Volume 275, June 21 – June 25, 1940

DIARY Book 275 June 21 - 25, 1940 - A - Book Page Afghanistan See War Conditions American Potash Chemical Company Federal Bureau of Investigation report acknowledged - - 6/25/40 275 386 Appointments, Division of See Personnel, Division of Appointments and Resignations Chamberlain, Joseph P.: Considered in connection with Foreign Funds Control: Discussion at 9:30 meeting - 6/24/40 195,203,210 - B - - Banca Credito Italiana Federal Bureau of Investigation report acknowledged - 6/25/40 386 Banque Francaise Italienne See War Conditions: Foreign Funds Control Belgium See War Conditions: Foreign Funds Control Bendix Aviation Corporation - Bendix Products Division Federal Bureau of Investigation report acknowledged - 6/25/40 386 Brazil See Latin America Business Conditions Haas memorandum on situation for week ending June 22, 1940 180 - C - Chamberlain, Joseph P. See Appointments and Resignations China See War Conditions Coffee Conference; present: H/Jr, White, Hansen, Foley, Bell, and Viner - 6/24/40 143 a) Henderson and Miss Elliott should be included on future talks: HMJr's opinion - 6/24/40 205 1) Viner does not agree since "neither one knows anything" Colombia See Latin America Communist Party Federal Bureau of Investigation reports acknowledged - 6/25/40 386 Customs, Bureau of HMJr tells Treasury group Basil Harris is away so much he is putting Customs under Gaston, effective July 1st - 6/24/40 79 Regraded Unclassified - D - Book Page Defense Financing of: Cur memorandum for FDR, together with Sullivan's Bell's comments thereon - 6/22/40 275 40 Graves memorandum on system of special stamps "so that taxpayers may know that specified portion of taxes goes directly to national defense" - 6/24/40 84 a) Foley memorandum on scope of Treasury authority to assist in program for national defense by exercising powers conferred by internal revenue laws (12/12/39) 90 b) Gaston disapproves of "Defense Tax Paid" stamp - 6/24/40 217 1) HMT disagrees 100% Conference; present: Bell, Gaston, Viner, and White - 6/24/40 101 a) Disadvantages of use of stamps listed - F - Fiscal Policy Currie memorandum for FDR, together with Sullivan's and Bell's comments thereon - 6/22/40 40 Ford, Edsel Ford, Henry See War Conditions: Airplanes (Engines) Foreign Funds Control See War Conditions France See War Conditions: Airplanes; Foreign Funds Control; France - G - Gold See also War Conditions: Afghanistan; France Puhl (head of Reichsbank) comments on the place of gold in any future currency settlement - 6/23/40 77 Great Britain See War Conditions: United Kingdom - I - Iran See War Conditions: Foreign Funds Control (Belgium) Italy Banca Credito Italiana: Federal Bureau of Investigation report acknowledged - 6/25/40 386 - J - Japan Federal Bureau of Investigation reports acknowledged - 6/25/40 386 - L - Book Page Latin America Dirigible transport service between United States and Latin America suggested by Edison - 6/25/40 275 368 a) Edison's letter - 6/21/40 428 1) Treasury acknowledges - 6/25/40 425 Surplus crop problem discussed by HMJr, Wallace, Milo Perkins, and White - 6/25/40 430 Brazil: Anglo-Brazilian payments agreement - 6/25/40 408 Colombia: Welles tells HMJr Traphagen (Foreign Bondholders Protective Council) and Colombians have practically completed negotiations; Welles asks HMJr to sit in on final conference. - 6/25/40 372 a) Conference; present: HMJr, Bell, White, and Duggan 377-A 1) Memorandum attached 377-I b) HMJr and Jones discuss - 6/26/40: See Book 276, page 109 Liaison Committee See War Conditions: United States - M - Mexico Subversive activities: General Staff, War Department, provides report 420 a) Treasury acknowledges - 6/25/40 417 - N - Nelson, Donald HMJr feels that, since proposed Executive Order gives him no authority but leaves him in an advisory capacity only, situation will be impossible - 6/25/40 383 - P - Paul, Randolph Currie praises highly to FDR and suggests that Paul be "used by the New Deal" 66 Personnel, Division of Present Division of Appointments becomes Division of Personnel under Treasury Appropriations Act, 1941-1942 - 6/24/40 198 a) HMJr wants to appoint Director; tells Bell, Graves, and Thompson to consult him before deciding 1) Brownlow and Bartelt discussed Poland See War Conditions: Foreign Funds Control Potash American Potash Chemical Company: Federal Bureau of Investigation report acknowledged - 6/25/40 386 - R - - Revenue Revision Book Page Currie memorandum for FDR, together with Sullivan's and Bell's comments thereon - 6/22/40 275 40 - S - Soong, T. V. See War Conditions: China - T - Tanks See War Conditions Taxation See also Revenue Revision Graves memorandum on system of special stamps "so that taxpayers may know that specified portion of taxes goes directly to national defense" - 6/24/40 84 a) Foley memorandum on scope of Treasury authority to assist in program for national defense by exercising powers conferred by internal revenue laws (12/12/39) 90 b) Gaston disapproves of "Defense Tax Paid" stamp - 6/24/40 217 1) HMJr disagrees 100% Conference; present: Bell, Gaston, Viner, and White - 6/24/40 101 a) Disadvantages of use of stamps listed Turkey See War Conditions: Foreign Funds Control - U - - United Kingdom See War Conditions United States See War Conditions United States Securities See War Conditions: France - II - War Conditions Afghanistan: State Department--Federal Reserve Bank of New York-Turkish Ambassador correspondence and conversations with regard to earmarking gold for the account of Afghan Government - 6/21/40 10,152 Airplanes: Bombers: Progress report on delivery as provided by Stettinius - 6/22/40 347 a) Treasury acknowledgment - 6/25/40 343 Regraded Unclassified - WE - (Continued) Book Page har Conditions (Continued) Airplanes (Continued): Engines: Allison: Test results reported by Sloan to HMr to FDR - 6/21/40 275 2 Ford, Edsel) : Ford, Henry) Knudsen reports to Har on 1}-hour conversation - 6/24/10 222,255 a) Ford Motor Company will make 10,000 motors for United States but nothing for Allies; Knudsen suggests talking to someone else 1) Anglo-French Purchasing Board states it has never bought anything from Ford in the United States; has, however, from Ford in Canada 223 2) hard's (J. Carlton) report on Ford attitude 255 3) Purvie told of Knudsen's talk with the Fords - 6/25/40 253,265 Hispeno-Suise: Rights for manufacturing now owned by Matford, of which Dolfuse is president; Dolfuse has ceded rights to Ford Motor Company through Henry and Edsel Ford; doubt expressed whether any French authority is in position to trensfer license to United States Government - 6/23/40 11/ Rolls Royce: Discussion between Meed and "Rolls Royce lawyer" talked over by 9:30 group; H&Jr ennounces he will sccept reports only from Beaverbrook to Kennedy to him - 6/24/40 215 HMJr informs Kennedy he has turned over only plans for Rolls Royce Merlin engines III, X, and XX; will hold balance of plans in custody until word is received from Beaverbrook through Kennedy - 6/24/40 224 s) Boaverbrook's reply through Kennedy 254 France: Shipment from United States rerouted after downfall: Kennedy en ssked for information - 6/24/10 115 American Consul, Casablance, Morocco, asked concerning arrival - 6/25/20 342 a) Report from Casablanca - 6/26/40: See Book 276, page 278 hard, J. Corlton: Comment on Ford (Henry and Edsel) attitude 255 Report - (6/14/40) 325 Regraded Unclassified - TW - (Continued) Mar Conditions (Continued) Book Page Ohina: Soong visit: Customs courtesies (Honolulu and San Francisco) and bodyguard asked for - 6/21/40 275 28 Exchange market resume - 6/21/40, et cetera 18,67, 177,354 Foreign Funds Control: Banque Francaise Italienne: Status (whether it is Italian or French) discussed by Leroy-Beaulieu and Cochran - 6/24/40 230 Belgium: Nationals in Iran: Procedure with regard to release of certain funds - 6/21/40 24 Poland: Financial Attache tells Cochran blocking of Polish assets in United States nine months ago would have been welcomed; he, however, sees no merit in blocking now that assets are comparatively low - 6/21/40 15 France: Release of funds to pay French Pavilion, World's Fair - 6/21/40 38 State Department and British Embassy discuss disposition of French assets in United States; withdrawal of recognition of Petain government by United States; assets in Ottawa, London, and on the high seas; blocking by Canada of warship carrying gold ordered to Martinique; et cetera - 6/24/40 192 a) Welles' letter giving background of Treasury consultations before State Department discussed status of administration with regard to freezing of French assets - 6/25/40 268 1) Hull-HMJr conversation 370 2) Welles-HMr conversation 374 Turkey: Bank of England discusses status of Ottomen Bank with Knoke (Federal Reserve Bank of New York); explains that bank is Turkish and, 86 authorized dealer in London, is important part of British exchange control - 6/21/40 20 France: Fournier gives positive assurance all gold (except scattered small amounts) has left French ports - 6/21/40 13 J. P. Morgan representative and Leroy Beaulieu discuss supporting French Government bonds on New York market - 6/21/40 14 Ships (French) in United States ports: Status discussed at Treasury conference - 6/24/40 78,273,338 a) Secretary of Treasury's powers discussed at 9:30 meeting - 6/25/40 369 HMJr's memorandum to FDR suggesting that "a number of top-flight aviators, engineers, etc., be brought to United States to assist War and Navy Departments" - 6/24/40 108 - W - (Continued) Book Page War Conditions (Continued) France (Continued): American securities in Bordeaux for which there is no time to destroy: Treasury advises method of quick destruction with chemicals - 6/24/40 275 164,366,415 a) Treasury's instructions to Bordeaux - 6/26/40: See Book 276, page 145 1) Reply - 6/26/40: See Book 276, pages 218 and 245 State Department and British Embassy discuss disposition of French assets in United States; withdrawal of recognition of Petain government by United States; assets in Ottawa, London, and on the high seas; blocking by Canada of warship carrying gold ordered to Martinique; et cetera - 6/24/40 192 a) Welles' letter giving background of Treasury consultations before State Department discussed status of administration with regard to freezing of French assets - 6/25/40 268 1) Hull-HMJr conversation 370 2) Welles-HMJr conversation 374 Bank of France cancels right to draw on Federal Reserve Bank of New York accounts granted on May 22nd to Messrs. Martial and J. de Sieyes - 6/25/40 349 Germany: Puhl (head of Reichsbank) comments on place of gold in any future currency settlement - 6/23/40 77 Tanks: Monnet asked to send a B-1 Bis with two specialists to demonstrate to Aberdeen Proving Grounds - 6/21/40 7 United Kingdom: Military Situation: Reports from London transmitted by Lothian - 6/21/40, etc. 30-A; 120-A,J,O United States: Liaison Committee: Canadian machine tool purchases in United States being reported to Knudsen direct; Philip Young feels this is setting a dangerous precedent - - (6/26/40) 348 Surplus Materiel: Navy lists various items and prices thereof (machine guns, rifles, et cetera) - 6/24/40. 105 United States Securities: See War Conditions: France Ward, J. Carlton See War Conditions: Airplanes Woodruff, Robert Hijr consults Ransom concerning - 6/25/40 380 Note: 1 The Secretary telephoned this telegram to me at 4:15 this afternoon. I callofor Mr. Rodier but he had gone home and Mr. McMullen was in the telegraph room at the White House. He told me he would get it right off. It was sent to the White House at 4:25 p.m. McH June 21/40 TELEGRAM June 21, 1940. PRESIDENT ROOSEVELT HYDE PARK, N. Y. MR. ALFRED SLOAN OF GENERAL MOTORS TELEPHONED ME THE FOLLOWING FACTS ABOUT THE COMPLETED TEST OF THE ALLISON ENGINE ON THE NEWLY DESIGNED TEST STAND STOP THE ENGINE COMPLETED ONE HUNDRED HOURS OF TEST AND DEVELOPED NINE HUNDRED THIRTY FIVE HORSEPOWER AT TWENTY seven HUNDRED REVOLUTIONS STOP MR. SLOAN SAID THAT BE WAS SATISFIED WITH THIS TEST AND IS NOW GOING TO PROCEED WITH ANOTHER TEST OF THE SAME ENGINE HOPING TO DEVELOP ONE THOUSAND AND TWENTY FIVE HORSEPOWER AT THREE THOUSAND REVOLUTIONS STOP THIS ENGINE IS SUPPOSED TO DEVELOP ONE THOUSAND AND FIFTY HORSEPOWER STOP MR. SLOAN INFORMED ME THAT HE WAS PLEASED AT THE PROGRESS THEY WERE MAKING AND HOPED TO BE ABLE TO INFORM ME IN TWO OR THREE DAYS TIME THAT THEY WERE PREPARED TO PLACE THE STAMP OF APPROVAL OF GENERAL MOTORS ON THIS ENGINE HENRY MORGENTHAU, Jr. Regraded Unclassified TELEGRAM June 21, 1940. PRESIDENT ROOSEVELT HYDE PARK, 1. Y. MR. ALFRED SLOAN OF GENERAL MOTORS TELEPHONED ME THE FOLLOWING FACTS ABOUT THE COMPLETED TEST OF THE ALLISON ENGINE ON THE NEWLY DESIGNED TEST STAND STOP THE ENGINE COMPLETED ONE HUNDRED HOURS OF TEST AND DEVELOPED NINE HUNDRED THIRTY FIVE HORSEPOWER AT TWENTY SEVEN HUNDRED REVOLUTIONS STOP MR. SLOAN SAID THAT BE WAS SATISFIED WITH THIS TEST AND IS NOW GOING TO PROCEED WITH ANOTHER TEST OF THE SAME ENGINE HOPING TO DEVELOP ONE THOUSAND AND TWENTY FIVE HORSEPOWER AT THREE THOUSAND REVOLUTIONS STOP THIS ENGINE IS SUPPOSED TO DEVELOPI ONE THOUSAND AND FIFTY HORSEPOWER STOP MR. SLOAN INFORMED ME THAT HE WAS PLEASED AT THE PROGRESS THEY WERE MAKING AND HOPED TO BE ABLE TO INFORM ME IN TWO OR THREE DAYS TIME THAT THEY WERE PREPARED TO PLACE THE STAMP OF APPROVAL OF GENERAL MOTORS ON THIS ENGINE HENRY MORGENTHAU, Jr. Regraded Unclassified TELEGRAM 4 June 21, 1940. PRESIDENT ROOSEVELT HYDE PARK, N. Y. MR. ALFRED SLOAN OF GENERAL MOTORS TELEPHONED ME THE FOLLOWING FACTS ABOUT THE COMPLETED TEST OF THE ALLISON ENGINE ON THE NEWLY DESIGNED TEST STAND STOP THE ENGINE COMPLETED ONE HUNDRED HOURS OF TEST AND DEVELOPED NINE HUNDRED THIRTY FIVE HORSEPOWER AT TWENTY SEVEN HUNDRED REVOLUTIONS STOP MR. SLOAN SAID THAT HE WAS SATISFIED WITH THIS TEST AND IS NOW GOING TO PROCEED WITH ANOTHER TEST OF THE SAME ENGINE HOPING TO DEVELOP ONE THOUSAND AND TWENTY FIVE HORSEPOWER AT THREE THOUSAND REVOLUTIONS STOP THIS ENGINE IS SUPPOSED TO DEVELOP ONE THOUSAND AND FIFTY HORSEPOWER STOP MR. SLOAN INFORMED ME THAT HE WAS PLEASED AT THE PROGRESS THEY WERE MAKING AND HOPED TO BE ABLE TO INFORM ME IN TWO OR THREE DAYS TIME THAT THEY WERE PREPARED TO PLACE THE STAMP OF APPROVAL OF GENERAL MOTORS ON THIS ENGINE HENRY MORGENTHAU, Jr. Regraded Unclassified DORESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D. c. 5 DEPARTMENT OF STATE WASHINGTON June 21, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses one copy of paraphrase of telegram No. 46 of June 20 from Bordeaux. 10 THE RECUELVHA ДЕСНИКУГ 301140 é - DNC 701 51 bill IS 03 IBEVENSA BECEINED DELIVERENT Derl 6 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, (Paris) Bordeaux DATE: June 20, 1940, 6 p.m. NO.: 46 The following 1s for the Treasury Department from Matthews, and is strictly confidential. Reference is made to telegram of June 19, 9 p.m., No. 17, from the Department. I delivered your message to Governor Fournier and he expressed his appreciation for it. The Governor gave me the most definite assurances that except for the scattered small amounts (referred to in my telegram of June 18, 4 p.m., No. 21) totaling about 300,000,000 francs, all gold has already gone out of French ports. During the recent past about thirty billion francs has been shipped out of the country. The equivalent of about ten billion Francs of Belgian gold has left for the British Isles. The destination of the French gold the Governor could not give me, he said, but I understand confidentially that it 18 Casablanca; the Governor suggested that I get in touch with Boutillier and ask him, and I am making an effort to locate him now. or BIDDLE. 0021 EA:LWV 7 June 21. 1940 Dr. Feis Mr. Coohran will you kindly send the fellowing cablegram: "Aserican Imbusoy (Paris) Bordeaux Strictly Confidential from Secretary Morgenthan The Anglo-French coordinating committee has requested of Monnet that a 3-1 Bis tank, together with two specialists to demenstrate it, be sent to the United States Army, Abordeen Proving Grounds, Maryland. It is desired that Fresch Government expedite shipment." just Regraded Unclassified DORESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. 8 DEPARTMENT OF STATE WASHINGTON June 21, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses one copy of paraphrase of telegram No. 20 of June 20 sent to the American Embassy, (Paris) Bordeaux. 10 THE TECHNICYC DENIOS OF Bite non SI bill 5 31 9 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, (Paris) Bordeaux DATE: June 20, 1940, noon NO.: 20 FROM SECRETARY MORGENTHAU. I refer to your telegram of June 16, No. 6 from Bordeaux. The Government of the United States has been granted license by the British Government for manufacturing Rolls Royce engines, the royalties to be arranged after the war is over. It is our hope that the same procedure regarding Hispano Suiza engines will be followed by the French Government. This is very important, in our opinion. MEDEINED BIGAL WELLES et SI MR Acting YEAT (HF) TWO 10 THE LECHNICY HE 20 VIII St bill S 31 BECEINED EA:LWV TREASURY DEPARTMENT 10 INTER OFFICE COMMUNICATION DATE June 21, 1940 Secretary Morgenthau STRICTLY CONFIDENTIAL DM Mr. Cochran Mr. Livesey telephoned to me from the Department of State yesterday after- noon to the effect that Mr. Merriam, of the Near Eastern Division of that Department, had written a memorandum of & visit on the part of the Turkish Ambassador, who stated that the Commercial Representative in New York of the Afghan Government desired to purchase 50,000 ounces of gold in New York and hold this amount under earmark. Mr. Livesey recalled the exchange of views which we had some months ago when the Banke Millie Afghan took up this question of gold earmarking. I confirmed to Mr. Livesey the Treasury view as expressed at that time that application should be made directly with the Federal Reserve Bank of New York. I told Mr. Livesey that the Turkish Embassy, which represents Afghen interests in Washington, could appropriately pass this information on to the Afghan Commercial Representative in New York. Upon terminating this conversation, I telephoned Mr. Knoke. He told me that he had just written a memorandum upon the above subject. A copy thereof has been received this morning and is attached. There is nothing further for the Treasury to do in the premises, pending the provision by the Afghanistan Representative of the information desired by the Federal Reserve Bank at New York. I am providing Mr. Livesey with a copy of Mr. Knoke's menorandum. JM.X C. = 60M 4-40 FEDERAL RESERVE BANK me OF NEW YORK FFICE CORRESPONDENCE DATE June 19, 1940. Files SUBJECT: Banke Millio Afghan and DM L. We Knoke Afghan Government. Mr. Mohammad Omar, 226 West 26 Street, New York City, Telephone: Chickering 4 0778, called today with reference to exchange of cablegrams in February of this year between the Legation of Afghanistan in Paris through the American Embassy in Paris and our Treasury, also to correspondence between National City Bank of New York and the Banke Millie Afghan in March of this year. All this correspondence dealt with the acquisition by the Banke Millie Afghan or by the Afghan Government of gold in this country and its earmark in New York Mr. Omar claims that he represents the Ministry of Economy and also the Banke Millie Afghan of which he says he is a director. He does business in New York in the name of the Afghan Commercial Agency at the above address. Mr. Omar reported that the Afghan Government wants to buy in this country 50,000 ounces of gold and hold them under earmark in New York. He stated his instructions were to try and complete the acquisition of gold and arrange for its earmark. Mr. Omar had asked the Turkish Ambassador on June 18 to approach the State Department in this matter, I explained to Mr. Omar that the Turkish Ambassador would presumably be referred to the Treasury which in turn would refer him to this bank as fiscal agent. I pointed out that as regards sarmarking this bank generally prefers to earmark for account of a central bank rather than for account of a foreign government although in iselated Regraded Unclassified c. 32 60M 4-40 FEDERAL RESERVE BANK 12 OF NEW YORK FFICE CORRESPONDENCE DATE June 19, 1940. Files SUBJECT: Banke Millie Afghan and M L. We Knoke Afghan Government. 2 cases we had in the past agreed to earmarking for foreign governments of countries where there was no central bank in existence. I con- tinued that before we could determine what the status was of the Banke Millie Afghan we would like to have its status: and a late balance sheet (both in English) and also some information on Afghan- istan's international trade, particularly its trade with this country. Mr. Omar replied that he had some of the necessary information available R/ in his office here and for the rest he would cable to his London branch or to Afghanistan. He will communicate with me further in due course. LWK:KW Regraded Unclassified 13 Regraded Unclassity June 21, 1940 Dear Mr. Enclos In confirmation of our conversation by telephone, I have pleasure is informing you that a cablegram was dispatched w the State Department at 9 p.m. on June 19, 1940. under #17, to the American Embasey at Bordeaux, in which the Treasury Department instructed Mr. Matthews as follows: *Please inform Governor Fournier that at the direction of the Treasury Department the Federal Reserve Bank of New York has credited the Ordinary account of the Bank of France with two hundred twenty nine million four handred ninety seven thousand one hundred ninety SOVER dollars and sixty five cents, representing 95% of the value of the gold shipment." A message, #46, emassting from the American Labassy at Bordeaux and dated 6 p.a. ims 20, 1940. has today been received wherein Mr. Matthews refers to the above-mentioned cablegram #17 of June 19, 9 p.m. and states: "I delivered your meage to Governor Fournier and he expressed his approdiation for 18.8 Very truly yours, BMP. I. Merle Coshrea Technical Assistant to the Secretary Mr. L. V. Knoke, Vise President, Federal Reserve Bank of New York, 33 Liberty Street, New York, I. 1. TREASURY DEPARTMENT 14 INTER OFFICE COMMUNICATION DATE June 21, 1940 Secretary Morgenthau STRICTLY CONFIDENTIAL Mr. Cochran Mr. Atkins, of J. P. Morgan and Company, New York, telephoned me yesterday afternoon. He stated that he had just talked with Mr. Leroy-Besuliou, Financial Counselor of the French Embassy, in regard to supporting French Government bonds on the New York market. In the past, J. P. Morgan and Company have bought such bonds for the sinking fund. The idea was being considered yesterday of buying some eight or ten thousand dollars of these bonds to offer some elight support on the declining market therefor. Mr. Atkins wanted to know if the Treasury would approve such an operation. In answer to my inquiry, Mr. Atkins stated that Morgan's had instructions dated some time ago, authorizing them to purchase French Government bonds on the New York market when the price therefor goes below the level at which they are authorized to purchase them for the sinking fund. In the past, it has been the practice of Morgan's to sell france to acquire the dollars for this purpose. In present circumstances, the dollar account of the Bank of France would be charged with the amount spent in purchasing the bonds. When I remarked that it was already four o'clock in New York and presumably too late for any market transactions, Mr. Atkins agreed that it vas not urgent that a decision be given at once. Consequently, I told him to make the routine application for a license through the Federal Reserve Bank at New York. I promised that the Treasury Department would give prompt consideration to the application, and even reply by telephone, in the event that a quick decision was necessary to permit Morgan and Company to know whether or not they could carry out the supporting operations. Mr. Atkins also raised a question as to how funds could be transmitted by "Friends of France" to support the ambulance corps in France in which Miss Ann Morgan is so active. Again I told Mr. Atkins that the Federal Reserve Bank of New York should be consulted on this technical question, which would in turn solicit the advice of the Treasury, if this might be required. 1001. 15 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 21, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Nr. Zoltowski, Polish Financial Attache, called on me at 11 o'clock today by appointment. He stated that action on our part would have been welcome if we had seen fit to block Polish assets in this country some nine months ago. Since this action was not taken at that time, and since Polish assets are now comparatively low in this country and so distributed and placed that it would be difficult for Germany to get hold of them, he sees no merit in blocking at this late date. If the question should arise, he would be happy to come in and discuss it with us and hopes that any definite action would be delayed pending such a discussion with him. Mr. Zoltoweki returned from a visit to Europe only e. few days ago. He had been astounded to find the unpreparedness that existed in both England and France as late 8.8 April and early May and the almost complete lack of realization of the danger that BO immediately confronted these two countries. Be gave a long story of the usual peacetime political intrigue in France, which continued right up to the evacuation of Paris. B.M.S. Regraded Unclassified 16 REP GRAY (Paris) BORDEAUX Dated June 21, 1940 Rec'd 1:45 name, June 22 Secretary of State Washington TRIPLE PRIORITY 51, June 21, 11 a.m. FOR THE TREASURY FROM MATTHEWS. The Bank of France has asked DE to request you to transmit the following message in its special code to the Federal RESERVE Bank of NEW York in view of the fact the Bank-of France cables do not appear to bE getting through "XOOST DUPOH AFZOC ADNIG INCAS ZULKY YGREV YERUJ XOXEW XIRHY BIRUV EZIHO ODIME EULUH ALOIN DIDPI KAHDY AFSYT XOOST XOPED IWWAY FRAEN ICIOG ZUGPI ZUATS ZOTUH XUBYS BIRUV EZIHO BAVAP EWTAT BULEB OKXIE WOYJA YAKYR ID signed Banfra, The Bank of France informs me that the foregoing concerns primarily the transfer of $4,323,128.73 from the Bank's account with the Federal RESERVE to theCredit of J. P. Morgan & Company If for the sinking fund and coupon provision accounts (?) per and 71. This transfer is being made against payment by Morgan Et Compagnie, Paris -2- #51, June 21, 11 a.m. from Bordeaux 17 Paris of the Equivalent at 43.90 or francs 189,785,351.50 and shows the wish of the French authorities to maintain their credit standing in the United States (only a small proportion of the bonds are hEld in the United States.) BIDDLE EMB TOW INT OF YEARS INT or JEC LEONARY Y2, THE JEST RD 32718 Bill 30% Breanz SS Wt 10 as 18 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 21, 1940 TO Secretary Morgenthau FROM Mr. Cochran confidential An improvement in the sterling quotation took place today, reversing 8. down- ward trend that has been in evidence for more than a. week. After opening at 3.54-1/2, the pound advanced to 3.58 within an hour. It moved back to 3.56-1/2 by noontime. The rate had a firm tone throughout the rest of the day, and sterling reached a high of 3.60 just before the close. The final rate was 3.59-1/2, a gain of 5-1/2# compared with Thursday's close. The reported turnover was nearly as large as that of yesterday, but today, reported orders to sell sterling were about L260,000 greater than buying orders. Most of this excess, according to the New York banks, was absorbed by purchases of the New York agencies of Japanese banks. Sales of spot sterling by the six reporting banks and the Federal Reserve Bank of New York totaled L561,000, from the following sources: By commercial concerns L119,000 By foreign banks (So. Amer., Near East, Europe & Far East) L387,000 By the Federal Reserve Bank of New York (for fugoslavia) I 55,000 Total L561,000 Purchases of spot sterling amounted to L302,000, as indicated below: By commercial concerns I 83,000 By foreign banks (Far East and Europe) L219,000 Total L302,000 The National City Bank reported that it had sold cotton bills totaling 11,000 to the British Control on the basis of the official rate of 4.02-1/2. The Bank of Menhattan stated that it had purchased £7,000 from the British Control at the official rate of 4.03-1/2, to be used to pay for shipments of tea. Developments in the other currencies were as follows: The Swime franc again improved to reach & current high of .2262 in the mid-afternoon. In addition to demand from Swise sources, it was reported that commercial concerns here purchased moderate amounts of Swies francs. Their acquisitions, for the most part, are being applied against sales for forward delivery made in the past as a hedge against anticipated exports. The latter have not taken place owing to the scarcity of shipping space. The Swime franc closed at .2261. Regraded Unclassified 19 - 2 - The Canadian dollar had a better tone today. In a very thin market, the discount for that currency narrowed to 19-1/8% at the close, as compared with yesterday's final quotation of 19-3/4%. The lira and reichsmark remained at .0505 and .4000 respectively. The Cuban peso was quoted at 9-15/16% discount, a slight improvement over yesterday's rate. The Mexican peso was unchanged at .1818 bid, .2000 offered. We sold $1,000,000 in gold to be added to the earmarked account of the Central Bank of the Uruguayan Republic. The Federal Reserve Bank of New York reported that the Swiss Bank Corporation, London, made two shipments of gold totaling $126,000 from England to its New York agency, for sale to the U.S. Assay Office. The Bombay gold price declined the equivalent of 16# to $35.22. Spot silver in Bombay was equivalent to 43.86#, off 7/16#. In London, spot silver was fixed at 22-7/16d, off 3/8d. The forward price was 21-11/16d, off 1/16d. The U.S. equivalents were 40.79$ and 39.43# respectively. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35#. We made two purchases of silver totaling 130,000 ounces under the Silver Pur- chase Act. Of this amount, 70,000 ounces represented a sale from inventory, and the remaining 60,000 ounces consisted of new production from foreign countries, for forward delivery. B.M. CONFIDENTIAL 59(e) 3.2 60M 4-40 20 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE June 21, 1940, CONFIDENTIAL FILES TELEPHONE CONVERSATION WITH SUBJECT: L. W. Knoke BANK OF ENGLAND. OM Mr. Bolton called at 10:30 s.m. today. The Dutch Treasury in London, he said, had asked him to find out whether in compliance with their request, we had forwarded our code and test key arrange- ment so that they could work on their account with us. In reply I requested Mr. Bolton to advise the Treasury that both code and test were now on the way to them. Mr. Bolton then referred to the Ottoman Bank, all the assets of which he understood had been blocked here on the theory that that was a French organisation. This theory was quite wrong. He under- stood that the necessary representations were being made in Washington but meanwhile he wanted us to know that the Ottoman Bank was a Turkish bank and, as an authorized dealer in London, an important part of the British Exchange Control. As he saw the situation, blocking of balances belonging to other than the Paris branch was working a great injustice on the whole bank and had created a situation of great distress. The bank was carrying accounts, among others, with the Guaranty Trust Company, Chase National Bank and National City Bank. Mr. Bolton then put Dr. Beyen, the former president of the Bank for International Settlements, on the telephone. The censor immediately cut us off but afteramhile evidently Dr. Boyen was allowed to proceed. He stated that he acted as the financial adviser to the Dutch Government and as such he was anxious to find out what sort of procedure would have to be followed if, under the decree of May 24, the Dutch Government, in case of need, wished to SOF32 60M 4-40 21 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE June 21, 1940. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH OM L. W. Knoke BANK OF ENGLAND. 2 dispose of gold held here in the name of de Nederlandsche Bank. I replied that that was a matter which should be taken up through official channels. LWK:KW IBEVE BECEIVED DEBY&LWEWE A10 inn 55 WI a 02 OKTIOE ot THE ТИАТЕ132Л JADINHO3T 10 THE SECURITY COPY 22 TELEGRAM SENT JR GRAY June 21, 1940 Noon AMERICAN LEGATION STOCKHOLM 208. Your 601, June 7, 1 p.m. Department's 160, May 18. Treasury states it would appreciate receiving any recommendations the Legation may care to make relative to license applications in particular cases. HULL (FL) 840.50 Frozen Credits/195 EA:FL:EB 23 JT PLAIN LONDON Dated June 21, 1940 REC'd 4:10 p.m. Secretary of State, Washington. 1776, June 21. FOR TREASURY FROM BUTTERWORTH. Another L10 million was added to the note circula- tion, the fourth consecutive substantial increase, largely attributable to Encashment of French notes by re- fugees and returned British soldiers and to further Evacuation movements. HOWEVER the credit base was practically unaltered, security holdings being increased to offset the outgo of notes, The market continues to anticipate another war loan which is EXPECTED by the city at any time in view of the liquid condition of banks and mounting government expenditure. Supply costs for the second consecutive WEEK, that Ending June 15, WERE at the L60 million level (BEE my 1620, June 12). The finance bill has now passed the House of Commons, the Chancellor of the Exchequer again stating that a new budget is insvitable and heavy burdens all round are fully EXPECTED. KENNEDY CSB CREM OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, a.e. 24 DEPARTMENT OF STATE WASHINGTON reply refer to 840.51 Frozen Credits/200 June 21, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for his information a copy of a memorandum dated June 19, 1940 reporting on a conversation between 8. member of the Department of State and Baron de Gruben, Counselor of the Belgian Embassy, regarding the release of funds to certain Belgian nationals in Iran, and a copy of paraphrase of telegram No. 132 dated June 21 from the American Legation, Tehran, Iran, on the same subject. Enclosures: Memorandum, June 19, 1940. BECEIVED DELIVERENT É 2. 5% 19 Paraphrase, No. 132 of June 21 from Tehran. (HE THAT21 YRAT If 25 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Legation, Tehran, Iran DATE: June 21, 1940, 9 a.m. NO.: 132 The Belgian Ambassador in Washington has been contacted by telegraph by the Belgian Minister here with regard to funds of Belgian nationals in Iran which are blocked in the United States. I can perceive no objection to the procedure which is outlined by the Minister; the Ambassador in Washington will explain this procedure to the Department. ENGERT. 