Volume 118, April 1 – April 12, 1938

DIARY Book 118 April 1 - April 12, 1938 1 - A - Book Page Agriculture See Cotton Appointments and Resignations O'Connor, J.F.T.: Whether or not resignation was effective April 1st discussed at 9:30 meeting - 4/11/38 CXVIII 271 - B - Bank for International Settlements Cochran resume of meeting - 4/12/38 399 Bank Supervision See Federal Deposit Insurance Corporation Banking Legislation See Berle, Adolph Berle, Adolph Confers with Taylor and Ransom on existing financial situation - - 4/1/38 14 a) Railroad situation thoroughly reviewed - 4/6/38 178 Budget Bell statement of receipts and expenditures for first nine months of fiscal years 1936, 1937, and 1938 - 4/5/38 136 Bell memorandum on estimated financial requirements for next fifteen months, together with assumptions for fiscal year 1939 - 4/7/38 211 At conference with FDR on 1939 relief appropriation, HMJr reveals his opinion that revenue will fall below the estimate by $900 million and that additional expenditures, excluding any lending and pump priming expenditures, will increase 1939 deficit to $3,500,000,000 - 4/11/38 299 Tentative estimate of revenues and receipts for fiscal year 1939 if Federal Reserve Board index of industrial production for calendar year 1938 averages 85, 80, and 75, respectively - 4/12/38 383 a) Copy of memorandum left with FDR 390 Business Conditions See also Berle, Adolph Trend in "international-competitive-position" - White memorandum - 4/1/38 32 Senator Pat Harrison's speech: "The Revenue Measure and Business" - 4/3/38 40 Report of Special Committee to study emergency and long-term credit requirements of large and small business enterprises sent to FDR by Taylor - 4/4/38. 44 a) Jones, Ransom, James Roosevelt, and Taylor concur in recommendations b) Douglas submits additional comments 48 - B - (Continued) Book Page Business Conditions (Continued) Haas memorandum on business situation for week ending 4/2/38 CXVIII 50 See Taylor memoranda, 4/6/38, pages 176,181 HMJr's program as worked out at Sea Island, Georgia - 4/7/38 196 Bell memorandum on estimated financial requirements for next fifteen months, together with assumptions for fiscal year 1939 - 4/7/38 211 "Is increased Government spending necessary for business recovery?" - Haas memorandum - 4/8/38 225 "Should the Government initiate a recovery program now?" White memorandum - 4/8/38 231 "Does the present business situation call for a program for recovery, and if so, what should the program be?" White memorandum - 4/8/38 233 "What is the present business situation and what are the prospects?" - White memorandum - 4/8/38 235 HMJr's memorandum concerning Administration's future policies prepared on train from Sea Island, Georgia, for use in conference with FDR - 4/10/38 246 a) Discussed at 9:30 meeting - 4/12/38 273 1) Conference to be held with FDR; those to be present include HMJr, Bell, James Roosevelt, and Hopkins; HMJr worried because plans have advanced 80 far and Treasury has not been consulted 279 2) HMJr tells 9:30 group FDR has divided advisers into three groups and HMJr is included with the group which thinks conditions are about to improve 283 Haas memorandum on business situation for week ending 4/9/38 - 4/11/38. 287 Conference with FDR; present: Senators Barkley, Glass, Byrnes, and McKellar; Congressmen Rayburn, Taylor, Cannon, and Woodrum; HMJr, Hopkins, James Roosevelt, and Bell - 4/11/38 296 FDR's proposed "recovery message": See Oliphant memorandum, page 327 " Wallace recovery plan, page 331 If conference between Treasury, Federal Reserve, Agriculture, Commerce, Reconstruction Finance Corporation, and James Roosevelt, concerning proposed action in monetary field, 4/12/38, page 343 a) HMJr tells James Roosevelt "now that he knows program at last, he will decide whether or not he can finance it" 348 b) Eccles' later suggestions 382 c) Taylor memorandum: "no originality and not sufficient appeal to guarantee success" - Taylor's reaction to program described at luncheon conference 387 - B - - (Continued) Book Page Business Conditions (Continued) HMJr's statements on recession: resume of CXVIII 349 Tentative estimate of revenues and receipts for fiscal year 1939 if Federal Reserve Board index of industrial production for calendar year 1938 averages 85, 80, and 75, respectively - 4/12/38 383 a) Copy of memorandum left with FDR 390 - c - Cement See Housing China Current United States trade with Japan and China - 4/5/38 148 Civilian Conservation Corps See conference with FDR regarding 1939 relief appropriation - 4/11/38 297 Commonwealth and Southern Corporation See Tennessee Valley Authority Comptroller of Currency See Appointments and Resignations: J.F.T. O'Connor Cotton Report on new uses for cotton presented by Cotton Textile Institute - 4/1/38 1 - E - Excess Reserves White memorandum: "Shall excess reserves be increased, and if so, how?" - 4/7/38 217 Discussed at luncheon meeting in HMJr's office; present: representatives of Treasury, Federal Reserve, Agriculture, Commerce, Reconstruction Finance Corporation, and James Roosevelt - 4/12/38 343 - F - Federal Deposit Insurance Corporation Crowley letter explaining revision of "certain steps with respect to bank supervision" - 4/12/38 395 Federal Housing Administration See Housing France See also Stabilization Daladier cabinet as presented 4/10/38 251 a) Butterworth reports British reaction - 4/11/38 259 - G - Book Page Glass, Carter (Senator, Virginia) See Revenue Revision Gold See Spain Government Bond Market Lochhead resume - 4/1/38 CXVIII 17 Great Britain See also Stabilization Close of financial year shows budget surplus as opposed to deficit in 1936-1937 - 4/1/38 34 - H - - Harrison, Pat (Senator, Mississippi) Speech: "The Revenue Measure and Business" - 4/3/38 40 Housing Report on Federal Housing Administration insuring operations for corresponding periods in 1937 and 1938 - 4/5/38 140,143 Cement: Oliphant reports on check made of all Procurement invitations sent to cement manufacturers covering requirements for all Government activities from May 1 to August 31, 1938 198 Oliphant reports on certain changes instituted by Procurement Division, effective April 1st, with respect to construction contracts 224 - I - - Interstate Commerce Commission See Railroads - J - Japan Current United States trade with Japan and China - 4/5/38 148 - M - Mexico White resume of situation - 4/1/38 27 - 0 - O'Connor, J.F.T. See Appointments and Resignations - P - Book Page Program, Administrative (Future) See also Business Conditions FDR's proposed "recovery message": See Oliphant memorandum, page 327 If Wallace recovery plan, page 331 If conference between representatives of Treasury, Federal Reserve, Agriculture, Commerce, Reconstruction Finance Corporation, and James Roosevelt, concerning proposed action in monetary field, 4/12/38, page 343 a) HMJr tells James Roosevelt "now that he knows program at last, he will decide whether or not he can finance it" CXVIII 348 b) Eccles' later suggestions 382 c) Taylor memorandum: "no originality and not sufficient appeal to guarantee success" - Taylor's reaction to program described at luncheon conference 387 Public Works Administration Ickes asks to borrow Foley in connection with FDR's request for a draft of legislation - 4/11/38 319 Purchasing, Government Oliphant reports on certain changes instituted by Procurement Division, effective April 1st, with respect to construction contracts 224 - R - Railroads See Transportation, Department of FDR's message to Congress concerning Interstate Commerce Commission report - 4/11/38 293 Refugees HMJr (from Sea Island, Georgia) consults Welles about progress of plans - 4/6/38 175 Reorganization See discussion at 9:30 meeting, 4/11/38, page 282 Farley reaction to attitude on the Hill 283 Revenue Revision Senator Pat Harrison's speech: "The Revenue Measure and Business" - 4/3/38 40 Cohen draft of Presidential message concerning taxation of income derived from Federal, State, and municipal bonds, and Federal, State, and municipal salaries - 4/5/38 130 a) Cohen memorandum stating his reasons for supporting amendment (Glass) mentioned above - 4/7/38 199 b) Magill memorandum to FDR stating reasons for Treasury position - 4/7/38 201,203 - R - (Continued) Book Page Revenue Revision (Continued) Letter from HMJr to FDR asking for appointment for himself and Magill to discuss position FDR wishes Treasury to take since bill passed by Senate last Saturday and now in conference does not carry out principles thus far advocated by Treasury at FDR's request - 4/12/38 CXVIII 274 a) FDR sets conference with HMJr and Magill and asks for "letter that can be understood by man on the street, giving history of capital gains and surplus tax" - 4/11/38 317 Federal-State Tax Coordination: Possibilities of immediate action with respect to - (Shoup memorandum) - 4/11/38 307 Conference; present: FDR, HMJr, and Magill - 4/12/38 353 a) Draft of proposed letter to Chairmen of Ways and Means Committee and Senate Finance Committee 355 b) Copy of second draft of proposed letter including FDR's suggested changes 358 c) Magill's second draft 363 d) Final copy as sent to White House after 4/12/38 conference there 371 e) Final draft 376 f) Early and James Roosevelt endeavor to prevent FDR from signing 398 - S - Spain Cochran reports on story regarding Spanish gold - 4/8/38. 240 Stabilization France: Blum confides in Cochran financial proposals to be presented to Chamber in the immediate future - 4/3/38 38 HMJr instructs Taylor to transmit to Blum, through Cochran, United States plan by which banks voluntarily report every week under Federal Reserve supervision - 4/4/38 57 a) Copy of message to Cochran 64,72,86,88, 99,107,108 b) Taylor informs HMJr (at Sea Island, Georgia) of the Blum plans - 4/4/38 58 c) Cochran informed Blum not optimistic concerning passage of measures by Parliament; fairly wide range of measures included, however, some of which he believes any succeeding government must adopt - 4/4/38 70 d) Cochran reports Blum financial program passed by Cabinet and by Council of Ministers - 4/4/38 75,79,83 e) Cochran reports on interview with Blum - 4/5/38 111 1) HMJr orders copy sent to FDR 115 f) Butterworth reports on British press comment on Blum proposals - 4/5/38 120,185 Statements by HMJr HMJr's statements on recession: resume' of 349 - T - Book Page Taxation See Revenue Revision Tax-exempt Securities and Salaries See Revenue Revision Tennessee Valley Authority See Berle memorandum, 4/1/38, page 16 a) Wallace conversation with Taylor indicates that he and Berle have conferred on this problem - 4/6/38 CXVIII 177 Transportation, Department of HMJr (from Sea Island, Georgia) transmits to FDR draft of message to Congress and a bill to establish - 4/5/38 155 a) Taylor tells HMJr Berle agrees on this point of view but does not believe plan politically possible at this time - 4/6/38 178 - U - Unemployment Relief See also Business Conditions Ross memorandum on status - 4/5/38 168 Conference with FDR; present: Senators Barkley, Glass, Byrnes, and McKellar; Congressmen Rayburn, Taylor, Cannon, and Woodrum; HMJr, Hopkins, James Roosevelt, and Bell - 4/11/38 296 a) Wallace tells HMJr later that James Roosevelt has just told him that another $300 million has been added to the $1,250,000,000 - 4/11/38 316 - W - Works Progress Administration See Unemployment Relief THE COTTON-TEXTILE INSTITUTE. 1 320 BROADWAY, NEW YORK April 1, 1938. NOTE We feel that you will be interested in know- ing of the combined efforts being made to dispose of the cotton surplus and from a long-range point of view to stimulate an increased consumption of cotton. These activities are an expansion of promotional work carried on for ten years by the Cotto Textile In- stitute which inspired the Atlanta Cotton Conference of March 3 last, resulting in organization of the Cot- ton Consumption Council. C.K. Everett, Manager, New Uses Section. CHAINS WHOLEHEARTEDLY JOIN MOVE TO ATTEMPT TO INCREASE COTT OODS SALES CLIPPING ON COTTON CAMPAIGN COTTON NEWS COTTON Published by INSTITUTE OF DISTRIBUTION, Inc. and LIMITED PRICE VARIETY STORES ASSOCIATION, Inc. 570 Seventh Ave. New York, N. "Sell More Cotton Goods" Cotton Parley Opens Governor Rivers Lauds Campaign NEWORGANIZATION TO MAP CAMPAIGN WIDER USES NEW USES FOR COTTON COUNCIL IS FORMED ON AIDING COTTON TO LIFT COTTON USE SOUGHT AS LEADERS Crowers, Producers and Sellere Growers, Manufacturers CONSIDERED Will Draft Ad Program and Distributors To Promoting Staple Launch Promotional OPENPARLEY HERE Program in Near Future BY EXPERTS Mpanial - - ATLANTA, March drive to promote I I and increased COLUMBUS ROBERTS consumption of estima incometed Governors and Farm By CLIFF FLIGG. here Inday when the Cotten Cas- NAMED TO COUNCIL "The treuble with American industry today is not area- Council - organized by Leaders of Dixie pathering of growers, - production but dursel distribution." Institute Head Says Solv- I distributors. The That - diagnosis et reserti to formulate Ing of Stable Problem Confer Here present business a advanced cent a the consumption of grape- and leanch . I by Marry D. Wilson. state Com- trutt. Donal D. advertising Will Help Prosperity. of the surples not missioner of Agriculture et Lovil- Commissioner COTTON WEEK PLEA of Agriculture and Teumigration of provides through . plan 18 ans. who Thursday was elected K. Everett, Leaders at the opening of the eotion contr ence here Thursday. Left to right: A concerted campaign to Charles manager et - named chairman late an Increase in reseuraption of America's permanent Chairman of the - the - section 11 the Cot- and Charles K. Enreil, manager W. L McLaurine, secretary American Cotton Manufacturers' Association: Dr. C. T. I Inc. I I : million hales ... terence of cotton producers, prot- of the - - the Cell. Tratile Institute, unged - - and distributors. wereing tes Textile Institute, - elected Murchison, president of the Textile Insti tute: Governor Rivers and Charles K. day with the formation of . Cat- Thursday in to America's I operation of all distributors in Everett, manager, new uses section of the Institute. ton Consumption Council plan increase at the Biltaure Ho entral National Cotton Work, May 30 18 Other members are É sumption of by The new council la composed of June president of the Collen million bales. "Ber coties and spend receive Testile Institute, and Retert Governor Risers oprond the be supposied national Council Tackles Problem STORES TO AID representatives of powers, - After reviewing propress made Stevens, president the factures, state of an address of wel- in versous chaire of are in Geor- sales singen for all business Stevens Company of New Tark, represent the Colles Tex- agriculture, chain stores and mail the gie during the last year. Gener- impor- - E. D. Birers. in welcoming The problem being teckled the Institute N. Willams the South of disporting a conference was distinct Of Selling More Cotton CAMPAIGN FOR order houses, and the Cotton Tes- the delegates to the conternare, Lake Previdence, la. president tile Institute. challenge to the merchants of the the American Corporative suit Geor- of Designed to co-ordinate the - United Sister E. D. Conden. of and c. Menry of newty termed the great group givene are ready to work with any Memphie, Tena manager the ins of 17 cotton-greword and progressive Association who the publing are portion of the cotton of event COTTON SALES tivities of all interested organiza- grow for the advencement of any Chicage public relations director of the Mid-Bouth Growime tackind Priday the problem of I of Cimpany said time, the council begin Immedi- American IMPORTANT TO GA.' "Expresented here are - given Roberts, Com eurola approximately 8,000.000 tall state - the - staty to map plans for - - to attend the render- "Cotten . wishty important chants' groups which have - - Aprington for Cest- . the hands of sive advertising and promotional annual sales volume of two - ( and ser. Willern, will - Organization of the resnell - Wilson asseried allending include repre- la Georgia, Here -- have more lien dollars. or that Setal salve resent the of Thersfer by more- crime - for Eliminate Surplus by Maxing program to be carried on through - insting than DIE testile industries, reg- eature: John and sentatives if collan growers, mile. the Bouth as the I I mesling - invoicement of Denman, bets who and order I lowed the the Buyers Cetten Conscious, chain stores, mail order houses, mail-order - million . the volume of - War Between Blace case store companies. chain store mail and giber distributing aprecias. more than cee million delare - nates. represent the - agricultural 1 the Dr 0. # Murshison of New of the Cotton Testile "The - Inserve - learned and - annual 247 rell in a ristion of Foot Chaire, John secum testile institute. York, president et the Collar Tes- la Council's Plan Committee Chairman. the National Association from the last --- of and Fred campaign 3 sell more tile tratitute, I this Harry D. Wilson, commissioned Chaine and the Institute com of 35 milline datan. - that aprication cema the National Association not la produce said Harry D. I working $ experiements - Dutribution you - for pour- of agriculture from Leuisiana, will inreitable bring shout - of Chain Drug within of Baton Rough LA. shair- to - rélies. in house building. ATLANTA, Os. March salf have important N. la a - improvembed state of indus- - the e OPERATION STREASED I of the council and Louisiana persible a wall structure. FRAM named chairmen of the that are - be forms for - Members the will - of agriculture. Wisson the increased retion thes general I a miller He estimated approximate under discussion include to." be said. operate with the Trade *We new have the overanding would pendent - improvement * - der co-operation be- Matires under discussion in- Institute in the surred I An by I years will 3 required disting that in three months I brains country. die time in the I South I retton manufac- the surplus y bas cluided the security for co-opera- I Week by cotton advertise efferta of 50,500 commise consume the present surplve. and meresta TION details cetten producers. special publicity working the 1 - I 10 increase unles bern commit . today the com The compaign expected states been translated - an end and manafaciures and distributions. and extraordinary - affort. of - in added. campaign Consumption Count - begin rach apary and group . biewing Dr. e. Murchisen, interests of the campaign simed all - reach . pesk during "National of New York, director of the Cot- in co-opetrative pro- states and the parta each THE COTTON CONSEMPTION COUNCIL of competition and of surpive 1 7 1 à I Catton Week." which will be con Textile institute, declared cap. . I from May = to June 4. of promotion and event can play in auch has been ancompliabed in time program of promotion. Few movements motivated by the desire to crops. But there is - program which can be 1 È I I = will be asked to pre- ⑉ informed It controlang the price of the The conference was initiated by Improve the lot of the cotton producers of the - quickly put unto setion and which can pro- meeting of - lestile mill Legan. executive vice sould's chef agrinatural good- officials. southers state claim this - . apecial week dur product of Use National Associa- John A. Losse. executive visa with have such sa the cotten art. been hundred with - prote- 1 I - ind which the people will be T Chaine: Junn P. increased - threw more then 100.00 "Celles goods are being sold president the National urged le aid in the southern director of the tion of Food Chaine John part of success than the Cutton Consumption events than this peshirm Nichola real outima in the drive 3 make party by Increased purchase at Dutribution which below read, and the nation man- Nichels, minager director of the Council, enrored in Allanta last Thursday. sumption. the Inading mail-mder and stacturers are - subject se bastitute of Dutomotion which the organizations represented in the use of collen products. This council was the cusgrowth of contro- And The cougled compaign All-Day Conference. shain firms, and Charles K. information. There is comprimes isading and la traden - for Events. manager of the Cetten chais store firms and Mr Event ences between representatives of cotton grown Cotton Consumption Come - with plane for admite - Appointment of the countil threat of sonther processing 1 - They acted at the request of DUE We ent. manafacturers, state commissioners of agri- the matter in the most effective search Into new I for - Umt. lowed an all-day conference dur- Trade LIMI know from part expe- Charman Willin. and the to-producta. too. sense È imaginable. me which the power and They el the request of that protening us culture, chain store and mail order house es- Biere Chaine Ald with public in the south tributore emphasized the need Marry D. William. Legisiana State lowers the artice of the coties eculines and the Cotton Testile Institute and raises the price of the ell- # is the purpose of the esencil to no-cedi- the - Ald of national associations of taking immediate steps to reduce of Americant Cotton Congress preendly, all your food. clothing and chaire - ATLANTAN A LEADER tes goods. was Beett Alea, of nate . forceful, continues campaign le bring piedged la the the over-mpply of estion. of and the products can be Mianta Bouthern of the - Delegates to the conderence Regers Btores, who UNEMPLOYED of To Convene Today about greater consumption of cotton goods by explained this they wanted . drive resented approximately made original proposal for - "There are - - to the buying public of the pation. Through ad- I in other parte 1 cotton farmers and placed in the testile indestry ATLANTA. March 1. HOPE FOR COTTON the country I Y - converned - the development of 1 the employed - paint w - the - of - verting and special sale inducements IL will I : I at & Chain surona - market- # bears work, Millions be the goal of the arganization to bring shout Already ginned and beind in the Bouth - producia would renti in greater other people who are dependent working shart - leunshed conference - esturne per producta grown on cotton production. of here of la estim to this estaide mouth. Dr. e. T. Marchisen, president the surglases of personable i spindles are Mile. I have great pivor interested the sale of two yards of cotton testiles where Harry B. Wilson, chair- of the Cotton Textile Institute, mation supposed la him the plan manufacture and distribution another two years. Last year's I in this group. for one was sold before, to see that cotton con- man and Louisiana - for es-ortination of distribution is the best qualified - that cellen tainers are used, whenver possible, in place of the biggest in history. and even I clared that . solution of the estimated that the pro- and proform 5 belping the set- has en la tackle the prob- De Caster T Marchism and pm afferts 1,000,000 - ton problem will contribute to Charin K. Eventi. present - under the government projecty of America. san intestry va" be said, paper, jute or other forms of parking. and le furmers, Re said persona Wilson ⑉ Food stores have pointed the manager of or Del then program, three will - on farming Printing out that the United la speak during The day any cam- Instruct will submi increase the consumption of food products there will be for their than living and - through advanced States is to sentative plane for secure pro- made in whole or in part from cottonsed ell produced - conditions altertina pages on birm prodocis of I I alles Date - about 60 per cent of the notion goods caparity, be said 00,000 est- producers Annther ached- Levis W. Cale of Kr. mational program. Will these facia in mind y The instrud alread Institude The sões for this movement was first con- form mill workers are - speakere - B. E Nelson, of provident of the National for non, all transfer NII Workers to Benefit governors of 13 Bain and added that nation et Food crived by * present atlanta relater, Beett large portion Y Chirage VICE president of Bears, Chains, teld the agri- indestry, met in Atlanta last & e. your Marthiam y New Tork. the other $80,000 collan mill - and Return A Company and presi- condence nutrare, executives of Cellse- Alien. No had mes how the National Amt- expanised the Cutton of the - and president playes are working exywhere from dest 7 the Instrute at Distribu- No pointed aut that his - Twice Institute. - National Ma- . the of the Cotine Tentile I B a R hours work. through the thousands of stores socialion of Chaine the of Food Chain Blares had been able la ell. The Pood and program NIF à more retton. and the program benefit Working ou Experiments. in the such firms in campaima conducted last year ! É Insulance Fase the burden of crop surplases for producers to seil of - worken - well - He said the Institute was work- Woolworth , Penner increased the - of vartus her reservations of insting chain - promotion will be companies and mail under houses of many vacinties of foodstaffs and believed No w/d. - per - of the nation's the en experimento to use notion Grant. Montgomery Want Itema from 14 DET rent. in . ne- dispose of the surplier and a promote textile were are - the El - building experially and Their annual pain for Increased Governor E. n. River of Georgia the - plan and the name prychology could erally the notice industry. Nenry b. Bouth wall structure, and was stiengt- ention goods sales total more than of FEES. to 389 our will - the commissioner of John A. Legan of Wushington, - a find other um. be made effective in reducing the estino ear- 1 Louisiana and of the National Dr. Marchises said the Collan are million dollars plan, the carrpover from previses crop years. tare, I named chairman of the Amoriation - MERCHANDING EXPERTS Chaine and Council will supply ideas to other " that eurphase FREE 3. appreviativ redoced fl. Already 80,000 cotten mill workers Michola, director of the of work and a large parties Institute of Distribution promised to laboratory with under the new tarm WE la be E In is the of the - F. . Banks should - is better prices for the collen out King Cotton HAS HIS ILLS part of every build 10 public tor - There some, be convinued, director for other 380,000 workers are idle DIAGNOSED producers and three provide an economic bene- with Non. products 1 believed that If : - Proper Blares T. Burta - week. Everyone know that the Legin represented . - of the consumption - will be whing the chandising for m that will permante shough every strate of ten industry stymint = n . today un Inrgest grocery chaine that market away from other pots. Grant 0 merchan- southern business, southern industry and whole United States autters greate. but promised to devite increased - TLAN is no argument more fai- ruing director for H Kress An acutely. The I I a I I I lactore that that M Outert, Bigth- southern economic conditions. the South autlers most - district manager the With the backing of the metion's gram. for selling the surplus crop and and noods - in - the said the rettom mills must 1 strupgle with and overcume Washerth Company D Mir Quisten Alimata mail manager the mail coder sing . new demand for cotton, at versive influences," chief of which chain store arganizations and lined by the Cotton Council. Symbo for - Bare Consumption a tases. for Bears Restruck * Company houses, them doubt but what the during National Comm Michale apoke - e national Dr. Murchan proised the todo tan be - will reach * N. c. Tapier Lane Drue pesit Com Work, which to the last the theire having - - that eral government for a prompt campaign will be successful. a serves to Secur y May and handle - sales volume of para and Mr Meturis tion in elepping the Beveral also air $ national emaile the innomerable local efforta first of June. Michelle plunge of cuttor I - its president of I I 1 I and E policies. present from the National Ano- to Increase the use of getton. Dr. Claudium T. Murchisen. I of Food Chaim Name Cotten Institute argund Including large mail under houses, Rivers Walsome valuable notion merber of important of the council will a An currtion variety retail chaine and Governor Rivers opened the against the Idra that if the its UM of small extion - increased in in - can - been will meeting and the person be to escourage and within research for new of cottom markets hearted in the - a Several other given parkaging hearth Association - um of the Maple, This tetall. however, is of taken away from when goods. The arem la par the - a - amt - individual plane for who experted a intend rivée L W Caie. of necessary a prof The immediate as argument more falacious than president of the organization progrem toward the an , will 3 2 emplasivel Dr. Munthison a also nil Bouthern general and - pas - - increased cotton the expressed opininal and chairman of Biriden se discover - the mational - trouble à of not- expt is work designed that Adams chairmes of the made through increased purchases I for estion, and the Cotton Countil - by advocating wider - day is not and seriation's ten goods and outtan parments by the nm and will percipate in experiments I products. dara poor of First Other manibers started a the Bieres Numer winen who comprise the estion's in vas pointed out at the Attarking the competition from shoppers. muneti instruded 0 Name of 1 trand is Jute, be and of the Elforts will be made to encourage the nb- the that . large selling campaign boosting beit Memphia productions of the Parker even buys I which of Remove Milletion of cotton material. in place of jute, resulted is the per Owner Crewit - to weep letters. Leese - se - in the baling of cotton part and . displace- consumption 11 E emit over the geniora di % Council meets I I year. If the Collan ditien be being E pres. mest of the Imported which I dent of the the I IL will 3 . very great Clippings used herein National Food Chain Stores 1 former - TEXTRE INSTITUTE PLAN containers variety today will be sought. achievement, indred are from various re- of the The Rev. the should. However, too much hope should met se cont Legues of the I be Murchises, É for of the Comm of I with The placed sione in the ettart 3 sell I ent- remo See York Times, the to help in the - I and F Exerent stunever ton and to find MM - for The of the summer et 1 the Montgomery Advertis- Spesking for 250.000 power of studies a fied new - for the agrient- Willamen, of Lake mines class for . can on in the they Augusta Chron- eatim, x goods pur- lands of the Bosth should Providence, F president 1 Name retire - chase, on the as the and R. a not dark pessimism to point a icle, the Memphis American Cotton Co-operative M- paim. sociation, estimated a gian . - heathers ! of - leaders of this action 1 une the guine a recent years that have been Prese-Scimitor, the will 1 restricting production. - country gelbered time, provide venguard made by the estion givence of Brand Jacksonville Times- produce et - the - is disgnose the - our King Rest. If I other countries can of emply. - évrité The chairmen Union and the Atlanta date - of Celles 1 5 devise I . be produced at charger price that - can't - 1 for - for the Premieral There problem of of the United a the better part. of Constitution, Georgi- caise the - notton, to other uses for our farm an and Journal. E lands. EXECUTIVE COMMITTEE BULLETIN OFFICERS 3 C. F. ADAMS, First National Stores, Inc. President T. P. CAULEY, Danahy-Faxon Stores, Inc. L. W. COLL Stelden Stores, Inc. WM. PARK, American Stores Co. National Association of Food Chains Vice Presidents H. C. PHELAN, D. Pender Grocery Co. L. P. SHIMD, Grand Union Co. H. Kroger Grocery & Baking Co. J. E. DAVIS, Table Supply Stores L. E. FISHER, Fisher Grocery Co. 726 Jackson Place, Washington, D. C. JOHN NIVEN, Purity Stores Ltd. F. H. MASSMANN, National Tea Co. Secretary FM. L. MCEACHRAN, E. 8. Burgan & Son National 8732 L. E. FISHER, Fisher Grocery Co. C. POCKRANDT, Fred W. Albrecht Grocery Co. Treasurer E. G. YONKER, Sanitary Grocery Co. JOHN A. LOGAN JOHN A. LOGAN Ant. Treasurer L. W. COLE, Chairman JOHN A. LOGAN, Executive Vice President W. N. FLINT VOLUME V MARCH 19, 1938 NUMBER 12 TO THE MEMBERS: "BUY COTTON -- SAVE MONEY - SPEED RECOVERY": This is the slogan adopted by the Cotton Institute as a key to the nation-wide program being sponsored to meet the cotton surplus emergency. Chain food stores should play an important part in this program. I. Here is the situation: 1. The 1937 cotton crop was the largest ever COTTON WEEK harvested - 18,750,000 bales. MAY 30 - JUNE 4 2. More than twelve million people -- one out of ten persons in the United States -- - LET'S MAKE IT KNOWN - depend directly or indirectly on cotton for their livelihood. 3. Cotton is the country's largest factory industry. 4. Prosperous cotton is a key to prosperous agriculture - Impoverished agriculture means impoverished business. II. What the chain food stores can do: Chain food stores have already demonstrated in twenty nation-wide campaigns for the removal of agricultural surpluses how farmers can be served by the cooperation of organized mass distributors. This same technique so success- fully employed to sell beef, lamb, grapefruit, apples, eggs, and many other products can and will be applied to the sale of cotton and cotton products. Here is an agricultural commodity of primary concern to the entire South as well as being a key to prosperity in the nation. Here are some suggestions outlining how chain food stores can serve Old King Cotton in an effective manner: FOOD CHAINS SELL COTTON 1. Use a special "box" in your regular advertis- ing for the purpose of 1/2 Billion square a. Calling attention to cotton and to Cotton yards of cotton used Week: May 30 - June 4. annually in packaging b. Outlining the size of the cotton crop and the problem faced by growers. grocery merchandise. C. Urging purchase and use of more cotton and - LET'S USE MORE - cotton products. (OVER) Number 12 March 19, 1938 Volume V p.2 2. Have all store employees wear a small "bale" of cotton on their coat lapels. COTTON CONSUMPTION COUNCIL These may be available at quantity prices. Commissioners of Agriculture: 3. Set up special window displays, in- Hon. Harry D. Wilson, La., cluding: Hon. Columbus Roberts, Ga. a. Food items packaged in cotton - Cotton Growers: sugar, salt, flour, etc. b. Cotton seed oil products - oils, N. C. Williamson, Pres., shortenings, mayonnaises, etc. American Cotton Cooperative Assn., New Orleans; Charles C. Grocery items of cotton -- G. Henry, Gen.-Mgr., Mid- South Cotton Growers' Assn., mops, Memphis. d. Where practicable, put a bale of cotton in store window or borrow Cotton Manufacturers and cotton garments or other articles Merchants: of cotton from your neighboring variety or other type of chain store. Dr. C. T. Murchison, Pres., Cotton Textile Institute, The attention-getting value of a window N. Y.; Robert T. Stevens, of this sort displayed in conjunction Pres., J. P. Stevens & Co., with banners and window stickers featur- N. Y.; Chas. K. Everett, ing Cotton Week will be tremendous. Cotton Textile Institute. 