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Volume 213, September 22 – September 26, 1939
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Volume 213, September 22 – September 26, 1939
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 213
September 22 - September 26, 1939
- B -
Book Page
Bergdoll, Grover C.
HMJr discusses trial with Helvering - 9/25/39
213 174
Berlington, Olguita Queeny
See Income Tax
- C -
Customs, Bureau of
Rochas, Marcel: Reynaud asks Bullitt for speedy
action in case (smuggled dresses into United States
from France) - 9/26/39
231
- F -
France
Rochas, Marcel: Reynaud asks Bullitt for speedy
action in case (smiggled dresses into United States) -
9/26/39
231
- I - -
Income Tax
Berington, Olguita Queeny: See Correspondence to
Tom K. Smith, to Hanes, to HNJr, concerning income
tax - 9/22/39
46
- L -
Latin America
See also War Conditions
HMJr tells Noble (Commerce Department) no Treasury
personnel may attend meetings in Commerce Department
unless 50 instructed by FDR - - 9/25/39
183
Louisiana
Tax Cases:
Congressman De Rouen calls on HMJr concerning
investigation of L. Austin Fontenot - 9/25/39
167,173
at I #
Rochas, Marcel
See France
- W -
Book
Page
War Conditions
Australia:
British control of stocks of primary pro lucts
reported by American Consul General, Sydney -
9/23/39
213
75
Bank for International Settlements:
Treasury recommends to State Department that
consular officer in Bank for International
Settlements district make future reports - 9/25/39
141
Business situation for week ending 9/23/39:
Haas memorandum,
145
China:
Litvinoff, on secret mission to China, welcomed by
Chiang Kai-shek, et cetera - 9/22/39
70
a) Stalin-Nolotov letters mention (1) U.S.S.R.,
Germany, and Italy offer to mediate in Sino-
Japanese dispute; (2) China and Japan urged
to join proposed five-power pact; (3) U.S.S.R.
voluntarily pledges change in Communistic
system with Germany and Italy for guarantors;
(4) formation of pact will render American
Neutrality Act impractical; formal entry into
pact will automatically follow
Report on transportation of supplies over Yunnan-
Burma highway - 9/22/39
72
French Indo-China forbids further transfer of
munitions, motor cars, and gasoline through their
territory: HWr GO informs FOR - 9/26/39
227
a) Chinese Ambassador discusses with H/Jr -
9/26/39
249
b) HMr discusses with Bullitt
255
Tin: Chinese Ambassador wishes additional lonn from
Export-Import Bank against sale of tin in United
States: H&Jr asks FDR for advice - 9/26/39
227
Coal:
Government's supply to be investigated - 9/23/39
123
Colombia:
See Mar Conditions: Latin America
183
Credits to Belligerents (Section 3 of Neutrality Act),
Seo War Conditions: Neutrality Act
Exchange market resume (Cochran) - 9/22/39, et cetera
64,113,191
Financing, Government:
See also War Conditions: Government Bond Market
Ecoles sells FDR on idea of using up free gold, silver
certificates, et cetera, and not borrowing during
HWr's absence; balances ran down; HWr discusses
entire situation with FDR - 9/26/39
237
- - (Continued)
Book Page
War Conditions - (Continued)
Finland:
Proposed loan reported on by American Legation,
Helsinki - 9/24/39
213
128
Five-Power Pact: See War Conditions - China
France:
Purchasing Mission: FDR wishes Procurement Division
to contact - 9/22/39
61
Germany:
Economic resund provided by American Embassy, Berlin-
9/23/39
91
Food rationing regulations reported by American
Embassy, Berlin - 9/23/39
110,124
Standstill Agreement: Rovensky conference in Treasury
reported by HMJr to Hull - 9/23/39
114
a) Swiss agreement practically identical with
1939 agreement - 9/25/39
144
Financial resume provided by American Embassy, Berlin-
9/23/39
122
Fuel oil and gasoline: HMJr asks Jay Crain to help
Captain Puleston build up report - 9/25/39
168
Negotiations with several countries concerning
increased imports reported by American Embassy,
Berlin - 9/26/39
209
a) Ores and metals from Yugoslavia
b) 011 from Russia and Roumania
o) Fate from Netherlands and Denmark
d) Iron and steel from Belgium
Government Bond Market:
Federal Reserve Board told Treasury cannot consider
new financing until they are out of the market
a) Treasury not informed of their intentions;
conference on policy Treasury should pursue -
9/22/39
4
b) Harrison tells HMJr he has bean instructed to
re-enter the market
29
Conference with Federal Reserve Board and Open Market
Committee-Sell attending-to discuss policy of
Committee tomorrow in Government bond market - 9/25/39.
136
Great Britain:
Federal Reserve Bank of New York resume of events
leading up to and immediately following release to
the market on September 14th of certain information
concerning official British buying rate for sterling -
9/22/39
10
Sterling resume - 9/22/39, et cetera
64,113,191
Black List - 9/22/39
66
Purchase of large supplies in various parts of Empire,
including Australia, reported by American Embassy,
London - 9/23/39
75,79
High-Grade Securities Markets:
Current Developments: Hane memorandum - 9/26/39
194
- W - (Continued
Book Page
War Conditions - (Continued)
Latin America:
Colombia:
Panama conference: Anxiety lest present war
affect exchange situation discussed - 9/26/39
213
188
Mexico:
Panama conference: Delegation considering
introduction of amendments to United States
resolution on "Protection of monetary and
commercial policies by American Republics" -
9/25/39
184
Neutrality Act:
Credits to Belligerents (Section 3 of Neutrality Act):
Revised Treasury press release in view of FDR's
decision against formal regulations at this
time - 9/23/39
116,132
a) For FIR's decision to postpone, see page 81
Panama Conference:
See War Conditions: Latin America; Mexico
Persia:
Loan of $15 million discussed in Hanes memorandum -
9/26/39
213
St. Pierre, Island of:
Removal of Consul by State Department, and smuggling
situation, discussed at 9:30 meeting - 9/22/39
36
Ship Movements:
Unnamed ship proceeding near Cuba to be followed by
Coast Guard: FDR's instructions - 9/22/39
62,159
Surplus Commodities:
Cotton and wheat export subsidies: Hass memorandum -
9/22/39
63
Switzerland:
See War Conditions - Germany: Standstill Agreement
Taxation:
Excess Profits Tax: Magill-Shoup report during World
War - 9/26/39
267
U.S.S.R.:
See War Conditions - China
Works Progress Administration
Pennsylvania State Director dismisses employees, among
them three Treasury people, for selling tickets:
discussion at 9:30 meeting - 9/22/39
29
1
September 22, 1939
My dear Mr. President:
First, may I extend to you my very hearti-
est congratulations on your great message to
Congress yesterday.
Second, I am inclosing herewith a clipping
from the New York Tribune in regard to Sterling.
For the moment we have the matter in hand, thanks
to the publicity which I gave it through the press.
Thirdly, I am not at all happy over the way
the Federal Reserve has been handling the Govern-
ment bond market and if it does not straighten it-
self out by Monday, with your approval and backing
I propose to take over the exclusive handling of
the Government bond market.
Yours sincerely,
The President,
The White House.
2
September 22, 1939
Ny dear Mr. President:
First, may I extend to you my very hearti-
eat congratulations on your great measage to
Congress yesterday.
Second, I nm inclosing herewith a clipping
from the New York Tribune in regard to Sterling.
For the moment we have the matter in hand, thanks
to the publicity which I gave it through the press.
Thirdly, I am not at all happy over the way
the Federal Reserve has been handling the Govern-
ment bond market and if it does not straighten it-
self out by Monday, with your approval and backing
I propose to take over the exclusive handling of
the Government bond market.
Yours sincerely,
The President,
The White House.
NEW
YORK
FINANCIAL NEWS
FRIDAT
Herald
Tribune
MARKET STATISTICS
SEPTEMBER
1038
R
Stocks Tend
Submits Bunding Report
Haskell Cites
Wall Street Comment
Treasury Issues
15 Ment dative Storks
Reserve Ends
Higher While
Exchange Role
Break Sharply
à
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-
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-
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Move to Prop
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4
September 22, 1939
10:20 a.m.
PRESENT:
Dr. Randolph Burgess
Mr. Harold Smith
Mr. Walter Stewart
Mr. Daniel Bell
Mr. John Hanes
Mrs. Klotz
HM,Jr: Just for the record, what kind of an
agreement -- (to Walter Stewart: This 16 B. matter of
policy and I want your advice.) -- what kind of a
record have we from the Fed. that they were going
to stay out of the market?
Burgess: Nothing. After Dan and I went over
there we haven't heard anything directly from the Fed.
Stewart: You only knew they were out yesterday
by George Harrison?
HM,Jr: What I mean, should I call up and say,
"Why don't you let us know when you go back 1n"?
Or should I do nothing?
Stewart: I think you should do something. I
suggest Burgess
Smith: It ought to come through regular channels.
Stewart: I think you could give Randolph a steer
as to how you would like him to handle it. But what's
the present status of our information? We only know
from the market? We are still not advised?
Burgess: We know from the New York bank.
Stewart: From the New York bank. Yeah. We don't
know anything about magnitude.
(Mr. Hanes came in at this point.)
5
- 2 -
HM,Jr: This pow-wow is on this; we have just
learned from Hadley that the Fed. 18 back in the market
buying bonds. I want some advice what to do. Randolph
18 really upset! (Burgess laughed at this remark.)
And fortunately I feel well this morning 80 I am
not -- I just don't want to do anything half-cocked.
We are just sitting here discussing what should we do
in relation to the Federal Reserve Board in Washington.
I would like some advice. There was evidently no
official notice to us that they were going to stay
out of the market.
Bell: I think for that record you ought to say
that Dr. Burgess and I went over there three days ago
to suggest to them that we wanted to consider financing
and that you could not do financing without them being
out of the market and that 18 about all that was said,
and then after we left Harrison and Allan Sproul took
it up over there and urged that the Board get out of
the market and that was when the vote was taken, as we
get it from the other end, but we didn't hear directly
from the Board that they would be out of the market or
what plans they were adopting for staying out of the
market.
HM,Jr: Also for the record, yesterday I talked to
George Harrison
(At this point Secretary spoke on telephone to
George Harrison and record of conversation
follows:)
- 3 -
6
HM,Jr: This is what 18 running through my mind,
gentlemen. For the moment I have a little bit of
reserve strength. Rather than call up Eccles and
get into an hour's argument and lose my temper,
I am going to ask you people to draft a letter in
which we want to point out first -- this 18 what I
am thinking -- that the Treasury 1s responsible for
the financing and the raising of the money. This is
the way I am thinking, not saying this is how I would
like you to do it, I am not dictating. Second, that
I am not at all satisfied with the way the Federal
Reserve has handled the thing, and third, here we
were under the impression, right or wrong, that they
were going to stay out of the market and without any
notice to us of any kind they have gone back in,
and that after all, no matter who handles it, whether
they handle it or I handle it, we must have better
liaison, and I think the least Mr. Eccles could do
would be, where he has been handling it, to arrange
to let me know.
And lay it down and write a very careful letter
and put it in a letter rather than have me call him
up. One of us will end up losing our temper and
that just burns up my energy.
What do you think, Johnny, of doing it that way?
Hanes: In order to get the thing crystallized as
soon as we can -- I am confused to know who has the
authority. Where does the authority rest on the
final analysis? Have we got any control over the
Federal Reserve or their policy at all?
HM,Jr: No, no. None. It would go to the
President.
Hanes: I was going to suggest, it seems to me
the thing 16 important enough, we lay it before the
President and say, "Here, there 1s such a wide
divergence of opinion we can't get together." And
I know down in my heart -- I know he's destroying
this market. I think it's serious enough
Smith: On the control it's very definitely
over there.
4 -
Burgess: To buy Government securities.
Hanes: I like your suggestion of getting in the
record just exactly where we stand.
HM,Jr: That's what I think. I am going to ask
you fellows to do this; could you go somewhere and
talk it over? I feel this 18 sufficiently important
that you, Walter, should sit in on it. This 16 policy,
question of how we are going to handle the bond market
and I think it's pretty important.
Smith: With your permission. You couldn't keep
me out if you will let me.
HM,Jr: I am telling you (Stewart) to help me on
how the Government should handle the Government bond
market. Who said it's the Federal Reserve's
responsibility?
Smith: The decision as to what there 18 to do
is a decision to be made by the Open Market Committee.
The Government bond market is not assigned to anybody.
Nobody is charged with the responsibility with control
maintaining the market.
Bell: It's really a public debt matter and the
Secretary has the financing responsibility. It seems
to me a Treasury function to complete that because
it has such an important bearing on the financing
problems we are confronted with. I think the line
ought to be specifically drawn.
Stewart: Complete alteration of everything that
we have has been conserved as an open market operation.
HM,Jr: Does anybody think I should call Eccles
on the phone?
Burgess: No, I certainly do not.
Smith: No, sir.
Hanes: No, sir.
HM,Jr: You talk it over.
B
5 I 1
Bell: I question the letter also a little.
Let's think that over.
HM,Jr: So you people know everything - I wrote
a letter to the President this morning which I asked
them to give him at his breakfast time. I wrote
him to congratulate him on his speech and then I
said, "I want you to know I am not at all satisfied
the way the Federal Reserve 16 handling the Govern-
ment bond market and if by Monday it doesn't straighten
itself out, with your approval and backing I want
exclusive handling of the Government bond market."
Re got that this morning.
Hanes: That meets my suggestion exactly.
HM,Jr: I said, "With your approval and backing
I want the exclusive handling of the Government bond
market." Because I didn't want him to Jump me at
Cabinet in front of everybody there - Jack Garner.
"Why don't you do it"? Get into a 1 ong argument.
I want the President to know -- I haven't bothered
him -- that it isn't mine. The Fed. has been handling
it and I thought it was time to let him know that.
Whether he called Marriner on the phone and jumped
on Marriner and that's what started it off -- that's
what might have happened. But Just 80 you know every-
thing, I did do that this morning.
I wanted to lay the ground BO I could walk into
the President on Monday and say, "Well now Bose, with
your approval and backing I want to handle it but I
can't do it unless you give it to me." With that in
mind -- we haven't got his approval and backing yet --
you might draft a letter and before sending it I
might ask him to read it. There's an idea! So that
I wouldn't be going off on the end of a limb and I
might get him to read the letter and say, "This 1s
what I am going to send to Eccles, but before I send
it I want to know if it's O.K." I could get him to
read it this morning.
Burgess: I suggest the secretary give us a
couple of paragraphs of what you dictated.
9
- 6 -
HM,Jr: No, you have enough.
We can forget about Sterling. Sterling 18 all
right.
If I write him the President had better see the
letter before it goes off BO I am sure, because I
can't take this away unless the President says, "I
want Henry to do this." He has to say that, doesn't
he?
Burgess: Or it could be mutual agreement.
HM,Jr: I don't know how you (Burgess) feel
physically but I can't do it.
Smith: You mean mutual agreement with Eccles?
HM,Jr: I just can't do it. What's the use.
We go in and if we do it we tell them at the end of
the day we bought "X" million dollars worth of bonds
or sold "X" million dollars worth of bonds and you
can have half of it if you want it.
Burgess: Right.
10
FEDERAL RESERVE BANK
Ree morrills
or 9-28-39
OF NEW YORK
September 22, 1939.
Dear Mr. Secretary:
I beg to transmit herewith copy of a report which I have
asked Mr. Knoke to prepare concerning the events leading up to and
immediately following the release to the market on Thursday, Septem-
ber 14, 1939, of certain information concerning the official British
buying rate for sterling. I am also sending this report to the
Board of Governors of the Federal Reserve System with a similar
covering letter.
Since my return to New York yesterday, after my absence
in Washington Monday, Tuesday and Wednesday, I have interviewed
each member of the Foreign Exchange Committee in order that each
one of them might furnish to me a list of their transactions in
sterling from the time that the notice was first delivered to
Mr. Loree, Chairman of the Foreign Exchange Committee, until after
the announcement was released on the Dow, Jones ticker - that 1s,
between 2:00 p.m. and 2:51 p.m. Each member of the Committee was
glad to avail himself of the opportunity to give us the complete
transcript of his institution's transactions in sterling over the
period in question. Mr. Knoke has examined each one of these
documents and has advised me that they demonstrate that there
was no abuse of the information conveyed, and specifically
that there were no speculative purchases of sterling in the
interval in question for account of any one of the institutions
FEDERAL RESERVE BANK OF NEW YORK
2.
Hon. Henry Morgenthau,
9/22/39.
involved. Many of the institutions concerned had no purchases of
sterling whatever in this period. Those that did have some such
transactions, have confirmed to us to our complete satisfaction
that they were normal and legitimate transactions growing out of
demands of customers or correspondents. Indeed, even these transac-
tions were relatively insignificant in number and amount.
In this connection, I would like to mention that the
Foreign Exchange Committee at its first meeting on August 28, 1939,
agreed in the interest of an orderly market not to transact any
speculative foreign exchange operations. In the circumstances, I
was certain that no such speculative transactions had been consum-
mated. I am glad to advise you that the records confirm that
opinion.
Faithfully yours,
George L. Harrison,
President.
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Treasury Department,
Washington, D. C.
Enc.
1030 21b
1
Control of the foreign exchange market in London was
adopted by Great Britain, as a war time measure, on September 3,
1939. On September 5, 1939 the British control established "official"
rates (that is rates at which the control, or its authorized agents,
would buy and sell foreign exchange in the London market) for nine
foreign currencies, including the United States dollar. The rate
for the latter was fixed at 4.02 buying (the control when buying
sterling would pay $4.02 for £1) and 4.06 selling (the control when
selling sterling would sell £1 for $4.06). The control did not bind
itself, however, to continue these "official" rates for any fixed
period nor to satisfy all demands at these rates at any time. As
far as the dollar quotation was concerned, the question of the control's
willingness to buy sterling (sell dollars) at 4.02 was of no immediate
importance inasmuch as sterling continued, for 8 number of days, to
be quoted here above the London "official" selling rate for dollars
4.02. The range at New York from September 5 to September 12 was 4.08
to 4.03, with fairly substantial business being transacted within this
range. Only in late dealings of the afternoon of Wednesday, September 13,
after all European markets were closed, did the sterling rate drop below
4.02 reaching 4.00 at 4:38 o'clock p.m. and closing at 3.99 5/8 bid to
1.00 offered at 5:00 o'clock p.m. This did not cause any serious
ilarm or disturbance, however, because the easing of the rate could
reasonably be ascribed to the fact that the control was operating
only in the London market, which had closed for the day.
On September 14 sterling opened in New York (9:10 o'clock
1.11. New York time; 2:10 o'clock p.m. London time) at 4.00 offered,
Regraded Unclassified
2
13
unchanged from the previous closing. At 9:25 o'clock a.m. the first
sale was effected at 3.97 1/2, followed at 9:45 o'clock a.m. by a
sale at 3.97 5/8. At 10:10 o'clock a.m. sterling was offered at 3.96.
At 10:20 o'clock a.m. business was done at 3.92. At 10:30 o'clock
a.m. it was 3.88 3/4 on the bid side; at 10:45 o'clock a.m. 3.90 bid.
Meanwhile at about 10:30 o'clock a.m. Mr. Lochhead of the Treasury
Department and I discussed the situation on the telephone. Mr. Lochhead
suggested that I try to get some information from Mr. Bolton at the
Bank of England concerning the break in sterling and the operations
of the British control in the circumstances. I talked to Mr. Bolton,
by telephone, at 10:45 a.m. and I reported the substance of my con-
versation to Mr. Lochhead at about 11:40 o'clock a.m. after the trans-
cript of my talk with Mr. Bolton had been typed and checked and after
I had returned from an 11 o'clock conference in the bank. I was
impressed, at the time, that the most important part of Mr. Bolton's
comment to me was that all American demands for dollars would be
satisfied, at the control's selling price (4.02) in the London market,
if the demand arose from the sale of pre-war sterling balances or from
the sale of the sterling proceeds of current trade with the British
Empire.
After sterling had continued to decline further, and after
Lt had seemed to have reached at least a temporary bottom at 3.77
at 12:05 and again at 12:15 o'clock p.m., I put in a second call for
Mr. Bolton at the Bank of England. Before I was connected with
Ar. Bolton I spoke to Mr. Lochhead at the Treasury, told him that I
had put in the call and discussed with him the advisability of trying
to get the British to authorize us to convey to our market the
information (about dollars being available to Americans under certain
3
14
circumstances at the 4.02 price) which Mr. Bolton had given to me
earlier in the day. Both Mr. Lochhead and I felt that it would be
helpful to everybody in our market, and prevent needless sacrifice
of American holdings of sterling, if this information could be given
out.