0.00 --- BI e 15 C vir as VIR CARD 3nl EA:LWW DIVISION OF BEAR EASTHRN AFFAIRS 26 DEPARTMENT OF STATE Memorandum of Conversation (Telephene) June 19, 1940 DATE: Release of Funds to Certain Belgian Nationals in Iran. BJECT: Baron de Gruben, Counselor of Belgian Embassy; RTICIPANTS: Hr. Alling. PIES TO: are I-M Baron de Gruben, Counselor of the Belgian Embassy, telephoned today to inquire whether we had had any word from our Legation at Tehran regarding the release of funds to certain Belgian nationals in Iran. I told the Counselor that nothing had come in up to this time. No went on to say that the Embassy here had just had a telegram from the Belgian Minister in Tehran to the effect that be had made an arrangement with the Ameri- can Legation under which he would submit to the Legation the names of Belgian citizens in Iran who desired to draw on their accounts in the United States, the amounts required by each person and a justification for the suns needed. Baron de Gruben inquired what action we took on 27 - 2 - on such requests, and I told him that we referred them to the Treasury and upon receipt of the Treasury's de- cision we notified our appropriate mission abroad. The Counselor requested that if and when the expected message came in from our Legation at Tehran on this matter he be notified. IBEVENSA BECEINED 81 A M9 IS MUL OASI THATSISEA JACINHORT 10 1HE 01/11/20 OE THE NE PHA/LS 28 ADDRESS THE COMMUNIT, u. = CONST GUARD AND - TO No. SECRET TREASURY DEPARTMENT UNITED STATES COAST GUARD HEADQUARTERS WASHINGTON 21 June, 1940. From: Spagent, Shanghai, China. To : Secretary of the Treasury. Message from Mr. Nicholson. T. V. Soong left Hongkong via the Clipper Wednesday; he is due to arrive in Honolulu Sunday. He would appreciate any customs courtesies that may be properly extended at Honolulu and San Francisco. Soong is also desirous of engaging a bodyguard to accompany him during the trip for which he will pay all expenses. It is respectfully sug- gested that the Supervising Customs Agent, San Francisco, be requested to obtain a bodyguard for Soong's use upon his arrival. 10 THE SECURITY TMA 12:22A JACHHORT 1mT HO 32110 so 80 SI MA 15 MUL one RECEIVED THE <303 29 TREASURY DEPARTMENT WASHINGTON OFFICE OF SSIONER OF INTERNAL REVENUE ADDRESS REPLY TO MISSIONER OF INTERNAL REVENUE AND REFER TO IT:P:CA June 21, 1940. CAA REPORT FOR SECRETARY MORGENTHAU: In regard to closing agreements under the Vinson-Trammell Act, the developments during the week were as follows: Walter Kidde and Company, Incorporated: The contractor's representative called to discuss the proposed closing agreement with Appel. Commissioner. 30 IT:P:CA Im n. 1060. CAA REPORT FOR SECURTARY MORGHWYEAU. is regard to closing agreements under the Vinson-Tramell set, the developments during the week were as follows: miter Hidde and Company, Inserporated: the contractor's representative called to disense the proposed closing agreement with Appol. (Signed) Guy T. Haivering Commissioner. GAA/MEA 30-A BRITISH EMBASSY, WASHINGTON, D.C. Secret June 21st, 1940. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, he Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. Telegram despatched from London on the evening of June 20th. United Kingdom. About 150 enemy aircraft raided aerodromes and industrial centres last night. Results reported as follows: Considerable damage to chemical plant at Billingham. Oas and water mains damaged at west Hartlepool. /our bombs in Cardiff dock area, one merchant vessel sinking. Damage to steel works at stockton-on-Tees. Armament depot damaged at Bouthampton. Bomba on dock at ast Hull, but no serious damage. Dorman Long's works at widdlesborough damaged. aemy casualties three confirmed and two us- confirmed. No casualties reported to our fighters. Purtner details regarding German attacks on United ingdom night of June 18th- 19th as follows: nemy losses five Heinkels 111's and one Junker 88 confirmed and three Meinkel 111's unconfirmed. our loases four Blenheims and one spitfire. Civilian cosualties 10 dead, 26 injured. One military casualty. 2. British Speditionary /orge. Totals landed in United Mingdom up to midnight June 19th-20th are: personnel, fit 109,569 personnel, wounded 1,909. June, 310. Vehicles. 2,278 (imclude 22 tanks). Ammunition (tons) 150. stores (tone) 193 (including H.A.P. equipment)/ Regraded Unclassified equipment). Allied armies, 787. Above are not final figures. Every effort is being made to evacuate Polish and Belgian treeps, who are reported to be fighting their way to coast. 3. Fresch varships which have MV evacuated French northwestern bases are utilising British ports as their sperational bases. All ships have left Brest, except two submarines which were scuttled. French demolitions at Brest were largely effectual. 4. No official news of position of French armics, but apasmodie resistance is us- doubtedly still being offered by pertions of these armies. East advance of Germans left wing continues. Epinal has been captured. Capture of Colmar in Alease also claimed. Further west Germans advancing down Valley of the Saone towards Lyene, and are reported at Louhans. In upper Leise Valley they have passed Digoin southwest of Orleam. They were reported yesterday at Tours. Hormandy and Britteny are being overrun. Column has entered Cherbourg though section of registance had not been overcome yesterday morning. Brest reported still in French hands at 23.30 hours yesterday. s. 160 hombers attacked aluminium works, canal leeks, railway and oil targets in vestern Germany last night. No reports yet received. One wellington missing. Reports 80 for received of similar attacks on night of June 18th-19th show that these were generally successful. Extensive Regraded fives/ Unclassified + fires and explosions resulted. Blenheims attacked enemy aerodromes near Amiens and at Rouen yesterday obtaining direct hits on parked aireraft and ground installations. и fighter aireraft operated over northern France yesterday. Two Heinkel 111's shot down (unsenfirmed). No British fighters missing. Fleet Air Are successfully attacked German seeplane base at Denhelder yesterday. 6. German long-range bomber aircraft yesterday principally directed against shipping off Brest and west and northwest coast of France, and against French troops and their ground comminications. German transport air- craft continued very active. There are indi- entions of further decrease in advance training. Italy. No further information of military setivity on mainland, but there are reports regarding contemplated movement of German forma- tions through Italy to Africa. Further details of operations on castern Libyan frontier on June 19th show that Italian mechanical transport column and 800 infentry with 4 game and 18 tanks vere engaged. Tank crows became demoralized and left their vehicles. One tank and s - captured and remainder destroyed. Italian casualties/ Regraded Unclassified commulties 20 - so killed and similar number wounded. Remainder taken prisoner. British casualties ail. All reported quiet in Budan. Indication that adjoining Italian garrisons are in bad state of nerves. Reyal Air Force have carried out successful attacks on camps and aerodromes in Northern Abyaminia at an Adem (Libye). On June 17th, enemy aircraft bombed 31di Berrani and Djibouti. Bombs also dropped on Zeilah, Berbera and Tugargon in British Semaliland. 9. Two British ships sunk by torpedoes off Cape Finisterre on June 18th. Reference report of sinking of steamer off North Island. A mine has been swept up in this vicinity and a dangerous area declared. Enemy submarine thought to have been sunk by aireraft in Aden. 10. Seandinavia. German forces reported to have occupied Kirkenes on June 15th. 11. Nothing reported from Gibraltar or Malta. Tangier sone reported completely under Spenish control including Gestape police methods. Regraded Unclassified 31 DKP Gray (Paris) Bordeaux Dated June 22, 1940 Rec'd 6:55 a.m. 23rd SECRETARY of State Washington 74, June 22, 11 p.m. FOR THE TREASURY FROM MATTHEWS. The Bank of France requests transmission of the following to the Federal RESERVE Bank of NEW York: "XOSRO ZEIRS OZLEB XOSRO ZEIRS OZLFB XOHGO JAVYC EPUPA FYZUL LADNO IODUN XOLEI KEXOX XOLEI ZEIRS OZLEB XOFNY OPHOC KIUTI OZLEB XYIBS JYUBE ILORL ERGEP hofej ICPIT OYJIH SHIPU REOYM OYJIH TEOBU BYNU ALOIN ITVOK FRYDO FUWSI GYCEU CURZO GEHYP OIRFE OGFMY CODAY IOCIT YBJUP JYUBE IUVUR IOCIT HOFNY MAUTE OYJIH CIENEL IHFFD AIXYR OBIMP FOZUB IRYBS IRYBS BANFRA ONCEZ ICPIT OCVOE JYUBE IOCIT XOJCI ONCEZ MATSE OYSZO FUZDO EWTAT OSMAP ODIME FOZUB IRYBS BANFRA HUASI ICPIT ZEIST XUKXI JYUBE AKHOB EBGEP ODIME CEMLO IRJIP IRYBS CIBBU APXYZ OXSES IRPED KOGYI LOZAT ATYYB EXTAT JYUBE OAVIK OMESK AVAFI AKHOB AFSYT GYACU CABAL AFSYT ODIME CIBBU OWKAW 32 DKP 74 June 22 from Bordeaux OWKAW GOODS ELVES ZFIST YUMBI NOFAZ DISSO GYPPI" Cariguel tells ME that several days ago the Bank cabled the Federal RESERVE with reference to its moving to Chatel Guyon and Saumur but received no reply the above message is to inform the Federal RESERVE Bank that all departments of the Central Office of the Bank of France are located here at Bordeaux. The message likewise asks for information as to the Bank's bilances both ordinary and bullion with the Federal RESERVE. BIDDLE es e MA is von OMB 20/11°C DD!! OFFICIAL COMMUNICATIONS TO SECRETARY OF STATE WASHINGTON, D.C. 33 DEPARTMENT OF STATE WASHINGTON June 22, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses one copy of telegram No. 51 of June 21 from Bordeaux. VIAT SA If MA SS MUL one OFFICE DE ДЕСНИКУР 381 TRA TRATERO32 SHT OT 34 JT GRAY (PARIS) BORDEAUX Dated June 21, 1940 Rec'd 4:08 p.m. Secretary of State, Washington. 51, June 21, noon. Please transmit the following to J. P. Morgan and Company, NEW York: "At our request Treasury has instructed Bank of France to transfer to you through Federal RESERVE Bank of NEW York dollars four million three hundred twenty- three thousand one hundred and twenty-sight point seventy-three for the credit of the French SEVEN per cent and seven and a half per cent sinking fund and coupon accounts. WE have paid Bank of France cor- responding amount in francs at 43.90. Jay Arragon Bordeaux, June 21, 1940. BIDDLE CSB (The above message was phoned by Mr. Cochran to Mr. Mitchell of J. P. Morgan & Co. of New York at 12:10 noon, June 22, 1940.) 35 OFFICIAL COMMUNICATIONS TO SECRETARY OF STATE WASHINGTON, D.C. DEPARTMENT OF STATE WASHINGTON June 22, 1940 ply refer to 0.51 0. Frozen Credits/207 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of a telegram received from the French American Banking Corporation, dated June 22, 1940, regarding blocked funds. Enclosure: From French American Banking Corporation, June 22, 1940. ss 36 COPY OF TELEGRAM RECEIVED New York NY June 22, 1940 Secretary of State. On behalf banque D'Etat du Maroc which is official Morocoan bank of issue and depository government funds we have applied through Federal Reserve Bank New York for general license to operate their account under executive order 8389 as amended application bearing our number 65 stop We are informed agreement in principle has been given to this by US government in response to demand by US Consul General in Morocco stop Will appreciate anything you can do to expedite issue of license. French American Banking Corpn. Regraded Unclassified RESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. 37 DEPARTMENT OF STATE WASHINGTON June 22, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for such action as may be deemed advisable a copy of telegram dated June 21, 1940, addressed to the President by Mr. Herbert McLean Purdy with regard to certain funds for payment of wages for workers on the French Pavillion of the World's Fair. ) Enclosure: From Mr. Purdy, June 21. ss 38 COPY TELEGRAM THE WHITE HOUSE Washington 29WU. RA 112 - D.L. 2:10 p.m. New York, New York, June 21, 1940 THE PRESIDENT Can you do something to release funds of French Government for purpose of paying the men at the French Pavilion World's Fair. Upward one hundred fifty men at building will not get paid today. National City Bank here has applied to Federal Reserve for special permit. Understand this has gone to Washington to get permit approved but no word yet from Washington. Meantime, employees clamoring to be paid. Mr. Edward Mortimer Livingston, who is with our Company is I understand personal friend of yours and also knows General Watson. Will greatly appreciate your sending word to proper department to rush release of money 80 men can be paid today. Kind regards. Herbert McLean Purdy, Management Corp. Herbert McLean Purdy, President. 39 PLAIN s HSM London Dated June 22, 1940 Rec'd 9:12 a. m. Secretary of State, Washington. 1784, June 22. FOR TREASURY FROM BUTTERWORTH. Last night's announcement of the new 2½ percent five to seven year war bond saleable from Tuesday next on tap at par is welcomed in this morning's financial press as particularly suitable at the moment and as likely to bE very successful, Especially in view of the usefulness of a similar war bond in the last war. The loan is particularly suitable for banks and other finan- cial institutions and large investors, while the pro- vision for subscriptions at a minimum of L25 reaches down to the medium SiZE private investor who has already taken up the legal limits of defense bonds and savings certifi- cates. Though not a funding loan proper much of the proceeds may bE used to meet the L100 million to bE paid out dissented holdings of the 4½ percent conversion loan on July 1, while the Treasury bill issue now considered at a technically convenient level will doubtless bE prevented Regraded Unclassified B10 700 SS by IS sa AUTHOST OF YRAY 14T OT 10.14F 40 hsm -2- No. 1784, June 22, from London prevented for some time from rising drastically. The decision not to float a large loan of limited amount at the present critical moment is also considered wise. KENNEDY WWC 41 EH GRAY Paris BORDEAUX Dated June 22, 1940, Rec'd 12:35 p.m. Secretary of State, Washington. 64, June 22, 2 a.m. FOR THE TREASURY FROM MATTHEWS The Bank of France has asked me to ascertain the NEW York free market rates for the French franc and sterling. The Bank of France seems unable to communi- cate with Marciall. BIDDLE GE e MA AT DDM AMO Test WHIST YAATS 12 341 OT TREASURY 14973 42 CK GRAY Bern Dated June 22, 1940 Rec'd 1:40 Pelle SECRETARY of State Washington STRICTLY CONFIDENTIAL 73, June 22, noon. Trade negotictions resured yesterday in Bern between German and Twiss delegations headed by Hermen and Hotz respectively to provide substitution for the present clearing agreement due to Expire June 30th by an arrange- nent taking account of interruption of German-Swics clearing is now heavily in favor of Germany (Swiss nov oving 40,000,000 francs as compared with Sviss credit of 65,000,000 no of last October,). It is confirmed here that in on endenvor to restore a balance in the clearing Swiss firms have recently been urged to increase their Exports to Germany, Under present conditons it is to bE EXPECTED that the German share of total Swiss foreign trade will rise and that Germany will dominate Swiss Economy to a greater extent than heretofore. With reference to Zurich's 142, June 19, 5 Pail. I have been authoritatively informed here that there has been nothing in the nature of on ultimatum from Germany in this 43 -2-1/78, June 22, noon. from Bern. this respect; that the new agreement will bE negotiated, as other trade and clearing agreements with Germany in recent years, in accordance with actual and prospective trade conditions and probably involving some sacrifice by beneficiaries of transfers of return on Swiss investments in Germany in favor of Sviss exports to Germany. HARRISON EMB 10 100 660 YEA 1801 YHE IVE es Il MA VS 1986 06/21 IMEVENS. DESWINGFUL BECEINED TREASURY 14965 JR PLAIN 44 Berlin Dated June 22, 1940 Rec'd 1.50 Dame Secretary of State, Washington, 2013, June 22, 1 pain. The Foreign Office sponsored DIENST AUS DEUTSCHLAND carries under dase of June 21 the following communique with P.SPECT to Germany's food situation: "The assertion of the London radio that during the coming winter Germany will be faced with a faming is characterized in authoritative Griman circles as a foolish and completely unfounded speculation. It is Empressly stated that Germany as before disposes OVER extraordinarily large supplies of certal grains which are quite as large as the beginning of the war. The supplies of butter, Egga and meat will DE considerably larger at the beginning of the winter than was the CASE last year. Finally, an interesting light is cast upon the German supply situation by a statement from the Ministry of Foods in which it 10 asserted that the Ministry is no longer concerning itsclf with the problem of the food supply for the year 1941, that is to say, up to the time of the 1941 harvest, but is now working upon the supply plan for the year 1041-1942". HEATH TFV the OFFICIAL COMMUNICATIONS TO HE SECRETARY OF STATE WASHINGTON, D.C. 45 DEPARTMENT OF STATE WASHINGTON June 22, 1940. A SS VUL 00 LECHINGY 3HT OT The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses one copy of telegram no. 52 from the American Embassy at Bordeaux (Paris), dated June 20, 1940, transmitting a message for the Federal Reserve Bank of New York. Enclosure: From Bordeaux (Paris), no. 52, June 20, 1940. Regraded Unclassified 46 JT GRAY (PARIS) BORDEAUX 2BCT Dated June 20, 1940 ec et MUL ONE QUE 10216 Rec'd 5:45 p.m., 21st Secretary of State, Washington. RUSH. 52, June 20, 3 p.ms FOR THE TREASURY FROM MATTHEWS. The Bank of France has urgently requested me to transmit the following code message to you for the Federal RESERVE Bank of NEW York. (END GRAY) (NOT DEPARTMENT CODE) "XOPVI CEGOZ ODIME ETDEK MOOMS OYJIH BUDYA CIMFUL OYJIH PHYNIC OYJIH CILLIWAM JUYBE XUEKA OYJIH GYELMAUL, (GRAY) The message cancels authorized signatures of Under Governor Boisanger, Thomas and Sarrazin who are now in German hands at Chatel Guyons BIDDLE JRL Regraded Unclassified 47 TELEGRAM SENT ET GRAY June 22, 1940 4 p.m. AMERICAN EMBASSY LONDON 1335. FROM THE TREASURY DEPARTMENT. Reference your 1773, June 21, 7 p.m. Prior to receipt of Embassy's cablegram 1671 of June 15 Treasury Department had on June 14, after being advised on June 13 by Federal RESERVE Bank at NEW York of complaints by American rubber importers, taken up with British Embassy through Pinsent the question of fair treatment for Americans under the DEfEnsE Finance Regula- tions. Pinsent was asked to send a cablegram to London expressing the Treasury's hope that in carrying out the provisions of the Foreign Exchange Control Order which was to BECOME Effective June 10 the British authorities would accord American importers periods of grace similar to those permitted under the Order which was announced on March 8, and also would allow continuance of privilege to importers of 5B products to cover in free sterling con- tracts ENTERED into before March 9 which are still running. On Regraded Unclassified 48 -2- #1335, June 22, 4 p.m. to London. On June 19 Pinsent reported that a message from London had been received of which he provided orally the following paraphrase: QUOTE Point was raised by United States Embassy in London who are understood to have tele- graphed to Washington on the 15th. Our desire with which WE are confident Mr. Morgenthau will sympathize is to put an End to exporting on basis of free rate with minimum delay. WE have Expressed a desire to meet United States wishes fully but have drawn attention to importance of above consideration. END QUOTE Pinsent has also provided us with Notice to Exporters (No. 2). The Treasury Department is cognizant of the reasons which led to the issuance of the Foreign Exchange Control Order of June 8 and is sympathetic with the desire of the British authorities to terminate as quickly as possible exports financed with free sterling. It approves, however, representations by the Ambassador with the view to obtain- ing for American importers the considerations which the Embassy has had reason to believe from official documents and official assurances would bE granted. HULL (HF) EA:FL:EB Regraded Unclassified 49 TELEGRAH SENT CK PLAIN June 22, 1940 MEMBASSY LONDON 1343, Twenty-Second. Your 1671, June 15. Rubber Tradz Association of NEW York has written the Department protesting against any retroactive changes in the regulations affecting use of free sterling to mettle pre-March-9 contracts for rubber. They mention conflicting reports as to what is going on. Compromise date such no suggested in your 1671 would apparently not meet their fears since they lost heavily on guilder contracts after disappearance of Amsterdam Exchange market. HOWEVER, if British insist on some terminal date such an August 1, it would SEEM important that this be promptly communicated to interested trade. The Department is asking the Trade Association what would bE the effects of extension to August 1 or some later date and hopes to telegraph Monday on this. HULL (HF) EA:FL:EB Regraded Unclassified 50 MA GRAY Milan Dated June 22,1940 Rec'd 10:55 a.m. Secretary of State Washington 63, June 22, 6 p.m. Today's market index 216.60. Volume 40,655. Market slightly lower in poor trading. BS e PEG is not one DAVE VISA SCHNARE coloy read. 51 HSM GRAY Lisbon Dated June 22, 1940 Rec'd 9 a. m. Secretary of State, Washington. RUSH 83, June 22, noon. FOR THEASURY. Urge granting of general license to operate frozen account in Chase Bank of Credit Franco-Portugais, Lisbon. Bank operates only in Portugal. PELL as 0 101 ss PEG nume THA 540- 14018403T YAA SHT 07 Regraded Unclassified DORESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE 52 WASHINGTON, B.C. DEPARTMENT OF STATE WASHINGTON June 22, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, 1940 and encloses one copy of paraphrase of telegram No. 28 of June 21 to Bordeaux. compliment 28 53 PARAPHRASE OF TELEGRAM SENT TO: American Consul, Bordeaux DATE: June 21, 1940, 7 p.m. NO.: 28 FOR BIDDLE STRICTLY CONFIDENTIAL FROM SECRETARY MORGENTHAU. Monnet has been asked by the Anglo-French coordinating committee to send to the United States Army, Aberdeen Proving Grounds, Maryland, one B-1 Bis tank and two special operators for demonstrating it. We should like to have shipment of this tank expedited by the French Government. HULL (HF) EA:LWW 54 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 22, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Yesterday noon I talked over personally with Mr. Livesey of the Department of State the question of a reply to Ambassador Kennedy's cablegram of June 15. He agreed to send ne a copy of a pertinent letter from the Rubber Trading Association which came over in the afternoon. A copy thereof is attached, together with a copy of Ambassador Kennedy's No. 1773 which arrived simultaneously. This morning I delivered to Mr. Livesey the attached draft of a Treasury reply and it was agreed that the State Department should send a separate reply answering the specific question posed by the Ambassador as to protecting American interests. At 12:30 today Mr. Livesey sent no the attached copy of his message, stating that both this and the Treasury cablegram had been sent. jmrl Unclassified 55 DEPARTMENT OF STATE — ADVISER ON INTERNATIONAL ECONOMIC AFFAIRS June 21, 1940 Mr. Cochran: There is enclosed for your informa- tion a copy of the letter from the Rubber Trade Association of New York, Inc., which Mr. Livesey discussed with you this noon. We do not intend to answer this letter until a reply to London's 1671 of June 15, 1940 is decided upon. RECOMED TV3 VT SI 2 M9 IS nur ONE GELICE OF LINE LECHNICVE VERIZIVNI 10 THE BECHELYKA Suthringer Enclosure: Copy of letter. COPY 56 RUBBER TRADE ASSOCIATION OF NEW YORK, INC. 95 Broad Street, New York June 19th, 1940 Dr. Herbert Feis, Adviser on International Economic Affairs, Department of State, Washington, D. C. My dear Dr. Feis: For your information and record we wish to advise you that the members of this Association understand that the Foreign Exchange Committee of the New York banks, Mr. R. F. Loree, Chairman, has been asked by the Bank of England to cooperate in establishing an official rate of sterling exchange in New York. We have requested the Foreign Exchange Committee that in the event, during the course of negotiations with the British Government and/or the Bank of England, any proposed legislation or suggestions in respect to free sterling which might be of a nature retroactive be made known to this Association, as under no circumstances do we feel that after complying with past regulations should any change be made of a retroactive nature. It would appear that the negotiations this far are of a preliminary nature and quite naturally advices received from various sources are rather conflicting. We are deeply concerned in respect to the situation in regard to free sterling. No doubt you are familiar with the regulations which have been promulgated by the British Government during the past few months. In substance, these regulations set forth the conditions under which free sterling can be used a.B pertaining to rubber contracts. We hold to the opinion that there should be no change in the status of contracts for rubber on which free sterling could be used at the time such contracts were entered into and on which there was no time limit set as to when free sterling must be purchased. Our members suffered a severe loss through the Amsterdam guilder situation, which was explained to you in our letter of June 3rd, 1940, and they most certainly wish to avoid the same experience with their sterling transactions. Very truly yours, BGD:F B. G. DAVY, Secretary Regraded Unclassified ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, e, c. 57 DEPARTMENT OF STATE WASHINGTON June 21, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses one copy of telegram No. 1773 of June 21 from London. SECHEIVRA OLLIOE THE AVO my 51 biv V vs 58 JR GRAY London Dated June 21, 1940 Rec'd 1:55 p.m. Secretary of State, Washington. RUSH. 1773, June 21, 7 p.m. FOR THE SECRETARY OF THE TREASURY FROM THE AMBASSADOR. Not having heard from my 1671 June 15, and realizing that the records indicated action on behalf of American importers who are requesting that I ask the British to 30 chead and deal with these CASES pending receipt of your reply. Incidentally I only decided to bother you about this because one of the under secretaries of the British Treasury called into question whether I was accurately representing Washington's policy by making the British live up to their word. I might say that I do not consider that the British Treasury is doing us any favor in making the concession I sent you in my 1671 of June 15 and do not Fazard their initial action C.S having the anything to do with winning / war or halping the allies. If the British Treasury had been half as active taking 00 ann by 45 care of their own battle interests 08 they are regulating and screwing ours they would not be in one half the MESS they are in. KENNEDY 59 June 22, 1940 Dr. Vois Mr. Cochren Vill you kindly read & cablegive along the following lines: 'Amerions Lubersy London From the Treasury Department. Reference your 1773 June 21 7 p.m. Prior to receipt of Hubmary's cablegram 1671 of June 15 Treasury Department had on June 14. after being advised 02 June 13 by Federal Reserve Bank at Nev York of com- plaints by American rubber importers, taken up with British Undersy through Pincent the question of fair treatment for Americans under the Defense Finance Regulations. Pinsent vas asked to seal a cablegram to London expressing the Treasury's hope that in carrying out the provisions of the Foreign Exchange Control Order which was to become effective June 10 the British authorities would accord American importers periods of grace similar to those permitted under the Order which was announced on March 8, and also would allow continuance of privilege to importers of 5 a products to cover in free sterling contracts entured into before March 9 which AN still running. On June 19 Pinsent reported that a measinge from Loadon had been received of which be provided orally the fellowing paraphraset 'Point Mic raised by United States Subssay in London who are understood to have telegraphed to Washington on the 15th. Our desire with which vs AN coa- fident Xr. Morgeathan will ayspathice to to put an end to exporting on basis of free rate with sinima delay. le have expressed a desire to neot United states viehes fully but have drawn attention to importance of above consideration.' Pinsent has also provided us with Notice to Importers (No. 2). The Treasury Department is cognisment of the reasons which led to the issuance of the Foreign Exchange Control Order of June 8 and is symps- thetic with the desire of the British authorities to terminate as quickly as possible exports financed with free sterling. It approved. however, representations by the Ambassador with the view to obtaining for American importers the considerations which the has had reason to believe from official documents and official would be granted. B.MR Regraded Unclassified SO June 22, 1940. AMEMBASSY LONDON Your 1671, June 15. Rubber Trade Association of New York has written the Department protesting against any retroactive changes in the regulations affecting use of free sterling to settle pre-March-9 contracts for rubber. They mention conflicting reports as to what is going on. Compromise date such as suggested in your 1671 would apparently not meet their fears since they lost heavily on guilder contracts after disappearance of Amsterdam exchange market. However, if British insist on some terminal date such as August 1. it would seem important that this be promptly communicated to interested trade. The Department is asking the Trade Association what would be the effects of extension to August 1 or some later date and hopes to telegraph Monday on this. (s) HULL EA:FL:EB COPY Regraded Unclassified 61 MEMORANDUM FOR THE SECRETARY: X June 22, 1940 The memorandum of Mr. Currie's, dated June 4. 1940, on fiscal policy which was sent to you with the President's memorandum of June 14th with a request that you read and speak to him about it, is now too old to require comment in view of the fact that the House and Senate last night agreed to the tax bill. However, Mr. Currie indicates in the first paragraph of his memorandum that he is working on a more comprehensive statement of the considerations entering into the determination of fiscal policy under current conditions. I believe that we should wait until we get his new memorandum before commenting upon the points raised in his memorandum of June 4th. suB 62 1940 si 1 FOR THE The of Mr. Oursie's, dated June m, 1940, es fiscal policy which was sent to you with the President's nemorandus of June 14th with a request that you read and speak to his about se, is now too old to require comment in view of the fast that the House and Senste last night agreed to the tax bill. Novever, Mr. Currie indicates in the first paragraph of his memorandum that he 10 working on a more comprehensive statement of the considerations entering into the determination of fical policy under current conditions. 2 believe that 90 should - until get his new nemorandum before commenting upon the points raised in his assorantum of June 4ah. DEDICO Regraded Unclassified 63 MEMORANDUM June 18, 1940. TO: Secretary Morgenthau FROM: Mr. Sullivan SUBJECT: Lauchlin Currie's memorandum to the President of June 4th. I prefer not to comment upon paragraphs 1 to 7 inclusive. These are observations of an economist with which I an probably not qualified to differ. The estimate used in paragraph 8 A is quite incorrect. The proportion of individual income taxes derived from those persons in the brackets below $3000 is only 2.3% in 1936 and 3.9% in 1937 of the anticipated total collections. The statements in paragraph 8 B are correct except that at the present time it is quite likely that there will be no increase in the tobacco taxes. It should be borne in mind that these three commodities lend themselves to high excise taxes and throughout the world are taxed at a far higher rate than those in- creased rates provided for in the pending Bill. 8 c, no comment. 8 D. I believe the "increased signs of dissatisfaction on the Hill" have been largely answered in the increase in additional revenue added to the Bill since the date of this memoran- dum. In recommendation I, Mr. Currie suggests we do not press for tax legislation within the next couple of weeks, and if we do, we restrict it to excise taxes and leave the rest of the revision until early in the next session. Assuming that the next session of Congress will wish to increase the present rates before March 15, 1941, nothing in the present Bill will prevent this from being done. Meanwhile, in addition to the excise taxes we will be collecting additional revenue from increased estate taxes, gift taxes and capital stock taxes. In recommendations 3, 4 and 5, I concur except to the extent that the "revision" of inheritance tax and income tax indicates - as it does when almost everyone else uses the word "revision" - reduction rather than correction. Ths Regraded Unclassified monday 7 64 THE WHITE HOUSE WASHINGTON June 14, 1940 CONFIDENTIAL MEMORANDUM FOR THE SECRETARY OF THE TREASURY To read and speak to me about. F.D.R. Enclosure 65 THE WHITE HOUSE WASHINGTON June 4, 1940. MEMORANDUM FOR THE PRESIDENT: Re: Fiscal Policy. I am working on a more comprehensive statement of the considerations entering into the determination of fiscal policy under current conditions. This will take some time to complete, end since time 18 80 short I em taking the chance of presenting some conclusions in advance of the general argument and supporting data. 1. A fundamental fact at the moment is that America possesses an overall great excess of unutilized material and human productive resources. 2. Hence, the financing of national defense should be directed at taking up this slack rether than toward the diversion of resources from the making of consumer goods to the manufacturing of armements. This latter course is proper only when the economic machine is already working at cap- acity. 3. Broadly speaking, increased armament expenditures provide a net increase in employment only when they are financed in ways that absorb saving or offset saving that would not otherwise have been absorbed or offset. 4. If financed through consumption taxes they merely divert employ- ment, not create it. 5- Hence, from B. strictly economic point of view, the appropriate method of financing defense expenditures at this time would be by borrow- ings or by taxation of potential savings. 6. I have not at hand estimates of actual additional defense expendi- tures for the next fiscal year. AB things are shaping up, however, it would not be unreasonable to expect that somewhat over half will be borrowed and the remainder raised by taxation. The part raised by taxation 18 esti- mated, on the basis of recent studies of consumer incomes and purchases, to fall two-thirds on consumption and one-third on possible savings. Hence, if the additional expenditures amount to, say, $1.2 billion, only two-thirds of this amount will not to create employment. Moreover, since the excise taxes go into effect July lst and the additional expenditures will not increase greatly immediately, it is possible that a major part of the addi- tional expenditures will be offset in the next few months by decreased con- sumption. 7. The conclusion follows, on economic grounds, that it would be better to postpone increases in consumption taxes until the economy 1s more nearly providing full employment. Regraded Unclassified Menorandum for the President. 60 Re: Fiscal policy, -2- June 4, 1940. 