sise income. For the years 1944 and 1945, assuming no change in income, the tax will amount to 532 dollars and 22 cente be- cause of the required payment of the unforgiven tax, This represents an increase of 520 dollars and 22 cente, or approximately 4 thousand, 335 percent. Regraded Unclassified 65 A married person with no dependents and having a net income of 3 thous- and dollars paid an annual tax of 8 dollars in the period 1936-1939. In 1940 his tax WBC increased to 30 dollars and 80 cents, an increase of 285 percent; in 1941 this tax was further increased to 138 dollars, an increase of 348 percent over the previous year; in 1942 it was further increased to 324 dollars, an increase for the year of 135 percent; in 1943 to was again increased to 405 dollars and 28 cents, 8. one year increase of 25 percent, making a total increase of 397 dollars and 28 cent or 4 thousand, 966 percent since 1939. If we include the unforgiven tax payable in 1944 and 1945 and assume no change in net income, this individual will be paying a tax of 445 dollars and 78 cents in each of these years, or an increase of 5 thous- und, 472 percent over what he paid in each year from 1936 to 1939, inclusive. Few persons realize that under the existing law, with the carry-over of the 1942 or 1943 tax required to be paid in 1944 and 1945, no individual, no natter how high his income, will have left more than $25,000, assuming his income remains constant and that his uncanceled tex is paid out of current income. When we give account, as we should, to Federal and State income, excise, and sales taxes, State property taxes and taxes of political subdivisions, it 10 obvious that the present Federal individual income tax 1s extremely burdensome. If the individual income tax rates recomended to the Congress recently by the Treasury Department had been adopted, no individual, no matter how high his income, would have left after taxes in 1944 and 1945 more then approximately 12 thousand dollars. Within less than 3 months following the enactment of the 1942 Revenae Act, which was estimated to raise 7 billion, 952 million dollare of additional revenue, the Congress WELF advised by the President that we should collect not less than 16 billion dollars of additional funds by taxation, savings, or both, during the fiscal year 1944. This figure wsa subsequently reduced to 12 billion dollars, and when the Secretary of the Treasury presented his recommendations to the Committee on Ways and Meens on October 4, 1943, it had been further reduced to 10 billion, 579 million, 300 thousand dollars; moreover, probably less than half of this sum would actually have flowed into the Treasury during the fiscal year ending June 30, 1944. Of the total amount the Treasury recomended that 6 billion, 528 million, 500 thousand be reised from individual income taxes, 1 billion, 138 million, 100 thousand dollars from corporate taxes, 401 million, 600 thousand dollars from estate and gift taxes, and 2 billion, 511 million, 100 thousand dollars from increased rates of tax on existing selected excise taxes and the levying of new excise taxes on candy, chewing gun, and soft drinks. Note that over 60 percent of the additional revenue recomended by the Treasury Department would have come from individual income taxes. Those of us who meke 1t our business to keep closely in touch with many people in all walks of life realized immediately that the incomes of the great bulk of the American people could not stand this increase in tax. While many persons receive higher incomes as a result of the war, there are thousands of government employees, school teachers and professional people who are not enjoying one cent more than before the war, Most of these persons have patriotically invested in United States War Savings Bonds. If the tax rates proposed by the Treasury ware to be adopted, many of these purchases would cease, or be curtailed, and probably in- surance premiums and payments on mortgages could not be met by these persons. The repeal of certain taxes which had been imposed previously by the Congress was suggested. These were: the tax on trensportation of property, which brings in nearly 200 million dollars annually, end the Victory tax, which yields 3 billion, 500 million dollars a year. Repeal of Wese taxes would of course nocessitate bigher rates of other taxes in order to protect the revenue. The proposal for integrating the Victory tax with the regular income tax would have excused some 9 million persons from any income tax whatsoever. These per- sons now contribute about 300 million dollars a year toward paying the cost of the war, Many of us in Congress and elswhere think that we have about reached the bottom of the barrel with respect to reising additional revenue from present sources of taxation. Possible now alternatives to which we might turn are com- pulsory savings, a tax levied only on incomes which have increased as a result of the par, or a general retail sales tax, These have been consistently opposed. Hence the Congress has been unable to reiso more than a fifth of the additional revenue recommended by the Treasury. There appears to be general agreement in the Congress that raising more than this amount, without resort to new methods, would disrupt our economy, not only for the present, but for years to come; morsover, we might make it axtremely difficult for our returning soldiers to find employment, -2- Regraded Unclassified 56 In the bill recently reported out by the Senate Finance Committee, which will be considered in the Senate next week, changes in individual income tax pro- visions, higher retes of tax on corporations, and increases in excise and postal rates will bring in 2 billion, 275 million, 600 thousand dollars of additional revenue in a full year of operation. The Senate Finance Committee bill retains the present rates of individ- ual income taxes', with the exception that the Victory tax has been simplified by saking it a 3 percent tax for everyone regardless of family status. The earned incose credit is disallowed and the previously permitted deductions for certain Federal excíse taxes paid are discontinued, with the result that income tax com- putations will be considerably simplified. The net effect of these changes 1a to raise 664 million, 900 thousand dollars of additional revenue spreed throughout the income scale. The Financo Committee did not adopt the Treasury Department's suggestion for raising the rate of tax which applies to the normal earnings of corporations, because it was felt that such a step would interfere with the normal distribution of dividends, which are alroady subject to double taxation and of which a large proportion 1s paid to individuals in the lower income groups, The rate of the excess profits tax levied on corporations is raised from 90 to 95 percent, and the credit allowed to companies using the invested capital method of computing excess profits tax is reduced at certain levels. In order to protect the smaller corporations, the specific exemption for excess profits tax purposes is raised from 5 thousand dollars to 10 thousand dollars. These changes, together with less important ones affecting corporation taxes, will tring in 502 million, 700 thousand dollars, The bill reported out by the Sanate Finance Committee will raise one billion, 108 million dollars from increases in the rates of certain excise taxes applying, in the main, to luxury items, and in postal rates, The figures just cited add to 2 billion, 275 million, 600 thousand dollars, which at least in the past was considered to be B. lot of money. It still represents a considerable sum, although not an great as I believe should and could be provided if opposition to new methods could be overcome. I think I can assure you that there is little opportunity for making inordinate profits out of war when corporate war profits are taxed at 95 percent and individual incomes are taxed by the Federal government alone as high B.B. 90 percent, as will be the case under the Sanate Finance Committee bill, I also want to assure you that the tax committees of the Congress, aided by their staff of experts, and by the Treasury Department, are giving serious attention to sin- plifying income tax computations for the more than 50 million taxpayer now on tha rolls. Until greater steps can be taken toward simplification, 10 =.0 hoped that you will bear with us and recognize the fact that it 16 difficult to achieve Squity in taxation, especially under very high rates, without the introduction of provisions which are sometimes complicated merely because they are designed to fit special cases where hardship might otherwise result. One further thing will interest you. The rates of certain Social Security taxes, now at one percent each on employers and employees, were scheduled to rise to 2 percent on January 1, 1944, but the Senate Finance Committee has frozen these rates at the one percent level. This action was taken on the basis of facts which indicated, in the opinion of the majority of committee members, that the amount of the social security funds now held in t: :st by the government is emple to meet prospective needs over several years without the increase 1:1 rates Unlike some assures passed by the Congress, tax legislation cannot hope to please either all the people some of the time or some of the people all the time but I have firm faith that each one of you stands ready and willing to meet your share of the cost of this costliest of wars, Many in Congress believe that an additional tax burden upon the same taxpayers of 8 billion dollars would shatter the public morale. Regraded Unclassified File 67 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE 1/7/44. TO Secretary Morgenthau FROM R. E. McConnell There is transmitted herewith the final drafts, approved December 31, 1943, by the Joint Contract Termina- tion Board, of Statement of Principles for Determination of Costs Upon Termination