I was connected with London at 1:25 p.m. and finished my
conversation with Mr. Bolton at about 1:30 o'clock p.m. In the
course of this conversation Mr. Bolton agreed that it would be of help
to the market if a hint were dropped to our market to the effect that
American demands for dollar exchange would be satisfied in the London
market, at the rate of 4.02, if such demands represented the liquida-
tion of American owned pre-war sterling balances or of the sterling
proceeds of current trade transactions with the British Empire. In
order to avoid any possible misunderstanding I repeated to Mr. Bolton
his comment as I had taken it down in pencil whilst he spoke, and he
confirmed it. My report on both telephone conversations with the
Bank of England, on September 14, which was as usual sent to the
Treasury Department the same day, is attached.
Between 1:30 o'clock p.m. and 1:55 o'clock p.m. the trans-
cript of the second telephone conversation with Mr. Bolton was typed
and checked. With the transcript before me I dictated to my secretary
the form of notice about sterling dealings in London to be given to
our market; I immediately put in a call for Mr. Lochhead at the Treasury,
gave him an outline of my second conversation with Mr. Bolton and spoke
to him about the notice to be given to this market which I said I was
sending to Mr. Loree, Chairman of the Foreign Exchange Committee.
Mr. Lochhead made no comment whatever about preferring any other method
15
of release. As I was talking to Mr. Lochhead, at about 1:55 o'clock
pim., the call was interrupted and Secretary Morgenthau came on the
wire. I discussed the sterling market with him; I also mentioned the
notice about sterling dealings in London which I said we were giving
to the New York market through the chairman of the Foreign Exchange
Committee, recently set up by the New York foreign exchange market
at our suggestion. In reply to his question I explained briefly
what this committee is and how, through it, we expected to be able
to communicate information to the foreign exchange market more promptly
and with completer coverage than in the past when, as he knew, we
ourselves had had to telephone to 8 considerable number of banks in
order to convey messages which we had been asked to get to the market.
This group of banks with which we had had to communicate in the past
was unavoidably only a small fraction of the banks and dealers engaged
in the foreign exchange business. (Incidentally, it might be mentioned
here that it was partly to avoid this old cumbersome and necessarily
limited method of getting news to the market that the Foreign Exchange
Committee was organized with representatives of each group of institu-
tions engaged in the foreign exchange business.) After my talk with
the Secretary I telephoned the chairman of the Foreign Exchange Committee
to ask him to be prepared to receive a notice about foreign exchange
dealings in London which I was sending to him; as he was out to lunch,
left a request that he call me immediately upon his return. My
secretary handed the notice to a Federal Reserve bank messenger at
Just before 2:00 o'clock p.m. with instructions that it be taken to
ir. Loree's office immediately. I received a telephone call from
dr. Loree at a few minutes after 2 o'clock p.m. He said he had just
returned to his desk and had been handed my notice which he was going
5
16
to get out to the market right away. At the time I sent the
notice to Mr. Loree I had not given a thought to the possibility
of an announcement on the news ticker; I assumed that the chair-
man of the Foreign Exchange Committee would immediately notify,
by telephone, those banks, bankers and stock houses represented
on the committee and that these representatives, in turn, would
call all of the others in their groups. Thus, as I had earlier
told the Secretary, we would cover a much larger number of factors
in the foreign exchange market whereas, in the past, we had been
able to reach, promptly, only 20-odd banks. At no time during
any of these conversations did anyone mention using the ticker
as a means of release or suggest any other method of release than
the Foreign Exchange Committee which, from the outset, I had
assumed would be the best medium of release. This, for me, was
a natural assumption in view of the fact that the Bank of England
had not, as I understood it, suggested a formal official release
and I certainly had left them under the impression that, as I put
it on the telephone, I would drop a hint to the market.
Immediately after speaking with Mr. Loree I went into
the meeting of the Board of Directors of the Federal Reserve Bank of
New York; between 2:30 and 2:50 o'clock p.m. I received two messages,
in the board room; one from my secretary, stating that sterling was
3.91, the other (from the chairman of the Foreign Exchange Committee)
saying that the market had been notified and that sterling was about
3.95. After the board meeting, that is after 3:20 o'clock p.m., I
6
17
got Mr. Lochhead on the telephone and discussed the sterling market
with him in some detail.
At 4:30 o'clock p.m., Secretary Morgenthau's telephone
message came through in the office of Mr. Harrison, President of
the Federal Reserve Bank of New York and I learned, for the first
time, that the Secretary was disturbed about what had been done in
London and here. In the course of the conversation, Secretary Morgenthau
spoke of a gap of almost an hour between the time (1:55 o'clock p.m.)
when I had told him of the notice which we were giving out to the
market, and the time that he thought the notice appeared on the Dow
Jones news ticker (2:50 o'clock p.m.).
Upon returning to my office a little before 5 o'clock p.m.
I called Mr. Loree. I requested him to check with the Dow Jones
service and to let me know at what time it had put the message on
its news tickers; I also asked him to describe to me the steps he
had taken between 2 o'clock p.m., when my notice reached him, and the
time the message appeared on the ticker. He called me back a little
later to tell me that, according to Mr. Harrower of the Dow Jones
service, the notice had gone out on the Dow Jones news tickers at
2:40 o'clock p.m. He said that, immediately on receipt of the copy
of the notice (at a few minutes after 2:00 o'clock p.m.) he started
to telephone to the eight other members of the Foreign Exchange
Committee, reading the notice to them and asking them immediately
to notify each member of the group which they represented on the
committee. When he gave the message to Mr. Sidney J. Weinberg of
Goldman Sachs & Co., he asked him how he proposed to reach the very
large number of stock exchange firms, which he represents on the
committee, and Mr. Weinberg suggested that he (Mr. Weinberg) should
Regraded Unclassified
7
18
use the news ticker for that purpose. To this Mr. Loree agreed.
Mr. Weinberg thereupon had given the message to the Dow Jones service
at about 2:30 o'clock p.m. The Dow Jones service had checked back
with Mr. Loree as chairman of the Foreign Exchange Committee and put
the notice out at 2:40 o'clock p.m. (Mr. Weinberg, in a letter to
Mr. Harrison of September 21, states that the notice was given to
the ticker service around 2:45 p.m., "and it appeared on the news
ticker at 2:51 p.m."; Dow Jones now agree that the time of appearance
was actually 8:51 p.m.) Mr. Loree has since, at Mr. Harrison's
request, written a letter to Mr. Harrison setting forth exactly what
he had done, a copy of which is attached. In this letter Mr. Loree
states that it never occurred to him that the notice prepared by me
should be given out immediately to the newspapers or to the news
ticker service but that he considered it his duty to get the report
directly to the foreign exchange market as rapidly as possible.
Before leaving my office for the day at 6:20 o'clock p.m.
I called Mr. Lochhead at the Treasury and passed on to him the
information which the chairman of the Foreign Exchange Committee had
given me.
Whinow
65(e)
FEDERAL RESERVE BANK
OF NEW YORK
19
OFFICE CORRESPONDENCE
DATE September 14, 1939
CONFIDENTIAL FILES
To
SUBJECT: TELEPHONE CONVERSATION WITH
ROM
L. W. Knoke
BANK OF ENGLAND
I called Mr. Bolton at 10:45 s.m. to keep him posted on
the sterling quotation. Sterling was down to 3.89 1/2, I said, not
due to heavy offerings but entirely because of the absence of buyers.
Bolton referred to recent selling in our market by European central
banks; I answered that I assumed that these would cease coming to
us now that our rate had dropped below the 4.02 level quoted by the
British control. Bolton replied that such orders received in our
market must be transactions in which the British control was not
interested. To what extent did they buy st 4.02, I asked? He
replied that the British control was refusing exchange against
certain demands but had not agreed upon any principle under which
they would give exchange to all comers. If South America, I asked,
wented to buy dollars in London against old sterling balances, would
they get the exchange? They had not come to any definite decision
yet, Bolton replied. Wasn't, then, 4.02 a limited rate? Not to
everybody, he replied, all American demands for exchange being
satisfied if it was a demand against pre-war sterling balances or
against current trade with the British Empire. There were a great
many other transactions which they had to refuse. How many dollars
did I think the control would have to sell to put the market streight,
say back to 4.00? So far, I repeated, the volume in our market had
been insignificant. Whether $1,000,000 would do the trick I did not
know; nobody could answer that, only an actual test would show. If
Regraded Unclassified
FEDERAL RESERVE BANK
20
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 14, 1939
CONFIDENTIAL FILES
o
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
ROM
BANK OF ENGLAND.
2.
we should again get selling orders for sterling similar to those
received recently, $1,000,000 would surely not be enough. Meanwhile
our market's reaction to this break in the sterling rate was A
feeling of disturbance and nervousness. "They had no reason to feel
nervous at all; they would have all the exchange they required,"
Bolton replied.
What was the answer to the following situation which had
trisen in this market? AS a result of & cotton deal done by a cotton
house in New York with Egypt, the Egyptian party to the contract had
been called upon to furnish additional margin. The Egyptian had
replied that he could not get dollars in Cairo. If the margin were
furnished in the shape of sterling could the American party freely
dispose of this sterling in the London market? Bolton replied that
he thought the answer was undoubtedly "yes" because dollar exchange
WSS needed in connection with the trade transactions with part of the
British Empire.
At 1:25 p.m., sterling having fallen to 3.77, I called
Bolton again to acquaint him with the situation. Scandinavia had been
a small seller here, I stated, and I understood that South America
W9S trying to sell, but Again I remarked the break in the rate could
not be due to heavy offerings but rather to the complete absence of
Regraded Unclassified
Misc,38-3M-10-38
FEDERAL RESERVE BANK
21
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 14, 1939.
CONFIDENTIAL FILES
o
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
ROM
BANK OF ENGLAND
3.
buyers. The development was no surprise to them, Bolton replied,
but would I tell our banks that any American demand for dollar
exchange would be satisfied in the London market at the rate of
4.02 1f such demand was in connection with the liquidation of
American owned pre-war sterling balances or with current trade
transactions with the British Empire. Could I drop a hint to
the market to that effect? That was exactly the position in London,
he replied, and I could advise the market of it.
LWK:KW
COPY
22
21
GUARANTY TURST COMPANY OF NEW YORK
NEW YORK
In replying please
refer to 513.1
September 15, 1939.
Mr. George L. Harrison, President
Federal Reserve Bank
33 Liberty Street
New York City.
Dear Mr. Harrison,
When Mr. Knoke telephoned me yesterday concerning the
announcement that dollars could be procured in the London market at 4.02
for pre-war American Sterling balances, it never occurred to me that this
should be given out immediately to the newspapers or to the ticker.
My reaction was that it was my duty to get this to the
Exchange Market - namely, those people on the Foreign Exchange Committee's
list - as rapidly as possible, and I immediately started to telephone the
members of the Committee asking them to communicate with certain names on
our list 80 that the report could get to the market as rapidly as possible
without having anyone know the fact much ahead of anybody else.
I asked Mr. Weinberg of Goldman Sachs & Company, repre-
senting the brokers how he was going to get the information to them - that
being a long list and one which would be very difficult to handle - and he
suggested that it be put out over the ticker which was done immediately -
he giving the information out and Dow Jones confirming it with me.
As far as our own traders are concerned, I did' not advise
them until after all the members of the Committee had been advised and we
had given the announcement to Dow Jones.
Sincerely yours,
(Signed)
Rs F. Loree, Chairman
Foreign Exchange Committee.
DEBYBLMENT
laza 2Eb 52 W 011
SECURIVBA OE
OELICE
23
September 22, 1939
9:13 a.m.
Henry
Wallace:
Hello, Henry.
HMJr:
How are you?
W:
Fine. I Just wondered if after Cabinet meeting I
could stop in and see you about ten minutes.
HMJr:
Well, Henry, I'd love to but I -- the sun sets at
6:07 today and I'm going home.
W:
Oh.
HMJr:
And BO it's a minute -- a matter of minutes.
W:
Yeah.
HMJr:
I could get over to Cabinet a little early.
W:
Well that will be fine.
HMJr:
Sup.....
W:
Let's see there are about
HMJr:
Supposing I be there at ten minutes of two?
W:
Well, that would be grand.
HMJr:
How would that be?
W:
I think that would be fine.
HMJr:
I'll be delighted.
W:
All right.
HMJr:
I'll be at Cabinet at ten minutes to two.
W:
All right, sir.
HMJr:
O.K.?
W:
Right.
HMJr:
Goodbye.
24
September 22, 1939
9:15 a.m.
HMJr:
Hello.
Operator:
Admiral Anderson.
HMJr:
Right. Hello.
W. F.
Anderson:
Mr. Morgenthau?
HMJr:
Talking.
A:
This 18 Admiral Anderson, Mr. Morgenthau.
HMJr:
Good morning.
A:
Welcome back, sir.
HMJr:
Thank you.
A:
I have some information here that I think would be
of interest to you and it's something that I think
you'll want to know right away. I believe there's
& proposed interview at the State Department on
the subject today, and shall I send it to you or
shall I send it to Captain Puleston?
HMJr:
Either way, as long 8.8 I can get it.
A:
Yes, sir.
HMJr:
If you'll send it to Puleston he can walk it in to me.
A:
Yes. All right, I'll send it over.
HMJr:
Can you get it right away?
A:
Right away. Yes, sir.
HMJr:
Thank you.
A:
Goodbye.
September 22, 1939
25
10:13 a.m.
HMJr:
Hello.
Operator:
The Attorney General. Go ahead.
HMJr:
Hello.
Frank
Murphy:
Hello, Henry.
HMJr:
How are you?
M:
Fine.
HMJr:
How are we coming along on this -- what I call my
26-page letter which I asked.
M:
Well my God, I phoned Ed Foley about it last night.
HMJr:
Yes.
M:
Told him that I had gone through it myself. Rogge
didn't arrive until late last night.
HMJr:
I see.
M:
I turned it over to him, in view of his knowledge
of the subject.
HMJr:
Yeah.
M:
And I made a couple of suggestions
HMJr:
Good.
M:
that I thought might brace it a little. I think
the letter is in good form.
HMJr:
Fine.
M:
And I'd -- I just wondered about the paragraph about
the warning.
HMJr:
Uh-huh.
M:
How that might be strengthened somewhat.
HMJr:
Fine.
- 2 -
26
M:
So as to get a little more action. So after giving
my notations to Rogge and to Kemp, they went to
work on it last night with the understanding and
instructions from me that today around noon I could
get into your hands whatever comment we had to make
on it.
HMJr:
Fine.
M:
So it will be over there in a few hours.
HMJr:
Fine. Now that's number one, and then I take it when
you get that out of your way you'll take a look at
what -- the fake insurance
M:
Yes.
HMJr:
on Transamerica.
M:
Yeah.
HMJr:
That'll come next won't it?
M:
Well, we're working on that.
HMJr:
Fine.
M:
Yeah.
HMr:
And you'll -- maybe Monday and Tuesday you'll
M:
On that matter I've already talked with Rogge about
it and told him what I wanted done with it.
HMJr:
Oh, grand!
M:
Yeah.
HMJr:
And then I'll -- I'd like to call you about that again
Monday or Tuesday.
M:
All right, Henry.
HMJr:
Well, I -- I'm glad you're giving this your personal
attention, because it's terrifically important.
M:
Well, when it gets on my desk it always goes this
way.
27
- 3 -
HMJr:
Fine.
M:
And -- I don't like that monkey business of last
Monday.
HMJr:
You mean the -- the
M:
Those telegrams.
HMJr:
No, I don't either.
M:
And I learned later, you know, some things that
collaborated my judgment about it because the editor
of that paper
HMJr:
Yeah.
M:
that informed Judy
HMJr:
Yeah.
M:
called up columnists here and gave it to them.
HMJr:
Who -- who are they?
M:
Well I can't disclose that.
HMJr:
Oh, I thought you said Callender.
M:
Called up newspaper columnists.
HMJr:
Oh, columnists.
M:
Yeah.
HMJr:
Hell, I didn't -- I thought you said a man by the
name of Dallender.
M:
No.
HMJr:
No.
M:
Called up and gave it to them, which indicates very
clearly that what they had in mind was a political
motive.
HMJr:
I see.
28
- 4 -
M:
Either some political attack on Giannini
HMJr:
Yeah.
M:
or some effort to embarrass the President
and myself. Otherwise they wouldn't have called
the press, would they?
HMJr:
No, they wouldn't.
M:
And then I learned also that the matter was sent
to the President before it came to me.
HMJr:
Uh-huh.
M:
And I inquired of Jerome Frank about it.
HMJr:
Yeah.
M:
Did you hand it to the President, Henry?
HMJr:
Ah -- when I went over at lunch I gave him my copy,
but Jerome Frank had sent it over
M:
On Saturday.
HMJr:
Yeah.
M:
Yeah.
HMJr:
he had sent it over, but before -- but --
Frank sent it over, I think, on Saturday to the
White House. I think that's correct.
M:
All right.
HMJr:
Righto.
M:
All right.
HMJr:
Goodbye.
29
September 22, 1939
10:22 a.m.
Operator: Go ahead.
HMJr:
Hello.
George
Harrison:
Hello, Henry.
HMJr:
What a pal you are, George.
H:
Yes.
HMJr:
You asked me to let you know.
H:
Well, I've been on the telephone constantly and am
calling you up now as fast as I can to tell you.
HMJr:
Tell me what?
H:
Huh?
HMJr:
Tell me what?
H:
That we have been instructed to go back in the
market.
HMJr:
Well, I thought you had a vote on that committee.
H:
What's that?
HMJr:
I thought you had a vote on that
H:
I voted against their action. You see what happened
was -- ah (laughs) -- McKee was away and Szymczak
was his alternate.
HMJr:
Yeah.
H:
And Szymozak was with us, which gave us three to two.
McKee returned to town today.
HMJr:
Yeah.
H:
Which drops Szymozak off so that they then get a
majority again. (Laughs)
30
- 2 -
HMJr:
And this 18 your notice to me.
H:
What's that?
HMJr:
This is your notice to me.
H:
And I'm advising you, yes.
HMJr:
Aren't you chairman of that committee?
H:
No, no. Eccles 1s. And I'm -- I'm advising you
off the record because I told you I would if any-
thing -- I
HMJr:
Yeah, you asked me not to let you -- not for me to
saw off the limb on you yesterday.
H:
Yeah.
HMJr:
And I agreed not to.
H:
Well I tried -- did my best, Henry.
HMJr:
Oh I -- oh I understand it.
H:
And I was just out-voted. And they first ordered us
just to go in and keep the -- the longest bond be-
tween 99:10 and 14.
HMJr:
Yeah.
H:
And the others in relation thereto; and while we
were talking the rate went down to 99:08, 80 when
we began, we began at 99:08
gone down
to 99:06. And then they called Allan up just a
few minutes ago and told him they didn't like the
way -- oh, they instructed us to buy up to 25
millions of dollars in an effort to raise the
market even. And
HMJr:
The
H:
I voted against it, and then a. few minutes ago
they called Allan and told him they didn't like
the way he was handling it at all. Without having
even consulted with me they said the majority of
them there had voted that at once we should resort
to the old practice of putting bids in with the
31
- 3 -
dealers and everybody right across the board.
So there we are. I had one bank call me up today
and say they thought this was fine and that they
were now going to begin to buy some bonds.
HMJr:
Well
H:
But they said, "By jove, we're not going to if you
fellows are going to get the jitters and change
your policy again." Well, I couldn't tell him
anything, 80 I don't know whether he bought any
or not. He'll probably be all over the market now that
we're buying again. (Brief pause.) It's too
bad.
HMJr:
Yeah, I think it's almost a tragedy.
H:
Well, I do too. I think it's a dreadful thing to
have happened.
HMJr:
Yeah. Well
H:
I said that I must ask to be recorded as voting
against it.
HMJr:
Yeah.
H:
I thought it was a mistake. They said when you've
had 8 trial for two days and you said that when
these things got below par, buying would come in.
I said, "I never said anything of the kind. I
said all the time that I knew they would not come
in Bo long as we were buying." And there was just
beginning to be evidence of real interest around;
a few of the quotations are off, but after all,
they may be lower before we get through.
HMJr:
All right. Well, I'm going to do & little think-
ing on my own.
H:
Well, I'm very sorry.
HMJr:
Yeah.
H:
And
HMJr:
Well I'm glad you called me, George, because that
keeps your and my promises to each other, and.
32
- 4 -
H:
Well, I called you as soon as I could, Henry. I
tried, as a matter of fact -- I called a few minutes
HMJr:
Yeah.
H:
to get ahold of Bailie -- oh, about a half an
hour ago and
to get ahold of
Bailie about something else.
HMJr:
Yeah.
H:
And they told me you were tied up in a meeting.
HMJr:
Well
H:
Cochran told me you were 80 I knew it was no use
trying to get you then and I waited a few minutes
to call you now.
HMJr:
O.K.
H:
Has Ecoles advised you at all?
HMJr:
Not a word.
H:
Well, I suppose I'll be B. damn bastard for having
talked
HMJr:
No.
H:
......out of turn now.
HMJr:
No, no. We -- we didn't get it through you. We --
Burgess came in ten minutes ago and told it to me.
I got it from Burgess.
H:
Yeah.