8. On political grounds, on which I feel less competence, the present program appears vulnersble on several counts: (a) Our tax system 18 already heavily regressive and the pro- posed change makes it more 80. One estimate 18 that more than one- half of a full year's yield will be derived from income brackets below $3,000 and an even higher proportion will be ao derived from the first fiscal year's collections. (b) The rates on tobacco, beer and gasoline, all articles of wide consumption, are increased 16-2/3 percent, 20 percent, and 50 per- cent, respectively. (c) There is nothing in the proposed legislation to prevent a new crop of millionsires. In the first quarter of this year the profits of 445 large companies, mainly in the durable goods field, increased 62 percent over the first quarter of last year, although the production index was only eleven points higher. (d) There are increasing signs of dissatisfaction on the Hill. Recommendations. 1. Do not press for tax legislation within the next couple of weeks. 2. If it is decided to go ahead with the pending legislation, con- fine it to increases in the excise taxes with the idea that before March, 1941, income tax payments become due, a more scientific and comprehensive job will be done in raising rates, plugging up loopholes and instituting an excess profits tax. 3. Induce the ways and means and finance committees jointly to begin a study of income, excess profits and inheritance tax revision, to apply to incomes in this calendar year. 4. It 1s estimated that Randolph Paul's excess profits tax proposal, with fairly moderate rates, would yield $500 million on this year's profits. The Treasury might well work on and present this proposal to the proposed joint committee. 5. It would be highly desirable to bring Paul down in an advisory capacity. When the foremost tax man in the country happens also to be a New Dealer, it seems a pity not to use him. His books are standard works of reference and he is employed by the biggest corporations in the country. Landling 1 Lauchlin Currie TREASURY DEPARTMENT 67 INTER-OFFICE COMMUNICATION DATE June 22, 1940 TO Secretary Morgenthau FROM Mr. Cochran confidential The open market rate for sterling jumped more than 13# today, mainly due to the New York banks' attempts to execute, in a thin market, buying orders received from Japan and other Far Eastern banks. From an opening of 3.60, sterling advanced to a high of 3.74-1/4. It closed at 3.73-1/2. Sales of spot sterling by the six reporting banks totaled L137,000 from the following sources: By commercial concerns 1 21,000 By foreign banks (Europe and Far East) L116,000 Total L137,000 Purchases of spot sterling amounted to L208,000, as indicated below: By commercial concerns I 61,000 By foreign banks (Far East and Europe) L147,000 Total L208,000 There were no reported sales of sterling to the British Control on the basis of the official rate of 4.02-1/2. The Guaranty Trust Company stated that it had purchased L5,000 from the British Control at the official rate of 4.03-1/2. the funds to be used to pay for whisky shipments. Continuing its improvement, the Swiss franc moved to a new current high of .2267 this morning. It subsequently reacted to close at .2260, slightly lower than yesterday's final rate. The Canadian dollar again had B. firm tone today. The closing discount was 18-3/4%. as compared with 19-1/8% yesterday. The other currencies closed as followe: Lira .0505 Reichsmark .4000 Cuban peso 10% discount Mexican peso No quotations received We purchased $50,000.000 in gold from the earmarked account of the Bank of England. 68 2 The Federal Reserve Bank of New York reported that the Bank of Canada, Ottawa, shipped $6,102,000 in gold from Canada for its own account to the Federal, for sale to the U. S. Assay Office at New York. The State Department forwarded to us cables stating that the following shipments of gold would be made: $1,261,000 from England, shipped by Sharps and Wilkins, London, to the Bank of China, New York. 181,000 from Hong Kong, shipped by the National City Bank, Hong Kong, to the American Trust Company, San Francisco. 107,000 from England, shipped by the Westminster Bank, London, to the Chase National Bank, New York. 56,000 from England, shipped by Sharps and Wilkins, London, to the Chase National Bank, New York. 16,000 from England, shipped by the Westminster Bank, London, to the Swiss Bank Corporation, New York. $1,621,000 Total The shipments coming from England will be sold to the U. S. Assay Office at New York, and the one from Hong Kong will be sold to the United States Mint in San Francisco. No gold or silver quotations were received from Bombay today. A.M. CONFIDENTIA! 17746 RDS PLAIN 69 WELLINGTON VIA TUTUILA & N.R. Dated June 22, 1940 Rec'd July 31, 1940 9:30 p.m. Secretary of State, NOT TNC HE NATED WITHOU Washington. June 22nd, 1940. Regulations issued by the Government on June 18th under the Emergency Regulations Act of 1939 gave to the Government wide powers to draft and control the Dominion's man-power and production facilities as a necessary war measure. These regulations provide for compulsory national SERVICE for all persons sixteen years of age or over, whether for military or Economic purposes, and give the Government power to control all productive plant and mater- ials used in both primary and secondary industries, to acquire USE and dispose of private property of all kinds, and to suspend or modify contracts or regulations is made a good defence to actions for British of contract. Financial regulations give the Government power to raise a forced loan for war purposes. All residents of NEW Zealand must offer to sell to the reserve bank all gold coin, bullion and foreign currency owned by them. Foreign securities owned by NEW Zealand residents must bE registered with the Government and may be purchased by the reserve bank. All Regraded Unclassified 70 -2- June 22, 1940, from Wellington via Tutuila & N.R. All dealings in foreign currency or securities are unlawful EXCEPT with the bank's consent. Interest rates on bank loans may not bE increased over those prevailing on June 18, 1940 EXCEPT with the consent of the Minister of Finance. Issues of capital stock and public offers of securities must bE approved by the Minister. National finance accounts for the fiscal year Ended March 31, 1940 showed a surplus of pounds NEW Zealand three hundred and nineteen thousand. Total revenues were pounds NEW Zealand thirtyseven million nine hundred and seventyfour thousand, and Expenditures, pounds NEW Zealand thirtyseven million six hundred and fiftyfive thousand. In the 1938-39 fiscal year revenues were pounds NEW Zealand thirtysix million five hundred and aightytwo thousand and Expenditures pounds NEW Zealand thirtyfive million SEVEN hundred and seventythres thousand. These figures cover only the con- solidated fund and do not include revenues and expenditures in separate funds for war purposes, social security, pub- lic works and other purposes. Expenditures for war purposes were pounds NEW Zealand SEVEN million one hundred and six thousand, for social security pounds NEW Zealand ten million Eight hundred and forty three thousand, and for public works pounds NEW Zealand nine million two hundred and thirty Eight thousand. REVENUES for war purposes and social security WERE raised minly by taxation, for public works 71 -5- June 22. 1940, from Wellington via Tutuila & N.R. works mainly by loans. The Government recently announced that no reductions in social security benefits would be made as a result of the war, but that non -Essential public works would bE sliminated. Between September 1, 1939 and May 25, 1910 public works Employees were reduced from nine- teen thousand Eight hundred and nine to fifteen thousand six hundred and sightyone. The EXCESS of Export for the first four months of 1940 was pounds NEW Zealand fifteen million sevenhundred thou- sand, compared with pounds NEW Zealand seven million three hundred and fortysight thousand in the same period of 1930. The export EXCESS in the twelve months May 1, 1939 to April 30, 1940 was pounds NEW Zealand sixteen million nine hundred and seventyfour thousand, compared with pounds NEW Zealand four million five hundred and twentytwo thousand in 1938-39 and pounds NEW Zealand two million nine hundred and seventysix thousand in 1937-38. Imports in the 1939-40 twelve month period totalled pounds NEW Zgaland forty six million one hundred and fiftysight thousand, and exports pounds NEW Zealand sixtythree million one hundred and thirtytwo thousand, compared with sixtythree million one hundred and thirtytwo thousand, compared with imports valued at pounds NEW Zealand fiftythree million SEVEN hun- dred and thirtyone thousand, pounds NEW Zealand fiftysight million two hundred and fiftythree thousand in the same period Regraded Unclassified 72 -4- June 22, 1940, from Wellington via Tutuila & N.R. period of 1938-39. Between May 1, 1939 and April 30, 1940, the overseas net assets of NEW Zealand banks increased from approximately pounds NEW Zealand nine million to pounds NEW Zealand twentyfour million six hundred and SEVEN thousan An indication that these assets have accumulated further since the latter date is an increase of approximately pounds NEW Zealand SEVEN hundred thousand in the sterling funds of the reserve bank between April 30th and June 7th, on which date the bank's total sterling Exchange stood at pounds NEW Zealand fourteen million five hundred and fortysi: thousand. Applications for licenses to import goods in EXCESS of quotas or to import goods which are not subject to de- finite quota limitations, are being administered with in- creasing strictness, particularly as regards shipments from non-sterling countries. To obtain such licenses for non-sterling orders, importers must show that (a) shipments es Essential to the importer's business and (b) that simi- lar goods are not available from a British sterling country. Despite shortages in many imported lines, including luxury goods, canned foodstuffs, iron and steel, paper and hardware, retail prices have not risen EXCESSIVELY since September 1939. Except for a considerable decline in pri- vate building construction, and motor vehicle sales, most internal business indexes reflect healthy tendency. Sales tax 73 -5- June 22, 1940, from Wellington via Tutuils & N.R. tax receipts for the first four months of 1940 decreased by Eleven point one per cent from figures in the some period of 1939, but May collections in three large urban centers were reported to bE higher than in May, 1939. The value of building permits issued in the first four months of 1940 declined by fifteen point nine per cent from the first four months of 1939. NEW passenger car registrations in the first five months of 1940 totalled four thousand and new trucks SEVEN hundred and fiftysight, representing decreases of sixtysix point six per cent and fiftyeight point SEVEN per cent respectively from registration figures in the first five months of 1939. The Minister of Supply Estimated in mid-June that during the SEVEN months in which gasoline consumption restructions have been in force since the outbreak of war in September, 1939, more than twelve million imperial gallons of gasoline value at approximately one million three hundred and sixtysight thousand dollars in dollar Exchange had been saved from normal consumption requirements. Normal annual consumption is approximately one hundred and three million imperial gallons. HOWEVER, the Minister stated that more drastic rationing would soon bE necessary unless users voluntarily restricted consumption still further. Total passenger car registrations on May 31, 1940 were only three point two per cent less than on May 31, 1939, trucks, 74 -6- June 22, 1940, WELLINGTON via Tutuila & N.R. trucks, naught point two per cent less. A drive for increased production of primary produce has been instituted by the Government to make available larger quantities for Export to the United Kingdom. Among production aims for the 1940-41 export season are: butter, mutton and lamb to bE kept at 1939-40 production levels, CHEESE production to bE increased from fifteen thousand to twenty thousand long tons per year, bacon to bE increased by ten thousand long tons per year, and a larger output of beef, Eggs, pasture and clover seeds and forage crops of all kinds. The Government is to consider the possibility of establishing a linseed oil Extracting plant and the manu- facture of stockfeed. At the request of the United Kingdom Government plans have been made to SET aside fifteen thou- sand LOTES for the planting of linen flax, to produce Eight thousand long tons of fiber. Five hundred tons of SEED have been ordered for sowing in September, 1940. Butter gradings for export during the first ten months of the 1939-40 season Ended May 31, 1940, totaled one hundred and thirty thousand five hundred and twentyone long tons and cheese gradings, ninety one thousand three hundred and fiftyfive long tons. These totals represented increases of Eight point one per cent and thirteen point BEVEN per cent respectively over gradings in the same period of 1938-39 Meat production in the current season has greatly increased. Killings for export of all types during the ten 75 -7- June 22, 1940, Wellington via Tutuila,& N.R. ten months period July 1, 1939 to May 31, 1940, totalled Eleven million SEVEN hundred and twentysix thousand Eight hundred and fortyfour freight car CASES, an increase of sixteen per cent over car CASES handled for Export in the same period of 1938-39. Lambs killed totalled approximately ten million and one thousand (an increase of SEVEN hundred and fortysix thousand), mutton carcases, three million one hundred and sixteen thousand (increase of five hundred and seventyfour thousand), and beef quarters, five hundred and ten thousand (increase of one hundred and seventyning thousand). Pig killings totaled four hundred and nineteen thousand, a decrease of one hundred and fifteen thousand, but production by weight was approximately the same na in the previous season due to an increase in the proportion of Figs raised for bacon to those raised for pork. Unfavorable weather in May for wheat sowing is EXPECTED to reduce greatly the Estimates previously made for 1 bumper harvest in 1941. The Government has publicly appealed for formers to increase wheat production immediately in order that imports may bE cut to the lowest possible level. A potato crop surplus was partially relieved by the lifting of the Austrolian embargo on NEW Zealand pototoes to permit shipping five thousand long tons during the year 1940. PINKERTON EMB 76 PAREPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Berlin, Germany DATE: June 23, 1940, noon NO.: 2038 FOR THE TREASURY DEPARTMENT AND FOR THE DEPARTMENT'S INFORMATION. FROM HEATH. Reference is made to telegram No. 1141 of May 2 from the Department. The speech which the Secretary PUHL of the Treasury made on May 3 was communicated to Bowerpuhl, active head of the Rechsbank, informally. He has written me a letter dated June 17, which presumably was given official approval before being sent to me, which letter I quote in telegram No. 2039 from the Embassy. HEATH. MA EA:LNV 77 HSM GRAY Berlin Dated June 23, 1940 Rec'd 1:40 p. me Secretary of State, Washington. 2039, June 23, noon. FOR TREASURY FROM HEATH AND FOR DEPARTMENT'S INFORMATION. "You WETE good Enough to hand to me in the beginning of May the tenor of Mr. Morgenthau's argument relating to the gold problem. I immediately devoted myself to the study of this material and I have done so again now after my return as the question which role gold is to play in a future currency settlement becomes more and MODE actual. I quite appreciate the fact that this question is one of the greatest importance Especially to your country. I personally am of the opinion that the role of gold in the monetary respect need not by any means have been played out provided all parties concerned can arrive at & reasonable solution of the gold problem. "I am very thankful to you for having again given me the opportunity to acquaint myself more thoroughly with the official viewpoint of the United States of America in this matter and presume that within a measurable time WE shall have to deliberate on this complex collect questions in due form." PEG HEATH 78 June 24, 1940 2:45 p.m. RE FRENCH SHIPS IN AMERICAN PORTS Present: Mr. Foley Mr. Bell Mr. White Mr. Gaston Mr. Thompson Mr. Viner Mrs. Klotz H.M.Jr: This 16 what the President said in his telephone conversation with me. He said that he and Cordell Hull before they signed this Armistice sent word to the French Government that they would not recognize the ceding of any territory in this Hemis- phere. Now, after all, he said in the case of Denmark we didn't recognize any acts of the Danish Government because we say it 1s done under duress. Therefore, why should we recognize that if they get orders - ships flying the French flag in these ports, if they should get orders to sail, why should we recognize that any more than we would orders from Denmark, BO what I said WAS that we take the action and then find a legal reason for having done it afterward. He said that would be fine. White: The same reasoning could apply to balances or gold. Bell: We discussed that a little this morning at a meeting and Bernstein 18 studying it to see what he can work out now. Foley: On the ships? Bell: On the ships. The only control we have is through evidence of ownership, the ships 79 - 2 - belonging to those countries over which we have control. Bell: I was saying that we talked about this this morning, Mr. Secretary. We are now studying it and Bernstein is now working on it. We have control over the evidence of ownership of those ships through this tradi ng of the enemy act. Bernstein thought we might get some control of these ships through the masters' documents or papers or something. H.M.Jr: Well, you fellows have got to move. The President of the United States called up. He wants us to hold all French ships in the ports and then find a reason for it afterward. Gaston: We can hold them, that 1s simple. H.M.Jr: I have sent for Norman Thompson. I am going to draw up & piece of paper that Customs goes under you now. I can't be fooling around with Basil Harris who 1s here three days a week. I am sick and tired of it. (Mr. Thompson entered the conference.) H.M.Jr: Norman, draw up & piece of paper for me and I will sign it. You can leave it undated. Effective July 1st, Customs goes under Mr. Gaston. We have got to have somebody who is around here. I just can't be sitting here doing these things. You are willing to take it, aren't you? Gaston: Oh yes. Bell: He 1s doing a lot of it already. H.M.Jr: It 1s perfectly asinine. Did Basil tell you he was going away? Thompson: Yes, he said he was going to New York and he had an appointment with his dentist this morning. H.M.Jr: Well, I would like to have an appointment with my-dentist. I haven't had one for three months. I can't even get my hair cut. 30 - 3 - I am not going to fool around with him. If people aren't willing to take this thing 100% seriously, I won't fool around with them. Well, Herbert, you - I sent for Johnson and I am going to pin it on you that no ship flying the French flag sails from any port until we can find a legal reason to keep them here. Gaston: We have been -- H.M.Jr: That 18 what the President wants, and then it 18 up to you fellows to - the President Just phoned me. Viner: Well, Bernstein went to work this morning on what will be necessary to do that, 80 we may have something ready. H.M.Jr: I told the President we would do it and then find the reason for it. He said ewell. In the meantime, that would go for funds, too. Bell: Well, we are not releasing any funds except to pay American contractors. H.M.Jr: But you don't let any go out of the country? Bell: Haven't yet. H.M.Jr: Don't let it, please. Bell: All right, we'll watch it carefully. White: There has been some talk, and I take it we are going to explain it further, of possibly tying up the Government funds and using AB an excuse that it is against the war debt. Bell: There was an announcement of it at the White House this morning that the President had received hundreds of suggestions to use these funds against the war debt and he said the Department of State and the White House are studying the question. H.M.Jr: Well now, should I at my 3 o'clock press conference say that we are not going to - 4 - 81 let any French ship go or wait until we have got the legal reason? Foley: Sure. Viner: Let the White House make the announcement. H.M.Jr: Now, Herbert -- Gaston: You have told Johnson to hold the ships? H.M.Jr: I told Johnson to come over here. It is up to you. I am asking you to handle it. He 18 on his way over here. Gaston: All right. H.M.Jr: And, Herbert, I have said this publicly and privately, please get all the help you need, will you? Gaston: Oh yes. H.M.Jr: Will you? Gaston: Yes. H.M.Jr: I mean that you can have anybody that you want. Gaston: Mr. Harris was planning to go shortly anyway. Bell: I thought it was June let. H.M.Jr: I will ask him point blank. Thompson: Johnson told me a week ago that Harris had told him in view of the present situation he wouldn't think of walking out. H.M.Jr: What do you call what he 18 doing now? Gaston: Do you want me to go down and talk to Johnson? H.M.Jr: Would you? And did you hear what I said about help and yourself? Did it register? Gaston: That is the reason I made that statement, anticipating that Mr. Harris was going to go shortly I was planning to use & couple - 5 - 82 in that organization that Mr. Harris has in there now 80 that would depend on what he is going to do, but I can take care of that. H.M.Jr: All right then, we will continue with coffee. I wish you would stay, Jake. 83 June 24, 1940 FROM: MR. GASTON'S OFFICE The Secretary TO: After leaving your office around 3 p.m. I immediately called Expix Commander Field of Bureau of Navigation, who has to issue orders with respect to clearance; He said he would get out telegram to collectors at once and soon afterward phoned the following draft, which we approved in substance: "To All Collectors of Customs: Upon applica- tion for clearance made by any vessel under French registry or flag inform Department of Commerce immediately by telephone or telegraph and withold clearance pending definite instructions." He also notified NewYork by phone. MRG 84 TREASURY DEPARTMENT WASHINGTON June 24, 1940. MEMORANDUM FOR THE SECRETARY: Re: Special Stamps, or Receipts, for Defense Taxes. You have asked me to formulate a system of special stamps, returns, or receipts, to be used by, or given to, taxpayers, covering the additional taxes prescribed by Title II of the Revenue Act of 1940, referred to as "Defense Taxes,' the object being to bring home to taxpayers the fact that a specified portion of their taxes is being contributed directly to National Defense. The annual additional collections from the so-called Defense Taxes have been estimated by the Department at $672,300,000, as follows: 1. Income, capital stock, estate and gift taxes $302,400,000 2. Distilled spirits taxes 76,000,000 3. Beer tax 46,300,000 4. Wine taxes 1,600,000 5. Occupational taxes, liquor dealers 1,000,000 6. Cigarette tax 34,500,000 7. Miscellaneous stamp taxes (including playing cards, $400,000) 6,700,000 8. Gasoline tax. 112,000,000 9. Taxes on automobiles and accessories 18,500,000 10. Other manufacturers' excise taxes 10,900,000 11. Admission taxes 60,000,000 12. Other miscellaneous taxes 2,400,000 $672,300,000 Obviously no single method could be found which could be uniformly applied to all the above classifications, to accomplish the object which you have described. Any methods selected to accomplish this object must, moreover, be administratively practicable. They must occasion no substantial inconvenience or hardship to the taxpaying public, and must impose no cost upon the Bureau of Internal Revenue which can not be met within the limits of the appropriations available for collecting the revenue. Having these limitations in mind, I submit the following 85 Memo. for the Secretary--2. suggestions for steps which might be taken to accomplish your purpose, in the case of each of the classes of Defense Taxes above enumerated. 1.--Income, Capital Stock, Estate and Gift Taxes, $302,400,000. These taxes are paid on the basis of returns filed by the taxpayers. In my judgment, your point can be met satisfactorily for these classes of taxes by providing a special line on the tax return on which will be shown separately the amount of the additional tax due for Defense purposes under the Revenue Act of 1940. Supplementing this arrangement, it would be possible, if desired, for the quarterly notices sent to persons paying their income taxes in installments, to contain a statement to the effect that the taxes due and payable include the 10 per cent additional tax assessed for Defense purposes under the Revenue Act of 1940. 2.-Distilled Spirits Taxes, $76,000,000. These taxes are paid by stamps affixed to the bulk pack- ages (barrels) at the time the spirits are withdrawn from the distillery or warehouse for bottling. Since the whole of the distilled-spirits tax is paid by a few hundred distillers and warehousemen, there would apparently be no point in changing the present procedure for tax payment by providing a separate stamp to cover the additional Defense Tax. The present revenue laws require that all distilled spirits moving into the hands of retailers for sale must be in bottles, and they require, moreover, that each bottle of distilled spirits must carry a stamp as a symbol of tax payment. This is the familiar red or green "strip stamp." To accomplish the object which you have in mind, it would be practicable to substitute new designs for the "strip stamps" now in use, 80 that they could carry an appropriate legend show- ing that all internal revenue taxes had been paid, and mention- ing separately the additional Defense Tax collected under the Revenue Act of 1940. If desired, the basic tax rate and the additional rate for Defense purposes could be separately shown on the stamp. 3.--Beer Tax, $46,300,000. The tax on beer sold at bars by the glass is paid by stamp Regraded Unclassified Memo. for the Secretary--3. 86 affixed by the brewer to the bulk container (barrel). Since the bulk container is rarely, if ever, seen by the patrons, there would scarcely be any point in requiring the brewer to affix a separate and additional stamp for the Defense Tax, and it is not believed that this should be done. The tax on bottled beer is paid by stamp by the manu- facturing brewer on the basis of meter readings at the brewery. The stamps are taken up and canceled by revenue officers, and no stamp is required to be affixed to the bottle. The label affixed to the bottle by the brewer, however, is required to carry a statement to the effect that the internal revenue taxes have been paid, and it would be a simple matter to amend exist- ing regulations so as to require a specific reference in the label to the additional tax imposed for Defense purposes by the Revenue Act of 1940. 4.--Wine Taxes, $1,600,000. Wine taxes, like beer taxes, are collected by stamps af- fixed to the bulk package (barrel), and no stamp is required to be affixed to the bottle which reaches the consumer. The regulations, however, require the label on each bottle of wine to contain a statement to the effect that the internal revenue taxes have been paid. It would be practicable to require wine- makers and bottlers of wine to include in their bottle labels a specific reference to the Defense tax, should this be desired. 5.--Occupational Taxes, Liquor Dealers, $1,000,000. Persons paying occupational taxes as wholesale or retail dealers in distilled spirits, wines, or fermented malt liquors, are given receipts for such taxes in the form of stamps, and these are required to be prominently displayed at their re- spective places of business. It would be practicable to amend the form of receipt now used for this purpose so as to mention expressly the additional tax collected for Defense purposes under the Revenue Act of 1940. 6.--Cigarette Tax, $34,500,000. As is well known, the cigarette tax is paid by the manu- facturer, who is required to affix a stamp to each retail pack- age. It would not be feasible to require a separate and addi- tional stamp to be affixed to the retail package to cover the additional cigarette tax for Defense purposes under the Revenue Regraded Unclassified 87 Memo. for the Secretary--4. Act of 1940. To do 80 would involve all manufacturers in the necessity of securing expensive new equipment, and the imposi- tion of large financial burdens upon the manufacturers for this purpose could not, in my judgment, be justified. The same object can, however, be met by changing the design of the present cigarette tax stamp, without changing its size, so that the stamp will contain specific reference to the additional tax for Defense purposes. If desired, the new stamp can be designed in such a way as to show the base rate and the additional Defense rate, separately. 7.--Miscellaneous Stamp Taxes (including Playing Cards, $400,000), $6,700,000. Playing-card stamps.--It will be necessary in any case to redesign the playing-card stamp, since the stamp now in use is in the denomination of 10 cents. The new rate is 11 cents per pack. In redesigning this stamp, it would be feasible to follow the principle above suggested, that is, to make specific reference to the additional tax for Defense purposes under the Revenue Act of 1940, and, if desired, to show the base rate and the Defense tax separately. It would not, in my judgment, be advisable to incur the additional costs which would be in- volved, for both the Government and the manufacturers, in pro- viding a separate additional stamp for the additional Defense tax. Documentary-stamp taxes. tax on corporate securities, capital stock issues, capital stock transfers, transfers of bonds, deeds of conveyance, and steamship passage tickets, is collected by revenue stamps affixed to the documents involved. Special additional stamps to cover the increased rates for Defense purposes under Title II of the Revenue Act of 1940 would not be practicable. Documentary stamps are sold in various denominations, and in the case of any taxable trans- action the taxpayer is required to affix to the appropriate document, stamps having an aggregate value equal to the amount of tax due. It would be quite impossible to educate the tax- paying public to the proper use of supplementary additional stamps to cover the increase in rates for Defense purposes under the Revenue Act of 1940. As in the case of the items above discussed, however, it would be entirely feasible to redesign the documentary stamps in such a way that they would expressly mention the additional Regraded Unclassified Memo. for the Secretary--5. 88 taxes for Defense purposes under the Revenue Act of 1940, and it is believed that such a redesign would satisfactorily accomplish the object which you have in mind so far as documentary-stamp taxes are concerned. 8.--Gasoline Tax, $112,000,000; 9.--Taxes on Automobiles and Accessories, $18,500,000; 10.--Other Manufacturers" Excise Taxes, $10,900,000. These are excise taxes paid by the manufacturers on lubricating oils, gasoline, electric energy, tires and tubes, toilet preparations, automobile trucks, passenger automobiles and motorcycles, parts and accessories for automobiles, radio sets, mechanical refrigerators, firearms, shells, pistols, and revolvers. These taxes are paid on the basis of returns filed monthly by the manufacturers, numerically a relatively small class. It will be practicable to revise the existing returns so as to show separately the additional taxes due for Defense purposes under Title II of the Revenue Aot of 1940. 11.--Admission Taxes, $60,000,000. These taxes, like the manufacturers" excise taxes above referred to, are paid on the basis of returns filed by the proprietors of the theaters, cabarets, ball parks, race tracks, etc., involved. As in the case of the manufacturers' excise tax returns referred to, it would be feasible to amend the form of return so as to require the additional amount due for Defense purposes under Title II of the Revenue Act of 1940 to be separately stated on the return. It is considered doubtful whether the Department would have the authority to require those liable for the collection of amusement taxes to modify the form of admission ticket now in use so as to show separately the additional tax under Title II of the Revenue Act of 1940. 12.--Other Miscellaneous Taxes, $2,400,000. These include taxes on club dues and initiation fees, safe deposit boxes, and the transportation of oil by pipe line. It will be feasible to amend the form of return used in the collection of these taxes so as to show separately the additional Defense taxes collected under Title II of the Revenue Act of 1940. Regraded Unclassified Memo. for the Secretary--6. 89 It should be understood that it will be impossible in any case to make administrative changes such as have been described above to be uniformly effective on the dates when the new tax rates become effective. This is especially true of changes in the design of stamps covering changes in tax rates effective July 1 next. The redesign of the stamps above mentioned, and the manufacture of the required new stocks, would require a number of months' time on the part of the Bureau of Engraving and Printing, but since the in- creased tax rates are effective under the Revenue Act of 1940 for a period of five years, it is not believed that this nec- essary delay in the change of stamp designs would mitigate in any important way against the program which you have in mind. GRAVES. 90 December 12, 1939. Secretary Morgenthau Mr. Foley In accordance with your request, I have prepared & memorandum out- lining the scope of the Treasury's authority to assist in the program for national defense by exercising powers conferred upon it by the internal revenue laws. The discussion falls under three headings: (1) closing agreements, (2) obsolescence allowances, and (3) romedios of taxpayers. I Closing Agreements Closing agreements wore first authorized in 1921. Rovenuo Act of 1921, $1312. Restrictivo provisions in the law, however, provented any oxtensivo uso, even though in 1924 the original limitations were modi- fied. Rovenue Act of 1924, $1006; Rovonue Act of 1926, $1006(b). In 1928 both tho Committoe on Ways and Moans in the Houso of Ropro- sontatives and the Committoe on Finance in the Sonate criticized the continual reoponing of tax casos, by the government as well as by tax- payers. Both committoos suggostod that increased uso of closing agroe- monts would operate to diminish the number of roopened tax cases. In an offort to solvo the problem of rooponed tax cases, Congress removed the tochnical rostrictions which had made the uso of closing agrooments inoffoctual. Rovonue Act of 1928, §606. Howover, since Regraded Unclassified + 91 Congross had liberalized the provision relating to closing agreements primarily to settle finally income taxes for prior years, the law por- mittod the execution of such agreements only in respect of a previously oxisting tax liability. It was not until last year that the authority to execute closing agreements was extended to cover future tax liability. Rovenuo Act of 1938, $801. In delegating this authority to the Troasury, Congress recognized that the power would have to be exercised with considerable restraint to avoid discrimination among taxpayers. The Ways and Means Committee of the Houso of Ropresontatives in making its roport declared that "since closing agreements of this typo will constitute a now method of settling controversies, it is conten- plated that tho Commissioner [of Internal Revenue] will excrcise his discrotionary power only where such exercise is in the interost of a wise administration of the revenue system." House Report No. 1860, 75th Cong., 3d Soss., P. 67. It is clear, therofore, that Congross intonded closing agreements to be usod sololy for the purpose of assuring taxpayors some certainty in entoring into business transactions by settling in ndvance factual and logal questions likoly to be of a constantly recurring nature and in- volvod in the transaction in question. With this object in mind, the Treasury can bo of assistanco to tax- payers who intend to subnit bids for the production of itoms needed for 92 - 3 - the national defense by executing closing agreements to assure such bidders the method of charging against the cost of performing the contract ex- penditures for jigs, dies, tools and special machinery designed, constructed and suitable only for the performance of a particular job. On the other hand, if, for example, a prospective bidder proposes to erect a building having a probable period of uscfulness of 50 years, the possibility that at the end of the existing emergency the building may be useloss to the taxpayer and might be permanontly discarded from his busi- ness would not furnish the Commissioner a sufficient basis on which to ontor into n closing agrooment at this time, fixing the rate of obsolesconce on the building at 50 per contum por annum. Such a closing agreement would be prodicated upon two conjocturos: (a) that tho omergoncy period will last for 2 years, and (b) that the building will constitute surplus capacity having only salvage value. Noithor surmise can be made with any reasonable degroe of certainty. II Obsolosconce Allowances Under the Vinson-Tranmell Act the mothod of ascortaiming the amount of excoss profit to be paid into the Treasury is determined by the Socretary of the Treasury in agreement with the Secretary of the Navy. Public No. 135, 73d Cong., $3. 