4. Store contests. Individual member com- Distributors: panies may wish to consider offering prizes for the most unique window dis- General Merchandising Chains: plays or for the best percentage sales increase in goods packaged in cotton and cotton products. John P. Nichols, Acting Managing Director, Institute 5. Some companies which use premiums are of Distribution, N.Y.; Fred considering giving cotton luncheon sets, Griffiths, Sec., National aprons, etc. as premiums during the Assn. of Chain Drug Stores. period climaxing with Cotton Week. Food Chains: 6. Food chain executives are acquainted with the procedure of farmer-consumer John A. Logan, Executive campaigns, and some of them plan to call Vice President, National on executives of other types of chains to Assn. of Food Chains; C. B. tell them of the manner in which the Denman, Agricultural Counsel, agricultural program has been conducted National Assn. of Food and the services which have been rendered Chains, Washington, D. C. agriculture. and can continue to be made available to 7. safety, Publicize security, to consumers and general the re-use satisfaction value of of cotton cotton packages, bags. emphasizing 4 olume V p. 3 March 19, 1938 Number 12 II. What other chains have done will do: 1. Thirty-nine enthusiastic telegrams have been sent by variety and mail order chains pledging wholehearted support to the cotton sales program. These types of chains plan to put on the most unusual and spectacular sales in their history - advertising, unique window and store displays, extraordinary effort and cooperation from all sales personnel, etc. Cotton goods sales by chains normally exceed $600,000,000 annually. They will seek to break all records. 2. Drug and shoe chains have assured full co-operation. Shoe chains use tremendous amounts of cotton in shoe "findings" and "linings". 3. All types of chain store distributors plan to cooperate fully in publi- cizing cotton, featuring cotton and cotton products, and promoting the success of this nation-wide campaign. With 37,000 chain food stores and more than 25,000 other types of chain outlets featuring cotton through- out the country, it is reasonable to expect that thousands of other stores will join in the COTTON PARADE. IV. Cotton Week features: The Cotton Industry is preparing to produce thousands of three-color posters (red, white, and blue, size 12" by 18") for use by retail merchants over the entire country in calling attention to cotton values and to Cotton Week as the "high point" in the program to sell more cotton. Cotton Week, scheduled for May 30 - June 4, is the "high point" of the campaign. A poster sample in black and white will be sent to you shortly in order to enable you to place your order for copies of the posters through your Association office. Let's bring the benefits OF FARMER-CONSUMER CAMPAIGNS to the COTTON GROWERS of the nation. Let's PROMOTE PROSPERITY for the cotton South and the entire United States. Let's BOOST in every way possible the sale and use of cotton, cotton products, and cotton seed products. Sincerely yours, John John A. Logan Logan Executive Vice President AID FOR KING COTTON 1937's cotton crop was the biggest ever harvested 18,750,000 bales. By the time the 1938 crop is in the bale, even with restricted acreage, a surplus ecuivalent to two years' normal consumption will be weighing down the market, unless something extraordinary is done to aid King Cotton. National well-being depends upon the well-being of all. New England shoes-are bought with money earned by California oranges. Michigan auto- mobiles are Buid for by Texas cattlo. Louisiana sugar buys Minnesota flour. Cotton is the money in 18 states. Accordingly, the "ups" and "downs" of King Cotton and his depondents are reflected in the standard of living of all America. King Cotton's present emergency, therefore, is of significant impor- tance to all America, her people, her trado, her commerce, her industry. Aid is, manifestly, essential. HELP VOLUNTEERED In order to explore ways and means whereby the present cotton sur- plus emergency might be attacked, a conference was recently initiated in Atlanta, under the joint auspices of the Cotton Toxtile Institute, of the National Association of Food Chains, and of the Institute of Distribution, which was attended by one of the most ropresentative delegations ever às- sembled of government officials, of cotton growers, of cotton cooperatives, of cotton goods distributors, and of others who are cither directly or indirectly concerned with the affairs of King Cotton. The conforence was opened by the Hon. E. D. Rivers, Governor of Geor- gia. Hon. Harry D. Wilson, Commissioner of Agriculture of Louisiana, was named conference Chairman, and so served during the entire conference. Earnost effort was thore made to bring about a joint, businesslike program that would not only stimulate cotton salos throughout America, but which would help to relieve King Cotton's present straitened circumstances. HELP HARNESSED The outcome of the conference was noteworthy, both from the direction of bringing into being a nationwide attempt to bring cotton surplus rolief via cotton goods sales stimulus, as well as from the viewpoint of estab- lishing a relationship of goodwill and cooperation between cotton producer S - 2 - and cotton goods distributor that may help to minimize similar emergency problems for King Cotton in the future. WHAT WILL BE DONE The Atlanta conference transacted the following business that is of substantial significance to King Cotton: a) It decided that efforts ought immediately to commence by all concerned to stimulate the sale of cotton goods or allied cotton products. In order to assist distri- butors, promotional ideas will be interchanged between the various cooperating organizations such as the Insti- tute of Distribution, the Limited Price Variety Stores Association, the National Association of Food Chains, the National Association of Chain Drug Stores, the Na- tional Council of Shoe Retailers, the Cotton Textile Institute, the various cotton cooperative associations and other campaign participants. The respective asso- ciations, in turn, will pass on such promotional ideas to their respective mercantile members for use (or not) either "as is" or LS they may modify or alter them in order to fit their own policies or requirements. In any case, the respective member companies, via window displays, via institutional advertising, and via other promotional means, will make sincere effort to increase their cotton goods sales. b) It was consensus that this cotton promotional effort should reach its "high spot" with a "National Cotton Promotional Week" (May 30 through June 4, 1938). During this week, all cooperating companies, on a united, cooperative basis, will be expected to make a sustained drive to "sell more cotton" via window and ledge displays by "word of mouth" promotion by every promotional medium that can effectively be utilized 1) to increase their cotton goods sales to their own profit and in so doing 2) likewise to permit them to render a substan- tial yet businesslike public service by helping cotton producers profitably to dispose of their surplus cotton crop. The Cotton Textile Institute will continue to prepare the posters and other cotton promotional media. The respec- tive trade associations, in turn, will obtain suitable quantities therefrom and, in turn, pass them on to their members for redistribution among their stores. 7 - 3 - THE "COTTON CONSUMPTION COUNCIL" In order to coordinate the activities of all organizations interes- ted in promoting the increased sale of cotton, the Atlanta conference elected a "ten man" operating committee, named "Cotton Consumption Coun- cil." The Council's personnel is composed as follows: 1. Harry D. Wilson, Commissioner of Agriculture of Louisiana (Chairman) 2. Columbus Roberts, Commissioner of Agriculture, Georgia 3. C. T. Murchinson, President, Cotton Textile Institute 4. Robert T. Stevens, President, J. P. Stevens & Co. 5. N. C. Williamson, President, American Cotton Co- operative Association 6. Charles G. Henry, General Manager, Mid-Southern Cotton Growers Association 7. John A. Logan, Executive Vice President, National Association of Food Chains 8. C. B. Denman, Agricultural Relations Counsel, Na- tional Association of Food Chains 9. John P. Nichols, representing the Institute of Distribution and the Limited Price Variety Stores Association 10. Fred G. Griffiths, Secretary, National Association of Chain Drug Stores. - o - Charles K. Everett, Cotton Textile Institute (Secretary) - o - ABOUT THOSE WHO WILL HELP At this juncture, it seems important to give fuller details concerning the various associations of multi-unit merchants that are participating in the National Cotton Promotional Campaign, 80 that we may see our subject whole and understand it fully. 8 - 4 - THE INSTITUTE OF DISTRIBUTION The Institute of Distribution, as our first case, was founded and is now being maintained by a substantial number of representative na- tional and sectional multi-unit retail institutions such as F. W. Wool- worth; Sears, Roebuck; S. S. Kresge; Montgomery Ward; S. H. Kress; Wes- tern Auto Supply; National Shirt Shops; W. T. Grant; United Cigar-Whelen; Melville Shoe Corporation; Lerner Stores Corporation; Cunningham Drug Company and many others of a similar size and calibre, for the purpose ... 1) of compiling and disseminating accurate information concerning di- rect retail distribution and 2) of serving as the coordinating agency via which Institute members may act jointly, cooperatively on public re- lations and other matters of common interest. The offices of the Institute of Distribution are located in New York City. Its President is Don M. Nelson, Vice- President of Sears, Roebuck and Company. Its operating policies are established and directed by a representative Board of Directors, headed by Ward Melville, President of the Melville Shoe Corporation. John P. Nichols, Acting Managing Director of the Institute, is a member of the Cotton Consumption Council. THE LPVSA The Limited Price Variety Stores Association is the national trade association for the "five and tens" of America. Its membership is com- posed of 745 or more variety store concerns, large and smell, chain and independent, including F. W. Woolworth; S. S. Kresge; S. H. Kress; W. T. Grant; J. J. Newberry; G. C. Murphy; H. L. Green; McCrory Stores; McLel- lan Stores; Rose's; Neisner Brothers; M. H. Fishman; Scott-Burr; Charles; Morris; Sprouse-Reitz; Hested; Kuhn; Duckwall; Autenreith's; Schultz; Eagle; W. W. Mac; Sterling Stores and many others. Its members do more than 90% of the variety store sales in the United States. The LPVSA is also headquartered in New York City. Dr. Paul H. Nystrom is its President. THE NAFC The membership of the National Association of Food Chains is composed of such well-known, long established national, sectional and local chain grocery institutions as Safeway Stores, Inc.; Kroger Grocery & Baking Co.; American Stores Co.; First National Stores, Inc.; National Tea Co.; H. G. Hill Co.; D. Pender Co.; Southern Grocery Co.; Grand Union Co.; Fisher Gro- cery Co.; Sanitary Grocery Co. and many others of a similar size and type. NAFC members operate C. total of 37,000 stores, most of which have suc- cessfully, wholeheartedly participated in the NAFC surplus crop disposal campaigns via which distressed agricultural interests have been given prac- tical form relief. 9 - 5 - The NAFC's surplus crop disposal campaigns merit the following fur- ther mention: During 1937, the NAFC staged national campaigns on the following com- modities: fresh and canned grapefruit (at different times), fresh and canned peaches, lamb, eggs, apples, walnuts and prunes. Other campaigns, of varying dimensions but of less than national stature, were staged on the following: turkeys, avocados, Washington State apples, canned peaches, Florida oranges, cheese, potatoes, Idaho cherries, canned tomatoes in the Northwest, sweet potatoes on the Atlantic Seaboard, grapes, cranberries, tangerines, and cotton for bagging. Regional or national, the chain campaigns don't miss a promotion trick. First of all, there is space advertising. Copy and layouts are prepared by the headquarters organization, inserted and paid for by the local chain, which frequently supplements the schedule with its own advertising. In the 1936 beef campaign, 44 chain systems spent over $2,000,000 on 300,000,000 individual advertisements. In addition to the space insertions, 33,000,000 handbills were distributed in that campaign. Publicity on the radio and in the news columns is always worked to a fare- thee-well, featuring recipes and menus. But essentially it is the man- behind-the-counter who makes the campaign click -- with posters, pennants, banners, window and store displays, but most effectively of all, with the potent word-of-mouth advertising. Washington is the home of NAFC headquarters. The Association is headed by L. W. Cole, President of the Steiden Stores of Louisville. John A. Logan, Executive Vice President, is both operating head of the Association and one of its representatives on the Cotton Consumption Council. THE NACD Liggett, Walgreen, Peoples, Lane, Cunningham and other chain drug store corporations of that type compose the membership of the National Association of Chain Drug Stores which is headquartered in New York City, and whose Secretary and representative on the Cotton Consumption Council is Fred G. Griffiths, President of the Pennsylvania Drug Company. In June 1937, the milk-using members of the National Association of Chain Drug Stores, of the Limited Price Variety Stores Association, and of the Institute of Distribution joined forces in an outstandingly successful milk promotion campaign intended not only to stimulate milk sales of parti- cipating companies, via a month's sustained promotion, but, likewise, in so doing, to help dairy farmers to dispose of their substantial seasonal milk surplus. 10 - 6 - The significant importance of this milk campaign is well demonstrated by the fact that the milk sales of participating chain drug stores mounted by 30% during the campaign period over a corresponding period in 1936. Though the total June 1937 sales of milk-using variety stores increased but 1.5%, their milk sales during the campaign period, on a group aver- age, jumped by 36.7%, to the great benefit of all concerned. NACD members sell $60,000,000 worth of cotton goods annually, and they are planning, via the current promotional campaign, to make every effort to increase such sales notably. THE NCSR The National Council of Shoe Retailers, located in New York City, is the national trade association of the shoe distributors of America. In- cluded within the NCSR's roster of members are such nationally-known shoe institutions as Melville Shoe Corporation; G. R. Kinney Company, Regal Shoe Company; Edison Brothers Stores, Inc.; Endicott-Johnson Shoe Corp.; A. S. Beck Shoe Corp.; W. L. Douglas Shoe Company; Berland Shoe Stores and many others. Ward Melville, President of the Melville Shoe Corporation, is Presi- dent of the Council. W. L. Girdner is Executive Secretary. While the amount of cotton goods sold by the shoe chains is not, naturally, large in relation to the total cotton goods consumption of America, it has been steadily increasing in the past five years. Cotton is being used, increasingly, in shoe and other products sold by the chain shoe stores ... and the shoe chains have been leaders in promoting and selling millions of pairs of women's shoes in which cotton fabrics are used as principal materials. In 1937, for example, the shoe chains sold more cotton fabric shoes than ever before in their history. Shoe chains now sell or consume merchandise which contains 20,000,000 pounds of cotton. Via the instant cooperative promotion campaign, they hope notably to increase this already substantial amount. PLEDGE GOODWILL AND COOPERATION The Institute of Distribution and the Limited Price Variety Stores Association were jointly represented at the Atlanta Cotton Conference by a half dozen or so merchandising experts of representative national cot- ton-using companies such as F. W. Woolworth, Sears Roebuck, J. C. Penney, W. T. Grant, S. H. Kress, and others. The Institute's delegation attended the Atlante conference intent on participating actively and wholeheartedly in probing with the other dele- 11 - 7 - gates for ways and means whereby national cotton-using chain store com- panies may not only increase their own cotton goods sales to their own profit but, likewise, in so doing, be enabled to render a noteworthy public service by helping cotton producers profitably to dispose of their current surplus cotton crop. The joint Institute of Distribution and Limited Price Variety Stores Association delegation represented 43 cotton-using companies operating about 8500 stores with annual retail sales of about $2,000,000,000, al- most $600,000,000 of which are in cotton goods or allied products. The following messages from ranking officials of substantial cotton- using companies ... & few among the many that were received by the Insti- tute delegation while at the Atlanta conference ... serve to demonstrate the sincere intention of mass distributors earnestly to cooporate in the current, two-purpose, cotton promotion campaign: From K. D. Gardner, President of the K. T. Grant Company: "The executives of the W. T. Grant Company are very much in accord with the purposes of the conference on cotton being held in Atlenta. We recognize the oppor- tunity to further the interests of those whose lives depend upon cotton, namely, the farmer, the manufactur- ers, and their employees; also the consumer. We are hopeful that well developed plans for furthering the use of cotton will result from this conference and pledge our wholehearted cooperation in carrying out such plans." From W. W. Humphrey, President, Western Auto Supply Company: "We sincerely appreciate the purposes'oi the Atlante conference and hope that from it will come helpful sug- gestions. You may depend on our company doing every- thing possible to carry out the program by its coopera- tion." From R. F. Coppedge, Vice President, McCrory Stores Corp.: "Our company is in hearty agreement with the aims of the conference of state officials, cotton producers and retail distributors at Atlanta. We shall cooperate to the fullest possible extent in any promotional campaign which may result from the Atlanta conference." 12 - 8 - From C. B. Tuttle, Treasurer of the S. S. Kresge Company: "We are enthusiastically sympathetic toward any movement that will stimulate the sale of cotton goods not only through Cotton, Week but throughout the year, and that the crop may be successfully marketed at prices satisfactory to the growers." From B. S. Hornstein, President, Charles Stores Company: "Our stores all south except one naturally inter- ested development movement promote more cotton uses. We hope Atlanta conference will foster such campaign to benefit producers in disposing of surplus crop. Charles Stores will devote all windows and newspaper advertising for national chain store cotton week or any such promotional event." From Don M. Nelson, Vice President of Sears, Roebuck & Company: "Sears, Roebuck & Co. pledges itself to cooperate 100% with program Institute has started to help by ex- tra sales pressure on cotton goods in order to relieve cotton surplus. Cooperative effort of this kind will, we are sure, help the farmer, the cotton industry, and our customers as well. You can count on us to follow through on any plan that develops out of meeting." INTENSIVE CAMPAIGN BEING PLANNED Since the Atlanta conference, plans for an intensive campaign to promote increased cotton goods sales have actively gone forward. To the long-established, nationally-known mercantile institutions that are participating therein, the National Cotton Promotional Campaign means a sincere, wholehearted effort to attempt to sell more cotton goods and allied cotton products. Via forceful window and ledge displays ... by institutional messages and advertising ... by word of mouth ... by enthusiastic sales effort on the part of sales clerks ... participating stores are planning ... shoul- der-to-shoulder" among themselves and with others cooperating in the cam- paign to concentrate on the job of increasing the sale of cotton goods and allied cotton products during the campaign period. 13 - 9 - While it is, naturally, recognized that these stores, in concert with food, drug and shoe chain participants ... and with their cotton cooperative and other campaign associates ... cannot totally move the prodigious cotton surplus with which growers are now saddled, they are, at the same time, earnestly intent, via promotion, to do their utmost to increase the sales of their cotton goods and allied cotton products not only to their own profit but, likewise, to the benefit of King Cot- ton and his related interests. mg 3/28/38 ? 14 April 1, 1938 Berle MEMORANDUM I Last night Mr. Wayne Taylor, Assistant Secretary of the Treasury, Mr. Ronald Ransom, Acting Chairman of the Federal Reserve Board, and I met at Mr. Taylor's house to consider the existing financial situation. Among other factors, we had in mind (1) the present levels of production; (2) the relative absence of new capital financing; (3) the dropping of the stock market; (4) the fact that the Government bond market had recently required some support from the Federal Reserve; (5) the existing number of the unemployed and the need for relief. It was generally agreed that the difficulties were as much moral as economic. Nevertheless, there seemed enough chance that the trend would continue to make it urgent that a program be evolved. II It was suggested, as an immediate program, that the following might be scheduled for prompt initiation. It was assumed that the Glass Bill, extending the loaning powers of the R.F.C., would be passed within a few days. In such case, it was thought that the immediate situation would 15 -2- would be stabilized if - (a) The public works program were reopened; (b) A railway equipment corporation were formed to order, finance and provide railway equipment to railroads needing it; (c) The making of capital loans for business, with special attention to planned employment and construction; (d) The extension of loans for housing construction, with special emphasis on middle class housing; (e) The reserve requirements, raised last May, might now be reduced. In the alternative, further de- sterilization of gold might be considered. This last would be more psychological than actual, since there 18 no present lack of excess bank reserves. (f) Adequate W.P.A. and relief appropriations would have to be asked. This requires legislation; but it appears essential. III In view of the actual situation, the tactics are important. They might include: (a) An appropriate speech, presumably on the 00- casion of the passing of the Glass Act, out- lining the program; (b) Some forty-eight hours later, the announcement of some dramatic public works job; (c) Shortly after that, & campaign to form production committees to stimulate private construction financed, if necessary, under the Glass Bill. In that connection organized labor ought to be asked to assist, and ought to be made aware that-labor groups are also responsible for creating production, as well as for making demands. In other words, make local labor leaders actually share in the process of putting the job through. (d) 16 (d) A day or two after that announcement, announce, if possible, some big piece of private con- struction or of railway equipment contracts, or both. (e) If possible push the negotiations between P.W.A. -TVA? and Commonwealth and Southern. It would be desirable if some other negotiator than Wilkie 8ng.177 could be found. IV Three points ought to be recognized: (a) Practically no business group in the country has escaped investigation or other attack in the last five years. Irrespective of their deserts, the result has been shattered morale. We have not, in the absence of a large Government ownership program, any class or group to whom we may turn for economic leadership. It 18, therefore, necessary to make that group pull itself together. (b) There are some remote indications (notably in steel) of an upturn. If, therefore, we can weather the next sixty or ninety days, normal processes very well may "take us out". The next fewweeks, however, may determine whether these processes can be set in motion. (c) It was noted as possible that the railroad bill might be 80 handled as to provide at least the hope that railroads would do better. Since the next Presidential message scheduled has to do with monopoly and, (possibly), bank holding companies, it might be well to have that message so handled as to lead into a program of this kind. 17 Friday April 1, 1938 11:55 a.m. Archie Lochhead: Yes, sir. HMJr: What's new? L: Well, at the opening the stock market came back and is up two and a half points. HMJr: Yes. L: Since that time they've shaded off slightly I understand. HMJr: Yes. L: But it was a pretty active opening and pretty well on the up side. HMJr: Yes. L: The commodities also came back point thirty-eight, so that brings them up to fifty point-O-four again. HMJr: I see. L: At the opening the Government bonds managed to work back a little bit better - about one to two better. HMJr: Yes. L: But just as I come in here just now they say that they're off about to last night's close again. HMJr: Yes. L: But there's no - they seem to be fairly steady there; they've gone off our quotes but nothing on the - no offers yet. HMJr: How much are industrials up? L: The industrials are up two point fifty-eight. HMJr: Good. L: That brings them up to 101.63 again. HMJr: Good. 18 -2- L: The foreign exchanges are quiet. Francs are quite strong, but more or less on a limited weekend market. HMJr: I see. L: The - we have - I find car-loadings increased; I just had this over the Dow-Jones, car-loadings increased thirty-two million - ah - thirty-two thousand six hundred and twenty cars. HMJr: Did they? L: Yes. That's loadings of revenue freight. HMJr: What's that? L: Loadings of revenue freight. HMJr: Well, when you send me the telegram tonight. L: Yes. HMJr: ...have Haas give you the forecast on the Times index. L: Ah - forecast on Times index, yes. HMJr: Yes. L: All right. Now then, I'm sorry to say that Harris has just brought in a note saying that the System has purchased now seven million dollars - with the bonds at last night's level. HMJr: Yes. L: So apparently they've stepped right in at last night's levels and not let them go under that. HMJr: I see. L: Secondly, we now own some Spanish silver. HMJr: Yes. L: The Spanish Ambassador came in at half past eleven and had a telegram accepting the bid for five million ounces. HMJr: Yes. 19 -3- L: And - they just simply said they've accepted it and they will send it in accordance with the condi- tions. HMJr: Well now, when do we give them a price?- oh, when it arrives, I guess? L: No, we gave them the price on the bid. You see, the price - you see, we make the bid - we have to make the bid abroad; the price of forty-three was given to them. HMJr: Oh, I see. L: So that's set on that. HMJr: Oh, you give them the price when ... L: When the bid is made, you see. HMJr: I see. L: And then we only pay for it when it arrives. HMJr: I see. L: Ah - the London silver market was a little bit better today; they've worked it up to forty-two and half cents, which is practically parity with ours. HMJr: Yes. L: Not so - not very much activity there; there was one lot of a hundred thousand offered which we didn't pay any attention to. HMJr: Does anybody in the group think we ought to raise it? L: No, there's nobody feels that we should raise it at all yet, because they're not bidding, as I say, they offered at the parity and the only point is there's certainly no reason for lowering it this morning. HMJr: No, just leave it as it is. L: Leave it as it is. Well, that's all on the market here just now. Mr. Taylor is here./ By the way, Mr. Bell is also here if you wish to (And) speak to him. Dan says he has nothing in particular. Just a second. 20 -4- HMJr: How are his tax figures? (Short pause) Wayne Taylor: He - Dan says he'll get them before you get off the telephone. HMJr: All right. T: Ah - did Archie give you the last news on the bonds? HMJr: Well, he said somebody just bought seven million. T: Yes. HMJr: I see. T: They've turned - they're about at last night's levels now. HMJr: Now, Wayne, I don't expect to call up again before Monday. T: Good boy. HMJr: And so - if you fellows want me it's up to you to call me. T: Right. HMJr: And - ah - so, you people ought to be able to get in some golf tomorrow. T: Ah - I hope SO. HMJr: How is the weather anyway? T: Oh, it's a little on the gray side. HMJr: I see. Well, it's been a difficult week and I think we've come through remarkably well. T: Well, the papers are still holding together. HMJr: Yes. Well, don't hesitate, Wayne, if it's something important. T: No. I won't for a minute. But I won't bother you unless it's something that you ought to know about. 21 -5- HMJr: I mean I'd feel much better if I knew if it's important that you'd call me. T: Don't worry about that; we will. HMJr: And - has White got anything to throw on the horizon or in the pot? T: Harry says he has available a brief memorandum on the Mexican situation if you'd like to have it. HMJr: All right. Shoot it down. T: All right. He'll send it down. HMJr: Are they making any headway on Mexico? T: No. HMJr: They're not? T: In fact, the opposite. HMJr: I see. Are those Mexican boys from the Treasury still up? T: No. They - they were merely the advance party stooges anyhow, so there's no great loss. Tax receipts - seven one eight four. HMJr: Seven one eight - seven hundred and eighteen million? T: Yes. HMJr: And what was the expectation? T: Seven forty-six. Yes. HMJr: Well, that's through. T: Yes. HMJr: Is that through the thirty-first? T: That's right. HMJr: Well, somebody owes you and me a nickel, doesn't he? T: Yes. HMJr: All right. -6- 22 T: I suppose Archie will have to wait to collect that until you get back. HMJr: And you too. T: That's right. And - as a matter of fact we're both sorry to win it. HMJr: Is Dan there? T: Yes. HMJr: I want to ask him something. Dan Bell: Hello. HMJr: Dan. B: Yes. HMJr: I wish you'd have somebody in the Budget get to- gether the figures for nine months on the money that we've spent out of pocket other than the regular Government expenditures, I mean, anything which would come under relief or public works. B: You mean outside of the regular operating? HMJr: Yes. B: Yes, sure. HMJr: And how much money we've loaned. B: All right. HMJr: And then compare it with the nine months of the previous year.' B: Yes. HMJr: I'd like to just see how much - how the figures com- pare, because they keep talking all the time that we're not spending any money. Well, we're spending plenty. B: Yes, we're spending a lot of money. HMJr: We're spending a lot of dough. B: (Laughs) Wayne says don't worry. (Laughs) 23 -7- HMJr: Don't worry what? B: Well, I think your remark indicated that you expect something to happen. HMJr: How does he mean? may B: We/still spend. HMJr: Well, the point is - of all this talk is B: Yes. HMJr: .... because we're not spending enough. B: Yes. HMJr: Well, it's perfectly silly. B: Well, WPA is almost up to last year, I mean, in monthly figures; they're getting up now to about a hundred and thirty-eight million or forty. HMJr: - a memorandum on the nine month situation, will you? B: Yes. Well, that'll be a little lower on probably relief and public works. HMJr: Well, let's just take a look at the nine months. B: Yes. HMJr: And compare it with, oh, the last couple of years. B: Yes. Well, I'd better give you the last month or two - March separately because I think you'll find March increasing considerably over say, November. HMJr: Well, what - my objective is I'd like to take a look at just what we are doing because I'm getting so fed up on these - everybody saying that the trouble is we're not spending enough. B: Yes. All right, I'll work it out. HMJr: Now, if the total expenditures, counting everything are/the same or a little ahead of last year about -8- 24 B: Yes. HMJr: What? B: Yes. HMJr: Will you count everything? Dan? B: Yes. HMJr: That's right. B: Yes. Well, let me - I'll check them up and classify. HMJr: If you count everything we've spent more money this nine months than we did last, if you count everything. B: Well, you're counting the transfers to trust accounts also? HMJr: Everything. B: That's right. HMJr: Yes. B: All right. HMJr: And - and listen, young fellow... B: Yes. HMJr: If you don't take off a few days, I'm going to send... B: I'm listening. HMJr: ...the Coast Guard after you. B: (Laughs) All right. (Laughing) A boat? HMJr: What? B: A boat? HMJr: Probably. B: A (Laughs) All right. HMJr: No, you're - I mean, the President is going to be back and .... 25 -9- B: Yes, I know he is. HMJr: I think you ought to go home now and not show up for a couple of days - three or four days. B: Well, I'll stay home tomorrow. HMJr: That's wonderful. B: 0. K. Anybody else? HMJr: No, just tell Archie to send me a wire today and tomorrow after the market closes - send it Western Union. B: Western Union? HMJr: Because they've got an office here and Postal doesn't. B: All right. I certainly will. HMJr: And - I hope everybody has a good weekend. B: Fine. Thank you. I hope you have one too. HMJr: I think the Treasury held up its own this week; I'm quite proud of it. B: Well, that's fine. Archie did a good job too. HMJr: What? B: Archie did a good job. HMJr: I think SO. B: All right. HMJr: All right. B: Goodbye. HMJr: Has anybody else got anything? B: No one has anything else. HMJr: 0. K. B: Goodbye. 26 -10- HMJr: Hello. B: Yes. HMJr: Is Mr. Blum still Premier? B: (Laughs) An hour ago they said that he was still on. (Laughs) HMJr: All right. B: (Laughs) All right. Goodbye. TREASURY DEPARTMENT AM27 INTER OFFICE COMMUNICATION DATE April 1, 1938 TO Secretary Morgenthau FROM Mr. White Subject: The Mexican Situation Conclusion: The elements for serious political and economic disinte- gration in Mexico definitely exist but as yet she is a very long way from the brink of economic chaos. Whether un- employment and cost of living in Mexico will rise 80 rapidly and 80 persistently as to create serious disorders depends in part at least on the extent to which foreign governments make the situation more difficult for Mexico or less difficult for her. If Mexico can pull out of this crisis without great depen- dence upon fascist countries there is every reason to ex- pect that she can and will make substantial annual payments to the foreign oil companies during the next decade and -- what is more important -- in time constitute a prosperous and democratic neighbor whose commercial and political re- lations with the United States should steadily improve. It seems, therefore, that the United States Government and the American oil companies have everything to gain by help- ing Mexico at this crucial period to get on her feet; and much to lose by continued and intensified pressure for cash payments or return to the oil companies of their oil proper- ties. The latter tactics can result only in driving Mexico to seek assistance elsewhere and/or into political and , economic chaos. (Neither Mr. Taylor nor Mr. Lochhead have seen this memorandum. I do not know, therefore, whether ideas expressed herein would receive their approval.) 28 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 1, 1938 TO Secretary Morgenthau FROM Mr. White Subject: The Mexican Situation THE SITUATION IN MEXICO IS BAD, BUT BY NO MEANS HOPELESS. 