of Government Fixed Price Supply Contracts, Uniform Termination Article for Fixed Price Supply Contracts, and Statement of Policy as to Removal and Disposition of Property in Connection with Contract Termination. R.E.M. Regraded Unclassified Final Draft Approved December 31, 1943 68 UNIFORM TERMINATION ARTICLE FOR FIXED PRICE SUPPLY CONTRACTS Article Termination at the Option of the Government. (a) The performance of work under this contract may be terminated by the Government in accordance with this Article in whole, or from time to time in part, whenever the contracting officer shall determine any such termination is for the best interests of the Government. Termination of work hereunder shall be effected by delivery to the contractor of a Notice of Termination specifying the extent to which performance of work under the contract shall be terminated, and the date upon which such termination shall become effective. If termination of work under this contract is simultaneous with, a part of or in connection with, a general termination (1) of all or substantially all of a group or class of con- tracts made by the Department for the same product or for closely related products, or (2) of war contracts at, about the time of, or following, the cessation of the present hostilities, or any major part thereof, such termination shall only be made in accordance with the provisions of this Article, unless the contracting officer finds that the contractor is then in gross or wilful default under this contract. (b) After receipt of a Notice of Termination and except as otherwise directed by the contracting officer, the contractor shall (1) terminate work under the contract on the date and to the extent specified in the Notice of Termination; (2) place no further orders or subcontracts for materials, services or facilities except as may be necessary for completion of such portions of the work under the contract as may not be terminated; (3) terminate all orders and subcontracts to the extent that they relate to the performance of any work term- inated by the Notice of Termination; (4) assign to the Government, in the manner and to the extent directed by the contracting officer, All of the right, title and interest of the contractor under the orders or subcontracts BO terminated; (5) settle all claims arising out of such termination of orders and subcontracts with the approval OF ratification of the contracting officer to the extent that he may require, which approval or ratification shall be final for all the purposes of this Article; (6) transfer title and deliver to the Government in the manner, to the extent and at the times directed by the contracting officer (i) the fabri- cated or unfabricated parts, work in process, completed work, supplies and other material produced as & part of, or acquired in respect of the performance of, the work terminated in the Notice of Termination, and (ii) the plans, drawings, information and other property which, if the contract had been completed, would be required to be furnished to the Government; (7) use his best efforts to sell in the manner, to the extent, at the time, and at the price or prices directed or authorized by the contracting officer, any property of the types referred to in subdivision (6) of this paragraph provided, however, that the contractor (i) shall not be required to extend credit to any purchaser and (ii) may retain any such property at & price or prices approved by the contracting officer; (8) complete performance of such part of the work as shall not have been term- inated by the Notice of Termination; and (9) take such action ae may be necessary or as the contracting officer may direct for protection and preservation of the property, which is in the possession of the contractor and in which the Govern- ment has or may acquire an interest. Regraded Unclassified 2. by the contractor, plus a sum equal to % 69 of the remainder of such amount, but the aggregate of such sums shall not exceed 6% of the whole of the amount determined under subdivision (1), which for the purpose of this subdivision (iii) shall exclude any charges for interest on borrowings; (c) The contractor and the contracting officer say agree upon the whole or any part of the amount or amounts to be paid to the contractor by (3) The reasonable cost of the preservation and protection reason of the total or partial termination of work pursuant to this Article, of property incurred pursuant to paragraph (b)(9) hereof; which amount or amounts may include a reasonable allowance for profit, and the and any other reasonable cost incidental to termina- Government shall pay the agreed amount or amounts. Nothing in paragraph (d) tion of work under this contract, including expense of this Article prescribing the amount to be paid to the contractor in the incidental to the determination of the amount due to event of failure of the contractor and the contracting officer to agree upon the contractor as the result of the termination of the whole amount to be paid to the contractor by reason of the termination work under this contract. of work pursuant to this Article shall be deemed to limit, restrict or otherwise determine or affect the amount or amounts which may be agreed upon to be paid The total sum to be paid to the contractor under subdivisions (1) and (2) of to the contractor pursuant to this paragraph (0), this paragraph (d) shall not exceed the total contract price reduced by the amount of payments previously made for articles delivered prior to termination (d) In the event of the failure of the contractor and contracting and by the Contract price of work not terminated. Except to the extent that officer to agree as provided in paragraph (c) upon the whole amount to be paid the Government shall have otherwise expressly assumed the risk of loss, there to the contractor by reason of the termination of work pursuant to this Article, shall be excluded from the amounts payable to the contractor as provided in the Government, but without duplication of any amounts agreed upon in accord- paragraph (d) (1) and paragraph (d)(2)(1), all amounts allocable to or payable ance with paragraph (a), shall pay to the contractor the following amounts: in respect of property, which is destroyed. lost, stolen or damaged 80 as to become undeliverable prior, to the transfer of title to the Government or to a (1) For completed articles delivered to and accepted buyer pursuant to paragraph (b) (7) or prior to the 60th day after delivery by the Government (or sold or retained as provided to the Government of an inventory covering such property, whichever shall in paragraph (b) (7) above) and not theretofore paid first occur. for, forthwith a sus equivalent to the aggregate price for such articles computed in accordance with (e) The obligation of the Government to make any payments under this the price or prices specified in the contract; article: (1) shall be subject to deductions in respect of (1) all unliquidated partial or progress payments, payments on account theretofore made to the con- (2) In respect of the work under the contract terminated tractor and unliquidated advance payments, (ii) any claim which the Government as permitted by this Article, the total (without may have against the contractor in connection with this contract, and (iii) the duplication of any items) of (1) the cost of such price agreed upon or the proceeds of sale of any materials, supplies or other work exclusive of any cost attributable to articles things retained by the contractor or sold, and not otherwise recovered by or paid or to be paid for under paragraph (d) (1) hereof; credited to the Government, and (2) in the discretion of the contracting officer (11) the cost of settling and paying claims arising shall be subject to deduction in respect of the amount of any claim of any out of the termination of work under subcontracts or subcontractor or supplier whose subcontract or order shall have been terminated orders as provided in paragraph (b) (5) above, exclusive as provided in paragraph (b)(3) except to the extent that such claim covers of the amounts paid or payable on account of supplies (i) property or materials delivered to the contractor or (11) services furnished or materials delivered by the subcontractor prior to the to the contractor in connection with the production of completed articles under effective date of the notice of termination of this this contract. contract, which amounts shall be included in the cost on account of which payment is made under subdivision (i) (f) In the event that, prior to the determination of the final amount above; and (111) a sun equal to %1, of the part to be paid to the contractor as in this article provided, the contractor shall of the amount determined under subdivision (1) which file with the contracting officer a request in writing that an equitable adjust- represents the cost of articles or materials not processed ment should be made in the price or prices specified in the contract for the work not terminated by the Notice of Termination, the appropriate fair and reasonable adjustment shall be made in such price or prices. (g) The Government shall make partial payments and payments on account. 1. Not to exceed 2%. from time to time, of the amounts to which the contractor shall be entitled under this Article, whether determined by agreement or otherwise, whenever 2. To be established at a figure which is fair and reasonable under the cir- 2 cuastances. 