48 Stat. 505. Under the national defense act of 1939 the provisions of the Vinson-Trammoll Act are made applicable with rospect to contracts for aircraft for the Army in the samo mannor + 93 that such provisions are applicable to contracts for aircraft for the Navy. Public Nov 18, 76th Cong., $14, I.R.B. 1939-20, 13. Pursuant to those acts, the Treasury has issued excess profits rogulations for Navy contracts for vessels and aircraft, with the concur- ronco of the Secrotary of the Navy. T.D.4906, 4 F.R. 2492. The Treasury has also issued sinilar regulations for Army contracts for aircreft, with the concurrence of tho Secretary of War. T.D.4909, 4 F.R. 2733. These regulations provide that thore my be charged as part of the cost of performing a particular contract, or subcontract, under the Vinson-Trannell Act indirect factory expenses including "deprociation and obsolescence of special oquipment and facilities necessarily acquired for the performance of the contract or subcontract." T.D. 4906, $17.9: T.D. 4909, 16.8. With the concurrence of the Socrotary of the Navy, it was ruled in 1935 that the dotormination of & proper allowance for obsolescence of such special equipment must await the termination of the contract or sub- contract for which such special oquipment WC.B required inasruch as it could not be recsonably ascertained until thon whether the special oquip- nent would be useful in performing other contracts. I.T.2861, C.B. XIV-1, 530. In order to assure contractors that thoir profits derived from such contracts or subcontracts would not be distorted, it was ruled in June of this year that if, upën the completion of such a contract or subcontract, the Commissioner of Internal Revenue determines that special facilities 94 -5- required and usod sololy in the performance of the contract or subcontract are no longer boing used in connoction with any other operations nor have any furthor prospectivo uso, thon "thoir ontire and reasonable cost, less salvage value, will be gonorally accepted as part of the cost of perform- ing the particular contract or subcontract," but if the Commissioner of Internal Rovenue determinos that the spocial facilitios in quostion were not used sololy to perform the particular contract or subcontract, thon "allowance for exhaustion, woar and toar, and obsoloscence shall bo nado in accordance with a reasonably consistent plan, on a basis which will ro- turn to the contracting party the reasonable cost of such facilitios at the end of thoir expected oconomic tern of uscfulnoss, and ... The part of the cost, if any, remaining after doducting such allowances and the salvage value of such facilitios will be gonorally accepted as a part of the cost of performing tho particular contract or subcontract." I.T.3289, I.R.B. 1939-24, 13. Under the Intornel Revonue Code it is provided that in conputing not income thore should bo allowed as a deduction "a reasonable allowance for the oxhaustion, wear and tear on proporty usod in the trado or businoss, including a roasonable allowance for obsolesconce." I.R.C. $23. In accordance with this provision, the incono tax regulations state that if a texpayer shows that physical property is "boing effected by oconomic conditions that will result in its being abandoned at a future date prior to the ond of its normal usoful lifo, so that deprociation do- ductions alono are insufficient to roturn tho cost or other basis at tho Regraded Unclassif 95 -6- end of its oconomic torn of usefulness, c. reasonable allowance for obsolosconco, in addition to depreciation, my bo allowed in accord- nnce with the facts . Rogs. 101, art. 23(1)-6. It will bo notod that the provision in the income tax law r.nd in the incone tax regulations pormitting a deduction for obsoloscence in computing the incone tax is in conoral terms and applice aliko to all texpayors. Soo Gonbrinus Browery Co. v. Andorson, (1931) 282 U. S. 638, 644. There is nothing to indicate that Congross intondod that, for incone tnx purposos, the taxnble inconos of privato manufacturors of arnanont should be dotermined according to any different rules from the rules applicable to tho texable incomes of all other privato nanufacturers. Likewiso, thore is nothing to indicato that Congross intended that, for Vinson-Trannell Act purposes, obsoloscence should be determined under rules different from thoso which prevail with respect to the incone tax. All taxpayers, and all contracting partics subject to the Vinson- Trannoll Act, share aliko the privilogo of deducting a roasonable allow- nnco for obsolesconce. The anount of this allowance 18 the sun which should be sot asido for occh tarable year, in order that at the end of the useful life of the facilities in question, the aggregate sun sot nside will (with the sun set asido for deprociation plus salvaço value) be sufficient to provide an amount oqual to the original cost. Obsolosconce is a question of fact in each case. It ney ariso na the result of laws regulating or forbidding the particular uso of the graded Unclassified 96 -7- property as well as from changes in the art, the shifting of business centers, loss of trade, inndoquncies or other causes, Burnet V. Niagara Falls Browing Co., (1931) 282 U. S. 648, 654. In the case cited, the browing company had clained deductions for obsolescence in the years 1918 and 1919 because the invinence of national prohibition would require it to coase to use its browery for making boar. The Supreme Court took judicial notice of the fact that the Eightoonth Anendment had boen ratified by twolvo states in the first six months of 1918, by throe more before the end of 1918, and that in January, 1919, (bofore the tax roturn for 1918 was due) twenty-one additional statos ratifiod and prohibition was ostablished to tako effect one year later. On the basis of theso facts, the Suprene Court held that the browing company was justified in the early part of 1918 in concluding that its property would becone usoless for the purpose for which it was acquired. Applying this same principlo, the Supreno Court hold that a small arns anminition namifacturer who had constructed a plant solely to nanu- facture war orunition was entitled to trent the value of such plant re- naining after the Arnistico as salvage in conputing the company's income tex liability for the year 1918. United States Cartridge Co. V. United States, (1932) 284 U. S. 511. The general requirement that losses be deducted in the year that they are sustained follows from the neod for a practical tost in computing incono. The only roason on exception is made in the case of sone losses, such as obsoloscence, is bocause such loss is not only reasonably cortain Regraded Uncl ssified 97 -8- in fact but is ascertaimble in anount before the loss is absolutely realized. Henco, the right to on obsolescence doduction must rost upon sub- stantial reasons for believing that the property in question will become obsolete prior to the ond of its ordinary useful life, and it trust be known or susceptible of boing known to a reasonable dogroo of certainty when that ovent will likely occur. That the value of proporty or its carning power hns declined does not of itsolf furnish the basis for a deduction. First National Bank of Koy West V. Commissioner, (1932) 26 B.T.A. 370. It follows that, in the case of permanent buildings and standard nachinory, the fact that it is impossible on the basis of available ovidonce to compute any greater than the normal amount of deprociation and obsolosconce forbids the execution of closing agreements dotermining in advance en extraordinary obsoloscence allowance for such permanent buildings and standard nachinory. To do otherwise would be to purport to grant private manufacturers of arnament more than thoy are ontitlod to under the low. III Ronodies of Texpayers The incono tax law is basod upon a procodure of self-assessment, and the Vinson-Trannell Act provides that the assessment, colloction, and ro- fund provisions applicable with respect to the income tax shall be applied to Vinson-Tramell Act casos. Generally spooking, a taxpayer nakos out his return, conputos the tax on the not incone shown in the roturn which Regraded Unclassified 98 + he then filoo, and pays the tax indicated on the return. If the Colloctor of Internal Rovenue for the district in which the roturn is filed, or the Connissioner of Internal Rovenue, finds after reviewing or auditing the texpayor's roturn that the taxpayer OW08 a greater tax than that which ho indicated in the return, the Colloctor or the Conmissionor, 0.8 tho case my bo, advises the tax- payer of this dotormination and of his intontion to increase the tax. The taxpayer is thon Civon an opportunity to protest the proposed assessment of an additional tax end to show that ho has not under- assessed hinsclf. If the correct amount of liability is not agreed upon, the Connissioner usually proceeds to send the texpayer a notice of doficiency which sets forth his determination of a deficiency in the tax, and the taxpayer ncy within 90 days potition the Board of Tax Appoals for a redoternimation of the deficioncy, or the taxpayer my pay the tax and file a rofund clain. I.R.C. $271-277. The procedure by which the taxpayer may obtain a rofund in such case is, on the whole, the sane as if he had originally overnssessed and ovorpaid his tax and soeks to recover the amount of overpayment. The taxpayer may claim n. crodit or rofund within three years fron the time the roturn was filod or within two years from the tino the tax was paid. I.R.C. 3322(a)(b). If the Commissioner should reject the texpayor's clain for refund, the taxpayer may bring an action in the courts to rocover the taxes alloged to have beon orroneously collected within two years after tho Regraded Unclassified 99 -10- Commissioner sonds a notico of rejection. I.R.C. 03772-3774. If, however, the taxpayer has olocted to filo a potition with the Board of Tax Appeals, as & rule, the courts would have no jurisdiction over an action for the recovery of an overpayment for the taxable year which is pending before the Board. I.R.O. $322(c). It has not been intended to discuss in dotail in this menorandum all the applicable statutes and multitudinous decisions relating to the determination, assessment and collection of incone taxes, and the nothods for securing the return of overpayments. It has been deened sufficient neroly to indicate that anple remedies are open to a texpayer, or a contracting party subject to the Vinson-Trennell Act, who may fool hinself aggrieved by a dotornination of the Connissioner of Internal Revenuc. Nor do these remodies onbrace only statutory and legal proceedings. In an effort to reduce repetitious stops and long dolays in the sottle- nent of tax liability, the Treasury inaugurated on March 1, 1938, a definite program looking to the decentralization of the appellato pro- codure for the administrative sottlenent of tax cases. With certain exceptions as to reviow of audits in Washington, this procodure is fol- lowed with respect to cases arising under the Vinson-Trawell Act. Through the use in field divisions of the sottloment procodure de- veloped by the Technical Staff of the Burequ of Internal Rovonuo since its ostablishnont in 1933, the Treasury has provided a. nethod for the expoditious and economical disposition of tax disputes. 100 -11- It is fair to conclude that, although an erronoous deternination of the appropriate allowance for obsoloscence nay from tine to tine occur, the tax laws and the procodure doveloped for their administration in- variably afford tho taxpayer full opportunity to have any such mistakos rectified; and it is safe to prodict that whenever tho fact of obsolescence can be dofinitely shown and the point of tine of complete disappearance of valuo other than salvage valuo can be definitoly ascortained, tho taxpayer will obtain the full bonofit of the reasonable allowance for obsolesconce granted by the Congress. Elv Faliy R. them White 6-36-40 June 24, 1940. Copies to: Mr. D. W. Bell 101 Mr. H. Gaston Mr. J. Viner Home At B. conference in Mr. Bell's office, participated in by Messrs. Bell, Gaston, Viner and White, the follow- ing was arrived at: There was agreement: 1. that the additional taxes called forth by the special defense program be segregated wherever possible but without the use of stamps. (For example, the income returns should provide for segregation in the totals of the amount added because of special defense taxes.) 2. that no publicity be given to the program of segregating the additional tax from the regu- lar taxes but that the procedure be treated AB administrative routine 80 that the general 1dea will receive 28 little public attention 8.8 possible. The disadvantages of the use of stamps for defense taxes were suggested to be as follows: 1. The additional taxes cover less than a fourth of the Federal expenditures for the Army and Navy. Therefore, it would be misleading to label only the additional taxes "defense tax". (Possible ans.) - This could be avoided by labeling the additional taxes special defense "taxes. 2. The public has demonstrated its willingness to pay additional taxes and inasmuch as the ex- penditures are bound to be increased again it would be well to save the patriotic appeal of 8. special stamp for 2 time when we must make a really great effort. (Possible ans.) - Doubless expenditures on defense will increase, but the fact that the program of special etampe had already been established with respect to a small amount of taxes does not seem to wesken the efficacy of the idea when later applied to & larger amount. Regraded Unclassified 102 Division of Monetary - 2 - Research 3. The outstanding debt is 50 high that there 18 sufficient justification for a continuation of an additional tax even if defense expenditures were later to be reduced. To label the additional taxes "defense" taxes would render it difficult to continue the higher level of taxation after expenditures for defense have been out. (Possible ans.) - It is true that the additional tax imposed for defense may have to be continued in order to reduce the outstanding debt even after special defense expenditures have ceased. Yet the public is entitled to be reminded of that faot inasmuch as the excuse for the current additional tax has been the special defense program. Once the need for special defense taxes has ceased it should be easy to justify continued higher level of taxes on the grounds that it is necessary to re- duoe the outstanding debt provided the economic situation at the time justifies the same level of taxes. In any case, since special defense taxes will be in effect for a much longer period than five years, the problem for & long time to come is academic and not real. 4. The policy of allocating a special portion of tax receipts for special purposes 1s in general an unsound practice and lends itself to abuse. There 1s no more reason why taxes for defense should be 80 labeled than there would be for taxes for relief, or for agricultural subsidies to be segregated. Presumably all Government expenditures are desirable, else they would not be made. (Possible ans.) - The very special nature and magnitude of defense expenditures may justify making an exception to the general principle that taxes should not be allocated for any special purpose. It might be well to establish the special stamp procedure now for the very reason that we expect those special taxes to be much larger in the future. The use of special stamps has the virtue of calling to the attention of the taxpayer the fact that a portion of his direct Federal taxes has been necessitated by the special defense program. He may have a more intelligent attitude toward that problem. 103 Division of Monetary - 3 - Research 5. It would be difficult for the bearer of the tax to receive a stamp in payment for some of the special taxes -- e.g., gasoline and liquor taxes. (Possible ans.) - Though it may be ad- ministratively difficult to use stamps in many instances, the program need not have 100 percent coverage in order to have effect. 6. As increased expenditure for defense 18 necessary and therefore as the portion of the tax labeled 8.8 defense taxes increases, the reluctance of the public to spend the necessary amount for defense may possibly increase and render difficult obtaining sume adequate for defense expenditures. (Possible ans.) -- On the other hand, it may be held that the public will be less reluctant to pay higher taxes when they realize that those taxes are being imposed for reasons of special defense. 7. The administrative costs involved in the use of stamps might be substantial. (Possible ans.) -- The administrative costs would be too small an item to merit much weight in problems involving other issues indicated above. Regraded Unclassified ALLISON ENGINEERING COMPANY 104 Deliveries of Airplane Engines : Actual : Estimated deliveries on : deliveries : existing orders 1940 January 10 May 1 - 23 10 May 24 - June 1 5 June 2 - 8 4 June 9 - 15 8 June 16 - 22 11 June 23 - 30 49 July 115 August 160 September 310 October 351 November 331 December 332 1941 January 362 February 416 March 416 April 414 May 408 June 437 July 320 August 294 September 431 October 45 November 45 December 45 1942 January 25 February 21 Office of the Secretary of the Treasury, Division of Research and Statistics. June 24, 1940. 105 CONFIDENTIAL June 24, 1940 To: The Secretary From: Mr. Young Between June 6th and June 14th, the Navy Department, through Admiral Spear, notified Mr. Nelson, Chairman of the Liaison Committee, that certain materiel could be spared and made available to the British. Shortly thereafter, Mr. Purvis agreed to buy these supplies, subject to receipt of B. list of prices on the various items. I received a list of prices on Friday, June 21st, and immediately communicated with Mr. Ballantyne, Admiral Purlong of the Havy, and Colonel Minton of the Army. At my instiga- tion, Admiral Purlong issued orders that night to the various Navy depota to start packing the supplies and equipment. On Saturday morning, June 22nd, the official list of items, together with prices, was transmitted from the Navy Department to the War Department where it was subsequently approved as surplus by the Chief of Staff. By 5 o'clock Saturday afternoon, shipping arrangements had been made between U. S. Steel Export and the Havy. All supplies and equipment are to be concentrated at the Raritan Arsenal. The paper part of the transaction is to be handled by a supple- mental agreement between the Mar Department and Steel Export, which will be signed at Raritan the first part of this week. Admiral Fur long and Captain Byrnes of the Navy: General Harris, General Moore, and Colonel Minton of the Army were most helpful in working out this transaction. Attached is B. list of the items and prices involved. Note: The Navy originally offered to turn over 80 tor- pedoes and 640 depth charges to accompany the 20 motor boats, but these two items were withdrawn for the present. The Navy Regraded Unclassified 106 - 2 - also had offered to make available 4,093 Browning automatic rifles, and 400 Thompson sub-machine guns, but these two items vere withdrawn because legal transfer could not be made by the War Department. The Navy also had agreed to turn over 9 million rounds of .30 calibre ball ammunition, but this amount was reduced to 6,600,000 rounds due to the fact that the difference of 2,400,000 was located in the Pacific Islands and in the Canal Zone. Py. 107 List of Material and Prices Transmitted to Mr. Young from Colonel Minton, by telephone, 2:10 P.M., Saturday, June 22, 1940, as approved by the Chief of Staff. 3,000 Lewis machine guns, aircraft type, used @ $33.92 $101,760 3,000 Lewis machine guns, ground type, used e $33.92 101,760 18,000 Spare barrels for both type of Lewis machine gun @ $3.00 54,000 30,000 Magazines for Lewis machine guns @ $1.00 30,000 35,000 U. S. Rifles, calibre .30, model 1903 used @ $40.00 1,400,000 500 .38 calibre Smith & Wesson revolvers @ $10.55 5,275 1,000,000 Rounds ammunition (more or less) for .38 calibre Smith & Wesson revolvers 20,000 6,600,000 Rounds calibre .30 ball M-1 ammunition for machine guns at $30.00 per M (more or less) 198,000 Total $1,910,795 108 June 24, 1940 My dear Mr. President: The French have unquestionably learned a lot at a tragic cost. There must be a number of top flight aviators, aviation engineers, ordnance engineers, and designers who know through bitter experience what they should have had. France, as you well know, has been in the ordnance business for a lifetime. It seems to me that if a number of these men could be brought over here immediately and put at the disposal of the War and Navy Departments that we could profit greatly by their experience. Yours sincerely, (Signed) H. Morgenthau. It The President, The White House. m Memonager 235 109 June 24, 1940 My dear Mr. President: The French have unquestionably learned a lot at a tragic cost. There must be a number of top flight aviators, aviation engineers, ordnance engineers, and designers who know through bitter experience what they should have had. France, as you well know, has been in the ordnance business for a lifetime. It seems to me that if a number of these men could be brought over here immediately and put at the disposal of the War and Navy Departments that we could profit greatly by their experience. Yours sincerely, (Signed) E. Morgesthau, Jr. The President, The White House. a I 110 June 24, 1940 My dear Mr. President: The French have unquestionably learned a lot at 8. tragic cost. There must be a number of top flight aviators, aviation engineers, ordnance engineers, and designers who know through bitter experience what they should have had. France, as you well know, has been in the ordnance business for a lifetime. It seems to me that if a number of these men could be brought over here immediately and put at the disposal of the War and Navy Departments that we could profit greatly by their experience. Yours sincerely, (Sagned) E. Worgenthau. " The President, The White House. I di Regraded Unclassified 111 NEW YORK HERALD TRIBUNE FRANCE CALLS IN ALL GOLD AND FOREIGN CURRENCY I Repatriation of Securities and Accounts Abroad Ordered BORDEAUX, June 24 (UP) All foreigners in this country as well as Frenchmen were ordered today by & government decree to surrender their gold and foreign currency to the Bank of France. Another decree ordered all securities and bank accounts abroad to be repatriated immediately. (Under the terms of the French-German Armistice, as announced at London, the French government must "prevent transfer" of valuables and stocks from occupied to nonoccupied territory or abroad.") 112 Handed by Mr. Pinsent of the British Embassy to Mr. Cochran in the Treasury at 1 p.m., June 24, 1940. The blocking of French balance applies to accounts of persons and concerns in France itself but not at present in French overseas possessions. Payments to and from accounts at United Kingdom banks of United Kingdom branches of French banks are permitted, but assurances are being obtained from branches that they will not accept instructions from enemy-occupied territory whether from their head offices or otherwise and that they will refer doubtful cases to Bank of England. 1681 AI M9 AS HUL 048 06101 YRAT3 GHT oT Birtish Surbam, 20th June 1540 5011 THATSASA CRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. 113 DEPARTMENT OF STATE WASHINGTON June 24, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses one copy of paraphrase of telegram No. 81 from Bordeaux. Y8AT38032 SHT oT LECHNICATION V23121VHL SMT 70 OLINE 12 Si 119 AS MR ONG IBEVENSA BECEIVED DELIVERENT 114 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consul, Bordeaux (Paris) DATE: June 23, 1940 Ree'd 11:18 p.m., 24th. No.: 81 FOR SECRETARY MORGENTHAU. Reference 1s made to telegram of June 20, noon, from the Department. The rights for manufacturing Hispana Suiza engine are now owned by Matford, of which Dolfuss is President. Dolfuss said that his company was about to go into produc- tion in France, but that not manufacturing rights have been ceded by him to the Ford Company through Henry and Edsel Ford. It 18 doubtful whether, in the present confusion, any French authority would be in a position to take action to transfer the licence to the Government of the United States, even if legal authority to do 80 were held by the French Government, which 1s not the case, according to Dolfuss. BIDDLE. EA:LWW 19 ME 26 180m 12 5 199 15 via 00 CONFIDENTIAL 115 June 24, 1940 My dear Admiral Noyes: Will you please transmit the following cable for me to Ambassador Kennedy via secret naval code: QUOTE - 1. Could you find out what has happened to French aircraft carrier Bearn and its cargo of American airplanes? 2. I have only turned over the plans for the Rolls Royce Merlin engines III - X - XX to manufacturers. Pending receiving word from Lord Beaverbrook direct through you, I am holding the balance of the plans in custody. Please ask Lord Beaverbrook what he wishes me to do with them. The Rolls Royce representative in this country is making a nuisance of himself. - UNQUOTE Yours sincerely, (Signed) E. Morgenthou, Jr. Rear Admiral Leigh Noyes, U.S.N. Director of Naval Communications, Room 2622, Navy Building Washington, D.C. (page 254) See Kennedy's cable of 6/25, filed in Rolls Royce book, which says that Bearn left Halifax June 16th for France and was diverted to North African port. mr. slye secret Service 420 20 Regraded Unclassified 116 CONFIDENTIAL June 24, 1940 To: The Secretary From: Mr. Young AIRPLANE CONTRACT Date: This contract, which covered the exchange of 93 Northrup A-17A bombers for Douglas A-20A attack planes, was approved by the War Department and Douglas at 11:50 A.M., June 14, 1940. Equipment: Each bomber was completely equipped with five guns, radio equipment, bombracks and minor accessories. Included also were spare engines, spare guns, and spare parts. The 20 Douglas A-20A attack planes received by the War Department in exchange are to be completely equipped with guns, radio equipment, bombracks, and minor accessories. Value: The total value of this contract is $3,200,000. BOMB CONTRACT Date: A contract for the exchange of 565 100-1b. demoli- tion bombs, 5,343 30-1b. fragmentation bombs, and 100,000 charges of nitro-cellulose powder for 155 - guns was sp- proved by the War Department and the Harrisburg Steel Com- pany at 4:35 P.M., June 13, 1940. Regraded Unclassified 117 - 2 - Both sets of bombs were turned over to the Army by the Navy and are for use with the 93 Northrup A-17A bombers. The nitro-cellulose powder was a miscellaneous item which had no connection with the airplanes. In exchange for these three items, the Army will receive 7 million pounds of TNT, 31,234 cases for 500-1b. bombs, and 50,000 cases for 100-1b, bombs. Value: The total value of this contract is $3,012,000. Present Status: 55 of the 93 planes were flown from Mitchel Field to Halifax, where there is a carrier waiting, last Friday, June 21st. The carrier will leave as soon as the planes can be partially disassembled and loaded. The remaining 38 planes are at Floyd Bennett Field where 15 are already packed and ready for shipment. One ship will leave within a day or two with 20 planes, and two ships will leave before the end of the week with the balance. The bombs were shipped by rail to Halifax and pre- sumably will go on the carrier. Py. Regraded Unclassified 118 CONFIDENTIAL FOR YOUR INFORMATION June 24, 1940 To: The Secretary From: Mr. Young As of June 22, 1940, 45.6 per cent of the total value of the equipment and supplies furnished the Anglo-French Purchasing Board from U. S. Steel Export was shipped. As no TNT or smokeless powder had been shipped to date, the value of the material shipped actually amounts to 55.4 per cent of the total supplies and equipment contracted for omitting the value of these explosives. None of these supplies and equipment have been shipped to France. P.G. Regraded Unclassified 119 Him f has mot seend whare cap, P4. SHIPMENT OF WAR MATERIAL FROM 6/24/40 UNITED STATES TO ENGLAND June 22nd, 1940. Total value of all material $37,619,556.60 Less value of T.N.T. and smokeless Powder 6,621,060.00 Total value of Material other than T.N.T. and 30,998,496.60 Smokeless Powder Dollar value of Material shipped other than T. N. T. and Smokeless Powder 55-4/10% of $30,998,496.60 = $17,177,862.97 Dollar value of Material shipped ($17,177,862.97) is 45-6/10% of Total Value of all Material $37,619,556.60 NOTE: No T. N. T. and Smokeless Powder shipped except 3,000 lbs. as sample. Attached is approximate itemized list of materials shipped. Regraded Unclassified APPROXIMATE FIGURES OF SUPPLIES LOADED SUBJECT TO CONFIRMATION 1. Eastern Prince 48 .75 m.m. guns with complement of springs, pistons, adapters and sights 4,100 Browning Automatic Rifles 15,259 Lewis Machine guns - air and spare parts 392 Marlin Machine guns - tank type 8,940 Enfields 37,284,960 Rounds .30 calibre Ball ammunition 14,900 Leather gun slings 1 Case Handbooks 2. Pasteur 95 75 m.m. guns 45 Caissons 203 Limbers 1 Case Handbooks 3. Tillsington Court - a British ship, loaded by French and figures are very approximate. 33 75 m.m. guns 219 Caissons 213 Limbers and spare parts 128,140 Enfield rifles - bayonets and scabbards for same 33,565,102 .30 calibre Ball cartridges 1,705 Browning Automatic Rifles 7,712 Browning Machine guns with parts 1,057 Marlin Machine guns - tank type 11,951 Marlin Machine guns - aircraft 8,015 Lewis - aircraft 40 Lewis - ground - magazines for these 10,000 Smith and Wesson revolvers 10,000 Holsters Regraded Unclassified 120 8,650 Vickers Aircraft Machine Guns 5,000 Vickers Aircraft Machine guns - ground type (very rough estimate) 116 Stokes Mortars 4. Pacific Shipper - going today (loaded) 140,000 to 150,000 75 m.m. shells 75 Stokes Mortars 188 75 m.m. guns 260 Limbers 72 Caissons 9,700 Browning Automatic Rifles 33,182,378 Rounds of .30 calibre Ball ammunition 41,720 Enfields Small lot (1,500 lbs.) smokeless powder for guns 1,500 lbs for Howitzers - both for testing purposes 25,000 Stoke Mortar shells 858 Lewis Machine guns - ground 8,784 Lewis Machine guns - air 3,539 Vickers Machine guns - ground 81 Marlin Machine guns - air 362 Marlin Machine guns - tank 130,000 Bayonets 130,000 Scabbards and same number of gun slings 5. Dalcross - left 5 a.m. this morning (not confirmed) 300,000 75 m.m. H.E. shells Regraded Unclassified 120-A BRITISH EMBASSY, WASHINGTON, D.C. June 23rd, 1940. Personal and secret. Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the two latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Lolazion The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Telegram despatched from London early on the evening of June 22nd. Approximately 100 onemy aircraft crossed east and south coasts of Sngland last might. Recurring warnings were given at 17 places in eastern and southern England. Prelizia- ary reports state that H.R. bombs have dropped at #iekhambrook (about 9 miles south of Newmarket) Sudbury and Bury St. Rdmonds without causing major damage and ineendiary bombs started fires in fields near Guisborough (York.). Several aerodrome gun posts and searchlights in east Anglis also attacked but without result. our fighter patrols made only one interception and this was inconclusive. 2. Evacuation of Delgian, Csech, French and Polish troops continued from Bordeaux yester- day. Total evacuation figures up to midday yesterday were as follows: personnel, fit - 124,841, casualties 2,193, allied troops 4,410. Poliah Government in France arrived in England yesterday. 3. Fighting continues in Alsace Lorrains round Belfort and elsewhere. In Burgundy armoured and motorised forces which compied Lyons are pressing down Rhone Valley probably to open Savoy and Deuphine to Italians. German forces are consolidating along Fiver Cher but further/ Regraded Unclassified further west southward advance down the coast proseeds about lower Leire. Purther reports reseived that number of parashute troops in Germany is being considerably increased. 4. Fleet sir are yesterday attacked with 500 1b. bombs battle eraiser "Scharmhorst" in Norwegian waters. Three hits obtained on ship and one near miss along side. Two aircraft missing one N.B. 109 shot down. Mine laying operations also carried out last night by fleet air arm. All aircraft returned. 5. Blemheims attacked oil targets in north- western Germany yesterday. 011 plants, marchalling yards and sircreft factories were also attacked by 105 Vellingtons, Hampdens and whitleys in same area last night. Two of our aircraft missing. Reports of attacks carried out by heavy bombers on might of June 20th-21st include mention of exphosions caused at chemical works at Ludwigshaven, fires at unrehalling yards at Osterfeld and at Gottingen aerodrome. Bombe also fell on factory buildings at Hitzacker. 6. Decrease reported in scale of German air operations in France but attacks eontinue on shipping. off Brest and estuary of Loire. Mine- laying in Channel also continues. Bomber recommaiseance airtraft mainly notive from Lyens to Bordecux over estuaries of Girone and Leire. Reports received that dive-bomber and fighter write in Dunkirk-Boulogne area my be coon increased. No change in activity of German transport/ Regraded Unclassified transport aireraft. Night flying navigational training renewed in Sectorn Germany on anall scale but normal advanced training which showed marked decrease a week ago continues at the same low level. Italy. 