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Volume 111, February 16 – February 22, 1938
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Volume 111, February 16 – February 22, 1938
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 111
February 16 - February 22, 1938
A
Book
Page
Austria
Austro-German situation: Eden speech further splitting
Cablnet reported by Bolton to Knoke - 2/21/38
CXI
278
- B -
Business Conditions
See also Housing
Price Policy Statement:
Conference; present: HMJr, Taylor, Gaston, Haas,
White, Daggit, Viner; Wallace, Ezekiel, Black;
Currie; Lubin and Hinrichs - 2/16/38
28
a) Proposed statement
55,58
Second conference; present: HMJr, Taylor, White,
Daggit; Lubin, Hinrichs; Wallace, Ezekiel; Currie;
Keim - 2/17/38
95
a) For revised statement, see page 117
b) HMJr discusses proposed statement with Eccles -
2/17/38
126
c) Draft before submission to FDR on 2/17/38 -
2/16/38
140
d) Copy HMJr gave FDR, with his (FDR's) corrections.
144
HAJr's memorandum to McIntyre of suggested persons to be
present at FDR's conference on prices - 2/17/38
149
Material taken by HMJr to White House for conference -
2/17/38
150
a) HMJr's brief description of conference
169
b) Memorandum on conference at White House at
3:15 P.M., Thursday, 2/17/38 - 2/18/38
204
c) HMJr and Wallace talk over success of conference -
2/17/38
181
White agenda for discussion at conferences between
Wallace and Esekiel; Attorney General Cummings; Ecoles
and Currie; Lubin; Taylor and White - 2/18/38
184
Material given to FDR and used by him at press conference -
2/18/38
191
a) Press comment - 2/18/38
226
b) HMJr transmits to Butterworth and Cochran text of
press release from White House - 2/18/38
254
Haas summary of business situation, following FDR's
statement of policy on commodity prices - 2/21/38
294
- 0 -
Clay, Henry (Economic Adviser to Bank of England)
See Stabilization: France
Regraded Unclassifie
- D -
Book Page
Debta, Foreign
Great Britain:
Feis asked by HMJr whether England ever stated
willingness to pay up to $100 million a year -
2/17/38
CXI
129
a) Feis says "no"; agrees with Bell best offer
has been ten cents on D dollar
Hungary:
HMJr-Hull letter to FDR asking that Secretary of
Treasury be authorized to negotiste terms of formal
agreement for submission to Congress; letter bears
FDR's "Approved" - 2/16/38
84
Conference with FDR; present: Garner, Hull, HMJr,
Harrison, and Doughton - - 2/17/38
136
a) Garner absolutely opposed to any debt settlements
B. . I
France
See Stabilization
- G -
Genessee Valley Gas Company
See Holding Companies
Germany
Austro-German situation: Eden speech further splitting
Cabinet reported by Bolton to Knoke - - 2/21/38
278
Gold
Desterilization:
Thanks of HMJr transmitted to Butterworth through State
Department - 2/16/38
7
London press comment - 2/16/38
13
Great Britain
See Debts, Foreign
- H - -
Holding Companies
Genessee Valley Gas Company:
Oliphant memorandum stating tentative plan for
reorganization is being considered by Landis,
attorney for the debtor, and Kline, attorney for
the first lien bondholders - 2/17/38
172
Regraded Unclassified
- I - - (Continued)
Book Page
Housing
Stewart McDonald told by HMJr to see Farley in connection
with recent interview with James Roosevelt - 2/16/38
CXI
21,64
Foley memorandum outlining proposed public end private
housing program; plan to meet some of James Roosevelt's
objectives - 2/16/38
68
Foley memorandum concerning second conference with James
Roosevelt; also present: Rowe; Williams and Harrington
(Works Progress Administration; McDonald, McGhee, and
Daiger (Federal Housing Administration); Lord and
Baldwin (Farm Security Administration); Straus (United
States Housing Authority) - 2/19/38
272
Hungary
See Debts, Foreign
- I -
India
British Treasury informs Butterworth exports have declined
only in comparison with extraordinarily high level of
last year; sterling balances not. in danger - 2/16/38
17
Internal Revenue, Bureau of
Reorganisation: HMJr's letter to Graves instructing him to
inform personnel "fully of the purposes and objectives
of reorganization" - 2/16/38
89
- L -
Loans, Self-Liquidating
See Reconstruction Finance Corporation
- P -
Prices
See Business Conditions
Public Health
Syphilis program: Conference; present: HMJr, McReynolds,
Parran, and Bell - 2/16/38
92
a) Three-year program and FDR's reaction thereto
discussed
Public Utilities
See Holding Companies
- R -
Railroads
Delano memorandum on reilway situation - 2/17/38
210
Reconstruction Finance Corporation
Conference to secure HMJr's OK on plen for FDR letter to
Jones, restoring Reconstruction Finance Corporation's
full authority to make loans; second paragraph approves
plan for self-liquidating loans - 2/18/38
214
Regraded Unclassified
- 8 -
Book
Page
Stabilization
France:
Exchange market movements resume - 2/16/38
CXI
1,20,178
a) Unusually strong demand for pound sterling
Displessure of French Ambassador in London at articles
published in British press on French monetary position
reported to HMJr by Butterworth - 2/16/38
8
Monick, Financial Atteche, calls concerning (1) renewed
numors originating "on the other side" regarding the
possibility of further devaluation of the dollar; and
(2) the manner in which desterilization statement would
affect Treasury statement: whether all transactions
will immediately be reflected as individual items or
whether the Stabilization Fund would still intervene
on occasion - 2/17/38
170
(Taylor memorandum)
a) For Cochran cables concerning, see page 266
Cochran reports on Bonnet (just back from London)
conversation - 2/17/38
173
a) Bonnet and Ambassador hed conferred with Phillips
and Waley
b) Marchandeau wishes conversation with Embassy in
Paris tomorrow concerning study of stabilization
of each of the three countries as a possible
counter move towards stopping France from going
into exchange control
Butterworth reports on private conference with Clay,
Economic Adviser to the Bank of England, who feers
another world depression - 2/18/38
259
Butterworth asked to go to Paris to discuss situation
with Cochran - 2/19/38
275
a) Cochran report of Butterworth visit - 2/21/38
283
- U -
Unemployment Compensation
Bartelt memorandum with respect to payment of unemployment
compensation based upon reports received from Treasury
officers who have been assigned 58 consulting accountants
to Social Security Board - 2/18/38
242
Unemployment Relief
See also Housing
Conference; present: HMJr, Williams, Harrington, and Bell -
2/16/38
71
a) Increasing employment by one-helf million people
discussed
b) Harrington repeats Works Progress Administration has
sufficient projects without going into housing
0) "Normal function of the municipelity" and the right
of the Federal Government to step in discussed
Regraded Unclassified
- U - (Continued)
Book Page
United States Savings Bonds
HMJr asks Taylor for memorandum for FDR showing that
reserve is being set up against the one-third increase
that takes place in these bonds every ten years -
2/18/38
CXI
201
- W -
War Debts
See Debts, Foreign
Works Progress Administration
See Housing
If Unemployment Relief
Regraded Unclassified
1
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE:
February 16, 1938, 1 p.m.
NO.:
247
RUSH
FROM COCHRAN.
At 11:45 this morning I visited the Bank of France.
At that time I found that the fund had already yielded
692,000 pounds sterling, there being a strong demand for
it. London was given instructions to try to stop the rate
at 153.25 if possible during the noon hour. As of Tues-
day night the stabilization fund contained just a little
under 3,500,000,000 francs foreign exchange and gold.
It had been the opinion of the Ministry of Finance that
the announcement of the closing of the Credit National
loan would affect the market favorably, and they wanted
the franc strong for the opening of the new loan for the
Treasury. It was not found possible for the franc to give
a good impression, however, despite the rather vigorous
intervention yesterday by the control.
My contact at the Bank said ne doubted whether there
would be any significant results from the latest American
decision regarding gold sterilization.
Reference: my telegram of February 15, 9 p.m., No.
245. I should explain that a better communique had been
drafted by Rueff in my presence when I called in mid-afternoon
at
Regraded Unclassifie
2
- 2 -
at the Ministry of Finance. While Rueff was trying to get
the Minister of Finance's approval of the communique I
waited outside. Rueff came out after 8. half an hour and
said that the Minister wanted changes made in the original
draft. The Minister said he would have to consult other
technical advisers, including Bank of France officials.
END SECTION ONE.
BULLITT.
EA:LWW
Regraded Unclassifie
PARAPHRASE OF SECTIONS TWO, THREE AND
FOUR OF TELEGRAM NO. 247 OF FEBRUARY 16
FROM PARIS.
I had 8. telephone call from Butterworth afterwards,
who gave me 8 report of the British debate in parliament
on the matter. Shortly after 8 o'clock Rueff called me
to transmit the communique which was incorporated in my
telegram No. 245. I reminded Rueff that in the afternoon
I had said it was likely some public statement as to the
American announcement would be made by the British, and
I added that I now knew the substance thereof. I was told
by Rueff that he had also been given this information -
I presume it came from Monick. Rueff seemed to be unhappy
about the matter, believing that before we made the announce-
ment we had consulted the British; I denied that this was
80. It is possible he got his impression from the wording
of Simon's reply to Attlee, which contained the following
sentence:
"I have been informed that it Was the intention of the
Secretary of the Treasury to make an announcement on those
lines".
The final French communique WBE decided upon and ac-
tually given to the press before Rueff notified me of the
text thereof. During the meeting of the technicians which
preceded the issuance of the communique, both Great Britain
and the United States were criticised by one official for
not
Pegraded
- 2 -
not permitting gold to exercise its full influence on
the internal price and economic structure, and thus for
not playing gold standard rules. Another official took
pains to point out that there was no pretense of an inter-
national gold standard having been reestablished. This
official said that our three countries are working under
the Tripartite Agreement rules, and that the French had
inspired the Agreement, since they had wanted to save face
in their own devaluation. This same official went on to
say that the other two parties to the agreement, namely,
Great Britain and the United States, had much more cause
to criticize France for not taking the domestic méasures
which would be necessary to hold the franc steady than
France had to criticize these two countries for not per-
mitting a runaway inflation because of entry of gold into
these countries. The point was made that
in this particular case the United States was actually
moving exactly in the direction advocated by the objector.
Divergence of views among French officials can be
expected just now, in view of the critical monetary situa-
tion, the shortness of the respite last week, and the
immediate
serious need of the Treasury for/funds.
This morning at half-past ten I had a telephone
Conversation with the Swedish BIS economist, Jacobsson,
at
Regraded Unclassified
S
- 3 -
at Basel. I had the exact text of the announcement of
Secretary Morgenthau and read it to him. My friend said
that it was entirely logical to take this latest step.
He mentioned that sterilization had been resorted to in 8
boom period, and now in a depression period a contrary
operation should naturally follow. Consequently the Ameri-
can Treasury had not reversed its policy; the action was
simply a normal fulfillment of a system which had been quite
close to the recommendation made in 1933 at the London
Monetary and Economic Conference on the particular subject
of credit policy to which the position of the United States
was reserved at that time.
My BIS friend believed that it is through such methods
that the United States may eventually determine its excess
reserve requirements, that the desired information and
tradition can be developed only by time and experience.
He is of the opinion that this latest step should help
toward an American economic pick-up which he thinks should
come by June. The Treasury also saves money by such action.
This morning at 11:00 a.m. I had a talk with President
Trip of the Netherlands Bank by telephone. President Trip
had had an erroneous report of the statement of the Sec-
retary of the Treasury, and had the impression that the
United States was to release immediately one billion dollars.
Therefore when I gave him the exact terms of the announce-
ment
Regraded Unclassified
S
- 4 -
ment he was happy. Trip did not think this technical move
would have any very significant or lasting effects on
the dollar or on the American market. With regard to the
first point, the sums involved will not be enough to have
a serious effect on the dollar. As to the second point,
the American banks he said had already sufficient credit
resources for the market. Trip told me that on the Am-
sterdam market the dollar had become slightly nervous,
the first impression of traders being that it was an in-
flationary move. However, ne did not think that this feel-
ing would last. Trip remarked that his people were not
selling American securities in the way that Swiss investors
were selling them.
Trip, as the Department knows, is perhaps the most
conservative of the European central bankers. He does not
like provisional arrangements in the monetary field. I
got the impression, over the telephone, that he believed
the remark made by the President that there should be a rise
in prices would be more effective toward that end than the
Treasury's technical move. He thought perhaps the position
and potential influence of the Treasury towards stability
and sound currency policy might have been better if the
Treasury had not undertaken responsibility for the announce-
ment.
END MESSAGE.
BULLITT.
EA:LWW
Regraded Unclassified
T ELEGRAM SENT
February 18, 1938
1 p.m.
AMENDASSY
LONDON (ENGLAND)
70.
FOR BUTTERWORTH FROM THE SECRETARY OF THE TREASURY.
Please accept my thanks for the excellent work you
have done the last few days in connection with our action
on gold desterilization.
HULL
(HF)
Regraded Unclassified
3
All
MBO
GRAY
London
Dated February 16, 1938
Rec'd 2:45 p.m.
Secretary of State,
Washington.
RUSH.
135, February 16, 6 p.n.
FOR WE SECRETARY CF THE TREASURY FROM BUTTERWORTH.
The following information was given DE personally
by e high official of the British Treasury under such
conditions of secrecy that it is indvisable for me to
send a copy of this telegrom to Paris and it is neces-
sary to request that it bE treated in strictest confi-
dence in Machington.
About ten days ago the French Ambassador in Lon-
don requested en interview with Mr. Eden in the course
of thich LIE protected against the tone of articles bEing
publiched in the British press on the French monetary
position, articularly Doctor Paul Einzig's remarks in
the "Lonbard Street" column of the FINANCIAL NEWS, and
in turn requested the Foreign Secretary to arrange for
hin an interview with the Prine Minister.
Accordingly Monsieur Corbin saw Mr. Chamberlain on
February 11, In this interview he again protected about
the
Regraded Unclassified
9
2- No. 133, February 16, from London.
the attitude of the press, discortated upon the difficul-
ties of the present French financial position and its
relation to European political developments and asked that
the Prine Minister facilitate c. meeting between hinself
and the Chanesllor of the Exchequer. Accordingly Sir
John Simon "sorebet nystified" received the French An-
bascador this WEEK and was "Even .10re nystified" when
Monsicur Corbin again protected about the attitude of
the FI: SUCIAL NEWS, briefly decoribed the difficulties
of the French position and noked that Sinon authorize
his assistents to carry on "conversations" with the
French Fimncial Attache here who would be acting upon
instructions from Honsieur Marchandsau. Sinon replied
no regards Einzig's articles in the FINANCIAL NEWS by
nentioning the freedom of the press, Et cetera, end add-
ing that the British Treasury did not porticularly like
Einsig's articles either but that it was not in a posi-
tion to dictate their contents, As regards the "conver-
sations" he could get no explonatory information from
the French Ambasandor EVEN though he pointed out that the
French Financial Attache WO.B already in general contact
with the appropriate officials of the Treasury. Corbin
could
Regraded Unclassifie
10
3- No. 133, February 16, from London.
could not or at lenst did not throw any further light on
these contemplated discussions, Sition is clso said to
have asked Corbin what measures if any were to be taken
to keep in touch with Washington. The French Finnncial
Attache later informed the British Treasury that M.
Marchendeau intended to send for Cochran. In the course
of the interview Corbin also asked whether Simon would
offer any advice regarding the present French position,
having in rind the Experience which Great Britain has
acquired in surriounting the 1931 crisis.
My informant said that the British Treasury was
equally mystified both D.S regards this extraordinary
procedure and what would cone out of it; that the British
Treasury WC.3 of course not in d position to offer any
X
definitive advice for it could only say that "the present
political lot should be cleaned out." My informant with
no little heat added that after all the position in France
seemed to be 99% political; that both capital and labor
had bEEn and were behaving obordnably; that ONE could
only think that after a few DOTE shocks such 0,0 the Aus-
trien origin the average Frenchrian who had a great
capacity for pulling himself from the brink of disaster
would do so but that in the meantine if the French thought
that they through their own ingptitude could connit finan-
cial
11
No. 155, February 16, from London.
cial suicide and then find mystical democratic reasons
for asking JONE one Elot to help put their house in order
presumbly by means of C. huge loan, they WERE mistaken;
that exchange control in France should bE avoided by the
X
French not for any nystical reason, democratic or other-
wise, but for the very sound and adequate one that it was
definitely in France's own interest to do 80,
Ity informant 0130 stated that the French Financial
Attache had on appointment this afternoon at the British
Treasury after which he visa leaving for Paris. But
Monick hd given him to understand that the French propo-
ncl would not then be made.
It no happened that Monick was to lunch with DE
tomorrow; he had therefore to Explain to ne about his
trip to Pario and in turn hE could not conceal his curios-
ity ao to whether I had learned that enything was afoot.
I replied to the Effect that I could only assume that hE
was Engaged in attempting to Engineer SOME new nove re-
specting the franc which led to the adrission that one
was contemplated and that he was returning to Paris to
confer with Marchandeau who would probably have a proposal
to make to both the British and American nonetary author-
ities shortly. I definitely refrained (repeat refrained)
from
12
5- No. 133, February 16, from London.
from making any inquiries as to its possible character
but Monick did talk in vague terms about the necessity
of defecting "once and for all" attempts to impose EX-
change centrol in France.
JOHNSON
CSB:
Unclassified
13
REB
PLAIN
London
Dated February 16, 1938
Rec'd 4:25 P. m.
Secretary of State,
Washington.
137, February 16, 4 P. m,
FOR TREASURY FROM BUTTERWORTH.
There are transcribed below Excerpts from the
comment which appeared in this morning's London press
on the desterilization announcement:
The "Conservative" TIMES: "Non-sterilization of
gold imports into the United States at the present
moment then is hardly to bE construed Either 8.8 an
inflationary or even an anti-deflationary device
EXCEPT in the sense that It marks yet another step
towards aliminating the impression which the United
States Treasury was so carefully fostering twelve
months ago that a further growth of activity or
at any rate a further raising of prices would not be
welcome. That is the ground on which Sir John Simon
expressed cordial agreement with the United States
announcement. Meanwhile the problem of gold concentra-
tion has been shifted in some measure to this country."
The
14
REB
2-#137, From London, Feb.16,4p.m.
The "Conservative" DAILY TELEGRAPH: "This move
was welcomed in the City as the loosening of a screw
which had perhaps been tightened rather too sharply.
It was not held to presage any change in monetary
policy. Indeed It is reaffirmation of the Easy money
policy which for SOME time-has been adopted by Britain
as well as the United States. Of the immediate
Effects of this measure on Wall Street no great hopes
should bE Entertained. Other factors are potent. But
if developments in other directions are favorable this
measure of reinflation may prove helpful to business
later on."
The "Liberal" MANCHESTER GUARDIAN; "Mr. Morgenthau's
announcement is no doubt as Sir John Simon commented
this evening: 'In line with the general policy of Easy
credits' which Stock Exchange people gave it yesterday
SE much or 18 little as the recent Increase in relief
appropriations or the bill for cheaper housing finance
just signed by the President, Its actual Effect will
depend on whether now that more gold has been made 8
base for credit the additional credit is taken up."
The "Socialist" DAILY HERALD: "If it had not been
for the depressing influence of the news from Austria
markets
Regraded Unclassified
15
REB
3-#137, From London,Feb.16,4p.m.
markets have been considerably cheered yesterday
by the American decision to CEASE sterilizing gold
for the abandonment of gold sterilization is the
best omen for world Economic prospects WE have had
for a long time."
The FINANCIAL TIMES: "The low level of actual
gold imports in recent months suggests that Monday's
move will in the immediate future at least prove to
bE only very mildly inflationary and that it is
dictated as much by considerations of convenience as
anything Else
though the practical inflationary
Effect will be negligible, the Administration probably
hopes that the new policy will incidentally give some
psychological inflationary stimulus to business. In
the light of the reception accorded to the relatively
large desterilization of September even this seems
unlikely. It is however undeniable that monetary
policy has shown 3 more 'liberal' tendency in recent
months. The reduction in discount rates in August
and the authorizing of the open market committee to
buy short term Government securities should not be
forgotten. The naval and relief appropriations too
are fresh in our memories. The protagonists of inflation
can
16
REB
4-#137, From London,Feb.16, 4p.m.
can legitimately claim to have gained a little ground
this winter."
The FINANCIAL NEWS: "Wall Street's indifference
to the latest move in American credit policy 1s
hardly suprising; as an attempt to stimulate business
at
the Effects sem likely to bE small
sinet/the moment
gold is tending to leave the United States rather than
to flow in the immediate result of the new policy
must bE trifling. Indeed it might EVEN bE argued
that this measure indicates an inflationary tendency
in the American variety of managed monty. By the
setting up of the inactive fund and the raising of
reserve requirements something like four thousand
millions dollars of credit was extinguished last year.
These sweeping measures designed to check the boom
are in striking contrast with the timidity of the
Expansionary steps announced more recently."
JOHNSON
HPD
Regraded Unclassified
17
EDA
PLAIN
LONDON
Dated February 16, 1938
RECEIVED 4:41 p.m.
Secretary of State
Washington
130, February 16, 8 p.m.
For ureasury FROM BUTTERWORTH,
OnE. I made occasion to ask at the British Treasury
today about a report which appeared in the Financial
NEWS some time ago inferring that the recent decline
in Indian exports was diminishing India's sterling bal-
ances to such an Extent as to Endanger in due course
the value of the rupes. I was told that upon the pub-
licntion of this article the British Treasury had made
inquiries of the India office and had been assured that
the decline in Indian exports was merely as compared with
last year when they were extraordinarily high; that the
export trade was now at a not unsatisfuctory level; that
India's sterling balances were larger than the article
indicated and that the value of the rupee was in no
danger.
Two. IN. Eden stated in the HOUSE of Commons this
afternoon that in reopening discussions with a view to
improving the relationship between Britain and Italy
the question of an issue of a loan to Italy would not
form
Regraded Unclassified
18
EDA, - 2 - 138, February 16, 8 p.m. from London
form part of those discussions.
Three. Asked in the House of Commons whether hE
was aware that an increasing number of short term loans
are being made to Germany by London financial houses
and whether the British Government proposes to take any
steps to stop this aid to Germany's rearmament the
Chancellor of the Exchequer replied: "No, sir; I
believe the trend is the other way to that suggested
in the first part of the question and the second part
does not therefore nrise."
Four. Asked whether he is aware that higher
interest rates are paid by London banks on foreign short
term deposits than are paid in the other financial centers
thereby encouraging the influx of foreign currency to
this country and whether in ViEW of the fact that the
operations of the Exchange equalization fund in
sterilizing this influx involves heavy Expense to the
taxpayer he will take steps to prevent this payment of
EXCESSIVE interest, the Chancellor of the Exchequer
answered: "In reply to the first part of the question
the rate of interest obtainable is not the only, or EVEN
the most important, factor in determining the interna-
tional location of foreign short term deposits at the
present time. The answer to the second part of the
question
Regraded Unclassified
19
EDA - 3 - #136, FEbruary 16, 8 p.m. from London
question is in the negative.' In this connection
reference is made to the unsuccessful attempt to put
an End to this practice by voluntary agreement among
the joint stock banks reported in my 710, November
11, 8 p.m., the practice still continues: as much as
1 1/4% c-n bE obtained from the ilidland Bank, most of
the other banks giving between 1/2 and one percent.
Five. The franc was offered today EXCEPT at the
close due mainly to the terms of the new French loan;
on balance the French fund lost about three-quarters
of a illion pounds. The dollar is about at gold
point and the London market is looking for the appearance
of the control in NEW York. The London Stock Market
was decidedly weak today due to the impact of the
Austrian crisis at a time when the prospect of trade
recession in casting doubts on equity values. Gilt
Edged securities VEDE correspondingly strong due to
switching.
JOHNSON
NPL
Regraded Unclassified
20
PARTIAL
An
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 16, 1938, 6 p.m.
NO.: 251
FROM COCHRAN.
Franc strengthened elightly late this afternoon es-
pecially after New York opened a seller of dollars and
French control began buying a little sterling at 5:00
o'clock at 152.80. Swiss had been principal sellers of
dollars earlier in day.
With report coming from London that Bank of England
offered 200 bars of gold today there is some curiosity here
as to whether this was sold for the account of the British
control or for the National Bank of Belgium or for the Ameri-
can stabilization fund considering that the gold import
point to London from New York has been almost reached.
French attention devoted largely to disturbing inter
national developments, particularly in Austria. At home
labor situation and high cost of state borrowing, as re-
vealed by new loan issue, cause much worry.
Today at luncheon Professor Rist told Ambassador
Bullitt that the wise decision of the United States re-
garding gold pleased him.
BULLITT.
EA:LWW
Regraded Unclassified
21
February 16, 1938.
9:28 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Macdonald.
H.H.Jr:
Hello.
Stewart
Mecdonald:
Hello Mr. Secretary, how are you today?
H.M.Jr:
Fine. Now look Stewart.
12;
Yes.
H.M.Jr:
I talked to Jimmy Roosevelt yesterday, see?
is
Yes.
H.M.Jr:
And,I thought I might as well go direct.
11;
Yes.
H.M.Jr:
And I told him how I felt.
M:
Yes.
H.L.Jr:
And I may make a suggestion to you and let it be
your own, see?
M:
Yes, yes.
H.M.Jr:
I would, if I were you, call up Farley.
It:
Yes,
H.M.Jr:
And tell him you're sorry -
M:
Jim Farley?
H.M.Jr:
Yes.
25:
Yes.
H.M.Jr:
And then later today I'll call him.
M:
0. K.
H.M.Jr;
See?
11:
I've got to go and see him in about - not - the
first man you spoke of, in about - 11:30.
Regraded Unclassified
22
- 2 -
H.M.Jr:
Well.
11:
Straue and myself have an appointment with him.
H.M.Jr:
who?
14:
Straus.
H.M.Jr:
Right.
18:
United States housing authority.
H M.Jr:
Right. Well -
M:
I understand he and the chief, that 1E - had B.
meeting yesterday on the same subject, and they've
got & new scheme now.
H.M.Jr:
Straus?
if
No.
P.Jr:
You mean the President?
Yes.
H.M.Jr:
I take it you have people there.
20:
Yes. That's right.
S.M.Jr:
Well I don't know what it is but I went to see that
you get a break and get a chance. There's time
enough for people to be thinking about how to help
housing after you say that you can't do it.
Yes.
H.H.Jr:
When you throw up the sponge,
in
Yes.
H.M.Jr;
But in the meantime you ought to have a breek.
M;
I should think SQ ,
H.M.Jr:
Now, my suggestion to you 16, as I say, that you
call Farley, and give me & ring this afternoon,
and let me know how you're getting along, will you?
15:
All right, Mr. Secretary, thank you, I'll be glad to.
Regraded Unclassified
23
- 3 -
H.M.Jr:
Call me between three and four.
=
All right, Mr. Secretary.
24
February 18, 1938.
10:05 a.m.
H.M.Jr:
Hello.
Operator:
All right.
H.M.Jr:
Go ahead.
0:
Go ahead.
Aubrey
Williams;
Hello.
H.M.Jr:
Hello.
W:
Mr. Secretary?
P.M.Jr:
Talking.
W:
Yes, this is Aubrey Williams,
H.M.Jr:
Yes,
W:
Say, how - would it be possible for Colonel Harrington
and myself to have that appointment with you and Dan,
this afternoon?
H.H.Jr:
I think BO, Let's see. Three thirty?
W:
That'd be fine.
H.M.Jr;
Three thirty
:
And we'll be et your office.
H.H.Jr:
What - what are we going to do this afternoon?
W:
Well it has to do with these things we talked about,
over in the outer office of the President's, that
day, about projects and things that - as few changes,
I think all of them are really minor ones.
H.M.Jr:
Uh-huh.
W:
And then it would make it possible for us to do -
to move right into this new program with the greatest
speed.
H.H.Jr:
Uh-huh.
W:
You remember?
25
- 2 -
H.M.Jr:
Yes.
W:
Well, we'll be over.
H.M.Jr:
Three thirty.
W:
Thanks 80 much.
Regraded Unclassified
26
February 18, 1938.
10:30 c.m.
H.M.Jr:
Hello.
Operator:
Senator Barkley. Go ahead.
M.M.Jr:
Hello.
Sen. Alben
Barkley:
Hello.
H.H.Jr:
Hello Alben.
B:
Hello Henry.
F.M.Jr:
Yes. I called yesterday simply to say that if
you could come to a decision on that liquor, I
think it would be helpful all around.
9:
Well, I've talked with some of the people interested
in our viewpoint, and It doesn't seem that this label
that they've fixed up 18 satisfactory.
R.N.Jr:
Yes.
15
And I've asked them to give me a memorandum on it,
which they are going to do today.
H.d.Jr:
Well I don't - I'll look at it, but I think we've
gone about as far as we can. You see this delay
has brought en awful lot of pressure on me from
every - every direction.
B:
Well I understand that, but of course -
It's going to be very difficult.
B:
If this - what this label is purported to do.
H.I.,Jr:
Yes.
B:
Worked out by Alexander who I don't frankly think
knows much about it.
H.H.Jr:
Yes.
is
Hesn't got much background to qualify him to pase
on liquor.
H.M.Jr:
Yes.
27
- 2 -
iii
If it's not - if It's not fair to the American
liquor interests, the pressure ought not to count.
H.M.Jr:
Yes. Well, do you think you'll know in a day or BO?
an
Yes.
H.U.Jr:
Fine.
3:
I'll take it up with you Just as soon as I - I went
to get it in a concrete form.
H.M.Jr:
Good.
P;
The further objections to this particular label.
H.M.Jr:
All right.
at
Because it doesn't really meet the situation.
H.S.Jr:
Well, your statement that you gave out on gold was
very helpful.
ii:
well, thank you, I was glad to do it.
F...Jr:
Thank you,
in
Goodbye.
H.S.Jr:
Goodbye.
Regraded Unclassified
28
RE PRICE POLICY STATEMENT
February 16, 1938.
11:00 8.0.
Present:
Mr. Taylor
Mr. Gaston
Mr. Haes
Mr. White'
Mr. Daggit
Mr. Viner
Mr. Wallace
Mr. Ezekiel
Mr. Black
20. Currie
Mr. Lubin
Mr. Sinrichs
H.M.Jr:
6111 somebody with e nice loud voice read it out loud.
Stas:
Mr. Lubin, you have E nice voice.
Lubin:
Viner is the great trouble-maker around here.
H.M.Jr:
I see ue's running true to form then.
Go snesi. You want to read it?
subin:
"It nas been the policy of this Administration to
promote recovery towards full employment and full
use of our resources. That continues to be our
policy. If we are to be successful in this attempt,
we must have & steady increase in the real income
produced by and distributed to all our people. The
productive power of our workers and our resources
can provide and mintain E national Income for above
any levels we nave yet reached.
"In the furthersnce of this objective the Administra-
tion in its agricultural, industrial and monetary
policies has necessarily been concerned with both
the relation of the prices of groups of specific
commonities to each other end the movement of the
general price level. The policy of the Administration
in this regard must be flexible. There are times when
the situation calls for measures designed to promote a
rise in the general level of prices. There are other
times when the concern should be lest prices are rising
too repidly or too far. A year Ego there was ground
for concern lest there occur so repid L rise in the
prices of some commodities as to encourage a
29
speculative boom and choke off demand. During the
past six months, on the other hand, the general
price level has been falling and industrial activity
nas been declining. Government policy must be
directed to reversing this deflationary trend.
"Altnough the attainment of full industrial activity
requires an Increase in the general price level, this
does not mean that all prices should advance, or that
the rise should be rapid. The prices of different
groups of products must be brought into balanced
relations to one another. Some prices are still too
high to promote that balanced relationship between
prices that is necessary for sustained recovery. The
failure of such prices to reflect the decline in
demand is En obstacle to the resumption of recovery.
The maintenance of prices not subject to full com-
petitive forces accentuates the deflationary pressure
on competitively determined prices. When prices are,
through monopolistic practices, maintained at uneco-
nomic levels, it is the obvious duty of the Government
to apply those remedies which the law provides.
"What is needed now is to raise the prices that are
too low, without raising the prices that are still
hign. For those industries that operate at a high
level of capacity, even in depression, the restoration
of profits must come through higher prices. but those
industries that have sought profits through curtailment
of output should seek the restoration of profits
through increased volume rather than through restricted
output at high prices. Higher profits will encourage
new investment, which is necessary to full recovery.
"I repeat that present consitions require a moderate
rise in the general price level, and that this rise
need not and must not extend to all prices. The rise
must be mainly confined to those classes of commod-
ities, suen LS most raw materials and some finished
products that are sold under highly competitive
conditions, whose prices are now too low. The prices
of some items, on the contrary, are still at sub-
stantially the nighest levels reached in 1937; some
are even higher than in 1929. In the field of
residential construction, for example, in the face
of & serious shortage of housing and of unused pro-
ductive resources of every kind, all the major elements
in housing costs advanced so sharply by the Spring of
30
-3-
1937 as to terminate a promising expansion of
activity in this most prostrate of our industries.
In other industries the sharp rise in prices encour-
aged inventory buying, which combined with the reduc-
tion In housing, laid much of the ground for the
present recession. we must do everything we can
to prevent another boost in those prices that are
blready high enough.
"At the present time, large numbers of producers,
as for example the fermers, have suffered large
losses of income. It is desirable that incomes for
such groups should be restored, partly through
rising prices for the goods they sell, before
prices or costs of production rise furtner for the
goods they buy. There are industries in which volume
remains almost unchanged even in a depression and B
recovery of Income depends upon a rising price for
such products, as en alternative to a correspondingly
drastic deflation in other fields."
Now, this last paragraph is just 8 summation. But
we feel very definitely that it is subject to the
President's own determina tion is to what ne wants
to put in PS evidence of what he is doing.
"I believe the farm bill just passed, the housing bill
just pessed, and the monetery policy being followed by
the Treasury and the Board of Governors of the Federal
Reserve system will prove helpful toward achieving
these objectives."
wallace:
Looks like an excellent statement.
H.1.Jr:
I think it's excellent. I got two things I'd like
to raise, two points.
You come along and talk about the farmer, which is
fine. But can't you say something about the consumer
in the city? I mean
Wallace:
Good point.
S.M.Jr:
I mean I think you completely left that out.
Wellace:
Good point.
Unclassified
31
-4-
H.M.Jp:
And as I remember my agricultural economics, as
wholesale prices go down, there is always this
drag in the distributors' prices. I mean there's
always that - isn't there always that drag?
Ezekiel:
Farm prices go down more than wholesale prices, yes.
Likewise, on the way up they go up faster.
H.M.Jr:
I mean there's nothing about that.
Bzekiel:
There was a paragraph put in on that, but it was cut
out. Some folks thought we were talking too much
about the farmer.
H.M.Jr:
I mean city Tolks,
White:
Speaking of retail prices lagging behind.
H.M.Jr:
I mean something in this whole price thing - the
fellow sitting back here trying to work out a budget
for a relief family, and first thing - "Well, what
does it do to the poor family in the city?" I mean
what has the President got in mind for the factory
worker?
Ezekiel:
Is your point this, that even though farm prices are
low, food prices remain relatively much higher than
farm prices?
H.M.Jr:
I'm just using that for an example. Must be something
put in here
Wallace:
I think you must get the word "consumer" in.
H.M.Jr:
And what has the President got in mind when he's
telking about prices for the consumer? Haven't you
got a Consumers Section over there with you?
Wallace:
Absolutely.
Exekiel:
Put that fellow isn't
....
Wallace:
But it's easy enough to get a sentence or two in
nere.
H.M.Jr:
Don't you think so?
Wallace:
It ought to be in.
32
-5-
H.V.Jr:
The other thing, if I may - it just strikes me -
I think we've got to give some exemples as you go
along. when you're talking about prices controlled
through monopoly, I think you ought to list some of
those; then we'll talk about those which are affected
through a highly competitive situation. I think
you've got to illustrate a little bit more.
White:
Pick out the most spectscular ones.
Viner:
You've got to be very cautious, though.
Lubin:
You have this political difficulty. One of the things
that are too low is certain food prices. Will not
the President be put in the position where he is
accused of trying to raise the cost of living?
H.S.Jr:
Well, that's why I'm talking about the consumer.
Cubin:
One of your best examples is food, and immediately -
and clothing, and immediately tue holler is going to
be made that the President wants to increase the
price of the two important things in the budget.
White:
Well, we may be able to find some commodity which
is not subject to that criticism. We can always
pick on gypsum and a few others.
de
I still taink - don't know whether it's possible -
I went through it, kept looking through it. Where's
the example? I mean after all, the President used
copper; there must be others.
Amllace:
Coal is very good.
Auite:
de doesn't be leve copper should go up too nigh or
too fast; apparently he doesn't mind if the other
things go up too high or too fast.
H.J.Jr:
Well, just - after all, in this room, I told this to
Robert Jackson; I happen to believe in what Robert
Jackson WES talking about when he made nis speech at
Syracuse, but I tolo uin - I said, "I don't think
there's one percent of the people know what you're
talking about," and ne agreed. And when I get
through, I think that it just - have 8 few concrete
examples.
Regraded Unclassified
33
-6-
White:
I think it can be done.
Wallace:
An illustration.
H.V.Jr:
A couple concrete exemples.
Wallace:
where the thought is - where you can use an example.
Viner:
I don't think you can do it. If you name & commodity
and say it's & commodity controlled by monopoly, then
it can be said, "Why don't you bring the force of the
law against it?"
White:
You can phrase it in such 8 way 50 that you don't
say it's that kind of a commodity, but direct atten-
tion
I think it can be done.
Wellace:
Seems to me the place to do it is in paragraph 2 of
the second page. Instead of using these rather
abstract phrases, you could use the example there.
You say, "For those industries that operate at a
high level of capacity, even in depression, the
restoration of profits must come through higher
prices." You could use the example there.
II.M.Jr:
Well, if I was
wellace:
That sentence won't mean anything to the average
person.
H.M.Jr:
If I W&S & newspaper correspondent, the first
question I'd ask the President - "Well, Mr.
President, what do you mean by monopoly prices?"
Then ne's going to fish, and he might pull out the
wrong thing.
Wallace:
Think he better duck. Better tell him to duck.
Don't think it's 8 good thing to come out with an
illustration of the monopoly price thing.
Ezekiel:
Department of Justice really has to answer that.
H.M.Jr:
Waiting E hell of a long time to answer it.
White:
"Prices that are too high."
Viner:
witnout saying that it is monopoly?
Regraded Unclassifie
34
-7-
Falte:
quelify the purase so that you're not exposing
yourself to that kind of question or that kind
of criticism.
a.M.Jr:
well, what other things do you see?
Apllace:
well, aside from clearing up that second paragraph
on page two, it occurred to me that in the second
paragraph on page one it eight be possible to change
the phreseology & little. I was going to suggest
reversing the thought there. The degree to which -
you see, "in the furtherance of this objective we
are concerned with the way in which monetary action
affecting the general price level bears on the
coorainated productive power of our workers" - some-
thing of that sort.
Well, could you say it so the boys could catch it.
White:
I don't know whether the others did. I didn't.
lieus:
Did you get it?
....Jr:
I taink I dia.
Wallace:
The way this sentence reads now - "In the furtherance
of this objective" - tast is, the objective of the
increased productivity - "In the furtherance of this
objective the Administration in its agricultural,
industrial and monetary policies has necessarily
been concerned with both the relation of the prices
of groups of specific commodities to each other and
the movement of the general price level." I wondered
whether or not it would express the thought more
forcefully 1f we said we were "concerned with the
way in which monetary moves that affect the general
price level affected the long-time coordinated pro-
suctive power of our workers."
White:
The thought there was not to attempt to allocate
prices exclusively to monetery matters, but to show
that other policies have Influence on the price
structure.
.tskiel:
Would your 1dea be, Mr. Wellace, to add et the end
of that sentence "and with the resultant effects on
the ability of our industry to function at high
Regraded
35
-8-
capacity and full employment.
Wellace:
Oh, I think it is probably all right 3.8 it is,
but I
arekiel:
It doesn't tie those price relations immediately
to industrial activity. That's a hole you're
trying to fill.
Ablince:
It seems to we that any action taken with respect
to prices by the monetary route should be taken only
with the thought in mind of how it affects this
coordinated increased productivity over the long
run, and that we oughtn't to have anything in this
statement that indicates that we're going to move
on prices except in the full consciousness that we
2006 there ls danger that when we move on prices by
the monetary route - that you are in danger of
bringing about unbalance.
Lubin:
You avoid that possibility if you just say, "In the
furtherance of this objective the Administration in
its economic policies hes necessarily
"
and leave
the moro "monetery" out.
allice:
I don't object seriously to it 88 it is, but I
thought there W&S R possibility perhaps of streng-
thening it.
H.d.Jr:
Can I Just say one thing here now. For heaven's sekes,
strike out that title.
Tuite:
well, that wasn't meant to be in there. That's a
typographical error.
H.d.Jr:
Some typographicsl error.
white:
That was El news item that was mistaken
That was
done just one second before.
H.M.Jr:
If the cnilu has to be named, I would call it "General
Price Level. 11
Paylor:
That certainly is out.
White:
No doubt about that.
H.M.Jr:
What?
Regraded Unclassified
36
-9-
Gaston:
"Administration Price Policy."
Ezekiel:
That WBB inserted at 1:15 a.m.
H.M.Jr:
what?
Emekiel:
Inserted at 1:15 a.m.
Wallace:
Why not call it "Price and Productive Policy"?
Bsekiel:
#Price and Production Policy."
H.W.Jr:
These boys, they've done a swell job, but I think
they've got to head it a little better than that.
Wallace:
Still, I think "Price Policy" would be all right.
Haas:
It is mostly price policy related to the productive
policy.
Ezekiel:
That's it.
Taylor:
That's it. That would be all right. Ready for words?
B.V.Jr:
Not quite. You (Wallace) want to run through it, don't
you?
Wallace:
I'm quite satisfied with it. I WAS thinking about -
let's get this consumers sentence fixed up.
H.M.Jr:
I think it's E corking statement.
Wallace:
What do you think of it, Al?
Black:
I think it's very good. I think that Secretary
Morgenthau has suggested the necessity of having
some specific prices in there, otherwise it would be
too & eneral.
H.M.Jr:
I didn't mean prices, I meant commodities.
Black:
Well, have to relate prices to commodities.
H.M.Jr:
Yes. You 00 or don't think well of that?
Black:
of the article?
Regraded Unclassified
37
-10-
H.M.Jr:
No, the suggestion.
black:
No, I think it's very good. I think the statement
ES it stands is likely to go over the heads of most
people.
H.M.Jr:
You think so. That's what I think.
Ezekiel:
How about the consumer statement? If these policies
sim at & rapic increase in employment payrolls and
consumer income, even if that increase is accompanied
by E slight rise in the cost of some of the elements
of the standard of living, consumers will still be very
much ahead 85 a result of greatly increased prices.
White:
Couldn't we take these ideas and work over them after
you suggested some changes to be made?
H.M.Jr:
Yes. I tolo the White House we wouldn't be ready.
I was going to suggest, if we just throw this at
you - If it was agreeable to you (Wallace), I was
going to suggest 8:30 tomorrow morning. Is that
all right?
wallace:
(Noãs yes)
Hyd.Jr:
And then the boys would have another chance to do it.
And if the President will see us the way I suggested,
after Cabinet tomorrow, it will be all fine.
Wallace:
All right.
H.M.Jr:
out I'd like to study this a little bit more now.
Huh?
Gestan:
One other factor I think we might look st, and that
is this. I think this is excellent as a prepared
statement, to be issued 85 a formal statement. I
think possibly the President will want to issue a
prepared statement. I think also, though, that he
is going to talk informelly to the newspapermen at
the conference and probably talk from the charts.
And I approached the thing from the standpoint of
a running discussion, something that he might read
himself, possibly to clarify his own thoughts for
his informal talk, which is likely to get the heavy
38
-11-
play, and I worked out a general running idea and
also a summary on that basis.
H.M.Jr:
Well, let's hear what you've got. You've done one?
Caston:
Yes.
1.1.Jr:
Fine, let's hear that.
Gaston:
I think probably I'd better read the running dis-
cussion first and the summary afterwards.