1. The crisis in Mexico has sharply increased unemployment. A large percentage of the oil wells and refinery plants have ceased operations and thousands of oil workers have been thrown out of employment. Silver output has been cut in half (chiefly as a consequence of the labor trouble with the American Smelting and Refining Company), adding several thousand to the unemployed. Government expenditures on public works and material are being drastically curtailed. Foreign manufacturing concerns have almost ceased operations. It 1s virtually impossible for business or farmers to obtain any credit from the banks. Wholesalers have stopped selling on credit and their busi- ness has consequently sharply declined. These causes of unemployment are for the most part an ac- companiment of the acute situation now prevailing. Unless an internal political crisis develops -- which seems unlikely at the moment -- a gradual improvement from the present low level is to be expected. 2. The Government is in financial difficulty. Government revenue 18 falling and expenditures probably are exceeding current revenues by some 10 to 15 million pesos a month. To meet this deficit the Mexican Government will have to resort to the printing press (via loans from the Bank of Mexico), raise the money through domestic loans, or consummate an oil deal with foreign interests involving an immediate payment. The chances are that Mexico will resort to all three methods. 29 Secretary Morgenthau - 2 She will be able to raise some money at home through an issue of bonds. There is also room for judicious use of the printing press. It 18 true that confidence in the future of the peso is declining. Prices of staple foods are rising rapidly -- they have already risen over 20 per- cent in the last two weeks -- and hoarding of silver coins has greatly increased. Nevertheless, the Government should be easily able to borrow from the Bank of Mexico 5 to 10 million pesos a month during the next few months without bringing about anything approaching a runaway inflation or a collapse of the peso. The likelihood that Mexico will be able to consummate an oil deal with foreign interests, giving her an immediate large sum, is fair. In favor of a successful consummation of a deal is the willingness of the Mexican Government to cut her prices drastically, if necessary to get cash. 3. Mexico's metallic reserves are rapidly disappearing. There is a substantial internal drain of silver. People fearing inflation are turning in their peso certificates and demanding silver coins. (If the peso should drop to 17 cents the silver in the coins will be worth more than the monetary value of the coin). There 18 also a persis- tent though small outflow of capital. The drain on Mexico's metallic reserves, both for hoarding and for supplying foreign exchange, has been 80 heavy that it 18 rumored they have lost more than half their metallic reserves in the last month. Unless the internal and ex- ternal drain greatly slow down Mexico will have to suspend specie (silver) payments and impose strict exchange control. Neither step will in any sense be catastrophic. Mexico can continue to operate more satisfactorily without metallic reserves but with exchange controls than she is doing now. 4. Peso exchange is dropping. Pesos are quoted at around 22 cents (though it 18 reported that sales were made at much lower than that on the Black market). The exchange situation is, however, far from a runaway depreciation. The pressure on peso exchange is not at all great considering events in Mexico. The situation has been helped by several developments: imports have been sharply reduced by high tariffs and will be still further discouraged by the 20 percent increase in the cost of for- eign currency; flights of capital have been almost exhausted; 30 Secretary Morgenthau - 3 and the demand for foreign exchange arising from the desire of oil companies and their foreign employees to keep as much of their cash as possible in foreign countries in dol- lars and sterling will be checked. Altogether it is entirely feasible for Mexico to keep the peso exchange -- during the near future at least -- at 20 cents or above. The one serious threat to Mexico's exchange position lies in the possibility of serious political disturbances and labor revolts. 5. Unrestrained inflation in Mexico is not imminent. The Mexican Government can substantially increase its ex- penditures via the printing press without creating a break- down in her monetary system. It 1s true that the Mexican people are suspicious of paper issues and that as a conse- quence Government resort to the printing press is likely to have a greater effect on prices than might otherwise be the case. Notwithstanding that fact, a judicious use of the printing press not only can help solve the Government's immediate financial problem but can help materially to turn the trend of business conditions in Mexico from a recession to an upswing. It must be remembered that the Mexican foreign bonds are already in default and that her domestic held bonds, with the exception of her road bonds, are likewise in default. Therefore, her credit can hardly get worse. Mexico is not in the position of France, for example, who must be careful lest too great note issues will seriously "injure the credit" of the Government. 6. Though serious, the Mexican oil situation does not appear to present insuperable difficulties to Mexico. Last year Mexico produced about 46 million barrels of oil, a little more than half of which was exported. The domestic market will, of course, be maintained and should prove an important source of Government revenue as soon as the re- fineries operate with reasonable efficiency. Though the Mexican Government will at first have considerable technical administrative trouble in their refineries and in their oil fields, there 18 reason to believe that before many months have passed they will be able to operate with sufficient effectiveness to obtain more revenue (and particularly more foreign exchange) from the oil industry than Mexico formerly did. 31 Secretary Morgenthau - 4 Their most difficult problem now 1s to find export markets and tankers for their surplus oil. Whether Mexico will soon be able to market a substantial portion of the 2 million bar- rels a month formerly exported is uncertain. Japan, Germany and Italy among them import more than Mexico has to export, and will doubtless be very eager to secure Mexican oil at cut prices -- if they can get it. 7. Mexico can not make any substantial cash payment to foreign oil companies at once, but should be able to later. Mexico's total resources which she could convert into for- eign exchange are almost nil, and her ability to raise very large amounts of pesos in any way other than through the printing press is very remote. If, however, Mexico is given a chance to get on her feet, she should be able to make substantial payments to the foreign oil companies during the next decade. Last year Mexico's export surplus was about $75 million. To that sum may be added approximately $10 million of net income from tourists. During the next decade, particularly if no obstacles are placed in Mexico's path, there is reason to believe that she can greatly increase both her favorable balance of trade and revenue from tourists -- even if she fails to attract large capital imports. All of it, of course, is not available for payment to the American and British oil companies because a substantial portion belongs to foreign owners and foreign employees of Mexican mines and industries who prefer to keep their profits and savings outside of Mexico. Also, Mexico badly needs 1m- ported machinery, equipment, etc. However, there would be enough left 80 that a payment of from $25 to $50 million a year to foreign holders of new or existing bonds is not at all out of the question. 3/P/28 FPTA LODOLF EZON #: US 2842 240.9 one KTOPS passes KL* 32 TREASURY DEPARTMENT HS INTER OFFICE COMMUNICATION DATE April 1, 1938 TO Secretary Morgenthau Mr. White Hbw FROM Subject: Trend in "International-Competitive-Position" 1. The "international-competitive-position of the United States has been improving rather steadily since last summer (improving, that is, from the point of view of our export- ers, and of American producers for our domestic market). By February the average of the various weighted indices, measuring varying aspects of the international competitive position, improved about 7 percent. August 1937 102 December 1937 106 January 1938 108 February 1938 109 2. The trend has changed during the past few weeks due to the weakening of numerous currencies. March will likely show a decline in our index of 2 percent. A decline of 2 percent is a deflationary influence which, coming at this unfortunate time, helps retard recovery. However, it is only a minor factor in the business situation as yet, and in no way warrants any corrective action. 3. The improvement - through February has contributed substantially to the maintenance of our exports and to the sharp decline in our imports. However, the fact that the recession in foreign countries did not make its appearance until the end of the year -- and has been only slight in most countries during the first two months of 1938 -- has been at least as important a contributory factor to our sustained exports. 33 Secretary Morgenthau - 2 United States Exports (Million $) 1936-1937 1937-1938 August 179 277 November 226 315 December 230 319 January 223 289 February 233 263 March 256 260 (Estimate based on reports of first three weeks) Preliminary figures for March indicate that the usual seasonal increase in exports which takes place in March will not occur. 4. Our imports, on the other hand, reflect both the re- cession in the United States and our improving international competitive position. Our imports for February were 40 per- cent less than last February, and our March imports are likely to be close to 50 percent less than last March. A portion of that reduction must be allocated to the altered agricultural situation in the United States, but the larger part of it is due to the other factors mentioned. United States Imports (Million $) 1936-1937 1937-1938 August 193 246 November 196 223 December 245 209 January 240 171 February 278 163 March 307 160 (Estimate based on reports of first three weeks) 34 REB GRAY London Dated April 1, 1938 Rec'd 2:35 p. m. Secretary of State, Washington. 275yApril*1,. 6 p.m. FOR TREASURY FROM BUTTERWORTH. OnE. The British financial year closed last night with a budget surplus of 28,785,428 pounds against a deficit of 5,597,191 pounds in the budget 1936-37. This figure naturally takes no account of the amount of defense expenditure charged to loan account but this amount is pounds 64,867,000 compared with pounds 80,000,000 authorized in the budget. HOWEVER, the budget balance is struck after providing pounds 10,544,000 for debt redemptions; therefore allowing for these two factors the financial year closed with a true deficit of only pounds 25,537,320. REVENUE which amounted to pounds 872,579,715 surpassed Estimate by pounds 9,480,000 due mainly to the unexpectedly heavy inflow from income tax. Ordinary Expenditure which amounted to pounds 843,794,287 was pounds 35 REB 2-1/275, From London,Apr.1,6p.m. pounds 19,054,000 below estimate due almost Entirely to Economies in the operation of the Civil and Revonue Departments. The manner in which armament Expenditure progress- ively increased during the year is noteworthy: first quarter, pounds 46,000,000; second quarter, pounds 58,000,000; third quarter, pounds 68,000,000 and fourth quarter, pounds 89,000,000. The Chancellor of the Exchaquer is scheduled to make his budget speech on April 26. Two. This WEEK'S Bank of England return shows active the note circulation at pounds 485,400,000 being pounds 5,900,000 over last WEEK. Month End operations coupled with withdrawals of notes in connec- tion with the approaching Easter holiday accounted for increased demand for currency. Perticularly noteworthy is the fact (SEE paragraph 5 of my 248 of March 25, 7 P. m.) that this decline in the reserve was Entire- ly neutralized by additions to other securities, Government securities alone being increased by pounds 5,700,000 and discounts and advances by pounds 2,100,000. The comparatively small fall of a million pounds 3S REB 3-#275, From London,Apr.1,6p.m. pounds in bankers' balances at pounds 108,100,000 was thus merely due to a swing over of funds to public and other deposits. Three. Silver was fixed at 19 pence turned 1/8 easier after fixing. There is no information in London that Mexico is yet selling forward in India. Dollar market steady and small, franc dealings small off one point. KENNEDY KLP WWC 03V13039 8892 37 PARTIAL PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: April 1, 1938, 4 p.m. NO.: 511 FROM COCHRAN. With Cabinet meeting postponed until Monday to study Blum's financial program and Parliamentary debate thereon scheduled for Tuesday, Paris exchange market has had a very dull day. Rate variations have been slight compared with past few days and turnover small. At four o'clock today I was told by the Bank of France that absolutely nothing was done today by the French control. Rumania is now following Hungary's recent example in making its Central Bank Governor, Constantinescu, also Minister of Commerce and Industry. WILSON. BECEIAED 6821 i 89A EA:LWW VRUSAGRT CRASS au - mt 38 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: April 3, 1938, 5 p.m. NO.: 526 FOR THE SECRETARY OF THE TREASURY. FROM COCHRAN. STRICTLY CONFIDENTIAL. I refer to my telegram No. 404 of March fourteenth. I called at Blum's house at noon today. He received me alone. He referred to Mr. Morgenthau's kind message to him through me and said that mindful of that he now wished to reciprocate to some extent by letting Mr. Morgenthau know in strict confidence his financial proposals which are now in the printer's hands. They will be studied Monday by the Cabinet, submitted Monday evening to the Financial Committee of the Chamber, and presumably the Chamber will debate them Tuesday afternoon. He said his plans will not include exchange control although there will be certain provisions in that direc- tion. First, a certain amount of voluntary self-discipline in foreign exchange matters will be exacted. Second, a strict watch over the transactions of private banks will be exercised by the Bank of France. He insisted that France cannot permit further decline of her gold stock or indefinite depreciation of the franc without interposing firm resistance through the Stabiliza- tion 39 - 2 - tion Fund. His plans, he said, will involve inflation. If measures are not taken to break the vicious circle, this creation of new means of payment is likely to result, as it has resulted in the past two or three years, in the new francs going into foreign exchange or gold. For this reason he will apply the two checks which have been stated above. In case they prove ineffective, the necessary next step would be genuine exchange control. He said that he would not avail himself of Mr. Morgen- thau's kind initiative, although he highly appreciated it. He is abiding strictly by the terms of the Tripartite Agreement and his present plan does not involve exchange control. WILSON. STATE - REGRIATS EA: RL: LWW From THE COLUMBIA BROADCASTING SYSTEM 8th Floor, Earle Building, Washington, D. C. Metropolitan 3200 For Release Sunday, April 3, at 8:15 P.M., EST SENATOR HARRISON DISCUSSES SENATE TAX BILL OVER COLUMBIA NETWORK. (Following is a copy of an address by Senator Pat Harrison, Democrat, of Mississippi, Chairman of the Senate Finance Committee, over the Columbia Broadcasting System, Sunday, April 3, 1938, at 8:00 P.M., EST. Senator Harrison's topic was "The Revenue Measure and Business. He spoke from the studios of WJSV, Columbia's station for the nation's capital.) 0-0-o Whatever may be the causes, or whether or not justified, there is today a fear and a lack of confidence upon the part of business, which manifests itself in increased unemployment, reduced earnings, and a strike in investments. Some treatment - some remedy must be applied. There is no doubt that the general welfare of the country is strengthened by certainty in a legislative and administrative economic program. The Finance Committee, in modifying the House revenue measure, has made every effort to make such changes in our revenue structure as to simplify complicated provisions, encourage business, increase employment, and at the same time to provide for the Government the necessary revenue. I congratulate the members of the Ways and Means Committee of the House for the admirable work they performed in the formulation of the House proposal, and I am, of course, indebted to the membership of my own Committee for the splendid cooperation they have manifested in drafting the Senate proposal. It is my hope that from the joint efforts of the two Houses there will emerge a law that will be accepted by the country as a "Business Recovery Act." This legislation will be taken up in the Senate for con- sideration during this week. We anticipate no prolonged discussion, and expect its passage within a reasonably short time. I look for no changes in the major provisions of the Senate bill on the floor of the Senate, and confidently expect the Finance Committee's recommendations to be approved. In the brief time allotted to me tonight, it would be impossible to discuss every detail of the Senate proposal: but the philosophy of our bill is contained in the wise words expressed by the Hon. Henry Morgenthau, the Secretary of the Treasury. in an address before the Academy of Political Science in New York City on November 10th, last year, when he said: "The basic need today is to foster the full application of the driving force of private capital. We want to see capital go into the productive channels of private industry. We want to see private business expand. We believe that much of the remaining unemployment will disappear as private capital funds are increasingly employed in productive enterprises." - 2 - 41 I am in hearty accord with those expressions. I thor- oughly agree not only with the Secretary's philosophy, but with his conclusions. We have in the Senate Bill made it possible for the business people of this country to make "full application of the driving force of private capital." We have, through its liberal provisions, given capital an opportunity to go into the productive channels of private industry. We have opened the door for private business to expand, because, with the Secretary of the Treasury, we believe that as more capital goes into private industry, more people can be employed, thereby increasing the purchasing power of the country and relieving to that extent the necessity of the Government's making appropriations for relief to the unemployed. The Senate Finance Committee has eliminated the principle of the undistributed profits tax, and has substituted a flat corporate rate of 18%. This simple plan was in force and worked well for many years, so that we are embarking upon no new and untried method. We have made equitable allowances for corporations with smaller incomes. A flat rate provision removes the uncer- tainties, confusion and necessary cushions that must be provided in any form of an undistributed profits tax. We have strengthened that section of the present law which imposes a penalty tax upon corporations improperly and unreasonably accumulating surpluses for the purpose of permitting their shareholders to avoid payment of surtax. We have, under our bill, made it necessary for the corporation that unreasonably accumulates surpluses to prove by a clear preponderance of evidence that there was no purpose to avoid surtax. The Senate Finance Committee, through its proposal, has approved practically all of the House provisions eliminating many of the nuisance taxes. In this respect we went as far as we could, having due regard for the revenue to the Government. The Finance Committee rejected the changes in the estate and gift taxes. While the Committee was sympathetic with the desire of the House for simplification, it did not feel that it should retain this plan, in view of the opposition of many state tax officials. It appears the change would have forced legisla- tion by many states, and would affect their budgets. There are many other changes in the revenue law, some of which are administrative, and some of which are substantive. I shall not discuss these; but to my mind, the most important changes relate to the capital gains and loss provisions and to the provisions for the orderly liquidation of personal holding companies, utility companies, and corporations generally. Our surtax structure, especially in the highest brackets, goes beyond the point of diminishing returns. Because of the high surtaxes, capital has become frozen, and business transactions have slowed up. In the Senate proposal we have placed capital gnins and loss provisions in a separate and distinct classification; and on capital assets held for more than & year and a half, a 15% maximum rate applies, without respect to other income of the taxpayer. We have given corresponding relief to the small tax- payer who is below the 15% bracket. Gains from sales of capital assets held less than a year and a half are treated as ordinary incomes. We have made 42 provision that capital losses on capital assets held less than eighteen months can be carried forward for one year. Long term capital net losses, that is, losses arising from the sale of assets held over eighteen months, can be charged against ordinary income, under limitations which are consistent with the treatment of capital gains. The advantages offered by the treatment of the Senate proposal on long term capital gains extend such a forward and liberal invitation to those whose securities have become frozen as to give us every confident expectation that new investments will be made, new industries started, existing plants enlarged, and employment increased. In the future there will be little justification for a citizen having capital to invest to feel that the Government is restraining or hampering him in under- taking legitimate investments, through the inhibitions of the Federal tax law. Almost as important as the capital gains section of the Senate proposal is our treatment of the liquidation of corporations. It has been variously estimated that in the personal holding companies alone, securities to the amount of from two to four billion dollars are frozen and will remain so unless some liberal treatment is provided whereby the shareholders can liquidate such companies without too heavy a tax penalty. While we do not give any favored treatment to the personal holding company that has built up large accumula- tions, we do say to then, as well as all corporations, that they can liquidate over a period of three years at the new 15% capital gains rates. As to foreign personal holding companies owned by American citizens, we give them one year in which to liquidate at capital gains rates, so that this money may be brought back into the United States and put to work. In 1935 the Congress imposed a death sentence on utility holding companies. At that time no provision was made for the orderly liquidation and reorganization of these utility institutions; and so, in the Senate proposal we have written a carefully drafted provision, approved by the Securities and Exchange Commission, wherein the provisions of the utility holding company law may be carried out without imposing ex- cessive and inequitable tax burdens upon the utility organi- zations affected. In other words, under existing law the Government orders the liquidation and reorganization of public utilities, and at the same time exacts a heavy tax penalty for carrying out such orders. The relief provision which we propose will prevent this obvious injustice being done. We have refrained from taking up many questions that would become controversial and which are controversial, such as the processing taxes, because, necessarily, that would lead to a prolonged discussion, and we feel that this tax measure should be enacted into law just as soon as possible. And so, we have eliminated all questions of such controversial character as to impede the progress of the tax bill, hoping that these matters night come up at a future date in a bill designed for that purpose. 43 -4- It is my sincere belief that the question closest to the heart of Congress today is to assist business. Through sympathetic legislation we have helped labor; we have helped the farmers, and through appropriations of billions of dollars, we have tried to relieve the distress of the poor and unemployed in this country. If the legislation enacted for them is to succeed, then business must improve and become prosperous. The welfare of one is dependent upon the welfare of the other. Our people should, and I believe will look with hope to the future. We provided loans for commercial and industrial institutions. We rehabilitated our banking structure. We restored to them immense funds of comparative liquid assets. We have built up an immense gold reserve. We re-financed and saved mortgaged farms and homes. We have undertaken to break down foreign trade barriers. We have brought about lower interest rates and lower power rates; and no war clouds, thank God, are hanging over us. The Senate revenue bill will further remove the handicap of the American citizen in our future economic life: and I know of no higher duty of men in public life at this time than to adopt courageously policies that will dispel fear and restore confidence. That is what the Finance Committee is attempting to do. The stability and strength of our govern- ment have been preserved through the unselfish and patriotic cooperation of all American citizens. In every crisis - whether in war or economic stress - that quality has been characteristic of our people, and given to our country a proud and commanding position among the nations of the world. It must be so at this time. These are my thoughts, my hopes and my prayers. (END) 44 ASSISTANT SECRETARY OF THE TREASURY WASHINGTON AM April 4, 1938 Dear Henry: I am enclosing a copy of the report which I submitted today to the President, a copy of Mr. Douglas' comments and a copy of my covering letter. Sincerely, wayne Hon. Henry Morgenthau, Jr. The Cloister Hotel Sea Island Beach, Georgia. 45 C 0 P Y April 4, 1938 Dear Mr. President: In the absence of Secretary Morgenthau I am enclosing the report of the Special Committee to study emergency and long-term credit requirements of large and small business enterprises. Messrs. Jones, Ransom, Roosevelt and I concur in the recommendations as they are presented; Mr. Douglas concurs in the recommenda- tions but wishes to submit additional comments. I am enclosing Mr. Douglas' comments. The report was prepared with a view to your making public the three specific actions taken by the Committee if you feel that it is desirable to do SO. The sub-committee to investigate new credit facilities for small business enterprises will hold its first meeting on Thursday, April 7, and the sub-committee to investigate underwriting capital will meet when Mr. Douglas returns to Washington. Faithfully yours, (Signed) Wayne C. Taylor The President Acting Secretary The White House. encl. 46 C 0 P Y April 4, 1938 MEMORANDUM FOR THE PRESIDENT: Two meetings of the Special Committee appointed to study emergency and long-term credit requirements of large and small business enterprises have been held. The first meeting was held in Secretary Morgenthau's office on Thirsday, March 24, at which time a general discussion of the situation was undertaken. Among those present were Secretary Morgenthau, Wayne C. Taylor, Jesse H. Jones, William 0. Douglas, James Roosevelt and Ronald Ransom. The second meeting was held on Thursday, March 31. Except for Secre- tary Morgenthau, who was unable to attend, and Matthew S. Szymczak, who was not present at the first meeting, the same people attended both meetings. After an exchange of views, the following plan of action was outlined: 1. Immediate Credit Needs. It was agreed that the Glass-Steagall bill, to expand the authority of the RFC to extend credit to public bodies and private enterprises, is highly desirable and should be enacted into law and that through the enactment of this law ample credit facilities would be again available on liberal terms to all forms of established public and private enterprise. It was emphasized that the availability of credit of this character should be presented effectively to the general public, and that it should be encouraged to avail itself of these facilities. 2. New Credit Facilities for Small Business. Special consideration was given to the problem presented by the long term capital needs of smaller business enterprises which have not ready access to the general capital market. It was agreed that whereas the passage of the Glass-Steagall bill would adequately meet emergency requirements of this character, further study should be devoted to this specialized problem and that a sub-committee consisting of Messrs. Matthew S. Szymczak, Chairman, William I. Myers and John H. Fahey, be appointed to explore this field thoroughly with a view to recommending permanent mechanism to fill this existing gap in our credit facilities. The sub-committee was directed to analyze in particular the experience of the Production Credit Associations, 47 - 2 - National Farm Loan Associations, Credit Unions, Building and Loan Associations and Federal Savings and Loan Associations, as the committee felt that an adaptation of the cooperative approach to this specialized problem offered the best possibilities. 3. Underwriting Capital. It was agreed that the existing organization of under- writing facilities and the amount and character of available underwriting capital required special study. A sub-committee, consisting of Messrs. Wayne C. Taylor, Chairman, and William 0. Douglas, was appointed to investigate this problem and to report to the full committee at & later date. (Signed) Wayno C. Taylor Acting Chairman. C 0 48 P Y I concur in the recommendations; but submit the following additional comments: I. Immediate Credit Needs The Glass-Steagall Bill, which expands the authority of the R. F. C. to extend credit, should provide a. mechanism for more liberal extension of credit to various forms of enterprise. It should be recognized, however, that this Bill covers only one segment of the whole field. There are additional areas which might be served more adequately through liberalization in commercial bank practices and policies. This would entail changes in practices of bank examiners as well as changes in the investment rules governing national banks. The other area not covered by the Glass-Steagall Bill is the broad field of long-term capital in the form of junior or equity money. II. New Credit Facilities for Small Business While the Glass-Steagall Bill could meet some of the emergency requirements of this character, it would not, in my opinion, meet all of them adequately. Liberalization of banking practices mentioned above and provision for credit facilities which would supply long-term equity money seem necessary. III. Underwriting Capital The problem here is one of supplying adequate reservoirs of capital to service the long-term requirements of legitimate business. So far as the equity money field is concerned, the Glass-Steagall Bill admittedly does not touch it at all, as it covers only loans, bonds, etc. Furthermore, 49 -2- the problem is not merely one of strengthening present underwriting facilities for the servicing of the needs of large business but of making comparable facilities available to areas of business not pre- sently serviced by our investment banking machinery. The latter means primarily meeting the needs of small business and intermediate size business for long-term capital junior money. It is difficult to over-emphasize the need for supplying some mechanism for long- term junior money, if legitimate business is to be given adequate opportunity for sound growth and development. Junior money must be adequately proportioned to senior money lest business be oppressively ridden with fixed charges, as evidenced by the plight of railroads. It may be seriously questioned whether our facilities will be adequate to serve these legitimate needs of legitimate business, though the Glass-Steagall Bill is enacted. s/ Wm 0. Douglas William 0. Douglas April 2, 1938 50 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 4, 1938 TO Secretary Mergenthau FROM Mr. Haas MA Subject: The Business Situation, week ending April 2, 1938 During the week the spring rise in business activity made further progress, but sentiment in the financial centers as reflected in the stock market decline probably reached a new low for the recession. Indications of an upturn in business have appeared in steel orders and steel activity, probably the most significant business barometer at this stage. The rise in steel activity is particularly encouraging since it results from an improvement in orders from miscellaneous sources, with the major steel-consuming industries yet to come into the market. New orders in various other industries have also shown a rising ten- dency in recent weeks, and department store sales have held up surprisingly well in comparison with the high levels of last year. The emphasis in the business picture this week has shifted from the foreign background to the domestic foreground, where a severe stock market decline resulting from heavy liquidation by domestic investors has provided evidence of financial discour- agement. The decline has not yet affected actual business, though it has depressed business sentiment. The trend of new orders over the next few weeks will indicate whether the dis- couragement indicated by the stock market trend is likely to spread from the financial centers into general business activity. The stock market decline While the stock market decline was precipitated by develop- ments in Europe, and was preceded by weakness in the European markets (See Chart 1), other factors have contributed to the heavy liquidation from domestic sources this week which carried prices to new lows at a time when foreign markets were holding steady or rising. Chief among these factors, judging from vari- ous market comments, 1s a feeling of discouragement over the outlook for business later in the year. The uncertainty created by recent European developments, added to the slowness of the spring business improvement, was sufficient to initiate a selling movement in the stock market, which increased its momentum as margin selling became a weakening factor. 