7+ Reports of Italian aircraft, probably DOBD ers and fighters, being transferred to bases in Germany. These are probably being sent in exchange for 0-rumn reinforcements in Sicily. on June 20th British bombers from REYDE attacked two Italian serodrames in Rast Libya. Six enemy aircraft destroyed by fire and others dom god. As result of Royal Air Force and South African AIr Force action, it 10 considered that major air operations by Isalian Air Porce in Itelien East Africa are unlikely at present. Enemy aircraft attacked envoy in home waters last night but no damage reported. Code awedish vousel and one Yugeslev vessel sunk by torpodoes in vestorn approaches on June 20th. Two British vessels and oneBelgian vessel sunk off western coast of Europe on June 21st. 8. Three attacks were usde on enemy sub marines in these waters on June 20th and 21st. One of these attacks thought to have been success- rul. 10. Later news. Five enemy air reids on salte yesterday. Many bombe fell in the sea. No military damage or casualties but floating dook has sunt. Successful attacks by Blemheims from Adea on Macason aerodrome. All aircraft returned. British Someliland reports enemy patrol activity and air reconsaissance on June 20th. Regraded Unclassified. Telegram despatched from London on the evening of June 22nd. United Kingdom. Small numbers of enemy aircraft approached the east coast of England and Scotland yesterday but fighters were unable to obtain interceptions. No attacks on the United Kingdom took place in the last twenty-four hours. Aircraft which attacked the United Kingdom the night of June 19th-20th were operating from aerodremes in Lille and Dijon areas. 2. British Expeditionary Force, Following personnel and stores disemberked in the United Kingdom up to midnight last nights personnel, at - 122,006; personnel, wounded - 2,174; ellied troops, - 2,486. No change in figures for guns, vehicles, ausumition and stores. All British and Polish troops have been evacuated from La Fallice where French demolitions are proceeding. Efforts are being mde to carry out the evacuation of further bodies of Polish troops now in the visimity of other ports. 3. No official news of the situation of French troops but reports received yesterday that resistence continues in Alsace and about Samar. In Alease Lorraine several German amount divis- iens continue to operate and claim the eapture of Nancy/ Regraded Unclassified -2- Manoy, Lumeville, Toul and Stresbourg, There appears to have been considerable resistance round Epinal before it fell. German forces advancing down the Saone Valley towards Lyon reported to have been reinforced. Lille (sie) fell yesterday. Possible that aim of those forces is to join up with the Italian forces on the Praneo-Italian frontier. To the west the Germane have reached the vestern edge of the Auverge platesp at Vichy and further west still they have reached the river Cher and River Loire from Bourges through Tours and Angers to Nantes. Heavy gun emplacement reported under construction near Cap Hane - Nes. Signs that another similar emplacement 18 being started in the visinity. Report has been received that 20 German divisions in the rear being reserve to the vestern front have been shipped to the Russian frontéer and that troops that and tanks from Norway and Desmark are being landed at east Prussian ports. Above movements appear possible since troops could nor be spared and would be counter to the recent Russian noves into the Baltie States. It appears that the French armistice delegation reached German occupied torritory about Tours early this norning. 4. Last night 56 Whitleys and Hampdone attacked works, air-park, aquedust and railway targets in Western Germay. One Whitley and ene Hampden missing. Proliminary reports indicate that attacks on suitable targets on the might/ Regraded Unclassified -3- night of June 19th-20th were successful. Blenheims attecked Rouse early yeaterday obtain- ing hits on hangure and circraft. All Blen- hoims returned safely. Fleet Air APR successfully attacked dooks at Ijmuiden, Holland, on the night of June 19th-20th. Yesterday Blenheime attacked Ameterdem serodrome. Attack hempered by weather conditions but all aircraft returned safely. 36 fighter sir- sraft operated over enemy occupied aerodromes in northern France yesterday. 40 Junker 52's attacked on the ground at Rousa. 16 thought to have been damaged and 4 set on fire. All our aireraft returned. 5. Enemy bomber reconnaissance aircraft very notive yeaterday over Prence particularly in the neighbourhood of Marecilles and Toulon. Aerodrones for nearly all those aircraft opers- ting in the visinity of the United Kingdom appear to be near Brussels. Dive bonber units yesterday operated in Epinal and Charbourg arous. Gerumn fighters being moved to forward areas in western France. Large amount of sir transport notivity yesterday sentered round Brussels. Italy. 6. No reports of military activity on June 19th. Libyan garrison reinforced recently and white troops there now approaching 250,000. Reports received that black-shirt corps in Cirension is being reinforced by Italian white division. In joint attack on Piside (due west of Tripoli) this Italian post completely/ Regraded Unclass ÷ completely destroyed. sorale of the Italian Libian troops appears doubtful and units are being exchanged between Tripolitania and Cirensies. Supply problem in Libya is becoming extremely difficult for the Italians and cases have been reported of troops failing to receive rations for 2 or 3 days and being short of water. Reference reports in my immediately preceding telegrem regarding contemplated movement of German troops through Italy to Africa. There are no indica- tions that such movements immediately impending and no identifications of German troops in Italy have been received. Employment of large German forces in North Africa would be restricted by shortage of water supply. There are however indications of further German bomber reinforcemente in Bisily. Italian command in East Africa reported concerned over their losses in aircraft/ and fuel. Movement of bombers in Italian East Africa indicates threat to Djibouti. Walta raided by aircreft early today. Ploating dosk badly dam god. Italians raided Meres Matruh yesterday. One other rank killed. Two Italian aircreft brought down. Three enemy fighters shot down and two bodly damaged in this area on June 19th. One British fighter missing. Blenheime operating from Adem successfully attacked aerodross and reilway station at Diredaws yesterday. Italiam column located north of Moyale (northern frontier of senya) were bombed and mohins gunned by British aircraft yesterday. Itelian acrodrome at Yavello bombed on June 19th. Three enemy sircraft destroyed/ Regraded Unclassified -3- destroyed sad ase Murricene lost. Italian air losses so date are confirmed 29, unsonfirmed 9, and damaged 9. In OUP attnok on si wat (Italian Someliland) on June 18th Italian barracks and ammunition destroyed. Our infentry repulsed Itelian counter-attack and wi thdrew successfully. Four British wounded. 7. Canadian troop convoy has arrived in England. British submarine reports having torpedoed enemy battle oruiser yesterday outside Trondheim. British submarine senk Italian submarine northwest of Tobruk yesterday. Enek submarine sank by aircraft in home waters yesterday. Italian submarine attacked by aircraft in eastern #editerraneen yesterday. Result not known. Considerable enemy submarine and air activity off western coast of Prance and England on June 19th and June 20th. Five British and cas Belgian vessels sttneked by submarins of which two British vessela were ounk and several damaged by torpedoes. One British vessel sttecked by motor torpedo boats end subsequently beached. Four British end one French vessel attacked by aircraft but no information as to whether any of these were sunk. One Dutch ship sunk by mine. Regraded Unclassified 120-J BRITISH EMBASSY, WASHINGTON, D.C. June 24th, 1940. Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Lolazan The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Telegram despatched from London on the evening of June 23rd. 1. Inemy bomber reconnaissance aircraft very active yesterday over coast of northwest Trance and south eoset of England no far cost as Portland. Their air notivity cassed at 21.00 hours, probably due to weather conditions. During air attacks on Angland on night of June 21st-22nd, casualties were three killed and three injured. No key point hit. Private houses were damaged in Newesatle region. H.E.'s dropped in Leeds region, but no damage 60 for reported. slight damage by bombs in Bottingham region. Number of bombs were dropped in the eastern part of Cambridge region, many of which failed to explode. little damage caused except in Ipswich where homes were damaged and three people killed. Selvo of bombs fell in Harwich harbour, but did not explods. Considerable number of incendiary bombs dropped in Tumbridge wells region but little damage done. There are indientions of increased air preparations in Calmis area and of concentration of barges between rivers. scheldt and Lines. 2. Total personnel, stores and equipment landed in United Kingdom from Prence up to 12.00 hours on June 22nd NOTO: fit, 134,061; casualties, 2,488/ Regraded Unclassified -2- 2,488; guns, 310; vehicles, 2,292; ammunition and stores, 1800 tons; 300 are said to be Frensh personnel; 1,612 Poles, 203 Caechs vere landed in Englend yesterday morning. Total allied personnel landed up to midday yesterday is 12,716. These are not the final figures. 3. Fighting still continues in Alsace Lorraine. No further information regarding German foree movements down khone Valley. German advance southwards continues west of Bourges. 4. One gumboat and two old Dutch cruisers sunk in harbour at Texel by Fleet air BPM on June 21st. Fleet air are obtained four direct hits on now shore battery near Calais on the same day. One British aircraft mining. Guns of this battery estimated to be 4.7. Pleet air are wank German merchant vessel off Haugesund yesterday. Five submarines also attacked off Terechelling, but no hits observed. One Dornier aircraft destroyed (uncemfirmed). Fleet air are attacked #illemsoord harbour on June 21st, sinking a gunnery training ship and a coast defence ship and severely damaging 8 gunboat. Warehouses and oil tanks also not on fire. Aerodrome and offices at Cost-Willeand also successfully attacked. Two British airereft missing, and one Messerschmidt 109 probably shot down. Eighteen Biemhoims secorted by fighters successfull attacked Nerville aerodrose yesterday, all our signesft returned. Nine Hurricanes operating over northern Presse shot down one Nesserschmidt 110 confirmed/ Regraded Unclassified -3- confirmed, one Junker 52, two Messerschmidt 110's and three Heinkel 111's unconfirmed. One Hurricane missing. Owing to bed veather projected air operations by Royal sir Force 2020 cancelled last might. Attacks on targets in western Germany on night of June 21st were very successful and many direct hits obtained. A few aircraft unable to losste original targets, but successfully bombed alternatives. 5. German aircreft still active against shipping off west coast of France and against unknown targets in Central Pronee. Marseilles and Toulon were heavily bombed on the night of June 22nd-23rd, but work of these parts not seriously interrupted. Activity of German trens- port airoraft continues. Italy. 6. In northern frontier district of Kenya, enemy columns were bombed near vajir and Moyale. Light enemy air raide on Marasbit and Gariess. One French bettleship, three cruisers and destroyer bombarded military objectives at Bardia (Gulf of Sollum) on June 21st with good results. On June 21st Blenheims bombed warships at Tobruk in cooperation with navel bombardment. One large ship and two energy sircraft badly damaged. All our aircraft returned. on night of June 20th-21st, Merca Matroh heavily bombed but damage elight and no casualties. Italians carried out intermittent air-raids on Alexandria on/ Regraded Unclassified + en sight of sume 210t-22nd, causing 25 civilien ensualties. Egyptien Acho grand were in cotion. Purchaste training reported neer Syreense and elcowhere. 7. Three ships were attacked w submarines in vestern approaches on June 21st. Regraded Unclassifie 120 - - 0 BRITISH EMBASSY, WASHINGTON. June 84th, 1940 Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Loluzan The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Regraded Unclassified Telegram despatched from London on evening of June 24th, 1940. Several enemy aircraft reported yesterday in Straits of Dover area. One energy aircreft passed over Dover. Our fighters claim one Heinkel 113 at present unconfirmed. No enemy aircraft over this country last night. British Ambassador in France with Canadian and South African Ministers have left for England in a warchip. 24 Blenheims attacked railway targets in Ruhr and aerodromes in Low Countries yesterday. 3 Aircraft missing. 26 Whitleys and 44 Hampdens attacked Aluminium works, aircraft works and railway targets in Western Germany last night. Reports not yet received. All aircraft returned. Air photographs obtained yesterday of one battle cruiser one "Hipper" class ordiser and three destroyers in Trondhejm harbour. Cerman bomber reconnaissence aircraft mainly employed in searching for shipping off West Coast of France and in English Channel yesterday. Aircraft from Norway reconneitred North-east coast of Scotland and Orkneys. Meteorological flights in Northern North Res and over Orkneys and shetlands have increased. Aircraft report one British destroyer lying/ Regraded Unclassified lying on her side in Perim harbour probably as result of air attack. Casulaties reported slight. One Britich steamer sunk by torpedo in home waters last night. submarine in Restern approsches attacked last night by destroyer. Result not known. Italy Bombing of wilan and Turin reported to have caused considerable cemoralisation. Serious disturbances necessitating fixing by police took place in each town on June 8th and June vth. on June Elst large ensay encamp- ment near gyptain frontier successfully attacked by British aircraft. Diredawa (Abyasinia) bombed on June Blind and two enemy aircraft destroyed. aerodrome (Rritres) also bombed. 15 enemy bombers escorted by fighters attacked Helto yesterday. One Macchi 800 8 shot down by Cladistor. 5 Civiliana slightly injured and little anterial damage chused. One enemy aircraft shot down on June 22nd. nemy also raided Djibusi. Ten people killed, seven injured, and elight material damage. Two Italian aircraft coptured in British Commilland. Italian submarine reported sunk by deetroyer outh-west of Parim on June 23rd. Another sunk Italian subsarine observed near Port Tudan. Regraded Unclassified 121 No. 765 AMERICAN CONSULATE GENERAL Sao Paulo, Brazil, 24 June 1940. Subject: Blocked Securities of Certain Countries. . The Honorable The Secretary of State Washington. Sir: I have the honor to report that several inquiries have been made of this office concerning the possible release of small funds from blocked securities and cash in the United States belonging to nationale of Denmark, Norway, the Netherlands, etc. The Dutch Consul has called attention to the specific case of a subject of the Netherlands, resident in Sao Paulo, whose only source of income has been the small amounts of interest and dividends received from his securities and cash in the United States; and has inquired whether there is any proce- dure by which this hardship may be overcome. Respectfully yours, Reginald S. Kazanjian, American Vice Consul. 851 RSK/hvf copy Regraded Unclassified 122 CONFIDENTIAL FOR YOUR INFORMATION June 24, 1940 To: The Secretary From: Mr. Young At a conference in your office at 2:45 P.M., June 12th, at which were present Secretary Woodring, General Marshall, Assistant Secretary Compton, and Admiral Stark, among others, General Marshall refused the request of the Anglo-French Pur- chasing Board to release 500,000 Enfield rifles with ammini- tion. During that conversation, however, General Marshall stated that a lesser number, perhaps 200,000 rifles, might be released. At a conference which immediately followed in the of- fice of Mr. Nelson, at which were present Sir Henry Self, Mr. Purvis, Mr. Ballantyne, Mr. Nelson, and Mr. Young, the refusal of General Marshall to release 500,000 Enfield rifles vas transmitted to Mr. Purvis. It was mentioned, however, that a smaller number, perhaps 200,000, might be available for release in the future. I vas subsequently advised by Mr. Ballantyne that Mr. Purvis considered that 200,000 Enfields had been offi- cially released, a statement which is incorrect and has no foundation in fact as I recall the conversation. Due to the fact, however, that General Marshall did state that possibly some Enfield rifles might be released, the Purchasing Board is submitting another request for at least 200,000 Enfield rifles. P4. 123 June 24, 1940 My dear Mr. President: In view of your memorandum of June 15th addressed to the Secretaries of War and Navy, copy of which is inclosed herewith, I have addressed a letter to the Secretaries of War and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson- Trammell Act. A copy of this letter is also inclosed. I am sending & copy of my letter to the Secretaries of War and Navy to Mr. William H. McReynolds 80 that he, in turn, can inform the Advisory Council as to the delivery procedure. Yours sincerely, (Sagned) H. Mergenthan. fr. The President, The White House. 2 Enclosures: File m Hompson gave nme the the returned to him. By Messenger 4 45 Regraded Unclassified 124 June 24, 1940 My dear Mr. President: In view of your memorandum of June 15th addressed to the Secretaries of War and Navy, copy of which is inclosed herewith, I have addressed a letter to the Secretaries of War and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson- Trammell Act. A copy of this letter is also inclosed. I am sending & copy of my letter to the Secretaries of War and Navy to Mr. William H. McReynolds 80 that he, in turn, can inform the Advisory Council as to the delivery procedure. Yours sincerely, (Signed) B. Margesthau. Jr. The President, The White House. By Messenger Regraded Unclassified 125 June 24, 1940 My dear Mr. President: In view of your memorandum of June 15th addressed to the Secretaries of War and Navy, copy of which is inclosed herewith, I have addressed & letter to the Secretaries of War and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson- Trammell Act. A copy of this letter is also inclosed. I an sending a copy of my letter to the Secretaries of War and Navy to Mr. William H. McReynolds so that he, in turn, can inform the Advisory Council as to the delivery procedure. Yours sincerely, (Signed) 1. Mergenthan, Jr. The President, The White House. By Messenger 178 June 20, 1940. Bity dear Vr. Secretary: Under existing law the Treasury Department determines what por- Non of the cost of special additional equipment and facilities shall be charged against a contract of the War or Navy Department for the construction or manufacture of a. complete naval vassel or army or navy aircraft or any portion thereof. Under 8 procedure for closing agreements provided for by section 3760 of the Internal Revenue Code, a procedure was adopted whereby the Treasury would, prior to the execution of the contract, fix the amount which under existing law may be determined in advance as chargeable to the contract. Such a. closing agreement wis entered into only after certification by the Secretary of War or the Secretary of the Navy, as the case may be. In much cases the contractor filed hds request for a closing agree- cant with the Commissioner of Internal Revenue, and & copy thereof was filed with the War Department or the Navy Department, AS the CASE city be, in order to facilitate certification by such department. If section 4 of H. R. 9822 (76th Cong., 3d sess.) becomes law, this practice of entering into closing agreements with respect to special equipment and facilities will be discontinued. Section 4 of H. R. 9822 would modify this existing practice by requiring the Secretary of Mar or the Secretary of the Navy, as the case my be, to determine in advance what portion of the cost of the special additional aquipment and facilities shall be borne by the government and charged against the particular contract. The Secretary concerned will make certification is required by such section 4 to the Commissioner of Internal Revenue. Such certifica- tion would be binding upon the Commissioner of Internal Revenue, subject to such regulations as the President may prescribe. The President has indicated that Treasury approval of the certification will be necessary. In the Treasury Department the duty of consider- ing such certification and of recommending Treasury action thereon will be performed by a Treasury Committee composed of Timothy C. Mooney, Chairman, Herman T. Reiling, Vice-Chairman, John 1. Burrus, C. 1. Appel, and Dean W. Kartin. Under the new procedure the contractor's request for 1 determination by the Secretary of War or the Secretary of the Havy, as the case my be, shall be filed with the Secretary of the Department concerned. In order to facilitate action alongithe lines indicated by the President, it 10 suggested that- Regraded Unclassified 127 - 2 - (1) Copies of the contractor's request should be forwarded immediately to Mr. Timothy C. Mooney, Chairman, Room 4002, Internal Revenue Building; (2) Three copies of the certification by the Secretary concerned (agreed to by the contracting party), together with a copy of the contract or proposed contract shall be transmitted directly to the above-mentionsd Chairman; (3) The certification shall itemise the special additional equipment and facilities, state the necessity and cost (or estimated cost) of each item thereof, and the percentage of cost of each item to be charged against the contract or subcontract; (&) A certification shall not be approved by the Treasury unless a certification has been made with respect to the first contract or subsontract on which such special additional equipment and facilities are useds and has been made successively thereafter on any intervening contracts or subcontracts. Following consideration by the Treasury Committee referred to above, the Chairman or Acting Chairman thereof will make his recom- mendation for approval or disapproval of the certificate direct to the Secretary of the Treasury, whose decision will be forwarded is- mediately to you. Very truly yours, (Signed) E. Morgenthau, Jr. Secretary of the Treasury. The Monorable The Secretary of the Navy. CC to Thomoson. HTR/smo/tow 6-20-40 tubeice copy $ Mr. Browshick, Revenced 5, .... Bunnen Regraded Unclassified 126 June 20, 1940. My dear Vr. Secretary: Under existing law the Treasury Department determines what por- tion of the cost of special additional equipment and facilities shall be charged against & contract of the War or Navy Department for the construction or manufacture of a complete naval vessel or army or navy aircraft or any portion thereof, Under & procedure for closing agreements provided for by section 3760 of the Internal Revenue Code, 1 procedure was adopted whereby the Treasury would, prior to the execution of the contract, fix the amount which under existing law may be determined in advance as chargeable to the contract. Such a closing agreement was entered into only after certification by the Secretary of War or the Secretary of the Navy, as the case may be, In such cases the contractor filed his request for & closing agree- ment with the Commissioner of Internal Revenue, and a copy thereof was filed with the War Department or the Havy Department, as the case my be, in order to facilitate certification by such department. If section 4 of H. R. 9822 (76th Cong., 3d sess.) becomes law, this practice of entering into closing agreements with respect to special equipment and facilities will be discontinued. Section 4 of H. R. 9822 would modify this existing practice by requiring the Secretary of War or the Secretary of the Mavy, as the case may be, to determine in advance what portion of the cost of the special additional equipment and facilities shall be borne by the government and charged against the particular contract. The Secretary concerned will made certification as required by such section 4 to the Commissioner of Internal Revenue. Such certifica- tion would be binding upon the Commissioner of Internal Revenue, subject to such regulations as the President may prescribe. The President has indicated that Treasury approval of the certification will be necessary. In the Treasury Department the duty of consider ing such certification and of recomending Treasury restion thereon will be performed by a Treasury Committee composed of Timothy 0. Moonay, Chairman, Harman T. Reiling, Vice Chairman, John W. Burrus, C. A. Appel, and Dean W. Martin. Under the new procedure the contractor's request for a determination by the Secretary of War or the Secretary of the Havy, as the cass may be, shall be filed with the Secretary of the Department concerned. In order to facilitate action along the lines indicated by the President, it is suggested that- Regraded Unclassified 123 - 2 - (1) Copies of the contractor's request should be forwarded immediately to Mr. Timothy c. Mooney, Chairman, Room 4002, Internal Revenue Building; (2) Three copies of the certification by the Secretary concerned (agreed to by the contracting party), together with a copy of the contract or proposed contract shall be transmitted directly to the above-mentioned Chairman; (3) The certification shall itemise the special additional equipment and facilities, state the necessity and cost (or estimated cost) of each item thereof, and the percentage of cost of each item to be charged against the contract or subsontract; (4) A certification shall not be approved by the Treasury unless 4 certification has been made with reppect to the first contract or subcontract on which such special additional equipment and facilities are used, and has been made successively thereafter on any intervening contracts or subcontracts. Following consideration by the Treasury Committee referred to above, the Chairman or Acting Chairman thereof, will made his recom- mendation for approval or disapproval of the certificate direct to the Secretary of the Treasury whose decision will be forwarded in- mediately to you. Very truly yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. The Honorable The Secretary of War. 00 to Thompson HTR/ems/kb 6-20-40 Initialed copy returned X mrs Broderick, Internal Revinue, by miss Brennan, Regraded Unclassified 130 June 24, 1940 Dear Mr. McReynolds: I am inclosing herewith copy of & letter which I have addressed to the Secretaries of War and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson-Trammell Act. Copy of this letter is being sent to you in order that you can inform the Advisory Council as to the proper procedure to be followed in this matter. Yours sincerely, (Signed) H. Mergenthau. Jr. Mr. William H. McReynolds, Secretary, Advisory Council of National Defense, Department of State, Washington, D.C. Enclosure By Messenger 445 Regraded Unclassified 131 June 24, 1940 Dear Mr. McReynolds: I am inclosing herewith copy of a letter which I have addressed to the Secretaries of Tar and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson-Trammell Act. Copy of this letter is being sent to you in order that you can inform the Advisory Council as to the proper procedure to be followed in this matter. Yours sincerely, (Stgned) H. Monguathau. fr Mr. William R. McReynolds, Secretary, Advisory Council of National Defense, Department of State, Na whington, D.C. By Measonger Regraded Unclassified 132 June 24, 1940 Dear Mr. McReynolds: I am inclosing herewith copy of a letter which I have addressed to the Secretaries of War and Navy outlining for them the basis on which we are prepared to cooperate with them to promptly clear all contracts coming under the Vinson-Trammell Act. Copy of this letter is being sent to you in order that you can inform the Advisory Council as to the proper procedure to be followed in this matter. Yours sincerely, (Blgned) . & Mr. William H. MeRsynolds, Secretary, Advisory Council of National Defense, Department of State, Washington, D.C. By Messanger TREASURY DEPARTMENT 133 INTER-OFFICE COMMUNICATION DATE JUN 8 4 1940 TO Secretary Morgenthau FROM Mr. Foley For the Secretary's Mary At a conference beld in the office of Mr. Knudsen, Advisor on Industrial Production for the Council of National Defense, at the Federal Reserve Build- ing on Wednesday, June 19, 1940, the following were present: Messrs. Kmidsen, Nelson, Biggers, Foley and Kades. The conference began about 9:30 in the morning and continued until 1 o'clock in the afternoon. During the conference there was discussed in great detail the memorandum of Mr. Foley to Secretary Morgenthau dated June 17, 1940 which summarized the draft of June 17, 1940 of a proposed agreement between the Defense Finance Corporation (a corporation to be created by the Reconstruc- tion Finance Corporation under Senator Glass' bill now pending in the Senate) and an aviation engine company. This draft agreement was viewed ao a model in- tended to meet a typical situation. Numerous alternative proposals for financing increased capacity for the production of armament in connection with the national defense program were considered and there was a good deal of intensive debate as the group went through the same processes of reasoning as the Treasury representatives had before they went to the conference. When the conference adjourned nothing had been decided definitely about the proposal embodied in the memorandum of June 17, 1940, with the exception that it was thought that the remedy of the Defense Finance Corporation in the case of additions to existing buildings or the purchase of machinery should be restricted to demolition of the additions or repossession of the machinery in the event of a default on the loan due to cancellation of orders, in the event that the manufacturing company did not convey the property to the Defense Finance Corporation in the satisfaction of a loan. After Nelson and Foley returned to the Treasury, they reported what trans- pired to Secretary Morgenthau who invited them to take lunch with him and Mr. Knudsen. During the luncheon there was 8 general discussion of what had taken place during the morning. 9.74 Regraded Unclassified 134 Regraded Unclassified Secretary JUN 24 1940 Mr. Feley For Von MARY At a onforme bald in the office of an Enclasen, Advisor - Industrial Prefection for the Council of National Defense, at the Federal Reserve Drild- ing on Rednesday, June 19, 1940, the following ware present, Measrs. Emissn, Belson, Signare, Falmy and Kades. The emforence began about 9:30 in the serving and continued until 1 e'slock in the afterness. During the there was disemated is great detail the membersation of Mr. relay to Secretary Morgestion dated June 19, 1940 which rumarised the draft of June 17, 1940 of a preposed agreement between the Defense Finance Corporation (a corporation to be created by the Insurtra- tion Finance Corporation under Senator Glass' will DOW pending in the Somte) and an aviation engine emply. This draft agreement NM viewed as a model 10- tended to neet a typical situation. Insrow alternative proposals for fisancing increased expecity the the production of arress in competion with the national defense progres were considered and there was & good deal of intensive debate as the greap through the - processes of reasoning as the Treasury representatives had before they went to the conference, Then the conferement adjoarned nothing had been desided definitely about the proposal embedied in the assoration of June 17, 1940, with the exception that it - thought that the ready of the Defense Finance Corporation in the case of additions to existing buildings or the purchase of medinary should be restricted to demolition of the additions or repossession of the eachinery in the event of & default on the loss das to cansellation of orders, in the wrut that the manineturing company did net convey the property to the Datense Finance Corporation in the entisfaction of & lean. After Kalson and Foloy returned to the treasury, they reported what - pired to Secretary Morgenthes visa invited them to take lench with his and Mr. During the lanchoen there wis a general discussion of what had taken place during the norning+ (initual) E, H. Yes Jr. CLE,ENFJrst 6-24-40 133 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE IIIN 24 TO Secretary Morgenthau FROM Mr. Poley For the Secretary's Diary At a conference held in the office of Mr. Knudsen, Advisor on Industrial Production for the Council of National Defense, at the Federal Reserve Building on Wednesday, June 19, 1940, the following were present: Messrs. Knudsen, Eaton, Biggers, Foley and Kades and Messrs. Hotchkiss, Cordon and Finlay of the Wright Aeronautical Corporation. Messrs. Foley and Kades were requested by Mr. Knudsen to attend this con- ference at 5 o'clock in the afternoon, the conference having been proceeding for several hours. When they arrived Mr. Knudsen stated that the representa- tives of Wright Aeronautical Corporation objected to the option in the draft agreement which permitted the Government to purchase tools, jigs and dies financed thereunder for $1.00. He asked Mr. Folay to justify this provision. Mr. Foley stated that he thought Mr. Nelson would be best qualified to do this in view of the fact that it was at his suggestion that the option had been in- cluded in the draft agreement. Mr. Knudsen telephoned Mr. Nelson, explaining the objection of Wright Aeronautical Corporation to the option and after ACOR discussion, Mr. Xnudsen announced that Mr. Nelson agreed to the elimination of the paragraph. Mr. Biggers then dictated a summary of what had been agreed upon at the conference, a copy of which is attached hereto. Mr. Knudsen also handed Mr. Foley a copy of 3 letter which he stated he had obtained from Mr. Jesse Jones. The last paragraph of the letter was stricken through in pencil as 1t. is on the copy attached by Mr. Kmidsen. On his way home Mr. Foley stopped off at the Secretary's house about 7:20 P.M. and reported that general agreement had been reached by Knudsen, Jones and Wright Aeronautical and everything was proceeding satisfactorily. The Secretary expressed pleasure and said that he would telephone Mr. Kmudsen and congratulate him on his progress. 9.107L Regraded Unclassified 136 PY June 19, 1940 Steps agreed upon in conference with Curtiss-Wright Corpo- ration: la Curtiss-Wright to form separate Corporation for new plant. 2. Curtiss-Wright to negotiate with the R.F.C. for loan to cover cost of plant and equipment in accordance with general terms outlined in Mr. Jesse Jones' letter of June 19. 3. If the Government contract is completed or cancelled before the mortgage has been paid in full, a fair market value of the plant at that time will be determined by the R.F.C. subject to the approval of the President and Curtiss-Wright will have the option of acquiring the plant at that valuation or surrendering the plant to the R.F.C. In either case the R.F.C. will have no further claim against the Corporation with respect to the mortgage. 40 The clause regarding sale of tools to the R.F.C. at nominal price after completion of contract and repayment of mortgage, is waived. 5. Curtiss-Wright will megotiate working capital loan with the R.F.C. including terms of interest and repayment. 6. When satisfactory provision is made for all the above financial arrangements, Curtiss-Wright will negotiate contract with the War Department. 