HMJr:
That's where I heard it first.
H:
Well, I'm very sorry. I did my best and I was Just
out-voted because they changed the composition of
the committee on me.
HMJr:
No, I learned it through Burgess.
- 5 -
33
H:
Yeah, all right.
HMJr:
Thank you.
H:
First-rate.
31
September 22, 1939
To:
The Secretary
From: Mr. Hanes
Bob Doughton and Jere Cooper asked ne to come up to the Capitol
this morning to discuss with them the possibility of having the sub-
committee of the Ways and Means Committee start working on the tar
program instead of waiting until November 1st. I told them that I
would discuss this with you, having in mind the memorandum which I
gave you last night on the subject of war-time taxes.
My own opinion is that we should continue the program as it 10
now scheduled and not take this matter up until the date set by the
Ways and Means Committee, which was November lat. The reason they
were asking us if there was work that could be done now is simply
because the House has absolutely nothing to do further in the matter
of neutrality legislation until the bill shall have been passed by
the Senate, owing to the fact that the House had already passed the
neutrality bill at the last session just as recommended by Secretary
Bull, with the exception that the so-called Voorhees amendment was
added in the House. The last work for the House to do, therefore,
will be in a conference between the Senate's conferees and the House
conferees on the bill as finally passed by the Senate in order to iron
out such differences as may exist between that one and the one already
passed by the House.
My recommendation is that we let the schedule stand as is without
change. I make this recommendation for the further reason that our
business and economic conditions are changing eo rapidly for the better
that we should judge all these matters in the light of the then existing
conditions rather than this far in advance.
J. W. H.
35
September 22, 1939
901
The Secretary
From:
Mr. Hance
Bob Doughton and Jere Cooper asked me to come up to the Capitol
this morning to discuss with them the possibility of having the sub-
committee of the Ways and Means Committee start working on the laz
program instead of waiting until November let. I told them that I
would discuss this with you, having in mind the memorandus which I
gave you last night on the subject of war-time taxes.
My own opinion is that we should continue the program as 14 10
now scheduled and not take this matter up until the date set by the
Ways and Means Committee, which was November let. The reason they
were asking us If there was work that could be done now is simply
because the House has absolutely nothing to do further in the matter
of neutrality legislation until the bill shall have been passed by
the Senate, owing to the fact that the House had already passed the
neutrality bill at the last session just as recommended by Secretary
Bull, with the exception that the so-called Foorhees amendment vas
added in the House. The last work for the House to do, therefore,
will be in a conference between the Senate's conferees and the House
conferees on the bill as finally passed by the Senate in order to iron
out such differences as may exist between that one and the one already
passed by the House.
My recomendation 10 that we let the schedule stand as 10 without
change. I make this recomendation for the further reason that our
business and economic conditions are changing so rapidly for the better
that we should Judge all these matters in the light of the then existing
conditions rather than this far in advance.
J. V. n.
2m Kenley to
Inc 10 mg to Lic,
to take z Fishkill
9.22.39
JWH:ce
Regraded Unclassified
36
GROUP MEETING
September 22, 1939
9:30 a.m.
Present:
Mr. Hanes
Mr. Gaston
Mr. Stewart
Mr. Graves
Mr. Thompson
Mr. Bell
Mr. Burgess
Mr. Haas
Mr. Cochran
Mr. Riefler
Mr. Duffield
Mr. Harris
Mr. Foley
Mr. Smith
Mr. White
Mrs Klotz
H.M.Jr:
Herbert?
Gaston:
I have nothing. There was one little matter that
was brought up in the coordination meeting the
other day. The State Department wants to remove
the Consul from St. Pierre. We don't see any ob-
jections.
H.M.Jr:
Before you do that, tell them to check with Naval
Intelligence.
Gaston:
Right, I will do that. The letter hasn't come over.
They just took it up verbally with Polio. I will
tell that to Polio.
H.M.Jr:
Tell them to check with the President's Naval Aide.
Gaston:
Yes, Captain Watson?
Harris:
The reason there is no smuggling, somebody shot
the smuggler.
Gaston:
You insult our coordination.
Harris:
No, there was one fellow who was a smuggler and
somebody shot him the other day.
Caston:
They are smuggling into Canada, not into the United
States.
37
- 2 -
Harris:
I got a report that read very amusingly, "Smuggling
has come to a standstill because so and so has been
shot and he is dead."
Gaston:
They shipped out a couple of car loads this last
week to Canada.
H.M.Jr:
Well anyway, the President's Naval Aide....
Smith:
They should find out who shot him.
H.M.Jr:
Johnny, on your memorandum to Mr. Rovensky, is there
anything up to me?
Hanes:
No, we are advising you through this memorandum
here that that standstill agreement - - we haven't
any authority to act. It is a policy question,
so we are asking - recommending that it be referred
to the State Department and the President. We might
get a policy defined on that.
H.M.Jr:
Could you fix me up a little letter to Mr. Hull?
Hanes:
Yes.
H.M.Jr:
What I am trying to do - there are certain things
that I do in the day and there are certain things
like this that will hang on forever. Mrs. Klotz
can't stand it any longer.
Hanes:
I will give you the
H.M.Jr:
And there is nothing more for me today?
Hanes:
Nothing for you today.
H.M.Jr:
Swell.
Hanes:
One bit of information you asked me to get from
the banks. You said get that for the Comptroller.
They have set a date and I told them that you wanted
to discuss it with them. There is the information
you asked to get on the Bank of America. It was
all an old matter.
H.M.Jr:
Thanks. What else, John?
38
- 3 -
Hanes:
We had our first question on the Reserve district
this morning in Philadelphia. They called Danny
and Danny referred them to me, and they were asking
about transactions, You said some time ago that
you thought we had better set up some kind of
machinery here to handle this kind of an inquiry,
which will be coming in, I imagine, from now on.
I remember you said you wanted it to go through
Cochran and Dietrich.
H.M.Jr:
That was my thought, yes, and Harry White. Then
what they couldn't clear, they could bring up to
you and me,
Hanes:
All right.
H.M.Jr:
And then they have got the three "E's" to consult
with when they want to.
Hanes:
Are we going to get that regulation signed?
H.M.Jr:
Mr. Thompson, are you going to get the regulation
signed?
Thompson:
At 6:00 o'clock last night it hadn't been signed.
The President wanted to think about it.
H.M.Jr:
He had gotten in to the President?
Thompson:
Yes.
H.M.Jr:
When you leave here, will you call up Foster again
and ask him about it? Tell him that if the President
could do it before he left town tonight, it would
be appreciated very much.
Hanes:
We ought to know whether he is going to sign it or
if he doesn't like it, we will get out something
else, and we ought to get something out as quickly
as possible because it has been since September 5th
now and we haven't done anything about it.
H.M.Jr:
He has had a couple of busy days.
Hanes:
He walked in the room on Wednesday.
Thompson:
It went in to the President all right.
39
- 4 -
H.M.Jr:
I don't think he has been....
White:
I think there ought to be 8. lawyer on that working
first group.
H.M.Jr:
Who would that be, Bernie?
Hanes:
Bernie.
Duffield:
I think there ought to be a banker, somebody who
is used to handling this type of credits. I don't
know who it could be.
Hanes:
I take it that it will be simplified when the regu-
lation gets out and they begin to quote the trans-
actions. That is going to be a lot of the question.
H.M.Jr:
Let's leave this in a fluid state.
Bell:
These boys are going to be calling me because of
my contacts with the Federal Reserve Banks. This
morning Davis called me.
Hanes:
Refer them to me for the time being. I would like
to hear them just to get familiar with them.
Bell:
Fine.
Hanes:
This question this morning this man brought up,
I want to talk to Ed Foley and Bernie about it.
H.M.Jr:
Herbert?
Gaston:
Mr. Thompson has a rather interesting case.
Thompson:
I believe I haven't gone deep enough into it for
this morning.
Gaston:
The new WPA State Director in Pennsylvania undertook
to fire some people on the project for selling some
tickets, and among the people he undertook to fire
were three direct Treasury employees. He thinks he
discharged them, but evidently he didn't, and
Mr. Thompson and Mr. Irey are undertaking an investi-
gation to straighten the thing out with the WPA.
Thompson:
I want to take it up this morning with WPA.
40
- 5 -
H.M.Jr:
Are they guilty?
Thompson:
There was nothing to be guilty of,
Gaston:
He had no more right to fire them than he had to
come into the Treasury and fire them.
H.M.Jr:
The State Director did that?
Thompson:
Yes.
H.M.Jr:
Have you got it in hand?
Thompson:
Yes,
H.M.Jr:
What else?
Gaston:
I haven't anything.
H.M.Jr:
Gene?
Duffield:
A man by the name of Arthur Bartlett, who works on
the Herald-Tribune syndicated magazine, wants to
see you sometime or other this week.
H.M.Jr:
Is he in town? Just this week he will be here?
Duffield:
No, he will be here next week.
H.M.Jr:
Let's let it go, then. Why not let's tell him
Tuesday at 12:30? What else?
Duffield:
That is all.
Foley:
I have nothing.
Cochran:
Sterling opened strong this morning in New York,
just a little above 4.0, and the orders for
Europe for buying were 130,000 pounds in excess
of the selling orders but since I have come in
they told me the Latvian Central Bank sent in a
selling order for $300,000 and the market has
already taken to Federal Reserve 100,000 pounds
of 4.00 and 200,000 of 4.00.
H.M.Jr:
Latvia has been a b1g seller, hasn't she?
Regraded Unclassified
41
- 6 -
Cochran:
Yes, they had one other sale. That 1s the only
thing....
H.M.Jr:
With whom does Latvia deposit her dollars? Who
does she deposit her dollars with?
Cochran:
I am not sure whether they will leave them in the
Federal or not,
H.M.Jr:
Will you ask what happens to their dollars?
Cochran:
All right, sir.
Argentina just sent in another request this morning
to buy 2 million dollars in gold from us. The
20 million dollars has been used up. It is all
right to go ahead with it?
H.M.Jr:
Sure. Every time we sell a million dollars worth
of gold I feel like opening a bottle of champagne.
Cochran:
You asked the question as to whether Agriculture
was still giving export subsidies.
H.M.Jr:
Who knows whether they are still paying a subsidy?
Haas:
I think they are still planning one on cotton, but
I will check that. They stopped the wheat.
H.M.Jr:
Find out about cotton because they get in on ster-
ling. They were over here talking about how to
handle their sterling in connection with the export
of their wheat.
White:
There was an item in your letter of yesterday, if
I remember correctly, that stated that England did
not - had refused to buy an export bill arising
out of grain transactions. That is very peculiar.
Do we have a list of the items yet of what they
are going to permit to import or not? Are we
getting some detailed information?
Cochran:
The New York Federal Reserve Bank has received a
copy of the permitted exports and imports. It is
supposed to come down today. Some of these things
are just day to day decisions, and it is only by
42
- 7 -
the Bank's trying out that they find that canned
milk is not permitted and cotton from the mill is
not permitted, and so on.
White:
You are going to get a list?
Cochran:
The first list reached New York yesterday and it
is supposed to come down by airmail here this morning.
H.M.Jr:
Burgess?
Burgess:
The market is B. little easy on the opening. It 1s
too early to tell yet. They are a little bumpy but
we hope we can stay in the plane.
H.M.Jr:
Have you got a parachute?
Burgess:
Yes, sir.
H.M.Jr:
Tom?
Smith:
You remember yesterday morning we reported that the
president of the Supervisors - of the National Associa-
tion of Supervising State Banks had done away with
the Comptroller's office. Later in the day the
Association by resolution reinstated the Comptroller's
office. They passed this resolution.
"Opposed to concentration of Federal banks' supervisory
agencies under a single department."
What is more interesting, discussing the Senate Banking
and Currency hearing, the Wagner Committee hearing,
they had this to say:
"No Government agency should be permitted to shape
the course of the investigation or to select
facts to support its own preconceived theories of
banking and monetary policy. If the Committee
accepts evidence offered by any Government agency,
it should do so with the knowledge that no one
organization is in command of all the facts to be
considered, and that no one agency 1s qualified to
offer expert advice on all fields of banking and
bank supervision."
43
- 8 -
H.M.Jr:
They are getting kind of personal aren't they?
Smith:
I will leave that to you.
H.M.Jr:
Anything else, Tom?
Smith:
No.
H.M.Jr:
George?
Haas:
There is one figure that came in here. I thought
you might want to see it now. (Handing book to
H.M.Jr.)
H.M.Jr:
0. K.
Haas:
That is all I had.
H.M.Jr:
Harry?
White:
The Department of Commerce has begun collecting daily
figures for exports. We don't want the daily figures
but we would like to get the weekly figures which -
I understand they are not available. Didn't ask
directly, but one of my men did and they suggested
it might have to come through the Secretary's office.
If you could have Mr. Hanes call up Mr. Noble, or
I could call up....
H.M.Jr:
Mr. Hanes would be willing to do that.
Hanes:
Yes.
H.M.Jr:
Give Mr. Hanes a memo and he will get you what you
want. 0. K.?
White:
Yes. That is all.
H.M.Jr:
How is 304-A, is that the right number?
Harris:
Yes, that is the right number. Fine.
H.M.Jr:
Any good?
Harris:
Yes, very good.
H.M.Jr:
Is it 304-A?
44
- 9 -
Harris:
Yes, that is right. I didn't know what you meant.
H.M.Jr:
Herbert sent me a memorandum about Army ships and
all the rest. I take it that you two boys talked
to each other.
Gaston:
Yes, we are fully in touch.
H.M.Jr:
Harold?
Graves:
Nothing.
H.M.Jr:
You are coming at 10:30, aren't you?
Graves:
I hadn't been told.
H.M.Jr:
Harold Smith is going to be here. W111 you be here?
Bell:
Yes.
H.M.Jr:
Nothing else, Harold?
Graves:
No.
H.M.Jr:
Bell?
Bell:
The daily statement shows an increase of $133,000,000
over last year's receipts in miscellaneous internal
revenue. I just want to caution everybody that that
doesn't mean an increase because of increased business
activities. The Internal Revenue postponed the collec-
tion for 30 days of the capital stock tax, which
makes up 90 million, and 30 million is out of state
taxes.
H.M.Jr:
Gene, take notes.
Bell:
We have been talking about that.
H.M.Jr:
Thompson?
Thompson:
I have some changes on this stabilization.
I.M.Jr:
This sounds suspicious. You mean that you are
upping them?
Thompson:
No.
45
- 10 -
H.M.Jr:
Who is George A. Eddy?
White:
He is a man we are taking on for replacement. He
worked under George two years ago.
Haas:
For me, and he worked for the New York Federal.
H.M.Jr:
What is he going to do?
White:
The usual work we do.
H.M.Jr:
What is his training?
White:
In the monetary field.
H.M.Jr:
Will you send me a page history on him?
White:
Yes, 1f you like.
H.M.Jr:
I do like.
White:
Glad to.
H.M.Jr:
Anybody got anything else?
Just so that you know, I am available up to 1:00,
then I go to Cabinet and then I go from the Cabinet
to the plane to go home, and I come back for the
President, I think, Sunday night. So if anybody
has anything, please get it to me before 1:00 o'clock.
Mr. Hanes and Mr. Gaston be here tomorrow?
Gaston:
Yes, sir, I will.
Hanes:
Yes.
H.M.Jr:
I expect to be back Monday morning.
Dear Henry -
this is a long letter
which 2 have read carefully
because Tom Smith told we these
were honorable people-
they conclusion is
that we have been unfair
in this case - and I wish you
could find time to read the
letter to Tom -
j
we
J. w, M
plear John : not teing a tax
pt27- - expert it is impossible for turn me
to over to Helvering to be
hass m this case. Please taken
C re of in the usual manner. 1m2.
IIII
TREASURY DEPARTMENT
Washington,
September 22, 1939
Dear John:
Attached 1s a communication telling the story
of the case of Edger Queeny's sister.
As I told you the other day Edgar feels that
the action of the Treasury has been very unfair.
Furthermore, this is a matter which must have
immediate attention.
Cordially,
Tom K. Sith.
The Honorable John W. Hanes,
Under Secretary of the Treasury,
Washington, D, C.
Regraded Unclassified
LOWENHAMPT WAITE & STOLAR
-1 -
0- Fore -
SAINT LOUIS MO
September 19, 1N99
Mr. Tom K. Smith
Room 188
United Stater Tractury
Washington, D. C.
Dear Friend:
Last week in Washington I related to you Ers. Ciguite
Queeny Berington's difficult position in connection with an
income tax deficiency asserted for the your 1986. I tole you
also that Mrs. Berington and Mr. Edenr M. Queeny, her brother,
felt that the proposed tex Is very unjust and that they are
now greatly disturbed by present developments in the matter.
Because of the interest you indicated, I am writing this let-
ter to state the facts to you.
Mrs. Berington is the daughter of John F. Queeny,
now dead, and the sister of Edgar M. Queeny. Her husuand is
Thomas Patrick Berington, an English citizen. They were mar-
ried in 1928. Since their marriage, she, with her husband,
has continuously lived in England. They have one son and they
have always considered England their home for the remainder
of their lives.
An American-born woman married to an (lish man
faces many complications under the conflict of laws appli-
cable. Under the laws of England, she becomes a citizen of
England upon her marriage, while under the laws of the United
States she remains & citizen of the United States unless she
renounces such citizenship. This dual citizenship in the case
of B woman who has some wealth edds many burdens. In May,
1936, Mrs. Berington felt compelled to surrender her American
citizenship.
Mrs. Berington has considerable wealth. Many years
ago she established 8 trust with the Mercantile-Commerce Bank
& Trust Company, RS trustee, under which she deposited sub-
stantially all of her securities. She retained the power to
revoke the trust. In 1936 the only holding of the trust con-
sisted of the stock of the Olguita Investment Company, EL
personal holding company organized by the Trustee in 1932.
Olguita Investment Company owned all of the property which
Mrs. Berington had transferred to the Trustee. After Krs.
Berington surrendered her American citizenship, as related
above, she decided it was advantsgeous that her securities
be held by her in England, where she and her husband, with
their advisers there, would be able to attend to them. Ac=
cordingly, in December 1936 she revoked the trust above
-2-
mentionce, NOT the stock or Inite Investment Company
sidned to 11ml in Incland, one then sold this stock to an
En 11ch corporation colled CLI, Ltd., for oneh. The
n lish company Enen liquidated the l'uits Investment Cori-
pany and took over all or its assets. This entire trans-
action VICE completed in December 1926.
& non-resident alien Individual not engaged in
trade or business in the United States end with no office
or place of business in the United States was liable in
1006 for taxes upon income derived in the United States
only to the amount required to be withheld from such income -
10 per centum. Such withholding applied only to certain
types of Income, such 08 dividends and interest. (Sec-
tion 211 (a), Revenue Act of 1936.) On the other hand, a
non-resident elien individual en a/ ed in trade or business,
or with an office or place of business in the United States,
owed tax upen 611 his income of whatsoever character which
10 derived from sources within the United States, at the
normal and (raduated surtax rates - the same as a citizen
or the United States. (Section 211 (b), Revenue Act of
1936.)
Mrs. Berington's attorneys were Messrs. Rassieur
& Rassieur, and they advised her 88 to the proper proced-
ure and as to her tax liability. Under their advice,
when she surrendered her American citizenship she filed
a tax return as E citizen of the United States for the
period of the year while she was 8 citizen - from January
1, 1936, to May 26, 1936. After May 26, all the companies
in which she was B stockholder withheld the tex at the
rate of 10 per cent upon all the dividends or other income
which they paid her.
In connection with the statement hereafter writ-
ten, it 1s necessary that I cell your attention to E pro-
vision in another law. Title VII, Revenue Act of 1932,
Sections 901 to 904, imposed en excise tax upon the trens-
fer by a citizen or resident O! the United States of stock
or securities to a foreign corporation in payment of its
capital or surplus 11 the transfer was made with the pur-
pose of avoiding American income taxes. This tax was 25
per cent of the excess of the value of securities at the
time of their transfer over the basis for the determine-
tion of pain or loss upon such securities.
Sonio time in 1938 or the early part of 1939, Mrs.
Berington's tax liability WDS referred to the Revenue Agent
Regraded Unclassified
-3-
in St. Louis for audit. Some time after he started the
examination, he stated to Mr. Butler of the Mercentile-
Commerce Bank & Trust Company that he intended to set up
the tax against Mrs. Berington under Title VII of the
Revemie Act of 1932, This tax would be equal to about
$1,000,000 if it were owing.
