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Volume 159, January 1 – January 10, 1939
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Volume 159, January 1 – January 10, 1939
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 159
January 1 - January 10, 1939
- B -
Book Page
Bank for International Settlements
Cochran's report on meeting - - 1/10/39
159
267
Bank of America
Conciliatory letter from Giannini 12/31/38 discussed
at 9:30 meeting - - 1/5/39
110
Jones reports to Taylor Giannini recommendations are
to be accepted - 1/6/39
181
Budget Message, 1/4/39
Discussion at 9:30 meeting indicates changes after
HMJr went to Florida
102
- C -
China
Resume of events at or near Hong Kong from American
Embassy, Peiping - 1/2/39
5
Buck reports - 1/3/39
23
Coast Guard
FDR cuts out appropriation for three cutters and
fifteen airplanes - - 1/9/39
245
Cohen, Benjamin V.
Acknowledges loan of report of Fiscel and Monatery
Advisory Board - - 1/3/39
22
Cotton
Chart showing amount held by United States Government
against loans sent to FDR by HAJr - 1/2/39
3
Black (Department of Agriculture) memorandum sent to
HMJr in Florida by Taylor - 1/7/39
188
Cummings, Homer S.
Foley memorandum on purchase of property 9.9 addition
to post office site at Stamford, Connecticut -
1/4/39
97
- E -
"Economic Program for American Democracy" by Seven Harvard
and Tufts Economists
Seltzer review of book - - 1/5/39
129
Engraving and Printing, Bureau of
Progress report showing work "swostantially up to date" -
21
1/3/39
- F -
France
See War Conditions: Monnet Aviation Commission
Regraded Unclassified
- G -
Book Page
Germany
Schacht's visit to London: Butterworth reports
Leith-Ross' opinion that Schacht is slipping fast
and so wishes to capitalize on connections with
and acceptability to Bank of England - 1/3/39
159
68.79
Great Britain
Sce also Stabilization
Memorandum showing comparison of British and American
revenue systems - - 1/5/39
126
- H -
Hathoock, Bernard B.
Promoted to Processing Tax Board of Review:
obstructive tactics in Bureau of Internal Revenue
discussed at 9:30 meeting - 1/6/39
173
Hopkins, Harry
Bailey (Senator, North Carolina) thoroughly displeased
with views: Hanes tells 9:30 group - 1/6/99
183,215,301
- J -
Janeways' Study
New Method of business prognostication discussed at
9:30 meeting - 1/3/39
47
Johnson Act
Significance in capital market (White memorandum) -
1/6/39
167
a I 1
Political Activities of Treasury Employees
Helvering memorandum to HMJr concerning inquiries by
certain Senators and Representatives regarding
removal of Collectors of Internal Revenue in their
districts - 1/10/39
290
- S -
Seven Harvard and Tufts Economists: "An Economic Program
for American Democracy"
Seltzer review of book - 1/5/39
129
Silver
Correspondence between Senator Vandenberg and Treasury
concerning acquisition of silver - 1/3/39
15
Regraded Unclassified
- S - - (Continued)
Book Page
Social Security Board
Hanes discusses with 9:30 group what Treasury position
is to be if requested by FDR in absence of HMJr -
1/3/39 and 1/10/39
159
55,302
Stabilization
Great Britain: Transfer from issue department of Bank
of England to exchange equalization account of
200 million pounds of gold (transfer of only
60 million pounds was originally contemplated)
1/6/39
152,231,
233,239
Stabilization Fund
Letters desired by FDR to Vice President and Spenker
of House concerning extension - 1/5/39
118
- T -
Taxation
Publicity feature of income tax returns discussed
at 9:30 meeting - 1/3/39
51,89
- V -
Vandenberg, Arthur H. (Senator, Michigan)
Correspondence with Treasury concerning acquisition of
silver - 1/3/39
15
- W. -
war Conditions
France: Monnet Avistion Commission:
Monnet tells HMJr they may concentrate on Curtias and
Martin planes because of slow delivery of Douglas
planes - 1/2/39
7
a) HMJr suggests immediate publicity; otherwise
fears difficulty in visiting other plants;
regrets Treasury can offer no further cooperation
until French Government publicizes mission
Hanes discusses set-up with H/Jr in Florida:
Woodring apparently not informed by people in his
own department - 1/5/39
115
Theat
Black (Department of Agriculture) memorandum sent to HMJr
in Florida by Taylor - 1/7/39
188
Regraded Unclassified
1
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 2, 1939, 9 a.m.
NO.: 1
FROM COCHRAN.
The Parliamentary session lasted 31 1/2 hours. During
this time the 1939 budget bill was shuttled back and forth
between the Senate and Chamber. At 1 o'clock this morning
the bill was finally adopted, in spite of obstructionist
tactics by the Left, a majority of 281 to 16 being given
in the Senate. The budget in its final form anticipates
sixty-six and a third billion france in receipts, with
about #wenty-three million francs surplus. Parliament was
adjourned and will meet again on the tenth of January.
Yesterday noon the Premier left for Tunisia and Corsica.
This evening I am leaving for Brussels. I will visit
Belgium, the Netherlands, and Switzerland, as approved
in telegram No. 960 of December 23 from the Department.
The morning of January 10 I will return to Paris, after
having visited Basel for the BIS meeting.
WILSON.
EA:LWW
Regraded Unclassified
2
AC
GRAY
London
Dated January 2, 1939
Rec'd 1:40 p.m.
Secretary of State
Washington
1, January 2, 5 p.m.
FOR TREASURY FROM BUTTER ORTH
With the NEW York and Paris as well as London bullion
and stock markets closed, forsign exchang E dealings have
been small. The British authorities have held the pound at
4.63 7/8 but it was only during the early part of the
morning that there was any dollar buying pressure.
They have had to give some francs and the one month's
forward franc has gone to a premium.
CSB
JOHNSON
Regraded Unclassified
3
January 3, 1939
My dear Mr. President:
I thought you would be inter-
ested in the inclosed chart showing
how much cotton is held against loans
by the United States Government.
Yours sincerely.
The President,
The White House.
Regraded Unclassified
COTTON HELD BY U.S. GOVERNMENT
Includes Cotton Held Against Loans
4
1020
1930
1931
1932
1033
1934
1935
1036
1937
1938
1030
Beles
Bales
Illians
Millions
11
11
10
10
0
0
a
8
7
7
6
6
5
5.
4.
4
3
3
2
a
I
1
o
a
1920
1030
1931
1032
1033
1934
1935
1938
1037
1938
1050
Office of the Secretary of the Trairy
Regraded Unclassified,
- of - - -
5
DA
CONFIDENTIAL
HONG KONG VIA N.R.
Dated January 2, 1936
Received 8 a.m.
AMEMBARST PEIPING
INFO SECRETARY OF STATE
Washington
2, January 2, 9 a.m.
The Department has instructed this office to send you monthly
& orief telegraphic summary of, and events at, or near, Hong Kong
which have relation to China. The following is our summary for
December.
One. Improvement in frontier relations of which our telegraphic
reports to Department were repeated to Peiping.
Inc. Continued speculation with no definite det lopments as to
reopening of Pearl River to commercial traffic to and from Hong Rong.
British gunboat and occasional American gunboat maintain fairly fre-
quent mail and restricted passenger communication with Canton.
Three. Active reshipment from Hong Kong to Haiphong and in-
termediate porta of eupplies for Chinese destinations with motor vehicles
leading cargo item.
Four. Return in progressively substantial numbers to Hong Kong
of Japanese men, women and children which were evacuated last year
to Japan and Shanghai.
Five. Beginning of irregular Japanese steamer service between
Macso and Canton for carrying mails and merchandise and passengers
Regraded Unclassified
6
-2-
on commercial basis. Official statement of such service rumored but
not yet confirmed.
Six. Much speculation about Wang Ching Wei and other Chinese
officials who are reported bound from Chungking via Indo-China to
Hong Kong to promote support of Chinese here to acceptance of peace
proposals from Japan. Wang rumored to be due in Hong Kong today en
route Europe but no confirmation obtainable.
Sent to Peiping.
SOUTHARD
RR
(OVER)
Regraded Unclassified
January 2, 1039.
7
4:25 p.m.
Nonnet: Hollo.
Operator: Mr. Conneti
11:
Yes.
D:
no shead.
WJr:
Vollo.
Hello. 40m are you, Mr. Secretary?
sever:
I'm ε11 right, how are you?
Well, - : wish you 8 Happy New "ear again.
HMr:
The eeme to you.
50
I've had 2. telegram from Poris --
HIJY:
Yes?
And they say that -- two things. On the various ques-
tions which we discussed, they 29y they will telegraph
be immediately after the holidays.
HAJri
Pardon me?
K:
They say that they will telegraph immediately after the
holidays; meaning that they will telegraph me tomorrow
or the next day.
Yes.
Apparently the -- they any that they are very busy with
the budget discussions and so on, end -- and the
Minister there wants to speak to Daladier before he
leaver for Corsice.
HIJr:
Yes.
You, on the other question which we discussed on Setur-
day morning, which I did not raise with them, but they
eay that thev are disturbed at the late delivery.
FINE:
Yes.
A
And that they are conquering that, but they doubt
whether the late delivery will meetthem.
HWr:
Yes.
So it looks -- It looks from that cable that the ques-
tion which worried you on Saturday morning --
Regraded Unclassified
- 2 -
8
HINJr:
Yes,
M:
Hello?
HMr:
I'm listening.
light well be disposed of by
we discussed.
HJr:
I don't follow you.
M:
"ell, they may not -- they may not want --
HMJr:
Any planes.
15:
No, no, no. They may not want the Douglas.
PMr:
I see,
You see?
PMr:
Uh-huh.
Its
And from the reading of the cable which le general my
impression 1s they may well concentrate on the Curtie
which they can get --
HlWr:
Yes.
M:
And on the Martin, and leave the Douglas alone.
HMr:
Well, what about publicity?
M:
I cen't hear that. And as to the publicity they say that
they will -- I raised -- I did not raise the question that
you raised on Saturday.
HMJr:
About publicity?
2:
Not the one that you raised on Saturday for immediate
publicity.
HNJr:
Yes.
M:
I had raised the question of the public statement to be
made -- sh -- 8.8 you raised it with me on Thursday.
HMJr:
Yes.
M:
And they said that they will welcome the public statement
the French Government has bought planes, but they say that
they would 11ke to have that publicity solely when the
orders have placed.
Regraded Unclassified
9
- 3 -
HMr:
Well, I don't think they are going to be able to get into
any more plants until they get sbout & public statement.
That 18, 38 far as we are concerned.
M:
You think they will not be able to get any more planes
unless immediate publicity.
MUr:
No, they won't be able to visit any more plants.
Oh?
HMJr:
They will not be able to visit any more plants until this
mission is a public matter.
No. Well, I left -- I did not mention the -- the sugges-
tion of immediate publicity that you Liade on Saturday.
HIWr:
well, I Just -- these are the instructions that I am
leaving with Mr. Hanes --
::
Yes?
HLJr:
Ae far as the United States Treasury 16 concerned, we
cannot cooperate any Further until the French Government
makes a public statement.
I see.
HILTr:
Now that's my position.
Yes.
HMJr:
Now -- ah -- the United States Treasury can offer no more
cooperation until a ublic statement is made in regard
to this mission. I -- I -- I want to meke that very
plain.
Yes. Well, now -- ah -- all right. Well, that's your --
that's your --
HMJr:
That's my ultimatum. I'm sorry but that's --
If:
I understand fully.
HMJr:
But I mean -- as far as the United States Treasury 18
concerned, until the French Government announces publicly
that you have a mission here -- sh -- we can't offer any
more cooperation. I'm sorry, but I have to take a stand
No. I do-- I do understand fully the -- the difficulties
of the position.
HMJr:
Now, 1f the United States Army wishes to offer you that
cooperation that's their business, but as far 86 the
Regraded Unclassified
10
- 4 -
United States Treasury is concerned -- ah -- we are out,
until your Government makes 8 public statement.
M:
Well, I see that, and I appreciate the difficulties.
HMJr:
Yes, well -- well, I'm very sorry, but I'll have --
I have to take that firm position.
B:
I do -- I do understand --
HINT:
And that's the instructions that I'm leaving with Mr.
Hanes.
Si
I see. I do appreciate your position and the difficul-
ties --
HMJr:
So --
If:
And I appreciate all that you've done, BO you don't --
HMJr:
So if you want further cooperation from the Treasury,
you'll have to ask your Government to make 8 public
statement.
:::
Yes. And your position 16 that the public statement
be made st once?
HMJr:
Yes, please. As far as the Treasury 1e concerned.
N:
Yes.
HMr:
All right?
M:
Well, I do -- I do --
HMJr:
Well, I mean, that's just my position, and your Govern-
ment can do whatever they see fit, but that's the posi-
tion that I'm taking as Secretary of the Treasury.
I do appreciate fully the reasons and -- I -- I'll do
my best to convey to them the necessity of it, and I
do appreciate fully --
HMJr:
All right, Mr. Monnet. I'll be back on the sixteenth
of January.
M:
Well, now, Mr. Secretary, -- just one thing --
HMJr:
Yes?
M:
If during your holiday -- ah -- would you give me the
favor of being able to communicate with you?
Regraded Unclassified
11
- 5 -
HMJr:
No, I'm sorry, you'll have to communicate with Mr.
Hanes.
M:
Mr. Hanes?
HMJr:
John Hanes, Under-Secretary, and for two weeks Acting
Secretary.
M:
John Hanes?
HMJr:
Yes.
M:
All right. Then I'll -- I'll do that -- I suppose he
will be in Washington from tomorrow on?
HWr:
He's here now. He knows all about this. He's entirely
familiar.
M:
Well, I hope to see you when you come back.
HIAJr:
You'll find him very sympathetic, provided we get the
publicity.
25:
I understand fully the position.
HMJr:
Right! All right.
M:
Thank you very much, and good bye.
HilJr:
Thank you.
M:
Good bye.
HMr:
Good bye.
Regraded Unclassified
12
STRICTLY CONFIDENTIAL PARAPHRASE
January 3, 1939.
The following information has been received from the Noval Attache
at Peiping under date of January 1, 1939:
Anglo American loans have stiffened the attitude of the
provisional government heads toward Jap advisers which 1s
felt at present is causing postponement of the united council
meeting. From an excellent source I have learned that Wang-
Kahmin and Lieng-Hung-Chib on recent return from Tokyo expressed
the opinion that Japan was tending toward Fascist military
dictatorship with General Apaki and Prince Chimsibu leading
lights with Konoye as the mouth-piece.
Chiang-Kai-Shek as an endeavor to probe the Konoye slate
statement initiated the CW declaration made by Wang.
Estimate of political at tustion Wang was selected because
he is known to be pro-Japanese, therefore when negotiations start
Tokyo will save face; actually Wang is considered loyal but is
playing B. shrewd game with the knowledge that the Japs earnestly
desire peace and are willing to make concessions; trap is pleasantly
baited by suggestion that China join the anti communistic aris
providing Nippon with an easy way out. The Chinese will most
likely prolong the discussions on purpose hoping to dissipate
Japanese financial and economic strength in order to secure
better terms.
STRICTLY CONFIDENTIAL
Regraded Unclassified
13
ADDRESS THE COMMANDANT. U.S. CIAST GUARL
AND REFER TO No.
TREASURY DEPARTMENT
UNITED STATES COAST GUARD
HEADQUARTERS
WASHINGTON
3 Jamary, 1939.
SECKET
From:
T. V. Soong.
To I
Mr. Nicholson.
Wang Ching Wei defection has proved complete fissle.
He is repudiated by Kuomintang government and military as well
as people, and lends weight to Japanese belief which I previously
cabled that no sooner does any Chinese join Puppets than be at
once loses authority with his own people. Konoye wants to negoti-
ate peace with Wang Ching Wei as member of government but not as
solitary individual. Believe no reverberation need be feared.
Many hope government will eliminate all defeatists within own
ranks.
Regraded Unclassified
14
understand
Plo keep there
ltis together
the as of
1/3/29 in
and diary
Regraded Unclassified
15
January 3, 1939.
by dear Senstor:
I have your letter of December 6th before N and I an glad to
supply rush of the information you request as the Treasury has
available.
The figures you cite of our silver acquisition are substantially
correct. The table below shows the exact amount and composition of
our astallic reserves on the day the Silver Purchase Act m passed
and on Nevember 30, 1938.
June 19, 1934
November 30, 1938
Memotary
Venetary
value
Crasse
Value
Conner
(In millions)
1. Gold held in the
Treasury
$7,034
224
114,312
409
2. Total silver in
monetary stocks (in
Treasury and in
circulation)
997
606
3,263
2,524
3. Ratio of silver to cald
and silver in nenetery
stocks
10.3%
18.64
As you point out, the proportion of silver to silver and gold in our
nonstary stocks, at 18.6 persent, is loss than the ratio specified
in the Silver Purchase Act as its ultimate objective. The goal can
be reached (amide from alterations in the nonetary value of either
metal) in one of two through an increase in the amount
of silver purchased, or through a decrease in the mount of gold in
the mestary stocks, It is therefore impossible to say at this
time when the ultimate objective of 25 percent will be attained.
There appeare to be a mismaderstanding on the part of the Finance
Condition of the les York State Chamber of Commerce with respect to
the procedure under which our Treasury's silver purchases are finamed.
Purchases of silver do not increase the public debt, not require
Regraded Unclassified
16
Senater Vandenberg - 2
expenditures to be made out of funds obtained from tax revenue. The
purchases are financed in such the BRRO way that purchases of gold
are: gold certificates and gold certificate credits are Lowned
(secner or later) against the gold acquired) similarly, silver
certificates are issued against the silver bullion acquired (in in
anount not less than the cost of the bullion to the Treasury).
Needless to add, I will be glad to furnish you with any additional
available statistics or information that you may desire in connection
with your further study of this problem.
Sincerely,
(Signed) H. Morgenthau, Jr.
Honorable Arthur H. Vandenberg,
United States Senate,
Washington, D. C.
HDW the
12/30/38
Regraded Unclassified
C
C
UNITED STATES SENATE
7
I
Comittee on Finance
Toomber 6, 1938.
Nonorable Henry Margenthan,
Secretary of the Treasury,
Washington, Fix C.
My dear Mr. Secretary:
Instead of submitting the following questions in the form of & 3en-
ate Resolution in January, it occurs to ne that all of the informa-
tion may to slicited by an exchange of letters. Therefore, I take
the liberty of entracing this simpler and pore direct contact. If
not deemed insppropriate, I should appreciate & letter from you in-
dicating the Treasury's attitude toward the demand (Cetober 30) of
the Pinance Committee of the New York State Chamber of Comerce that
the Silver Purchase Act of 1934 be repealed and the purchase of 012-
ver bullion be suspended "to save further useless expenditures of
public funds".
In this connection I should like to inquire whether this Committee's
statement is justified that -
"The United States now holds one-sevent of all
the silver the world has produced in 450 years -
silver which it cannot use and could not dis-
pose of without causing a collapse of world
prices and panic".
The Gilver Purchase Act of 1934 instructed you to buy silver until
(1) the price reached $1.29 per ounce, or (2) until our silver hoard
1a equal to one-third the monetary value of our gold hoard. Silver
10 now selling in the world market for 43 cents an ounce - although
you are paying an additional premium of 21 2/3 cents an owner for
American-mined silver (which could be purchased 21 2/3 cents 60 ounce
cheaper in the world market). Therefore, the first objective does
not appear to be remotely attainable. AB for the second objective,
although you have purchased approximately 1,750,000,000 of
silver, there appears to remain a gap of nearly 1,000,000,000 ounces
(which you must still purchase) - and the gap constantly widens as
more and nore gold flows to the United States. If these facts are
approximately socurate (and I ask to be corrected if they are not),
I bag respectfully to inquire how it in possible, in reasonable 00-
Regraded Unclassified
10
Bor. H.M.
- 2 -
pectation, for the Treasury over to name the mandate of the
ilver Purchase Act?
If the asserted objectives are unattainable, 1 should be glad to
have the Treasury's view whether it 1a advisable for the govern=
sent longer to pursue this hopeless "starn chase". Are there any
collateral compensations to the nation in maintaining these vast
silver expenditures? I an not unsware of the license in the law
which permits the Treasury to coin 43 cants worth of silver into
11.29 of monetary value, and which allows the President to devalue
the silver dollar 50% (which I suppose would give 43 cents worth
of silver e monetary value of $2.58), but I take it that no such
gross inflation is contemplated, despite its easy invitation to a
fictitious bookkeeping profit of several billion dollars to &
hard-presed Treasury. Neither an I unsware of the claim that
this silver policy could enhance our foreign trads with silver
countries; but any such advantage seams, on the face of the record,
to have disappeared in thin air. Possibly the unilateral "good
neighbor" policy with Mexico is involved since I understand that
large silver purchases continue from that quarter. If compensations
are found in these or any other directions, it would be helpful if
they might be pointed out.
: shall welcome any general discussion, in addition to these specific
inquiries, which you may care to undertake in facilitating an auther-
tic understanding of the whole problem,
Respectfully yours,
(sgd) ARTHUR R. VARDENBERG
ARV-D
Regraded Unclassified
19
FEDERAL RESERVE BANK
OF NEW York
January 3, 1939.
Dear as. Secretary:
Except for one large private sale by a utility company, there is little
to report on corporate financing in the final week of 1938. The Cities Service
Gan Company sold $35,000,000 of 3 1/4 per cent and 3 3/4 per cent first mortgage
pipe line bonds of 1940-54 to a group of banks and insurance companies. This
issue, along with one or two smaller changes, requires revision of the preliminary
total of corporate issues in December (the preliminary estimate in my letter of
December 23, 1938, was $205,000,000 of which about $40,000,000 was for new capital)
to $250,000,000, of which $45,000,000 was new capital.
On Thursday, December 29, dealers offered an additional $13,556,000 of
Metropolitan Water District of Southern California 4 per cent bonds of 1946-86.
These bonde were acquired from the Reconstruction Finance Corporation at 108, as
against 107 for a block of $60,000,000 last June. Priced to yield from 2.50 to 3.55
per cent, the new offering WEB well received in the market. Various other municipal
bond awardsduring the week made the total of such awards $26,900,000.
The schedule of prospective offerings this month is still very slim. It
continues true, of course, that a lot of the necessary and possible refinancing has
already been done, and that increased borrowing of new money depends upon both the
need for expansion of existing productive facilities and the possibility of doing an
increased volume of business at a profit commensurate with the risk.
Yours faithfully,
Atlan Sproul,
First Vice President.
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
mm
Washington, D.C.
1378
Regraded Unclassified
20
January 4, 1939.
Dear Mr. Sproul:
In the absence of the Secretary, who
1s amy from Washington on a brief vacation.
I an acknowledging your weekly letter dated
January 3, 1939.
Your comments will be noted by the
proper official in the Secretary's office.
Sincerely yours,
H. S. Klots,
Private Secretary.
Mr. Allan Sproul,
First Vice President,
Federal Recerve Bank of
New York,
New York, New York.
(IEF/dbs
Regraded Unclassified
21
TREASURY DEPARTMENT
BUREAU OF ENGRAVING AND PRINTING
WASHINGTON, D.C.
January 3, 1939.
The Honorable
The Secretary of the Treasury.
Sir:
In compliance with Section 7 of the Legislative,
Executive and Judicial Appropriation Act, approved March
2, 1895, I respectfully report that the work of this bureau
21F.3, at the expiration of the quarter ended December 31,
1938, substantially up to date.
Very truly yours,
Ammel
A. W. Hall,
Director.
Regraded Unclassified
22
NATIONAL POWER POLICY COMMITTEE
INTERIOR BUILDING
WASHINGTON
January 3, 1939.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
I enclose herewith your file copy of dualy 12-19-38)
(m bled
the report of the Fiscal and Monetary Advisory
Board, of which I have taken the liberty to make
a copy.
With kind regards,
Yours sincerely,
Been v Crum
Benjamin V. Cohen
Enclosure.
Regraded Unclassified
23
c/o Board of Trustees,
Liang Lu Kou, CHUNGKING,
3rd January 1939.
Secretary Henry Morgenthau, Jr.,
Treasury Department,
Washington, D.C.
Dear Mr. Morgenthau,
I am enclosing material which I had sent
Miss Saunders but which she could not forward you on
account of an attack of appendicitis. For some unknown
reason, there was A delay in this material being
forwarded to me from Kunming which has only arrived
today through the Consulate.
Respectfully yours,
J. harring Lossing Byck. Buch
3959
MJISIVIA
UNCREARD 11
Encls:
JLB:MC
Regraded Unclassified
24
1
Chengtu, December 7th, 1938
To Secretary Morgenthau
From J. Lossing Buck
JAPAN'S DOMINATION OF CHINA
Japan's desire to dominate China is best illustrated by leaflets
dropped by Japanese bombers in Chengtu on November 15th. A copy of the
original leaflet and a rough translation by a member of Centrel Aircraft is
enclosed.
DEVELVED
677
TM3MT9A930 V9H0139T
- - di - 1
Regraded Unclassified
25
2
JAPANESE EMPIRE'S DECLARATION
Under the order of the Emperor of Japan, the Empire's Army and Navy
captured Canton and the three cities of Wuhan, in order to overcome all Chinese
vital cities. The Government of the Chinese Republic is being descended 88 a
local reign. If the Government still follows up her old policies of "Anti
Japan and Join the Communist", the Empire shall chasten her by force until her
ruin.
What the Empire expected is to establish a new orgenization, to build
up e foundation of the permanent peace for the East Asia. This is also the ut-
most aim of the war.
The establishment of the new organization is based upon the relation-
ships in political, financial and culture, which are accomplished by the union
of three nations: Japan, Manchukuo and China. The international arbitration
of the Sest Asia will be obtained, the union of "Anti Communist" will be func-
tioned, the new cultivation will be invented, and the cooperation in finence
will be performed. This 1s the best way to obtain the peace in East Asia end
improve the world's cultivation.
The Empire wished Chine to take partial duties of establishing the
new organization in East Asis. Chinese people are expected to understand the
real idea of the Empire, and render their istances to the Empire. The Empire
shell not refuse to. cooperate with the Covernment of Chinese Republic if she
677
will give up the old policies, alternate the personnels, revise the construction,
THE
and join the esteblishment of the new organization.
-
i
3
Regraded Unclassified
26
3
Having recognized the real purpose of the Empire, all the nations
in the world should choose their best policies to meet the new situation of
the East Asia. The Empire trusts them. Amongst all, WO are much obliged to
the nations who are in union with us, of their kindest assistances offered.
The great achievement of the establishment of the new organization
for the East Asia is extended from our spirits of building our nation. It
is the most glorious and greatest duties of modern Japanese people to accom-
plish this achievement. The Empire decides to improve the nation in
different points by her sovereignty, to enlarge the nations' unit power,
to overcome all the difficulties, and to accomplish the achievement. This
is the Empire's permanent policy as well es her motionless decision.
DECEIVED
FTF
THE
- - - - 1
Regraded Unclassified
********
28
Chengtu, December 7, 1938.
To Secretary Morgenthau
From J. Lossing Buck
THE BURMA ROAD
Mr. C. W. Hunter, Factory Manager of the Central Aircraft,
left Yunnanfu on November 2nd, meaning to drive to the Burma
border. de was obliged to turn back shortly after Paoshan,
and reports that between the Salween and the durna border the
road is impassable. This 18 due to land-slides, bad bridges
and wet Westher. He stated that thousands of coolies are at
work, out that he considers the road will need constant lebour
for years. Land-slides will be a constant menace, and the
road bed is narrow, and turns are very sharp. He found it
extremely dangerous as far as he went. de met Mr. Ling of the
Southwest Transportation Company en route and Mr. Ling very
kindly lent him some gasoline. Mr. Ling is the man I am
scheduled to travel with on his second trip. Mr. Ling was
scheduled to return to Yunnanfu November 20th, but has still
not returned. The Chinese estimate that the road will be usable
by the first of the year, but Mr. Hunter considers this very
optimistic for trucks, outting the date forward by at least a
month.
Regraded Unclassified
29
Chengtu, December 7. 1938.
To Secretary Morgenthau
From J. Lossing Buck
MILITARY ACTIVITY AT YUNNANFU
My secretary writes from Kunming:
"Kunming shows much more evidence of military activity
lately, especially at night - military trucks in great numbers
on their way some place, and many more soldiers. The Ministry
of Communic ations has at last taken over the telegraph office:
the forms have the Central Government chop, not the Yunnanese
form, and the personnel is changed, the new people being much
more modern and intelligent."
Regraded Unclassified
30
Chengtu, December o, 1938,
To Secretary Morgenthau
From J. Lossing Buck
CENTRAL AIRCHAFT COMPANY'S REPAIR SHOP
CHENGTU
Today Mr. Schultze of Central Aircraft escorted me to
his company's repair shop. It 1s located in temple buildings
amongst a large grove of trees near the air field. The trees
form an excellent camouflage. One part of the temple is still
used by monks and the contrast of singing monks and repairing
of bombing planes was indeed great,
The company is busy repairing Blanco planes; four are
finished and on the field and the others will be ready soon.
This work has all been accomplished since the factory moved
from Hankow in July.
On the sir field I sew the Generalissimo's 14 passenger
Douglass plane ready to take off for Lanchow, piloted by
Allison, a pioneer of aviation in America and then in Chine.
The passengers were pilots to bring Russian planes to Chengtu
end among them were the three ace pilots of China,
Regraded Unclassified
31
Changtu, December 7, 1938.
Secretary Morgenthau
or J. Lossing Buck.
Nanking
140 open letter by Professor M.S. Bates, published by the China
(ress, November 27, 1938.)
(ifty thousand people - one-eighth of the population of Nanking -
are wing alowly poisoned today by heroin, supplied by Japanese con-
trolled drug rings.
Every month a minimum of $5,000,000 are being squeezed from the
overlshed Chinese in the region by dope traffickers, belonging to
# allied with the Japanese Army.
These figures, indicating Nippon's policy in China, were conveyed
to 20 China Prese yesterday by Dr. M. S. Bates, an American missionary
e/ivestor of Nanking, in a lengthy statement, entitled, "An Open Letter
en the Marootic Problem.'
T. lates gathered the material for his careful report through
nersonal investigation, observations by reliable friends, statements
ends by dealers and officials and from regulations issued by the puppet
atministration of Nanking.
Dr. Bates in the past has made B number of other reports of this
type, one of the most important being 8. statement on the "Race of
l'enking" last December.
ALS conservative estimate of 50,000 persons, - including small
children, - already gripped by the heroin habit does not include the
under the deadly influence of oplum and other illicit drugs.
Army's S.S.S. Active
Dr. Sates' statement indicates that the strongest of the four
drug-trafficking organizations active in the city is directed by the
Geoial Service Section of the Japanese Army.
The following four groups are named by Dr. Bates &B closely
connected with the trade in narcotics:
(1) The Special Service Section of the Japanese Army.
(2) The puppet administration of Nanking.
(3) "Independent" Japanese and Korean Drug runners.
(4) Jananese business firms.
According to information given to Dr. Bates by "an agent of
considerable standing,' N the Special Service Section of the Japanese
Attay 188 recorded monthly sales above $3,000,000 in the area of which
Manking la the center.
The puppet administration has provided for the "regulated" sala
or spium, according to the statement. Seventeen retail stores are
known to be in full operation and others are reported to be in the
Troness of organization.
Regraded Unclassified
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22
"mase stores are taxed in three grades, it is alleged, presum-
While recording to the amount of business done - at $4,200. $2,840 or
03, yer quarter.
over 40 dens are said to be doing business as from November 15.
more and taxed according to the number of lamps employed; nine lamps,
LIPO; six lamps, $100 and three lamps, $50.
Amnle Indication 1a given in Dr. Bates! report to show that
" regilations of the puppet government are flagrantly violated.
Official Reason Given
"Too official reason for the provision of public dens is that of
for the hardships of poor laborers, states the report.
acther justification for the easy and cheap supply 1s to protect
the while from exploitation by private trade - "which does not pay
ents to the right office. If
Allienous hotels and brothels are said to be engaged in the
traffic.
"Within the past few days, one organization of Japanese and
Mirean 'hostesses' and ronin brought in 80 cases of opium, If Dr. Bates
declares.
The statement further reveals that a good deal of the wholesale
trade 18 carried on by Japanese firms which outwardly deal in tinned
coods on medicines, but handle heroin through rooms in the rear. The
hereby and addresses of certain of these firms are not-orious, the
striment says.
Petty trade also is carried on by runners who tring londe of
Banco Teem Shanghai.
Although the exact source of the heroin consumed 1a unknown,
Sta cuet. 30:00 :- said to be based on the Shanghai price for the Dairen uro-
Opium From Dairen
"There 1a abundant testimony that the major opium supplies come
100 selven through Shanghai, If Dr. Bates' report reveals.
"Ratil recently,' the letter continues, "there also has been
crude Anhwei opium on the market, But\ the more efficient pro-
quotion in 'Manchukuo' and the recently improved transportation and
distribution facilities for the opium trade make it possible to sell
Detren oplum at $11.50 per ounce in the retail stords (said to be $11
from the Bureau, and $9 in quantity from the Datren-Shanghai organiza-
(tion) 14-W15." which eliminates the Anhwei article and the recent price of
Regraded Unclassified
33
The rapid spread of heroin 1s closely connected with the in-
sreise of thieving and difficulty of social control in Nanking, says
DA statement.
A recent police report declared that in Nanking there now are
hersons to be classed B.S thieves, and that the basic cause
for sealn conduct is the use of heroin by 140,000 persons, mostly
In the families with the thieves, who are themselves addicts.
in. lates, however, believes this figure to be exaggerated.
Practice Condemned
A trong condemnation of a government which permits this ruinous
use of drive is contained in Dr. Bates' letter, He says:
"One cannot imagine a shorter sight and B. narrower greed than
that with exploits the war-time ruin of B. relatively decent society,
to draw the hungry and sick and hopeless down the false road that
leads only to destruction.
"!"O make cheap supplies universally available, and to increase
their use through advertising, and the building up of a vast public
and trivate financial interest in the extension of sales, 1s & policy
based elther on stupidity or on inhuman greed.
"Do olther Chinese or Japanese interests require for the future
Il drugged people, short-lived and infecund, physically indolent and
morally Irresponsible? That is the kind of people who are being de-
In the Nanking Area today by the Opium Suppression Bureau and
by the heroin merchants of all types.
"llere is a flat test of the statesmanship end the character
or tiam Reformed Government and its sponsors. No Chinese of real
worth will trust or assist an administration which ruins society be-
fore his eyes.
"And conversely, if the new administration wants the support
of the better elements of the population, the first step to secure it
1= an instant and resolute stoppage of the flood of narcotics.
"These words are written not as supercilious advice to officials
who presumably understand what they are doing, but to emphasize the
original appeal to Japanese and Chinese friends who are not yet aware
of the urgency of the problem, in the hope that they may exert con-
structive influence at once."
The full text of Dr. Bates' Open Lotter on the Narcotic Pro-
blem follows:
Full Text Given
"To Japanese and Chinese who Care for the Welfare of the Peo-
she of the Nanking Area:
Regraded Unclassified
31
"As an old resident of Nanking, long obeervant of the progress
and well-being of its people, I am interested to learn this wook of
a movement in the 'Legislative Yuan of the Reformed Government',
looking toward a revision of policy in the supply of narcotics. Per-
ait = to use this opportunity to make an appeal for recognition of the
great svil now in process, and for the prompt efforts of men of high
character to secure not merely some small adjustment, but a significant
friends, and to other visitors from outside Nanking, that
tive ascoptic problem W&S becoming serious. Several of them said they
and not heard of It, and asked for information.
"I began to observe more closely, and in the racid developments
of the current month became convinced that the attention of public-
spirited persons ought to be drawn to the matter at once, if the people
if this city and surrounding districts are to be saved from irreparable
"The following report has been prepared with care. For minor
STROCK In detail or form of statement, the compiler must be blamed.
70: 28 1s convinced that the main picture is true beyond question.
"The information here presented comes from these sources:
"A.) The direct observation of myself and reliable friends.
B.) 'Regulations of the Tupan's Office (governing the Nan-
kins area) Establishing the Opium Suppression Bureau'; and 'By-Laws
of the Colum Suppression Bureau'; 'Provisional Regulations for
0-1m Supply Establishments and for Retail Stores'. 'Provisional
Ingulations for Special Licenses and Sales in Smoking Dens'.
'Application Blanks for the Registration of Domestic Smokers (cover-
1ng dally issue of opium, with taxes).
C.) Statements from dealers and officials, secured of course
through personal connections.
Regort on the Narcotic Trade in Nanking
I. Sharp Reversal of Conditions.
"The present generation has not known large supply and con-
vemption of opium in Nanking, nor open sale in a way to attract the
DOOP no Ignorant. Opium was used in a private and semi-private
by certain members of official and merchant groups, usually of
:ce older type, and by few others.
"Perticularly during the last five years has the use of opium
seen slight, due to fairly consistent and cumulative government pres-
sure against the trade, plus the result of educational effort during
the that thirty years.
"maroin was practically unknown, and ehormously expensive
- $1200 per ounce).
"Sut the changes of the year 1938 gave brought an ovil re-
volution. Today opium and heroin are sbundantly supplied by the
Regraded Unclassified
35
5
public authorities, or by those who enjoy their favor and protection.
Tens of thousands of persons have become addicts, including children
and numberous young people of both sexes.
"Thousands are engaged in the business. The interests already
dependant upon the trade for livelihood of for profit are 30 powerful
and sitensive that it would require a determined will among the mil1-
tary and civil authorities to crush them.
"A now generation is beginning with the weight of ruling autho-
21ty torown in favor of narcotics.
"Some officials are notorious and open consumers. Public re-
venues are being built upon the ruin of human bodies and spirits. It
la made possible for every one to becure narcotics conveniently and
cheaply.
" More than that licensed dens in the public system advertise
upon the streets that their products increase the health and vigor of
those who use them; and the one newspaper in Nanking, official in
character, invites citizens to places of doom.
II, The Nature of the Trade.
1. Opium
"A- The Public System: For administrative purposes in general
Nunking City (including Hsiakwan) is divided into five districts, each
with its own subordinate administration and budget. The opium system is
closely tied up with this political organization, although the varia-
ticn in size and population of the various districts is such as to make
If mechanical use of such divisions unreasonable.
"Each district is supposed to have one Opium Supply Establishment
(T'u Keo Hang) authorized to seal up to 750 ounces per day. But there
has been some difficulty in organizing these establishments, perhaps
because of conflicts of vested interests in the supply and distribution
at previously conducted, perhaps because of the relatively high initial
deposit required. Actually, the Opium Suppression Bureau is issuing
onlum directly to the subordinate sales agencies now to be described.
"Each district may have five retail stores (T'u Kao Tien), say
the basic Regulations, of which 17 are known to be in full operation
and others are reported to be in process of organization.
"They are taxed in three grades, presumably according to the
amount of business they do, at $4,200, $2,840, or $1,420 per quarter;
and of course they mist buy, according to the sidn, only from their
superiors, and sell only at the fixed prices?
"Each district was supposed to have ten Smoking Dens (Shou Hsi
soj, of which forty-odd were doing business se of November 15.
"They are taxed according to the number, of of lamps employed; nine
lamys at $150, six lempa at $100, and three 2-Ampa at $50. But while
Regraded Unclassified
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- 6 -
mate report is being written, the official Regulations have been
changed to permit in each district ten Retail Stores and thirty Smo-
Eng Dens. I observed several opening for the first time on November
19.
"One friend has secured at my request the names and addresses of
52 stores and Dens which he found in one day in the southern half of the
Hellod City only. Further, single lamps in homea must be registered,
carent in principle at $4, $3, or $2 per month. In practice, 8 certi-
livete for one-tenth of an ounce per day is issued at $2.20; and for more
than that amount of domestic use, at $4.40 aside from the cost of the
prium.
"B. Observations on the Public System: The present scheme is
harily In full working order and the inevitable irregularities have
not been hardened into custom. Hence it 1s not possible to report the
elements of graft that extend or modify the official arrangaments.
"But it is known, for example, that the Bureau is so enxious
to 082 the trade into its own channels that bidders for the right of
coerating Stores and Dens are permitted to use part of a required de-
nceit 4.B cover for the initial purchases; also, that certain Stores
ENE Dans are selling to unlicensed persons.
"The Opium Suppression Bureau is under the Municipal Finance
[ffide of the Tupan's Administration. Recently there has been some
-olice ressure, associated with interest in fines, upon users of
nercotics other than opium. The Bureau's Regulations and By-Laws are
concerned mainly with bringing all private trade and consumption into
the revenue net.
"There is vagae and kindly mention of & possible institution
for breaking the nercotic habit; but more specific are the measures
Ex: control expected crookedness within the system, and to ensure re-
quisite secrecy in this 'public' enterprise. The broad social view
of the Onium Suppression Bureau 18 indicated by the arrangements for
supplying hotels and brothels with special icenses, and even by the
vrivate licenses (for B. seven-day limit, which is surely generous) to
sover marriages, funerals, and social entertaining.
"C. Private Trade. Sources of Opium Supply. Price, Volume
or mainess: From examining the official scheme, one might think that
(aly some 75 (now 300) establishments would be dealing in opium in
Marking. But one must recall the large number of hotels and brothels
=[ 411 sizes and names, plus the fact that a host of domestic lamps
licensed and unlicensed are doing more than domestic duty.
"One very small neighborhood, near my own home, and not in a
thiekly populated portion of the city, is found to have fourteen ob-
Vious centers of distribution and consumption. Both for the Govern-
sent and for the people, private trade 19 thus a matter of great con-
carn.
Korean 'hostesses' and ronin brought in 80 of opium. An 1m-
"Within the past few days, our organization of Japanese and
portant dealer in the public system says that Japanese agents a fort-
Regraded Unclassified
37
aignt ego delivered here over 400 cases of Iran opium; but this ship-
zont seams to have had some relation to the Opium Suppression Bureau
and therefore should not be criticized.
"However, there is abundant testimony that the major opium
supplies come from Dairen through Shanghai. Until recently there has
also Leen some crude Anhwei oplum on the market. But the more
excicient production in "Manchukuo" and the recently improved trans-
certation and distribution facilities for the opium trade, make it
scantble to sell Dairen opium at $11.50 per ounce in the Retail Stores
(said to be $11 from the Bureau, and $9 in quantity from the Dairen-
organization) which eliminates the Anhwei article at the
recent arice of $14-$15.
"The daily sales under the hands of the proper officials are in
scinciple limited to 6,000 ounces. But for some time this allowance has
seon insufficient to meet the application from the Stores and Dens, and
proportional allotments are necessary. Not B. few of the sales go out
to the surrounding country. Actual totals must be much greater than
the legal limitation. But 6,000 ounces alone represent $66,000 per
day wholeaale, or $2,000,000 per month.
2. Heroin
"Destructive and alarming as is the trade in opium, it is over-
shadowed In viciousness, perhaps roughly equalled in monetary volume,
and probably surpassed in number of persons affected by the totally
now development of heroin.
"Meroin 18 more convenient to take, and a very small quantity
la effective. It is commonly said that at present prices 8. moderate
assist's daily use on B. low plane costs fifty cents to one dollar in
splum, but only thirty or forty cents in heroin. (Portions of opium
en Inmo-privileges in the official Smoking Dens run from 20 cents to
15, according to quantity, quality and the style of the establishment).
"The rapid spread of heroin is closely connected with the milt1-
plication of thieving and difficulty of social control in Nanking. A
recent police report declared that in wanking there are now 40,000
persons to be classed as thieves, and that the basic cause for their
conduct la the use of heroin by 140,000 persons, mostly in the same
familles with the thieves who are themselves addicts. These figures
seen to me to be absurdly worse than the reality; but they are repeated
here BS giving some sense of the vast scale to which the evil has risen,
and of the significance that it should have to authorities really
concerned for the welfare of the people of all classes.
"A sensible private estimate is that 50,000 persons, one-eighth
blaner. of the Vanking population, are now users caving of heroin. Others put it
"The trade in heroin 1a private, widely scittered in retail ped-
cline, and conducted through agents who work under Phierarchy of inti-
One friend knows of 72 places of sale.
Regraded Unclassified
38
- 8
"It is commonly reported that the Special Service Department of
the Jananese Army has close and protective relations with the semi-
organized trade in heroin. An agent of considerable standing says
that the Special Service Department has recorded monthly sales above
$3,000,000 in the area of which Nanking is S. center.
"There is general testimony that a. good deal of the wholesale
trade 13 carried on by Japanese firms which outwardly deal in tinned
goods of medicines, but handle heroin through rooms in the rear. The
names and addresses of certain of these firms are motorious. In at
least one ease known to me the prominent sign and premises of the
certify have represented no other business than the occasional arrival
and mistribution of fresh stocks of heroin from Shanghai.
"There is also a petty trade carried on by runners who bring
losse of goods from Shanghai on the trains and boats, supplementing
their trivial profits by B. little herion, and assisting the process
by A quall bribe to military police when necessary.
"The price of heroin fluctuates, but is often about $120 per
owner, said to be based upon a Shanghei price of $80 for the Dairen
inclunt.
III. Conclusion.
"One cannot imagine a shorter sight and narrower greed than
that with exploits the war-time ruin of a relatively decent society,
to area the hungry and sick and hopeless down the false road that
Ieads only to destruction. In most cases the first use of narcotics is
through Deception or lack of comprehension of the real nature of the
stem teken.
":0 nake cheap supplies universally svailable, and to increase
their visa by advertising and the building un of a vast public and
private financial interest in the extension of sales, 1s B. policy
based alther upon stupidity or upon inhuman greed.
"Do either Chinese or Japanese interests require for the future
s. dirigged people, short-lived and infecund, physically indolent and
negally irresponsible That is the kind of people who are being
developed in the Nanking Area today by the Opium Suppression Bureau
and by the heroin merchants of all types.
"Шэге 1s e flat test of the statesmanship and the character
of the Reformed Government and its sponsors. No Chinese of real worth
will trust or assist an administration which ruins society before his
8508. And conversely, if the new administration wants the support
of the better elements of the population, the first step to seoure
It 18 an Instant and resolute stoppege of flood of narcotics.
"These words are written not as supercilious advice to officials
the presumably understand what they are-doing, but to emphasize the
ori_1ns1 appeal to Japanese and Chinese friends who are not yet aware
of the urgency of the problem, in the hone that they may exert con-
structive influence at once.
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I
I
3
Regraded Unclassified
39
AM educated persons, and even some who are illiterate, can
between deceptive words and the reality of a policy. The
present hypocrisy only increases the contempt of decent persons for
110 vila trade.
"Dile scores of newly licensed dens are opened, advertising all
sental 1f Danefits for twenty cents and forty cents, the very Regulations
that provide for getting extra revenue, even from the domestic smoker,
movel `rone! "All users of opium who because of sickness or of age
camet break the habit must register."
"Ins form on which the individual applicant signs declares that
1002/AB of sickness he is unable to break the habit and therefore
NAME supplies as an act of grace.
"The official reason for the provision of oublic dens is that
as commission for the hardships of poor laborers, expressed more than
une is the documents. Another justification for the easy and cheap
sungly 13 to protect the public from exploitation by private trade
dess not Day assessments to the right office). Then there is the
humano lan're to save the people from 'the powerful poisons with a
1116-1005 clutch from which no escape is possible, meaning of course
vicin now being distributed in every street, even among children
12mt the heroin profits go to another gang).
"Pinally, what do legitimate economic interests, Chinese and
think of a policy that takes away from the impoverished
provintion of this region a minimum of 000, 000 monthly, reducing
taly toying power for decent goods and their ability to do productive
Intor of ang kind?
"Bursly there are men who will reverse the present judgment
that the first and greatest achievement of Sino-Japanese co-operation
In the Important region, is the poisoning of the common people. Is
reace in the Far East' the deadly dream of an opium den?
"If I, as a foreign guest and friend, have spoken badly, let
Chipsee and Japanese come forward to speak more effectively for the
valure CI the plain persons who do most of the productive work.
nit Tat nune waste breath or ink in declaring that the purpose of
tris Crimb Suppression Bureau is misunderstood.
M. S. BATES.
Devember 22, 1928.
Regraded Unclassified
Changtu, December 7, 1938.
To Secretary Morgenthau
Prom J. Lossing Buck
Nanking
40
14 latter from Dr. M.S. Bates, a professor in the University of Nan-
XINE, "no has remained in Nanking all through the period of occu-
pation. The letter is a Christmas one to his friends, but it does
not make one feel like Christmas.)