137 PI June 19, 1940 Dear Mr. Knudeen: In order to assist the United States Government in its National De- fense Program, the Reconstruction Finance Corporation io willing to lend the Curties Wright Aircraft Corporation, or & subsidiary to be organized, owned and operated by it, the cost of a plant and the necessary equipment, including cost of the site, having a capacity to manufacture annually not less than 6000 high-speed radial airplane motors of approximately 1500 horsepower, the cost of which plant and equipment not to exceed $28,000,000. The loan to be at 4% interest, maturing on or before eight years and to be amortized at the rate of $600.00 per motor, as the motors are manufactured and sold. A condition to such a loan will be that the Curtise Wright Company have a contract or contracts for building and selling to the United States Government, or other purchasers acceptable to the RFC, a sufficient number of these motors to justify the RFC making the loan. In computing its profit the manufacturer shall not include any profit on the plant and equipment investment or their amortisation. The Corporation is also willing to lend the manufacturer up to $22,000,000 for working capital with which to buy materials and manufacture the motors. This loan to be repaid as the motors are sold and delivered and to bear an interest rate to be agreed upon from time to time as the money is advanced, but not more than 4% per annum. Should the plant become idle through cancellation of orders or the completion of orders before it has been paid for, the manufacturer shall have the right to a reduction on the unpaid balance of the indebtedness due against the plant to bring the indebtedness to the fair market value of the property at that time, but any such reduction, if agreed to, must be approved by the Presi- dent of the United States. If the lean is paid and the contract fulliled and the plant segarted to other works the Government shall have the option to purchase for A sum such tools, potterns or dies that are special to the motor. Sincerely yours, Administrator. Honorable William S. Kmudsen Advisory Commission to the Council of National Defense Federal Reserve Building Washington, D. C. 138 Regraded Unclassified JUN 2 1 1940 Becretary Mr. Falsy for the decretary's Mary AS 4 emforence held in the affice of - Emiss, Adviser on Inisstrial Production for the Council of National Defense, at the Federal Reserve Building an Wednesday, June 19, 1940, the following were presents Masers. Emissn, Inton, Riggers, Polay and Kades and Hosars. Hotebides, Cordon and Finlay of the Wright Aeronautical Corporation. Years. Falsy and Indes ware requested by Mr. Indress to attend this - forease at 5 c'alesk in the afternoon, the conference having been presending for several hours. Then they arrived Mr. Imioss stated that the represents- tives of dright Aerenautical Corporation objested to the option in the draft agreement which permitted the Government to purchase tools, jigs and dies financed thereunder for $1.00. The asked Mr. Foley to justify this provision. Mr. Felay stated that he thought Mr. Malson would be best qualified to de this in view of the fact that it me at his suggestion that the option had been is- cluded in the draft agreement. Mr. Intern telephoned Mr. Balson, explaining the objection of weight Corporation to the option and after sens discussion, Mr. amount that Mr. Belson agreed to the alimination of the paragraph. Mr. Biggers then distated & summary of what had been agreed upon at the conforence, a copy of which is atteshed hereto, Mr. Kunden also handed Mr. Folsy a copy of a letter which be stated be had obtained from Mr. Jesse Jones. The last paragraph of the letter was strickes through in peneil as it is - the copy attached by Mr. On his my base Mr. Folsy stopped off at the Secretary's home about 7:20 P.M. and reported that general agreement had been reached w Jonne and Bright Aermautical and everything was proceeding entinfactorily. The Secretary expressed pleasure and said that be would telephone Mr. Emisses and comgratulate him on his progress. (Initialed) E. H. 7., Jr. CLX,ENFJr:t 6-24-40 139 " June 19, 1940 Stope agreed upon in conference with Carties-Wright Corpo- rations 1. Curtise-Wright to form separate Corporation for - plant. 2. Ourtine-Wyight to magetiate with the R.F.C. for Loan to cover cast of plant and equipment in accordance with general terms outlined in Mr. Josse Jenso' letter of June 19. 3. If the deversment contract is completed of cancelled before the mortgage has been paid in All, & fair earlet value of the plant at that time will be determined by the R.F.C. subject to the of the President and will have the option of acquiring the plant at that valuation w survendering the plant to the R.F.O. In either case the R.F.C. will have M further claim against the Corporation with respect to the martgage. 40 the clause regarding sale of tools to the R.F.C. at nouinal price after completion of contrast and repayment of markgage, is waived. 5. Ourtine-Wright will negotiate working ougdital lean with the R.F.C. including terms of interest and repayment. 6. then antisfactory prevision is made for all the above financial arrengements, Ourbies-Wright will negotiate contract with the for Department. Copied 6-23-40 to Regraded Unclassified 140 Iss 19, 1960 Dear in Kaudeens In order to assist the United States Government is its National Daw times Program, the Resonstruction Finance Corporation is willing to lead the Curtise Wright Aircraft Corporation, or a subsidiary to be organized, and and operated by it, the cost of & plant and the neessary equipment, including cost of the site, having a capacity to nanufacture annually net lass than 6000 high-apeed redial airplane actors of approximately 1500 herespount, the cest of which plant and equipment not to exceed $28,000,000. The loan to be at 45 interest, naturing on or before eight years and to be emertised at the rate of $600.00 per neter, M the naters are assufactured and sold. A condition to such a loan will be that the Curtise Wright Company have a contract or for building and selling to the United States Government, or other purchasers acceptable to the KPC, & sufficient musber of these motors to justify the are midng the loan. In computing its profit the comfacturer shall not include any profit - the plant and equipment investment or thair amertisation. The Corporation se also willing to 1and the membeterer np to $22,000,000 for working supital with which to buy enterials and minutesture the actors. This loan to be repaid as the missre are sold and delivered and to bear an interest rate to be agreed upon from time to time as the noney is advanced, but not nore than w per - Should the plant become idle through esseellation of orders OF the completion of orders before it has been paid for, the manufacturer shall have the right to & reduction on the unpaid balance of the indebtedness due against the plant to bring the indebtadness to the fair sarket value of the property st that use, but any such reduction, if agreed w, mark be approved by the Presi- dent of the United States. If the lean 10 gaid and the contrast fulfilled and the plant correried to other work, tibe dovermient shall advo the option to perchase to a naminal - each tools, pasterns or died that are special to the mm. sincerely yours, Administrator. Hanorable William 8. Kandren Advisory Commission to the Council of Rational Defunce Federal Reserve Building Washington, D. c. Copied 6-22-40 t Regraded Unclassified 141 THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE FEDERAL RESERVE BUILDING WASHINGTON, D.C. June 24, 1940. My dear Mr. Secretary: I have just received your letter of today transmit- ting a copy of your letter of June 20th, to the Secretary of the Havy and the Secretary of War, outlining the procedure in connection with contracts involving the Vinson-Tramell Act. Appropriate instructions are being given to the Commission's staff. Sincerely. Ym. H. McReynolds Secretary The Honorable, The Secretary of the Treasury. TREASURY DEPARTMENT 1.40, INTER-OFFICE COMMUNICATION DATE JUN 2 5 1940 TO Secretary Morgenthau Mr. Foley FROM For the Secretary's Diary At a conference held in Mr. Foley's office from 5:15 to 6:45 on Monday, June 24, there were present: Messrs. C. E. Adams (Air Reduction Company) and Volney Forsyth (Solvay Process Company) and Fred M. Eaton, all of the Advisory Commission of the Council of National Defense, and Messrs. Foley and Kades. The subject matter of the conference was the law and the regulations relative to depreciation deductions under the income tax law and the Vinson-Trammell Act. Mr. Foley explained in detail what could be done and what could not be done, and stated the history of the special amortiza- tion allowances permitted by the Revenue Act of 1918. He referred to the Cousens Committee and the Nye Committee both of which had unanimously con- demned the theory of permitting any loss to be deducted for value in use of a plant constructed during a preparedness program or a war. Mr. Adams had to leave because of a previous appointment in the middle of the discussion. It was decided after he left that the Advisory Com- mission would draft a memorandum setting forth its views on the subject and would submit those views to the Treasury, and the Treasury would study this memorandum simultaneously with its study of a new excess profits tax. Mr. Foley explained that questions of tax policy and legislation were determined by the Office of the Assistant Secretary in charge of the Bureau of Internal Revenue, under direction of the Secretary, and not by the Office of the General Counsel; and further that what the Advisory Com- mission's representatives sesmed to have in mind required a revision of exist- ing legislation. E.N.Th. 143 June 24, 1940 2:30 p.m. RE COFFEE Present: Mr. White Mr. Hansen Mr. Foley Mr. Bell Mr. Viner White: The coffee producers have been meeting for some time in an attempt to see if they can come to an agreement with respect to, (A) coffee production, and (B) the allocation of the market. Having lost the European market, which accounted for a substantial portion of their total coffee sales, their position 1s more acute than formerly and whereas they have tried formerly to get together, they have been unable to do 80, but they hope that under the pressure of the present aoute situation, they may get together. Now, then, after having decided on the allocation of the American market among themselves, they are afraid that if they were to put that into effect it may mean 8. rise in the price of coffee. That is, they are not afraid, they hope that it will mean a rise in the price of coffee, and they are afraid that with that rise in the price of coffee, African coffee, which now constitutes less than half of our imports, may come in in such quantities as to deprive them of some of the market they hope to get and also prevent the price from rising in the way in which they would like to see it. H.M.Jr: Is African coffee black coffee? 144 - 2 - Hansen: Some of it is robust. It doesn't blend very well. H.M.Jr: Just for the record, do you remember when we first started talking about the Colombian debt and all that and I made the suggestion that one of the things this North and South American thing should do would be to make a loan to the four or five countries that had coffee in order to stabilize it and one of you gentlemen brought to my attention that Comombia had fallen off 4 or 5% and what it meant to them. I think a cent meant a million dollars in their export. White: I said coffee didn't fall in price and you said that it had and it was Colombian coffee that had fallen and we were talking about Brazilian. H.M.Jr: I told you a long time ago. I don't remember these things from day to day when I am right. The point that I was getting at, from that day to this, which 18 three months, nothing has been done, I take it. White: No, nothing. How long 1s this conference? Hansen: It was last week. H.M.Jr: Well now, explain this to me, gentlemen. Is this going to be - what formula? Is this a cartel of the coffee producing countries of South America? Who goes into that, Brazil, Colombia? Hansen: Fourteen countries. Foley: That is all of them, isn't it? Hansen: Almost. H.M.Jr: And they are going to have one central sales agency here? White: I don't think 60 - I think all they are doing is agreeing on an export limitation to the United States. - 3 - 145 H.M.Jr: The first thing, if I may make the suggestion, they ought to have 8. Universal Trading Company. White: Well, that 18 the direction which I thought I would like to see you move in, because that is in line with the previous discussion which would take not only - not only for the purpose of selling in this market which we are interested in probably in an entircly different direction than they are - we are interested in getting out coffee at the lowest price - but rather in the marketing of their surplus crop elsewhere. That 16 why we want them to have one unit. H.M.Jr: Well, they ought to have a Universal Trading Company here which is honestly run and then let us know from the inside what is going on and the whole business. Did it take that trend? White: Very definitely. In fact, the motion which was passed this morning at the Executive Committee meeting provided for - provided that a United States representative be named an official of the committee on the basis that we, as the great consuming nation, ought to have a definite hand in the allocation of quotas and in the marketing of the crop, but nothing was said yet of them taking up the other functions which the Universal Trading Company would take. That 1e in attempting to make deals with foreign countries, swaps, or barter and 80 on. H.M.Jr: I wasn't even going that far. What I was thinking of was what a beautiful job Universal did on tung oil, the way it kept the price down. K. P. Chen always had 10 thousand tons of tung oil on hand BO he could feed it to the market. He was always selling to the market. White: His problem was different. His problem there, there was a great scarcity of tung oil. Foley: He had a world monopoly. These fellows are afraid of the African supply. - 4 - 146 H.M.Jr: Well, these people will have certainly, as far 8.8 this Hemisphere 18 concerned, B. monopoly and I don't know in which part of South Africa the thing has grown but it certainly could be found out, who controls it. Bell: Harry, how does this program fit into the other program we have been discussing on the whole South American -- White: That was a good question. It was the very one that was raised this morning. Some of us felt that this should be a part of that larger program or if it weren't taken by itself, that we were going to get nothing but disadvantages of it. Bell: Can it be taken by itself and then later fit into that program? White: That 18 what 1e contemplated. Viner: Except you give up most of your bargaining power with Brazil by taking it up by itself. White: That 1s exactly what I said this morning, but it was countered with the statement that the thing was an "as of" arrangement. They could stop it at any moment if they are not able to get additional arrangements and the decision that was made this morning was not definitive. It was merely that if they make an arrangement which this Government finds satisfactory, then this Government will look with sympathy upon it and will attempt to get new legislation if new legislation is required to justify the imposition of quotas here, because they don't want to impose quotas here under the trade agreement program. The State Department seems opposed to it. So they are hoping by that time 8 larger program will be made clear. In the interim, the Latin American countries, and there are 14 of them, will see that the United States 1a willing to go - cooperate with them in something in which it has an adverse interest and 80 they are hoping that Regraded Unclassified 147 - 5 - that groundwork will make possible collaboration on wheat and corn and cotton, etc. But it is not an assured fact that that will be 80, and that still remains & problem. It also remains a problem that by our imposing - aiding them in imposing a quota we are leaving that group with coffee which they can then afford to sell at dumping prices in Europe. H.M.Jr: To us. White: And the question 8.8 to what terms they will make with their coffee is something that we are vitally interested in. H.M.Jr: I thought you were going to say they would sell it at dumping prices to Mr. Wallace. White: That is also true. Bell: It would be under the larger program. H.M.Jr: May I say here now - as I said, I was a very good boy the other day. I kept quiet and BO forth and so on because we were eliminating a lot of the stuff I didn't want. I have never seen a more half baked or less well thought group than they have over there. It 1a just unbelievable. White: I think no one would disagree with you on that. I think there is a great deal of difference of opinion, of confusion. H.M.Jr: I mean, the size of the thing. And let me just enlarge again - I overheard - I couldn't help it. This is very much in the room. Mr. Wallace turned to Welles after Cabinet and said, "By the way, Summer, what 1s all this stuff I see in the paper about my going down to South America as good will ambassador? I would like to talk to you. I don't know what it's all about." Summer said, "Well, I will be glad to talk to you." To send Wallace down to make a lot of statements and then commit the Government until we know where we are at, I think it is terrible. 148 - 6 - White: You are 100% right in saying that the discussion didn't get anywhere, but there were many there who said that. The only thing 1s that they are rushing the thing off its feet, and the only point that I took it we were interested in doing was to have some powers which were broad enough BO that as time - a.8 we have time, something could be worked up. H.M.Jr: I WAB going on the theory that the good sense of Congress and the American people and some of the people in the Adminietration would work it out, but of all the wooly plans, that 18 a pip. White: It isn't 80 much wooly, Mr. Secretary, as it 18 that it has some repercussions and has ramifications which are 80 profound. H.M.Jr: As long A6 you are aware of it, okay. I can't argue with you. White: I think it 1s safe to say that many others were aware of it. H.M.Jr: Why did they leave Mordecai Ezekiel out of it last time? I was disappointed. I would like to get into & row with him. White: I don't know. He kind of oversimplifies this problem and I think that 18 - I would criticize him for that. I think he ignores a lot of the real administrative and political difficulties that stand in the face of any such program as he would like to see. H.M.Jr: Do you want anything else from Bell and me today? White: I wanted to know whether - it is a little late to ask for approval, it passed this morning, but it passed in such general terms that I knew you wouldn't have any objections. When they come back with the program, there will be a chance to do it. H.M.Jr: DAd you raise the thing about -- Regraded 149 - 7 - White: I made a motion to that effect, and it was agreed on that he would get in touch with those two on any matters that were necessary. ADDRESS OFFICIAL CUMMUNICATIONS TO THE SECRETARY OF STATE 150 el di \ DEPARTMENT OF STATE WASHINGTON reply refer to June 24, 1940. 890H.5 516 National/16 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of a note dated June 20, 1940 from the Turkish Ambassador at Washington, together with a copy of the enclosure received therewith, a letter addressed by the Afghan Commercial Agency on June 17, 1940 to the Turkish Minister, regarding the purchase of 50,000 ounces of gold for account of the Afghan National Bank. The Secretary of State would be glad to receive a suggestion 8.8 to the reply to be made to the com- munication of the Turkish Ambassador. to Enclosure: From Turkish Ambassador, June 20, 1940. of 151 The Turkish Ambassador presents his compliments to the Honorable Secretary of State and has the honour to transmit herewith & copy of the letter he has received from the Afghan Commercial Agency in New York. Mr. Erteglin would be such obliged to the Monorable Decretary of State if He would kindly refer this matter to the appropriate United States Department, as the Afghen Minister seens to have already communicated with the United States Government through the American Ambassador in Paris. The Turkish Ambassador takes this opper- 5 tuni 30 renew to the donorable Secretary of State the 18EV2NBA BECEINED 01 E M9 AS nur ONE OFFICE Ot THE TMATSISSA АЗИН THE ECHELVMA of his highest consideration. June 20, 1940. The Honorable Secretary of State Department of State Washington, D. C. 544/9 Regraded Unclassified COPY 152 AFGHAN COMMERCIAL AGENCY 226 West 26th Street Mohammed Omer New York, N. Y. Chickering 4-0778 Cable Address "Omarkhan" Agents for Afghanistan Producers and Buyers June 17, 1940 Our Ref: 1023 Turkish Ambassador Turkish Embassy Washington, D. C. His Excellency: Several cables were exchanged between Banke Millie and the National City Bank in connection with the pur- chase of gold. I received a cable today from Banke Millie wherein they referred to "information regarding procedure being sent to Afghan Legation; also urgent to approach Turkish Embassy in Washington D. 0. to negotiate 50,000 ounces of gold.' For Your Excellency's information, I am sure His Excellency, the Afghan Minister in Paris communicated and arranged with the American Embassy there and the American Embassy agreed that we can buy 50,000 ounces of gold for the Afghan National Bank's account. I shall be very grateful to you if Your Excellency will get in touch with the Federal Reserve Bank through the State Department and make this arrangement for us. We will pay the cost in American dollars. Assuring you of my sincere appreciation of your kind cooperation, and with all good wishes, I am, Very truly yours, AFGHAN COMMERCIAL AGENCY By Mohammad Omar DS:RJ Deara 153 Rio de Janeiro, Brasil, June 24, 1940. No. 3197 Subject: Inquiry of the Bank of Brasil Regarding Funds of The Benco Frances 6 Italiano Blocked In New York. The Honorable The Secretary of State. Washington. Sir: I have the honor to report that the Director of Exchange of the Bank of Brasil has requested the assistance of the Embassy to obtain payment of two checks received from the Banco Frances e Italiano here and drawn on their dollar account with the Chase National Bank of Nov York City. The branches of the Banco Francez e Italiano in Rio de Janeiro and Bahia have delivered to the Bank of Brasil checks Nos. 130.684/1065 and 171.127/926, in the amounts of U. 8. $376.40 and $2,250.00, respectively, drawn on the Chase National Bank of New York. These checks are in payment of 30 per cent of official exchange purchased by the Banco Frances e Italiano for the account of the Bank of Brazil. Please arrange with the Treasury Department to authorize the Chase National Bank of New York to honor the above mentioned checks. Respectfully yours, For the Ambassador: Walter J. Donnelly, File 851.6 Commercial Attache. WJD1KF. 154 Ima 24, 1940 Mr. Pehle Mr. Cochram STRICTLY CONFIDENTIAL Kr. Leroy-Beauliou telephoned se of 3 e'clock this afterneon that be had received a cablegram dated June 20 from the Financial Attache is the French at Puenos Aires to the effect that 6 transfer vas to be authorised from funds of the leak of France in New York to the account of the French Ambassader at Incues Aires with the Fanco Prasses del Nie de la Plats es the beeks of the French American Banking Corporation, New York. This was to pay for feedstuffs purchased is Argentine by France. Lercy-Beaulism also stated that Mr. Marciall, the Bank of Transe repre- sentative is Rev York, had received a cablegram dated June 20 free No. Carignel of the Teak of France at authorizing this payment of $20,000,000 from the Special Account of the Bank of Trance. Mr. Leroy-Beculion asked that VI expedite the license. In answer to my inquiry. Lerey-Beaulion stated that Mr. Marsiall had already taken this matter up with the Federal Receive Fank at New York. AS 3:15 I telephoned the above information so Mr. Pehle. In sllower to his squeet for my recommendation, I told his that I favored facilitating this transaction. added gratuitously that I thought ve should refrain from interfering unduly with international financial transactions. B.M.S. P. hmc:dm:emk:6.25.40 Regraded Unclassified 155 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, (Paris) Bordeaux DATE: June 24, 1940, 10 p.m. REC'D 11:37 a.m., 27th. NO.: 90 FOR THE TREASURY DEPARTMENT FROM MATTHEWS. Reference 1s made to telegram of June 21, 3 p.m., No. 52 from the Embassy. I report below an incident which Cariguel told me today - as a side light on the present fantastic situation: The Under Governor of the Bank of France, Boisanger, was permitted to go through the German lines to some point south of Chatel Guyon. From there he telephoned this morning to Governor Fournier here at Bordeaux. Two days ago, Boisanger said, he had arranged to send a truck to some point (?) occupied territory, in response to an urgent demand for bank notes. He had been worried as to the safety of the truck until the Germans arrived and offered to help. A German military emcort was furnished for the shipment, which arrived safely at its destination. The Under Governor also reported that at Chatel Guyon while the Bank was burning its notes the Germans arrived, and made the suggestion to him that he should not bother doing that, he was merely wasting his time. Today 156 - 2 - Today feeling against the British is running high at the Bank of France. Preparations are being made for the Governor and his staff to leave in the next day or two with the Government for Clermont Ferrand or thereabouts. Bank notes and records are already being sent out of Bordeaux. Telegraph money transfers within France are impossible, in view of the present confusion. END MESSAGE. BIDDLE. EHT oT TECHNICY V22121VM1 OREICE OF THE 010 1011 58 bit S 21 DESTRIMENT BECEIVED EA:LWW 157 TELEGRAM SENT GRAY JT June 24, 1940 noon AMERICAN EMBASSY BORDEAUX 35 FOR MATTHEWS FROM COCHRAN. REference your No. 64, June 22, 2 a.m. Free market rate for sterling this morning opened 3.68, at 11 a.m. 3.67. French franc not quoted in free market since June 17. Last actual quote .0209-1/2 mid-morning, June 10. From that time up to close of business June 15 franc quoted only nominally in free market. During that period low .0198-1/2 June 10 high .0218-1/2 June 11, HULL (HF) EA:HF:LWW Regraded Unclassified 158 JT PLAIN OSLO Dated June 24, 1940 Rec'd 4:10 p.m. Secretary of State, Washington. 643, twenty-fourth. Bennetts Travel Bureau, Oslo, requests license from Treasury transfer $4,400 from National City Bank, NEW York to Nordisk Reisebureau, Gotsborg, Sweden for USE payment tickets American EVACUEES from Norway. Norges Bank has authorized Christiania Bank Kreditkasse in whose name account held dispose amount this manner. PRESTON NPL Gov. Torres 14510 us sport wome COPY FOR SECURITY 160 PLAIN Ottawa Dated June 24, 1940 Rec'd 1:50 s.m., 25th. Secretary of State, Washington. 150, Twentyfourth. In today's budget speech Mr. Ralston revealed that not- withstanaing a total revenue of over 562,000,000 during the fiscal year 1939-40 the government had incurred an overall deficit of over 118,000,000 dollars owing largely to special var expenditures approximately soualling this total deficit. In his budget forecast for 1940-41 aggregate expenditures Bre estim ted at 1,148,000,000 plus 150 to 200,000,000 extra for which recent new commitment made. Total revenue esti- mated et 650,000,000. Deficit estimated at about 500,000,000 plus an indeterminate amount which may Easily bring that deficit up to 700,000,000. Budget resolutions provide for a war Exchange tax of 10% to be imposed on the value for duty purposes of all imports free and Autiable except those products entered under the British proferential tarifi. This tax will bE subject to drawback for Export as in the CBSE of customs duties. Its purpose is described 68 "an exchange tax and not a protective duty". Other major changes include heavily increased EXCISE taxes Regraded Unclassified 161 -2- #150, Twentyfourth, from Ottswe, taxes on sales of both foreign and domestic automobiles ranging from 10% on 700 dollars volue up to 80% on value EXCEEDING 1200 dollars; new national defense income taxes of 2 flat 2 % on salaries of over $600 for single persons and of over $1200 for morried persons; EXCESS profits tax relaed to 75%; and heavy increases in personal income taxes in all brackets; tax on tires and tubes increased to five cents per pound; new 10% tax on phonographs, cameres, radios ani radio tubes; new ten cents EL pound tax on raw leaf tobscco; tax on cigarette papers end tubes increased from two cents to five cents per hundred; manufactured tobacco tax increased from trenty five to thirty five cents per pound; cigarette tax Increased from five dollars to six dollars per thousand. In his budget speech Ar. Ralston referring to 10% war exchange tex said, "TE regret that the Exigencies of war make any such restrictive action necessary," and Expressed hope that return could be made to long run policy of Govern- ment, that is, the "prograssive lowering of trade barriers and the Encouragement of trade not only vd th the United States but with all pesceful nations." Copy to Commerce and Agriculture. MOFFAT EMB Regraded Unclassified 162 Handed by Mr. Pinsent of the British Embassy to Mr. Cochran in the Treasury at 1 p.m., June 24, 1940. Secretary of the Treasury may care to know that the Bank of England have consulted the Federal Reserve Bank on the possibility of assuring that all the business is done at the official rate and that free rate should no longer be quoted. On their suggestion, Bank of England are pursuing the discussions with American Banks in London with 8. view to making the necessary technical arrangements, and they hope that they will shortly reach agreement on all points. BRITISH EMBASSY, Washington, D.C. June 2lst, 1940. Regraded Unclassified stated 160 nection FOR with SECRETARY Be Isam ams chs 164 June 24, 1940 Dr. Rerbert Tois Henry Morgenthes. Jr. Will you please transmit for 20 the following cable to the American Inbusey, Bordeaux, France, attention of Mr. Matthews: "If By information is correct. there are hundreds of sacks of American securities in Bordsaux and they de not have time or freedom to destroy them. It is suggested that they imadiately dip these sacks bodily in a. are which will penstrate the sacks and will tist the securities indelibly. Our chemists suggest the following readily available chemicals, one percent solutions, balance water, in each case, as alternative possibilities: one, fuchsine - if color appears too deep modify solution: two, rosamiline hydrochloride; three, menthyl orange. If above not available dry red wine undiluted would probably serve. Bags should be punctured to facilitate penetration." (Init.) D.V.B. Init: ENC:JV:IWB HMC:emk:6.25.40 COPY Regraded Unclassified 165 DRAFT OF BILL RELATING TO THE ESTABLISHMENT OF AN INTER-AMERICAN BANK Regraded Unclassified 166 A Bill To create the Inter-American Bank, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That: TITLE I - CHARTER OF THE BANK Sec. 1. There is hereby created a body corporate with the name "Inter-American Bank", hereinafter referred to as "the Bank". Sec. 2. The structure, operations and activities of the Bank shall be as defined by the By-Laws, which are annexed to the Convention relating to the establishment of the Bank. The Bank shall also have all incidental powers necessary and proper to carry out the powers now or hereafter expressly authorized herein or in the By-Laws of the Bank. Sec. 3. The Bank may begin operations when at least a total of 145 shares of stock of the Bank are subscribed for by at least five governments which have also deposited their ratifications of the afore- mentioned Convention with the Pan American Union. Sec. 4. The Bank shall have succession for a period of twenty years from the date of enactment hereof or until such earlier time as it shall be lawfully dissolved. The United States agrees not to repeal or amend this Charter except upon the request of the Bank pursuant to Regraded Unclassified 167 & four-fifths majority vote of the Board of Directors of the Bank. The United States may extend the charter for additional twenty year periods upon the request of the Bank pursuant to a four-fifths majority vote of the Board of Directors of the Bank. Sec. 5. Amendments to the By-Laws of the Bank, consistent with the aforementioned Convention, this Charter, and the purposes of the Bank as now set out in Article 5 A of the By-Laws of the Bank, may be adopted by the Bank pursuant to a four-fifths majority vote of the Board of Directors, provided, however, that Article 5 A of the By-Laws may not be amended, and provided further, that a unanimous vote of the representatives of all the participating governments (and not morely unanimity of the votes cast) shall be required to increase OF decrease the minimum holdings of participating governments in the stock of the Bank and to amend the provisions of the By-Laws relating to the manner and effect of the making of a timely objection by a participating government. As used in this act four-fifths majority vote of the Board of Directors shall mean four-fifths of the votes cast. Sec. 6. The Bank shall have power to adopt, alter and use a corporate seal; and to make such contracts and to acquire, own, hold, use or dispose of such real and personal property, as may be necessary for the transaction of its business. Sec. 7. The Bank may sue and be sued, complain and defend, in any court of competent jurisdiction. Any civil suit at law or at - 2 - 168 equity, brought within the United States, its territories and pos- sessions, to which the Bank shall be a party shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and the Bank in any such suit may, at any time before the trial thereof, remove such suit into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law. - 3 - Doaradod nie 169 TITLE II - PARTICIPATION OF UNITED STATES Sec. 201. The United States of America grants the rights, privileges, immunities and exemptions enumerated in Article II of the Convention for the Establishment of an Inter-American Bank. Sec. 202. There is hereby created the Inter-American Bank Committee (herein called the "Committee"), which shall consist of the Secretary of State, the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve System, and the Federal Loan Administrator. Each such official may from time to time appoint a representative to act for him. The Committee shall appoint a person to serve on the Organizing Committee of the Bank and shall also appoint and fix the compensation (if any) of the director and alternate, and any nominee or proxy, to represent the United States on the board of directors of the Bank; and nothing in this or any other law shall prevent any member of the Committee or any other officer or employee of the United States or any director, officer, or employee of any Federal Reserve Bank or of any corporation a majority of the stock of which is owned or controlled, directly or indirectly, by the United States from being eligible to serve also on such Organizing Committee or as such director, alternate, nominee, or proxy, or in any other