"Price Policy.
"Recent developments have again stirred up discussion
of the Administration's - understand, this isn't
intended for a release at all; it is simply for the
President to read to clarify nis own thoughts for the
informal discussion.
"Recent developments have again stirred up discussion
of the Administration's price policy. I suppose we
are likely to retd again as we have read in the past
that the Administration has no consistent price policy
and that I issue conflicting statements about prices.
"I think it may be worth while to review briefly what
our price policy has been and what it is now, If
there are doubts, I'd like to clear them up; although
of course I recognize that neither I nor anybody else
can do very much about the sort of misunderstanding
of Administration policies that is due to a perverse
desire not to understand. There has been more than a
little of that in the picture.
"At the outset it is necessary to bear in mind the
distinction between what I have said about the general
level of prices and what I have said on one or two
occasions about specific prices or groups of prices
within the price structure,
"Ever since the early days of March, 1933, our objec-
tive has been to bring about B rise in the general
price level of our domestically produced commodities,
and we gave our particular attention to those commod-
ities which were most notably out of line, especially
agricultural prices--farm prices on the farm--but we
aid not neglect other prices. Our objective was 8
Regraded Unclassifie
39
-12-
general increase in the price level.
"The reasons for that policy should be obvious
and were well explained at the time. The depression
had brought about a ruinous decline in many prices,
especially the prices of raw products, but not all
prices had declined equally. A great disparity had
been created and that disparity created an insur-
mountable obstacle to early business recovery so
long as it existed. We had before us the prospect
of E tremendous liquidation, which would wipe out
existing values on El huge scale and bring disastrous
consequences which no one could foresee. The only
alternative to that terribly deflationary process was
to try by some means to bring up the prices that were
too low in relation to other prices, and too low in
relation to the great bulk of commercial and private
debts that had been incurred in the years of higher
prices.
"What we áid to meet that situation is an old story,
but apparently 8 good many people have forgotten it;
at least they seem to have forgotten the reasons that
impelled us to take the steps we did take.
"By verious means WE did bring about an improvement
in the price level, but we never at any time fully
attained the objective we set out to attain, which
was to restore the price relationships on which the
fullest business activity could be maintained.
Within the last few months we have had a distinct
set-back. Price relationships are far less satis-
fectory than they were 11 - this should be - I
said six months ago - "than they were in December,
1936" - "but they are a long way from being as badly
out of line BS they were in 1933.
"Notice that I Em speaking, not of any individual
prices, but of price relationships and the general
price level. This is important because people, and
I include the newspapers, are continually allowing
themselves to be confused about a relatively simple
matter.
"If in a time of felling prices all prices should
decline together and uniformly, great damage would
40
-13-
be done to capital values and a great injustice to
debtors, but when prices reached the bottom, business
could go anead. But that is not what he ppens. What
nappens is that the most sensitive prices decline
precipitously, others in less degree and some very
rigio prices not at all, If the deflation is per-
mitted to run its course there is El long and tremen-
dously costly period of adjustment before 8. correct
relationship is established again. Full business
activity cannot be attained until a proper relation-
ship is established.
"Corrective influences can be set to work to bring
up the prices that are too low. We did set such
influences to work and they did schieve results.
The prices to: t were ruinously low began to climb to
weet the prices that had not fellen. Then an element
of danger appeared. When you are trying to get prices
to meet at El proper relationship it is just as dangerous
to liave some that are alreedy high enough shoot higher
as it is to have some of those that are too low go lower.
"That is what was happening in the spring of 1936 when
I uttered & warning that prices of some durable goods
were being forced above their proper level. That can
nappen to controlled prices, to prices that are in the
group of monopoly. It is to stupid business for those
ADO can exercise that sort of control to use it in that
WEY. It is 2 plain case of killing the goose that lays
the golden eggs. But monopolies are often just that
stupio. That is one of the reasons why we need to be
vigilent to protect ourselves against them.
"The effect of prices that are too high in relation
to other prices is to choke off demand, to lessen
consumption; and when consumption falls off other
lines are affected and B great many little men suffer.
"Prices are too nigh when exorbitent profits are
exacted, when wasteful and inefficient practices are
pursued in management, when the adventages of quantity
production and distribution are not sought. Prices
are too low when they do not provide an adequate living
WEBE for the necessary labor that produces them.
"Our price policy has been directed toward a fair
living for 811 those nao toll to produce and a fair
41
-14-
reward for all those who contribute unique and
valuable service to production; toward a fair
return to capital invested and to capital risked.
It will continue to be so directed. It has been
directed against extortionate profits, against
restrictive monopoly and against the milking and
looting of industry by manipulators of corporate
structures. It will continue to be so directed,
"We are seeking to restore a more satisfactory
price relationship. Our effort has been and will
continue to be primerily to raise the prices that
are too low according to the standard I have men-
tioned. It isn't a standard we have invented, but
it is one to which we are trying to give practical
application. The prices that are too low according
to that standard bulk far larger in our economy
than the prices that are too high. That is why I
have said that, speaking broadly, the price level
is too low.
"The improvement of these prices that are too low
does not meen a great increase in the cost of living.
On the contrary, It will more surely result in higher
wages and better living.
"That is our price policy. It is not new. It is the
one We have pursued for nearly five years. It is not
an inconsistent policy. It is called inconsistent
only by those who don't take the trouble to understand
it.
"I am not undertaking today to detail the further
methods we shall use in pursuit of it. To do so would
mean to recapitulate nearly all that we have done since
1933. But we must bear in mind that we have made great
advances since then. We have built foundations that
don't need to be altered. One of them is our monetary
policy: We don't have to face the monetary chaos of
1933; we have now E system adequate for our needs.
Another grest accomplishment is our farm price adjust-
ment system, greatly improved by the new Act that I
have just signed.
"The approaches to the price problem can not always
be direct. They are a part of our general recovery
policy, which, in spite of temporary setbacks, we
shall continue to forwerd with all our efforts."
42
-15-
Anliace:
I think the first part of that is fine, Henry.
I W&S wondering about the part dealing with
monopoly, 85 to whether it would be well for him
in this press conference to bring out, along with
the rest of the discussion, another blast at
monopoly, which would tend to take the headline.
I wonder if it isn't - what we are after is to get
the meximum recovery. Now, it is true that
monopolies interfere with ecovery by holding
certain prices out of line. But if we come out
with snother blast against monopoly, it tends to
scare other business men BS well. I'd be inclined
to get hiw not to say that, rether than to get him
to say that at the present time. That's my hunch
on that pert of it.
Giston:
or course, he is being attacked ES being inconsistent
because of that very thing - that on two separate
occasions he has talked about certain prices being
too high, and it seems to me he needs to relate
that to his general policy to raise the general
level of prices, and show that on those particular
occasions he was not inconsistent.
inylor:
I think we can use everything you've got in there
except every place where he's defensive and says,
"These so-anu-so's won't understand," and so on.
And if you can cut out that note, it's fine. I
think the setting for this whole thing 1s 8 very
considerate statement and restatement of what the
price policy is, ena there shouldn't be a word of
criticism or defense of anybody in it.
H.M.Jr:
Well, that's very nice, but he won't do that that
way. I mean
Taylor:
well then, I wouldn't feed him any meat.
Gaston:
Don't worry, he'll do it anyway.
B.W.Jr:
He wants to take what he said in April and show how
they twisted it, and he's going to do it - just the
way yesterday et his press conference, coulon't wait
until we got through and shot it. And that's all
43
-16-
right. After all, ne's the boss. That's all
right. But he's going to do it.
The thing that I got, Herbert, was this, These
gentlemen brought in a thing which was about the
maximum length that the President will take. He
won't take anything that is any longer than that.
And I think they ought to take that and see if
there is snything in there which they've overlooked.
But ne won't take anything much longer than that.
Quaton:
was it your thought that he'd put out to formal
statement?
A.d.Jr:
Very definitely. On yes, definitely.
Gaston:
or course, ne will talk for half an nour.
H...Jr:
Yes, and my thought is this. I think we ought to
60 over there, the group that's worked on this thing,
EDO then, if he would permit it, to do what you people
did to me before my press conference; to fire Questions
st him.
Guston:
I put that whole thing into to page. There is that
whole thing in summary.
A.V.Jr:
I mean what I did before our gold thing for half an
hour. I neá ot lf B Josen boys in here. They just
shot questions. If anybody didn't like the way I
answered the question, we had an argument about it.
I don't know whether the President would permit that
or not. Or he might reverse it. de might shoot
questions at us. But if we could thresh the thing
out and try it, any, I think
Willace:
Here's the thing I feel the need for emphasizing, Henry,
as I listened to Mr. Gaston's statement. It seems
to me that we went to get the consumer in there very
much more definitely. In addition, I think we want
to get in very much more definitely that this higher
price policy in certain segments of our economy is
not E scarcity policy. I think that is brought out
very clearly. Bring in this farm bill in that
connection. And I think it is just as well to bring
out elso clearly that we are not enti-profit,
44
-17-
H.M.Jr:
I think thet's all to the good.
Haas:
That's in there.
H.V.Jr:
It's in there. I don't know who put that in there.
Didn't know we had any of these profit boys around,
That's all right.
Graton:
Most of those statements are in my outline.
H.M.Jr:
Ine one thing I'd ask the President
Wallace:
Put if you boil it down - you want certain things
to stand out strongly instead of having a lot of
reasoning about why he was right in the past. Why
not forget about trying to reconcile what's said
in the past and go forward in the future? And these
are things that ought to stand out. You want the
consumer thing to stand out; that this higher price
policy in certain segments is not a policy of
scarcity; and we are not against profit.
H.W.Jr:
There is one question I'd ask him when he talks
about the flexible policy. I'd say, "Well, Mr.
President, does this mean we are going to have a
commodity dollar?" I mean that's what I'd ask him.
Is that what you fellows got?
White:
would you like us to write out 8 series of questions
and snswers that we might suggest?
H.M.Jr:
Yes. I'd 83K that, for instance. "Does that mean ...n
Just at that point bring it in - "Well, Mr. President,
does tnis mean that this group is recommending a
commodity dollar?"
Gaston:
well, one point that would be connected with that
is - that is, the first assumption, first guess -
is, we may intend further develuation.
H.W.Jr:
I think the courteous way would be just to list a
lot of questions which we think
White:
And just answer them.
H.W.Jr:
Yes. You've done it for me. And what this group
thinks the answer should be. Let him take this. If
he runs through that, then he can read the question.
45
-18-
"I agree with this. Why do you answer it this
way?" If we could get him to give us an hour and
have a kind of seminar there, it would be fine.
If he'd do that.
White:
Well, we'll do that anyhow.
Wallace:
Of course, what they'll ask him is, "What action do
you intend to take to bring up those low prices,
and what action do you intend to take to bring down
the high prices?"
H.M.Jr:
We'll let the boys write the answer to that one.
White:
We'll put that down.
Gaston:
That's in here.
H.M.Jr:
You say you have the answer?
Gaston:
I have an answer to that question in this.
H.M.Jr:
What was it, Herbert? Here, do you want to read it
from here?
Gaston:
No, it's not - I think it's in there, but very
briefly.
"I am not undertaking today to detail the further
methods we shall use in pursuit of it, To do so
would mean to recapitulate nearly all that we have
done since 1933. But we must bear in mind that we
have made great advances since then." And so on.
And then: "The approaches to the price problem can
not always be direct. They are a part of our general
recovery policy, which, in spite of temporary setbacks,
we shall continue to forward with all our efforts."
H.M.Jr:
My question is, "What is the present recovery policy?"
Wallace:
That's a good way to handle it.
H.M.Jr:
You mean to put these questions?
Wallace,
Yes. But I mean that's a very good answer to the
particular one.
Regraded Unclassified
4S
-19-
H.M.Jr:
I am most pleased with this thing. I didn't think
you'd have anything nearly as good 88 this by today.
Lubin:
Neither did we, Mr. Secretary.
White:
It's B good thing you didn't catch us E quarter of
an hour sooner.
Willace:
I'd like to ask if Jacob Viner is satisfied with it.
Viner:
It depends on what it 1s. I am not setisfied with
it as D frank survey of the situation, but under
the circumstances I think it is better than I had
anticipated it would be.
H.V.Jr:
That's a very bullish statement, coming from Jake,
you know.
Wallace:
Positively enthusiastic, glowing.
H./.Jr:
Yes. I mean from Jake that's a very
Viner:
And I'd say it would be very dangerous to move in
the direction of making it more specific, of naming
commodities, of getting into rows as to whether the
facts are correct about particular commodities, or
of specifying what the President is going to do about
it. This is statement of the sort of price system
he wants this to be. The question is to ...
Wollace:
You would have nin put this out and then duck at
every stage of the game, duck every question prac-
ticelly.
Viner:
I'd say duck it by saying that he has been and
intends to continue working at it, that this sort
of system can't be produced over night and a large
part of it rests on cooperation of the public. I
mean the Government can't do all this. Á lot of
this isn't that the Government is going to do so
and so, but tast the price system must operate
in this way. In other words, part of this is really
in appeal to persons who have been maintaining rigid
prices to stop doing it.
wallace:
I'm inclined to agree with Jake on that, rather than
go into illustrations.
Regraded
47
-20-
Taylor:
Got the building thing in there. That's really about
all you need,
Viner:
I'd say if you have illustrations - then I'd say
make it "Commodity A" and "Commodity B," but don't
specify what they are. Take your price index and
say, "Here are examples, Commodity 4. and Commodity
B, which have operated this way. There are examples,
Commodity C and Commodity D, which have operated in
this other way."
H.M.Jr:
Well now, the President - I remember he said, "Bill
came down to see me and told me such and such a thing
about El factory down in Pennsylvania, and Tom came
down and tola me so and so about this business up in
Vermont.' Then they asked, "Who was Bill and who
was Tom?"
Gaston:
I think if you include any mention of specific
commo ities or articles, that is going to be the
news Lead of the story. This general aspect won't
get the lead. The lead will be the prices that
are too high, if he names them.
Haas:
And even if we carefully select them, the press will
¿SK, "How about steel, for example?"
Viner:
I think it will be pretty good if the statement
doesn't have any definite lead, if it is a thought-
ful consideration of the problem facing the country.
Walloce:
And if it is followed up.
Trekiel:
If it isn't spectacular, seems to be soberly thought
out.
Viner:
Not directed to trying to find flashy statements or
trying to catch E headline. It isn't an easy problem.
I think he ought to say so. One of the things we
ought to put in there is, "This is not an easy prob-
lem. There aren't any formulae that answer all these
questions off-hand. It requires constant thought,
constant vigilance. The Government has perhaps made
some mistakes, and will continue to make some."
Gaston:
The lead is not going to be on the prepared statement.
Regraded Unclassified
48
-21-
The lesd is going to be on what ne says in his
informal talk to the newspapermen. This sort of
prepared statement - it is excellent; it is not
going to be the lead of the story.
Viner:
But is tue leau the important thing? The public
revis the leads, the captions, for a day, then the
world forgets about them.
Geston:
No, on the contrary, the only impression that
ninety-nine out of E hundred people get is the
stuff that's printed in the headline and the
lead of the story.
Viner:
Yes, but I don't know whether these statements are
made for ninety-nine out of a hundred.
Watte:
How about the editorial comments?
Viner:
Luitorial comments, and statements and speeches made
two months later.
Gaston:
Those will - as far as the editorial comments, they
will nearly all be hostile, and they will pick out
the apparent inconsistencies of the President; those
are the things they'll harp on editorially for
Baskiel:
Most of the people never read the whole story, just
read the leads.
Wallace:
I'd be inclined, supplementary to this, to have him
issue some kind of statement reconciling the incon-
sistencies - supplementary to this, Issue it.
Lubin:
I no think this is true. If he would take this as a
prepared statement and give 30 minutes to reading
Gaston's summary - I mean, after all, Gaston wrote it
for his information and not for the press's informa-
tion.
Gaston:
Not to give that time to it at the press conference.
Lubin:
Study it up so he'll absorb the details of what we
nave in it.
Wallace:
I would want to read it to him; otherwise, his
enthusiasm will get the best of him and he'll come
out with something that will totally obscure this.
49
-22-
H.M.Jr:
I taink as far ES preparing it in the best way to
present it to him, if you take this statement and
we finally agree on it, and then if you men could
put down questions end enswers for him as you think
they'll be directed, I think that would be an awful
good way to present it. I find it very useful to
myself. And he'll do that. And take Gaston's
statement and incorporate it into questions and
answers. Now, we had a demonstration of the other
way recently and it didn't work so good. But anyway,
I think that something which he could - he's got a
marvelous memory and if he had these questions and
answers and pokea them at us, and we'd be on the
defense rather than putting him on the defense, -
end ne'd enjoy tast shu ne'd SOUK it in and he'd
have it for next morning. He'd absolutely have it.
And I'm tremendously encouraged, first, that this
group could agree on anything, and then second - I
mean I think - I'm serious about that - and then
secondly, If WE could agree with the President, I
really think it is one of the most constructive
steys toat's been taken here since - in the six
months.
Wallace:
Let's get some strong consumer stuff In it.
d.M.Jr:
Do if they'll get questions and answers and consumer
stuff, we'll meet at 8:30. We've gone as far as we
can, don't you think so?
"Alace:
The consumer stuff is all we need on this three-page
statement.
H...Jr:
Inst's right.
wallace:
we're dropping tae example thought?
A.M.Jr:
I'm willing to drop it.
Wallace:
But we want the consumer thought.
h.m.Jr:
Anything else?
acekiel:
You want the thought of nigher price policy, not a
scarcity policy.
Wallace:
Yes, I think that would be good.
Regraded
50
-23-
Lubin:
Comes under consumers, doesn't it?
Viner:
Under volume. We want volume. Stress the fact
that we want volume.
H.M.Jr:
I've got one other thing that I question. Can you
hang this whole recession on the housing thing?
Heas:
No.
Lubin:
And inventories.
Viner:
We say tast housing and inventories
White:
laid much of the ground.
Viner:
Still leaves lots of space.
White:
Laid some of the ground, we could say.
H.M.Jp:
Well, I just raise that point.
Wallace:
That could be in the question and answer thing.
White:
me left room for some other ground, for some of the
credit policies.
U.M.Jr:
I might just - think it's interesting to point out,
we seem to be after two days having a trend here
which I think is very interesting, and that is that
we're getting a general rise in commodities, a strong
Government bond market, and a falling in the stock
market. And gold is up to a point where - in the
case of Switzerland, that they ought to be taking
gold right now from us, But I think it's rather -
I mean gold is almost up to the export point; it is
in the case of Switzerland. High Government bond
market, B good commodity market, and falling stocks.
Sort of a queer combination.
Lubin:
I think that's quite typical of what you ought to
expect.
H.M.Jr:
As far ES I'm concerned, I'm tickled to death with
it. I don't know how you feel. I'm perfectly
satisfied. The thing I hate to see is a quick rise
Regraded
I
51
-24-
in the stock market.
Lubin:
I have a feeling that the stock market will act just
the reverse of the way it should.
White:
In other words, if we can't explain it, we can fall
back on that explanation.
Liekiel:
Do you want to talk about the charts at all? That
was one of the subjects yesterday.
H.V.Jr:
I don't personally. I don't know
Exekiel:
"ondereu if you wanted to see the chart that WE sug-
gested as the best single chart for him to use.
8.0.Jr:
Yes, I thought it would be worth while.
But I think they ought to have that, Herbert - the
group ought to have that, what you've done. I think
they ought to have everything you've done.
Apllace:
If this longer statement is to be given, I would
like Lo see the consumer segment in and cut out the
anti-monopoly thing.
Taylor:
I'd like to say over again what I said before. Then
I don't think WE ought to feed him snything, with
tnet type of thing in there. Now, if he feels he has
to do it, why, O.K., but I don't think it's necessary.
Gaston:
I feel sure that most of nis talk to the newspapermen
will be devoted to reconciling his policy, explaining
that the verious things he's done are consistent.
Wilsce:
I'd like to see nin do it in an amicable way.
Teylor:
Very tactful way.
"Aggit:
de had this chart prepared, which seemed to summerize
the situation about as well as any chart we could get
together. It's the B.L.S. index of finished prices
related with the index of raw materials, going back
to '29. Then over at the side we have given - we
have stretched out the last two years to show the
monthly figures in more detail. The 8 raduel increase
In disparity between the two, starting In 129 and
going up until the beginning of '33, stands out 85
Regraded Unclassified
52
-25-
B factor secentuating the decline in business.
H.V.Jr:
I get that all right. Don't know whether Mr.
Wallace wants to ask anything. I think it's a
good coert. I'll take It over to the White
House.
And I'd like to take B. look at two more, if I
could, tomorrow. I don't know what the Department
of Agriculture runs on farmer's purchasing dollar.
Have you got that?
Hars:
Un-huh.
Daggit:
Yes, we have one chart.
H.M.Jr:
I'm still a little form-minded, Henry.
Daggit:
That pretty much perallels
H.d.Jr:
Well, so far - that is, prices recede; that's bad.
That's the thing, I mean this part of it looks
Bed,
Now, have you got something on the consumer?
Haes:
He means the ratio between those two curves.
H.A.Jr:
Well, something for the city fellow.
White:
we haven't, but
AALLACE:
Take payrolls there and what the payrolls would
buy; or payrolls relative to the cost of living
would be tne chart you're asking for,
white:
That would be comperable to that. But I don't think
we have done that. We can do it.
H.W.Jr:
I think if you take this plus that and then something
Subin:
It wouldn't be comperable. They have the actual price.
In the case of city workers
#allace:
No, it's the income.
Lubin:
That wouldn't be income. Yours shows prices paid.
Regraded Unclassified
53
-26-
Blekiel:
le have other charts of city workers' income per
worker employed, and cost of living,
Lubin:
That's not comparable to yours.
Anllace:
You can get a chart on fermers' income and relative
Viner:
Getting into farmers' costs; it's a pretty difficult
concept.
Leadel:
We can snow farmer income above costs; we have an
estimate of net - I mean the net income after
paying out-of-pocket costs, which go up much more
repidly than price goes up, and down much more
rapidly than' price goes down.
Viner:
The question is, what is Its significance? You've
got that problem of the city laborer - the city
Ishorer nas simple cash income and outlay.
piekiel:
but tust net income of cash - for the fermers, the
food they consume is comparable to the city workers'
casn income.
H.M.Jr:
Don't take over enything that - you haven't got
snything for farmers or city folks, prices in rela-
tion to employment?
Lubin:
well, we have E chart showing the ratio.
Esekiel:
This is employment.
H.V.J.:
Pardon me?
aregiel:
Inls is employment on that chart.
H.M.Jr:
Yes, but breaking it down 85 between city and country.
Ssekiel:
well, country employment goes up in depressions. They
cen't eat in the city, so they go home to eat.
H.M.Jr:
Would you just take this one over?
Exexiel:
Employment.
H.M.Jr:
Just take this one? What do you people think?
White:
we can get one that looks
54
-27-
H.M.Jr:
The farmers' one. That's the one you (Wallace)
always run, the one you go by so much. That's
the one, isn't it, you're sort of ...
Wallace:
What?
H.M.Jr:
Known as the scissors chart?
Wallace:
That was 1932, Henry.
H.M.Jr:
Well, we don't want to get back there.
Haas:
And one more, Mr. Secretary, you want, on the
consumer element. Three.
H.M.Jr:
Those three. Then if anybody has any bright ideas,
and I'm sure they will between now and 8:30 tomorrow
Daggit:
Could send him one on building materials.
Haas:
naises the question of examples.
Daggit:
Yes. This is the way it would look. We have it
prepared here.
H.M.Jr:
Are you (wallace) in a hurry?
wallace:
I have to go.
H.M.Jr:
Well, we might just as well stop.
55
Government Aim to Check Deflation
It has been the policy of this Administration to pro-
mote recovery towards full employment and full use of our
resources. That continues to be our policy. If we are to
be successful in this attempt, we must have a steady increase
in the real income produced by and distributed to all our
people. The productive power of our workers end our resources
can provide and maintain a national income far above any levels
we have yet reached.
In the furtherance of this objective the Administration in
its agricultural, industrial and monetary policies has neces-
sarily been concerned with both the relation of the prices of
troups of specific commodities to each other and the movement
of the general price level. The policy of the Administration
in this regard must be flexible. There are times when the sit-
uation calls for measures designed to promote a rise in the
eneral level of prices. There are other times when the concern
should be lest prices are rising too rapidly or too far. A year
are there was ground for concern lest there occur so rapid a
rise in the prices of some commodities as to encourage a spec-
ulative boom and choke off demand. During the past six months,
on the other hand, the general price level has been falling and
industrial activity has been declining. Government policy must
De directed to reversing this deflationary trend.
Regraded Unclassified
55
- 2 -
Although the attainment of full industrial activity
requires an increase in the general price level, this does not
mean that all prices should advance, or that the rise should be
rapid. The prices of different groups of products must be
brought into balanced relations to one another. Some prices
are still too high to promote that balanced relationship between
prices that is necessary for sustained recovery. The failure
of such prices to reflect the decline in demand 1a an obstacle to
the resumption of recovery. The maintenance of prices not sub-
Jeet to full competitive forces accentuates the deflationary
pressure on competitively determined prices, When prices are,
through monopolistic practices, maintained at uneconomic
levels, it is the obvious duty of the Government to apply
those remedies which the law provides
What 16 needed now is to raise the prices that are too
low, without Faising the prices that are still high. For
those industries that operate at a high level of capacity,
even in depression, the restoration of profits must come through
higher prices. But those industries that have sought profite
through ourtailment of outout should seek the restoration of
profits through increased volume rather than through
restricted output at high prices. Higher profits will
encourage new investment which 18 nedessary to full recovery
I repeat that present conditions require B. moderate rise
at
in the (eneral price level, and this rise need not and must not
extend to all prices. The rise must be mainly confined to those
classes of commodities, such AB most raw materials and some
finished products that are sold under highly comnetitive condi-
-tone, whom prices are no" too low.
Regraded Unclassifie
57
- 3 -
The prices of some items, on the contrary, are still at sub-
stentially the highest levels reached in 1937; some are even
higher than in 1929. In the field of residential construc-
tion, for example, in the face of a serious shortage of hous-
ink and of unused productive resources of every kind, all the
major elements in housing costs advanced BO sharply by the
Spring of 1937 as to terminate a promising expansion of acti-
vity in this most prostrate of our industries. In other
industries the sharp rise in prices encouraged inventory
buying, which combined with the reduction in housing, laid
much of the ground for the present recession. We must do
everything we can to prevent another boost in those prices
that are already high enough.
At the present time, large numbers of producers, as for
example the farmers, have suffered large losses of income. It
is desirable that incomes for such groups should be restored,
partly through rising prices for the goods they sell, before
prices or costs of production rise further for the goods
they buy. There are industries in which volume remains
almost unchanged even in a depression and a recovery of in-
come depends upon a rising price for such products, as an
alternative to a correspondingly drastic deflation in other
fields.
I believe the farm bill just passed, the housing bill just
passed, and the monetary policy being followed by System the Treasury
and the Board of Governors of the Federal Reserve Board will
prove helpful toward achieving these objectives.
5S
PRICE POLICE
Recent developments have again stirred up discussion of the
Administration's price policy. I suppose no are likely to read again
as we have read in the past that the Administration has no consistent
price policy and that I Assue conflicting statements about prices.
I think it my be worth while to review briefly what our price
policy has been and what it is now. If there are doubts, I'd like to
clear them up) although of course I recognise that neither I nor any-
body else can do very much about the sort of misunderstanding of
Administration policies that is due to a perverse desire not to under-
stand. There has been more than a little of that in the picture.
At the outset it is necessary to bear in mind the distinction
between what I have said about the general level of prices and what I
have said on one or two occasions about specific prices or groups of
prices within the price structure.
Ever since the early days of March, 1935, our objective has
been to bring about B. rise in the general price level of our domes-
tically preduced commodities, and we gave our particular attention
to those commodities which were most notably out of line, especially
agricultural prices-farm prices on the farm-but we did not neglest
other prices. Our objective was a general increase in the price level.
The reasons for that policy should be obvious and were wall
explained at the time. The depression had brought about a ruinous
Regraded Unclassified
59
- 2 -
decline in may prices, especially the prices of raw products, but
not all prices had declined equally. A great disparity had been
created and that disparity created an insuraountable obstacle to
early business recovery BO long 40 it existed. No had before us
the prospect of a tresendous liquidation, which would wipe out exist-
ing values on a huge scale and bring disastrous consequences which no
one could foresse. The only alternative to that terribly deflationary
process was to try by some means to bring up the prices that were too
low in relation to other prices, and too low in relation to the great
bulk of commercial and private debte that had been incurred in the
years of higher prices.
What we did to meet that situation is an old story, but appar-
ently a good may people have forgotten it, at least they seen to
have forgotten the reasons that impelled us to take the stops we did
take.
By various see ns we did bring about an improvement in the price
level, but we never at any time fully attained the objective 190 net out
to attain, which was to pestors the price relationships OD which the
fullest business activity could be maintained. Within the last few
months we have had a distinct set-back. Price relationships are far
less satisfactory than they were six months ago, but they are 4 long
may from being as badly out of line as they were in 1953.
Regraded Unclassified
6..
- B -
Notice that I all speaking, not of any individual prices, but
of price relationships and the general price level. This 10 important
because people, and I include the newspapers, are continually allowing
themselves to be confused about a relatively simple matter.
If in a time of falling prices all prices should decline to-
gether and uniformly, great damage would be done to capital values and a
great injustice to debtors, but when prices reached the bottom, business
could go shead. But that 1a not what happens. What happens is that the
most sensitive prices decline precipitously, others in less degres and
some very rigid prices not at all. If the deflation is permitted to
run its course there is a long and treaendously costly period of adjust-
ment before a correct relationship is established again. Full business
activity cannot be attained until a proper relationship is established.
Corrective influences сад be set to work to bring up the prices
that are too low. Re did net such influences to work and they did achieve
results. The prices that were ruinously low began to climb to meet the
prices that had not fallen. Then an element of danger appeared. When
you are trying to get prices to meet at e. proper relationship it is just
as dangerous to have some that are already high enough shoot higher as 12
is to have some of those that are too Low go lower.
That is what was happening in the ppring of 1938 when I uttered
& warning that prices of some durable goodswere being forced above their
proper leval. That can happen to controlled prices, to prices that are
Regraded Unclassified
is
4 -
in the greep of monopoly. It is a stupid business for those who can
exercise that sort of control to use it in that vay. It is a plain
case of killing the goose that lays the golden oggs. But monopolies
are often just that stupid. That is one of the reasons why we need
to be vigilant to protect ourselves against them.
The effect of prices that are too high in relation to other
prices 18 to choke off demand, to lessen consumption; and when oon-
sumption falls off other lines are affected and & great many little
son suffer.
Prices are too high when exorbitant profits are exacted, when
wasteful and inefficient practices are pursued in wanagement, when the
advantages of quantity production and distribution are not sought.
Prices are too low when they do not provide an adequate living wage for
the necessary labor that produces them.
Our price policy has been directed toward a fair living for all
those who toil to produce and a fair reqard for all those who contribute
unique and valuable service to production; toward & fair return to
capital invested and to capital risked. It will continue to be so
directed. It has been directed against extortionate profits, against
restrictive monopoly and against the milking and looting of industry
by manipulators of corporate structures. It will continue to be so
directed.
Regraded Unclassified
62
- Б -
To are seeking to restore a more satisfactory price relation-
ship. Our effort has been and will continue to be primarily to raise
the prices that are too low according to the standard I have mentioned.
It isn't & standard TO have invented, but it 10 one to which " are
trying to give practical application. The prices that are too low
according to that standard bulk far larger in our economy than the
prices that are too high. That is why I have said that, speaking
broadly, the price level is too low.
The improvement of these prices that are too low does not
seen & great increase in the cost of living. On the contrary, it will
more surely result in higher wages and better living.
That is our price policy. It is not DSV. It is the one W
have pursued for nearly five years. It 10 not an inconsistent policy.
It is called inconsistent only by those who don't take the trouble to
understand it.
.
I as not undertaking today to detail the further methods "
shell use in pursuit of it. To do go would mean to recapitulate nearly
all that to have done since 1933. But we must bear in wind that vs have
unde great advances since then. Re have built foundations that don't
need to be altered. One of them is our monetary policy: We don't have
to face the sonstary chaos of 1935; we have now a system adequate for
our needs. Another great accomplishment is our farm price adjustment
Regraded Unclassified
63
- 6 -
system, greatly improved by the not Act that I have just signed.
The approaches to the price problem can not always be
direct. They are a part of our general recovery policy, which, in
apite of temporary setbacks, we shall continue to forward with all
our efforts.
-0-
Regraded
Unclassit
February 16, 1939.
64
3:07 p.m.
H.H.Jr:
Hello, Stewart?
Stemart
MacConald:
Yes Mr. Secretary.
Henry Morgenthau,
Yes,
9,M,Jr:
Well, what's your temperature?
Well I rent over there and B&W J'm about eleven
thirty. I never have been able to get 8 hold of
Ferley, but I don't think it's necessary now.
4. .Jr;
Oh!
1:
Because be and Straus were as re and he said that
he and the - he and my father were together last
night and they came to the conclusion that it was =
mistake to try to kick up in the states Just as we're
trying to climb the stair.
Un-huh.
And that they could see that it would be almost
impossible for these WPA workers to get under way,
and incidentally to my amazement I found on riding
up this morning that we'll have seventeen million
dollars worth of large steel housings which are to -
either the steam shovele are with it right now or
they will be within the next two weeks if the
President signs the bill.
901,50;
Grand.
Just think of that.
H.H.Jr:
Well -
That's more than Tugwell did all the time he WAS in
business.
Jr:
Well, I think I'll just take a little credit for
this.
Well, I'll bet you do. You Just toss them up and
change their mind. Now they have enother plan
whereby they want me to - to put on E. more or less
the same kind of 8 campaign that we - you and I
helped work out before, do you remember it. on
Regraded Unclassified
65
8 -
those eight thousand Community Chairman campaigns?
on, yes.
Well they want me to rc-institute that, and I
think that may be a good idea.
H.M.Jr:
Yes.
J:
And I'm working on that right now. And also they
want to have an idea of - on these large scale
housings, when a man hasn't got enough equity in
there, that maybe to comply with our eighty per
cent mortgage requirements that the RFC work up
come secondary money loans for him.
H...Jr:
Well I -
ET
Jesse went in to see him after I did, and I
haven't been able to see Jesse as to how that came
out, but we've definitely killed the WPA thing,
I think.
F.C.Jr:
Well, I want to know particularly because Aubrey
Williams and Colonel Harrington are due here in
twenty minutes.
Yes, well that's definitely out. Now we told them
that where we do make these overboard loans, and where
Straus does too, and incidentally I may be able to
help Straus some, through this National Mortgage
Association. I'm not sure, but I think I can.
Now, - why we would recommend that the builder use
all the WPA wages of men he can and get his rolle
from the WPA people, as far as possible.
H.W.Jr:
For which?
What?
H.M./r:
on what?
FT
On - on any work going ahead, Instead of Just simply
advertising for people that he try to take them off
the WPA rolls.
Oh - oh, yes, but pay them.
H:
Pay - oh, certainly pay them, but I mean to say that
if I'm building a -
E.2.Jr:
2h, that's all right.
Regraded Unclassified
66
- 3 -
If:
A two million dollar project out here in Queens,
instead of Just advertising for men.
H.M.Jr:
Yes.
11:
That I work with the WPA men, and say send me over
ten common laborers, and send me over fifteen
of this and twenty five of that.
H.M.Jr:
That's all. Well, they'd go the U. S. unemployment
service for that.
is
Yes, that's right. Well I think you did a swell
job, Mr. Secretary, and I
F.M.Jr:
Well, are - are you all right?
M:
What?
H.M.Jr:
You're all right now?
II:
I'm all right, yes.
H.H.Jr;
Are you on your way?
50
I'm on my way, you bet.
H.K.Jr:
Well, I'm - I was worried, you know, and I spoke to
Jimmy at seven last night, you know
it
Yes,
H.M.Jr:
Did you know that?
M:
No, I didn't.
H.M.Jr:
on, yes.
K:
He didn't tell me that.
F.M.Jr:
Well, that's - that's what happened, I called him on
the phone.
II:
Yes.
H.M.Jr:
So I called him up and I called up Aubrey Williams
and told him what I thought.
12;
Yes.
Regraded Unclassified
67
- 4 -
H.M.Jr:
So I called Jimmy last night.
M:
Yes.
H.M.Jr:
So - if you want anything more, let me know.
M:
I'll certainly work closely with you.
H.M.Jr:
Because I'm putting my money on you.
M:
Good for you. Thank you ever 80 much.
H.M.Jr:
All right. Goodbye.
Regraded Unclassified
88
February 16, 1950
Mr. Oliphant
Mr. Foley
Attached is an outline of a proposed public and private housing program
to meet some of the objectives outlined by Col. Roosevalt at the housing
meeting I attended last Monday afternoon.
In accordance with our conversation yesterday afternoon, I an setting
forth some of the arguments which occur to no may be employed for and against
such e. programs
FOR
1. It can be started without the delays incident to the fha and USHA
programs because it contemplates direct Federal loans, purchase of materials
in large quantities and UPA construction.
2. It requires no appropriation or enabling legislation.
3. It is self-liquidating and should return substantially the entire
outlay within 50 years.
4. It reaches an income group above the former slum deellars which
are subsidised by USHA and below the groupe which can be served by FEA.
S, It affords an outlet for UPA labor on useful projects of enduring
value.
6. It offers to industry an opportunity to build needed homes for
employees and to public and private owners of unimproved land an opportunity
to put such land to beneficial use without substantial risk of less or prospest
of excessive profits.
Regraded Unclassifie
69
+
AGAINST
1. The USHA and THA progrems are adequate to meet present unemploy-
ment situation and should be given an opportunity to demonstrate this fact.
2. It will compete with private real estate interests and impair the
confidence of substantial financial and business interests.
1. The security to be acquired by the Federal Government would be is-
adequate to assure it against substantial less if the program were to 11-
complish the purposes outlined.
4. It utilises funds which otherwise can be employed to retire the
public debt and throws the budget further out of balance.
EHFJr/met
Regraded Unclassified
70
Special Spersency Housing Program for Construction of
Houses not Exceeding $2,600 per Unit,
Essential Terms
Private or public owner supplies land, Federal Government
supplies total building costs. Owner's risk and profit to be
limited. Special appeal to be made to industrialists and public
housing agencies to build houses for workmen.
1. Federal Government (thru RPC Nortgege Company or similar
agency) extends mortgages on approved, building sites.
2. Mortgages to mature in 30 years, if not previously
amortised, end interest and smortization to be payable only out
of rents.
3. Private owner's profit to be limited to 6 per cent on
cost of house plus value of land which will be included at no more
than 10 per cent of the cost of house.
4. Owner's building plane to be approved by Government and
UPA to purchase materials and build houses at cost, if owner
desires.
EHFJr/met
2-16-50
Regraded Unclassifie
71
February 16, 1938
3:30 pm
Present:
Aubrey Williams
Col. Harrington
Mr. Bell
Mr. Williams: We may be interrupted once or
twice because the fight is on. Sam Rayburn may call us.
Cannon Just called and said everything looked all right.
HM.Jr: I see the fight is to increase it.
Mr. Williams: Well, they are talking all kinds
of ways.
Col. H: Just Fot our last employment figure.
I don't know whether that has come over to you.
HM,Jr: No, it has not.
Col. H: 1,985,000, February 12; an increase of
40,000 in that week.
HM,Jr: Now you gents are not laying any fellows
off, are you? You are Just going shead and taking a gamble.
Mr. Williams: We are noy laying anybody off and
we are getting overboard a little bit, like in Detroit where
the President said we could meet that situation.
HM,Jr: I Just came from the White House, all out
of breath -- I mean Dannie and I.
Well, we are at your service.
Col. H: Well, the first thing I want to talk
socut is in connection with increasing employment by a half
million people. I think we have got to ask some relaxation
of certain restrictions that have been imposed upon us by the
Bureau of the Budget in accordance with our understanding of
the President's instructions. I am going to ask you to
visualize one-half million people. That's a lot of people
Regraded Unclassifie
72
-2-
and me can't get half a million people on a work project
and have every project we do all of permanent and enduring
value. In other words, we have zot to do some work -- re-
pair, maintenance and stuff of that kind. In my Judgment
there is no way to avoid it.
HM,Jr: Do you mind looking at this fellow (Mr.
Bell) because this 1s very much his Job. I will be very
clad to listen, but this 1e down nis alley, so Just swing
sround a little bit and talk to him.
Mr. Williams: Turn the machine gun in that d1-
rection.
HM,Jr: Because this is something I don't get in
on, out I All more than willing to listen.
Col. H: Well, here 1s a 27 page memorandum which
your secretary signed, directed to the President, going into
the details of one project, $1900 to put a new roof on a
school building in St. Francis County, Missouri. The old
roof, it says, is about to fall down and they want us to
out B new roof on it. There are other projects in this
21 page letter. One of 33,000. One of $9,800. One of
$2,800 and so on.
Now, it seems to me that in this period of more
or less emergency that it would be reasonable to take our
determination. We will get the best work we can. I have
four men over in my office all of whom had over 25 years
of experience in construction work of various kinde, and
they TO into this stuff right down to the bottom as far as
we can. I will tell you frankly we are going to do main-
tenance and recair or we can't put 500,000 people on the
Job. I would rather apread it on the table. I don't
want to cover it up.
Mr. Bell: That's right. I know you are not.
Col. H: I am trying to do this thing as best
we can, but we can't find work for 500,000 people all at
once -- on projects we don't include this sort of stuff,
and I think in this period of emergency until we can get this
loan on -- at any rate, while this flow of projects and ap-
plications is going to be heavy on us, that we ought not to
be going through this kind of business of Budget to the White
Regraded Unclassifie
73
-3-
House, White House to me, DIE to the White House for the
President's approval. It Just gums the machinery.
Mr. Bell: Well, I have talked to the President
severol times about those things and that the kick of your
office is about my sending these memoranda. He said, 'Let
the kick. You continue to pick these projects because' he
shid 'I want to look at them.' I realize you are going to
have to out these 500,000 people to work and I think prob-
8612 Spece should be some relaxation, but I can't see where
there 1e and ndditional employment by the WPA doing mainten-
once and reosir work in cities and communities that the cities
ord communities ourht to do. That's not additional employ-
ant. It's subsidized employment. I know you can argue
that they won't do these things, but is something they should
co.
Whenever the Government takes over maintenance and
renairs of municipal plants, then I say we are going a long waye
towards the Federal Government getting into local Government
activities. I an perfectly willing to set out of it alto-
mather 1° the President says 80, out If he is going to leave
the 100 to me I am coint to bring his attention to all main-
tenance and repair. I think there should be воше relaxation
in the emer ency, but when we get out of that I do not think
WEA should do that think
Col. H: That's what I am asking for -- over the
priod of B month or six weeks.
Mr. Bell: I realize you have a Job.
Mr. Williams: We have "one along pretty well on
to: whole thing, Dan.
Col. H: I have tried to play the game.
Mr. Williams: I don't think the Colonel disagrees
with you fundamentally.
Mr. Bell: I will say this for the Colonel: we
have had better cooperation since he has been there than be-
fore. We are following the President's instructions. If
he wints to change, perfectly all right with me, because I
vould like to get out from under the Job. But, Mr. Secre-
tery, I think you will have to agree, when the Federal Gov-
ernment zets into operation and maintenance of the city, that
we are getting pretty far in Government getting into local
activities.
Regraded Unclassified
74
HM,Jr: Frankly, I have not followed it awfully,
out I do know I heard the President tell two stories when
he came back from the trip out West and he was very much
shocked to find out you people were maintaining some ditch
045 in Idaho and he pointed out -- I don't know whether he
atd it publicly -- the 1dea of the Federal Government after
building the ditch that we maintain it! Then, the other
thing, he was very much shocked to learn, I forget the fig-
urea, out he aslted us to get them for him -- appropriation
for asintenance that the Federal Government, for instance,
for the city of New York. Perfectly amazed! I think you
vot sume figures on that. That's the last I have ever heard
and of course his time is awfully pressing and I don't know
have he feels.