Mrs. Berington, when advised of this claim, exe-
outed a Power of Attorney to me and Er. Theodore Rassieur,
requesting that we defend her against this claim end any
other claim for the year 1936. Shortly after I received
the Power of Attorney, I spoke to the Revenue Agent. He
exhibited to me a letter from the Revemie Agent in Charge
in New York, recommending the imposition of the excise tex
above mentioned. But he stated that be was not convinced
that Mrs. Berington was liable for such B. tex and requested
that I brief the question for him in order that he might
submit the brief to the New York Revenue Agent. Accord-
ingly, Mr. Theodore Rassieur and I prepared B brief upon
this question and submitted it to the St. Louis Revenue
Agent. Thereafter, he never asserted this excise tax was
owing. The Revenue Agent in St. Louis proceeded upon the
basis that Mrs. Beringto was liable for tax for the period
from May 26 to December 31, 1936, as a non-resident alien
of the United States engaged in trade or business in the
United States. After the Revenue Agent asserted the basis
of tax last related, there were many complicated questions
concerning the income derived by her in the United States.
But ultimately the Revenue Agent determined the amount to
his satisfaction and calculated tax thereon, resulting in
the deficiency determined by him In the amount of 37,544.60.
The solo basis for time Amertos is
that Mrs. Berington wes engaged in trade or business in the
United States in the period between May 26, 1956, and Decem-
ber 31, 1936. I quote the lievenue Agent's statement on this
question:
"The office of the 01 nice Investment Company was
at 721 Locust DE., 51. LOUID, :0.
"Nrs. Derington, by renson of her ownership of
the entire capital stock of the nl uita Invest-
ment Company and the rendering of personal sèr-
vices in connection therewith, has qualified
under Section 211 (b) of the {,evemie Act of
1936 and 1s texable 1.8 provided therein.
"The question of engaging in trade or business for income
tax purposes and carrying on or doing business for cap-
ital stock purposes WAS given consideration in (1936)
G.C.M. 17014, XV-2, Cum. Bull. 317, and it was held
that the expressions are used synonymously, citing
Lewellyn V. Petteburg, V. & L. E. R. Co., (CCA 3rd,
1915) 222 Fed. 177; McCoach V. Minchill and Schuylkill
Haven R. R. Co. (1913) 228 U.S. 295; Von Baumbach and
Sargent Land Co. (1917) 242 U.S. 503, and Edwards V.
Chile Copper Co. (1926) 270 U.S. 452, In that ruling
it was stated that the test of liability for income
tax, excess-profits tax and capital stock tax, inso-
far as such taxes are based upon, or measured by, en-
gaging in or doing business within the United States,
should be identical,
"Mrs. Berington had the same relative position in con-
nection with the Olguita Investment Company as the
Chile Copper Company had to the Chile Exploration Com-
pany in Edwards V. Chile Copper Company, supra. In
the latter case, the United States Supreme Court stated
in part as follows:
Its *: +: In our opinion the plaintiff WES liable
to the tax. We do not rest our conclusions upon
the issue of bonds in the first year or the cell
loans in the last, and for the same reason we
cennot let the fagot be destroyed by taking up
each item of conduct separately and breaking the
stick. The activities and situation must be
Judged as a whole. Looking at them as a whole,
we feel that the plaintiff WAS a good deal more
than B. mero conduit for the Chile Exploration
Company. It was its brain or at least the effor-
ont nerve without which that company could not
move. The plaintiff owned and by indirection
governed it, and was its continuing support, by
advances from time to time in the plaintiff's
discretion.
"In the Instant 08.50 Ers. Herington exercised her suth-
ority in the formulation of the business policies and
In the management of the Ciguita Investment Company.
The performance of this function of controlling end
directing the domestic corporation constitutes, in
the opinion of the examining officer, carrying on or
doing business and rendering personal services with-
in the monning of the Revenue Act of 1936."
Let me remind you that the conditions of limidlity
under Section 211 (b) are that the non-resident alion
Regraded Unclassified
individual be "(a) encaged in trade or business in the
United States, or (b) have an office or place of business
therein." Article 211-7, Regulations 94, provides that
"the term 'office or place of business' 1m-
plies & place for the regular transaction of
business. It does not include a place where
casual or incidental transactions might be
or are effected.
"Neither the beneficiary nor the grantor of
the trust, whather revocable or irrevocable,
18 deemed to be engaged in B. trade or business
in the United States or to heve an office or
place of business therein, merely because the
trustee is engaged in a trade or business in
the United States or has an office or place of
business therein."
It 1s plain, therefore, that it was impossible
to rest the charge upon the basis that Mrs. Berington had
an office or place of business in the United States, and
the Revenue Agent does not do SO. Re says that she was
engaged in B trade or business. He could not rest this
statement upon the activities of the Trustee. Be attempts
to make a showing that, because the revocable trust owned
all the stock of Olguita Investment Company, Mrs. Berington
directed the business policies of the Olguite Investment
Company.
Mrs. Berington was not a director or officer of
the Olguita Investment Company. Whatever she did after
May 1936 WAS by correspondence from England. The sole basis
of the charge that she managed the company was that she was
consulted upon many of the matters pertaining to the com-
pany, as, for instance, the declaration of dividends.
Also, in May 1936, while Mrs. Berington was still A citi-
zen, Monsanto Chemical Company issued rights to its stock-
holders to buy B. new 4-1/2 per cent preferred stock, and
she requested or directed that these rights be exercised,
and in December 1936, when she revoked the trust, she
arranged for the payment of the loan which the company had
made in order to finance the exercise of these rights.
I an firmly of the opinion that Mrs. Berington
cannot be charged with being in business because she was
consulted by the directors and officers of Olguita
Regraded Unclassified
Investment Company 15 to the policy of the company, or be-
cause of any of har Lots. In Article 211-7 of the Hegu-
Intions, it is stated:
"Such phrase (enjaged in trade or busi-
ness within the United States) does not in-
clude the effecting of transactions in the
United States in stocks, securities, or
commodities (including hedging transactions)
through a resident broker, commission agent,
or custodian."
The exorcising of the Rights by the Truetee - purchasing
the stock of l'onsanto - WAS not business in the United States
on her part.
Às related above, the tax liability finally as-
serted against Lirs. Berington in June 1939 Was $37,544.66.
Mrs. Berington WAS then able to pay this amount. At an
earlier date, as related above, she was advised that con-
sideration was being given to an excise tax against her
of approximately $1,000,000, an amount which would have
been ruinous and which probably she would have been unable
to pay. In connection with this excise liability, I told
her there was no adequate method of contest until after
payment, that is, there was no appeal to the Court or to
any reviewing body outside the Tressury Department before
payment.
In June 1939, when the Revenue Agent's investiga-
tion was completed, Mrs. Berington and her husband were in
the United States and I conferred with them. They were
of the opinion that England would shortly be at wer and
they were fearful that 11 this happened before this tax
liability was settled, such complications would arise that
Mrs. Berington would be unable to properly defend against
any claim. The last-stated reason was conclusive with her,
and, therefore, she instructed me to accept the Revenue
Agent's finding on condition that by the payment of this
amount she would settle all her liabilities of every char-
acter. She executed, and I delivered, & closing agree-
ment (Form 870), proposing to close her liabilities at the
amount determined by the Revenue Agent and to pay this
amount. In a statement attached to the form, under the
title "Special Reasons for Requesting this Agreement", we
wrote:
Regraded Unclassified
-7-
"As stated above, taxpayer lives in Encland,
She did not surrender her United States citi-
zenship to avoid any tax liability to the
United States and wishes to pay all her obli-
gations to the United States.
"International relations and commerce are cally
becoming more precarious. Although taxpayer
does not believe that she owes any amount, and
Is so advised, she has not contested the asser-
tion of lisbility and desires to pay at this
time so that the matters recited will be com-
pletely closed and behind her, fearing that at
a later date she may find it difficult, 1f not
impossible, to attend to her defense. In order
to effectuate her purpose, it is necessary that
by such payment the assertion of other claims
against her, arising out of her transactions
or the transactions of the Oljuite Investment
Company in the calencar year 1936, be fore-
closed."
When I handed this agreement to the ¡evemie Apont
in the middle of June 1939, I read this statement to him
and told him that time was the essence of this rearent;
that it was essential that the agreement DO put throu h
promptly. Shortly after I delivered this arreement to
him, I became personally somewhat incapacitated and was
compelled to 60 away from St. Louis, I returned to St,
Louis about the first 01 September and found that the
agreement had not béen accepted. cherennon = want to
Washing ton and found that the s_reent WSS still in the
Sortin livision, settin to encli BY ethics of 1200,
part 01 the tax withheld :/t the source. this
up with the Anditor in the Checkin Division. lie approved
the credit and passed the file OIL, Int In the next sec-
tion I was told that the matter could not be closed for
several weeks.
Now I find that our worst fears AND realized.
Encland has sequestered the income, moneys, inc securities is
the United States of citizens 01° n Innd. Loreover, the overti
has fallen from about 4.6 in June, the effer we me,
to avout 3.75 at the (Wesent 10, and to :- the
offer is Pols: TAXCI. 10m ", we de not mov EGO normal
will Le. The purgetent of in June DO onl:
shout 60094, tille nt the present Tt's 04 - 11 26-
ouires about 3. - claim :'F mar cret Incom -8, in
sure today that 1.5% written 11th
-8-
which to make payment. If this uncertainty exists at this
time, no one can foretell what the next two weeks will bring.
I have not been able to get in touch with Mrs.
Berington since I saw you last week, but I am quite familiar
with her sentiments. If she is able to obtain the exchange
with which to pay this tax, she will do so with hesitation
and reluctance because of the additional burden which that
will place upon the already difficult exchange situation of
her own nation.
I am convinced that Mrs. Berington does not owe any
tax to the United States. I do not know what can be done
now. If she must pay I desire that the matter be closed at
once.
I trust that the length of this letter will not
prove too burdensome.
Very truly yours,
AL:T
9-22 ?
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
56
FROM: The American Embassy, Paris, France
UNDATED
NO.: 2121
For the Treasury.
We have been informed by Reynaud that the repatria-
tion of French capital 18 continuing. Also, that the
fund was a gainer of gold and foreign exchange to the
tune of 90,000,000 francs yesterday. The repatriation
brought about much of this gain. That armament bond and
treasury-bill subscriptions were completely satisfactory
was also confirmed by Reynaud. Furthermore, we have been
given to understand by the Morgans, confidentially, that
several of their important French clients have, largely
from patriotic motives, taken steps to transfer substan-
tial foreign currency and foreign security holdings which
have long been maintained abroad, to Paris within the
past few days.
(GRAY) There were no changes in official foreign ex-
change rates today. A little confusion has arisen in con-
nection with the Liquidation of future exchange contracts
outstanding at the time of the establishment of exchange
control. Some banks understand that authorization for such
liquidation is required under the pertinent decrees and are
awaiting such authorization where others have proceeded to
liquidate without requesting authority.
EA:MSG
57
DBW
Q3VI3038 GRAY
Paris
Undated
and
RECID 2:21 p.m.
- sil of out
Secretary of State,
Washington.
2121, undated (SECTION TWO).
The security market was firm today on increased
volume largely owing to political developments:
President Roosevelt's plea for amendment of the neutrality
law which has been extremely well received, Daladier's
calm and impressive radio address in answer to Hitler's
Danzig utterance, and the news reports of serious
outbreaks in Bohemia and Czechoslovakia have all
served to Engender some degree of optimism.
Practically all rente issues EXCEPT The Exchange
Guaranty issue of 1937 which was subject to profit
taking improved - partly on the basis of stronger
franc quotations in NEW York.
French imports for the first eight months of
1939 totaled thirty two and a half billion francs
against thirty and a half billion francs in the
comparable period of 1938. Exports were up about
five billion francs this year totaling 23,8 billions
as against 18.7 billions for the first Eight months of
1938. (End of message)
BULLITT
HBD
58
TELEGRAM SENT
CJ
PLAIN
September 22, 1939
AMERICAN EMBASSY
LONDON
1039, twenty-ascond.
CONFIDENTIAL. FROM THE TREASURY.
The following article from the New York Herald Tribune
of September 22 is reproduced for Butterworth's informs-
tion and for forwarding by him by mail to the American
Embassies in Paris and Berlin:
"The strong rally in sterling continued further yester-
day and lifted the rate 71 cents net to $3.99}, or nearer
the official rate maintained by the Bank of England than it
had stood for more than a week. The high for the day for
sterling was $4.001, compared with the official buying rate
of $4.02.
Sterling has been on the mend since Secretary of the
Treasury Henry Morgenthau Jr. voiced at his press confer-
ence late Monday his concern over the fall in free sterling
under the rate for approved deals fixed by the Bank of
England. Commercial buying and short covering have com-
bined to raise the price of sterling around 26 cents since
Monday.
French francs advanced 4 points net to 0.0227 and
guilders
Regraded Unclassified
59
-2- #1039, September 23, to London
guilders were 7 points higher, but belgas broke 8 points
and the recession in the lira was unchecked. From the fall
of 1936 until the war crisis developed the lira had been
pegged at0.0526. But, after yesterday's decline of 2 points,
the lira stands now at 0.0510.
The depreciation in sterling and French francs has ap=
parently led the ¹talian authorities to break the lira's tie
to the dollar which had been maintained for three years.
Canadian dollars closed at a discount of 9 1/16 per
cent. The Canadian unit has failed DO rally along with
free sterling. The Japanese yen was unchanged at .23 5/16,
but its link with sterling will be resumed if the latter
unit rises above the $4 level. Swiss francs were unchanged
on the day at .2270.
The weekly banking statistics showed that the gold
stocks had increased $94,000,000 in the week ended Wednes-
day to a new high at $16,902,000,000. The daily statement
reported that imports here yesterday amounted to $105,000,
of which $79,000 arrived from Canada and $26,000 from
Costa Rica.
The gold statement for the week ended September 20
listed imports here of $78,407,000 of which $60,895,000
arrived from Canada, $13,231,000 from England, $2,173,000
from India, $2,100,000 from Colombia and $8,000 from
Guatemala
Regraded Unclassified
60
-3- #1039, September 23, to London
Guatemala. Gold under earmark for foreign account decreased
$11,415,000 in the week, while receipts at San Francisco
included $3,354,000 of gold from China.
The banking figures show that foreign bank deposits
in the Reserve Banks increased $45,711,000 to 8 total
of $495,787,000. Thus it was plain that foreign central
banks were building up very large cash balances in this
country for use in buying war materials."
MOORE
Acting
BECEISED
eeer 62 072
September 22, 1939.
61
From:
Mrs. Klotz
To:
Miss Chauncey
The President said, for the time being, he would
like Procurement to contact the French Buying Mission. Later
on he may use Admiral Peoples.
I called Captain Collins and told him that the
President said it was O.K. to get in touch with Mr. Castan.
Cur connection with
daily report
9-21-39)
62
September 22, 1939 (at Cabinet)
/
Herber gasten :-
THE WHITE HOUSE
WASHINGTON
Pres. wants coast
grand to follow
a shif with no
name (Specing coming up
the Winward Passage,
which 9 believe is mar Cuba,
and see what she
does, ton
contact Edisin atonce
and get m.m.n. instructions
1
TREASURY DEPARTMENT
63
INTER OFFICE COMMUNICATION
DATE Sept. 22, 1939.
TO
Secretary Morgenthau
FROM
Mr. Haad and
Subject: Cotton and Wheat Export Subsidies
Cotton
The cotton export subsidy program began on July 27, 1939,
and continues in force. Sales and deliveries for the export
of cotton and cotton products from July 27 through September 18
amounted to 1,895,000 bales. The subsidy amounts to 1g cents
a pound on raw cotton, with equivalent payments on cotton pro-
ducts. The figures cover cotton not yet actually exported but
for which definite commitments for sale abroad have been made
by exporters.
In the current fiscal year, Mr. Milo Perkins, President of
the Federal Surplus Commodities Corporation, estimates roughly
that the cotton subsidy will cost about $40 millions. Actual
exports of cotton from August 1 through September 18 were
526,000 bales, compared with 429,000 bales in the corresponding
period last year. In the 1938-1939 marketing year raw cotton
exports were 3,327,000 bales.
Wheat
Since the outbreak of the War, export subsidies on wheat
have been largely suspended, though subsidies on flour have
been continued and the general program 1s still in effect.
The Federal Surplus Commodities Corporation plans to expand
its operations in the wheat export market soon on a conservative
basis.
Since June 30, 1939, an average subsidy of 334 cente a
bushel has been paid on exports of 12,070,000 bushels of
wheat (including flour). Mr. Perkins estimates roughly that
the wheat subsidy program in this fiscal year will cost about
$23 millions.
TREASURY DEPARTMENT
64
INTER OFFICE COMMUNICATION
DATE September X 22, 1939
TO
Secretary Morgenthau
CONFIDENTIAL
FROM
Mr. Cochran
Sterling WB.8 again in demand in New York today. It opened at 3.98-3/8;
reached a high of 4.00-3/8; a low of 3.97-3/8; and closed at 4.00.
The reporting banks in New York and the Federal Reserve Bank reported
sales totaling £1,022,000, from the following sources:
Commercial concerns
£201,000
Foreign banks (Europe and Far East)
£471,000
Federal Reserve Bank
($25,000 for Norway; 425,000 for Sweden:
6300,000 for Latvia)
$350,000
Total
11,022,000
Purchases of sterling amounted to 1-627,000, as indicated below:
By commercial concerns
1236,000
By foreign banice
1391,000
(Europe, Far East & South America)
Total
1627,000
The banks also reported that the Control had purchased sterling amount-
ing to 621,000 at the official rate.
At 9:20 this morning there was an excess of buying ordera over selling
orders from Europe, amounting to £130,000 sterling. At 10:10 A.M. an order
had been received from the Central Bank of Latvia to sell 6300,000. This was
disposed of without difficulty, 6100,000 at 4.00-1/4 and 1200,000 at 4.00. In
answer to my inquiry as to what the Letvian Central Bank did with the dollar
proceeds, Knoke replied that these were automatically credited to the latvian
dollar account with the Federal. When the Latvian Bank sold 1250,000 last
week, their account with the Federal increased to $2,250,000. No instruction
had been received to indicate that all or any important part of the proceeds
of these two sales me to be withdrawn.
We received this morning through the Federal Reserve Bank of New York
a request from the Central Bank of Argentina to purchase $2,500.000 gold bare.
Since the total of $20,000,000 authorized sometime ago for gold sales to
Argentina has now been exhausted, I sought the Secretary's approval for this
transaction at the 9130 meeting and it WS.0 granted, We are, therefore, pro-
ceeding to execute this order,
To today bought $810,000 gold from the National Bank of Belgium, released
from their earmarked account. I reported to the Secretary this morning that there
CONFIDENTIAL
-2-
65
had been & flight from the belga to the Dutch florin, presumably due to the
Franco-German fighting developing so close to the corner of Belgium and
Lazembourg. The necessity of the Belgian authorities giving gold to us
to support their currency evidently results from this movement. Incidentally,
Latvia WSS a buyer today of 30,000 belgas on the New York market.
There was reported a. gold shipment amounting to $189,000 to the Irving
Trust Company from England on the SS Manhattan which evidently had the ap-
proval of the British Control.
Loroy-Beaulieu, French Financial Attache in New York, telephoned this
morning to inquire whether the regulations of the Committee set up for advice
under Article III of the Neutrality law on commercial credits to belligerents
had been issued. Ee asked how we would look upon the issuance of a letter
of credit in favor of the French Government without the cash to the full
amount of the letter being on hand, He said he had once received an inter-
pretation unofficially. in so far as the Johnson Law was concerned but he
thought this quite narrow. I told him that I would forward him two copies
of the regulations whenever released, but that I did not know whether they
would answer his specific question. I preferred that he should consult with
our Legal Department, and I switched his call to Mr. Bernstein.
Mr. Collado of the State Department telephoned me that Mr. Harry Winston,
an American citizen with offices in New York, was having difficulty in his
business of buying diamonds from Brazil. Winston's lawyer had telephoned
the State Department today on this subject. When Winston went to Brazil
last winter he made arrangements with the Government for them to give him &
favorable rate for his dollars in milreis, which latter currency he used in
purchasing the diamonds. Later he consummated an arrangement whereby he
acquired gold in London and then sold this gold to the Brazilian government
against milrois at the price paid for domestically mined Brazilian gold,
which is understood to be higher than the London price. Now that gold
can no longer be obtained in London for this purpose, Mr. Winston inquired
whether he could obtain gold in New York. I advised Mr. Collado that a
definite answer could only be given if a formal application THE made through
the Federal Reserve Bank of New York. I let him know, however, that approval
of such private applications would be exceptional. When Mr. Collado saloed
if it would be satisfactory for Mr. Winston or his lawyer to telephone me
directly to cee what could be done under the arrangement whereby the Stabili-
sation Fund selle gold to Brazil against dollars, I told him that I preferred
not to have direct contact with Winston. I thought it appropriate that any
information which might have been published with respect to the Brasilian
arrangement be passed on to Winston, but I did not want the Fund to advise
him as to any method which he might follow in negotiations with the Bresilians
toward obtaining his milreis at a special rate through gold.