capacity, with the Inter-American Bank. The director and alternate shall serve for a period of two years, subject to the pleasure of the Committee; and the nominee or proxy shall serve at the pleasure of the Committee without 4 Regraded Unclassified 170 a fixed term. The director, or an alternate, nominee or proxy serving in his stead, shall have full power to represent the United States on the Board of Directors, and to decide whether or not to enter a timely objection on behalf of the United States where provision is made for such objection under the By-Laws of the Bank; but such director, alternate, nominee or proxy shall keep the Committee informed with respect to matters involving the Bank and shall in any event enter a timely objection pursuant to the by-Laws of the Bank when directed to do so by the Committee. Sec. 203. Notwithstanding any other provision of law, the shares of stock of the Bank to be acquired by the United States shall be sub- scribed and paid for by the Reconstruction Finance Corporation, and the Reconstruction Finance Corporation is authorized and directed to sub- scribe and pay for at least fifty shares of the stock of the Bank and such additional number of shares as the Committee may from time to time determine: Provided, That the Reconstruction Finance Corporation shall not at any time hold shares of the Bank's stock of an aggregate par value of more than twenty-five million dollars. The amount of notes, bonds, debentures, and other such obligations which the Reconstruction Finance Corporation is authorized and empowered to issue and to have outstanding at any one time under existing law is hereby increased by an amount sufficient to carry out the provisions of this section, and of section 204 of this Title. The compensation and expenses of the director, n # I Doaraded i 171 alternate, nominee and proxy, may be paid by the Reconstruction Finance Corporation out of any funds at its disposal, Sec. 204. Notwithstanding any other provision of law, the Recon- struction Finance Corporation and the Export-Import Bank of Washington are each authorized to purchase and sell debentures and other obligations of the Inter-American Bank and to make loans to the Inter-American Bank upon such security and upon such terms and conditions as their respective governing boards may determine. Sec. 205. Moneys of the Bank, including gold and silver coin or bullion, may be deposited with the Treasurer of the United States subject to check by authority of the Bank: Provided however, that no interest shall be paid on any such deposits. Sec. 206. Section 14 of the Federal Reserve Act is amended by adding the following paragraph at the end thereof: "(h) With the consent of the Board of Governors of the Federal Reserve System and subject to such regulations and limitations as the Board of Governors may prescribe, each Federal Reserve Bank shall have power to act as depositary, custodian and financial agent for the Inter- American Bank, to establish correspondent relationships with and open and maintain banking accounts for and with the Inter-Americen Bank, to purchase, sell and deal in, any obligations of the Inter-American Bank, and to effect for - 6 - Regraded Unclassified 172 or with the Inter-American Bank any transaction which such Federal Reserve Bank could effect if the Inter-American Bank were a member bank of the Federal Reserve System or a bank located in a foreign country." Sec. 207. This Act may be cited as the "Inter-American Bank Act". GEVENDSH cusent Drt. LSNUL No. individual - - 7 - Regraded Unclassified 178 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1940. TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. Pinsent, Financial Counselor of the British Embassy, today delivered 10 me a memorandum dated June 20, 1940, which reads as follows: "The blocking of French balance applies to accounts of persons and concerns in Prance itself but not at present in French overseas possessions. Payments to and from accounts at United Kingdom banks of United Kingdom branches of French banks are permitted, but assurances are being obtained from branches that they will not accept instructions from enemy-occupied territory whether from their head offices or otherwise and that they will refer doubtful cases to Bank of England." Mr. Pinsent observed that the information on which he had based this note WAS received last week, and that it may therefore be somewhat out of date. 8mg 174 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Reference is made to my memorandum dated June 14 in which I reported the interest of Mr. Pinsent in learning whether the British Embassy might properly approach the F.B.I. with a view to obtaining information which the latter receives from American banks and corporations in regard to suspicious German and Italian banking transactions. After discussing this matter with the Secretary, I have told Mr. Pinsent that this is a question on which the Treasury Department was obliged to refer him to the Department of State for guidance. I frankly stated that the Treasury Department could not officially condone any action which might be interpreted as counter espionage. B.M. 175 175 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran On June 21 I telephoned to Mr. Knoke at New York the text of cablegram #1752 of June 20 from London in regard to the transfer of Bank of England accounts into Government accounts with the Federal. At that time it was agreed that Mr. Knoke would have the text studied by his institution and would then let me know whether a communication based thereon from this Government would meet the Federal's require- mants for the opening of the accounts in question. Having had no word from Mr. Knoke on this subject. I reminded him of the cablegram at 10:30 this morning. He replied that the matter was still having the attention of his lawyers, and that he would let me know their decision as soon as possible. When Mr. Pinsent called on me at 12:30 today he inquired as to the status of this matter, and I gave him the above information. Regraded Unclassified 176 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At twelve noon today, Mr. Pinsent, Financial Counselor of the British Embasy. called on me by appointment. I referred to his letter dated June 18, 1940, inquiring as to whether the U.S. Treasury would be in a. position to purchase L100,000 worth of silver to be taken from the deposit in Tientsin, under the terms of an agreement recently reached between the British and Japanese governments over the Tientsin dispute. I told Mr. Pinsent that I had discussed this matter with the Secretary of the Treasury but that in the circumstances, including the development of sentiment in Congress toward restricting purchases of foreign silver, Mr. Morgenthau preferred not to acquire the silver in question. I reminded Mr. Pinsent that silver had recently been shipped from the United States to India, which might be expected to provide 21. normal market for the silver still held in the concession at Tientain. I agreed with him that this would not provide dollars which might be spent in the United States, but that the Treasury's decision was as above indicated, nevertheless. I have telephoned Mr. Livesey of the Department of State this afternoon asking that he inform the Far Bastern Division as to the Treasury's decision. Regraded Unclassified 177 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24, 1940 TO Secretary Morgenthau confidential FROM Mr. Cochran After opening at 3.68, sterling moved erratically upward, reaching a high of 3.73-1/2 in the mid-afternoon. It subsequently eased to close at 3.69-1/2, as com- pared with Saturday's final rate of 3.73-1/2. Sales of spot sterling by the six reporting banks and the Federal Reserve Bank of New York totaled L369,000, from the following sources: By commercial concerns 1 74,000 By foreign banks (Europe, South America and Far East) L270,000 By Federal Reserve Bank of New York (for Yugoslavia) 1 25,000 Total L369,000 Purchases of spot sterling amounted to L163,000, as indicated below: By commercial concerns. L163,000 By foreign banks 18 - Total L163,000 The National City Bank reported that it had sold cotton bills totaling 12,000 to the British Control on the basis of the official rate of 4.02-1/2. There were no reported purchases of sterling from the British Control at the official rate of 4.03-1/2. The other currencies experienced little movement and closed as follows: Swiss franc .2261 Canadian dollar 19-1/4% discount Lira .0505 Reichsmark .4000 Cuban peso 9-15/16% discount Mexican peso .1818 bid, .2000 offered We purchased the following amounts of gold from the earmarked accounts of the banks indicated: $ 700,000 from the Central Bank of the Colombian Republic. 210,000 from the National Bank of Nicaragua. 185,000 from the Central Bank of Chile. $1,095,000 Total - a - 178 The Federal Reserve Bank of New York reported that the following shipments of DATE were being consigned to it: il 56,007,000 from England, representing four shipments by the Bank of England, to be sarmarked for its own account. 2,008,000 from Canada, shipped by the Bank of Canada, to be earmarked for account of the Bank of England. 8,140,000 from Canada, shipped by the Bank of Canada for its OWN account, for sale to the U.S. Assay Office at New York. 7,389,000 from England, representing two shipments by the Bank of England for account of the National Bank of the Kingdom of Yugoslavia, disposition unknown. 5,041,000 from England, representing two shirments by the Bank of England for account of the Royal Norwegian Government, disposition unknown, 2,012,000 from England, representing two shipments by the Bank of England for account of the Swias National Bank, disposition unknown. 1,030,000 from England, shipped by the Bank of England for account of the Bank of Portugal, disposition unknown. $110,622,000 Total The Federel also reported that the Barclays Bank, Care Town, shipped $7,000 in gold from South Africa to the New York agency of the Barclays Bank, for sale to the U.S. May Office at New York. The State Department forwarded to us cables stating that the following ship- mate of gold would be mede: $5,185,000 from Australia, shipped by the Commonwealth Bank of Australia, Sydney. to the Federal Reserve Bank of San Francisco. 1,127,000 from England, shipped by the Lloyds and National Provincial Foreign Bank, to the Bank of London and South America, New York. 141,000 from Australia, shipped by the Bank of New South Wales, Sydney, to the American Trust Company, San Francisco. 18,000 from England, shipped by the Swiss Bank Corporation, London, to its New York agency. $6,471,000 Total The shipments coming from Australia will be sold to the U.S. Mint at San Franciaco, and the ones coming from England will be sold to the U.S. Assay Office at New York. The Bombay gold price declined the equivalent of 58# to $34.64. Spot silver in Bombay was equivalent to 43.22/. off 9/16 in substantial decline took place in the London silver prices today. Stot silver was fixed at 21-1/8d, off 1-5/16d, and the forward quotation was 21d, off 11/16i, the U.S. equivalents were 38.41 and 38.18# respectively. Randy and Harman's settlement price for foreign allver was unchanged at 34-3/44- 8 Treasury's purchase urice for foreign Bilver WAS also unchanged at 35/- confidential Regraded Unclassified 179 - 3 - We made three purchases of silver totaling 200,000 ounces under the Silver Purchase Act, all of which represented new production from foreign countries, for forward delivery. 16.M18 CONFIDENTIAL 180 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE June 24, 1940 TO Secretary Morgenthau FROM Mr. Haae RA Subject: The Business Situation, Week ending June 22, 1940. Conclusions (1) Indexes of business activity continue to rise rapidly. In the week ended June 15 the FRB equivalent of the New York Times index gained a full 5 pointe, reaching 117. As steel operations approach capacity, the business gain attributable to this factor will of necessity be more gradual. Other indus- triee, however, are beginning to make a more substantial con- tribution to the business rise. (2) A pronounced upturn in orders for products other than steel, which raised our new orders index in the week ended June 15 to a new high since last October, apparently fore- shadows an expansion in other industries. Orders for textiles, electrical equipment, and construction materials have shown noticeable increases. (3) The collapse of France has had certain repercussions on our business situation. Some steel companies have suspended work on French war orders pending definite assumption of these orders by Great Britain. Tin, copper, and other metal prices have weakened on the cessation of French buying. (4) The plant expansion program of American industry, which recently got under way, has gained further momentum. Industrial construction awarde have reached the highest level since June 1937, with the inclusion of large private and Federal projects during the past week. Business indexes rise more sharply An unusually sharp gain in adjusted indexes of business activity during the week ended June 15, again due in large part to the rapid contra-seasonal expansion in steel activity, has carried the New York Times index to an FRB equivalent of 117. Regraded Unclassified 181 Secretary Morgenthau - 2 (See Chart 1.) This represents a rise of 5 points in a single week, and carries the index close to the level of last January, when the FRB index was 119. Gains after this month may be somewhat slower, unless activities in other industries than steel advance more strong- ly. It will be more and more difficult to expand steel pro- duction as the rate approaches practical capacity; the "seasonal" during July will rise elightly instead of declining as at present; end some hesitancy in steel production during the next few weeks may result from the present uncertainty over the status of French war orders. On the other hand, other industries seem likely to advance more rapidly in the months Just ahead. Textile production (second to steel in importance in the FRB index) has already begun to increase. The FRB adjusted woolen goods index rose to 91 in May from 76 in April. The cotton goods index in May rose 3 points to 116. Sharply increased orders for both types of textiles in recent weeks, partly representing heavy Government purchases of wool textiles, point to further expan- sion of activity in the textile industry. Activity in leading industries The recent trends of production in selected leading indus- tries are shown in Chart 2, in comparison with the New York Times composite index of business activity. The extent to which the rise in the composite index 80 far has been due to the increase in steel activity is indicated by the similarity between the trends of the two indexes. Now the cotton mills (as shown on the chart) are beginning to increase production. The index of cotton mill activity has recently been revised upward. Lumber orders have not yet shown any significant increase, and lumber production (see chart) has risen but slightly. A recent tendency toward industrial plant expansion, together with the present high level of residential construction, how- ever, will doubtless lead to increased production of lumber. Regraded Unclassified 182 Secretary Morgenthau - 3 Further gaine in industrial plant expansion are indicated by the Engineering News Record figures for the week ended June 20. Construction awards for industrial purposes in that week, totalling $25,949,000, increased 44 per cent over the previous week, and for the second week in succession estab- lished 8. new high level since June 1937. The total for the week was sharply raised by the $15,000,000 award for the new Tennessee Powder Company plant at Memphis. Other awards included a $3,000,000 aluminum reduction plant at Vancouver, Washington, a $3,000,000 telephone exchange at Chicago, a $1,000,000 Chrysler Corporation machine shop at Highland Park, Michigan, bridge awards totalling $1,184,000 for the Texas and New Orleans Railroad Company, and 4 other awards over $500,000. In the Government classification, the largest award was $23,000,000 for a naval air base at Corpus Christi, Texas. Automobile production (as shown on the chart) has appar- ently started its summer decline in preparation for a shift to new models. Output last week declined to 90,060 units, as compared with 93,635 in the previous week. A further increase in nev orders for products other than steel supports our expectation of B rising trend of production in a number of industries. Our index of new orders in the week ended June 15 rose to B new high since last October, despite 8. sharp downturn in reported steel orders. (See Chart 3.) In- creased orders for textiles, electrical equipment, and building materials were responsible for the upturn in the index in that week. Our index of orders for products other than steel and textiles, the most important of the three major groups, has risen above its high of last October. Status of French orders affects steel rate A reduction in the rate of steel output, which is sched- uled this week at 86.5 per cent of capacity versus 87.7 per cent last week, 1a attributed in part to uncertainty over the status of French war orders. While it 18 assumed that the greater part of these orders will be taken over by Great Britain, differences in types of steel and semi-finished prod- uote required by British plants, and in measurements on finished products, have led to some doubt on this point. Work has therefore been suspended on French orders by some companies, avaiting a clarification of the situation. Regraded Unclassified 33 secretary Morgenthau - 4 yew orders reported by the U. S. Steel Corporation Applined to 76 per cent of capacity during the week ended INTE 13. 88 compared with 107 per cent in the previous week. The droo in orders may have been due in part to the effect of :- recent Allied reverses on new buying, and in part to temporary falling off in specifications on automobile steel dive the steel companies had decided to postpone the desdline en "hargain price" orders until July 31, A further increase of $.75 A ton in the Iron Age composite orice of steel scrap reflects the urgency of current demand from steel mills. Mille can step up production of steel more replily by using scrap than by going through the process of anking p1g iron, henoe the consumption of steel scrao tends to increase more rapidly than the consumption of 01g iron during - racid rise in steel output. The steenness of the rise in steel scrao consumption during My, following several months in which scrap consumption WEB law relative to pig iron consumption, 18 indicated in Chart 4. YD# increase in the consumption of steel screo during May CONDDITE with similar sharp increases in the fall of 1938 anê the fall of 1939, when steel output was expanding rapidly. Railroad equipment orders increasing After an extended period of dullness following the active traving of last fall, railroad equipment orders, carticularly for freight cars, have recently been showing signs of improve- ment. Domestic frei car orders in May increased 270 care over the previous month, making the May total of slightly over 2,000 care the best monthly figure thus far this year. While this number 1E far below the 1939 peak figure of more than 14,000 care ordered last September, nevertheless it appears to have been the forerunner of increased ordering during the cur- relit month. Thue the Iron Age of June 20 had already reported API domestic freight car orders in June totalling 3,934 care including 1,000 box car bodies), nearly double the total for the entire month of May. Similarly, according to the Railway Age, orders for new locomotives in the first half of June tetalled 27 as compared with 20 in the entire preceding month. Increased equipment buying has doubtless been stimulated by - recent more encouraging showing of freight car loadinge, 118 well 88 by a tendency to anticipate requirements that may devolop in connection with national defense plans. Regraded Unclassified 184 Secretary Morgenthau - 5 Freight cars owned at the end of last April totalled 1,648,000, as compared with 1,662,000 at the end of April 1939. On the other hand, as indicative of progress in the repair pro- cram of the railroads, only 10 per cent of the total were undergoing or awaiting repairs as compared with 14 per cent at the end of April 1939. Likewise only 16 per cent of all locomotives were undergoing or awaiting repairs, as compared with 19 per cent B year earlier. According to a recent statement of the president of the Association of American Railroads based on a survey of June 1, the railroads expect by October 1 to have an increase over year-earlier levels of 148,000 serviceatle freight cars, even though only 3,425 additional new freight cars were definitely scheduled for purchase as of the date of the survey. This is expected to be accomplished by the delivery of care previously ordered 8.8 wellae the prospective orders mentioned, the re- building of 13,000 cars, end the addition of nearly 81,000 serviceable cers by the repair program being carried out. Metal prices weeker The cessation of French buying, and the possibility of a. reduced volume of nonferrous metal consumption after the German occupation of France, brought a sharp decline in tin prices last week and weakness in prices of copper and zinc. Heavy selling of tin by Chinese producers on reports of pos- sible Japanese intervention in French Indo-China was a factor contributing to a break of 627 per ton in tin prices at Singapore last Tuesday, the market closing at 6258. Prices at New York did not reflect the full Singapore decline, but the close last Thursday at 543 cente a pound wes 3# cents lower than B week earlier. Copper prices were reduced ± cent during the week, and futures prices of zinc and lead showed some weakness, although producers of these metale held spot prices unchanged. Prices of basic industrial materials as a group, however, continued during the week the gradual improvement that has been noticeable since the beginning of the month, while prices of foodstuffs held about unchanged from the previous week. (See Chart 5.) Rising prices of cotton and wool, rubber, hides, and steel scrap contributed to the upturn in the indus- trial materials group last week. Regraded Unclassified 135 Secretary Morgenthau - 6 Weekly business indexes sharply higher Continuing its rise for the seventh consecutive week, the New York Times index of business activity for the week ending June 15 moved ahead more sharply than in any other week since July 1, 1933. The gain, amounting to 3.1 points, carried the index uo to 102. 4, which 18 9.6 points above the low reached in the first week of April. Nearly one half of this aggregate gain since early April has been accounted for by the index of steel ingot production. The principal factors in the rise during the week ending June 15 were marked contra-seasonal gaine in electric Dower and steel ingot production. Freight car loadings also showed & contra-sessonal rise with both total and miscellaneous loadings reaching new highe for the year. The index of cotton mill activity also rose, despite the fact that the previously reported figure for the preceding week W&B revised upward by over 10 points, The only component which declined was auto- mobile production, and that decline was very slight. Barron's index of business activity for the week ending June 15 moved in line with the Times' index although at a somewhat slower pace, a rise of 1.6 points carrying the index up to 110.2. Preliminary data thus far available for the week ending June 22 reveal (1) another contra-seasonal gain in steel operations, which will result in a further advance of around 5 points in the index of steel ingot production, and (2) a more than seasonal decrease in automobile production, which will reduce the index of automobile production by about 4 Doints, Regraded Unclassified WEEKLY ESTIMATES OF F.R.B. INDEX OF INDUSTRIAL PRODUCTION BASED ON N.Y. TIMES INDEX 1923 - 25 = 100, ADJ. 1939 1940 J. F M A M J J A $ o N D J. F M A M J A S 9 N. D PERCENT PERCENT 130 130 125 125 120 120 115 115 110 110 F.R.B. INDUSTRIAL PRODUCTION, 105 105 MONTHLY WEEKLY ESTIMATES 100 100 95 95 90 90 R 85 BO 80 N D J F M A M J J A $ o N D J F M A M J J A 5 o 1939 1940 MONTHLY ESTIMATES OF INDUSTRIAL PRODUCTION, BASED ON N.Y. TIMES 1937 1938 1939 1940 PERCENT PERCENT 130 130 120 120 ESTIMATES 110 110 100 100 90 90 F.R.B. INDUSTRIAL PRODUCTION 80 80 70 70 1937 1938 1939 1940 186 Office of the Secretary of the Treasury C - 321 - of - and Statistics RegradedUnclassified CONFIDENTIAL SELECTED BUSINESS INDICES BUSINESS ACTIVITY PER CENT Seasonally Adjusted Est. Normal 100 120 110 40 100 39 90 18 BO N y Timez 70 JAN. MAR. MAY JULY SEPT NOV STEEL INGOT PRODUCTION AUTOMOBILE PRODUCTION PER CARS CENT Per Cent of Capacity THOUSANDE U.S. and Canada 150 80 40 125 21 40 60 100 40 75 " 50 26 20 25 28 Amer / and a Inst. Word il Est o o JAN MAR MAY JULY SEPT. NOV JAN MAR MAY JULY SEPT. NOV COTTON MILL ACTIVITY LUMBER PRODUCTION PER PER CENT Eat. Normal = 100, Adjusted CENT 1929-3 = 100. Adjusted 160 100 40 : "40 140 20 50 120 36 60 100 26 40 BO # y Times M.K. Times 60 JAN MAR MAY JULY SEPT 20 NOV JAN MAR MAY JULY SEPT. NOV. Regraded Unclassified Office of the $ the Treasury 168 Chart 3 CONFIDENTIAL INDICES OF NEW ORDERS Combined Index of New Orders and Belected Components 1938 1539 1940 o PERCENTAGE POINTS PAINTS 100 160 IX 150 140 140 IJO 130 Total {combined Index) 1936 - 100 120 120 119 110 120 100 20 90 2 BO 7d 70 HI 60 Total excluding Steel and Textiles N 50 n 40 Steel Orders P 30 20 10 fextile Orders o 5 a M D 7 I . A M J J A - 9 " P J F . A M J J. A 5 o - D 1938 1919 1940 - The The - - 1.05-C Regraded Unclassified PRODUCTION OF STEEL INGOTS AND PIG IRON AND CONSUMPTION OF STEEL SCRAP 1936 1939 1940 1941 NET TONS NET TONS MILLIONS MILL IONS Steel Ingot Production and Capacity 7 7 CAPACITY 6 6 PRODUCTION 5 5 4 4 3 3 2 2 1 I o o 1938 1939 1940 1941 RET TUBS NET TOMS BILLIONS Pig Iron Production and MILLIONS (PIG 1800) Steel Scrap Consumption (STEEL SCRAP) 4.6 4.8 4.2 4.4 3.8 4.0 STEEL SCRAPY 3.4 3.6 3.0 3.2 2.6 2.8 2.2 2.4 Pie Incu 1.8 2.0 1.4 1,6 1.0 1.2 1938 6339 1940 1941 Office of the Secretary of the Treasry 139 Chart Desis of feard ml 0 - 320 Regraded Unclassified Chart BUSINESS ACTIVITY AND PRICES OF RAW INDUSTRIAL MATHRIALS AND FOODSTUPPO 190 1939 1940 1940 MAY JUNE JULY AMOUNT SEPT NOV. JAN. MAR. MAY JULY SEPT. 5 12 19 26 2 9 16 23 30 7 14 21 26 4 II 18 25 FEB PER PER PER CENT CENT CENT com (BUSINESS) (PRIOES) Daily 108 Weekly 152 122 122 106 148 120 120 BUSINESS ACTIVITY N.Y. TIMES, EST. TOTAL 100 ADJ. 104 144 116 116 W PRICES or RAM INDUSTRIAL MATERIALS 102 140 B.L.S. AUG. 1939 - 100 116 116 100 136 114 114 PRICES or se Ram INDUSTRIAL MATERIALS." 132 8.6.3. AUG. 1939 - 100 112 112 96 128 110 110 24 124 106 100 92 120 106 PRICES of FOODSTURES\ 106 90 116 B.L.S. AUG. 1939 - 100 88 194 104 112 PRICES or FOODSTUFFS B.L.S. AUG. 1939 - 100 86 102 102 108 B4 104 100 100 R 100 98 se 80 101. NOV. 96 96 96 JAN. MAR. MAY JULY SEPT. 1939 5 12 19 26 2 9 15 23 30 7 14 21 26 4 11 18 25 1940 MAY JUNE JULY AUGUST 1940 FIVE DAY AVERAGE FOR PRICES Office of the Secretary of The Treasury No a M I c 310 - A Regraded Unclassified 191 ADDRESS THE COMMANDARY, u. s. COAST SUARD - - TO No. TREASURY DEPARTMENT 1100 UNITED STATES COAST GUARD SECRET WASHINGTON 24 June, 1940. From: Spagent, Shanghai, China. To : Secretary of the Treasury. Message from Mr. K. P. Chen. I arrived Hongkong on the twentieth from Manila. Had originally planned to proceed via Rangoon, Irrawaddy Waterway, and Burma Road to China interior. However, I received a cable in Manila from Chiang Kai-Shek and H. H. Kung requesting me to change my plan and proceed to Chungking first. The change necessitates postpone- ment of the Irrawaddy Waterway and Burma Road inspection trip until after a brief Chungking visit. I will keep you informed. Best personal regards. IT bocham Regraded Unclassified 192 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 24. 1940 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL Mr. Pinsent, Financial Counselor of the British Embassy, called on se at 12 noon today by appointment. He showed me a copy of a cablegram which his Ambassador had sent under date of June 21 to London. Mr. Pinsent permitted - 10 copy the following text of the message: "Mr. Welles has now given following reply in writing. Begine. With reference to the inquiry concerning contingencies which might arise if an agreement to hand over French assets in the United States to Germany were entered into by France, it may be pointed out that an order subjecting such assets to license WD.S issued by the United States Government es recently as June 17. In the event of an armistice or other agreement being entered into on the part of France, there would no doubt be many questions of fact and policy requiring careful consideration before any decision by this Government to license the disposition of French assets in the above-mentioned sense could be reached. This Government cannot at the present time forecast all the contingencies of the situation. Ends. After reading me this statement Mr. Welles went on to say that, while the President vas unable to make any explicit commitment as to the future in writing, His Majesty's Government could rest assured that 60 far as his Administration was concerned no French Government dominated by Germany would be allowed to get control of balances or assets in the United States which could be used in the war against Great Britain. It was the intention of the United States Government to treat any government in France which was dominated by Germany exactly as it treated the government in Denmark today." It will be recalled in the above connection that on June 18 Mr. Pinsent had given me the following text of a secret message which his Embassy had received from the British Government: "Please inform United States Government that in view of obscurity of position and uncertainty whether French offer of armistice will be accepted We did not to-day take steps to block French gold It balances ] before banks closed. We shall consider what will be appropriate steps to take tomorrow. Regraded Unclassified 193 & "2" We should be glad to know what steps would be contemplated by U. S. Government to prevent French gold held in D. 8. A. by French Government or Bank of France or gold in transit being handed over to Germany and French balances being used for benefit of Germany." This Treasury had given its oral comment on the above message to Mr. Pinsent, and the above quoted communication represents the reply of the State Department, so which Department the matter had also been taken by the British Embasqy. Mr. Pinsent told no in strictest confidence that Lord Lothian sav Secretary Bull this morning and suggested that the United States withdraw recognition of the Petain Government. Mr. Sull is stated to have replied that the Department of State would take no precipitate action but assured Lord Lothian that the situation here VSE absolutely safe. The Ambassador took this to mean that French assets in this country were safe, In regard to this question of French assets, Pinsent gained the impression from his last talk with Leroy-Beaulieu that France now has approximately $500,000,000 of $600,000,000 in Ottawn, $150,000,000 in London, and approximately $200,000,000 gold on the high seas. These, as I recall them, are about the figures which Leroy- in Beaulieu gave to me last week, ao there may be some change therein by this date. N.T.: Pinsent volunteered a story to me about the French gold which arrived in Halifax a few days ago on B. French warship, which differs a little in detail from Leroy-Beaulieu's account. Pinsent stated that before the ship had begun to discharge its gold cargo at Halifax, instructions were received to take the gold to Martinique instead. The Canadian government, however, blocked the de- parture of the warship from Canada. This immediately caused an incident which the Prime Minister of Canada and the French Minister were endeavoring to solve. As far as Pinsent is sware, no decision has yet been reached. The French Ambassador in Washington vas quite angry over what he calls & "seisure" by the Canadians of a French warship. On Saturday last Pinsent had referred to the matter of the contemplated transfer of French gold from New York to Ottaws, and told me confidentially that word. had been received from his Government endorsing this idea. He is avare, however, that the French Ambassador in this country Le opposed to the idea. Pinsent 16 not at all optimistic BE to the chances for Great Britain to receive much help from the French Navy or from French citizens or dependencies outside of continental France. 