51 Secretary Morgenthau - 2 Although stock prices in recent months had been maintained at levels that were obviously out of line with current earnings, a general belief that the low earnings were temporary and that profits would increase with a rising trend of business later in the year appeared to justify those levels. The sudden change in the European political outlook brought about by the German invasion of Austria suddenly clouded the business horizon. The weakening of foreign currencies, a downward trend of commodity prices, together with uncertainty over the maintenance of busi- ness levels abroad under the shadow of possible war, cast doubt on the ability of business in this country to maintain a rising trend during the summer and fall. While business improvement recently has continued along seasonal lines, the slowness of the improvement in some industries, particularly in automobile pro- duction, was a disappointment to many. These developments were sufficient to call into question the recent stable levels of stock prices, and to start a general selling movement. It is not possible to rationalize the entire decline on this basis, of course, since technical conditions within the market accelerated the decline once it got under way, and may have carried it too far. A sharp rebound occurred at the end of the week, initiated by some easing of the political tension abroad. Whether or not this rally will be permanent, however, will depend upon what developments occur hereafter to create a greater feeling of optimism in the mind of the public. For this reason, it would appear opportune at this juncture to make public announcement of any additional phases of the Administration's program involving immediate moves likely to benefit business. The current business trend The New York Times business index for the week ended March 26, seasonally adjusted, continued at the stable level of recent weeks, with an increase of .8 point over the previous figure. An upturn in carloadings, affected temporarily by the recent freight rate increase, and a rise in steel ingot produc- tion, were partly offset by declines in the seasonally adjusted indexes for other series. Looking over the current business statistics, the signifi- cant fact seems to be that business is improving, even though it is improving no faster than the normal seasonal amount. During periods of severe business declines the usual seasonal adjust- ments are of doubtful significance, the important fact being the actual upturn in business operations, which tends to continue once the decline has been halted and a rise gets under way. 52 Secretary Morgenthau - 3 In the case of automobile production, for example, the index will show a decline on a seasonally adjusted basis this week be- cause the increase in output to 57,500 units from 56,900 the previous week was less than the normal seasonal increase. The upturn now getting under way, however, seems likely to continue beyond the time of the usual seasonal peak, which 1s reached about the middle of April. The adjusted index after that date would thus show an increase even though production remained un- changed. Improved sentiment in steel trade This week has seen a noticeable improvement in sentiment in the steel industry, with predictions current that a number of important companies will operate in the black during the second quarter. The improved sentiment 18 due to several encouraging developments, an important one being the fact that new steel orders have continued in good volume for the second successive week. Orders of the U. S. Steel Corporation during the past week, while slightly lower than in the previous week, were higher than the present operating rate. Orders for the two weeks com- bined indicate an operating rate of 40 per cent, while operations of the corporation currently are at a 34 per cent rate. Offering further encouragement is the fact that structural steel inquiries are beginning to increase, with this week's inquiries double those of the previous week. An increasing vol- ume of steel orders for immediate shipment appears to indicate that inventories are becoming depleted. Considering the fact that the three industries which nor- mally offer the main support to steel activity -- the automobile, railroad, and construction industries -- have been practically out of the market, the current rate of steel operations supported almost entirely by miscellaneous orders is making a good showing. An upturn in orders from any one of the three major consuming industries could advance the steel rate materially. The automo- bile industry is believed to offer greatest hope for an expansion in steel buying during April. The usual seasonal adjustments for steel operations are believed to be of little significance at a time like this, when wide cyclical movements completely overshadow the seasonal pat- tern. With even a modest business recovery this year, the peak of steel operations will probably occur in the fall rather than in the spring, as it did in 1935 and 1936, when the peaks were reached in November and October, respectively. 53 Secretary Morgenthau - 4 Department store sales The movement of goods into consumption in recent weeks, as indicated by the trend of department store sales, has been well supported, considering that this year's comparisons are with the very heavy pre-Easter sales at higher price levels in 1937. Total sales of reporting stores in dollar values during the week ending March 26, which was Easter week last year, were only 16.8 per cent below last year's figure. During the week ending March 5 they had been 17.5 per cent below. Easter buying should improve this year's comparison during the next two weeks. Trends of new orders New orders received by leading corporations during February, as reported confidentially to the Treasury and shown in summary form in Table 1, were somewhat lower than in January, due partly to the fact that February has about 10 per cent fewer business days. Taking this into account, the change in volume of orders between the two months this year compared favorably for building equipment with the trends in the two previous years, but compared unfavorably for railroad equipment, electrical equipment and tex- tiles. For steel products the trend was about equal to those in the two previous years. In these comparisons it must be kept in mind (1) that a rising business trend was in progress in 1936 and 1937, and (2) that the seasonal rise this year 1s slower in get- ting under way. During March, judging from weekly data, a seasonal improve- ment has appeared in orders for steel products and building materials. The trend of textile orders has been slightly unfavor- able, and likewise the trend of orders for electrical equipment. No March data are available from the railroad equipment companies. A summary of the weekly trend of orders is given in Table 2. The price situation Commodity prices have declined somewhat this week, partly in sympathy with weakness in our security markets and partly because of the continuing pressure of world deflationary influ- ences. The decline occurred despite a rise in the leading foreign exchanges against the dollar, since the rise largely represented a weakening of the dollar as a result of the stock market decline. Rubber prices, which showed outstanding weakness, owed their sharp drop largely to selling from European sources, reported as representing speculative liquidation from Amsterdam. Wheat prices, an exception to the general trend, held firm on a growing scarcity of available export wheat in Canada, and a realization that the United States holds the only large world stocks of wheat available. Chart 1 SECURITY PRICES IN U.K., FRANCE AND U.S. 5 AND FOREIGN TRADING IN AMERICAN STOCKS 1937 1938 DECEMBER JANUARY FEBRUARY MARCH APRIL 4 11 18 25 I 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 PER PER CENT CENT Government Bond Prices DEC. 1937=100 U.K. 21% CONSOLS 104 104 U.S. 2% 1955-60 100 100 96 FRANCE If RENTES 96 92 92 108 106 Stock Prions NEW YORK 30 INDUSTRIAL STOCKS DEC. 1937 = 100 104 104 100 100 96 96 PARIS BOURSE 92 92 LONDON 56 INDUSTRIAL STOCKS 86 88 84 84 80 80 76 76 DECEMBER JANUARY FEBRUARY MARCH APRIL DOLLARS DOLLARS MILLIONS Purchases and Sales, U. 8. Stocks MILLIONS 1.5 1.5 NET PURCHASES # 1.0 1.0 .5 .5 o o .5 .5 1.0 1.0 NET SALES 1.5 1.5 2.0 2.0 4 II 18 25 - 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 DECEMBER JANUARY FEBRUARY MARCH APRIL 1937 1938 Office of the Secretary of the Treasury P 159 - of - - - Orders, Sales, or Shipments of Reporting Companies (millions of dollars) Year Jan. : : Feb. : March : April : May : June : July : Aug. : Sept. : Oct. : Nov. : Dèc. : Total Building Equipment (3 companies) 1936 8.7 7.2 9.2 11.5 13.9 13.5 13.3 13.8 12.3 13.5 11.0 11.1 139.0 1937 11.6 10.8 13.4 16.6 15.1 14.4 14.0 15.1 13.3 12.0 9.8 7.6 153.7 1938 8.7 8.0 Electrical Equipment (2 companies) 1936 35.2 34.0 35.3 38.8 43.9 43.8 43.3 37.7 40.0 44.5 42.2 44.8 483.5 1937 55.5 56.6 68.6 73.8 52.5 53.0 50.3 44.7 42.7 41.5 39.7 32.6 611.5 1938 34.2 30.9p Railroad Equipment (4 companies) 1936 5.5 12.9 7.3 10.9 12.4 8.6 13.2 6.2 6.5 6.3 29.3 28.0 147.1 1937 26.3 15.1 20.4 16.7 10.0 10.1 6.3 8.8 6.1 5.5 6.3 6.5 138.1 1938 7.1 5.7 Textiles (3 companies) 1936 11.5 16.3 8.4 8.4 10.7 14.0 12.0. 11.5 15.0 21.6 18.6 15.6 163.6 1937 19.9 24.0 20.7 9.7 5.5 5.0 5.2 8.4 7.5 9.5 5.5 7.4 128.3 1938 6.0 5.9 Total Excluding U. S. Steel 1936 70.3 82.6 78.1 89.1 96.8 96.3 93.4 80.1 86.0 96.7 110.7 112.7 1,092.8 1937 128.9 124.6 146.0 139.4 103.6 103.1 93.8 93.2 85.5 81.0 71.4 65.1 1,235.6 1938 70.2 66.1p Total Including U. S. Steel 1936 109.3 113.2 124.3 132.5 137.5 148.0 148.2 123.2 134.8 154.8 158.1 221.6 1,705.5 1937 201.4 196.4 258.5 217.5 160.1 159.2 147.9 143.5 130.5 115.5 102.9 96.3 1,929.7 1938 97.6 91.9p 1/ Includes above groups and 2 additional companies. Table 2 56 1938 Weekly Orders, Sales, or Shipments of Reporting Companies : : Total : : : : Month Week Excluding : U.S. Steel : Total : : U.S. Steel : (estimate) : Including : : 1 : : U.S. Steel (millions of dollars) January 1 7.02 4.73 11.75 2 8.27 5.02 13.29 3 8.90 6.66 15.56 4 10.02 9.17 19.19 5 10.18 5.66 15.84 February 1 8.50 7.48 15.98 2 9.50 6.42 15.92 3 8.85 5.55 14.40 4 8.13 5.61 13.74 March 1 8.27 6.66 14.93 2 9.12 6.66 15.78 P 3 9.23 8.58 17.81 P 4 9.76 7.71 17.47 p 1/ Includes the following companies: American Radiator, Johns-Manville (estimate) Sherwin-Williams, Air Reduction, Cannon Mills, Pacific Mills (estimate), American Woolen, General Electric. 57 April 4, 1938 9:19 a.m. HMJR: - a good idea. Wayne Taylor: Ah - read that over again - say that over again, will you please. HMJr: I said, in view of this message I told the President that I thought it would be a good idea to let Mr. Blum know the pattern that we follow here on having the banks voluntarily report every week and then having the Federal Reserve supervise, you see? T: Yes. HMJr: And - -60 that when he put this plan up to his cabinet he could say that - "that all I'm really doing is simply following the American plan." Furthermore, if he is successful and then the question is brought up and put up to the U. S. Treasury, well now that the French have made this move, doesn't that mean that outside of the Tripartite Agreement that we could say, "Oh, no, they're simply following the plan that we're using ourselves." Well, the President's comment was, "I think that's very smart." And he thought that it would be fine if we got into Cochran's hands a description of our plan and then let him give it to Mr. Blum, see? T: Yes. HMJr: Now, I'd like that done and I'd like that cable gotten off at once to Cochran with careful instruc- tions that he should explain to Mr. Blum just how we do it here. See? T: All right. HMJr: Do you get the idea? T: Yes, I got it. HMJr: Because I doubt very much whether Mr. Blum knows how we do it because after all when Sir Frederick Phillips was over here he was amazed how much information we got through this volunteer plan and he - if you remember - Phillips said that we had much more information about the transactions than they had in their own market. T: Yes, I understand. 58 -2- HMJr: And I asked the President, I said, "It is still your thought, isn't it, to do everything possible to help the French?" And he said, "Absolutely". And he said two or three times, he said, "I think this is very smart." So T: Well, we'll get up a cable along those lines. HMJr: Yes. T: Now, the full plan is out this morning on the broad tape. HMJr: What's that? T: The full plan is out this morning on the broad tape. HMJr: That's good. T: Do you want me to read it to you? HMJr: Yes. T: In the bill the Government asked emergency power to: (1) Revalorize the Bank of France gold reserve at the franc's present parity, which would provide twenty-four billion francs. (2) Centralize all foreign exchange transactions in the Bank of France to which proof would have to be furnished in justification of foreign exchange re- quirements. HMJr: Yes. T: Now, you see that's quite a bit stronger than the plan that we have. It isn't what you might describe as just voluntary reporting. HMJr: No. I see what you mean. T: Yes. Well - Wait a minute. HMJr: Go ahead. Hello. T: Yes. HMJr: I'm listening. T: Archie was making a point that in our case why they had to report and in this case they actually centralized them there. 59 -3- HMJr: Well, here's the thought that I had: After all, Blum may not get what he asked for, see? T: Yes. HMJr: And if he had our plan on his hands - even if - it might be a help and it might be of no use. T: Well, under the circumstances, I think that if we do it on the basis of giving it to him for his information HMJr: That's right. T: Why, it's perfectly all right, either way. HMJr: That's the way I figure. T: Yes. HMJr: I've had a chance to sleep on it and I feel so strongly that he ought to do this. Now, if he can do this in a sensible way and really be successful at it it would help everybody. T: Right. HMJr: And therefore, I'm extremely anxious that we get over our plan and I think it ought to be in two sections: (1) The way we operate it now, and then what - ah - the additional powers that we have. it T: Well, we can do/this way, the way we first put it in HMJr: Yes. T: Which was a little more drastic. HMJr: Yes. T: And then show it the way it operates now. HMJr: That's right. That's right. T: Just a minute. HMJr: Hello. Hello. - Taylor? T: Yes. 60 -4- HMJr: Any disagreement at your end? T: No. HMJr: If the boys have any T: Wait a minute. HMJr: ..question - if they don't agree, I wish they'd say something. (Short pause) HMJr: Hello. Hello. T: Archie and Harry White make the point that the Federal Reserve may have already sent all those orders over to the Bank of France and in that case we can simply call Blum's attention to them - Cochran can do it. But I think that's just a detail. HMJr: It's just a detail. T: Yes. HMJr: The important thing is I want to get this - ah - the fact that I send this via Cochran to Blum again reassures him, see? T: I get it. HMJr: You get the idea? T: Oh, absolutely. HMJr: As a matter of fact we don't have to say this - but he's no damn fool. T: Right. HMJr: He sent me a message yesterday and then I come back and say, "This is the way we're doing it." T: Check. HMJr: Well, then he must say, "Well, after all, then I guess they like it," because it would be pretty near the same thing. And if his people - he isn't going to get this through right away but he can say, "Well, look what they're doing in the United States.' 61 -5- T: Well, I think if we simply send it to him for his information. HMJr: That's all - I wouldn't - I don't - I didn't suggest anything else. T: No. Why, we're perfectly safe there. HMJr: Wayne, try to get this thing off as soon as possible. T: We will. HMJr: And I'm going to call back again at noon. T: Right. HMJr: And I hope they get it off by then. T: Ah - we'll have it off by then. HMJr: And if there's any trouble over at the State Department a bout it, let me know. T: Well, I don't see why there should be. HMJr: Well. But in the instructions should go that - with this - that I'm instructing Cochran to see Blum again and give him this for his information. T: Right. HMJr: As soon as possible. See? T: I've got it. HMJr: You didn't get that Cochran cable to the President, did you? T: Yes, I did. HMJr: Oh, did you? T: I did. HMJr: What time? E: About quarter past seven. HMJr: Ha - that's funny. I talked to him at seven. 62 -6- T: Oh, well that's - ah - I didn't realize you were going to call him that soon and I worked darn - had a little difficulty getting him. HMJr: Yes. T: It wasn't serious, and I thought that would be soon enough. HMJr: Well, I figured out - I said, gosh, the cable must be there and I happened to know that was a good time to get him; you call him a little later and he's at dinner. But it's all right. T: Well, I'm sorry about it. I just thought that you - if you were going to call him it would be later in the evening. HMJr: Yes. Well, that's all right. I figured it out on my fingers that it - it must be there by then. Now, ah - what else have you got? --- I have nothing else. I'll call up about noon. T: All right. Ah - silver seems to be steady, and unless something changes, why we thought we'd, ah, use the same price. HMJr: And - ah - yeah, that's right. But, I, - I'd just like to know when this cable gets off. T: All right. We'll go to work on that. Now we got - want to talk to anybody else here? HMJr: Ah - not unless they want to talk to me. You might tell Ransom that I'm simply delighted the way they handled the thing last week. T: I will. HMJr: And - ah - I have nothing else. How's the weather? T: Ah - cold and clear. HMJr: I get you. T: Fairly clear. Ah - Marriner's back. HMJr: Good. Good. T: I heard you. -7- " 63 HMJr: (Laughs) Is that better? T: (Laughing) Yeah. HMJr: All right. T: All right, Henry. HMJr: All right. T: Thanks. Monday 64 April 4, 1938 11:56 a.m. Wayne Taylor: From the Secretary of the Treasury. HMJr: Please. T: "I refer to your five twenty-six STOP In view of new financial program and specific actions recommended Secretary of Treasury wishes you to see Blum and give to him full details of methods employed by this Government in its supervision of foreign exchange transactions STOP You should explain to him that you are making this information available to him at suggestion of Secretary Morgenthau as latter feels that the methods of supervision and reporting employed by this Govern- ment might be of particular interest to the French authorities who are struggling with new measures contemplated by Blum's financial program STOP You should emphasize in your presentation that Secretary Morgenthau in order to assure Blum of this Govern- ment's desire to continue close cooperation with the Government of France wishes him to have this informa- tion and that you are prepared to discuss with the French technicians any aspects of our methods which may need clarification STOP It is assumed that you and French technicians have complete set of laws regulations et cetera governing our purchases but in order to insure complete presentation full text of pertinent documents will be cabled to you later. In addition copies of reporting forms et cetera will be mailed to you END OF MESSAGE" HMJr: Well, that's - that's fine. Now, Wayne, that message, plus the message that he sent me yesterday, plus what's come out today on the broad tape, I want that all put on the train - McReynolds knows how to do it - on the train that leaves this evening and if McReynolds will send me a telegram saying who has it I'll send somebody to meet it tomorrow morning; - because it takes two days for my mail to get down here. T: All right, we'll do that. HMJr: That, - -plus - - the one Cochran sent me yesterday, plus what's on the broad tape today in regard to what Blum proposes to do, you see? - McReynolds - I think he gives it to the dining car steward on that train tonight which gets into Thalman tomorrow morning. But, whoever has it, Mac should send me a wire, you see? Hello? 65 -2- T: Yes. HMJr: And then I'll send a man over to the train tomorrow morning; I'll get it that way. T: Send a wire saying who he's giving it to? HMJr: Yes. And who has it. T: Yes. HMJr: What train it's on. T: Yes. HMJr: And then Mrs. Klotz can send down any mail from the house with that package. T: Right. HMJr: Now, I put in a call for Cochran at twelve-thirty, you see. T: Yes. HMJr: I'm going to give him a little personal background on this. T: Right. HMJr: Now, this cable which is going to Cochran - ah - has anybody at the State Department seen it? T: Yes. I've read it over the telephone to Feis... HMJr: Yes. T: And - ah - said that it would go like that. He had no comments. HMJr: Well, now, I wish that you would explain this whole thing as well to Sumner Welles. T: I'll do it. HMJr: I want Sumner Welles particularly to know what I'm doing. T: I will do it. 66 -3- HMJr: And I have a particular reason. And he said anything/this he would like to know it. like T: I'll call him right away on it. HMJr: And when you call him say that I asked particularly that he should know because I want him to watch it. T: Check. HMJr: And also that I'm doing it with the knowledge and the hearty approval of the President. T: Check. HMJr: All right. Now, ah - anything on silver? T: Ah - quiet - forty-two seventeen in London. HMJr: All right. T: And we think no change. HMJr: All right. Government bonds? T: Government bonds are steady and quiet. HMJr: Uh huh. And stocks and commodities? T: Ah - mixed; commodities off a little and common stocks off a little. HMJr: Yes. T: Rails and Utilities up slightly. HMJr: Yes. Now, this is for Harry White; is he there? T: Yes. HMJr: Can I talk to him a minute? T: Right. Harry D. White: Hello. HMJrs Harry. W: Yes, sir. 67 -4- HMJr: In making a study of the present imports and exports I wish you'd draw a comparison to the fact that our exports are holding up at present as compared to the time when the English devalued up to the time that we devalued - the way we lost our export market, see? W: I'll compare the two. HMJr: Do you get the idea? W: I do. HMJr: Now, after all, that depression we went through during those two years, when the English had the advantage of us on account of their difference in their currency; that difference doesn't exist today because we have a favorable position due to the value of our dollar. Hello? W: Yes, I'm listening. HMJr: And, in writing your memo I want to include that. And it's going to maybe make all the difference in the world in recovery. W: I'll - I'll emphasize the comparison and draw whatever significance HMJr: Do you get the idea? W: I do. Yes. HMJr: Well, I mean, that's something which hasn't been pointed out and hasn't been evaluated. W: We'll include it. HMJr: I mean,- after all, we're holding our export markets W: That's right. HMJr: And we lost them during - four or five years ago. W: That's right. HMJr: And maybe, due to our favorable position of the dollar W: In part. -5- - 68 HMJr: What? W: In part. HMJr: I don't hear you. W: In part only. HMJr: Yes, but ... W: There are other reasons and we'll try to evaluate them all. HMJr: Do you get it? W: Yes. I do. HMJr: All right. Now if Mrs. Klotz will go back to my room .... W: Just one moment, Wayne Taylor would like to speak with you first. Wayne Taylor: Henry. HMJr: Yes. T: I have reports from the three main people who were at this meeting that you know about. HMJr: Yes. T: Jesse, Ransom and Bill Douglas. HMJr: Yes. T: And they concurred in the report that I made. HMJr: Yes. T: Now, the idea is to get that over to eht President. HMJr: Yes. T: And have him decide whether he wishes to release it or not. HMJr: All right. 69 -6- T: It is in the form - in a form in which it could be released. It was written from that standpoint. HMJr: O. K. T: And I will get that over to him today. HMJr: Well, and get me a copy tonight. T: I will. HMJr: Yes. T: 0. K. HMJr: Anything else? T: No. HMJr: How are you feeling? T: Oh, I feel fine. HMJr: Good. T: Ah - my day is a little shorter on account of - I've talked to the Chairman (laughing) just before this to some length. HMJr: All right. T: And he's feeling fine. HMJr: Good. T: Right. HMJr: Yes. T: Goodbye. HMJr: Goodbye. no 70 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: April 4, 1938, 11 a.m. NO.: 527 RUSH FROM COCHRAN. On Saturday the French control purchased in London 56,000 pounds of sterling. At eleven this morning when I visited at the Bank of France the franc was firm and the control had undertaken no operations. Georges Boris of Blum's staff in the Finance Ministry telephoned to Governor Fournier this morning and presented an apology from Blum for not having seen Fournier during the last few days. He had not been able to do 80 because of pressure of receiving his political advisers in connec- tion with the financial program he was working out. In talking to Fournier, Boris let it be understood that Blum did not for a moment believe that Parliament would pass his measures. However, in his program he had incorporated a fairly wide range of measures; he believes that any govern- ment which may succeed him will inevitably have to adopt some of these measures. One specific measure to be included in the program is that of the Government "annexing" foreign currency de- posits in French banks. The Blum group had learned that this had been developed by Bonnet with his adviser de Boisanger, now the Bank of France's Under Governor, at 71 - 2 - the time that Bonnet was Minister of Finance, but the plan had never been brought forward. Therefore it will be possible for Blum to state now that in his program he is including steps conceived by his conservative predecessors and later he may be able to charge that his own plans have been adopted by his successors. In strictest confidence I have been given to understand that in Blum's program are included: partial revaloriza- tion of the gold stocks of the Bank of France; further credit to the State from the Bank of France of ten billion francs; having a monopoly in foreign exchange dealings vested in the Bank of France. The foregoing information I believe is accurate, but it should not be taken as final; late this evening or tomorrow morning the whole program should appear in the press. WILSON. 03V13037 8801 D ЯЧА VRUSATET - - 1 - EA: LWW 72 PARAPHRASE OF TELEGRAM BENT TO: American Embassy, Paris, France DATE: April 4, 1938, noon NO.: 199 FROM SECRETARY MORGENTHAU. FOR COCHRAN. Reference is made to your telegram No. 526 of April 3. The Secretary of the Treasury, in view of the new financial program and specific actions, wants you to see Mr. Blum and give to him the full details of this Govern- ment's methods for supervising transactions in foreign exchange. When you see Mr. Blum you should explain to him that Secretary Morgenthau has suggested that you make this information available to him, as Secretary Morgenthau feels that this Government's methods of supervision and reporting might be of particular interest to the French authorities who are making a study of the new measures contemplated in the financial program of Blum. In your presentation you should emphasize that the Secretary of the Treasury wants Mr. Blum to have this information in order to assure him of this Government's desire to continue close cooperation with the French Government; you should also emphasize that you are prepared to discuss with the French technicians any aspects of our methods which may need to be cleared up. The Treasury is assuming that you and the French technicians have a complete set of laws, regulations, et cetera, 73 - 2 - cetera, governing our practices. However, the Treasury is cabling to you the full text of pertinent sections of relevant documents in order to insure complete presentation; in addition it is mailing to you copies of the documents and of reporting forms, and so on. HULL 03V13339 6891 2.29A EA:LWW 80 JOHN of - At 74 JR GRAY London Dated April 4, 1938 Rec'd 1:50 p.m. Secretary of State, Washington. 277, April 4, 6 p.m. FOR TREASURY FROM BUTTERWORTH. The announcement of Blum's budget balancing proposals caused bear covering of franc positions and the franc moved to 158-3/4. The French fund did not intervene EVEN though the volume of dealings was small. There is no (repeat no) Expectation that Blum's program will bE passed into law and the fall of his Government is taken for granted. His action is regarded here as a shrewd political move from his own standpoint but one which will probably hinder the formation of a truly national government. KENNEDY RR:SMS M 75 JR GRAY Paris Dated April 4, 1938 Rec'd 2:17 p.m. Secretary of State, Washington. RUSH. 530, April 4, 5 p.m. (SECTION ONE) FROM COCHRAN. The financial program submitted by Blum and passed by the Cabinet this noon and by the Council of Ministers this afternoon contains a bill consisting of two articles. The first article authorizes the Government to take, by decree, up until July 1, 1938, the measures which it considers necessary to meet the requirements of national defense, to protect the gold reserves of the Bank of France and to restore the finances and Economic conditions of the nation. The second article provides that the decrees taken under authority of the first article shall bE submitted to Parliament for ratification during the extraordinary session of 1938, and at the latest by DECEMBER 31, 1938. The bill is accompanied by a long explanatory memorandum 76 -2- #530, April 4, 5 p.m. (SECTION ONE) from Paris. memorandum which reviews the situation which the Government faces and which SETS forth an outline of the measures which the Government anticipates taking if granted the authority requested. WILSON CSB 77 REB GRAY Paris Dated April 4, 1938 Rec'd 2:24 p. m. Secretary of State, Washington. RUSH 530, April 4, 5 p. m. (SECTION TWO) The introduction Estimates at two billion of Poincare francs or 80 billion of current francs the amount of capital which has bEEn Exported from France from 1935 to date. To cover the needs of the Treasury amounting to over 36 billion francs in EXCESS of revenues for the calendar year 1938, it is stated that there are two alternatives, borrowing or inflation. International political conditions in March prevented a long term loan issue. The market is still in such condition that it appears desirous not to attempt for some time to appeal thereto for long term lending. DUE to drying up of bank deposits and private resources, resort to the short term financial market is also ruled out for the present. Therefore the Government is forced to recommend inflationary measures but at the same time suggests 78 REB 2-#530, From Paris, April 4, 5 p.m. (SECTION TWO) suggests cartain checks to prevent the newly created means of payment from moving as in the past into gold or foreign currencies. I am not attempting to Enumerate all of the financial and Economic measures suggested by the Explanatory note, a summary of which is being cabled by the press bureaus. I mention herewith only a fEw of the outstanding points, particularly those of interest in connection with the raising of funds for the Treasury, the protection of the currency and the control of credit with special reference to obligations assumed under the tripartite agreement. WILSON CSB MA 79 REB GRAY Paris Dated April 4, 1938 REC'd 3:25 p. m. Secretary of State, Washington. RUSH 530, April 4, 5 D. m. (SECTION THREE) The Government rejects the idea of a forced or semi-forced conversion of Government securities. Bearer shares are to bE suppressed and substituted therefor a new type of registered security with a view to avoiding tax Evasion. Government funds shall bE subjected hereafter to the taxes of transmission and transfer and to the tax applied to interest on securities. For a period of two years amortization is to bE suspended on debts of the state, of public bodies and of the railways. A special tax levy on capital is to bE made, the proceeds to bE paid into the national defense fund. To provide for the immediate maturities of the Government, Parliament will bE asked to authorize the Bank of France to give a new limited credit in the amount justified by the urgent requirements (this shall not EXCEED 10 billion francs). Contractors for Government 80 REB 2-#530, From Paris,Apr.4,5 p.m. (Sec. Three) Government public works or for Government supplies may draw drafts upon the Government departments which will bE discounted by discounted spending private credit Establishments and bE Eligible for rediscount at the Bank of France. To permit a revival of sub- scriptions to Treasury bills the Bank of France will grant private banks advances on their foreign currency holdings. WILSON CSB 81 REB GRAY Paris Dated April 4, 1938 Rec'd 3:15 p. m. Secretary of State, Washington. 530, April 4, 5 p. m. (SECTION FOUR) The Government proposes measures to increase the volume of credit and to lower interest rates. The Bank of France is charged with the responsibility of supervising closely the placing into Effect of the government's cheap money policy. It will demand con- fidential reports from the bank of their monthly situation as well as a statement of the credits which they grant. A new provisional revaluation of the gold stock of the Bank of France is envisaged. The Government is against permitting further diminution of this stock because of its need for national defense. The basis of revaluation which the Government Envisages approves leaving to the franc a margin of variation sufficient to permit it freely to find its normal level. The profits from revaluation might bE applied to the rentes fund. Whenever legal stabilization should take place the 82 REB 2-#530, From Paris, Apr. 4, 5p. m. (SEC. Four) the profits would bE applied to reimbursing advances from the Bank of France to the state. In the meantime effort would bE made to raise the quotation of state securities. Stabilization fund alone has not been sufficient to check the flight from the franc into gold and foreign currencies. With a view to protecting the currency affectively all foreign exchange operations will bE centralized in the Bank of France which will require the submission of documentary EVIDENCE of legitimate requirements. Paris Exchange market witnessed little trading today. When above proposals became known after the official session there was a pick up in business and a strengthening of the franc, operators feeling that Parliament will not give Blum authority to carry out such measures as those envisaged. The market looks therefore for an early fall of the Government. (END 1 ESSAGE) WILSON CSB 83 REB GRAY Paris Dated April 4, 1938 Rec'd 5:39 p. m. Secretary of State, Washington. 531, April 4, 6 p. m. My 517, April 1, 6 p. m. Blum's long-awaited financial program was at last submitted to a meeting of the Cabinet this morning and to a Council of Ministers this aftErnoon. It takes the form of a lengthy preamble setting out the Economic and financial problems facing the country and giving the general lines of the program which the Government proposes in order to deal with these problems. Following the preamble is a brief bill authorizing full powers to the Government to take by decree up to July 1, 1938 any measures deemed in- dispensable to meet the requirements of national defense, to protect the gold reserves of the Bank of France and to improve the finances and Economy of the nation. The Financial Committee of the Chamber is now in SESSION to consider this program. The Committee will PL. 84 REB 2-#531, From Paris,Apr.4,6p.m. will probably recess later to permit meetings of the various political groups and then resume its session. Certain provisions of the program (which are being reported in detail by Cochran for the Treasury), such as a capital levy, revaluation of the gold reserves of the Bank of France and the granting of ten billions additional advances by the Bank to the Treasury, are certain to meet with great opposition from the Radical Socialists. It is said that various Radical Socialist members of the Finance Committee have already gone on record as opposed to the program and it is possible that the Committee may report the bill unfavorably. Even if this should take place, however, it is not believed that the Government will resign but that it will in any case go before the Chamber of Deputies tomorrow afternoon. (END SECTION ONE) WILSON RGC NPL RU. 85 PARAPHRASE OF SECTION TWO, NO. 531 of April 4, from Paris The decision which the Radical Socialists in the Chamber will have to make will be difficult. They are hostile to various provisions in Blum's program, but against that is the responsibility they would incur by voting against it and breaking up the Popular Front party. Certain reasons of an electoral nature are doubtless no less important, since it is said that reelection of some sixty Radical Socialist deputies depends on Socialist support. Should the Government get a favorable vote in the Chamber, however, it seems almost certain that the program will be voted down by the Senate. Another item of interest is that broad increases in customs duties are envisaged in the Government's program. END MESSAGE. WILSON 03V13038 AMA TXENTIUMED of unal EA: LWW state 86 April 4, 1938 Dear Herbert: I am enclosing the measage which I discussed with you over the telephone. "Will you please see that it is transmitted to Cochren immediately? Sincerely, (Signod) Wayne C. Taylor Assistant Secretary Honorable Herbert Feis Office of the Secretary Department of State Washington, D. C. By hand EM 11:05am 11. 