I will be perfectly frank with you people. I have
not had E. chance to tell you because it happened since we just
nie back. I understand from Stewart MacDonald he has been
the reer light and told to go ahead and do the job and that
m12 1deas of using unemployed labor in any way are out.
Col. H: On housing?
HM, Jr: On anything that has to do with FHA. He
WAS told that this morning by Jimmie Roosevelt. I not this
just a few minutes ago. So with that out of the way -- I
don't know whether you have heard it. Stewart MacDonald
told ce. He was over there and he was told to go ahead and
do his job. He talked to the President last night and he
and the President decided that it was out. I did not get it
from Jimmie. I not it from Stewart. With that out -- as I
told you the other day and I told Stewart and I told Jimmie,
I W38 100% opposed to it and 30 was Danny Bell. Now, this
other thing is something I have never got in. If you want
me to go with you to the President, Dan, all right.
Mr. Bell: I don't think you need to.
HM,Jr: But Dan aits here in a dual capacity. When
he has seen you before it was as Assistant to the Secreta ry;
now it's Budget stuff. But if you say to me, Dan, 'see me
through this', I will stick with you and if you want me to go
to the President with you BO we can get these fellows straight-
sned out, O. K. Because I nailed this fellow the other day
and asked if he had enough projects to take care of $250,000,000
and he said yes and the only excuse I could see to put you
Regraded Unclassified
75
-5-
people in Stewart MacDonald's work was that you did not
have enough projects.
Col. H: I told you we did. I told you we did
not have to no into Housing.
H.,Jr: You have & tough job. If Dan says he
wants me to go with him, I mill. I have never gotten into
this thing and I would much rather not. I cet in when the
money is decided. When it is decided, then I am through.
Then my job is to raise it. As far 38 I am concerned, I
am out unless Danny Bell says to me he wants me to go over.
Mr. Williams: That's maintenance. Have we all
agreed on that?
Col. H: There is something more yet. White col-
1ar projects.
Mr. Bell: We have been sending these particular
projects to the White House with notes on them calling the
President's attention and it has been done under his direc-
tion. We have not just taken it up and done it. It has
been his directions and I have taken it uo with him several
times.
Mr. Williams: I have not come here to ask you to
renege on something the President asked you to do. The Pres-
ident said he thought we could settle it.
Mr. Bell: I don't want you to come here for that
ouroose because I would not do that.
But when you come along with these projects, I think
I will put a note on them that these are the same kind of
projects, but in view of the emergency, Just like the white
collar projects in the past when you come along with a dead-
line, there is nothing for these people to do. We have
recommended that they go on for a period of 30 or 90 days
and I am perfectly willing to put on these projects a memo-
randum that they are the same kind of projects that have been
questioned before and my recommendation is you approve it and
let this program get started.
Mr. Williams: That's satisfactory.
Col. H: That's all right. And understand, as far
as I am concerned on the construction, I am not in any great
difficulty. It's Just that this sort of thing involves & good
Regraded Unclassified
76
-6-
deal of work.
Mr. Bell: That's right.
Col. H: Here's a file I have on 2 $1400 project.
Two re arences back to the State to find out all about the
work that is to be done on that little bit of a Job.
Mr. Bell: But it involves a principle.
Col. H: And at this perticular Juncture, to have
11 lot of this stuff going on does hamstring us.
Mr. Williams: This ought to go in the record: that
the Colonel turns down a good many of these projects coming in.
Col. H: We k111 hundreds of them and I do want to
hasizeagain that I have four men over there handling dif-
Mrent types of engineering. Every one has had over 25 years'
eractical structural experience. They know the Job.
Mr. Bell: It's a question of whether it's mainten-
nace of some city's plant.
Col. H: That's R pretty good jumping-off point. I
have just gotten the Governor of West Virginia out of my office
and I think I kept him from the White House because he's down
here to put in, frankly, a maintenance project on the roads in
West Virginia.
Mr. Williams: Open and above-board.
Col. H; Absolutely. As a maintenance project.
In other words, what he wants to do is continue their regu-
lar employment of about 2500 men and maintenance gangs, and
have us put on in addition to their 2500, 13,000 additional.
Dow, he is pretty determined about getting this thing through,
to get a definite answer, and he is not going to be satis-
fied until he rets it cleared from the top. I got him out
of my office and out of town without his going to the White
House on the promise that we would take a project of this
nature and sená it along with e full statement of facts.
Mr. Williams: What's his argument?
Col. H: Well, in West Virginia, we are up against
Regraded Unclassified
77
-7-
It for work, because half of our program out there has got
beyond the rolls. Now, in West Virginia the set-up 18
that the State Highway Department handles all roads and they
Lave no County Road Commission and they have great mileage
of secondary roads that they built and that they have not
kept up and that type of road goes to vieces 1f ditches are
not keot open. And they claim, and I believe it is true,
that they haven't money enough to maintain the raods they
have in the State.
Mr. Bell: Then they ought to put on an additional
tax.
Col. H: They did. One cent.
Mr. Bell: That's my point. These counties and
States could put on an additional gasoline tax to maintain
these things, and there would not be this cry for WPA funds.
They are not going to do it as long as we continue to furnish
the money. That is not additional employment. It's sub-
Adized ployment.
Col. H: But they are not maintaining their roada
one he admite they are not. I wanted to keep him away from
the White House and thought there was no point in his coming
over to bother you at this puncture, and 30 I said, Get up
the project and we would send it along with a statement of
,frounstrinces.
Mr. Boll: I think me will have to send along some
projects within the next three months that we recomment against
ordinarily, but in view of the emergency we have to send along.
Col. H: Now, on the white collar situation. I
don't know the details of that. Did Mrs. Woodward talk to
you today?
Mr. Williams: Yes, she did. I want to talk out
loud on what our situation is. When Harry left, before he
left, Krs. Woodward WAB 30 unhappy about her relationship
with these projects over here that he agreed for her to go
in and talk to the President. She did go at that time to
the President and the President agreed on a six-months' armis-
tice here during which she hoped we could get some of these
issues settled. She very much wanted to come over this af-
ternoon, but I said no, I thought she had better not; but I
agreed to this: that if you and Dan felt it would clear our
Regraded Unclassifie
73
-8-
our situation up to have her come here and present her
case, I would ask you if you would agree to do that.
HM,Jr: I don't know how Dan is, but if anybody
dumos anything more in my lap, my lap is going to crumble.
You are the Acting Administrator.
Mr. Williams: Yes. Her first problem 18 the
130,000 a year thing. I am in a good deal of sympathy
with outting down those high-cost projects and I am inclined
to feel that the thing we ought to do, in a case like New
York, 19 to frankly take off that 10% and reduce that down
to $95.00 or something that would come down to $1,000. She
18 very much opposed to it. She feels that inasmuch as
the President has talked for keeping wages un, that for us
to make a move of this kind would just out the ground out
from under his.
HM,Jr: That does not hold water.
Mr. Williams: I am inclined to think she is a
little too excited on that.
HM,Jr: That does not make sense. It's one thing
to telk about the whole Union situation with the whole country
involved on the eve of U. S. Steel and C.I.O. coming to or
not coming to an agreement. This is entirely different.
Mr. Williams: We are only in trouble in the region,
size one uo in New York and New England, through there.
Mr. Bell; I think that's where most of it is.
Mr. Williams: What I thought, I would try to get
all these things under $1,000, but I would ask you to go
slone with me on some that I simply could not get down. I
would try to cet them all down. It involves my cutting the
wages of the most vociferous and articular group we have.
HM,Jr: You mean the theatre?
Mr. Williams: The upper crust of the white collar
crowd, research workers. Best organized, most vocal. And
I would not be at all surprised if immediately after I do it
I won't have & permanent picket over here for a couple of
weeks.
HM,Jr: Make yourself into an Embassy and you 111
Regraded Unclassified
79
-9-
be All right. They can't picket an Embassy.
Mr. Williams: But, as I say, I have a good deal
of sy expathy with outting down these high brackets because
they over-rate s'tills. And Harry, I know, feels this way,
cut "e ought to think of whether we should do it at this
time or not. I think that's our problem and not have those
folks shooting down here, on our necks, etc. Now I am in-
clined to think it is the thing to do and I ask you, Dan, to
agree when I say I can do this, you go along with me. I
«111 lower the whole structure, Mr. Secretary. And then I
will stick one up, because it may be something I Just can't
at down.
HM,Jr: But the average will be below.
Mr.Wms: Yes. I will actually amend this thing
by getting 1t down below $94.00.
Mr. Bell: Don't use this emergency situation now
58 an excuse to bring a lot of this stuff back into the
plcture,
Mr. Williams: No.
The second thing has to do with the educational
thing, of our outting those people on an eight-months' sched-
ule; only eight months' work but keeping their wages up at
the top level.
Mr. Bell: The President turned that down three
times.
Mr. Williams: He finally approved it on a nine-
months' schedule.
Mr. Bell: Yes, that's right; I ruess he did.
Mr. Williams: Some of them, about 300, went over
to see La Guardia yesterday and he put them off and said
the thing is being worked out.
Col. H: What was their kick?
Mr. Williams: That they were put on for nine
Bonths and would be thrown to the dogs.
Mr. Bell: You give them 31200 but 9 months' work,
Regraded Unclassifie
80
-10-
mich in three-fourths.
Mr. Williams: Amounts to about $800.
Mr. Bell: Well, that's all right.
Mr. Williams: Stick it out along these lines, in-
assuch as the President has already approved it and I hate
to bother him again. You would Just tell them that's what
the story 18 and they have to abide by that.
Mr. Bell: If you get away with it. And keep in
wind the President and keep him off the spot.
Mr. Williams: We always do the best we can.
Mr. Bell: Lot of things you do you have to change
before it is over with.
Mr. Williams: I think we could, like the higher
wage thing better than I think the nine months', I think
we can win the $925 battle; don't know whether I can win
that nine months' battle.
Col. H: The one that is hit is the big reclamation
project in New York and I understand Mrs. Woodward had talked
with Jimmie about that last night.
Mr. Williams: That's because that's the $1,000
think. They wanted me to cign a letter to the President
this corning, but I wouldn't do it.
Mr. Bell: Where is it now?
Mr. Williams: It's back in WPA from the White
House.
It went over $1,000.
Col. H: That was $1200.
Mr. Williams: I said pending this conference I
vould not sign any letter to the President at all.
Anything else?
Col. H; That leads up to the thing we have called
the normal function of the municipality; question of whether
you can put clerks in the county court house to index records
0.00 whether you can put matrons in & school where they never
Regraded Unclassifie
81
-11-
knew what a matron was before. All kinds of employment
of that general type, which is more or less peculiar to
the woman thing, the white collar program. We might call
that the normal function program.
Mr. Williams: Of course, a whole lot of that
thing is not what they would do or do do. These matrons --
in Mississippi it would be 50 years before they would hire
r matron.
Mr. Bell: They won't hire one at all. They let
the Federal Government do it.
HM,Jr: Does Col. Harrington have white coller
crkers?
Mr. Williams: Mrs. Woodward handles that.
HM,Jr: Is Mrs. Woodward responsible to him?
Mr. Williams: No. He runs the machinery of
project control.
Col. H: She makes recommendations and is respon-
sible to the Administrator directly. My responsibility is
on the construction program, but I happen to have charge of
the mechanical-clerical unit over there through which all
these things flow.
Hr. Williams: Are you inclined to take the same
attitude on this stuff until we got on too of the woods?
Hr. Bell: I suppose so. I suppose we will have
to be lenient for a couole of months. I feel the Budget
Buren should watch this program because of the principles
involved. You are Just 8 tting un & machinery that forever
item 1a going to cost the Government a lot of money for
municipalities and cities and towns. We are not going to
net out of it if we start that once.
Lir. Wms: The only quarrel on that, I think, is
you don't assume 08 have the same feeling about that as you
do. Harry just hit the ceiling when he found 700 people
working in a New York hospital. He said, 'My God! That
stops and it stops this minute!'
Mr. Bell: That's all right, but it was started by
acmebody in your organization. Harry can't watch all these
projects.
Regraded Unclassifie
82
-12-
Mr. Williams: We fully agree with you that
straight maintenance belongs to the city, is no business
of ours, because we have not made any gain on unemployment.
HM,Jr: Are you fellows all right for today?
Mr. Bell: I think we can straighten it out.
HM,Jr: Are you all set? We have another client
outside, Dr. Parran. He wants to see us. Are you in the
clear?
Mr. Williams: Yes. It only means I have to take
& drastic step on this $1,000 a thing thing.
Only one thing we have not said anything about:
sponsors' contributions.
Mr. Bell: Don't bring up that subject!
Col. H; We are all right on sponsors' contributions.
23% was set as the national average and we have 20% national
contributions.
000-000
Regraded Unclassifie
83
February 16, 1938
My dear Mr. President:
After giving careful consideration to
the offer of the Hungarian Government to pay
its indebtedness to the United States on terms
outlined in the attached Aide Memoire of the
Bungarian Minister, dated February 7. 1938, vs
feel that under all the circumstances the offer
should be accepted, and we recommend that you
authorise the Secretary of the Treasury to
negotiate on this basis the terms of a formal
agreement for submission to the Congress.
Faithfully yours,
The President,
The White House.
VISINLE
February 14. 1938
Regraded Unclassified
84
TREASURY DEPARTMENT
WASHINGTON
4
SECRETARY
February 16, 1938
My dear Mr. President:
After giving careful consideration to
the offer of the Hungarian Government to pay
its indebtedness to the United States on terms
outlined in the attached Aide Memoire of the
Hungarian Minister, dated February 7. 1938, we
feel that under all the circumstances the offer
in imprinciple,
should be accepted À and we recommend that you
authorize the Secretary of the Treasury to
in principle
negotiate on this basis the terms of a formal
A
agreement for submission to the Congress.
Faithfully yours,
Maymen
The President,
The White House.
approved
Fib.16 1938
tomathing
Regraded Unclassified
05
ON SUNGARY'S RELIEF DET :: THE UNITED STATES,
Hundry, normally a. wheat and flour exporting country, was faced in 1920
with 11. threatening famine. It became necessary therefore to purchase on credit from
the United States Grain Corporation 13,890 tons of flour at a. price of $121.37 per
too and the Hungarian Government became indebted to the American Government for the
cost of this purchase in the amount of $1,685,835.
This debt was funded into interest-bearing bonds in 1924. The funded
principal amount of these bonds was $1,939,000 since there was included in the total
an amount of $253,000 which had accrued as interest between 1920 and 1924.
The Hungarian-Americar debt settlement was worked out on the same basis
na the British-American debt funding settlement, containing none of the concessions
which ware later granted from those terms to other countries. The total principal
to be repaid included, as has already been remarked, 8 large element of accrued
interest. Purthermore the ennual payments becoming due on the new principal from
the very beginning of the agreement contained A. large element of interest payment.
This 18 in contrast to the settlements reached with other Danubian coun-
trice which had likewise incurred relief debta to the American Government at about
the same time and for similar purposes. In these other funding arrangements the
annuities provided for the years between 1924 and 1931 were all on account of the
principal amount of indebtodness.
On the other hand, as 8. result of this difference in terms, of the
$468,466.32 which the Hungarian Government paid during these years, only $73,995.50
was applied to reduction of principal, the other $393,717.78 being charged as In-
terest. Thus the nominal unpaid principal of the Hungarian debt now stands at a
Regraded Unclassified
85
- 2
substantially higher total than it would, had Hungary enjoyed the terms later
granted to other Demubian countries.
The failure of Hungary to effect payments to the United States under the
terme of its debt contract had no relation whatsoever with the defaults of other
debtors of the United States. In December, 1931, six months before the Hoover
Moratorium expired, the sudden withdrawal of foreign short-term credits completely
exhausted the gold and foreign exchange reserve of the National Bank of Hungary
and forced the Government, in order to maisguard the financial stability of the
country, to decree & transfer moratorium on all foreign debts.
The annuities due under the funding agreement of 1924 were included, how-
ever, by the Hungarian Government in every budget passed by Parliament from 1932 to
1937, and on each payment date the United States Government was informed that in
lieu of transfer, Treasury bills in the national currency were deposited in its
favor.
Since the summer of 1937 the Hungarian Government has been emerging from
the moratorium which for several years has interrupted payments on all kinds of
Hungarian foreign debts to all classes of creditore in all parts of the world.
Arrangements on & provisional and temporary basis have been worked out with various
groups of creditors. Concurrently a. payment of $9,828.16 was made to the American
Government on December 15, 1937.
Responsive to the repeated indications given by the American Government
to the effect "that this Government 18 fully disposed to discuss, through diplo-
matic channels, any proposals which your Government may desire to put forward in
regard to the payment of this indebtedness, and to assure you that such proposals
Juld receive careful consideration with a view to eventual submission to the
American Congress", the Hungarian Government is now prepared to offer to the
Regraded Unclassified
- 3 -
87
United States Government to pay in full the total original amount borrowed.
It therefore tentatively formulates for the consideration of the
American Government B. possible basis of a new debt arrangement between the two
dountries to replace completely the debt agreement of 1924 and accruals there-
under.
The forme and terms for effecting this new settlement which are under
consideration AB the basis of a possible offer to the American Government are as
follows:
(a) That all payments hitherto made by the Hungarian Government under
the debt settlement of 1924 to the United States (approximate amount $478,000)
should be recalculated as credited against original principal ($1,685,000).
(t) That the original principal ($1,685,000) of the amount borrowed
less the preceding amount paid ($478,000) or $1,207,000 be paid in full in E.
sories of anmities.
(c) The sun total of these annuities shall be equal to this reduced
principal and shall be in the form of dated non-interest-bearing notes falling due
at specified dates. These annuities shall run for 8. period of approximately thirty
years (and hence each would be approximately in the amount of $39,000).
The Hungarian Government wishes to point out that the sum total of these
ennuities, taken together with amounts previously paid by the Hungarian Government
under the dobt agreement of 1924, would be identical with the whole original amount
borrowed, and thus represent an exact and full discharge of the debt.
The Hungarian Government hopes all the more that this offer will prove
acceptable to the American Government P.B it very closely approximates the basis
for payment annuities already accepted in the Austrian settlement of May 8th, 1930
Regraded Unclassified
88
- 4 -
for the discharge of a relief indebtedness of the same character and referring to
a country whose capacity to pay can hardly be considered inferior to that of
Hungary.
In announcing the signature of said agreement with Austria, the Treasury
Department stated that "The settlement compares favorably with the settlements made
by the United States with the Governments of Greece, Italy and Yugoslavia".
The Hungarian offer would be even more favorable to the United States
Government as in contrast to the terms of the Austrian settlement the Hungarian
Government offers complete repayment of its relief obligation within the present
generation.
(Signed) JOHN PELENYI
Washington, D. C.
February 7, 1938.
Regraded Unclassified
-COPY-
89
February 16, 1938.
Mr. Barold N. Graves,
Assistant to the Secretary,
Office.
My dear Mr. Graves:
While you are in Los Angeles, I would like you, as my
representative, to inform our people fully of the purposes
and objectives of the system which we are establishing there
effective on March 1. We want every taxpayer who, after B
full presentation of his contentions to the revenue agents,
may be dissatisfied with their findings, to be given an in-
partial hearing by the new group. We want all cases to be
closed as expeditiously as may be consistent with fairness
to taxpayers and to the Government. Above everything else
you should have it understood that our intention is to pro-
vide one, single, unified agency to exercise on the ground,
for the Commissioner, all the authority which the Department,
of any of its branches, may have under the law, in the re-
view of protested income-tax determinations made by the rev-
ende agents, in the settlement of contested cases, and in
the defense of such cases, when necessary, before the Board
of Tax Appeals. Please point out clearly the necessity for
complete and friendly cooperation among the Treasury branches
concerned, to the end that these objects may be surely accom-
plished.
Sincerely,
(Signed) H. MORGENTHAU, JR.
HNG/mff
Secretary of the Treasury.
(A copy of this letter was given Mr. Gaston by Mr. Graves.)
Regraded Unclassified
30
-COPI-
February 16, 1938.
Mr. Harold N. Graves,
Assistant to the Secretary,
Office.
My dear Mr. Gravest
While you are in Los Angeles, I would like you, as my
representative, to inform our people fully of the purposes
and objectives of the system whic., we are establishing there
effective ou March 1. se want every tax,x yer who, after 4
full presentation of his contentions to the revenue agents,
may be dissatisfied with their inoings, to be iven an in-
partial hearing by the new group. We want all cases to be
closed as ex editiously as may be consistent with fairness
to texpayers and to the Government. Above everything else
you whould have it understood that our intention is to pro-
vide one, single, unified agency to exercise on the ground,
for the Commissioner, all the authority which the Department,
of any of its branches, any have under the law, in the re-
view of rotested income-tax determinations made by the rev-
enue agents, in the Lettlement of contested cased, and in
the defense of such cases, when necessary, before the Board
of Tax Appeals. Please point out clearly the necessity for
complete and friendly cooperation among the Treasury branches
concerned, to the end that these objects may be turely 60002-
pllshed.
Sincerely,
(Signed) H. MORGENTHAU, JR.
HNG/mff
Secretary of the Treasury.
(A copy of this letter who given Mr. Guston by Mr. Graves.)
Regraded Unclassified
Weekly % Employment
Serior - Table 1
M in Adjication
91
1
EMPLOYMENT ON WPA PROJECTS, BY STATE
UNITED STATES AND TERRITORIES
Weeks Ending February 12 and February 5, 1938
(Partly Estimated - Subject to Revision)
Number of Persons Employed
Increase
week
Week
or
State
Ending
Ending
Decrease
February 12
February 5
neek carding 26 116
2,009,042
23.636
GRAND TOTAL
Y,985,417
1,945,317
+40,100
CONTINENTAL UNITED STATES
1,982,916
1,942,310
240,106
labera
29,387
28,750
+
657
7,600
7,886
-
268
26,64
27,631
-
987
miltornia
61,970
70,952
- 2,018
Northern
43,672
42,369
+ 1,303
Grathern
38,298
37,533
-
715
,lorado
24,552
24,142
- 410
20,297
20,545
- 248
wishore
2,550
2,529
*
21
at Columbie
6,899
6,791
+ 108
26,215
28,363
- 148
32,492
32,130
+ 362
Hate
10,873
10,560
+ 313
Illnnia
141,591
135,934
+ 5,657
Indianal
60,395
57,420
- 2,975
TOWN
22,503
21,519
+ 984
Commed
32,570
31,022
+ 1,548
42,952
12,043
+
909
29,156
28,295
+
861
8,056
7,971
+
85
lergiana
11,140
11,060
*
80
52,343
01,021
+ 1,322
72,925
69,747
+ 3,178
Manerate
45,448
45,559
- 111
25,276
24,275
+ 1,001
Recoupt
61,976
61,362
& 614
16,413
16,313
+ 100
abreake
24,842
24,192
-
650
evens
2,536
2,426
- 110
100
7,444
7,431
.
13
- Jorioy
11,727
71,769
-
42
-
7,568
7,407
+
161
EW York City
141,911
139,834
+ 2,077
PW York (Excl. N.Y.C.)
52,781
53,154
- 373
orth Carolina
27,857
26,961
+ 396
orth Delcote
14,536
14,302
+ 236
2nd
129,423
121,729
- 7,694
Iklahoma
54,066
53,923
+ 143
Progon
15,684
15,327
- 357
Pennsylvania
193,945
192,035
* 1,910
Rhode Island
12,894
13,023
- 129
South Carolina
27,277
27,382
-
105
South Delinta
16,982
16,693
+
89
Tennessee
27,915
27,521
+ 394
Texas
68,247
66,665
+ 1,582
Utah
8,362
8,476
,
94
Vermont
4,870
4,825
-
45
Virginia
20,981
20,596
+
385
Washington
39,380
39,065
- 505
West Virginia
35,184
- 34,969
+ 215
Wisconsin
40,605
45.765
+ 2,840
Wyoming
3,654
3,518
.
136
Hawaii
2,501
€,507
.
6
WORKS PROGRESS ..IMINISTRATION
Divisien of
Research, RegradedUnclassified Statistics end Pecords
92
February 16, 1938
Present:
Dr. Parran
Mr. McReynolds
Mr. Bell
HM,Jr: Have you sent me the memorandum?
Dr. Parran: I have not sent it. I had hoped
for an opportunity to see if you interpret it to be what
the President's attitude was.
HA,Jr: (reading draft of memo) No. There 1s
only one thing. "In other words, the President seemed
to think three years vould not be of value." He did not
say that. You said that.
Dr. Parran: Yes, that's right. I did.
HM,Jr: He shook his head. He did not agree
viti. you. You said a three-year program takes BO long
to et it started, and everything else.
Dr. Parran: He talked in terms of a resolution
and said something like this: I would say that whereas
this is a national problem and whereas - one or two where-
ases, the exact language of which I don't recall.
Ha,Jrt I will take your word against mine on
this that we will do it for three years and if you do 8.
good job that he was sure Congress would continue it.
Dr. Parran: "He seemed to think & program of
longer than three years would be needed." Would that be
a fair statement?
HM,Jr: Yes, that would be all right.
I would put in there: depending upon the suc-
cess of the program.
Dr. Parran: Is the last sentence all right? We
call attention, you may recall, to the fact that I have
sald at the top of page 2 that if the appropriation which
he suggested was authorized, he could not get the States
Regraded Unclassified
93
-2-
to come forward and do their part because they would be left
'holding the bag'.
HM,Jr: You were both talking so and at such odds,
I just could not ret it. I could not swear to what he said
after three years. I did not get it. It was not clear to
me. If you say that's what he said, it's all right with me.
Dr. Parran: This 13 my understanding: that he
approved of an authorization for some appropriations, depend-
the soon the State of the Treasury and the needs of the situ-
otion.
HM.Jr: Yes, that's about right.
Dr. Parran: I just wented to talk with you and re-
visa it in line with that.
HM,Jr: It's unheard of, I have never heard of a
being done like that, but if he wants to do it
Mr. Bell: Oh, it can be Cone! They once in a
"LAle release appropriations of not to exceed a certain sum
for three years and then such sums as Congress may appropriate.
I think if you get no to $5,000,000 or $7,000,000, that's
pretty steep. I think "re are cranting too much money for
"Le States for every purpose. That's the vay I feel about
grants, We are centralizing in Washington and the States
are not assumin: any responsibility for some things they
should assume and we are perfectly willing to see Public
Health ret money for educational purposes in the States and
upervise that, but when it comes to authorizing money for
Trants to the States you are sinking the Federal Government.
We have one under Social Security that's going to cost us
$4,000,000 or $5,000,000 for the next six years and I don't
spe how we are going to get out of it. We now have an ob-
liention which "e Just can't get away from.
Why don't they do this job under central direction?
Dr. Parran: On communicable diseases it does not
do much good to have one or two States do the Job if the
others don't.
Mr. Bell: I am afraid grants to States are growing
so fast we are going to have a problem on our hands financing
Regraded Unclassified
94
-3-
them in a few years.
They are running close to a billion
now.
o0o-o0o
Note: Dr. Parran's revised memorandum is dated February 14th
and is filed under that date in the diary.
Regraded Unclassified
95
BE PRICE POLICY STATEMENT
February 17, 1938.
8:30 a.m.
Present:
Mr. Taylor
Mr. White
Mr. Daggit
Mr. Lubin
Mr. Hinrichs
Mr. Wallace
Mr. Ezekiel
Mr. Currie
Mr. Ke1m
H.A.Jr:
well, let Mr. Wallace and myself see the statement.
Wno's got it?
Hinrichs:
I have my carbon copy. I'm sorry I don't have 8
supply.
Daggit:
I think Mr. White has it.
H.W.Jr:
Where is White?
Deggit:
He went back to get some ...
H.I.Jr:
Well, let's - why not let's start? Shall I read it,
Wallace?
Wallace:
Yes.
Azekiel:
Is that the revised?
Daggit:
This is the revised.
EveRiel:
There have been a few slight changes that Goldenweiser
suggested in the material. Very slight.
(Taylor comes in)
H.M.Jr:
Good morning. Did you see Harry White anywhere?
Taylor:
He was out in the hall.
(White and Keim come in)
H.M.Jr:
Go shead, Harry. Read it out loud.
White:
"This administration nas from the beginning pursued a
policy designed to promote full employment of our human
Regraded Unclassified
96
-2-
and material resources. That continues to be
our policy. The productive power of our workers
and our resources, if fully utilized, can provide
and maintain B national income far above any levels
we have yet reached.
"An important factor that determines whether we
shall succeed or be blocked in our endeavor to
attain full employment and a high level of income
is the benevior of prices. In this connection
careful 8 ttention must be given to: (1) the rela-
tions existing among the prices of various groups
of commodities; (2) the relations between commonity
price levels and the levels of debt burdens and
costs; (3) the direction and rate of movement of
the general price level.
"To promote its broad objective the Administration
nas, therefore, in its agricultural, industriel,
and monetary policies necessarily been concerned
with both the relation of the prices of groups of
specific commodities to each other and the movement
of the general price level. In conformity with this
policy, the measures we employ at any given time
must fit the needs of that time. A year 060 there
W&S ground for concern that a too rapid rise in the
prices of some commodities would encourage a specula-
tive boom and choke off demand. During the past six
months, on the other hand, the general price level
and industrial ectivity have been declining. Govern-
ment policy must be directed to reversing this defla-
tionary trend.
"Although the atteinment of full industrial activity
requires an increase in the general price level, this
does not mean that all prices should advance, nor
that the rise should be rapid. The prices of different
groups of products must be brought into balanced rela-
tions to one another. Some prices are still too high
to promote that balanced relationship between prices
that is necessary for sustained recovery. The main-
tenance of prices not subject to full competitive
forces accentuates the deflationary pressure on com-
petitively determined prices. Those industries that
have maintained prices and curtailed output should seek
the restoration of profits through increased volume
rather than through restricted output. When prices are
Regraded Unclassified
97
-3-
controlled through monopolistic practices, it is
the obvious duty of government to apply those
remedies that the law provides.
"The prices of some items are still at substantially
the nighest levels reached in 1937; some are even
higher than in 1929. There is real denger when high
prices sharply curtail sales. In the field of resi-
dential construction, for example, in the face of a
serious shortage of housing an) of unused productive
resources of every kind, all the mejor elements in
nousing costs advanced so sharply by the Spring of
1937 BS to terminate a promising expansion of activity
in this most prostrate of our industries.
"For injustries that operate at E high level of
capacity even in a depression, such as agriculture,
the restoration of profits must come primarily
through migher prices.
"The nigher profits that will emerge from proper
adjustments of prices will encourage investment in
replacement end expansion of equipment. This is
necessary to full recovery, especially in the heavy
currible 20009 industry.
"This is a policy of ebundence, not of restriction.
onen prices are out of line, production and consump-
tion break down. That we are aiming It is such e
belanced system of prices as will promote 81 balanced
expansion in production.
"The successful execution of tnis program by increas-
ing production end employment will increase the real
income of consumers. (Whet they gain from increased
employment and more continuous income will much more
than offset any reduction in what each doller can buy.
WAllace:
That does that mean?
White:
It means that everything within the perentheses we
thought might better be cut out, but we wanted
to leave it to your choice. Or did you have refer-
ence to the statement?
I was wondering - "offset any reduction in what each
dollar will buy. n
Regraded Unclassified
98
mate:
well, when prices rise, the dollar will buy less.
,+118ce:
Yes.
white:
"Retail prices do not fall so far nor rise so high
as do wholesale prices. Therefore, the moderate
rise In the general wholessle price level that
the current situation calls for will have little
effect on the purchasing power of the consumer's
collar. Each of the consumer's dollars will buy
almost S/S much; at the same time, he will have
more dollars to spend BS E conse, uence of increas-
inc business activity.)
"I repeat that present conditions require a
moderate rise in the general price level, end that
this rise need not and should not extend to all
prices. The rise must be mainly confined to those
classes or commonities, such as rew materials and
finished products that are sold under highly com-
pelitive conditions, whose prices are now too low.
In many industries last year WE experienced 6 sharp
rise in prices that encouraged inventory buying,
which combined vita the reduction in housing, laid
much of the ground for the present recession. We
must do everything we can to prevent & recurrence
of this development in the future.
"I believe the form bill just passed, the housing
bill just passed, and the monetary and credit
policies of the Treasury and the Federal Reserve
bystem will prove nelpful toward achieving these
objectives.
Will ce:
Say "the form BIRD nousing bills which I have
recently signed"?
White:
You could. There are several minor changes that We
didn't have an opportunity to make, but they're all
ready. Want to add the word "speculative inventory
buying"?
N.W.Jr:
I'd like to ask - I don't quite get this sentence
in the middle of paragraph two, page two. "The
maintenance of prices not subject to full competi-
tive forces accentuates the deflationary pressure
on competitively determined prices."
Regraded Unclassified
99
-5-
White:
Well, the higher you keep prices that are controlled,
the larger the number of such prices that are con-
trolled, the more does it operate to depress the
other prices by constituting an obstacle to recovery.
H.W.Jr:
Well, if you don't mind, I'm going to question that.
Anybody other than an economist couldn't understand It.
Fuekiel:
Means the waintenance at unduly high levels.
White:
I think I can change that. Is that thought all right?
H.S.Jr:
The thought is all right, but I think it would take
8 highly-trained economist knowing about it to under-
stand it.
Wallace:
Well, why not - doesn't do any harm to have a few
such tatement in.
H.m.Jr:
But it won't get by the President.
Abliace:
It might slip by.
H.M.Jr:
I think he's going - the nearer it would be to being
right, the more chance that he will accept it. And
not take it home and rewrite it. That's happened
before.
Whee:
Well, it'd be fun just to follow the experimental
process and see whether or not this particular one
does get by, and whether or not this is the one
6.s.Jr:
well, there can't be any objection to trying to make
it just a little bit more understandable.
White:
No, 88 B matter of fact there already were some sug-
gestions to modify that, but they came too late to
make 8 new copy.
H.M.Jr:
This constant reference - "so that the man in the
street can understand 1th - I've heard it so long,
I'm kind of impressed with it.
Apllace:
Of course, if you wanted to put it in really provoca-
tive form, you could say, "The more coal prices and
railroad rates are neld up, the harder it is on the
Unclassifie
100
-6-
farmer." I don't think that would get by, Henry.
Currie:
Another good illustration is in building. "The
more the monopoly prices are maintained, the more
lumber and other prices will have to fall if
building costs are reduced.'
H.1.Jr:
I like very much what you boys have said on the
question of Government and the control of prices.
I think that last sentence there is fine.
Corrie:
We spent 8 Long time over that sentence.
H...Jr:
I think it's fine.
White:
You don't get the impression, do you, of there
being too much spoken of pushing some prices down?
1.1.Jr:
No.
Anlte:
Sufficiently well-balanced.
B.M.Jr:
olightly repetitious. He may cut it out, but it -
I can understand it.
"by will high prices
...
- oh, I see.
I'd just like - if Mr. Wallace would like that -
that paragraph on policy of ebundance; don't you
think that
...
Wellace:
I think that's 8 good paragraph.
I think that's B swell paragraph. I think it's
wonderful.
white:
Just the way that might read now - little stronger -
"When prices are out of line, production and consump-
tion break down." Begin with that. "What we are
alming at is such a balanced system of prices as
will promote a balanced expansion in production.
+his is a policy of sbundance, not of restriction."
Think probably
Wallace:
Change first sentence to the last sentence?
White:
That's right. Gives it a little more force.
Regraded Unclassified
101
-7-
Szekiel:
Then drop the first sentence of the next paragraph.
Wallace:
I'd drop the whole paragraph.
d...Jr:
Where are you, Henry? What page?
Wallace:
Page three. I'd like to make that sentence, "This
is 8 policy of bundance, not of restriction" -
I'd like to nave that stand out. If you do hook
up the last paragraph on that page with it, all
right. I'd leave that "This is a policy of abun-
dance, not of restriction" by itself if you don't
nook the next paragraph on, so as to give it the
prominent play.
Lubin:
We could leave the first sentence in paragraph three
83 it is and omit the next two sentences and say,
"Suen El moderate rise in wholesale prices as the
current situation calls for will have little effect
on the purchasing power of the consumer's doller.
Bach of his dollars will buy almost as much."
Anite:
+ think we can improve that slightly.
whileve:
"WS E matter of fact, over 8 period of time it will
buy more. Dacn of nis dollars will buy more.
H.m.Jr:
are you on that sentence - "buy almost 2S much"?
White:
Not as prices rise.
Anllace:
But over 8 time it will buy more, because you're
saying that this policy will bring about increased
production; if it does bring about increased produc-
tion, the net effect over 2. period of time will be
to buy more.
White:
Not necessarily. It will increase their incomes,
but prices won't fall. He'll have more dollars as
time goes on, which is the significant thing.
Wallace:
Out over the long period of time ne will buy more.
White:
But not with the same number of dollars. They'll
have more dollars. In other words, national income
will rise in terms of money.
Regraded Unclassified
102
-6-
willace:
If we're going to get more products per person, why
raise the issue then?
are
unite:
In order to answer the question, "If you/raising
price,
milare:
10 some extent, you're setting up E straw wan to
knock down, and why get into it?
nite:
It's all right with us. It's your straw men, though.
LLINCE:
Yes, that's right.
waite:
+hat's right.
I think just make the statement and not explain it.
It's perfectly
Just say that successful execution
and so on will increase the real income of consumers,
and not argue about wilst that means.
Pulte:
There is an argument in the fact that 8 rise in whole-
sale prices will be followed by El rise in retail
prices, and therefore presumably 8 men of the same
income will be able to buy less. But the thing we
wented to stress is that he'll have a larger income
and therefore ne will probably be able to buy more.
anlisce:
He will be more continuously employed, and the rise
In prices in itself will tend to bring about increased
productivity.
Chite:
That's right.
cresiel:
Of course, there is an important point that, even
though molecale prices ao come up some, taat will
Have little effect on cost of living, since cost
of living and retail prices do not rise with wholesale.
allace:
Your strew man becomes increasingly strew.
Currie:
"The successful execution of this program by increasing
production and employment will increase the real income
of consumers. They will gain from increased employment
and more continuous income.'
Tay lor:
All right.
Regraded Unclassified
103
-9-
Lubin:
Yes.
H.W.Jr:
what did he do?
White:
You want that read again?
H.M.Jr:
I was on the next page.
wallace:
It would be interesting to start with "This is a
policy of abundance, not of restriction," see how
it goes.
Currie:
"This is 8 policy of abundance, not of restriction.
"hen prices are out of line, production and consump-
tion break down. What we are aiming at is such 8
balanced system of prices as will promote a balanced
expansion in production.
"The successful execution of this program by increasing
production and employment will increase the real income
of consumers. They will gain from increased employment
and more continuous income."
Lubin:
Now, I suggest that you throw that "policy of abundance"
right there.
White:
Standing by itself as 8 paragraph.
Wallace:
Yes, yes, yes. And then cut out the remainder of
that next paragraph that's in the parentheses. I
think that's O.K.
Lubin:
That summarizes. That last sentence really summarizes
both top and bottom.
Taylor:
If you substitute real national income instead of
income of consumers, don't you get away from these
special groups?
Lubin:
Might increase your national income without distri-
buting it in such 2 way that the masses get it.
White:
Masses presumably that suffer from the rising costs.
Taylor:
You always - I mean certain groups in here of consumers
that you can hurt a little bit.
Regraded Unclassifie
104
-10-
WALLAGE:
Yes, there are certain DD roups. In the long run,
they aren't nurt.
Taylor:
No, but it's a complete statement.
Exectel:
Natlonal income means relatively little to most
people, whereas consumers - most people regard
themselves 68 consumers.
I'd almost be inclined to say all classes of
consumers in the long run will benefit from such
policy. I'd like to get the word "consumers" in.
Inylor:
I think that the - that in the long run all classes
of consumers will benefit.
atilace:
well, you've got it here. I think it's all right.
6.7.Jr:
das Mr. accles usa E chance to see this, Currie?
wurrie:
Yes, I gave him E copy of it last evening. He's
busy at the moment. But I gave him a telephone
message; saiu he'd call back if there was anything,
but lie didn't call.
H.S.Jr:
ns we keep changing it, will you keep shooting it
to him?
Currie:
Yes,
Taylor:
Very minor ones - or shall I give them to the boys?
H.M.Jr:
(Noas yes)
unite:
Do you have any definite ideas as to the last pare-
graph? Leave it out or leave It as it is?
H.1.Jr:
The only thing I was thinking about was this. I
wonder if the President wants to endorse the Treasury's
and Federal Reserve System's action for the last 18
months.
White:
I should think ne must.
THYLOR:
I think it's a better statement without It.
White:
This implies
Regraded
105
-11-
Deciel:
or course, you could say "our present monetary
policies," not mention the Treasury and Federal
meserve.
Currle:
I think with Mr. Taylor the statement would be
stronger on Its own feet; rather anti-climactic,
coming at the end.
pullace:
I'd be inclined to leave it out.
G...Jr:
I con't tnink it adds particularly. Hun?
misses:
No.
H.A.Jr:
Well, what will you close on?
Taylor:
Got B swell closing paragraph.
H.M.Jr:
de'll say, "Now, where's my 'snapper'?"
dinglons:
I don't have a copy in front of me, but can't this
paragraph move up one, and the "sbundance" chapter
come down st the end?
Wilsce:
Yes, why not do that?
multe:
Just the phrase itself.
illace:
The one Currie just read.
white:
I see.
d...Jr:
That would make a good snapper.
"They will gain from increased employment and more
continuous Income."
No, this would be your last sentence. This is your
policy.
Currie:
"ast word would be "restriction."
willace:
"Not of restriction."
Dubin:
Now, what do you want to ao about it?
Millece:
I think you could put it this WEY at the very close.
Regraded Unclassified
108
-12-
nite:
Which one?
Milace:
Immediately after that sentence, then, you say -
you have this sentence, "This is a policy not of
restriction, but of sbundance,' and then go on and
say, "The new farm bill, the new housing bill, and
the monetary and creuit policies of the Treasury
and Federal Reserve System are all directed toward
this end. He states the general thesis and then
says, "This is the action - tast the farm bill and
the housing bill, and the monetary and credit policies
of the Treasury and Federal Reserve are all directed
toward this end - abundance, not restriction." Don't
you think
H....Jr;
That enswers the question, "What the hell you going
to do about it?" "I've got these four agencies
working on it." That's all right.
Ty Lor:
I don't taink SO.
You don't?
injlor:
How about the others? Are they working against it?
H.M.Jr:
Well now, wait A minute. I'll answer your
WILLCE:
And you say "811 the other agencies of the Government."
Just using these 28 specific cases, and say "Ell
agencies of the Government are directed toward this
end."
8.1.Jr:
Now, let me tsk you, what other agency is working
against these four agencies in carrying out this
policy?
Exemisi:
Chances are I.C.C. is or soon will be.
demodr:
Well, he has no control over them. I mean let's
ask ourselves, what other ones is he responsible
for that ne can say to, "I so direct."
indiace:
You can say the Guffey Coal.
Hinrichs:
There's 2) real Question on the thing.
H.M.Jr:
I'm just asking - the things that he's responsible for.
Be isn't responsible for I.C.C. Guffey Coal?
Regraded Unclassified
107
-13-
minricas:
Guffey Coal would be a
H.W.Jr:
which way are they working? Educate me.
alnriens:
On the niking of coal prices and cutting down of
total coal consumption, in favor of slternative
fields.
surrie:
Woulun't that come under our statement of some
prices being too low?
unite:
Bituminous coal might be included in that as being
too Low.
azeriel:
The situation is to some extent like farm production.
allice:
Is it true, Emekiel, that on a long-term trend basis
Subin:
Un E. Long-term trend basis, prices are below costs
of production. Long periods of time where they sell
coal st the minimum, due to the competitive situation,
et D price which paraly pays them to mine it; but it
is cheaper to keep going on that basis than to shut
down, because your losses are less - maintain your
sir, meintain your water pumps, so forth.
I went to - I'm rather impressed by what Mr. Wallace
said. when NE get all through, I don't think in the
minds of the public certainly the fact we are meeting
here is important, but then, the fact that the
President - "Now, this is a price policy; I've got
these four agencies benino this thing." The
impression
willnce:
de ought to be prepared for nis comeback. If
somebody does say, #Well, what about Guffey Coal?"
he ought to Le prepared with & comeback right then
and there.