November 29, 1938
Dear Friends:-
lost of you received our letters of just 8, year ago and of
January 10, but nothing since. This report will go by China Clipper
to San Francisco, while I continue toward the International Mission-
ary Conference, which meets December 13-30. After two additional
weeks in India, I will return to Shanghai, arriving about January 29;
and will go to Nanking immediately if I get the requisite military
pass.
The criminal misery of Nanking has at last become general
knowledge, though there are few who grasp its despairing total.
Timperley's book "What War Meana: The Japanese Terror in China", is
straight stuff. Unfortunately there are some people who shrink from
confronting the evil of the present world, by refusing to believe
what they term "atrocity stories". The first necessity of work for
peace or for any other improvement, is to face the facts honestly.
Then the interpretation of the facts, the formulation of program,
and the going forth to action, are further steps -- all subject to
modification as new facts require. Certain friends take B position,
and than dismiss or arrange facts in defence of the position, which
outs them in illusory ether.
our final estimate of the number of civilians killed in Nanking
well 12,000, nine-tenths of them apart from military operations, and
including many women, children, and aged men. That figure is in the
ratio of one to every four families then in the city. Tie have specific
reports from resident families, given with some reluctance and con-
cealment because retaliation was feared, of one member in every five
families killed, injured, or taken away not to return. More than
30,000 allitary prisoners who had abandoned their arms, were mercilessly
butchered, most of them tied in long lines and machine-gunned on the
river-bank. Many thousands of women were raped (8,000 was & careful.
figure set early in the process, and the most conservative given by
any observer).
Immediately outside the wall, there was extensive burning by
the Chinese army in preparing its poor defence. Within the wall, the
buildings and their contents were practically intact at the time of
transfer; but during 8. period of six weeks, beginning one week after
antry, the Japanese military burned several thousand buildings (over
4,000 street numbers). These all belonged to the ordinary citizens whom
they have come to "liberate", and none to the Government or Party whom
they execrate. For the whole city, 24 per cent of the buildings were
burned. An additional 63 per cent suffered serious looting, primarily
by soldiers, which stripped almost all the people of their unburned
tools, stocks, clothing, even food. The foregoing figures are from
the Nanking International Relief Committee's survey (printed as "War
Regraded Unclassified
41
-2-
in the Nanking Area"), which inspected every one of the 40,000
Jacaro yours numbers in the city and investigated in detail every tenth one.
X losses were the more shameful because less than two per cent were
incurred by actual military operations.
For WAS the fearful injury limited to Nanking. The investiga-
tions directed by our trained sociologist, Dr. Lewis Smythe, to
watimate the remaining resources and the relative needs for various
types of relief, found that in a wide area of country 40 per cent of
CATH buildings had been burned, nearly half the implements and animals
lost, and one resident in every seven families killed. The brutal
instruction of villages still continues spasmodically but on a con-
siderable scale, often because infuriated farmers have attacked a small
patrol that seized their women, or because local people have been
caught between the conflicting demands of guerillaw and Japanese for
supplies and labor.
Can you think what life was like among defenceless people In
long periods of such terror and danger, when the appearance of B.
noldier in the street, or B rap at the door, or B. false report by
disreputable police hirelings, meant immediate risk to person and almost
certain loss of humble possessions? Three weeks were intensely bad, and
not until June did gradual easing off end in reasonable security of
life and limb. There is still confiscation of land and buildings at
will; more than 20 per cent of the real property in Nanking has been
taken by the military, by their Chinese servants of varying titles,
and by the 3,000 Japanese civilians and 302 Japanese shops not set up
in the city in the best buildings that escaped burning. I do not
know of one case of free commercial transfer; and among scores of
Instances with which I am familiar, the only actual compensation was
3 cer family given to some thousands of persons in & large area
salzed sntire. That la "economic cooperation", about which diplomate
ake after-dinner speeches. One side provides the property and labor;
the other, gun in hand, takes control and profits with only nominal
Investment aside from the gun. In our experience it works just the
same from electric power plant to corner store and private residence.
Attila was a simple greenhorn.
Politics as such are not our business, but we are deeply con-
cerned with the life and welfare of the people of our city. A year's
work on rellef enterprises, with especial attention since June to
investigation and observation of economic conditions (losses and
injuries, crops, village situations, fuel, clothing and bedding, employ-
ment). rives me B large body of chill facts and B. continual flush of
indignation that plain folks should have to suffer 30 deeply to no
1000 purpose. In the winter and through May, I did my part in the
International Committee's general work, but was required to give B
(ood Degl of attention to problems of personnel. and property in the
Alveratty's extensive plant, which received 30,000 refugees at one
time and trept an average of over 15,000 till late spring.
This autumn we (University) are trying out the needs and the
good-sized primary 8 training course for young farmers, B. few
possibilities of educational service by running on various sites B
cluases in languages school, and mathematics for stranded boys of junior middle only
#chool grade, and a little work for illiterates. So far we have
Regraded Unclassified
42
visits from .ilitary police, but no interference. Limitations of staff
and runds, with the expectation that by spring the "Reformed Government"
will have to show to their masters some results of "the new education",
require us to be cautious about enlargement (though the nerveless
municipal system end the total of Christian schools provide for only a
fraction of the children and young people who should be receiving
nome training).
But I have wandered from relief, in the mixed duties common to
scet days. The International Committee in December of last year oro-
vided $50,000 people with housing (in highly relative security), including
70,000 in 25 refugee camps. It was necessary to supply food for many
of time latter, even until May, though numbers had gradually dwindled
with partial restoration of order. $345,000 in Chinese currency has
been expended to date, mainly in food (exchange was $3.40 to the
American dollar until spring but now 1s more than six to one). Cash
reliof, conduct of the camps, work relief projects, clothing, sanitary
and health work, and small loans for starting trade or production, have
been the other chief forms of aid.
Hearly $185,000 is now in hand in cash and food for the winter's
work, which confronts a people with absolutely no reserves, private
or bublic. That sounds like B. lot of money. But even in terms of the
low-velved Chinese currency, it is about one dollar per person for the
abject yoor in Nanking city alone. It will feed that group for about
two weeks on cereal alone; or buy them each one of the cheapest winter
pareents of cotton. The larger part of the Committee's resources
2020 from rice and money turned over by the old Municipal Government, and
from A crent by the National Government's Relief Committee in May; there
have also been useful contributions from various American organizations,
from a British relief fund, and from a group of Chinese bankers and
er old residents of Nanking now in Shanghai. The Committee has
eaintained high standards of investigation of applicants for relief,
and has passed its accounts through well-known auditors in Shanghai.
This bare account gives some idea of the scale and difficulty
of the International Committee's responsibilities. The romance of the
local struggle to carry on relief, which has literally cost life and
blood and Imprisonment and tears; the story of the cooperation of
Parman Nazie and British businessmen with us American missionaries who
have had to do more than our national share; the part of Mohammedans,
Buddhists, and Catholics in our inner groups the remarkable qualities
shown by many of our hastily gathered Chinese staff; the actual
achievement in the face of guns and of a still potent distruct ex-
Tessed in repeated "dissolutions" and orders to Chinese to have nothing
to do with us; all these require more space and skill than are now at
your service.
Wanking's population has now done up to practically 400,000
(an compared with 250,000 in the Safety Zope period and just 1,000,000
before the war). Recent additions are largely refugees from the
country, some of whom went there from the city in search of safety, but
have now used or been deprived of all their money (and often of their
clothes) in the precarious hinterland of guerillas and punitive raids.
mere has been B remarkable effort by farmers, small merchants, and
Regraded Unclassified
43
1016 makers of household necessities, to reestablish themselves. Yet
even now we can scarcely tell how half the people keep alive, and are
undertaking a specific investigation of occupation and income in
croer to find out.
There is 8 good deal of common labor in the military supply and
transport services, and 2. socially unhealthy provision for soldiers
requirements of all sorts. But I eun long past blaming a coolie for
serving his country's enemy in order to feed his crying children, or
B. sirl from doing anything to avoid starvation, if they don't bring too
much direct injury to others (such as joining in armed extortion
rackets. or spreading heroin and opium). For a good deal of comfort-
able porality can hardly stand against the basic needs of life itself,
and the war has already brought down scores of millions of us in
economic and social ruin. Incidentally, we now have large open brothels,
advertising In the official newspaper; and en entire new class of
brazen girls as waitresses in restaurants, a complete revolution in
mantiers for lanking.
One of the grim features of life for an American pacifist in
hanking 18 the experience of seeing squadrons of bombing planes through
tumirade of successive days, some with American equipment end almost
all fed with American gasoline. In the river an extensive navy pro-
pelled with American oil; on the roads hundreds of military trucks
from eneral Rotors and other American makers. Plus the realization
tent any of his pacifist friends in America are condemming the weaker
nations of the world to destruction by resolutely opposing international
cooporation in the first weak step toward world government, end by
opposing withdrawal from economic partnership with aggressors, lest
Al-Copone nations should be displeased. Does good will have any
ractical meaning toward other than Great Powers? The "haves" should
alce economic adjustments for the benefit of all, rather than toss
their weaker neighbors to armed greed.
There are a hundred more things pressing to be sald. But this
Cuse la heavy enough, and I am tempted to add a recent summary of the
WAT situation in China as 9. whole, with outtings from an Open Letter
pontaining a report on narcotics in Nanking. The past year and a half
con't leave to analytical mind much remainder from certain conventional
:eliafe in a, benign providence, and I can see little indication of
300 In the tremendous wave of cruelty and greed that has engulfed e big
piece of our world. Yet the worth of human character, and the need of
zen for the life and vision that Jesus gave, have never loomed so great,
The invigoration of fighting unarmed for the lives of persons in press-
Inc dancer, and the thrill of standing for truth and humanity when you
know that any moment you may be wiped out by unregarding force -- may be
that's life sternal, if we lose our slavery to time. There is a new
sense of freedom to 80 ahead according to the light that's given, take
matover comes. If life stopped now, It still would have been worth
while, and the investment of others in nurture and opportunity, which
used to weigh heavily, would not have been lost, So far an open pro-
cedere in the immediate struggle, and an attempt to keep clear of narrow
cartisanship, have been rewarded by continuence. But one vindictive
military policeman, one narrow reader of suspicious clippings, can
redically tear out B. lifetime's work.
Regraded Unclassified
44
-5-
"Peace on earth, good will to men." But can the peace before
us be a peace of good will? Every spiritual concept seems drawn
irresistibly to the test in this awful situation, though I know it
should not be misplaced or twisted. "Be not overcome of evil", is a
call right to the heart. "Overcome evil with good", requires a more
powerful "good" than 1a visible to most eyes, but there's no doubt
of its being the right way to work. So that will have to do for
faith this Christmas. There is not much hope in the ordinary sense,
butthere's 8. good deal of love, some of it found in unexpectedly rough
and desperate places.
Miner Searle Bates
03413033
------------------------- -
Regraded Unclassified
GROUP MEETING
January 3, 1939.
9:30 A. M.
(Held in Mr. Hanes' Office.)
Present:
Mr. Hanes
Mr. Taylor
Mr. Foley
Mr. Duffield
Mr. Haas
Mr. Lochhead
Mr. White
Mr. Bell
Mr. McReynolds
Hanes:
Who else is coming? Mac was just here this morn-
LOC.
Duffield:
Gaston is away.
Janes:
Has he gone?
Duffield:
Yes. You want anybody from that office?
Hanes:
No, I don't think 50.
(Mr. McReynolds and Mr. Bell come in.)
Bell:
Good morning. Happy New Year. I apologize for
not calling you.
(cheynolds: I heard your wife bawled you out to beat the band.
Of course, you weren't there to hear it.
Bell:
That's been happening since the twentieth of
December.
Mcheynolds: Boy, she was sore last night: "I'd be better not
to have a husband; he's just no use at all; I can't
find him; he never comes home."
Bell:
I ate one meal at home last week.
Hunes:
Well, the Secretary asked us to have a meeting
here every morning, so that we can keep in touch
with each other and keep in touch with him if we
had anything to report.
Regraded Unclassified
46
- 2 -
Bell:
Keep tab on each other.
Hanes:
Keep tab on each other. I told him we wouldn't
bother him unless we had to bother him. So, if
anybody's got anything to talk about, I'll listen.
I've got something I want to ask you for some
advice on.
Bell:
I haven't got anything.
Hanes:
Is the Budget, like it is, going to stay, or is
it going to be amended some?
Bell:
It is like it was yesterday.
Hanes:
Was that the last change?
Bell:
That is final.
Hanes:
Can it be changed?
Bell:
No. It's in the binding.
Hanest
When the Secretary got on the train, he thought
you could do some changes.
Bell:
It's in the binding.
Hanes:
How many of you have seen the thing? I think
it's a darn fine piece of work, on the whole.
Bell:
I think it came out very well; not like I wanted
it, but it's all right.
Hanes:
You never get it like you want it. I think you
did a damn fine job.
Bell:
He accepted everything - all but one recommendation.
Taylor:
Which one was that?
Bell:
The suggestion that the appropriate committees in
Congress study the whole thing.
Ranes:
I wouldn't take that.
Bell:
I can see his point, but it's still there,
inferentially.
Regraded Unclassified
47
- 3 -
Hanes:
The only thing I was sorry about - not the only
thing, but the chief thing I was sorry about, was,
he wasn't specific in asking for some amount of
taxes. Of course, you can lead him to it that
he's asking for five hundred million dollers. I
was sorry I didn't.
Bell:
That is the other thing that went out. We had
in there, originally, five hundred million dol-
lars the first year and a billion dollars each
year thereafter. It was after the study was made
they thought that that should be done. So that
went out.
Innes:
Did you see it, Harry?
White:
No, I haven't seen it.
Honwer
On the whole of course, it's awfully hard to take
a cabbage and make it look like an orchid, and
that is what that damned Budget thing is, when
you look at it. Any way you look it, by God, it's
an awful looking sight.
Meynolds:
That's pretty well stated, I should say,
Junes:
Harry, you got anything?
White:
This is a slight thing here. This is a letter
which you sent to me, from Mr. Frank, which re-
lates to Janeway's study. He says here that -
that Harry White is most enthusiastic about the
Janeways. Shall I say that is putting it a little
strong. Somebody who was competent to do so
should investigate the staff to see how much
was in it. I spoke to George about it; George has
seen him at least once, to my knowledge. He saw
him the same day, and to my knowledge is studying
it.
Hans:
I talked to him a couple hours. You know him,
John?
Hanes:
I've only met him. Jerry Frank sent him to me,
and said that Harry White was crazy about him.
Illnes:
He probably says now that I am crazy about it.
Hanes:
It's two brothers; they have got some new formula
for telling you what has happened, or is going to
happen.
Regraded Unclassified
:8
4
White:
They have 8 new method of approaching the ascer-
tainment of three sets of datu; an over-all
production figure, an over-all consumption
figure, and what presumably is an inventory figure.
Welveynolds: Haven't got any multipliers, have they?
White:
Not yet. Now, if the data upon which they base
their services - and it's a lot of complicated
calculations and computations - is accurate suf-
ficiently to justify a feeling of improvement
after a critical examination, then they've got a
highly interesting and important service, which
several organizations are trying to approach.
I went into it enough to know they are not "cranks;"
I spent, at one time, 8. couple of hours with them,
which is just enough to say it is worth while
for somebody to investigate to see what there is
in it; and since I knew George's outfit was
interested in that sort of thing, and we ought to
be interested in it, I turned it over to George,
and I presume George is studying it.
Junes:
You think it worthwhile for them to meet Georgey
White:
I did think so, and I think he's interested
enough to understand it.
Hones:
All I want to do is answer this letter. If you
don't think it's worthwhile
Huas:
I think it's worthwhile. What they have done,
John, is to work out a series which show the
relation between the equilibrium between production
and consumption. They've got - we made a study
a long time ago which we are improving all the time,
which gives us about the same thing; and I would -
I spent about two hours and a half with the two
of them, and I asked if they would send me down
their work sheets. That is really the only way
you can tell. They haven't sent those down, but
they sent their total figures. He wants to see
me; he wrote me a letter while he was ill last
week; he wants to see me sometime. He will be in
Washington between the first and the seventh.
Hames:
Is it all right if I answer this letter and say
to Frank that we are in contact with the Janeways
Regraded Unclassified
49
- 5 -
and are going to see them? You are handling it
here, and are going to see them again?
HANS:
Fine. They seem all right. I couldn't make out
what they were driving at. I thought they were
working up a consulting business. People come in,
wanting to get Treasury approval of certain things;
I wanted to avoid that.
Hanes:
My understanding was they wanted to come in here
and work for the Treasury - wanted to be on our
staff, and wanted us to make available to them,
through our contact with the other Departments -
put them in contact with such information we
haven't got, so they can get all the figures
together.
White:
It is not an scademic, scientific, analysis which
is available for everybody. These fellows have
worked this idea up. One is an engineer, and the
other a newspaper man. I first thought they were
cranks.
Hanes:
He writes for the New Republic.
White:
I didn't pay much attention to it until somebody
else had gone over it, whom I thought was a com-
petent statistician, and mentioned it, and said
he thought it was good. Then I went into it a
little more. If they've got what they may possibly
have, then it is very valuable.
Then I had one of the boys, who is a fairly com-
petent statistician, spend a couple hours with
them; he came out and said as far as they were
able to go, they may have something, but you
couldn't possibly tell unless you went into all
their data, which they hesitate to let us do. I
told them they ought to take it up with George,
and if they gave him all the data
Hames:
You follow it around and keep me posted, so I can
in turn, tell Jerry what we are doing over here.
Have you got anything?
Lochhead:
The pressure on sterling is developing according
to schedule, and it is about 4.63. Of course, the
market lost a lot of gold this morning. There are
Regraded Unclassified
50
- 6 -
several editorials on the publication of exchange
in the Stabilization Fund. The Journal of Com-
merce, this morning, made very pessimistic
comments on sterling. So I imagine we'll have
to continue pressure on that. The franc, on the
other hand, is being rather steady.
With the news that our silver price for domestic
silver is unchanged, the foreign market is tighten-
ing.
llanes:
What is this, about you being put on notice about
sterling?
LochMead:
Well, they have been rather pessimistic about
sterling, on the other side. They consulted
several times, on the Tripartite, and pointed
out they are having heavy pressure. There's been
no question of any price at all; that's been kept
away from very carefully. The idea is, it is not
meant to go to any figure; it is still a "floating"
pound.
linnes:
What happened on the silver on the thirty-first?
Lochead:
Left unchanged for the six months period. That
is as far as they can set it, under the law they
buy silver under.
Hanes:
The time expires June 30?
Lochhead:
June 30.
White:
Then purchases will have to be under some other
Act.
Manes:
Does Congress have to pass a new Act?
Lockhead:
Not necessarily. They could extend the present
Act, but even if they didn't, as long as the Silver
Act is in effect, we still could buy silver.
Hanes:
What is the price now?
White:
6.04
Lochhead:
On the other hand, the price we're paying for
foreign silver is forty-three cents an ounce.
Regraded Unclassified
51
7
Hell:
How much gratuity?
Lochhead:
As I understand it, we are stealing sixty per cent
on the price. I understand - I have been reading
Mr. Pittman again; this last week he says we are
penalizing the boys fifty per cent - I understand
we are skinning the silver producers fifty per
cent each time.
White:
They had the most effective, concentrated campaign
in the last two weeks that they have had since I
have been here. Somebody sent word around, and
everybody got going, and had stuff to show that
our decline in the last instance resulted in the
increased unemployment of a couple hundred thousand,
which is about ten times the amount engaged in
silver mining. That is why they had to have a
seventy-seven cent price.
Taylor:
They've got the postman included in that, that
delivers the mail.
Hanes:
George, you have anything?
Huas:
No, I have nothing.
Duffield:
I have noting.
Foley:
I want to talk to you, or somebody, sometime about
my conversation with Stam on Internal Revenue.
Senes:
Stam sent me a telegram down in North Carolina,
and said they were disappointed they didn't get
the cooperation from us that they got from the
Department of Justice. But I'd like to hear about
that, Ed.
While we are here - while we are on this thing,
there is something I want to ask you about. Here
is 3 letter - Mac knows about it - that goes to
the Speaker of the House of Representatives, which
says:
"In accordance with the provisions of section 148 (d)
of the Revenue Act of 1936, there is submitted a
report disclosing the names of officers and em-
ployees of corporations subject to taxation under
the provisions of Title I of the Revenue Act of
1936, and the respective amounts reported by the
Regraded Unclassified
52
- B. -
corporations as having been paid to such individuals
as salary, commission, bonus, or other compensation
for personal services rendered where the aggregate
amount so paid to the individual was in excess of
$15,000. This report includes payments made by
corporations which filed income tax returns for
the calendar year 1937 or for periods as otherwise
indicated."
In the Revenue Act of 1936, the last sentence:
"The Secretary of the Treasury shall submit an
annual report to Congress compiled from the returns
made containing the names of, and amounts paid to,
each such officer and employee and the name of the
paying corporation."
That is, in salaries paid in the aggregate in
excess of $15,000.00. In the 1938 Act, I note
here that it says,
If
bonus, or other compensa-
tion for personal services rendered, if the aggregate
amount so paid to the individual is in excess of
$75,000. The Secretary of the Treasury shall
compile from the returns made a list containing
the names of, and the amounts paid to, each such
officer and employee and the name of the paying
corporation, and shall make such list available
to the public."
Now, which is the law? This says $15,000.00 - the
136; and this (1938Act) says $75,000.
Voley:
I should think that the later enactment Is the
law, but I'd like to take it and let you know.
Hanes:
If that is so, this
_cheynolds: I sent it back for an answer, and they said it
was unchanged. I didn't have the industry to do
what you did, Johnny, to look up the law.
three:
It struck me-in the first place, I want to get ríd
of doing that, because it's a hell of an expensive
job, and no God damned use to anybody except to -
just a damned hold-up game. There was & woman here
last year that took this list and compiled every
name, and sold it at a hundred dollars a piece.
That sort of a racket - Good Godl If we've got
any conscience at all, we'll stop that thing.
Regraded Unclassified
53
a I I
scheynolds: We don't make it available here.
Hones:
The law says we shall make it available.
McHeynolds: I don't know what the effect is.
It seems to me the whole thing is changed.
"The Secretary of the Treasury shall submit FL report
to Congress, compiled from the returns, " and it
doesn't say anything about making it public. And
this says, "The Secretary shall compile a list of
each such officer and employee and the name of the
paying corporation, end shall make such list
available to the public." It doesn't say we shall
send it to Congress. We ought not send it to
Congress, according to that.
@licynolds:
That report there is not responsive to that par-
ticular provision. It is responsibe to the other.
Schos:
That is what I am asking Ed, which Act do we
work under. Work under the '36 or the '38?
emeynolds:
I sent it back to the staff down In Revenue for
an answer to that particular question, "Is this
136 Act provision still in effect? and the answer
is Yes.
(lenes:
What I want to know - I don't understand this damn
think at all; I'm confused about it - when does
the 1938 Act go into effect? Does it 60 into
effect? That was passed June 2, 1938.
Poley:
Let me take it and I'll give you an opinion.
White:
They are not mutually exclusive in any case. It
seems you would have to do both.
McReynolds:
I took it for granted that WAS the decision.
Honor:
Let's see what the Codification.+ let's see what
they did in the Codification. Ed, have you got
a copy of the Codification?
Polcy:
Yes, I have, John.
Bell:
It says
Regraded Unclassified
54
- 10 -
Fulwy:
It's a question of statutory construction. We'll
have to give you an opinion. It's a tough question
of construction. We'll have to look into it and
give you an opinion.
Three:
If you can construe it so as to cut the work down
here
Dusfield:
You know what the answer is, you are to bring in.
It doesn't make a bit of difference this year,
because the work is all done.
Mill:
Of course, If he construes it that the 136 is in
effect, he will have a hard time getting around
it next year.
things:
Old for Doughton asked Ros Magill last year to
make that thing public up here, and Ros refused
to do it.
/cRynolds: I locked the thing up and wouldn't let them have
it; I sain the Committee could have it.
It went down to the Committee and Old Men Doughton
just gave it to the press - the newspopers.
Typior:
They had it in mind for weeks - just had that
one copy, as I recall it.
Memos:
Is that true about that woman that copies them
and sold them for a bundred dollars a piece?
(deynolds:
No doubt of it. Of course, we had people come
here and try to get access to it, so they could
make copies, or try to get copies made. We
turned them all down, wouldn't let them see it -
kept them under lock and key. We diá give it to
Congress, and if they wanted to do it, it wasn't
any of my business, but we wouldn't be a party to
it.
Hones:
Exi, you 60t anything else? You say you wanted to
see me, about that?
Foley:
No, I have nothing else, John.
Hanes:
Wayne?
Regraded Unclassified
55
- 11 -
Toylor:
No.
United
Mac, you have anything?
Melleynoles: Not E thing.
Topys:
Danny, did you
Bell:
Gave them seven hundred thousand dollars.
Hange:
God Almighty!
McReynolds:
They are just tickled pink.
Thuse:
I was hoping they'd get five.
Dell:
What a pall
(Hearty laughter.)
Hanus:
well, Guy was crying about that thing so hard, I
wanted to see him get it. He had a pretty good
case, though.
Bell:
That's been going on since 1920, that good case
stuff, and they had fifteen hundred employees
last year that they switched to Social Security
they should have done something with. They haven't
fully explained yet just what they dié with all
that.
Henes:
I've got a boy I want to set a job for, and I'll
tell Guy now
Bell:
oh, that was your interest in this million four.
Hines:
My interest was, he did have a pretty good cause.
These fellows they were putting on were fellows
really going out to collect more taxes. What was
it, twenty-three or twenty-four thousand dollars
per man, last year - about twenty-five thousand
dollars.
McReynolds: On that Social Security, don't forget, Dan, that
we refused to take a considerable sum of money that
was available for use on Social Security.
Bell:
We didn't need it.
McDeynolds:
Because we didn't think it was reasonable and fair.
We turned back and refused to take what the Budget
had promised the Social Security Board for turnover
Regraded Unclassified
56
- 12 -
to Rovenue, to the extent of something over half
a million, three quarters of a million dollars
because we weren't ready to use it - were in no
position to use it, ano I didn't want to get them
banked up and over-manned. But my theory on that
Is when you can use it, when you've got S place
where you can use them, and all, it's silly not
to give them the employees. I am just as prejudiced
against over-manning ES anybody, but, damn it,
when you can get people on and et more taxes, I
think it is silly to refuse it. And we will
undertake to see that they are cut down when they
are over-menned. We are getting a pretty fairly
strong hold-administrative control in that ontfit.
lie are throwing them down - I've 606 these fellows
on my neck. We are throwing out the drones and
the incompetents, in the field, and have been for
the last nine months. We hud three session: on
it. We've got to hire people who are qualified
to ão this field work, and certain other technical
aspects of it that some of these old birds couldn't
do.
Bvll:
You didn't convince Congress.
Weynolds: Ve any not C nvince then again. You know I
don't go around and squawk.
Bell:
We'll give you two chances, and If you don't 017
it this year, you better keup still after that.
Theynolds: You fellows can turn us down, and I em not critical
of you, the Budget, or Congress when they turn
us down, but when I think we need something and
we can use it, and we ought to have it, I am going
to ask for it and make as good a case as I can.
Then the responsibility is on the other guy if we
don't get it.
Hings:
That's it.
Has anybody here got any suggestion to make on
this Social Security legislation? Has anyone
here got any definite convictions on the thing as
to what stand the Treasury ought to take? Alt-
myer - he asked me, and I asked the Secretary,
but the Secretary just literally didn't have time
to go into the Social Security thing before he
went away, and we are going to have to give an
Regraded Unclassified
57
- 13 -
answer as to whether or not we approve or dis-
approve, in general terms, of the provisions or
proposals made by the Social Security Board
for recommendation by the President in his mes-
sage to Congress, which, I understand, is going
up the eighty or nineth.
Bell:
Have we seen them?
Bound:
Yes, he have seen them.
Behygnolds: Russ Reagh has got them, and he's nearly as bad
off JS Wilcox. He said, you just as well pass a
Townsend plan; it will cost you about as much.
I am a minority of one here, gathering from the
general tender of conversation. I'd like per-
mission to tender a memorandum. I think I am
in the minority.
Websynoles:
I think you ought to, because the trouble with
this thing is, if you keep it out of the self-
employed, you wouldn't get into so much trouble;
then you give them leeway to do whatever they
please.
Haner
John, why con't you have a conference or two on
it, because you can take and write a book on it
and then you may not get the thing across.
The only place we come into this thing, they want
to have the Treasury take a stand and take some
stand on the cost of the thing, the manner of col
lection, and so forth - the administrative way.
So far, I have been asking the last thirty days,
what is the definite proposal made by the Social
Security Board, and what will the costs be, and
what is the method of financing that cost, and
so far, I can't get an over-all figure. One figure
was reported down there at the meeting of that
Cabinet meeting - Miss Perkins, and Harry Hopkins,
and Henry Wallace, and Altmyer, and the Secretary -
and I attended the meeting for him. And Henry
Wallace reported that he understood from his
economist that the cost for one of these plans
would take a hundred per cent of all the income
of all the people of the United States over five
thousand dollars a year, leaving the cost of Govern-
Regraded Unclassified
58
- 14 -
ment up to people of five thousand dollars and
under - the cost of income. He sald, so far as
they were concerned they were a little bit opposed
to that.
Dell:
Just a little bit.
noite:
Well, it is not those crazy plans, obviously.
linnes:
Have We got, George, anywhere, E table showing
the cost?
Fans:
Yes, we have, John.
Banes:
As well as I could figure out, the cost of the
thing, the maximum any person could get in 1942
under the present Act, assuming he has a maximum
salary of three thousand dollars, all the way
through the five year period, would be twenty
dollars a month.
Moheynolds:
They are not worrying about what could happen
right away.
Hanus:
Who t is worrying right away is this: What they
desire to do is this; is to move their time up
from 1942 to 1940, and double that meximum, making
the maximum $37.50 instead of $20.00. Now, the
cost of that thing, as well as I can figure out,
will be about five hundred million dollars.
White:
They never will be able to spend that; they will
never be able to get going quickly enough. It
might be the second or third year.
Hanus:
That is what I want to know. I can't tell what
the thing is going to cost, and know how they
are going to finance it. All I've gotten out of
the Social Security Board is that this will not
take any money out of the Treasury. It will take
it out of the Reserve Fund. That Reserve Fund
will last two years, maybe. What is it, a billion
dollars?
Boll:
A little over.
Locklead:
Then you'll have to raise the money.
Regraded Unclassified
59
15 1 I
Lickeynolds: It will take a balance, too, to carry itself. You're
going to run out of the Reserve Fund the first
thing you know, and it's going to be a straight
out and out appropriation. Russ Reagh can give
you the best estimate.
You ought to meet, I think, John. You've got
something in the annual report - statutory require-
ment of the valuation of the account, given in the
report. Reagh has to do it - the Government
Actuary, and he's already done it, and it shows,
on the basis of his estimate, the present system,
no change. He's out - an over-all figure of nine
billion dollars.
Faller
What do you mean in a forty-seven billion dollar
reserve, he's out?
Hees:
You take the over-all figure of all benefits and
all taxes, and bring them down today and he gives
his assumption. He's out about nine billion
dollars.
Bell:
Out on the wrong side?
Thas:
Deficit already.
Mcheynolds:
Under the present system, you'd run that much
short?
Reylor:
Over what period?
Tras:
Over the whole period, if you raised you tax rate
thirteen per cent. It is 8 present worth - the
whole thing.
White:
The reason why there can be those differences
Taylor:
Well,
Haas:
It runs out indefinitely; you can calculate it.
White:
There are a lot of assumptions in there.
Hans:
The Social Security Board has a figure of twenty
billion dollars.
Taylor:
They have to have sometime that they will ECT the
nine billion dollars in.
Regraded Unclassified
80
- 16 -
Stand:
You can get the present worth.
laws:
Under the present plan, they show now that the
benefit payments will cross the line of net pay-
roll tax collections in 1964; in other words,
there will be a deficit between the amount col-
lected and the amount paid out in 1965. The new
proposal brings that date back to 1955, 1956;
the proposed olan brings that payment - they
proposed to increase the payments, but not Increase
the tex payments because all the way up to 1956 -
and they cross the 156 they just flatten out net
payroll tax collections; just flatten out and
stop in 1950. Then they go :1ong in a straight
line, relatively, and the proposed benefit pay-
ments increase very sharoly. There is a wide
differential from 1955 on.
Doll:
It's a question of whether the interest payments
on these investments will take up that gap.
White:
Tort should be in the calculation.
Under this plan, they propose not to have 2 We
reserve fund, so you won't have that.
DULL:
You won't have to worry.
White:
There is an underlying difference, that I don't
think can be reconciled. It represents a dif-
ference of the point of view. One, whether this
insurance fund shall be operated on a self-liquidated
basis; whether it shall Day its own way out of the
taxes collected. And the other S the entirely
different point of view, which was presented at
the time this thing was originally created; namely,
that it should come out of General Excenses and
that view will constantly por un every single time,
every single time any suggestion is made, and if
you accept the position which the Treasury has
accepted, up to now, I take it that it ought to be
on a real insurance basis; then there will be
differences of opinion, depending upon estimates
made, depending on nonulation growths, old age
unemployment. There is room for differences of
opinion.
Innes:
It seems to me, Harry, the Treasury has got to take
some position, and, so you fellows go ahead.
Regraded Unclassified
21
LT I I
The Treasury has taken a position up to now. I
have a minority position which I'd like to suggest.
I don't know what the Treasury position has been.
The only thing I understand is that the Treasury
insisted on a plan that would pay for itself.
McReynolds:
That is its position; t'ut's always been its posi-
tion.
wase:
Well, there is a difference of the point of view.
Viner opposed it at that time; there are a lot of
very competent - I don't mean to include myself
among them - there are - lot of competent men in
the field, but there is R. difference in the point
of view.
Clines:
I noticed in the summary, in the recommendations
made by the counse! that has been published -
this is a final report on December 10 - they
recomend in Section 2 that the eventual annual
cost should not be increased under the 1935 Act.
Should not be a greater percentage of cost under
the payroll than the present system is. That
doesn't jibe with all the things which have been
recommended down below.
Hass:
That is right.
McRegnolds: Not by a hell of e lot.
Hans:
One thing about it is Harry's point of view. I
think, over the period, the law will have to be
changed, because of certain fundamental economic
difficulties ns it now stands. AS it now stands,
it covers a limited portion of the population.
You can't take and pay out benefits to a limited
portion of pogulation; you make it an over-all
coverage. The Treasury, on an over-all coverage,
stood steadfast because nobody could convince
Tac and the administrative group that the thing
could be administered.
Molor:
What do v.e do in Agriculture?
TEAS:
I think you can get the arguments down to shout
five, and then I think you are meking progress.
The points of contention down to about five.
John, I'd like to see you today, because we are
Regraded Unclassified
62
18 . I
up against it on the annual report, and on that
point it is very important; it goes over the -
it's about that.
Banes:
About this thing. George, why don't we do this:
this afternoon, any time that suits you - set a
time down - and get Reagh, if you can - get some-
body to get down on a piece of paper, in simple
language so I can understand it, what the Social
Security Board is proposing to the President, in
one, two, three, four, five - specific provisions,
and some estimate of the cost of those things,
so that we will know; SO we'll have some basis
upon which the form will - reasonable judgment
as to the attitude we could take. After we have
this meeting, I'd like for the rest of you to
hear, just in general outline, what these plans
are, and tell ne what position we mant to take
here. I think it's a hell of a responsibility;
I don't want to assume it without all of you
knowing about it.
Foloy:
Do you have to write a letter? Do you have a formal
request?
Hanes:
We've got to 80 on record. Altmyer wants us to
go on record.
Foley:
Has lie asked us for suggestions?
Renest
George, you've got a copy, haven't you?
Hoas:
We took your copy and made photostats.
Mite:
I think the Treasury decision on this will
almost be decisive; it's a great responsibility
because there is a great deal involved. It does
raise a social question. That, we all agree,
is extremely important, and for that reason I
think when you do make up your mind, one ought to
be cognizant of both sides. I think both sides
ought to receive the best presentation, so when
you make up your mind, you will have seen what
both sides are.
Foley:
We'll have to submit our views to the legislature.
Taylor:
Wouldn't that be the normal thing to do? Say, if
Congress asked you for an opinion, you will give
it; that's the way it is usually done.
Regraded Unclassified
C3
- 19 -
Illnes:
The point is that the subcommittee of the House
Ways and Means, I understand, is going to take
this job first; they are not going to monkey with
the general tax job right away; they are going
to take this job on immediately and try to get
it out of the way. 01d Man Garner told me last
week that he thought that thing was necessary to
get down, and get finished. I think probably
the legislators feel that that Townsend thing is
so strong in Congress they've got to do something
about it, and do it quickly. So we ought to be
prepared, and if you fellows will agree to a
session, and really give this thing some thought,
I'd appreciate it like the dickens.
The thing I was thinking, John, you don't have to
tell Altmyer.
Thuss:
Yes, we do. The President is going to make a
recommendation to Congress and if we've got some
recommendation, opposed to it, we certainly ought
not wait until the President makes his suggestion
to make our views known.
Poley:
Did the President send the suggestions over to US?
Hnnes:
No, Altmyer did.
Bell:
I think the Secretary dictated a letter to the
President, asking him not to do anything on Social
Security until the Treasury had given him their
point of view.
Banes:
Could we see a copy of that letter?
llnus:
It was dictated, anyway.
llenes:
That makes it worse.
BALT:
I know that Harry Hopkins is busy urging this
report to go uo early. Yesterday he said at the
White House that that report ought to go
this week, and he was going to get in touch with
Altmyer.
Taylor:
The report can go down, except for a specific
recommendation. If we are not ready to make a
positive report one way or the other, in the nature
of events, Congress will ask us to do it. We
Regraded Unclassified
CA
- 20 -
don't have to report to Altmyer.
Expes:
I don't want to be put in the position - the
Secretary writing it - when the President says,
"I am ready to send this to Congress; I want an
answer," I don't want to be in the position of
saying, "We don't know what we think." We ought
to be - we ought to stand back of that decision.
Mylor:
We don't have to write Altmyer; we can do it to
the President direct, or we can do it to Congress,
as the case may be.
Innes:
You see, my point is Tor the President to ask us,
"Where are you, and where have you been?"
Ball:
Furthermore, you don't want the President to be
out on a limb, recommending these proposals.
Mckeynolds: That was the reason for the Secretary writing
the President.
Times:
I get your point, Wayne.
Taylor:
I don't mean to stall at all. In all the cir-
cunstances it is better not to write Altmyer; you
can write the President or use the regular manner
of doing it. I think it is very unusual to write
to the head of a specific agency, just as you would
to a specific Congressman, to say the Treasury
is opposed to this. Ordinarily we would clear it
through the Budget. We would write the Budget,
but we wouldn't write the other people direct.
lunes:
Ed?
Foley:
I was going to ask for someone to get the legisla-
tive suggestions and get copies of them.
Minus:
George, if you will get copies of this.
Hans:
Yes.
Hanes:
This is the Advisory Counsel, and it isn't violently
different that the proposals that this Board has
decided to make. There is a difference.
(Mr. Rademacher comes in.)
Regraded Unclassified
C5
TN I 1
John, get a copy of this and send it to Mr. Bell,
will you, and also a copy of Mr. Altmyer's letter
to us, stating what the Board is going to propose.
Fnas:
I'll chock one to every member of the staff.
Duffield:
I just want to say, Mr. Gaston feels very strongly
about this, and asked to be included in any group,
I suppose he's out by default. I think he will be
gone until the tenth.
icReynolds:
He doesn't expect to get back until the Boss does.
HANDE:
Does anybody know what he thinks?
Dufficid:
He lines up with Mac.
Hanes:
Let's do it. It will be a hell of a help to me.
I don't went to get out on a limb without every-
body being with We, If they saw us all off together
I don't mind falling.
McReynolds:
I talked to Altmyer; he said, "I'm going to give
complete coverage this year, in spite of your
objections."
Hanns:
I think Altmyer has changed, don't you, Ceorge?
Haas:
He may still stay the same way but I doubt if the
rest of the Board will. or course, that solves
some of these broader problems. It doesn't solve
the administrative one. You've got this conflict
of administration.
McReynolds: It's a complicated thing. It needs a lot of fix-
ins before it will be made to work. You've got a
coverage that there is no philosophy that will
affect the limitation you now have on your coverage;
not any. Not from a social service standpoint; a
standpoint of humanity; a standpoint of the needs
of that sort of thing. You are leaving off the
most needy. I don't know the answer; I can't see
any sense in the Government starting out on a
program that isn't financed; there's no plans for
financing.
Hanes:
Well, Mac, let me tell you, the Counsel only went
so far in recommending coverage.
Regraded Unclassified
ES
- 22 -
"(1) The employees of private, non-profit,
religious, charitable, and educational institu-
tions now excluded from coverage under Titles II
and VIII should immediately be brought into
coverage under the same provisions of these
Titles as affect other covered groups."
(cHeynolds:
That is totally unimportant.
Times:
But here is the important thing:
"The coverage of farm employees and domestic
employees under Titles II and VIII is socially
desirable and should take effect, if administra-
tively possible, by January 1, 1940."
White:
They know it is impossible.
McHeynolds: It costs you more money to collect it than you'd
get.
White:
That is, as far as 1940 is concerned.
Raas:
They know that because Reagh argued with them.
McReynolds:
That's the reason why you've got to change the
whole basis, to make it work.
Haas:
I think, John, you might take this approach, to
make it simplified a bit. Start out and say,
"Irrespective of political considerations,
administrative considerations, what would you
ideally like to have?" Disregard those. You
say that won't work; administratively, politically,
it is impossible; and then you finally come down -
you come to an agreement quicker that way than
by taking the different points that are now at
issue, because then with that background the dif-
ferent points of issue come up, you have a back-
ground in which to set it in.
Hanes:
Have you got a figure showing the total number
of people now under the plan and the total number
that would come under?
Heas:
That is right.
Regraded Unclassified
87
- 23 -
White:
I have heard a statement given by some people
who are very familiar with it; it proves that
they are studying this thing. They claim they
won't spend more than fifty million, though they
say it is over five hundred million. They can't
administratively do it.
licheynolds:
You are talking about time limitization now,
Harry. Just what they could get done. I agree
with that.
White:
I am speaking - that is right.
(Everybody talks at once.)
White:
I was speaking of 1940.
Bell:
1941 is just as important as 1940.
McReynolds:
Your liability is there.
Hanes:
Well, get
Haas, this afternoon on that, and
you will report.
Heas:
I can see you any time.
Hanus:
I haven't got a thing.
Hans:
Let's say two thirty.
Hanes:
Thet's fine. You will have your figures ready
by then?
Haas:
I'll have all I've got; I think it will be
plenty to start you going on that.
Regraded Unclassified
8
HRE
GRAY
LONDON
Dated January 3, 1939
Rec'd 7:09 Deme
Secretary of State
Washington
10, January 3, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.
STRICTLY CONFIDENTIAL.
In the course of & conversation Sir Frederick Leith-
Ross referred to Schacht's recent visit to London and
Montague Norman's return visit to Berlin and implied that
Schacht had desired to come to London for two reasons:
(one) to attempt to break the deadlock about the German
refugee problem and (two) because he personally has been
losing ground so fast with the powers that bE in Germany
that hE wished publicly to capitalize one of his remaining
assets, namely, his connections with and acceptability to
the Bank of England and the British financial community.
Leith-Ross quoted Schacht as stating that he came
"with the approval of General Goering and the consent of
Hitler" and said that Schacht undoubtedly understood that the
proposals that he made could only SERVE to break the deadlock
to permit of further discussions taking place.
Leith-Ross said he had talked to Montague Norman
yesterday about his visit to Berlin. Norman had stated that
hE
Regraded Unclassified
S9
HRE
2-#10 From London Jan 3, 7 p.m.
he had made a long standing promise to pay such a visit to
Schacht and become godfather to Schacht's grandchild and
that due to his illness the visit had been postponed from
last spring until now. HE intended to bE in Berlin little
more than a day and a night and then to go on to Basel with
Schacht, HE has an engagement to lunch at the Reichsbank but
contrary to rumor no engagement to 3EE Hitler or any other
politican. LEith-Ross said that while Norman was feeling a
little unhappy about what the characteurists would do to him
on this occasion hE was glad of the opportunity to make a
show of the community of central bankers. I have no doubt
that also Norman had Schacht's reason number (two) clearly
in mind.
Incidentally I understand from a wholly reliable
unofficial source that Montague Norman who has always stood,
in season and out of season, for an understanding with
Germany and has always regarded as insvitable the unification
of the Germanic parts of the Austro Hungarian Empire with
Germany, nevertheless is now becoming dissatisfied with
Chamberlain's leadership. While he favors in general the
Chamberlain policy he feels that Chamberlain's procedure is
based on a misconception of German psychology. An incident
is illustrative. When Lord Baldwin recently appealed for
funds for the relief of German refugtes Montague Norman
planned
Regraded Unclassified
70
HRE
3-#10 From London Jan 3, 7 p.m.
planned to start it off by heading the TIMES list with
contributions from the Bank of England and the joint stock
banks. Simon was SQ informed and at Chamberlain's instigation
this plan for a united banking front was abandoned and the
several checks were sent in from day to day. Chamberlain did
not wish to place an unnecessary obstacle in the path of
appeasement while Norman conceived that the Germans would
respect such an attitude if unaccompanied by polemics.
In these circumstances I should say that Montague
Norman will not hesitate to respect to any other German
officials hE may SEE in Berlin, at the luncheon or otherwise,
the blunt things about German policy and Naz1 attitudes which
he is alleged to have said to Schacht. Perhaps that is &
further reason for Schacht wanting him to come.
JOHNSON
HPL:EXB
Regraded Unclassified
18(e)
DATE
January 3, 1929.
CONFIDENTIAL FILES
TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
Mr. Bolton called st 10:20 this morning. The pressure against
sterling had continued pretty general and so far they had today lost
£3,000,000 in gold plus additional $6,000,000 in exchange. Since they
had started dealing for January, that 1s since December 27, their daily
losses had been from £8,000,000 to £4,000,000. He knew, Bolton continued,
that there was B big speculative account open against sterling and he
Also knew that that account was growing. The predominant factor was
the belief that there was going to be another war scare in the near
future. One weak step taken to counteract that in the near future was
Chamberlein's visit to Mussolini end nobody believed that this visit
would bear any fruit. The improvement in the French picture might
eventually out-weigh the present feeling of despondency and pessimism
but that was & long term factor and one which would not have any effect
on current events until 8 change in the general political news had
seeped down into the minds of the people.
Meanwhile they had decided on the following programt a letter
was going to be sent out by them tonight to the chairmen of the Clearing
House Committee of the Foreign Exchange Committee, Bankers Association,
asking their members to prohibit completely ell advences against gold
and all forward gold transactions. Similarly, they would be asked to
scrutinize and reject any transactions in exchange which they believe
to be speculative in origin. There wen thus going to be e complete
embargo on forward gold dealings which would mean the closing out of a
Regraded Unclassified
72
FEDERAL RESERVE BAtic
nr NEW YORK
ERESPONDENCE
DATE January 8, 1989.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
2
very substantial gold account. To some extent the banks might also
be able to limit speculative transactions in foreign exchange but as
to the success of that he was not very hopeful. Nevertheless, they
were doing the best they could. This program was going to be com-
municated to the central banks of the tripartite countries by letter
tonight and they were going to be asked to inform their benking
institutions and to give their support. Furthermore, towards the
end of the week a substantial transfer of gold would be made from the
issue department to the exchange account. An to the exact amount to
be transferred, no decision had as yet been made. Once these steps
had been taken, there would be (1) 8 complete embergo on foreign
lending (previously reinsteted), (2) 6 complete embargo on forward
gold operations, (2) B supervision of exchange transactions, and
(4) B. re-endowment of the exchange account. Everybody had agreed
to this program and Mr. Morgenthau would be duly advised by cable.
No reference would be made in this cable to Mr. Morgestheu of gold
operations because these were illegal in the United States. The only
Alternative to this program was complete restriction (I suppose he
meant of the German kind) and that, they thought, was politically
impossible under present conditions and would be complete frustration
of all they had done. For the time being they were inclined to
encourage the growth of the bear account now open and to weit for
some new factors with which to fight it back. This would at least
Regraded Unclassified
73
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE January 3, 1929.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
L. 5, Knoke
BANK OF ENGLAND,
mes
3
technically weaken the bear position and give then a better chance
to combat it with success later on if and when the political outlook
namely,
had improved, for one thing was clear to everybody, that the basis
of the present problem was primarily political.