05 87 April 4, 1938 FOR: COCHRAN FROM: THE SECRETARY OF THE TREASURY I refer to your 526 STOP In view of new financial program and specific actions recommended Secretary of Treasury wishes you to see Blum and give to his full details of methods employed by this Government in its supervision of foreign exchange transactions STOP You should explain to his that you are making this information available to him at suggestion of Secretary Morgenthau as latter feels that the methods of supervision and reporting employed by this Government might be of particular interest to the French authorities who are studying the new measures contemplated by Blum's financial program STOP You should emphasize in your presentation that Secretary Morgenthau in order to assure Blue of this Covernment's desire to continue close cooperation with the Government of France wishes him to have this information and that you are prepared to discuss with the French technicians any aspects of our methods which may need clarification PARAGRAPH It is assumed that you and French techniciens have complete set of laws regulations at cetera governing our practices but in order to insure complete presentation full text of pertinent sections of relevant documents are being cubled to you STOP In addition copies of the documents and of reporting forms et cetara will be aniled to you 88 April 4, 1938 FOR: COCHRAN FROM: THE SECRETARY OF THE TREASURY I refer to your 526 STOP In view of new financial program and specific actions recommended Secretary of Treasury wishes you to see Blum and give to his full details of methods employed by this Government in its supervision of foreign exchange transactions STOP You should explain to him that you are making this information available to him at suggestion of Secretary Morgenthau as latter feels that the methods of supervision and reporting employed by this Government might be of particular interest to the French authorities who are studying the new measures contemplated by Blum's financial program STOP You should emphasize in your presentation that Secretary Morgenthau in order to assure Blum of this Government's desire to continue close cooperation with the Government of France wishes him to have this information and that you are prepared to discuss with the French technicians any aspects of our methods which may need clarification PARAGRAPH It is assumed that you and French techniciens have complete set of laws regulations et cetera governing our practices but in order to insure complete presentation full text of pertinent sections of relevant documents are being cabled to you STOP In addition copies of the documents and of reporting forms et cetera will be mailed to you 89 There follow selections from some of the Executive Orders and Regulations relating to regulation of foreign exchange transactions which indicate the general pattern of control over foreign exchange transactions. Other orders and reg- ulations have been issued from time to time. A complete set is being forwarded by mail. The regulations of November are 12, 1934, Exhibit No. 5, Le still in force. 90 xhibit 1. Executive Order of March 10, 1933 concerning the operation of banks. Paragraph 2. "The Secretary of the Treasury is authorised and empowered under such regulations as he may prescribe to permit any member bank of the Federal Reserve System and any other banking institution organized under the laws of the United States, to perform any or all of their usual banking functions, except as otherwise pro- hibited." Paragraph 6. "No permission to any banking institution to perform any banking functions shall authorize such institution to pay out any gold coin, gold bullion or gold certi- ficates except as authorized by the Secretary of the Treasury, nor to allow withdrawal of any currency for hoarding, nor to engage in any transaction in foreign exchange except such as may be undertaken for legitimate and normal business requirements, for reasonable travel- ing and other personal requirements, and for the ful- fillment of contracts entered into prior to March 6, 1933." Paragraph 7. "Every Federal Reserve Bank is authorized and instructed to keep itself currently informed as to transactions in foreign exchange entered into or consummated within its district and shall report to the Secretary of the Treasury all transactions in foreign exchange which are prohibited." 91 Exhibit 3. Federal Reserve Bank of New York Circular No. 1176, March 12, 1933, Relating to Instructions for carrying out transactions in foreign exchange. Paragraph 3. "The Executive Order of March 10, 1933, prohibits all transactions in foreign exchange ### except such transactions as may be undertaken (a) for legitimate and normal business requirements, (b) for reasonable traveling and other personal requirements, and (c) for the fulfillment of contracts entered into prior to March 6, 1933. Paragraph 4. "In order that the Federal Reserve Bank of New York may keep itself currently informed as to transactions in foreign exchange entered into or consummated within the Second Federal Reserve District and may report to the Secretary of the Treasury all transactions in foreign exchange which are prohibited, the Federal Reserve Bank of New York hereby requires dealers** in foreign exchange doing business in the Second Federal Reserve District (1) to obtain from each person# to whom they sell foreign exchange directly or indirectly, a written declaration signed by such person describing the purpose for which the foreign exchange is pur- chased and certifying that the transaction in no way contravenes the Act of March 9, 1933, the Executive Order of March 10, 1933, or any regulation issued thereunder, and (2) to file with the Federal Reserve Bank' of New York written reports which will show the foreign exchange position of such dealers at any given time. For the present such reports are required only from dealers who carry their own accounts abroad and/or who carry accounts here on their books for foreigners. Paragraph 5. "The Executive Order of March 10, 1933, permite foreign exchange transactions for the fulfillment of contracts entered into prior to March 6, 1933. To enable the Federal Reserve Bank of New York to examine such con- tracts each dealer in foreign exchange doing business 92 Exhibit 3 - Page 2. in the Second Federal Reserve District is directed to forward to the Federal Reserve Bank of New York a detailed list of all foreign exchange contracts entered into by him prior to March 6, 1933, for the delivery of foreign exchange after that date. This list should classify contracts by currencies and should show the maturity of each contract. The dealers should advise the Federal Reserve Bank of New York in writing as such contracts are fulfilled." "Pootnote: # The word "person" in these regulations means any individual, partnership, association or corporation; # A "dealer in foreign exchange" means any person engaged primarily or incidentally in the business (1) of buying, selling or dealing in foreign exchange, or (2) of buying, selling or dealing in securities for or through foreign correspondents, or (3) any person who carries accounts or securities with or for foreign correspondents. ### The term "foreign exchange" means checks, drafts, bills of exchange, cable transfers, or any form of negotiable or assignable instrument, or order used (a) to transfer credit or to order the payment of funds in any foreign country, or (b) to transfer credit or to order the payment of funds within the United States for foreign account." 93 Exhibit Executive Order, August 28, 1933, Relating to the Hearding, Export, and Earmarking of Gold coin, Bullion, or Currency and to Transactions in Foreign Exchange. Revokes Executive Order April 20, 1933. "Section 8. Until further order, the Secretary of the Treasury is authorised, through any agency that he may designate, to investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any trans- actions in foreign exchange, transfers of credit from any banking institution within the United States to any foreign branch or office of such banking institution or to any foreign bank or banker, and the export or withdrawal of currency from the United States, by any person within the United States; and the Secretary of the Treasury may require any person engaged in any transaction referred to herein to furnish under oath complete information relative thereto, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person either before or after such transaction is completed." 94 Exhibit 6. Executive Order January 15, 1934, regulating transactions in foreign exchange, transfers of credit and the export of coin and currency. Section 1. "Every transaction in foreign exchange, transfer of credit between any banking institution within the U ited States and any banking institution outside of the United States (including any principal, agent, home office, branch, or correspondent outside of the United States of a banking institution within the United States), and the export or withdrawal from the United States of any currency or silver coin which is legal tender in the United States, by any person within the United States, is hereby prohi ited, except under license therefor issued pursuant to this Executive Order; provided, however, that, except as prohibited under regulations prescribed by the Secretary of the Treasury, foreign exchange transactions and transfers of credit may be carried out without a license for (a) normal commercial or business requirements, (b) reasonable traveling and other personal requirements, or (c) the fulfillment of legally enforceable obliga- tions incurred prior to March 9, 1933." Section 3. "Licenses. The Secretary of the Treasury, acting directly or through any agencies that he may designate, and the Federal reserve banks acting in accordance with such rules and regulations as the Secretary of the Treasury may from time to time prescribe, are hereby designated as agencies for the granting of licenses as hereinafter provided. Licenses may be granted authorizing such transactions in foreign exchange, transfers of credit and exports of cur- rency (other than gold certificates) or silver coin in such specific cases or classes of cases as the Secretary of the Treasury may determine in regulations prescribed here- under and rulings made pursuant thereto." Section 4. "Reports. The Federal reserve banks shall keep themselves currently informed as to foreign exchange transactions entered into or consummated, and transfers of credit made between banking institutions outside of the continental United States and banking institutions, in their districts, and report to the Secretary of the Treasury all transac- tions in foreign exchange and all such transfers of credit not permitted under Sections 1 or 2 hereof which are of- fected or attempted in their districts without a license." 95 Exhibit 6. (2) Section 5. "Regulations. The Secretary of the Treasury is author- ised and empowered to prescribe from time to time regu- lations to carry out the purposes of this Order, and to provide in such regulations or by rulings made pursuant thereto, the conditions under which licenses may be granted by the Federal reserve banks and by such other agencies as the Secretary of the Treasury may designate; and the Secretary of the Treasury may require any person engaged in any transaction, transfer, export, or with- drawal referred to in this Executive Order to furnish under oath complete information relative thereto, includ- ing the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person either before or after such transaction, transfer, export, or withdrawal is com- pleted." 96 Treasury Regulation, November 12, 1934, Relating to Transactions in Foreign Exchange, Transfers of Credit, and the Export of Coin and Currency. "Article 2. Licenses may be granted, and a general license is hereby granted, to all individuals, partnerships, associations, and corporations, authorising any and all transactions in foreign ex- change, transfers of credit, and exports of currency (other than gold certificates) and silver coin. The general license herein granted authorises transactions to be carried out which are permitted by the Executive Order of January 15, 1934 under license therefor issued pursuant to such Executive Order; but does not authorise any transaction to be carried out which, at the time, is prohibited by any other order or by any law, ruling, or regulation. If Article 3. In order that Federal reserve banks may keep them- selves currently informed as to foreign exchange transactions and transfers of credit, as required in Section 4 of the Executive Order of January 15, 1934, every person engaging in any transaction, transfer, export or withdrawal referred to in Section 1 of such Executive Order shall furnish to the Federal Reserve bank of the district in which such person has his principal place of business in the United States complete information relative thereto upon report forms prescribed by the Secretary of the Treasury, except that reports are not required to be furnished by (1) persons not carrying during any part of the reporting period, accounts abroad or accounts in the United States for non-residents thereof, or Re. 97 Exhibit 7 - page 2. (2) persons whose aggregate transactions, transfers, exports, or withdrawals for their own account and the account of others do not exceed $5,000 during any seven-day period. Such information shall be furnished on a weekly basis except as the respective Federal Reserve banks permit the information in certain cases or classes of cases to be furnished on the basis of longer intervals. "These regulations and the general license herein granted may be modified or revoked at any time." 98 Exhibit 6. Federal Reserve Bank of New York Circular No. 1474, November 13, 1934. Superseding Circular No. 1176 of March 12, 1933. Relating to institutions engaging in transactions in foreign exchange. "Written Declarations No Longer Required" "Weekly and Monthly Reports Required" "Every person having his principal place of business in the United States in the Second Federal Reserve District and engaging in any transaction, transfer, export, or withdrawal referred to in Section 1 of the Executive Order of January 19,1934, shall furnish to the Federal Reserve Bank of New York complete information upon report forms to be prescribed by the Secretary of the Treasury, relative to such transactions, transfers, exports and withdrawals, as follows: 1. Banks and bankers are required to report weekly as of the close of business each Wednesday night beginning December 5, 1934; 2. Prokers and dealers in securities are required to report weekly as of the close of business each Wednesday night beginning December 5, 1934; and 3. All other persons subject to the provisions of Article 3 of the above quoted regulations (such as, for example, cer- tain exporters, importers and industrial companies doing business abroad) are required to report monthly as of the close of business of the last Wednesday in each month be- ginning December 26, 1934; except that reports are not required to be furnished by (1) persons not carry- ing during any part of the reporting period, accounts abroad or accounts in the United States for non-residents thereof, or (2) persons whose aggregate transactions, transfers, exports, or withdrawals for their own account and the account of others do not exceed $5,000 during any seven-day period. "The transactions, transfers, exports, and withhdrawals referred to in Section 1 of the Executive Order of January 15, 1934, and hereby required to be reported as above, include 'Every transaction in foreign exchange, transfer of credit between any banking institution within the United States and any banking insti- tution outside of the United States (including any principal, agent, home of- fice, branch, or correspondent outside of the United States of a banking insti- tution within the United States), and the export or withdrawal from the United States of any currency or silver coin which is legal tender in the United States, by any person within the United States'." 99 REB TELEGRAM SENT PLAIN & GRAY April 4, 1938. 6 p. m. AMEMBASSY PARIS (FRANCE) 201 FOR COCHRAN FROM THE SECRETARY OF THE TREASURY. There follow selections from SOME of the Executive Orders and Regulations relating to regulation of foreign Exchange transactions which indicate the general pattern of control over foreign Exchange transactions. Other orders and regulations have been issued from time to time. A complete SET is being forwarded by mail. The regulations of November 12, 1934, Exhibit No. 5, are still in force. t 1. Executive Order of March 10, 1933 concerning the opera- tion of banks. aragraph 2. "The Secretary of the Treasury is authorized and Empowered under such regulations as hE may prescribe to permit any member bank of the Federal RESERVE System and any other banking institution organized under the laws of the United States, to perform any or all of their usual banking functions, EXCEPT as otherwise prohibited." Paragraph 6. 100 REB 2-#201, To Paris, Apr.4,6p.m. Paragraph 6. "No permission to any banking institution to perform any banking functions shall authorize such institution to pay out any gold coin, gold bullion or gold certificates EXCEPT as authorized by the Secretary of the Treasury, nor to allow withdrawal of any currency for hoarding, nor to Engage in any transaction in foreign Exchange EXCEPT such as may bE undertaken for legitimate and normal business requirements, for reasonable traveling and other personal requirements, and for the fulfillment of contracts Entered into prior to March 6, 1933.' Paragraph 7. "Every Federal RESERVE Bank is authorized and instructed to keep itself currently informed as to transactions in foreign Exchange Entered into or consummated within its district and shall report to the Secretary of the Treasury all trans- actions in foreign Exchange which are prohibited." hibit 2. Federal RESERVE Bank of NEW York Circular No. 1176, March 12, 1933, Relating to Instructions for carrying out transactions in foreign Exchange. Paragraph 3. "The Executive Order of March 10, 1933, prohibits all transactions in foreign Exchange *** EXCEPT such transactions as may bE undertaken (a) for legitimate and normal business require- ments, (b) for reasonable traveling and other personal requirements, and (c) for the fulfillment of contracts Entered into prior to March 6, 1933. Paragraph 4. "In order that the Federal RESERVE Bank of NEW York may keep itself currently informed as to transactions in foreign Exchange Entered into or consummated with- in the Second Federal RESERVE District and may report to the Secretary of the Treasury all transactions in foreign Exchange which are prohibited, the Feder- al RESERVE Bank of NEW York hereby requires dealers ** in foreign Exchange doing business in thè Second Federal RESERVE District (1) 101 REB 3-#201, To Paris, Apr.4,6 p.m. (1) to obtain from Each person* to whom they SELL foreign Exchange directly or indirectly, a written declaration signed by such person describing the purpose for which the foreign Exchange is purchased and certifying that the transaction in no way contravenes the Act of March 9, 1933, the Executive Order of March 10, 1933, or any regulation issued thereunder, and (2) to file with the Federal RESErVE Bank of NEW York written reports which will show the foreign Exchange position of such dealers at any given time. For the present such reports are required only from dealers who carry their own accounts abroad and/or who carry accounts here on their books for forsigners. Paragraph 5. "The Executive Order of March 10, 1933, permits foreign Exchange transactions for the fulfillment of contracts Entered into prior to March 6, 1933. To Enable the Federal RESERVE Bank of NEW York to Examine such contracts each dealer in foreign Exchange doing business in the Second Federal RESERVE District is directed to forward to the Federal RESERVE Bank of NEW York a detailed list of all foreign Exchange contracts Entered into by him prior to March 6, 1933, for the delivery of fortign Exchange after that date. This list should classify contracts by currencies and should show the maturity of each contract. The dealers should advise the Federal RESERVE Bank of NEW York in writing as such contracts are fulfilled." Footnote: * The word "persons" in these regulations means any individual, partnership, association or corporation; ** A "dealer in foreign Exchange" means any person En- gaged primarily or incidentally in the business (1) of buying, selling or dealing in foreign Exchange, or (2) of 102 REB 4-#201, To Paris,Apr.4,6p.m. (2) of buying, selling or dealing in securities for or through foreign correspondents, or (3) any person who carries accounts or securities with or for foreign correspondents. **** The term "foreign Exchange" means checks, drafts, bills of Exchange, cable transfers, or any form of negotiable or assignable instrument, or order used (a) to transfer credit or to order the payment of funds in any foreign country, or (b) to transfer credit or to order the payment of funds within the United States for foreign account." Exhibit 3. Executive Order, August 28, 1933, Relating to the Hoarding, Export, and Earmarking of Gold coin, Bullion, or Currency and to Transactions in Foreign Exchange. REVOKES Executive Order April 20, 1933. "Section 8. Until further order, the Secretary of the Treasury is authorized, through any agency that hE may de- signate, to investigate, regulate, or prohibit, under such rules and regulations as hE may pre- scribe, by means of licenses or otherwise, any transactions in foreign Exchange, transfers of credit from any banking institution within the United States to any foreign branch or office of such banking institution or to any foreign bank or banker, and the export or withdrawal of currency from the United States, by any person within the United States; and the Secretary of the Treasury may require any person engaged in any transaction referred to herein to furnish under oath complete information relative thereto, in- cluding the production of any books of account, contracts, letters, or other papers, in connec- tion therewith in the custody or control of such person either before or after such transaction is completed." Exhibit 4. 103 REB 5-#201, To Paris,Apr.4,6p.m. xhibit 4. Executive Order January 15, 1934, regulating trans- actions in foreign Exchange, transfers of credit and the Export of coin and currency. Section 1. "Every transaction in foreign Exchange, trans- fer of credit between any banking institution within the United States and any banking institution outside of the United States (including any principal, agent, home office, branch, or correspondent outside of the United States of a banking institution within the United States), and the Export or withdrawal from the United States of any currency or silver coin which is legal tender in the United States, by any person within the United States, is hereby prohibited, EXCEPT under license therefor issued pursuant to this Executive Order; provided, however, that, EXCEPT as pro- hibited under regulations prescribed by the Secretary of the Treasury, foreign Exchange transactions and transfers of credit may bE carried out without a license for (a) normal commercial or business requirements, (b) reasonable traveling and other personal require- ments, or (c) the fulfillment of legally Enforce- able obligations incurred prior to March 9, 1933." Section 3. "Licenses, The Secretary of the Treasury, acting directly or through any agencies that hE may designate, and the Federal reserve banks acting in accordance with such rules and regulations as the Secretary of the Treasury may from time to time prescribe, are hereby designated as agencies for the granting of licenses as hereinafter pro- vided. Licenses may bE granted authorizing such transactions in foreign Exchange, transfers of credit and Exports of currency (other than gold certificates) or silver coin in such specific CASES or classes of cases as the Secretary of the Treasury may determine in regulations pre- scribed hereunder and rulings made pursuant thereto." Section 4. 104 REB 6-#201, To Paris,Apr.4,5p.m. Section 4. "Reports. The Federal reserve banks shall keep themselves currently informed as to foreign Exchange transactions Entered into or consum- mated, and transfers of credit made between banking institutions outside of the continental United States and banking institutions, in their districts, and report to the Secretary of the Treasury all transactions in fortign Exchange and all such transfers of credit not permitted under Sections 1 or 2 hereof which are Effected or attempted in their districts without a license." Section 5. "Regulations. The Secretary of the Treasury is authorized and Empowered to prescribe from time to time regulations to carry out the pur- poses of this Order, and to provide in such regulations or by rulings made pursuant thereto, the conditions under which licenses may bE granted by the Federal reserve banks and by such other agencies as the Secretary of the Treasury may designate; and the Secretary of the Treasury may require any person Engaged in any transaction, transfer, Export, or withdrawal referred to in this Executive Order to furnish under oath complete information relative thereto, including the production of any books of account, contracts, letters, or other papers, in connection therewith in the custody or control of such person Either before or after such transaction, transfer, Export, or withdrawal is completed." hibit 5. Treasury Regulation, November 12, 1934, Relating to Transactions in Foreign Exchange, Transfers of Credit, and the Export of Coin and Currency. "Article 2. Licenses may bE granted, and a general license is hereby granted, to all individuals, partner- ships, associations, and corporations, authoriz- ing any and all transactions in foreign Exchange, transfers of credit, and Exports of currency (other than gold certificates) and silver coin. The general license herein granted authorizes transactions to bE carried out which are permitted 105 REB 7-/201, To Paris, Apr.4,6p.m. permitted by the Executive Order of January 15, 1934 under license therefor issued pursuant to such Executive Order; but does not authorize any transaction to bE carried out which, at the time, is prohibited by any other order or by any law, ruling, or regulation. "Article 3. In order that Federal reserve banks may keep themselves currently informed as to foreign Exchange transactions and transfers of credit, as required in Section 4 of the Executive Order of January 15, 1934, Every person Engaging in any transaction, transfer, Export or withdrawal referred to in Section 1 of such Executive Order shall furnish to the Federal RESERVE bank of the district in which such person has his principal place of business in the United States complete information relative thereto upon report forms prescribed by the Secretary of the Treasury, EXCEPT that reports are not required to bE fur- nished by (1) persons not carrying during any part of the reporting period, accounts abroad or accounts in the United States for non-residents thereof, or (2) persons whose aggregate trans- actions, transfers, Exports, or withdrawals for their own account and the account of others do not EXCEED $5,000 during any seven-day period. Such information shall bE furnished on a weekly basis EXCEPT as the respective Federal RESERVE banks permit the information in certain cases or classes of CASES to bE furnished on the basis of longer intervals. "These regulations and the general license herein granted may bE modified or revoked at any time.' xhibit 6. Federal RESERVE Bank of NEW York Circular No. 1474, November 13, 1934. Superseding Circular No. 1176 of March 12, 1933. Relating to institutions Engaging in transactions in foreign Exchange. "Written Declarations No Longer Required" "Weekly and Monthly Reports Required" "Every 106 REB 8-/201, To Paris,Apr.4,6p.m. "Every person having his principal place of business in the United States in the Second Federal RESERVE District and Engaging in any transaction, transfer, Export, or withdrawal referred to in Section 1 of the Executive Order of January 15, 1934, shall furnish to the Federal RESErVE Bank of NEW York complete informa- tion upon report forms to bE prescribed by the Secretary of the Treasury, relative to such transactions, transfers exports and withdrawals, as follows: 1. Banks and bankers are required to report weekly as of the close of business Each WEDNESDAY night beginning DECEMBER 5, 1934; 2. Brokers and dealers in securities are required to report weekly as of the close of business Each WEdnesday night beginning DECEMBER 5, 1934; and 3. All other persons subject to the provisions of Article 3 of the above quoted regulations (such as, for Example, certain Exporters, importers, and industrial companies doing business abroad) are required to report monthly as of the close of business of the last WEdnesday in Each month beginning DECEMBER 26, 1934; EXCEPT that reports are not required to bE furnished by (1) persons not carrying during any part of the reporting period, accounts abroad or accounts in the United States for non-residents thereof, or (2) persons whose aggregate transactions, transfers, Exports, or withdrawals for their own account and the account of others do not EXCEED 5,000 during any seven-day period. "The transactions, transfers, Exports, and withdrawals referred to in Section 1 of the Executive Order of January 15, 1934, and hereby required to bE reported as above, include 'Every transaction in foreign Exchange, transfer of credit between any banking institution within the United States and any banking institution outside of the United States (including any principal, agent, home office, branch, or correspondent outside of the United States of a banking institution within the United States), and the export or withdrawal from the United States of any currency or silver coin which is legal tender in the United States, by any person within the United States' HULL HF EA:HF:LWW 107 107 COPY Paris Dated April 5, 1938 Rec'd 10 a.m. Secretary of State, Washington. 535, April 5, 1 p.m. My 531, April 4, 6 p.m. During a recess of the finance committee last night the parliamentary group of Radical Socialist Deputies met to consider the Government's program. Of 114 Radical Socialist Deputies 80 attended the meeting; of these 80, 28 voted for the program (including 8 members of the Government), 22 against and 30 abstained. Later the finance committee voted to adapt the Government's bill by 25 to 18, with one abstaining. It is reported that the Radical Socialist members of the committee, with a single exception, voted in favor of the bill.' In view of the action of the finance committee it is expected that the Chamber of Deputies in the debate beginning this afternoon will give the Government a favorable vote, although with a reduced majority. WILSON. 108 FEDERAL RESERVE BANK OF NEW YORK FICE CORRESPONDENCE DATE April 5, 1938. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONNERSATION WITH L. W. Knoke BANK OF ENGLAND. I called Mr. Bolton at 10:30 today. Things were not quite so bad as they were when he talked to me last, he said; the markets seemed a little less unhappy. Blum was likely to go before next Thursday. He was wedded to his new financial scheme just published. It seemed inconceivable that that plan could be put through by a socialist government. If adopted in its present form, it would mean exchange control, inefficient exchange control at that. Another bad feature of Blum's scheme was the suggestion that the Bank of France should take over all foreign currency deposits in French banks. That really amounted to nothing less than a forced loan in foreign exchange. With a capital levy on Blum's program, capital was simply not going back to France; that was all there was to that. The recent better tone in the French exchange had simply been due to gambling by the market on the fall of the government. If Blum's scheme should go through, the franc would depreciate violently. That seemed to be a foregone conclusion. LWK:KMC MISC. 12 60M 9-37 FEDERAL RESERVE BANK 109 OF NEW YORK OFFICE CORRESPONDENCE DATE April 5, 1938. TO CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH L. W. Knoke FROM BANK OF FRANCE. I called Mr. Cariguel at 11:05 today. There was nothing much new today. The exchange market was quiet in spite of Blum's pending proposals, quiet in anticipation of a change of the govern- ment. of the latter, he seemed to be quite certain. "Even members of the present government say they are sure to 80." LWK:KMC 8881 0.89A YRUTA3RT al included 1 110 April 5, 1938 Copy of this Cable sent to the President. A.L. 24. PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France - DATE: April 5, 1938, noon NO.: 534 RUSH STRICTLY CONFIDENTIAL. FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY. I refer to your telegrams No. 199 of April 4, noon, and No. 201 of April 4, 6 p.m. At 11:45 this morning I was received by Prime Min- ister Blum alone in his home. I told Mr. Blum that Secretary Morgenthau had in- structed me, in view of certain recommendations contained in the new financial plans of the French Government, to make available to him full details of the methods used by my Government in supervising transactions in foreign exchange. I explained to the Prime Minister that the Secretary of the Treasury had thought that at this time such material might be of particular interest to his experts. I asked the Prime Minister to consider our offer of assistance gained from our own experience as evidence of the American Government's continuing desire for close co- operation with his Government; in addition I told him that I was under instructions and would be immediately available to discuss with his staff any details of the American 112 - 2 - American methods which may need clearing up. Mr. Blum told me that this afternoon he was to appear before the Chamber and he was sure that this body would pass his program; "using the axe" - as he put it - - would then be up to the Senate. END SECTION ONE. WILSON. EA:LWW 03Y1333H 868 THE VRUNNIST <<<<<<<<<<<<<<<<<<<<<<<<< 113 PARAPHRASE OF TELEGRAM RECEIVED NO.: 534 (Section Two) FROM: American Embassy, Paris DATE: April 5, 1938 Thus he is still expecting that his Government will be forced out by the Senate on his financial program. He said, however, that he was aware of the fact that it would have made the Senate much happier if the bill had been wrecked in committee or in the Chamber of Deputies by the Radical Socialists. The debate will be somewhat general under the circumstances, and Blum stated that it will not be necessary for him to go into technical details such as those involved in supervision of exchange transac- tions. He therefore returned to me the extracts of our measures which I had given him. He informed me that if his Government survived, he certainly would take advantage of the offer made by Secretary Morgenthau and would request me to furnish his assistants with all the technical infor- mation pertaining to our experience. Blum requested me to convey to Secretary Morgenthau his deepest appreciation of the Secretary's further offer of assistance. He stated that our constant loyalty and kindness toward him had genuinely moved him. As a result, he had given serious consideration to including in his program 114 a measure looking toward the settlement of the war debts. He said that he would have done 80 if he had been con- vinced that the American public would have favorably received such a step and if he had had a better chance of succeeding with his general program. In response to a remark from me that his program was already quite a comprehensive one, he replied laughingly that it really was "Rooseveltian". (END OF MESSAGE) WILSON 8801 3.3.44 EA:EB PROPART 30 - - 115 Treasury Department 115 1938 APR 5 PM I 45 TELEGRAPH OFFICE 25wau 24 COLLECT GOVERNMENT ONE EXTRA RUS H. CLOISTER HOTEL, SEA ISLAND, GEORGIA, 113 P.M. APL. 5 38. MRS. H. KLOTZ, OFFICE OF SECRETARY, WASHINGTON D C PLEASE SEE THAT PRESIDENT RECEIVES TONIGHT COPY OF COCHRAN'S CABLE SENT AT NOON TODAY DESCRIBING HIS INTERVIEW WITH BLUM STOP BEST REGARDS. MORGENTHAU. 