I just want to call Eccles B minute on the phone
and just see 1f he's happy. The fact we're going
to mention nim - ne ought to have 8 chance at it.
Diseit:
Insteed of saying "all other agencies of the
Government, you could say "other agencies of the
Government."
Regraded Unclassified
108
-14-
Wellace:
I think probably - well,
H...Jr:
(On phone) Chairman Eccles, please.
White:
"Are and will be." Would it be all right to add the
tense for emphesis? "Are and will continue to be."
wallace:
Yes.
Suptor:
You've got
We all ought to be directed toward that end, oughtn't
ne, Wayne?
Taylor:
night. I think you've said it in the first paragraph.
If you want to restate it in the way you said it in
the first paragraph - think it takes care of all of
it there, with a couple of minor suggestions that you
coulo make about the wording there in the first
paragraph.
Currie:
I feel that if this is a long-term statement of
policy, it might be better not to tack it too close
to b specific measure or specific bill; to deal with
our industrial and agricultural and monetary policies
as è whole rather than just tie it to this particular
form bill and housing bill, which are not very much.
onite:
Say, "Our agricultural, industrial and monetary policies
are and will continue to be directed
"
Toylor:
That's what you've said in the first paragraph.
Willace:
Well, it's a good thing to say it again.
(Secretary talks on phone with Eccles
EWEY from conference group)
Inytor:
If you say it over again in the last paragraph, but
still in general terms, you could spend
*nite:
You don't object to repeating the statement.
Taylor:
Not ès bit. You can paraphrese that first paragraph
over again. On the first one, I think you've got to
say, "Inis Administration" - instead of "from the
Regraded Unclassifiel
109
-15-
beginning," simply say "has pursued.' I'd cut out
"from the beginning" and change "our" to "its."
It's a little more forceful when it's "our."
Taylor:
"This Administration" - "Its policy.
payclel:
He's saying it's "our policy. "Our policy" is
further away from nim. I think "from the beginning"
Edas something there too, because if you say merely
"has pursued, that means the last few months, but
"from the beginning" means we were pursuing this
policy when he issued this statement E) year ago.
Taylor:
Well, I think "has pursued" is inclusive.
Put since when?
Taylor:
"This continues to be
"
imealel:
But you say "has pursued." How long? There is a
comeback: "Were you pursuing that when you said
prices were too high a year ago?" It leaves him a
little more open to 8 ttack.
Wellace:
It seems to me It's a better statement 85 it stands.
Taylor:
All right.
Bellace:
It takes a certain amount of punch out, I think,
if you - it makes it colorless if you take out
"from the beginning."
Toylor:
Top of page two, I'd cut out "deflationary, say
"Government policy must be directed to reversing
this trend."
mekiel:
Oh no, that absolutely takes the punch out of it.
If we haven't had a deflationary trend, I don't
know what we have had.
Thylor:
I don't see any point in using it.
S.M.Jr:
Becles feels pretty good about it. He says he feels
it is just what is necessary to clarify the misunder-
standing.
Gallace:
There's a point at the top of page two; it says,
Regraded Unclassifi
1:0
-16-
"Government policy must be directed to reversing
this deflationary trend." Like to take out the
word "deflationary."
B.M.Jr:
I liked it for this reason. I think it's about
time we called a spade a spade. It's just - I
mean way not?
Storiel:
The only alternative suggestion in this sentence
is to say, "Government policy now must be directed
to reversing this deflationary trend.'
ultage:
Oh no.
ulte:
No. "They were a little late."
well, I tell you, the way I feel is, I'll accept it.
But - Just one seconá - if you fellows want to,
you've got from now, most likely, to three, half
pest three, to fool around with it. I think if
you get down to words I'll let you fellows do it;
you've done F swell job. I just want to reise one
thing; have you got any Questions and answers for
the President?
Mite:
We've got some, but I don't think we'll be able
to present
H.A.Jr:
Have one for Mr. Wallace?
White:
These are - we All feel that they are E flop.
R.M.Jr:
Yell, if you feel it's E. flop, way take the time to
read them?
wilte:
Well, that's my - I don't think you should take the
time to read them.
Looklel:
Spent a good many hours on them, but they don't show
it.
Milace:
I don't know, I think - I don't think it's 8 flop at
all.
No, I think it's all right.
wite:
Well, we can improve these and add to them if we have
till two o'clock, if you think they're worth while.
111
-17-
H.M.Jr:
I think it would be fine to have this on his desk.
White:
Well, we couldn't - we felt we weren't getting
anywhere.
H.M.Jr:
And you ought to stick something in on the devilment
on railroad rates and coal,
White:
We have something
....
Currie:
We referred that to the I.C.C.
Blekiel:
We said - there's a question here on railroad
rates - "Do you regard freight rates ES being one
of the prices that are too low?" Answer: "The
question of increase in freight rates will have to
be decided by the Interstate Commerce Commission,
which is at present preparing a decision on the
matter."
Wallace:
I think it's all right.
1.1.Jr:
I think this is all right.
Whiter
And then there is one on coal, which followed the
lines that Lubin's answer gave. If it isn't here
H.M.Jr:
Oh, it's - I don't think that this is - I think he'd
get a great kick out of this.
White:
Pome of the good comebacks we left out, because they
were & little impertinent.
Lubin:
Some of the answers were, "Says you!"
Taylor:
"What's that?"
H.S.Jr:
I think this is all right. I think he'll enjoy this.
White:
"Oh, does this mean a commodity dollar?" "What's that?"
Vallace:
Where's the coal? I didn't see that.
Taylor:
+op of page four, "Do you regard freight rates as
one of the prices that are too low?" I don't see
the coal one.
1.2
-18-
influent
Well, I think if you include coal here, why - I
taink you ought to Include coal here, because it
will almost surely come up.
nite:
we can very easily make it longer as well es improve
it.
I would put it in. I think this is fine.
mylar:
You boys apparently won't leave out anything, but
I've got a couple more that I'd like to omit. I'll
turow them into the hopper here.
"Those industries" ano so on, in the middle of
26ge two - "seek the restoration of profits through
increased volume.' Cut out that "rather than through
restricted output." See, you've already got that
before - "Those industries that have maintained
prices and curtailed output" - see?
(Hinrichs marks sentence)
Over on page 3, I don't think you need that (part or
All of third paragraph on ,"ge 3).
Herlehs: We do. It is desirable particularly from
Signature
I know it's true, but I don't think you need it.
diartens:
well, I can't argue tast out for you.
It's true, but I don't think you need that statement.
Himelens:
Viner particularly is very strong for that.
Taylor:
well, I'm not arguing about the statement. I mean I
agree with it, naturally, but
Mariene:
Bolling down sbout 8 two paragraphs.
(ere there others?
I'a change that to "employed measures" instead of
"measures we employ." Cut out the numbers; he never
uses them.
Regraded
113
-19-
decide:
I think you nen will be interested in this - what
happened here between 3:30 and 4. Dan Bell and
Aubrey Williams and Colonel Harrington and myself
got together, ano ES a result of that meeting, when
WillIams and Harrington left, as a result of Bell
loosening up on his regulations - he WES acting as
Director of the Budget and not BS Assistant to me -
they made the statement here that they can put two
and B half million people to work in March as is.
When they left mere at four o'clock, they made the
statement before 8 stenographer that they can put
LAO and El half million people to work in March.
Subin:
That Is, with your new $250,000,000.
d.M.Jr:
Yes.
ubin;
Did they say how they con no it?
4.1.Jr:
well, the present a ctivity plus loosening of certain
regulations. But that does not mean going into
housing.
Subin:
well, tuat's 8 question, whether or not they can get
into housing by March.
They're not going into housing. I want to make -
they're not going into housing At present, end I
thought you - I know what's been going on here,
and Stewart McDonald now says he guarantees to pro-
duce.
Flige:
By E month?
....Jr:
Immediately.
Allace:
met?
Lucin:
well, produce in terms tast these contracts will be
let.
Can't really produce until
H.m.dp:
On yes, he is for the first time - he says with this
off his neck
Willace:
With what off his
?
Regraded Unclassifie
114
-20-
H.D.Jr:
Off nis neck, all this worry; they've been just
neckling that fellow. They almost had him down,
see?
Giving these fellows & 25 percent subsidy in the
form of free utilities, 30 forth, on E $2500 house.
willow:
das that been cleared with McDoneld?
Cubin:
You'u get - your builder gets a mortgage equal to
about 110 percent of his investment.
H.M.Jr:
but for the first time Stewart McDonald is happy.
And Colonel Harrington, WHO is In charge of the
projects, and I nave the greatest confidence in
nim, says he can put two and & half million people
to work in March.
Willace:
Well, if it's really that good, Henry, the President
would almost be warranted in saying something like
this - not in this statement necessarily, but almost
be warranted in saying, "We have the power to end
the recession. We are going to end it."
M.C.Jp:
No, not that.
Allere:
If it WPS that good.
...Jr:
But Harrington, before a stenographer, made that flat
statement, see?
Willace:
Yes. By gosh, one of these days, if this thing really
turns out, if you are convinced two or three weeks
from now that it's that good, I'd like to see him
make El statement like that, because I think he would
have the power, and if it turned out to be really that
8000
doint
I taink we've got to remember that in the past, when
they put people to work in big Quantities, they tele-
graphed out to the districts to put 250, 000 or 300,000
people on and the district people said "We can't," and
they've said, "Put them on anyway" - so they have them
hanging around doing notning. Putting
....
H.M.Jr:
weit & minute. That wasn't under Harrington.
Regraded Unclassified
115
-21-
Subin:
No, of course that was not.
H...Jr:
No, that W&S an entirely different person.
Currie:
C.F.A.
R.w.Jr:
No, Harrington is an entirely different person.
out I thought you people would like
Currie:
Very encouraging.
R.N.Jr:
what?
Oh yes, will you take B look at the charts?
Henry, here's an awful good chart. The ones we were
talking - bout yesterday - three lines: costs, non-farm
and farm income per capita. See, they were in belance
in here in the late 20's. Got in balance here in 137,
but they're all of them low; and now they're spreading
out again. Shows we have obtained certain objectives
there at times. Doesn't keep - the whole thing wasn't
quite up high enough.
H.M.Jr:
I think that's grand. What else have you got, Daggit?
Got snything else?
Lnegit:
These are the other two. These are the other two
charts we mentioned yesterday; made a brief explana-
tion of what they are supposed to show.
6.m.Jr:
And this? That's all right. I think if you take those
three - are you men satisfied with those three?
Lubin:
If the President asked any question on what prices are
too high, he might enjoy - might like that one.
Currie:
If he wants specific illustrations in the building
field, these illustrate two things, the ones that are
above 129 and the ones that have been obviously held
for long periods. Here's your past differences.
That's gypsum.
Where's your 129 line?
Currie:
to hundred.
H.Y.Jr:
Oh, I think that's swell.
willace:
Is this gypsum?
Regraded
116
-22-
Currie:
Yes.
Willace:
boy! Boy!
H./.Jr:
I think that's good.
Illnce:
I think that's just it.
Currie:
Steel - structural steel is 17 percent higher than 129.
H. .Jr:
If they 88K him if prices are too high, he can say,
"Just look et that, boys. What's your opinion?"
WALLACE:
If you had another one mere of farm prices so you
could nolo It out here to show the zig-zags - suppose
you had cotton and whest.
You could put it on the same chart in red.
Currie:
I'll have e larger one made.
wallace:
I'd be inclined to have snother one.
H.M.Jr:
I was going to say, I think what you men have done
nere is one of the most encouraging things that's
happened in years.
wellace:
If B statement can compensate them for staying up
late at night, we ought to have every statement we
can put out.
H.m.Jr:
I think it's - no, after all, if coal or snything
isn't in line - at least, I feel now if the President
will take it and say, "I know where we're going," I
know what my job is to get in tune with that, and
everybody else is trying to do the same thing. It
is most refreshing to me.
Taylor:
Statement to end statements on prices.
n...Jr:
well now, listen, - now, where are those wings, Wayne?
***Iace:
This is the war to end war, Wayne.
B.4.Jr:
I think ES far as I know, unless there is a change,
all you gentlemen will get an invitation to go to the
White House.
White:
You want this ready about what time?
....Jr:
Three o'clock.
Regraded Unclassifie
117
February 16, 1938
This administration has from the beginning pursued a
policy designed to promote full employment of our human and
material resources. That continues to be our policy. The
productive power of our workers and our resources, if fully
utilized, can provide and maintain a national income far
above any levels we have yet reached.
An important factor that determines whether we shall
succeed or be blocked in our endeavor to attain full employ-
ment and a high level of income is the behavior of prices.
In this connection careful attention must be given to:
(1) the relations existing among the prices of various groups
of commodities; (2) the relations between commodity price
levels and the levels of debt burdens and costs; (3) the d1-
rection and rate of movement of the general price level.
To promote its broad objective the Administration has,
therefore, in its agricultural, industrial, and monetary
policies necessarily been concerned with both the relation
of the prices of groups of specific commodities to each other
and the movement of the general price level. In conformity
with this policy, the measures we employ at any given time
must fit the needs of that time. A year ago there was ground
for concern that a too rapid rise in the prices of some com-
modities would encourage a speculative boom and choke off
Regraded Inclassifie
118
- 2 -
demand. During the past six months, on the other hand, the
general price level and industrial activity have been declin-
ing. Government policy must be directed to reversing this
deflationary trend.
Although the attainment of full industrial activity re-
quires an increase in the general price level, this does not
mean that all prices should advance, nor that the rise should
be ravid. The prices of different grouns of products must be
brought into balanced relations to one another. Some prices
are still too high to promote that balanced relationship be-
tween prices that 18 necessary for sustained recovery. The
maintenance of prices not subject to full competitive forces
accentuates the deflationary pressure on competitively deter-
mined prices. Those industries that have maintained prices
and curtailed output should seek the restoration of profits
through increased volume rather than through restricted output.
When prices are controlled through monopolistic practices, 1t
is the obvious duty of government to apply those remedies that
the law provides.
The prices of some items are still at substantially the
highest levels reached in 1937; some are even higher than in
1929. There 18 real danger when high prices sharply ourtail
sales. In the field of residential construction, for example,
in the face of a serious shortage of housing and of unused
productive resources of every kind, all the major elements
Regraded Unclassified
119
- 3 -
in housing costs advanced so sharply by the Spring of 1937 8.8
to terminate a promising expansion or activity in this most
prostrate of our industries.
For industries that operate at a high level of capacity
even in a depression, such as agriculture, the restoration of
profits must come primarily through higher prices.
The higher profits that will emerge from proper adjust-
ments of prices will encourage investment in replacement and
expension of equipment. This 18 necessary to full recovery,
especially in the heavy durable goods industry.
This 18 8. policy of abundance, not of restriction. When
prices are out of line, production and consumption break down.
That we are aiming at 18 such a balanced system of prices as
will promote 8. balanced expansion in production.
The successful execution of this program by increasing
production and employment will increase the real income of
consumers. (What they gain from increased employment and
more continuous income will much more than offset any reduc-
tion in what each dollar can buy. Retail prices do not fall
90 far nor rise BO high 8.8 do wholesale prices. Therefore,
the moderate rise in the general wholesale price level that
the current situation calls for will have little effect on
the purchasing power of the consumer's dollar. Each of the
consumer's dollars will buy almost as much; at the same time,
he will have more dollars to spend as a consequence of in-
creasing business activity.)
Regraded Unclassified
120
4
I repeat that present conditions require a moderate rise
in the general price level, and that this rise need not and
should not extend to all prices. The rise must be mainly con-
fined to those classes of commodities, such as raw materials
and finished products that are sold under highly competitive
conditions, whose prices are now too low. In many industries
last year we experienced a sharp rise in prices that encour-
aged inventory buying, which combined with the reduction in
housing, laid much of the ground for the present recession.
We must do everything we can to prevent B. recurrence of this
development in the future.
I believe the farm bill Just passed, the housing bill
just passed, and the monetary and credit policies of the
Treasury and the Federal Reserve System will prove helpful
toward achieving these objectives.
Regraded Unclassified
121
QUESTIONS:
Mr. President, you my in your statement that you was a higher price
level, but I didn't m any definite be improvation of what you plan to do
doest 11. 0am you tell w what are stope you have to mind?
now! the problem has to be attacked en a good my fronts and the
program must be aljusted w duaging conditions. Many elements
is our whole recevery program have been directed toward 4
better balance of prices. the MY farm bill will help of -
will the MY housing program - it gate well under my. Our
relief program is also helpful at 60 is unsuployment
insurance. Anything that raises consumer purchasing your
10 halpful.
QUESION,
Does this me you are lemoking on a policy of inflation?
Ze. Our present policy is designed to stimlate moderately
rising prices until balance in the price structure 19
restored.
QUESTION:
Inco that me, Mr. President, that w my expect - meastary action,
such at mother devaluation of the dollart
Insur: No.
QUESTION:
Do you expect mything in the credit field, Mr. President?
Insurers So expect to centimes to adatain Daty credit conditions.
the policies of the Treasurer of the Federal Incerve hard
are definitely along that line.
Regraded Unclassified
122
QUESTION:
the question is how on anybody tell, Mr. President, whether 4 price
is too high or too low.
Insurer: There Le as simple formala but there are useful general standards
w - of which - can study in careful detail the appro-
préatemess of individual prices. There n a variety of factors
which would have to be taken late account before 1t could be
determined whether the price of a commodity was too kigh or
too low. Amoug those factors are the relationship of solling
price to the cost of the product; the effect of the given price
on the donated for the comedity and the volume of output:
the volume of output with the relation of capacity of the industry
etc.
QUESTION:
Nov - you get 4 decline in prices without a dooline in wages?
mover There is enough Leonary in - injustries to allow for a
increase is prefite with a increase is output without any
reduction is vage rates. This is particularly true in the
case of the ininstries whose prices were altranced for mrs
the conditions justified the by the advance in vagos, at
also of those situations in which labor costs my be reduced
while vage rates themselves an udatained.
Regraded Unclassified
123
QUESTION:
Bow about leans to small industries?
mm Iron before the mall business experence hald to weeks
40 recommind action in this fined, I had appointed a
special comittee to study this problem. That condition
is componed of:
flur 10 has completed di staty of the problem DE will
then see how w is past its recommendations into action.
In the menting, if a private credit agreed can expend
its familities to take 0a70 of the needs of the small
business ms. 11 will naire it less necessary for the
Invertment to enter this nov field.
QUESTION:
Yes the resent old are taken in order to increase prices?
Amount that - ⑉ of the considerations that led to that desision.
QUESTION:
Zoos this - & commity dollart
insurer: Deat's that?
QUESTION:
Zoos this - that you an ping to credit be N - of the
mapily prices?
income to are not exatemplating an nik action. the mastery disables
today is very different free that which w had in 1933.
Regraded Unclassified
124
QUESTION:
DO you regard freight rates at being one of the prices that are too
levil
most: the question of increase in freight rates will have to be
decided w the Interstate Comestree Countration which is at
procent the propering & decision on the matter.
QUESTION,
Arm't you responsible for starting the price dealine last Spring with
your statement that prices an too hight
- B. It is very flattering to no to imply that 4 mare state-
ant of also an ⑉⑉ prices to fall - at I emprose -
to rise. the whole writ comminio situation at over-baying
of specific commedities at in specific industries must be the
into account in a employation of the price decline.
The prices of ⑉⑉ complities were too high then, just M
the prices of sertain comunities are too high mv. the
I said that - prices were too wa, I are not refer to
the general level of prices; I referred to the prices of
certain commedities that wro empletely out of like with
the price structure. the influmes that amount the w
pression un already at work when I Lemod the veraing
to wide you refer.
QUESTION:
That standard of prices to you have is mind? the 1926 levelf
Regraded Unclassified
125
- It 10 not ealy the statement of priors which to important but the
inter-relationship between the different prices and graps of
prices which together constitute the general price level.
therefore, the restoration of the present price level to that
of an provides year - be so 1926 OF 1929 - is net and,
If we are to memi in our objective of reaching full employ-
ment at utilization of our resures # must entoder to
attain a balance between the different groupe of prices, and
the emergive flexibility of - at rigidity of others is
one of the most important barriers to this pd.
QUESTION:
Is there any change of your going back to the gold policy of 1933 in
order to raise prices?
lawser: I premise you are referring to the gold purchase policy of
that time al to the devaluation of the dollar. The situation
in 1933 was entirely different from what it is today. to
vare only just energing from the greatest depression in our
history. The problems fealus as wire mach greater is surpo
al the them foring w any of therefore
denated - note treatie action. It is as small tribute
to this Maintetration that the situation NV is . little
comparable with the the
Regraded Unclassifie
126
February 17, 1937.
9:04 a.m.
Hello
Operator:
Chairmen Ecoles.
S.E.JP:
Hello,
Corriner
Scales:
Good morning.
Good morning Harriner.
of
How are you this morning?
oh, I feel a little better. Marriner, we're meeting
here and going over this statement, and I asked Curry
1f he'd sent it 10 to you ani he said he had.
if
Yes,
F...Jr:
And I wondered how you felt about it.
!!!
Well, I looked it over last night.
HAMP:
Yes.
5:
And I think that - of course I didn't have the
opportunity of discussing it you know, with him -
what the purpose was, but it looks to me like it's
pretty good.
Uh-huh.
iii
I - I can't see any - 1f it would meet my point of
view. In the first place, the objective is consistent
with what the President has said, and that is that
we're willing to have prices go higher than they are,
Yes.
E;
That it ien't the average price level but it's
some prices that have gone - gone too high, while
others have gone too low.
H.M.Jr:
Yes.
is
Of course he doesn't mention specific prices.
M.M.Jr:
No.
Regraded
127
- 2 -
ist
But that - when you do that, it's the dickens of a
thing to - he infers particularly that though,
especially buildings.
H.M.Jr:
Yes.
E:
And ae I see it, I think in view of what was said the
other day, and I think there's some misunderstanding
said that hereawhile ago the impression WAB given
that he thought prices were too - were too high, you
see?
H.H.Jr:
Well that's what -
X
Yes, and now again and it's necessary, it seeme to me
to clarify that impression that's been given.
H.W.Jr:
Well that's what we're trying to do for him.
di
Yes.
H.M.Jr:
That's just what we are trying to do.
E:
When did you wantto use this, tomorrow?
H.M.Jr:
Tomorrow.
E:
Well it looks - it looks to me like it's pretty
good.
H.H.Jr;
Well, I'll tell Curry - he's here now, that as soon -
that they're changing it again, to shoot it right
over to you. If you've got anything on your mind,
will you give me a ring?
E:
Yes.
H.I.Jr:
And we'll all see him, including yourself, this
afternoon, I think, after Cabinet.
E:
This afternoon?
Yes, after Cabinet.
N
Do you want me to come over?
H...Jr:
Yes, I do, very much.
3:
Yes. Well all right then, I'll be available.
Regraded Unclassifie
128
- 3 -
H M.Jr:
Fine. Thanks Marriner.
Regraded Unclassifie
d
129
February 17, 1938.
9:41 a.m.
H.M.Jr:
Herbert?
Herbert
Feis:
Good morning Henry.
H.M.Jr:
How are you?
F:
Good.
Are me going fast enough to suit you on Hungery?
F:
I'm in the Secretery's office Just now and I haven't
yet had 2 chance to aex him what had happened. It
was the next question I 790 going to ask.
P.U.Jr:
Let me ask you one question.
F:
Yes,
H.M.Jr:
Have you ever heard that England said she was willing
to pay up to a hundred million dollars a year?
5:
Never.
R.H.Jr:
Well, that's what Bell says. Pell says the best he
ever heard was ten cents on a dollar.
F:
Correct, and that very tentatively.
H.S.Jr:
All right. That's all I want.
F:
Right.
H.D.Jr;
Goodbye.
F:
May I later perhase telephone, after I've talked with
Hr. Hull?
H.R.Jr:
I think it's permissible seeing it's you.
i.
I beg your perdon?
E.H.Jr:
It's permissible.
S:
All right, sir.
H.M.Jr:
And when you do telephone, ask me what the Mexican
Ambae sadress wanted to know about you.
All right.
Regraded Unclassifie
130
- 2 -
H.H.Jr:
Yes.
F:
I'll call you, if I may, later on in the morning.
H.M.Jr:
Yes, she's a little suspicious of you.
6:
I know that, very.
H.K.Jr:
And I told her she had real reasons to be.
5"
I know 1t.
9.2.Jr:
Oh, you know about it.
F:
No, I don't know as much as you're going to tell me.
H...Jr:
All right.
E.
Right, sir.
R.D.Jr:
Goodbye.
P:
Goodbye.
Regraded Unclassifie
February 17, 1938.
131
9:45 a.m.
R.H.Jr:
Hello.
Operator:
Mr. Macdonald. to ahead.
H.M.Jr:
Hello.
Stewart
Docdonald:
Good morning Mr. Secretary.
P.M.Jr:
How are you?
I'm pretty good, thank you.
H.M.Jr:
Do you suppose you could have over for me, by one
o'clock, on one page, what you think you might be
able to do, actually putting - how fast you can
get this thing started, and so forth and 80 on,
in case it comes up in Cabinet?
All right, I'll be glad to do that.
M.::.Jr:
And put it on -
There's just one thing that I want to drew your
attention to.
4.M.Jr:
Yes.
The present - we used to allow five per cent interest
on the small house mortgages, payable monthly, and
half of one per cent additional for service charge.
H.M.Jr:
Yes,
Which really made five and a half per cent interest.
H.M.Jr;
Yes.
The President insisted it be cut to five.
H.M.Jr:
Right.
There's quite a lot of opposition in the West and
Southwest on account of that, They'll come along
eventually but I'm sorry we did that at the same
time we tried to get recovery too, do you see?
H.D.Jr:
Yes, but that's water over the dam.
Well of course, we could still reinstate the one half
of per cent service.
Regraded Unclassifie
- 2 -
132
M.M.JP:
How?
How? By Just simply a circular letter.
H.H./r:
Oh! Well -
You see?
well -
I'll talk to you later about that.
Jr:
Yes, but what I want is looking - well let's say -
what I want to know is this. You see, I'm on the
spot now, sea?
Yes.
4,M.Jr;
Because I'm on your side.
That's right.
H.K.Jr:
And I want to know, 1f they say, "Well now, Stewart
Macdonald", Wallace was in the office this morning,
why he can't put anybody to - get anything until
August.
What?
H.M.Jr;
Till August.
Yes.
HAMP:
Now I want, right from you, I don't care if it's
only 8 million dollars, when will these things begin
to go to work, you see?
I'll give it to you et noon.
F.::.Jr:
You see what I mean?
You bet. I'll have it over by one o'clock.
And, because, BC in case they started jumping on me,
"I want you to say, "Well this 18 what Stewart
Macdonald says."
Yes.
And I'm going to back him.
Yes, I hope I can do something more than Wallace has
ever done.
133
-3-
H.M.Jr:
Yes, and listen old man.
of
Yes.
H.M.Jr:
Lean on the conservative side.
M:
I will.
H.M.Jr:
I'd rather - much rather have you understated.
II:
Yes. All right.
H.H.Jr:
Get it?
:::
You bet.
H.M.Jr:
Thank you.
II:
Goodbye.
Regraded Unclassified
134
February 17, 1938.
9:53 a.m.
Herbert
Feis:
now what's on, and I'm very glad.
H.H.Jr:
Yes.
?:
I'm sorry my memory failed me and I kept talking
about 8 hundred.
H.H.Jr:
Oh, did you mislead them?
F:
I'm afraid I'm the fellow that did,
H...Jr:
Oh!
F:
At least I'm afraid I played B. part in 1t.
SAMJE:
well then, maybe the Mexican Ambassadress is right.
T:
Well, there's usually something in people's ideas.
Yes,
is
However, in this sense, our papers, our documents
were right.
Oh, now listen old nan.
y:
No, no, that 1£ right,
M.M.Jr:
Oh, yes, the documents are right.
No, no, our written memorande 1s correct.
All right.
7:
It was only my verbal statement.
I should worry what you tell Mr. Hull.
5;
Well, all right. Well, I'm very glad it's moving
that quickly.
F.I.Jr:
I think 60.
F:
And I hope 1t. goes through. Are you going to go
over there?
V.N.Jr:
Yes, in B. minute or two.
:
Fine. The Mexican Ambassadress, I think she thinks
I'm a devil with horns.
Unclassifie
135
- 2 -
H.H.Jr:
Well, she thinks you're a devil with the women, and
I said she - I said - she's absolutely right. She
said you have those artistic cycs.
:
She's a sweet dich,
And she's a very discerning person.
F:
Well, for the most part. Occasionally she mistskes -
she makes seventy five into : hundred
changing it.
P.I.Jr:
Well, if you begin to get a reputation 88 being a
devil, why you know where - who started 1t.
E:
I will.
P.V.Jr:
All right.
F:
Thank you Henry.
H.B.Jr:
Goodbye.
F:
Goodoye.
Regraded Unclassifie
238
February 17, 1938
The Vice President, Mr. Hull, Mr. Pat Harrison,
Robert Doughton and yours truly saw the President at
ten 'clock on the Hungarian debt.
The President presented the facts with the papers
attached hereto before him.
The President out on a good sales talk. I thought
the Vice President would burst & blood vessel and finally
he could not contain himself any longer and he said, 'Mr.
President, I Just won't go along with you on this. You
can't win me over on this.' And, he said, 'While we are
on this subject,' he said, 'it's the policy of this Govern-
ment that we won't fight to collect our debts, but I wish
somebody would tell me where the Administration stands.
Are we going to fight for trade?' He said, 'After Japan
was gobbled un China, what are we going to do about it?'
He said, 'I would like somebody to tell me.' And, he
and, 'When I sat on the Ways and Means, the Italian Gov-
arnment pleaded poverty and said there were only five people
in Italy with over $100,000 a year and, since pleading that,
they have succeeded in building up one of the biggest armies
and biggest navies in the world and if you can do that on
poverty, what could they do if they had some money?' And,
he said, 'I am absolutely opposed to accepting any debt
settlement from anybody. He said, 'I don't want them
serrowing money here to build up armaments that some day
mé pay have to go up against.'
(The Vice President was thinking in terms of 12
or 15 years ago and I thought was most unreasonable.)
The President said, 'Well, Jack, suppose the
five of us owed you $1,000,000 end 15 years ago we said
TO would pay you fifty cents on the dollar and we have not
paid you anything. And now we say we oan pay you. We
want to pay you. We want a new adjustment.' He said,
'Do you want to take a partial payment on your $1,000,000
or would you rather take nothing?' He said, That's the
thing you have got to decide.'
I felt the President made a dent, although both
Harrison and Doughton were opposed. But they were getting
this thing cold and none of them had thought about this
thing, certainly in five or ten years.
137
-2-
The Vice President had Hungary and Austria mixed
us and did not seem to realize that Hungary had done very
well and even after we told him so he did not seem to be-
lleve it.
After the meeting was over, the President and I
agreed that we would talk about it together some more, with
the oossibility of, notwithstanding what these men said,
oresenting it to Congress.
I told the President, in view of what had happened
in Austria, it seemed to me tremendously important to en-
courene a country like Hungary who wanted to settle her
debts, but I was delighted to be present and listen to the
intense feeling that these people had against Europe paying
The debts because they are fearful that they will come into
this market and borrow. That seems to be at the bottom of
the mole thing.
000-000
Regraded Unclassifie
PUBLIC OF FOREIGN GOVERNMENTS to THE UNITED STATES OW SAME MASIS LB THE SUNGARIAR PROPORAL OF TEXTARY 7, 1938.
Approximate
Total indebind-
-
steesp &
5608 48 of Jan.
à part I
mai permeta
Percentage of
Original in-
1, 1938
and
Payments the
for seri 30
Total amounts
payments re-
debtedness
(Puided princi-
indebtedness
Annual amulty
under funding
years más
Original
received
selved to
less all
pal and accrund
adjusted to
on Magories
el suratorism
funding end
Todebtedbess
Principal and
original
payments
and unpaid la-
Engarism
basis
agreements
monatorium
(Principal)
Interest)
indebtedness
received
tereet)
proposal
(30 years)
(Calendar Year 1997)
agreements
(Col. 1)
(Col. 2)
(001, 5)
(Col. 4)
(Col. 5)
(Col. e)
(201. 7)
(Col. a)
(Gol. e)
(2 1)
(1 a)
(5 47
sutrie
# $4,055,708.98
8 862,666.00
0,0
I 13,192,040.92
# 2,812,440.07
. 773,101.36
# $94,860.25
$ 695,000
379,087,200.43
52,191,273.24
13.8
325,095,087.19
440,576,360.97
113,680,433.78
10,995,530.91
13,884,907.76
12,900,000
#1,979,471.03
20,134,092.25
21.9
71,745,578.77
165,658,603.61
$5,913,054.54
2,591,519.29
3,360,535.06
6,100,000
Telemin
13,999,145,60
1,248,432.07
8.9
12,750,713.53
18,029,718.13
5,289,004.60
475,023.76
776,700.00
597,000
fining
8,281,970.17
0,101,034.77
61.6
3,180,891.40
8,350,481.00
0.109,589.60
106,029.71
790,395.00
540,000
Phista
3,404,818,945.01
$86,075,891.00
14.3
2,918,743,054.01
4,121,120,502.50
1,202,377,448.08
97,291,435.18
107,650,852.24
154,500,000
lest Privis
4,277,000,000.00
2,084,948,M17.09
47.3
2,252,151,182.91
5,253,719,066.75
3,011,567,083.82
75,071,706.10
208,541,500.10
198,000,000
Creese
27,157,000.00
3,778,384.01
13,9
23,388,615.99
10,479,858.25
779,650.53
1,617,114.76
540,000
1,685,835,61
478,294.48
28.4
1,807,541.13
2,316,868.35
1,108,727.22
40,251.37
60,051.38
79,000
Haly
1,648,034,050.90
100,829,990.16
6.1
1,547,204,170.74
2,019,907,065.58
472,702,884.94
51,573,472.36
10,483,126.76
52,000,000
Divis
5,132,387.14
761,549.07
14,0
$,370,738.07
8,300,896.27
3,930,158.20
145,091.27
325,666.00
290,000
4,981,829.03
1,237,955.58
24,8
3,745,671.45
7,429,514.65
3,685,943.20
154,789.05
$98,799.56
250,000
159,066,972.39
$2,646,297.55
14.2
137,020,674.94
252,199,819.66
115,139,144.62
4,567,363.85
9,632,079.42
8,665,000
37,011,152.92
4,791,007.00
15,6
35,150,145.70
65,971,892.36
30,861,746.66
1,104,004.06
1,697,500.16
$,253,000
51,758,486.55
2,588,771.69
5.0
49,169,714.00
61,663,515.63
18,493,800.77
1,638,990.50
613,515.63
1,409,000
10,135,460,010.70
2,727,574,349.19
26,9
7,607,885,861.51
12,493,087,660.86
5,065,301,999.36
246,929,522.05
347,424,405.90
877,749,000
Section DEL MART
Accounts and Deposite
Primary 15, 1938,
Regraded
Unclassified
FREDEO .
Find
Great Nrivers
Host
Lithouris
was
Poland
(Pro-Amistice)
(Post-Amistice)
lattie
thing
good resize
May i, 1995
Date 34, 1989
April 2. 1974
with ... Punded
20g1. =, 1974
Dec. 10, 1982
Des. se, 1010
Date. 11. 1935
Nov, IA, 1724
Tune 15, 1814
4 le, 1920
lue, 38, line
Date, 15, 1981
an. 34, an
Time 12, 1905
at 15, US
June =. (m)
Det. a. 1900
2wd, 19, END
YES no
- 20, 1909
3mly D, HE
insted Information
all
Cash under für purposes
---
$,694,000,000.00
i
---
-
171,780,000.00
ist
--
-
-
-
has for AT purposes
---
THE.000.000.00
-
1
Turning of surgive sur supplies
-
---
---
-
I
4,359,491.96
$1,974,041.10
1
I
:
lum of mQ(ef supplies
0,201,906.17
---
$12,236.37
51,073,749,20
-
- of "Low
1
1,855,800.61
---
24,312,514.37
4,428,059.19
1,782,787.72
--
I
6,381,926.17
591,000,000.00
-
4,381,608.18
159,406,978.39
1,000,000.00
-
-
mil
8,291,926.19
4,277,000,000.00
207,207,500.43
1,102,85.81
4,201,600.00
13,999,145.60
111,752,000.00
107,307,000.42
5,125,187.14
12,999,14.00
- ..
NUMÁ provided
0,081,916.17
4,094,830,300.44
1,480,005.41
4,961,628.05
171,780,000.00
767,389.10
205,149,570.00
250,917.43
5,150,587.34
- IF
1,049,916,34
31,979,671.00
15,999,145.60
1,14
19,090,050.60
MI,737,004,10
Trial
9,009,515.07
647,275.60
4,004,130,005.74
1,928,003.04
6,051,544.87
1,705,713.73
170.565,025.99
171,780,260.00
received at time of Funding
4,138,005.76
1,779,365.73
70,90
18,764,325.33
1,040.97
5,025.99
19,854.00
Principal of refunting bends received
1,262.75
9,000,000.00
4,400,000,000.00
1,41.00
1,739,000.00
$ 030,000,00
199,400.24
178,540,000.00
171,780,000.00
$48,000,000.00
3,775,000.00
13,700,000.00
1,042,000,000.00
- restrit at resount:
Tal Price 4a
motiod
i
-
---
--
---
1,007,650.27
-
-
---
364,939.38
Internet
309,812.07
POLDA
1,540.97
---
18,340,642.59
314,179.00
1,441.00
Total
329,335.27
7.3.14
1,546.97
--
554,170.00
of Saler firthe
Prictipal
292,000,000.00
75,985.50
234,753.00
1,200,000.00
10,000,000.00
7,100,000.00
3,300.00
17,09,916.17
---
37,100,000.00
Insurance
3,990,309.48
1,232,770,515.42
403,545,34
1,003,626.61
19,310,775.90
--
14,490,000,00
---
1,240,070.19
5,765,709.16
Total
4,781,719.50
1,464,770,513.45
$77,541.44
1,236,409.01
20,048,073.25
10,000,000.00
21,590,002.20
00,120.12
Tital public received
5,101,034.77
2,024,643,017.09
476,254.48
15,200,001.00
42,101,275.74
51,548.0*
1,248,452,07
International " et 2m. 11, 1930;
Provipil liscludion surstorium principal)
9,100,400.00
4,368,000,000.00
1,908,0+0.00
5,197,551.00
201,001,000.00
151,780,000.00
$54,000,000.00
1,879,664.50
1,004,900,000.00
remind et (including
interest)
191,991.98
199,719,000.75
40°,708.35
1,631,832.60
19,000,360.97
417,494.72
1,573,705.23
15,007,000.48
Total
6,350,481.00
191,790,000.00
1,300,006.27
- in end unit Inn. ni, 1930:
---
155,000,000.00
216,425.00
8,761,000.00
14,800,000.00
1,400,000.00
$89,900.00
14,170,000.00
110,000.00
45,600,000.00
Increas
741,989,481.58
340,985.55
1,014,653.38
38,999,000.00
25,040,100.00
1,140,259.84
I
-
a
--
Invoice
---
87,466,060.43
103,149.34
4,104,067.29
---
137,455.36
Tetal
---
$94,480,367.03
457,045.75
1,383,627.69
51,764,147.29
14,500,000.00
11,315,400.80
VASA
- have signature
There " (If
is
E
2
u
sa
LZ
k
12
42
IT
48
16
36
36
*
as
Name
fived -
%
16
0 (7%) -
n.4 M 100 yests
1Amg- If be
Is 110
1
-
I
140
$1
I
KS
us
of
Y
is 178. 1,%,
114 - offer in 540 years
110 m
Y.
110 (TV)
110 -
110 is
17 yes, a
36 and 534
0% WVC as
of of Mark
1
*
- of -
-1
at 15%
*
HIGH " postponed amounts
as and IB
Petter my tradit if allowed for LOSS of cargo of ship amt by miss in millin line
Includes war risting agreement postposed end rubied late bonds.
First Rest without reference " Interest.
Terms Mistly to with off La will
LORD an
Many 15, Ira
Regraded Unclassified
INDISTIONALS
Orwers
Grade
Transe
(Per var purposes
(45 Loss of 19293
Austria
Total
invoice
Bicaraga
Russia
Total
Total
Dec: 4.
Apr. 29, 1928
May 1, 19/6
No LC, 1129
May 10, 1929
May By 1970
Refunted
information
-
Tea 35, 1115
Dune 15, 1925
June is, 1975
Jan, 1, 1929
BY 10, 1900
Jan. 1, 1008
-
1,970,000,000.00
10,605,000.00
-
-
-
6,379,385,000.00
---
---
197,789,750.00
197,779,750.00
7,049,114,750.00
15,000,000.00
1,087,477,800.00
16,175,405.50
15,000,000.00
-
i
---
i
I
--
407,341,145.01
24,978,000,39
-
-
i
590,684,801.77
---
433,049.14
401,000.30
507,931.44
506,122,723.21
---
-
-
-
12,167,000.00
--
63,767,096.03
8,005,410.15
---
18,493,577.22
$6,060,967.60
...
I
---
0,931,506.04
i
3,031,500.34
7,454,918,945,01
$6,658,802.69
41,153,436.55
15,000,000.00
18,167,000.00
74,055,708,82
1,254,075,010.70
11,989,019.49
631,849,11
17,163,314.00
15,000,000.00
12,187,000.00
14,055,700.92
10,238,450,010.70
11,000,917.49
431,649.14
198,601,357.57
204,995,004.00
10,340,453,074.70
3.340,518,043.77
01,007,806.39
15,000,000.00
14,107,000.00
9,984,238,303.00
I
I
-
7,477,479.10
I
604,670,443.11
11.919.226,00
3,177,972.67
1,719,165,054.73
9,064,120,0031
1
I
-
---
4,005,300,600.00
47,607,117.30
18,357,000.00
11,503,453,858.51
1,719,165,034.81
I
--
4,151.04
---
200,006.00
7,412,20
---
7,902.67
-
4,700,006.14
11,583,403,834.51
E
---
I
$,013,000,000.00
---
12,147,000.00
24,511,885.00
11,071,507,418.50
4,758,608.14
i
-
---
---
11,671,507,408.50
1,798,638,08
7.7,710.55
-
---
---
50,318.74
141,720.36
i
I
141,000.58
-
660,200,270.13
-
(71,304,200.00
7,961,945.78
1,30,000.00
26,000.40
0,750,311.00
-
-
8,776,937.58
1
143,007,207.48
7,750,311.80
8,919,007.72
941,021,304.47
F,700,000.00
141,350,000.00
1,125,000
150,000.00
831,000.00
29,011.65
30,450,000.00
$75,000,368.06
1
-
1,635,300.00
---
--
-
---
-
475,565,365.06
1,779,041.64
33,000,000.00
150,000.00
-
5,466,303.00
--
4,791,007.23
404,075,891.00
1,705,471,332,44
---
-
1,319,916,264.58
I
1,486,305.00
---
452,160.00
I
-
8,750,311.88
8,910,007.92
1,736,493,938.91
D,540.41
3,860,150,000.00
11,236,000.00
11,231,160,139.00
399,090.79
192,501,297.30
204,051,113.04
$7,476,000.51
11,420,011,472.68
38,215,63
72,980.00
2,279,546.50
4,1,7,110,500,24
10,745,480.51
197,466.20
28,005,480,99
183,140,817.41
194,083,946.12
20,705,400.00
457,144.98
1,456,011,247.54
270,747,114.78
504,935,069.74
1,000,000.00
-
1,750,000.00
11,875,707.50
2,710,000,00
PUBLIC
1,260,479.59
507,705,009.00
12,967.50
1,733,842.00
11,030,017.49
$9,898.78
7,413,917.46
I
1,040,704,057.17
193.601.299,37
131,094.00
10,745,482.51
199,546.20
712,576,181.70
104,301.69
1,925,345.00
134,074,042.97
103,142,619.41
104,083,246.1F
1,454,581.09
22,705,400.00
487,544.99
124,974,041
375,748,114.79
398.935.059.73
51
LE
y
e
B
so
-
i
A
is -
1
-
Fige
LA 11% is
45
Room
---
-
-
14
111. is
E
-
110 111. M
F
PA Laf
"
Sex
IM ITS. -
1
-
11 Y É
;
- N
12 (7% 16
X
P no X
1%
-
D
=
Regraded Unclassified
pubmission to President
tropt before 140
on 2-17-28
February 16, 1938
This administration has from the beginning pursued a
policy designed to promote full employment of our human and
material resources. That continues to be our policy. The
productive power of our workers and our resources, if fully
utilized, can provide and maintain a national income far above
any levels we have yet reached.