The representative in New York of the Swiss Bank Corporation, Basel, came
to the Federal Reserve Bank in New York with a cable from his headquarters in-
quiring whether, and on what conditions, the United States Treasury or the
Federal Reserve Bank of New York would buy gold put on American or Itelian
steamers in European ports, or delivered locally to the Swice National Bank
at Berne. Mr. Knoke properly replied that ve were not disposed to accept such
gold offered abroad,
Regraded Unclassified
TREASURY DEPARTMENT
66
INTER OFFICE COMMUNICATION
DATE September 22, 1939,
TO
Secretary Morgenthau
FROM Mr. Cochran
I received this morning from Mr. Knoke a. pamphlet issued by the British
on "CONTROL OF EXPORT - LIST OF GOODS - Prohibited to be exported from the
United Kingdom" which Mr. Knoke had received from Mr. Loree of the Guaranty
Trust Company. Mr. Enoke vas not certain as to what use Mr. Loree had yet
made of this pamphlet.
At 10 o'clock this morning Governor Harrison telephoned me to let no know
that Mr. Loree had sent him & printed pamphlet of twelve pages, dated September
13. giving & British Black List of names. Governor Harrison thought it was 10-
portant that this information be nade available to American business men, espe-
cially since they may suffer if they trade unknowingly with firms on this List
and then endeavor to dispose of their sterling to the British control. Governor
Harrison stated, however, that in view of recent discussions of the policy In-
volved, Mr. Loree did not feel free to make any release of this List without
consulting us. I promised Governor Harrison to call him back.
Shortly after talking with Governor Harrison, Mr. Knoke also mentioned
this publication to me. In answer to my inquiry, he said the pamphlet was not
marked "Confidential". His first reading of the pamphlet revealed no American
names. Most of those listed are of firms or individuals in South America, the
Baltic States, Switterland, and other neutral countries. Knoke is having
photostatic copies made of this one copy, but will make no disposition thereof
pending word from us. The National City had telephoned him to see if such a
list was available in New York.
The copy of the Black List pamphlet received by Mr. Loree from the
Guaranty Trust office in London is, as far as we know, the only copy 80 far
available in New York.
After mentioning this subject to Secretary Morgenthan, he referred mo to
the "Advisors". I talked with Mr. Bailie in New York by telephone at 11:35 this
morning. I told him of my conversations with Messrs. Harrison and Knoke. He
thought definitely (1) that the Treasury should have nothing to do with releas-
ing this Black List; (2) that the Federal Reserve as the fiscal agent of the
Treasury should not release it (3) that the Loree Committee, considering its
semi-official character, and following after the 4.02 release experience, should
not put out this information, containing so much potential dynamite. On the
other hand, American business should have this information. Mr. Bailie suggested
two possible ways of making it available: (1) the British Financial Counselor
should have the List and let it be understood that information thereon was available
through his office and that of British Consuls in the United States: if Pinsent
CONFIDENTIAL
Regraded Unclassified
67
desired, he could of course publish the List himself; (2) have Allan Sproul
mention to the press after his 3130 conference that such A list is available
at the office of the above mentioned British officials.
Mr. Bailie vas definitely of the opinion that neither the Treasury nor
its fiscal agent should give releases based on material received through the
channels indicated and, furthermore, did not think that either our Ambassador
in London or our official establishments here should be utilized by the British
as their means of publicising the regulations.
Mr. Bailie told me that he was to see Governor Harrison at 1,15, Washing-
ton Time. If I could obtain a clearance from the Secretary before that hour,
he desired that I telephone him at the Federal Reserve. If the Secretary did
not clear this, he suggested my consulting Dr. Stewart.
I consulted Dr. Stewart upon the above question at 12:30 noon. He thought
that the question of promptness was more important than that of the channel
through which the Black List information should be made available. He thought
that if the British authorities in this country could release the information
promptly. it should be handled through them; if not, the Loree committee should
handle it. He inquired as to whether the List was official. I told him it was
my understanding that it vas an official list which had been obtained by the
Guaranty Trust in London and sent by Clipper air mail to the Guaranty Trust in
New York. I made it clear that the Treasury itself had received no official
word with respect to this List.
Not having had the opportunity of clearing this matter with Secretary
Morgenthau before 1115, I spoke with Undersecretary Hanes at that hour. He
gave as his immediate opinion, although be thought this VBS a matter that morited
considerable deliberation, that the Treasury and Federal Reserve Bank should have
nothing to do with it; and that Lores, in hie capacity as Chairman of the Com-
mittee, should not be responsible for any public release. If the British did
not choose to make the List public in the United States through their own official
channels, his only idea WBS that Loree as & banker might pass the word on to other
bankers that such 8. list vas in existence. The Undersecretary stressed the danger
of any American officials getting out any statements or opinion which might lead
to the interpretation that the U. S. Government vas providing names of firms,
placed on a. Black List by the British, with whom Americans should not trade.
At 1:25 I telephoned the substance of my conversations with Messra. Hanes
and Stewart to Mr. Bailie who was at that hour with Governor Harrison in the lat-
ter's office in Nov York. I explained to Mr. Bailie that I had not cleared this
matter with our Legal Department. Furthermore, I recalled the decision taken in
the group meeting last week in which the Federal Reserve Board participated to the
effect that any decision as to release of such information as that now in question
was to be left to the Treasury. Mr. Bailie said be understood the situation and
would have to use his own judgeant. Ba told - he would call - back if necessary.
AMS
CONFIDENTIAL
SEP 22 1939
CONFIDESTIAL
My dear Mr. Secretary:
I have pleasure in providing, se of pessible interest to
you, the following extract from the confidential report of the
Stabilisation Fund Office for September 21, 1939:
"Upon inquiry being made of the British Control,
an American bank was informed that exports of canned
fraits, milk and nuts were not entitled to their
proceeds in sterling being converted at 4.02. The
Quaranty Trust advised the Federal Poserve Bank of
New York that a cotton bill which they had offered
to the British Centrol was questioned to make sure
that the sterling had not been sold at the pre-war
rate of 4.65, them covered by the seller at a rate
below $4.00 and was nov being offered to the Control
at the official rate of 4.02. The Control as
antisfied that this was not the case and purchased
the sterling. The Guaranty Trust had also inquired
of London as to whether cotton bills drawn by American
firms in Brasil covering exports to
the 3mpire would be eligible for the 4.02 rate,
The reply was magative."
Sincerely yours,
/
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
The Henorable
Heary Wallace,
Secretary of Agriculture.
9.22.39
RUL
Regraded Unclassified
WASHINGTON TIMES-HERALD - September 22, 1939
List of Senators
89
Opposing Repeal
LaFollette, Johnson
Lead Fight to Keep
Arms Embargo
The 24 Senators attend-
ing the anti-repeal confer-
ence yesterday were:
ROBERT M. LA POLLETTE
(P.), of Wisconsin.
HIRAM JOHNBON (R.), of
California.
BENNETT CHAMP CLARK
(D.), of Missouri.
PAT McCARRAN (D.), of No.
vada.
WILLIAM E. BORAH (R.),
of Idaho.
ARTHUR H. VANDENBERG
(R.), of Michigan,
ARTHUR CAPPER (R.), of
Kansas.
GERALD P. NYE (R.), of
North Dakota,
CHARLES W. TOBEY (R),
of New Hampshire.
JOHN A. DANAHER (R.), of
Connecticut,
LYNN J. FRAZIER (R.), of
North Dakota.
CHAN GURNEY (R.), of
Bouth Dakota.
CLYDE M. REED (R.), of
Kansas.
STYLES BRIDGES (R.), of
New Hampshire.
HENRY CABOT LODGE (R.),
of Massachusetts.
SHERIDAN DOWNEY (D.),
of California,
JOHN H. OVERTON (D.), of
Louisiana.
DAVID I. WALSH (D), of
Massachusetts.
ERNEST LUNDEEN (F.L.),
of Minnesota,
HENRIK SHIPSTEAD (P.L.),
of Minnesota.
W. WARREN BARBOUR
(R.), of New Jersey.
RUSH D. HOLT (D.), of West
Virginia,
WILLIAM J. BULOW (D.),
of South Dakota.
D. WORTH CLARK (D.), of
Idaho,
Difice of the Secretary
Shanghai
September 22, 1939
70
SOVIET LEADERS' ALLEGED PROPOSAL TO CHINA
According to information received by Japanese secret service
from their agent in Chungking, on September 4th, Mr. Livinoff, the
former foreign Commisser of Soviet Russia arrived by plane secretly in
Chungking end was warmly welcomed at the airfield by Gen. Chiang Kai-shok,
Mr. Chow En-lei and some fifty Ohinese government leaders. Mr. Livinoff
was then driven to the Waichiaopu's hostel where he stayed during his
sojourn in Chungking. Miss Soong Ching-ling (Mme. Sun Yat-sen) and Mr.
Chow En-lai then held B. conference with Mr. Livinoff for over one hour.
After that the Soviet visitor went to bed,
The next morning at about 9 o'clock, Dr. Wang Chung-hui
called on Mr. Livinoff and had a two-hour talk with him. Mr. Livinoff
handed over to Wang for delivery two letters from Stalin and Molotov
for Gen, Ching Kai-shek. Mr. Livinoff also disclosed the nature of
his present visit to Dr. Wang.
In the afternoon Dr. Wang saw Gen. Chiang Kai-shek, reported
details about the mission of Mr, Livinoff, and translated the contenta
of the two letters for the Generalissiro, who immediately devoted himself
to deep thought. He told Dr. Wang that since Con. Pai Chung-hai and
Gen. Chen Cheng were both in the front, he could make no decision for
the time being. Re ordered Gon. Ho Ying-ching to wire to these two
generals to return immediately, and he asked Dr. Wang to tell Mr.
Livinoff that the issues concerned could not have his immediate reply
because he had to wait for a conference with responsible military leaders.
Mr. Livinoff WQ8 taken by Dr. Wang to see Gen. Chiang at 5 p.m.
and the three of them had El lengthy talk. On the same night, Gen.
Chiang gave a party in Mr. Livinoff's honor and a large number of govern-
ment leaders attended.
-2-
71
The following morning (September 6th) Gen. Chiang called a
conference of government leaders to consider the following four points
contained in the letters of Stalin and Molotov.
(1) The letters state that Soviet Russia, Germany and Italy
offered to mediate in the Sino-Japanese dispute and that the three
nations are ready to guarantee the territorial integrity of China.
(2) That the three nations mentioned above strongly urge
China and Japan to join their proposed five power pact.
(3) That Soviet Russia voluntarily pledgedherself to change
the communistic system and that Germany and Italy would act as her
guarantors.
(4) That the formation of the proposed five power pact will
render the neutrality act of America impractical and consequently she
will be compelled by circumstances also to join the pact.
Those present were divided in their opinions regarding the
above proposals but most of them favored a careful policy 80 as to
avoid falling into any trap. Finally Gen. Chieng asked all those present
to give due consideration to these issues and contribute their ideas at
another conference to be called shortly.
Regraded Unclassified
Noted B. N. Cochran
72
COPY
QUADRIPLICATE
M
No. 223
Rangoon, Burns, September 22, 1939.
CONFIDENTIAL
SUBJECT:
Transportation of Materials over
the Burma-Yunnan Highway.
THE HONORABLE
THE SECRETARY OF STATE,
WASHINGTON, D. C.
SIR:
I have the honor to refer to this Consulate's despatch of July 11, 1939.
transmitting despatch no. 194 of July 10, 1939. concerning transport condi-
tions prevailing on the Yunnan-Burma highway. In connection therewith I
now have the honor to submit additional information relating to the trans-
portation over the highway of supplies for the Chinese Government.
The Rangoon contractor referred to in the aforementioned despatch
continued during July and August to transport supplies by truck from
the railhead at Lashio to various depots over the Chinese border. Ee now
operates a fleet of two hundred trucks driven by crews of Burmans, Angle-
Burmans, and Chinese, who are paid at the uniform flat rate of two rupees,
two annas a day (about U.S. $0.62 at present rates of exchange). During
June the Chinese authorities gradually dispensed with the services of
numerous independent contractors operating over the road. Since the
beginning of July, therefore, his trucks have been the only ones engaged
in the transportation of var materials and supplies for the Chinese
Government from Burna to China.
- 2 -
73
The following figures show the number of trips made by the trucks
of this fleet from Lashio to the places in China indicated during June,
July, and August, 1939. Each truck is understood to have been filled to
its two-ton capacity but not overloaded. Quantities of materials can be
estimated quite accurately, therefore, by multiplying the number of trips
by two. These figures do not show comparatively small quantities carried
by independent contractors during June but indicate the total volume of
supplies transported from Burma over the highway during July and August.
June
July
August
Trips
Tons
Trips
Tons
Trips
Tons
Lashio - Chefang
507
1,014
39
78
147
294
Lashio - Mangshih
167
334
70
140
231
462
Lashio - Paoshan
41
82
394
788
None
None
715
1,430
503
1,006
378
756
The materials carried consisted principally of ammunition, but
included two hundred tone of T.N.T. transported during August.
By August 28th all military supplies then awaiting shipment at
Lashio were cleared, and a few trucks were used thereafter to transport
gasoline. It was expected, however, that additional supplies of war
materials soon would be shipped by rail from Rangoon to Lashic.
As the foregoing table indicates, none of the trucks operating
out of Lashio proceeded as far as Paoshan during August. The reason
was that heavy rains caused frequent landslides and washouts in the
mountainous country through which the road passes between Mangahih and
Paoshan, rendering that section of the highway virtually impassable
throughout the greater part of the month. It is understood, however,
74
- 3 -
that heavy rains in that region casse early in September and that workmen
are engaged in repairing damaged sections of the highway.
Unfavorable weather conditions prevailing during July and August
greatly hampered the operation of trucks in other areas and caused
frequent delays. However, the road vas kept open to traffic between
Lashio and Mangshih during the summer months when rainfall vas heaviest.
Respectfully yours,
AUSTIN C. BRADY
Austin C. Brady
American Consul
Distribution:
1. Original and four copies to Department.
2. Copy to American Embassy, London.
3. Copy to American Embassy, Chungking.
4. Copy to American Consulate General, Calcutta.
5. Copy to American Consulate, Yunnanfu.
800
WLPTOP
original incoming referred to Dr.
White to prepare a reply.
photostatic copies referred to Earle
Bailie, Professor Viner, Professor
Riefler and Professor Stewart.
9/26/39 - mas
FM
QUETANY OF STATE
- a E
DEPARTMENT OF STATE
WASHINGTON
poply refer to
My dear Mr. Secretary:
I quote below from a telegram dated September 11,
1939, from the American Consul General at Sydney, Aus-
tralia:
"Arrangements have been made for purchase by
Great Britain of all surpluses over Australian
requirements of most primary products including
wool, canned and dried fruits, meat, butter, et
cetera. No announcement yet regarding wheat."
The foregoing constitutes confirmation of the many
reports in circulation regarding the control by the
British Government of stocks of primary products produced
in Australia. The Department had also been informed that
the object of such an arrangement with Dominion Govern-
ments WAS to enable the British Government to control
whatever proceeds in foreign exchange may be derived
from the sale of these products in non-British countries,
particularly the United States, since obviously the total
production
The Honorable
Henry Morgenthau, Jr., .
Secretary of the Treasury.
-2-
production would not be expected to be consumed or stored
in the United Kingdom. The firet intimation received by
this Government of a hope on the part of the British Gov-
ernment that barter or similar transactions be entered
into between the two Governments was made to the Agri-
cultural Attaché at London. This report transmitted the
intimation that the British Government may formally pro-
pose an exchange of Australian wool for certain American
surpluses, particularly wheat. A further intimation has
reached the Department in an informal communication from
the Commercial Counselor of the British Embassy, which I
quote below:
"The present clip has been acquired by the
British Government. I should 4hink that undoubtedly,
0.5 before, some Wool Control will be set up in London
which among other functions will have that of supply-
ing neutral countries with their requirements.
"In the last war the supplies of U.S. require-
ments were coordinated through the Textile Alliance,
a U.S. corporation, which is still in existence with
all records.
"Lord Barnby, who was Wool Controller in the
last war, is at present in this country and has
conferred, in a personal and unofficial capacity,
with leaders of the Wool Textile Industry, with
Mr. Frank A. Fleisch, the former General Executive
of the Textile Alliance, and Mr. E. Farnham Greene,
the senior remaining director. I have received
Lord Barnby's report and recommendations.
"Mr. L. R. Macgregor, the Australian Government
Trade Commissioner, has been approached by Mr. Arthur
Besse, president of the National Association of Wool
Manufacturers,
-3-
Manufacturers, and Mr. H. Clyde Moore, president
of the Boston Wool Association. These gentlemen
are anxious for information as to arrangements
which can be made for providing for U.S. require-
ments of Australian wool. Mr. Macgregor has in-
formed them after consulting Canberra that while
Australia has an important indirect interest any
business arrangements regarding obtaining the
current or succeeding olip should be made with
the British Government or its representatives.
They are therefore desirous of consulting me at
the earliest possible moment.
"I now propose to refer to London for informa-
tion and instructions but in the meantime I shall
be glad that you ascertain whether Departments of
the United States Government have an interest in any
aspect of the subject which they would wish to dis-
ouse with me informally or otherwise.
"I think there may be two such main aspects,
viz. (A) the trade aspect, even though it were
proposed that arrangements should be concluded
directly between an organization such as the Textile
Alliance and the Wool Control in London, and (B) the
finance aspect.
"You will appreciate that (B) raises the con-
sideration that the olip represents a. sterling asset
which might provide dollar assets or credits utili-
sable for general purposes or for specific purchases
of or exchange for commodities in the United States.
I should like to know the opinion of the Department
of Agriculture whether this consideration opens up
any possibilities under Public Resolution - No. 52 -
76th Congress and Public - No. 387 - 76th Congress,
both approved August 11, 1939, relating respectively
to sale and exchange of surplus agricultural commo-
dities.
"I may have occasion to make similar enquiries
in regard to Jute Control."
The last paragraph but one of the foregoing would
appear to be a olear intimation of the British Govern-
ment's desire to make some proposal for the exchange of
British
British Empire primary products for some of the American
surpluses.
This informal comminication and the enclosed excerpt
from & telegram Just received from the American Embassy
at London were read at & special meeting of the Executive
Committee on Commercial Policy, convened on September 15
to consider the problem of the prios of wool, and are now
transmitted for the information of the agencies and de-
partments represented on the Committee. The Committee
decided to establish a subcommittee to study the ques-
tion of methods of meeting conditions growing out of new
British economic organization as typified by the wool
situation.
Sincerely yours,
Careesher
Enclosure:
Excerpt of telegram.
EXCEMPT F
A new and interesting sohni us 11es in Une ortune
possibilities which the younger brains -5 Life Initry of
Reonomic orfare are in Lne 02000 for Large urdered II
Empire end other sup-line of to irtant 2%
the vinistry 75 not We 378 into first are
are considering. These department* I'm nice Lue
neocedly of obtaining easential that
ing Sritain's foreign exchange required ini-try if
Sup:ly have aiready taken ver 1 - ** in 111
clip for example) -1th vie 10 assess wr our -4- beyond bey
Hitain's 0'n neede for the obtaining of ther ct=
on the must terms. 10- 'nl-try of on ,10
arfere se- in auch is molley the means : disining can-
trol of a Large (IN) ortion T 101' "U 1100 of 1:-
portant com Acities, denterine their 1024 WILL In in no
possibly 140 using ti.em n hirter --- ST importion
arrangements which willd indrease rivin's your
venting sur 1100 from going to terminy "irect -ne If un pr-
mining Germany's export traile by exchinge -1th newer
countries for protects which U.S. NRIT Turni-n :- emany.
Incidentally <nglo- rench buying 1° " 10 car-rully 20-
ordinated. Tijexa examples vide - glicpre IT the
tude and ramifications mich -rition neonomic milliy 1-
likely to 7.0 t ak of corrinting OFFICE
1s obviously tresen ous. "he r.- 1.1 1,-
cated to -ritt-h insurtry by the virtue 1.
their C ntrol; the reso r. *111 V.º foreign ...
change and the PPY capital which my be the
tary cepartments, terms the inistry f unity, nil
have priority in wateri : A. -Int YFS R the inistry
of Pood 38° :- initry >I Fun 1y mil in
large composity transast. 100 11/ the 145 r page 1.
control the experts The Loirts, I,F 11-1-19 T - LC
arfare, never, 1. V - 200 We 1,1 FLY o (1-
trol= in the non- of ither Tirther :to 10-
jectives. There 1- NF yet T.1 r.e - 7 :-
of other outlen ale function = 6.00 In- :-
effirts of the veri APLE:- Leref ne 1
rossible to the - MON Ith which use TNC
financial .., invia :1: 12
=
certain implications are 28 underney new
no the availability -T 11.1 a if pref - ir
large purchases in the inite Ento- writ but -
torm will certainly recease nal 6,1% B° 1015
tor may or my not. (1) in no French) decipt
10 e nserve their free Firston pe- - --
40 cossible. or too ritten too my Instructor
-3-
the British tobacco companies to cease purchases of Amer
10am tobacco. (8) Strategie purchases in markets on-
tiguous or near Germany and Italy either (a) to prevent
eveh supplies reaching Germany or (b) to increase poll-
tieel leverage through restification of the balance of
payments. For example attempts are being made to cur-
chase large quantities of lead from Yugoslavia and dried
fruits from Turkey. (3) Shipping, which involves the
whole question of the availability and safety of shipe
under submarine warfare conditions, the length of the
houl and whether or not & ballast voyage is involved.