142p 116 MA JR PLAIN London Dated April 5, 1938 Rec'd 3:14 p.m. Secretary of State, Washington. 279, April 5, 5 p.m. FOR TREASURY FROM BUTTERWORTH. The unemployment figures published today indicate as did those for the previous month (my 192, March 8, 8 p.m.) that the basic trend of activity is still downward. There was a seasonal decline in the numbers registered as unemployed of over 61 thousand but this is an abnormally small decline for the month of March. There was a good decrease in unemployment in the building and public works contracting trades and in other trades seasonally improving in the spring such as the distributive, tailoring, drassmaking and hotel trades; but these were largely offset by marked increases in unemployment in all the textile industries which are showing signs not only of depressed Export business but also of a decline in the home purchasing power -- a fact which is also indicated by the February retail sales' indices published last WEEK. There 117 -2- #279, April 5, 5 p.m., from London. There was also an increase in unemployment in the iron and steel industry but the outlook for the heavy industries unlike that for textiles and other consumer goods manufacturing is favorably affected by the speedup in rearmament activity (last paragraph my 245, March 24, 6 p.m.). The iron and steel industry will also benefit from the lapsing as from April 1 of the operation of reduced import duty rates which were lowered to meet the abnormal scarcity of supplies which marked the greater part of last year. The president of the British Iron and Steel Federation has stated that "organized through the Federation, the industry is now ready nad able to meet any demand the Government might make upon it". Presumably steel supplies are also sufficient to meet ordinary industrial demand. The speedup in rearmament will undoubtedly tend to lessen the deterioration in the general position but its incidence will bE very irregular, stimulating a few industries such as aircraft manufacture, naval shipbuilding, marine Engineering and constructional work on airbase establishments Etc.; but it cannot bE EXPECTED to SEEP through the general Economic structure sufficiently to afford any appreciable impetus to recovery in the textile industries and other consumer trades, for these 118 -3- #279, April 5, 5 p.m., from London. these must depend on a recovery in purchasing power not only in the home market but to an EVEN greater Extent in export markets. Meanwhile signs of coming difficulties for coal exporters forecast in paragraph 3 my 763, DECEMBER 9, 9 p.m., are beginning to appear. A statement in the quarterly review issued by the Powell Duffryn combine in South Wales is an instance: "Export demand from SOME quarters shows signs of falling off, and if this condition continues it is apparent that the Government eventually bE compelled to give some form of support to the British Export trade to counteract the restrictions and subsidized competition imposed by foreign countries." Though the acceleration of rearmament may increase the home demand for British coal it is unlikely Entirely to compensate for the substantial losses in Export markets which are apparently imminent. Any signs of recovery which can bE EXPECTED from the general conditions which SEEM to lie ahead will therefore bE limping and onesided, and cannot bE EXPECTED really to turn the tide without an accompanying improvement 119 -4- #279, April 5, 5 p.m., from London. improvement in the export trade, which in turn depends on such unpredictable factors as business activity in the United States, the international political situation, and other influences on general commodity prices. KENNEDY CSB 120 HAT REB GRAY London Dated April 5, 1938 Rec'd 3:26 p. m. Secretary of State, Washington. 281, April 5, 6 p. m. FOR TREASURY FROM BUTTERWORTH. Comment in the British press on the Blum proposals is restrained in tone and in substance mainly a reitera- tion of the terms of the measures themselves. This considered moderation is due to two reasons: (1) because the formation of a strong French Government is a matter of urgent and vital interest to Great Britain and there- fore responsible press, city and official opinion is prepared to lean over backwards in order to avoid con- tributing to the difficulties of its formation (in- cidentally the issuance at this time of a billion reichsmarks of 43% at 98 3/4 has been noted); (2) because these particular proposals are not EXPECTED to become lasting. HOWEVER, two EXCERPTS from today's TIMES are worthy of note: OnE. "Failing a miracle two things sem certain at the moment. OnE is that M. Blum will fail to get his 121 REB 2-#281, From London,Apr.5,6p.m. his plan through. The other is that his successors whoever they may bE will bE obliged to make USE of a substantial part of his programme. From the financial and Economic point of view the proposals are so far reaching that some time must necessarily lapse before their full implications can bE analyzed. YEt it is possible to say EVEN at this early stage that if they pass air law they may have disturbing Effects on the London money market, the tripartite currency agreement and the foreign trade of France. Two. Banks are to bE Encouraged to convert into francs foreign currency deposits hEld for account of French customers by using the machinery of the forward market and to invest the proceeds in Treasury bonds. If French banks are forced to do this it means that the control over French sterling deposits now spread among various banks in London will rapidly bE trans- ferred to the Bank of France which will then transfer them from the books of the British joint stock banks and acceptance houses to those of the Bank of England. Unless this transfer is very carefully handled it may have serious Effects on the stability of the London money market. And to allow sterling hEld by the Bank 122 REB 3-#281, From London.Apr.5,6p.m. Bank of England for account of the Bank of France to bE used for the creation of credit in France is open to serious objections." The franc has moved arratically but the dollar has been steady to bid. Gold is again about at parity but hoarding demand from the continent is in some in- stances willing to pay the Equivalent of dollars 34.78. The silver market continues small with insignificant price movements. Understand that Bank of MEXICO is still buying mines silver against pesetas and that inquiries have been made here with a view to making a market for Mexican silver but that the replies given were for the moment discouraging. KENNEDY CSB 123 PARTIAL PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France W DATE: April 5, 1938, 5 p.m. NO.: 538 FROM COCHRAN. I talked with my contact at the Bank of France at half-past four; he said that today there had been no inter- vention by the French control and that there had not been much business in foreign exchange. There was some weaken- ing in the forward franc, due to operators therein permitting their contracts to lapse as a result of certain provisions in the financial proposals put forward by Blum. Market observers said reluctance of traders to enter into new commitments today had come from various rumors and fears: (1) That the Radical Socialist Ministers having received many telegrams of protest from their constituents for not having voted against Blum's bill yesterday may resign after vote is taken in Chamber; (2) that Government of real national union is not possible; (3) that if Blum is defeated by the Senate new strikes which are already being fomented will mature, and (4) that increasing police precautions under a Daladier Government as successor to Blum's might bring about an atmosphere quite like that of February 6, 1934. Any new Government coming in will have to face very shortly the task of raising funds for the Treasury. Belga was under considerable pressure today at export point vis a vis New York. END SECTON ONE. EA:LWW WILSON. 124 PARAPHRASE OF SECTION TWO, TELEGRAM NO. 538 OF APRIL 5, 1938, FROM PARIS. This afternoon I was informed by Pennachio of the Bank of Italy that during the past two or three days Alphand and other French delegates in Rome seeking a new trade and clearing agreement with Italy have become a little more reasonable. Pennachio said he believes the French may be weakening toward approaching Italy for better relations politically. Pennachio believes that France is (?) the right schedule by not sending to Imperial Rome an Ambassador before signature of the British-Italian treaty and before the visit to Rome by Hitler. At the present time Italy would give some concessions to France in return for recognition of the status of Ethiopia; however, after the two events mentioned above, there is small likelihood of such concessions being given. Pennachio told me that he believes it very stupid of France not to make friends with the Italian Government. He does not think that France will intervene with arms to prevent expansion to the southeast by Germany. In his opinion the best method for the French to follow in order to maintain some influence and markets in southwestern Europe, and to check economic penetration therein by Germany, is to work with Italy toward that end. It is very important to Italy that this market should be left at least partially open to it and that Germany should not monopolize it. EA:LWW END MESSAGE. WILSON. 125 Cabinet Meeting - April 5. 1938 - 2 to 4 P.M. Attended by the President, Vice President, and all the members of the Cabinet with the exception of Secretary Morgenthau (Magill), Secretary Swanson (Edison), and Secretary Ickes (absent). Secretary Hull reported that oral conversations had been going on with the Mexican Ambassador, but that there was no indication what the tentative proposals would be. The Mexicans have now re- quested that further conversations be held down there. The President suggested that the small American investors should be fully compen- sated; the large oil companies compensated on the basis of prudent investment less depreciation; and men like Hearst, who had acquired large tracts of land by bribery, should be given back what they paid only if they can prove that the Government Treasury got the money. Secretary Hull reported that Valencia and Barcelona would fall in a short time and that he expected that Franco would clean up the balance of Spain in a few weeks. Chinese morale is holding up re- markably well; Japan seems to be stuck in the quicksands. Secretary Woodring reported that a British concern is buying Sikorsky planes for China and that Glenn Martin is selling large orders of planes to Great Britain, Holland, France, and Switzerland. Germany is producing about 400 planes a month, a greater production than the British. The United States could produce 30 to 40 planes per day. Secretary Hull further reported that the Japanese would start purchasing supplies here, since their original stock of war supplies had about run out. He proposes to designate Mr. Wiley De Facto Consul General in Vienna. I reported that the tax bill had been reported to the Senate. The bill will yield about $26 millions less than existing law for the present fiscal year, but in a good year will yield from $125 to $140 millions less. The interesting thing about the bill is that while it is being heralded as relief to business it will collect from 60 to $130 millions more from corporations, while relieving individuals from surtaxes as the result of decreased dividend distribution, to the ex- tent of $50 millions - $190 millions. The President asked the Vice President to talk to SenatorsBarkley and Harrison and suggest lining up a majority against placing any tariff riders on the bill. The Vice President would like to see the bill go through as it is this week. In response to Mr. Farley's question, the President said that the House bill was substantially satisfactory to him and that he re- garded it more favorably than the Senate Bill. The Vice President 126 - 2 - said that he had talked with Mr. Vinson and it was proposed to have 5 House conferees - Doughton, Cullen, Vinson, Treadway, and Crowther. Secretary Woodring reported on proposed changes in the organiza- tion of the Red Cross. The President mentioned the fact that the Red Cross appeal for funds for use in China yielded only $110,000 instead of the million desired. The President mentioned Senator Logan's proposal for a circuit court of appeals for administrative cases. The Attorney General asked that the bill for 27 additional judges be permitted to go through first. General Farley said that the new Presidential stamp issue would be brought out so far as possible during this fiscal year and would yield a revenue of $2 millions to $5 millions from collectors. Mr. Edison asked Secretary Hull to proceed with the next steps to enable the Navy to build battleships without any treaty limitations. The President reported that he had arranged matters 80 that the title to the Pacific islands, in dispute between Great Britain and ourselves, would not be settled for 25 to 50 years. In the meantime either the British or ourselves may occupy them. Miss Perkins reported a probable 8/10's of 1 percent decrease in employment during March, instead of the usual seasonal increase. She believes that the time is ripe to undertake new expenditures on public works. In answer to the President's question, she reported that the Michigan labor situation had been very serious, since the Union had acted in a most high-handed manner. The President said that he hadknown further similar high-handed actions by mill operators in Georgia which wreleading to widespread resentment. *** The President said he now wished to discuss the main question of what should be done during the present session of Congress. Congression- al leaders were asking whether they could not pass the Naval bill, tax bill, and reorganization bill and go home. He likened this action to Nero's fiddling while Rome burned. He said he had done a lot of reading at Warm Springs, having had reports from all branches of the Government. The optimists thought that a business upturn would occur in May or August, but many of them thought an upturn would occur in February. Others believed we would proceed at the present rate of business ac- tivity for a number of months. Pessimists believed that we were gradually spiralling downward. The President said that in any event the situation was not only bad for the country, but bad for the Demo- cratic party. If conditions continued as at present, there was danger that the party would lose the fall elections. 127 - 3 - Secretary Roper suggested a fireside talk, but the President said that at this time dollars would do much more good than talk. General Farley suggested that after the major bills were out of the way there ought to be a big relief bill. The President said that three current expenditures would be necessary, simply to maintain the present state of affairs: (1) $1,250 millions would be necessary for relief during the first seven months of the next fiscal year; (2) $50 millions would be needed to keep 300 CCC camps open; (3) Jesse Jones would need 308r $40millions to keep plants open. The President wanted to know what additional actions should be taken. He suggested the possibility of lowering the reserve requirements; of desterilizing more gold; or of amending the housing law so that construction could be started before the locality had put up its 10 percent. In this way Mr. Straus had told him that $500 millions of construction work would be started before fall. General Farley suggested increasing the post office building program to $45 millions per year. The President said that this money would go mainly to country towns where the situation was less serious than in the city. The President then outlined a plan for the United States to finance local improvements, borrowing the money and paying the interest, the localities to pay off 1/50 of the principal of the loan each year. This plan would result in a 45 - 55 division of expenditure between the two governments. The Vice President said that he felt there were two major questions to be decided first. That we have an enormous debt, how much can we stand? We need to move people out of the cities where conditions are bad, but we have taken no steps to do SO. As between the success of the Democratic party and the success of the country, he declared for the country. The President said that he was for the country too, but that if the Democrats were defeated this fall, he thought that third party would probably arise and the Republicans would win the Presidential election in 1940. He felt that this would mean the ruin of New Deal reforms. He said he wanted to spend money if possible in such a way as to bring it back to the Treasury ultimately and asked for suggestions as to the best methods to be used. Secretary Perkins suggested that the United States purchase consumers goods, such as railway cars and automobiles and lease or loan it to private consumers. The President and Vice President both disapproved of the idea. The President then repeated his former request for suggestions on spending money. He particularly asked the Treasury to provide hi - 4 - 128 with full information regarding a possible reduction in reserve re- quirements by the Federal Reserve Board, and regarding the possible desterilization of more gold. Rm Confidential Weekly WPA Employment Not for Publication Series - Table 1 EMPLOYMENT ON WPA PROJECTS, BY STATE (12880) UNITED STATES AND TERRITORIES Weeks Ending April 2 and March 26, 1938 (Partly Estimated - Subject to Revision) Number of Persons Employed Week neek Increase (+) State Ending Ending or April 2 March 26 Decrease (-) GRAND TOTAL 2,444,066 2,394,856 + 49,210 CONTINENTAL UNITED STATES 2,441,566 2,392,347 + 49,219 Alabama 36,928 36,185 + 743 Arizona 8,708 8,554 + 154 Arkansas 35,326 33,351 + 1,975 California 94,321 91,649 + 2,672 Northern 51,463 50,317 + 1,146 Southern 42,858 41,332 + 1,526 Colorado 27,530 27,171 + 359 Connecticut 21,807 21,310 + 497 Deleware 3,094 2,996 + 98 District of Columbia 8,032 7,960 + 72 Florida 31,578 31,241 + 337 Georgia 41,511 38,833 + 2,678 Idaho 11,579 11,426 + 153 Illinois 197,335 194,687 + 2,648 Indiana 84,931 84,468 + 463 Iowa 30,444 30,594 - 150 Kansas 35,728 35,612 + 116 Kentucky 50,215 48,285 + 1,930 Louisiana 31,501 31,120 + 381 Maine 7,415 7,314 + 101 Taryland 11,946 12,021 - 75 Massachusctts 105,659 97,708 + 7,951 Michigan 125,723 120,156 + 5,567 l'inresota 57,864 57,696 + 168 l'ississippi 30,819 29,719 + 1,100 Missouri 86,279 85,215 + 1,064 !ontana 18,126 18,144 - 18 Mebraska 28,246 28,202 + 44 lievada 2,674 2,657 + 17 New Hampshire 8,636 8,285 + 353 Yew Jorsey 82,209 78,935 + 3,274 New Moxico 9,977 9,858 + 119 New York City 153,960 151,788 + 2,172 New York (Excl. N.Y.C.) 53,008 52,659 + 349 Morth Carolina 31,181 31,145 + 36 North Dakota 14,849 14,870 - 21 Ohio 196,089 196,168 - 79 Oklahoma 60,952 59,996 + 956 Oregon 16,725 16,365 + 360 Pennsylvania 223,052 217,156 + 5,896 Rhode Island 13,050 12,723 + 327 South Caroline 30,699 30,115 + 584 South Dakota 17,170 17,402 - 232 Tennossee 31,278 30,990 + 288 Texas 77,879 76,330 + 1,549 Utah 10,667 10,386 + 281 Vermont 5,096 5,101 - 5 Virginia 22,748 22,716 + 32 Washington 46,131 45,556 + 575 West Virginia 40,931 40,547 + 384 Tisconsin 65,338 64,390 + 948 Wyoming 4,620 4,592 + 28 Hawaii 2,500 2,509 - 9 WORKS PROGRESS ADMINISTRATION Division of Resoarch, Statistics and Records April 5, 1938 Colem draft 130 received 4/5/38 in Segal Division. go THE CONGRESS OF THE UNITED STATES: The Sixteenth Amendment to the Constitution of the United States, approved in 1913. expressly authorised the Congress "to lay and collect taxes on incomes, from whatever source derived." That is plain language. Fairly construed this language would seem to authorise taxation of income derived from state and municipal. as well as federal bonds, and also income derived from state and municipal at well at federal offices. The reciprecal tax-inmunity accorded such income was conceived when the nation was young to strengthen weak government finance and to protect the federal system. Today. however. it constitutes a serious menage to the fiscal systems of both the states and the nation. Both the states and the nation are deprived of revenues which could be raised from those best able to supply them. Neither the federal government nor the states receive say adequate, compensating advantage for the reciprecal tax- insunity accorded to income derived from their respective obligations and offices. 131 In recent years both the federal government and the states have come to rely increasingly upon graduated income same for their revenues. In recent years the rapid expansion of federal and state activities has resulted in the issuance of an increased volume of tax-exempt securities and in the creation of an increased meber of state and federal officers and employees who claim special tax-exemption. Tax-examption which was once an inequity of relatively elight importance has become a most serious defect in the fiscal systems of the states and the nation, Fundamentally our fax laws are intended to apply to all citizene equally. That does not mean that the same rate of income tax should apply to the very rich - and to the very poor man. Long age the United States, through the Congress, assepted the principle that citizens should pay in accordance with their ability to pay. and that identical tax rates on the rich and on the poor actually worked an injustice to the poor. Rence the origin of progressive curtance on personal income w the individual personal income increases. 132 During the past few years we have become conscious more and more of the simple fast that these progressive - taxes, established by the Congrees to curry out a principle. were being avoided by various methods. Leepheles in the tax laws and the use of corporate devices give to hundreds of individuals the change to escape the letter of the 1am, oven though in 00 doing they were failing to carry out the spirit of the law. Tax exemptions through the ownership of government securities of sally kinds federal. state and local - has operated against the fair or effective collection of progressive surtaxes and has, therefore, violated the spirit of the tax law itself. Actually. in operation. it has given a greater advantage to those with large incomes than to these with small incomes. Therefore, I lay before the Congress the statement that a fair and effective progressive income tax and a htge perpetual reserve of tax-exempt bonds cannot exist side by side. Men with great means best able to assume business ricks have been encouraged to leck up substantial portions 133 of their funds in tax-ensupt securities. Men with little means who should be encouraged to hold the relatively secure obligations of the federal and state governments have been obliged to pay a relatively higher price for those securities than the very rich because the tax-inemity is of much less value to them than to those whose incomes fall in the higher brackets. For more than twenty years an unbroken line of Secretaries of the Treasury has reported to the Congress the growing evile of these tax-exemption. Economists generally have regarded them as wholly in- consistent with any rational egatem of progressive taxation. I do not think the Congress should feel obliged to wait upon the realisation of the ausbersome and doubtful remedy usually proposed for this evil, namely, a constitutional amendment. These tax-insunities are not inexerable requirements of the Constitution. The present - fortunate situation 10 the product of adjudication and adjudication can correct 11. More than one hundred years age doubte and difficul- ties attending these insumities were expressed by members of the Supreme Court, and in recent years the underlying assumptions 134 of the doctrine have been impressively questioned w the Geart itself. the dostrine was originally evolved out of a totally different set of economic circumstances from those which are now consume. It is a familier principle of law that rules of law lose their binding force when the reasons which - rise to the rules no longer exist. I, therefore, recommend to the Congress that effective action be promptly taken to terminate these tax-ememptions for the future. The legislation should confer the same powers on the States with respect to the taxation of federal bonds hereafter issued as is granted to the federal government with respect to state and municial bonds hereafter issued, I suggest also legislation which will authorise that tax- exempt income be taken in account in fixing the surtex spplicable to tanable income. As Secretary of the Treasury Carter Glass stated in his report for the fiesal year of 1919: "It is intelerable that taxpayers should be allowed. by purchase of exempt securities, not only to obtain exemption with respect to the income derived therefrom, but to reduce the exper- tames upon their other income, and to have the supertance upon their other income determined upon the accumption. contrary to feet, that they are not in possession of income derived from state and sunicipal bonds." 135 The name principles of Just tanation apply to tax- exemptions of official salaries. The federal government does not now levy income taxes on the hundreds of thousands of state. county and minicipal employees. Nor do the states. under existing decisions. lovy income taxes on the salaries of the hundreds of thousands of federal employees. Justice in a greater democracy should treat those who earn their liveli- hood from goverment in the same way at it treats those who earn their livelihood in private employ. I recomend, therefore, that the Congress onsets legis- lation ending tax-exemption on government salaries of all kinds, conferring pewere on the states with respect to federal salaries and powers to the federal government with respect to state and local government calaries. The ending of he 10 of government securities or of government salaries, is a matter. not of politice. but of principle. 136 TREASURY DEPARTMENT WASHINGTON April 5, 1938 TO THE SECRETARY: In accordance with your request I am transmitting herewith the statement showing the budgetary expenditures for the first nine months of the fiscal years 1936, 1937 and 1938. For your convenience this expenditure statement is summarized below with the non-cash items eliminated, together with the budgetary receipt side of the picture. BUDGETARY CASH RECEIPTS AND EXPENDITURES 9 MONTHS JULY-MARCH 1936. 1937 and 1938 (In millions of dollars) 1936 1937 1938 Receipts: Income taxes $1,046 $1,507 $1,995 Miscellaneous Internal Revenue 1,536 1,637 1,772 Customs 292 352 290 All other 226 232 763 $3,100 $3,728 $4,820 Expenditures: Regular $2,397 $3,073 $3,302 Recovery and relief 2,486 2,393 1,536 $4,883 5,466 4,838 Revolving funds - 56 -262 196 Net expenditures $4,827 $5,204 $5,034 You will note that there is no material difference between the budgetary expenditures for these three years although there is & substantial difference between the different categories of expendi- tures. For example, the regular expenditures have increased from $2,397,000,000 in the first nine months of the fiscal year 1936 to $3,302,000,000 in the first nine months of 1938. This increase 1s due in part to the shift from emergency funds to regular funds. The recovery and relief expenditures, you will note, have decreased from $2,486,000,000 in 1936 to $1,536,000,000 in 1938. There is, 137 - 2 - however, one item of expenditure which is outside of the budgetary statement and which is not included in the above figures. That is the cash payment made for the soldiers' bonus. During the first nine months of the fiscal year 1937 the Treasury paid out on this account approximately $667,000,000, of which $413,000,000 was paid out in the month of July, 1936 (the first month of the fiscal year 1937); whereas, in the same period for the fiscal year 1938, only $67,000,000 was paid out. So, if you include the soldiers' bonus payment with the other budgetary cash expenditures, the Treasury paid out during the first nine months of the fiscal year 1937 $3,740,000,000, whereas in the same period in the fiscal year 1938 we paid out $3,369,000,000. As of possible interest I am also enclosing a statement showing the receipts for the first nine months of the fiscal years 1936, 1937 and 1938. DwB Enclosures. 138 EXPENDITURES 9 months 1936, 1937 and 1938 (millions of dollars) Regular Recovery and relief Revolving funds Non-cash items Month Total Final yrs 1936 1937 1938 1936 1937 1938 1936 1937 1938 1936 1937 1938 1936 1937 1938 July 184 249 337 212 302 198 135 a/ 216 e/ 2 196 82 125 727 417 658 August 219 204 310 292 269 175 a 4 e/ 10 14 28 61 522 570 556 September .... 318 393 446 252 264 159 e/ 7 2 20 18 7 84 581 674 710 October 338 364 376 278 297 168 8 16 ...... 16 173 8 61 797 685 621 November 226 275 303 265 272 159 4 e/ 14 25 46 7 56 533 540 543 December 344 407 438 308 294 173 61 a/ 47 56 30 12 65 621 667 738 January 215 289 326 304 230 150 a 63 67 34 17 49 57 473 635 567 February ..... 194 308 290 292 214 156 9 13 10 9 67 69 504 575 525 March 356 504 476 283 251 198 69 a/ 46 26 8 49 62 578 758 762 Total 2,397 3,073 3,302 2,486 2,393 1,536 a 56 of 262 196 510 317 641 5,337 5,521 5,676 Excess credits, deduct. DWB 139 RECEIPTS 9 months 1936, 1937 and 1938 (millions of dollars) Miscellaneous Month Income taxes Internal Revenue Customs All other Total Finalyn 1936 1937 1938 1936 1937 1938 936 7 1938 1936 1937 1938 1936 1937 1938 July 23 39 57 165 201 221 30 32 41 61 22 90 279 294 409 August 24 32 35 219 264 301 37 35 39 19 39 78 299 343 453 September .... 231 288 501 143 161 185 30 36 36 17 14 66 421 499 788 October 30 27 40 153 186 188 33 41 37 19 18 68 235 272 333 November 19 33 37 142 148 181 31 35 32 42 17 77 234 233 327 December ..... 228 286 487 153 174 191 29 39 30 24 18 158 434 517 866 January 35 43 52 138 168 172 34 41 26 21 32 85 228 284 335 February 43 58 62 132 148 140 33 42 24 10 27 123 218 275 349 March 412 700 723 291 188 191 35 53 26 14 71 19 752 1,012 959 Total 1,046 1,507 1,995 1,536 1,637 1,772 292 352 290 226 232 763 3,100 3,728 4,820 Includes $67M processing tax on farm products. I FHA Form No. 12 140 (Revised Oct. 15, 1937) FEDERAL HOUSING ADMINISTRATION MEMORANDUM DATE 4/5/38 TO: Miss Chauncey - - Secretary's Office Treasury Department FROM: SUBJECT- ... 16-0401 Mr. McDonald thought the Secretary would be interested in seeing this type of report on'our gross business and accepted for insurance business covering the last two weeks' operations. Shirley K. Hart Assistant to the Administrator FHA Form No. 12 (Revised Oct. 15, 1937) 141 FEDERAL HOUSING ADMINISTRATION MEMORANDUM DATE April 5, 1938 TO: FROM: SUBJECT- F.H.A. INSURING OPERATIONS ... 10-1401 Neek Ending April 2, 1938 GROSS BUSINESS TRANSACTED Number Amount Home Mtges. Selected for Appraisal 4,913 $21,414,849 Rental Housing Applications Approved 12 2,888,000 Modernization Notes Insured 5,745 2,738,400 TOTAL 327,041,249 ACCEPTED FOR INSURANCE Home Mtges. Ace. for Insurance 2,642 $11,601,700 ,al Housing Projects Committed 3 1,530,000 1 Modernisation Notes Insured 5,745 $,738,400 $15,870,100 TOTAL Percent Mortgages Accepted Eligible for 90% Mtges. = 39% 142 FEDERAL HOUSING ADMINISTRATION MEMORANDUM DATE Mar. 30, 1938 TO: FROM: SUBJECT- F.H.A. INSURING OPERATIONS ... 10-3401 Week Ending March 26, 1938 GROSS BUSINESS TRANSACTED Number Amount Home Mtges. Selected for Appreiss. 4,863. $22,568,219 Rental Housing Applications 14 4,106,000 Modernization Notes Insured 3,016 1,470,176 $28,144,395 ACCEPTED FOR INSURANCE Home Mtges. Accepted for Insurance 2,290 $ 9,990,900 Rental Housing Projects Committed 2 497,500 Modernization Notes Insured 3,016 1,470,176 $11,958,576 Percent Mortgages Accepted Eligible for 90% Mtges.= 37% DV.IR 7038 143 FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. WEEKLY VOLUME 07 FHA INSURING OPERATIONS For 1938 and corresponding Period of 1937 HOME MORTGAGES SELECTED FOR APPRAISAL 1938 1937 Week Ending: No. Amount No. Amount Jan. 8 1,256 $ 5,483,184 1,967 $ 8,565,550 15 1,504 6,531,200 2,286 9,566,860 22 1,711 7,299,975 2,167 9,447,127 29 1,888 8,150,840 2,272 10,091,713 Feb. 5 1,982 8,571,895 2,306 9,721,165 12 1,988 8,787,105 2,701 11,068,008 19 2,219 10,025,800 2,765 11,764,089 26 2,775 13,100,250 2,835 11,747,954 Mar. 5 3,899 17,613,402 3,244 13,683,500 12 4,470 20,386,711 3,405 14,176,560 19 4,697 21,293,061 4,085 16,879,710 26 4,863 22,568,219 3,476 14,970,848 Apr. 2 4,713 21,414,849 3,617 15,366,435 144 FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. WEEKLY VOLUME OF MORTGAGES ACCEPTED FOR INSURANCE Week Ending 1938 1937 Number Amount Number Amount Jan 8 943 $ 4,035,500 1,462 $ 5,821,275 15 1,101 4,542,900 1,756 7,241,815 22 1,058 4,445,500 1,767 7,438,500 29 1,329 5,501,500 1,880 7,860,250 Feb 5 1,099 4,431,000 1,811 7,424,100 12 1,172 4,649,900 1,778 7,410,850 19 1,194 4,837,100 1,869 7,702,650 26 1,033 4,350,200 1,867 7,524,500 Mar 5 1,589 6,905,400 2,291 9,092,500 12 1,705 7,601,400 2,135 8,947,600 19 1,883 8,288,400 2,388 9,781,500 26 2,290 9,990,900 2,497 10,298,380 Apr 2 2,642 11,601,700 2,602 10,856,395 Division of Economics and Statistics Operating Statistics Section WEEKLY VOLUME OF HOME MORTGAGES SELECTED FOR APPRAISAL AMOUNT REPORTED BY INSURING OFFICES AT END OF EACH WEEK MILLIONS OF DOLLARS MILLIONS OF DOLLARS 30 30 1938 1937 25 25 20 20 15 15 IO 10 5 5 o o 15 22 29 5 12 19 26 5 12 ID 26 2 9 16 23 30 7 14 21 28 4 II 18 25 2 9 16 23 30 6 15 20 27 3 10 17 24 I 8 15 22 FEB 29 5 MAR 12 19 26 3 10 JAN 17 APR 24 34 MAY JUN JUL AUG SEP OCT NOV DEC DIVISION OF ECONOMICS & STATISTICS SR-1038-1 21460 OPERATING STATISTICS SECTION 146 Form No. 13 Ised Jan. 1, 1938) FEDERAL HOUSING ADMINISTRATION MEMORANDUM DATE FIGURES FOR WEEK ENDING APRIL 2, 1938 JECT: Week Ending Corresponding Week April 2, Last Year 1938 1937 For the Week: Number ~mount Number Amount Mortgages Selected +,713 $21,414,849 3,617 $15,366,435 Mortgages Accepted 2,642 11,601,700 2,602 10,856,395 Premium Paying Mtges. 