An important factor that determines whether we shall
succeed or be blocked in our endeavor to attain full employ-
ment and a high level of income 18 the behavior of prices.
In this connection careful attention must be given to:
(1) the relations existing among the prices of various groups
of commodities; (2) the relations between commodity price
levels and the levels of debt burdens and costs; (3) the di-
rection and rate of movement of the general price level. To
further its broad objective the Administration has, therefore,
in its agricultural, industrial, and monetary programs neces-
sarily been concerned both with the relation of the prices of
grouns of specific commodities to each other and with the move-
ment of the general price level.
In conformity with this policy, the measures employed at
any iven time must fit the needs of that time. A year ago
there was ground for concern that 8. too rapid rise in the
prices of some commodities was encouraging a speculative boom.
Regraded Unclassifie
141
- 2 -
During the past six months, on the other hand, the general
price level and industrial activity have been declining.
Government policy must be directed to reversing this defla-
tionery trend.
Although the attainment of AND industrial setivity re-
wires on increase in the general price level, this does not
naan that all prices should advance, nor that the rise should
be ravid. Prices of different groups of products must be
brought into balanced relations to one another. Some prices
and some costs are still too high to promote that balanced
reletionship between prices that is necessary for sustained
recovery. Continued high prices market of many of the commodities
not subject to full highly competitive 1 forces intensifies the down-
and pressure on all other prices. Those industries that have
maintained prices and curtailed output should seek the restore-
tion of profits through increased volume rather than through
restricted output.
When prices are controlled through monopolistic practices,
it 1F the obvious duty of government to apply those remedies
the t the law provides.
The prices of some items are still at the highest levels
reached in 1937; some are even higher than in 1929. When high
prices sharply curtail sales there is real danger. This is
shown by our recent experience with housing. A year ago there
las D serious shortage. We had unused productive resources
saple to overcome the shortage. Yet all the major elements
Regraded Unclassified
142
- 3 -
in housing costs advanced so sharply by the Spring of 1937 as
to kill a promising expansion of activity in an industry whose
restoration 18 vital to continued recovery.
or industries, such as agriculture, that operate at a
high level of capacity even in a depression, the restoration of
profits must come primarily through higher prices. Higher
prices in such industries and increased output in other indus-
tries will, by increasing profits, encourage new investment
in replacement and expansion of equipment. This is necessary to
full recovery.
I repeat that present conditions require a moderate rise
in to general price level, and that this rise need not and
should not extend to all prices. The rise should take place
in and must be mainly confined to classes of commodities whose
prices are too low. These include most of the raw materials
tnd finished products produced and sold under highly competitive
conditions. The rise must not be so sharp or continue so long
AS to lead to & repetition of the unhealthy speculative condi-
tions of S yeer ago. That sharp rise in prices encouraged spec-
ulative inventory buying which, combined with the reduction in
housing, laid much of the ground for the present recession. We
must do everything we can to prevent this from happening again.
Our program seeks B. balanced system of prices such 88
(111 promote a balanced expansion in production. Our goal
Regraded Unclassified
143
- 4 -
18 a constantly increasing national income through increasing
production and employment. This is the way to increase the
real income of consumers.
This is not a policy of restriction; it is & policy of
abundance.
Our agricultural, industrial, housing, and monetary
programs have been and will be directed toward this end.
Regraded
Unclassified
144
February 17, 1938
This is the copy I gave the President and
these are his corrections.
Regraded Unclassified
February 16, 1938
This Administration has from the beginning pursued a
policy designed to promote full employment of our human and
material resources. That continues to be our policy. The
productive power of our workers and our resources, 1f fully
utilized, can provide and maintain B. national income far above
any levels we have yet reached.
An important factor that determines whether we shall
succeed or be blocked in our endeavor to attain full employ-
ment and a high level of income 1s the behavior of prices,
In this connection careful attention must be given to:
(1) the relations existing among the prices of various groups
of commodities; (2) the relations between commodity price
levels and the levels of debt burdens and costs; (3) the d1-
rection and rate of movement of the general price level. To
further its broad objective the Administration has, therefore,
in its agricultural, industrial, and monetary programs neces-
sarily been concerned both with the relation of the prices of
groups of specific commodities to each other and with the move-
ment of the general price level.
In conformity with this policy, the measures employed at
10/Min To 124
any given time must fit the needs of that time. A year ago
Mare was ground for concern that B. too ranid rise in the
of some commodities WAS encouraging a speculative boom.
- 2 -
During the past six months, on the other hand, the general
price level and industrial activity have been declining.
Governm ant policy must be directed to reversing this defla-
tionary trend.
This does not mean that all prices should advance, nor that
the rise should be rapid. Prices of different groups of pro-
ducts must be brought into balanced relations to one other.
Some prices and some costs are still 1.00 high to promote that
balanced relationship between prices that is necessary for sus-
tained recovery. Continued high prices of many of the commodities
not subject to highly competitive market forces intensifies the
downward pressure on ell other prices. Those industries that
have maintained prices and curtailed output should seek the
restoration of profits through increased volume rether than
through restricted output.
When prices are controlled through monopolistic practices,
it is the obvious duty of government to apply those remedies
that the law provides.
The prices of some items are still at the highest levels
reached in 1937; some are evez higher than in 1929. When high
prices sharply curtail sales there is real danger. This is
shown by our recent experience with housing. A year ago there
was 6 serious shortage. We had unused productive resources
ample to overcome the shortage. Yet all the major elements
- 3 -
in bousing costs edvanced so sharply by the Spring of 1977 D.S
to kill a promising expansion of activity in an industry whose
restoration is vital to continued recovery.
For industries, such 28 agriculture, that operate at a
high level of capacity even in & depression, the restoration of
profite must come primerily through Righer prices. Higher
prices in such industries and increased output in other indus-
tries will, by increasing profits, encourage new investment
in replacement and expansion of equipment. This 1s necessary to
full recovery.
I repeat that present conditions require a moderate rise
in the general price level, and that this rise need not and
should not extend to all prices. The rise should take place in
and must be mainly confined to classes of commodities whose prices
three
are too low. These include most of the raw materials and fin-
which me
ished products produced and sold under highly competitive condi-
Vnch 12
tions. The rise must not be so sharp or continue so long as to
load to a repetition of the unh althy speculative conditions of
6 year ago. That sharp rise in prices encouraged speculative
inventory buying which, combined with the reduction in housing,
laid much of the ground for the present recession. We must do
overything we can to prevent this from happening sgain.
Our program seeks a balanced system of prices such 8.5
will promote Et balanced expansion in production. Our goal
Regraded Unclassified
- 4 -
is n constantly increasing national income through increasing
produc tion and employment. This is the way to increase the
real income of consumers.
This is not a policy of restriction; it is a policy of
abundance.
Our agricultural, industrial, housing and monetary pro-
grams have been and will be directed toward this end.
Regraded Unclassified
148
February 17, 1938
- FOR COL. NoINTITE:
If the President decides to hold A conference
on price'this afternoon after Cabinet, I suggest that
the followi E be invited to be present:
and OF MAINETURE
Decretary Vallace
Dr. Morecai Szekiel, Roonomic Adviser
fir. Albert 0. Black, Chief, Surgau of
Agricultural Economics
nE LABOB
Dr. Isador Lubin, Commissioner of Labor
Statistics
R. A. F. Hinrichs, Chief Conomist
PERCHAL RESERVE BOARD
Chairman Barriner 3. Booles
Dr. C. As Goldenweiser, Director, Division
of Research and Statistics
Dr. Lauchlin Currie, Assistant Director,
Division of Research and Statistics
DEPARTMENT
Secretary Morgenthau
Assistant Secretary Tayne C. Taylor
Dr. George C. Haas, Director of Research
and Statistics
Dr. Marry L. White, Assistant Director of
Research and Statistics
Mr. Edmund 24. Dagritt, Principal Sconomic
Analyst
Mr. Herbert E. Gaston, Assistant to the
Secretary
(Port
150
February 17, 1938
This is the material I took to the White House
today.
Unclassified
151
you pero X 1A
FEDERAL HOUSING ADMINISTRATION
MEMORANDUM
DATE
February 17, 1938
Wrgenthau
SAVEET
Est tel Residential Building 1938
The situation in residential building is at the moment surrounded
uncertsinty. Any estimate of what may be expected during the
1038 is, therefore, subject to error.
The delay in passing the new Housing Act has already curtailed
cti ities for the first half of. 1938. The best estimate that
not be made indicates that the number will probably fall between
25.00 and 150,000 residential units, as compared with about 165,000
during the first six months of 1937. Approximately 70% of these
probably be single family houses.
Tentatively, the number to be constructed during the last six
of 1938 may be expected to exceed the number constructed in the
is months of 1937, and to fall between 150,000 and 225,000, as
to 120,000 in the last six months of 1937.
inbstantial rise in the cost of building, unfevorable changes
nonet ry, taxation, or other governmental fiscal policies, or in the
eral price level and in the index of industrial production may
interely vary this estimate.
Attuched is & table indicating the weekly volume of mortgages
sted for appraisal on small homes; also large scale housing projects
I ve been approved since January lst. It may be noted that these
Tes indicate A continuous rise each week since the first of the year.
Stewart McDonald
Administrator
Regraded
you form No. 14
FEDERAL HOUSING ADMINISTRATION
MEMORANDUM
DATE February 17, 1938
Dr. Fisher
TO:
SUBJECT
WEEKLY TOTALS OF MORTGAGES SELECTED FOR APPRAISAL
Week Ending:
Number
Amount
Jan
8
1,256
$5,483,184
15
1,504
6,531,200
22
1,711
7,299,975
29
1,888
8,150,840
Feb
5
1,982
8,571,895
12
1,988
8,787,105
Division of Economics and Statistics
Operating Statistics Section
152
and
-
will
FEDERAL HOUSING ADMINISTRATION
MEMORANDUM
DATE
February 17, 1938
m V=
Projects in process of construction.
The following projects have been closed within the Last
reak, end are in the process of construction:
Mortgage Amt.
seterts Apartments
Narberth, Pe.
New York Life Ins.Co.
430,000
liver Orks
Houston, Tex.
Prudential Ins. Co.
511,000
Party self
Greenbelt, Md.
RFC Mortgage Co.
35,000
The following projects are in the process of closing, but
construction has already started:
second Orrden Bay Manor
Jackson Heights,N.Y. Union Central Life Ins.Co.850,000
Third warden Day Menor
Jackson Heights, N.Y. Bowery Savings Benk 1,100,000
Court
Newark, N. J.
New York Life Ins.Co.
1,035,000
Gorth Aced (Unit 2)
Scarsdale, N.Y.
Prudential Ins.Co.
775,000
Darth Road (Unit B)
Scorsdale, N.Y.
Prudential Ins.Co.
620,000
Cleaned Ants.
Yonkers
RFC Mortgage Co.
1,350,000
The following projects are in the process of closing:
Court
Richmond New York Life Ins.Co.
650,000
PATE Plaze
Harrisburg New York Life Ins. Co.
550,000
With-Granville
Chicago
Bankers Life Ins. Co.
750,000
Twin Tratles
Winston-Selem
Prudential Ins. Co.
435,000
Litrood Colonial Apts.
Indianapolis
Ohio National Life Ins.Co.
258,750
wen Givdens
Los Angeles
RFC Mortgage Co.
2,550,000
Amard Kearney
Kearney, N.J.
RFC Mortgage Co.
500,000
Limited Dividend Housing
Atlanta, Gs.
New York Life Ins. Co.
640,000
sett Village
St. Louis
New York Life Ins. Co.
1,600,000
Rodeland
Baltimore, Md. New York Life Ins. Co.
1,480,000
Philadelphia Lincoln Life Ins. Co.
400,000
$17,519,750
W. I.. Colemn
Regraded
153
Question 1:
You say in your statement that you want a higher price
level, but I didn't get any definite impression of
what you olan to do about it. Can you tell us what
new steps you have in mind?
Answer:
The problem is being attacked on a good many fronts.
Many elements in our recovery program have already
been directed toward a better balance of prices. The
new farm bill will help and 60 will the new housing
program when it gets well under way. Our expanding
relief program 18 also helpful. And so are the unem-
ployment benefits now being paid.
Question 2:
Does this mean you are Launching on a policy of
inflation?
Answer:
No. Our policy 18 to help restore balance in the
price structure.
Question 3:
Does that mean that we may expect some monetary action,
euch as another devaluation of the dollar?
Answer:
No.
Regraded Unclassified
154
- 2 -
Question 4:
Does that mean that you will desterilize more gold?
Answer:
If conditions warrant it, the Treasury will not hesitate
to take appropriate action.
Question 5:
Do you expect anything in the credit field?
Answer:
We expect to continue to maintain easy credit conditions.
The policies of the Treasury and the Federal Reserve
Board are definitely along that line.
Question 6:
How can anybody tell whether a price 1e too high or too
low?
Answer:
There is no simple formula. There are & variety of
factors which would have to be taken into account before
it could be determined whether the price of a commodity
was too high or too low. Among these factors are the
relationship of selling price to the cost of the prod-
uct; the effect of the given price on the demand for
the commodity and the volume of output; the volume of
output in relation to the capacity of the industry, etc.
155
- 3
Question 7:
Was the recent gold move taken in order to increase prices?
Answer:
That was one of the considerations that led to that decision.
Question 8:
Does this mean a commodity dollar?
Answer:
What's that?
Question 10:
Is there any chance of your going back to the gold
policy of 1933 in order to raise prices?
Answer:
I presume you are referring to the gold purchase policy
of that time and to the devaluation of the dollar. The
situation in 1933 was entirely different from what it 1s
today. We were only Just emerging from the greatest
depression in our history. The problems facing us were
much greater in scope and seriousness than those facing
us now and therefore demanded much more drastic action.
It is no small tribute to this Administration that the
situation now 18 80 little comparable with the situation
then.
Unclassified
- 4 -
156
Question 11:
Some people are saying that your statement about prices
in Aoril of last year caused the recession. Can you
comment on that?
Answer:
It seems to me that 18 & good deal like saying that the
man who warns you to slow down at the curve is responsible
if you get hurt. I think price dislocations had B. good
deal to do with the recession. The maladjustments had
been developing for some time before I issued my warning
that some prices were going too high. Some excessively
high prices choked off buying and reacted on competitive
prices, forcing them down. The real question 18 whether
the warning should not have been made even sooner.
Question 12:
Does this mean that you are aiming at a 1926 price level?
Answer:
It is not 8. question of any particular year. We are
seeking a balanced relationship among different groups
of prices which will promote full employment. There-
fore, the restoration of the price level to that of any
previous year 1s not the significant thing.
Unclassified
- 5 -
157
Question 13:
Do you think that any wages are too high?
Answer:
It 1e possible that in particular industries some wages,
like some commodity prices, are too high. Well managed
labor organizations recognize that there are limits to
what industry can Day without spoiling the opportunities
for employment.
But I want to stress my conviction that economies
should be sought only as a last resort through wage rates.
I want to emphasize that wage rates and labor costs are
not synonymous. A man may cut wages and, in so doing, so
affect the morale of his workers as to lower efficiency
and raise labor costs. The reverse 18 also true. By
increasing his wage rates many an employer has increased
the efficiency of his workers and lowered labor costs,
The first place to look for reductions of labor cost is
in connection with those practices of labor or management
that lower the efficiency of workers. Only as a last
resort should we risk the destruction of purchasing power
through wage decreases.
-I favor all efforts to stabilize employment that
will make it possible to reduce the costly insurance of
a high hourly rate on B. small number of hours of irregular
work, and substitute assured jobs that will produce a
much higher annual income,
- 6 -
158
Question 14:
You have said that prices rose too fast last spring.
Did wages rise too fast at that time?
Answer:
There were very few wage increases from 1934 until
October 1936. In the next nine months average hourly
earnings in manufacturing industries rose from about
57 cents to about 65 cents. We know that many firms were
In 8. position to increase wage rates in 1935 and 1936. I
do not think it was healthy for business to have so long
postponed wage increases that they had to absorb in a
single lump of this size.
I notice that during downswings people speak of the
need for flexible wages and feel that wages should fall.
During recovery they seem to forget that wages should
also be flexible and should rise. They delay wage
increases to the last possible moment, and then at the
peak of a boom grant wage increases that are small when
measured against current profits but at the same time
difficult to maintain when volume falls off. If wage
increases were not BO long delayed but were made as
business improved business managers would have a longer
period of activity in which to adjust themselves to wage
changes.
- 7 -
15.
Question 15:
You have snoken of costs that are too high. Do you
mean that wages should fall?
Answer:
The real answer 1s to be found in increased volume
rather than in lower wages. Despite the fact that earn-
ings per hour in manufacturing were 24 percent igher in
1936 than in 1932, labor costs per unit of output were
only 6 percent higher. This was due in part to the fact
that the productivity of labor increased, but primarily
was due to the fact that labor can be used far more
efficiently in mass production industries when they
operate at high volume. This 18 further demonstrated
by the fact that in the last five months, despite the
fact that wages have not increased, shrinking volume
forced un labo costs per unit of output as much as
they had risen between 1932 and 1937.
Question 9:
Do you regard freight rates B.B being one of the prices
that are too low?
Answer:
The question of increases in freight rates will have to
be decided by the Interstate Commerce Commission which
18 at present INK preparing a decision on the matter.
- 8 -
160
Question 16:
Is the price policy of the Guffey Coal Commission con-
sistent with the policy which you are now announcing*
Answer:
AE a matter of fact, prices of coal are not high either
when viewed historically or when viewed by the records
of the industry. Cut-throat competition has always
dominated this industry, and has made it impossible for
the industry to pay decent wages and give a profit to
the investors in the industry.
The very nature of the bituminous coal industry
makes it possible to cut losses by selling below cost,
as contrasted with shutting down a mine entirely. Ac-
cordingly, the Administration's policy has been directed
toward bringing about some measure of stability in the
industry by eliminating cut-throat competition that
arises from the physical nature of the industry.
Question 17:
How about loans to small industries?
Answer:
Even before the small business conference held two weeks
ago recommended action in this field, I had appointed a
special committee to study this problem. That committee
1s composed of representatives of the appropriate agencies.
After it has completed a study of the problem we will
- 9 -
161
then see how we can put its recommendations into action.
In the meantime, if private credit agencies can expand
their facilities to take care of the needs of small
business men, it will make it less necessary for the
Government to take additional action.
Question 18:
Could the Government have done anything more than it did
a year ago to prevent the speculative boom in prices
through the regulation of Government purchases?
Answer:
The Treasury 1s now working on this problem. We feel
that it is possible to withhold more purchases in periods
of high prices than we have in the past. We should plan
our purchases 80 that the goods we buy, insofar 8.8
possible, will be manufactured during what would other-
wise be slack periods of production.
An example of how ill-timed government purchases can
contribute to disparity in the price structure 18 the
wool purchases of the War Department early last spring.
By placing large orders for woolen products at a time
when the industry was working near capacity levels,
the Army entered into the market in competition with
private buyers and was an effective factor in forcing up
the price of certain types of raw wool by as much as
20 percent.
- 10 -
162
Question 19:
Will the operations of the new farm bill be consistent
1th this price policy?
Answer:
Farm prices are glaring examples of prices that are now
too low. The farm oill provides means for preventing
extreme declines in farm prices end for maintaining
income of farmers in years of excessively high yields.
At the same time by carrying over excessive supplies
from years of large crops to years of short crops it
will tend to prevent such repid rises in farm prices
due to short crops 88 occurred in the winter of 1936-37
and which helped to build up the speculative enthusiasm
BD that time.
Question 20:
Will the commodity loans under the farm bill work con-
trary to these price policies?
Answer:
No. Those loans will be made only when farm commodi-
ties are unusually low in price and high in supply.
In periods when crops are short, no loans will be made.
Instead part of the stored supply in the ever-normal-
pranary will be released to prevent undue increases in
prices,
Unclassified
- 11 -
163
Question 21:
Is the concept of legal formulation of the parity
prices of farm products consistent with the develop-
ment of a dynamic balance between prices that you have
been discussing?
Answer:
Our farm policy has been working away from the idea of
fixed parities for individual prices toward the 1dea
of 8. parity in income. That 18 to 88.7 in a balance
between the income of farmers as a group end of other
producers 28 8, group. The provisions of the present
bill constitute only a step in that direction.
Question 22:
Are all farm prices too low?
Answer:
No there are B. few situations where special bargaining
arrangements have given limited groups of farmers prices
in some markets that are out of line with other farm
products. In some cities milk prices, which were
boosted a year or more ago because of short pastures
and high feed prices, have remained at the same level
since. There 16 no more justification for monopoly
practices by famiers than by manufacturers.
- 12 -
164
Question 23:
How is your price policy going to affect our export
market?
Answer:
It 18 bound to improve it. Foreign trade always im-
proves when business activity improves. Any measure
which helps bring about recovery in the United States
also helps to bring about world recovery and serves to
increase both our purchases from foreign countries and
our sales to foreign countries.
165
Question: Does this price policy mean that the price of sugar is to be
raised?
Answer:
No. Our policy with respect to sugar is already fully stated
in the Sugar Act of 1937, and there is no reason.for changing
that policy.
183
*EDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATE February 17, 1938.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
I called Mr. Bolton at 10:45 a. m. Things were quiet
today in Europe and there was no evidence of consistent selling
of the dollar at the level reached yesterday. During the last few
days the selling had come from a handful of big people who had
definitely determined to get out of their dollars and to convert
them into Swims franc, gold and sterling. I mentioned that we
definitely knew that some of the European central banks (Sweden)
were also converting some of their dollar balances into gold.
Generally speaking, Mr. Bolton said, Mr. Morgenthau's announcement
last Mondey had been taken rather philosophically by the exchange
market. Unless economically the situation in the United States
got much worse and politically the administration and business
pulled further apart, further liquidation of the dollar holdings
by foreigners ners at this level was not expected.
Demand for gold in the London market had been substantial
and today the fund had furnished over £1,000,000 of gold, that 1s
practically the whole amount of the 414 bars dealt in. On the
other hand it had gained £1,250,000 of Russian gold which had
arrived in London last week. This had been the first shipment
since last May and would probably prove to be an isolated trans-
action. At least there were no indications of any more gold on
the way or any further shipments contemplated by Russia. The hoard-
ing of gold in London was definitely on the increase and they
figure that it amounts to about £2,000,000 a week. This was, of
MISC 12 aM 6.37
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE February 17, 1938.
10 CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF ENGLAND
- 2 -
course, purely a guess, deductively srrived at. The highest estimate
of gold now hoarded in London was from £110,000,000 to £120,000,000.
I stated the fact that two weeks ago he had mentioned 8 higher
figure but he thought that was an over estimate on his part and that
the latest figures were likely to be feirly socurate. I asked
whether Belgium wes losing gold as 8 result of the higher gold price
in London but Mr. Bolton replied that SO far they had managed to
keep the London price just below the gold import point from Belgium
in spite of the heavy demand for gold in London.
In France the situation was unchanged. The franc had been
weak yesterday but firmer today. Over & period Carriguel had lost
steadily probably at the rate of about £500,000 a day. The little
refugee capital that was still going out of France went primarily
into gold.
We discussed briefly cepital movements and I mentioned
that the outward flow from here continues and had now reached about
$600,000,000 since the first week in October.
an
FEDERAL RESERVE BANK
168
OF NEW YORK
FICE CORRESPONDENCE
DATE February 17, 1938.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. W. Knoke
SWISS NATIONAL BANK IN ZURICH,
I called Mr. Schnorf at 11:10 today. I referred to his
cable #10 of yesterday advising that we would receive for their
special account $575,000 value February 19 and asked whether that was
to be converted into gold. His reply was in the affirmative, where-
upon I pointed out that in accordance with our arrangement they should
have made the request for conversion by cable simultaneously with
their advice for us to receive. Mr. Schnorf suggested that I take
his recuest over the telephone, which he would subsequently confirm
by cable. We have now received was confirmation (Bank Nadionale
Suisse cable #11).
Be spoke of the 1/4% charge which he thought made operating
to New York very expensive if trensactions ran into large figures.
I told him that this 1/4% was 8 Treasury charge and that nothing
could be done about it which he seemed to realize. I inquired
about today's foreign exchange market and he replied that after
having intervened yesterday for the first time in many weeks
further intervention today had become unnecessary ES the dollar
had turned firmer. I stated that if at any time in the future he
Wanted to give en order to New York to be in force after the
Buropeen markets were closed, we would be happy to receive his
instructions. Mr. Schnorf thanked ne.
163
Meeting nt the White House Feb. 17th
(Dictated February 18, 1938)
When the group of us walked in to see the Presi-
dert yesterday he greeted us as follows: 'Well, this is a
nén Xin? of meeting to take place in my office. This
geene to be a case where the pupils are going to tell
Teacher+
After leaving the meeting Dr. Lubin said that
l.e sensidered wirst we had accomplished with the President
MILE absolutely revolutionsry in Government procedure, as
this was the first time he knew of four Departments getting
togeTher, agreeing on a program and then presenting it to
the President.
It took the President sometime to varm un to
cartne us cive him this orogram. He seemed to resent 1t.
Unclassified
170
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
411
DATE February 17, 1938
TO
The Secretary
FROM Mr. Taylor
(Memo. of two days' activities)
Yesterday when the French Financial Attache called he had in mind
two things; one, renewed rumors originating on the other side regarding the
possibility of further develuation of the dollar, and two, the manner in
which the desterilization announcement would affect the Treasury's statement,
with particular reference as to whether all transactions will immediately
be reflected as individual items, or whether the Stabilization Fund would
still intervene on occasion. After giving him the obvious answer to the
first question, I told him that whereas in general the individual items
would make their appearance regularly, that that did not necessarily mean
that the Stabilization Fund would be completely inactive, or that on
occasion we might not find it desirable to handle certain items through
the Fund 30 that the final movements would have the indicated effect,
but that it would not be always possible to follow the day to day movements
by wutching the items on the Treasury Statement. As you know, Archie
lise had several similar questions from the Federal Reserve Bank in New York
is wall 88 from other people, and the answer which I gave Beaulieu conforms
to his and my understanding of the enswer that you gave to a similar question
In your Press Conference today. as well AB how we both think the matter
should be handled.
The most important other business of year beday and this morning was the
Question of opening up the R.F.C. and the possibility of broadening its
171
- 2 -
powers so as to take care of any additional types of self-
liquidating projects which might prove to be desirable. I gathered
from my conversation with Jesse Jones that the President felt that
it is desirable to make this move. I share this point of view
and feel that the moves already taken combined with this move will
remove a major portion of the deflationary psychology which now
exists. I also believe that opening up the R.F.C. will forestall
8 reat many other suggestions which would mean new agencies, new
activities, etc.
W.
172
Excerpt from Mr. Oliphant's memo of February 17, 1938
to the Secretary:
ARO-CAMIZATION
Genesee Valley Gas Company, Inc. Mr. Lendis, attorney
For the debtor, and Mr. Kline, attorney for the first lien
bondholders, are considering the tentative plan of reorganiza-
tion which was submitted to them at the meeting at the SEC
list Friday and are to let the SEC know their reactions to it.
in the meantime Mr. Smith of the SEC is sending Mr. Maltbie of
the New York State Public Service Commission 8 copy of the
proposed plan and will get his criticisms and suggestions of
It over the telephone.
Regraded Unclassified
173
February 17, 1938.
12:50 2.0.
Cochman:
Bonnet called on me.
4,22,Jrs
Yes.
C:
Sald he had just come from London today.
Yes.
Earlier in the week, be said he and his Ambassador
over there, had telked with your opposite number
Yes.
In the presence of Phillips and Waley.
Yes.
They had interested those three in the idea of
opening up some tripartite conversation. The day
after he got here, he talked with Merchandau.
Yes.
And he said that only Marchandau, Chautemps and
Deblas
know of this matter.
Jr:
Yes.
But the Bank of France and the rest are not.
Uh-huh.
Now Marchandeau wants a secret conversation with
us tomorrow afternoon at five o'clock to place the
question as to whether we would be interested in
tripartite conversation on this proposition which
they have in mind.
Well, what's the proposition?
Well, this 10 P.O. much B.B
would give to me,
Uh-huh.
That 16 that it would be a possibility of studying
the stabilization of each of the three countries
in some international moves. This would be a
counter move toward stopping France from possibly
going into exchange control. He cign't put it up
174
quite that specifically.
Yes.
And I mean I'm not asking you, of course, for any
decision now, but I did want to report his visit
and the fact that they'd asked me to come over at
five o'clock tomorrow evening, to put something
up to us.
well, it's all right. You can go and listen. I
say go end listen.
Yes, I Just wanted to let you know because I WSE
afraid you might be leaving town tomorrow afternoon.
I all.
Well, then I'll report beck, whatever 1e done.
I'm going to leave with the President, tomorrow
afternoon. We're going up to the country.
Good.
And = would go and -
I can have the Ambassador ELEO present, if desirable
from our side.
What's that?
I say, Monique said that they would like to have
Bullitt also present tomorrow afternoon, if it 1s
desirable from our side.
Oh, no, I - Bullitt - of course the Ambassador, but
I don't - frankly, don't like to have anything to
do that Monique is back of-and I don't care if the
French are listening on this phone, and they aight
just as well hear it.
That's just it. That's why I called you before
I've taken it up with the Ambassador. He's up at
the house. You could have
here, but
I'm suspicious of the whole thing.
Well you can tell the Ambassador of the conversation.
Yes.
175
- 3 -
M.11.Jri
Tell him what I said and I wouldn't dignify It by
having the Ambassador EO.
That's just it. It maltes it purely official and
it draws more attention and might be more emberrassing
to him in the long run.
-
And as I say, I'm taking it for granted that the
French are listening to this conversation.
:
Good. All right.
F.A.Wr:
And I wouldn't dignify it. No. I know something
about this already, ano I can't say anything more
than that.
C:
That's what - I had an idea that you might, but I
wanted to get it right across, what little he let
out to me,
Well, you can 80 and listen and I'd report it in
a cable.
Report it in B cable.
Yes.
Fine.
R....Jr:
And - just a minute. Archie Lochhead will be here.
S:
Good,
Archie will be here Saturday. you get off et cable
Friday night and he'll have it the first thing
Saturday morning.
D:
Good. All right. I'll 00 it that way, but I juet
wanted to let you know what had come up.
Well, I'm not going to get in a lather about this.
C:
Well, I hadn't yet, but I wanted you to know.
Well, I'm Clad to know and - Just a minute. Hello.
0;
Hello.
4....Jr;
Just wait & minute.
C:
Good.
176
- 4 -
P.E.JR:
well we'll sit and wait and see what happens.
0:
Good. All right. I'll get off = telegram after
I come back.
And - you see - I wish you would tell the Ambassador
and explain to him how I feel about it.
C:
Surely.
R.M.Jr:
See?
C:
All right.
V.:.Jr:
And - you know - I can be reached in the country, but
I think this thing, put 1t. in a cable end I'll get
it Saturday morning.
C:
Yes.
See?
C:
Fine.
H.L.Jr:
Have you got it?
C:
Yes, absolutely.
H.H.Jr:
All right, then.
is
Fine. It's quite here today, no excitement.
S.M.Jr:
Good. All right.
0:
All right, sir.
Goodbye.
3:
Goodbye.
177
JR
GRAY
Paris
Dated February 17, 1938
REC 'd 3:22 p.m.
Secretary of State,
Washington.
257, February 17, 6 p.m.
FRO cochran.
Paris exchange market Exceptionally quiet. After rote
opened at 152.85 control give some sterling at 95, 153.05,
10 and 20. Market dropped of its own self and Societe
Generole COME in Evidently buying sterling for the control at
89. Bank of France statement 05 of February 10 showed no
changes in 30ld or in advances to Government. Rentes and
shores moving only slightly. Operators awaiting develop-
Mento in international politics and French labor legislation.
BULLITT
SWS:CSB
278
REB
PLAIN
London
Dated February 17, 1938
Rec'd 3:35 P. m.
Secretary of State,
Washington,
141, February 17, 7 P. m.
FOR TREASURY FROM BUTTERWORTH.
OnE. While the amount of business done on the
dollar-sterling exchange has not been large the
number of nervous inquiries about the dollar which
have been received by all types of city financial
houses from their continental associates has been
very large. There is as yet no corresponding
nervousness here for the City understands on the one
hand that the flexibility between two rather wide
gold points comes into the dollar-pound rate and on
the other is not disposed to countenance scare
ars
to the Effect that the slump in America will reach
such proportions that 8 further devaluation will bE
found to be the Easiest way out. But it is also true
that the continent does not show in the course of its
inquirits any SENSE of confidence in the stability of
starling. In fact an apprehension of currencies geem
to be growing. Gold sovertigns and Eagles continue bE to
Unclassified
273
REB
2-#141, From London,Feb,17,7p.m.
be in demand by the continent and today's gold
fixing was the largest since the gold scare of
last June.
Two. The 98,000,000 pounds of extra net imports
which increased the adverse balance of Visible trade
last year to 443,000,0000pounds WETE offset according
to the Board of Trade's calculations published today
by an increase of no less than 64,000,000 pounds
in invisible exports - the net income from shipping
SErvices, oversea investments and bankers' commissions.
The net doserioration in the final balance of current
payments on the previous year is thus limited to
34,000,000 pounds and the actual size of the adverse
balance - the deficit for 1936 being 18,000,000
pounds - is 52,000,000. The increase of 45,000,000
pounds in shipping income accounts for OVEr 70% of the
total "invisible" gain; and the estimate of the final
deficit stands or falls by the Board's assessment of
the effect of the rise in freights. Furthermore
I am reliably informed that every effort was made by
the Board to minimize the adverse balance. Even 30
the deficit which is the largest since the 51,000,000
pounds
180
REB
3-#141, From London,Feb,17,7p.m.
pounds of 1932 and the 104,000,000 pounds of 1931
sufficiently illustrates the strain which the
rearmament program is placing on the financial
system in the shape of large imports of raw
materials.
JOHNSON
SMS
Regraded Unclassified
181
February 17, 1938.
5:16 p.m.
Hello.
Operator:
Secretary Wallace
Thank you.
Go abord,
Hello.
zegy.
E.
Hello.
Tr:
Hello, Henry.
Yes.
Well I felt BO good. I wanted to chin, that WBE
all.
Well, my gosh, I feel just as good as you 10.
Lubin said he thought that was a revolutionery pro-
cedure in the Government, since we've come to town.
laughs)
I didn't know what was going to happen when the -
after the way the President greeted us, but be
walked up.
Yes, I don't know just when the transition took
place, but it -
It took place, but I'm EO happy for the country's
sake. I -
7:
That's exactly - that's exactly the point.
And I've got to a point that I think what's good for
the country 1s - well it can't be exaggerated, and
2 couple more clarifying carefully prepared statements
like this, we can change the whole psychology
We've - we've got all the materials to do it, Henry,
end we're - we're - I think morally culpible, if
we don't do it.
Well I think we are, and I think it's the thing to
do is first to sweat it out amongst ourselves and
then present it to him.
182
- -
Now this - this stuff that Ecoles is working on,
suppose Te handle that in the same way and let you
take the chairmanship If that, when the time comes.
Well I'd be more then pleased to, if I've got the
physical abilities that's left.
Yes.
Right now, I'm shot, but four days from now maybe -
Well, I - I think that - well as 3 matter of fact,
I don't think we ought to tackle him again along
this same line, for about two weeks anyway,
Well I think that this - with this now, I think
she'll roll.
Yes.
And I think that when they once get across that we
can't put two and 8. half million people to work,
that'll he the next thing, and I think you should
say something when the un- when the two hundred
and fifty million dollar bill passes. I think you
should say something then.
Yes.
You know.
Yes,
And that would be next week, and that would be the
next statement I would say, off hand, for next
week, wouldn't you? For the passage of this un-
employment 0111.
Yes.
H.B.Jr:
And - but I want to thank you for all the help
because I really think it's a milestone.
Well, any - any time there's & chance to rally around
something like this, why I'm delighted at anything
I can possibly - I can do.
Yes. And - well, I feel 80 much better. Coodnight.
Zeke is clearing with Jeston on that other point.
Regraded
183
- 3 -
W.H.Jr:
Fine. Well Gaston - I think he's still over there
with Steve Early B.B far 23 I know.
%:
I see.
8.11.Jr:
That's where he 1s.
You - it's your - if you want -
No.
Bring it in to you.
Oh, well, all right, but 1f he gives it to Herbert,
it's all right. The reason I took Herbert over
there, you sec he's en 010 shoe and he fits -
the President likes him and it makes it easier,
you see?
Sure.
E.H.Jr:
Yes.
Well thank you SO much.
All right, Henry.
F...Jr:
Goodbye,
Regraded
Unclassified
184
February 18, 1938.
To: Mrs. Klotz
From: Mr. White
Attached is a copy of Agenda for discussion
at conferences attended by Secretary Wallace and
Mr. Ezekiel of the Department of Agriculture, Attorney
General Cumrings, Chairman Ecoles and Mr. Currie of
the Federal Reserve Board, Mr. Lubin of the Department
of Labor, Mr. Taylor and Mr. white of the Treasury.
At the meeting on Tuesday, February 15th, only
some of the topics were touched upon and then only
briefly. The discussion was largely confined to the
general problem as to the current state of business,
the likelihood of an upturn in the spring, and the
merits of preparing a program for action.
The Secretary wished to have a copy of this
Agenda to take with him over the week-end.
The items listed are not, of course, recommenda-
tions agreed upon, but merely topics to be discussed.
Regraded Unclassified
185
lenente of Surgested Program of Action
- supplamentary action to net actual nonstituction started
in large volume.
- Establish a federal conferent corporation to provide
- remuntion of equipment construction, plus other measures
and rehabilitate as recommended by special railway
minites.
off projects - Establish a Tederal Toll Authority to finance
men toll facilities where needed and Phrtified; including
" ridres, tunnels (urben and under rivers), roads, etc.
Conservation 2" human resources - Initiate à broad program of
in conserve and rehabilitate imman resources of farmers,
ever, unexployed, and the reneral outlic,
locial Cervrity to work more rapirity 1 speeding up and libera-
under old-age and dependency provisions.
to check the decline and to fill in the rape
mkil actual disbursements under the other programs ret fully
Unifer way.
Milon is needed to provide adequate credit now and later on
and Top future husiness expension, for mall concerns and
hit by the recession. This problem it heing cared for
accorts of reveral special committees, of ".".C. and of
so it is only referred to here.
artal timine:
1038
1. Increase P.A. and Rural dehabilitation
2. Provide subsidy to private housing and extend public housing
3. Establish Tederal Bailroad Squipment corporation and recure
authority to purchase non-curulative preferred stock of
railroads. Begin operations.
6. Establish Federal Toll Authority
5. Increase bealth and hospital expenditures
0, trend Social Security Act.
1039
1. Diminish .P.A.
2. Diminish subsidy to private housing
3. Increase Equipment Corporation's operations
4. Perio Federal Toll Authority operations
5. Increase old-age and invalidity payments
6. Start education trant expenditures
7. Increase health and hospital expenditures.
Regraded
Unclassified
186
Outline of Suggested Program
wising
-
1, .F.^. labor to provide utilities and roads on nublic property
adjacent to all new construction.
2. Enlarge U.S. Housing; speed up operations by suspending 10%
contribution; authorize direct construction through subsidiary
construction corporation (to include building organization de-
veloped by P.S.A.): authorize use of available P.E.A. land
and .B.A. labor by-this corporation.
1
(a) Betablish two or more large-scale construction corporations
with Federal money, to test practicability of reducing
costs by mass-production methods in housing above the sub-
aidized low-cost type; and/or
:
(D) Provide a federal contribution (25 to 50%) to the capital
of private construction corporations to engage in mass-
production of houses, on condition such corporations show:
(1) They will limit the return on the trivate capital
to 87.
(2) They will operate with annual-wage agreements for part
of their labor, including at least carpenters, brick-
layers, and common labor.
(3) They will build continuously over a succession of hous-
in unite, planned in advance, for a period of at least
18 months.
(4) Other appropriate provisions to insure mass-production
purchasing and erection.
Unclassified
187
THAT TPA CAN in IMPODIATELY
71 is a flexible program. Its projects are operated by
end, therefore, it does not need to delay to ad-
terting for hids and award contracts before outting men to work.
in are -onth, November 1935, PA put to work nearly 1,500,000
partner.
71 is overating 33,000 reparate projects now. Every month
of these projects are completed and new ones started. A
1 ware of there projects are of the type that can be con-
in a scort time or in a long time, depending upon how long
" decired so keep the people at work on them. A considerable
- workers can be out to work almost immediately finishing
projects ahead of schedule.
AM is now employing shout 2,000,000 workers. ith the
now approved and with new projects coming in all the present
N "Is tt world te possible to increase employment on PA hy shout
7,00,000, making total employment 3,000,000, within a period of
d' works to two months. This would result in an increase of an-
university 65 million per bonth over the present rate of TPA
restitures; that is, with a total exployment of 3,000,000 the
3/1/ be e pending about 200 million per month. Nost of this,
carene, would no directly to increase consumers' purchasing power.
Host N percent of PA funds are expanded on construction
The balance 1002 into non-construction work ruch as the
better of clothing for the unemployed, research work, the
and art programs, and into other white-collar projects.
188
Outline of Suggested Program
ocial Security.
old -re and Invalidism.
1. Advance the date of payment to 1939 instead of 1942.
2. Change formula resulting in increase in average benefits
from 12.50 to $17.50.
3. Provide benefits for surviving widows and dependent wives
(50 per cent supplement)
one, two, and three would result in increased expenditures in 1939
of sround C250 million.
4. Payment of invalidity pensions. This would call for shout
150 -illion in 1939.
Total under Old Age and Invelidity *400 million.
Regraded Unclassified
189
Outline of Suggested Program
- -
Establish a broad program of federal support for health
and education.
1. Increased expenditures for maternal, child and eneral public
health work provided for in Titles 5 and 6 of the Social Te-
curity Act should amount to shout 40 villion in 1939.
2. Tederal grants-in-aid to seriet states to provide general medi-
cal care to needy poor and to others unable to obtain medical
are (otherwise self-rustaining). Impediate 50-100 million.
"Itimate 100 million to 150 million. This should he conditioned
on an equal SMF from state and local todies.
nts 1 and 2 with state and local 1038-39 - 150 - 250 million;
1033-10 250 willion - 1350 million.
:-
"ospitals. Deficiency of hospital heds now 400,000. At 3,000
a hed this amounts to $1,200,000,000. In addition, special has-
mitals For the chronic sick need 600 million more. In addition,
250 million could be spent on modernization and needed out-
patient clinics.
"Iscal 1930 with state and local - "200 million.
norbined program 1938-39 - 350 - 6450 million; 1939-40 - 450 - 1550
-illion.
Tederal above 1038-39 - 200 - 1250 million
1939-40 - 250 - 300 million
Increasing interest in public health indicated by renid coread of
"nluntary sroup hortoial insurance from 300,000 per sons in April
17 to a -illion in December 1037.
The Advisory Corrittee on Education, after over a year's study,
-!!! its report to the Precident shortly. It calls for A program
of increased federal aid to education, largely through trants to states.
are recommended to start at about 70 million more in the 1939-40
"mail year, and increasing tradually up to shout 200 million in the
114-45 fiscal year. These carefully developed recommendations nicht
"- informed AP fn appropriate part of the long-time program, although
Sain impoliate macnitute is not treat.
to service occupations, contribute to the welfare and productivity 25 the
Empenditures on health and education provide increased employment
Tewed from millic, the yet national interest as a whole, they are truly self-liquidating.
do not involve any competition with private business.
Regraded Unclassified
190
Outline of Suggested Program
IV. Conservation of human resources.
1) Expand Rural Rehabilitation work, to enlarge lending
program to 250 million a year.