KENNEDY
Regraded Unclassified
THE WHITE HOUSE
81
WASHINGTON
Sept. 23, 1939
MEMORANDUM FOR HENRY MORGENTHAU, Jr.
Please bring to me some day next
week after further observation.
F.D.R.
st
20 Number
Put,
.50
1998 26 SR by $824
THE
THE SECRETARY OF THE TREASURY
82
WASHINGTON
SEP 20 1939
MEMORANDUM FOR THE PRESIDENT:
In order to enable the Treasury Department to administer
the provisions of your regulations of September 6 and 11, 1939
concerning credits to belligerents, I have signed and an sub-
mitting herewith for your approval, regulations requiring
persons to report periodically all credit transactions with
belligerents.
The proposed regulations, which have been recommended
by the Advisory Committee assisting me in connection with this
problem, will enable the Treasury to keep itself informed as to
credit transactions with belligerents, and to detect prohibited
transactions.
I recommend your approval of the attached regulations.
63
CODE OF FEDERAL REGULATIONS
TTTLE-31-Monay and Finance
SUBTITLE-A-Office of the Secretary
PART 20-REGULATIONS ISSUED BY THE SECRETARY
OF THE TREASURY UNDER THE REGULATION
CONCERNING CREDITS TO BELLIGERENTS,
AS AMENDED.
September , 1939
Section 20.1. Authority for regulations.-These regulations are
issued under the joint resolution of May 1, 1937, 50 Stat. 121 (the
Neutrality Act) and under the Regulation Concerning Credits to
Belligerents, as amended, which was issued by the President pursuant
to section 3 of said Aot, and under all other authority of law.*
Sec. 20.2. Reports.-Bvery person purchasing, selling, or exchanging
bonds, securities, or other obligations of a government of a belligerent
state named in a proclamation of the President issued pursuant to section
1 of the Neutrality Act, or of any political subdivision of any such state,
or of any person known by the person making the report to be acting for
or on behalf of the government of any such state, issued after the
date of such proclamation, or making any loan or extending any credit
to any such government, political subdivision, or person (including
ordinary commercial credits and short-time obligations in aid of legal
transactions and of a character customerily used in normal peacetine
commercial transactions) shall furnish to the Secretary of the
Treasury, through the Federal Reserve bank of the district in which
such person has his principal place of business in the United States,
information relative thereto upon report forms prescribed by the
Secretary of the Treasury. Such information shall be furnished OR
8 weekly basis except as the Secretary of the Treasury may authorise
the information in certain casse or classes of cases to be furnished
on the bacis of longer intervals, provided, however, that the first
report filed by my person hereunder shall cover the period commencing
September 5, 1939, and each subsequent report shall cover the period
Regraded Unclassified
64
- 2 -
commencing with the end of the period covered by the immediately
previous report. Reports shall be filed within 7 days after the and
of the wook, or period, covered thereby, provided, however, that an
extension of the time for making and filing any report say be permitted
with the approval of the Secretary of the Treasury. All persons en-
gaging in reportable transactions prior to the issuance of these
regulations shall file their first reports within 7 days from the
date of these regulations, which reports shall include all reportable
transactions engaged in by such persons commencing September 5, 1939
and prior to the issuance of these regulations. Report forms any be
obtained from Federal Reserve banks or branch banks of the Federal
Reserve System, or at the Treasury Department, Washington, D. C.
Each person required to file a report shall upon request of the
Secretary of the Treasury or any Federal Reserve bank furnish such
additional information as the Secretary of the Treasury or any Federal
Reserve bank may require. Nothing herein shall be construed to
authorise the doing of any act or thing prohibited by section 3 of
the Neutrality Act or by any other provision of law.#
Sec. 20.3. Records.-Every person required by section 20.2 hereof
to file a report shall keep accurate and detailed records of each trans-
action concerning which B. report is required to be filed. Such records
shall be preserved for at least 3 years and shall be made available for
examination by a duly authorised representative of the Secretary of the
Treasury.*
Sec. 20.4. Federal Reserve Banks.-Each Federal Recerve bank shall
keep itself currently informed, with respect to its own district, AS to
the transactions concerning which a. report is required to be filed under
section 20.2 of these regulations, and shall report to the Secretary of
the Treasury any such transaction, attempted or effected, which is not
permitted by the Neutrality Act and the regulation referred to in section
85
- 3 -
20.1 hereof. The Federal Reserve banks will not as fiscal agents of the
United States in connection with these regulations.*
Sec. 20.5. Penalties.-Section 3(e) of the Neutrality Act reads
as follows:
"Thoever shall violate the provisions of this section or
of any regulations issued hereunder shall, upon conviction
thereof, be fined not more than $50,000 or imprisoned for not
more than five years, or both. Should the violation be by a
corporation, organisation, or association, each officer or
agent thereof participating in the violation may be liable
to the penalty herein prescribed." *
Sec. 20.6. Modification or revocation.-These regulations may be
modified or revoked at any time.*
Secretary of the Treasury.
APPROVED:
THE WHITE HOUSE,
September , 1939.
* Joint Resolution of May 1, 1937, 50 Stat. 121; Pres., Regulation
Concerning Credits to Belligerents, September 6, 1939; Pres., Regulation
Concerning Credits to Belligerents, September 11, 1939.
86
MEMORANDUM FOR THE PRESIDENT:
In order to enable the Treasury Department to administer
the provisions of your regulations of September 6 and 11, 1939
concerning credits to belligerents, I have signed and as sub-
mitting herewith for your approval, regulations requiring
persons to report periodically all credit transactions with
belligerents.
The proposed regulations, which have been recommended
by the Advisory Committee assisting me in connection with this
problem, will enable the Treasury to keep itself informed as to
credit transactions with belligerents, and to detect prohibited
transactions.
I recommend your approval of the attached regulations.
BB:mjb 9.18.39
87
CODE of FEDERAL REGULATIONS
TITLE-31-Noner and Finance
of the Secretary
PART 20-REQULATIONS ISSUED BY THE SECRETARI
or THE TREASURY UNDER THE REGULATION
CONCERNING CREDITS TO BELLIGERENTS,
AS AMENDED.
September . 1939
Section 20.1. Authority for regulations.-Theee regulations are
issued under the joint resolution of May 1, 1937, 50 Stat. 121 (the
Neutrality Act) and under the Regulation Concerning Credits to
Belligerents, as amended, which was issued by the President pursuant
to section 3 of said Act, and under all other authority of law.*
Sec. 20.2. Reports.-Every person purchasing, selling, or exchanging
bonds, securities, or other obligations of a government of a belligarent
state named in a proclamation of the President issued pursuant to section
1 of the Neutrality Act, or of any political subdivision of any such state,
or of my person known by the person making the report to be acting for
or on behalf of the government of my such state, issued after the
date of such proclemation, or making my loan or extending any credit
to any such government, political subdivision, or person (including
ordinary commercial credits and short-time obligations in aid of legal
transactions and of a character customarily used in normal peacetime
commercial transactions) shall furnish to the Secretary of the
Treasury, through the Federal Reserve bank of the district in which
such person has his principal place of business in the United States,
information relative thereto upon report forms prescribed by the
Secretary of the Treasury. Such information shall be furnished on
8 weekly basis except as the Secretary of the Treasury my authorise
the information in certain cases or classes of cases to be furnished
on the basis of longer intervals, provided, however, that the first
report filed w any person hereunder shall cover the period commencing
September 5, 1939, and sach subsequent report shall cover the period
- 2 -
88
communing with the and of the period correred by the immediately
previous report. Reports shall be filed within 7 days after the end
of the rook, or period, covered thereby, provided, however, that an
extension of the time for ming and filing any report say be permited
with the approval of the Secretary of the Treasury. All persons -
gaging in reportable transactions prior to the insure of these
regulations shall file their first reports within 7 days from the
date of these regulations, which reports shall include all reportable
transactions engaged in by such persons commencing September 5, 1939
and prior to the issuance of these regulations. Report forms may be
obtained from Federal Reserve banks or brench banks of the Federal
Reserve System, or at the Treasury Department, Washington, D. 0.
Each person required to file a report shall upon request of the
Secretary of the Treasury or any Federal Reserve bank furnish such
additional information as the Secretary of the Treasury or any Federal
Reserve bank may require. Nothing herein shall be construed to
authorise the doing of any act or thing prohibited by section 3 of
the Neutrality Act or by my other provision of lev.0
See. 20.3. person required by section 20.2.hareef
to file 6. report shall keep accurate and detailed records of each trans-
action conserning which & report is required to be filed. Such records
shall be preserved for at least 3 years and shall be made available for
examination by . duly authorised representative of the Secretary of the
Treasury."
Sec. 20.4. Enteral Federal Reserve bank shall
keep itself currently informed, with respect to its om district, as to
the transactions concerning which a report is required to be filed under
section 20.2 of these regulations, and shall report to the Secretary of
the Treasury my sush transaction, attempted or affected, which 10 not
permitted w the Sectrality Act and the regulation referred to is section
Regraded Unclassified
89
. 3 -
20.1 hereef. The Federal Receive banks will set as fiscal agents of the
United States in commention with these regulations.*
see. 20.5. Emalition-Section 3(0) of the Neutrality Act reads
all follows:
"Thoever shall violate the provisions of this section or
of any regulations issued herender shall, upon conviction
thereof, be fined not more then $50,000 or imprisoned for not
more than five years, or both. Should the violation be by &
corporation, organisation, or association, each officer or
agent thereof participating in the violation my be liable
to the penalty herein prescribed." 4
Sec. 20.6. Modification or revocation.-These regulations may be
modified or revoked at any time."
Secretary of the Treasury.
APPROVED:
THE WHITE HOUSE,
September , 1939.
4 Joint Resolution of May 1, 1937, 50 Stat. 121; Pres., Regulation
Conserning Credite to Belligerents, September 6, 19391 Pres., Regulation
Conserning Gredits to Belligerents, September 11, 1939.
Referred M
30
Commissioner of Customs
(iv Sectetary
m
Me R. Wederber
U.S. 16LASURY ATTACHE
BRANGHAI. CHINA
Shanghai, September 23, 1959.
MOSCOW RECOMMENDS CHUNGKING GOVERNMENT PURGE
Information secured from a Chinese official who has just returned
to Shanghai from Chungking to 566 his family, reveals the fact that through
her new Ambassador, Soviet Russia has made a concrete proposal to Gen. Chiang
Kai-shek as a condition for the former to increase her support of China in
the resistance against Japan. The Soviet Ambassador was alleged to have
presented B. list of names containing over one hundred allegedly corrupt Chinese
officials with Dr. H. H. Kung, Gen. Ho Ying-ching and Gen. Chang Chun heading
said list, with the suggestion that these men should be deprived of their
positions and banished from China, as they constitute the real enemies of the
nation.
Since these men are all wealthy, it will be better for them to re-
tire to America for a few years ao that they will not only have a quiet time
in which to repent their sins but also the opportunity to Dee what other
people are doing for their country. The Soviet suggestion went on to re-
commend that Gen. Chiang Kai-shek should remain as China's leader, because
his unselfishness and far-sightness fully qualify him for the position while
the position of president of the Executive Yuan should be given to Mr. Sun
Fo, and Gen. Chu Teh, the well-known leader of China's red army should be
made Minister of War. Mr. Chu Mao, Mr. Chow En-lai and many other communist
leaders are recommended for important government jobs. If Gen. Chiang could
accept the above proposal, Soviet Russia is ready to give China enough support
to crush Japan in a short period. Gen. Chiang 1a reported to have promised
to consider the proposal but later found himself not in a position to carry
out the wishes of Soviet Russia.
S1
PARAPHRASE OF TELEGRAM
To: Secretary of State, Washington.
From: American Embassy, Berlin
Dated: September 23, 1939, 8 a.m.
MA
Rec'd: September 23, 1939, 3:40 p.m.
No. 1385.
It can be said that the economy of Germany has for &
long time been set up on a war basis. However, now that
hostilities have actually broken out and there 18 a state of
war going on with Germany fighting against England and France
and Russia being aligned on the side of Germany, there are
certain new factors which are of importance in evaluating
Germany's economic situation at the moment. Goering asserted,
during the course of his September 9 speech, that Germany was
safe from blockade and that she was entirely prepared economically
for a long struggle. These assertations are continually being
repeated in Germany's press in one way or another, but logic
18 not always present since one article will show that the
food supply in Germany 1s sufficient and invulnerable from
blockade, while another article will pour condemnation on the
blockade alleging that it 16 meant to starve women and children
in Germany. It 1s known that until the summer of 1939 Goering
has championed & relaxation of foreign policy of aggressive
nature because Germany has neither attained economic consolida-
tion nor was fully ready for a general war and thus, accord-
ing to reliable opinion, Goering realized fully that the
speech
- 2 -
92
speech he made on September 9 consisted of propaganda meant
to encourage public morale, although the sources being made up
of patriotic Germans and having knowledge of the efficient
espionage system are careful not to reveal just what the Reich's
economic weaknesses are. No reliable judgment of Germany's
ability to stand up against a long war can be made, therefore,
before there exists further information regarding what war
reservations of munitions and materials Germany has and until
some indication is given regarding the character, extent, and
method of the Reich's future military operations. Nonetheless,
many reservations can already be applied to the assertations
of Goering.
Eu:Morris:MHL
93
PARAPHRASE OF TELEGRAM
To: Secretary of State, Washington.
From: American Embassy, Berlin.
Dated: September 23, 1939, 9 a.m.
Rec'd: September 23, 1939, 3:22 p.m.
No. 1386.
Goering's declaration regarding general trade, when
he said the blockade was (?) thin because it covers only the
area from Basel to Denmark, 1s misleading. The reason 18
that as compared to the delay with which the allies applied
their blockade in the World War, pressure of the present blockade
has already made itself felt in the major part of the overseas
trade of the Reich. Of all her imports approximately twenty
percent 18 made up of the trade Germany has with enemy nations.
Twenty-three percent of her exports and thirty percent of her
importe depend upon Germany's trade, now almost impossible,
with countries overseas and in Europe. Only forty-three percent
of Germany's imports come from neighboring countries. Thus far
communication with these countries approaches normal conditions.
However, quâte 8. large section of products imported from these
countries adjacent to Germany are made up wholly or partly from
materials which were imported in the past from abroad. It 18
probable that with a blockade in effect neighboring countries
will be unable to import such goods into Germany. Thus it would
seem that the Reich would be severed from at least half her import
reservoirs
94
- 2 -
reservoirs of necessary supplies, even when allowance 18 made
for an augmentation of importe from countries like Russia and
Rumania.
By means of Goering's discourse, coupled with a constant
flow of press articles on the subject of Russia's large
natural resources of raw materials, an attempt has been made
to picture the Reich's loss due to the blockade as being
supplanted by imports from Russia. Reliable opinion in Germany
states that within the subsequent several months manganese,
timber, and flax in limited amounts from Russia will probably
be available to Germany. But that would necessitate some
time and cooperation from the U.S.S.R., even to the extent of
Russia's permitting experts from Germany to advise and direct
in her centers of production before any Russian supplies
would be available to Germany in important amounts. Also,
it would be necessary to wait for improvement in present rail-
road communications between Germany and Russia and within
the Boviet Union itself.
Changing from the subject of the general effect of block-
ade on the Reich's import trade to its influence on those
basic goods necessary to nourish the German people and to
sustain military operations, it can be stated that it is shown
by a study of the food situation that taking into considera-
tion home products and supplies which can be obtained from
southeastern
85
- 3 -
southeastern and northern Europe and from that part of Poland
which Germany has occupied, undoubtedly the Reich is in a
much better condition than she was in 1914 and it should be
possible for her to obtain most vital products and thus to
hold out against a blockade without suffering undue hardship.
Eu:Morris:MHL
96
PARAPHRASE OF TELEGRAM
To: Secretary of State, Washington.
From: American Embassy, Berlin.
Dated: September 23, 1939, 10 a.m.
Rec'd: September 23, 1939, 4:35 p.m.
No. 1387.
There exists a serious lack of margarine. Margarine
supplies approximately one third of the fat needs of Germany,
and it 18 made of materials which Germany imports from areas
now out off from the Reich. However, some emergency deriva-
tion might be developed from Poland, though the exact teri-
torial areas to be ultimately reclaimed by the Reich 18 not
yet known, nor 18 it known how much damage has been suffered
by the productivity of that area. Another factor to be taken
into consideration 18 the demands for which the present re-
sources will be called upon, in order to nourish the people
uprooted by the strife. Furthermore, only approximately
forty thousand metric tons of animal fats, taking in the fat
content of living animals, was exported in 1938 by Poland
to nations other than the Reich, that is to say, less than
two percent of the 1938 consumption of fats in Germany. The
Reich's egg supply should be augmented to a greater extent
by the occupied area of Poland. (The 1938 export of eggs by
Poland to nations other than the Reich equaled approximately
five percent of the diminished consumption of egge in
Germany.) The contribution which Poland will make to the
Reich's
97
- 2 -
Reich's supply of meat and feed grain should be more 1m-
portant as regards quantity. However, the production of
these supplies in Germany, even without further imports from
Poland, should be sufficient for the Reich's minimum needs
for an indefinite time, due to the great reserves in grain
which she has and due to the usual supplies of grain and meat
from neighboring sources.
The calculation for Germany's relative self-sufficiency
in food is based on standards of food consumption which have
been lately restricted. A special German food commissioner
stated in an unpublished study that from the viewpoint
of health average food consumption standards are unsatis-
factory. It 1s presumed that this is viewed from the angle
of & deficiency in vitamins, especially the dearth of fruit
during years of poor crops, although no special deterioration
of general health is understood to have been discovered.
The reaction vis-a-vis the reduced rations 1s more 1m-
portant. This public reaction, although it accepts generally
these enforced rations as being necessary and enough to keep
life going, considers that when bound together with the
difficulties embedded in agreement to the rationing system
the morale of the people will be adversely affected and
might prove to be an important internal factor, should the
system be continued for long.
Eu:Morris:MHI
S8
PARAPHRASE OF TELEGRAM
To: Secretary of State, Washington
From: American Embassy, Berlin,
Dated: September 23, 1939, 11 a.m.
Rec'd: September 23, 1939, 5:04 p.m.
No. 1389.
Turning to the provision for fundamental strategic goods,
the insufficiency today of the Reich's domestic production of
ore and the fact that Germany is denied access to important
supplies due to armed conflict and blockade 18 Germany's
plainest weakness in her war economy. Iron ore to the amount
of thirty-two million tons was produced in 1916 by Germany
with Austria, Hungary, and Luxemburg, and supposedly Germany
received further supplies from those parts of Belgium and
France which she had occupied. Today the Reich's production
of iron ore 18 only fifteen million tons a year, (taking
into consideration even the particular efforts of the last
year) and a considerable part of this ore has an iron content
considerably lower than ores of Lorraine retaken by France.
With iron content for B. measure the Reich has been forced
to get almost eighty percent of her needs of iron ore from
foreign supplies. Germany's imports of high-grade ore in
1938 came to twenty-two million tons, while eleven million
tons were produced within Germany itself. By making use of
deposite of poor quality, the Government in Germany planned
to increase ore production to 25.7 million tons. However,
it
- 2 -
89
it was envisaged that three years would be necessary to
accomplish this. Though this Job undoubtedly will be
speeded uo, considerable time must intervene before the
program can be completed, if war conditions allow that it
ever be brought to completion. Supposedly while the World
War was in progress, Germany imported the major part of the
ore output of Sweden. This came to six million tons in 1918.
Nine million tons of ore from Sweden were taken by Germany in
1938, but 5.5 million tons of this amount were produced in the
northern mines and were sent via a route which has now ceased
to be available, 1.e., by way of Norway and the North Sea.
Evidence exists to the effect that the Reich has suggested
that Sweden maintain fully her shipments of iron ore. How-
ever, according to reliable sources to do this it would be
necessary for the Swedish Government to construct handling and
railroad equipment. Thus considerable delay would be involved
before large amounts of ore could be shipped via the Baltic from
the most northern mines. Whereas certain other countries pro-
vided her with about forty-five percent of her ore needs in
1938, Germany 18 now severed from these areas. Thus even
should the 1938 levels of shipments of Swedish ores be main-
tained; even should Luxemburg keep up her shipments to Germany
of ores, which amounted in 1938 to 1.7 million tons; even
should Germany use Poland's yearly production of eight
hundred
100
- 3 -
hundred thousand tons; even if Germany's domestic produc-
tion should be, by some unusual effort, quickly brought up
to its presumed yearly maximum of 25.7 million tons, the
supply of iron for greater Germany would still remain less
than the amount Germany had in the World War period.