3 70 Final, Draft in the opinion of the contracting officer the aggregate of such payments shall Approved December 31, 1943 be within the amount to which the contractor will be entitled hereunder. (h) For the purposes of paragraphs (d) (2) and (d) (3) hereof, the amounts of the payments to be made by the Government to the contractor shall be determined in accordance with the Statement of Principles for Determination of Costs upon Termination of Government Fixed Price Supply Contracts approved Statement of Principles for Determination of Costs Upon Termination by the Joint Contract Termination Board, December 31, 1943. The contractor of Government Fixed Price Supply Contracts. for a period of three years after final settlement under the contract shall make available to the Government at all reasonable times at the office of the The following is the "Statement of Principles for Determination of contractor all of its books, records, documents, and other evidence bearing Costs upon Termination of Government Contracts approved by the Joint Con- on the costs and expenses of the contractor under the contract and in respect tract Termination Board, December 31, 1943" referred to in paragraph (h) of the termination of work thereunder. of the Uniform Termination Article applicable to the termination of fixed price supply contracts at the option of the Government. 1. General Principles. The costs contemplated by this Statement of Principles are those sanctioned by recognized commercial accounting practices and are intended to include the direct and indirect manufactur- ing, selling and distribution, administrative and other costs incurred which are reasonably necessary for the performance of the contract, and are properly allocable or apportionable, under such practices, to the con- tract (or the part thereof under consideration). The general principles set out in this Statement are subject to the application of any special provisions of the contract. Certain costs are specifically described below because of their particular significance, and, as in the case of other costs, should be included to the extent that they are allocable to or should be apportioned to the contract or the part thereof under consideration. (a) Common Inventory. The costs of items of inventory which are common to the contract and to other work of the contractor. (b) Common Claims of Subcontractors. The claims of subcontractore which are common to the contract and to other work of the contractor. (c) Depreciation. An allowance for depreciation at appropriate rates on buildings, machinery and equipment and other facilities, including such amounts for obsolescence due to progress in the arts and other factors as are ordinarily given consideration in determining depreciation rates. Depreciation as defined herein shall not include loss of useful value of the type covered by subparagraph (f). (d) Experimental and Research Expense. General experimental and research expense to the extent consistent with an established pre-war program, or to the extent related to war purposes. (e) Engineering and Development and Special Tooling. Costs of engineering and development and of special tooling; provided that the contractor protects any interests of the Government by transfer of title or by other means deemed appropriate by the Government. -4- Regraded Unclassified 71 (f) Loss on facilities - Conditions on Allowance. In the case of any special facility acquired by the contractor solely for the performance of the contract, or the contract and other war production contracts, If 2. Initial Costs. Costs of a non-recurring nature which arise upon termination of the contract such facility is not reasonably capable from unfamiliarity with the product in the initial stages of production of use in the other business of the contractor having regard to the then should be appropriately apportioned between the completed and the ter- condition and location of such facility; an amount which bears the same minated portions of the contract. In this category would be included proportion to the loss of useful value as the deliveries not made under high direct labor and overhead costs, including training, costs of exces- the contract bear to the total of the deliveries which have been made sive rejections and similar items. and would have been made had the contract and the other contracts been completed, provided that the amount to be allowed under this paragraph 3. Excluded Costa. Without affecting the generality of the fore- shall not exceed the adjusted basis of the facility for Federal income going provisions in other respects, amounts representing the following tax purposes immediately prior to the date of the termination of the should not be included as elements of cost: contract, and provided further that no amount shall be allowed under this paragraph unless upon termination of the contract title to the (a) Losses on other contracts, or from sales or exchanges of capital facility is transferred to the Government, except where the Government assets: fees and other expenses in connection with reorganization or elects to take other appropriate means to protect its interests. recapitalization, anti-trust or federal income-tax litigation, or prose- cution of federal income tax claims or other claims against the Govern- (g) Special Leases. (1) Rentals under leases clearly shown to ment (except as provided in paragraph 1(k)); losses on investments; have been made for the performance of the contract, or the contract and provisions for contingencies; and premiums on life insurance where the other war production contracts, covering the period necessary for complete contractor is the beneficiary. performance of the contract and such further period as may have been reasonably necessary; (2) costs of reasonable alteration of such leased (b) The expense of conversion of the contractor's facilities to property made for the same purpose; and (3) costs of restoring the uses other than the performance of the contract. premises, to the extent required by reasonable provisions of the lease; less (4) the residual value of the lease; provided that the contractor (c) Expenses due to the negligence or wilful failure of the con- shall have made reasonable efforts to terminate, assign, or settle such tractor to discontinue with reasonable promptness the incurring of expenses leases or otherwise reduce the cost thereof. after the effective date of the termination notice. (h) Advertising. Advertising expense to the extent consistent with (d) Costs incurred in respect to facilities, materials or services a pre-war program or to the extent reasonable under the circumstances. purchased or work done in excess of the reasonable quantitative require- ments of the entire contract, (1) Limitation on Costs Described in Subparagraphe (d), (e), (f), (g), and (h), In no event shall the aggregate of the amounts allowed (a) Costs which, as evidenced by accounting statements submitted in under subparagraphe (d), (e), (f), (g), and (h) exceed the amount which renegotiation under Section 403 of the Sixth Supplemental National Defense would have been available from the contract price to cover these items, Appropriation Act, 1942, as amended, were charged off during a period if the contract had been completed, after considering all other costs covered by a previous renegotiation, may not be subsequently included in which would have been required to complete it. the termination settlement if a refund was made for such period, or to the extent that such charging off is shown to have avoided such refund. (3) Interest. Interest on borrowings. 4. To the extent that they conform to recognized commercial (k) Settlement expenses. Reasonable accounting, legal, clerical accounting practices and the foregoing Statement of Principles, the and other expenses necessary in connection with the termination and established accounting practices of the contractor as indicated by his settlement of the contract and subcontracts and purchase orders there- books of account and financial reports will be given due consideration under, including expenses incurred for the purpose of obtaining payment in the preparation of statements of cost for the purposes of this article. from the Government only to the extent reasonably necessary for the preparation and presentation of settlement proposals and cost evidence 5. The failure specifically to mention in this statement any item in connection therewith. of cost is not intended to imply that it should be included or excluded. (1) Protection and Disposition of Property, Storage, transports- tion and other costs incurred for the protection of property acquired or produced for the contract or in connection with the disposition of such property. - 3 - 2 - Regraded Unclassified 72 Final draft approved December 31, 1943 STATEMENT OF POLICY AS TO REMOVAL AND DISPOSITION OF PROPERTY IN CONNECTION WITH CONTRACT TERMINATION The speedy adjustment of cancelled contracts depends to B. large extent on the prompt removal and disposal of completed articles, component parts, work in process, raw materials and equipment in the possession of the contractor at the time of cancellation. So long as the war continues it is essential to clear the contractor's plant as soon as possible 80 that it may return to the production of other needed war materials and to make available for other war production any property which can be used for that purpose. After the war the speedy disposition of such property is essential in order to clear the contractor's plant for a return to civilian produc- tion, To that end it is essential that broad powers of disposition be vested in the procuring agencies, and that a central agency should be de: ignated to which may be transferred property not disposed of by the produring agencies and no longer required by them. In come cases legal title to the property in the possession of the contractor has passed to the Government; in others, it remains in the contractor, In either case the problem is essentially the same and there is need for policies permitting uniform administration. Therefore, the following steps should be taken promptly upon cancellation or substantial modification of any contract. 