LWK:KW
Regraded Unclassified
74
REB
PLAIN
London
Dated January 3, 1939
Rec'd 4:27 p. m.
Secretary of State,
Washington.
9, January 3, 7 p. M.
FOR TREASURY FROM BUTTERVORTH.
The dollar opened bid at 4.63 3/4 and went quickly
to 7/16 at which rate the British authorities sold dollars.
After a reaction to 13/16 the dollar was bld to 5/8 at
fixing time when 330 bars were sold, 25 being married and
about 300 supplied by the British fund. The price was
1508. 1/2D. giving a premium of 1D. After fixing the
dollar went to 4.62 3/4 where it was hEld under steady
but not heavy pressure, by the British authorities who
went out later and the rate closed 4.62-1/2 to 5/8 on a
normal market. The three months forward dollar W&S bid
2-1/2 premium and the one month 1-7/8 with more business
in the latter.
The franc improved from 176.67 to around .55, the
Bank of France having obtained small amounts of starling
especially
Regraded Unclassified
75
REB
2-#9,
London, Jan.3,7p.m.
Especially at .62. The forward franc was at a premium for
the one month of 1/16 and the three months discount
narrowed to 3/16.
JOHNSON
NPL
Regraded Unclassified
76
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 3, 1939, 5 p.m.
NO.: 5
FOR THE TREASURY.
Today there was a continuation of the weaker tendency
in sterling. The exchange fund was able to acquire an
important amount of that currency in meeting the demand
for francs. The rates varied from 175.70 down to 175.60.
One month forward rate is about par; for three months it
18 25 centimes. Firm dollar at 38.17.
Rentes and variable revenue securities showed no
important changes on the security market.
The Bank of France decided to reduce the discount
rate from 2 1/2 percent to 2 percent this morning. Thirty-
day advances were reduced from 2 1/2 percent to 2 percent.
The rate of advances against(?) was reduced from 2 1/2 per-
cent to 3 percent.
END MESSAGE,
WILSON.
EA:LWW
Regraded Unclassified
77
REB
PLAIN
London
Dated January 4, 1939
Rec'd 3:58 P. m.
Secretary of State,
Washington.
15, January 4, 6 p. m.
FOR TREASURY FROM BUTTERNORTH,
The dollar opened bid at 4.62-1/4 and after early
support of sterling by the British authorities reacted to
4.62-5/8 at fixing time. The price fixed was originally
150S. 2 1/2D. but the dollar dropped to .62-3/8 and the
300 bars under offer were all withdrawn and the fixing
started & second time. Ultimately the 187 bars WETE sold
61 of which were married and 78 furnished by the British
fund at 1508. 5D. which was quoted as giving a premium of
2D. There was very little after fixing dealing in gold.
The dollar remained stendy around 4.62-1/2 until NEW York
opened when it went to 13/16 and the British authorities
again supported starling for a short time after which the
dollar became offered from NEW York at 4.63 and in London
later at 4.63-5/B at which rate the British authorities
began buying dollars and continued to do 30 until the close
as the rate moved gradually to 4.64-1/8.
The
Regraded Unclassified
78
REB
2-#15, From London, Jan.4,6p.m.
The market is puzzled at the turn the only explanation
offered being that a few large speculators with heavy
dollar positions began a profit-taking movement in which
smaller operators followed.
A similar movement towards strength of sterling
followed somewhat later in franc dealings the franc having
opened at 176.58 and after going to .52 moved back in the
afternoon and closed offered around .75.
JOHNSON
CSB
Regraded Unclassified
79
REB
GRAY
London
Dated January 4, 1939
Rec'd 4:40 P. m.
Secretary of State,
Washington.
13, January 4, 5 P. m.
FOR TREASURY FROM BUTTERWORTH.
y conversation with Leith-Ross reported in No. 10,
Tanuary 3, 7 D. m. was interrupted last Evening and resumed
today at lunch, Leith-Ross went on to say with respect to
Schacht's visit that although the latter had stated that
be had been instructed to confine his discussions to the
German refugee problem in fact hE did discuss other
matters but in general terms. In particular Schacht had
tried to draw him out about the possibility of Germany
moving towards a freer currency system and had EXPRESSED
the opinion that the conditions permitting such a step to
DE taken WETE becoming more favorable than they were a
year or more ago. Schacht maintained that although the
German financial arrangements WEI'E working satisfactorily
at the present time an increasing number of persons were
realizing that there was 8 limit to the amount of funds
that the state could put into circulation and that at some
point
Regraded Unclassified
80
REB
2-#13, From London, Jan.4,5p.m.
point the nettle of change would have to DE grasped.
Furthermore, Schacht said that one of the things that he
had always feared if German currency restrictions were
relaxed was the flight of German-Jewish capital and that,
for better or for worse, and he Emphasized hE thought for
worse, difficulty was being Eliminated. HE tried to smoke
Leith-Ross out as to the British Government's attitude
and the latter countered by pointing out that the initial
benefit in any such move would accrue to Germany and
inquired whether hE was asking the British Government to
help the German Government in the given circumstances to
strengthen itself and its position. Schacht then indicated
that not a large but only a small External credit would bE
needed but what would bE really required was a scaling down
of Germany's External obligations. To this Leith-Ross
countered by Emphasizing that British obligations had
already been scaled down and the scaling down embodied in
the Anglo-German transfer and payments agreements of July 1.
last.
Leith-Ross felt that Schacht was not making a serious
proposal but wished to indicate that his ultimate aims
remained
Regraded Unclassified
81
REB
3-#13, From London, Jun.4,5p.m.
remained unimpuired by recent EVENTS and desired to keep
the question of Germany returning to & freer currency
system in circulation.
Schacht did not uppear to know that the discussions
also arranged for in the July 1 arrangements beering on
cortal (particularly coal) and other matters had been
going on and Leith-Ross asked him to do what hE could to
promote agreement. Incidentally, I learned from another
source that Hudson's statement in Parliament on November 31
(about which the Secretary of the Treasury commented) to
the Effect that Great Britain was prepared to fight subsidy
with subsidy to protect its Export trade against German
competition was made without reference to the board of
trade. No such remarks formed part of the speech which
the board of trade prepared for Hudson but nevertheless it
La hoped that this line of talk may help to bring about the
required results.
Leith-Ross also said that as Schacht was leaving hE had
asked him where there were any reasonable Nazis with whom
one could deal and was Gooring one such. To-which Schacht
replied "sometimes". Leith-Ross also (#) that some ONE Elst
(presumably Montague Norman) asked Schacht who really ruled
Germany
Regraded Unclassified
82
REB
4-#13, From London, Jan.4,Sp.m.
Germany to which hE replied "four people -- Hitler, Hitler,
Hitler and Hitler; the man has four distinct moods or
personalities". Leith-Ross felt this was about the size
of it.
Leith-Ross particularly requested that the above
information bE treated in the strictest confidence in
VÍEW of the press speculation which the Schacht-Norman
visits have EVOKED.
JOHNSON
JRL
NPL
(#) Apparent Omission
83
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embasey, Paris, France
DATE: January 4, 1939, 5 p.m.
NO.: 15
FOR THE TREASURY DEPARTMENT.
The market was quiet, with sterling fluctuating
within narrow limite. It was again possible for the
exchange fund to acquire a large amount of sterling,
particularly in early trading. The rate varied from
around 176.58 down to 176.50. Slight discount for one
month sterling, and premium of around 35 centimes for
three months sterling. Today some offering of the dollar.
There was not much activity on the security market,
which was dull and showed some nervousness over interna-
tional political affairs. At the close of the market
rentes showed fractional losses. There had been a gen-
eral lowering in French variable revenue securities and
internationals.
The financial press is giving a certain amount of
attention to the continued weakness of sterling. Today
the predominating view expressed is that economic factors
do not explain the weakness of sterling. In this respect
it is pointed out that for 1937 the trade deficit was
only 35,000,000 pounds and that it is not likely that
for the year 1938 the amount will be greater. This sit-
uation is looked on 86 being of comparatively little
importance, in view of the fact that British holdings
abroad
Regraded Unclassified
84
- 2 -
abroad amount to around 4,000,000,000 pounds. London
attracts capital from all parts of the world, it is pointed
cut. Sterling has been the most favored of international
currencies since 1931, and has served as a world-wide medium
of payment. Sterling was a refuge at the time of the
flight from the franc and the dollar and from the "gold
bloc". In view of the foregoing, it is held that sterling's
present weakness is in the main due to foreign capital with-
drawal, and due to failure on the part of the British
authorities to do anything effective to stop such outward
movement.
END OF MESSAGE.
WILSON.
EA:LWW
Regraded Unclassified
a(f)
FEDERAL RESERVE BANK
OF NEW YORK
ORRESPONDENCE
DATE Jenuery 4, 1989.
CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF FRANCE.
Mr. Cariguel called at 11:20 s.m. They had done very well
Intely, he said. Their gain in foreign exchange had been steady and,
very confidentially, since the beginning of their "revival" they had
gained about fr. 10 billion. His only difficulty was to get dollars
for which the demand seemed to continue and since he would only 611-
barrass London if he joined the rank of the other dollar buyers, he
was confining his purchases to keep up with his seles but on balance
he had actually lost dollars.
Sterling he thought was now at a level where some little
resistence seemed to appear. Altogether Coriguel was very cheerful
and hopeful that the recent improvement in the French picture might
continue.
LWK:KW
Regraded Unclassified
05
ABOUT TESTING
January 4, 1939.
9:30 A. M.
(Held in Mr. Hanes' office.)
"resent:
Mr. Hanes
Hr. Taylor
Mr. Bell
Mr. Haes
Mr. Schwarz
Mr. Foley
Mr. Lochhead
Mr. Duffield
(Telephone rings, H.M.Jr. calling from
Boca Grande, Florida.)
Hones:
Hello. Yes. Hello. Good morning, Henry, how
are you? I see you couldn't wait to telephone.
(Laughs) What have you got on your mind? We're
just having a meeting. Well, I'm glad; there's
nothing here to worry you with; so far as I know
we are getting along beautifully. I see, you
are - there is no - as a matter of fact; wait a
minute; I'll tell you what the headlines are,
if you are interested. There is nothing of a
great interest - ah - there is - this is Wednes-
day mornings paper - the Tribune says "Democratic
Committees Attack Relief and Labor Administration
as 76th Congress Opens Session." There is a bad
story charged to Roper and his aids. Well, it
Just says, in effect, that they used the Govern-
ment boats and charged flowers and candy as
"provisions or supplies." That was the Acting
Comptroller that made that statement. Yeah.
Roper and his son and some Congressman from
Pennsylvania, and some woman named Renn - I
think her name was, I don't know. (Laughs)
I don't know whether she's part of that other
stable or not. Ah, that; then there is another
headline that says there is a bill to impeach
Miss Perkins that's going to be ready soon. That
comes out of the Dies Committee, apparently; and
then another headline is, "Senate Report Assails
Political Use of W. P. A." "Senate Report Assails"-
4-9-s-a-1-1-s "Political Use of W. P. A." That is
the Sheppard Committee; says relief funds were
Regraded Unclassified
87
- 2 -
abused in three states. Well, that's all they
mentioned. Pennsylvania, Kentucky, and one other
state, I forget which one it was, now. And the
Navy urges defense chain of forty bases.
There is a cab strike on in New York, and the Prince
Premier of Japan quits, and it looks like the
military Government is coming in. Yes sir.
Well, here is Archie right here. Do you want to
speak with him? All right. Fine. Have you any
other thoughts, anything you want us to do here
that you can figure? (Laughs) Well, you start
resting now, and forget this place for a little
while, will you. Wait a minute; here's Archie.
Gochhead:
Good morning. Well, sir, you sound good. Well,
Old Man Sterling took an expected dip over the
weekend - went down as low 8,5 4.62 3/4; this
morning it's a shade better - 4.63% The Bank of
England called up yesterday and gave us their
report. They have been losing three to four mil-
lion pounds a day since December 7. They are
sending out a letter tonight to all clearing
houses - to banks over there, telling them they're
not allowed to make loans on gold. That's a
complete embargo - supervision of exchange trans-
actions. It is rather interesting - getting around
toward that. Sometime toward the end of this weet
they are going to take out of the Bank of England
three hundred fifty million pounds. But they are
taking those four steps, they claim, and they are
going to write all the other Central Banks in the
Tripartite, telling them what steps they are taking
and asking for their cooperation. That message
will also come through Bewley, I presume.
Today, sterling is 4.63% Right, sir. Silver
was rather interesting; on the news we didn't
change the price, it went up in London about two
cents on a temporary squeeze. It was selling
at about forty-four cents, but there is no activity
at all. Not the razor (?) - only on one side,
talking to them.
O. K. Now, are there any of the other ones you
want to speak to? They are all here. Mr. Hanes?
All right.
Regraded Unclassified
88
- 3 -
Ranes:
Yes. Hello. There is going to be a Cabinet meet-
ing right after the meeting at the house, you see,
today. Yes sir; that's right, isn't it? Yes.
Well, that - that was the message I got back.
That's right. He's the aviation manufacturer;
yes. Did Monnet know he was here? Yes. Yes.
Yes. Yes. Where Kieley is? Uh huh, yes. I'll
get ahold of Mac as soon as I can and find out
about it. All right, sir.
How's the weather? Is it warm down there? You
like the place all right? Oh, well, you'll be
quiet at any rate. Well, have a good time.
Goodbye.
Hanes:
Ed, here is all we've been able to find on that.
Foley:
Oh, yeah.
Hanes:
Hello, Danny.
Bell:
Hello, Johnny. Looks like you might be going to
the Capitol.
Hanes:
Don't I look pretty?
What have we got on for today?
Bass:
Is this all we've got?
Bell:
I've got another package upstairs, too.
Manes:
Did everybody get a copy of this?
Where is Mac? I haven't seen him. Is Mac sick?
Schwarz:
I haven't seen him this morning.
Hanes:
What have you got, Danny?
Bell:
I haven't got anything but an order that goes to
the President, that is required by the Budget
Accounting Act. It doesn't mean much; we send it
over and he sends it right back.
Hanes:
It has to be signed?
Bell:
Yes, signed as Acting Secretary.
Regraded Unclassified
83
- 4 -
Bines:
All right. No change in the Budget message?
Bell:
Not that I know of; it's too late now. We have
our big conference this afternoon st four o'clock -
press conference.
Hanes:
Who is it with?
Bell:
The President. He has a regular class, you know -
about two hundred reporters, I guess. He reads
the message and then they fire questions at him.
Hanwst
Do you get in on the questions and answers?
Rell:
Once in a while. It's about a two-hour ordeal.
Hanus:
That message goes up tomorrow?
sell:
The stories go out tomorrow afternoon at twelve
o'clock,
times:
Wayne, anything new?
Taylor:
(Nods "No.")
HAURS:
Eddie?
Toley:
Shall I bring 02 the report of salaries paid by
corporations?
Hones:
Yes.
Falay:
The 138 Act applies only to returns affected by
the 138 Act which are the ones filed subsequent
to December, 1937; the 136 provision requires the
submission to Congress of salaries paid by corpora-
tions in excess of $15,000.00 - the '36 and 137
returns, which was covered by the three volumes
over there on the shelf. Tommy Tarleau and O'Brien,
who drafted the provision frankly admit that they
slipped, and that it was intended that the pro-
vision of the 138 Act should apply to the entire
situation. The 138 provision, as you know, pro-
vides that only salaries in excess of $75,000.00
shall be reported to the Treasury by the Corpora-
tions paying the salaries, and the information
should be made public by the Treasury and not sub-
mitted to Congress.
Regraded Unclassified
90
- 5 -
I understand from Tarleau and O'Brien that Doughton
is very, very anxious not to repeat the situation
he had last year, where for weeks reporters were
lined up outside his office and he found it almost
impossible to carry on his work. If any of this
information is given out, Doughton wants it
given out by the Treasury, RS I understand it, and
not by the Committee.
AS the statute stands, the Secretary is under a
mandate to submit this information to Congress.
It seems to me the only consideration this group
has is to determine whether or not we would want
to withhold that information until such time as
Doughton could, perhaps get a joint resolution
through - a Senate resolution through both Houses.
Now, there was a fight last year, as you know.
Part of the minority group in the Senate were
against upping the figure from $15,000.00 to
$75,000.00. La Follette and some of the Liberals
in the Senate believed there should be full dis-
closure and they would block a joint resolution,
I believe, that would attempt to apply the figure
of $75,000.00 to the '36 and 137 returns. If
anything is done in the way of legislation, it
seems to me it could only be done by consent, if
it merely removed the requirement in the 136 Act
that this information as to the salaries in excess
of $15,000.00 be submitted to Congress, and provided,
as the '38 Act provides, that that information be
made public by the Secretary of the Treasury,
Now
Reques
Did you find anything?
Poley:
The general statute provided this information
must be made available when Congress convenes,
but that's subject to a reasonable interpretation.
There is no definition as to when Congress convenes
and if we got it down within a reasonable time after
Congress convenes, it seens to me we couldn't be
criticized.
I don't know, frankly, what the policy attitude
of the Treasury would be, as to making this informa-
tion public, out of the Treasury. It seemed to
me that for the saue reasons Doughton doesn't want
Regraded Unclassified
S1
NO 1 I
to have it made public down there, we wouldn't went
to have it made public down here.
Lochhead:
I think McReynolds said that same thing. Does
that mean this is the last time you have to give
this out? Next year you don't have to make these
up?
Poley:
No, you have to continue.
Hines:
This goes down to $15,000.00. Next year you go
down to $75,000.00?
Foley:
I - I - I thin that - ah - ah - this report that
we would send down now, includes payments by
corporations which filed income tax returns for
the calendar year 1937, or for periods otherwise
indicated. Since the Revenue Act of 136, as
amended, - by returns ended November 30, 1938, a
final report will be made subsequently as to such
returns that have not yet been filed, SO there will
be one more.
Manes:
Unless we get it amended so AS to make the Act
apply as it was intended.
Poley:
He's perfectly frank about it; he said he just
Bulled a boner.
Hands:
It was their intent to males the statute read as
I read it?
Fuley:
That would be the proper legislative construction
of such a provision, but your Revenue Act - where
you don't change the law and the law continues
until all the returns have been gotten out of the
way, that applied to that, are affected by that
law, and when you adopt a new law, you don't amend
the old law at all, but you just provide a complete
code for that year. There is no relation between
the two laws, and one doesn't affect the other.
They affect the returns governed by the respective
laws.
Hanes:
The words "taxable year" and definition of taxable
year in Section which brings about the complica-
tion?
Regraded Unclassified
- 7 -
22
Foley:
In the 136 Act.
Banes:
All I suggest we do with it is hold it here till
we discuss the matter with 0ld Man Doughton and
find out what he wants to do with it.
Polay:
My only caution about that, John, is we determine
whether or not we would be willing to be placed
in a position that discussion with Doub hton and
subsequent action by Congress might put us in;
namely, disclosing this information from the
Treasury. I think we have to decide that before
we decide whether we taxe this up with Doughton
at all. Otherwise, we send it down and when he
says, "What the hell," we tell him why.
Tenas:
Well, I think, unless there is some difference
of opinion, everybody that I have talked to about
it is highly opposed, for the same reason that
Doughton is, for maicing it public here. Apparently
they want it made public somewhere, and the ques-
tion - "Is the Treasury going to take it on the
chin or is Doughton?"
Schwarz:
There is a stronger reason for the Department
taking the rap than Congress. They've got to take
the raw.
Hunes:
The bill is changed now.
Poloy:
We have no right to make it public. What we are
talking about, Archie, is the result of our dis-
cussion with Doughton; a joint resolution which
would change the 136 Act requiring this to be
submitted to Congress, and substitute in lieu of
it, a provision that it be made nublic by the
Treasury. It seems to ще that is what will happen
if we went to Doughton with any kind of a conciliatory
proposal, and I think we want to make up our own
minus first, whether we want to be placed in that
position.
Docultead:
Does the 138 Act
Poley:
The 138 Act says, insofar as salaries in the 138
return, in excess of $75,000.00, are concerned,
that-information must be made public by the
Treasury.
Regraded Unclassified
93
- 8 -
Halls
Dons the Treasury object to making them public?
I mean, as long as you have to do it next year,
would you object to making them public this year,
down to $15,000.00?
Fully:
That is the problem.
2011:
If you don't, then I think it might be remedied
by a resolution of the Committee. You think the
Speaker of the House at least constructively and
the Committee, passing a resolution, can give it
back to you to make oublic?
Hanes:
That is what I said yesterday, but Ed says they
couldn't.
Fuley:
They can't, technically. It's a question of whether
or not we'd be willing to act on a formal resolution
of that kind. They can't change the law.
Hell:
They're not going to change the law, with respect
to your submitting it to Congress; there isn't any-
thing in the Act that says who shall make it public.
All the Committee's going to do is ask you to use
your facilities to make it public for them. I
should think they'd have plenty of authority to
do that.
Taylor:
There is no requirement that they make it public
in any particular place, is there? They make it
public over there; they may take it down there and
give it
Menes:
Give it to the corner policeman 1f they want to.
"A/lor:
Or give it to the corner pollceman, or put a tent
out by the monument, but they could also ask us
to take it back and make it convenient for them.
Put it down in the boiler room, or wherever you
want to put it.
It's all right, Ed, as far as you are concerned,
if we discuss this thing with Doughton, tell him
why the 1938 law doesn't apply?
Poley:
I see no objection to that.
Threst
We are going to have to do some explaining anyway,
Regraded Unclassified
94
- 9 -
because he is laboring under the impression he
won't have to do it, and when he finds he's got
two more years of it - the last two years of his
time in Congress - he's not going to be glad about
it. I think we'll have to tell him that his
legislative draftsman and ours made a mistake in
the law. So we are all right if you have no
objection to that. That's what I'll do. If he
says, "0. K., let it come on," why, let it go forward.
Gene?
Duffield:
Nothing.
mines:
George?
Huas:
I have Nothing.
Lochard:
Sterling is steadied un a little bit this morning;
it's 4.63 As I repeated, the Bank of England is
sending out letters to all their banks, first of
all asking them to prohibit loans against gold.
That is something that should have been done long
ago. They did do it once, and slipped up. They
have also asked me? to supervize foreign exchange;
they have also put an embargo on over foreign
markets.
Howe:
What does that mean, Archie?
Goothead:
For a while they had a committee - if anybody was
going to lend to foreign countries, they had to
get permission from this committee.
Manes:
Did that apply to big securities?
Lochhead:
No, not in the ordinary sense. Take that Woolworth
issue you had there; they bought that and paid dol-
lars for it; they won't allow that kind of thing
to go on. They can't stop the ordinary individual
buying. I think they will frown on France's
purchasing American
This week they will
take gold out of the Bank of England and out it
back in the Stabilization Fund. They did it once
before, about sixty million pounds of the old
valuation. That would be about five hundred mil-
lion; they are going to take part of that out and
replentish the Stabilization Fund this week. The
only trouble with all of them, is that it is a sign
Regraded Unclassified
95
- 10 -
of weakness. The market interprets those things
as a sign of weakness. It is a political situation
over there - very pessimistic; all of this is a
very pessimistic attitude. They think that
when spring comes Hitler is going to make some
other kind of a move. It is not & very pleasant
situation.
Honus:
Will you give me a short momorandum, HS short as
you can make it?
I think the best memorandum is a copy of this
telegram - the four different things they are
going to do.
Genes:
Will you take it out for me, and also give me
the market on gold, silver, and everything.
Lochliend:
You are going to leave here, when?
Henes:
I'll leave here at four o'clock. Is that all
Archie?
Lockhead:
That's all.
Hanves
You sot anything?
Schwars:
You might want a little further information on the
Sheppard Report, including a few paragraphs of
criticisms of the Secretary. All it amounts to
is to say the Treasury allowed Magruder to violate
the Department's own regulations.
Himes:
It is hidden away very carefully.
Holl:
It's about the last thing in the article, in the
Post this morning.
Echware:
It is a breakover (?).
linnes:
What did they say, the Secretary of the Treasury?
Schwarz:
That we allowed Collector Magruder to violate the
Treasury's own regulations. It seems to me the
Department is the one to best decide that.
Bell:
Well, in all fairness, he should have published
the Treasury letter.
Regraded Unclassified
96
- 11 -
Schwarz:
They are just straining the whole situation to
have something to report.
Taylor:
The Secretary was the only fellow that answered
back.
Hanes:
He got himself down at the bottom.
Bell:
I see there is an attempt to refer that Committee
to the
report, which committee will pass
on the nomination of Harry Hopkins.
Ranes:
There is a resolution in Congress?
Rell:
There is an attempt; I don't know whether it is
Taylor:
The papers gave Aubrey Williams hell.
Hanes:
That is what I got out of it.
Schwarz:
We'll be asked for comments, but I don't think we
need say anything about it.
Hanes:
Was that letter published?
Schwarz:
Yes. We have a copy of it in the file.
Hanes:
Could I sea that letter, and also this think you
are talking about?
Schwarz:
Yes sir.
Hanes:
That is all I've got.
George, what is this thing?
Haas:
That is the copy of the report sent to you by
Altmyer.
Regraded Unclassified
TREASURY DEPARTMENT
97
INTER OFFICE COMMUNICATION
DATE
Jenuary 4, 1939
TO
Secretary Morgent.hau
idented H. Foley, Jr., Acting General Counsel
FROM
For your information
Pursuant to your suggestion, I went to Bob Jackson's office at
6:30 today and talked over the purchase of the Homer Cummings' property
= addition to the Post Office site at Stamford, Connecticut.
After listening attentively, reading the letter carefully and
glancing casually through the file, he came to the conclusion that our
included method of handling the matter, 1.e., by bringing all the facts
to the attention of the Comptroller General, was not only undebatable, but
to de nind was the only feasible method from your standpoint.
As near &S I can recollect them, I think his exact words were,
"If the sale is entirely proper, Homer can have nothing to fear from E
Full disclosure of all the facts to the Comptroller General. On the other
if there is something that doesn't meet the eye, or is improper,
certainly Secretary Morgenthau is entitled to the protection of a com-
Icts and independent review by the Comptroller General."
Bob was of the opinion that no useful purpose would be served by
taking up the matter with the new Attorney General. While former
Denator Brown of New Hampshire may be the new Comptroller General in
&
IVE days, I don't think it is worthwhile holding the letter for him.
Recordingly, having complete approval from Bob, I dated the letter 15 of
last Friday and dispatched it to the Acting Comptroller General.
E.N. 7%
Regraded Unclassified
88
January 4, 1939
To:
The Secretary
From: Mr. Hanes
JOINT SESSION OF CONGRESS TO HEAR PRESIDENT'S MESSAGE:
The Cabinet met in the office of Speaker Bankhead at 12:30.
Present were: Acting Secretary of State, Welles; Acting Secretary of
Treasury, Hanes; Secretary of War, Woodring; Attorney General Murphy;
Pistmaster General Farley; Acting Secretary of Navy, Edison: Secretary
if Interior, Ickes; Secretary of Agriculture, Wallace: Secretary of
Commerce, Hopkins: Secretary of Labor, Madam Perkins.
The President arrived at about 12:55, and at 1:00 P.M. the Cabinet
went into the House chamber, taking their seats at 1:05 P.M. The
President came in immediately and began his address on the state of
the Union.
LABILET MEETING:
The Cabinet left the Capitol at 1:45 P.M. and went directly to
the White House for B meeting, arriving there at 2:00 P.M.
The President opened the meeting with a discussion of the refugee
problem, relating to the Cabinet the following facts concerning
Ambessador Phillips' mission to Mussolini: Mr. Phillips returned to
Italy with instructions from the President to go directly to Mussolini
with the suggestion that he take the lead, independently of Hitler, in
the matter of siding refugees from Italy in getting away with enough
assets for their maintenance over a reasonable length of time, and
until they could become established in new homes. Otherwise the
Regraded Unclassified
- 2 -
99
difficulties involved in persuading other countries to take such
refurees, who might become public charges, would be insurmountable.
kr. Phillips has reported that he has held such A conference with
Lussolini and found him to be in e very receptive mood. Missolini
stated to Mr. Phillips that he understood the problem thoroughly. end
Let he would take the matter un with Hitler immediately in the hope
that he might be able to persuade him to allow refugees from Germany
rise to leave that country with enough possessions to guarantee a
[ivelihood for E ressonable length of time. Mr. Phillips further
reported that Museolini appeared very favorable to the idea of finding
E country for refugees from all parts of Central Europe to which they
could 20 and establish permanent residence. However, he is quite
alive to the difficulty of finding such place of refuge. The President
seemed encouraged with the progress made thus far.
The President saked me to have letters prepared for both houses of
Congress requesting e renewal of the Stabilization Fund. This must be
passed urior to June 30, 1939. The President is desirous of having
these letters state the full position of the Fund, and some history of
Its operation from its inception. (I em having such letters drafted
towether with letter of transmittel to the President, for the signature
of the Secretary of the Treasury, which should be ready when the
Secretary returns on January 16th.)
There was A good deal of general discussion concerning the President's
message on the state of the Union, and the President seemed quite
Regraded Unclassified
100
- 3
leased with the effect it appeared to have upon the Congress.
Mr. Hopkins reported to the Cobinet that the statement appearing
in the press today regarding former Secretary of Commerce Roper, and
-iven out by Mr. Elliott, Acting Comptroller General, was 8. blatant lie.
Sr. Honkins recommended to the President thet Elliott be removed, and
it seemed to be the general consensus of opinion that he should be
either removed or superseded by the aunointment of a Comptroller General
without further delay. The Vice President was especially anxious to
cave the President move in that direction. The discussion seemed to
center around the appointment of former Senator Fred Brown of New
Eamashire 88 Comptroller General,
The Vice President reported that there WAS B far-reaching demand
Ln Congress for continued investigation, and he was very much exercised
over the greet strength which the Dies Committee had gained in the
House, end that that Committee was seeking an appropriation of $150,000
in order to continue their investigations. The Vice President believes
that would be B. bed thing 88 far as the Administration is concerned.
T.e Vice President also asked the President to have his Cabinet
unders become more active in their contacts and relationships with
Congressmen and Senators, even to the point of having them come down to
the Canitol and actively participate in discussion of legislation as the
various bills are presented to Congress. The President made the
specific statement that he would now release his Cabinet members (untie
=11 strings, as he put it) for any contact work they cared to do on
the Hill.
The Secretary of Labor reported at length on the Bridges case,
stating that the reason she was doing so WAD because she thought the
Regraded Unclassified
101
- 4 -
Cabinet should be in possession of all the facts in view of the violent
criticisms of her conduct of the case in the newspapers. A general
discussion was participated in by the Vice President and the Postmaster
General, it being their feeling that the Secretary of Labor should
make e very clear and concise statement to the public, with full
disclosure of all the facts surrounding the case.
The meeting adjourned at 4:10 P.M.
Regraded Unclassified
102
GROUP MEETING
January 5, 1939.
9:30 A. M.
(Held in Mr. Hanes' Office.)
Present:
Mr. Hanes
Mr. Taylor
Mr. Foley
Mr. Duffield
Mr. McReynolds
Mr. Bell
Mr. Lochhead
Mr. Haas
Mr. Schwarz
Hanes:
Good morning, Mr. Bell.
Bell:
Good morning.
Panes:
What did you think of the message?
Bell:
All right, I guess. I an a little - I was some-
what surprised at some of the passages in it.
After the Secretary spent two or three days over
there, and thought he had eliminated those remarks
about spending.
McReynolds:
I think they kind of had another session after he
left.
Bell:
That is what I am thinking.
McReynolds:
That's what I'm thinking too.
Daas:
If they had any more, I don't know what it would
be.
Taylor:
It read that way, that they put back some stuff.
IcReynolds:
It is perfectly obvious that they added about
twenty-five per cent to the damn thing after the
Boss left.
Bell:
I think undoubtedly it went back in.
Hanes:
Just on the spending part. The rest of it wasn't
changed from the original part, that Henry told me.
have ever heard him do. As a matter of fact, when
I thought, on the whole, it is the best thing I
Regraded Unclassified
103
- 2 -
you come right down to it, looking at it from a
colitical standpoint, there is not a hell of a
lot else that he could say; he coulon't go up and
say, "Well, we've been & lot of crack-pots here
for the last six years, and we have done a lot of
things which we now don't agree with," and so forth.
He almost hed to bend that thing, it seems to me.
I mean, just from a political standpoint, or say
nothing about it; one or the other. He couldn't
say it was wrong.
Boll:
He couldn't say it was wrong, but he did sort of
jump from the sublime to the ridiculous when he
talked about the religious aspect.
Poley:
There were a couple ministers down there that
liked that religious part. One of than took
Jones! seat.
Bell:
He got in a nice wisecrack at the Budget conference
yesterday. Do you remember it?
Email:
Which one?
Bell:
He talked about the trap. The boys bated the trap
and then stepped right into it. He paused at the
sentence - at the group that thought there ought
to be reduced expenditures and balanced budget.
Then they Just applauded and applauded.
IcReynolds: I don't know whether that was applause or razzing,
Dan.
Poloy:
It looked like misplaced applause. All that came
on the Republican side. Then they got very
enthusiastic; nobody on the Democratic side
moved. Then - it's just like playing a fish - he
let them run to the end of the pool and then he
yanked them. When he came back with the other
thing, then the other side just raised up and
cheered.
Times:
There is a sharp line of demarcation here; they
just applauded like hell and nobody on this side
said a thing.
Poley:
He just stood there and smiled all over, just
waiting for them to stop. Then he let them have
it.
Regraded Unclassified
104
- 3 -
Schwarz:
Then the trap closed; if they wanted an answer
to the Veterans and Persion groups, those were
the items he said they could cut. I guess it
was deliberate. At first it
....
Polay:
Over the radio it looked like a slip.
Looklend:
That's what you get over the radio.
thres:
If the people on the radio could get the same
impression you got by being there it would have
the
Lochhead:
We needed television yesterday, because up to the
time of the shot, when he made that speech, and you
heard him come on with that big applause - you
said that was entirely Republican; it sounded
like a general applause.
Paley:
I have never seen a man more complete master of a
situation than he was yesterday. You could sense
they were waiting for hid to slip. They thought
they had him when he spoke about balancing the
Budget. Then he threw it right in their faces.
Taylor:
You could tell he'd gotten out of it all right,
but you couldn't tell the other way. It was a
very peculiar impression you got.
Foloy:
Well, he enhanced his prestige considerably down
there yesterday.
Panes:
I think 50 too, damned if I don't.
Poley:
You could see these fellows that weren't for him
at all just shook their heads and said, "The son
of a gun is still good."
Bell:
There isn't any question about it.
bockhead:
There is one thing we wanted to object to. Mr.
Ickes blotted out Mr. Hanes on the radio. They
got Welles, but couldn't get the other fellow;
"he's blotted out by Mr. Ickes."
Hands:
I almost didn't get in at all. I was right at the
foot of the line; E hell of a crowd in front of
the door. They got the crowd back for the first
part - Miss Perkins and all the higher-ups, and
Regraded Unclassified
205
- 4 -
they got in and the crowd got in all right;
Christ, I had a hell of a time. I hollered, "Heyl
Don't leave me out; let me get in too." I
thought I wasn't going to see the show for a
minute.
Bell:
You should have been second in line, shouldn't
you?
MeReynolds:
No, he ought to have been behind Welles; Edison
behind you.
Manes:
The crowd cut him and ne off; they got him
in front and me behind; I couldn't get by.
God, there was an awful jam out in the corridors,
trying to get in; I don't know who those people
were.
Polay:
They couldn't very well, because they shut off
the crowd. You couldn't get upstairs unless
you had a ticket. There was no pushing and
crowding unstairs. It was all down on the main
floor. They had temporary fences at the bottom
of the stairs, and you had to give them your
ticket before you could get upstairs.
Names:
Well, Danny, you got anything startling and new
this morning?
Dell:
Not a thing.
Banes:
How's your Budget?
Hell:
Well, it's on its way to the Capitol. I guess it
will be able to hobble up there.
Isnest
It will get a good airing today.
VeReynolds:
That will be read by the clerk, won't it?
Bell:
Yes, about one o'clock.
Ranes:
Did you get any impression from the newspaper boys?
Schwarz:
It will be partizan; the opposition papers will
play up the figures; I think they were well
impressed with respect to recoverables and Public
Work. I think that was - they commented con-
siderably about that - favorably.
Regraded Unclassified
106
- 5 -
Bell:
It was a good press conference. It was good.
It ran from about a quarter after four to about
six, didn't it, Schwarz?
Schwarz:
Yes, I think so.
Hanes:
What line of attack did the questions take?
Bell:
There was no real attack. They were right
sensible questions they asked; they asked about
definitions and different things meant what, and
how they tied in.
McReynolds:
Looking for information, I think.
Schwarz:
It was cooperative.
That table impress them - that showed each individual
item? Were they impressed with that?
Bell:
Yes, they spent quite a lot of time on that.
Hanes:
I think that is the best table I have seen anywhere.
I don't know how you felt about it; I got one
awful shock when I looked at those figures on one
item. I kind of had the impression that the
C. C. C. camps were a damn fine thing, and I think
this country generally accepts the C. C. C. as a
fine thing, but when I looked at the thing, and I
saw it costs as much as all the good roads we
have built in the last ten years, I am not too
sure that it is worth as much as all our good
roads.
Bell:
Well, I think that table, this year
Taylor:
Congress thinks SO.
Hanos:
The country doesn't know - if they are as ignorant
as I am about a thing that costs two billion five
hundred million - that's what it costs.
Bell:
I think the totals, this year, will be a very
great help. I think the total for the ten-year
period will shock a great many people.
Hines:
As I say, it is exactly the same item as carried
in all the good road construction. If you ask
anybody - I have asked several, "How do you think
Regraded Unclassified
107
- 6 -
C. C. C. craps compare with all the good road
construction in the last ten years?" They say
it is not comparable, but, Hell, it is com-
parable, because It is the same.
Some of the pay goes to the family which makes it
a form of relief.
thes:
It is all a fora of relief. But I ais just
thinking about the aggregate cost of the thing.
It gave me an awful shock when I saw it.
Solmers:
It will be wholesome to have the total show.
Boll:
It's a wonder to me that someone didn't raise
the question about putting the C. C. C. cost
in that statement of durable improvements. Not
one raised a question about that. But we had
to assume that everything that the C. C. C.
boys have done in the nature of durable improve-
ments and the total cost as a durable improve-
ment, olthough part of it goes to education.
Tos:
Did anybody ASK about the change of setting up
these individual agencies, putting them on their
own?
Busl:
There were some questions roout that.
bolompz:
Two of the afterward suggested to me - I think
they are going to go into this possibility -
that 1f we 60 Into some of these agencies, let
them finance themselves; that will solve part
of our problem of reaching the peak of the debt.
Regraded Unclassified
108
- 7 -
Soll:
Yes, That question wasn't asked, but it's a wonder
to me it wasn't.
Names:
They didn't catch the important factor nt all.
Bell:
No.
ckeynolds: The first - the boys hadn'. seen that.
Bell:
The trouble is, they only had the Budget Message
an hour and a half - some not that Iong - and
hadn't had at chance to study the whole set-up.
Hanes:
Did anybody hit upon the two hundred ten million
dollar item for national defense? Did thay pick
that out?
Bell:
Oh yes, it was picked out. I thought the President
was going to get out on a limb a while; I couldn't
stop him, and finally he got straightened sround.
He insisted the two hundred ten million dollars
was the amount of the appropriation; we said it
was a two ten expenditure appropriation out of
the five hundred million dollars. He had forgotten
about that for a minute. They asked some questions
about that - what was in it. He told then this
was all he was going to ask for at this time,
and he wasn't starting out on a five, ten, or
fifteen year program at all, and he couldn't
tell them what would be in the five hundred million.
They'd have to wait for the special message for
that. One fellow did raise the question about
the forty-four million dollar debt - whether or
not the Treasury wouldn't have to have the limit
raised, and he said, yes, that was a possibility,
and that would be taken care of later.
Duffield:
What is the limit?
Bell:
Forty-five billion is the limit.
Hapes:
What limit - what - now do you mean?
Foley:
All the authority we have to borrow.
Bell:
The total public debt is limited to forty-five b11-
lion, of which thirty billion could be bonds, and
this budget will 60 up to forty-four billion five.
Regraded Unclassified
109
- 8 -
While we may get by with a limitation of forty-
four billion, we'll need a flexibility on the
forty-four thirty. If they take off the limitation
on bonds, I think we might get by with the forty-
five.
Hanes:
Does that forty-four billion item include all
obligations, contingent and otherwise?
Bell:
No, it is just the formal public debt; it does not
include that.
Hanes:
Then you have exceeded the legal limit if you
take into consideration all the obligations and
comitments?
Bell:
No, it is definitely confined to public debt
issues.
Hanes:
It is? I see.
Wayne, you got anything this morning?
Taylor:
No, I haven't.
Hanes:
Ed?
Toley:
Is there anything new on Bank of America?
Hanes:
Have you seen the answer?
Foley:
No, I haven't.
Hanes:
I haven't read it; I just got a copy of it. I
didn't take time to read it. Do you want to hear
it.
(Mr. Rademacher comes in.)
John, give me a copy of that thing that Delano
sent me, that just came in.
Foley:
I understand they were sending Sedlacek back this
noon.
Duffield:
That has been changed.
Foley:
I think he ought to stay here.
Regraded Unclassified
110
- 9 -
Duffield:
He will be here until the middle of next week.
Polay:
I wanted to have here the criminal angles on
the Bank of America, and also the Anglo-California,
before he leaves.
Duffield:
That is why he is staying.
Panest
I'll give you a copy of this. I don't think
you need this in the record. Just refer to is
as a letter to the Honorable Preston Delano,
dated December 31, 1938, from L. M. Giannini,
beginning, "Your letter of December 22,
11
A letter from P. E. Warner, San Francisco, Read-
quarters, Accounting Department. I don't know
what that is. These are those letters from Gough,
1931 - copies enclosed - an analysis of the profit
and loss. That is all the correspondence there,
that you Diven't seen. Do you want this?
Foley:
(Nods "No.")
Hander
That is the first time I have read that letter,
but I think, in answer to our letter, which
broke it off rather sharply in stating to him that
language used in that document there took away
from the Comptroller his right to exercise the
functions which were given him by Congress. I
think in answer to that, it is a pretty good
letter, on the whole.
Poloy:
It is thoroughly consiliatory.
Duffield:
Do we want to go into a general discussion of
the Bank of America? There is one other thing
afoot. It is none of our particular business;
it does bear on the seventh point. The
seventh point says, "The Bank of America will
not take over the assets or assume the liabilities
of any other bank."
Hunes:
Without the consent of the Comptroller.
Buffield:
That was the one to stop the expansion of the
Bank of America. As I understand the arrangements
are now being made for a loan of three million
dollars from the Bank of America to the old
national corporation in Spokane, collateral of
Regraded
111
- 10 -
which is stock in the National Bank in Spokane.
The loan is not one the old national corporation
can pay off. The Old National is just a shell.
McReynolds:
In other words, the stock is not worth a damn, and
that is what they are taking as collateral?
Duffield:
It 18
Janus:
The Olc National corporation is getting stock
from the bank, and in return, borrowing money from
the Bank of America for it.
Duffield:
And the only way that loan can be paid off is
through liquidation of the bank stock, probably.
Well now, true enough, they eren't taking over the
assets or assuming the liabilities of any bank.
Bell:
In theory they are not, but practically, they are
assuming complete jurisdiction.
Mel(eynolds: That is just another sanction of their bank
activity in that territory.
infficial
The only reason I am mentioning this, if it is
consummated, it won't take this group by surprise.
It 12 on the fire.
Thank:
Hac? Have you anything this morning?
Utilynolds!
No, I think not.
Bines:
(Nods to Mr. Lochhead.)
Mcleynolds:
Of course, that Old National at Spokane is an old
story. They have been on the Secretary's Com-
mittee and he turned them over to me about two or
three years ago. While it was being liquidated
in an orderly way, the Twohy outfit were being
Jibed - being permitted to manage it. They have
been trying to get that ever since, and give it
(speaking too low to hear)
one of Harry
Hopkins' - an Administrator of Harry Hopkins, on
W. P. A. out there, was a son-in-law of the Twonys'.
He has been working on it two or three years. He
was in two or three months ago when this thing
first started, and he apparently is a friend of
the Comptroller; the Comptroller came in to see
me after Griffith did. The Comptroller came in
to see me immediately after Griffith came in here
Regraded
112
- 11 -
to notify him of the negotiations for this loan.
He said he thought he'd have to disqualify himself
from deciding on that, because of the fact that
Griffith and the Twohys were personal friends of
his. He thought he would not be - he couldn't
ethically make a decision on it. That is just a
sentimental side of it, of course. I told him
then that held have to come in to see you; that
I wouldn't have anything further to do with it.
Hanos:
This was last week, when I was away?
Beheynolds: No, no; this was a couple months ago,
116000:
I never heard of it, I guess.
(cHeynolds:
I didn't know when he came to see you. I wouldn't
do anything on it, of course. It would have to
be handled by the Committee, of which you wer
Chairwan. I told Delano the same thing when ne
came in to discuss it. I told him he'd have to
discuss it with you.
Ibnus:
Did I understand you to say they had already made
the loan, or were contemplating it?
As I understand it, Giannini, in Spokane, yester-
day or the day before - I don't like to take up
the time of the whole group on a lot of little
ends.
Buhos:
I wouldn't bother with it nov, but we'll have a
meeting on it, if it is important enough. I
don't know a thing about it myself. It is the
first time I have heard about it. Suppose we
have a meeting, and get Ed. I suppose you'd
like to get un to this - to date on this thing?
-mffield:
I'd prefer not to hold up the group, and have a
meeting of the banking group because it is strictly
in the Comptroller's Office.
105eynoldst
My opinion, while I am not participating in the
group, have no desire to, merely because of the
thing, I had that olé national thing on my neck
a couple years, and as a result of that, the
information came to me through the Comptroller,
and through Griffith, that they were negotiating
the loan from Giannini's group of some three
113
- 12 -
million dollars, I think it was, in order to reopen
as an active institution, and the loan was to be
made with the stock of the Old National, and that
other bank up there that they were to take in as
a branch, as the basis for the loan, and I - con-
sidering the soundness of the Giannini group as
a banking institution, I don't see how you can
conduct that kind of a transaction, because it is
an - ah - it is - it - it - it - it looks to me
that it wasn't financing it at all.
Hanes:
It looks to me like it is cutting around the spirit
of the agreement, don't you?
(H.M.Jr. calling on telephone from Boca Grande.)
Hello; yes; all right. Yes. Good morning, Henry.
How are you? Oh, that's too bad. Well, you're
getting some rest anyway. Are they? Really?
Geel That sounds good. Yes. Yeah, that was
very impressive, that part of it. The press has
been fairly good on that part of it. They - the
press has been fairly good on it. They jumped on
the spending part of it, which was rather unfortun-
ate. Right. Well, I think the thing wen't over;
it went over very well. The general impression
around here is, it is the best thing he's ever done.
Yes. Oh, didn't I? I thought I did. I liked
it very much, indeed. He had a press conference
on that yesterday afternoon. Did he tell you
about that? Well, he had a press conference that
lasted from four fifteen, I guess - the Cabinet
meeting lasted till four ten, and after that he
had this conference to explain to the press the
Budget message in detail; it lasted, Danny told
me, till about six o'clock. Well, Danny
said it was a very good press conference, as a
whole. The only thing I've got of any interest,
at the Democratic caucus today they are going to
elect the Ways and Means Committee and I under-
stand the slate is Boland from Pennsylvania; West
from Texas; Maloney from Louisiana; and McKeough
from Illinois. They are *he new Democratic members,
The Committee is going to divide fifteen Democrats
and ten Republicans. There is another; there are
three other men running, but they are not on the
official slate. The other three men are Ford of
Mississippi; Harrington of Iowa; and Hare of South
Carolina. Yeah. Well, this Committee is divided
- 13 -
114
up now with two liberals and two very strong
conservatives; that is where these new men come
in; they are just half and half. Yeah. Yeah.
Well, he was in a very good humor after the speech
yesterday, too. There was a very interesting
meeting at the Cabinet, Henry. I have written
some notes on it; would you like to have me send
those down to you? It was really, I think, e very
interesting meeting. Yes. Well, all right. I
wasn't going to bother you with it, but if you'd
like to see it, I'll send it on. On no. (Laughs)
No, not a thing. O. K.