Regarding Germany's reserves of petroleum products,
her lack of these things improved when the Reich acquired the
Polish fields having an annual output of sixty-six million
metric tons of crude oil. This amount contrasts with 4.8
million tons which Germany imports and 1.7 million tons of
different petroleum products which she produced in 1938 within
the country. The Shell 011 Company's German director died
enroute back to Germany several days ago, but it was stated
by the German press that his mission to Rumania was success-
ful. Supposedly this was a mission to "persuade" Rumania
to supply Germany with further oil supplies to be repaid in
goods. Rumania supplied Germany with less than twenty
percent in value of the petroleum products imported to
Germany in 1938. Anent a source which 1s reasonbly reliable
the reserves of petroleum that Germany has plus her output at
home are enough to supply her wants for one year of active
fighting.
*Morris:MHL
PARAPHRASE OF TELEGRAM
101
To: Secretary of State, Washington.
From: American Embassy, Berlin.
Dated: September 23, 1939, 2 p.m.
Rec!d: September 23, 1939, 7:35 p.m.
No. 1402.
Concerning the coal situation, Germany 1s an important
exporter of coal. Hence the war and blockade should affect
Germany little in this regard. Germany might even be enabled
to raise the amounts she exports let alone to meet requirements
for war, due to the fact that she is now in control of the
mines in Poland with their twenty-eight million tons surplus.
Nevertheless, Germany would appear to be most vulnerable to
the effects of the blockade when it comes to imports of cotton,
tin, rubber, nickel, copper, and several further materials.
Though dependable information has not been received regarding
what military reserves Germany has or what possibilities she
may have for replacing the above-mentioned metals with
substitutes, a trustworthy source reports that Germany's supplies
of copper fall below the reserves of 1914.
Turning to the textile situation, though the newspapers
in Germany often speak of Russian cotton production, thus
far cotton exports from the U.S.S.R. do not surpass an
annual production of about thirty thousand bales, which
amounts
- 2 -
102
amounts to approximately two and one-half percent of the
1938 importation of one million two hundred thousand bales
into Germany. One understands that that part of Poland
which has been occupied 18 supplied with enough cotton and
finished textiles for several months and that this supply
10 now in the hands of German forces. However, when use
has been made of this supply Poland, as far 8.8 textiles
go, will probably become a drain on Germany, for the Reich's
home production of natural and synthetic fibres accounted
approximately for merely a third of her 1938 consumption of
textiles, and this in view of the fact of large investments.
It would seem, however, as if Germany would be in a more
favorable position than she was in the World War period,
even taking into account this insufficient though increas-
ing output.
Concerning the supply of labor, Germany's occupation of
Poland might seem to provide her for the moment with enough
labor to carry on necessary industrial and agricultural out-
put. As the situation stands, unemployment again exists in
Germany due to the fact that the population has been with-
drawn from exposed western areas; and because material is
no longer available work in unnecessary trades and industries
has diminished. Already it is believed that several hundred
thousand persons are without employment, though figures re-
garding this are unavailable. The authorities are concerned
over
- 3 -
103
over this situation, though it has been said that the Govern-
ment will give work to the unemployed, because of the exist-
ence of possible causes for social uneasiness, a situation
which may remain until they can finish the process of moving
and training the unemployed to take up work on essential
projects. Thus as conditions are now, Germany should be
able to get men without difficulty for her industrial and
military needs. Later on, though, Germany might encounter
trouble in this regard which she did not meet during the
last war. For then she possessed some assets amounting to
twelve billion marks and she was able to employ these to pay
for a great part of her vital imports in place of having to
put into the making of goods for export plant materials and
labor which she needed for the making of munitions.
Eu:Morris:MHL
PARAPHRASE OF TELEGRAM
104
To:
Secretary of State, Washington.
From: American Embassy, Berlin.
Dated: September 23, 1939, 4 p.m.
Rec'd: September 23, 1939, 1:36 p.m. 24th.
No. 1407.
It 18 still a carefully kept secret regarding what
the foreign exchange and gold position, actual and potential,
of Germany 1s. During a confidential talk regarding an
article which appeared on June 30, 1930 in The New York
Times and which claimed that one billion marks ($400,000,000)
could be mobilized by Germany, it was stated by a source
which is dependable and authoritative that the true gold
supply which could be mobilized by Germany was far less than
four hundred million marks ($160,000,000). On August 30
it was disclosed that the gold reserve of the Reich Bank
and the gold discount bank amounted to one hundred and ten
million marks only. Therefore, in case of a war of long
duration, unless Germany turns to military occupation or
puts pressure on neighboring supply sources, she will seem-
ingly have to put a much larger proportion of her factors
of production into the output of goods for export than she
did in 1914, since she lacks foreign exchange and gold with
which to pay for her imports.
Eu:Morris:MHL
105
PARAPHRASE OF TELEGRAM
To:
Secretary of State, Washington.
From:
American Embassy, Berlin.
Dated:
September 24, 1 p.m.
Rec'd:
September 24, 4:24 p.m.
No. 1413
Since figures are unavailable the calculations
and observations made above cannot be looked upon as
comprehensive or basic, nor can they be considered com-
pletely reliable since new factors may develop at any
moment and bring in elements which at this time cannot
be evaluated. However, from the above one may draw the
conclusions that follow: It would seem that perhaps for
several years, anyway for a long period of blockade,
Germany will be able to supply her population with minimum
food requirements as far as quantity goes but not qual-
itatively. Moreover the labor and facilities that she
has for manufacturing and transportation seem sufficient
enough for her military needs. On the other hand, the
situation as it concerns raw materials in most goods,
with the exception of coal, will eventually become one
of scarcity and inferiority until it reaches a deficiency
point which, in the case of several vital metals, will
become
- 2 -
106
bedome dangerous if the war should prove as lengthy and
AB wasteful of material as the war of 1914. Germany is
put in a definitely disadvantageous position due to her
relative absence of foreign exchange and gold. This situa-
tion would be aggravated by a prolonged war unless some
method 18 found to overcome and correct that position. It
can be said briefly that though her position from B. financial
and economic view 18 one which justly 18 the cause of sebious
worry to her leaders, yet it is not as serious as 1s often
indicated by statements frequently expressed abroad, and the
conviction which 1s often expressed that the collapse of
Germany 1s imminent 1s certainly not justified.
Should peace efforts prove a failure and should the
war get more serious, it is true that the people's morale
in Germany might easily be undermined due to the prolonged
pviation. It 18 also true that the same situation might
cause them to adopt 8. front of active discontent and that
should the country's resources continue to be drained
this would be shown not merely in every section of national
activity but likewise in the bodily resistance of the pop-
ulation. Moreover, much depends upon what the regime does
in the future as to whether the two factors mentioned above
would
107
- 3 -
would be permitted to reach the breaking point. Looking
back into the past, it would seem that any attempt to keep
morale up would be by trying to gain greater victories in the
military field, and a need to increase resources for Germany
would probably tend to cause further campaigns for acquisition
of territory. Be it as it may, enough basis exists for
argument which some people put forward holding that German
plans would not be deterred by any consideration of effects
from the long-term economic viewpoint as long as Hitler stays
in power, but for him an increase of economic and financial
stringency would prove an incitement rather than a deterrent.
Eu:Morris:AMR.
108
CJ
GRAY
PARIS
Dated September 23, 1939
Rec d 11:50 a.m.
Secretary of State,
Washington.
2148, September 23, 1 p.m.
FOR THE TREASURY.
The JOURNAL OFFICIAL this morning publishes a blockade
measure providing that owners of transit merchandise on ships
in French waters may be required to furnish a transshipment
bond guaranteeing arrival at destination of the merchandise
in neutral countries and that it will not be reexported
directly to an enemy country or country occupied by the
enemy.
A further decree sets October 22 as the date when the
five franc nickel coins will no longer be legal tender.
They may be exchanged at the Treasury or Bank of France,
however, till November 10. There is apparently no imme-
diate intention of withdrawing the 10 franc and 20 franc
silver pieces in circulation although it will be recalled
(Telegram No. 1727, September 2, 2 p.m.) that authorization
therefor oxists and presumably they will be withdrawn
later.
(END SECTION ONE).
BULLITT
WWC
109
CJ
GRAY
PARIS
Dated September 23, 1939
Rec'd 11:55 a.m.
Secretary of State,
Washington.
2148, September 23, 1 p.m. (SECTION TWO).
A further decree lays down conditions for the rationing
of gasoline and other petroleum products to the various
national defense services, transportation services, public
administrations and the civil population. The procedure
provided will take effect on November lst with certain
transitory limitation on deliveries established immediately.
The office of foreign exchange has clarified the
situation mentioned in our telegram No. 2121 of yesterday
and has granted authorization for the liquidation of all
maturing future foreign exchange contracts concluded before
September 10th, (END OF MESSAGE).
BULLITT
WWC
BECEINED
eeer as 072
TREMTHAR30
INT
COPY
110
BLS
GRAY
BERLIN
Dated September 23, 1939
Rec'd 4:18 p.m.
Secretary of State,
Washington.
1398, September 23, 1 p.m.
My 1200, September 12, 9 a,m,
This morning's press gives extended publicity to the
new and stricter food rationing regulations the main
features of which are: (1) The introduction of bread cards;
(2) the reduction of milk, butter and sugar rations;
(3) the differentiation of most rations by age and type
of labor performed by recipients; (4) the extension of
rationing to meals taken in restaurants.
The new weekly bread ration is fixed as follows for
"normal" consumers: 2.4 kilograms; for heavy manual labor
3.8 kilograms; heaviest manual labor 4.8 kilograms; for
children under six years 1.1 kilograms; children from six
to ten years 1.7 kilograms. The weekly "normal" meat
ration (five hundred grams) is the same as during the last
two weeks but for heavy labor is fixed at 1,000 grams: for
the heaviest manual work 1,200 grame: for children below
six years 250 grams.
The
- 2 -
111
The new fat cards entitle the consumer to purchase
eighty 80 grams of butter weekly as against 90 grame here-
tofore. The fat card further entitles the consumer to
125 grams of margarine, cooking fate or salad oil; 65 grans
of lard, bacon or tallow: 62.5 grams of cheese and
125 grama of curde with special rations for workers and
children.
While under the previous ration all adults were en-
titled to 0.2 liter of milk daily in the future milk
coupons will be issued only to children and expectant and
nursing mothers. The daily rations for children under six
years is fixed at 0.75 liter: for children from six to
fourteen years 0.25 liter; and for mothers 0.50 liter.
There is as yet however no restrictions on the consumption
of skimmed and buttermilk.
The sugar ration is reduced to 250 grams weekly against
355 grams heretofore. The coffee substitute ration is
limited to 125 grams weekly while the former weekly allow-
ance of 20 grams of real coffee is apparently entirely
abolished, Eggs, tea and artificial honey will only be
distributed when available. Restaurant visitors have to
surrender their coupons for bread, meat and fats. Meat,
milk, butter and other fats can only be bought from one
retailer with whom consumers must register in order to
utilize
- 3 -
112
utilize their ration cards.
Inform Treasury and Commerce.
KIRK
HPD
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September IM 23, 1939
113
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
The foreign exchange market was very quiet with sterling opening at
3.99. touching a high of 4.00-1/4 and closing at the low of 3.99. The
saving off of the rate was due to the offering of 50,000 from Sweden,
130,000 of which W&B sold at 3.99-3/4. and the remaining 620,000 was offered
down to the rate of 3.99.
The reporting banks in New York and the Federal Reserve Bank sales
totaled L218,000, from the following sources:
Commercial concerns
& 32,000
Foreign banks (Europe & Far East)
18 111,000
Fed. Res. Bk. (625,000 for Norway;$50,000 for Sweden) 6 75,000
in 218,000
Purchases of sterling amounted to L118,000, as indicated below:
By commercial concerns
& 28,000
By foreign banks
& 90,000
(Australia, Far East & South America)
à 118,000
The banks also reported that the British Control had purchased sterling
amounting to 6,000 at the official rate,
Mr. Knoke advised me this forenoon that the Guaranty Trust had, after
several days negotiations, obtained for one of their cliente permission to
sell £10,000 sterling, constituting a pre-war balance, to the British Control
at $4.02, after entisfying the Control on the three necessary points. This
1a the first case of this type that has come to the attention of the Federal
Reserve Bank, The other transactions which I have been reporting have been
current commercial operations.
The Guaranty Trust Company also reported that they had received an order
to sell $50,000 at 4.01-1/2 or better which WES not executed as the market did
not go that high.
The National Bank of Belgium is today selling us $155,000 of gold from
their earmarked account.
Gold valued at $119,000 was shipped from England to the Guaranty Truet
Company and $49,000 to the Bank Belge pour l' Etranger. Both of these ship-
cente evidently had approval of the British Control.
There WEG also reported a shipment of gold valued at $2,863,000 from
Canada to the Federal Reserve Bank of New York and $575,000 from India to the
Chase National Bank,
Mus C
SEP 23 1939
14
My dear Mr. Secretary:
Mr. Joseph Rovensky, Vice President of the Chase National
Bank and one of the American representatives on the German
Standstill Agreement Committee, at the suggestion of Under Secre-
tary Nelles, had a conference with Under Secretary Hanes and
other officials of the Treasury on September 21, relative to a
proposal for the renewal of the Standstill arrangement.
Mr. Rovensky stated that when the Standstill Agreement was
terminated a few weeks ago the American share of the outstanding
indebtedness was about $66,000,000 and in addition there was out-
stending unused credits in the amount of about $15,000,000. He
stated that in any renewal of the Standstill arrangement the
$15,000,000 unused credit would be eliminated and there would also
be deducted certain amounts equal to the German assets which have
been recently attached or set-off by American banks.
Mr. Revensky stated that both he and his colleagues felt
that it vas entirely clear that the contemplated arrangements did
not violate the Neutrality Act since it involved merely a renewal
or adjustment of an indebtedness existing on the date of the
President's Proclamation and also because the renewed credits which
would become available would be ordinary commercial credits of a
115
2
type permitted by the President's Regulations of September 6,
1939, as anended. Be stated that the reason he was waking the
inquiry vas in order to accertain the desirability of the proposal
from the point of view of the Administration's policy.
It would seen therefore that Mr. Revensky's inquiry presents
no question under Section 3 of the Neutrality Act for considers-
tion by this Department and that his inquiry is case for considers-
tion by the State Department. I will therefore informally advise
Mr. Sevensky that 10 are referring his inquiry to the State Depart-
sent and I assume that your Department will take any further
action which you deen appropriate.
Very truly yours,
101 H. morgenthar, Ja
Secretary of the Treasury.
The Honorable
The Secretary of State,
MAILED 9-23
1939
attn. aaBeru &
BY SPEC. MESSENGER 11:15a.m.
initialed FILE TO, Bernstin
COPY TO Muss Chaunery
BB:dhm 9/22/39
116
September 23. 1939
To:
The Secretary
From: Mr. Hanes
Bernstein, Duffield, and I have revised the Press release in
connection with the Treasury carrying out its functions under Section 3
of the Neutrality Act. It is attached hereto.
I am just as well pleased that the President did not want to
issue formal regulations at this time as I think we will be better
informed after having gained some experience in the handling of each
transaction as it comes up, and if at some later date we should decide
to issue regulations, we will be in & much better position to do 80.
My thought would be in handling this matter with the Press that
at your Press conference on Monday if asked any questions about the
regulations not having been returned, you could say that in view of
the many unknown factors surrounding all types of short-term credit
that we had decided to hold any regulation in abeyance until we had
gained experience in handling the details and were familiar with all
types of short-term credits and peace-time operations.
J.w.H.
117
PROPOSED PRESS RELEASE
A policy of encouraging banking and business houses to
continue a normal international short-time credit business
within the scope of the Neutrality Act has been recommended to
Secretary Morgenthau by an Advisory Committee which he has
formed to assist the Treasury in carrying out its functions
under section 3 of the Neutrality Act. This section of the
Act governs credit transactions between persons in the United
States and governments of belligerent states, or their agents.
President Roosevelt on September 6. and 11, 1939, approved
regulations permitting certain types of credit accommodations
and authorizing the Secretary of the Treasury to administer the
provisions of the regulations. To assist in the work
Secretary Morgenthau designated Under Secretary Hanes to head
an Advisory Committee composed of the representatives of the
State, Commerce and Treasury Departments.
The Committee recommended to Secretary Morgenthau that the
President's regulations be administered with the least possible
disturbance to business. The Committee also recommended that
persons seeking guidance on particular transactions should be
requested to submit their questions, with & full statement of
facts relating thereto, to the Federal Reserve bank of their
district, which will act as fiscal agent of the United States
in this connection. The Federal Reserve banks have been asked
- 2 -
118
to transmit any doubtful questions to the office of Under
Secretary Hanes who will supervise the legal and administrative
work on matters arising under the President's regulations of
September 6 and 11
The Secretary of the Treasury has adopted the recommendations
of the Advisory Committee.
9-23-39
STRICTLY CONFIDENTIAL
119
Paraphrase of Telegram No. 194, September 23, 1 p.m.
from the American Legation at The Hague.
Today I was given by the Secretary General of the
Foreign Office a copy of an aide-memoire which he had
received from the German Minister at The Hague convey-
ing the point of view of the Government of the Reich
towards any yielding by the Netherlands to British
pressure in connection with neutral trade with Germany.
While short, the aide-memoire is extremely sharp in
tone and closes with the following threat: If neutral
governments in any way comply with British demands the
Reich reserves to itself the fullest freedom of action
to combat with all means such participation of neutral
states in the economic war directed against Germany.
The aide-memoire contains the essence of the DDPK ar-
ticle transmitted to the Department in telegram no.
1226, September 13, 1 p.m. from the Embassy at Berlin.
When the document was received from the German Min-
ister by the Secretary General, the latter tells me that
he qualified it to the Minister as "pure nonsense". The
Secretary General has been informed that when a similar
communication was delivered by the German Ambassador at
Brussels to the Belgian Foreign Minister, the latter de-
clared it to be "inadmissible".
The
120
- 2 -
The Dutch are not inclined to take the unusual tone
of the aide-memoire too seriously as they feel that it
is probably a paraphrase of an instruction drafted by
Ritter whom they know of old. Although they have not
yet decided whether to send & reply to Germany, present
indications are they they will not.
Eu: Cumming DG
STRICTLY CONFIDENTIAL
121
Paraphrase of Telegram 106, September 23,
11 a.m. from the American Legation at Stockholm.
Boheman, Secretary General of the Foreign Office
had a conversation yesterday with Ministerial Director
Walther who is now in Stockholm as the principal member
for Germany of the Permanent Committee for German-Swedish
Trade. As a result of this conversation Boheman's anxiety
as to the situation has been greatly increased. Boheman
was told by Walther that if Sweden yielded to any demands
of Great Britain which would adversely affect normal trade
between Sweden and Germany it would be considered by Ger-
many as an unneutral act, and Germany "would use every
means in her power to counteract such action". Boheman
admitted that he was perhaps overly-pessimistic, but
pointed to the difficulties of Sweden's position. In
this connection he said that while noone knew the terms
of the Soviet-German understanding, it was not incon-
ceivable that in order to bring pressure on Sweden, Ger-
many might give the Soviet Union a free hand to enter
Finland and even Sweden.
Eu: Cumming: DG
PARAPHRASE OF TELEGRAM RECEIVED
03412338 -
FROM: American Embassy, Berlin
NO.: 1407
/ & / / /
DATE: September 23, 1939, 4 p.m.
Carefully guarded secrecy still surrounds Germany's
actual and potential foreign exchange and gold position.
In & confidential discussion with a reliable and
authoritative source with reference to an article which
(92)
appeared in the New York TIMES of June 30, 1930 stating
that a gold reserve of 1 billion marks( ($400,000,000)
could be mobilized by Germany, it was said that far less
than 400,000,000 marks ($160,000,000) was the real
amount of gold which that country could mobilize. On
August 30 the total disclosed gold reserve of the
Reichsbank and the gold discount. bank was only about
110,000,000 marks. Therefore, since Germany lacks both
gold and foreign exchange with which to pay for imports,
it would seem that in the event of a long war it would
be necessary for her to divert a much larger part of
the country's factors of production to the making of
goods for export than was necessary in 1914 (?) unless
she has recourse to occupying adjacent sources of supply
with her military forces or otherwise exerting compulsion
upon them.
EA1KB
TREASURY DEPARTMENT
WASHINGTON
September 23, 1939.
Memorandum of telephone conversation between
the Secretary and Mr. Graves, Saturday, September 23, at
twelve o'olock, noon
Mr. Morgenthau evidently called from his home at Fishkill,
He asked me to take up two subjects with the Procurement Division,
G.S follows:
1. How well are the several branches of the Government supplied
at the present time with reference to a possible shortage of coal?
2. He asked that surveys be made at Chicago, Boston, and other
large cities with a view to consolidating the contracts of all Govern-
ment branches for electrical current. He said he wanted this to follow
along the lines of a consolidation of this kind which was made about two
years ago in the New York City area. He said further that it was his
impression that in the case of New York the consolidated contract in-
cluded the Navy Yard and Army facilities, and that he desired to have
this done also at any other places where similar action should be taken.