1. As soon as possible after receipt of notice of cancellation or modification of any contract, the contractor should submit lists of pro- perty no longer required for the performance of the contract to which the Government is entitled or which are the property of the Government. Separate lists should be prepared of (1) machine tools and other production equipment, (2) completed articles, subassemblies and component parts, (3) work in process (4) supplies (5) materials, and (6) scrap. Partial lists should be presented from tie to time giving preference to those items which, in the opinion of the contractor or the procuring agency, are immediately needed in war production either in the contractor's plant or elsewhere. The list should contain an adequate description of each item and should show the ceiling and current established market prices for each item if readily available and any readily available information as to the cost of each item to the contractor. Where the contract or wishes to retain or acquire an item, he should state the price at which he is willing to accept the item. Failure to list an item should not prevent the contractor from claiming reimbursement therefor in the final settlement and in connec- tion with final settlement the contractor may furnish additional informa- tion as to the cost of any item. 2. Where the contractor has an option to purchase or lease or other contract rights in any item, he should promptly indicate whether he desires to exercise such rights or is willing to waive them. If he indicates the former, disposition of the property should be made in accordance with the terms of the contract. 73 3. the lists are in course of preparation and as the necessary information available the procuring agency and the contractor should qook If disposition cannot be made at prices determined in accordance with the fore- to make imediate disposition of any items witch can be readily disposed of, If, then until such time G.5 the central agency becomes ready to undertake in the judgment of the procuring agency, the item is one which it would be ap- disposition going, of the property, sale may be made by the procuring agency under such propriate for the contractor to retain or acquire the procuring agency should other regulations as it may prescribe for the purpose of adequately testing the endeavor to negotiate an agreement for such retention or nequisition. If the market. procuring agency determines that the item should be disposed of to someone other than the contractor for purposes of wirlproduction, the pror uring agency should 5. Unless the ontract otherwise provides, the contractor may, at endeavor to.arrange for such disposition through the contractor or direct, Prior any time after receipt of termination notice, remove from his plant and store to the cessation of hostilities, any item not disposed of tathe içentractor or to at his om risk, any property, and the Government, with the coment of the con- others for purposes of war production, which the proquring largency does not desire tractor, say remove and dispose of any property listed in accordance herewith to retain for its own use or that of any other governments) department, may be prior to final sottlement. At all events, unless the contract otherwise provides, dia osed of by the rocuring agency or by the contractor with the approval of the any property not disposed of in the manner hereinbefore provided within sixty days procuring agency for any purpose not inconsistent with the olicios of the Board, from receipt of a list covering the particular item should, upon demand of the It in expected that the power of disposition for any purpose other than for ver contractor, be removed from the contractor's premises by the procuring agency production dr to the contractor will be transferred in whole or in part by action unless the procuring agency shall previously determine that the it am is not of the Board to the central agency as it becomes ready. to undertake such activit chargeable to the Government and does not belong to the Government. In the event that any such property is not 50 removed upon demand, the property may be stored 4. Ench rocuring agency may exercise complete discretion aa to the by the contractor at the expense and *risk of the procuring agency or on the contractor's premises or, if he determines that space is not available for that price at which any item may be disposed of subject to such pricing policies or formulas as may be actualished by the Board or under its authority, including any purpose, than elsewhere. In such a case the contractor should take reasonable specific instructs referred to in paragraph 9 hereof. In the absence of specif- precautions for the protection of the property and should notify the procuring ic action by time Brand the recuring agency will endeavor to dispose of property agency of the action taken. If it is later determined that the procuring agency at Oricos vald. It my regied as representing fair values under the existing cir- WES not obligated to take property which was removed or disposed of prior to cunstances observise the following general policy 55 to determination of fair vali final settlement, an adjustment should be made in the final settlement which will allow the contractor the current disposal value of the property at the time of removal. L. There nice is on established market price for the item an effort should be made :- optain that rice with due allowance. for the condition 6. Any property which comes into the hands of the procuring agency in or the item, its location and the cost to remove it to a place of disposal, and connection with contract termination which is not disposed of as horeinbefore the selling cost including cost of ,reparationfor sale. provided and which has boon determined by the procuring agency to be surplus to its needs should be reported to the central agency for disposition. Upon receipt b, Phone there is DD established market price, consideration of such report the central agency shall with reasonable promptness take possession, should be given to the foregging factors and any other available information accountability, and full responsibility for any further maintenance or utilization includi the e ost of the statis, and the spoed with which the it m can be re- removal, protoction, storage, sale or other disposition of the property, The procussed OF otherwise DATE back into uso, It in recognized that disposal prices will in many instances bear little, if any relationship to cost, central agency shall consult rith the procuring agency as to the disposition of an proporty of special military significance. The procuring agency shall have the right to removo and store for the account and at the risk of the contral agency c, Substantial portions of Experty involved in contract termination, particularly work in process, 1122, dans, fixtures and specially any property no reported, pending notion by the central agency. designed Items having 110 known commercial polication, may have no value except as scrap. A prompt affort should be made to determine promptly what items are 7. The procuring agency shall render all ronsonable assistance to properly classified as scrup and to effect proupt disposition of such items. the control agency in performing its obligations under paragraph 6. The central aguncy shell be authorized to use any existing storage or other facilities which d. In cases where disposition is made to a contractor or suppli the procuring agoncy finds it practicable to make available to it. for the purpose of prforming a war producti on contract consideration may be fir to any losser value of the item to the conta - supplier for that purpose, 8. Transfers to the contral agency shall be made without values but if war producti will thereby be facilitated. the contral agency shall make periodic reports to the procuring agency as to the a7) 3 Regraded Unclassified aggregate estimated value of items transferred, valuations to be based on disposal values at the time of transfer to the central agency, as estimated by the central agency. 9. Any disposition of property by the procuring agencies or the central agency shall be made subject to such regulations as the particular agency may prescribe but only in conformity with policies or determinations of the Board and under applicable rulings of tho War Producti on Board, the Office of Price Administration or any other duly authorized agency. it the request of any procur- ing agency or the central agency or on its own initiative, the Board may establish or approve pricing formulas under which any article or class of articles may be sold by a procuring agency, may designate the appropriate agency to sell any article or class of articles, and may prohibit or condition the sale of any arti or class of articles by a procuring agency. 