(2) Tstablish a parallel "iners' Rehabilitation Administra-
tion--expending up to
millions a year.
(3) Authorize W.P.A. to establish a special service to re-
train unemployed workers for new industries, and to sup-
nort them during such retraining.
(4) Authorize W.P.A. in cooperation with the Federal Vocational
Rehabilitation service, to expend funds for physical re-
habilitation of unemployed.
(Operations for hernia, etc.)
(5) Establish a broad program of federal support for health and
education.
Regraded Unclassified
191
February 18, 1938
This is a set of the material we gave the Pres-
ident this morning before his press conference and which
he used.
Regraded Unclassified
192
FOR THE PRESS
IMMEDIATE RELEASE
FEBRUARY 18, 1938
STATEMENT READ TO NEWSPAPERMEN WHO ATTEND THE PRESIDENT'S
CONFERENCE WITH THE PRESS, FRIDAY, FEBRUARY 18:
(Statement in quotes)
This statement was prepared at the President's request by:
Henry Morgenthau, Jr.
Secretary of the Treasury
Henry A. Wallace,
Secretary of Agriculture
Frances Perkins,
Secretary of Labor
Marriner Eccles,
Chairman of the Board of Governors
of the Federal Reserve System
and economists of various executive departments.
193
February 16, 1938
This Administration has from the beginning pursued a
policy designed to promote full employment of our human and
material resources. That continues to be our policy. The
productive nower of our workers and our resources, if fully
utilized, can provide and maintain a national income far above
any levels we have yet reached.
An important factor that determines whether 100 shall
succeed or be blocked in our endeavor to attain full employ-
ment and & high level of income is the behavior of prices.
In thie connection careful attention must be given to:
(1) the relations of the prices of various groups of
commodities to each other; (2) the relations between commodity
price levels and the levels of debt burdens and costs; (3) the
direction and rate of movement of the general price levol. To
further its broad objective the Administration has, therefore,
in its agricultural, industrial, and monetary programs neces-
sarily been concerned both with the relation of the prices of
groups of specific commodities to each other and with the nove-
ment of the general price level.
The measures employed at any given time to further this
policy must fit the needs of that time. A year age there use
ground for concern that A too ranid rise in the prices of
some commodities was encouraging a speculative boom. During
Regraded Unclassified
64
- 2 -
the past six months, on the other hand, the general price
level and industrial activity have been declining. Government
policy must be directed to reversing this deflationary trend.
This does not mean that all prices should advance, nor
that the rise should be rapid. Prices of different groups of
products muet be brought into balanced relations to one other.
Some prices and some costs are still too high to promote that
balanced relationship between prices that 1s necessary for -
tained recovery. Continued high prices of many of the
commodities not subject to highly competitive market forces
intensifies the downward pressure on all other prices. Those
industries that have maintained orices and curtailed output
should seek the restoration of profits through increased rather
than through restricted output.
The prices of some items are still st the highest levels
reached in 1937; some are even higher than in 1929. when high
prices sharply curtail sales there 18 real danger, This is
shown by our recent experience with housing. A year ago there
was 8. serious shortage. We had unused productive resources
ample to overcome the shortage. Yet all the major elements
in housing costs advanced so sharply by the Spring of 1937 ME
to kill a promising expansion of activity in an industry whose
restoration is vital to continued recovery.
Unclassified
195
- 3 -
For industries, such as agriculture, that operate at a
high level of capacity own when business activity 10 at low
levels, the restoration of profits must come primarily through
higher prices. Higher prices in such industries and increased
output in other industries will, by increasing profits,
encourage new investment in replacement and expansion of equip-
ment. This is necessary to full recovery.
The average family will benefit from the business
recovery which a balanced price structure will foster.
Increased employment and more continuous income should much
more them offeet any increase in the cost of living. Recently
wholesale prices have declined markedly, yet that decline has
been reflected in the cost of living only to a very slight
degree. A moderate rise in wholesale prices at this time
should only slightly affect living costs. IncomeSef most
families will increase while the cost of what the housewife
buys should show little change. The average family will enjoy
a higher standard of living.
It is clear that in the present situation B moderate rise
in the general price level is desirable, and that this rise
need not and should not extend to all prices. The rice should
take place in and must be mainly confined to classes of
commodities whose prices are too low. These include most of
those raw materials and finished products which are produced
and sold under highly competitive conditions. Such rise must
196
- 4 -
not be 80 sharp or continue so long as to lead to a repetition
of the unhealthy speculative conditions of a year ago, That
sharp rise in prices encouraged speculative inventory buying
which, combined with the decline in housing construction, laid
much of the ground for the present recession. We must do
everything we can to prevent this from happening again.
Our program seeks a balanced system of prices such as
will promote B. balanced expansion in production. Our goal
18 8. constantly increasing national income through increasing
production and employment. This 18 the way to increase the
real income of consumers.
This is not R. policy of restriction; it 18 a policy of
abundance.
Our agricultural, industrial, housing and monetary pro-
grams have been and will be directed toward this end.
Regraded Unclassified
197
Topie
Answer
that is to be done?
The problem is being attacked on a good many
fronts. Many elements in our recovery program
have already been directed toward & better
balance of prices. The new farm bill will
help and 80 will the new housing program when
it gets well under way. Our expanding relief
program is also helpful.
Inflotion?
No. Our policy 10 to help restors balance
in the price structure.
Further devaluation? No.
Vas the gold action
That was one of the considerations.
of Monday 8 part of
the plen to increase
prices?
Did your Anril price It seems to me that 16 a good deal like saying
statement cause the
that the wan who warns you to slow down at the
recession?
curve is responsible if you get hurt. I think
price dislocations had A good deal to do with
the recession. Price malad justments and
speculative buying had been developing for
some time before I issued my warning that
some prices were going too high. The real
question is whether the warning should not
have been made even sooner.
Credit poltey.
We expect to continue to mintain easy credit
conditions. The policies of the Treasury and
the Federal Recerve Board are definitely along
that line.
- 2 -
198
Topic
Answer
Are you siming at It is not 8 question of restoring the level
1926 orice leval?
of any particular year. We are seeking a
balanced relationship among different groups
of prices which will promote full employment.
Are labor costs too
The real answer to lower costs of production
hight
is to be found in increased volume rather than
in loyer wages. Despite the fact that earnings
per hour in manufacturing were 24 percent higher
in 1936 than in 1932, labor costs per unit of
output were only 6 percent higher. This was
due in part to the fact that the productivity
of labor increased, but primarily was due to
the fact that labor can be used far more
efficiently in mass production industries when
they operate at high volume. This 1s further
demonstrated by the fact that in the last five
months, despite the fact that wages have not
increased, shrinking volume forced up labor
costs per unit of output as much as they had
ricen between 1932 and 1937.
I favor all efforts to stabilize employment
that will make it possible to reduce the
costly insurance of a high hourly rate on a
small number of hours of irregular work, and
substitute assured Jobs that will produce a
such higher annual income.
Did wages rise too
There were very few wage increases from 1934
fast last spring?
until October 1936. In the next nine months
average hourly earnings in manufacturing
industries rose from about 57 cents to about
65 cents. We know that many firms were in &
position to increase wage rates in 1935 and
1936. I do not think it was healthy for
business to have $0 long postponed wage
increases that they had to absorb in & single
lump of this size.
199
- 3 -
Topic
Topie
I notice that during downewings people speak
of the need for flexible vages and feel that
veges should fall. During recovery they -
to forget that wages should also be flexible
and should rise. They delay vage increases
to the last possible moment, and then at the
peak of & boom grant wage increases that are
small when measured against current profits
but at the same time difficult to maintain
when Volume falls off. If wage increases
vere not 60 long delayed but were made as
business improved business managers would
have a longer period of activity in which
to adjust themselves to wage changes.
Coal price fixing.
Prices of bituminous coal are not high.
Cut-throat competition has always dominated
this industry, and has made it impossible for
the industry to pay decent wages and give 8.
profit. The purpose of the Guffey Act is
to help establish the bituminous coal industry
on a sound basis. Prices must not be set 80
high as to transfer business from efficient
mines to competitive fuels, nor to give
monopoly profits to coal producers.
New farm bill.
Farm prices are glaring examples of prices
that are now too lov. The farm bill provides
means for preventing extreme declines in farm
prices and for maintaining income of farmers
in years of excessively high yields. At the
same time by carrying over excessive supplies
from years of large erops to years of short
crops it will tend to prevent such rapid rises
in farm prices due to short crops as occurred
in the winter of 1936-37 and added to speeula-
tion at that time.
200
a
Topic
Answer
Effect on emerts.
Foreign trade always improves when business
activity improves. Any measure which helps
bring about recovery in the United States also
helps to bring about world recovery and serves
to increase both our purchases from foreign
countries and our sales to foreign countries.
Are sugar prices too No. The Sugar Act of 1937 established our
low?
sugar policy and there is no reason to change
it.
Regraded Unclassified
201
February 18, 1038.
12:06 p.m.
H.H.Jr:
Listen, that happened yesterday. The President
asked me the question, "Were we setting up a
reserve, against the one-third increase that
takes place in Baby Bonds every ten years. 0 I
told him I didn't think DO.
Wayne C.
Taylor:
Yes, we do.
H...Jr:
Well, you might have a little memo for me, when
I get back.
T:
All right.
H.L.Jr:
Will you please?
T:
Right.
H.M.Jr:
I thank you.
T:
All right.
Regraded Unclassified
202
February 18, 1938.
18:41 p.m.
smoker
Yes, sir.
H.2.Jr:
Well how are things coming now?
%:
Oh, quiet.
P.T.Jr:
What effect did the President's statement have?
X:
Well Mr. Secretary, I'm sorry I had Mr. Opper here
for the last hour and we've discussed legal matters,
but I haven't had a call from anybody.
oh! Well -
X:
Will you be around for a few minutes?
No. No. It's all right, I've talked to Archie and -
you - I see what's happened, but I just thought I'd-
Yes. Well I'm awfully scrry.
H.H.Jr:
That's all right.
He's here at my desk and we have two legal matters
of some - and it's taken over an hour now.
F.K.Jr:
Judge Opper?
X:
Yes. Judge Opper
H.H.Jr:
Let ne talk to the Judge.
4:
Right here.
Julge
Spper:
Hello
F.S.Jr:
Hello, Judge.
?:
Hello, Mr. Secretary, how are you?
I haven't seen you since you've been confirmed,
baptized and everything else.
:
No, I meant to come in and again express my
appreciation to you, but I -
P.M.Jr;
That's all right.
203
2 I 1
0:
I knew you were terribly tied up and I thought I'd
wait a more favorable opportunity.
H.M.Jr:
All right. Well, I'll see you next week.
K:
Yes. I hope you have a very fine week end.
H.H.Jr:
Thank you. Goodbye.
K:
Goodbye.
Regraded Unclassified
204
February 18, 1938.
MEMORANDUM FOR THE SECRETARY
Secretary and those who had assistai him on
the price study went to the Executive Offices at 3:15 P.M.,
Thursday, February 17th, for a conference with the President
after the Cabinet Meeting. We waited until about 3:50 P.M. be-
fore going in to see the President.
Those present were:
Secretary Morgenthau,
Secretary Wallace,
Chairman Eccles,
Dr. Black and Dr. Esekiel of Agriculture,
Dr. Lubin and Mr. Hinrichs of Labor,
Dr. Goldenweiser and Dr. Currie of Federal
Reserve; and the following from the
Treasury: Assistant Secretary Taylor,
Messrs. Haas, White, Daggitt and Gaston.
The President opened the conference by saying! "This is
an unusual sort of meeting; the pupils have come to instruct the
teacher." Secretary Morgenthau said: "If you will pardon mo,
Mr. President, I don't think it is quite that. You will recall
that you asked me to prepare some material for you on the price
situation and the Administration's price policy. So, I called in
all these people 80 that we could get together something on which
we all would be united. I think they have done a first-class job.
205
- 2 -
I think when you read this you will find it is an excellent statement
of your position and I think it would be very helpful indeed in the
present business situation if it is issued." The President then
said, looking around the group: "Where is Herbert, is Herbert here?"
After Mr. Gaston had responded, he said: "As & newspaper man, Herbert,
what do you think about issuing 8. formal statement like this?" Mr.
Gaston replied: "I think it is a fine statement, Mr. President, and
I think it ought to be issued in order to get the best results. It
WBS our thought that you would also wish to answer questions in the
conference and at that time you could supplement the statement, ex-
plaining your position in simpler words." The President said: "Well,
I don't know about B. formal statement. That is B. very unusual thing.
I don't often issue Presidential statements unless it is on a very
unusual occasion." Secretary Morgenthau then suggested that the
President could form B. better opinion after reading the statement,
which the President proceeded to do.
The President asked questions about several statements as he
read them and explanations were given by various persons in the group,
particularly by Secretary Wallace and Chairman Ecoles, who talked at
some length. The President inserted a few minor corrections to clarify
the meaning and resumed the discussion about the usefulness of issuing
such a. statement. Both Eooles and Wallace warmly endorsed the idea of
issuing the statement and the President finally agreed that he would
read the statement at the Friday press conference, but indicated that
Regraded Unclassified
200
- 3 -
he would seek some way to qualify it so as not to make it a direct
statement by the President.
Dr. Lubin explained the four price charts which had been
selected by the group and explained them to the President. The
President showed more enthusiasm about them than he did about the
statement itself. He seemed especially interested in the one which
rthowed the rigidity of building material prices, probably because it
served to justify his statement of April 2, 1937.
The President also read et series of questions and answers which
had been prepared by the group. He objected to one of them as not
being B. sufficient answer. The President thought the prepared state-
ment WAS too technical in its language to be widely understood. He
said: "If I should call in Pat, or one of the other boys from outside
horo, do you think they could make anything out of it?" Mr. Taylor
replied that he thought any man at the head of A business would under-
stand it readily and that if he couldn't understand it he oughtn't to
be the head of a business. The President replied that he thought there
were & good many heads of businesses who wouldn't understand it and
probably they shouldn't be the heads of businesses. The President
thought there ought to be something more definite about the cost of
living, particularly addressed to the housewife. The general line of
it ought to be that while the housewife might have to pay a little
more for the things ahe buys, hor husband's increased earning power
in a rising price level should more than make it up. It was agreed
that the group would insert a paragraph along those lines.
207
- 4
As the conference broke up the President asked Gaston to seo
Steve Early about having the statement mimeographed and about the
form it should take and also about whether the questions and answers
should be mimsographed. Secretary Morgenthau told the President that
the answers had not been given the same careful preparation 8.8 the
statement and he advised against mimeographing or putting out the
answers in the form in which they then were. Following the conference
the President was much more cordial toward the idea than he had been
at the start. Gaston went to Steve Early's office directly from the
President's office with Dr. Lubin and explained the thing to Early.
Early called in a stenographer and dictated 8. form of release which
would state that the statement was read by the President at the press
conference on Friday and that it was prepared for the President by
Secretary Morgenthau and others, naming the heads of the agencies which
had cooperated. It was agreed with Early that a revised copy of the
statement would be delivered to Hassett at nine o'olock Friday morning,
together with a revised copy of the answers and with enough photostat
copies of each of the four charts to distribute B. set of charte with
each mimeograph of the statement.
Messrs. Lubin, White, Daggitt, Ezekiel, Currie and Gaston worked
Thursday evening revising the statement and the_ questions and answers
and had 250 photolith copies of the charts prepared in the Treasury.
Gaston delivered to Bassett at nine o'slook Friday morning the revised
statement, together with the copy for mimeographing, one copy of the
revised questions and answers end two copies of an explanation of the
Unclassified
208
- 5 -
charts which had been prepared by Daggitt.
Regraded Unclassified
NATIONAL RESOURCES BOARD
209
INTERIOR BUILDING
WASHINGTON
This is viry confidention
and brlongs to F.a.D. -9
Expresses only his personal
Views - not those of the
advisory Come ofther Resources
Board. -
FaD- 2/18/08
Regraded Unclassified
2.0
3rd draft
CONFIDENTIAL
FAD 2-17-38
THE RAILWAY SITUATION
It is pretty generally agreed that the reilway situation is
serious. Also, it is evident that B majority of the companies must
have an advance in rates or go into receivers' hands, yet many believe
that an increase of 10% or 15% in rates would do more harm than good
by driving away business.
The fundamental trouble with many of the roads is their top-heavy
financial structure which can only be cured by drastic methods. Re-
coiverships are too slow in operation and while costly in time 68 well
as from other points of view, have frequently demonstrated that they do
not reorganize the business of transportation on a basis that has really
survived the test of time. Hence this proposal does not seek to re-
organize legalistically in order to restore the "status quo ante",
but in order to put the industry on & sound and healthy basis which will
survive the test of time.
Among the reforms which have long been considered as desirable,
if we are to preserve the citizen ownership and private management of
our railways, there are the following:
1. The grouping of the railways into 18 to 20 systems which shall
be operated by privately owned corporations under governmental super-
vision.
2. Putting the financial structure of these railways into such
shape that they can survive depression years without financial collepse
and receivership.
Regraded Unclassified
211
3. The grouping of reilways should make possible economies such
as climinating the duplication of train service, excessive terminal
costs at important geographic centers, etc. It should also make it
easier to introduce a far simpler rate structure which will be more
convenient to the public 88 well 8.8 the railways themselves.
4. A better coordination of ruilway transportation with other
and now competing transportation agencies, e.g., highway; internal
waterways; Great Lakes and coastwise transportation; pipe-lines, and
airways.
5. A reorganization of the Interstete Commerce Commission 80
13 to simplify its methods and separate its administrative from its
judicial functions. The slowness of arriving at decisions, sometimes
very costly to carriers and industry, indicates that those entrusted
with these decisions are greatly overburdened; furthermore, the super-
visory duties over the operations of carriers which they may be clearly
compelled by law to carry out, need not be duplicated by the Interstate
Commerce Commission by such costly bureaus as those of Boiler and
Signal Inspection. Indeed, why stop there? Why not inspect track
and track work, and a hundred other details of operation and maintenance?
The duty of the carrier is to live up to the law and the instructions
of the I. C. C., and nothing is gained by duplicating detailed supervision.
6. The Government set up the Interstate Commerce Commission some
fifty years ago to do away with the evils of destructive competition,
and while we have travelled 8. long way since then, the basic problem 1s
still unsolved, and we still rely very considerably first on the
212
competition between the railways or between the railways and other
competitive forms of transportation, or upon administration rulings
of the I.C.C.; on Acts of Congress (vide the long and short haul clause);
on costly public works, for example, the Panama Canal, the canalization of
the Ohio, federal operation of barges on the lower Mississippi, etc.
should we not study and coordinate our thinking?
Assuming that these reforms and perhaps others are desirable, how
whall we proceed to make them effective?
I, In order to carry forward the first and second suggestions,
we night, through the agency of the Reconstruction Finance Corporation,
working in harmony with the Interstate Commerce Commission, proceed BS
followa:
(a) offer the railways and their bondholders in lieu of their prior
lien, main line and branch line bonds, and such other of their highor
rated bonds or debentures - bonds to be known as the 4. B& C System,
"consolidated debt" interest at 3% guaranteed by the Federal
Government. The condition of this bargain would be that at least 75%
of each of the bond issues would have to be turned into the Covernment
and held by the Federal Covernment thus making these bonds collateral
trust bonds, guaranteed as to interest by the Government and amortized
in 50 years.
(b) In view of the fact that many rellway companies have junior
bonds, dobentures and notes not rateable as prior liens, the R.F.C.,
with the consent and approval of the I.C.C. and the Secretary of the
Treasury, might very properly bargain for the purchase of the junior
213
obligations of the carriers, paying only the fair cash value of these
securities and using as currency in payment therefor the consolidated
debt bonds above referred to.
II. (a) Other conditions might properly be required, 8.5., that
the new "consolidated dobt" bonds would have to be amortized in 50 years
by application of sinking fund, depletion or depreciation allowances,
The 3. 2. C. might very properly be given discretionary power (with the
approval of the Secretary of the Treasury and the Interstate Commerce
Ocumission) to make advances to the carriers for authorized betterments
and improvements, a 1st preferred 4% stock which the carrier might be
Iven the authority of retiring at par at any time on suitable notice.
(This procedure is similar to that used in baling out the banks in 1933).
(b) AB the purpose of these proposals is to reduce fixed charges
and scale down the capital structure of our reilway plant, it is suggested
that the issuance of added capital or the sale of securities of any kind
should be more carefully guarded against than heretofore.
(c) The Interstate Commerce Commission or the R.F.C. should have
representation of the Boards of Directors or Executive Committees of
these carriers.
III. As any considerable economies cen not be effected without
reducing the number of employees, suitable retirement allowances mist
be granted, based on length of service and wages received prior to
retirement. At the seme time, it is to be expected that economies
introduced will permit lower rates and thereby increase business and
permit reemployment of competent men.
214
February 18, 1938
Jesse Jones was here at 8:30 a. n. plus Taylor
plus Bell. The purpose of the meeting was for me to
O. K. the President's writing Jones 8. letter which would
1ve back to R. F. C. full authority to make loans. The
second paragraph was to approve a plan for Jones to go
to Congress to make self-liquidating loans.
I told the crowd that I disapproved the second
idea because I wanted to wait for a week or so and see
dist happened and I thought it was B. great mistake for
E. F. C. to subject itself to this new pressure. Jones
said that after thinking it over he had come to the same
conclusion, so we wrote a letter to the President approv-
the the first paragraph.
It seems to me distinctly worth while to wait
for a week or ten days and see the effect of what we have
done this week. If Jones WGS given approval to make
self-liquidating projects, Heavens only knows what Jimmie
Roosevelt and his gang would out through. I also pointed
that out to Mr. Jones.
Mr. Jones made one very humorous remark. He
said with the President and myself leaving town this af-
ternoon, he thought he would have 2. good opportunity to
hold B press conference and get some attention.
THE WHITE HOUSE
215
WASHINGTON
February 17, 1956
Dear Jesses
While the modifications 16 have
heretofore made in your lending authority since
my letter to you of October 18th, permit ener-
gency loans of various character, it is ay wish
that you make credit available to all deserving
borrowers to which you are authorized to lend,
especially leans that will maintain or increase
employment.
It is also Ky wish that you ask
Congress for authority to make self-liquidating
loans, and such other loans as may be necessary
to promote the economic stability of the country
when credit at provailing retes for the character
of loan applied for is not otherwise available.
Very sincerely yours,
Mr. Jesse N. Jones
Chaires
Reconstruction Pinamos Corporation
Washington, D. c.
218
February 10, 1938
Dear Jesset
while the.modifications"we have hereto-
fore made in your lending authority since my
letter to you of October 18th permit emergency
loans of various character, it 1s my wish that
you make credit available to all deserving
borrowers to which you are authorized to lend,
especially loans that will maintain or increase
employment.
Very sincerely yours,
dr. Jesse Jones,
Chairman,
Reconstruction Finance Corporation,
Washington, D. C.
Regraded
217
GROUP MEETING
February 18, 1938.
9:30 A. M.
Present:
Mr. Oliphant
Mr. Magill
Mr. Gaston
Mr. W. N. Thompson
Mr. Bell
Mr. Lochhead
Mr. Gibbons
Mr. Upham
H.M.Jr:
Who is going to be here Saturday?
(Thompson, Gibbons, Upham, Lochhead, Magill,
Oliphant.)
H.M.Jr:
Who will be here Monday?
(Thompson, Gibbons, and Magill.)
H.M.Jr:
Last night at about seven o'clock Jimmy
Roosevelt called up and said the Collector of
Internal Revenue from Massachusetts is going
to be promoted and made a judge and there will
be a vacancy, and he wanted to talk to me about
it, and I said you were handling those things
for me; also the Collector of Customs from
Massachusetts. I also said that you were
handling that. So if you will get in touch
with Mr. James Roosevelt I would appreciate it.
Gibbons:
Jimmy has been wanting me to move on the
Collector of Customs, but on that situation
up there, I thought he'd better be careful.
That's the story.
H.M.Jr:
Get me a moderately honest person.
Gibbons:
I think this fellow - Irey's man seems to think
he's all right. He has never had over two
thousand dollars income.
H.M.Jr:
That he has reported?
Caston:
What is his net worth?
H.M.Jr:
All right, that's that.
218
- 2 -
Sumner Welles, acting for the Secretary of
State, had one most important thing yesterday
to bring up, and that, it seems, is the Republic
of Nicaragua owes us about a
dollar tax claim and is willing to settle for
seventy thousand, and it's nip and tuck whether
Nicaragua can last unless you settle for seventy
thousand. If we take the seventy thousand then
she can come under the Johnson Act.
Magill:
If Mr. Welles keeps up with what goes on in this
town he would know that that stands in his way.
He would know that what stands in his way is the
Joint Commission on Internal Taxation. In
other words, he has got to get a bill.
H.M.Jr:
I told him that Mr. Magill was handling Nicaragua
third baskets.
Magill:
We put on a grand show for the sake of the State
Department, led by Mr. Wenchel, and the Congress-
men turned it down cold, and said if we were
going to do it for Nicaragua we had to have a
bill.
H.M.Jr:
Who's representing Nicaragua In Washington?
Magill:
That, I don't know, being just a country boy.
H.M.Jr:
It might be interesting to find out, Mr. Magill.
Mr. Wenchel might know. They never appeared
before me, so I don't know.
Taylor:
They didn't have any legitimate claim against
them in the first place.
H.M.Jr:
And the other thing, I have seldom seen the
President so enthusiastic about anything the
Treasury has done as when I told him about the
Los Angeles plan - very enthusiastic. He said
that is the best thing he has heard, etc., and
so on. - First time I have really heard him
spark. It's about time we did something.
Magill:
Let's start the one in Texas pretty soon.
Gaston:
The matter before the Military Affairs Committee -
Hester 18 working on that and he hoped to arrange
it so that you won't have to appear at all, if
that is satisfactory to you.
- 3 -
2.9
H.M.Jr:
I don't want to go.
Gaston:
He thinks he can arrange it so you won't have
to go today.
Bell:
So far as Austria is concerned, Logan is having
a subcommittee and they have to see Logan today.
H.M.Jr:
I don't know whether I will be back Monday
because the President is forecasting the heaviest
snow storm in Dutchess County in history, so
we all expect to be snowed in.
Magill, you were wonderful. For the first time
the Republicans are to be allowed to be present
to consider the tax bill. It looks as if not-
withstanding Jesse Jones' violent efforts that
the thing may get reported out of the House one
of these days. After spirited discussion on
the tax on cotton futures and its affect on
farmers and a tax on matches, and having gotten
those two subjects in hand, they feel the bill
can see the light of day.
Upham:
Knocking off the tax on matches, his seven
million dollars is an offset to the tax on
furs, and they feel those two things balance,
and they feel you are in favor of knocking
off the tax on furs.
Magill:
That's a fact.
Caston:
Bob Allen represented you in that article. Their
column said that the tax on furs was going to be
knocked off so that Mrs. Gottrocks and Mrs.
Morgenthau could go to the opera tax free.
H.M.Jr:
Yes, I saw that. Mrs. Morgenthau was away and
I made sure the paper was not in the room.
Well, I am glad they are going to take care of
the fur people. What else?
Magill:
That's all. They made various concessions on
closely held corporations.
H.M.Jr:
How are they going to make up the seven million
dollars on matches?
Magill:
That's where they are in the hole.
4 -
220
H.M.Jr:
What makes them think I am interested in furs?
Magill:
Something you said in the conference with Doughton.
That's all.
H.M.Jr:
Any other good stories?
Magill:
Well, I could think up some, given a little time.
I think that's enough.
Oliphant:
That Mr. Harrison, of Lafayette, interested
in a group of private dealers, telegraphed me
today, wondering at what time next week you had
in mind seeing him.
H.M.Jr:
What would he do - what would that be - why should
I see him?
Oliphant:
He has been talking to General Wood.
H.M.Jr:
Do you think I should take the time?
Oliphant:
Well, I think you would be very much interested
since it avoids public participation.
B.M.Jr:
Why do they want to see the Secretary of the
Treasury?
Oliphant:
Do you wanted Ed to see him and digest it, and
give you a report?
H.M.Jr:
I think so. I tell you, I am so awfully down
on General Wood that if that's the thing, I think
he's a four-flusher of the worse kind.
Oliphant:
It's not his idea; they were consulting me merely
on collective buying and materials.
H.M.Jr:
If he wants to drop in, say next Thursday at
three o'clock.
Oliphant:
Yes.
H.M.Jr:
Anything else?
Hiphant:
No.
H.M.Jr:
Herbert?
221
- 5 -
Gaston:
Nothing else.
Gibbons:
Collector Cohn - I talked to Dr. Alexander. He
said if he were the President he would call in
the Junior Senator down there, Russell, and get
him to submit another name. He said that Cohn
was absolutely reactionary.
H.M.Jr:
Tell that to McIntyre, will you?
Gibbons:
Yes, and I took the Knoke thing over to Mac and
he asked me to leave it until he talked to the
President.
H.M.Jr:
Talk to McIntyre. If we can work it this way-
how should I know whether Collector Cohn .....
Gibbons:
It's politics, absolutely.
Did you see the speech "Jefty" O'Connor delivered
on you and the Vice President?
1.M.Jr:
It came to the house and I did not have time to
read it.
Gibbons:
It isn't worth reading.
H.M.Jr:
I gather that he thinks talking about the Vice
President and myself will help him.
Gibbons:
The silliest thing I ever read.
Gaston:
Reminds me that Marshall Diggs told me about a
dinner to be held here and other dinners through-
out the country and all the National Bank
Districts next Friday - on the seventy-fifth
anniversary of the Comptroller of the Currency,
and he talked to me about a speech that you were
to make at the dinner here, and they wanted to
make records of it to be sent around the country
to be played on radio stations.
H.M.Jr:
What kind of music - hearts and flowers.
Gaston:
I'm surprised you bring a thing like that up.
H.M.Jr:
Could you give Mr. Upham, who is coming up Monday
and Tuesday with the Chief Examiner - give me a
little something to let me know - I believe it
has been resting in your lap for a week or so -
222
9 * I
just what my legal position is in relation to
the office of the Comptroller.
Oliphant:
Wayne has had that.
H.M.Jr:
I'm sorry; I knew it was somebody - I got my
laps mixed up.
Will you bring that up?
Upham:
Surely.
Taylor:
I have that, and a picture,, I am an Indian
giver, because I want that back.
H.M.Jr:
Anybody that has anything to do with banks, give
it to Dr. Upham; he'll bring it along.
Upham:
I'll forgive you.
H.M.Jr:
You are a Doctor, aren't you?
Upham:
Not to you.
H.M.Jr:
Everybody at the meeting yesterday was a Doctor
except Wayne and me.
Taylor:
We have this letter marked "For Taylor, Oliphant,
Upham: This letter does not give me what I want.
Please talk to me." It's from Jerome Frank.
I.M.Jr:
It's the question of the cost of doing business
with S. E. C. I'll get at that next week, and
I am waiting for Mr. Oliphant to give me a list
of lawyers. Who's got that?
Oliphant:
Klaus is working over there - quite a job to
dig those records up.
H.M.Jr:
Maybe next week?
Incidentally, Griswold is having one hell of a
time finding solvent borrowers who want to borrow,
and he called up the other day - could he use my
name; he thought it would be helpful with the
Executive Committee of the Industrial Bankers
because he was having great difficulty finding
solvent borrowers who wanted to borrow, but he
thought maybe by next week he would have something.
221
7
Taylor:
Got one other thing, so you won't think nothing
is coming along, for next week. We are about
to get in a hell of a row with the Home Loan
Bank System.
H.W.Jr:
Swell! That's been going on for 8. long time.
All right, next week.
Gibbons:
Incidentally, the Comtroller General is in the
Customs Service in New York, and on one entry
of an eight thousand dollar importation they
found an error of twelve cents. They are
checking everything. They do check, but they
are going into it now with a microscope.
M.M.Jr:
On account of my criticism of them?
Gibbons:
I imagine so. Harry Durning says this time it
looks as though they are turning up the carpet.
It's his function to check it, but it's just
usually routine.
B.M.Jrt
While we're on that, I didn't get it, but Mr.
Diggs informed me that the F. D. I. C. organiza-
tion had not been audited since its inception,
and he thought on the resignation of the Comptroller
it would be a good time to have it done, and
we should pick the auditors. It seems to me
the logical thing would be for the Treasury
to audit it.
Bell:
Usually an organization of that kind has an
outside agency like Price Waterhouse; I think
R. F. C. has Haskins and Sells.
H.M.Jr:
They say in four years it has not been audited.
Bell:
It really should be audited.
Oliphant:
I wonder if the statute covers it.
H.M.Jr:
Would you take a look at it?
Oliphant:
Yes.
Bell:
They can go outside, I am pretty sure, and get
auditors.
H.M.Jr:
Anything else, Wayne?
Unclassified
- 8 -
224
Taylor:
No.
H.M.Jr:
Dan?
Bell:
I haven't anything. Just wondering if you would
like to take a memorandum to the farm with you
on Secial Security, on the work of these
Treasury representatives in the field.
H.M.Jr:
Is it going all right?
Bell:
I thought you might like to see it. Not very
long.
H.M.Jr:
Are you going to stay away a week?
Bell:
A part of the day - got to get my desk cleared
up - haven't touched it this week.
H.M.Jr:
Anything else?
Bell:
No.
Lochhead:
Foreign markets and foreign exchange seem to
be waiting on the President's conference today.
Dollars seem to be weak, but not translated
into any buying movement.
Upham:
Beginning to get a few letters in opposition to
the bank holding bill.
H.M.Jr:
That's all right. Does this fellow that you're
bringing along - incidentally, I think you can -
I think there is a train that leaves Monday at
nine o'clock, gets to Beacon where I will have
you met - this fellow - does he know at his
fingertips the rules and regulations of the
Comptroller's what the banks can own?
UPham:
Oh, yes,
H.M.Jr:
And if anybody has anything affecting banks, if
they will let Mr. Upham have it so he can bring
it along.
Thompson:
I have nothing.
H.M.Jr:
Any signing?
Regraded Unclassified
225
- 9 -
Thompson:
There may be one letter that Mr. Bell has, on
the report on the leave bill.
H.M.Jr:
I hope you all have a good week-end; I expect
to have one. I want to say I feel better about
prospects of business conditions than I have
in months, now that Mr. Wallace, Mr. Morgenthau,
Mr. Eccles, and Miss Perkins agree. I think
that in itself is an accomplishment. I really
feel that gold, plus this today - they can all
laugh and sneer at the gold and everything else,-
but I think it's going to be very helpful.
That's the way I feel today.