1,115 4,843,900 1,633 6,717,380 Cumulative: Mortgages Selected 376,758 $1,570,222,683 Mortgages Accepted 279,698 1,138,392,833 Premium Paying Mtges. 220,854 904,566,317 300 Division of Economics and Statistics Revised 4/4/38 Operating Statistics Section " 147 1- - seey state 2- - secy War 4-7. 148 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 5, 1938 TO Secretary Morgenthau FROM Mr. Haas Subject: Current United States Trade with Japan and China (Preliminary data) A. United States trade with Japan during the first three weeks of March 1938. 1. United States exports to Japan increased 27 percent* in the first three weeks of March 1938 as compared to the same period in February 1938 and were 31 percent greater than in January 1938. 2. Raw cotton exports amounted to $3,073,000, approxi- mately $100,000 less than in the first three weeks of February 1938. Exports of petroleum, iron and steel manufactures, and aircraft and parts increased markedly over the same period in February 1938. 3. United States imports from Japan increased 6 percent in the first three weeks of March 1938 as compared with the same period in February 1938, but were 20 percent less than in the first three weeks of January 1938 and in December 1937. 4. Imports of raw silk accounted for the entire increase in the total imports from Japan in this period; imports other than raw silk varied only slightly in amount and in relative importance. B. United States trade with China during the first three weeks of March 1938. 1. United States exports to China and Manchuria increased 37 percent in the first three weeks of March 1938 as com- pared with the same period in February 1938. Exports to North China and Manchuria increased 38 percent and exports to South China, Shanghai and Hong Kong increased 36 percent. Exports to South China, Shanghai and Hong Kong are approxi- mately 50 percent greater in value than those to North China and Manchuria. 149 Secretary Morgenthau - 2 2. Imports from China and Manchuria increased 7 percent in the first three weeks of March 1938 as compared to the first three weeks of February 1938. Imports from North China and Manchuria increased 25 percent and those from South China, Shanghai, and Hong Kong, only 2 percent. Imports from North China accounted for 24 percent of the total imports from China in March as compared to 21 per- cent in February 1938, while imports from South China accounted for 76 percent in March and 79 percent in February 1938. 150 Secretary Morgenthau - 3 Statistics: A. Current Trade with Japan (Preliminary Data) I. United States Exports to Japan -- Total Value 1st Week 2nd Week 3rd Week Total 1st 3 Weeks March 1938 $4,513,000 $3,214,000 $5,991,000 $13,718,000 February 1938 nil 6,112,000 4,667,000 10,779,000 January 1938 2,726,000 3,759,000 3,984,000 10,469,000 December 1937 1,694,000 5,217,000 2,394,000 9,305,000 November 1937 1,180,000 4,813,000 4,745,000 10,738,000 II. United States Exports to Japan by Commodities Commodities Show- March 1938 February 1938 January 1938 1ng Increases: Petroleum and products $ 3,000,000 $ 1,498,000 $ 2,925,000 Iron and steel manufactures 2,218,000 1,576,000 1/ Industrial machy. 1,985,000 1,071,000 1,229,000 Paper base stocks 746,000 406,000 382,000 Automobiles, parts & accessories 652,000 494,000 673,000 Aircraft & parts 340,000 131,000 2/ Fertilizer & fer- tilizer materials 290,000 248,000 24,000 Ferro alloys 185,000 nil 182,000 Coal-tar products 93,000 23,000 28,000 Commodities Show- ing Decreases: Copper and manu- factures 446,000 893,000 845,000 Cotton, unmf'd. 3,073,000 3,168,000 2,574,000 Hides and skins, raw 217,000 225,000 15,000 Tobacco and mfrs. 1,000 289,000 nil Total 13,246,000 - 97% 10,022,000 - 93% - All other 472,000 - 3% 757,000 - 7% - Grand Total $13,718,000 $10,779,000 $10,469,000 1/ Classified differently for February and March. 2/ Classified as vehicles, parts and accessories. a/ Corrected figure. 151 Secretary Morgenthau - 4 III. United States Imports from Japan -- Total Value 1st Week 2nd Week 3rd Week Total 1st 3 Weeks March 1938 $1,452,000 $2,431,000 $2,690,000 $ 6,573,000 February 1938 1,553,000 2,327,000 2,350,000 6,230,000 January 1938 2,033,000 4,185,000 2,020,000 8,238,000 December 1937 2,159,000 3,406,000 2,672,000 8,237,000 November 1937 3,245,000 3,654,000 4,356,000 11,255,000 IV. United States Imports from Japan by Commodities Commodities Show- March 1938 February 1938 January 1938 ing Increases: Silk, unmanufac- tured $4,336,000 $3,970,000 $4,586,000 Hats and hat material 175,000 132,000 99,000 Silk manufactures 167,000 78,000 248,000 Fish scrap and fish meal 149,000 9,000 80,000 Pyrethrum flowers 147,000 68,000 255,000 Fish and fish prod- ucts, edible 125,000 96,000 128,000 Tea 77,000 66,000 145,000 Furs and manu- factures 66,000 54,000 16,000 Papers and manu- factures 58,000 45,000 72,000 Camphor 57,000 32,000 51,000 Commodities Show- ing Decreases: Cotton manufac- tures $ 197,000 417,000 494,000 China and porce- lain ware 104,000 128,000 177,000 Vegetable food products other than tea 81,000 106,000 196,000 Menthol 79,000 101,000 89,000 Total $5,818,000 - 89% $5,302,000 - 85% $6,636,000 - 81% Other 755,000 - 11% 928,000 - 15% 1,602,000 - 19% Grand Total $6,573,000 $6,230,000 $8,238,000 152 Secretary Morgenthau - 5 B. Current Trade with China (Preliminary Data) I. United States Exports to China -- Total Value First three North China and Shanghai, South weeks of: Manchuria China and Hong Kong Total March 1938 $1,567,000 $3,316,000 $4,883,000 February 1938 1,134,000 2,441,000 3,575,000 January 1938 1,375,000 3,001,000 4,376,000 December 1937 2,003,000 4,023,000 6,026,000 Whole month of March 1937 $6,483,000 II. United States Exports to China by Commodities (a) To North China and Manchuria: March 1938 February 1938 Automobiles, parts and accessories $ 549,000 $ 105,000 Petroleum and products 271,000 234,000 Cotton, unmanufactured 210,000 128,000 Tobacco and manufactures 134,000 53,000 Iron and steel manufactures 82,000 335,000 Industrial machinery 74,000 58,000 Total 1,320,000 - 84% 913,000 - 81% Other 247,000 - 16% 221,000 - 19% Grand Total $1,567,000 $1,134,000 153 Secretary Morgenthau - 6 (b) To Shanghai, South China and Hong Kong: March 1938 February 1938 Tobacco and manufactures $ 623,000 $ 142,000 Firearms and ammunition 539,000 381,000 Automobiles, parts & accessories 462,000 327,000 Copper and manufactures 263,000 144,000 Iron and steel manufactures 179,000 148,000 Vegetable foods, edible 129,000 83,000 Aircraft and parts 121,000 292,000 Ginsing 88,000 81,000 Electrical machinery & apparatus 85,000 63,000 Cotton, unmanufactured 71,000 9,000 Total 2,560,000 - 77% 1,670,000 - 68% All other 756,000 - 23% 771,000 - 32% Grand Total $3,316,000 $2,441,000 III. United States Imports from China -- Total Value First three North China and Shanghai, South weeks of: Manchuria China and Hong Kong Total March 1938 $588,000 - 24% $1,830,000 - 76% $2,418,000 February 1938 472,000 - 21% 1,794,000 - 79% 2,266,000 January 1938 782,000 - 27% 2,139,000 - 73% 2,921,000 December 1937 864,000 - 23% 2,926,000 - 77% 3,790,000 Whole month of March 1937 $14,103,000 IV. United States Imports from China by Commodities (a) From North China and Manchuria: March 1938 February 1938 Furs and manufactures $120,000 $24,000 Perilla oil 85,000 39,000 Bristles 64,000 91,000 Non-metallic minerals and products 55,000 3,000 Total 324,000 - 55% 157,000 - 33% All other 264,000 - 45% 315,000 - 67% Grand Total $588,000 $472,000 P 154 Secretary Morgenthau - 7 (b) From Shanghai, South China and Hong Kong: March 1938 February 1938 Tung (wood) oil $ 903,000 $ 377,000 Flax, hemp and ramie and mfrs. 153,000 166,000 Hate and nat materials 93,000 77,000 Vegetable food, edible, except tea 84,000 67,000 Silk, unmanufactured 71,000 21,000 Bristles 62,000 185,000 Tin ore, bars, blocks, pigs, scrap, etc. 56,000 409,000 Total 1,422,000 - 766 1,302,000 - 73% All other 408,000 - 22% 492,000 - 27% Grand Total $1,830,000 $1,794,000 april 5,1138 : 155 copy of my letter to Pro.) THE CLOISTER SEA ISLAND, GEORGIA my dear Mr. President: Iam sending you enclosed herewith a draft of a message to Congress and d bill to the establish a Department of Transportation. Theseware hupared by mr. me Reynolds of my office. 2 thought if your had these before you they might have to be useful. Sincerely. 1m2 Wer than has Klaty: Have neck mc of Reynolds tube enclosed iver to Pres. and give it to Mr. Foster to give to the Pres. Have me Reyn tell Foster if he want anything changed he me stands ready to do it. no me knows about my teachone conversation with the Pea. m the subject Sincerely your 2. PL 156 (The phone conversation with the President, referred to in HM,Jr's note to Mrs. Klotz, is referred to in diary entry of March 31, 1938, at 6:20 p. m. 157 TO THE CONGRESS OF THE UNITED STATES: As I stated in my message of June 7, 1935 to the Congress, it is high time to deal with the nation's transportation as a single unified problem. For many years in the past, transportation meant railroad transportation, but within the past quarter of a century a major change has occurred. Today other forms of transportation, air transport, highway transport, and an expanded system of water and pipe line transport actively compete with and supplement railroad transportation. It is evident that the transportation problem is a single one in which each of the various forms of transportation have their parts to play. As was pointed out by the Federal Coordinator of Transportation in his report of March 10, 1934 "the problem is to find their appropriate functions, protect them in the performance of such functions, prevent wasteful duplication of service without eliminating such competition as is economically sound, and promote a system of stable rates which will reflect the lowest costs of good service but afford the necessary foundations for credit"." Functions relating to transportation are today scattered among several executive departments, various independent commissions, boards and several Government corporations. These agencies deal with special phases of transportation rather than the transportation cc was sent Jesu gones 158 - 2 - problem in its broader national aspect. Not only are their activities uncorrelated but in many instances they may work at cross purposes. To remedy this situation and avert threatened chaos in our transportation system, I urge that the Congress give immediate consideration to the establishment of a Depart- ment of Transportation, charged with responsibility for the conduct of the various transportation activities of the Federal Government. I recommend that the various promotional activities of the Federal Government in the field of transportation be transferred to the Department of Transportation and performed under the supervision of the Secretary of Transportation who shall be charged with the formulation of a national transportation policy. I further recommend that there be established in the Department of Transportation a bi-partisen board to be known as the Federal Transportation Board, which shall, independently of the Secretary and the President, perform all quasi-judicial and quasi-legislative functions with respect to the transportation industry now performed by any existing agencies of the Government, and such additional regulatory functions with respect to that industry as may be prescribed by law. 153 A BILL To establish a Department of Transportation Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That there shall be at the seat of government an executive department to be known as the Depart- ment of Transportation, and a Secretary of Transportation (hereafter re- ferred to as the "Secretary") who shall be the head thereof, and shall be appointed by the President by and with the advice and consent of the Senate, and shall have a tenure of office and salary 11ke those of the heads of other executive departments. Section 158 of the Revised Statutes, as amended (H.S.C., 1934 ed., title 5, sec. 1), is amended to include such department, and the provisions of Title IV of the Revised Statutes, including all acts amendatory thereof and supplementary there- to, shall be applicable to such department. (b) There shall be in the Department of Transportation an Under- secretary of Transportation and two Assistant Secretaries of Transpor- tation, who shall be appointed by the President by and with the advice and consent of the Senate, and a Solicitor, who shall be appointed by the Secretary. all of whom shall exercise such functions as may be pre- scribed by the Secretary or required by law. The Undersecretary and the Solicitor shall each receive a salary of $10,000 per answer, and the com- pensation of the Assistant Secretaries shall be fixed in accordance with the Classification Act of 1923, as amended. 160 - 2 - SEC. 2. (a) There is hereby created in the Department of Trans- portation a Federal Transportation Board (hereafter referred to at the "Board") which shall be composed of sixteen members who shall be appointed by the President by and with the advice and consent of the Senate. (b) The terms of office of the members first appointed shall expire. as designated by the President at the time of nomination, four at the end of the sixth year. four at the end of the eighth year, four at the end of the tenth year, and four at the end of the twelfth year after the effective date of this section. The terms of office of all successors shall expire twelve years after the expiration of the terms for which their predecessors were appointed; but any member appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed only for the unexpired term of his predecessor. (e) Not more than nine members shall be appointed from the same political party. and each member shall receive an annual salary of $12,000. (d) Members of the Board my be removed by the President, after notice and opportunity for public hearing, for inefficiency, neglect of duty, or malfeasance in office, but for no other cause, (e) or the nembers the appointed, one shall be designated by the President as chairman, and one as vice chairman of the Board. SEC. 3. (a) The Secretary shall foster, promote, and develop 161 - S - a sound, adequate, and efficient transportation system and shall exer- cise the functions transferred to him by. or pursuant to, this Act and such other functions as may hereafter be vested in and imposed upon him by law. (b) The Secretary shall cause a seal of office to be made for the Department of Transportation, of such device as the President shall approve. and judicial notice shall be taken of such seal. (e) The Secretary shall, annually. at the close of each fiscal year, sake a report in writing to the Congress, giving an account of all money received and expended by the Department of Transportation and describing the work done by that Department. He shall also from time to time make such special investigations and reports as he may deem necessary. or as he may be required to make by the President, or by either House of Congress. (a) The Secretary my delegate to any officer or employee of the Department of Transportation any of the functions conferred or in- posed upon him by this Act. SEC. 4. (a) within 180 days after the effective date of this section, the President shall transfer by Executive order to the Secre- tary all functions exercised by the following agencies which are executive in characted and the exercise of which is not subject to review by courts of law, and to the Board all functions exercised by such agencies which are quasi-judicial or quasi-legialative in character and the exercise of which is subject to review by courts of laws 162 - 4 - The Bureau of Public Roads of the Department of Agriculture, The Burean of Air Commerce of the Department of Commerce, The United States Maritine Commission, The Division of Transportation of the Bureau of Foreign and Domestic Commerce of the Department of Commerce, The Interstate Commerce Commission, The Lighthouse Service of the Department of Commerce, and The Burean of Navigation and Marine Inspection of the Department of Commerce, (b) Whenever all of the functions of any agency specified in subsection (a) of this section have been transferred by the President, such agency is hereby abolished. (o) Such personnel and property (including office equipment and official records) as the President shall determine to have been employed in the exercise of functions transferred to the Secretary or the Board under subsection (a) of this section, may be transferred to the Secretary by the President, upon such dates as he shall specify, by Executive order: Provided, That the transfer of such personnel shall be without change in classification or compensation, except that this requirement shall not operate after the end of the fiscal year during which such tannafer is made toprevent the adjustment of classification or compensation to conform to the duties to which such transferred per- sonnel may be assigned: Provided further, That such of the personnel so transferred who do not already possess a classified civil service status shall not acquire such status by reason of such transfer except (1) upen x 163 - 5 - recomendation of the Secretary within one year after such personnel have been so transferred and certification within such period by the Secretary to the Civil Service Commission that such personnel have served with merit for not less than six months prior to the transfer, and (2) upon passing such suitable noncompetitive examinations as the Civil Service Commission my prescribe/ (a) Such of the unexpended balances of appropriations, available for use by any agency specified in subsection (a) of this section in the exercise of the functions transferred to the Secretary or the Board, as the President shall deem necessary and specify by Executive order, are transferred to the Secretary upon such date as the President shall specify in such Executive order. Such unexpended balances shall be available for use in connection with the exercise of functions transferred to the Sec- retary or the Board under subsection (a) of this section. SEC. 5. (a) All orders, rules, regulations, permits or other privileges, nate, issued, or granted by, or in respect of, any agency abolished, or functions transferred, under the provisions of the fore- going section and in effect at the time of the abolition or transfer, shall contime in effect to the same extent as if such abolition or transfer had net occurred, until medified, superseded, or repealed, w the Secretary or the Board, M the case may be. (b) No suit, action, or other proceeding lawfully commenced 164 - 6 - by or against the head of any executive department or independent - tablishment, or other officer of the United States, in his official capacity or in relation to the discharge of his official duties, shall abate by reason of the abolition of any agency or transfer of any fune- tion effected under the provisions of this Act but the court, on motion or supplemental petition filed at any time within twelve months after such abolition or transfer takes affect, showing the necessity for a survival of such suit. action, or other proceeding. to obtain & settle- net of the questions involved, may allow the same to be maintained by or against the Secretary e the Board, as the case may be. (e) All laws relating to any agency abolished or function trans- ferred under the provisions of this Act shall, in 80 far as such laws are not inapplicable, remain in full force and effect and shall be ad- ministered by the Secretary or the Board, as the case may be. SEC. 6. (a) The Board shall exercise its functions independently of the Secretary and the President. Any order, affirmative or negative, issued by the Board under this Act shall be subject to review by the circuit courts of appeals of the United States or the United States Court of Appeals for the District of Columbia, upon petition filed within sixty days after the entry of such order by any person disclosing a nb- stantial interest in such order. After the expiration of said sixty days, a petition my be filed only by leave of court upon a showing of reason- able grounds for failure to file the petitiem theretofere. (b) A petition under this section shall be filed in the court for the circuit wherein the petitioner resides or has his principal 165 - 7 - place of business or in the United States Court of Appeals for the District of Columbia. (e) A copy of the petition shall, upon filing, be forthwith transmitted to the Board by the clerk of the court and the Board shall thereupon certify and file in the court a transcript of the record, if any. upon which the order complained of was entered. (d) Upon transmittal of the petition to the Board, the court shall have exclusive jurisdiction to-affirm, modify or set aside the order complained of, in whole or in part, and if need be to order fatther proceedings by the Board. Upon good cause shown, interlocutory relief may be granted by stay of the order or by such mandatory or other relief as may be appropriate: Provided. That no interlocutory relief my be granted except upon at least five days' notice to the Board. (e) The findings of fact by the Board if supported by substan- tial evidence shall be conslusive. No objection to an order of the Board shall be considered by the court unless such objection shall have been urged before the Board or, if it we not so urged, unless there vere reasonable grounds for failure to do so. (f) The judgment and decree of the court affirming. modifying, enforcing. or setting aside, any such order of the Board shall be final, subject to review by the Supreme Court of the United States upon certi- fication or certierari an provided in sections 239 and 240 of the Judicial Code. 166 - 8 - smc, 7 There are hereby authorised to be appropriated ont of any soney in the Treasury not otherwise appropriated such - as may be necessary to carry out the provisions of this Act. sec. 8. The term "function" as need in this Act means any right, privilege, your, duty, function, or immity. SEC. 9. The provisions of this Act, except this section, - tion 1, section 2, and section 3, shall become effective sixty days after enactment: Brovided, That the President shall, if he finds such action necessary or desirable in the public interest, postpone the effective date of any provision of this Act, except this section, section 1, section 2, and section 3, to such time as he shall preseribe, but not beyond the 180th day following the ensotment of this Act. 167 WORKS PROGRESS ADMINISTRATION WALKER-JOHNSON BUILDING 1734 NEW YORK AVENUE NW. WASHINGTON, D.C. HARRY L. HOPKINS ADMINISTRATOR April 6, 1938. Mrs. Henrietta S. Klotz Assistant to the Secretary U. S. Treasury Department Washington, D. C. Dear Mrs. Klotz: Attached is the weekly memorandum requested by Mr. Morgenthau. Very truly yours, Summ Ron Emerson Ross, Director Division of Research, Statistics and Records Enclosure. 168 WORKS PROGRESS ADMINISTRATION WALKER-JOHNSON BUILDING 1734 NEW YORK AVENUE NW. WASHINGTON, D. C. HARRY L. HOPKINS ADMINISTRATOR April 5, 1938 MEMORANDUM TO: Mr. Morgenthau, Secretary of the Treasury FROM: Emerson Ross, Director Division of Research Statistics and Records Private employment declined again during March. According to the preliminary BLS figure factory employment declined 1.2 percent from February 15 to March 15. The usual seasonal change during this period is an increase of .8 percent. Factory payrolls declined .6 percent during March, indicating a lengthening of hours of work for those who were employed. Direct relief seems to be staying at about the same level and March may be even slightly lower than the Feb- ruary figure of 2,000,000 cases. The failure of direct relief to increase despite the decline in private employment is at- tributable in part to warmer weather in some parts of the country, in part to the continued increase in WPA employment, and in part to the financial inability of some cities to in- crease their relief expenditures. WPA employment continued to increase, reaching 2,444,000 persons on April 2, an increase of 49,000 for the week. 169 Wednesday April 6, 1938 12:40 p.m. Archie Lochhead: Hello. HMJr: Yes, Archie. L: I'll give you the market first. HMJr: Please. L: Ah - Well, now, first of all, the Chamber passed Blum's proposal. HMJr: He did? L: Yes. He got it 310 to 250. HMJr: Very good. L: So, therefore, it's now up to the Senate. There doesn't seem to be any more feeling just now that the Senate will pass it... HMJr: Uh huh. L: But on the other hand he's gotten by this far. HMJr: When does it go by the - go to the Senate? L: It - well, they speak about it going to the Senate tomorrow as a program. HMJr: Yes. L: Now, whether or not it will be advanced on account of getting - yes, well; of course there's this - Taylor says the finance committee of the Senate of course will have to go first on it. HMJr: I see. L: But they may advance it a little bit - a little bit on account of giving the early vote this morning. HMJr: I see. L: Now, on the stock market - it's a little bit off, about 1.96. HMJr: That's all right. 170 -2- L: The rails and the industrials and the utilities are also off somewhat. HMJr: Yes. L: The government bonds are holding very well, they may be a thirty-second or more off from last night.... HMJr: That's all right. L: But they were still - in fact, the Federal was able to dispose of about eight million four hundred thousand in bonds yesterday. HMJr: Fine. L: They sold out about eight million four. That means - let's see, they bought about fifty-five and sold about eight and a half. HMJr: Well, that's all right. L: So they're working a little bit more flexibly over there just now. HMJr: Good. L: Exchanges are dull. Sterling is about 496.25. HMJr: Yes. L: Francs were inclined to be a little bit easier after he got his vote. They're selling at about 309, but there's no real change in them. Silver in London works out this morning about forty-two forty-four which is practically parity so there should be no reason for any change. HMJr: That's all right. L: The New York Times Electric Power Index is 91.4; up .4. HMJr: Yes. L: It - 91.4 which is up .4. HMJr: What do you mean, point, decimal, you mean? 171. -3- L: Yes. Ninety-one decimal four. HMJr: I mean, how much is it up? L: It's up decimal four. HMJr: Well, that's all right. L: So - well, it's on the up side, anyway. HMJr: Yes. L: Now that's all I have here just now, excepting my - well, let's see - I'll go - Would you want anything sent down to you today? HMJr: Ah - yes, there'll be a pouch, yes. L: All right, then, that's what they wanted to know about. HMJr: I want to talk to Taylor a minute. L: Yes, he's right here now. Wayne Taylor: Hello. HMJr: Taylor. T: Yes. HMJr: I spoke to both White and Haas this morning and asked them to prepare memorandum for me. Hello. T: Yes. HMJr: I wish you'd tell both of them to make reservations on the train which comes down Friday night here. T: I will. HMJr: And then have return reservations to come back on the same train with me, so if I decide that I want them to come they should be ready. T: All right. HMJr: Haas and White. T: Haas and White. -4- 172 HMJr: And T: That's to go Friday night ... HMJr: And come back with me Saturday. T: Right. HMJr: That they should make the reservations - Kieley can make them for them. T: Check. HMJr: What I want to talk to them about is the stuff that I asked them this morning. T: Right. HMJr: I mean, it's no secret from you, but I just don't want to take time to go over it but you can - they'll tell you see? T: Good. Ah HMJr: And talk to each other. T: Yes. HMJr: But ... T: Ah ... HMJr: But I want to get prepared and I think I may ask them to come down. T: Right. Did Harry tell you - Archie, that we had already started work on one memo as a result of the cabinet talk yesterday? HMJr: No. T: Well, it may - I don't - it may not be a duplication but we had already started work on one of them for you and I think they ought to have that too. HMJr: All right. But I mean they can explain it, it's just T: Yes. -5- 173 HMJr: I just want to know what the situation is and is it time for us to do something and what they - what their thoughts are T: Yes. Well, that is in a possible duplication, but that's all right, it may not be. HMJr: I was going to try to see the President Sunday, that's the point. T: Yes. HMJr: I don't know what he's doing or whether he's going to be in town. All right. T: Ah - there's one other thing that happened this morning; it isn't - I don't think it's terribly important but you might be thinking about it. HMJr: Yes. T: Bewley called in and he had a copy of the exchange clause - ah - the usual clause in the British Trade Agreement. HMJr: Yes. T: In which there is wording to the effect that agreement will only be abrogated in the event of a substantial change in the exchange relationships. HMJr: I see. T: He said he wasn't particularly curious about it but that the Chancellor wanted to know really what that meant. HMJr: Well, where is that clause; I don't get it. In the trade treaty? T: Yes. HMJr: Well, why in the hell doesn't the State Department consult us on that? T: Ah - They have been. Ah ... HMJr: Well, they didn't consult you, did they? T: What? -6- 174 HMJr: Did they consult you? T: It's their - it's the standard clause. HMJr: Oh. T: Yes. HMJr: I'll let you handle it. T: Well, I think you ought to have one aspect of it in mind, which is, he, Sir John apparently wanted to know what we meant by "substantial". HMJr: Well, let it wait until I get back. T: I will, but - it - I gave the obvious answer. HMJr: And that was? T: Which was that it was naturally to be interpreted within the spirit and general application of the Tripartite Agreement. HMJr: Good. That's all right. T: Yes. And that in the past why"substantial" had not meant any day-to-day juggling, as I pointed out in the case of France. HMJr: All right. T: Yes. 0. K. HMJr: Goodbye. T: Goobye. 7 175 April 6, 1938 Called Sumner and asked him what was happening on the German refugee matter and he said that he was seeing the President Friday and at that time he is going over the list for a committee. I said "I hope that the President and you have not given up the idea that the President will make an appeal on the radio' and he said, 'I agree most heartily with you and I have not given up the idea.' He said, !When are you coming back?' and I said, 'Not before Sunday, and his reply was, 'I wish you were here now. There are certain national problems which are crystallizing' and he again repeated 'I wish you were here, but of course if you are not coming back before Sunday, they will wait until you return.' TREASURY department 176 INTER OFFICE COMMUNICATION DATE April 6, 1938 TO Secretary Morgenthau FROM Mr. Taylor Yesterday when I lunched with Henry Wallace he reviewed the conversation which he had had with you over the telephone, and started in describing the conversation which he had had with the President on the previous afternoon which had resulted in his telephoning to you. Summed up this conversation indicated that the President felt that immediate action was necessary) that the country expected it of him; and that in his conversations with the Congressional leaders he had emphasized the fact that if a program were not submitted in the very near future it might be very necessary to call a Special Session of Congress to meet a situation materially worse than the one which now faced us; that the President was rarin' to go and that he (Henry Wallace) agreed with his desire for action, and wished Wallace to get in touch with you and Jesse Jones immediately with a view to presenting a program. Wallace mentioned four things which the President emphasized: (1) Housing, (2) Farm Security; (3) Flood Control, and (4) approximately 400 million dollars which he thought that the RFC would be able to loan in a comparatively short period. He also mentioned additional C.C.C. expenditures in connection with an expanded, or let us say, adequate W.P.A. appropriation program. In connection with the latter it was apparent that every one recognized that the billion dollars which had been indicated as the necessary W.P.A. appropriation for this Session would not be adequate to carry through the fiscal year, and we discussed the psychological as well as other effects of a semi-inflationary or counter deflationary character which would be produced by asking for a larger amount at this Session; for 177 - 2 - example, two billion dollars on the basis of the whole fiscal year. We agreed that in view of all the circumstances it would be preferable to ask for the larger amount and permit circumstances to govern the rate at which it was fed out. I emphasized at intervals my strong feeling that whatever the program adopted, that unless the program were properly sold to the public that it would not be effective. Wallace completely agreed with this point of view. Without going into details of this discussion we emphasized the fact that it was not in any way necessary to recede from a single fundamental of the President's program, but that we should look at it simply from the standpoint of analyzing how we had been selling a good product. If we found that our sales efforts were not effective we should look over our sales force, our advertising, our dealer organization and the like and without hesitation change the selling appeals, pull the ineffective salesmen off the road, etc. I have outlimed what I believe to be the procedure in a separate memorandum. We then had some further conversation about the railroad situation, and in particular about the utility problem. In this latter discussion Wallace mentioned the early settlement and sale to the T.V.A. of the > Commonwealth and Southern properties operating in the T.V.A. territory; that he felt that it would be desirable to make this purchase as quickly as possible and not attempt to get the last dime. This suggestion is identical with one which you will notice in Berle's memorandum, which leads me to believe that they have talked the situation over, although neither Wallace nor Berle told me so specifically. Wallace said that - 3 - 178 he had mentioned this possibility to the President but that the President had not greeted it with any particular enthusiasm. I am enclosing the original of the Berle memorandum. This memorandum was written after a discussion with Ransom and myself at my house. You will doubtless notice that there is a certain similarity between the Wallace and Berle approaches on other points, but I do not think that Wallace's talk with the President was inspired by any possible talk he may have had with Berle. Wallace and I also discussed a modification of the credit and monetary policies and agreed that a change in the reserve requirements was a necessary accompaniment of the rest of the program, that this particular change was preferable at this time to a change in our gold policy, as in the minds of the public the raising of the reserve require- ments was an important factor in the situation which later developed. At the Berle-Ransom meeting we devoted a great deal of time to the railroad situation, and I made it quite clear that I did not think very much of the Splawn report to the President on the railroads and that I believed that you favored strongly the creation of a new Department with adequate powers. I gathered that Berle was inclined to agree with this point of view but did not believe that it was politically possible at this time. My own conviction is even stronger than when we last talked, that a comprehensive, constructive railroad program is an essential part of the picture and that this can only be accomplished by the estab- lishment of a new Department with adequate powers. I have not included this recommendation in my spearate memorandum as I believe that it requires separate treatment and should not be confused with the general selling program which I described. 