10. The foregoing provisions rolate solely to property in the hands of primo contractors. In order to carry out the basic policios of speedy adjustment of contracts and prompt clearance of plants, the same principles should be applied to proporty in the hands of subcontractors of any lovel where the subcontractor submits lists of such property propared in accordance with paragraph 1, with the cortificate of the prime contractor that the itoms listed are bolieved to be propor- ly allocable to the prime contract, or any other satisfactory ovidence of that fact. - 4 - Regraded Unclassified 74 JAN 7 1944 My dear Senator: I have just finished reading the very excellent minority report which you and Senators Walsh, Connally and Lucas have filed in opposition to the recommendations of the majority of the Senate Finance Committee for amendments to the renegotiation statute. You are so completely in the right in this matter that I could not let the occasion pass with- out expressing my sentiments in the matter and the hope that your views will prevail. If there is anything I can do to be helpful do not hesitate to call on me. Sincerely, (Signed) H. Mergenthau, Jr. Secretary of the Treasury Honorable Robert M. LaFellette, Jr. United States Senate Washington, D. C. JJO'C.Jr/lsw 1-6-44 Regraded Unclassified 75 JAN 7 1944 My dear Senator: I have just finished reading your minority report on the amendments to the renegotiation statute. The report is excellent, and I could not let the occasion pass without expressing to you my belief that you and your colleagues are performing a real public service. You are 80 completely in the right in this matter that I am confident your views will prevail. If there is anything 1 can do to be helpful do not hesitate to call on me. Sincerely, (Rigned) H. Morgenthau, Jr Secretary of the Treasury H onorable David I. Walsh United States Senate Washington, D. C. JJO'C.Jr/lsw 1-6-44 Regraded Unclassified 76 JAW 7 1944 My dear Senator: I was delighted to learn that you have joined with Senators Walsh, LaFollette and Lucas in opposing the recommendations of the majority of the Senate Finance Committee for amendments to the renegotiation statute. I have just finished reading the minority report, which is excellent, and could not let the occasion pass without expressing my sentiments in the matter. You are so completely in the right in this matter that I am confident your views will prevail. If there is anything 1 can do to be helpful do not hesitate to call on me. Sincerely, (Signed) H. Morgenthau, Jr. Secretary of the Treasury Honorable Tom Connally United States Senate Washington, D. C. JJO'C.Jr/lsw 1-6-44 Regraded Unclassified 77 JAN 7 1944 My dear Senator: I was delighted to learn that you have joined with Senators Walsh, LaFollette and Connally in opposing the recommendations of the majority of the Senate Finance Committee for amendments to the renegotiation statute. I have just finished reading the minority report, which is excellent and could not let the occasion pass without expressing my sentiments in the matter. You are 80 completely in the right in this matter that I am confident your views will prevail. If there is anything I can do to be helpful do not hesitate to call on me. Sincerely, (Signed) H. Morgenthau, Jr. Secretary of the Treasury Honorable Soott W. Lucas United States Senate Washington, D. C. JJO'C.Jr/lsw 1-6-44 Regraded Unclassified 78 WALTER F. GEORGE. GA., CHAIRMAN ROBERT M. LAFOLLET JR., wis. DAVID 1. WALSIS MASS. ALBEN W. BARKLEY, KY. ARTHUR H. VANDENBERG, MICH. JAMES J. DAVIS, PA. TOM CONNALLY, TEX. OBLAH W. BAILEY. N. c. HENRY CABOT LODGE, JR., MASS. JENNETT CHAMP CLARK, MO. JOHN A. DANAMER, CONN. ROBERT A. TAFT. OHIO Mnited States Senate HARRY FLOCO BYRD, VA. PETER G. GERRY, a. L JOHN THOMAS, IDAHO JOSEPH F. GUFFEY, PA. HUGH A. BUTLER, HEBR, EDWIN c. JOHNSON, COLD. EUGENE D. MILLIKIN, COLD. COMMITTEE ON FINANCE GEORGE L RADCLIFFE, MD. SCOTT W. LUCAS, F CHRISTIE a. KENNEDY, CLERK January 7, 1944 The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: I have your note relative to the minority report on amendments to the renegotiation law which Senators Walsh of Massachusetts, Lucas, Connally, and I sub- mitted. I certainly appreciate your writing me that you approve of the statements made therein and I want to thank you for your offer of assistance. With kind regards, I am Sincerely yours, Pobernu La Leaths. RML:McC Regraded Unclassified 79 MEMORANDUM FOR THE SECRETARY. January 7, 1944. Mail Report Fan mail is fast recovering from its Christmas slump, and increasing in interest at the same time. This week's bond mail doubled last week's in number, about one-half of the communications relating to the Fourth Drive. Slogans, poems, and songs arrived by the dozens, but ideas for posters -- frequently submitted during the other pre-Drive periods -- were rare. From organizations and individuals came many assurances of support, and there were fewer letters than usual com- plaining that Government extravagance or New Deal mis- management had already spelled defeat for the Drive. Though bond redemptions through this office were a little higher than they were last week, the total of 39 is far below the peak reached in the early fall. A total of 42 complaints about delays in processing bonds or in paying interest included only 21 from personnel of the War Department. Except for 8. few barbed demands for simplified forms, tax matters again went almost unnoticed. Miss Porter's Reader's Digest article, along with the early distribu- tion of a few of the new forms, opened the way for pro- tests against their complexity. À few theater officials wrote at length, in a last minute attempt to avert the proposed tax increase on admissions, and there were several run-of-the-mill ideas for increased revenue. Difficulties with coins, currency, and checks, and also with foreign fund regulations, accounted for most of the week's miscellaneous communications. Received from the White House during 1943 were 6,991 pieces of mail (organized postcard campaigns not counted). This strikes a fair average between our low year of 1940, Regraded Unclassified 80 - 2 - Memorandum for the Secretary. January 7, 1944. when 4,910 letters were received and our alltime high of 1942, with 12,759. Of the approximately 7,000 pieces received this past year, the Correspondence Division handled 3,497, or almost exactly half. The peak month was June, with the lowest receipts in December. yestorbush 81 General Comments Sydney S. Jalkut, Counselor at Law, N.Y.C. I wish to complain with regard to the unusual and unnecessary delay in the New York Customs Philatelic Control Unit. Air Mail letters containing British and Colonial postage stamps are delayed 3 weeks and longer; there is one addressed to me which has not been released, although held for 5 weeks. There is just no sense at all to this and it would seem that Air Mail, for which an additional fee is paid, should be given prompt attention by the necessary authorities. # Lic. Antonio Uroz, Editorial "Hemisferio", Mexico, D.F. The magazine HEMISFERIO (Hemisphere), is glad to pre- sent to your attention its most respetuos votes of prosperity for the coming year. Ferverishly we wish that in the course of same, Your Excellency could con- tinue the brilliant work begun in pro of the welfare of your Nation. As to our part, in the ear 1944, wish to continue, and bettering the work that in pro of continental fraternity we begun with the publica- tion of the Magazine Hemisferio. We feel sure that the sacrifices that with that purpose we are doing will meet with the reward of valuable help and sympathy that Your Excellency would give us. Antonio C. Gonzalez, Former United States Minister, Attorney and Counselor at Law, N.Y.C. # # One of our clients, The Chicle Development Company, a sub- sidiary of the American Chicle Company, back in 1913 and 1916, suffered damage, destruction and losses to its property in Mexico, due to revolutionary acts, approximating $200,000. *** By subsequent Congres- sional action in the passage of the Bill, known as the "Settlement of Mexican Claims Act of 1942", the Commission was established as the American Mexican Regraded Unclassified 82 - 2 - Claims Commission, who notified our client that its claims had been approved in the sum of $60,563.82, with interest thereon from May 15, 1924, to November 19, 1941, amounting to $3,646.77. Within the pre- scribed thirty-day period, our client signified its intention to accept the appraisal. Due certification of this claim was made to you under the Act, and on Sept. 13, 1943, our client received a first payment of 30% of the rincipal amount. # # * We are informed that on November 22 last, the United States received from the Mexican Government the further sum of $2,500,000, and to date no distribution thereof has been made, and it is our understanding that no im- mediate steps for distribution are contemplated. It is because of this situation and the anxiety of our client to receive payments on account of its claims, reduced to the amount certified, as expedi- tiously as possible, that prompts this communication to you. The losses suffered by our client were sus- tained about thirty years ago and to further delay the payment of the adjusted claim seems unjust and inequitable, especially where no provision is made for interest on the amounts withheld. These features were not envisioned when our client's acceptance of the appraisal was given. We do not believe that it is either the intention or desire of the Government to arbitrarily or without good cause withhold or de- lay the payments to which our client seemingly is entitled. Our information, if correct, warrants the assumption that there are funds presently available for distribution, and the hope is herein expressed that it will be convenient 80 to do. *** Edmond W. Thomas, President, The First National Bank, Gettysburg, Pa. We felt it was in order to acknowledge your letter of thanks, dated December 22, 1943, for 83 - 3 - the cooperation of financial institutions in assist- ing in making the survey as represented on Form TFR- 500. # * # It was our experience that people generally responded in a splendid manner. Your acknowledgment of the support of the financial institutions in the United States, which includes this 86-year old insti- tution, is somewhat of an innovation and one worthy of acknowledgment, which we are pleased to give, and at the same time, to assure you of our continued cooperation. G. L. Lewis, Happy Valley Ranch, Riverside, Calif. Not having heard from you in reply to a previous letter, which was sent to you some weeks ago with a list of foreign investments I hold, and since this matter is of some URGENCY, for me, Sir, I am again communicating with you about the matter, to which I hope you will give your personal and prompt atten- tion. This war is bearing down pretty hard on elderly people of fixed incomes, of which I am one; on top of that, no technical knowledge that I possess seems to interest either the Army, Navy, or private firms, 80 I can earn nothing that way! # The only way I can finance myself is by cashing in on a Canadian Govern- ment 3 and 1/2% Refunding Loan of 1934 