The group is nil here; we're just finishing our
morning meeting. Do you want to speak with Archie
about the market? What is sterling, Archie? I'll
lot him talk to you.
Lee includ:
Good morning, Mr. Secretary. The speech didn't
have any particular effect on the market. The ex-
change - they have been a little bit nervous, and
sterling is, at the moment, about 4.64. It was
down around 4.638, and it is 4.64 after the speech,
and at London this morning it was down as low as
4.623. Hello. Hello. No, you're not on the air;
we're in Mr. Hanes' office. Right. Yes. Right.
Yes. I know about that, yes. Incidentally he
also has gotten a cable 89 to the general situation
there; I'll do that now. There is one other thing
in regard to that; after their general clean-up,
their silver in London - they have about ten mil-
lion ounces free that they'd like to sell. You
want to hold it off for a while or
D. K.
Well, I'll take it up. We'll just handle it
regularly here. 0. K: Then you are on vacation,
and I won't ask you any questions. Well, well, we
might well try to do 2 little bit better, possibly.
(Laughs) All right. We'll take care of anything
like that.
Now, just a second; if you want another social
chat with Mr. Hanes, he is still here.
Ranes:
Henry, hello. Yes, Well, I hope it is. Henry,
listen, there's one thing I want to both you a
minute about. Your letter to the President ask-
ing him not to commit himself on the Social Secur-
ity thing - the Social Security recommendations
are going to press this morning; I mean, the messa(e
is going to press at 9:45 this morning, and they
Regraded Unclassified
115
- 14 -
asked U. to look over these rccommendations
and find out if there is anything In there that
is objectionable to the Treasury. They haven't
been very specific in their recommendations in
SQ fur as financing is concerned. I don't think
we aught to get out on a limb on that one, and I'd
rather let them go along like they have got it
and mulce no comments on it, and let it go on the
way they've got it. They change About every
thirty minutes, it seems to me. Yes. I think
it's all right if we let it stay like it is. We
are not ready to maise any other specific recom-
mendations other than the fact I have maintained
right along in all the conferences I have had; I
wanted to keep your position of making it a self-
sustalning proposition all the way through. I
understood that to be your position with the
Cabinet Committee, so I have stuck with that
right along and haven't varied from it. No siree,
this 15 one you're clear of.
And there is one thing more; you told me to find
out about Wertheimer. I haven't heard a thing
about Wertheimer. Monnet has gone over to meet
B111 Bullitt somewhere. I talked with Secretary
Woodring and Summer Welles; neither of them had
heard of him, but he had no credentials, insofar
(15) they are concerned.
Taylor:
He is a race track boy.
Banes:
That is what Harry Woodring told me yesterday
afternoon. He told me three different times they
didn't know a thing about it. It's your impres-
sion that Johnson had given him permission to see
any of the planes? He said it was entirely
erroneous; that Johnson hadn't given him any per-
mission of any kind. Well, Johnson was sitting
there while I was talking to Harry Woodring, and
ne said that Johnson said he hadn't given him
any permission to do anything. 1 think the thing
is all straight now; Woodring was excited yester-
day, but the Commission has gone to Buffalo to
see the P-36. He was fussing because somebody -
he got, somebody - had told him in his Department
that the Navy Department had had a transport stand
by to take this crowd to Buffalo, and that Woodring
wanted to know why we gave those instructions to
Regraded Unclassified
116
- 15 -
send a Navy transport - to send a Navy transport
for this Commission. It was just a mistake.
Somebody in his Department is not telling him what
is going on over there. That is all I can find
out. McReynolds and I were both very familiar with
the situation from our side of it, but apparently
Woodring wasn't from his side. Oh yes. Yes. I-
Ive - I've got that. Not a bit. Not E bit, and
Monnet, as soon as he comes back, he is the only
man I can find out anything about Wertheimer from,
apparently. I can't find out anything in the
Government. Well, I don't think he can. I think
we are covered on that, and I've 60t transcripts
of all my telephone confersations with Woodring
and our boys too, 30 the whole story, I believe,
is complete.
Well, catch a lot of tarpon, will you? O. K.
Goudbye.
(Hangs receiver up.)
WeReynolds: Bad weather down there, was It?
(hres:
He salu it was fine weather, and believe it or not,
the tarbon were striking. He said, "I wasn't going
to start fishing until tomorrow. He had a
headache three or four days. Tomorrow he's
going to start.
3611:
I didn't know he was a fisherman,
HAMES:
Harry, and Archie, those things you gave me a
list of, I reported to the President that they had
actually taken place yesterday morning. Is that
right?
Lochliesd:
They were transferring the gold from the Bank of
England; that's not taken place, but the decision
has been made. Everything there has been decided
on. The transfer is a book entry.
Manes:
Has that beer made public?
Lochhead:
No. The Bank of England transfer will probably
come sometime during the end of this week; then
it will show on the Bank's statement, Tuesday
probably. They don't usually make much publicity
on these embargoes.
Regraded Unclassified
117
- 16 -
llanes:
You got anything else?
Lochhead:
Nothing special. Well, we might as well take it.
The Chinese have offered us ten million ounces more
of silver, after they cleaned up London loans,
and it is just a question, AS I say, we have been
taking it, generally, when they had it free. The
trouble is, if we don't take it, as long as we
don't maintain the forty-three cent price, we
take it in the general market and don't get any
thanks for it. That's the
Ranes:
Is it something you've got to answer on
Locahead:
Oh no, no, no.
Hanes:
right away?
Lochhead:
No, no, no, unless I give him
Hanes:
I don't see any difference whether you Late it in
the open mirket or take it privately.
Loc Yhead:
That is the same thing we get on the Mexican
market. We officially don't want Mexican silver.
You can't damage that on silver, because you
can't distinguish between different types of
silver, 1f silver comes up. When once it is
melted down you can't tell which is Chinese
silver and which is Mexican silver. I imagine
this is all going to come in, in the sessions a
little bit later.
Taylor:
I think it might.
By the way, at this Budget conference yesterday,
going over that statement in the Budget message
concerning durable improvements, where we have at
the bottom "Stabilization Fund" somebody raised
the question, also, about the profit and I guess
the President volunteered that information; he
said he'd seen in the press the last few days the
losses sustained by the Stabilization Fund in
England, and in France. Here, not only the fact
that the Stabilization Fund is intact, but we
have a right nice profit. They tried to get him
to tell, but they didn't; he wouldn't give any
amount. I didn't see a thing in the papers this
morning,
Regraded Unclassified
218
- 17 -
Hanest
That Stabilization Fund's got to be renewed by
June 30, hasn't it?
Hell:
They asked about that, and he said they would ask
for it.
LochWead:
In other words, the profits motive should never
have been brought up.
Fana:
Because someday you might have a big loss.
Lochiend:
Sometime if you really got up against it, you
might have to face the question, whether you wanted
to take a loss in the Stabilization or something
else. You might have to face that, someday.
Taylor:
Week after next or
(Laughter)
Hanss:
Archie, the President wants a letter to the Chair-
man of the two Committees, House and Senate,
requesting the renewal of the Stabilization
Fund. This is not something I an pressing, but
sometime in the next two weeks, I'd say when the
Secretary gets back, we ought to have prepared for
his signature, R letter of transmittal to the
President, enclosing two letters, one for the
Chairman of the Finance Committee
ball:
That ought to go to the Speaker and the Vice
President.
Banet:
To whomever It goes, two letters - one to each
House stating he wants the condition of the Fund,
as at present, stated, and some reason for asking
for the renewal.
Sell:
Follow the one two years ago.
Ennas:
This time, he said, he wanted to state publicly
the condition of the Fund.
Bull:
Oh, really?
Ranes:
Yes. So, if you get up some draft of that thing
and let's have it ready when the Secretary gets
back. I am not going to do anything about it
till he gets back, other than to have it prepared
for him when he gets here.
Regraded
119
16 I 1
Lochhead:
Those letters, do they come out of the Legal
Division?
Bell:
We've got copies of them around here someplace
that we used last year.
Lochhend:
That is something that will have to go over for
discussion.
Bell:
The Secretary won't want to give anything later
than June 30.
Lochhond:
He won't want to give anything later than June 30,
for last year.
Schwarz:
Nothing.
Hous:
Nothing.
Duffield:
Just for your personal information, the Anglo-
California annual meeting is on the tenth, on the
management question.
Hanes:
They haven't got any.
Duffield:
I have stayed out of the situation. I had it on
my calendar, on the tenth.
Foley:
Is that on {onday?
Durfield:
Tuesday.
Foley:
Tuesday.
Hanes:
All right.
Regraded Inclassified
120
January 5, 1939.
6:10 p.m.
Archie
Lochhead: Hello.
HWr:
Yes.
L:
Mr. Morgenthau, Lochhead calling,
HILJr:
Yes.
L:
I just finished 8. call from Butterworth --
HWr:
Yes.
L:
And Wayne thought you'd be interested in it.
HIJr:
Yes.
L:
You know they mentioned that they were going to take
out sixty million pounde of the Bank of England and
put it back into the exchange fund.
HWr:
Yes.
L:
Now, they've decided that they are going to not only
take out sixty million pounds, but every bit of sterling
that they -- every increase in gold that they had since
they went off the gold standard in September, 1931.
HAJr:
Uh-huh.
L:
That means that they will transfer out, as far 86 we
can figure, about two hundred million pounds instead of
sixty million.
HIWr:
"ell, I'll be darned.
L:
They are going to transfer that over into the exchange
account.
Ridr:
I see.
L:
Now that is -- that 18 going to bring down their -- the
Bank of England's issue, of course, is down very low
again.
Wr:
Yes.
L:
But tomorrow afternoon at four o'clock this announcement
is going to be made.
HMr:
Yes.
121
- 2 -
Now then, on Saturday, they are going to make another
announcement, and that 18 that they are going to
increase their fiduciary issue up to four hundred
million pounds, and that le an increase for about
two hundred and sixty million.
Yes.
Lt
At that time there will be -- they will have new bank-
106 legislation, end this banking legislation, they
won't be able to eay very much about. All they are
going to say is they are going to increase the issue,
because Parliament doesn't convene for about & month.
So they say -- what they may do at that time, they may
revalue what gold remains in the Bank of England at 8
different price than the present statutory price of
eighty-five pounds.
HJr:
= see.
And -- EO they may -- they may make a change to that
nature and they say they haven't made up their mind yet
though if they revelue it what price It will be revelued
at, It's not to be considered a new fixed orice for
gold.
Jr:
Un-huh.
In other words, they may revalue to the market and then
change that according to the market from time to time,
HWr:
Where is Wayne?
3
An -- Wayne has sone MP nome now, He'll be home this
evening. He was in though when we got the cell In.
Oh.
D:
And BO, the only point that the British said was that
on Saturday when they make this announcement that they
are going to increase their fiduciary issue, they ask
us not to make any comments on it at All, because the
are going to be rather B. cryptic -- ah -- message they
are Boing to give out, and it's going to be a month
before Parliament can get in and they are afraid there
1e going to be 8. lot of conjecture, and they presume
they better not say much of anything until Parliament
gets in. But it seems to be P. very strong move they're
making.
It's a move to the good.
122
- 3 -
Lt
Oh, yes. The fact that they take out two hundred
million and put it in the exchange fund, that strength
ened the fund much more than WBB hoped for.
Mr:
Well, I think that's very bullish.
L:
I would say it's very bullish. They 8. carently had
more meetings. Butterworth said that they had been
meeting all day, and that's the first news that we
had they were going to do anything 8.8 drastic B6 that.
The mere fact that they are going to do much more than
the market expect, I think, should be a bullish
argument.
P.Jr:
Does Henes know about this?
L:
No, Hanes wasn't here when the call came.
HWr:
Oh.
L;
Now, the only point that we are calling up on, we
thought possibly it W&B important enough that you might
want to let the White House know, or maybe if you wanted
somebody else to let them know in the morning.
Pair:
No. "hat I would do in the morning 18 this -- I would
-- I would have a non -- I mean, enontechnical explane-
tion SE possible, you see?
ii
Yes?
PUJr:
Drawn uo on one page.
L;
Right.
HiJr:
What it means and everything else, and send 1t over.
Have Hanes sign it.
L:
Yes.
HAJr:
Let McReynolds take it over to Forster, and Forster to
the President, you see?
L:
Right,
HIWE:
You Bee?
3
Yes.
HWr:
I mean, that's the way I would do 1t.
Regraded
123
- 4 -
Lt
Right. Then we can -- we'll let them know that you
know about this also.
Yes, that I know about it.
Lt
Right.
PUN:
And -- as -- well, that's the way I would to it. Have
him draw us just B. -- well, as untechnical as --
4:
Yes, yes. Don't make it worse, because after all there
was only -- it's only & question of giving them A little
advance notice.
F.Jr:
Yes.
L:
Because the whole thing will be out in the paper to-
morrow afternoon.
ENTr:
Well, I'd let them know.
L!
Right.
Well, it just shows that when they are pushed against
the wall they 11 do something.
L:
Well, they -- it surprised me that they would come peross
1.8 hard 85 this. To tell the truth, I'm B little bit
surprised that they are doing it this much, and I think
it should surorise the market.
SWr:
It's the best news that's come my way in a long while.
L:
Oh, it's -- 86 I say, up till now they have been simply
giving more or less excuses, ano this time it's really
action.
HWr:
Well, I was going to give you hell for calling, but as
long 88 it's good news I don't mind.
Lt
"ell, I thought you wouldn't kick about this one. If
they weren't going to transfer anything, I'd be afraid
to call you. (Laughter)
If it wouldhhave been bad news I -- oh boy, I'd have
taken & couple of pounde off your stomach
in
Good thing. You just -- you just 50 on out tomorrow
and take A couple of terpon on top of this.
Well, it's all right 88 long as it's good news. Did
you set that?
Unclassified
124
- 5 -
L:
Absolutely. If anybody else calls -- if there 1s bad
news I'll let somebody else call. (Laughter) O.K.
HJr:
If it's bed news, you fellows handle it.
3
Right.
HAIR:
By the way, as long 18 I have you, what d18 the market
do today?
L:
""ell, the stock market broke towards the end,
HMr:
Yes.
L:
It didn't seem to have any particular resson. The
evistion stocks went off & bit, and the sterling was
8 little bit strong. It got up to eround four sixt-
four and a half. Not very such to it. I mean, they've
-- it strengthened up EL little bit because they got the
news out of the restrictions.
R.Jr:
Good.
,i
But the market haen't got any news out yet of the --
of the gold transfer.
R/Jr:
How are commodities?
L:
Commodities went off. Went off, if I remember rightly,
around trenty-eight to thirty points.
H.Jr:
Well, this will help a lot.
L:
Ah -- I think this is goine to help -- I -- I certainly
hope it 16 going to be given & bullish interpretation
and not 8 sign of weakness.
EVe:
I -- after an hour or SO -- I think that -- I'd like
Hanes to do this with Taylor and yourself, see?
L:
Yes?
HWr;
Ab -- to send for the Charge as well 8.8 Berley,
lake it quite formal, you see?
L:
Yes.
HMr:
Whoever 18 Charge.
L:
Yes.
HJr:
And tell them that -- I want Hanes and yourself to be
there 8.B well 88 Taylor.
9 1 I
125
L:
Yes.
PMJr:
Speak to the Charge and Bewley and say that you choned
this message and that I am very much pleased and I'd
like Sir John Simon to know that.
L:
Fine. I'll do that -- we'll arrange that the first
thing in the morning.
FilJr:
Yes, but I want the Charge, as well 26 Bewley.
:
The Charge and Bewley, and then you want Hanes, Taylor
and myself.
HINr:
Yes, and -- ah -- the Charge -- h1s name is Mallet.
L:
Yes.
H.Jr:
But I -- I want to get B. word off to Sir John Simon
that I'm very much pleased.
L:
Yes. well, we did here tonight. We told Butterworth
that this would be transmitted to you.
Yes, but I'd do it this way tomorrow.
L:
Fine. it formal tomorrow.
HWr:
I have reasons for doing it that way.
L:
I see. All right then, we'll take care of that in
the morning.
HIJri
Remember now, It's & one-way traffic -- good news only.
L:
Good news only. well, the wire is plugged that way,
H.Jr:
All right.
D:
All right. Good bye.
Unclassified
TREASURY DEPARTMENT
126
INTER OFFICE COMMUNICATION
DATE January 5, 1939
TO
Mr. White
FROM
Mr. Fine
Subject: British and American Revenue Systems Compared (Tax Administrators
News, November 1938).
I. Relative Importance of Various Taxes
Analysis of total tax bill according to types of taxes indicates
that the backbone of the Sritish tax structure is the income tax.
The United States still relies on property taxes as the largest tax
source. One-fourth of all United States tax revenue was derived from
excises of various kinds, a figure over twice as large as the comparable
critian percentage.
Proportion of Tax Receipts Derived from Various Sources
United States
United Kingdom
Income
20.8%
34.5%
Property
38.0
16.8
Customs
4.1
21.9
Excise
24.5
11.3
Death and Gift
3.4
8.9
Vehicle
2.5
3.2
liscellaneous
6.7
3.4
Tax Receipts 1937
Per Capita Taxes 1937
United States
$11,838 millions
$91.77
United Kingdom
$ 4,908
H
$109.06
II. Proportion of total taxes collected by the various levels of
government.
United States
United Kingdom
National Government
40.9%
83.2
State
22.4
Local
36.7
16.8
127
Mr. White - 2
The local authorities in the United Kingdom derive practically
their sole revenue from the "local rates", or property tax. In the
United States, however, State and local tax revenues, which approximated
$7 billion in 1937 run the whole gamut of taxation.
Note: Pounds are converted to dollars at 1:4.89, the New York rate
on March 31, 1937.
Prepared by Lawrence H. Seltzer128
29
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Jan. 5, 1931.
TO
Secretary Morgenthau
FROM
hr. Haas JOH
Subject: "An Economic Program for American Democracy" by
Seven Harvard and Tufts Economists
This 18 8. smoothly written and persuasive political
namblet, highly liberal in tone and thought, end thoroughly
in sympathy with the New Deal. It is not the product of
rious research, and it rarely descends to the use of
figures. On the other hand, it is a stimulating and intel-
Illent presentation of one theory of economic events since
129, together with 8. program of political-economic action.
The thesis of the book may be summarized 8.8 follows:
Prior to 1929, private capitalism worked well in the
United States because the geographic and economic frontiers
neve being pushed back, thereby opening up new investment
30 "tunities almost continuously. Contributing to the 88...
result WRS the high rate of population growth arising out
02 both high birth rates end heavy immigration.
This era definitely came to an end in 1929, and we have
"lage been in a period of economic stagnation. Businessmen
18, blame governmental policies and labor disputes for their
Led. of confidence and their resultant indi oposition to
invest savings; but these are only whipping boye. The real
out hidden reason for the plight of businessmen and other
investors is the structural stagnation brought on by the
of the frontier -- economic and geographic -- and
the declining rate of population growth. New inventions in
recent years have not been of the kind that require great
Amounts of capital for their exploitation. On the contrary,
tuers 1s evidence that most of them have been cspital-saving
than canital-using. In consequence, there has been
inclequate opportunity for private business to absorb and
182 the country's savings. These savings take place year by
T8 T at 9 relatively inflexible rate; and it is the idleness
25 these sevings that gives rise to unemployment and economic
stegnation.
Unclassified
130
Diretory Horgenthau - 2
The ungeralleled severity of the depression that began
in 1325 was due to the fact that A. cyclical business
Surencion was superimposed upon the onset of this period
: structural stagnation. In the abrence of governmental
Intervention, this stagnation will be indefinitely prolonged:
for nrivate enterorise can no longer make full use of the
--untry's sevings and can therefore no longer provide full
evaloyment. The Government must now take over the function
<< investing much of the country's savings 1f a high level
ef national income 1s to be achieved and maintained.
The experience of the past five years demonstrates the
vuto of this thesis and indicates the way out. The failure
X Government spending to prime the pump has been due, not
to other governmental policies, which have been soundly
but to the inadaquacy of private investment out-
ALV. This inadequacy must now be regarded as nermanent. In
soor words, we must give up the hope of bringing about a
Jelf-gustaihing recovery.
In mining, agriculture, and manufacturing, a healthy
new tit of cenital outlays accomented and followed the
Government's deficit spending. But the heavy ussrs of
-- the railroads, electric utilities, and the housing
-- responded feebly. The railroads constitute a
industry, losing traffic to pipe lines and trucks
2:0 one hand, and imprisoned by bad financial structures
on X other. The electric utilities have passed their
of yorthful growth; their equipment demeciates slowly;
MNC Tain retes are not low enough to tap the large volume
: metential demand which could justify rapid expansion of
200 naistal investments. In the field of housing, the
Larina down of the population growth; the depression-created
tion from urvan to rural districts and postponement of
the high-cost méthods 02 single dwelling construc-
Tion: and the unattreotiveness of slum cleerance and low-cost
musing to private canital, have been responsible for the
of housing thus far to absorb its former share of
the country's savings.
The comprehensive remedial program proposed by the authors
includes:
(I) A continuance of the new deficit spending program
until the national income rises to prosperity levels,
131
Sccretary Morgenthau - 3
(2) A permanent policy of increasing consumption
throis B. redistribution of income achieved by both taxation
and expenditure. Among the specific recommendations are
(=) the abandonment of the Old-Age Reserve Account and the
encement of full benef't payments to the present aged
icediately; (b) Federal subsidies for education, health,
one other social security services, and a liberalization of
wesployment compensation systems; and (c) a permanent WPA
nivrys ready to give useful work to all the unemployed. The
consumption phase of the program 18 to be financed by "the
effective texation of undistributed corporate earnings"; the
camlete elimination of tax-exempt securities; the plugging
an 0. All means of tax evasion; and a moderate increase in
surtex rates in the middle brackets, as well as by the
increased revenued arising out of the expected growth in the
milonial income.
(5) A Federal investment program with a core consisting
of e 50-year plan for rehousing and rebuilding the country;
eag including clum clearance, conservation work, the provision
2: additional facilities for education and health, and the
Wirchase, reequipment, end operation of the railroads. This
is to be financed by Federal borrowing.
Comment
The book obviously covers a. wide and controversial
field. Among the various issues reised, only one will be
commented upon here -- the indefinitely prolonged expansion
as the Federal debt contemplated by the authors.
The encient Hebrews minimized the problems of private
Indebtedness by their practice of the Jubilee Year every
reventh year when debts were forgiven. In more recent times,
Refault, bankruptcy, and the writing down of debts have
unerated powerfully to reduce the burden of private indebted-
need to tolerable proportions. Governments have frequently
the problem of their own debts by sweating, clipping,
otherwise reducing the metallic content of gold and silver
001118, and by other means of inflating prices, such as the
amission of large amounts of paper money.
Governmental debts differ from private debte in the
Jespect, among others, that public debts cannot be defaulted
or "adjusted" downward without involving the stability of
the currency or the good faith itself of the government. The
132
Secretary Morgenthau - 4
Government debt cannot move steadily upward for an indefinitely
IONE neviod without growing to astronomical proportions. The
authors of the subject pamphlet write in terms of several
billions 8 year of Government investment, most of it to be
raised by borrowing. If the present Federal debt of about
840 billions were to rise each year by only 3 percent, our
ennual interest charges alone would exceed $23 billions in
100 years, and $443 billions in 200 years. The authors
neglect this among other aspects of the subject; and fail to
any just why the Government cannot take what it needs for
investment nurposes by taxation, as it has done in the past,
rather than by borrowing.
Unclassifier
133
REB
GRAY
Paris
Dated January 5, 1939
REC'd 2:25 P. m.
Secretary of State,
Washington.
22, January 5, 5 P. m.
FOR THE TREASURY.
The Exchange market has been very arratic today.
Sterling opened around 176.60, and at the close of the
official market stands at 176.65 after 176.75 high. It
BEEMS that the fund operated both ways, in London but
that it did not enter the market here. The forward rate
is at par for one month and at 30 centimes for three
months.
The security market was more animated and cheerful
and rentes gained about one franc.
The Bank of France statement dated December 30 pub-
lished today shows practically no change in the gold
reserves. Commercial advances are up 440 millions. The
note circulation increased 2,404 millions. Deposits are
down 1,543 millions. The Treasury account is down
831,000,000. The percentage of gold cover is 61.63 com-
pared with 62.01.
(END SECTION ONE)
WILSON
RGC
CSB
234
REB
GRAY
Paris
Dated January 5, 1939
Rec'd 3:15 P. m.
Secretary of State,
Washington.
22, January 5, 5 p. m. (SECTION TWO)
Referring to the depreciation of starling regret is
EXPRESSED in the financial column of the FIGARO that the
franc has been allowed to fall in relation to the dollar
and the view is put forward that in order to encourage
the further repatriation of capital the franc should on
the contrary be kept stable "in relation to the only
standard of value, namely, to gold, and therefore, to the
dollar". The LONDON TIMES carries a message from its
correspondent at Paris drawing attention to this statement
in connection with his impression that the Exchange policy
of Deladier and of Reynaud differs. This correspondent
states that some of the new technical advisers attached
to Reynaud's office contend that the franc is now so
strong that it ought no longer to be too intimately
associated with sterling on account of the "Evident" weak-
ness of that currency. These advisers he states contend that
de facto
Regraded Unclassified
135
REB
2-#22, From Paris, Jan.5,5p.m.
dE facto reattachment to gold, through the dollar is the
only WISE policy. On the other hand, according to this
correspondent "the authorities associated with the
Ministry of Finance are convinced that this view is
fallacious".
WILSON
CSB
Regraded I Unclassified
136
REB
GRAY
Paris
Dated January 5, 1939
Rec'd 3:39 D. m.
Secretary of State,
Washington.
22, January 5, 5 P. III. (SECTION THREE)
-
Three decrees WETE published in the JOURNAL OFFICIAL
today granting tax relief to assist the investment of
capital in home industry and to assist the export trade.
The first decree authorizes a 50% Exemption for 2 years
from the coupon tax on all bonds issued before August 1
by companits for the purpose of renewing or Expanding
their plant. The second Exempts from the payment of
income tax all interest on loans raised to discount bills
issued by foreign governments in payment of French would goods
or services, The third provides that companies which (?)
normally COMES under, to an End this year but which nevertheless
continue in being, will pay a raigstration fee of 1/4%
instead of 3-1/4% on capital increases made during the year.
WILSON
JRL
137
REB
GRAY
London
Dated January 5, 1939
Rec'd 3:30 P. m.
Secretary of State,
Washington.
RUSH
20, January 5, 6 P. m.
FOR TREASURY FROM BUTTERNORTH.
Reports have begun to circulate in the city today to
the general Effect that the Bank of England will shortly
make further restrictive requests of London financial
institutions. The rumors vary as to whether they will
include e closer scrutiny of forward exchange transactions
ns well as apply to spot and forward gold dealings. In
this connection reference is made to Catterns' statement to
be found in paragraph Eight of my 1471, December 28, 7 p.m.
I understand that the Bank of England has summoned the
financial Editors this evening and it will be in connection
with the above and also probably in connection with the
transfer of the pounds 60 million of gold from the fiduciary
issue of the Bank of England back to the equalization fund.
I know that it has been planned to take this step as soon
25 possible.
In
138
REB
2-#20, From London, Jan.5,6p.m.
In this atmosphere of rumor the dollar has fluctuated
within a wide range -- 4.62-7/8 -- 4-1/4 and despite con-
siderable bidding from New York and some covering has on
balance been offered. The market has been jumpy and
large dealings have been difficult to accomplish. The
three months' dollar moved in to 2-1/4 closing at 2-3/B.
Gold was fixed at 150 shillings 1 penny and of the 225
bars dEalt in 42 WERE married and 60 supplied by the
British fund.
The franc has fluctuated between 175.65-68 with the
Bank of France bidding for sterling at .65 and obtaining
small amounts.
JOHNSON
WWC
CSB
Regraded Unclassified
139
AC
GRAY
Paris
Dated January 5, 1939
Rec'd 5:18 p.m.
Secretary of State
Washington
22, January 5, 5 p.m. (Section Four)
A statement is published in the financial press that
during the last few days the Governor of the National Bank
of Yugoslavia has had several conversations with Reynaud
and Bonnet, and that the Governor has left Paris for Saint
Horitz to inform the Prime Minister of Yugoslavia, who is
staying at the Swiss resort, of the results of these
conversations. It is added that the negotiations concern
the intensification of commercial Exchanges between France
and Yugoslavia and the connected question of the SErvice
of the debt of Yugoslavia to French holders which is now
governed by an arrangement which expires next October.
It was also announced in the press today that repres-
Entatives of the Rumanian Government will soon arrive in
Paris to resume negotiations with respect to the loans of
the autonomous monopolies fund, and that similar negotia-
tions are to DE undertaken with Germany, Great Britain, and
the United States.
(End of Message)
WILSON
RR
140
January 5, 1939.
5:45 0.m.
Archie
Lochhead: Hello. Hello.
Operator: Hello, Mr. Butterworth.
$, J.
Butterworth: Hello.
L:
Hello, Walton.
3:
Hello.
L:
Hello, this 18 Archie.
in
Hello, Archie. How are you?
L:
Fine, Wayne is here with me. The Secretary le on a
vacation down in Florida.
B;
Who 1s?
3
The Secretary.
B:
I see.
, i
So, Wayne and I are here just now on the wire.
B:
stopped at the White House
L:
I see, yes.
in
In the first place, BB you know, the market hes been
filled with rumors about this request.
L:
Yes?
E:
It's gotten -- the speculative group- the third and
fourth hands and -- and -- and there's been B lot of
talk about it. The request has been made though.
L:
I see. Now, Just at this moment, I tell you -- on
January third the Bank of England called up --
B:
Yes.
L:
Federal, and gave them these -- different things they
were going to do.
B:
Yeah.
L:
And then they said they would be confirmed to Mr.
Morgenthau by cable.
E:
Yeah.
141
3
So in the main we have, I think, the -- the three
different things.
#:
Yes, quite. Now there's -- there's another thing though,
I have just been in touch with the British Treasury, and
they have told me that tomorrow they are taking all the
gold in the Issue Department of the Bank of England with
the exception of the hundred and twenty-six million
pounds whic. WEB in British possession after they went
off the gold standard in September, 1931 --
D:
Yes?
5:
All the gold -- all the gold, with that exception, will
be transferred from the Bank of England to the Equaliza-
tion fund.
L:
: see, what does that mean roughly, about sixty million
pounds at the old rate?
At the old rate it's about two hundred million bounds.
1:
They are taking everything -- they are taking not only
the sixty million, but they are taking -- I mean, but --
they are taking everything.
nt
You see, on -- on -- in their statement on December 29 --
Lt
Yes
B!
Had At the old rate, three hundred and twenty-eix million
pounts in the Issue Department.
:-
In the Issue Department, yes.
B:
And they are Leking -- they are only leaving a hundred
and twenty-six in there.
L:
I Bee. They are taking out two hundred million pounds?
Yes, at the -- at the old rate.
L:
At the old rate. So that's really -- you will have to
add on about another sixty million, That's pretty near
-- well more than that.
B:
Million.
Lt
Yes.
Yes, That is going to be announced at about four o'clock
tomorrow afternoon,
- 3 -
142
L:
About four o'clock tomorrow afternoon --
B:
Until then it's a secret.
L:
I see,
9:
The object of the transfer of such a large amount is to
make it clear beyond any doubt that the exchange fund
*111 be in possession of sufficient resources to meet
any call on 1t.
L:
Yes, I think that 18 going to be rather A surprise to
the market, that they are taking out RO much. It looks
like a good idea,
8:
And -- well, that's the 1dea. They want to make & play
for -- that all the resources that they have acquired
since 1931 are right there at their die 0881 and they
ropose to use it.
61
I think that's a very strong etep.
you, then, on -- on Saturday morning -- Archie?
I
Yes?
8:
An -- it will be announced that the Treasury has made e
increasing the fiduciary note issued to four
hundred billion pounds, and 10 will also be ao ed that
the Government intends to introduce legislation to amend
the Surrency and Bank Notes Act of 1928 when Parliament
reconvenes.
: see.
No announcement will be made 28 to the terme of the
legislation.
As to the terms!
Ae to the terms,
Yes. oh, the terms, yes.
It will be -- it will, in fact -- could be fiduciary
Lssue on 8 freeh permanent basis. That 18 to BAY that
the valuation of gold at eighty-five shillings an Junce
vill be changed and the normal fiduciary issue of two
hundred and sixty millions will be revised.
L:
I see. And that's going to be announced on Thursday
143
- 4 -
B:
What?
L:
On Saturday?
B:
That's on Saturday morning.
L:
On Saturday morning.
B:
Hello?
L:
Yes.
B:
Hello? Now, they expect that this reference to
new legislation will provoke a great deal of dis-
cussion and a great deal of speculation in the
press as to what it means.
LI
Yes?
B:
You got that?
L:
I got that.
B:
And it will be about a month before the matter
comes up before Parliament.
L:
Yes.
B:
And they've -- they've particularly asked that we
keep "mum" about it.
L:
To make no comments at all about it.
B
No comments at all, because they'd be merely embar-
rassed if a recap to their attention should have
come from Washington.
L:
I see. Well, I think you can be sure of that.
B:
Give them all the assurances we had in the box on that.
L:
That's right.
18
Ah -- now -- I asked them a couple of questions about
this, and I said was their intention to fix it -- to
come to a fixed gold price.
L:
Yes?
B:
And they said definitely not.
L:
Even though they are going to change the valuation.
Regraded
Unclassified
- 5 -
144
That's right. They said definitely not,
L:
I see.
He has decided exactly what they would work out about
it, They were going to da that in the course of this
next month.
L:
I BEE.
21
But one suggestion to him, for instance, would be to
value the 8010 remaining in the Bank of England at --
at e market value of which could be subject to periodic
change, if any, you see?
L:
Yes
in
And --
L:
Hello.
6:
Hello, wait B. minute. (Pause) And I also asked them --
ah -- what about the gold profit end BO on, and they
SA10 there was no question of
the gold
profit beyond the expenditure of undertaking any ro-
cedure that could be interpreted 88 discretionary.
I see.
Right?
L:
I get it, yes. Well now, as far 85 I -- this 1s just
advance notice ES to this gold trensfer, and the main
thing is they are letting us know but they want to meke
absolutely sure that we don't make any comments on it.
That's right.
L:
That's understood.
And particularly 88 to the -- the most confidential
part 1s 88 to their intention of legislation.
L:
Yes.
3;
This rather cryptic statement will be issued on Satur-
38y morning saving they are going to amend the Currency
and Banking --
I see.
71
Note Act, and I gether between ourselves that there's --
there's -- they've had B meeting which h88 been lasting
Unclassified
9 # I
145
all day today, and, in fact, I didn't get over till -
self. to the Treasury until about a quarter past eight my-
T:
Yes, I see,
in
showed complete agreement as to the
wisdom of coming out with such a statement without any
explanation, but anyway that's the decision.
Lt
I see, but the main thing is, say tomorrow morning or
tomorrow afternoon they are going to announce the
transfer of the two hundred million pounds?
B:
At four o'clock tomorrow afternoon they are going to
announce the transfer of the gold.
L:
I see.
Saturday morning they are going to make this state-
ment sbout -- about subsequent legislation.
L:
Yes. Yes.
B:
Subsequent legislation, they don't -- they want parti-
cularly to guard against any comment coming around
about what their intentions are because they know
that's going to provoke a lot of speculation in the
press.
L:
Yes.
B1
Right?
L:
Yes, just one second, please. (Talks aside)
Hello.
B:
Yes?
L:
Wayne wants to know, have they given any indication
whether on Thursday or Saturday they are going to
mention the - the increase in their fiduciary issue
to four hundred thousand -- to four hundred million?
B:
Ah -- yes,
in
They will -- they are going to mention that?
B:
That's on Saturday morning.
L:
On Saturday morning they are -- they are going to
mention it -- they are going to increase the fiduciary
issue to four hundred million pounds?
B:
The fiduciary note issue to four hundred million.
Unclassified
146
- I ,
51
I see, they will announce that?
9:
Announcing at the same time about new legislation.
L:
And making other legislation, I see.
That's on Saturday morning.
L:
Saturday morning, right. Well, that's -- that's quite
& -- quite a 018 decision they made this week then?
Hello?
9:
Hello,
L:
I think the market here you see 16 prepared -- was
crepared for them to take out the sixty million pounde.
B:
I know. That's what they are here to.
L:
yow that they'll pay it, but I think it's going to be
rather a surprise when they take out this other large
amount.
B;
I agree.
24
But I think it may be interpreted they are taking 8
gamble. Of course, if they -- this will show strength.
3:
Yes,
L:
And I nope it comes that way, because to tell the truth,
the rumors that came over today about the restrictions -
3°
Yes.
Lt
Strengthened the market a little bit.
B!
Yes.
L:
Now, the theory WES here, of course, that they might
weaken. It would be -- because there would be a sign
of weakness,
::
Yes.
L:
But they die strengthen that,
E:
Yes.
L:
Now, there 1s one thing I want to ASK you -- when the
Bank of England mentioned that they were going to have
the complete embargo on forei gnlending and -- and on gold
operations and supervision of exchange transactions --
247
B I I
in
I couldn't hear thet, Archie.
DI
The Bank of England told the Federal that they were
going to take these steps: to put an embargo on -- the
embargo onforeignlending, which has already been teken,
end then that they would scrutinize and reject any
transaction of exchange which they believed WRE specula-
tive in origin.
in
Right.
And also complete embared on forward gold dealings.
Right.
"low - an -- they mentioned in that case that they --
let's see, somewhere along there, that they were going
to write to the other central banks. This program WE
going to De communicated to the central bance of the
tripartite countries by letter tonight, and they were
zoing to DE Reked to inform their banking institutions
A9 to -- an to get their support.
Yes.
You there are certain rumors coming out -- one of --
unsuthorized here that the Treasury knew bout this and
BR10 that we were going to 0,0 certain things.
Yes.
Now, of course, there's no doubt that we will give 8u.0-
brt and cooperation, but we don't want to go into any
terms E P to what -- what form that will take,
Right.
L:
Because I think we'll look it over, but h8 fer 88 you
know they haven't asked us anything definite on that?
They didn't out anything like that u.s to you?
in
No.
-1
All right, well, that's 0. K.
3:
the rumor that came over on
the
you see, which saió that they -- the
countries were all going to take the same
step.
L:
Yes.
3:
which, of course, is nongenee, because we don't have A
free gold market.
148
- 9 -
L:
Right. Right, we don't have a free gold market. Not
only that, but of course we probably -- we always
scrutinize every transaction, but I doubt whether we
would want to put out letters to all the banks telling
them not to do it. I think we'd rather do it informally
if necessary.
:
Ah -- because -- between ourselves, when the squeeze -
when I got back here, I gathered that -- in talking
around that B. couple of our banks had been pretty --
pretty active in bidding her sterling deposits
L;
Yes.
B:
Particularly the Chase.
Yes. Well, the point will be then that if me -- if F2
looked up -- if "E find snything definite, we'll pro-
bably go after it, but I don't think we want to go out
end out out any regulations or anything just now.
18
No. Possibly Knoke can DABE the word around to them
then.
::
If necessary, yes, but the Federal has -- is not Hoing
anything yet, you see, because we haven't anything
direct.
B:
Good !
Ah -- just a second. (?ause)
Mayne was saying -- he just mentioned that he -- he
interprets this new move to be B? broad that it may
not be necessary to take some of these other steps.
in
Yeah.
Ann this question about putting all the 8016 into the
fund and --
On these two things 88 rether jointly -- 88 joint
actions.
Yes, yes,
They are inter-related.
Yes. well, they are inter-related. As I Bay, the hope
will be that this -- that this transfer of gold on such
a big scale will probably stop -
Yes,
L:
Some of the speculation,
149
- 10 -
Bt
Yes.
D:
Well now that -- we have taken note of this all, and
I don't know of anything else to ABK you -- and if
there's anything further we'll get in touch with you,
and naturally we will give out nothing here At all -
or no comments.
9:
Right. oh, Archiel
3
Yes?
3:
There are things, while I have you on the ohone, that I
wight mention.
L:
Yes?
B:
Ah -- Clay. you know, who 18 the economic --
::
Yee.
of the Bank of England --
Lt
Yes.
B:
Is seiling on January 27th.
L:
Yes.
in
He 18 going for a couple of weeke to Canada and then he
is going to be in Princeton on -- a month or BO.
17
: see,
B:
He will go to New York and come down to Washington, end
when in Washington he will get in touch with Goldenweisen
L:
I see. That's right, That will be the proper channels.
He'e a Bank of England man,
3:
Which all means that you and Wayne and possibly the
Secretary should see him.
1:
I see. Well, if he's down here, and if he seee Gol-
denweiser they can errange whatever is necessary st
that time.
B:
L:
But I think it's the best thing for him to make his
contract with the Federal Reserve BS long 8.8 the Bank
of England
11 I I
150
#:
that he's coming, --
L:
Yes.
as
And be sure not to miss him.
L:
J. K.
el
Now there is one other thing -- an -- 1f this exchange
carket settles down I think if you -- if you and Wayne
have no objection -- ah -- I don't know when, in three
or four weeks, or a month, or B ) -- I may go us and
take B look et the north of England.
At the north of England,
Hello?
Yes.
Ah -- Clay suggested that, and also to give me letters
to some of the leading peoble up there --
I see,
B:
Their situation 16 pretty spotty and pretty mixed, and
I would always be within about three hours of London,
end of course could always telephone.
Yes. "ell, that's something, BE I say
It's
nothing that you are going to do within the next week
or 80,
8:
Oh, no. I don't intend to do that.
Yes.
Just as soon as there's a pause.
Yes.
9:
I think I may nip off there and just SP Around
Liverpool and Glascor & little bit and see what --
let
Yes, well, you might get a little different elent on
taings.
B:
Hello?
3
I say, you might get a different slant on things.
in
Does that sound sense to you?
12 I I
151
5:
No, that sounds all right here.
in
I Just thought I a -- I'd tip you off that I've got
that idea in my find, and naturally I'll consult you
8281n before I move out.
Fine, that's right. Before you -- before you go ahead,
let ue know. "e can always give the authorization if
necessary --
B:
Fine. I just thought I'd put it in your eyes SO you
could think about it.
in
Right. Now, just one second.
Anything else?
à
Just 8 moment. (Pause)
Hello. Wayne said that this will be passed on to the
Secretary in person because we'll have him on the wire
in the morning.
B:
Yes.
L:
And in the meantime we want to ass along -- I mean,
have you give the usual thanks to the Treasury for
giving us this advance information.
3:
All right, I will.
L:
And to 82y that the reaction here -- the first resction
seems to be very favorable.
a
Good, good.
L:
All right then, Welton.
Right.
Fine.
Give my best to "ayne.
We'll do that. O. K. Good bye.
152
JR
GRAY
London
Dated January 6, 1939
Rec'd 8:50 a.m.
Secretary of State,
Washington.
TRIPLE PRIORITY.
21, January 6, noon.
FOR TREASURY FROM BUTTERWORTH. Strictly confidential.
One. Confirming our telephone conversation of last
night, the British monetary authorities informed me last
evening of the following steps which they are taking:
(a) It will be announced at 4 o'clock this afternoon
London time the transfer from the issue department of the
Bank of England to the Exchange Equalization account of some
pounds 200,000,000 of gold valued at the old statutory
price of 85 shillings per ounce, There will remain in the
Bank of England some pounds 126,000,000 valued at B5
shillings an amount which is roughly equivalent to the
amount of gold in the possession of the Bank of England
when it abandoned the gold standard in 1931.
The object of the transfer of so large an amount
Instead of the contemplated pounds 60,000,000 is to attempt
to impress the market that henceforth the account possesses
ample
153
-2- #21, January 6, noon, from London,
ample resources to meet the call upon it and that all the
gold resources acquired since 1931 are available for that
nurpose.
(b) On Saturday morning it will bE announced that
the British Treasury has made & minute increasing the
fiduciary note issue to pounds 400,000,000. It will also
be added that the British Government intend to introduce
lagislation to amend the Currency and Banknotes Act of
1928 when Parliament reconvenes, No announcement will be
made as to the terms of such legislation.
The primary objects of the contemplated legislation
are 93 Explained by telephone. The British Treasury
realizes that its enigmatic announcement will provoke
much discussion and speculation in financial centers and
in the press during the month which will ENSUE before
such legislation is introduced and therefore they are
most anxious that no inadvertent leaks should occur.
I took the liberty of giving them every assurance on this
cint on our behalf but to indicate how important they
deem it I might mention that the British Treasury telephoned
me again this morning "to make sure they had made clear
how crucial secrecy was".
JOHNSON
HPD
154
5(f)
OCTIVE BANK
or NEW 105
ESPONDENCE
DATE
January e, 1939
CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF FRANCE,
I called Mr. Cariguel at 10:07. Sterling was 4.64 1/8
in Paris at the moment after 4.65 5/8, evidently because people
on the Continent were skeptical as to the steps taken by England
although he himself heartily welcomed them. I ssked whether, in
accordance with the British request, the French authorities had
approached the French commercial banks and suggested that they
refrain from speculative operations in exchange and gold. People
in France, Cariguel replied, did not make loans against gold, that
business being done entirely in London. The French authorities
had not taken any stops yet because Governor Fournier only came
back this morning and Cariguel had not as yet consulted him. I
suggested that I would like to keep in touch with Carigual and
learn what they ultimately decided to do and Cariguel promised
that he would let me know.
LWKIKW
Regraded Unclassified
to
19(e)
FEDERAL RESERVE DATE
OF NEW TURK
OFFICE CORRESPONDENCE
January e, 1930.
DATE
CONFIDENTIAL FILES
TELEPHONE CONVERSATION WITH
SUJUECT:
L. V. Knoke
BANK OF ENGLAND.
Mr. Bolton called no at 12:25. There was a certain smount
of excitement in the London exchange market; he had pushed the rete
up to the present level of about 4.68, spending about $4,000,000.
There was one thing on his mind, he continued: would we carry on and
prevent sterling from falling below 4.66 efter London had closed,
by buying any amount offered, for their account, at 4.667 He was
going to give a similar order to Switzerland, which opened two hours
shead of London in the morning, 8.5 he was very enxious to have the
dollar open in London tomorrow morning at 4.68 or weaker. On the
selling side he would leave it entirely to our discretion
at what level we should operate. Would we also give him in our
cable tonight an indication of the reaction in the New York market
which the news from London had brought on?
LWK:KW
Regraded Unclassified
156
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 6, 1939, 5 p.m.
NO.: 34
FOR THE TREASURY. STRICTLY CONFIDENTIAL.
A member of the Embassy staff saw our friend at the
Bank of France this morning, and in view of the interest
attaching to the story published in the TIMES and summarized
in my telegram of January 5 (No. 22), he mentioned the
matter to him. Our contact said that the indications given
in the story were substantially correct. He also said
that for some time the Paris correspondent of the TIMES
had been au courant with the campaign which certain of
Daladier's technical advisers had been carrying on for a
new policy as regards exchange. Our contact had received
e telephone call last evening from the TIMES correspondent
who explained that in the interest of sterling he had
decided the time had come to publish the information he
had.
Then our contact indicated very confidentially that
a powerful group of speculators with Mendelssohn at the
head had for some time been using all the influence they
could in order to bring about a change of attitude on the
part of the French officials who have charge of French
exchange policy, and to abandon sterling for the dollar.
He added that about a month ago strong efforts had in fact
been made by the aforementioned group to bring about the
ES7
a I -
removal of our contact because he was determined that he
would hold the franc to sterling. He was firmly convinced,
he said, that had the French left sterling, this currency
would have suffered a vertical fall. This he felt sure
would have been a calamity for all the powers, not for
Great Britain alone. He was determined he would support
his policy as long as he held his position at the Bank of
France. He added that the Governor of the Bank of France
AB well as the Finance Minister entirely agreed with him
in this respect.
Our contact explained that the Figaro article (to which
I referred in my telegram) had been published at the
instance of the financial editor of that paper, Legueu -
the latter being one of the technical advisers to Daladier
who received his appointment through the influence of
Mendelssohn and Rueff (the Paris representative of Mendel-
ssohn had no connection with Rueff of the Treasury) because
he might aid them in their campaign of speculation. The
opinion was expressed by our contact that Daladier was not
in agreement with the views of Legueu and certain others of
his advisers regarding a change in exchange policy, and
that Legueu had taken advantage of the absence of Daladier
from Paris to publish what he thought should be done.
END SECTIONS ONE AND TWO.
WILSON.
EA: LWW
Regraded Unclassified
158
EG
GRAY
Paris
Dated January 6, 1939
Rec'd 4:08 p.m.