76mL Regraded Unclassified 194 June 24, 1940 9:30 a.m. GROUP MEETING Present: Mr. Young Mr. Gaston Mr. Haas Mr. Mr. Graves Mr. Mr. Thompson Mr. Schwarz Mr. Coohran Mr. Mr. Mrs. Klotz Bell Foley Viner White the you H.M.Jr: Will (Thompson) Bee that Dr. Parran for next 24 hours gets a good car? I know where there is a 1939 Buick that could be used, but I don't like to take it away, but otherwise, if you could get him a good car for the next day or two - tell him it 18 from the President and me personally. White: It 18 already available. H.M.Jr: All right. Will you? Thompson: Because I Just - could I clear myself just a little bit? I think this. Sullivan has really been siok. He 16 going to have to work on this tax bill. Why wouldn't it be a good 1dea to tell him to stay up there for two weeks now, because he has got to work all summer getting this thing ready, What do you think? Bell: I think it would be a good idea. He isn't well. Regraded Unclassified 195 - 2 - H.M.Jr: Then he will have had his summer's vacation. What do you think, Herbert? Geston: I think it 1a all right. I think he should take some time off. H.M.Jr: Isn't this 8.8 good 8. time as any? Because he is going to have to work on the tax bill. Gaston: Yes, I think 80. H.M.Jr: Don't you think BO? Does that fit in with the rest of you? I told him to take four or five days, 80 he might Just as well take two or three weeks. Bell: It 18 all right with me. H.M.Jr: I Am serious. Then he will have to come back and work on the tax bill. After all, he left here on the night of the 22nd. We will give him the week of the 4th of July. I will give him that week and he can come back on the 8th. How 18 that? Bell: Very good. H.M.Jr: I will call him up. The other thing which I wish you people would be thinking about is this: I think we are going to have some very, very difficult decisions to make on this gold, and the outstanding person, AB far as I know, 1a Professor Joseph P. Chamberlain. Do you know him? Foley: No, I don't know him. H.M.Jr: You don't? Foley: Do you want me to check it with Eddie? Viner: I know him. H.M.Jr: Do you know anybody who would carry any more weight? Regraded Unclassified 196 - 3 - Viner: Quasi legal decisions? H.M.Jr: Yes. Viner: He would carry a great weight with the Hill, you know. He was expert adviser on drafting for years. But he 18 - I would BAY he is R. person with an absolutely first class reputation, but he 18 quite an old man now. H.M.Jr: But they say he has an assistant up there by the name of Philip Jessup. Viner: Yes, he is down here, too. H.M.Jr: Who could be down here permanently, but Chamberlain would be the front man. Viner: What do they call him? Cochran: Professor of Public Law at Columbia. H.M.Jr: Do you want to check it off? Would you like 8. half A. day on it? Cochran: Jessup 18 carried as professor of International Law. Foley: Well, I will make some inquiries. H.M.Jr: Make some inquiries. I called up. He 1e in California now. I will call him after lunch. You must know him. I worked with him on the narcotic thing. He 1s head of this committee on narcotics. He 18 quite an old man. He must be over 70. Foley: Yes. H.M.Jr: But I think he has a great name backed by brains. I think he would be - Eddie agreed. I first asked Eddie. He couldn't make any suggestions, and I said, "What about Chamberlain?" He said, "You couldn't get a better man." He 1s the head of the Non- Sectarian Refugee Committee. He had A chair in Oxford. Regraded Unclassified 197 4 White: I suspect the determining factor in the determination of international law right now unquestionably 18 policy, 80 that unless you already know it might be well to find out what his policy ie before you have his reputation behind the decision you make. H.M.Jr: I know what it 18. He is the head of the Non-Sectarian Refugee Committee. I mean, I guess he 1s about as good a man A8 you could get. But you do 8 little inquiring around, will you? Foley: Yes. H.M.Jr: Because I think that - well, this thing, for instance, about turning over the gold owned by individuals, Dutch individuals, to the Dutch Government - I mean, I think fellowe like Ed and myself who are on the firing line every minute and yourself (Bell) just don't get time to sit down and look B. month or two ahead. It is a very difficult thing. If we had a man like that, I think it would be fine. After all, we are doing 80 much every minute you can't stop and think. I worked with him on narcotics. He is a grand fellow. He is head of this committee. Foley: I AM sure I can find out about both of them. H.M.Jr: George, would you send your reilroad statistics - the first one I will send with the letter both to Budd and Harriman RB they come in on the Port of New York. They have nothing over there. Haas: I see. H.M.Jrl They came down - they would love to have them. Don't we get them daily? Haas: Well, I make a report to you once 8 week, but there 18 A daily one from New York. H.M.Jr: Well, I would send the daily one over to Regraded Unclassified - 5 - 198 them, but the first ones, in the thing say, "If you want anything more, if you will contact George C. Haas," and 60 forth and BO on. Haas: That 18 Budd and Harriman? H.M.Jr: Yes. And you might put in the letter if they care to take this over themselves, I would be delighted, or we would be glad to continue it. You stay behind a minute, Ed, and I want to write a letter on this stuff. Thompson: The Treasury Appropriations Bill for next year changes our Division of Appointments to Division of Personnel. It 18 therefore necessary to issue A formal order establishing the new division. This is 8. short one. E.M.Jr: Does this appoint the head of it? Thompson: Yes, the Director of Personnel. S.M.Jr: Did it name a name? Thomoson: No, sir, just the Director of Personnel. H.M.Jr: You know, I have told you fellows I want to talk about that. Thompson: This really should go out to get the division established. H.M.Jr: Well, it leaves it to me to appoint the fellow? Thompson: You already have one. H.M.Jr: But I mean, it still leaVes it to me? Thompson: That is right, it doesn't change that provision in the slightest. H.M.Jr: Well, I may want to put Louie Brownlow on it. Thompson: He will be a good one. Regraded Unclassified 9 I I 199 Gaston: That would be a good idea, get him out of his present position. Thompson: There 18 one more Mr. Bell wanted to promote, Mr. Bartelt. H.M.Jr: Eddie Bartelt? Wonderful. I would like to give Eddie that myself. He 18 a good boy. Klotz: Who 18 the Director of Personnel now? H.M.Jr: I am. I know all about it. See that panel there (Thompson, Bell, and Graves)? They even rotate together. They are all sitting on the same fence. They just go like that (waving arm). Have I got a chance? I guess not. Do I know when I am licked? Yes. Just go through the formality of consulting me, will you? Thompson: Yes, sir. H.M.Jr: What else? Thompson: That is all. H.M.Jr: Dan? Bell: Doughton called Saturday and tried to get you. He said he had heard a rumor that Mr. Hathcook is going to be dismissed on July 1st and he wanted to call attention to your promise and Mr. Sullivan's promise that nothing would be done in this case until he had an opportunity to confer with you. H.M.Jr: Well, I asked John to handle it. Bell: I said I didn't know 8. thing about it. H.M.Jr: Don't we have a committee on that? Wasn't there e. committee? Well, I asked John definitely to handle it. Well, John gets two weeks' vacation. You will have to leave it until he gets back. It is his problem. Bell: Well, he said he W&B going out of town on Regraded Unclassified 200 - 7 - Saturday night for ten days, and he hoped nothing would be done until he got back. I told him I thought if that promise had been made that nothing would be done. I promised him nothing would be done unless we got in touch with him. H.M.Jr: You had better tell it to Guy Helvering to make sure. Thompson: He went before a Senate Committee last week. H.M.Jr: There are the things I handed to John. I handed him that, which is definitely his problem, and there were several other things. Bell: I think if John promised him that, he will do it. H.M.Jr: I promised him. Bell: Well, he said Sulliven did too. Mr. Schramm called also and said he had seen in the paper where you had worked out some program or plan in connection with the financing of plant expansion. He would like to get some information on that because it would be quite helpful to them in a oase where they had to make loans. H.M.Jr: Ed works it all out, does 8 magnificent job with Knudsen, but Mr. Biggers never heard of it and Mr. Biggers is Mr. Knudsen's right hand man, 80 it takes 30 hours, to be exact, and they have got to go all over it again with Biggers. Now, Jesse Jones has written a letter approving the plan. Bell: Yes. H.M.Jr: Here 18 a letter approving the plan, and I only made my statement after Ed Foley came to my house, got me out of bed at 7:30 - at night -- White: Yes, we know you have never been in bed at 7:30 in the morning. Regraded Unclassified - 8 - 201 Foley: It wasn't even necessary to make that remark, was it, Harry? H.M.Jr: He was just going to work. I met him with his milk pail going to work. Well, anyway -- Bell: Well, if that 1e the case, I will tell him to get it from Mr. Jones. H.M.Jr: Do you think it is worthwhile to get hold of Schramm and tell him the whole story? Foley: I will call him up and tell him. I will be glad to do it, if you would like me to. H.M.Jr: I think it would help. Foley: Sure. H.M.Jr: Incidentally, I had breakfast with Averill Harriman and he said the whole crowd over there 1a most enthusiastic about the Treasury and they couldn't ask for more cooperation than what we are giving them. It 18 sort of a club over there. If you weren't in the NRA, you can't go to work over there. Foley: That 18 right. H.M.Jr: It is true. Foley: The fellow they have asked us to lend them is Larry Bernard, who was in NRA. They wanted to borrow him for the summer. H.M.Jr: Nothing doing, you know. Foley: I know. H.M.Jr: I mean that still holds true, Norman. They don't borrow anybody without my signature. Go ahead. Bell: I was wondering if somebody WAB working on the request for the Wagner Committee in connection with this banking legislation. White: Oh yes. 202 - 9 - Bell: I hadn't seen anything. H.M.Jr: What are you going to say, Harry? White: Oh yes, they are working. H.M.Jr: Yes, they are working. Harry wrote All the questions. Bell: He ought to know all the answers, then. H.M.Jr: I hope he does. White: No, it 18 an old professorial custom. You ASK the answers to the questions you don't know. You expect the students to give them. H.M.Jr: You BAY you didn't write them all? White: No. H.M.Jr: Which ones? White: I stand on my first statement. H.M.Jr: You see, Harry White has even spotted a man up there. Talk about your Fifth Columnists! White: They are not eager to go forward rapidly with it and BO we want to cooperate with them. Bell: I would hate to wait until the last minute and then have to rush in a lot of answers. H.M.Jr: Will you send for Professor White? Bell: Yes, I will a end for him. I have a resolution -- H.M.Jr: By golly, they set up about 2,000 questions. Wagner 18 very sensitive about the fact that White did all this work and has one of his own White men up there as A principal fellow. Don't let it out. White: There 1s some resemblance. H.M.Jr: Ia the fellow un there or isn't he? White: Yes. Regraded Unclassified - 10 - 203 H.M.Jr: Okay. These yes or no answers are terrible. What else? Bell: I have a resolution here for the Board of Trustees of the Postal Savings system. Heretofore they have taken the profit which we have made on sale of Government securities after setting aside enough money to pay the interest and their expenses, and turned it over to the Post Office Department for Postal Revenue. I thought it might be A good thing if they used that profit to write off the premium, at least on the bonds, and this 1e directed to that over the next three years and any subsequent purchases -- H.M.Jr: I think it is B. good idea. Chamberlain was born in '73. How old does that make him? Bell: Sixty-seven. H.M.Jr: He is younger than I thought. He was High Commissioner for refugees coming from Germany from '33 to '35. Viner: He worked on the treaty of Versailles, if I am not mistaken. He was one of the parties on the American side 80 that 1s either for or against him. White: How would the State Department feel about you getting these men down? H.M.Jr: Well, they fooled around here for 8 couple of years and they had to shove the airplanes across and then the Treasury decides that the title can pass in the air. White: Well, that is your regular staff. I am just asking the question. It seema to me they are definitely in the field in which presumably the State Department has authority over. H.M.Jr: I am surprised, Harry. I am not going to wait for the State Department. You and I agreed it 204 - 11 - would be a swell thing to buy up all the strategic war materials A year ago and not give them to anybody to make war. Now they come along after all of Europe except England is lost and they want to spend A couple of billion dollars in South America. If they had spent it A. year ago, they would have been A lot better off. I am not going to wait for anybody or anybody's feelings, with the exception of the President's. Jessup was born in '97. That makes 8. good average. Am I still on you? Bell: You have to sign those letters. Senator Thomas sent you a little note about birthday greetings and enclosed a telegram he had received from B man by the name of England out in Logan, Utah, suggesting that we take a mortgage on the fleets of Germany and France - England and France against their war debts. I don't know whether that requires a reply. It doesn't any much. H.M.Jr: Why didn't you decide it Saturday? Bell: Well, it was a personal note. H.M.Jr: Okay. Thank you. What else? Bell: That 16 all. H.M.Jr: All right, Dan't Bell: Yes. H.M.Jr: Harold? Harry? White: I think there ought to be a conference here and then if you will set some time aside within the next couple of days to reconsider the cuestion of a method of silver purchasing. There 16 some press comment and some information that we are picking up which indicates that Germany Regraded Unclassified 205 - 12 - 1a picking up silver and Italy 1s picking up some silver, and if we can rearrange our purchases, we may be able to avoid buying that sort of thing. H.M.Jr: Well, what happened on that, the New York Times man evidently had a etory out of Mexico that this stuff was coming in and asked me about it, and I said I didn't know anything about it, but we will be glad to look into it. Dan asked me Saturday if I was doing anything about it, and I said no, and he said he would start. White: Well, he asked me to prepare something but I am raising a different question, not 80 much of answering, but of really reexamining the way of buying this stuff. H.M.Jr: Well now, if Dan and you would - and Cochran, I will appoint you a committee of three. If you will give me something on this, I would like very much to have it; and if you will let Professor Viner sit in on it, I would like it. White: Okay. There 16 a meeting of the Executive Committee on Commercial Policy this morning at eleven o'clock, at which there 18 to be taken up the question of a coffee cartel which the coffee growers in this Hemisphere have been working on and the State Department approves of their request that - to limit the importe of non-American coffee, that 18, coffee from Africa, which 16 Dutch and British and French. It will also raise the price here. It is coming up at the meeting this morning and I wondered whether you would like to have a little conference here before to determine your attitude on the question before the meeting. They claim they want to work very fast. H.M.Jr: Well now, they are working too fast. Now, wouldn't it be good to have a fellow like Leon Henderson and Mrs. Thingabob sit in on the thing? White: Very good. Regraded Unclassified 206 - 13 - H.M.Jr: From our standpoint. White: Very good idea, because coffee particularly -- H.M.Jr: I mean, that 18 the first thing. I would be ready by eleven thirty. White: The meeting 16 eleven o'olock this morning. H.M.Jr: Oh, gosh! White: I can withhold comment And ask them to have another meeting later. The notice was Saturday and they said they wanted immediate action Bo they can start the arduous task of distributing quotas, etc. This request comes from the Latin-American countries more than ourselves. H.M.Jr: Well, it 18 ten o'clock now. I don't suppose -- White: Why might I not at the meeting say that we want to go into the matter a little more carefully and they can have another meeting or we can telephone them our views, and if they are not in accord with the views expressed then, then this afternoon we can have 8. meeting here. H.M.Jr: Why not have a meeting here at two thirty, and I would like to have Henderson and this Mrs. Elliott. Ask MoKay. White: Two thirty? H.M.Jr: Yes, I think they ought to be here, don't you, Jake? Viner: I don't know. Neither of them knows anything. H.M.Jr: Well -- White: Well, the President appointed them for that job. Viner: That 18 the committee's responsibility, not the Treasury's. White: No, but they might have some light to throw on our decision. I take it our decision would Regraded Unclassified - 14 - 207 want to be in accord with the protection of the consumer. H.M.Jr: I would like to have them. Now, are you (Bell) interested in this? Bell: Not particularly. I might sit in on this. H.M.Jr: Who else? Herbert? Gaston: I have A meeting at two o'clock on another matter. Viner: Who 1a the person in town? Haas: Over at Agriculture. Viner: Montgomery. H.M.Jr: You be here, Ed, to keep me straight legally. Mr. Viner, will you be here, please? White: I thought George might be interested. H.M.Jr: George Haas? White: Yes. H.M.Jr: Fine. George? Haas: I will be glad to come in. H.M.Jr: Yes, I would like you to come in. Two thirty, coffee. White: There 18 a meeting -- Viner: If I may say one word there, I don't think that 18 the correct procedure, Mr. Secretary. That 18 an inter-departmental committee and you are setting up another inter-departmental committee to parallel their activities. If those people are to be called in, the suggestion might come from the Treasury that they be represented at the inter-departmental committee. H.M.Jr: I think you are right. - 15 - 208 White: There 18 this difference. This is & Treasury opinion which you are going to present and I take it all you are going to do with respect to them 1s to get their views on it to enable you to come to some conclusion. H.M.Jr: Supposing when you go over there you say I feel that Leon Henderson and Mrs. Thingabob should be brought in on this. Who is chairman of that ? White: Grady. H.M.Jr: I think Viner is right. Viner: They are acting under an executive order of the President, and they have been given the inter-departmental function. H.M.Jr: I think that 1s quite right, 80 Grady should invite them in. We will just make this 8. Treasury decision. Viner: The Treasury can advise that they call in any other agency of the Government, that is perfectly appropriate. White: That will also make possible 8. later meeting? Viner: Then informally you can take advice from anybody you like, but you oughtn't to set it up at the meeting. H.M.Jr: I think he 18 right. When you go over this morning, tell them they ought to invite these two people. That 18 my opinion. White: I will do that. H.M.Jr: What else? White: There 1a a meeting this afternoon at three o'clook of that group who is continuing to work on that Latin American matter. Do you want me to continue to work on that or would it -- H.M.Jr: What 18 your own inclination? 209 - 16 - White: My own inclination le to work with them. H.M.Jr: Okay. White: That 18 all. H.M.Jr: George? (Mr. Haas handed report to the Secretary.) M.M.Jr: Ed, do you want to look at this Who's Who article about Chamberlain yourself? Would you (Haas) again let me have the latest thing on Allison? Hnas: Yes. They doubled last week, from a small base. H.K.Jr: Well - to make it for the record - I sent that telegram. You have got B. copy (Mrs. Klotz) of that telegram I sent to the President on the Allison thing. Mr. Sloan called me in the country. He 1a not yet ready to put the staff of General Motors on the Allison engine, and he won't be still for several days. I covered the whole thing in the telegram to the President. Klotz: Do you want the copy? H.M.Jr: No, I just -- White: Before Chick begins, there is something that you doubtless have in mind with respect to calling these men down. I wonder whether you want to get some group conversation started here on this question of whether or not the committee which Churchill referred to may possibly be the French Government that we may have to deal with. It 1s going to make a difference. H.M.Jr: What I want to do is to get the very best brains I can in this very technical and very difficult field of international law. If I can get a couple of people -- Regraded Unclassified 210 17 1 I Foley: International law 18 kind of obsolete, Mr. Secretary. Nobody pays any attention to the precedents of the past. It is what you want to do. I think Harry is right when he says it 1s policy more than law. Viner: I think what they can do for you, they can find the sweetest language to put any decision departing from the old precedents. H.M.Jr: Ed, I am thinking of you and me together. If we can get somebody down here like this man whose motives are good and are the same as yours and mine, take my advice, my hunch, that it is good for you and me. I have never advised you anything yet, or you me. It 16 good for both of us. Foley: It 18 perfectly all right with me. H.M.Jr: And if you will B tay behind a minute, I will tell you everything I have in my mind. I will tell you everything. But take the old man's advice. I am 49 now. White: They will be here soon enough 80 that you would wish to pospone discussions? H.M.Jr: No, go right ahead. White: Maybe Danny will raise that. H.M.Jr: Dan is in this thing just as much AB I am. How do you feel about it? Bell: Well, I Am a little at loss. H.M.Jr: On what? Bell: What the decisions are. H.M.Jr: So am I. Bell: And the problems. H.M.Jr: Wouldn't you be glad to have them here, available? Bell: I don't know much about them. Regraded Unclassified - 18 - 211 H.M.Jr: Well anyway, I would be. I would like to have him and I am sure I am right. Bell: We had this question up last week of getting legislation on this turning gold over. H.M.Jr: What 18 this legislation I read in the paper? Was that stuff you wanted? Bell: Yes. H.M.Jr: Did you want that? Nobody told me about it. Bell: Well, the publicity about it was very bad. It wasn't true at all. H.M.Jr: It 1s okay? Bell: Yes. White: Just passed the House. Bell: It only applies to the Central Bank and Government funds with the Federal Reserve Banks. It doesn't apply to any others. H.M.Jr: Where were we? White: Chick Schwarz. Schwarz: I had a number of queries over the week-end about a reported shipment of French gold to New York. I just wanted you to be prepared for further queries this afternoon at the press conference. They gave 8. figure of 200 million. I called the Navy and asked if that ship was there and they told me the Navy said the ship was in Portugal, but 5,000 people saw it in New York. H.M.Jr: The Navy 1s good, aren't they? Schwarz: They did all right on that. H.M.Jr: Do you know anything about it? Schwarz: No. 212 - 19 - H.M.Jr: Neither does the press section of the Navy. You and they are exactly the same. You don't know anything and Admiral Stark assures me the press section of the Navy knows nothing and he refers all things to the press section of the Navy and I will refer all things to you. Stark assured me he hadn't told the press section anything and referred all cueries to them. Schwarz: They referred them over here. H.M.Jr: And they Bay after all the Navy never gives out ship movements. Who am I to give out ship movements? Just sit tight. Bell: It was all cleaned up Saturday at two o'olock. H.M.Jr: Did you do e nice job? Bell: About two o'clock they finished delivery. White: If there is any danger of that "Normandie" slipping out without anybody knowing, maybe we ought to revoke that license on the 300 thousand dollar claim. As it is now, it 18 free to go out. R.M.J.: The question 18, to who 18 she going to alin to? White: The way it looks now, it won't get to the British. I think the owners of it - there 1s a definite split in the attitude of the French and there are any number who might prefer that the "Normandie" might not go to the British and they might respond to pressure from the German Government in response to articles of the Armistice which require them to call home all merchant vessels they can. The "Normandie" 18 pretty fast, and if it elips out all of A sudden, we may have done just the thing we don't want to do. H.K.Jr: Well, at 9:27, it said the "Normandie" had no plane current for the eailing of the French Line "Normandie", which 18 expected to remain in the Hudson River for the present. I would still like to - this suggestion we buy the Regraded Unclassified - 20 - 213 "Normandie" and the "Queen Mary" and Mr. Sumner Welles told me I didn't know my etiquette. I got slapped on the wrist for wanting to buy the "Normandie" and the "Queen Mary" in September. White: I still think there is nothing to be lost by revoking that license. Foley: I don't think it is necessary to revoke it, Herry. All we have to do 1e tell Harry Durning that we don't want her to go out without A little notice. R.M.Jrl Where 18 Baeil Harris? Gaston: We have been working him pretty hard on doing things in which he has no -- Foley: He can give us notice, that 1s all we need, We will only need a few hours, if that 18 what we went to do. We can notify the Pritish. White: Except that this way you are safe. This way you are legally tying the boat up. Foley: I don't think 80, Harry, because they may be able to get the money somewhere else to post AS 8. bond so that they can lift that libel. White: I didn't realize that. Foley: I don't think that is a very secure thing to hang on. I think it ie much safer to have a caveat with Harry Durning. H.M.Jr: Is there any left on board? Foley: I don't think BO. The rate have eaten it all up. Gaston: That is Russian snyway. H.M.Jr: How far did I get? Oh yes, Sohwarz. Are you all right, Schwarz? Schwarz: Fine. Regraded Unclassified - 21 - 214 H.M.Jr: Mr. Viner? Viner: The suggestion has been made to me that if we were alert we would pick up 8. couple of hundred of these French ordnance experts, engineers, designers, and 80 on, and get them out and Toulon 1s an important ordnance manufacturing place 80 they probably are still available. H.M.Jr: It 1s funny, I had the same idea. It must be good. I wondered whether we really couldn't get some top flight people. Young: I talked about that with Mr. Purvis last week, the suggestion they take some in Canada. H.M.Jr: I will see what I can do. What else, Jake? Young: Dr. Mead 18 still Rolls Royoing and has enlisted the aid of the Rolls Royce lawyer in New York, who has been on my neck. H.M.Jr: To do what? Young: I would like to see you about that some time for a moment. H.M.Jr: You mean he 18 still doing that? Young: No, he has transferred me directly over to the Rolls Royoe lawyer in New York now, 80 that he doesn't come in between, but we also have a letter from Maurice Wilson through Air Commodore Baker, authorizing the release of other items to the Rolle Company. I would like to see you about that for a minute some time today, if I could. The Drew Pearson story of last Friday, Customs assures me there 1s not the slightest foundation for the criticism in it. H.M.Jr: Well, you and Chick get together and draw up a little memorandum and let's send it to Pearson and let Chick handle that, will you? Schwarz: I will get it done. 215 - 22 - Young: By five o'clock Saturday afternoon, we had this new two million dollar sale contract, the details worked out, and the stuff should be moving by now from Navy. H.M.Jr: Well, give me two memoranda. One memo on what the 93 planes - if that 18 finished and what went with them, you see, in the way of bombs. The bombs were being furnished by the Navy, weren't they? Young: Yes, they were. H.M.Jr: And then whatever this other thing you are talking about - give me another one, and in each case indicate who was helpful - who in the Army and Navy were helpful. I was surprised. I wrote a letter to the President in which I commended the people in the Navy and Admiral Stark was very much pleased and put it in the record and everything else. Incidentally, for good news, the U. S. Steel will deliver all of these thousand pound bombs before December 30, 1940, the new ones, on the 37 million dollar contract. U. S. Steel will make these thousand pound bombs for the Navy and they will all be delivered before -- Young: Those are the complete bombs, or just the casings? H.M.Jr: It says Navy bombe. It doesn't say if they are complete. What elee, Phil? Tell MoKay to fix you up. Young: I also have a statement for you on what happened to the material that has already been shipped out of Raritan. H.M.Jr: You have that? I Am not going to Maurice's word on anything. I am not going to take anything other than through Kennedy from Lord Beaverbrook. Young: Shall I tell Air Commodore Baker that? Regraded Unclassified 216 - 23 - H.M.Jr: Yes. The only authority that I will recognize is word to Ambassador Kennedy directly from Lord Beaverbrook. I won't recognize any other. Young: I think it might be better to do it through Purvis to Baker, rather than direct. H.M.Jr: Okay. But Mead has gone and got the Rolls Royce lawyers and all that. Young: Evidently the Rolle Royce lawyer has been upset continually. He still wants the release of plans to the - the "G" plane to the Rolle Company. H.M.Jr: Well, I wouldn't take anything other than from Lord Beaverbrook, Kennedy to me. Young: Also there is one other angle on that which is that they are very anxious to have these five men come over from England to work on the Rolls production. The Rolls Company in England has advised Olley they will not release them until the British Government has A request from the American Government for them. H.M.Jr: Well, let's clean up all that stuff. I will see you later on it. Cochran: I have nothing. H.M.Jr: Ed? Foley: Nothing. H.M.Jr: Herbert? Cochran: Guy Helvering called me up Saturday and went over again this question of speci al stamps. It got down to only two things, that they could put stamps on playing cards or documentary stamps, 80 they think it is not worthwhile. The rest of the stuff 16 - you 800, cigarettes have been eliminated and the rest of the stuff, the tax is paid by the manufacturer and no stamp is on the articles. Regraded Unclassified - 24 - 217 H.M.Jr: Well, I an not satisfied. I won't take it. Harold, I give you the assignment. I want 8 stamp or a piece of paper to go on every single item in this billion dollar tax to show it 18 national defense. It 1s your assignment, and I want it personally to go on this thing and I won't take A no. Every single item that goes in the billion dollar national defense, I want the person to know he 18 paying it, to have a national defense receipt or something. Graves: You mean items that are Daid by stamps? H.M.Jr: I don't care. I want an entirely new technique worked out. There 1s 8 billion dollars for national defense. Whatever my contribution 18 toward that billion dollars, I want some kind of e receipt from the United States Government to show that that goes to national defense. Thomoson: I understand that Mr. Helvering 1a working on that. Gaston: That 16 one thing I wanted to mention. He said they suggested they could use a stamp that said, "Defense Tax Paid". I want to add that I don't think his idea 1s a good one. H.M.Jr: Well, I am in a hundred percent disagreement with you and I have tried it out on a number of people, and everybody that I have talked to thinks it is a good idea. Why don't you like it? Gaston: I don't think it 18 necessary. I don't know what good it accomplishes. It tends to freeze these particular things as defense taxes 80 that if you want to adopt those same taxes later - how long are you going to continue the defense stamps - and then - H.M.Jr: The rest of my lifetime. Gaston: It leads to Jeers that this thing is totally inadecuate, that it 1s just an alibi for Regraded Unclassified - 25 - 218 partially meeting your deficit. I Just don't think it 18 any good from any aspect. H.M.Jr: I am sorry. I had to take it before Ways and Means and I think it just lays the ground for a much, much more severe tax as the years go on and people will become more and more conscious of what it is for. White: Herbert, there may be this merit in it - excuse me. H.M.Jr: What? White: What were you going to say? Bell: Nothing. White: I was sympathetic to some of the things Herbert said, but I think there may be this merit in the stamp tax, that it 1e possible that we may have to go very much further, very, very much further in this direction than we have in the past, and we may be involving expenditures totalling anywhere from 10 to 15 billion dollars & year in the next few years, in which case there would be much to be said for a separate tax. Gaston: Later on, but not now. White: I mean if you began now, I think it might make it easier for additional taxes, that may be called forth by the expenditures. If this were the only amount we were going to spend, I would be inclined to agree with you, Herbert, but I don't think it 1s. Gaston: I think it makes it more difficult. H.M.Jr: Well, I will try it out - every person I have tried it out on likes it. Did you want to say something? Bell: Harry has raised the point I was going to raise except I was going to argue it the other way, that I think it would be rather Regraded Unclassified 219 - 26 - difficult on a 15 or 20 million dollar program to earmark your revenue. I would like to 8 00 this whole thing thrown out in the next Congress if we are going to revise the tax structure. Gaston: I think the whole program, the earmarking of bonds, and the taxes, are A mistake. H.M.Jr: All right, but it 18 & fact. The bill passed. The fact remains that - let's say, why did Mr. Roosevelt hold up his national defense program? Because he thought he WAB told he couldn't raise the debt limit and the only way we could raise it 18 this way and we have accomplished what WAB oon- sidered was impossible and I had to ask him and beg him to let me go on my own and try to do this thing and he said, "All right, Henry, you try it," and everybody told me it couldn't be done and the only thing he has had to do with it is two telephone calls. Nobody could get the debt limit raised unless we did it this way. Whether B person likes it or not, we have accomplished it and it is a good bill and the only hope you can give these people 1a ao it geta higher and higher that if and when the day should come that we don't have to do it, these kind of taxes disappear. Gaston: But here you have got a tax you are always going to have. This billion dollars increase 18 something we should have done without the defense program, anyway. We Are going to have to have taxes on this soale BO why advertise these as defense taxes? H.M.Jr: But could you get it? Gaston: But you don't need to put this special stamp on now. H.M.Jr: But could you get it? Gaston: Yes. H.M.Jr: No, you couldn't. The answer 10, you couldn't. It was impossible to get the debt raised or 6. Regraded Unclassified 220 - 27 - tax bill through except for national defense. You couldn't get it any other way. Gaston: But that 16 not an argument for putting & special etamp on. S.V.Jr: Well, I feel very, very strongly on this thing. I took the brunt on the Hill. Every- body else said, "Well -", I fought continuously and as recently as a month ago. We went to bat with the President on earmarking tax revenue for the Virgin Islands and the President wrote back, "Let me do it this time but I won't do it again." White: Mr. Secretary, I think this thing -- H.M.Jr: How long ago WR6 that, a month ago? White: I think we need to have much more discussion of this point for this reason, Mr. Secretary. It 18 your idea and you will be responsible for It, and there will be millions and millions of people from now indefinitely. I think it has very good advantages. I think it has some disadvantages, but I think in justice to yourself in view of the fact it is some- thing that 1e going to go on and receive a lot of publicity at one time or another, in view of the fact you are going to be held directly responsible, I would like everybody to have an opportunity to thrash this thing out independently and see whether there 18 any consensue that 18 opposed to your position and then bring it to you, but I think it needs -- H.M.Jr: We can discuse it again tomorrow. It 18 all right. We will discuss it nt 9:30 tomorrow. I will always listen. You can discuss it again tomorrow, but Herbert is the first fellow, and he may be right, but he 18 the first fellow that said he didn't like it. But Bell doesn't like earmarking special funde. He doesn't like that at all, but that has got nothing to do with the fact that it 18 accomplished. It is history now. Regraded Unclassified 221 - 28 - White: But this other, there is a decision that has to be made and if, after having seen all the arguments and having discussed it, you still are of the opinion, that is fine. H.M.Jr: You can bring it up again tomorrow morning at 9:30. Is that fair enough? Gaston: Yes. I agreed that everybody else was with you. I started the fight on this after the meeting on it Thursday. H.M.Jr: But that has nothing to do with the fact, Harold, that if, after listening to everybody - I still want to do it. You should work out a way that it can be done. It has got nothing with it. Graves: I will work on it. H.M.Jr: And thank you (Gaston) for bringing me your opinion. Gaston: All right. H.M.Jr: I will give you another chance on it tomorrow. How is that? Gaston: I will be delighted to have another chance at it. I firmly believe it 18 wrong. H.M.Jr: Okay. Regraded Unclassified