amounting to $1,000 Canadian value. Would your Treasury Department give me the benefit of the OFFICIAL rate of exchange on this deal, Sir? I have $500 on deposit in a Vancouver, B.C. bank, but I can't draw on it! I think people are being treated just as badly almost as if Hitler were in control! It is INHUMAN: # # 84 - 4 - Favorable Comments on Bonds Erna Maier, N.Y.C. To the great event that I had the honor today to be sworn in as a new citizen of the United States of America, I take the liberty to open the Fourth War Loan Drive with a War Bond of $18.75. Will you please be 80 kind and send me this bond in my name -- Miss Erna Maier, 797 Crotona Park North, Bronx, New York. I wish everybody would appreciate to be here in this God-blessed country, and help as much as possible to fight the enemies and win the war. Mrs. Ella K. Alschuler, Hotel Windermere, Chicago, Ill. I note that again the Treasury Notes, Series A, for tax anticipation, are excluded from the coming War Loan campaign. Since these are the only kind suitable to the small taxpayer, I am wondering why the discrimination. Surely it could do no harm to allow those for whom the A Notes are the most prac- tical investment, to buy them as their campaign contribution. # # An uncomfortably large propor- tion of my funds are tied up in War Bonds, most of which pay no current income, and the o thers very little. To me it would be a distinct help if I could partici- pate in the campaign through purchase of the Tax Saving Notes. At least from these, I could receive some benefit, whereas if I buy the bonds now, it is most unlikely that I shall be alive to collect the principal when due. Cannot the A Treasury Notes be included in campaigns in the future? # 85 - 5 - Unfavorable Comments on Bonds Mrs. R. C. Hagan, Uniontown, Pa. I have just re- ceived my "certificate of achievement" for my bond sales during the Third War Loan Drive. Now, I want you to know that I was very glad to do the work, and proud that I was able to do it as well as I did. And I shall be just as happy to go and work just as hard during the next Drive. But I am writing this to ask why in the name of common sense, at 8. time like this, anyone should think of giving us these certi- ficates? Surely it must cost a great deal to print them, and we are being told all the time about the paper shortage. It must take quite a lot of some- body's time to do the work of filling in names and mailing and addressing them. *** I am a loyal Democrat, by birth, inclination, and even marriage. I've never criticized anything that the Administra- tion has done. In fact, I think you're all wonder- ful and doing a grand job in Washington, and I've had many a battle in defense of the President and the whole New Deal. But I do think this is one way in which you can and should save a. lot of money and I just had to tell you. G. D. Krick, Kane, Pa. Suppose I should be shot at sunrise, as I notice it is becoming increasingly more in bad taste for one to say what he really thinks, if it does not coincide with the views of our National Leaders. I am a retired railroader, trying to live economically on a small pension. Have just passed my 66th birthday, and 80 far, have purchased a couple thousand dollars in Defense Bonds. Am wondering if I could reasonably be expected to buy any more in this latest Drive, in view of the disclosures of useless spending by my Government. To note, Senator Hugh Butler's disclosures in regard to Latin America. To note, the ill-advised spending of 100 million 86 - 6 - dollars on the Canol Oil Project by an incompetent General and his adviser. Could cite other examples but these two make me feel it is like pouring our tax money down a rat hole. Wishing you luck in your new Drive. John S. Pratt, Bristol, Pa. (Repeat complaint on payroll savings plan at the Fleetwing Incorporated Division of Kaiser Cargo Company, Bristol, Pa.) # * * Insofar as Fleetwing is concerned, nothing has happened to date. I know one employee who agreed to have them deduct one $18.75 Bond a week -- his idea was to get a bond each pay. They owe him 17 bonds to date, and he has the first one to get yet. I myself filled out & printed form they have, which serves notice on the company to discontinue the deductions of an employee. This is also four weeks old and nothing has happened about that. Six thousand employees here are dissatis- fied with the company's system of distribution. Writing letters to them is useless. The whole setup in this plant seems to be to discourage an employee from buying bonds. You will also note my desire for secrecy as to my complaint. I am 56 years old and don't want to lose my job. This would be the result should the company learn of this. On the other hand, I also would like to see my bonds now and then, for believe me, Mr. Morgenthau, this Federal tax sure hurts 8. fellow's paycheck, and the sight of a bond now and then goes a long way in soothing the tax hurt. Thank- ing you in advance for any relief you can get us in this matter, and I do hope you can send a personal investigator into the plant, just to see how rotten their system is. F. A. Dragonette, Assistant Cashier, Southern Arizona Bank & Trust Co., Tucson, Ariz. (Pima County War Finance Committee) 4b * # Our purpose in writing is to see if something can be done about the apparent "red tape" pertaining to lost bonds. In selling War Bonds 87 - 7 - we have assured customers that in case of loss, pay- ment could be stopped and new bonds secured in approxi- mately six months' time. To date, we have not been able to secure any such service from either your Washington or Chicago agencies. We realize, of course, that the volume of work to be done must make it diffi- cult for the Treasury personnel. While it does seem that after the original papers are filed by responsible parties, the time element should be the only deterrent factor. We have several cases outstanding where we have been called upon to secure additional affidavits, six and nine months after original affidavits support- ing the loss has been filed. This is very difficult to explain to the average individual who has never owned securities before, and who after such a long delay begins to feel his money is lost. It does not help us to sell him more bonds. *** Minnie Berne, Ozone Park, Long Island, N.Y. This is to inform you of an incident that occurred on Dec. 31, 1943, at 12:50 p.m. in the Canal Street Branch of the Corn Exchange Bank of New York. I am employed by the American District Telegraph Company and received my pay check and went to the above-mentioned bank with the intention of purchasing 8. bond. I spoke to the manager and he replied that they were too busy. I have heard several other people remark that he told them the same thing the: ious week. I was under the impression a bank was never too busy to sell bonds. There must have been a few hundred people who cashed their checks in that particular branch of the bank to- day, and I am wondering just how many of them would have bought bonds if the manager had had the time and the courtesy to give to these people. Mrs. J. F. Roberts, Taft, Calif. My son, Raymond S. Roberts, is an enlisted member of the armed forces stationed in Alaska. In May, 1941, he began purchasing bonds through the Pay Reservation Plan with the stipu- lation they were to be sent to the above address. In Regraded Unclassified 88 - 8 - February 1943, he was home on furlough and found we had received no bonds. However, he continued buy- ing until April 1943, when he discontinued until bonds were received. Upon his request I wrote War Bond Division in Chicago, Ill., and received a reply on July 29 stating his account had been established and Bonds would be sent. In November I wrote again but received no reply, and to date, no bonds have been re- ceived. The postal authorities have asked me to write directly to you. Will you please investigate? I'm sure all of us want to cooperate in buying bonds, but the men in service should at least receive the bonds they purchase. *** 89 - 9 - Unfavorable Comments on Taxation John A. Galvin, Attorney at Law, Fillmore, California. I suggest that your income tax experts step down and out for awhile, and allow Joel Kupperman to work out a simplified form of income tax report. Mrs. Hannah F. Edison, New York City. I am fortifying myself with some of the simple rules of arithmetic such as two and two is four in order to be more prepared for the new tax forms; but I feel nothing short of Joel Kupperman can do the trick. What I want to get across to you, if you haven't already guessed, is that I have an idea that will perhaps simplify the tax forms to 8. great extent. Naturally there will be a lot of bellowing by the Treasury experts because they haven't minds simple enough for simple things. *** Alan D. Whitney, Winnetka, Ill. I earnestly hope that this comes to your attention, or at least to that of one of your high Assistants. In furthering this end, I shall be as brief as possible. In September 1941, the Internal Revenue Bureau disallowed a de- duction in the 1939 income tax return of Esther Witkowsky, 5555 Everett Ave., Chicago, since deceased on January 3, 1942. As her agent who filed her re- turns, I handled the penalty payment for her. However, the 1942 Revenue Act reversed the previous ruling. *** I filed a claim for refund of the 1941 assess- ment on January 18, 1943, as executor of the estate of Esther Witkowsky, then already deceased. I will not enumerate the voluminous correspondence on this case which has since ensued unless you so request, nor can I do more than say that I have made several calls at the Chicago Office of the Collector. I have been 90 - 10 - informed in recent months that the claim is allowed and will be paid. I have been to the expense of furnishing two certified copies of letters testamentary at $1.00 each, all to collect $10. Yet the refund check has not arrived, and nearly a year has elapsed since I filed the