Regraded
228
11.35
FEB 18 1938
ROOSEVELT SEEKS BALANCE IN PRICE STRUCTURE -
SAYS DEFLATIONARY TREND OF LAST 6 MONTHS
NEEDS REVERSAL - SAYS ADMINISTRATION
INDUSTRIAL AGRICULTURAL AND MONETARY
POLICIES WILL BE AIMED AT MODERATE RISE
IN GENERAL PRICE LEVEL AND BETTER BALANCE
BETWEEN COMPETITIVE PRICES AND ADMINISTERED
PRICES
INTO 11:45
WASHN- PRESIDENT ROOSEVELT DISCUSSED
PRICES AT HIS PRESS CONFERENCE TODAY AND SAID
THAT THE ADMINISTRATION-S INDUSTRIAL
AGRICULTURAL AND MONETARY POLICIES WOULD
BE DIRECTED TOWARD A RESTORATION OF BALANCE
IN THE COMMODITY PRICE STRUCTURE AND A REVERSAL
OF THE DEFLATIONARY TREND OF THE LAST SIX MONTHS
HE STRESSED THE NECESSITY FOR BETTER
PRICE BALANCE AS THE KEY TO FULL EMPLOYMENT
AND A HIGHER NATIONAL INCOME- SOME PRICES
ARE STILL TOO HIGH HE SAID POINTING TO
THE DISPARITY BETWEEN COMPETITIVE PRICES AND
AOMINISTERED PRICES - WITH A BALANCED PRICE
STRUCTURE HE SAID THE AVERAGE FAMILY INCOME
SHOULD TEND TO INCREASE AND THE AVERAGE FAMILY
WOULD THUS BENEFIT EVEN IF THE COST OF LIVING
IS SLIGHTLY HIGHER
A MODERATE RISE IN THE GENERAL LEVEL OF
PRICES IS DESIRABLE THE PRESIDENT SAID BUT
ADDED THAT THE RISE SHOULD BE LIMITED TO
THE CLASS OF COMMODITIES WHICH ARE TOO LOW-
NOR SHOULD THE RISE HE SAID BE so GREAT OR LONG
AS TO ENCOURAGE A SPECULATIVE BOOM
Regraded Unclassified
227
AT THE CONCLUSION OF A PREPARED STATEMENT
WHICH THE PRESIDENT READ IN THE FORM OF
A REPORT FROM THREE CABINET MEMBERS THE
FEDERAL RESERVE BOARD CHAIRMAN AND VARIOUS
GOVERNMENT ECONOMISTS PRESIDENT ROOSEVELT
DISCUS EO SEVERAL QUESTIONS WHICH HE SAID
HE THOUGHT SHOULD HAVE BEEN ASKED AT THE PRESS
CONFERENCE
IN REPLY TO A QUESTION AS TO WHAT IS TO
BE DONE THE PRESIDENT SAID THE PROBLEM is
BEING ATTACKED ON A GOOD MANY FRONTS - THERE
ARE MANY ELEMENTS OF THE RECOVERY PROGRAM
BEING DIRECTED TOWARD BETTER BALANCE OF PRICES
HE SAID - PRICE BALANCE IS THE KEY TO THE WHOLE
THING HE ADDED - THE NEW FARM BILL WILL HELP HE
SAID AND so WILL THE NEW HOUSING PROGRAM AND THE
RECENT 250 000 000 DLS ADDITIONAL RELIEF
APPROPRIATION - THE PRESIDENT SAID THIS POLICY
DOES NOT MEAN INFLATION - IT IS A POLICY HE
EXPLAINED TO RESTORE BALANCE IN THE PRICE
STRUCTURE
THE POLICY DOES NOT MEAN FURTHER DEVALUA-
TION OF THE DOLLAR HE SAID
MONDAY-S ACTION BY THE TREASURY IN
MODIFYING iTS GOLD STERILIZATION PROGRAM
WAS RELATED TO THE ADMINISTRATION-S PRICE
POLICY PRESIDENT ROOSEVELT SAID - HE ADDED
THAT OTHER CONSIDERATIONS ENTERED INTO THE
GOLD POLICY CHANGE
228
THE PRESIDENT ASKED HIMSELF THE QUESTION
AS TO HOW TODAY-S STATEMENT WAS RECONCILED
WITH HIS WARNING ON HIGH PRICES LAST APRIL
AND PROCEEDED TO ANSWER IT BY SAYING
THAT THIS QUESTION WAS LIKE HOLDING A
MAN RESPONSIBLE FOR ONE-S RUNNING OFF THE
ROAD BECAUSE HE WARNED YOU TO GO SLOW AT THE
CURVE
THE PRESIDENT CONTINUED BY SAYING THAT
EVERYONE AGREED PRICE DISLOCATIONS WERE AMONG
THE MAJOR CAUSES OF THE BUSINESS RECESSION -
THE ONLY QUESTION ABOUT HIS WARNING LAST APRIL
THE PRESIDENT SAID WAS WHETHER IT SHOULDN-T HAVE
BEEN ISSUED EARLIER BECAUSE PRICE MALADJUSTMENTS
AND SPECULATION TOOK PLACE BEFORE THE WARNING
ON THE QUESTION OF CREDIT AND FINANCIAL
POLICIES PRESIDENT ROOSEVELT SAID HE EXPECTS
TO CONTINUE TO MAINTAIN EASY CREDIT CONDITIONS
AND THAT THE TREASURY AND FEDERAL RESERVE
SYSTEM WILL COOPERATE TO THAT END - PRESSED
FOR FURTHER COMMENT ON THIS POINT THE PRESIDENT
SAID THAT THESE TWO AGENCIES WOULD TAKE WHATEVER
STEPS ARE NECESSARY TO MAINTAIN EASY CREDIT
THE PRESIDENT SAID THE ANSWER TO WHETHER
THE ADMINISTRATION IS AIMING AT THE 1926
LEVEL OF PRICES is BOTH YES AND NO - IT IS
NOT A QUESTION OF A DEFINITE LEVEL OF A GIVEN
YEAR THE CHIEF EXECUTIVE SAID ONCE AGAIN
EMPHASIZING THE FACT THAT HE SEEKS BALANCED
RELATIONSHIP IN THE PRICE STRUCTURE TO PROMOTE
FULL EMPLOYMENT
229
ADD ROOSEVELT
11.47
FEB 18 1938
WASHN- BACK N 1933 AND 1934 THERE WAS A
GOOD DEAL OF TALK ABOUT THE NECESSITY OF
INCREASING PRICES TO BETWEEN 90 AND 100 PC OF
THE 1926 AVERAGE MR ROOSEVELT SAID BECAUSE THE
1926 AVERAGE REPRESENTED THE AVERAGE BASIS
ON WHICH DOLLARS HAD BEEN LOANED- 1926
DOLLAR WAS THE AVERAGE DOLLAR WHICH WAS OWED
HE SAID
SINCE 1933 AND 1934 HOWEVER THERE HAS
BEEN A GREAT DEAL OF NEW LOANING IN TERMS OF
1935 1936 AND 1937 DOLLAR PRESIDENT ROOSEVELT
EXPLAINED- THIS HAS TO BE CONSIDERED HE ADDED
AS A MODIFYING FACTOR ON THE 1926 DOLLAR IDEA
AND BY MODIFICATION HE SAID HE MEANT A
DOWNWARD REVISION
THE PRESIDENT SAID IT WAS IMPOSSIBLE
TO SET A GOAL OF 90 OR 95 IN THE WHOLESALE
COMMODITY PRICE INDEX BECAUSE THE GOAL HAS
TO BE A VARYING THING
WASHN- DISCUS ING THE QUESTION AS TO
WHETHER LABOR COSTS ARE TOO HIGH THE CHIEF
EXECUTIVE STATED THAT THE REAL ANSWER TO
LOWER PRODUCTION COSTS IS TO BE FOUND
IN INCREASED VOLUME RATHER THAN IN LOWER
WAGES - HE SAID THAT DESPITE THE FACT THAT
EARNINGS PER HOUR IN MANUFACTURING GROUPS WERE
24 PC HIGHER IN 1936 THAN IN 1932 LABOR COST
PER UNIT OF OUTPUT WAS ONLY 6 PC HIGHER
Regraded Unclassified
WASHN- THIS WAS DUE IN PART
12:00
HE SAID TO INCREASED LABOR EFFICIENCY BUT
IT WAS PRIMARILY DUE TO THE FACT THAT LABOR
CAN BE USED MORE EFFICIENTLY IN MASS
PRODUCTION INDUSTRIES WHEN THOSE INDUSTRIES
OPERATE AT A HIGH LEVEL OF OUTPUT
A FURTHER DEMONSTRATION OF THIS LABOR
COST PRINCIPLE HAS TAKEN PLACE IN THE LAST
FIVE MONTHS THE PRESIDENT SAID - HE POINTED
OUT THAT DESP ITE THE FACT THAT WAGE RATES
HAVE NOT INCREASED DURING THE LAST FIVE
MONTHS THE SHRINKAGE IN OUTPUT HAS FORCED
LABOR COSTS PER UNIT UP AS MUCH AS IT HAD
RISEN IN THE PREVIOUS FOUR YEARS THAT IS
ABOUT 6 PC
DISCUSSING THE POSSIBILITY THAT WAGES ROSE
T00 FAST IN THE SPRING OF 1937 PRESIDENT
12 13
ROOSEVELT SAID THAT INDUSTRY IN GENERAL
POSTPONED WAGE INCREASES IN 1935 AND 1936 AND
THEN HAD TO ABSORB THEM IN A LARGE LUMP DURING
THE 9 MONTHS FROM OCT 1936 TO JULY I 1937
HE SAID THAT THE AUTOMOBILE INDUSTRY
WAS AN EXAMPLE OF AN INDUSTRY WHICH HAD
GRANTED WAGE INCREASES AT THE PEAK OF A BOOM
WHICH WERE SMALL IN COMPARISON WITH PROFITS
BUT DIFFICULT TO MAINTAIN WHEN VOLUME FALLS
OFF - THE PRESIDENT SAID THAT HE FAVORED ALL
EFFORTS TO STABILIZE EMPLOYMENT THAT WOULD
MAKE IT POSSIBLE TO REDUCE THE COSTLY
INSURANCE OF A HIGH HOURLY RATE ON A SMALL
NUMBER OF HOURS OF IRREGULAR WORK AND EFFORTS
TO SUBSTITUTE ASSURED JOBS THAT WILL PRODUCE
A MUCH HIGHER ANNUAL NCOME
Unclassified
THE PRESIDENT POINTED OUT THAT PROFIT
231
SHARING WAS BEING INTRODUCED IN A GOOD MANY
INDUSTRIES AND HE THOUGHT IT HAD PROVED
SUCCESSFUL
EXPLAINING THE GUFFEY COAL LAW IN
RELATION TO PRICE POLICIES THE PRESIDENT
SAID THAT THE MINE PRICES OF BITUMINOUS
COAL ARE NOT HIGH AND THAT THERE HAS BEEN
CUT-THROAD COMPETITION IN THIS PART OF
THE INDUSTRY - THE GUFFEY ACT IS INTENDED
TO ESTABLISH A SOUND BASIS FOR THE INDUSTRY
THE CHIEF EXECUTIVE SAID AND EXPLAINED
THAT SOFT COAL PRICES MUST NOT BE SET so
HIGH AS TO TRANSFER BUSINESS FROM EFFICIENT
MINES TO OTHER FUELS NOR SHOULD MONOPOLY
PRICES FOR COAL BE SET - THE NEW FARM BILL
IS INTENDED TO PREVENT EXTREME PRICE DECLINES
IN YEARS OF LARGE SUPPLY AND ALSO TO
PREVENT HIGH PRICES IN SHORT CROP YEARS THE
PRESIDENT SAID - HE SAID IT SEEMED TO HIM
THAT THE FASTER THE RISE IN ANY GROUP OF
COMMODITIES THEN THE MORE THE SPECULATORS
TENDED TO COME IN AND MAKE THE RISE
EVEN FASTER
Regraded Inclassified
WASHN - GENERAL EFFECT OF AGRICULTURAL
INDUSTRIAL AND MONETARY POLICIES AIMED AT RE-
232
STORING PRICE BALANCE OUGHT TO BE GOOD ON
FOREIGN TRADE MR ROOSEVELT ASSERIED - HE ADD-
ED THAT RECOVERY IN U S AIDS WORLDORECOVERY
HE SAID THAT THERE WOULD BE NO CHANGE
IN ADMINISTRATION-S SUGAR POLICY SINCE SUGAR
WAS IN A DIFFERENT CATEGORY AND A POLICY HAD
BEEN LAID DOWN IN THE 1937 LAW
WHEN PRESSED FOR FURTHER COMMENT ON RELIEF
SPENDING THE PRESIDENT SAID HE REFERRED ONLY
TO THE 250 000 000 DLS RELIEF BILL NOW PEND-
ING AND INDICATED THAT HE WAS NOT SUGGESTING
FURTHER OUTLAYS
WASHN - THE PRESIDENT READ
T
110
0 HIS PRESS
CONFERENCE WITH EVIDENT APPROVAL A STATEMENT
PREPARED AT HIS REQUEST BY SECY MORGENTHAU
SECY WALLACE SECY PERKINS CHAIRMAN ECCLES
OF RESERVE BOARD AND ECONOMISTS OF VARIOUS
EXECUTIVE DEPARTMENTS
TEXT OF THIS STATEMENT FOLLOWS-
-THIS ADMINISTRATION HAS FROM THE BEGINNING
PURSUED A POLICY DESIGNED TO PROMOTE FULL
EMPLOYMENT OF OUR HUMAN AND MATERIAL RESOURCES-
THAT CONTINUES TO BE OUR POLICY - THE PRODUCTIVE
POWER TO OUR WORKERS AND OUR RESOURCES IF
FULLY UTILIZED CAN PROVIDE AND MAINTAIN A
NATIONAL INCOME FAR ABOVE ANY LEVELS WE HAVE
YET REACHED
-AN IMPORTANT FACTOR THAT DETERMINES
WHETHER WE SHALL SUCCEED OR BE BLOCKED IN OUR
200
ENDEAVOR TO ATTAIN FULL EMPLOYMENT AND A HIGH
LEVEL OF INCOME IS THE BEHAVIOUS OR PRICES-
IN THIS CONNECTION CAREFUL ATTENTION MUST
BE GIVEN TO -1- THE RELATIONS OF THE PRICES
OF VARIOUS GROUPS OF COMMODITIES TO EACH
OTHER -2- THE RELATIONS BETWEEN COMMODITY
PRICE LEVELS AND THE LEVELS OF DEBT BURDENS
AND COSTS - 3 - THE DIRECTION AND RATE OF
MOVEMENT OF THE GENERAL PRICE LEVEL - TO FURTHER
ITS BROAD OBJECTIVEH THE ADMINISTRATION HAS
THEREFORE IN ITS AGRICULTURAL INDUSTRIAL AND
MONETARY PROGRAMS NECESSARILY BEEN CONCERNED
BOTH WITH THE RELATION OF THE PRICES OF
GROUPS OF SPECIFIC COMMODITIES TO EACH
OTHER AND WITH THE MOVEMENT OF THE GENERAL
PRICE LEVEL
-THE MEASURES EMPLOYED AT ANY GIVEN TIME
TO FURTHER THIS POLICY MUST FIT THE NEEDS OF
THAT TIME - A YEAR AGO THERE WAS GROUND FOR
CONCERN THAT A TOO RAPID RISE IN THE PRICES
OF SOME COMMODITIES WAS ENCOURAGING A
SPECULATIVE BOOM - DURING THE PAST SIX MONTHS
ON THE OTHER HAND THE GENERAL PRICE LEVEL
AND INDUSTRIAL ACTIVITY HAVE BEEN DECLINING -
GOVERNMENT POLICY MUST BE DIRECTED TO REVERSING
THIS DEFLATIONARY TREND
-THIS DOES NOT MEAN THAT ALL PRICES SHOULD
ADVANCE NOR THAT THE RISE SHOULD BE RAPID -
PRICES OF DIFFERENT GROUPS OF PRODUCTS MUST
BE BROUGHT INTO BALANCED RELATIONS TO ONE
ANOTHER - SOME PRICES AND SOME COSTS ARE STILL
TOO HIGH TO PROMOTE THAT BALANCED RELATIONSHIP
234
BETWEEN PRICES THAT is NECESSARY FOR SUSTAINED
RECOVERY - CONTINUED HIGH PRICES OF MANY OF
THE COMMODITIES NOT SUBJECT TO HIGHLY
COMPETITIVE MARKET FORCES INTENSIFIED THE
DOWNWARD PRESSURE ON ALL OTHER PRICES-
THOSE INDUSTRIES THAT HAVE MAINTAINED PRICES
AND CURTAILED OUTPUT SHOULD SEEK THE RESTORATION
OF PROFITS THROUGH INCREASED RATHER THAN
THROUGH RESTRICTED OUTPUT
-THE PRICES OF \SOME ITEMS ARE STILL AT
THE HIGHEST LEVELS REACHED IN 1937 - SOME
ARE EVEN HIGHER THAN IN 1929 - WHEN HIGH
PRICES SHARPLY CURTAIL SALES THERE IS REAL
DANGER - THIS is SHOWN BY OUR RECENT EXPERIENCE
WITH HOUSING - A YEAR AGO THERE WAS A SERIOUS
SHORTAGE - WE HAD UNUSED PRODUCTIVE RESOURCES
AMPLE TO OVERCOME THE SHORTAGE - YET ALL THE
MAJOR ELEMENTS IN HOUSING COSTS ADVANCED
so SHARPLY BY THE SPRING OF 1937 AS TO KILL
A PROMISING EXPANSION OF ACTIVITY IN AN
INDUSTRY WHOSE RESTORATION IS VITAL TO
CONTINUED RECOVERY
-FOR INDUSTRIES SUCH AS AGRICULTURE THAT
OPERATE AT A HIGH LEVEL OF CAPACITY EVEN WHEN
BUSINESS ACTIVITY IS AT LOW LEVELS THE
RESTORATION OF PROFITS MUST COME PRIMARILY
THROUGH HIGHER PRICES - HIGHER PRICES IN SUCH
INDUSTRIES AND INCREASED OUTPUT IN OTHER
INDUSTRIES WILL BE INCREASING PROFITS
ENCOURAGE NEW INVESTMENT IN REPLACEMENT AND
EXPANSION OF EQUIPMENT - THIS IS NECESSARY TO
FULL RECOVERY
Regi aded Unclassified
-THE AVERAGE FAMILY WILL BENEFIT FROM THE
235
BUSINESS RECOVERY WHICH A BALANCED PRICE STRUC-
TURE WILL FOSTER - INCREASED EMPLOYMENT AND
MORE CONTINUOUS INCOME SHOULD MUCH MORE THAN
OFFSET ANY INCREASE IN THE COST OF LIVING -
RECENTLY WHOLESALE PRICES HAVE DECLINED MARKEDLY
YET THAT DECLINE HAS BEEN REFLECTED IN THE
COST OF LIVING ONLY TO A VERY SLIGHT DEGREE-
A MODERATE RISE IN WHOLESALE PRICES AT THIS
TIME SHOULD ONLY SLIGHTLY AFFECT LIVING
COSTS - INCOMES OF MOST FAMILIES WILL INCREASE
WHILE THE COST OF WHAT THE HOUSEWIFE BUYS
SHOULD SHOW LITTLE CHANGE - THE AVERAGE
FAMILY WILL ENJOY A HIGHER STANDARD OF LIVING
-IT IS CLEAR THAT IN THE PRESENT SITUATION
A MODERATE RISE IN THE GENERAL PRICE LEVEL
IS DESIRABLE AND THAT THIS RISE NEED NOT
AND SHOULD NOT EXTEND TO ALL PRICES - THE
RISE SHOULD TAKE PLACE IN AND MUST BE
MAINLY CONFINED TO CLASSES OF COMMODITIES
WHOSE PRICES ARE TOO LOW - THESE INCLUDE
MOST OF THOSE RAW MATERIALS AND FINISHED
PRODUCTS. WHICH ARE PRODUCED AND SOLD UNDER
HIGHLY COMPETITIVE CONDITIONS - SUCH RISE
MUST NOT BE SO SHARP OR CONTINUE SO LONG
AS TO LEAD TO A REPETITION OF THE UNHEALTHY
SPECULATIVE CONDITIONS OF A YEAR AGO - THAT
SHARP RISE IN PRICES ENCOURAGED SPECULATIVE
INVENTORY BUYING WHICH COMBINED WITH THE
DECLINE IN HOUSING CONSTRUCTION LAID MUCH OF
THE GROUND FOR THE PRESENT RECESSION - WE
MUST DO EVERYTHING WE CAN TO PREVENT THIS FROM
HAPPENING AGAIN
236
-OUR PROGRAM SEEKS A BALANCED SYSTEM OF
PRICES SUCH AS WILL PROMOTE A BALANCED EXPANSION
IN PRODUCTION - OUR GOAL IS A CONSTANTLY
INCREASING NATIONAL NCOME THROUGH INCREASING
PRODUCTION AND EMPLOYMENT - THIS IS THE WAY
TO INCREASE THE REAL INCOME OF CONSUMERS
-THIS IS NOT A POLICY OF RESTRICTION IT
IS A POLICY OF ABUNDANCE
-OUR AGRICULTURAL INDUSTRIAL HOUSING
AND MONETARY PROGRAMS HAVE BEEN AND WILL
BE DIRECTED TOWARD THIS END-
Unclassified
PRESIDENT ROOSEVELT SAID TODAY THE ADMINISTRATION SEEKS À BALANCED
237
SYSTEM OF PRICES WHICH WILL EXPAND PRODUCTION, INCREASE NATIONAL INCOME
AND REVIVE EMPLOYMENT.
2/18--R1131A
THE PRESIDENT OUTLINED HIS POSITION ON PRICES IN A STATEMENT READ TO
HIS FRIDAY MORNING PRESS CONFERENCE.
THE ADMINISTRATION'S POLICY, HE SAID, "IS NOT A POLICY OF RESTRIC-
TION: IT IS A POLICY OF ABUNDANCE.'
"OUR AGRICULTURAL, INDUSTRIAL, HOUSING AND MONETARY PROGRAMS HAVE
BEEN AND WILL BE DIRECTED TOWARD THIS END," MR. ROOSEVELT DECLARED.
MR. ROOSEVELT DECLARED THAT ACHIEVEMENT OF THE ADMINISTRATION'S
GOALS WOULD "PROVIDE AND MAINTAIN A NATIONAL INCOME FAR ABOVE ANY
LEVELS WE HAVE YET REACHED.
MR. ROOSEVELT DID NOT TOUCH ON THE QUESTION OF WAGES IN HIS FORMAL
PRICE STATEMENT. INFORMALLY, HOWEVER, HE DECLARED THAT EMPHASIS IS
GENERALLY PLACED ON A FLEXIBLE WAGE SCALE DURING A DOWNWARD
SWING OF THE ECONOMIC CYCLE. HOWEVER, HE POINTED OUT, INDUSTRY HAS A
TENDENCY TO IGNORE THE FLEXIBILITY OF WAGES AS PRODUCTION MOVES UP,
DELAYING PAY INCREASES UNTIL THE LAST POSSIBLE MOMENT.
2/18--R1138A
Regraded Unclassified
OFTEN, HE SAID, INDUSTRY DELAYS WAGE INCREASES UNTIL THE VERY PEAK OF
A BOOM, EVEN THOUGH THE VAGE INCREASE IS SMALL BY COMPARISON WITH ANS
INDUSTRY'S PROFITS. BECAUSE OF THIS POLICY OF DELAY IN GRANTING WAGE
INCREASES, HE SAID, IT IS DIFFICULT TO MAINTAIN THESE SCALES WHEN
PROFITS FALL OFF.
THE PRESIDENT CITED THE AUTOMOBILE INDUSTRY AS AN EXAMPLE OF THIS
WAGE POLICY.
2/18--R1142A
THE PRESIDENT DECLARED THE ADMINISTRATION PROGRAM DOES N 0 T
NEAN INFLATION, BUT IS A POLICY TO HELP RESTORE THE BALANCE IN THE
PRICE STRUCTURE.
IT DOES NOT MEAN, HE SAID, DEVALUATION OF THE DOLLAR. HOWEVER,
HE CHARACTERIZED THE ENDING OF GOLD STERILIZATION MONDAY WAS A CONSIDER-
ATION IN DRAFTING THE PROGRAM FOR RESTORATION OF PRICES.
HE SAID THAT HE AND THE GOVERNMENT'S EXPERTS AGREE THATOPRICE
DISLOCATION IS ONE OF THE MAJOR CAUSES OF THE RECESSION. HE SAID
DISLOCATION OR MALADJUSTMENT FOLLOWED SPECULATIVE BUYING WHICH
DEVELOPED DURING 1936 AND THE FIRST FOUR MONTHS OF 1937 AND BEFORE
MR. ROOSEVELT ISSUED HIS WARNING LAST APRIL THAT PRICES WERE GOING TOO
HIGH. HE OBSERVED THAT PERHAPS HE SHOULD HAVE ISSUED THE WARNING BEFORE
HE DID.
AS TO CREDIT POLICY, THE PRESIDENT SAID THE ADMINISTRATION
EXPECTS TO CONTINUE TO MAINTAIN EASY CREDIT CONDITIONS. THE FEDERAL
RESERVE BOARD AND THE TREASURY ARE COOPERATING TOWARD THAT END, HE
SAID.
THE CHIEF EXECUTIVE THEN ASKED HIMSELF THE QUESTION WHETHER THE
ADMINISTRATION HAD TAKEN THE 1926 PRICE LEVEL AS AN OBJECTIVE TO BE
ATTAINED. HIS REPLY WAS YES AND NO.
HE SAID THE OBJECTIVE WAS NOT TO RESTORE PRICE LEVELS TO THOSE OF
A GIVEN YEAR BUT TO SEEK A BALANCED RELATIONSHIP BETWEEN PRICES AS A
MEANS OF STIMULATING EMPLOYMENT AND THE BROAD ECONOMIC STRUCTURE.
2/18--R1147A
Reg aded Unclassified
MR. ROOSEVELT SAID THE 1926 PRICE LEVEL HAD BEEN SELECTED AS
A CRITERION BECAUSE CONDITIONS IN THAT YEAR REPRESENTED A FAIR BALANCE
VITH REGARD TO CREDIT--AS BETWEEN CREDITORS AND DEBTORS. SINCE 1926, HE
POINTED OUT MUCH NEW LENDING OCCURRED--ESPECIALLY IN 1933, 1934 AND THE
THREE YEARS SINCE THAT TIME. THIS LENDING, HE POINTED OUT, MODIFIED THE
GENERAL PRICE AVERAGES OF 1926 TO A CERTAIN EXTENT.
THE PRESIDENT SAID HE COULD NOT SAY WHETHER THE PRICE LEVEL COULD BE
RAISED BACK TO THE 1926 INDEX AS IT IS A VARYING THING AND SUBSEQUENT
RELATIONSHIPS EFFECT ANY NORM THAT IS TAKEN.
MR. ROOSEVELT ASKED HIMSELF WHETHER LABOR COSTS WERE TOO HIGH.
HE REPLIED THAT THE REAL ANSWER TO LOWER COSTS OF PRODUCTION IS TO BE
FOUND IN INCREASED VOLUME RATHER THAN IN LOWER WAGES. HE POINTED OUT
THAT DESPITE THE FACT THAT EARNINGS PER HOUR IN MANUFACTURING GROUPS
WERE 24 PERCENT HIGHER IN 1936 THAN 1932 LABOR COSTS PER UNIT OF OUTPUT
WERE ONLY 6 PERCENT HIGHER, DUE IN PART TO THE FACT THAT PRODUCTIVITY
OF LABOR INCREASED
THE PRESIDENT'S STATEMENT DECLARED THAT PRICES HAD FALLEN IN THE
PAST SIX MONTHS AND THAT "GOVERNMENT POLICY MUST BE DIRECTED TO
REVERSING THIS DEFLATIONARY TREND."
"THIS DOES NOT MEAN," HE SAID, "THAT ALL PRICES SHOULD ADVANCE NOR
THAT THE RISE SHOULD BE RAPID. PRICES OF DIFFERENT GROUPS OF PRODUCTS
MUST BE BROUGHT INTO BALANCED RELATIONS TO ONE ANOTHER."
HE DID NOT LIST SPECIFIC PRICES IN HIS STATEMENT WHICH HE BELIEVED
SHOULD BE REDUCED BUT SAID THAT "CONTINUED HIGH PRICES OF MANY OF THE
COMMODITIES NOT SUBJECT TO HIGHLY COMPETITIVE MARKET FORCES
INTENSIFIES THE DOWNWARD PRESSURE ON ALL OTHER PRICES."
"THOSE INDUSTRIES," HE SAID, "THAT HAVE MAINTAINED PRICES AND
CURTAILED OUTPUT SHOULD SEEK THE RESTORATION OF PROFITS THROUGH INCREASED
RATHER THAN THROUGH RESTRICTED OUTPUT.'
2/18--R1157A
Unclassified
LABOR, THE PRESIDENT SAID, IS MORE EFFICIENT IN MASS PRODUCTION
242
INDUSTRY WHEN THAT INDUSTRY OPERATES AT A HIGH LEVEL OUTPUT.
THIS IS FURTHER DEMONSTRATED BY THE FACT THAT IN THE LAST FIVE
MONTHS, DESPITE THE FACT THAT WAGES HAVE NOT INCREASED, SHRINKING
VOLUME FORCED UP LABOR COSTS PER UNIT OF OUTPUT AS MUCH AS THEY HAD
RISEN BETWEEN 1932 AND 1937.
MR. ROOSEVELT SAID HE FAVORED ALL EFFORTS TO STABILIZE EMPLOYMENT
THAT WILL MAKE IT POSSIBLE TO REDUCE THE COSTLY INSURANCE OF A HIGH
HOURLY RATE ON A SMALL NUMBER OF HOURS OF IRREGULAR WORK, AND SUBSTITUTE
ASSURED JOBS THAT WILL PRODUCE A MUCH HIGHER ANNUAL INCOME.
ASKED IF WAGES ROSE TOO FAST LAST SPRING, HE REMARKED THERE WERE VERY
FEW WAGE INCREASES FROM 1934 UNTIL OCTOBER, 1936. IN THE NEXT NINE
MONTHS, AVERAGE HOURLY EARNINGS IN MANUFACTURING INDUSTRIES ROSÉ FROM
ABOUT 57 CENTS TO ABOUT 65 CENTS. HE DECLARED THAT MANY FIRMS WERE
IN A POSITION TO INCREASE WAGE RATES IN 1935 AND 1936. HE SAID HE DID
NOT BELIEVE IT WAS HEALTHY FOR BUSINESS TO POSTPONE WAGE INCREASES
so LONG THAT THEY HAD TO ABSORE THEM IN A SINGLE LUMP OF THAT SIZE,
THE PRESIDENT SAID THAT IF WAGE INCREASES WERE NOT so LONG DELAYED
OUT WERE MADE AS BUSINESS IMPROVED, BUSINESS MANAGERS WOULD HAVE A LONGER
PERIOD OF ACTIVITY IN WHICH TO ADJUST THEMSELVES TO WAGE CHANGES.
THE RESIDENT SAID FARM PRICES ARE A GLARING EXAMPLE OF PRICES THAT
WERE TOO LOW. HE SAID THE NEWLY ENACTED FARM BILL WAS DESIGNED TO PREVENT
EXTREME LOWS AND MAINTAIN PRICES IN YEARS OF EXCESSIVE CROPS CAUSED
BY NATURE.
Regraded Unclassified
MR. ROOSEVELT HOPED HIS PRICE PROGRAM WOULD HAVE AN
EXCELLENT EFFECT ON FOREIGN TRADE. ANY MEASURE, HE SAID, THAT HELPS
RECOVERY IN THE U.S. ALSO HELPS WORLD RECOVERY.
HE WAS ASKED WHETHER SUGAR PRICES WOULD BE AFFECTED AND SAID THAT THAT
FELL INTO A DIFFERENT CATEGORY- THE SUGAR ACT OF 1937 WHICH ESTABLISHED
SUGAR POLICY.
THE CHIEF EXECUTIVE WAS ASKED WHAT COULD BE DONE ABOUT SITUATIONS
WHERE RIGID PRICES PREVAIL. HE SAID THAT SUBJECT WAS BEING GIVEN STUDY
BUT CONCERNED INDUSTRIES ON THE MONOPOLISTIC SIDE. HE SAID NO ACTION WAS
READY YET.
MR. ROOSEVELT SAID HE WAS MUCH CONCERNED BY THE EXCESSIVE BIDS FOR
MERCHANT CARGO SHIP CONSTRUCTION. HE SAID THEY WERE FAR ABOVE THE COST
OF BUILDING SHIPS DURING THE WAR PERIOD.
HE SAID THE PROBLEM IS A HEADACHE.
ASKED WHAT COULD BE DONE, HE SAID THERE WERE SEVERAL COSTLY ALTER-
MATIVES, SUCH AS GOVERNMENT FINANCING OF A NEW YARD OR GIVING NAVY YARDS
NEW EQUIPMENT. HE REVEALED HE HAD TALKED TO CONGRESSMEN ABOUT THE SHIP
BUILDING PROGRAM AND THAT THEY ADMITTED THE ONLY WAY COSTS COULD BE
HELD WITHIN REASON WAS TO HAVE THE VESSELS BUILT IN FOREIGN YARDS, BUT
THAT NATURALLY THEY COULD NOT VOTE FOR SUCH A PROPOSITION.
MR. 2/18--R1209P ROOSEVELT WAS ASKED ABOUT WAR DEBTS AT HIS PRESS CONFERENCE
AND REPLIED THAT HE HAD N 0 T DISCUSSED THE MATTER IN THE PAST 48
HOURS ANY MORE THAN IN THE PAST 48 DAYS OR 480 DAYS.
2/18--R1211P
Regraded Unclassified
AH
242
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
COMMISSIONER OF
WASHINGTON
ACCOUNTS AND DEPOSITS
February 18, 1937
TO: THE SECRETARY
This is in reference to the situation with respect to the
payment of unemployment compensation, based upon reports received from
the Treasury officers who have been assigned as consulting accountante
to the Social Security Board.
Our accountants, on this assignment, have been instructed to
furnish this office currently with the following information:
1. Newspaper clippings
2, Statements showing status of work (1.e. number of claims
filed, approved, denied, in process, and paid).
3. Report on important matters relating to facilities and
probleme of the state agencies (in the form of a ques-
tionnarie).
4. Diary of events relating to the assignment,
In addition to the foregoing information received directly
from the Treasury accountants, this office is receiving from the Social
Security Board in Washington 8 semi-weekly confidential release report-
1ng the condition of work in all states with respect to number of claime
filed, approved, denied, and paid. Until recently this was a daily
release.
The latest information we have with respect to the various
states is set forth in the attached loose leaf binder, which 1a kept
up to date as nearly as practicable.
- 8 -
243
The states which have requested the services of Treasury
accountants, are:
Alabama
Maine
North Carolina
Arizona
Maryland
Oregon
California
Massachusetts
Pennsylvania
Connecticut
Minnesota
Tennessee
District of Columbia
New York
The states which have not requested the services of Treasury
accountants, are:
Louisiana
Texas
Virginia
New Hampshire
Utah
West Virginia
Rhode Island
Vermont
Generally speaking, the states which have not requested the
services of Treasury accountants are reported to be in satisfactory
condition. This does not appear to be true in the Case of Louisiene,
Virginia, or Nest Virginia.
ALABAMA
The Treasury accountent was not called in until February 15th.
The latest information we have regarding the claims work in this state
is as of February 8th and La rather unfavorable. The total number of
claims filed was reported as being 76,000, of which 39,400 had been
allowed and 410 denied, making a total of 39,810 claims disposed of
(approximately 50%). Through February 9th only 14,558 checks amounting
to $9,313.00 had been issued.
ARIZONA
The volume of claims is small but the situation within the
State Agency is not satisfactory. There has been serious difficulty
due to incompetent help, poor organization, internal dissension, and
political influence in employing personnel. The cost of administration
is very high. In 8. special executive session held by the State Commission
244
- a .
on February 11th, it was unaminously agreed that the services of the
Treasury accountant would be requested for 60 days to completely organize
the Agency. The status of the work of processing claims and issuing
benefit checks, however, appears to be satisfactory.
CALIFORNIA
The volume of claims is heavy and the situation 16 not at all
satisfactory. Although first payments were due February 7tb, the Treasury
accountant reports that 68 of February 14th determinations had been com-
plated on only 38,461 claims out of 6 total of 107,745 filed, and only
304 checks had been issued against 30,519 pay orders received. He also
reports that delayed payments will result and while there has been no
serious public criticism thus far that is likely also to result- Re
states services have not been utilized by the Agency to any great extent.
CONNECTICUT
The status of the work in this State appears to be generally
satisfactory.
DISTRICT OF COLUMBIA
Until February 14th, the District Unemployment Compensation
Foard declined the assistance of a Treasury accountant but his services
are now being used. The latest information available (as of February
10th) is that 20,114 claims were riled, of which only 1739 were allowed
nd 6,547 denied making 8. total of 8,286 disposed of. This indicates
they are considerably in arrears in determining benefits. Payments
were ordered in only 929 cases, against which only 332 were issued
amounting to $3,103.00. The situation in the District of Columbia
Regraded Unclassified
245
has been watched closely by representatives of the Social Security Board
and assistance given in developing procedure and organization.
LOUISIANA
Although Treasury services have not been requested, we have
sent the Treasury accountant to Baton Rouge, just to look around end
procure what information he could under the circumstances. The latest
information we have regarding claims filed and benefit determinations
mde, is 86 of February 5th. ÁB of that date, 21,279 claims had been
filed, on which only 10,173 benefit determinations had been completed,
This work, at that time, was only 50% current. As of February 10th,
3324 benefit checks, involving the sum of $24,474.20, had been issued,
indicating that there also is delay in the issuance of checks for ben-
efits due. As previously stated, our men are under instructions to send
to this Office all newspaper clippings relative to the unemployment com-
pensation program, but to date the only nows articles received on the
State of Louisiana relate to Governor Leche's program of securing "non-
firing" pledges from employers. A newspaper clipping received last week
als. sttributes to Governor Leche B statement to effect that Louisiana
is enjoying employment conditions better than most of the states and that
less than 1% of Louisiana's population are claimants for benefits under
the Compensation Payment Act. The Treasury accountant hes just been in-
structed to see Social Security Board representative with a view to ascer-
taining just what the present situation 16 and reaching B definite under-
standing se to whether his services will be utilized by the State Agency,
248
- 5 -
MAINE
The status of the work in this State appeare to be generally
satisfactory. The trend of conditions is forward and not backward.
MARYLAND
The Treasury accountant reports a deplorable condition with
respect to organization within the State Agency. The principal diffi-
culty appears to grow out of the fact that, because of illness, the
Precutive Director of the Agency has not been on duty since August
1937, with the result that there is no directing force in the Agency
for coordinating the various activities, The Treasury accountant has
been required to shoulder much of the administrative responsibility and
reports that the employment of El qualified director, clothed with the
necessary authority, is required to put the Agency in shape in order
that it may function properly on a permanent basis. He also reports
there la no one in the organization at the present time capable of
filling such position. The Treasury accountant has had several
conferences in Washington with the Social Security Board relative to
this matter. On February 15th a conference WBB held in Washington
between the Maryland Unemployment Compensation Board and the Social
Security Board B.B e result of which the State Board is definitely can-
mitted to prompt action in this matter as well 66 other corrective
action with respect to the organization of the State Agency. Notwith-
standing the aforementioned condition the progress made in processing
claims through the benefit determination stage compares favorably with
most other statos due largely to the unusual efforts put forth by the
Treasury accountant. Regardless of corrective action that 10 to be
247
- 6 -
taken the State Board desires the services of the Treasury accountant
for at least another month. In view of the delay in issuing benefit
checks the State Board issued orders last week that all employees of
the Agency would work 12 hours a day, plus 7 hours on Sunday, until
distribution of checka is up to the schedule set to give every unem-
ployed worker one check a week. As of February 14th there had been
37,417 checks issued, amounting to 3326,074.54.
MASSACHUSETTS
Information concerning Massachusetts is rether meagar for
the reason that in requesting the services of the Treasury accountant
the State Agency has placed restrictions on the manner in which infor-
mation ould be communicated to Washington. The latest information
available is 8.8. of February 10th, showing that 229,913 claims were
filed. of these, 109,795 have been allowed, and 5,721 denied, making
B. total of 115,516 claims disposed of. A total of 73,270 checks had
been issued, amounting to $741,897.00. The Treasury accountant states
that there is considerable "hest" being put on the State Unemployment
Compensation Commission by the newspapers, particularly the "Springfield
Republican*.
MINNESOTA
The Treasury accountant was not called in until February lat.
He reports that as of February 14th, 66,426 claims had been filed, of
which 31,200 were allowed, 871 danied, making B total of 32,071 claims
disposed of. Although first payments were due January 23rd, only 2,737
Regraded Unclassified
248
?
checks amounting to $31,881.36 had been issued up to February 15th.
The Treasury accountant attributes the slow progress to insufficient
space, unqualified personnel, faulty organization, and lack of perma-
nent procedure. Although he reports that there has been no public
criticism thus far, there will be a serious condition of delayed DAY-
ments until the eforementioned deficiencies are corrected.
NEW HAMPSHIRE
The status of the work in this State appears to be generally
satisfactory. There le little likelihood of the services of the Treasury
accountant being requested.
NEW YORK
Until the past week the situation in New York looked very
doubtful, but a report received as of February 10th indicates that
improvement has been made recently and that work will be on a
current basis some time between February 25 and March 1. AS of
February 10th, 662,400 claims had been filed and determinations had
been made with respect to 289,424 of the claims. It 16 to be noted,
however, that 64,010 of these claims were determined to be ineligible.
Checks actually issued numbered 44,114, and in addition, there are 49,078
checks in the State Comptroller's Office which were to be released aa soon
as required notices are received from claimants, indicating that they have
Regraded Unclassified
218
11
not worked during the particular weeks to which the benefit checks per-
tain. In addition there were 110,132 eligible claime awaiting prepare-
tion of the checks. Improvements in New York are indicated by the fact
that on February 10th they issued 12,978 checks. This is more than
one-fourth of the checks issued during the whole period. It 1s difficult
for either the Social Security Board representative or the Treasury
accountant to render maximum service in New York State because of the
attitude of the State Agency. The State Agency appears to be reluctant
to furnish information or data on the B. ogrens being made in the process-
Ing of claims.
NORTH CAROLINA
There was little inclimation to use Federal assistance until
after adverse newspaper publicity on February 8th. As of February 14th,
137,098 claims had been filed, of which 70,392 had been allowed and 13,900
denied, making & total of 84,292 claims disposed of. There had been
44,822 pay orders prepared against which only 16,289 checks had been
Issued although the first benefit payments became due on January 23rd.
The Treasury accountant reports that he considers the situation rather
serious as the Agency in its endeavor to correct the delay in payments
by speeding up the issuance of pay orders and checks has literally thrown
all precautions to the winds. Duplicate checks have been mailed on many
different occasions and while the officials are eware of this situation,
they refuse to allow any Federal representatives to become familiar with
the circumstances surrounding the lack of adequate control over disburse-
ments BO that suggestive procedures may be developed. There appears to
200
- 9 -
be tradequate space, lack of trained personnel, inadequate organization
and supervision, and e definite need for standard operating procedure.
OREGON
Oregon 1s moving very cautiously, placing principal emphasis
on accuracy in making benefit determinations and payments. Payments in
(regon are probably slowed up somewhat because of provision in State law
not requiring employers to make reports until separation of employees.
Benefit determinations are based upon wage reporte received from employers
at time of separation rather than upon current reports, Work relating
16 determination of benefits is only about 25% current. It 10 also re-
ported that the personnel 18 untrained and that there is inadequate super-
vision. There appears to have been no serious adverse newapaper publicity.
Report received this morning indicatos improvement in conditions.
PENNSYLVANIA
Conditions in this state are fairly satisfectory although the
large number of claimants, 81,893, who have been declared temporarily
ineligible may result in a condition of delayed payments and serious public
criticiam if 8 substantial number of such claimants are eventually dater-
mined to be eligible because of improper wage records kept in the State
Agency. While there has been no serious newspaper criticism thus far,
= heavy volume of correspondence 1s being received in the State Agency
from claimants who registered through the first three weeks waiting period
and first compensable week, but have not yet received their first benefit
checks. Also letters are being received from such civic groups BB
merican Legion Posta, Chambers of Commerce, etc., inquiring about delay
in benefit payments. The Treasury accountant reports that space, aquipment,
Regraded Unclassified
251
- 10 -
personnel, and procedure 1a all adequate. Through February 12th, e
total of 481,792 claims had been filed and determinations made in
342,408 cases, leaving 139,384 claims unprocessed, Against 260,700
pey orders received, 144,560 checks had been issued. First payments
were not due until February lst.
RHODE ISLAND
The status of the work in this State sppears to be generally
satisfuctory.
TENNESSEE
While the status of benefit determination work has been
generally satisfactory, the Treasury accountant reports February 14th
that the progress of benefit payments after determinations have been
completed has been very unsatisfactory. This is due to leck of filing
equipment, inefficient personnel, errors in computing claims, incorrect
filing, and many other contributing factors. Very few corrective measures
08 being taken by the Stage Agency. Where's 58,880 pay ordere have been
received through February 14th, only 20,057 checks amounting to $139,284.87
have been issued against such pay orders. There already has been news-
paper criticism and the condition of delayed payments will probably become
even more serious.
TEXAS
The status of the work in this state appears to be generally
satisfactory, and it is unlikely that the services of the Treasury account-
ant will be requested.
UTAH
The status of the work in this State appears to be generally
Regraded Unclassified
- 11 -
252
salisfactory and 11 is unlikely that the services of the Treasury
Accountant will be requested.
VERMONT
The status of the work in this State also appears to be
generally satisfactory end that no need will exist for the services
of the Treasury accountant.
VIRGINIA
Payments 10 Virginia were dun at the and of the first con-
pensable week, on January 24th. Although the services of our Treasury
accountant have not been requested, he reports that only 2,212 checks
ware written through February 12th. He was unable to obtain accurate
figures on the number of checks or claims now due or past due, but the
beet patimates on February 12th are from 18,000 to 23,000 items now due,
to of which are two or three weeks past due. It appears that it will
take at lesst thirty days to clean up the back load, and the problem
undoubtedly will be increased and become more scute as "continuing"
claims become due from week to week. There appears tc have been no
iverse publicity thus far, but the Treasury accountant's appreisal of
the situation is that it is rather serious. Rs also reports that the
office of the State Auditor has apparently assumed control over the
accounting and benefit payment procedures end that the Assistant State
Auditor 18 now in personal charge.
WEST VIRGINIA
The latest information W- have in the case of West Virginia
is that conditions are not very satisfactory and that there has been
Regraded Unclassified
253
12
quite a little adverse publicity. As of February 10th benefit determi-
nations have been completed on approximately only 53% of the total number
of claims filed. The checke issued mumbered 19,740, involving a total
eum of $200,508.24. It appears that Governor Holt has promised repre-
sentatives of organized labor to employ more clerks to expedite processing
of claims. Considerable difficulty is being encountered because of failure
of employers to file wage reports. Warrants for the arrest of some do-
linquent employers have been issued. Thus fer there has been no inclina-
tion to request the services of the Treasury accountant.
It is worthy of note that in a great many states the proportion
of claims denied to claims filed is great. These denials are made for
various reasons such as lack of wage records in the State Agency, in-
sufficient earnings recorded in wage records, lack of social security
numbers for claimants, lack of other necessary information in the cleims
presented, errors in benefit determinations, duplicate claims, etc.
When these claims are denied and it later develops that due to improper
record keeping or other action taken by the State Agency the claima should
have been allowed, much serious criticism can develop even though the
condition of work in the Agency has been generally satisfactory. There-
fore, the Treasury accountants are being requested to give special
attention to this phase of the situation and report fully to me not
only the conditions that exist but also the messures that will be taken
to alleviate the difficulties.
Regraded Unclassified
REB
TELEGRAM SENT
GRAY
Fabruary 18, 1938.
4 P. m.
AMEXUASSY
LONDON (ENGLAND)
75
FOR BUTTERWORTH.
The Secretary of the Treasury transmits the
following text released to the press at the White House:
"STATEMENT READ TO NEWSPAPERMEN WHO ATTENDED THE
PRESIDENT'S CONFERENCE WITH THE PRESS, FRIDAY, FEBRUARY
18:
"This Administration has from the beginning
mircused a policy designed to promote full employment
or our human and material resources. That continues
to bE our policy. The productive power of our workers
and our resources, if fully utilized, can provide and
maintain a national income far above any levels WE have
yet reached.
"An important factor that determines whether WE
shall succeed or bE blocked in our endeavor to attain
full Employment and a high level of income is the
behavior of prices. In this connection careful atten-
tion must bE given to: (1) the rElations of the
prices of various groups of commodities to each other:
(2) the relations between commodity price levels and
the levels of debt burdens and costs; (3) the direction
and rate of movement of the general price level. To
Further its brand objective the Administration has,
monetary programs necessarily been concerned both with
therefort, in Its agricultural, industrial, and
the relation of the prices of groups of specific corrodities
EB
3-775, To London, Feb,18,4p.m.
commodities to Each other and with the movement of the
general price lEVEl.
"The measures Employed at any given time to
further this policy must fit the needs of that time.
A year ago there was ground for concern that a too
rapid rise in the prices of some commodities was
Encouraging a speculative boom. During the past six
months, on the other hand, the general price level
And industrial activity have been declining. Govern-
ment policy must bE directed to reversing this
defletionary trend.
"This does not mean that all prices should advance,
nor that the rise should bE rapid. Prices of different
groups of products must bE brought into balanced
relations to one another. Some prices and some costs
are still too high to promote that bulanced relationship
between prices that is necessary for sustained recovery.
Continued high prices of many of the commodities not
subject to highly competitive market forces Itensifies
the downward pressure on all other prices. Those
industries that have maintained prices and curtailed
should SEEK the restoration of profits through
increased rather than through restricted output.
"Phe prices of some items are still at the highest
levels renched in 1937; some are even higher than in
1020. When high prices shorply curtail sales there is
real danger. This 1s shown by our recent Experience
otch housing. A year ago there was a serious shortage.
NE und unused productive resources umple to overcome
the shortage. Yet all the major Elements in housing
costs advanced 20 sharply by the Spring of 1937 15 to
Mill a promising exphnsion of activity in an Industry
whose restoration 1a vital to continued recovery.
it hirls level of capacity EVER when business activity come
"For industries, such 112 arriculture, that operate
primarily industries and increased output in other industries in will,
is through prices. Higher prices such
st 1 low leveln, the rectoration of prodits must in
DE replacement -116 exconsion of souipment. This
increasing profiss, incourage new investment is
neacssary to full recovery.
family will benefit from the business foster.
"The which average a balanced price structure will should
penovery employment and more continuous income cost of
Increased much more than offset any increase in the living
Regraded Unclassified
SEB
S-#75, To London, Fcb. 18, 4p.m.
living. Recently wholesale prices have declined
maricedly, yet that decline has been reflected in the
cost of living only to a very slight degree. A
moderate rise in wholesale prices at this time should
only slightly affect living costs. Incomes of most
families will increase while the cost of what the
housewife buys should show little change. The
nytrage family will Enjoy 8, higher standard of living.
"It is clear that in the present situation a
morrate rise in the general price level is desirable,
and that this rise need not and should not extend to
all pricts. The rise should take place in and must
DE mainly confined to CLESSES of commodities whose
prices are too low. These include most of those raw
materlals and finished products which are produced
and sold under highly competitive conditions. Such
rise must not be 80 sharp or continue so long as to
lead to a repetition of the unhealthy spcculative
conditions of A year age. That sharp rise in prices
encouraged apeculative inventory buying which,
combined with the decline in housing construction,
laid much of the ground for the present recession.
WE must do everything WE can to prevent this from
hangening again.
"Dur program SEEKS a balanced system of prices
over As 122 promote a balanced expansion in production.
Cup (on1 10 a constantly increasing national income
through increasing production and employment. This is
NIE very to increase the real income of consumers.
"This is not a policy of restriction; 1° is e
policy of abundance,
arograms have been and will bc directed toward this end."
"Our agricultural, industrial, housing and monetary
This
Regraded Unclassified
257
REB
4-#75, To London, Feb,18,4 P. m.
This statement was prepared at the President's request by:
Henry Morgenthau, Jr,
Secretary of the Treasury
Henry A. Wallace,
Secretary of Agriculture
Frances Perkins,
Secretary of Labor
Marriner Eccles,
Chairman of the Board of Governors
of the Federal Reserve System
and sconomists of various EXECUTIVE department.
HULL
SAME TO: AMEMBASSY, PARIS,
as Department's #100, February 18, 4 Dalla
Regraded Unclassified
258
REB
TELEGRAM SENT
GRAY
February 18, 1938
4 p. m.
AMEMBASSY
PARIS (FRANCE)
100
FOR COCHRAN.
The Secretary of the Treasury transmits the
following text released to the press at the White
House:
(SEE No. 75, February 18, 4 P. m. to London
for Butterworth).
HULL
(FL)
Regraded Unclassified
259
GRAY
sms
London
Dated February 18, 1938
Rec'd 2:25 p.m.
Secretary of State,
Washington.
142, February 18, 5 p.m.