Secretary of State,
Washington.
34, January 6, 5 p.m. (SECTION THREE)
After referring to the renewal in London of
unofficial embargoes on speculative transactions
in gold and foreign exchange with a view to com-
bating the weakness of sterling, the TIMES of to-
day editorially refers to "s fresh outbreak of con-
tinental pessimism" towards the British currency,
and observes that the combination of European poli-
tical anxisty which has been driving European funds
to NEW York for almost six months past and the re-
vival of domestic confidence in France which has
caused the withdrawal of French funds from London to
Paris provided fertile soil for the spreading of
pessimistic talk regarding sterling's prospects. The
Editorial stresses the unfortunate consequence which
weakness of sterling in terms of the dollar might have
at the present juncture in addition to the effect a
sharp fall in sterling might have on thE Anglo-American
trade
Regraded Unclassified
159
-2- #34, January 6, 5 p.m. (SECTION THREE) from Paris
trade agreement. The editorial goes on to say that
"the weak trend of sterling is leading to the Emer-
gence of a school of thought in Paris which favors
the abandonment of the stable link with the franc
and sterling in favor of link with the dollar; and
It would certainly bE a damaging setback for both
countries since their Economic and other interests
are 30 closely bound together, if their currencies
should once again become divorced."
WILSON
JRL: EMB
Regraded Unclassified
160
EG
GRAY
Paris
Dated January 6, 1939
Recld 4:20 Patte
Secretary of State,
Washington,
34, January 6, 5 pame (SECTION FOUR)
The Editorial then suggests that not all the talk in
Paris in favor of abandoning the sterling link can bE
regarded as wholly disinterested as such a development
would certainly have a depressing Effect on sterling and
would be strictly in accordance with the interests of the
speculative fraternity. On the other hand, the TIMES
points out that there is another school which is genuinely
disturbed at the fall which has taken place in the franc
in terms of the dollar, and thus of gold which contends
that this deters Frenchmen from repatriating their funds
and that the adoption of a stable link with the dollar
would encourage them to do 80, The TIMES does not consider
this argument very cogent contending that facts show that
French repatriation is primarily governed by the degree of
confidence in the French Government's domestic policy.
WILSON
ROW:EMB
Regraded Unclassified
161
TIRE
GRAY
PARIS
Dated January 6, 1939
Rec'd 4:30 pame
Secretary of State
Washington
34, January 6, 5 Dame (SECTION FIVE)
The exchange market under the influence of the new
measures taken in London to protect sterling was hectic
and irragular. Sterling opened at 176.80 and is now quoted
at 176.64 after 176.93 high. It is at a discount of about
ten centimes for one month and at par for three months.
The security market was unsettled and nervous, being
influenced to some extent by reports of serious disorder
on the Hungarian-Czechoslovakia frontier.
In connection with the measures decided upon in
London, AGENCE ECONOM IQUE of today announced that it 1a
authorized to state "that the Bank of France, in complete
agreement with the Minister of Finance, will continue its
Effective and confident collaboration with the Bank of
England as in the past and that furthermore the principal
French banks will join their afforts with the central
bank so as to provide the London authorities with a united
cooperation."
(END OF RESSAGE)
WILSON
ROW :EMB
Regraded Unclassified
Junuary 6, 1939
Under Secretary Tabes
A. Tochhead
Texterday evening Butterworth called free London and advised that
he had been requested by the British Treasury to convey the following
information to Secretary Morgenthaut
(1) At is o'cleck this afternoon they will announce a transfer of
gold from the Bank of England to the Equalization Fund. They had
originally intended to transfer 60 million peunds, but have now decided
to transfer all the gold acquired by the Bank of Ingland since they
want off the Gold Standard in 1931. They are taking all the gold in
the isone department of the Bank of England, with the exception of
126 million pounds which was 1z British possession after they vent off
the Gold Standard in September 1931. This transfer will amount to
200 million permits at the old rate, or roughly 350,000,
current gold levels ($1,700,000,000). the object of the transfer of
such a large amount is to nake it clear beyend any doubt that the
Exchange Fund will be in possession of sufficient resources to nest
any call on it.
(2) On Saturday it will be announced that the Treasury intends
increasing the fiduciary lesse from the present level of 260 million
pounds to 400 million peunds and it will be added that the Government
intends to introduce legislation to amend the Currency and Bank Bote
Act of 1928 when Parliament reconvenes. They will probably revalue the
gold in the Bank of England at that time from the old statutory gold
rate to something near the present market level, but this will not sean
that they have established 4. fired price for gold.
to they believe there will be a great deal of comment and speculation
they have requested particularly that BY nake no comment on it on this
side, as it might embarrase then to have various interpretations placed
an their actions before Parliament meets,
Unclassified
283
PARTIAL PARAPHRASE OF TELEGRAU RECEIVED
FROM: American Embassy, London, England
DATE: January 6, 1939, 6 p.m.
NO.: 24
FOR TREASURY FROM BUTTERWORTH.
One. British Treasury supplied the following text
of the press communique which will be published in Saturday
orning's newspapers:
"In connection with the retransfer which took place
yesterday (Friday) from the issue department of the Bank of
England to the exchange equalization account of pounds
200 millions of gold (i.e. pounds 350 millions at current
price) the Treasury, on the representation of the bank and
in conformity with the Currency and Bank Notes Act of 1928,
have made a minute increasing the fiduciary issue to
pounds 400 millions. This minute in accordance with the
law will be laid before Parliament. The Government intend
to introduce legislation when Parliament meets to emend
the above act of 1928."
Two. At the same time, I was apprised of a telegram
which is being sent Bewley, the substance of which is for
communication to you. He 18 instructed to ask among other
things for the cooperation of the Treasury in ensuring that
the American banks, both here and in the United States,
cooperate in reinforcing the forward exchange "request".
The following is confidential: It will yield results if,
during the course of your conversation with Bewley, you
184
- 2 -
ask him how the British fund fared during the period
November 32 - December 31.
Three. Following the meeting of prese representatives
called last night by the Bank of England as reported in
No. 20 of January 5, 6 p.m. today's newspapers announce the
"request embargoes" a.8 applying to all financial institutions
(one) to desist from forward gold dealings, and (two), to
withdraw loan facilities against gold, with the added request,
(three), to scrutinize foreign exchange dealings to eliminate
what are rather vaguely calld "undesirable transactions".
These requests are characterized as merely a reimposition
of the "embargoes" imposed in 1935 to assist France and
removed in May 1938.
The nature of the announcements and editorial comment
indicates that the press is complying with the British
authorities' desire that the measures be launched in a
favorable atmosphere, the steps being generally character-
ized as desirable and not unexpected, the only editorial
criticism being that the action might well have been taken
earlier.
That cooperation from other parties to the tripartite
agreement is assured is emphasized. The two financial dailies
quote the Washington Dow Jones correspondent's statement
that details of the United States Treasury's steps are not
disclosed but that it is assumed that use will be made of
the
165
- 3 -
the Treasury's banking connections and the close supervision
of foreign exchange operations by the stabilization fund.
Four. The dollar opened at 4.65 3/8, hit a low of
4.64 1/4 and after the gold transfer announcement it closed
at 4.66 1/2 with the bears being squeezed. The volume of
trading has been fairly large and the initial reaction to
the gold transfer announcement among exchange dealers is
favorable.
JOHNSON.
EA:LWW
Regraded Unclassified
186
Treasury Department
Division of Monetary Research
Date January 23, 1939
1938
To:
secretary lorgenthau
- is in memorandum on the Johnson Act and
de in our capital market, which has been
decroved by the Legal Division.
In n good deal of misunderstanding of the
- the Johnson Act prohibits exports of
11 RV therefore be worth your while to
11 when you have a little more time.
points out the numerous types of foreign 5
- valo to defaulting nations.
MR. WHITE
Branch 2058 - Room 200
Regraded Unclassified
16
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 6, 1939
TO
Secretary Morgenthau
FROM
Mr. White
subject: The Johnson Act and its significance in our
cevital market.
1. The Act:
Section 1. That hereafter it shall be unlavful within
the United States or any place subject to the jurisdiction of
the United States for any person to purchase or sell the
chas, securities, or other obligations of, any foreign
evernment or political subdivision thereof or any organiza-
-100 Association ecting for or on behalf of e foreign
creminent or political subdivision thereof, lesued after
the nassage of this Act, or to make any loan to such foreign
overnment, political subdivision, organization, or associa-
tion, except B renewal or adjustment of existing indebtedness
ahile such government, political subdivision, organization,
or association, is in default in the payment of its obligations,
or any cart thereof, to the Government of the United States.
Any person violeting the provisions of this Act shall upon
completion thereof be fined not more than $10,000 or 1m-
obtsoned for not more than five years, or both.
Section 2. As used in this Act the term "person" includes
Individual, partnership, corporation, or association other than
2 cublic corporation created by or oursuant to E scial authori-
202100 of Congress, or a corporation in which the Government
of the United States has or exercises a controlling interest
broad stock ownership or otherwise.
2. Section 1 prohibits financial transactions:
(2) By: any person (individual, partnership,
corporation, or association),
(b) Involving: any loan, except B renewal or
adjustment of existing indebtedness, or
the purchase or sale of any bond, security,
or other obligation,
Regraded Unclassified
168
Spondiry Morgenthau - 2
(c) Taking place: within the United States or
any place sub ject to the jurisdiction
of the United States,
(d) In the case of: any foreign government or
political subdivision, or any organiza-
tion ecting for or on behalf of such
foreign government or political subdivision.
(e) When: such foreign government (political sub-
division, organization, or association)
is in default in the payment of its obli-
ations to the Government of the United
States.
1, X for 88 can be determines, the political entitine in de-
Jult in the reyment of their obligations to the Government of
50 latted 501 tes are the national governments of:
watrie
Greece
Rumania
sevium
Hungary
Yugoslavia
Italy
Germany
Estania
Latvia
Nicaragus
Trusee
Lithuania
Armenia
not Britain
Poland
Mesia
E.
P.e Johnson Act does not present any serious obstacle to
event from the United States of Large amounts of cepital.
Inc firencial transactions prohibited by the Johnson Act are
I winse importance compared with the large veriety of financial
nametions which that Act does not prohibit, either because
shey nice deliberately exempted from the scope of the Act or
program its wording is so vague as to exempt them in effect.
This 10 true to such an extent the t if the Johnson Act had been
In 1920 instead of 1934 it would have prohibited, during
the min period 1920-1934, the flotation in this country of
my nseut $1 billion of securities of the above listed national
perchants. This amount of prohibited flotation would have
mounted to about 1/10th of the total flotation of new foreign
requesties in the United States, and taking into consideration
uni export of United States capital during that period the
of the Johnson Act would not have prohibited more
1/15th of that total.
The types of financial transactions with foreign countries
Stor are not prohibited by the Johnson Act are:
(8) New borrowing (by flotation of new securities
for direct loans) by a foreign government which
Regraded Unclassified
169
becriting
Morgenthau - 3
has defaulted on its obligations to private
citizens or corporations of the United
States (e.k., Chile may float new loans in
the United States).
(b) liew borrowing by foreign private corporations
or persons who are in default on their earlier
obligations to private persons or corporations
in the United States (e.g., 8 privately owned
Argentine reilroad in defsult on securities
owned by American citizens may float new
loans in the United States).
(c) New borrowing by subordinate foreign political
entities when only the National Government
Is in default on its obligations to the United
States Govern (e.E., Paris, Beveria, or
Manchester may floot new loans in the United
States). (It 19 not clear that the foregoing
is elso true in the case of BO organization
or association soting for or on behalf of &
foreign government or political subdivision
thereof). The Act likewise ellows new borrow-
ing by a Nat nel Goverment if only B political
subdivision were in default on its oblig tions
to the United States Government. However, this
18 unimportant as at one present there are no
defoulted obligations to the United States
Government of political subdivisions of foreign
nations.
(4) The purchase or sale of securitie B issued by
defaulting foreign polition 1 entities before
the date of passage of this law (e.g., American
citizens may freely purchase and sell English
consols or Belgian 6 percent bonds of 1955
Issued in New York in 1925, etc.)
(e) The purchase or sele of securities which repre-
sent renewals or adjustments, made after the
date of passage of this law, of securities
issued before the date of passage of this law
(e.g., Greek bonds issued in 1925 at 8 percent
may be converted into E. new issue of 5 percent
bonds in 1936; American citizens may freely
buy end sell the new converted bonds).
Regraded Unclassified
170
Secretary lörgenthau - 4
(f) The net creditor position of (citizens if)
the United States with respect to such de-
faulting foreign political entities may be
increased by menipulating the purchases and
arles of securities iseued before the date
of passage of the Act.
(E) Transactions of American citizens who are
not domiciled within the United States or
any place sub ject to its jurisdiction.
-:
Extng to faulty wording of the Act, and to the fact that
TE ve been AB yet no judicial decisions interpreting the
lot, there exists a certain doubt as to the meaning of certain
sections of the Act, especially the phrase "within the United
"Endec".
The following types of financial transactions possibly
life not prohibited by the Johnson Act:
(e) the authorization of agents outside of the
Jurisdiction of the United States, by persons
who are themselves bodily within the juris-
atetion, to purchase or sell in foreign
markets securities of foreign political enti-
ties in default on their obligations to the
United States Government issued efter the
ressage of this Act, or the authorizing of
such eyente to contract loans to such de-
faulting foreign political entities (e.g.,
American citizens maintaining balances in
London or Paria banks possibly may be (ex
ultied to purchase or sell securities of the
French or English Governments, insued after
the date of the passage of the Johnson Act,
such as the "Auriol ounde" or the prospective
Rational Defense Loan, or the Treasury Bills
and certificates of either government. Or,
BD American firm weintoining large oplinces
in London possibly may make loans to the
British Government from its balances -1th-
out violating the provisione of this Act). 1/
hile 15 18 entirely poesible that the phrase "within the
nited States" in Section 1 of the Johnson Act may be so
dountrued by the courts ES to permit transactions of this
"erreter, it is not inconceivable the such transactions
1111 De regarded 88 prohibited, particularly in view of
perpose of the Act to penslize defaulting debtors.
Regraded Unclassified
271
year Forgenthau - 5
(b) Such purchases or sales or loans by persons
who are ordinarily domiciled within the
jurisdiction of the United States, but made
while they are temporarily outside that
jurisdiction (e.g., on trips into the de-
raulting nations).
(c) The export of goods Dy private firms in the
United States, consigned direct to foreign
governments in defsult on their obligations
to the United States, with provisions for
short - or intermedis te-ter book credit
(e.j., the Italian Goverment, without the
use of any intervening privite Itelien import
spency, might buy United States cotton and
the United States exporting house might
otipulate the to reyment be made after thirty
or ninety days. Such 8 transaction might be
held not to involve either the nurchase or
st le of securities, or the making of e loan
within the meening of this Act.)
--ction 2 exempts government corporations from the opers-
the meaning of the Act:
Section 2 excludes from the provisions of the Act eny
lie currom tion created by special authorization of Con-
any corporation in which the Government of the
HAVES NAE or exercises 8 controlling interest. Such
-tons DC the RFC, the Export-Import Banks, the FCA,
presumably may under this authorization meke
foreign governments in defsult on their obligations
Inited States Govem Govemeent. In the House debate It was
out that Section 2 wes inserted by the Administration
-fler to permit loans to Rueste; invever, 12 W&E aleo
,hile it 18 entirely possible that the chrase ">1thin the
United States" in Section 1 of the Johnson Act mey be 80
\g\rued by the courts 89 to permit transactions of this
minuter, it is not inconceivable that such transactions
:11 be reparded as prohibited, particularly in view of
THE curpose of the Act to penalize defeulving debtors.
IL Ls to be noted the to while the Jchnson Act apperently dies
:- Apply to the Governmen t or to certain governmental Agen-
clas, and while the provisions of the Neutrality Act may
S: coply to the Government since it 18 not specifically to
when therein, advances of credit by the Government
colligerents in time of war probably would constitute 8
served that the immunity of the sovereign from legislation for
violation of international law. Moreover, it 16 to be ob-
undersily pressing ressons, particularly in & case where
not naming it ordinarily wald not be asserted except
such action would be in contradiction of E. national policy
cynneaely declared hv Congrass,
Regraded Unclassified
172
Pecretary Morgenthau - 6
or 11 out that the State Department and the RFC had given
untillois] assurances that no loans would be made to Ruseia
until some setisfactory reement had been reached with re-
rect to Ruesian debts to the United States end its citizens.
first Export-Import Bank, founded on February 2, 1934 -
:- Site on which the revised Bill passed the Sene te - WS
intended to finance United States firms desiring
export to the Soviet Union. In keeping with the assurance
to Con-ress, however, active operation was postponed, owing
5 1° nasence of any settlement of the Russian debt.)
in sesurances were given that new loane would not be
18 to countries other the Russia, while they were in de-
post on their obligations to the United States G vernment.
second Export-Import Benk, originally founded on March 9,
1.34, to wire loens to Cuba, later had its authority extended
D ver the financing of United States trade with all coun-
other than Soviet Russia.)
Regraded Unclassified
173
GROUP MEETING
January 6, 1939.
9:30 A. M.
(Held in Mr. Hanes' Office)
Present:
Mr. Hanes
Mr. Bell
Mr. Duffield
Mr. Foley
Mr. Taylor
Mr. Haas
Mr. Schwarz
Mr. Lochhead
Hhnes:
Three of them called me up.
Bell:
On what?
Hanes:
On the thing I called you about; you remember,
that the - the confusion that arose in their minds
when the President sent up his message about the
W. P. A. It was eight hundred seventy-five mil-
lion; you remember I called you on the phone.
And about three of these newspaper fellows called
up and said, "What in the dickens is going on
here? Seven fifty million in the Budget and
eight hundred twenty-five million dollars - they
just stepped it up a hundred twenty-five million."
I called Danny and Danny explained it to me, and
I called Steve Early and Steve Early said to
explain it to you and try to get it corrected.
Schwarz:
The boys made it clear, but some of them apparently
didn't attend.
lanes:
Is McReynolds coming in? Does anybody know
whether he is here? Never mind; don't bother.
Ed, Mr. Hathcock has been promoted, and he is
perfectly delighted with the promotion; thinks it
is perfectly wonderful of you and the other lawyers
down there to be so kind to give him this promotion,
50 I thanked him very kindly for his cooperation;
told him how happy we were to be associated with
him and how much we expected from him in his new
job.
Regraded Unclassified
174
- 2 -
Doll:
That sounds like the Budget - necessary that the
business men are entitled to know there Isn't going
to be any drastic reductions.
Mr. Hathcock has given the Bureau of Internal
Revenue one series of headaches. I think Mr.
Oliphant would probably get up and walk right out
of the hospital and come back here and go to work
immediately if he found out Mr. Wathcock had been
promoted. He is the fellow - I wanted McReynolds;
I wanted to have all of you know just what this
thing was, because I have talked with the Sec-
retary about it on at least two occasions; I have
talked to Herman about it nt great length; Herman
and Herbert Gaston, and I had a meeting on it one
night that lasted for two hours; I guess it was
out at my house, and they were awfully discouraged
about this fellow, because he seems to have had
some - I don't like the word 'political influence,'
but I guess that's probably the word that fits
best - and he's been running down to this political
influence, and saying things about the other members
of the Department; that they were thieves, and so
forth, and told what was said about Phil Wenchel;
that he was just a damned incompetent. Anyway,
what he has been - he has been on these cases
down there that Phil and Ed Foley and Terman too
all say they can't get anything through the Depart-
ment. It comes up to him and there it stops. Vie
have got cases down there - we've got, oh, I guess
eight or ten railroad cases down there which Terman
gave ne a list of - some of them eight, nine, and
ten years old, and he is fighting with the
engineers, and the engineers now are so and at him, -
there is one engineer down there that you have to
60 out of your way not to get along with, he is
such of nice fellow. He is all cut of sorts, and
every time he sends of recommendation to him, he
says it is no good, and sends it back, and back.
You've got twenty million dollars - admittedly
four million due the railroads. Jesus Christ,
the railroads are in bad enough shape without our
adding to their troubles; so we can't get any work
done.
Ed Foley and Phil Wenchel thought this fellow
needed a promotion. We've got a seven-man board
down there - what is it called?
Regraded Unclassified
- 3 -
175
Poley:
Processing Tax Board of Review, which pays
seventy-five hundred dollars,
Henos:
So we found he is only getting seven thousand,
so they suggested we give him a promotion. I
called him up yesterday and told him how happy we
were to give him this diploma, and he is really
pleased to death.
Foley:
It's a bad situation; he's been in the Bureau
twelve or fifteen years; he is an honest fellow,
and he believes well, but this thing is becoming
an obsession with him. He is just a cancer in
the Bureau; he has one theory and the engineers
have another. It's gotten to the point where the
engineers won't speak to him. It's getting to where
nothing is being done. lie have to pay six per cent
on the refund from the time the tax is paid until
the time the refund is paid. We are borrowing
money at two and a half, and two and three quarters,
and paying six per cent.
Hanes:
I signed one the other day for a hundred and forty
thousand dollars for interest. Juda's Priest, I
said to Commissioner Helvering, I said, "Listen,
Guy, fun is fun, but this is carrying a Joke too
far; this is the last time I am going to have
anything to do with it. I am - I won't have any-
thing to do with it; I an not going - it's the
last one," and Guy said, "Well, we can't get the
work through; here is the stoppage." I said,
"Let's clean it up. We've got to go on; we can't
wait for somebody here for ten years; that is
robbing the Government."
On that basis, I'd like to give the Government
two or three thousand dollars over-payment of
taxes and get a good six per cent investment.
Taylor:
That is one of the best trades I ever heard of;
five hundred dollars a year for two hundred
forty thousand.
Bell:
When the Ford tax suit was on, some lady in
Detroit had an assessment against it; she's the
only one that over paid a tax. She paid the tax,
and then got her three million, with interest.
She was smart.
ITE
4
Hanant
I tell you who told me about it; you know
Randolph Paul?
Poley:
Yes.
Hendor
Randolph Paul, and Ros Magill, and that crowd
of tax lawyers that meet at some tax dinner; I
don't know what they call themselves; they've got
some name; they got up and one fellow started the
thing by saying he was advising his clients to
under pay the Government where there was a doubt.
They said "Why?" and and he told them, "If we
pay an over-tax and are entitled to refunds, the
Government won't pay us back; you can't get a
refund from the United States Government. Way?
Because they've got a fellow down there, named
Hathcock, who doesn't believe in that sort of
thing.
Bell:
He'd malte a good Budget Director. (Laughter)
Manes:
what did you say?
Bell:
He'd make a good Budget Director.
Taylor:
I don't know, his mathematics don't seem to be so
good.
Bell:
You lenow, it's funny what kind of a hunch you have
sometimes; when I added the expenditures on this
Pudget, they came to nine billion nine million.
The President said it's got to be under nine
billion. I had cut it to twenty-five before I
added up my 9,005, SO I said, off of processing
taxes - and we've got that down now to fifteen.
Hanes:
I think your fifteen is an over estimate now.
(Laughter)
You will probably have a profit in that account
now.
?oley:
If we can help you like that again, Danny, let
us know-
Hanes:
Well if there is any political repercussion from
this thing, I wanted you all to know about it, so
now you know.
Regraded Unclassified
- 5 -
177
Poley:
It is going to be awfully hard for them to
complain about the promotion he got.
Hunes:
He can't go to Congress and say, "Those bastards
down in the Treasury have given me a promotion."
And the Secretary of the Treasury has the appoint-
ment.
Foley:
I think the record ought to show he is from
North Carolina.
Hanes:
I told him, inasmuch RS he came from North
Carolina, I wanted to ne t him personally.
Foley:
Johnny told him he'd been watching his services
very carefully. (Laughter)
Sanas:
Archie?
Docthend:
Nothing very much in the market. The Bank of
Sngland is going to make a transfer from the
Issue Department into the Stabilization Fund
sometime. That is one thing I wanted to go over
with you when you have n few moments.
Right after this meeting.
Luchhend:
They apparently are going to go along strong.
Sterling is around 4.65.
Taylor:
They are not going to announce it until four
o'clock, their time?
Lochhead:
Four o'clock, their time. I hope it is going to
do some good; the fact they are taking funds out
of the Issue Department - they probably are going
to have a lot of new legislation over there on
banking.
Bell:
Over in England?
Lochlieud:
Yes. It's more or less congested. They probably
are going to 20 over their Banking Act of 1928..
I don't think they know themselves the exact
details.
Hanes:
Anything else?
Lochhese:
that is all.
Regraded Unclassified
178
- 6 -
Echwars:
(Nods "Nothing."
Eases:
George?
Do you have anything else for us to do at the
moment on that Social Security?
Well, I tell you what I did yesterday. Altmyer
sent over the final draft.
I have seen it; he sent a copy of it.
Good, and he asked us to 60 on record with three
or four specific answers to questions which he
asked there, and I discussed it with Harry White
just before he went away; I wanted to make sure -
Harry, you remember, asked that he nut in E memorandum
before we made a decision. I also discussed it
with Ed Foley before 1 answered the letter. I
decided first I wasn't going to get the Secretary,
In view of the latter he sent to the President,
committed to anything; I don't think that would
be fair; in the first place, I don't think any of
us are far enough along in our thinking to CO:1-
alt ourselves even if i.e wanted to commit him.
So I just wrote Altmyer and said that the Secre-
tary had been interested in this thing and would
be back on the sixteenth of January, and as far
as the Treasury was concerned, we'd rather wait
until he came back and had a chance to go over
final draft.
Mass:
It is too general.
Paus:
And they have changed this thing - titis is about
the nineth time they have changed it. Every time
we get up to date on one draft, they send us
another one. Today is the last chance we would
have; if we wanted to make any corrections in
the thing today would be the last chance.
Sell:
You have any idea when it is going up to the
President?
Kanes:
I sale, it's going up next week.
Dell:
To got E, letter from Altmyer, in the Budget. Some
of the boys have been running down the recommenda-
Regraded Unclassified
179
- 7 -
tions to see what they can find, and everything
is so general they can't put their teeth in any-
thing.
:308:
That is right, but they have something specific
in their own minds. That probably will go around
the other way.
Be'l:
In the back door.
lianes:
They have something specific, but they don't tell
it. They wanted us to answer this specifically:
"Do you approve the benefits starting in 1940? Do
you oppose the general principle of larger benefits
in early years? And would the financing plans
which the Treasury favors fit the recommendations
of the Board?" Gee whiz, I don't see how we can
answer those questions. I don't see how we can.
timas:
Do you favor the income tax, you know.
Hands:
Yeah. But at any rate, that is what we did.
Sens:
That suits me a hundred per cent.
Sames:
We wouldn't do anything further until the Secretary
came back, and at that time I knew he was interested
in it, and would want to enter the discussion.
Duffield:
Was the President going to send it 119 with a
cover message, or B recommendation?
Manes:
I don't know. You remember the Secretary's letter
to the President asking him please not to commit
himself until he had a chance to talk to him
about it? I know before he went away he never
discussed it with him.
Wayne, you got anything?
Taylor:
Well, this thing that Archie will talk about -
we'll talk about after this meeting - which is
the big news of the day. It means they are
absolutely shooting the works.
Bell:
The British.
Duffield:
Have they got anything left after they do that?
Regraded
180
- 8 -
Taylor:
Well, they are transferring the equivalent of a
billion seven, dollars, into their Stabilization
Fund.
Duchhead:
The biggest guess in this market was five hundred
million. The Bank of England was discussing a
five hundred million, and when they transferr e
the billion seven, they are shooting the whole
works.
Taylor:
It is revalued at about three fifty, which
figured about 2 billion seven.
Duffield:
Do they have anything left?
Lochhead:
They will have what they has back in September,
1931, when they went off the gold standard,
which is about a hundred twenty-one million
pounds.
Dell:
That is less than thirty per cent coverage now.
"ive hundred million pounds.
Taylor:
That still is at the ola value.
Lochead:
Of course, they will have to have new legislation;
it's & new set up.
Bell:
Uh huh.
Taylor:
But it is certainly laying it all on the lino.
Remis:
Anything else, Wayne?
Trylor:
Yes. I had quite a talk with Pittwan last night,
and it was mostly legal conversation, in which he
completely disagreed with our General Counsel's
Office, it seems to me with some justice, on this
question of whether the silver - newly mined silver
had to be actually delivered. Bernie is reviewing
the situation, and it seems to me the best out is
to agree with Mr. Pittman. One thing that didn't
develop in that, which was interesting, is that we
felt we would unquestionably go - say - well, you
could do this under the Silver Purchase Act. And
he said, "No." H1s interpretation of that was
that the Silver Purchase Act was intended to
maintain the market, and that you - that is, it
could be worded that the Secretary had a right to
Regraded
181
- 9 -
purchase domestic silver above world market. He
said he didn't interpretate it so. Well, that
either means that they are going
Lochhead:
It is - there is a deal on, Wayne; there is a
deal on.
Taylor:
Well, as I say, I got
Lochhead:
The Gold and Silver Purchase Act.
Taylor:
I gather he thinks the Silver Purchase Act is
going out?
Lochhead:
He is taking darn good care; he is not going to
tie his silver up.
Foley:
Why doesn't he 60 to the Thomas Amendment?
Taylor:
Don't worry, kid, he is.
Foley:
What is he cropping about, the delivery date? He
can amend it, and it. won't be any problem.
Lockhend:
He might not get it through.
Poley:
That is the only reason why we did it.
Taylor:
You got what you asked for?
Dochhead:
That confirms my impression there is E deal on
to get rid of the Silver Act. That is
what it looks like, the last month.
Taylor:
Well, you've got nbout, I would say a maximum
of two weeks to move around in. And I think
you will probably decide that maybe the Senator
is right. Delivery Act, amended, means a good con-
tract for newly mined silver for delivery. I
don't - I can't interpret the law, but that seems
to me the way it will come out.
linnes:
Anything else, Wayne?
Taylor:
Ah - I think Bank of America is going to go through,
That is what I gathered from talking to Jesse last
night.
Hanes:
Vinat do you mean, "go through"?
182
- 10 -
Taylor:
They are going to adopt Ginnnini's recommendations.
Hanus:
That is that letter that you got 2 copy of in
yesterday's minutes, and that was his recommenda-
tion to the Board that the Board accept the seven-
teen points that were discussed when they were
here for that meeting.
Toylor:
His impression was that there was no hesitation
to do that, whereas they would just as soon as
keep on arguing that it was probably better to do
it and then forget about it.
Duffield:
Did he have any idea when they were going to do
it?
Taylor:
Right quick.
Lyffield:
Right quick? A day or two?
Hanes:
The truth of the matter is, the Board passed it
before Giannini signed it. He called A. P. on the
telephone and read it to him; that was when it
was passed, and the rest of it was formality.
Eddie, you got anything this morning?
Foley:
Not a thing.
Duffield:
Not a thing.
Hanes:
Danny, you got your Budget in good shape?
Bell:
I hope se.
Going back to this limitation on the debt, I think
the legal section should do a little work on it.
The Act that went through last year said that
you have outstanding at any one time under
obligations usually issued under the Second
Liberty Bond Act, as amended, an amount not to
exceed forty billion dollars, of which thirty
billion can be bonds. There are several questions
involved in that; one is as to whether matured
debts, about a hundred million dollars, comes
under it. Another is as to whether the First
Liberty Bonds and Fifth Liberty Bonds come under
it; that is, your Victory notes, come under that.
There are still some of those outstanding, and
183
- 11 -
Whether we have to carry United States Savings
Bonds at the face value or maturity value, or at
their principal value, if they were now cashed.
It makes 2 difference of about four hundred
million, and it seems to me that ought to be
studied. It makes quite a difference. Get a
legal opinion on it.
Memos:
Apparently there is not going to be any trouble,
Danny, in getting the debt llmit increased. I
talked with a member of the Finance Committee
last night. I might just say why I was talking
to him, because it is a very interesting sort of
a situation. We've got a Senator from North
Carolina by the name of Josiah Balley. You may
or may not have heard of him, but Bailey and Harry
Hopkins had a personal encounter. It is one of the
few cases on record, I guess, where a member of
the Executive Department was suine to sock a Senator,
and almost oid, and vice versa. At any rate,
Bailey is - he's a queer old fellow; I'm Fond of
Bailey. Imagree with all of his ideas, but he is
a flne old gentlemen, and I have known him since
I was a child, and get along well with him, SO I
don't want Bailey to attack Harry Hopkins, and I
went up to see him last night to ask him not to.
Not because I think Harry Hopkins would probably
be highly offended if he knew this, but nevertheless
I think it is a damned bad thing for the whole
business world to have a fellow come in as Secre-
tary of Commerce and have a Senator who claims to
be all for business, goint out and destroying the
confidence of business people in the man to whom
they must look for guidance. And he and Harry
Hopkins want to help, and will if he's given the
opportunity.
So Bailey - oh, he was as and as a hornet, and
still is mad. I didn't do anything to get hin
over that mad, because he is still as sore as hell
at Harry. He says Harry insulted him, and reflected
on his character and integrity - something that
the dignity of a United States Senator wouldn't
permit to go unchallenged. So I sald, "Well,
what are you going to do?" "Well," he said, "what
do you think I ought to do?" I said, "I think,
in the first place, it would be an outrage if you
let that committee of yours hold any hearings and
184
- 12 -
0077 Harry donn there and put him on the mat for
meanness, That is all it would be, just for pure
cussedness; I think If you let the committee do
that, you will suffer. You are my Senator,
from North Carolina; I want to see you conduct
yourself
Bell:
Johnny, you ought to be on the State Department.
Tubes:
fle said - well, I had gotten a lot of business men
in North Carolina to write his of letter, prior to
my going, just to say to him, "We think Hopkins
is going to do a good job; we want you to help
him," and so forth. He said, "I'll tell you what
I'll do; I'll confine myself to a few personal
remarks on the floor of the Senate; I'll say
what you have said to the Committee; that this
is no time to discuss him. The President has a
right to choose his own associates; it is none of
my business. For my part, I don't want any Investi-
gation; I don't want any bringing him Cown here
and having a circus at Harry Hopkins' expense;
it Is not going to do the country any good."
He saíd he would do that, but not to ask him not
to make a few personal remarks on the floor of
the Senate. I said, "If I were you, the dignified
thing to do is to say you have had a personal
altercation with Mr. Hopkins and you will not
let personal difficulties come into your office,
and for that reason you will stand aside and do
nothing. That would be the dignified thing to do."
He said that sounds pretty good.
I don't know what he's going to do. I talked to
him for about three hours. During the course of
the thing, I said, "We were going to have to ask
for a consideration of the increase of this
debt limitation." He said, "There will be no
trouble about that; we recognize that and there
will be no trouble about it." I don't know.
He told me that there were about ten Senators
that were going - he said there were about twenty
that were going to vote against Hopkins, but now
he thought it had narrowed to about ten. I said,
"Are you going to vote against him?" He said, "On,
yes; I can't vote for him." So he and nine others
are going to vote against him, apparently, but that
is about all.
185
- 13 -
Schwars:
Danny, did that foreign dominion figure - was that
Intended as a total of those you listed, or the
savings bonds? We had been talking in terms of
a billion yesterday.
Bell:
Well, it's - I think it's seven hundred fifty
million dollars.
Schwarz:
Total now?
-Well:
If you include savings bonds at a billion eight
seventy-five, and it comes out a billion one
eighty-three; if you put them in at their present
value.
Schwarzi
About seven fifty altogethor.
Bell:
I'll Give you E copy of these statements.
Echwarz:
You still want to check with the legal division
before we
Bell:
I think we should. I think somebody hould look
into that.
I want to show you a thing, just as R matter of
interest. The Treasury has a lot of records. We've
got the original account books of George Washington,
and Morris - Robert Morris. They ran across
yesterday a personal letter from the Pope to
Jefferson Davis, asking for his stand of peace.
It is interesting; it is all in Latin.
Curfield:
Fie call all read it.
Manes:
It is written in the Pope's own handwriting.
Dell:
It is El reply to 8 letter, apparently, which
Jefferson Davis sent him.
Thres:
I should think a thing like that ought to be in
the Smithsonian.
Bell:
he have a lot of the old seized records, cotton
records, and so forth, and once in a while we
run across something like that. What date was
it? 1863. Given at Rome, at St. Peters, December
3, in the year of 1863, in the year of our Pontiff.
Darn interesting, isn't it?
Regraded Unclassified
186
14 I I
Hanes:
It is.
Foley:
Where do you find
Bell:
The accounts - expense accounts are in the hand
writing of George Washington, and so are the
ones of Robert Morris. Someday we will have to
turn it over to the Smithsonian.
Hanes:
If you don't turn this one over pretty quick,
it will fade out on you.
Bell:
That hasn't been out of the envelope until
yesterday.
Schwarz:
I'd get that photostated right away.
Regraded Unclassified
- COMMUNICATIONS -
MORETARY OF STATE
87
\ o a
DEPARTMENT OF STATE
WASHINGTON
January 6, 1939
My dear Mr. Secretary:
With reference to your letter of December 31,
1938, I have taken pleasure in informing Mr. Austin 0.
Brady, American Consul at Rangoon, of your kind com-
mendation of his despatch No. 129 of December 1, 1938,
entitled "China's Sea Route Through Burma".
Sincerely yours,
For the Acting Secretary of State
March
Assistant Secretary
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Unclassified
188
TREASURY DEPARTMENT
76.
INTER OFFICE COMMUNICATION
DATE January 7, 1938.
TO
lecretary Morgenthau
r. Taylor
FROM
I in enclosing n, redraft of the memoranda on cotton and wheat
15. Mack sent me yesterday. I am still not in entire agreement
" la the method of presentation but I think that the two stories &5
are at least adequate to show the range of the problems
omieater 1th each of these crops. I particularly recommend that you
rons : necorand im on cotton. If this is not National Ileadache No. 1,
it overainly ranks as Agricultural Heudache No. 1.
I lon't Nish to disturb your holiday but thought that during
whing reek you might wish to do B. little light reading.
well.
Regraded I Inclassified
-89
January 1939.
HEMORANDUM ON COTTON
wrll Cotton Situation
arla cotton consumption for this marketing season is expected
to be about 27 million bales. World supply is more than
RO million bales, this year's production accounting for about
28 million balos. World carryover at the beginning of this
marketing season was 22 million bales, of which more than
13. million bales were U.S. cotton. The 10-year averázo world
warryover, 1928-37, was 14 million beles. The 10-year averure
carryover of U.S. cotton, 1928-37, was 8 million bales. The
everage carryover of U.S. cotton for the proceding 5-year period,
1923 through 1927, was 4,550,000 bales.
noch U.S. and foreign production of cotton have been increasing
steadily over a long period, with foreign production gradually
gaining on U.S. production. Forty years ago the foreign crop
was about 4 million hales and the U.S. crop was about 11 million
bales. The 10-year avera of the foreign crops from 1928 to
1937 was 13.3 million bales, and the 10-year average of U.S.
crops for the same period was 13.8 million bales. Largo drops
in the U.S. have had little effect in checking the persistent,
long-range upward trond in foreign cotton production.
World consumption of ootton also has shown B long-range upward
trend, but world consumption has not kept pace with world pro-
duction. For the 10-year period, 1920-29, the average annual
world production of cotton was 22.7 million bales, and from
1930 to 1937, the world production average was 27.2 million
bales, a gain of about 20 percent. On the other hand, the
average world consumption of cotton for the 10-year period,
1920-29, was 22.6 million bules, while from 1930 to 1937 the
average consumption was 25.8 million bales, a gain of about
14 percent.
The United States Cotton Situation
The 18,600,000 bale carryover of U.S. cotton at the beginning
of this marketing season was 400,000 bales more than the
previous record in 1932. It is estimated that another million
bales will have been added to the carryover at the beginning
of the next marketing season.
The 1932 ootton carryover of 13,200,000 below was reduced to
6,200,000 bales by August 1, 1937, before the large crop of
Regraded
- 2 -
180
that year was marketed. The present ootton carryover which
is more than 7 million bales above the August I, 1037, figure
is largely the result of a combination of big moreage and big
yields in 1937 when cotton producers had no effective control
program.
There was s. 28 million aore increase in sotton production in
1936 following the Supreme Court's invalidation of the pro-
duction control features of the original Agricultural Adjustment
Act. There was a further increase of another 4 million mores
in 1937.
This year, under the New Farm dot, ootton aoreage was reduced
7-2 million acres under last year, but the big surplus produced
last year seriously depresses the price for this year's orop.
1 world carryover of American ootton at the end of the marketing
year (July 31) of at loast 5 million bales is needed to permit
an unrestricted movement into consuming channels. This amount
of cotton would need to be in the regular channels of trade;
that is, not owned or held by the Government.
Prospects for Increased Domestic Use of U. S. Cotton
The outlook for maintaining the recent average of domestic con-
simption is favorable. But, even if domestic consumption should
reach the 1936-37 record of 8 million bales, it would be only
1.7 million bales above the average of the last 5 years.
Any normal increases in ootton consumption in the United States
may be expected to depend largely on increased industrial pro-
duction. The price of ootton appears to have relatively little
effect on the amount consumed domestically. Competition of reyon
in the United States has been increased by increased production
and lower prices.
A study being made of the possibilities of expanding domestic
use of cotton by subsidising domestic consumption indicates that
a maximum increased annual consumption of 2,000,000 bales might
possibly be achieved if cost were not a factor. Normal consumption
is about 6,500,000 bales. If consumption were increased 2,000,000
bales above the normal, it would then be about 8,500,000 bales.
An estimate of possible percentage increases under subsidy, classified
according to three general uses, is 0,0 follows:
Normal Consumption
Possible Meximum
Percentage
Bales
Clothing
60%
2.6 million bales
3.2 million bales
Household
20%
1.5 million bales
2.3 million bales
Industrial
40%
2.6 million bales
3.0 million beles
Total
6.5 million bales
B.5 million bales
201/10 from industrial uses, consumption mi eht be expanded through
VID sale of cotton articles to low income groups at reduced
irices and the distribution of cotton articles free to families
nc relief.
Mar articles such as mattresses which require comparatively emall
anufacturing expense, the total oost, including materials, would
trobably be around $75 per bale. For fabrios of the cheaper
rades the cost would probably be 3130 to $150 for each bale of
:otton consumed. On items for which the manufacturing expense
is relatively high, this cost is as much 0.5 10 to 20 times the
yello of the raw cotton consumed. Thus it will be seen that an
extensive program of increasing domestic consumption could be
Pinanced only at tremendous cost.
temporary increase in domentic consumption could be achieved by
providing for prospective requirements of regular government
oncies such as prisons, hospitals, and the army and navy. The
Mary, aside from the field service, purchased 22,000 mattresses
in 1937 and 10,000 in 1938. Purchases for the Army by the
Quartormaster have averaged about 33,000 mattresses per year
aside from the purchases made by the medical and hospital service.
Invelopment of new uses for cotton is a long time program which
carmot be expected to be of much immediste assistance in meeting
the present surplus situation.
antiook For Increased Foreign Use of U.S. Cotton
[Dote: See supplemental statement on Forei Cotton Situation,
by Countries, on pages 9, 10 and 11).
Pho outlook for increased foreign consumption is not favorable.
The foreign trade situation continues to be unfavorable to
creatly excanded exports because of trade practices of and
efforts toward self-sufficiency by the totaliterian states,
and because of difficulties of foreign countries in obtaining
dollar exchange with which to buy commodities in the United States.
United States notton faces greater competition on the world
market because of increased foreign cotton production and in-
creased competition of rayon and other competing fibers,
especially in Gormany, Italy, and Japan.
Exports of cotton so far this season are 1,300,000 bales behind
last season. The maximum of exports that could be expected
at the rate for the first three months of this season would be
5 million bales, but at this time it seems probable that 32-
ports will not exceed 4 to million bales.
Regraded
The bissest exports in the last 10 years were in the 1931-32
marketing season when 8,708,000 bales were shipped abroad.
Yet foreign consumption of American ootton in the same season
amounted to only 7,784,000 bales, which was & million bales
less than we exported. The problem of e. 13,600,000 bale surplus
would not be solved even if it were possible to increase exports
to the highest point reached in the last 10 years.
That Can be Done About the Cotton Surplus Problem?
The present situation, with low price and income and increased
supplies points to the need of effective production adjustment
and adequate payments to compensate for the low world price.
The present legislation contains provisions for: (1) Production
adjustment and marketing control, depending upon supplies and
the desires of farmers; and payments through a special appropri-
ation to compensate for part of the sacrifice made in adjusting
production; (2) Increased use of soil-building crops and
practices with payments to provide e. substantial portion of the
cost incurred; (3) Cotton loans at not less than 52 percent of
parity, (4) Use of part of funds available for expanding domestic
and foreign markets and removing surpluses, (5) Development of
orop insurance for cotton which would insure against losses in
yield resulting from unavoidable production hasards; (6) Dealing
with the problem of discriminatory freight rates; (7) Establish=
ing regional laboratories for research in developing new and
expanded uses for farm commodities.
The ootton program, under present legislation, also includes pro-
visions for increasing production of food and feed crops for
home consumption.
Additional Legislation Needed
1. Legislation to provide A continuing source of funde for adequate
payments to compensate for low world price and permit a sound
loan program.
2. Legislation to release cotton now under loans which make cotton
unavailable for export and temporarily support price while build-
ing up price-depressing surpluses. (About 10 million balos are
now held under Government loans.)
Experience with loans during the past six years indicates that
loans which are too high anable foreign competitors to undersell
Regraded
- 6 -
imerican producers and take away part of the normal export market
for U. S. octton.
Same reduction in carryover would be possible through legislation
that would release cotton under Government loan. Under present
legislation, cotton under loan must be sold only at a price which
will reimburse the Government for the amount of the loan plus
the carrying charges. On any loan cotton prior to the 1938 orop,
the loan rate plus carrying charges would be above the market
price. Legislative restrictions on sales of cotton held under
Government loan provide that after July 31, 1939, the Government
shall not seal more than 300,000 bales in any month and not more
than 1,500,000 bales in any year.
Reduction of loan cotton could be brought about by releasing loan
cotton to borrowers for sale at a specified price.
How Serious Ia the Cotton Income Problem and How Long Has it Been
Recognized?
Since 1929, oath income from cotton has been 21 percent less than
for the 1910-14 period, while the index of prices paid by farmers
has been 29 percent above the pre-war level. While substantial
improvement has been shown in the purchasing power of ootton
since 1932, it is still far from adequate. The per capita pur-
chasing power from the sale of cotton in 1932 had dropped to 42
percent of its pro-war average. It has not been less than 66
percent of its pre-war average in any year since the AAA ootton
programs began, but the ratio of total cotton income to per
capita non-farm income is little more than half what it was
before the WAT.
Estimated income of $865,000,000 from cotton this year including
AAA payments will be almost twice the 1932 income of $464,000,000
but it will be far below the 10-year average of $1,375,300,000
for the period 1920-21 to 1929-30.
While the purchasing power of cotton has been declining the number
of people dependent upon cotton for 8. living has been increasing.
There are a million more people on cotton farms than before the
War. One-third of all the people on farms in the U.S. depend
wholly or in part upon cotton for their living.
The ootton problem has long been recognized se 8 serious problem.
This is illustrated by the faot that during the period between
1900 and the Farm Board ara there were 5 years - 1904, 1908,
1914, 1921, and 1926 - in which campaigns wore carried on in
the South to reduce acreage planted to sotton.
Regraded Unclassified
M 6 -
Programs which Have Beer Proposed to Substitutes For The Present Program
Prioe Fixing -- This plan proposes 5. fixed price for the domestically
consumed portion of the crop, with the remainder to be exported
for what it will bring on the world market. It would make necessary
levying tariffe or increasing tariff rates on ootton, cotton goods,
and competing fibers. This plan would also make necessary Govern-
ment control of handling, probably through licensing in order to
enforce payment of fixed price. A fixed price on the domestically
consumed portion of the crop with no production control would act
so an export subsidy. This plan would also tend to subsidize in-
creased production.
Comestic Allotment - Under this plan the producer would receive a.
payment on the domestically consumed portion of the crop which
would be the difference between the market price and parity, and
the whole crop would sell at the world price. Since this proposal
does not contemplate production control and with the big supplies
and heavy carryover, it would probably require a subsidy rate
equal to twice the world price to provide parity OD domestic con-
sumption.
Parmers are now receiving parity on the domestically consumed
portion of the cotton crop if esent payments are applied only
to this portion of the crop. The effect of the Domestic Allot-
ment Plan would be to reduce the price for the entire crop.