claim. My last two letters to T. C. Atkeson, Division Head, Commissioner of Internal Revenue, are both unanswered. God alone knows what that all means. If you have not read the beginning article in January 1944 Reader's Digest, I suggest that you do. We may win the war, and yet perish in a morass of our own making -- red tape. Please see that I get this $10.04 plus 69₫ interest, as already allowed. Lloyd H. Wright, San Gabriel, Calif. I think it is the duty of the Treasury Department to refer the present income tax law back to Congress for drastic revision, if for no other reason than on the ground that it is practically unenforceable because of its complexity. In strict adherence to the truth your "Instructions" to taxpayers only adds confusion to the already impossible complexity of the law. Many com- petent authorities have made valuable suggestions for the law's revision. It is your duty and opportunity to insist on revision before attempting to administer the law. Regraded Unclassified 91 THE SECRETARY OF STATE WASHINGTON January 7, 1944 Dear Henry: Thank you very much for your letter of January sixth and the memorandum regarding wheat for Italy. Sincerely yours, Condelltull The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 92 JAN 7 1944 MEMORANDUM FOR THE PRESIDENT Subject: Mayor La Guardia's request concerning re- mittances to Sicily and postal communica- tions with Italy. The war Department on October 12, 1945 dispatched a cable prepared by the Treasury Department to the Allied Commander in the Rediterranean Theatre for his review out- lining a procedure shereby remittances could be effected from the United States to individuals residing in Sicily and including & progosed general license to authorise such remittances. In reply the Theatre Commander advised that the program as proposed appeared to be feasible and that the necessary arrangements were being worked out to place it into operation. The Treasury and war Departments requested that these arrangements be expedited. On Novem- ber 21, 1943 the Theatre Commander recommended certain modifications in the me thod of holding the dollar proceeds of the remittances. On November 29, 1943 the Treasury submitted a cable to the war Department for dispatch meet- ing these recommendations and again stressing the urgeney of the matter, This was followed by a message to the Theatre Commander on December 21, 1943 requesting an immed- late reply to our outgoing cables in view of increasing public pressure. Treasury is now sending a further cable to Italy urging that the Theatre Commander take immediate action. on November 9, 1943 the Theatre Commander advised the Treasury and war Departments that it was planned to resume postal communications with Sicily, Sardinia and other parts of occupied Italy on December 1, 1945. on November 26, 1943 the Theatre Commander advised that these plans had been post- poned pending the solution of various problems that had arisen. The Treasury Department stands prepared upon the request of the Theatre Commander to modify its regulations on financial and commercial communications with enemy terri- tory. I am attaching for your signature a letter to Mayor LaGuardia informing him of the reasons for the delay in placing these programs into effect and advising him again that we expect arrangements for the initiation of these programs to be completed in the near future. HDW:WHT:WNT:Dr1 1/6/44 Regraded Unclassified 93 Dear Piorello: I have your letter of December 31, 1943 in regard to remittances to persons residing in the liberated areas of Italy and postal communications with those areas. The Treasury and war Departments are aware of the desirability of setting up arrangements for limited support resittances to and postal communications with the liberated areas of Italy immediately as conditions In those areas permit. The Theatre Commander has been advised of the urgeney with which these matters are viewed and has been urged to expedite the necessary arrangements. I an in sympathy with your deep interest in these matters. The delays have been necessitated by military considerations in Italy. It is expected, however, that the necessary arrangements for the initiation of these programs will be completed in the near future. Sincerely, The Honorable Pierello H. Labuardia, Mayor of the City of New York, New York 7. New York HDW: WHT:WMT:ff 1/6/44 Regraded Unclassified 94 THE WHITE HOUSE WASHINGTON January 4, 1944. NEMORANDUM FOR THE SECRETARY 07 THE TREASURY: As this was evidently started foor LaGuardin rith the Trensury Depart- mont, will you We 2006 enough to zun It down --- both matters -- and lot no know that to tell "the Little Flower"? F.D.R. C WHIO mir - OBEICE Regraded Unclassified CITY OF NEW YORK OFFICE OF THE MAYOR NEW YORK 7. N.Y. December 31, 1943, The Honorable Franklin D. Roosevelt President of the United States Washington, D. C. My dear Mr. President: I have been "yessed" from department to department and therefore would like to bring two matters to your attention so that we may get some action. First, on November 11th I received a letter from the Secretary of the Treasury in reply to a letter I had written you, in which the Secretary informed me that all arrangements had been made for the transmission of a limited amount of money, each month, by residents of the United States, to family or relatives in Italy. I followed through and received the approval of the Secretary and of OWI to use the information in one of the weekly broadcasts to Italy. Since that time, nothing has happened. On making inquiry, all I can get is that the matter is approved, and finally I learn from the Department of State that it is now up to the Army. May I respectfully suggest that the matter be located, if it is in the Army, BO that the transmission of money may start without further delay. All details have been worked out and I am sure it will do a great deal of good for morale and goodwill here as well as in Italy. The other matter is that of the re-establishment of postal ser- vice between the United States and liberated parts of Italy. This I hear has been approved all around and still it has not yet started. Just why. and who 1s holding this up I have been unable to ascertain. So a push is needed here too. This service will be very helpful. With kind personal regards, I am Sincerely yours, Shudin Mayor Regraded Unclassified V 96 January 7, 1944 MEMBERANTOM TO HARRY L. HOPKINS This is in reply to the questions asked in your nemerandum of January 5 concerning the movement of capital from the United States to Latin America. The have been sware for some time of a movement of speculative private capital from the United States into Latin American countries on an increased scale in comparison with past years. Bowever, the capital movement consists generally of mall amounts carried out in a large number of transactions. 10 are not aware of any large capital movements, large in total or in individual blocks, nor are we mware of any organised novement that would run into large amounts. on the whole, we actimate that the total movement of capital from the United states into retin merien is not in excess of 575 million per year on the part of private interests. This capital has been invested in real estate, in mall commercial end industrial under- takings, and in liquid form for spsculation on possible currency appreciation. Investments in Totin merica unquestionably yield very high rates of return. The 7 percent you mention as a return for non- speculative investments is not a high rate of return for latin American countries. In DONO countries 9 percent to the current rate of interest on short-term fully guaranteed securities and - are aware of even higher rates of return for good investments. cae motive for capital moving to Latin america, in addition to obtaining a high rate of return, might very well be the evasion of United States taxes. Our income tax law provides for termion of income earned abroad generally, but I know that it 10 relatively easy to evade there Lamen. 70 have been informed of 8 mumber of eases of Americans cloaking their investments in the name of the nationals of other countries and the pureau of Internal Revenue is now moving on much cases. The income tax rates of [atin merican countries where such taxes exist at all are much lower than those of the United States and therefore 10 becomes profitable for Americans to clear the identity of the investor. This indusement increases as our tax rate growe higher here. Regraded Unclassified 97 - 2 - At the present time there exist no conventions between this country and the nations of Intin America covering tax evasion, but exploratory conversations have been going forward for some time and there are good prospecte for the conclusion of such conventions with Brasil, Peru, colombia, Venesuela, Paraguay, Guatemala and Mexico. In addition to the foregoing, relatively small amounts of capital, owned chiefly by foreigners, have left the United States for Latin American countries because of a fear of the tightening of the restrictions imposed by Foreign Funds Control. of more importance recently, however, has been the speculative purchase of Iatin American currencies in response to rusers that they were going to appreciate vis-a-vis the dollar. These last-named influences have been most significant in the case of Mexico where, notwithstanding the small aggregate of the flow, the Mexican authorities have indicated that they were seriously disturbed at its inflationary impact. This complaint was made most sharply early last summer. In our opinion the inflationary influence of such flows of funds was exaggerated, first because the amounts involved were not large compared to the increase in purchasing power arising from other sources and secondly, because their nature was not such as to be markedly inflationary in effect. There are ample powers for checking thene flows of funds if neasures are taken in