179 - 4 - I also mentioned to both Wallace and Berle your strong feeling that the equivalent of a Human Resources Board should be established, and while they agreed with the approach and the necessity for such an organization, they gave me the impression that they were not over- enthusiastic about including it in what you might describe as the immediate program. I do not agree with their point of view, nor do I with Wallace's view that the establishment of a Department of Public Welfare will necessarily provide the long range planning of this character which is necessary. The same could be said about the National Resources Board, namely, that let us say that the Department of Interior could act as a planning board. In other words, I think that you are absolutely right in your insistence on the creation of such an organization. Berle laid some emphasis on the change in the reserve requirements and agreed with the point of view expressed by Wallace, that the public had chosen this particular move as contributory to the decline in production which later occurred. I would certainly include Reserve Board action in my list of minimum requirements for an immediate program. Harry White, Dan Bell and George are submitting an additional memorandum covering the relationship of our gold policy to our prospective budgetary requirements, etc., so I will not go into this aspect here. I believe that this summarizes the two conversations. I am en- closing a memorandum of my own which treats the questions somewhat differently and emphasizes the selling aspects which I mentioned above. I agree with the conclusion of Wallace and Berle and various other people here in Washington who believe that some program is necessary; 180 - 5 - in other words, I do not think that the situation will right itself. I rather believe that the country expects the President to take action and that particularly in the middle and lower income groups this action will be welcomed and enthusiastically supported. well. 181 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 6, 1938. TO Secretary Morgenthau FROM Mr. Taylor Assuming that a new program of Government intervention is necessary, and I believe that this assumption is justified, I think that certain general principles should govern its selection and its execution. 1. That the program is intended to help and encourage private initiative, and that expenditures will be made and credits extended in those fields where private initiative and credit are unavailable or in those fields where private initiative and credit will partici- pate in the endeavor. 2. That each element composing the program shall meet the requirement that it represents something that the country really needs and which has an individual appeal on its merits. For example, the establishment of a human resources board with its necessary research activities, flood control, farm security and rehabilitation, the c.c.c., housing, both private and slum clearance, the improvement of our regular and emergency airports, adequate credit facilities for small business enterprises, the modernization of railroad equipment, the maintenance of essential rights of way, the elimination of grade crossings on essential rights of way and adequate hospital and public health facilities, all have real appeal and should be undertaken whenever the condition of our economy permits or demands action. 182 - 2 - 3. That the manner in which the program is presented, executed and "sold" must be as carefully worked out as the program itself. Such a program should be announced by the President, first in the form of a message to Congress, followed that evening by a radio talk explaining the program and selling it, emphasizing its national non- partisan character, the necessity for the participation of all elements of the population, that the American people never fail and with their natural resources and advantages cannot fail, et cetera. This should be followed up at convenient and regular intervals by articles, speeches and radio talks by such Administration leaders as Hull, Morgenthau, Wallace, Farley, Harry Hopkins, Garner, Jesse Jones, Eccles, Chester Davis and possibly Edison and M. L. Wilson and selected representatives from the Senate and House such as Barkley, LaFollette, Bankhead, Rayburn and selected business, labor, educational and local political leaders. All speeches should be prepared well in advance of their release and should be checked and double checked to see that they conform to the proper selling pattern. Muzzles should be issued to all other Administration spokesmen and the muzzles should be kept on until the Federal Reserve Index crosses 110 or until it becomes apparent that the plans outlined are ineffective. I do not believe that the latter, however, is a possibility. I do not believe that we should recede from a single Administra- tion objective or compromise any principles, nor does this approach contemplate any recession or compromise. I do believe that our recent 183 - 3 - sales methods have been ineffective and should be completely revised as we have been losing customers fast and haven't been getting any new ones. The product itself is just as good as it ever was and can and must be sold. wayne Chaylor - 184 JR GRAY Paris Dated April 6, 1938 Rec'd 1:55 p.m. Secretary of State, Washington. RUSH. 545, April 6, 5 p.m. FROM COCHRAN. Paris Exchange market witnessed another jumpy day of thin trading while Chamber debated Blum's financial program. When word of the passage of bill by 310 to 250 votes came out between 4 and 5 p.m., franc rate against sterling quickly moved from 160-3/4 to 1611. Echoing the parliamentary incident of last night Braton songs were sung on the bourse this afternoon and personal clashes between traders threatened. Market still EXPECTS Blum's defeat in the Senate but its optimism over his prospective fall has been sobered by the realization that whatever government is in power will bE faced with raising approximately one billion francs per WEEK for the remainder of the year. Furthermore, the increased strikes will likely diminish any move toward revival of confidence if they continue under new government. Bank of France statement tomorrow will show further heavy borrowing by the state. KLP:CSB WILSON 185 REB PLAIN London Dated April 6, 1938 Rec'd 3:30 p. m. Secretary of State, Washington. 284, April 6, 6 D. m. FOR TREASURY FROM BUTTERWORTH. The following EXCERPT from today's TIMES is quoted because it has attracted attention in the city: "Much as the proposed Blum reforms are disliked in financial circles it is generally admitted that the Explanatory memorandum accompanying the special powers bill is a masterpiece of drafting. For the first time since the days of M. Poincare an attempt is made to SEE the Economic problem as a whole and to solve it not by improvised EX edients but by a bold plan worked out in detail. And though the Senate will probably reject the Government's programme it is realized that M. Blum's successor whoever hE may bE will bE obliged to make use of a substantial part of it. What makes the Blum plan so important is that it marks the End of a period of illusions. N. Paul Reynaud, Professor Charles Rist and a few 186 REB 2-#284, From London,Apr.6,6p.m. a few others have during the past few years warned the country against these financial illusions but they have been lone VOICES crying in the wilderness. Now at last the truth is SEEN; France has reached the parting of the ways: the choice lies between the maintenance of a liberal Economy and the introduction of a strictly regulated one. If confidence returns French money will bE repatriated and the Government will get all the money they want. If it does not return and the Blum plan is based on that assumption the Government will bE forced to create new money and to take steps to prevent it leaving the country. That means financial regimentation. There was a genuine and strong demand for dollars today. The franc market however was not large and silver transactions were very small. KENNEDY WWC BECEIAED 8831 - - 187 GRAY Paris Dated April 7, 1938 Rec'd 2:55 p. m. Secretary of State, Washington. 553, April 7, 6 p. m. In the pas; few days the metallurgical strikes in the Paris regions have spread to a number of important additional aviation and automobile factories (including one of the Matford factories) and now involve approxi- mately 45,000 workers. Continual conferences between the Government authorities, the owners and labor organiza- tions have been Entirely unsuccessful. A government proposal to End the Citroen strike through immediate Evacuation of the factories followed by prompt payment of wages due an Exceptional super-arbitral award short- cutting the usual forms of procedure and the immediate resumption of work without retaliatory measures against the strikers was accepted by labor delegates who agreed to endeavor to have them approved by the strikers. The Citroen directors Expressed their willingness to resume work at once but rejected the proposal for an Exceptional arbitral 188 REB 2-#553, From Paris, Apr. 7, 6 p. m. arbitral wage award, asserting that the procedure estab- lished in the arbitration law of March 4, 1938 should bE followed. This attitude aroused further resentment on the part of labor Elements and was presumably a con- tributory cause to the occupation of additional factories during the last two days. The Gnome Rhone workers voted a resolution yesterday demanding the nationalization of that airplane motor concern. (END SECTION ONE) WILSON CSB ( 189 RECEIVED JR DEPARTMENT OF STATE GRAY Paris 1938 APR 7 PM 4 32 Dated April 7, 1938 Secretary of STATE Rec'd 2:40 p.m. Washington. 553, April 7, 6 p.m. (SECTION TWO) On the other hand it is probable that the owners are not displeased % the Embarrassment caused the Blum Government by 11:3 inability to settle the strike and are therefore content to SEE a settlement postponed until the advent of a new Government. On the other hand the lack of clear-cut demands on the part of the strikes and the apparent absence of serious grievances do not tend to attract popular sympathy to their cause. There are signs that many of the strikers would welcome a return to work, though the Left press charges that the movement to this End is insuired by the Patronat. A secret VOTE on strike continuation is reported to have been promised by the Ministry of Labor. While bitterness between opposing forces seems to bE increasing, no violence has as yet occurred. Meanwhile French national defense needs are naturally suffering. This morning's press publishes a declaration of 190 -2- #553, April 7, 6 p.m. (SECTION TWO) from Paris. of an organization of Engineers and technicians to the Effect that the occupation of the Messier factory (which is the sole manufacturer of certain indispensable airplane accessories) prevents the turning out of a single inilitary airplane until work is resumed. (END MESSAGE) WILSON CSB 191 HP JR GRAY Paris Dated April 8, 1938 Rec'd 9:25 a.m. Secretary of State, Washington. 561, April 8, 11 a.m. REference Embassy's 491, March 30, 1 p.m. The attacks on the Senate made by the Socialist paper POPULAIRE, referred to in the above telegram, bore fruit last evening when the Socialist Federation of the SEinE controlled by the Extreme LEft wing of the Socialist Party held a demonstration in front of the Senate. This demonstration was held despite the fact that permission to hold it was refused by Socialist Minister of the Interior Dormoy. BETWEEN 7 and 10,000 demonstrators participated and about 1200 police and gardes mobiles were called out by the President of the Senate under his constitutional authority in order to protect that body. The police were able to disperse the demonstrators with no more serious results than a number of fist fights and scuffles. POPULAIRE this morning criticizes the Federation of the SEine for calling the meeting on the grounds (1) that it did not consult the directing body of the party, 192 -2- #561, April 8, 11 a.m., from Paris. party, (2) the Minister of Interior is a Socialist and hE should at least have been informed of their intentions, and (3) that demonstrations should not bE hEld before a legislative body. WILSON RR:SMS 03413938 BEST \ \ 1. 193 PARTIAL PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, paris, France DATE: April 7, 1938, 4 p.m. NO.: 551 RUSH. FROM COGHRAN. Franc has weakened sharply today (from 159-7/8 to 162 1/2 by 4 o'clock) especially after appearance of the Bank of France statement as of March 31 stating this showed that Treasury had drawn on the bank to the extent of 1,900,000,000 francs, which means that 15,000,000,000 franc credit exhausted and 1,490,000,000 already drawn under the new 5,000,000,000 authorization. Note circulation 89? gained by 3,279,000,000 to reach a record height. Coverage 45.85 versus 46.81. Operators are worn out over French labor troubles and over threat of Socialist demonstration against the Senate whose finance committee is considering Blum financial plan this afternoon in preparation for the Senate debate Friday afternoon. The market is skeptical as to the ability of a Radical Socialist Government to make much headway in correct- ing the financial situation in view of labor troubles, polit- ical feuds and Treasury position as illustrated by the bank statement. Some operators are now speculating on an early fall of 10 francs against the pound, that is to around 170. I was 194 - 2 - I was told by the Bank of France at four o'clock this afternoon that the market was very thin today. The control was able to cover its requirements today. It is the opinion of my friend that this is due to rumor that tonight the Radical Socialist ministers may resign after vote in Senate Finance Committee in order to avoid the necessity of debating the bill in the Senate tomorrow andx which would result in upset of the Government. French foreign trade for March showed deficit of 1,296,000,000 francs as compared with 1,969,000,000 in February. This improvement resulted principally from diminution of imports. Since above message was prepared Senate Finance Committee has voted 25 to 1 against the Blum bill. WILSON. BECEIAED 6831 79A - sie - 1 EA: LWW 195 April 7, 1938 This is HM,Jr's program which he wrote while he was in Sea Island. april 7. 1938 196 THE CLOISTER SEA ISLAND, GEORGIA I 1. Pres. should carefully relxamine and lending present spendings program. 2. Pres, next should study where there are gaps in present program and how they can he filled in. 3. Pres. should then re-state whole spending programs to the country # " Re-Examine results of new (last years legislation and find out which harts are not working efficiently. Such as I.V.a. etc. Railroads Shum clearance and low cost housing should have small highly trusted grant meet twice a walk with Pres. to get these agencies straightened 197 THE CLOISTER SEA ISLAND, GEORGIA out. Kaping Public informed at as to any real hogress. III. amount to Public at once what Pres, considers necessary in additional reform. Keep this down to a minum. IV. all Publicity out of Washington to be carefully supervised. set up State Committees of Federal appointees to mut once a week to sell Federal Program in their harticular State. 198 Excerpt from Herman Oliphant's weekly report to the Secretary dated April 7, 1938: Cement. We checked invitations which Procurement sent to cement manufacturers covering cement requirements for all Government activities from May 1 to August 31. Bids are to be on an f.o.b. mill basis and prices bid are to be available to contractors on all projects financed in while or in part by the Federal Government. Justice and Federal Trade Commission are being kept advised of developments. CONFIDENTIAL COPY 199 4/7/38 E:SOPANDUM FOR THE PRESIDENT Res Tax-Exempts The Treasury has read to no a memorandum which they prepared for you stating their objection to the application of the so-called Glass amendment to existing tax-exempt securities. Of course the Glass amendment will serve no purpose if it is not applied to existing securities since your recommendations, if accepted, would do away completely with tax-exempt privileges 80 far as future securities are concerned. May I submit to you the following reasons in support of the Glass amendments 1. It is true that existing state and municipal bonds were sold on the basis of counsel's opinion that the income therefrom was exempt from taxation under the federal income tax laws. But it would be difficult to find any authoritative state- ment in the opinions of the counsel on the strangth of which such bonds were sold which asserts that income from tax-exempt bonds may not be taken into account in de- termining the rate of surtex applicable to income from taxable sources. The Glass smendment does not tax income from tex-exempt securities; it merely provides that the fact of its existence should not be ignored in determining the surtax rate on taxable income. 2. It is true that a number of individuals and trust estates will have to pay higher taxes by reason of the Glass amendment. But changes in the tax laws are con- stantly imposing new and frequently unexpected obligations upon texpayers. The fed- eral Government has never committed itself not to change the tax laws. Certainly, since the Glass amendment was first suggested in 1919, the purchasers and holders of tax-exempt securities have been on notice that the Congress by statute might pro- vide that the surtex rate on their income from taxable sources should take into ac- count the existence of tax-exempt income. 3. I know of no convincing evidence to justify the Treasury's fear that the Glass amendment will render large amounts of existing tax-exempt securities unat- tractive to their present owners. The Treasury's fear seems to be based on the assumption that the Glass amend- sent takes from existing tax-exempt securities virtually the whole value of their tax-exempt status. Although I have great respect for the opinion of the Treasury's experts, it seems to me that this assumption is unwarranted. Although the Glass amendment deprives the holders of existing tax-exempt securities of their right to evade the surtaxes on their income from taxable sources, it leaves them completely free of tax on their income from the tax-exempt securities themselves, and that is and remains a very valuable privilege. The value of that remaining privilege to the holders of existing tex-exempt securities will be enhanced by the fact that such privilege will have & growing scarcity value because it will be unavailable to the holders of future federal, state and municipal obligations. Although it 18 difficult to underwrite the temporary vagaries of the bond market there is in my judgment no reason to anticipate a prolonged decline in the value of existing tax-exempt securities by reason of the enactment of the Glass amendment. I understand that it is estimated that the complete removal of tax- exempt privileges will increase the yield on federal obligations approximately one-cuarter of one percent and the yield on state and municipal obligations about 6/10th of one percent. If this be the estimated effect of the complete removal of the tax-exempt privilege, it is difficult to believe that the Glass amendment should have serious, adverse effect on the market for existing tax-exempt securities, particularly in view of the growing scarcity value of such securities. There would be no tax advantage for holders to shift from existing tax-exempts into other high grade corporate bonds, and a shift by them into more speculative securities might even have a wholesome effect on the markets as a. whole. Existing tax-exempts would be as valuable to institutional buyers as they ever had been, and would become decidedly attractive to institutional buyers on any recession. 4/7/38 200 - 2 - As a matter of fact there is good reason to anticipate that a number of holders of existing tax-exempts will find it profitable to increase their holdings of exist- ing tax-exempts so as to reduce the amount of their income from taxable sources which, by reason of the Glass amendment, becomes taxable in the higher brackets. It must be borne in sind that under the Glass amendment as individual or trust estate which derives the whole of its income from existing tax-exempt securities will be entirely free from the federal income tax. My dear Mr. President: In the letter to you of March 28, 1936, it was stated as the position of the Treasury that there should be recommended no legis- lation affecting outstanding tax-exempt securities, even to the limited extent of requiring that tax-exempt income be taken into account for the purpose of fixing the surtax applicable to taxable income. Thes letter did not state the reasons for this position of the Treasury. By direction of Secretary Morgenthau I am outlining these reasons be- low. They are: (1) Such outstanding securities were purchased by their holders with the understanding, buttressed by judicial decision, that the income from such securities would not become the basis for any texation. Indeed, Federal legislation has, since 1913, expressly exempted state issues. Trusts, estates, and other fiduciaries, among the other types of investors, hold these securities in their protfolios upon this understanding. This understanding, whether resting on Federal legislation or judicial decisions, should not be violated. (2) There is no present impelling reason, as there was in the case of the gold legislation, for a modification of contract with holders of outstanding securities, in so far as tax exemption is concerned. The evils resulting from tax exemption will be remedied, as to the bulk of these securities, in a comparatively short period of time by confining the removal of exemptions to securities issued in the future. The arguments for completely eradicating this evil at the present moment seem to no to be far outweighed by the challenge that a solemn promise has been breached. (3) New issues of state and municipal bonds are coming out at about a billion and a quarter dollars a year, and the market is adjusted to absorbing these issues and a moderate amount of trading in old issues. Should presently outstanding securities be made the basis of taxation, a total volume of perhaps $5 or $9. billions of such securities would become unattractive to their present holders. Secretary Morgenthau, Mr. Taylor, Mr. Oliphant and I are in agreement that the liquidation of any considerable part of such a volume of securities --- amounting to over six years' gross new issues at the present rate --- would so seriously disturb the state and municipal bond market that it would be years before its equilibrium would be regained. This difficulty would not arise, however, should the 10 Orig. by special messenger to Wite House- 4/7/38 - 4:20 P.M. 2 c.-Oliphant at Sea Is.-Ga. 1 0.-Secy. M. FILE COPY - 2 - removal of tax exemption be applied to future issues only, while all of the expected advantages would be attained within a reason- able period with a minimum of disturbance to the economic structure, If your final thought is to recommend taxation of future issues only, the last paragraph and the quotation on page 5 of the last draft of the proposed message should be cmitted. May I also call your attention to the statement on page 4 of the draft of the message that "For more than twenty years an unbroken line of Secretaries of the Treasury has reported to Congress the growing evils of these tax exemptions." I find that such reports have been mde to Congress by Secretaries Glass, Houston, Mellon and Morgenthau only, but not by Secretaries Mills and Woodin. I suggest, therefore, that the passage be revised to read as follows: "Yor more than twenty years the growing evils of tax-exempt securities have caused grave consern to the Treasury. Secretaries Glass, Houston, Mellon and Morgenthau have all recommended to Congress that these evils be eradicated." Faithfully yours, Under Secretary. The President The White House RM/mrl retyped 4/7/38 a.m. FILE COPY 203 APR 1938 My dear Mr. President: In the letter to you of March 25, 1938, it was stated as the position of the Treasury that there should be recommended no legis- lation affecting outstanding tax-exempt securities, even to the limited extent of requiring that tax-exempt income be taken into account for the purpose of fixing the surtex applicable to taxable income. This letter did not state the reasons for this position of the Treasury. By direction of Secretary Morgenthau I an outlining these reasons be- low. They are: (1) Such outstanding securities were purchased by their holders with the understanding, buttressed by judicial decision, that the income from such securities would not become the basis for any texation. Indeed, Federal legislation has, since 1913, expressly exempted state issues. Trusts, estates, and other fiduciaries, among the other types of investors, hold these securities in their pestfolios upon this understanding. This understanding, whether resting on Federal legislation or judicial decisions, should not be violated. (2) There is no present impelling reason, as there was in the case of the gold legislation, for a modification of contract with holders of outstanding securities, in so far as tax exemption is concerned. The evils resulting from tax exemption will be remedied, as to the bulk of these securities, in a comparatively short period of time by confining the removal of exemptions to securities issued in the future. The arguments for completely eradicating this evil at the present moment seen to - to be far outweighed by the challenge that a selemn promise has been breached. (3) New issues of state and municipal bonds are coming out at about a billion and a quarter dollars a year, and the market is adjusted to absorbing these issues and a moderate amount of trading in old issues. Should presently outstanding securities be made the basis of taxation, a total volume of perhaps $6 or $9 billions of such securities would become unattractive to their present holders. Secretary Morgenthau, Mr. Tayler, Mr. Oliphant and I are in agreement that the liquidation of any considerable part of such a volume of securities --- amounting to over six years' gross new issues at the present rate --- would so seriously disturb the state and municipal bond market that it would be years before its equilibrium would be regained. This difficulty would net arise, however, should the 204 - 2 - removal of tax exemption be applied to future issues only, while all of the expected advantages would be attained within a reason- able period with a minimum of disturbance to the structure. If your final thought is to recommend texation of future issues only, the last paragraph and the quotation on page , of the last draft of the propesed measage should be cuitted. May I also call your attention to the statement en page 1 of the draft of the message that "For mee than twenty years as unbroken line of Secretaries of the Treasury has reported to Congress the growing evile of these tax exemptions." I find that such reports have been made to Congress by Secretaries Glass, Houston, Hollon and Morgenthau only, but not by Secretaries Mills and Woodin. I suggest, therefore, that the passage be revised to read as follows: "Yes more than twenty years the growing evils of tax-emupt securities have caused grave contern to the Treasury. Secretaries Glass, Houston, Mellon and Morgenthau have all recomended to Congress that these evils be eradicated." Faithfully yours, (Signed) Roswell Magill Under Secretary. The President The White House RM/mrl retyped 4/7/38 a.m. TO THE CONGRESS OF THE UNITED STATES: 20s 205- (COPY) The Sixteenth Amendment to the Constitution of the United States, approved in 1913, expressly authorized the Congress "to lay and collect taxes on incomes, from whatever source derived." That is plain language. Fairly construed this language would seem to authorize taxation of income derived from state and municipal, as well as federal bonds, and also income derived from state and municipal as well as federal offices. The reciprocal tax-immunity accorded such income was conceived when the nation was young to strengthen weak government finance and to protect the federal system. Today, however, it constitutes a serious menace to the fiscal systems of both the states and the nation. Both the states and the nation are deprived of revenues which could be raised from those best able to supply them. Neither the federal government nor the states receive any adequate, compensating advantage for the reciprocal tax- immunity accorded to income derived from their respective obligations and offices. 206 206 -2- In recent years both the federal government and the states have come to rely increasingly upon graduated income taxes for their revenues. In recent years the rapid expansion of federal and state activities has resulted in the issuance of an increased volume of tax-exempt securities and in the creation of an increased number of state and federal officers and employees who claim special tax-exemption. Tax-exemption which was once an inequity of relatively slight importance has become a most serious defect in the fiscal systems of the states and the nation. Fundamentally our tax laws are intended to apply to all citizens equally. That does not mean that the same rate of income tax should apply to the very rich man and to the very poor man. Long ago the United States, through the Congress, accepted the principle that citizens should pay in accordance with their ability to pay, and that identical tax rates on the rich and on the poor actually worked an injustice to the poor. Hence the origin of progressive surtaxes on personal income as the individual personal income increases. During the past few years we have become conscious 3 - 207 more and more of the simple fact that these progressive sur- taxes, established by the Congress to carry out a principle, were being avoided by various methods. Loopholes in the tax laws and the use of corporate devices give to hundreds of individuals the chance to escape the letter of the law, even though in so doing they were failing to carry out the spirit of the law. Tax exemptions through the ownership of government securities of many kinds - federal, state and local - has operated against the fair or effective collection of progressive surtaxes and has, therefore, violated the spirit of the tax law itself. Actually, in operation, it has given a greater advantage to those with large incomes than to those with small incomes. Therefore, I lay before the Congress the statement that a fair and effective progressive income tax and a hugh perpetual reserve of tax-exempt bonds cannot exist side by side. Men with great means best able to assume business risks have been encouraged to lock up substantial portions 208 -4- of their funds in tax-exempt securities. Men with little means who should be encouraged to hold the relatively secure obligations of the federal and state governments have been obliged to pay a relatively higher price for those securities than the very rich because the tax-immunity is of nuch less value to them than to those whose incomes fall in the higher brackets. For more than twenty years an unbroken line of Secretaries of the Treasury has reported to the Congress the growing evils of these tex-exemptions. Economists generally have regarded them as wholly in- consistent with any rational system of progressive taxation. I do not think the Congress should feel obliged to wait upon the realization of the cumbersome and doubtful remedy usually proposed for this evil, namely, a. constitutional amendment. These tax-immunities are not inexorable requirements of the Constitution. The present un- fortunate situation is the product of adjudication and adjudication can correct it. More than one hundred years ago doubts and difficul- ties attending these immunities were expressed by members of the Supreme Court, and in recent years the underlying assumptions 209 -5- of the doctrine have been impressively questioned by the Court itself. The doctrine was originally evolved out of a totally different set of economic circumstances from those which are now dominant. It is a familiar principle of law that rules of law lose their binding force when the reasons which gave rise to the rules no longer exist. I, therefore, recommend to the Congress that effective action be promptly taken to terminate these tax-exemptions for the future. The legislation should confer the same powers on the States with respect to the taxation of federal bonds hereafter issued as is granted to the federal government with respect to state and municipal bonds hereafter issued. I suggest also legislation which will authorize that tax- exempt income be taken in account in fixing the surtax applicable to taxable income. As Secretary of the Treasury Carter Glass stated in his report for the fiscal year of 1919: "It is intolerable that taxpayers should be allowed, by purchase of exempt securities, not only to obtain exemption with respect to the income derived therefrom, but to reduce the super- taxes upon their other income, and to have the supertaxes upon their other income determined upon the assumption, contrary to fact, that they are not in possession of income derived from state and municipal bonds." 210 -6- The same principles of just taxation apply to tax- exemptions of official salaries. The federal government does not now levy income taxes on the hundreds of thousands of state, county and municipal employees. Nor do the states, under existing decisions, levy income taxes on the salaries of the hundreds of thousands of federal employees. Justice in a great democracy should treat those who earn their livli- hood from government in the same way as it treats those who earn their livlihood in private employ. I recommend, therefore, that the Congress enact legis- lation ending tax-exemption on government salaries of all kinds, conferring powers on the states with respect to federal salaries and powers to the federal government with respect to state and local government salaries. The ending of tax-exemption, be it of government securities or of government salaries, is a matter, not of politics, but of principle.