This plan would be one form of subsidizing exports. It would not
provide parity income. It would be excessively costly.
Export Subsidy -- Under this plan exporters would receive à subsidy
on the emount of cotton exported which would enable them to meet
any kind of world price situation. This proposal would invite
rotaliation and embargoes and would start an unprofitable trade
war. It would subsidize foreign consumers at the expense of the
United States treasury.
this plan could succeed in increasing cotton growers' income only
if it were possible greatly to increase exports and to eliminate
the excess carryover so that the domestic price level would
rise, There is no assurance that exports could permanently
be greatly increased even under An export subsidy.
Regraded Unclassified
T
SUMMARY
situation
U. 8. cotton supplies are excessive.
World ootton supplies are excessive.
Unaubsidized domestic consumption cannot be expected to increase
greatly.
Prospects for increasing exports are unfavorable.
If both domestic consumption and exports could be increased to
the highest probable point, it would still take several years
to reduce the 13,800,000 bale carryover sufficiently to improve
prices materially, even if production were kept in line.
Cotton loans cannot be used to increase price to 6. point that
would give growers a satisfactory income, because higher loans
would give foreign producers an opportunity to underbid and
capture more of the export market. If en adequate and continuous
source of funds for payments were provided, the loans could be
eliminated. In the long run this would be less expensive and
would fit in with maintenance of exports.
An export subsidy would start an expensive trade war and would not
solve the problem of low income and too much ootton. Price fixing
would encourage increased production, would necessitate tariff
increases, would result in increased competition of compating
fibers, and would not meet the need of greater total income from
cotton nor the problem of reducing the excessive carryover.
Essentiale in at Long-Time Cotton Program
1. Reduction in present carryover, and release of stooks of cotton
under loan.
2. Expanded domestic consumption in the field of present unes and
development of new uses.
3. Regaining of U. S. share of world cotton market.
4. Production adjustment in line with prospective markets and
adequate reserves.
5, Conservation of soil resources.
6. Payments for cooperation in conservation and adjustment to
compensate for low world price and provide parity income.
Unclassified
196
- 8 -
7. A continuing source of adequate funds to provide adequate
payments and insure effective conservation and adjustment.
8. Marketing quota machinery, for use when supplies are excessive
and at the option of producers.
9. Increased production of food and feed crops for home use to
improve standard of living.
10. Continued marginal land purchases, to retire some less efficient
acreage.
11. Legislation to provide official standards for ginning and
packaging, and to provide grade and staple services to farmers.
Regraded Unclassified
- 9
Supplemental Statement on Foreign Cotton Bituation,
by Countries
Decreased Imports from the United States
During the 10 years ending with the 1932-33 season total U. S.
cotton exports averaged slightly more than B million bales per
year. In the 1937-38 marketing seuson, U. S. exports were
alightly less than 6 million bales.
During the period when U. S. total cotton exports declined 2 million
bales, total imports by five foreign countries - Germany, Japan,
China, Russia, and Spain, declined more than 2 million bales.
If U. S. cotton exports to these countries in 1937-38 hed been 88
large as in the 10 years ending 32-33, total U. S. cotton exports
would have been larger than the average for the 10-year period.
The decline In exports of U. S. cotton to the United Kingdom, once
the best customer for this country's cotton, took place tefore
the depression. Exports of U. S. cotton to the United Kingdom
reached B. peak of more then 4 million beles in 1911 and then
followed a downward trend until 1930. Since 1930 they have averaged
somewhat less then 1,500,000 bales. Until the 1937-38 seeson,
this loss was largely offset by increased exports to Asla.
ermany-German imports of U. S. cotton were a million bales less
in the 1937-38 season then the average for the 10 years ending
1932-33. at the same time, total German cotton imports declined
somewhat less than 500,000 bules, and German imports from Brazil
in 1937-38 were somewhat more than 400,000 bales, compared with
almost no imports from Brazil in the 10-year period.
The net decline of almost 500,000 bales in totel German dotton
imports has been compensated for, in part at leust, by a. remarkable
expansion of artificial fibers substituted for raw cotton in the
manufacture of textiles.
The large increase in German imports of Brazilian cotton were made
possible through barter agreements and it does not appear that
the price of American cotton has been Important in this situation.
Vapab--Exports of American cotton to Japan averaged more then
1,300,000 bales for the 10 years ending 1932-33, increased in the
years following through the 1936-37 messor, and fell to only
about 700,000 beles in 1937-38.
Regraded
- 10 -
It seems probable that in the future Japan will endeavor to obtain
more of its cotton supplies from Chine, and may further expand
Its rapidly growing production of synthetic fibers.
China-In the 10 vears ending 1932-33 the United States exported an
average of nearly 300,000 bales of cotten to China. This wes in
the period of the rapid expension of the Chiness cotton spinning
industry, when this industry was expanding more rapidly than Ohinese
cotton production.
It aeems probable that Chinese production, dominated by Tapanese
interests, would expend 88 rapidly 28 the tertile industry expends.
Spain-Spein formerly took about 300,000 bales of U. S. cotton
annually. Since the start of the civil war, imports of all kinds
of cotton by Spain have practically disappeared. Because of the
deterioration of the textile industry it will probably he several
years after the war before Spain will consume 98 much cotton 88
formerly.
Russia--Ruasia formerly took more than 200,000 bales or U.S. cotton
annually. Russian cotton production has been expanded and Russta
bas teken virtually no U. S. cotton in recent years.
Increased Foreign Cotton acreage
Increases in cotton acreage have occurred chiefly in Brazil, China,
Russia, and Ugands. There have also been acreage increases in
many minor producing countries. In India and Egypt, two of the
most importent foreign cotton-producing countries, the trend in
cotton acreage has not been upward.
The great increase in foreign competition is due partly to long-time
foreign production; partly to special stimulation in certain areas
after 1929 resulting from the depression; and partly, perhaps, by
curtailment end loan programs in the United States.
In Brazil, enormous surpluses of coffee lead to expansion of cotton
production. This expansion was accomplished by governmental
currency action in maintaining the price of cotton relatively
higher than the world price of Brazilian cotton and coffee.
Foreign expansion is to an appreciable extent not directly influenced
by U. B. cotton acreage and price policies.
Brazil-Cotton acreage in Brazil has increased from less than 2
million acres prior to 1930 to 6,672,000 in the 1937-38 sesson.
The increased Brazilian production has been marketed largely in
Germany, the United Kingdom, Japan, and France. A Large part of
L39
- 11
the increased production in Brazil hes gons into domestic
consumption, increasing from 327,000 bales in the 1929-30
season to 813,000 bales in the 1937-38 season.
Uganda-Prior to 1930, the largest cotton acreage in Uganda was
663,000 acres. In 1937 It was 1,737,000 acres. Increased Uganda
production has gons largely to the United Kingdom.
China-Prior to 1930 the peak in Chinese cotton production WES about
8 million acres. Last year it wes 9,300,000 acres. The increase
In China has been absorbed by. the Chinese textile industry.
Russis-Pesk cotton production in Russia prior to 1930 was 2,600,000
acres. In 1937 it was 5,163,000 acres. The increase in Russia
has gone into domestic consumption.
Minor countries- For the minor cotton producing countries, the
peak production prior to 1930 was 4,534,000 acres. In 1937 it
totaled 7,180,000 acres. A large percentage of the increase in the
minor producing countries has gone into domestic consumption and
some of the increase has been marketed in the United Kingdom.
Regraded Unclassified
200
CONFIDENTIAL: Not for Publication,
Table I
Cash Income from Marketings 1/ of Cotton, including Seed, and
National Income Produced,
1910-14 Averages and Calendar Years 1920-1938
National
* Cotton
Calendar
Cotton 1/
Income
of Nat'l
Years
(Including Seed)
Produced 2/
Income
(Million Dollars)
(Percent)
1910-14 (average)
831
30,700
2.71
1920
1,476
72,600
2.03
1921
852
51,400
1.66
1922
1,148
60.300
1.90
1923
1,569
68,200
2.30
1924
1,663
68,000
2.45
1925
1,762
75,300
2+34
1920
1,222
76,700
1.59
1027
1,500
75,400
1.99
1928
1,453
78.700
1.85
1929
1,512
81,100
1.86
1930
824
68,300
1.21
1931
497
53.800
.92
1932
461
40,000
1,15
1933
578
42,300
1.37
1934
863
50,100
1.72
1935
712
55.200
1.29
1936
905
63,500
1.43
1937
864
69,800
1.24
1918
710
58,500
1,21
1/ Published BAE figures. No Government payments included,
1929-371 U.S. Department of Commerce: 1910-28: National Indue-
trial Conference Board estimates reduced by 2.3 percent, the
1929 difference between that series and the U.S. Department of
Commerce estimate.
Regraded Unclassified
301
Table II
form Value of Cotton Production, Including Seed, and Government Payments
CROP YEARS, 1938-1938*
1933
1934
1935
1936
1937
1938
Value of Production (81,000)
746,024
744,596
737,619
947,797
948,298
600,000*
Government Payments ($1,000)
179,700
115,226
160,210
86,381
68,672
277,000
Value of Production Plus Government Payments ($1,000)
925,724
859,822
897,829
1,034,178 1,016,970
877,000*
Parity Income ($1,000)
1,121,958
1,173,075
1,136,925
1,201,740 1,078,325
1,194,277
Value of Production and Payments EB Percent of Perity Income
82
73
79
86
94
73
-
Preliminary estimates.
Regraded Unclassified.
corron. AMERICAN: ACREDE, YISID. SUPPLIES, AND DISARFEARANCE, 1919-20 to 1938-39
Supply
Mill Consumption
Supply
Crop Year
Acreage
Yield
World
Form
Production
Stocks
Total
Domestic
Foreign
Total
Price
Mill
AllE+ 1
Consumption
1,000
Cents
Acres
lbs.
Thousands of bales
Per 16.
Percent
1920m2]
34,408
186.7
13,664
6,338
80,002
4,677
5,591
10,268
15.9
194.8
1921-22
28,678
132.5
8,285
9,674
17,959
5,613
6,596
12,209
17.0
147.1
1922-23
31,361
148.8
10,154
5,680
15,804
6,322
6,124
12,449
22.9
126.9
1923-24
35,550
136.4
10,330
3,318
13,648
5,353
5,564
10,917
28.7
125.0
1924-25
39,501
165.0
14,006
2,711
16,717
5,917
7,394
13,311
22.9
125.6
1925-26
44,386
173.5
16,181
3,380
19,561
6,176
7,834
14,010
19.6
139.6
1926-27
44,608
192.9
18,162
5,501
23,663
5,880
8,868
15,748
12.5
150.3
1927-28
38,342
161.7
12,957
7,845
20,802
6,535
9,041
15,576
20.2
133.6
1928-29
42,434
163.3
14,555
5,206
19,761
6,778
8,448
15,226
18.0
129.8
1929-30
43,232
164.2
14,716
4,517
19,233
5,803
7,218
13,021
16.8
147.7
1930-31
42,444
157.1
13,873
6,187
20,060
5,084
5,972
11,056
9.5
181.4
1931-32
38,704
211.5
16,877
8,976
25,853
4,744
7,784
12,528
5.7
206.4
1932-33
35,891
173.5
12,961
13,263
26,224
6,004
8,381
14,385
6,5
182.3
1933-34
29,383
212.7
12,712
11,809
24,521
5,553
8,227
13,780
10.2
177.9
1934-35
26,866
171.6
9,576
10,701
20,277
5,241
5,965
11,206
12.4
180.9
1935-36
27,640
184.2
10,495
9,041
19,536
6,221
6,282
12,503
11.1
156.2
1936-37
30,028
197.6
12,375
6,698
19,373
7,768
5,325
13,093
12.3
148.0
1937-38
34,001
266.9
18,412
6,235
24,647
5,615
5,315
10,930
8.4
225.5
1938-39
26,449
219.7
12,000
13,652
25,652
Preliminary
Source: Compiled by Bureau of Agricultural Economics from reports of the New York Cotton Exchange.
102
Regraded Unclassified
January 1939.
MEMORANDUM ON WHET
The United States nos been S net exporter of wheat every year
since the signing of the Constitution, except in 1837 end the years
1934-1936, when the country experienced unprecedented drought. all
whest progrems undertaken by the United States have recognized this
(act, and plans have included production of supplies for export. This
means that the United States wheet problem must be considered in the
11ght of the world wheat situation.
Because several different types of wheat are produced commercially
in the United States, the production, domestic use, export, and carry-
over problems of the different types must be considered in connection
with the whole wheat problem. A brief supplemental discussion by wheat
types, and B. suggestion 68 to how cerryovers should be carried, are given
on pages ? and 8 of this memorandum.
Present World Whest Situation
This year's world wheat crop of 4,395,000,000 hushels 18 the,
largest on record.
The indicated world cerryover on next July 1 is about 1,223,000,000
bushels, compered with 8 carryover of around 600,000,000 bushels
on July 1, 1938, and an average world carryover of about 700,000,000
bushels during the 1920's.
Export nations have B. surplus of more then 900,000,000 bushela
for export, while import countries will require only about
550,000,000 bushels during the year ending June 30, 1939.
World production 1s up, both in export and in import countries,
practically all of which are siding their wheat producers
directly with SODIS form of subsidies or price-fizing laws.
This means keen competition among the world's exporters for their
share of the world market. The world wheat trade is now
characterized by numerous restrictions in the form of import
quotes, duties, domastic milling or mixing requirements, monopo-
liatic control of mills, and exchange limitations. There is no
really free world wheet market of any consequence.
Regraded Unclassified
the
United States Situation
This year's U.S. wheet supply 1s nearly 1,100,000,000 Bushels.
This is made up of a 930,000,000 bushel crop, and a carryover
of 154,000,000 bushels.
This supply is around 400,000,000 bushels above our everage annual
domestic consumption.
& en if the United States succeeds in exporting around 100,000,000
bushels of wheat this year (the announced goal of the present
export subsidy program) we will still have about 300,000,000
bushels to carry over when the 1839 crop comes in. This will be
about double the July 1, 1938 carryover, and more than double
the average for the decade of the 1980's.
Whent Income
The direct result of this heavy supply situation is that United
States farm wheat prices this fall have been around 50 cents 1
bushel, as compared with more than 90 cents in the fall of 1937.
Even with Government payments to farm program cooperators of
around 12 cente a bushel this year (27 cents, including price
idjustment payments, next year) on their allotments, prices to
our wheat farmers will still be far below the 1909-14 parity
level.
and total wheat income 19 down, leaving wheat producers at 8.
relative disadvantage.
Wheat income represented 8 percent of the gross United States
farm Income in the pre-war years 1910-14. Whoat income now
represents but 5.3 of the total farm income.
In relation to per capita nonferm income, whet income has fallen
to little more than half its 1910-14 level.
The wheat teriff, 42 cents, does not hold vp prices, since it 18
not effective except I.D the rare years when the United States
18 e whest importer, and then primarily only with respect to
the best classés of spring and hard winter wheat.
The nation needa buying power on its wheat ferms.
United States Export Possibilities
During the post-wer years up to 1932, the United States exported
an annual average of more than 150,000,000 bushels, or about
20 percent of the world export total.
Regraded
5
3 -
During the 1920's, world import requirements were around
750,000,000 bushels annually. This outlet for export wheat
has now shrunk to 550,000,000 bushels or less.
Bargaining treaties, trade barriers, and production policies
make it increasingly difficult for the United States to expand
exports.
Even the British Trade agreement, removing the empire preferential
tariff against U.S. wheat, cannot provide very greatly increased
export markets.
It is taking effort to hold about 20 percent of the available world
import market for the United States under the present export
subsidy program. The goal of this program is en export of
100,000,000 bushels this year. It does not seem likely that the
United States can in the nsar future reasonably expect to export
materially larger quantities of wheat.
Possibilities for Incressed Domestic Consumption
Consumption of whest, a staple food, is relatively inclustic.
Sven in times of depression, our people generally have bread--
bought by themselves or by relief agencies for them.
No materially effective increase in domestic consumption of United
States wheat in food channels can be expected. Some permanent
increase in consumption of wheat cereals by children in low in-
come groups might be possible, especially in the South.
There 18 a definite limit to the amount of purchases by the Covern-
ment for relief distribution which are possible without simply
replacing other outleta for whest, (Note: The Federal Surplus
Commodities Corporation purchased flour and wheat products
equivalent to 23,539,000 bushels of wheat during the period
from October 1933 to July 1, 1938.)
Note: See supplemental statement on page 9 of this memorandum.
Brief Review U.S. Wheat since the Wer
In the 1920's, the United States had reasonably fevorable weather
and satisfactory export outlets, made possible in part by the
foreign lending policy in that period. annual wheat acreage
during this decade averaged about 65,000,000.
The large whest crop of 1928 started piliug up surpluses, and
ruinously Low prices came during the following years. The
Unclassified
decrease of exports during this period added to the adverse
situation.
The Farm Board attempted stabilization, but lacked means of adjust-
ing production. Acreage in 1928-32 WHS no lower than during the
decade of the 1920's Prices reached record low levels.
Under the Agricultural Adjustment Act of 1933, B. wheat program we
designed to reduce surpluses and bring up wheat income, at the
same time seeking to increase exports and to improve the world
situation through an International Wheat Agreement.
Then came the unprecedented droughts of 1934-36, with resultant
adjustments in production and supply which went beyond the adjust-
ment sims of the AAA. Surpluses were reduced.
Higher prices which followed the drought stimulated greatly to-
creased plantings at a. time when there were no positive production
edjustments. The conservation programs of 1936 and 1937, follow-
ing the Supreme Court decision, placed emphasis upon conservation
and had only indirect adjustment rentures. United States wheat
acresge passed 80,000,000 in both 1937 and 1938. (The Agricultural
Adjustment Act of 1938 was passed too late to be effective for
the 1938 whest crop.)
The big crop of 1938, like the sarlier one of 1928, has resulted in
excessive wheat supplies and the consequent drop in prices.
The Present Government Wheat Program
The Government is taking steps under its authorizations to assist
the wheat producer and to improve the domestic and world situation.
These steps include:
(2) Acreege allotments (linked with conservation program) large
enough to produce adequate supplies for domestic requirements
and normal exports, but low enough to prevent piling up burden-
some surpluses. The national wheat acreage allotment for 1939
is 55,000,000 acres.
(2) Payments to cooperating producers who keep their seedings within
their acreage allotments. Conservation program and parity pay-
ments total about 27 cents a bushel on allotments for 1939.
(3) Loans to cooperating producers to enable them to hold surplus
stocks for limited periods. The whest loans average ebout
60 cents B. bushel this year.
(4) Whest crop insurance, the reserves adding to the ever-normal
granary.
(s) All emergency export program designed to hold a fair share
of the world market for United States wheat in the face of
direct intervention by the Governments of all other wheet-
exporting and most importing countries. It is hoped that the
finencing of exports by the Government is only AM temporary
measure, and that some international arreement can be reached
whereby such action will not be Decessary+
(6) Purchases, within practical limits, by the ESCC for relief
Distribution of flour and wheat cereals.
Dote: Marketing quotas, as provided in the Act, may be needed for
the 1939 crop.
Some General Conclusions
With average yielda, 63,000,000 acres can produce the 750,000,000
bushels needed for average annual U.S. domestic use and a possible
export of up toward 100,000,000 bushels.
Continuing acreese adjustments are necessary to prevent piling up
burdensome wheat surpluses, but no ressonable program of adjust-
ment of U.S. supplies will, under present world conditions, bring
about perity prices for wheat. The becessary adjustment in acreage
and production would be too drastic.
Payments to cooperating producers, apert from and in addition to
prices received on the market, are therefore necessary. In
addition to conservation program payments, a "parity" payment
is needed to bring the price of the domestically consumed portion
of the wheat crop up toward fair income,
Loans are belpful as a means to hold part of the crop for limited
periods, but should not be handled as of "price-supporting" method
which would interfere with any possible wheat exports, Wheat
should be permitted to flow freely into export channels.
"Price-fixing" plans, without machinery for production justment
and in view of limited export outlets, would stimulate production the
of crushing surpluses, would be prohibitively costly to
more and would inevitably break down. Rather than attempt fixed
Government, this, the Government might better buy the entire crop at a
price and re-sell freely in domestic and world markets.
Every effort should be continued to secure stabilizing international
wheat agreements.
Regraded Unclassified
208
- 6 -
Essentials for a Sound Long-Time United States Whest Program
(1) the fair share of the world market for United States wheat.
(3) Full domestic distribution to meet the food needs of all our
people.
(3) Adequate ever-normal granary reserves.
(4) Acreage adjustments aimed at balancing production with our export,
domestic consumption, and reserve needs-and linked with long-run
soil conservation and land use programs.
(5) Payments to cooperating producers to give our wheat growers a
fair share of the national income.
(6) Loans to cooperating producers to enable them to hold surplus
stocks for limited periods.
(7) Wheat crop insurance, serving as part of the ever-normal granery.
(e) Marketing quotas, for use only when needed and wanted by wheat
growers to meet emergency surplus situations.
Regraded Unclassified
209
- 7 -
SUPPLE EMTAL DISCUSSION BY WHEAT TYPES
Armss There Principal Market Classes of U.S. Wheat are Produced
(1) !lard red winter wheat produced in the Southern Great Plains.
Some hard red winter wheat also produced in Illinois and in the
Pacific Morthwest.
(2) Hard red spring wheat produced chiefly in the Dakotas, linnesota,
and Lontana.
(3) Durun whest produced chiefly in the Dskotas and linnesota, High
quality durum comes from IL small area in North Dakota,
(4) Soft red winter whent produced chiefly in the Corn Bolt, Sastern
States and Southern States.
(6) White wheat produced chiefly in the Pacific Northwest, although
about half of the wheat of Sichigan and most of the whout in New
York Stute is of this class.
Units Situation by Whout Classes
(1) Soft red inter whout not in demand because most of the importing
countries of the world produce this kind of whost. Importing
European nations require hurd wheats to nix with the soft whout
produced by their formers in order to produce BL breud flour. 3x-
ports of soft red winter wheat have been nogligible aince 1927.
When United St les produces large crop of the & whout (Lt) increased
amount is fed to livestock.
(E) Hard red winter whest is the principal cless for which there is
a strong export demand, but Inited States has tended to export
the poorer qualities of this wheat. Domestic milling demand
results in premium for the better qualities.
(3) Hard red spring whout premium paid by domestic millers results
in prices in excess of export level for this kind of wheat.
Practically no exports have taken place since 1924. Because of
location of mills at Minneapolis and Buffalo, United States uses
almost all of our domestic supply of hard red spring wheat, and
wheat surplus which is closer to the Seaboard than the hard red spring wheat.
of hard milling wheat exported consists of hard red winter
Regraded Unclassified
210
- 8 -
(4) White Wheat. The United States consistently produces B. substantial
surplus of white wheat. Exports of this class of wheet come into
competition with wheat from Australia, 0,5 well us from the Denubian
countries. It is, accordingly, very difficult to find market under
present world conditions. Principal customers for white whent in
the past have been China, the Philippines, Ireland, and other
countries where whest is consumed in the form of noodles, crackers,
and biscuits, rether than in the form of white bread.
(0) The United States ordinarily produces a surplus of durum wheat.
However, exports are not large and because durien is produced in
EL very limited area, inports were necessary in 3 recent drought
years. In the past most of our exports of durum have :one to
italy, It is the kind of whest used in the manufacture of mea-
roni and spaghetti.
whout Carryover by Classes
"Jurnal carryover", 68 defined in the Agricultural Adjustment Let of
1938, could be regarded us a desirable minimum carryover figure.
Set at 15 percent of the normal domestic consumption and exports,
this "normal carryover" would now be 113 million bushels.
otoratical distribution of this carryover by classes of wheat,
besed on the July 1, 1236 cerryover which was about the "normal
entryover" figure, and representing B. general minimum below which
it yould not be desirable for the corryover of the different
clastos to fall, would be:
Hard red winter
:
57 million
Soft red winter
--
10
=
Bard red spring
-
25
"
:
5
"
Thirum
White
--
10
"
Total
113 million
stirable 13. selvionel recerves for the over-normal should
proferably be in the hard red winter and hard red mring ulassed.
-06 should Carry the Carryover?
e should be carried by producers, grain elevator vartly oberators,
and carryover merchants, and millers - partly under trade, loans,
under grain crop insurance, and partly under general
Regraded Unclassified
211
- 9 -
STATEM INSTARDING POSSIBILITIES OF INCREASED
DOMESTIC USE OF WHEAT FRODUCTS
yes nor cupita consumption of all food products in the United
Stute since 1920 has remained remarkably stable whether measured in
service, malories, or acreages required for production. This stability
10 the in part to stability in the consumption of individual products;
in art to upword and downward. trends which offset each other.
There has been G. definite tendoney for the per capita consumption
of cursel products to decline. The most important element in the cereal
(roup in wheat flour, the per capita consumption of which, ES estimated
5 Food Research Institute, declined from en average of 176 pounda
in the 5-yeur period 1920-24 to 154 pounds in the period 1934-37. This
downard movement appears to have been due to deep-sested changes In
consulption habits among countries with generally high standardo of
including the United States, the Tritish Isloo, Canada, and
The possibilities of increasing the per capita consumption of whent
in the Inited States in the noor future are not large. Preliminary studies
the in the Bureau of Home Economics indicate that if low-consumption
Pubilies could be brought up to the average, the consumption of all grain
products would be increased approximately 10 percent. Such an increase,
however, presupposes a better income distribution than existe at the
present time. Given the present distribution of income, as estimated by
ativities coverin: the year 1935-36, better spending habits with respect
to night result in an increase of approximately 4 percent in the per
with consumption of grain products. The most desirable increases in
importion would be in fruits, vegetables, butter, milk, 9564, and
maintly meats.
In a bulletin issued in 1936 by the Bureau of Home Economics
(hrenal Bulletin 1757) diets at four different cost 10 vels were [isted
THE illustrative purposes. These were: (1) A restricted diet for
main ency use, (2) 8. minimun-cost adequate diet, (3) e. moderete-cost
minimate diet, and (4) a liberal diet. The amounts of flour and cereals
recomended for inclusion in these four diets decline sharply B.S the
are of the dict increases, the amounts suggested for the "liberal diet"
less than half those suggested for the "restricted diet for
use." This would indicate the possibility that better diets
(or our people might in many instances actually result in B. lower per
consumption or whont products.
Regraded Inclassified
-22
CONFIDENTIAL - NOT FOR PUBLICATION
Table 1
Income from Marketings 1 of Wheat, and National Income Produced
1910-14 Averages and CALENDAR YEARS 1920-1938
inton-
National
Wheat
dar
Income
of Nat'l.
Tax
Wheat 1
Produced 2
Income
(Million Dollars)
(Percent)
1910-14 (avorage)
520
30,700
1.69
1920
1,368
72,600
1.88
1.21
866
51,400
1.68
1922
661
60,300
1.10
1923
305
68,200
0.89
1924
799
68,000
1.17
1925
844
75,300
1.12
1926
84S
76,700
1.10
1027
895
75,400
1.19
1928
770
78,700
0.98
1029
727
81,100
0.90
1030
451
68,300
0.66
1931
266
53,800
0.49
1932
200
40,000
0.50
1933
304
42,300
0.72
1934
317
50,100
0.63
1935
372
55,200
0.67
1158
451
83,500
0.71
1537
603
69,800
0.86
1000
425-50
58,500
0.73-0.77
1
Confidential from EAE - Not for Publication. No Government payments
included.
Z
1020-37: U.S. Department of Commerce; 1910-28: National Industrial
Conference Board estimates reduced by 2.3 percent, the 1929 difference
between that series and the U.S. Department of Commerce estimate.
Regraded Unclassified
13
Table II
Farm Value of Wheat Production and Government Payments
CROP YEARS, 1933-1938
1953
1934
1935
1936
1937
1938
Value of Production ($1,000)
410,291
446,367
521,315
643,183
869,140
476,566
Government Payments ($1,000)
33,305
96,009
111,921
55,000
30,000
60,000
Value of Production Plus Government Payments ($1,000)
504,096
544,376
633,236
698,183
899,140
536,566
Parity Incone ($1,000)
122,000
868,500
842,250
882,000
875,250
849,000
Value of Production and Payments as Percent of Farity Income
61
63
75
79
103
56
Regraded Inclassified
HEAT: 100% YIRLD, all 1919-20 to 1938-39
I
:
:
:
:
$
Supply
Disappearance
Supply
: Acreage :Yield Per:
:
:Average
:
Crop Year
: Planted
I
Acre
Production:
Stocks
:
Total
Domestic:
Net
# Total
1
Farm
,Disappear-
:
# Planted :
I
July 1
:
:
I Export
:
= Price
I
ance
I 1,000
:
:
:
=
=
:
:
2. Cents :
1 Acres
Bu.
:
Millions
o
bushels
:
: Per Bu. :
Percent
:
:
:
:
:
:
:
:
:
:
:
1919-20
2 77,440
1
12.3
:
952
:
77
: 1,029
:
667
:
217
:
884
:
216.3 #
116.4
1920-21
: 67,977
:
12.4
:
843
:
145
:
988
:
548
:
313
:
861
:
182.6 I
114.8
1921-22
2. 67,681
=
12.1
:
819
:
127
:
946
:
566
:
266
#
832
:
103.0 :
113.7
1922-23
= 67,163
:
12.6
:
847
:
114
:
961
:
624
:
205
:
829
:
96.8
-
115.9
1923-24
I 64,510
:
11.8
:
759
:
132
:
891
:
622
:
132
:
754
1
92.6
=
118.2
1924-25
: 55,706 :
15.1
:
842
#
137
:
979
:
616
:
255
:
871
:
124.7 :
112.4
1925-26
: 61,738 =
10.8
:
669
:
108
:
777
:
584
:
93
:
677
:
143.7 :
114.8
1926-27
: 60,712 :
13.7
:
832
:
100
:
932
:
616
:
206
:
822
:
121.7
:
113.4
1927-28
E 66,661
I
13.3
:
875
:
110
:
985
:
682
:
191
:
873
:
119.0 :
112.8
1928-29
- 71,152 5
12.9
I
914
:
112
: 1,026
:
656
=
142
:
798
:
99.8
#
128.6
1929-30
- 66,840
:
12.3
=
823
:
228
: 1,051
:
622
:
140
:
762
:
103.6 :
137.9
1930-31
: 67,150 :
13.2
:
886
:
289
: 1,175
:
750
#
112
:
862
:
67.1 :
136.3
1931-32
: 65,998 :
14.2
=
942
=
313
t 1,255
:
757
:
123
:
880
=
39.0 1
142.5
1932-33
1 65,913 :
11.5
1
757
:
375
: 1,132
:
722
:
32
$
754
I
38.2
#
150.1
1933-34
I 68,485 1
8.1
2
552
1
379
2
930
:
630
:
26
:
656
:
74.4
:
141.8
1934-36
: 63,562 :
8.3 #
526
:
274
:
800
:
657
:
-
5
:
652
:
84.8 :
122.7
1935-36
# 69,207 ,
9.1
:
626
:
148
:
774
:
663
:
-
31
:
632
:
83.2
1
122.5
1936-37
. 73,724 :
8.5
2
627
I
142
:
769
:
691
:
-
26
:
666
:
102.6
:
115.6
1937-38
1 81,362 :
10.7
I
874
:
83 2
1
957
:
704
:
99
:
803
:
96.3
I
119.2
1938-39
= 81,088
:
11.6
:
940
1
154
2
:
1,094
:
#
:
:
:
=
1
:
#
=
:
:
:
:
:
1
Preliminary estimate.
Includes stocks of old wheat only.
Revised 12-6-38 VIIII
Regraded Unclassified
C15
CHOUP ESTING
January 7, 1939.
9:30 A. M.
(Held in Mr. Banes' Office.)
Present:
Mr. Hanes
Mr. Taylor
Mr. Lochhead
Mr. Duffield
Mr. Foley
Mr. Haas
Mr. Schwerz
Engest
(Reading U. P. broadtape.) (Laughs) He can't
resist. This is a broadtape about Bailey.
That's a topic about Bailey?
United:
"Mr. Hopkins' theory to use relief money to
create purchasing power is an unsound theory,"
Mr. Bailey said. He is going to vote against
him. He said he couldn't vote for him - vasn't
going to. He said he was just going to make a
terse statement on the floor of the Senate to
sum up in a few words his viewpoint, but beyond
that he'd do no fighting.
Well, I gather that there might be 8 fight if
there is any leadership, and everybody up there
says, "Well, I'd be willing to go along with the
boys if somebody wanted to start X fight, " but
nobody wants to start it. That's what Bert
Wheeler said.
Hunes:
The general attitude is they have a pretty strong
block and no use fighting over the things you
can't win at. You might as well let it 60. I think
that is the attitude of most of them. That's
Byrd's attitude. He said, "I like Harry Hopkins
personally, but I don't like his viewpoints, and
I ain not going to fight over that; hell, that's
a trivial thing; we've got other battles here."
Taylor:
By the way, did you happen to notice, on this
subject, did you notice in the Merry-Go-Round
this morning? Well, it's all about Harry Hopkins,
and it quotes him as saying that he wants just
216
- 2 -
three things. One is the business end of it;
he wants to have an understanding between business
and Government, and so on, and work that out.
The second is transportation in all forms, and
the third 1s Latin-American Trade. I think that
is probably right. Have you talked to him about
the other two?
Banes:
Talked to nim about Latin-American Trade. I told
him that I felt that the domestic problem was 50
tragic that we'd better confine our efforts at
home for a few days until we fly off to South
America. We've got enough to do right here at
nome. If he does the job before his, which is
to get the Public Utilities and the Government
in some better understanding, if he gets the
railroad situation to - even to be considered, he
could be tremendously helpful there, and getting
our own heavy and durable goods industries on
their feet, with some feeling of more confidence
in the business (lind that the Administration is
not just going to knock the living hell out of
them every time they turn around, your end will be
solved, and the South American probelm will be
infinitesimal to the problem right here. Also,
the relations between the National Labor Relations
Act, and he thinks the business man thinks that no
matter what he doss in his labor relations, he
can't talk; he just can't open his mouth. There
is a fellow out - Guy Helvering told me of his
little flour mill in Kansas. They had a dispute;
they had three men in their flour mill which they
fired; one non they fired because be was taking
flour home; he hed a sack made to fit around his
waist, anu every day he'd take the flour to a
grocer and swap it for groceries. They caught
him at it and fired his. The National Labor
Relations Board seid, "You fired this men because
he was a union Han, and an organizer." They
said they didn't know he was a union man and
didn't care; by Cod he was stealing - telling
samples home with him at night. The National
Labor Relations Board said, "You've got to put
?rim back on." He said they wouldn't put him
back on; he'd close up the shop and they could
go to the devil. "Also, you have been accused of
saying you don't
You can't say that."
......
He said, "I didn't know. I was living in Germany or
Russia yet; I am going to say it; I'll go out on
217
- 3 -
the street corner and say it, and you can out
me in jail with 1t."
Guy sald he'd been voting the Democratic ticket
for life; "now,' he said, "to hell with the
Democrats." It's silly not acting like grown-ups
when you do that sort of thing. There is a
job I think Harry Hopkins can and will do a hell
of a good job.
Also, the employer ought to have the right to ask
for en election, just the same as the employee
has a right to ask for an election. This fellow
Bridges, out on the Pacific coast, said, "We were
the first company that ever asked the National
Labor Relations Board for an election. They said,
'You can't do that.' We said, 'Why'? They saíd,
'There is nothing in the Act which says you may,
and I said, "There is nothing in the Act which says
19 may not.' We don't care who represents our men,
whether it is C. I. 0. or A. F. of L. Every time
We put on 25 C. I. 0. man the A. F. of L. fellows
walked off, and every time we put on an A. F. of L.
can the C. I. 0. fellows walked off. We can't put
the ships out, We had a ship held up in San
Francisco for five or six weeks; it cost us a
million two hundred fifty thousand dollars. It
is purely B jurisdictional dispute; they had no
argument W th us, none whatsoever, but they are
fighting an 'Ing themselves."
That is destruction, pure, simple, destruction.
Finally, neitner of the unions wanted to have an
election. We tried to get the C. I. 0. to ask
for an election; we tried to get the A. F. of L.
to ask for an election. They wouldn't, because
they thought they were going to lose. The National
Labor Relations Board had so much publicity they
had an election because of the publicity.
Here, an employer is perfectly willing to abide
by the rules if he only knew with whom he could
deal. They finally gave us an election, and the
C. I. 0. won, and we began seiling the ships
again.
Duffield:
Doesn't that transportation thing grow out of the
reorganization bill?
Unclassified
18
- 4 -
Taylor:
That I don't know, but I was particularly interested
in that because that is a new idea, to have trans-
portation over in Commerce.
Schmarz:
I think that is true, though.
Tsylor:
I think it is too. I heard it the day before
that is one of the things.
Tanes:
Wasn't transportation in Commerce? Aviation
was.
Taylor:
They - aviation was, but they took that out.
They also had shipping stuff in there.
Ranes:
The Maritime ission is still over there.
Taylor:
It is actually out, It is physically in, But it
is actually out.
Hanos:
I thought it was still in, under the Secretary.
Schnars:
A separate Commission.
Paylor:
Separate Commission, just the way the Aeronautics
is; you've got the C. A. A. for aviation. Then
you've got the trucks, wherever they happen to
be.
Dull'Ield:
I.C.C.
Taylor:
Amparently the idea is to concentrate an over-all
policy in Commerce.
wild:
The President's reorganization bill idea was so-
called 'administrative functions' in connection
with those things, would be best in a judicial
department.
Taylor:
There's been all this talk about 3 Transportation
Department. I would gather this is a substitute
for the Transportation Department. I am just
guessing, but that is the way it sounds.
Schwarz:
1 had this new press man over here yesterday; he
wanted to see our set-up, and get some ideas. I
gather they would want a Bureau in the Department.
It was the political editor of the Tabloid in
Regraded
C19
- 5 -
Chicago, which is the only New Deal psper.
Lubrield:
fle said that is what he gathered.
Echware:
That - that is what they are after.
Duffield:
You don't know what 'administration" covers.
Hanes:
George, you got anythin this morning?
Huas:
I have nothing this morning.
Hanes:
Eddie?
Voley:
I've got nothing, John.
Hanes:
How Is Herman?
Foloy:
I haven't heard anythin, from him this morning;
he had a very good day yesterday. He's been asking
for me to come up a week, and the doctor wouldn't
let him see me, but he was so much better yester-
day the doctor thought I could 20 up, so I told
him about everything that's going on except what
is going on in the office. I told him about the
appointment. He said, "They've been keeping
things from me." He was interested. Then they
chased me out. I tolé him everything was routine
here. He wanted me to know that I could come up
and talk to him, if I wanted to, but not to feel
I had to. I told that to Mac and Mac said, if
I did he'd kick me right down Pennsylvania Avenue.
Lues:
Does he look pretty 6000, Ed?
Poley:
He looked much better than I expected him to
look. He's in apparently no pain at all; all the
lines are out of his Cace, and his face is much
fuller; he's got some color now, and he is rested.
He looks much better than I expected; he is not
drawn at all.
Honos:
Is he still laboring under the impression he is
going to be back at work in a few days?
Poley:
I think so; he told me it was fortunate for him
the Secretary was away because it would give him
a chance to get some rest. I was afraid he was
going to ask me.
220
- 6 7
Taylor:
That Is the best he's had, sitting up Tad talking
like that. We'll see 10V he gets through the day.
Hones:
Wayne, anything new?
Pagior:
No. I've got Bewley coming in again at ten; he
says it isn't anything particularly important, but
it is some message in connection with what they
did yesteriay.
Ah - I want to go over and see Welles on B lot of
stuff at eleven o'clock this morning. It is all
backed up in a lot of these South American things;
I don't know whether to do anything about it or
not. I have been trying to get hold of him for
a week, and it hasn't been easy, so
Archie, have you cot anything?
Docthend:
Well, the exchange market has taken that transfer
pretty well. There's a lot of question as to
whether It is FL sign of weakness or strength, but
naturally, they wouldn't have taken the money out
unless they needed it, and the fact that they took
It all out
.....
The market has been 35 high as
4.68 this morning; that is four points over the
4.64 points before this action was taken. I would-
n't say there's been any decided movement of cabital
back to London at all. The selling has stopped;
at least that is a gain, and they've got four points
to work on. But generally, I would say the back-
ground is 4 little bit better; I think a lot of
people like the 1dea that England is taking a little
more aggression than they have done. A lot of
people figure England has been drifting the last
two or three months with B. hopeless spirit.
This shows more of 2 fighting spirit, which they
like.
thrms:
The French still gaining?
Lochliead:
The French are still gaining; yesterday they went
a little bit in the background, with all this.
They weakened a little bit against sterling. They
have been feeling quite cocky, you know, this last
month. There's all the difference in the world.
Cariguel was just talking - not feeling very
much.
121
- 7 -
How much have they actually galned over the last
thirty days? They must have goined a hell of a
lot.
They probably doubled their figures. What did
they say in that last cable, Wayne? They had gotten
back altogether, ten billion francs, wasn't it?
Of course, they, themselves, have not gotten back
anything like the money that's gone out. You see,
you've got a oeculiar thing, that since the Tri-
partite started, even since that time, the franc
is just half its former value, so at this rate,
a three cent franc, if they gained brek half the
money which went out of the country, they'd have
just half the money that they started with.
molor:
Don't you figure they've gotten back somewhere
between two fifty and three hundred thousand
dollars?
Godwiend:
Yes, that is pretty good for France. That makes
a lot of money in franes. It enses off the money
situation very much.
Taylor:
The best thing they have been doing in there, they
have been gradually getting down their current
rates, which were the things holding them back
more than anything else. They wereavery, very
dear money country. They couldn't finance their
Government; they couldn't finance industry, and
so on, and that is easing up quite nicely. If they
can go a little further, they will be able to
refund some of this Governmental debt at a decent
figure, give them another t'uree or four months,
and once they are able to do that, why, it is the
biggest single economy they could make, because
their carrying charges for their debt outside of
the military debt is the biggest figure in the
budget. Outside of their military figure, it
would average around five per cent.
Lochmma:
That was taken with all the old stuff. They were
paying six and seven per cent. But the other im-
has died down considerably the last four or five
portant thing over there is their lanor situation
months.
Hanes:
I saw in the paper this morning Bonnet is having a
rungh time.
Regraded
222
DO I 1
Phytor:
One thing you'd be interestod in is their taxa-
tion; I don't the whether you noticed that or
not. There are certain types of things - why
they have weighed them in favor of doing that
kind of a thing, for instance, certain export
industries, why they are giving them rebates - cash
rebates, or the equivalent of it, and new capital
for certain types of industry, why they are giving
them a rebate on it.
Chick, anything this morning?
No, thank you.
I don't know why I bring this up; I don't feel
particularly mean; I found some unfinished business
on that Banking Committee. We didn't get around
to your Industrial Bank.
No, we didn't. Tomay Corcoran's talk to Preston
Delaho about E week ago. Frankly, I haven't done
anything about that. I read all those plans, and
I am familiar with them. Any time you want to dis-
cues them I'll be available.
27/"ield:
I think we - I don't like to bring it up.
INSURE:
I think we ought to 00 it. If you will follow
it up. I spoke to Preston Delano about it; he
wants to get en answer for Tommy Corcoran.
inffield:
The Secretary asked Mr. Oliphant to get together
some sort of a bill on consolidation of bank
examin tions for this group to look at. And the
third one, also under the head of unfinished
business; and that was the question of whether
we wanted to insist on consultation of these new
greferred stock banks; the question of what we
should do in the Anglo-California Bank, and these
others. On the Management, whether we wanted them
to put in a section on consultation for Management.
I just mention them because I'd like you to tell
me if you want are to ão anything on it.
Theres
I think, perhaps, we'd better have a meeting of
that banking group and at the same time I've got
one other suggestion. Are you familiar with the
Glass Bill of 1938, the holding company bill?
223
- 9 -
Duffield:
Yes.
Are you familiar with that, Ed?
7014y;
Generally, yes.
Should:
I'll tell you what I think we ought to do. The
Decretary has asked Mr. Glass to wait till February
first before introducing that bill. He is going
to introduce it February first, and I don't think
the Secretary has studied that particular bill,
orhis thoughts crystallized as to the type of bill
held 60 for, and I think v.e ought to be in position
to express an opinion to him;at least be familiar
with that Glass Bill, and see if there is anything
in the Glass Bill which we would recommend to him
from the Comptroller of the Currency's Office here.
That is, I quess that is where our interests in
it comes, is it not? Through the Comptroller of
the Currency?
Dur Mald:
Yeah.
Tylor:
Well, there is some history there that has a bear-
ing on that.
The Secretary is calling me. He sela he wanted to
talk to me alone, so I'll go in his office.
Dm"ield:
Why don't we adjourn?
Terrior:
I'll just tell you "hat is on that, because the
Secretary has got a point of view on that, and
Y you will just
Then:
Listen, if you - Eddie, I tell you what you do.
Will everybody connected with that banking study
get a copy of that; I think there are two - the
House and Senate Bills. I've got both copies of
them - and start studying those, and see If we
can make any suggestions. I've got a lot of sug-
gestions to make on that bill, and I'd like to
suggest them.
Duffield:
Can I talk to you later on in the morning?
Mass:
Yes.
Regraded Unclassified
24
- 10 -
Mylor:
At the time last year, I think you were in on that
when we went over to Jesse's office. There was n
subcomittee of the so-called leming agencies
comittee, which was specifically appointed to
look into that situation. They nade a report to
the Secretary. If you will look 110 that regort,
and the Secretary - that represents the Secretary's
point of view also, which is the Glass Bill does
not 80 far enough, and he should not only have a
freezing, which this thing does, but you ouglit to
have a liquidation.
Duffield:
Yeah. Well, Sherbondy has gotten something that
embodies the Treasury idea.
Taylor:
That is a formal thing, and that is what the
Secretary
Do you have a copy of that?
Taylor:
I don't know whether I have a copy of that or not.
I might have, but it is in the Secretary's
files, I am sure. It is a formal report of Jesse's
as Chairman of the committee, and they had the
Federal Reserve; they had the P. Γ. I. C., they
had the Comptroller's Office, and they had the
Treasury in on that, and they went into it very
completely one came out with this recommendation.
Infrield:
Yeah. All right.
Regraded Unclassified
225
January 7, 1939
To:
The Secretary
From:
Miss Lonigan
EL
The total number of WPA workers on
December 31, 1938 18 2,985,875.
The decrease during the week from
December 24 to December 31 was 35,358
workers. However, WPA employment 18
still higher in December of 1938 than
in December of any previous year.
Regraded Unclassified
226
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly W.P.A. Employment
3.5
1936
1937
1938
1939
1938
1939
,
M
4
$
I
-
J
a
A
al
M
J
a
.
MAR.
MAY
JULY
seet.
NOV.
-
NAM,
MAY
JAY
SEPT.
NOV,
WILLIONS
MILLIONS
IDVS
or
ur
or
MINAERS
MORKERS
MORKERS
3,5
3.5
3.4
3.4
3.2
3.3
3,3
5.2
1.2
2.8
3.1
3.1
3,0
1.0
2.4
2,9
2.9
2.8
2.8
2.0
2,7
2.7
2,6
2.6
2.5
jie
1.5
2.5
2.4
2.4
211
2.3
1,2
2.2
2.2
2.1
2.1
.a
2.0
2.0
1.9
1.9
il
4
1.8
1.8
1.7
1.7
1.6
o
1.6
SEPT.
NOT
JULY
SEPT.
NOV.
-
MAR,
i
JULY
NOV,
-
5.
E
y
e
.
of
JAIL-
F
a
-
1021
1536
1937
1938
1939
1938
1939
SOURCEL MIRKS PROGRESS ADMINISTRATION
Office el The Secretary of the Transiry
1 1 I a I
Regraded Unclassified
WORKS PROGRESS ADMINISTRATION
227
Number of Workers Employed - Monthly
United States
Number of Workers
1936
(In thousands)
January
2,926
February
3,036
March
2,872
April
2,570
May
2,340
June
2,256
July
2,249
August
2,377
September
2,482
October
2,581
November
2,483
December
2,192
1937
January
2,138
February
2,146
March
2,115
April
2,070
May
1,999
June
1,821
July
1,569
August
1,480
September
1,451
October
1,476
November
1,520
December
1,629
1938
January
1,901
February
2,075
March
2,395
April
2,582
May
2,678
June
2,767
July
2,967
August
3,067
September
3,120
October
3,245
November
3,216
December
2,986 B,
Source: Works Progress Administration
8, Confidential
Monthly figures are weekly figures for the
latest week of the month.