cooperation with another government. TO do not, however, think it desirable to undertake such neasures, nor has the Mexican government indicated any desire to interfere with the inflow. (Signed) 1. Morgenthan, Jr. HU:NTN:1mc,1/8/44 Regraded Unclassified who 6 THE WHITE HOUSE WASHINGTON CONFIDENTIAL January 5th 19 43 MEMORANDUM FOR THE HONORABLE HENRY MORGENTHAU, JR. Someone told me the other day that wealthy Americans, fearful of taxes and dissatisfied with low interest rates, are sending millions of dollars of speculative capital to Mexico and South America. They are getting interest rates of 7% on things not particularly speculative. Do you think there is anything that should be done about this or, at any rate, could you turn this over to someone who could Itt ne know what the facts are? Cordially yours, Harry L Haphins HARRY L. HOPKINS Regraded Unclassified 99 TREASURY DEPARTMENT mt INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau JAN 7 1944 FROM Randolph Paul For your information and further to my memorandum of January 4: Foreign Funds Control was advised on January 5 by the New York Federal Reserve Bank that they had received instructions from the Central Bank of Bolivia to trans- fer $200,000 from its account to the account of the Central Bank of Argentina. Pursuant to Collado's request with regard to Bolivian transactions, Pehle advised Collado of this operation. There was apparently no disposition in the State Depart- ment to interfere with the consummation of this trans- action and it has been effected. R.E.P. Regraded Unclassified 100 JAN 7 1944 Dear lbr. Crowley: I refer to my letter of December 15, 1943, regarding the lend-leasing to the Government of India of 100 million ounces of silver from the stocks of the United States Treasury for the purpose of combatting inflation. There is enclosed a letter from Mr. Donald M. Nelson in which he states that it is the view of the War Production Board that the lend-leasing of this silver will not inter- fere with the domestic need for silver for use in the war effort. Accordingly, the Treasury Department 1s prepared to proceed with the lend-leasing of this silver to the Government of India as soon as you arrange an appropriate agreement for the return to the United States Treasury of an amount of silver bullion equivalent to the total number of ounces of silver 80 transferred. Sincerely yours, (Wgued) IL Mergenthau, J₁ Secretary of the Treasury Mr. T.eo T. Crowley, Administrator, Foreign Economic Administration, Washington, D. C. Enclosure. KMB/jm 1/3/44 Regraded Unclassified WAR PRODUCTION BOARD WASHINGTON, D. C. Desember 23, 1943 IN REPLY REFER TO Dear Mr. Gaston: I have your letter of December 18 requesting my views with respect to the lend-leasing to the Government of India of 100,000,000 ounces of silver from the stocks of the United States Treasury for the purpose of combating inflation. After careful consideration of all pertinent factors, I wish to advise that it is the view of the War Production Board that the lend-leasing of this amount of silver from the stocks of the United States Treasury will not interfere with the domestic need for silver for use in the war effort. Sincerely, Donald M. Nelson Chairman Mr. Herbert E. Gaston Acting Secretary of the Treasury Treasury Department Washington, D. C. Regraded Unclassified 102 TREASURY DEPARTMENT OFFICE OF THE SECRETARY January 7, 1944 CONFIDENTIAL Received this date from the Federal Reserve Bank of New York, for the confidential information of the Secretary of the Treasury, compilation for the week ended December 29, 1943, showing dollar disbursements out of the British Empire and French accounts at the Federal Reserve Bank of New York and the means by which these expenditures were financed. EmB Regraded Unclassified 103 FEDERAL RESERVE BANK OF NEW YORK January 6, 1944. CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I am enclosing our compilation for the week ended December 29, 1943, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, /s/ L. W. Knoke L. N. Knoke, Vice President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington 25, D.C. Enclosure COPY Regraded Unclassified ANALYSIS OF BRITISH AND FRENCH ACCOUNTS Strictly (In Millions of Dollars) Week Ended December 29. 1943 Confidential PERIOD BANK OF ENGLAND (BRITISH GOVERNMENT) BANK OF FRANCE DEBITS CREDITS Gov't Transfersto Proceeds) of Transfurs Not Incr(+) Net Iner. (+) Expendi- Official 5010s of from Other Total or Docr. (-) Total Total tures Canadian Other Official or Decr. (-) Total Securities (Official) Australian Credits in $ Funds Debits Credits in $ Funds Debits (a) Account Debits Credits Gold (b) Account (c) (d) (c) (c) (d) First year of war (g) 1,793.2 605.6 20.9 1,166.7 1,828,2 1,356.1 52.0 3.9 416,2 War period through . 35.0 866.3(f) 1,095.3(f) +299.0 December, 1940 2,782.3 1,425.6 20,9 1,335.8 2,793.1 2,109,5 108.0 14.5 561,1 + 10.8 878.3 1,098.4 +220.1 Second year of war(h) 2,203.0. 1,792.2. 3.4 407.4 2,189.8 1,193.7 274.0 16.7 705.4 - 13.2 38.9 8.8 - 30.1 Third year of war(i) 1,235.6 904.8 7.7 223,1 1,361.5 21,8 5.5 57.4 1,276.8 + 125.9 18,5 4.4 - 14.1 Fourth year of war()) 764.0 312.7 170.4 280.9 1,072.3 - 0.5 155,1 916.7 - 308.3 10,3 1.0 - 9,3 1943 Sept. 2 . Sept. 29 46.3 15.5 10,6 20,2 78.1 - - 14.0 64.1 + 31.8 - - - Sept. 30 - Nov. 3 59.5 35.3 0.1 24.1 121.4 - - 41.5 36.9 + 68.9 1 - - Nov. 4 - Dec. 1 I 48.2 24.4 5.8 18.0 83.4 - - 3.5 79.9 + 35.2 - - - Dec. 2 - Dec. 29 . 38.2 15.6 - 22.6 123.5 - - 35.0 88.5 + 85.3 - - - Week Ended: December 8 12.7 7.2 - 5.5 24.8 - - 15.0 9.8 + 12.1 - - - December 15 11.2 3.7 - 7.5 30.9 - - 5.0 25.9 + 19.7 - - - December 22 5.4 1.9 - 3.5 42.0 - - - 42.0 + 36.6 - - - December 29 5.9 2.8 - 6.1 25.8(k) - - 15.0 10,80 + 16.9 - - E Average Weekly Expenditures Since Outbreak of War See attached sheet for footnotes. (through June 19, 1940) $19.6 million 1940) $27.6 million 12, 1941) 854.9 million $20.1 million Regraded Unclassified (a) Includes payments for account of British Ministry of Supply Mission, British Supply Board, Ministry of Supply Timber Control, and Ministry of\Shipping. (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the proceeds of official British sales of American securities, including those effected through direct negotiation. In addition to the official selling, substantial liquidation of securition for private British account occurred, particularly during the early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation of our securities through December, 1940 amounted to 8334 million, (e) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with Here York banks, presumibly reflecting the requisitioning of private dollar balances. Other large transfore from such accounts since Detober, 1939 apparently represent current acquisitions of proceeds of exports from the sterling area and other secruing dolla, receipts. See (k) below. (d) Reflects net change in all dollar holdings payable on demand or maturing in one year. (e) For breakdown by types of debits and credits see tabulations prior to March 10, 1943. (f) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day. (g) For monthly breakdown see tabulations prior to April 23, 1941. (h) For monthly breakdown see tabulations prior to October 8, 1941. (1) For monthly breakdown see tabulations prior to October 14, 1942. (j) For monthly breakdown see tabulations prior to September 29, 1943. (k) Includes $ 6.0 million apparently representing current and accumulated dollar proceeds of sterling area services and merchandise exports. Regraded Unclassified ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS (In Millions of Dollars) Strictly Week Ended December 29, 1943 Confidential BANK OF DEBITS CANADA (and Canadian Government) COMMONWEALTH BANK OF AUSTRALIA (and Australian Government) CREDITS DEBITS Transfers CREDITS Transfers from Official Transfers to Proceeds British A/C Net Incr. Official to of Proceeds Net Incr. Total British (+) or Official of PERIOD Others Total Gold For Own (-) or For French Other Detits Decr.(-) Total British Other A/C Total Gold Debits Credits Sales A/C Other Docr.(-) A/C Credits InSFunds(e) Debits A/C Debits Credits Sales First year of war (a) 323.0 Creditsin $Runds(e) 16,6 306.4 504.7 412.7 20.9 War period through 38.7 32,4 + 181.7 31.2 3.9 27.3 36.1 30.0 6.1 + 4.9 December, 1940 477.2 16.6 460.6 707,4 534.8 20.9 110.7 41.0 + 230.2 57.9 14.5 43.4 Second year of war(b) 62.4 50.1 460.4 12,3 + 4.5 - 460,4 462,0 246,2 3.4 123.9 88.5 + 1,6 72.2 Third year of war (c) 16.7 55.5 81,2 525.8 62.9 0.3 525.5 566.3 198,6 18,3 - 9.0 7.7 - 360.0 40.5 107.2 57.4 49.8 Fourth year of war(d) 112,2 723.6 17.2 95.0 - 723.6 958.8 47.1 - 5.0 170.4 - 741.3 + 235.2 197.0 155.1 41.9 200.4 - 200.4 1943 - 3.4 Sept. 2- Sept. 29 46.4 - 46.4 65,1 - 10.6 - 54.5 . 18.7 15.8 14.0 1.8 4.8 - 4.8 Sept. 30 - Nov. 3 31.5 . 11,0 - 11.5 83.9 - 0.1 - Nov, 4- Dec. 1 18.4 E3.C + 52.: 0,1 15.3 100.4 5.8 44.9 41.5 3.4 41-7 - - 41.7 94.6 - 24 - + 82.0 5.7. 3.5 2.2 18.3 - Dec. 2-Dec. 29 40.4 18.3 + 12.6 - 40.4 38.1 - - - 38,1 - 2.3 38.1 35.0 3.1 20.7 - 26.7 - 11.4 1 i nek Ended: December B 10.9 - 10.9 16.8 - . - 16.8 16.0 / + 5,9 15,0 1.0 5.5 - 5.5 - 16.5 December 15 7.8 - 7.8 2.9 - - - 2.9 - 4.9 6.8 5.0 1.8 4.8 - 4.0 - 2.0 December 22 7.2 - 7.2 10,8 - - - 10.8 + 3.6 Ogl - 0,1 16.1 - 16,1 - 16.0 December 29 14.5(f) - 14.5 7.6(f) - - - 7.6(g 6.9 15.2 15.0 0.2 0,3 - 0,3 . 14,9 Average Weekly Expenditures for (a) For monthly breakdom see tabulations prior to April 23, 1941. First year of war 6.2 million. (b) For monthly breakdown see tabulations prior to October 8, 1941. Second year of war 8.9 million, (c) For monthly breakdown see tabulations prior to October 14, 1942. 10,1 million. (d) For monthly breakdown see tabulations pri or to September 29, 1943. 13.9 million. (e) Reflects changes in all dalla on turing in one year. 29, 1943) 8.0 million, (f) Does not reflect (g) Includes 33.9 and 3.5 million received from Bank, Regraded Unclassified