STRICTLY COMPIDENTIAL FOR TREASURY FROM BUTTERWORTH
I a long private talk with Clay, Economic Adviser
to the Bonk of England, who definitely fears that WE are
drifting into another world depression period. HE does
not believe that activity can remain at the present
level; 10 must either improve 0." decline and he SEES
the underlying trend growing stronger and stronger to-
wards depression levels. HE therefore feels that unless
energttic stops are taken in the United States and in the
United Fingdom to make full use of the opportunity which
the forthcoming seasonal upturn will offer the world may
well lapst into another depression. In this connection
he mentions/ in passing the reflection of uncertainty
which can DE found in many quarters, not the least 1m-
portant of which is the gold and coin market: the grow-
ing movement into gold WAB not merely the result of
large
Regraded Unclassified
260
sma 2 - Ko. 142, February 18, 5 p.m. from London.
large capitalists seeking safety but also gold coin has
been in extraordinary demand on the Continent the pre-
mium at timesreaching as much as four percent, This
indicated to him that the Continent is once again
beginning to anticipate A period of monetary instability.
Clay s:14 that surply this attitude of mind if it began
to grow valid frustrate all attempto to lower barriers
to international trade; that the whole tendency would
bs for one to keep BESELS and liabilities in the same
currency and to play for safety in every possible way,
In passing he mentioned CS an Example how serious would
be the effect of another depression at this time on
the Dominions: South Africa was in good shape but
Australia could only stand about one year of low wheat
and wood orices and both Canada and the Argentine (sic)
needed bun 07 three years more of recovery in which
to put their houses in order.
Clay said that the British authorities were quite
properly concerned about the rapid increase in unemploy-
ment which however lie thought would not go much further
at the moment due to the Spring upturn. Clay thought
that Challerlain's HOUSE of Commons statement (my 119,
February 10, 8 p.m.) was merely lip service to the 1dea
of propering a public works program for use in need CASE of
Regraded Unclassified
261
REB
3- no,142,Feb,18,5p.m. From London
need (latter portions of my 763, December 9, 9 p.m.
and 17, January 6, 5 P. m.). Clay believes that this
should be done and that taxation should certainly not
bE increased and if possible reduced. HE termed
Chamberlain's increase in the income tax 0,3 Maochistic
and illodvised; the burden of taxation was too heavy
both actually and psychologically and furthermore there
had been forgotten the very sound principles which
nineteenth century Chancellors of the Exchequer had
kept in mind, namely, to hold in reserve a field for
further taxabion in time of war. BE went on to say
that there was no point in Greet Britain trying to
carry the rearmament program EXCEPT overwhalmingly
by borroving and this attempt to straddle two horses
was stupid, In Clay's opinion some reduction of taxation
and c. further easing of credit particularly if
accompanied by a bold announcement that the Government
was proparing elaborate plans for public works which
would be ovailable for use when needed would stave off
a deterioration in the British Economic position
which in any CASE hE did not empect to bE very rapid.
In his VIEW the average British business man and in-
dustrialist in not 30 panicky as hE was inclined to
bE three months ago but ia decidedly perplexed by the
manner in which his orders have declined. As to the
recormant
ded Unclassified
REB
262
4-#142, Feb.18,5p.m. From London
rearmament program, Clay feels that whereas it will
tend to Bolster up the situation its Effect has been
somevhet overestimated; that 30 for C.S construction
goes the peak of the Expenditure should now bE passed;
the peck of the program's general Effect will not be
pussed for say fifteen months time.
Clay (=) out of his way to make it clear that
his advorcey of a public works program did not
necessarily apply to the United States; that whereas
he believed drastic messures should and would have to
be taken in the United States to give sufficient
confidence to permit business to go chand, hE did
not mecn to imply that public works program was one
of them. Such D program initiated by a conservative
government in England would undoubtedly bE considered by
English business as a bull point but in Americo with
the position reversed a similar program doubtless would
be regards? as a bearish development. HOWEVER hE FOW no
sign that the British Treasury had changed the view which
it held in the late twenties in opposing any such idea.
Olay said that one disturbing thought about the
possibility of a depression in Great Britain WCB that
unfortunately there would bE no Labor Party for clectorate the
Regraded Unclassified
283
REB
5-142,Feb.18,3p.m.From London
Electorate to throw out; that the Labor Party was
still discredited in the eyes of the people and
that to crefore the next Election if it were held
in the midst of a serious depression would not
mean a Inbor victory but probably the rise of a
Eritic' form of Fascism. That was the danger.
THE mount of gold at fixing WCS again extra-
ordinarily large, 371 bars. After fixing dealings
have been notive at 139 shillings 11 pence which is
one penny above fixing price end at the prevailing
dollar Date of 503.35 gold point has been reached.
The market therefore is awaiting expectatly the
from the United States
aunouncerent of gold movements/which when made should
...E.VE n. consuring Effect. The franc has been bid
nll a- and the French fund has acquired substantial
smounts of sterling.
JOHNSON
!'PD
(*) Appoident omission
Regraded Unclassified
REB
GRAY
Paris
Dated February 18, 1938
Rec'd 5:08 P. m.
Secretary of State,
Washington.
266, February 18, 4 P. m.
FROM COCHMAN.
Franc opened around 152.70 to the pound but soon
went to 152.25 with French control apparently acquiring
quite a lot of sterling. Since noon it has moved back
to 152.80 without any visible attempt by control to
check the move. Improvement late last night and
this forenoon came from more optimistic feeling over
procress of French labor legislation. Market just now
Expectantly awaiting President ROOSEVELT'S MESSAGE on
prices, concerning which many rumors are afloat, mostly
giving rise to fear of inflation. Consequently there
have again today been heavy continental, particularly
Swiss and French, sales of dollars against gold in
London. Commission on latest French Treasury loan has
moved from original 15 to 171 francs per thousand franc
bond, with little apparent Enthusiasm for the issue.
FINANCIAL
Regraded Unclassified
265
REB
2-#266, From Paris,Feb,18,4p.m.
FINANCIAL TIMES today carried following telegraphic
report from Berlin: "the time is not yet ripe for the
stubilization of world currencies. This was the view
EXPRESSED by Herr Blessing (repeat Blessing) a director
of the Reichsbank in a lecture on the possibilities of
stobilization to the Berlin School of Economics. HE
said that the Economic and financial conditions necessary
for stabilization had not yet appeared and thought the
main hindrance was the international armaments race due
to political uncertainties. Germany would welcome the
End of the present unsatlsfactory internal currency
situation.
BULLITT
CSE
268
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
NO.: 268
DATE: February 18, 8 p.m.
FROM COCHRAN.
STRICTLY CONFIDENTIAL,
The French Financial Attache in London, Mr. Monick,
came to Paris from London on February 17 and called on me
at 5 o'olock that afternoon. He said that earlier in the
week Ambassador Corbin and he had talked with Sir John
Simon, with Phillips and Waley present, and had inter-
ested the British in the idea of opening tripartite con-
versations. He said that since reaching Paris he had
talked with the Minister of Finance but no other official
in the Finance Ministry and no one in the Bank of France
knew of his visit. He said that the Minister of Finance
wanted to talk with me at the Ministry at 5 this after-
noon.
Marchandeau received me at the appointed hour. Monick
was present. Marchandeau referred to our recent converea=
tions regarding collaboration between the tripartite coun-
tries and reaffirmed his intention to remain faithful to
the tripartite agreement and to maintain monetary freedom
in France. He said that we must realize that this is a
difficult task for France and that precautionary measures
should be taken to prevent the danger of France being
drawn into exchange control should conditions become more
critical
267
-2-
critical.
At Marchandeau's request, Monick summarized for me
an account of his visit with the British Chancellor of the
Exchequer, while glancing at a memorandum of the conversa-
tion which he had prepared for Marchandeau. Monick said
he had said in the London meeting that certain French
circles were becoming disappointed over the failure of the
tripartite agreement to keep the franc steady and that sug-
gestions for exchange control in France were gaining
adherents. He expressed the opinion that some interna-
tional movement by the tripartite countries in unison
would be the best countermove against this. The British,
Monick eaid, accepted the idea of opening tripartite con-
versations.
Marchandeau asked that I submit the proposition to
Mr. Morgenthau, stressing that both the French and British
Treasuries desired that the matter be handled most inti-
mately and be treated as strictly confidential. I gaid I
would cable immediately but that they had not been specific
as to what they thought of accomplishing in the conversa-
tions. When I asked if there was any definite plan in mind
BO far as France was concerned, the Minister insisted that
it was best to leave the field open for wide discussion and
that France would enter it without any preconceived plan.
The
Unclassified
268
The spirit of the tripartite, he said, was that when any
serious situation with respect to the currency of any one
of them threatened, the three countries should consult
together. However, when I still insisted on being given
some more concrete basis for a message to the Secretary
of the Treasury, Marchandeau gave me a memorandum, of
which the following is a translation.
"Is the American Treasury disposed to open with
France and England conversations which would have the
following object: (A) to study the concrete possibili-
ties of developing and extending the cooperation inaugu-
rated by the tripartite agreement; (B) to examine par-
ticularly the possibility of establishing a new stage
in the direction of more definite stability, while main-
taining the necessary comparisons between their treasuries
and institutions of issue."
BULLITT
EA:FL:EB
Regraded Unclassified
269
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, London, England
DATE: February 19, 1938, 11 a.m.
NO.: 77
FOR BUTTERWORTH.
FROM SECRETARY MORGENTHAU.
I quote below the text of telegram No. 268 of Feb-
ruary 18, 6 p.m., from the Embassy at Paris: -
"The French Financial Attache in London, Mr. Monick,
came to Paris from London on February 17 and called on me
at 5 o'clock that afternoon. He said that earlier in the
week Ambassador Corbin and he had talked with Sir John
Simon, with Phillips and Waley present, and had inter-
ested the British in the idea of opening tripartite con-
versations. He said that since reaching Paris he had
talked with the Minister of Finance but no other official
in the Finance Ministry and no one in the Bank of France
knew of his visit. Re said that the Minister of Finance
wanted to talk with me at the Ministry at 5 this afternoon.
Marchandeau received me at the appointed hour. Monick
was present. Marchandeau referred to our recent conversa-
tions regarding collaboration between the tripartite coun-
tries and reaffirmed his intention to remain faithful to
the tripartite agreement and to maintain monetary freedom
in France. He said that we must realize that this is a
difficult task for France and that precautionary measures
should be taken to prevent the danger of France being
drawn
Regraded Unclassified
- a -
drawn into exchange control should conditions become more
critical.
At Marchandeau's request, Monick summarized for me an
account of his visit with the British Chancellor of the
Exchequer, while glancing at a memorandum of the conversa-
tion which he had prepared for Marchandeau. Monick said
he had said in the London meeting that certain French
circles were becoming disappointed over the failure of the
tripartite agreement to keep the franc steady and that sug-
gestions for exchange control in France were gaining
adherents. He expressed the opinion that some interna-
tional movement by the tripartite countries in unison
would be the best countermove against this. The British,
Monick said, accepted the idea of opening tripartite con-
versations.
Marchandeau asked that I submit the proposition to
Mr. Morgenthau, stressing that both the French and British
Treasuries desired that the matter be handled most inti-
matel y and be treated 8.8 strictly confidential. I said I
would cable immediately but that they had not been specific
as to what they thought of accomplishing in the conversa-
tions. When I asked if there was any definite plan in mind
50 far as France was concerned, the Minister insisted that
it was best to leave the field open for wide discussion and
that France would enter it without any preconceived plan.
The
Regraded Unclassified
- 3 -
The spirit of the tripartite, he said, was that when any
serious situation with respect to the currency of any one
of them threatened, the three countries should consult
together. However, when I still insisted on being given
some more concrete basis for a message to the Secretary
of the Treasury, Marchandeau gave me a memorandum, of which
the following is a translation.
'Is the American Treasury disposed to open with France
and England conversations which would have the following
object: (A) to study the concrete possibilities of de-
veloping and extending the cooperation inaugurated by the
tripartite agreement; (B) to examine particularly the pos-
sibility of establishing a new stage in the direction of
more definite stability, while maintaining the necessary
comparisons between their treasuries and institutions of
issue.
WELLES
(Acting)
EA:FL:EB/LWW
Regraded Unclassified
272
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 19, 1938
TO
Mr. Oliphant
FROM
Mr. Foley
At Col. Roosevelt's suggestion, I attended snother housing meeting
in his office yesterday afternoon. In addition to Col. Roosevelt and his
assistant, James Rowe, there were present:
From WPA - Aubrey Williams and Col. Harrington; from FHA -
Stewart McDonald, Charles McGehee end Mr. Daiger; from FSA -
Capt. Lord and Mr. Baldwin; and from USHA - Nathen Streus.
Col. Roosevelt told the group that the President had decided not to
spend WPA funds for housing construction for the present but wanted to give
the current program & trial period of 3 months to demonstrate what it can
accomplish. During this time its effect on the building industry and -
employment will be observed closely, Around the first of June the matter
is to be considered again in the light of accomplishments.
Col. Roosevelt explained that Mr. Jones was willing to make RFC funds
evailable to assist FHA operations. Stewart McDonald said that Mr. Jones
intends to incorporate at once an emergency mortgage company to make avail-
able junior money, where necessary, to assist in financing FHA projects.
He said that there were many situations where the private lending institutions,
even with FHA insurance, would not be willing to lend enough on a first
mortgage to finance the project. In such cases, he contended, the new RFC
Mortgage Company could supply the difference between the borrowers equity
and the amount the lending institutions would make available. Mr. McDonald
Regraded
Unclassified
273
-2-
also added that arrangements were being worked out with WPA for the con-
struction of utilities, sidewalks and streets where necessary in connection
with FHA ectivities.
Mr. Daiger of FHA explained that HOLC, as of last November 30, had ac-
quired through foreclosure, title to approximately 67,000 properties and by
the and of 1938 he estimated that it will have acquired in this menner ap-
proximately 150,000 properties. He went on to say that houses on these
properties were, for the most part, quite dilapidated and needed renovating
and repair before they could be rented or sold. Aubrey Williams said that
WPA labor could be made available for this work and promised to get in touch
with Mr. Fahey at once and work out the details.
Nathan Straus said that he expected to have $100,000,000 of housing
under contract by July 1. Wherever streets, sidewelks and utilities are
needed in connection with his developments, he will ask WPA to furnish the
necessary labor.
Capt. Lord explained that FSA owns approximately 4,700 acres of lend
in more than 15 states which had been acquired at prices renging from $100
to $150 per acre. Most of this land is located in suburban areas or is ad-
Jecent to large cities. By making the land available on long term leases to
non-profit corporations and by having WPA furnish the necessary streets, side-
walks and utilities, a sufficient equity for E loan from the RFC Mortgage
Company could be established. In this way a $37,000,000 program for the
construction of $2,500 to $4,000 houses to rent from $15 to $50 could be
started without great delay. Col. Roosevelt asked Capt. Lord to sit down
with the FHA people and select projects in localities that would not interfere
Regraded Unclassified
274
-5-
with FHA activities, then arrange with WPA for the transfer to FSA of the
funds necessary for utility construction. Capt. Lord estimated about
$7,000,000,000 would be needed for this purpose. In addition, Capt. Lord
said they would need about $1,000,000 for plans. After Capt. Lord makes
his arrangements with FHA and WPA he is to talk further with Col. Roosevelt
about the money for plans.
Col. Roosevelt is to be away for about two weeks and in his absence
Mr. Rowe is to keep himself informed of developments.
E.W.H.
Regraded Unclassified
275
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, London, England
DATE: February 19, 1938
NO.: 78
Secretary Morgenthau asks that Butterworth go to
Paris on Monday, February 21, to discuss the subject
of Paris Embassy's telegram No. 288 of February 18,
6 p.m., with Cochran. The Department has no objection
to this if the Charge is agreeable. The expenses of
the trip will be paid by the Treasury Department.
The Department is advising the American Embassy,
Paris.
WELLES
(Acting)
EA:LWW
Regraded Unclassified
PARAPHRASE OF TELEGRAM SENT
W 275
TO: American Embassy, Paris, France
DATE: February 19, 1938, noon
NO.: 103
FOR COCHRAN.
FROM THE SECRETARY OF THE TREASURY.
Reference is made to your telegram No. 268 of Feb-
ruary 18, 6 p .m.; Butterworth is being asked to go to
Paris on Monday, February 21, to discuss this matter with
you.
WELLES
(Acting)
EA: LWW
Regraded Unclassified
277
CA
TELEGRAM SENT
GRAY
Feb. 20, 1938
9 p.m.
AMEMBASSY
PARIS (FRANCE)
108. FOR BUTTERWORTH
At request of Secretary of Treasury please have
Butterworth return to London Monday night,
WELLES ACTING
(HF)
EA HF NPL
Regraded Unclassified
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE February 21, 1938.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
I called Mr. Bolton at 11 o'clock today. Eden had just
begun with his speech on the floor of the House. The split in the
cabinet politically had been badly managed, Bolton thought, but the
important thing to remember was that it did not arise out of the
Austro-German developments but had gradually developed long before.
Chamberlain was not a good politician in having this thing break at
the present moment, but the general feeling in London right now was
that there would be no crisis. With this feeling gradually gaining
the upper hand, the continent, particularly Amsterdam, Brussels and
Durich, after having first sold sterling under the impression that the
government was in danger, had subsequently reversed its action and was
now bidding for sterling. The Treasury and the Bank of England had
been prepared to give support to sterling to prevent 8. runaway market
but subsequent events had made intervention unnecessary. They had con-
sidered whether they should let the London gold price move very much
one way or the other and had finally decided to keep it steady at the
present level of 139.10. If the dollar should turn strongly bid, they
would still, in all probability, keep the sterling price in gold un-
changed, which would, of course, mean & drop of the dollar equivalent
of the London gold price. Assuming that the latter was left unchanged
at 139.10, the upward movement of the dollar would automatically be
checked at 4.9730, at which dollar price 139.10 would equal the shipping
parity of 34.77. Such policy on their part would, of course, be subject
to Agreement with us, as Bolton put it, but in the circumstances prevailing
Regraded Unclassified
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE February 21, 1988.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
- 2 -
today it had seemed to them to be the best one to foblow. An upward
movement of the dollar to 4.97 would be contrary to all local ideas
about the dollar rate, most people in London being well convinced
that fundamentally the dollar was weak.
France was taking the latest political developments very
calmly and there had been no effect on the franc, so that the French
fund did not have to operate at all. In London they had the feeling
that the move continued in France toward a political union and that
the more pressure was exerted on france N from the outside by develop-
ments such as the latest Austria-Cermany arrangement, the nearer was
the moment when the French might have some form of national govern-
sent. The other movement of importance at the moment was the effort
of the extreme left to impose exchange control, which was ever more
likely to become the topic of the day. During the last few days the
fund had managed to recover a good deal of the exchange recently lost
but this recovery was a very spasmodic affair.
LWK:KMC
Unclassified
230
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 21, 1938, 4 p.m.
NO.: 275
FROM COOHRAN.
At half-past ten this morning I visited the Bank
of France. At that time the franc was calm, being
around 152.60 to the pound. There was no official inter-
vention on the market.
At 3:30 this afternoon my market contact reported
franc had advanced to 152.37 but was then back to 65. He
thought French control may have gained a few pounde but
had not yielded any. Trading was very light on both
foreign exchange and stock markets with every one still
perplexed as to possible results of Hitler's speech and
Eden's resignation.
Press reports that Caisse des Depote et Consigna-
tions has not asked reimbursement on the due date Feb-
ruary 20 of two billion francs loaned to the Treasury in
1936 against two year 3% bonds. No confirmation or de-
tails of renewal yet available.
In tts weekly review L'INFORMATION Paris remarks that
"the Paris Bourse warmly welcomed the statements of Mr.
Roosevelt favorable to a rise in raw materials as well as
the strengthening that actually took place therein at the
end of the week. The effect of this American economic
policy has offset that of developments in Austria."
END SECTION ONE.
Regraded Unclassified
281
LMS
GRAY
Paris
Dated February 21, 1938
Rec'd 5:45 P. m.
Secretary of State,
Washington.
275, February 21, 4 De m. (SECTION TWO)
LA JOURNEE INDUSTRIELLE Paris in reviewing American
developments concludes:
"The maintenance of prices or a measure to raise
them cannot have lasting results unless consumption in-
creases, and this consumption will not develop definitely
from a simple monetary change (desterilization). It has
been seen that the devaluation of 1933, even if it did
CRUSE an accidental price rise, has not been able to main-
tain it. If Mr. ROOSEVELT wishes indeed to develop a
constructive policy for prices and Economic recovery he
must Extend his action outside and invite other great
industrial powers to a common action, either in the monetary
or credit field".
Financial Editor Jenny of LE TEMPS defends the gold
move of the Treasury and states that after reflection
international finencial quarters do not consider that the
decision taken is in any way likely to imperil the American
currency
Regraded Unclassified
282
LMS 2-No. 275, February 21, 4 p. m., from Paris.
currency situation. Furthermore, hE does not believe that
the Treasury authorities Envisage any new depreciation
of the dollar.
On the other hand the conservative situation ECONOMIQUE
ET FINANCIERE says:
"The turn given to American monetary policy raises
anew the question of a devaluation of the dollar. Mone-
tary manipulations appear to have returned to honor in
the United States 98 a remedy for the present business
depression. In case that, as is feared, the increase in
gold stock does not procure the desired recovery, it may
bE asked whether President ROOSEVELT would not have re-
course to more redical measures such as a lowering of the
gold value of the dollar. These are the fears that EX-
plain the recent weakness of the dollar against sterling
and the firmness of gold in London."
(END OF MESSAGE)
BULLITT
KLP
Regraded Unclassified
283
Parephrase
PARIS
Dated February 21, 1938
Recd. 11 D. m.
Secretary of State,
Washington.
279, February 21, 10 D. m.
FROM COCHRAN
STRICTLY CONFIDENTIAL
With reference to the Department's telegram 103, February 19, noon.
This morning Butterworth arrived in Paris. To compared notes,
The British financial adviser in Paris, Rowedutton, had asked me
on February 15 to dine with him tonight. He said that Sir Frederick
Phillipe would be with him for dinner. Phillips was due to arrive
in Paris today for B. meeting of a League of Nations committee.
En route to Paris Butterworth met Phillips. Rowedutton asked
me to bring Butterworth to tonight's dinner. Butterworth's talk with
Phillips on the way to Parie raised points which were used for leads
and confirmed in out evening conversation. This conversation is
summarized below. Franch Treasury officials here were not seen by
Phillips.
Only the four of us attended the dinner. The following 10 8
summary of our conversation: I informed Phillips of Monick's approach
to as on February 17 and also of my interview with Marchandeau, the
Minister of Finance, in the presence of Monick, as reported in my
No. 268, February 18, 6 Della It was made quite clear by no that it
wes Marchandeen who took the load in the conversation, although the
invitation for as to come to him had been brought by Monisk, and that
Regraded Unclassified
284
I had addressed my questions to Marchandsau and that I had received
the memorandum quoted in my above mentioned 0801Agrem from his hands.
The British had received nothing in writing from Monick according
to Phillips. I told him that my impression, gained from Monick's hints
when he called on me on February 17, vas that some step involving a
move towards stabilization of the franc, dollar, and pound was what
be had in mind. Marchandeau had not repeated these hints and therefore
I had not ventured to be more specific in reporting my interview at the
Ministry of Finance than was warrented by the memorandum which I recei ved
there. In Monic talk with the British three, Phillips said there
had not been any suggestion of any move toward schieving greater
stability in any other currency than the French franc. His under
standing was that Monick had some intermediate step in mind towerds
stabilization between the present situation and a final de jure definite
fixing of the franc against gold with the thought that this inter-
mediate step should involve defense of the frane more on the lines of
the way the old gold standard worked than on the lines of the system
at present in effect.
Regarding the chances of success of such an operation, Phillips
did not seem optimistic and if his edvice were sought by the French
he would be very hesitant. However, considering such a possibility
he discussed verious factors which would be involved. If, for instance,
the contents of the stabilization fund smounting to approximately
13,000,000,000 france, the 6,000,000,000 france in the rentes fund
and the profit of between 17 and 20,000,000,000 from revaluation of
the present gold stock of the Bank of France from 45 milligress to
Regraded Unclassified
29
the current rate were to be made available, after due legislation, by
stabilization, what Iasting relief to the French situation would there
be therefrom? Would e. new flight from the franc actually be facili-
tated by this donation of new france on the market leading to spending?
What rate of stabilization should be chosen? Would the present rate
of say 155 france to the pound be sound? Phillips was obviously
concerned about the fact that the present proposal is known only to
Marchandeaw, Delbos and Chautemps, end wondered what the reaction to
the proposition would be on the part of other government leaders,
particularly Daladier. The latter conceivably might vigorously
oppose returning to a system in which the surrender of the so-called
war chest (the Bank of France's gold) to defend the franc would be
automatically involved.
AB my purely personal opinion, I saíd that
though the French may instinctively prefer 8 fixed to 8. flosting
currency, stabilization at the present rate would not be, in itself,
sufficient inspiration for B. significant amount of French flight
capital to return immediately and permaneatly. It was my opinion
that before stabilization could really be affective it would be
necessary for other very progressive steps to be taken toward social
peace and increased production. I remarked that with respect to the
proper rate, in each successive stage of depreciation from 105 to 155,
defense of the franc had experienced difficulty. It appeared, however,
that the present rete might be correct from the current economic
viewpoint, in as much 68 during the brief period at the time of the
latest Cabinet crisis when the franc was unprotected the rate fluctuated
Regraded Unclassified
288
very little. This rete connot be held indefinitely unless the factors
of labor and production are cleared up and there is improvement in the
balance of payments; furthermore it is impossible to say what rate
could be maintained, Each one of us had difficulty in envisaging
the lead in seeking exchange control being taken by 8. Redical Socialist
government. All of us were in agreement that if the present treasury
loan does not go bettert than 1a currently reported, difficulty will
be experienced in raising funds in March by the French Treasury. It
would presumably depress the franc if the Treasury should draw upon
its remaining five million credit in securing Bank of France,
Further opportunities for the French to borrow in Switzerland or
the Netherlands seemed to me very slight. It was stated by Phillips
that in London the short term money market had changed entirely
since the French obtained their two earlier credits, and that it would
now be out of the question for & London participation in a French credit.
It would be necessary for any borrowing to be at long term with the
bonds passed on to investors and # considering the unfavorable British
impression of the French domestic situation, such a loan would not
be well received now. However, he talked about the possible relief
that a loan which would permit e lowering of French interest rates to
4% would give to France. I was in agreement with Butterworth in not
being entirely convinced that, if political circumstances made it
imperative, B. long term British loan would be out of the question.
In Phillip#'opinion it is impossible for either us or the British
to taxx refuse to talk with the French. I do not believe that the
French should be given any possible ground for complaining that the
terms of the tripartite agreement which envisage consultation were not
287
met by us. I believe that We were all in agreement in feeling that
the French approach should be accepted but that we should leave it
very definitely to the French to advance specific ideas at the
earliest stage Bossible; furthermore, rather than being made too
formally diplomatic, the conversations should be technical. The
British are ready to give their moral support to the Frenchi under
the tripartite agreement. first They do not desire, however, that
semtimental or idealistic grounds be the basis of any convernations.
This message is being repeated to London for Butterworth's
information and any supplementary additions. He did not have
opportunity to read the above text before he left although we did
discuss it. Butterworth and Phillips Ieft for London on the ten
o'clock train.
BULLITT
Unclassified
288
PARAPHRASE
PARIS
Dated February 21, 1938
Recd. 11 p.m.
Secretary of State,
Washington.
279, February 21, 10 p.m.
FOR COCHRAN.
STRICTLY CONFIDENTIAL.
With reference to the Department's telegram 103, Feb-
ruary 19, noon. Thie morning Butterworth arrived in Peris.
We compared notes.
The British financial adviser in Paris, Rowedutton, had
asked me on February 15 to dine with him tonight. He said
that Sir Frederick Phillipe would be with him for dinner.
Phillips was due to arrive in Paris today for B. meeting of
8. League of Nations committee.
En route to Paris Butterworth met Phillips. Rowedutton
asked me to bring Butterworth to tonight's dinner. Butter-
worth's talk with Phillips on the way to Paris reised points
which were used for leads and confirmed in our evening con-
versation. This conversation is summarized below. French
Treasury officials here were not seen by Phillips.
Only the four of us attended the dinner. The following
is 8 summary of our conversation: I informed Phillips of
Monick's approach to me on February 17 and also of my inter-
view with Marchandeau, the Minister of Finance, in the presence
of
Regraded Unclassified
- 2 -
of Monick, as reported in my No. 268, February 10, e 218
It was made quite clear by me that it was Marchandess 900
took the lead in the conversation, although the Invitation
for me to come to him had been brought by Monic, and that
I had addressed my questions to Marchandeau and that
received the memorandum quoted in my above mentioned
from his hands.
The British had received nothing in writing from
according to Phillips. I told him that my impression,
from Monick's hints when he called on me on February 17.
was that some step involving e move towards stabilization
of the franc, dollar, and pound was what he had in mind.
Marchandeau had not repeated these hints and therefore I
had not ventured to be more specific in reporting my inter-
view at the Ministry of Finance than wae warranted by the
memorandum which I received there. In Monick's talk with
the British, Phillips said, there had not been any sugges-
tion of any move toward achieving greater stability in any
other currency than the French franc. His understanding
was that Monick had some intermediate step in mind towards
stabilization between the present situation and 2. final
de jure definite fixing of the franc against gold with the
thought that this intermediate step should involve defense
of the franc more on the lines of the way the old gold
standard worked than on the lines of the system at present
in effect.
Regarding the chances of success of such an operation,
Regraded Unclassified
- 3 -
Phillips did not seem optimistic and If his advice were
sought by the French he would be very hesitant. However,
considering such a possibility he discussed various factors
which would be involved. If, for instance, the contents of
the stabilization fund amounting to approximately
13,000,000,000 france, the 6,000,000,000 france in the rentes
fund and the profit of between 17 and 20,000,000,000 from
revaluation of the present gold stock of the Bank of France
from 43 milligrame to the current rate were to be made avail-
able, after due legislation, by stabilization, what lasting
relief to the French situation would there be therefrom?
Would a new flight from the franc actually be facilitated by
this donation of new france on the market leading to spend-
ing? What rate of stabilization should be chosen? Would
the present rate of say 155 france to the pound be sound?
Phillips was obviously concerned about the fact that the
present proposal is known only to Marchandeau, Delbos and
Chautemps, and wondered what the reaction to the proposi-
tion would be on the part of other government leaders,
particularly Daladier. The latter conceivably might vig-
crously oppose returning to a system in which the surrender
of the so-called war chest (the Bank of France's gold)
to defend the franc would be automatically involved.
As my purely personal opinion, I said that even though
the French may instinctively prefer 8 fixed to a floating
currency,
Regraded Inclassified
292
- 4 -
currency, stabilization at the present rate would not be,
in itself, sufficient inspiration for B. significant amount
of French flight capital to return immediately and per-
manently. It W&B my Opinion that before stabilization could
really be effective it would be necessary for other very
progressive steps to be taken toward social peace and in-
creased production. I remarked that with respect to the
proper rate, in each successive stage of depreciation from
105 to 155, defense of the franc had experienced difficulty.
It appeared, however, that the present rate might be correct
from the current economic viewpoint, inasmuch as during
the brief period at the time of the latest Cabinet crisis
when the franc was unprotected the rate fluctuated very
little. This rate cannot be held indefinitely unless the
fectors of labor and production are cleared uo and there
is improvement in the balance of payments; furthermore, it
1s impossible to say what rate could be maintained. Each
one of us had difficulty in evisaging the lead in seeking
exchange control being taken by 8. Radical Socialist govern-
ment. All of us were in agreement that if the present
treasury loan does not go better than is currently reported,
difficulty will be experienced in raising funds in March
by the French Treasury. It would presumably depress the
franc if the Treasury should draw upon its remaining five
million credit in securing Bank of France.
Further
Regraded Unclassified
292
- 5 -
Further opportunities for the French to borrow in
Switzerland or the Netherlands seemed to me very slight.
It was stated by Phillips that in London the short term
money market had changed entirely since the French obtained
their two earlier credits, and that it would now be out of
the question for a London participation in a French credit.
It would be necessary for any borrowing to be at long
term with the bonds passed on to investors and, considering
the unfavorable British impression of the French domestic
situation, such a loan would not be well received now.
However, he talked about the possible relief that a loan
which would permit a lowering of French interest rates to
4% would give to France. I was in agreement with Butter-
worth in not being entirely convinced that, if political
circumstances made it imperative, a long term British loan
would be out of the question.
In Phillips' opinion it ie impossible for either us
or the British to refuse to talk with the French. I do
not believe that the French should be given any possible
ground for complaining that the terms of the tripartite
agreement which envisage consultation were not met by UB.
I believe that we were all in agreement in feeling that the
French approach should be accepted but that we should leave
it very definitely to the French to advance specific ideas
at
Regraded Unclassified
293
- 6 -
at the earliest stage possible; furthermore, rather than
being made too formally diplomatic, the conversations
should be technical. The British are ready to give their
moral support to the French under the tripartite agreement.
They do not desire, however, that sentimental or ideal-
istic grounde be the basis of any conversations.
This message is being repeated to London for Butter-
worth's information and any supplementary additions. He
did not have opportunity to read the above text before he
left although we did discuss it. Butterworth and Phillips
left for London on the ten n'clock train.
BULLITT.
03V13733
Regraded Inclassified
- 294
TREASURY department
#
INTER OFFICE COMMUNICATION
DATE February 21, 1938
TO
Secretary Morgenthau
FROM
Vr. Hass
Subject: The Business Situation
Summary
The President's statement of policy on commodity prices,
accompanied by moves leading toward an expansion in available
credit, has had & favorable influence on business sentiment
during the past week. It has been accompanied by an upturn in
commodity prices on an increased volume of trading, and by some
improvement in stock prices.
The statement andears to have been made at an opportune
time, since underlying conditions in the commodity and stock
markets are apparently growing more favorable, and the decline
in business activity has levelled out. While the current busi-
ness trend, RE measured by the New York Times weekly index,
turned down during the week ended February 12, an improvement
in various industries 1s looked for during March.
The movement of goods into consumption, 88 indicated by
department store sales, continues to make B much more favorable
showing than does industrial production. Sales in dollar vol-
ume during the first two weeks of February were only 4.8 per
cent below last year, which 1s probably about equal to the
decline in price levels.
Our estimates of basic demand during January (See attached
chart) are lower than in December, while industrial production
during the month was at nearly the December level. The stabil-
ity of production following its wide deviation below the level
of demand in the previous month provides some evidence that a
bottom is being established around these levels.
The Current Situation
Current business activity, as measured by the New York
Times business index, showed 8 rather sharp setback during the
week ended February 12, owing to declines in carloadings,
Secretary Morgenthau - 2
electric power production, and lumber production. Automobile
output and cotton mill activity increased. The combined index
dropped nearly to the low level established at the end of
December.
Steel activity Was maintained during the past week at 31
per cent of capacity, a fractional gain over the previous week.
Steel prices have been confirmed for the second quarter at
present levels. This clarification of the price situation, an-
nounced first by the U. S. Steel Corporation and followed by
the independent companies, is expected in the trade to bring
increased buying of steel products during the next few weeks from
those who have been holding back orders in the hope of lower
prices. In the longer term outlook the steel price question has
not been settled by this week's action, but remains 8. factor con-
tributing to the liquidation of inventories and to hand-to-mouth
buying. Such policies, however, are tending to build up B large
octential demand that will make itself felt when the question of
steel prices 18 satisfactorily settled.
The Automobile Situation
Automobile production during the past week showed a slight
gain, but no important step-up in operations 18 expected until
late this month or early in March. Used car sales are showing
gradual improvement, and are expected to advance markedly with
the coming of spring, in view of plans in the industry for inten-
sive sales drives. Because of the relatively favorable agri-
cultural situation, substantial purchases of used cars by farmers
are looked for this spring. Twice as many used cars as new care
are generally sold in the farming districts.
The President's price-raising statement 1s considered by
Ward's Automotive Reports as tending to prevent a reduction in
automobile prices in the immediate future, regardless of the re-
cent reduction in prices of steel sheets used in making putomo-
biles. The desire to prevent losses to dealers and factories on
the present large stocks of cars, both new and used, 18 of primary
consideration in maintaining prices. On the other hand, the sur-
prising gain in orders following the recent reduction by Packard
suggests that price reductions may provide the key to increased
automobile demand.
The market prices of all raw moterials going into the making
of en automobile, with the exception of iron and steel and alumi-
num, are substantially lower than they were & year ago. Prior to
the recent reduction in prices of steel sheets, which means 8
further cut in the average cost of materials per car of about
83.50, the comparative open-market costs of the various materials
used in making an automobile are listed by Ward's as follows:
296
Secretary Morgenthau -
3
Prices early in February
1938
1937
Finished steel
$52.10
846.60
Pig iron
4.06
3.53
Rubber sheets
9.95
14.99
Cotton
16.20
25.65
Copper
3.40
4.34
Lead
1.50
1.84
Aluminum
2.12
2.12
Tin
1.63
2.00
Wool
3.10
4.70
Total per car
$94.06
$105.77
Basic Demand and Production
Our combined estimate of basic demand shows B. further down-
turn during January, according to preliminary calculations.
(See attached chart). Industrial production during the month
receded but slightly, the preliminary Federal Reserve Board index
standing at 82, as compared with 84 in December, hence the devia-
tion of production from demand has narrowed somewhet. Since
production during December WAB unusually far below our estimate
of basic demand, the stability of the production index In January
provides some ground for believing that a bottom 18 being
established around these levels.
The January production levels in relation to demand differ
among the various industrial groups. In the iron and steel
industry 8 slight increase in production occurred during January
while the index of demand turned down, thus narrowing the
unusually wide deviation of the previous month. Since iron and
steel production continues materially below the estimated demand,
e further narrowing of the spread will probably come about partly,
or even largely, through increased production.
The textile group continues in 8. position favorable to
recovery from recent low levels. This 18 confirmed by a study
we have made of the situation in the wool industry, as well as
by current developments in the cotton industry, where encourage-
ment 18 seen in the faot that cotton goods are moving into
consumption in much larger volume than they are being produced.
In the automobile and leather industries the situation also
appears favorable for an upturn in production. Lumber
Regraded
Unclassified
297
Empretary Morgenthau - 4
oroduction appears in approximate balance, and could move either
may, depending upon the trend in residential construction.
The netroleum industry, on the other hand, continues to
afrocar in a definitely unfavorable position, a fact which 18 con-
firmed by statistics which show a oiling un of stocks of various
vetroleum products. The production of crude petroleur showed a
further slight increase during January. The outlook for bitwni-
nous coal production also appears relatively unfavorable, with 8.
decline in both production and demand during January.
Retail Sales
The movement of goods into consumption, 88 indicated by
weekly figures on department store sales, continues to make a
much more favorable comparison with last year than do the various
Indexes of industrial production. During 4 weeks in December,
department store sales in dollar volume averaged 2.3 per cent
lower than in the previous year, about equal to the decline in
drices. In January the -weeks' average was 2.2 per cent below,
mile prices were still lower. During the first 2 weeks in
February the sales in dollar volume have been 4.8 per cent below
last year. Since prices have probably declined by about the Bame
mount, the sales in actual volume are apparently running on
conroximately the same level as in February last year. Sales
last year during February showed more than a seasonal increase
over the previous month.
The Price Situation
The President's discussion of e price-raising program,
accompanied by moves toward credit expansion through a change in
the gold-sterilization policy and through the release of funds
by the Reconstruction Finence Cornoration for industriel borrow-
The volume of trading expended on the rise, and in the case of
ing, has caused a broad advance in commodity prices this week.
nide futures established 8 new high record. Cotton prices rose
above the 9-cent level for the first time since early last fell.
Grain prices, however, were depressed by general rains and snow
over the winter wheat states, which relieved fears of drought
ismage.
lent definite was plan for raising prices, this was overshadowed rising
While noted some by market observers, in that It made no mention by the of
disappointment over the President's price state-
0 Fact or e definite stand having been taken in favor of
Regraded Unclassified
Secretary Morgenthau - 5
prices, accompanied by changes in policy directed toward that
end. It is generally felt that other measures will be taken if
these do not prove effective. Commodity prices rose to higher
levels at the end of the week after declining alightly on Friday
when the President's statement was published.
Other factors tending to improve fundamental conditions for
certain commodities, have also contributed to the rise. Cotton
1189 been helped by the passage of the farm bill, with a severe
cut in acreage planned for this year. Tin has been strengthened
by 2 reduction in the export quota for second-quarter shipment to
55 per cent of basic quotas, as compared with 70 per cent for the
first quarter. Rubber shipments during January have shown a sharp
drop, reflecting A cut in the export quota to 70 per cent for the
first quarter, as compared with 90 per cent during the second half
If 1937. Copper prices have risen on an increased demand from
abroad. The cocoa market has been strong on reports of crop
destruction by African producers. A pick-up in trade demand for
silk has been partly responsible for the recent steady rise in
silk prices.
The stock market has improved somewhat during the DABT week,
with the Dow-Jones industrial and rail averages closing the week
at the highest levels of the month. While recent Administration
moves have had B. favorable influence on market sentiment, under-
lying conditions in the market also seem to be improving. Ev1-
dence of this appears in (1) The continued reduction in brokers'
loans over the past several months, placing the total on
February 16 at $588 millions, as compared with more than a billion
dollars in loans at the same time last year; (2) a noticeable
increase reported in the inquiries for large blocks of stock to
buy by private arrangement, which contrasts with the situation
last August when large blocks of stocks were offered for sale off
the Exchange shortly before the market turned downward: (3) con-
fidential reports of the S.E.C. indicating B. pronounced improvement
accounts declining to the smallest figure on their records,
in the condition of margin accounts, with the number of restricted This
has resulted from the deposit of new money in the accounts, rather
than from price increases or from liquidation. It has been
market, accompanied while selling orders above the market have been reduced.
by an increased amount of buying orders under the
wenkness foreign selling in American markets, principally from Britain.
An unfavorable in foreign security markets, with on increased Great of
influence on stock prices has been continued Amount
Inclassified
ESTIMATED BASIC DEMAND
COMPARED WITH PRODUCTION. BY INDUSTRIES
1923-25-100
1432
1933
1934
1935
1936
1937
1938
PER
PER
CENT
CENT
120
120
Combined Indes
110
110
100
100
Production
90
90
Banc Demand
BC
80
70
70
40
AQ
10
10
Devision
o
o
-10
-10
-20
20
1932
1933
1934
1935
1936
1937
1938
SELECTED INDUSTRIAL GROUPS
1992
1933
1134
1436
1487
1938
(792
19,85
1934
Isas
1980
1887
1938
MR
PLA
FLE
FEE
CENT
CENT
CENT
nan and Stear
Taxtiles
CENT
140
Weight most
140
(a)
Weight 06
148
120
(20
120
(20
Demind
100
130
100
100
Your Demand
as
so
as
so
situation
60
4G
2
&C
reduction
42
40
#
49
JB
16
20
Devistment
is
et
a
Whing
1
29
.
5
a
-20
-39
-75
-TO
-4V
%
1981
ivas
1934
1935
inde
1947
1988
(28
128
2
Bituminous Coal
-40
1482
HER
1934
ins
1925
ITAT
34
an
no
122
@
Lumber
40
N°
so
ec
46
40
40
60
of
20
zo
ao
20
a
mumber
o
.
.
-00
-20
-an
:
1932
1933.
1914
1935
1956
1937
1938
TM
ISE
-40
140
1132
1933
1934
1938
-
1437
via
Automábiles
160
188
140
weight sant
149
Base Command
Meas Packing
(40
- sent
145
110
(29)
Production
120
120
THE
Jas
100
100
00
AF
6G,
n
:
$
Demend
10
M
40
=
10
20
"Operection"
14
2F
-
o
:
All
45
Deriction
-29
-14
"
14
-4d
1912
1432
me
7
1535
TAX
⑉
#
a
100
200
il
Crude Patrolaym
-
weight 60%
189
180
7
are
1939
1984
1938
1936
inno
/
1931
IM
140
140
140
Leather and Products
were 1451
140
144
129
140
123
100
las
(20
100
4.
-
100
10
⑉
"
10
0
a
è
E
-as
-10
-11
-30
$
F
1
1434
1990
ISSA
1947
HAR
FREE
1735
1934
1986
YESS
-
1988
-
1922
E
- - - - -
Weger - Combined -
C-IM
- - - - -
-
Regraded Unclassi