They include certified and non-certified
workers.
Regraded Unclassified
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed - Weekly
228
United States
Week ending
Number of Workers
1938
(In thousands)
March 5
2,167
March 12
2,244
March 19
2,357
March 26
2,395
April 2
2,445
April 9
2,504
April 16
2,531
April 23
2,544
April 30
2,582
May 7
2,607
May 14
2,626
May 21
2,650
May 28
2,678
June 4
2,693
June 11
2,712
June 18
2,736
June 25
2,767
July 2
2,807
July 9
2,853
July 16
2,899
July 23
2,938
July 30
2,967
August 6
2,993
August 13
3,017
August 20
3,039
August 27
3,067
September 3
3,086
September 10
3,102
September 17
3,114
September 24
3,120
October 1
3,129
October 8
3,137
October 15
3,167
October 22
3,201
October 29
3,245
November 5
3,263
November 12
3,258
November 19
3,244
November 26
3,216
December 3
3,185
December 10
3,139
December 17
3,083
December 24
3,021
December 31
2,986 of
Source: Works Progress Administration
Confidential
Regraded Unclassified
128
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro
DATE:
January 7, 1 p.m., 1939
NO.:
8
Reference my telegram 299 of December 31, noon.
I am informed by the Director of Exchange that the
Bank of Brazil will close exchange for daily quotas and
maturities from December 1 to December 7 inclusive dur-
Ing the week of January 9th.
The selling rate for compensation marks was increased
on January 2 from 5.980 to 6.000 by the Bank of Brazil.
The buying rate of 5.6000 remains unchanged.
Please inform Commeros.
SCOTTEN
EA:DJW
Regraded Unclassified
to
Frieral Surplus Commodities Corporation
Summary of Commodities Procured -
Ficcal Year 1938 and Fiscal Year 1939 to date
Figures in thousands)
:
:
Total
:
:
:
fiecal
Community
:
Unit
7/1/36 Total to :9/30/38:10/6/38 to to to 12/8/38 112/15/38:12/22/38:12/29/381 1
Total
:
year
fiesel 6.
+ ended
to
:
to
to
to
to
to
to
to
-
year :
:
1 6/30/38*
3/29/35
111/9/38:11/16/36111/23/3611/30/38:12/7/3/
L0/14/38:12/21/38:12/86/35:1/4/39
E
1939
:
I
to date :
was (Dried)
Founds
14,557
1
Buchele
-
5,625
(
110
-
-
I
-
(Frost)
(1)
,
3
198
166
70
1,
-
-
(cried)
Pounde
I
-
-
-
-
-
546 (2)
2,990
-
-
-
]
-
-
-
-
-
-
-
I
-
-
I
-
Date (inled)
Founde
56,600
-
(3)
-
-
-
-
-
-
-
I
-
Em (corn)
Buchels
33
38
3,430
0,300
2,670
4,350
3,750
1,330
21,920
(4)
,
-
-
-
-
-
-
-
I
-
e
-
-
I
36 (5)
wi 2-117 (Prech)
Duchele
11
119
=5
11
46
67
en
-
-
-
-
-
-
-
-
-
J28 (6)
Insurance (Conned)
Oudro
-
50
-
-
.
-
-
-
-
-
-
-
-
-
-
-
60 (7)
II DUTAI
Pounde
15,035
6,156
5,109
3,783
3,804
1,719
2,469
1,938
924
576
1,773
Puchels
1,818
2,794
2,716
57
2,166
37,846 (8)
990
1,127
370
234
216
194
133
124
89
100
47
45
14
-
-
-
2,691 (9)
20000 Spear
Gallons
237
107
-
-
-
-
-
36
25
45
30
22
5
-
-
-
270 (10)
411
Fuchels
#
101
to
1
le
17
5
1
2
1
2
1
-
-
I
-
153 (11)
DI
Ordtew
-
21
-
-
-
-
-
.
1
-
I
-
-
-
-
21 (12)
13) Jebery
bunches
1,174
176
5
-
F
-
-
1
I
I
-
,
-
-
-
-
163 (13)
total Vinale Theat)
broks
408
-
-
-
-
F
-
-
-
-
-
-
-
-
-
-
- (14)
Excess
Pounda
3,446
-
,
-
-
-
-
-
1
-
-
-
-
-
1
-
- (15)
Zern
.
e
-
-
-
,
-
-
-
-
-
-
.
-
-
-
à (16)
Carn and
Berrelo
-
-
I
-
-
-
-
-
44g
,
-
-
-
-
II
449 17
15 Cotton
Bales
-
10
-
-
-
.
15
-
-
,
,
-
-
-
-
25 16)
Fabrid
Yarde
1,133
167
3
22
1
1
30
22
15
16
»
250
-
20
I
26
553 (19)
1918 Brg#
Doge
I
-
,
-
-
II
-
-
-
-
-
500
-
150
180
-
130 (20)
011
Pounde
9,760
-
-
-
-
-
-
-
-
-
-
-
-
-
I
-
- (21)
01 2017 (40011)
Copes
272
-
I
-
-
-
-
-
-
F
-
1
-
-
-
-
(22)
41 75h
Pounde
3,077
-
-
-
,
-
-
-
-
-
-
»
-
-
-
-
(2)
Plan
Barrelo
2,699
279
-
-
-
-
-
,
-
#
1
-
-
-
279 (24)
Description
401
:
Boass
,
-
9
in
-
20 (25)
-
-
-
-
-
-
-
-
-
-
medicals Judge
Dañne
552
471
-
-
54
214
-
227
132
5
95
,
-
75
-
-
1,303 (26)
Tony
-
-
-
-
-
-
-
-
I
-
-
-
,
-
27
Terms
-
mile
Labric
-
-
-
-
-
I
-
.
-
-
-
15,560 (25)
-
15,560
-
-
-
2,550
-
1
-
-
-
-
-
- fideing
Zarde
E
-
-
-
-
-
2,550 (29)
,
-
- «Ux (Dr) akim)
Foundo
1,961
-
-
-
-
-
-
I
-
-
-
-
-
-
-
21,520
8,901 (30)
5) 4b (STuda)
Quarta
18,497
0,672
534
554
530
631
t58
8,947
4,823
3,042
4,559
4,107
5,185
6,170
6,345
541
47,839 (31)
979 32
76
153
74
-
-
-
-
1
-
(I) internal
Pounds
3,000
074
-
-
-
-
-
54
44
35
12
1
-
-
-
-
-
431 (3))
311
Bokes
1,932
430
57
1
-
.
-
-
-
,
-
-
-
2,975 (34)
Inc Age
Brgs
21,625
9,075
(
-
-
-
-
-
)
-
-
-
,
-
11,100 (35)
Swimbe,
Pounds
2,534
3,523
-
4,791
1,673
913
-
-
-
.
-
-
-
-
-
-
1
-
-
6 (36)
(reby) (Froda)
Bushele
e
o
-
-
-
-
I
for (Prom)
Boxee
313
.
-
-
-
11
PA
-
-
13
24
5
2
294 (37)
229
-
-
-
-
-
#
-
-
- (38)
-
-
-
Proo (Janned)
Capes
862
1
-
!
-
1.
-
-
=
-
-
-
-
- (39)
-
-
-
-
$91 Taxa Deters)
Pounde
6,000
-
-
-
1
,
-
-
-
-
-
-
-
-
3 (40)
I
(€) in Perm)
Bushelo
-
3
-
,
-
-
-
-
-
-
-
-
-
378 (41)
ammet)
Bushela
WHO
&
204
122
36
5
-
,
-
-
-
-
-
-
-
2,367 (42)
42 (-nite)
Punnels
4,325
2,069
232
45
19
2
-
-
-
-
-
,
-
-
-
-
#
- (43)
-
-
2,562
-
-
(R) Potito A Flour
-
-
-
Founds
-
-
-
.
-
-
-
-
-
- (44)
of Prome,
55
-
-
,
-
-
lane
-
-
-
-
,
13 (+5)
-
-
I
-
-
13
1
-
-
(45) Prine (reab)
-
-
Bjahels
-
-
-
-
-
-
-
11 (46)
-
-
(46) Refains
11
-
-
-
15
-
-
-
-
Tone
-
,
-
-
-
-
-
-
- (47)
-
-
73,190
-
-
-
-
-
(47) Nice (willed)
Pounds
1
-
-
-
207
411
333
-
1,011 (46)
-
-
-
-
-
(46) Tobacco
Founde
3,500
-
-
145
-
-
.
-
-
-
(
-
-
-
-
,
145 (49)
-
45) Instruce (Genned)
Cashe
50
-
-
-
-
,
-
-
114 (50)
(50) Transport (Fresh)
114
-
-
-
-
-
-
-
Bushele
262
-
January 7, 1939
Treasury Department, Division of Research and Statistics.
. figures regarted by Federal Burplue Commodities Corpuration cancellations are based on and telegraphic reporte and are unrevised.
Flance year 1935 totala have been revised to include all contrast other adjustments.
Regraded Unclassified
201
January 7. 1939
Mr. Bewley, Financial Counselor of the British Babasey, called this
morning to transmit a message from the British Treasury. Mesars. Taylor
and Lochhead were present. The message he conveyed vas similar to that
telephoned by Butterworth on Thursday evening, January 5. and confirmed in
Butterworth's Cable 421 of January 6, 1939.
Mr. Bewley explained the measures the British authorities wore taking
to prevent speculation against sterling by may of gold and stated that they
would be grateful for any help which the U. S. Treasury could give by way
of advice to American banks which do such business through their offices
abroad. An exact memorandum of this portion of his message is attached
hereto.
It was explained to Mr. Bewley that the Treasury would be glad to 00-
operate with the British on this point but we thought that this cooperation
would be most effective if handled in an informal manner rather than by the
issuance of any regulations or publicity. The number of American banks with
offices abroad is limited and it was decided to request Mr. Harrison,
President of the Federal Reserve Bank of New York, to explain the situation
to the American banks with branches in London, and request their cooperation.
If this action was not found to be sufficient, additional steps could be
taken as the situation developed. Mr. Bewley expressed his satisfaction
with these measures and stated that be would notify the British Treasury
accordingly.
Mr. Morgenthan called on the telephone at this moment. and after ad-
vising Mr. Bewley of his personal satisfaction of the recent steps taken by
the British Treasury with respect to the defense of the pound, confirmed
these arrangements.
AL
Regraded Unclassified
232
The British authorities are hoping to prevent the renewal of
speculation on any large scale against sterling by way of gold. To
this end they have carnestly requested the banks and bullion market
to refrain from transactions in forward gold and not to facilitate ad-
vances on gold and to continue scrutinising foreign exchange trans-
actions with a view to avoiding any undesirable transactions being
carried out,
For this purpose the Bank of England has formally asked for the
cooperation of the authorities in Paris, Brussels, Zurich and Amsterdam
in limiting speculation against sterling by way of gold.
While the question does not arise in the same form in the United
States the British authorities would be grateful for any help which
the U. S. Treasury can give by way of advice to American banks which
do such business through their offices abroad.
Regraded Unclassified
233
EG
GRAY
London
Dated January 7, 1939
Rec'd 11 a.m.
Secretary of State,
Washington.
26, January 7, 1 p.m.
FOR TREASURY FROM BUTTERWORTH
The transfer of gold and increase in the fiduciary
ISSUE have been received with unanimous approval by the
London press which Emphasizes that the steps involve no
inflationary action as they imply no increase in the
total note issue while the strengthening of the Exchange
equalization account's gold reserves is universally ap-
proved. Most writers point out that the gold has been
there all the time but that the retransfer to the EX-
change equalization account is a bold and judicious
means of making clear to the world the full amount
available to defend sterling. Such phrases as the
MANCHESTER GUARDIAN'S "reserves are being moved up
to the front for a firm defence of sterling" and the
FINANCIAL TI"ES' characterization of the "Maginot Line
for the pound" are typical. Though frequent reference
is made to the possibility that in continental centers
the
Regraded Unclassified
234
⑉2⑉ #26, January 7, 1 p.m. from London
the increase in the fiduciary issue will be misunder-
stood the Effect of this is not generally considered
of permanent importance.
There is little speculation as yet regarding the
Intentions of the Government in bringing new legislation
before Parliament evident in the press. It seems to b E
generally assumed that it is mertly a question of making
the increase in the fiduciary issue more than a temporary
measure.
The FINANCIAL NEWS editorial however concludes as
follows: "as the MacMillan Committee was pointing out
over SEVEN years ago the only Effect of a fixed fiduciary
issue" is to forbid the Bank of England to use by far
the greater part of its gold for the only purpose for
which it is hEld or could bE used". It might EVEN bE
argued that it is merely as a concession to convention
and prejudice that any gold has been left in the hunk
at all. In any event since 1931 the bank return has
never revealed EVEn the true gold position of the bank
itself for Existing legislation compels the bank to
value its holding at the old statutory price of rough-
ly 85 shillings per fine ounce. For some years there
has been much speculation about whether the bank might
not
Regraded Unclassified
235
-3- #25, January 7, 1 p.m. from London
not revalue its holding at a figure approximating more
closely to actual prices. It now SEEMS possible that
the authorities may now at last SEEK powers for such a
revaluation. To BEEK Parliamentary Endorsement of ao
large B. change in the fiduciary issue as that announced
yesterday is admittedly right and proper but it is not
legally necessary and certainly does not need the
amendment to the 1928 act which is to be sought when
Parliament resumes. Even if powers are taken it would
probably now be desirable to keep them in reserve as a
last shot in our locker though the account's present
position should make it unnecessary for that bolt EVET
to bE used."
The city aditor of the DAILY MAIL concludes his
comments as follows: "The currency situation as between
the bank and the exchange fund is now so complex that I
should not be surprised if steps were taken when Parliament
considers the question next session to clear up the SOME-
what confused relations now Existing between the two in-
stitutions. Already New York is forecasting the revalua-
tion of the bank's remaining gold reserves and the guess
will not bE far short of the mark".
The
Unclassified
236
-4- #26, January 7, 1 pame from London
The dollar opened at 4671 offered and moved to
468g before returning to the former figure at fixing
time. The British authorities gave some dollars to
stendy the rate and have since fixing been supplying
a few. Gold was fixed at 148 S 9½ d and of the 139
bars dealt in 47 were married and the market supplied
all the gold. The Exchange market is uncertain and
in the process of evoluating the recent measures.
JOHNSON
CSB
Regraded I Inclassified
237
HRE
GRAY
PARIS
Dated January 7, 1939
REo'd 2:50 p.m.
Secretary of State
Washington
41, January 7, 1 p.m.
FOR THE TREASURY
Trading was fairly active in unofficial dealings
between banks this morning but the turnover was not
important. Sterling fluctuated between 177.20 and 177.50.
It is at a discount of about 7 centimes for one month and
at par for three months. WE are told by our market contact
that the fund limited its action to the purchase of a
small amount of dollars. The dollar hEld steady at around
37.90.
The announcement of the transfer of 200,000,000 to
the British Exchange fund was received with marked
enthusiasm and favor by the French financial press.
Briefly the press stressed the unquestionable importance
of assisting the British authorities in maintaining
sterling. First of all because the monatary alliance of
the two countries should meet and the political alliance;
secondly because of the franc followed sterling in e
possible decline it would depreciate in relation to gold,
French
Regraded Unclassified
238
HRE
2-#41 From Paris January 7, 1 p.m.
French prices could find themselves at a disadvantage
in relation to the sterling bloc prices; and thirdly
because the general interest in behalf of monetary
instability would be disastrous. AGENCE ECONOMIQUE
observes that the financial strength of the British
Empire is the basis itself of the protection of n
regime of liberty, and that to maintain it London
should bE able to count upon Paris and upon NEW York.
WILSON
NPL
Regraded Unclassified
239
REB
PLAIN
London
Dated January 9, 1939
Rec'd 3:25 P. The
Secretary of State,
Washington.
10, January 9, 6 D. m.
FOR TREASURY FROM BUTTERWORTH,
It may be of interest to have details as to the changes
which will result in the Tank of England's statement from
the transfer of gold on Saturday to the exchange Equaliza-
tion account, This WEEK'S statement will show a reduction
from £326.4 million to 6126.4 million in gold in the issue
department and an increase in securities of L200 million
which were transferred from the Exchange Equalization
account to the issue department of the Bank of England.
The total note issue will bE 1526.4 million which will
show a reduction of 130 million on the previous week's
statement which included the increase in the fiduciary issue
by that amount which was made in the first WEEK in December
to meet the Christmas note demand. In other words the total
note issuc will return to the figure of 526.4 which hEld
throughout 1937 and 1938 EXCEPT for the two temporary in-
creases at Christmas time. This will bE backed by 1400
million
Regraded Inclassified
240
REB
2-1/40, From London, Jan. 9, 6p.m.
million of securities and 6126.4 million of gold instead of
1200 million of securities and L326.4 million of gold.
Other items connected with the note issue will remain the
same EXCEPT for the usual fluctuations in the notes in
sirculation and in the reserve in the banking department,
but the latter will bE affected by the decrease of 130
million and there will bE a corresponding decrease in
securities in the issue department representing the re-
transfer to the banking department of the securities
transferred in December to the issue department to back
the increase in the fiduciary issue over the Christmas
period.
The fiduciary issue, being the amount, fixed at any
given time, of notes issued which are not backed by gold,
was fixed in the Currency Notes Act of 1928 at 1260 million.
Under provisions contained in that aot the fiduciary issue
was raised to 6275 million in August 1931 where it remained
until March 1933 being then reduced to the statutory level
of 5260 million. In December 1936 the fiduciary issue was
lowered to 5200 million at the time when L65 million of gold
(at 85S. per ounce) was transferred to the Bank of England
from the Exchange Equalization account. The fiduciary issue
remained
Unclassified
241
REB
3-#40, From London, Jan.9,6p.m.
remained at 1200 million throughout 1937 and 1938 EXCEPT for
the Christmas increases. Saturday's increase to 1400 million
therefore raises the fiduciary issue by L140 million OVEr
the statutory level of the act of 1928.
Though the. British note issue 1s not based on a gold
backing of any stated or fixed proportion it may bE of
interest to have calculated the proportion prevailing at
various dates. In GENERAL between 1925 and 1931 when the
gold reserve stood around 150 million which was the level
mentioned in the Cunliffs report as suitable, the proportion
of gold to the note issue was around 40 per cent. It f'Ell
in August 1931 to about 33 per cent and was as low as 30
per cent in December 1932. After the considerable increases
in the Bank of England's gold reserve the proportion of
gold to the total note issue rose to a marked degree stand-
ing throughout 1937 and 1938 at around 60 per cent. Today
with the Bank of England's gold reserve reduced by 1200
million the proportion stands at 24 per cent. It should
be noted, however, that this is on the besis of the Bank of
England's gold being valued at about 85S. per ounce. If the
current market value is taken of 150S. the proportion of
gold to the total note issue would be about 42.3 per cent.
The
Regraded Unclassified
142
REF
4-#40, From London, Jan.9,6p.m.
The present ratio of gold at 150S, to the notes actually
in circulation (that 1s the total issue minus notes hEld
in the reserve of the banking department) would bE about
46 per cent.
2. Naturally it is by its long-term influences and
Effects that the recent actions of the British monetary
authorities to strengthen the technical and psychological
position of sterling must be judged but today's market
reaction has not proved décisively favorable. The dollar
which opened at 4.67-3/4 has been on balance bid but the
emounts dealt in have not been large. Most of the bidding
is said to have come from the Continent and the dollar
closed at 4.67-1/4.
Gold was fixed at 148S. 7 1/2D., A 1/2D. premium, and
of the 161 bars dealt in 72 were married and the British
fund supplied the remainder.
JOHNSON
HPD
Regraded Unclassified
243
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 9, 1939, 4 p.m.
NO.: 47
FOR TREASURY.
Today the exchange market showed a cautious tendency.
No important turnover. At opening sterling was around
177.40; on the official market it was around 177.25 at
closing. One month forward rate is par; three months,
about 15 centimes. This morning at 37.90 the fund pur-
chased about $1,000,000.
The security market was unsettled and rentes lost
about 1 franc 50.
The adverse trade balance for December is 922,000,000
france compared with 812,000,000 for the preceding month
and 2,217,000,000 for the corresponding month 1937. There-
fore the adverse trade balance for the year 1938 totals
1,539,500,000 francs compared with 1,845,200,000 france
for the year 1937.
The
Regraded Unclassified
244
REB
2-#47, From Paris, Jan. 9, 4 P. m.
The ViEW is Expressed in the FINANCIAL PRESS that the
recent monetary measures taken in London are adequate and
justified. The financial Editor of LE TEMPS writes that
to an important degree the recent outflow of capital
from London is the result of vacillation and obscurity
surrounding the monetary policy pursued by the British
authorities but he believes that the recent decision
shows that the policy has been modified. Unless inter-
national situation again becomes serious hE does not SEE
wity the effort now being made with respect to sterling
should not succeed.
"TILSON
CSB
Regraded Unclassified
245
January 9, 1939 (approx)
While the Secretary was in Boca Grande, the
President cut out the appropriation for the three
cutters and fifteen airplanes, even though he had
originally approved the request as contained in the
attached memorandum.
The President said, "He would
go down to Boca Grande. He wasn't around, so I Just
cut it out."
Regraded Unclassified
E / 5 246
C - X
127 930
Regraded Unclassified
refer 930 to
/ Y v- 2-1-39-0 3 -
( J [ 1 1 C
~ ^ 6 9 - e
- 1 etc
Regraded Unclassified
247
FOR THE FRESIDENT,
The Secretary of the Treasury has imasmitted to this
office, for advice as to the relation to your program, the
attached draft of letter to the President of the Senate with
a draft of legislation authorising appropriations for the
following:
Retimated
Unit Cost
Total
1. To construct and equip three
Coast Guard culters, of ap-
proximately 2000 tone do-
placement each and designed
to have a speed of not less
than twenty knots
$3,000,000
$9,000,000
2. To establish, equip, and
mintain a Coast Geard
base and air station on
the coast of Maska is
such locality as the Com-
mandant of the Coast Guard
may recommend
2,733,000
3. To purchase or construct,
and to equip, fiftern ser
planes having a cruising
range of not lass than
2000 statute miles
166,000
2,490,000
Total
$14,223,000
It will be noted that the proposed legislation refere to
the national defense aspeet of the new equipment and facilities,
and in this connection I invite your attention to our converse-
tion of Desember 12 or 13 regarding outions and planse for the
Coast hard. At that time there was under considemtion the
matter of including A reforeme to these items in your message
to Congress on national defense, but the message, as transmitted,
414 not contain such reference.
248
- 2 -
You will resall also that your of December 27,
1938. transmitted for my information a note from Secretary
Morgenthan with a memorantes from Admiral Wassche of the Const
Guard which indicated that the Havy Department favored the
establishment of combined Havy and Coast Quard facilities at
Kodiak, Alaska, said Coest Guard facilities to include an air
station and a base for Goast Quard vessels.
In view of the fast that the matters included in the Coast
Guard proposal have had your attention previously. 1 shall await
your instructions before advising the Secretary of the Treasury
AS to the relation of the proposed legislation to your program.
S/D A Bace
Acting Director.
Regraded
Unclassified
249
Gibbons:
I found you had gone all over the situation AS
far as Bennet Field, on the airplane failure to
get down there, is concerned.
8.8.70:
Yes. Well, the less said about that the better;
I told Admiral Waesche the Coast Guard let de
down, all right.
01101ams:
Yes.
And the President had the memorandum from Bell
asking for these three cutters and fifteen planes,
and he brought it up yesterday in front of McIntyre,
and Mac said, "Didn't you want to take up with
the Secretary?" And he said, "He would go down
to Boca Grande. He wasn't around, so I just cut
It out." 11
Dell:
That's about the story.
It was the story. He said, "You *111 60 down to
Boca Grande; how CO you expect to get your three
cutters and fifteen airolanes?" It is the truth.
ackoynolds:
I don't even think it's funny.
M.M.Jr:
What?
(choynolds:
I don't think it's funny.
IMAGE:
He said, "You were away."
Sell:
It wasn't brought to his attention.
He certainly dian't plice the blane on you.
Gibbons:
Ah --
H.S.Jr:
You mind if I keep moving? Is it Important?
Gibbons:
No. I'll talk to you sometime again about Const
Guard.
H.M.Jr:
talking; It's your people, and those neople I
No down use there are just not on their toes. Now,
told this fellow Waesche, and I told him over a
year duty, ago and he hasn't done it. He is flying
to take von Paulsen off active still flying
people.
Regrade
Unclassified
250
Gilbons:
I didn't know that.
H.M.Jr:
Just because he is a pal of his, he doesn't do
it; and these people up there - if they had been
on their toes they'd have gotten 8 plane down
there. The only reason I Gidn't say anything
more is because those people were saved. If
those people had been drowned, it would have
been nobody's fault but Coast Guard's. It's the
most outrageous performance I ever saw. Waesche
doesn't defend lt.
He can't defend it.
I said, "If you had gone down there and gotten
those people, I could 20 up on the Hill and ask
for three cutters and fifteen planes." There is
no excuse; I don't get the opportunity; they fuss
around - why don't they out a men up there? It's
your people.
Giobons:
I know it is, but I didn't know about outting
Paulsen off.
T.M.Ir:
Paulsen was supposed to have been taken off.
Gibhons:
I didn't talk to you about it on account of your
throat condition.
F.I.Jr:
I did it the same day, the same night. I wanted
to know where was Coast Guard. The only reason
I haven't fired somebody is because the people
lived, but if those people had drowned, it was
nobody's fault but Coest Guard's; absolutely
nobody's fault but Coast Guard's.
Gibbons:
Of course, they haven't got -- they just had that
one old plane there; they should have scine moru.
H.N.Jr:
They had the new Hall aluminum plane,
Gibbons:
They had one brand new plane. They didn't even
find out how many people were to be rescued.
S.M.Jr:
Well, the people lived; there's no use had getting
excited, but I hope - I mean, if they diea,
couldn't have excused ourselves at all.
then we'd had a nice investigation and we
251
Gibbons:
All right. Well, the only thing that annoys me,
I didn't know about Paulsen.
H.M.Jr:
The story was, he was attached AS Aide to
Secretary Ickes, and Mr. Hopkins, when they had
that boat, and Paulsen was SQ drunk they had to
put him to bed - while he was attached as Aide.
I said, "A man who drinks like that when he is an
Aide to a Secretary, a member of the Cabinet -
remove him from active flying." And when they
went to son, of course, Hopkins backed down on
his story.
Gibbons:
Does Waesche know that?
H.M.Jr:
Oh, he knows all about it. I said, "If the man
is so drunk he can't show up for lunch," I said,
"take him off flying because,' I said, "the first
thing you know, he will be flying when he's
drunk and kill some people." Then Hopkins will
say, "I told Morgenthau the fellow was drunk."
Unclassified
252
GROUP MEETING
January 9, 1939.
9:30 A. M.
(Held in Mr. Hanes' Office.)
Present:
Mr. Hanes
Mr. Taylor
Mr. Lochhead
Mr. Schwarz
dr. Duffield
Mr. Bell
Mr. McReynolds
Mr. Foley
These:
Good morning, gentlemen.
Ball:
Good morning.
Phone:
How you feel?
5022:
Pretty good.
Hames:
(Telephone - H.A.Jr. calling from Boca Grande.)
Hello. Hello. Hello. Yes. (Aside: Anybody
got anything for him? (No answer.))
Hello. Hello. Good morning, Henry. How are
you? You had any fishing? No? No tarpon? I
see. (Laughs) That's good. That's g 06. Have
you got anything on your mind especially? Yeah.
Yes. Right. Yes. Well, I wrote Altmeyer a letter
last week; they were going to press on Friday, and
he wanted us to commit ourselves as to how we
felt ab ut the recommendations they were masing,
and Rarry White, Eá Foley, and I got together and
wrote a letter back to hia, and asked him to delay -
I mean, asked him to go right shead with his plans
but so far as the Treasury were concerned we were
not ready, in your absence, to make any committment
for the Treasury, but the minute you came back we
would take it up with you. He thought you were
interested in the situation and wanted to express
an opinion.
Brown? Yes. Yes. Well, I think he would be a
good man and I'll be thinking about that anyway;
I'll talk to the group about it to.
Unclassified
253
- 2 -
Yes. No, I have not. I haven't done anything
at all with it. We - we haven't gone any further;
we've sot the charts made, and that's about all
we've done. All right, I'll do that. Yes.
After you get through, Wayne wants to talk to you
for a minute, and then I want to say a word to
you I'll have to say in the other room, about the
matter you called me about the other day.
Yes, I'll go in your room and when you get through
talking to Mayne, I think I've sot the story.
Wait a minute; I'll put Wayne on, and I'll tell
Wayne as soon as you are through to out me in on
the other side. Yeah.
Inylor:
Hello, Henry. Well the pound 14 still gone, but
not quite as good as it was Saturday. As Archie
says, they are looking it over pretty good.
Lochhend:
4.671.
TayIor:
4.67 The thing I want to talk to you about is
a message the State Department has on China. You
remember some time ago they sent over this message
which is rather mysterious about a stabilization
operation? Yeah. That's right. Well, they are
back with that again, and say that the Chinese
have been approaching them for three million
bounds; that they want very much to CO something,
and mention again legislation that they will have
in connection with exports, credits, and SQ on.
But on this particular one, they say they don't
want to do it unless we will go Joint account.
Vie don't feel that we ought to LO joint account.
Well, he's not insisting. He is doing it the
other - he's taking it the other way, that, in
other words, parallel rather than joint. Yeah.
Well, we are - the answer that we are going to
suggest is that we expect to continue our coopera-
tion but do not think a specific joint account is
desirable. Yeah. I will. Well, I'll have news
for you on that.
Aranha is going to be asked by our President,
through President Vargas to come up here the week -
the first week in February. Ah, they had several
conversations back and forth, and their President
approved the idea, but then, in order to make it
doubly good, he's decided - to make it doubly good,
254
3 I 1
1s to have it on the President-President basis.
It starts out that way anyhow. Ah, well, the other
is, I guess, will wait. They are covered - what
to do about Cuba, and we are going to have a meet-
ing with Eccles before We do anything on that, with
the idea of having the Secretary of the Treasury
of Cuba probably come up here. Ah, yes, I guess.
Yeah. Right. All the boys are here. Yes.
All right.
(Dangs up.)
Tylor:
(To Hickman - reporter:) Will you mark down in
your record there that I called the Secretary of
the Treasury, in regard to a message which had been
received by the State Department regarding the
establis:ment of a Joint account with the British
Treasury, amounting to three million pounds for
& stabilization of the Chinese currency; that ite
and we agreed that we should not enter Into 1 Joint
account operation, but that we should Give a mes-
sake to the State Department to the effect that
we would expect to continue our cooperation but
do not think that a specific joint account is
desirable.
(Discussion re various golf scores and games
while Mr. Hanes is out of the rocm.)
Ehros:
Danny, got anything this morning?
Hell;
I haven't anything. As a matter of interest, Mac
got the Comptroller General's - a copy of the -
got the original Comptroller General's report to
Congress, and the boys looked it over, over the
week-end, and here is a balance sheet that every-
body's been hollering for, for = long time. He
sets up the assets in the Treasury - mostly gold
and cash, accounts receivable - and outs in a
cash shortage in the public debt of a hundred
eighteen thousand 0,5 2n asset, and then outs in
the foreign obligation of thirteen million seven,
fixed value, plus interest, and went down to the
Treasurer's office and took interest obligations
at forty million dollars for the Russian Govern-
ment, He too's the accrued interest of? our
which we more or less ignored as an obliga- basics
and Comes to assets of twenty-tro billion nine
tion. there is a duplication of forty million hundred dollars.
million.
Regraded Unclassified
4 -
255
On the liability side he sets up the Stabilization
Fund, Appropriation Funds, unadvanced, of about
five million; Public Debt of thirty-seven billion;
it comes to forty-six billion dollars of liability,
dollars. and has a national deficit of twenty-three billion
HOURS:
Better not give that statement out to the press,
I wouldn't think.
DOLL:
I guess Cochran is having guite D time holdin, It
away from the boys.
I don't think he can. It 12 wit of the report
of the Comptroller General of the United States
to the President. Jack Cochran VIP.E awfully good
about this; he got that thing and hío it until
our boys got a chance to look st it, and he told
me last Wednesday that weld have somebody up
there at eleven o'clock Saturday, and held see
it WAS turned over to us, and he'd lock his office
up and go away for the week-ond so the newsboys
couldn't get At him.
Hell:
It's going back this morning.
McReynoles: But he gave us a change to get 8 look et it, 20
we'd know what they were talking about.
Bell:
There isn't much in it which the Treasury can
take action on. There is this shortage of nublic
debt of a hundred eighteen thousand dollars, which
is largely olá war savings stamps and so forth.
That ought to be explained, eventually. Probably
we will have an opportunity. And then they've pot
quite a section in there on endorsement of checks,
dealing with the correspondence we have had
between the Treasury and banks, and he maintains
that we don't sufficiently examine the endorsements
on checks. Of course, we rely on the bank and
guaranty, and if we undertook to endorse - I mean
examine - all the endorsements on the checks, we'd
have to get a lot more people in the Treasurer's
office. Just to send a check back because I would
sign "Dan Bell" instead of Dan K. Bell" or "Dan
Bell" instead of "Dan Bell, Jr." - those things
are what he is calling to attention. Where a
witness signed, one man will give his address and
the other one won't. Just a lot of stuff like
that, he criticizes - just minor things; that's all.
256
- 5 -
Goodliead:
That is one of the biggest headaches the banks
have, on Government checks.
Hanes:
Dan, it seems to me the press have handled tids
Budget report of the President's awfully badly.
I don't know why it v.as such a shock to them in the
first place. I don't know why they weren't more
familiar with the fact before it came out or whether
they were familiar with it and just acted as though
they weren't.
It's deliberate; play acting.
Chest
Nobody, in the wildest imagination, knowing what
the seventy-fifth Congress had done, would know
they weren't goin to have any less figures to
deal with.
Bellt
You mean they have handled it badly as a deficit.
They have taken it as a distinct shock. of
course, as Schwarz sald, they knew it.
Ilenes:
It seems to me it was universal. It got an awfully
bad press. I wonder if the story given to the
press might not have been given to them a lot better
than it was. I don't know how it was given to
them.
Soll:
I thought it was a Good press conference.
Schware:
I thought it was El good press. I don't think it
is necessarily universal. You will find it nurely
anti-administration papers.
Harve:
I don't know what papers it was, of course; it
seems to me the Times, and papers like that, that
generally treat matters pretty fairly.
Dall:
The Times has always been against this spending,
though. The last three years they have been against
the spending.
Schwarz:
I don't think there's been any departures from it.
I think it was pretty consistent.
Bell:
As you said the other day, can't make it look like
an orchid.
Regraded Unclassified
- 6 -
257
three:
Gene, you got anything this morning?
Daffield:
I haven't got anything excent that meeting At
eleven o'clock.
Hade:
Going to talk about it?
Duffleld:
Industrial credit.
Bance:
Have you gotten - has everybody gotten = cony of
those last bills; have you started to think about
that yet?
Surfleld:
I think they have been around. I know your
boys have worked hard.
Policy:
There is quite a tyoing job for that; copies to
be available. That won't be ready this morning.
Have the meeting tomorrow? I think we'd have a
consolidation of the examining agencies. I think
weld better take three bites of it.
Honea:
Who in the Treasury does the drafting of bills?
Have you got a drafting department?
Poley:
Yeah, but they are not working OL this BILL.
Tanas:
the 61d this Job - the ones you've got cone?
Foleyt
It was started by Clarence Opper. I took
Clarence's place when he went to the Board of
Tax Appeals. There is an Assistant General Counsel
with bill drafting under him. That is Larry
Bernard. But this banking legislation - bank
holding company legislation - has never been in
the legislative unit. It would be turned over to
them whenever the legislation is perfected and
they'd handle it on the Hill. We wouldn't handle
it. lie have actually drafted it. The Same is
true on the consolidation.
Hanes:
Does anybody want to sit in on this so-called
Glass Bill? All I was trying to do is get all
of us familiar with it before the Secretary comes
wait until on February first before introducing his
back account of the fact he asked Glass to
bill; say to the Secretary, before he comes
to get us all prepared to be in back position - to to
258
- 7 -
say we have examined all these bills. There is
another bill, I understand, over in F. D. I. C.
Foley:
The Glass Bill came from the F. D. I. C., probably
this year it will be a modification of the bill
last year.
Duffindd:
You mean this year's Glass Bill?
"oley:
This year's Class Bill, which will be the F. D. I. C.
Bill again.
Banes:
Excuse me; don't you think it is invortant that
we get the Comptroller - everybody who is interested
in banking legislation - that would be the
F. D. I. C., the Comptroller's Office, the Federal
Reserve, and the R. F. C. Is anybody interested
in the banking legislation?
Duffield:
That is the grand that worked on it last year.
Hanes:
I was thinking if we could get in accord with
those four people, get then in accord, end have
them unanimous in suggesting a type of bill to
Glass, that we could get Class to introduce a
bill not as it was, but as they think it ought to
be today.
70107:
I think that would be ideal if ne vid do It,
but certainly we're in no position to 6° to the
Comptroller, the R. P. C., or Federal Reserve at
the present time. We've got to do es good deal of
home work right here before we em go outside the
Treasury.
Hanvs:
That is the point, exactly; I think we ou nt to
be doing that. He mon't Live but fifteen days
he gets back.
Toley:
What we are going to do at tonorrow's meeting is
a comparison of the Glass Bill, introduced last
year, with the Treasury draft. The Treasury droft
won't be acceptable to any of the people at this
meeting tomorrow, probably. And on different
points, everybody is going to have ideas, so what we
will have to do is try to get some unanimity of
expression on different points, and then take the
concensus insofar as that is possible, of the opinion
to 1 I
259
on those points and get up a draft. Then if We can
have that ready by the time the Secretary gets
back, and the draft in that shape is agreesble to
him, then we'd be in position to start to talk to
some of the other agencies.
Manes:
Do you see any objection to having the Comptroller
working with the other three agencies independently
of us?
Poley:
I - I - I - I would see objection to that, yes.
Haues:
You would?
Poley:
Yes. I think we'd better get our OWN ideas
clarified first and get the Comptroller to agree
and then start outside of the Treasury, with the
Treasury and Comptroller In agreement.
Phone:
Will you set a time?
Polay:
I'll be ready tomorrow, if you will fix a time.
I'll fix a time now, if you went. Suppose - May
don't we say right after this meeting tomorrow
morning. Ten o'clock.
Tobey:
Eleven o'clock.
Dues:
Eleven o'clock, would you rather have it? well,
we'll say that it is eleven o'clock tomorrow
morning.
[uffield:
I'll call the roll.
Hanus:
While we are - before no 10 uo, have you But
anything, Ed?
Polcy:
No.
Sanes:
Before re go past here, the Secretary was just
talking about Social Security. Me wants to net
a group of outsiders; he would like to have some-
body outside come in and advise him on this Social
Security problem, and he said ne would lite to have
that either the first or second day he's back
here; he'd like to have us think about the names
of people he should invite, and he suggested -
the only name he had in mind was one Harry White
Regraded Unclassified
200
- 9 -
had in mind; he was a man by the name of Brown.
You know him?
Mongnolds: Committee. He was head of their Social Security Advisory
Full:
The Secretary doesn't want him, does he? Re
wants somebody that wasn't connected with Social
Board. Security. He was the head of the Social Security
Sanad:
He suggested that name.
Brown is & nice fellow and We all liked him find,
but they've got his ideas in the Social Security
Board's recort.
Chnes:
Let me put it this way; will all of you think
about names to suggest to him when he comes back
here, because this is foreign to my field; I
haven't the faintest idea of anyone to suggest,
myself. The fellow who impresses me more than
anybody else I have talked to on at this thing is
a fellow by the name of Folsom.
Bell:
He's from Kodak (?). They've got none protip good
fellows; Folsom's good; Brown is cood.
Dehward:
It is a well balanced council.
Henes:
Folsom. He impresses NB more than anybody I
have talked to.
dell:
Does he go along?
Ranes:
Yes, pretty generally; I think he is more inclined
to go along with the Board than he is with the
council. He likes the Board's suppestions. He
thinks definitely that the benefit payments
should be moved up to 1940; thinks there should
be some increase in the benefits. I think he
agrees practically in toto with the recommendations
made now by the Board. He didn't agree with the
ones they were about to make. They have changed
several times; they have modified and modified,
and modified. I think nov. he is pretty well in
agreement with the Board. Personally, I can't -
I don't know - maybe I'll change my mind; I'll
reserve that right, but I an pretty well inclined
to agree with the Board recom endations in their
present form.
261
- 10 -
Well, will all of you be thinking about that
and give me some names and get ready to suggest
to Henry when he comes back.
lie also asked me, Mac, if you and Wayne and Herbert -
well, Herbert's away now - he was working on this
new chart in the Treasury; he's working on. He
asked me if you'd get together and have something
on that for him. You might have a little meeting
on that tomorrow morning, to suit you, after the
banking meeting, say around twelve o'clock.
CeReynolds:
Suits me.
Hanes:
All right with you, Wayne?
Taylor:
(Nods "Yes,
Tanes:
Wayne, you got anything?
Taylor:
(Nods "No.")
Hanes:
Mac?
dcReynolds:
No.
Lochbead:
The exchanges are steady, not quite as high as
they were - about 4.67% against 4.68. There's
quite a lot of discussion in various markets as
to the motion of sterling after that transfer.
I think you will notice Amsterdam seemes to be
rather critical of the position, and kind of ties
in, somewhat, with that talk that this Mendelssohn
group are kind of bearish.
Taylor:
Affecting their position.
Lochhead:
According to the Amsterdam News, they are critical,
thinking the Mendelssohn group are bearish.
Hanes:
Was all that stuff you gave me made public?
Lochhead:
Yes, it's all a matter of public record now.
Taylor:
Well, all except part of that about the form the
legislation might take.
Lochhead:
Well, of course, even that - they didn't say what
form the legislation may take.
Regraded Unclassified
262
- 11 -
Taylor:
They have told us several of the things they have
in their minus.
Tianes:
Why was it the British didn't know anything about
that over here? We had the information before they
did. How is that?
Taylor:
We got it by telephone, you see. Their cable was
then being - I have talked to mallet about that.
When they came down here there was a cable over
there in their office that was being declphered,
you see, so the time element wasn't very great except
for the telephone aspect. lie had gotten that
cable just the minute we walked in the door. That's
the reason I had it there and it seved me a little
trouble by showing them the cable.
They will not telephone, AS to Jeneral rule. They
have, once or twice, used the telephone, but they
still stick to the traditional form of using the
cable and codes, 50, therefore, we h.d butterworth
calling the night before; as soun 55 he heard he
came to the office and tolephoned, SO we had ter
advantage of a telephone conversation.
Phytor:
If you code and decode, why, 1 snollose that takes
a minuma of what - two hours each way?
Lockliend:
At least two hours each way.
Teylor:
It would be four hours altoyet/wr.
Locklend:
They were using the heavy code, the triole
confidential code, In fuct, Butterwort, Insisted
on getting the diplomatic channel so it would be
secret - secret telephone.
lines:
No evidence
(several talking at one time)
Dochnead:
None et all. It was declded Triday night, ground
Saturday morning, 20 there wash't very much time.
eight o'clock, SO the second part was coming out
Thnes:
What has sterling been since?
Locklead:
Well, it. went up to 4.68. Today It is return. about 4.67%
It's on the other hand, is still steadily still Eain-
storped; it hasn't promoted any
France, ing; not to any great amount, but they are
263
- 12 -
getting some funds back.
Taylor:
V.e had one funny thing on this time element,
because Sandy Kline came in, I guess it was that
salie day, and he said he lud been talking to some-
body - some Washington official here, Ind he svid,
"Oh, we've known about that for at least forty-
eight hours, and I sain, "Well, whoever tale you
that is a God dawned liar," so thit's the kind of
stuff you run in to there.
schwars:
They didn't know it.
Waylor:
Of course they dion't know it; they coulen't have.
The British dia know it.
Bones:
Chick, you GOT anything?
Schours:
(Noss "No.")
Tuffiele:
1 am Letting ready, just for ay own information,
a chronology - what his h: pened UN this bank
holding company. You want a copy di it?
Super:
Weren't you getting a digest?
Yes sir.
Runes:
I all prepared on the Gloss Bill. 30 for as
that goes, I don't need anyt Inc on the Blass
Bill.
Duffield:
I doing this for my own information, but it
you want a calendar I'll make you E copy.
Taylor:
I non't know it by heart, but I've get a fairly
good ider.
Hunes:
I wonder if it will suit the benking Croup as well
at twelve c'clock? I've just gon a nessa,e that
Bullitt is couing in. Monnet 12 coming in. I
am not going to be through at eleven o'clock with
those two coming in.
Duffield:
It will snit me; I'LL ssk Mr. Delano.
Hanes:
Ask him if he can shift it, because it is 801m to
take more than 3.1 hour, anyway.
Regraded Unclassified
264
- 13 -
Schwarz:
What will I tell the boys when they ask? The
boys will ask about Bullitt.
Hanes:
I don't think you can say a thing in the world.
Bell:
That he is paying his respects.
Hanes:
He is here on a very secret mission, and you
certainly can't tell them what he's here for.
Duffield:
They won't recognize him.
Hanes:
He came to see the Secretary, and the Secretary
wasn't here, and he's calling around the Treasury.
He is just here today for the first time since
he's been back.
Regraded Unclassified
265
Shanghei, Jenuery 10, 1939.
NORTH CHINA SITUATION AND GENERAL TENAUCHI'S
RECALL
According to information secured from 8 Chinese puppet official of
the "Provisional Government of China" in Peiping, who is in Shaughai on
en "official" mission, the recent recall from his post of Gen. Tenauchi
A ), Commander-in-Chief of the Japanese Expeditionary Forces in
North Chine, has B. very complicated background. Aside from the fact
generally known to the public that ho has not been on good terms with the
Japenese Kwentung Army represented by Gen. Doibara, and that the letter
was instrumentel in his removal from office, there are several other
reasons. In the first place, the fact is known in Tokyo that in the past
six months no less than 400,000 armed Chinese red troops and guarillas
have entered Jehol end Menchuris through the areas under Gen. Tensucht's
gerrison. These irregulars entered Jehol and Menchuris through Rupeikow
( 15 at R), Suiyuen, and other Greet Wall pesses. They are the forces
of Don- Soo Ping-wen (3. 1/-172 X1. Gen, Me Chan-shen 15 5 4 ) and
the Eighth Route Army. Secondly, recently en army godown in Tientsin
containing sround 500,000 suite of new winter uniforms for the Japanese
army wee entirely destroyed by fire. These uniforms were intended for
Japanese soldiers in North Chine, especially for those assigned to invede
the Northwestern provinces of Shensi, Kansu, Ningshia and Sinkiang this
coming winter. Other ermy godowns in Tientsin in which were stored
gasoline, cotton, foodstuffs and minitions also caught fire one after
the other. These fires incurred great losses to the Japanese in the North
and also demorelized the army's spirit to e great extent. Investigations
conducted by the Special Service Organ of the Army revealed the fact that
these fires were not started by Chinese government agenta or guerilles,
as generally expected, but by communist elements and those opposed to MEZ
Regraded Unclassified
266
-2-
in the Jepanese ermy. Thirdly, the growing resentment amongat Japanese
soldiers against the present war in China has resulted in B large number
of desertions every day. It is conservatively estimated that no less
than 100 Japanese soldiers have run away from their barracks in North
China every day. The anti-war propaganda in the army carried on by
peace elements is becoming very widespread. Lastly, the growing influence
of Chinese guerilles in Japanese-controlled areas 18 gradually turning
out to be B real threat to the Japanese army. On the advice of Chinese
guerillas, the farmers in Hopei, Shantung, Chahar and Suiyuan are
cultivating no more cotton this season, to be sure that no such war
naterials may fall into Japanese hands. They are growing only enough
rice and wheat for their own consumption end in case the Japanese soldiers
do try to take it from them they will not hesitete to rise up and fight
for their own living. These messures employed by Chinese irregulars are
causing great difficulty to Japan's aggressive campaign in North China.
Regraded Unclassified
167
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embasey, Paris, France
DATE: January 10, 1939, 10 a.m.
NO.: 52
FROM COCHRAN.
This morning I got back from Basel where on January 8
and 9 the BIS directors held their meeting. On my way
to Basel I visited the Governor of the National Bank of
Belgium and the Belgian Ministry of Finance. In the
Netherlands I visited the President of the Netherlands
Bank and the Ministry of Finance. I also saw the Presi-
dent of the Swiss National Bank at Zurich; I did not go
to Bern to visit, because Meyer, the Swies Finance Min-
ister, retired effective the thirty-first of December and
nis successor does not assume his duties until the first
of February. I called on Ambassadr Davies in Brussels,
and on Minister Gordon in The Hague.
In all three countries visited - Belgium, the
Netherlande and Switzerland - I found that my friends
were perturbed over the present situation of sterling.
In the autumn there had been renewed agitation, after the
depreciation of sterling, for a change in the belga's
status involving leaving gold and undergoing further
depreciation. The Netherlands Government was being urged
to move towards florin depreciation to bring it more in
line with the sterling level. Considerable influence to
this
Regraded Unclassified
108
- 2 -
this end was brought to bear by shipbuilding interests,
as well as others, which are experiencing sharp competi-
tion from Scandingvian countries. Such action was favored
by at least one member of the Government, 1.e., the Min-
ister of Economics. It had (i) understood why that some
step should be taken when a cross rate of 4.655 was reached.
At the time I was visiting in the Netherlands this point
was reached, and the subject W&B a live one then.
Economic repercussions from sterling depreciation
were suffered by Switzerland also. The textile industry
particularly was affected in Switzerland.
I told my friends of the personal impressions I had
picked up on my recent visit to the United States with
regard to the attitude toward sterling in my country. I
said that it was my personal opinion that no one should
take hasty or isolated action lest a new series of compe-
titive devaluation be begun thereby. Reference, my tele-
gram No. 2193 of December 30: I let my friends know about
the information I had obtained in Paris to the effect that
Great Britain was thinking about taking early steps toward
control of gold operations and 8 transfer of gold to the
equalization account from the Bank of England. The Belgian,
Netherland, and Swies officials decided that before they
took action they would await their weekend meeting at Bawel.
END SECTIONS ONE AND TWO.
WILSON.
EA:LWW
Regraded Unclassified
269
PARAPHRASE OF SECTIONS THREE, FOUR, FIVE
OF TELEGRAM NO. 52 OF JANUARY 10, 1939, FROM PARIS
After I had seen the Governors of the three central
banks mentioned above, but before they left for Basel,
each one had received a letter from Governor Norman of
the Bank of England, in which was enclosed a copy of the
communication to the Bank of England from the Chancellor
of the Exchequer. The Bank of England was asked by
Simon to take steps toward control of gold operations
and toward watching over transactions in exchange. In
Governor Norman's letters to the governors of the central
banks he asked that they cooperate as to gold transactions
on the markete in their countries. Governor Norman ex-
plained in these letters that he had sent similar communica-
tions to all of the continental members of the Tripartite,
but that since private gold transactions were not permitted
on the American market under existing law, no letter had
ween sent to the United States. The central bank gover-
nors had been told of the transfer to the equalization
account of 200,000,000 pounde of gold from the Bank of
England.
On January 6, before President Trip of the Netherlands
Bank left for Basel, he issued a confidential request to
the main banks and bankers in his country, effective until
further notice is given -
"One.
Unclassified
270
2 -
"One. To refrain from making advances or granting
credits against gold whenever they have to take it that
the advances or credits are asked for the purpose of
flighting from or speculating against sterling; two,
not to act as counter party in gold dealings for forward
delivery whenever they have to take it that the transactions
are proposed for the purpose of flighting from or speculat-
ing against sterling; three, to refrain from facilitating
by any means whatsoever transactions as referred to sub
one and sub two".
On the seventh of January President Bachmann of the
a communique
Swiss Bank had released to the Swise press/indicating the
steps taken by the Bank of England. He included B. reminder
that Swiss cooperation toward the desired end was already
required by the Swies Federal decree of June 19, 1936.
This law prohibits the purchase or sale of gold at term,
granting advances against gold or foreign exchange, and
obaaining forward foreign exchange if commercial operations
do not justify it.
The Governors of the Belgian, Netherland and Swiss
Banks and the Governor of the Bank of France, when they
arrived at Basel, discussed this matter with each other
and with the Governor of the Bank of England and Mr. Cobbold
(of the Bank of England). Governor Fournier (Bank of France)
told
Regraded Unclassified
271
- 3 -
told me that he had received a request similar to the one
received by the other governors. He said that Governor
Norman had explained to him orally that he preferred to leave
to the Bank of France the working out of the details of
cooperation by the French. Therefore, it was Fournier's
intention not to iseue a written circular to French bankers,
but he would call in the main ones who would ordinarily
be involved and ask them to cooperate. It was his belief
that if too much formality were given the matter, it might
excite suspicion as to sterling's strength - just as such
steps have increased concern about the franc in the past.
I had 8. talk with Janssen of Belgium, who said that
before he left Brussels he had not taken any definite
steps because he felt that the measures which he instituted
last May for keeping watch over exchange and related trans-
actions would meet fully the request for cooperation by
the Bank of England. When he got back to Brussels, how-
ever, it was his intention to remind his bankers of the
existing regulations, and he would specifically mention
his desire to cooperate with the Bank of England.
END SECTIONS THREE, FOUR AND FIVE.
WILSON.
EA:LWW
Regraded Unclassified
272
PARAPHRASE, SECTION SIX AND FOLLOWING. (TO SEC. 17, INCLUSIVE)
TELEGRAM NO. 52 of JANUARY 10, 1939, FROM PARIS.
The governora of the three junior partners in the
Tripartite - the Banks of Belgium, the Netherlands, and
Switzerland - agreed that letters of acknowledgment of the
communication from Norman would be prepared today upon
their return to their respective banks. The sense of
all the letters will be the same, although they will not
be identical. Generally, it will be stated that they
are glad to see that measures to strengthen sterling have
been taken by the British authorities, since the deprecia-
tion of sterling has caused suffering in their respective
economies, and since they would have had to take action
regarding their own currencies if the recent trend had
continued. The letters will state that these banks feel
the Tripartite Agreement needs strong effort toward main-
taining currency stability; they would not want to be
forced to take measures in self defense which would contrib-
ute to general deterioration of the state of international
monetary affairs. In general circumstances, the efficacy
of such measures as have now been taken by the British
18 doubted; but the measures should be effective in the
present cass, since these bankers are convinced that speo-
ulation against sterling is the cause of that ourrency's
current weakness. They are glad to cooperate since
the cooperation envisaged is toward checking such 8. move-
ment.
Regraded Unclassified
273
- 2 -
ment. The Governors will inform Norman in their letters
that the matter has been discussed with their respective
governments, and that they have no objection to Governor
Norman bringing their replies to the British Government's
attention since the views set forth therein express the
official government's viewpoint, The fact that 8. large gold
transfer had been made to the equalization account was
particularly pleasing to the Governors. They expressed the
hope that this indicated and would be interpreted as a
move toward strong defense of sterling.
Since things turned out as they did, I felt it for-
tunate that I had had the opportunity to make my visita
in Belgium, the Netherlands and Switzerland at the time I
did. The interested Governors talked to me freely at Basel
about the matter, and have promised that in the future they
will keep me informed. The improvement which had taken
place in sterling after the announcement of the various
measures was encouraging to them, and they hope now that
a stronger pound can be maintained.
Of those outside the Tripartite group, I found Jacobsson
rather critical of the measures taken by the British. It
1s his firm belief that since Great Britain has such a strong
gold position it should have before this demonstrated force.
He believed it was misleading to have published in the
recent British statement the fact that the equalization
account had such & small Amount of gold, when in reality
Regraded Unclassified
274
or I I
all of the gold resources of the Bank of England should
be taken into account, Jacobason thought that the British
should not have stopped foreign lending, as they have the
resources to do it and such practice 18 an important source
of income for them. He feels that it would have been
unnecessary to resort to the technical measures mentioned
above if they had exhibited greater strength. He has less
and less faith in the operation of secret stabilization
accounts. On the other hand, Trip of the Netherlands con-
demned the British practice of publishing their statements
about their equalization fund, as bear pressure on sterling
had been greatly augmented by such recent publication.
In his country he said he had successfully resisted agita-
tion toward publishing any statement. As had been announced,
be had even been successful in securing Government regula-
tions which excuse his Bank from indicating how much gold
1e held abroad. Trip expressed the hope that the United
States would not do as the British have done and publish
data on the stabilization fund of the United States.
During a long private conversation which I had with
Governor Norman, he told me the following:
Norman had visited Schacht in Berlin, and had just
come from there. He had made this trip on his own initia-
tive, he said. "Combustible" topics had not been discussed.
Neither the Jewish problem nor credits had been brought up
in
Regraded Unclassified
2/5
+ I I
in their talks. The refugee problem would be discussed by
Rublee, who was expected in Berlin shortly. Governor Norman
told me that no one disapproved more thoroughly than did he
of certain things done by the German Government; he said
he was sure that these acts were condemned by over 90
percent of the Germans themselves. À wide gulf had developed
between Germany and other countries, and this gulf was be-
coming wider still. This did not seem to matter much to
the reckless German leaders, who seem to be proud of their
success in isolating their country. In Norman's opinion,
for this to continue was very dangerous. He is convinced
that if eventual serious trouble is to be avoided, the
policy of appeasement begun by Chamberlain should be pushed
forward with the idea of seeking some sort of an eventual
four-power arrangement. With the present friction between
Italy and France, he expressed the hope that Chamberlain's
coming visit to Rome will accomplish something toward
getting Italy more into line. Norman expressed pleasure
over the progress recently made by France, and he said
France should now be more able to play ito proper role in-
ternationally.
Governor Norman told me that he had always believed
the most helpful and hopeful contact between Germany and
the rest of us was Schacht; in the past he has consistently
tried
276
- 5 -
tried to work with Schacht. Norman had arranged for Schacht
to visit London in December and had now repaid that visit
in Berlin in order to help Schacht in his present situation
win more influence from the German Government, The sig-
nificance of his own visit to Germany was modestly minimized
by Norman, but he hoped that visits of "weightier" men
from London would be facilitated. He believes that with
care and negotiation a conflict in Europe can be avoided,
but that it might be disastrous to fight intolerance with
intolerance.
Governor Norman said he thought sterling weakness
was mainly psychological, being the result of lack of con-
fidence by other countries in Great Britain and sterling
since 1934. He said he realized the disadvantages to
Belgium, Switzerland, France and the Netherlands from 8.
depreciation of sterling, and he understood the concern
of the American Tresury over the recent decline. He
stressed the expenditures which had been made by the
British equalization account in order to check this drop;
the fund's resources had been almost depleted by the Decem-
ber effort. Therefore they had taken the technical measures
to restrict foreign lending and operations against gold,
and followed them up by transferring to the fund gold from
the Bank of England. Some helpful results from these
measures had already been noted, and there had been improve-
ment in the pound. This first improvement was the result
of
Regraded Unclassified
277
- 6 -
of short covering, he said; a tremendously large speculative
position against sterling had previously been built up.
It would be foolish, he said, to try to guess at the amount
of this speculation because statistics were not available -
he thought that it certainly passed 80,000,000 pounds,
and this speculation was in addition to heavy withdrawal of
funds actually on the market in London. All sources except
British were involved in such speculation; the British
had not withdrawn their funds nor speculated against sterling.
The Bank of England was in 8. position to promptly and effec-
tively take measures to stop such tendencies had they
developed. Governor Norman, as it was, had wanted to take
a step toward stopping foreign speculation against the
currency by raising his Bank rate and making it too expen-
sive to speculate. Bo far such action had been disapproved
by the Chancellor of the Exchequer, since the Government
was set upon continuing its easy money policy. Outside the
field of armaments, Norman said, there had not been much there
industrial pick-up in England and he believed that **/would
be just as good or even better opportunity for industry to
improve with interest at 4 percent as at 2 percent, the
present rate. Armament expenditures are heavy, he said,
but he insists not enough to hurt the pound. If only the
Central European problem could be cleared up, he said, the
budget situation and other economic factors [omission].
For this reason Norman had extended B. helping hand to
Regraded Unclassified
278
- 7 -
Schaoht even though he realized he would be criticized for
it. I asked whether the British control, now that it had
enlarged resources, would follow its past policy, or whether
it would fix a line beyond which the pound would not be
permitted to deoline. Norman replied that he believed
it would be 8. perfect target for speculators if they should
peg the rate. On this point I talked further with Cobbold,
who said that the British definitely regretted the drop
in the pound, and wanted to Bee it recover, but they had
not fixed any limit either top or bottom for their currency.
Both Norman and Cobbold were hesitant to give any
assurances to their colleagues which might later prove
disappointing should there be a decline in sterling. How-
ever, they were visibly encouraged over the pound's improve-
ment, and especially by the opinions of other central
bankers regarding the sterling outlook. Norman was told
by Trip particularly that it should be possible for the
British to stop speculation since the political factor
was just as important to the four Continental Tripartite
countries 8.8 it was to Great Britain - as their currencies
would be just as vulnerable in case of a war in Europe -
and strength against sterling had been shown by all these
countries.
On Sunday Jacobsson and I had lunch with the German
representatives. Sohacht talked quite frankly with me
alone
Regraded Unclassified
2/8
- 8 -
alone and to some extent later on when Jacobsson was with
us. I was told by Schacht that there was not just one
but many leaders running Germany. He expressed regret at
the extent to which Goebbels and some of the other party
chiefe had gotten out of hand; at present there was nothing
he could do to hold them back. The beet and only means
offering some hope, he believed, would be for foreign economic
and financial officials to develop some balance against Germany
which would bring about a more cooperative attitude on the
part of the German Government. When he approached Hitler
and Goering with the idea of the London trip, he had to do
it on the ground of possibly starting some solution of
the Jewish problem rather than that it might improve German-
British relations. It was not his particular wish to become
involved in the Jewish problem, but he had gone to London
on this errand and had taken advantage of the occasion to
see as much as possible of Governor Norman and other prominent
officials in the Government. He had most genuinely appreciated
the return visit of Norman, and German officials and the press
had received it well. If only more official visits could
be exchanged, he said - even for christening purposes -
there would be so much less opportunity for exchange of
bitter recriminations between nations and particularly between
le,ders
Regraded Unclassified
280
- 9 -
leaders and journals which are inclined to foster 111 feeling.
Schacht hoped that there might be more visits in the future,
but several of his friends at Basel gave him to understand
quite clearly that it 1s generally thought that some dis-
position to talk things over with foreign officials would
have to be shown by Hitler himself before such foreign
officials could go much further in their undertakings for
appeasement.
As always, Schacht insisted to me that Germany 18
not going to break up financially or economically in any
foreseeable future, that difficulties along these lines
can be met. He thought that the ability of Germany to
capture foreign trade abroad had been reduced. Funk's
travels in the Near East were mentioned by Jacobsson and
myself, and we spoke of the substantial accomplishments
of these trips. Schaoht said that nothing would do more
to debunk Funk than to have him be seen in Washington, that
he had not been nearly 8.g successful in his trips as
reported, and nie ineptitude for commercial negotiations
has been lamentably demonstrated particularly in Bulgaria.
Schacht assured Jacobsson and me that neither he nor any
of his associates had developed any mystic process for
perpetuating the present trade policies of his country;
the political and debt situation are largely responsible
for Germany's inability to drop her present methode.
Jacobeson
Regraded Unclassified
281
- 10 -
Jacobsson argued that a much more profitable and extensive
trade would be Germany's if she reverted to the most-
favored-nation system. Schaoht immediately agreed, saying the
no one desired such a policy more seriously than he did,
and adding that he would welcome B. twelve-year contract with
the United States even involving an excess of imports by
Germany from the United States if he could be definitely
assured of foreign exchange from some other source to take
care of the adverse balance.
It was Trip's belief that the Dutch system begun in
the twenties of giving Germany credits for purchasing raw
materials, which were to be paid back from export proceeds
of the goods made therefrom, was a good system and that
it could be extended.
A number of my friends talked about the financial
strain on Germany just now because of military preparations,
the expense of taking over Austria and part of the public
works of Czechoslovakia, depreciation of sterling involving
increased subsidies for German exports, and 80 on. Since
a high levy has already been placed on Jewish capital, some
observers think that next Germany will move against either
Catholic church property, foreign holdings in Germany, or
the large estates of the German nobility. It is thought
that most likely the move will be against foreign holdings
in
Regraded Inclassified
282
- 11 -
in Germany.
Neither in Belgium nor in the Netherlands did I find
any interest in extending loans to Latin American countries.
However, in February Belgium is sending a trade delegation
to various South American countries. The delegation 1s to
be headed by Forthomme, who I believe was in Washington
for the negotiations on the Belgo-American trade agreement.
It is possible there may be applied some system of
guaranteeing commercial exports just as is done by the
American Export-Import Bank,
I was told by Bachmann that none of the Swiss banks
had approached him regarding loans to Latin American countries.
On the Swies market there is such an abundance of capital
that 1f good borrowers could be found he would not object
to such transactions.
When I talked with Cobbold he denied the report that
when Chamberlain visits Italy he will attempt trade nego-
tiations. Later on he expects that there may be some dis-
cussions between qualified British and Italian officials
looking toward B. better clearing agreement, since the British
have to wait such a great length of time at present for
payments due them from Italy. Some exchange of visits
between British and German private industrialiste had taken
place, Cobbold said, but as yet they had accomplished nothing
specific.
END OF MESSAGE.
EA: LWW
Regraded WILSON. Inclassified
283
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin
DATE: January 10, 4 p.m.
NO.: 25
Number One. For Treasury from Heath.
Montague Norman had left before I returned to Berlin.
According to the British Embassy there were no monetary
or other negotiations during his trip here which was to
return Schacht's visit and to obtain financial and
economic impressions. The Reichsbank gave & lunch for
him which was attended by members of the Directorate and
a few German bankers and industrialista.
In the several weeks interim since my last telegram
there seeme to be increasing opinion and evidence of
economic and financial strain and deterioration and little
belief that the leaders of the Government will relieve
this trend by sufficiently modifying their ambitious
programs. The trend seems to be gradual, no informed
observer here believing that any real break down of the
economic machine is at all imminent or that effective
public opinion against restrictions on the standard of
living imposed by the necessities program will develop
for some time, barring unforeseen occurrences.
I was told on apparently good authority, although I
accept the story with considerable reserve, that at the
end
Regraded Inclassified
284
-2-
end of December the Finance Minister asked Hitler's per-
mission again to raise taxes, stating that present revenue
and proceeds of loans were insufficient to meet budgetary
expenditures and that he had borrowed 500,000,000 marks
from the Arbeits front funds which had to be returned in
April. According to the story, the Finance Minister
stated that he would have to resign, since his request
was met by flat refusal. Hitler is then supposed to have
stated that he would consider the matter. It is my under-
standing that certain English papers published a story to
this effect.
Reference my No. 33 of November 20; personal sub-
scriptions for the fourth 1938 loan of one and a half
billion marks closed on January 9 and according to certain
local bankers were unsatisfactory. These bankers assert
that the consortium banking houses will be saddled with
the greater part of the issue.
The foreign trade outlook is increasingly pessimistic.
It 16 to be observed that coffee' 18 now being rationed in
Berlin. In addition, there are unconfirmed reports of
rationing of meat in certain parts of Germany. Any re-
striction on this commodity would seem to be directed
toward building up stocks, since the Agricultural Attaché
asserts that there is a plentiful supply at the present
rate of consumption. The British Commercial Attaché
believes
Regraded Unclassified
285
-3-
believes that the gold and foreign exchange resources
acquired from the Austrian National Bank (65 million
marks in claims on clearing countries and 197 million
marke in gold and free exchange) have now been used up.
November figures show a net gold export of about 26 million
marks which brings the total net gold exports for the
first eleven months to 76 million marks. The published
trade feficit for greater Germany for the first eleven
months amounts to 425 million marks.
The November adverse balance for greater Germany
W&B 69 million marks as compared with 36 million in
October. The increase was almost entirely due to a fall-
ing off of exports. Imports in November 1938 were 3 per-
cent under the value of imports in November 1937 but due
to lower prices about 10 percent greater in quantity. It
18 to be noted that the adverse foreign balance is almost
entirely accounted for by the acquisition of Austria and
Sudetenland. For old Germany alone the adverse balance
was only about 9 million marks.
GILBERT
EA:DJW
Regraded Inclassified
286
EDA
GRAY
LONDON
Dated January 10, 1939
RECEIVED 4:47 p.m.
SECRETARY of State
Washington
42, January 10, 6 p.m.
FOR TREASURY FROM butterworth.
OnE. With reference to the final paragraph of my
1479, December 31, 5 p.m., market estimates of the British
fund's gold losses between September 30 and January
1 only range between $50,000,000 and $100,000,000.
Incidentally the London financial press takes the line
that the now augmented assets of the British fund are
ample to meet a full Exodus of hot money including
foreign holdings of readily salable securities but
Excluding the London balances of sterling in the central
banks and other semi-permanent investments. !lost
financial writers continue to reiterate that British
capital is not likely to flee the pound but Einzig for
instance told me yesterday that while he did not wish
to publish it hE was convinced that considerable
amounts of British capital were moving out.
Two.
Regraded Inclassified
287
EDA - 2- #42, January 10, 6 p.m. from London
Two. An important result of the increase in the
fiduciary ISSUE is that the $200,000.000 of Treasury
bills transferred from the British find to DOE Issue
Department of the Bank of England (my 10, January 9, 6 P.m. )
can now be gradually replaced with longer dated securities,
and the money market's deplated supply of Treasury bills
thus reglenished. This would also lend support to the
silt Edged market and prices of British Government bonds
have begun to harden chiefly in anticipation of this
development. It is my impression that the Bank of England
wishes to SEE the Treasury bill rate remain around
10 shillings per CENT a level which was threatened by the
reduction in the volume of Treasury bills resulting
from the British fund's heavy sales of gold followed by
the seasonal contraction during the heavy revenue collec-
tions of the first quarter of the calendar year. Thus
the increase in the fiduciary issue offers a means of
insulating both the money market and the gilt edged
market from effects of the capital outflow. The
insulation of the cash basis and the volume of credit
available for industry and trade is a somewhat different
problem which gives rise to two questions, (a) how far
the British authorities have and will Effect insulation
and
Regraded Unclassified
288
EDAC - 3 - #42, January 10, B Dell's from London
and (b) the wisdom of such a policy in view of the
general Economic situation.
The answer to (a) is confused by the squeeze policy
ursued at the year End to lend support to starling.
ThE process of restoring to the market, during an Efflux
of capital, sufficient cash to keep the bank's cash
ratios such that they neither contract nor expand their
loans to trede and industry takes a certain amount of
time and, as in May during the repatriation of French
balances following the Establishment of the Daladier
franc, the British authorities appear not to have hurried
themselves. The May capital outflow was, however,
eventually neutralized and there is no reason to believe
that the process could not again be carried through.
(b) An abrupt change in the cheap money policy
would give a very definite shock to business activity.
NEVERTHELESS it is increasingly recognized that most
or the present trouble with the British economic machine
lits in the high livel of British costs. The only
criticism of the 3rd tish Government's bold move to defend
the pound that T have heard has COME from a discerning
few in the city who question the advisability of moving
up the last line of defense for starling without at the
same
Regraded Inclassified
289
EDA - 4 - #42, January 10, 6 p.m. from London
98'1E time taking steps to bring some pressure to bear
on the cost structure.
Three. The foreign Exchange market has been fairly
Active today. The dollar which opened bid at 4,67 1/8
moved down to 4.66 7/8 with the British control supply-
ing dollars which the market required as a result of
gold sales. When NEW York carie in the Bank of France
switched its operations and the continent turned a seller
of dollars and the rate moved to 4.67 1/2 to Close at
1/4. To date the recent action of the British authorities
has borne little positive fruit and as yet no great sense
of confidence has been Engendered that the pound will
not in time tend to depreciate. HOWEVER, it is assumed
that the British authorities are committed to offering
strong resistance during the next few WEEKS.
Of the 164 bars sold at 149 shillings at gold
fixing 46 WERE married and the British fund supplied
about & dozen. There were considerable dealings after
fixing.
JOHNSON
EMB:NPL
Regraded Unclassified
290
m methugh
my deary entry
1/10/39
red
P
file no of
10- 39
Regraded Unclassified
Regraded Unclassified
E whit
it Helovin you you the shoul,
for
Regraded Unclassified
TREASURY DEPARTMENT
WASHINGTON
January 18, 1939
TOTAL REVENUE
for Secretary Morgenthau:
TO have been several instances lately where Senetors and Representa-
vives of various states have contacted this office making inquiries regarding
the oval of Collectors of Internal Revenue in their Districts. In each
case have advised them that the Collector WBB B. Presidential appointee and
that would take no steps to initiate procedure towards his removel BO long
M X conducted his office in a proper manner. In my opinion, many of these
registers [ons are based upon personal or political considerations.
The regulations of the Treasury Department concerning political activity
179 purceps more stringent than the regulations of any other Department. In
those regulations, I know you had in mind the duty of the Treasury
Department and particularly the Buresu of Internal Revenue to treat all
taxpayers with absolute fairness end in such a manner that there could be no
basis of 8 charge that tax laws were being administered from the viewpoint
of political expediency. The holding of political positions by Treasury
officials and employees has been prohibited by Treasury regulations. The
Department and the Bureau have given employees the assurance that their status
would not be affected nor their positions endangered by carrying out the
regisations. Any attempt et coercion of employees or taxpayers by officials
of the Treasury Department has been treated in no uncertain manner.
It is my opinion that if B. Collector of Internal Revenue is administer-
ing the affairs of tis District in en efficient manner, is cooperating with
the Bureau, and is sup orting the policies advonced by the Administration,
sus Collector should not be replaced because of B. change of an elective
of ial in his district or because of tis refusal to viclate the regulations
re ding prohibited political ectivity. To fail to protect an officiel of
the reasury Department uniler such circumstances vill result in E. general
16
of respect for and observance of the Tressury regulations. Inasmuch 65
llector is authorized by lew to appoint his deputies, it is evident that
strimental effect upon the Service will not stop upon the appointment of
Collector tut will be carried down the line by the removal of experienced
collectors. The changes would be predicated upon the same considere-
that prompted the change it Collectors.
This subject is such en invetast IDe, if we are to adhere to our has regule-
and continue to render that class 05 service which the taxpayer
right to expect, that I facl it duty TO bring the matter to your atten-
for consideration.
Commissioner. lay Helving
Regraded Unclassified
TREASURY DEPARTMENT
WASHINGTON
or
COMMISSIONER
INTERNAL REVENUE
REPLY To
REVENUE
Junuary 18,1959.
of
MEMORANDUM for
The Secretary of the Treasury:
In connection with the memorundun which I have
addressed to you concerning the policy relative to the
replacement of Collectors of Internal Revenue who are per-
forming efficient services but the termination of whose
services is now being recommended, I desire to bring to
your attention the attached telegram addressed to Honorable
Tom Corcoren by Senator Pepper of Florida, which telegram
has been submitted to me by the White House for a report
concerning the Senator's recommendation. You will note
that the Senator refers to the fact that the present in-
cumbent is a lawyer and for several years has been Collector
of Internal Revenue for Florida, and that he is young and
capable.
It seems to me this is a case of the very character
discussed in my memorandum.
My
Commi ssioner.
Inclosure.
Regraded Unclassified
ELEGRAM
The Mhite House
: lwune 105 leave DL
Mashington
5,
Fla., Dec.29,1938.
Hon. Tom Corcorno
collector In making mitts in Florina прововьту to locate
Gill1s, outies to togatical stare, whose
in Internal revenue. on,1n Trahington. present Leslie
review DAVI (If and Complete 1706 and the
rincibally from Florida, has died. Would be very grateful arising
of enses before they reach the board of review,
Levenue 0." Florida; 1s young and capable. Your futher arrives
is a lawyer and for reveral years has been collector of Internal
special effort to Incate Larson in this place 17 possible. Larson for
Jacksonville tomorrow and is being met by friends.
Cleune Pencer.
1012pm.
Regraded Unclassified
THE WHITE HOUSE
WASHINGTON
Januery 7, 1939
ORANDUM FOR:
Honorable Guy T. Helvering,
Cormissioner,
Bureau of Internal Revenue.
Door Mr. Commissioner:
Could you give me e report on this
ter et your convenience?
With all good wishes, I am
Very sincerely yours,
first Executive Officer
JAMES ROWE, JR.,
Regraded Unclassified
297
GROUP WRETING
January 10, 1939.
10:30 A. M.
(Held in Mr. Hanes! Office.)
Present:
Mr. Hanes
Mr. Taylor
Mr. McReynolds
Mr. Foley
dr. Duffield
Mr. Schwarz
Mr. Lochhead
Illnes:
Mnc, how do you feel?
Kino of puny, John; kind of ouny. Not a thing
in the world the matter with me except these damned
doctors won't let ще eat anything. I am on a
soft diet. The last meal I had was the one when
I had lunch with you about a week ago. They
hadn't found out about my eating then. Since
then I haven't had & meal.
Harms:
Can you get something to est tomorror, - before
tomorrow at two thirty? We are going to have a
meeting with Guy tomorrow and I'd like to have
you, and Ed Foley there. He's got salaries of
State officials to decide, on which he's Just been
taking a meeting, at which we decided it that time
it was a good policy to hold no our sleeve for E
trading point after the question of retroactive
tax on State officials. Now we have just held It
about as long as we can hold it, so Guy says, and
they are just hollering for rules in every
Internal Revenue Department around the country,
and he says something has got to be done, and he've
got to get our heads together and find out how we
are going to save our trading points and find out
what we are going to do.
Foley:
I understand Brown is getting ready to start his
tax study. Frank Mechem, who is working on that
assignment for the General Counsel's office is
leaving January 26, which means we will have to
put somebody else on it.
298
- 2 -
meheynolds: What's Frank going to do?
Foley:
Goin to become tax counsel for Firestone. I
spoke to Phil last night; I don't know how you
want those hearings handled, whether you vant
Tarleau to handle them or whether you want Phil
(Wenchel) to handle them.
Thank:
I talked to Phil last night on it; we are working
on a statement, both from Roy Blough's department
and Tarleau's. We've got an Awful lot of
statistical information;we (wde up quite all book
for the use of the President on this same subject,
and we are going to have - AS a matter of fact,
Tarleau and I, last night, discussed this thing.
Tarleau is going to bring the memorendum up to
date, and have that ready. He will have that
ready, of course, in the next forty-eight hours.
I think maybe you'd better sit in with us and help
us decide. I don't want to get caught na insine.
Poley:
That is why I Bill bringing it up. Normally we don't
have anything to do with these matters, but Vechen
was working on this thing by special assignment.
Banes:
Anybody workin with him?
Foley:
He wes doin. it primarily Nione.
Dues:
He could bring Tarleau and his grou us to date.
Joley:
Yes, I spoke to Tarleau and he said, "Prank's
done most of the spade work, and worked on the
memos and so on that he has," so it is just a
question of deciding what we are going to do from
here on. Kades knows as much about It 85 Frank
Mechem, but I don't want him so go down on the
Hill. If it is necessary for anybody to 50 on
the Hill from the General Counsel's office, I think
it ought to be Phil Wenchel, but that is something
you will have to decide.
Hunes:
Mechem is not going till the twenty-fifth?
Foley:
Yes, but I don't want to start him on the Hill
with that; it's going to be a long drawn out affair,
SO we might as well start with the fellow who will
go all the way. It's a question of determining
Regraded Unclassified
299
- 3 -
whether or not you want Phil, who helped with the
appearance before the Committee.
Hanes:
When Tarleau gets the memoranda ready, will you
sit in with us and help us decide what course me
will pursue on it? I am not familiar with it,
myself; you know a good deal more about it than
I do. I don't know just what is expected of us.
They will probably ask for an expert to come down
both on the statistical side and on the legal side.
I think we have got everything in pretty good
shape.
одеу:
I think if we mend our fences right now it won't
make any difference, but we've got to decide very
soon just what WE are going to do and hob we are
going to handle it.
Henos:
Tarleau said he'd be ready in forty-eight hours;
in fact, he is almost uo to date right now, but
he wants to do a little more work on it. He'll
let you know. That is two thirty tomorrow. You
and Mac join us here. Cuy is going to bring
Phil.
Foley:
I'd like to bring Kader.
Sclwarz:
Have they asked 09 to maise the openin."
Ranes:
They haven't saíd a word to us,
Schwarzi
They told the press they were guin; to call on
the Treasury.
Hanes:
That way, %e are going to be ready; ye are ore-
paring for an opening statement.
Schwarz:
You want to have those mimeographed in advance.
Hanes:
Chick, I don't know what the practice is.
Echwarz:
If it is an important enough hearins, and your
statement is important, and has good meet in 1t,
we'd want to have it prepared in advance.
Hanes:
That is what we are working on now; maybe you'd
better work along with Tarleau after he gets the
memo and dress it up.
Archie, you got any coin exchange left?
Regraded Unclassified
300
4
Lochhead:
Yesterday the British were meeting pressure on
sterling; they lost about fifteen million dol-
lars in their market and in our market the end
was a little weak and we had to support for them.
This morning they kept the raise up, but are
losing gold. Sterling is around 4.67. Sterling
has gone up from 4.67 to 4.67 without any
tangible evidence of action. I think that is
perfectly natural in a market like this. At
made. least they are trying to hold the gains they have
Hanes:
What was it, 4.67?
Lochhend:
4.67 . They had to support it on 4,67$ yesterday
afternoon and this morning.
Hanes:
Looks like they are doing a little better.
Lochhead:
It is not 50 much pressure, but they are showing
a little more courage in defending it; instead of
letting it slide out they are pushing it up and
holding it a point. It shows they've got a little
more courage. That's all I've got.
One thing, with reference to the Chinese thing,
I notice you've got this morning. Chen is in
there now with Buell; they have taken this man
Buell this morning - demeritting him in the
company. This is quite a good sized Ferdinand.
They decided he will be a good man for him. I
think it is a good thing to have ONE of our men.
Foley:
I think it is an excellent thing; I talked with
him in Mac's office. lle is a well-headed, com-
petent fellow.
Lochhead:
So many people are going to be jumpin on him
for business; he can make a good front. Secondly,
I think you should look in the New York Times
this morning. The London Dispatch seys, Mmerican
Ambassador Johnson tripped down the Burns road."
He is very enthusisstic about it, apparently, from
the dispatch. It's very interesting. You remember
a month or so ago I thought the State Department
was inclined to throw n little cold water on that:
now, apparently, they think It is a pretty good
group.
- 5 -
301
Taylor:
The State Department. And Frazier WAS here; he
felt bad about it.
Lochhead:
I know they felt badly. I tolo then General
Johnson was going over that road and 1f they
didn't give him a good ride, they were damned
fools. But I understand he went over that thing
nll the way from Chungiting down there in thirteen
days in a commercial car and didn't have a detour
and didn't have 2 puncture. That's pretty good.
Manual
That's excellent; It's perfect.
Taylor:
If it doesn't rain, it's all right.
600 head:
Maybe they had umbrellas over them all.
Hines:
Chick, anything?
Solwarz:
I - I expect you saw in the morning papers that
your Benator is expecting to call in the newspaper
men and asking the about Hopkins.
Hames:
The hearing on that thing was pretty well bottled
up until Saturday night. The thing broke loose
on Saturday night after the Jackson Day Dinner.
The thing all bruise loose again, and he sald,
"If we are going to have E fight, we might P.S
well have it now as later, so let's drev the line
now. " That is the reason why they've got F
hearing. They wouldn't Have had a hearing other-
wise.
Schware:
The guage of battle was drawn.
Times:
He said, "Let's fight it out now, and they seid,
"All right, we accept that challenge, if that's
the way you all feel; we'd like to draw the Hre
now; let's see who is boss here."
Schwars:
I don't guarantee these, but these are some
Social Security namés.
Ranes:
These are the people that you know?
Schwarz:
I know of them. They are supposed to be scientific,
impartial experts.
302
- 6 -
Hanes:
Wayne, there is suing to be a meeting this after-
noon on this Social Security; the President has
asked the Fiscal end Monetary Committee to have
a meeting and Live itm some indications of
opinion or advice on the monetary and fiscal side
of this Social Security thing which is coint to
be at two thirty this afternoon here in the
Secretary's Office. Warriner, THE Dancy, and ,r.
Delano will be here, are who from the Treasury?
Who was - George Peas is sirk, 1sn't 007
DeRepuolds: De was yesterday, yeah.
Henes:
Re was yesterday I schow.
elloynolds: Harry 12 supposed So to Elloro, CHO he is
out of toyn.
Gadna:
I called Herry White on the phone because before
Harry went away he dictated a lotter to le sent to
Altmeyer End Harry ssie if the them Yas imminent
he wouldn't go away, and I told him it wasn't
inminent; in view of toat letter I saw no reason
why he shoulen't 60 away, and he said, "I mon't
prepare a memoranám until I come back. " "Well,"
I sale, "you shall DATE your CEY In court; if you
have got any subgestions to make, they certainly
will be heard before we render any decisions."
Having made that statement, I thought I owed it
to him to call him on the phone and tell him about
this thing going to happen this afternoon. I
told him if he would dictate to me what he wanted
to say, I would say it in his own words to this
committee this afternoon.
He is in favor of pushing the date up, or the
benefits up from 1940 to 1943; to increase the
benefit payments, and he is also in favor - marking
that "A" - and, "B", he is in favor of postpone-
ment of the increase of one-half per cent tax
on the employer and employee. He said, however,
"I mark them A and B because if I had to take a
choice between A and B, I would take A, but I
still think that the tax ought to be postponed."
That statement, I told him, I would report to the
Committee, and Marriner is going to bring Curry
with him, and Delano's going to bring Ruml, and we
ought to have, I should think, - George Haas isn't
303
- 7 -
here - we ought to have those boys working with
George - Ray and Murphy; they're the two I have
been talking to; and, perhaps, Roy Blough, who
has been sitting in these Committee meetings with
the Social Security group, and Advisory Committee,
for me. And Wayne, I don't know whether you want
to go - wasn't Herman in most of those meetings?
Mac was, I know.
!cheynolds: Oliphant was too. Herman's shop wasn't represented,
I think, at all, on the Fiscal end Monetary Com-
mitee.
Ranes:
So far 112 I'm concerned, leave it this way: If
you (Mr. Foley) want to come, you are invited. I
don't want to make you come, and I don't think
anything will happen.
Neileynolds: I don't know why they shouldn't have been, except
pressure on other things.
Hines:
Mac, I want to ask you about this. Here is the
history of this thing. Henry, two or three times,
said he wanted to discuss this Social Security
business. Wie never did get an opportunity to
discuss it thoroughly. I went to his house and
spent an evening with him, but we didn't get a chance
to go into it as fully as we might have; and then
he wrote that letter, which you know about, which
went to the White House. Then Altmeyer asked us
to express an opinion; then we wrote another letter
to Altmeyer, which you all saw; it went over -
said it was 0. K. In that letter we said we
thought we wanted to wait until the Secretary
came back before expressing his opinion; we didn't
want to express an opinion until he went over the
thing thoroughly. That is still my opinion.
Now, the President asked for an opinion by the
Fiscal and Advisory Committee. I think the opinion -
whatever they render - will have to be rendered
without the Treasury. I don't see how it is pos-
sible for us to make a statement that we do or do
not agree with the record, as I have just cited it.
Am I right or wrong?
Foley:
So far as I understand it, you have told Altmeyer
you didn't want to express any opinion to his on
these proposals. There is a letter from the Secretary
Unclassified
304
to 1 1
to the President, saying he'd like to have an
opportunity to be heard before the President com-
mits himself.
Illnes:
Inst is right.
Folcy:
I still think the thing is open; I don't think it
is closed.
Ranes:
Do we close it up if we - of course, we can't; we
haven't any right. There is no - there is nothing
said about an alternate for any member of this
Committee. Now, the reason they are meeting over
here is because they have met over here in the
past, so fer as I can see, and there is no alternate
for Henry to act on this Committee, and I don't
see why the Committee, if they want to send in a
recommendation, shouldn't send it in from the three
members who are available.
(ePuynolds: On the other hand, the Committee is composed of
the Secretary of the Treasury, as Chairman, and
these other men, and while there is no alternate
provided for the Secretary, there XS no Vice
Chairman, either.
Hanes:
No.
!cReynolds:
So, as far as 1 can see, the only thing they can
do is, as individual members of the Committee, Is
to express an opinion to the President, in the
Boss' absence.
Hanes:
I am. certainly not willing to express Henry's
opinion. I don't know what his opinion is; I en
not willing to get out on a limb, saying what he
says, and I don't know
Schwarz:
Has the President given them n deadline?
Ranes:
He wants an answer back now.
Schwarz:
As Mac says, as individuals they can point out
that the Chairman is absent, and, therefore, the
Committee is unable to give an opinion 35 a Com-
mittee.
McReynolds: All they've got is Dan Bell and Delano, and Eccles, choose.
and they can express whatever opinions they
Regraded Unclassified
305
- 9 -
Taylor:
I don't think they are goin, to be able to get 2)
Committee opinion this afternoon under any
circumstances.
l'erres:
None of them are familiar with - as familiar with
it as we are, of the details. I understand from
Altmeyer, last night, that Altmeyer objected to
sending over the full draft of the message because
he just - Altmeyer is coming too, by the way.
Пе said, "I hope we won't have to engage in e com-
plete discussion of all the verbiage and language
of the message, and all tvt sort of thing; I
think if we can confine it to just that thing which
affects the Fiscal and Monetary policy of the
Government, then Lat's be very short and concise."
And there, you've only sot the consideration of
these three points which Harr; White brings up,
you see. That 1s practically all time suggestion
they are making. If the President confines him-
self to that particular recommend: tion, why I don't
think the Secretary would have any objection to
moving the time up to 1940, and increasing the
benefits. I - I don't think - I say I don't think -
I haven't any right to say that; I just feel that
way myself. I don't believe he would onpose it.
That seems to be pretty nearly unanimous opinion
of everybody I've talked with. I haven't talked
with anybody who thinks that shouldn't be done.
Still, feeling that very, I an not =1111n to say
so in the Secretary's absence.
Toloy:
Well, maybe you 080 tell after the moetin.
Sanes:
Is that #11 right to take that position with this
Committee?
Duffield:
I should think it is the only one you could take.
Banes:
of course, if the President insists on Deving a
Treasury opinion, in Henry's absence, in that event
we can say, "Here is what each individual in the
Treasury states,' and state that position to him.
We've got Harry White's position down very Gefinitely
from him. I think I know what George Hars' position
is.
Mckeynolds:
Of course, all three of those items Harry outlines
maltes 2 definite change in the financial picture
of that fund.
Regraded Unclassified
- IO -
JUB
Hanes:
Not the two first ones alone, lac.
Mcheynolds: Yes.
Duffield:
Those alone, too.
Ranes:
Well, I am wondering nov - I have been figuring
on this thing a Ion: time. It changes in point
of years. It changes 1965 to 1955; it moves the
period of the crossing of the lines: in other
words, moves the period of time when the Governme t.
has got to come in with more revenue to 9xy the
benefits because the tax doesn't meet the benefits;
it moves that period up ten years, but, in principle,
the whole Social Security System, at the present
moment, according to our ectual areal figures
here, show a deficit now of nine billion Hollars.
That gooenred In the Secretary of the Treasury's
report.
McReynolds: If you move the payments un is counde year., start
paying out before you world normally start Daying
out, then you take away the interest Factor in the
development of your funds.
You are right bout that. that you loke
ToRognolds:
You are bound- - eventually it will cost NOTE money
to the Government. You've got the other side of
it. How much is the Government going to pay nitt?
Are you Eping to pay out more in other ways in
your relief and direct benefits, And ⑉11 t.ls.t sort
of thine. That vill more than offset it, es you
are probably aware.
Times:
I was wrone in the first statement I made, because
you 40 lose the benefit of the interest on the
reserve funds, because you don't keep 1% in reserve.
That is true, so your deficit becomes much larger
than nine billion dollars. It becomes Inrger by
three per cent.
Loc Wisend:
There is another thing; I don't know must the rigures
are, but the mere fact you've sot obligations of
the Treasury in the statement when you use those,
it means you've got to 60 out in the market and
borrow more money; you can't use those obligations
to pay it. The mere fact you've got listed ap to so
many millions of dollars - if you are going
spend that, you've got to go out in the anrket and
- 11 -
307
borrow it. It's only EL bookkeeping figure. You've
got to go out anc do public borrowing.
Annes:
It seems to me I asked Danny Bell about that and
I got the understanding - I got the impression -
maybe I'm wrong - but I got the understanding we'd
issue bonos for the money in the reserve account.
Lochhead:
But if you get the money you'd have to borrow from
the warket. It áces make a difference of goin
into the market und borrowing more money.
Taylor:
To the extent the funds are not accumulating; that
actually increases the amount of the public debt.
Lochhead:
Instead of paying interest to yourself, you start
paying it to the other side.
Duffield:
It considerably circus the financial nicture of
the Government, it seens to me.
Hanes:
It changes in the fact that you accumulate reserve
at a lower rate, and thus, you lose the amount
of the lack of accumulation or the interest on
that amount each year.
Duffield:
And you have to borrov the money.
Lochhead:
Excuse me; I have to go. (Leaves the room.)
Duffield:
You have to borrow that money for current running
expenses, which, otherwise, you would have paid
from the payroll taxes, to 60 out again.
Hanes:
Well I - Mac, you will be there, will you?
McReynolds: At two thirty.
Hones:
And Wayne?
Taylor:
(Nods "Yes.
Hanes:
All right. I think we'd better get Ray and lurphy
to represent George Haas, if he's not here. Is
it all right?
McReynolds: Yes, I think SO.
12 I 1
308
Duffield:
On that list of Social Security people, I don't
know what the Secretary wants, unless he wants this
kind of information. There was a man by the name
of Tom W. Phelps, who did a very good job of the
only study I ever S&W of how the setup affects
indivIdual Industries - oil, motors
Henes:
How do you spell that? P-h-e-1-p-s?
Duffield:
Yes. 011, motors, an that sort of thin. If
that is not the sort of thing the Secretary is
after, that name is no good. He knows him; the
Secretary knows him.
Tanes:
We'll submit it to him anyway.
Wayne, you have anything? We've got to hurry a
little bit too - another meeting.
Taylor:
On Saturday - it's going to be in the record; I
don't want to have to write a demoranding bont it.
On Saturday, the British asked as to 00 over And
talk to the American Banking Institution, the have
branches abroad, to ns% then to cooporate in
steps which are taken by the British Government
to ston speculation against the pound through the
medium of gold transactions. I took that up with
Governor Harrison, who, in turn, reported back
yesterday that he'd spoken to all the American
agencies in question, and that with the excention
of two, there were none who had been engaging in
those transactions which would be redutely con-
sidered as affecting the jurgoses of the British
fund. Those two banks asked him whether he thought
the transactions were vital. He saio he did not
know, but suggested that they take it up with the
British authorities through their agencies in
London, which they are going to do. Period.
McReynolds: Présume) ly 1f the British disagreed with what they
are doing?
Taylor:
Oh yes.
Hanes:
Eddie?
Foley:
(Nods "Nothing.") (Ar. Hanes: Geno? Duffield: No.)
Hanes:
Well, the meeting is adjourned end the next meeting
(Bank Holding meeting) is called to order.
309
January 10, 1939
To:
The Secretary
From: Mr. Hanes
Senator Robert Nogner colled me on the telephone and told me
that you had appointed. at his request, to the Processing Tax Board
of Review a man by the name of Willio. Schwartz. This Board bes
been functioning without a permanent Chairman end Senetor Terner
advises use that Mr. Schwertz has been serving RD Acting Chairmen.
Senator Wagner made the request that I take UF with you the
appointment of ar. Schwartz AS permenent Chairman of this Soard.
I will discuss this matter with Dr. Foley and Ar. Venchel and will
be prepared to give you n recommendation upon your return. I think
this promotion would carry an increase it salary of $500.
Jeef
Regraded Unclassified
310
January 10, 1939
To:
The Secretary
From: Mr. Sames
Senator Robert Vagner called no on the telephone and told as
that you had appointed, at his request, to the Processing fax Board
of Review a man by the name of William Schwarts. This Board has
been functioning without n permanent Chairman and Senator Yegasr
advises as that Mr. Schwarts has been serving AS Acting Chairman.
Senator Wagner made the request that 1 take up with you the
appointment of Mr. Schwarts as permanent Chairman of this Board.
I will discuse this matter with Mr. Foley and Mr. Wenchel end will
be prepared to give you a recommendation upon your return. I think
this promotion would curry an increase in salary of $500.
JWH:JR
Regraded Unclassified