NOTE: Captain Collins, the Director of Procurement, happened
to be in my office when the Secretary's call came in,
and I immediately communicated the Secretary's instructions
to him. Captain Collins promised to have memorandums on
these two subjects within the next few days.
COPY
124
AC
GRAY
Berlin
Dated September 24, 1939
Rec'd 12:10 p.m.
Secretary of State
Washington
1412. September 24, noon. (SECTION ONE).
My 1398, September 23, 1 p.m.
The editorial comment accompanying the new food
rationing regulations in general follows this pattern:
Great Britain is endeavoring to starve out German women
and children but these efforts will be in vain since in
the past years the Reich has accumulated large stocks
of foodstuffs sufficient to meet deficiencies resulting
from poor harvests and consequently the new stricter
rations are merely to insure equitable distribution
and continuing ample supply. In an article by Agricul-
tural State Secretary Backe England is alleged to have
started its campaign of starvation in spring of this
year through (one) cornering the whale oil supply and
(two) inciting Poland to stop the regular seasonal
emigration to Germany of 90,000 Polish farm laborers.
The new bread rations are generally accepted as
sufficient and as roughly corresponding to the previous
consumption of the respective categories of the population.
While the "normal" mest ration is the same as during the
past
- 2 -
125
past fortnight it is two hundred grains lower than the
ration introduced August 28. The smallness of the
milk ration for children from six to fourteen is
generally considered to be the greatest hardship of
the revised schedule. The application of food cards
to restaurant meals stops a gap in rationing which
was being increasingly taken advantage of by the German
public.
The following is a tentative comparison of the new
ration with (one) the official statistics of average
per capita consumption in 1938 for all classes of the
population and (two) average per capita working class
consumption taken from a careful study under the labor
front of the actual expenditures of 350 workers' families
in 1938.
KIRK
CSB
COPY
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1412
126
BERLIN. OF SEPTEMBER 24, 1939, FROM THE AMERICAN EMBASSY,
The new normal meat ration, on the basis of this data,
would seem to be only 54 percent of former average per capita
consumption of the whole population but 57 percent of the
average consumption of the working class. The ration for
butter is 47 percent of the national average consumption
for 1938, but 16 88 percent of the former butter consumption
for workers. The normal allowance for cheese is only 57
percent of the national average for 1938, but is about 86
percent of the average consumption for workers. For other
edible fate (185 grams of margarine vegetable fats, bacon,
oil or suet) the normal weekly ration is but 56 percent
of the national average formerly, but 1a 93 percent of the av-
erage for workers. The normal ration for sugar is only
53 percent of the average for the Reich for the year 1938, but
is some 11 percent above the average for the workers.
The new meat allowances for "heavy" and "extremely
heavy" manual labor, however, are respectively about 75 percent
and 110 percent higher than the per cepita average of the
workers family, which includes, however, women and children
who do not consume as much as the family head, For butter
and cheese there is no differential allowance. However, for
other fate the worker who is on "heavy" and "axtremely
heavy" work may buy respectively some 63 percent and 200
percent
- 2 -
percent more than the actual consumption of members of workers'
families in 1938. Here it may be pointed out that even
with the supplements for "axtremely heavy" work the maximum
weekly meat ration for civilians is now only 1200 grams as
compared with 1750 grams, the full military ration for
active service.
Taken as a whole, the new rations would appear to be
intended not to bear too heavily on the average working class
consumption. If availed of for individual namial laborers they
possibly represent an increase of consumption. It seens
questionable, however, whether it will be possible in all
cases for the manual laborers to take advantage of any increased
food made available to them, in view of the reduction of wages
as a. result of abolition of overtime bonuses.
It is by no means B. certainty, however, that the civil
ration has fallen to its final level under the new regulations.
It 1e the belief of certain observers that there may be
further reductions in allowances of food if, as is possible,
another million men are added to the two and a half million
nen now under arms. A certain amount of food will have to be
subtracted either from the amount available for the civilians
or from the emergency reserves, in view of the fact that the
military rations are so much higher than the civil allowances.
It is requested that you inform the Treasury and Commerce of
the foregoing.
KIRK.
EA:LWV
PARAPHRASE OF TELEGRAM RECEIVED
128
FROM: American Legation, Helsinki, Finland
DATE: September 24, 1939, 1 p.m.
No.: 194
CONFIDENTIAL.
Yesterday in talking with the Minister for Foreign
Affairs he mentioned to me that there has now been cleared
up any misunderstanding which may have existed prior to
the visit of Secretary Morgenthau here regarding the
purposes of any proposed loan to Finland from the United
States. He said that discussions for a loan of $30,000,000
were now in progress.
My inference was that if the United States should make
such a loan, the proceeds would be used mainly to augment
the already substantial volume of foreign exchange available
to Finland. The money would not be earmarked for certain
special acquisitions as at first intended.
It 18 expected that control of foreign remittance through
the system of import licenses will. protect the dollar balances.
However, there 1s already apprehension with regard to the
probable effect on replenishment of foreign balances of
reduction 03/13038 in exports.
ecet 88072
SCHOENFELD.
Telephone: SIGNATURE
me of
1 - - Balama invest
EA:LWW
TREASURY DEPARTMENT
129
INTER OFFICE COMMUNICATION
DATE September 25, 1939
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
The foreign exchange market was dull today. Sterling ranged between
3.99-1/2 and 4.00-1/8, and closed at 3.99-3/4.
Reporting banks in New York and the Federal Reserve Bank reported sales
totaling £484,000, from the following sources:
Commercial concerns
à
278,000
Foreign banks (Far East, South America, Europe
& Scandinavia)
&
131,000
Fed. Res. Bk. ($25,000 for Norway; 650,000 for Sweden)
19
75,000
Total
B
484,000
Purchases of sterling amounted to L266,000, as indicated below:
By commercial concerns
1
240,000
By foreign banks
1
26,000
(Europe & South America)
Total
19
266,000
The banks also reported that the British Control had purchased sterling
amounting to £15,000 at the official rate.
Tie received through the Federal Reserve Bank of New York a request from
the Central Bank of Argentina to purchase $2,000,000 in gold, to be added to
their carnarked account, which request was approved.
The National Bank of Belgium today sold to us $535,000 gold from their
earnarked account.
The Federal Reserve Bank of New York received & cable from the Bank of
Portugal stating that it contemplated shipping gold to them. They asked
whether the terms of the Federal Reserve Bank's letter of December 1, 1937
were still in force with respect to earmarking of gold and if the Federal
would be willing to convert the dollar balances of the Bank of Portugal into
gold to be held under earmark, The Federal Reserve Bank's answer to the first
question was in the affirmative, To the second question it replied, with the
approval of the Treasury, that gold could only be purchased upon application
to the Treasury and that the Federal Reserve Bank of New York had reason to
assume that such applications would be promptly and favorably acted upon by
the Treasury, on the presumption that the gold was to be used to strengthen
that Bank's gold reserve. The Bank of Portugal expressed its willingness to
give us gold against our "eventual escudos balances!.
20
Secretary Morgenthau.
CONFIDENTIAL
+
à gold shipment of $70,000 WBS reported from England to the United
Mateo which evidently had the approval of the Control, We were further
scilfied that Japan WBB shipping to this country $4,700,000 gold.
Kr. Pinsent, Financial Counselor of the British Embasey, called on ze
11 3:30 P.K. I introduced him to Mr. Bailie and later took him to see Mr.
geart.
Finsent first spoke of the pay checks for the Britiah Embassy. He said
is hná received no answer to 6. cablegram to his Government, wherein he saked
DAT she Bank of England instruct the Federal Recerve Bank of New York, for
the information of the Riggs and other interested banks, that these checks
ste negotiable at 4,02.
Dr. Pinsent said that Colonel Greenlea (of Babcock and Wilcox) would
arrive In Yes York Thursday, along with four other British purchasers. They
vill 89 on to Canada to join there the other members of the Commission, which
the Colonel vill head. They are not yet raising officially the question as
10 whether the Commission could open an account with the Federal Reserve
of Now York. No commitments have been made, but if an account is not
opened with the Federal, business will probably be done through one or more
not the Rew York banks that have served the British Government in the past.
After looking into the experience of the last war, Pinsent thinks his people
vill decide against incorporating their purchasing Commission. They will
1901 certain exemptions or immunities for it or its members through the
Department of State,
Pineent has only one copy of British exchange and trading regulations,
and this set may not be complete.
Er. Livesey of the State Department telephoned me at 6 P.M. that the
Persian Winister had called at the Department to inform them that he had
Just been instructed by his Government to obtain immediately B. loan of
215,000,000. The Department's understanding is that at least part of this
is desired for construction purposes. Measrs. Murray and Alling of the
Year Eastern Division of the State Department thought the Minister should
be referred to the Secretary of the Treasury. Is this desirable, or
should he be referred to the Export-Import Bank?
Mr. Livesey also mentioned to me that he had seen a memorandum wherein
the Secretary of State reported & conversation which he had recently had with
the Minister of Finland, who 1s seeking a $30,000,000 loan. Mr. Hull advised
him to see the Secretary of the Treasury and Mr. Jesse Jones. À cablegram dated
September 24 has now been received from Winister Schoenfeld at Helainki in
regard tc the purposes of this loan.
131
MP
03V13038 GRAY
Paris
0333 as 072
Dated September 25, 1939
1HA930
MT
Rec'd 3 P.M.
c
Secretary of State,
Washington
RUSH
2162, September 25, 7 P. M.
FOR THE TREASURY
The securities market was practically unchanged
today. The undertone, particularly of French indust-
rials, was firm. Rentes were well supported and most
insues improved their previous quotations fractionally.
There were no important changes in foreign Exchange
rates and no developments of importence in this field
today. Financial circles are generally well satisfied
at the improvement in the "unofficial" sterling and
franc quotations in NEW York.
The Journal Official of this morning carries the
statement of the holdings of the French stabilization
fund at the End of May. It shows that the fund had
gold valued at 15,773,000, dod francs as against 14,838,000,
000
at the End of April (please SEE my telegram 1595,
August 25, 8 P. M.). The fund likewise had two billion
francs of gold on deposit with the rentes fund.
KLP
BULLITT
132
September 25, 1939.
The following is the explanation which Steve Early
said he was giving the newspaper men on the short-term credit
regulations Friday:
The President did not have time to act on the regu-
lations before going to Hyde Park for the weekend and
asked Secretary Morgenthau to take them back.
To this I have added the following when I talked to
newspapermen today:
Since the Treasury now has the regulations back they
have been returned to the General Counsel's office for
"another look". Their issuance, therefore, is indefinite-
ly postponed and may be affected by the Neutrality legis-
lation now pending.
133
-
9-25-39
FROM: MR. GASTON'S OFFICE
ATO: The Secretary
Mr. Gaston -
Lt. Pollio's office just phoned that the
Coast Guard ship MENDOTA reported at 12:30 p.m.
today that she had received word from the
Norwegian AUGUST that the latter had sighted
a submarine flying no flag four miles east of
Chesapeak®light ship.
mel -R
you man to interested
naval intelligence
has been notified
12
1
134
September 25, 1939
FOR THE SECRETARY:
I learned that Ed Foley 1s disturbed by the
phrase and "Under Secretary Hanes who will supervise the
legal administrative work" which appeared in the pro-
posed press release on short-term credits. For the
sake of the record and to prevent any jealousy between
the two offices, I must confess to the authorship of
that phrase. It unfortunately remained in the draft
last Saturday, although I was perfectly aware that the
Legal Division might consider the language offensive,
and I had intended to out out the whole clause begin-
ning with the word "who" before any press release was
actually issued. The entire sentence was inserted
because Mr. Hanes said that he wanted to make clear
to whom inquiries should be addressed.
I told Ed about this.
ESD
135
September 25, 1939
Memorandum for Secretary Morgenthau
From Earle Bailie
When I was in George Harrison's office
at the Federal Reserve Bank in New York last Friday
afternoon, September 22nd, he was called up from
the Federal Reserve Board in Washington and told
by the Secretary of the Open Market Committee that
the Committee had placed orders in the market 2/32nds
to 4/32nds above the last sales. (This conversation
George Harrison repeated to me as soon as he put
down his telephone). Mr. Harrison said, "Well,
report me as voting in the negative, and have placed
on the record the fact that I was not consulted in
advance and that I was not given any opportunity to
express my opinion before the Committee acted.
Earl Bailne
TREASURY department
136
WASHINGTON
CONFERENCE WITH THE FEDERAL RESERVE
BOARD AND THE EXECUTIVE COMMITTEE OF THE
OPEN MARKET COMMITTEE IN THE BOARD ROOM,
3:30 D.M. MONDAY, SEPTEMBER 25, 1939
Governor Eccles telephoned no today that in view of the
fact that Dr. Burgess was absent from the city he would like to
have me come in his place over to the Board after the market closes
to discuss the policy the Committee should follow tomorrow in the
Government security market. In response to this request I attended
the meeting.
Governor Eccles started the meeting by asking Mr. Piser
to review the day's operations. Mr. Plaer said that the market vas
down about 4/32nds on the bonds from Saturday's close, holding at
prices fixed by the Federal Reserve Board. He said the System had
purchased $6,800,000 up to 3 o'cleck, that the volume was light, and
that there was some indication of selling orders drying up.
Governor Booles said that he thought the market had given a
good account of itself during the day's operations and he would like
to see it operate about the same way tomorrow. He asked no if I had
any suggestions or comments to mks.
I said that I had no objections to offer to the way the market
had been handled during the past two days, but I would like to raise
two questions. The first one was why the Federal Reserve has a
different price on the stock exchange from the price it sets for
- 2 -
137
over-the-counter transactions. I said that I did not vast to suggest
that this be changed, but the question had been raised in our conferences
at the Treasury and I was asking for information. I said that we knew
it was originally established to throw the larger part of the business
from the board to over-the-counter transactions, but now that that had
been accomplished we wondered why the continuation of the differential.
Governor Eccles and Mr. McKee both said that was a good point
and they would both like to know why the differential, and they wondered,
too, if the time had not arrived when vo might go back to more normal
trading operations.
Governor Harrison undertook to explain why it was necessary
to have the differential. He said it vas true that it had been estab-
lished largely to divert the business from the exchange to over the
counter in order that they could control operations better. Be said it
was still necessary to control these operations because there is as ad-
vantage to stock exchange brokers in dealing on the exchange as there
are no commissions over the counter. In bidding 2/32nds less on the
exchange than over the counter they are, in effect, paying commissions to
the dealers, which is about the differential in normal trading operations.
He thought that if the bids on both places were put at the same level the
brokers would have 2/32nds advantage and they might undertake to drus up
business, whereas the dealers are operating OR our side, by trying to
discourage selling.
I told them that it might be absolutely necessary to have
this differential and that I only wanted to raise the question for dis-
- 3 -
138
cussion and get some information on it. I said the other question I
vished to raise is whether or not the Committee had considered the
matter of not putting bids in the market for the whole list of short
to long bonds, as had been the practice for the past three weeks, but
of giving to the Federal Reserve Bank of New York flexible authority
to purchase blocks of any securities where weakness develops, and if
the whole list develops weakness, buy blocks of certain issues and not
the whole list. In other words, would it not have & good effect if
the Federal Reserve Bank of New York directs the dealers through whom
it operates to buy one or two million dollars of the 2-7/8% Treasury
bonds of 1955-60 and let those dealers shop around for these particular
securities. It might have orders in to buy more than one issue.
Governor Recles thought this a good suggestion and that it
might help to case the Federal Reserve System out of the market.
Mr. McXee thought it was all right too, but vas afraid weakness might
develop throughout the entire list. This could be controlled by buying
more than one issue. After all, this could only be an experiment, I
explained, and they might have to change their tactics if there was
an avalanche of selling orders.
Governor Eccles then made this suggestion: That in view of the
strength in the note market, why not sell some of the notes and buy
some of the longer bonds. In other words, revert to the switching
operations that the Federal Reserve carried through a year or so ago.
139
- 4 -
Regraded Unclas
I said I did not know that this could be done at this time
very effectively, but I thought it might be another vay of easing
out of the market although care should be exercised in the timing
of this operation.
Governor Harrison said that he liked the suggestion that they
be permitted to buy blocks of certain issues and not be compelled
to hold the list st a certain predetermined price. Be thought that
operations of that kind were such more effective and the System could
slip out of the market unnoticed, whereas, as long as it has bide
in for most of the list it is noticed the minute those bids are changed
in any vay.
Mr. McKee said that there had been some discussion during the
past two years of allowing the portfolio of the Federal Reserve Bank
to fluctuate. He wondered if I had any views en that matter.
I told his that I had always felt that the Federal Reserve
portfolio should fluctuate, probably as such as a quarter of a billion
dollars one vay or the other, 00 as to get the banks and dealers out
of the habit of watching that fixed amount.
Be said he vas inclined to agree with that, and that be had
come to the feeling that probably the Federal Reserve System should
be more or loss constantly in the market, buying and selling securities
or allowing them to run off so that the portfolio would not show the
same amount each week. In this connection I was advised that the System
expects to permit $30,000,000 in Treasury bills to nature this week
140
- 5 -
without replacement. Up to date they have bought less than $15,000,000
in securities and if they do not acquire any additional securities
tomorrow the portfolio will show a $15,000,000 reduction over last week.
I then left the meeting, before any definite policy was decided
as to just what the System would do in the market tomorrow.
surf
41
SEP 1970
My dear Mr. Messeremiths
Reference is made to your letter written on August 26th
to Mr. Hanes in which you kindly solicited our opinion as to
whether the American Consul General at Basel should in the
future refrain from having contact with the Bank for Intor-
national Settlements. This question arises since Mr. Cochran,
who went to Basel as Consul in 1930 to cover the B. I. S.,
and continued to perform this function while First Secretary
of the Labassy in Paris, has now arrived in Washington and
assumed his new duties in the Treasury Department.
In actual circumstances I should prefer that no one
of the Foreign Service Officers in London, Berlin, or Paris
who are making special reports to the Department of the
Treasury be assigned the task of traveling to Switzerland
for the purpose of reporting upon the B. I. S. mestings, if
these may contimue to be held. It would appear adequate, as
well as wise, that for the present the consular officer in
whose district the B. I. 3. 1a situated should have freedom
of contact with that institution. Such factual reports as
he may be able to make upon the status and operations of
By hand
Regraded Unclassified
142
- 2 -
the B. Is S. should meet the requirements of this Department.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
The Honorable
George 8. Messersmith,
Assistant Secretary of State,
Washington, D. c.
HMCsents
9.25.39
puz
- THE RECRETARY OF STATE
10 COMMUNICATIONS -
- = c.
me
DEPARTMENT OF STATE
143
WASHINGTON
In reply refer to
August 26, 1939
KA 125.1756/41
My dear Mr. Hanes:
In 1932 when it was arranged that Mr. H. Merle
Cochran, as Secretary of the Embassy in Paris, should
continue the reporting on the Bank for International
Settlements, which he had conducted as Consul at Basel,
the Consulate at Basel was instructed not to undertake
thereafter to maintain contacts with the bank or to
report on it.
The Consul General at Basel has now inquired whether
it 1s the intention to continue this policy, that 1s,
that the Consulate should continue to refrain from mak-
ing contacts with the bank and should make no reports
concerning the bank or other financial developments in
the consular district.
I should be glad to receive a suggestion as to the
reply which should be made to the Consul General's inquiry.
Sincerely yours,
The Honorable
John W. Hanes,
For the / Secretary of State:
Acting Secretary
of the Treasury.
George 8. Messeremith
Assistant Secretary
144
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
OA
DATE: September 25, 1939, 10 a.m.
NO.: 1415
FOR TREASURY FROM HEATH.
Reference 1s made to my telegram of September 9,
No. 1156.
It 18 reliably reported that the Swiss have concluded
a standstill agreement with Germany which 18 practically iden-
tical in terms with the 1939 agreement, although no text
is as yet available. It is understood that the main change
1s a slight adjustment of interest rates, lowering them.
Swiss sources say that under present conditions advantage
will be taken of only about half of the open lines of credit.
Agreement was made by the Swiss to adhere to an eventual
global neutral standstill agreement. On September 25,
Abs of the Deutsche Bank will proceed to Brussels and thence
to Amsterdam, on invitation from the standstill committees
in Belgium and the Netherlands, to try to get these
countries to participate in a global arrangement on standstill
credits.
KIRK.
RECEIVED
eeer as 072
VRUZA
EA:LWW
- -
revel off # tow not
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE September 25, 1939
TO
Secretary Morgenthan
FROM
Mr. Haas FOA
Subject: The Business Situation,
Week ending September 23, 1939.
Conclusions
(1) Orders now in the hands of manufacturers, or in
definite prospect, as & result of three weeks of intensive
buying, appear sufficient to carry industrial production
substantially higher and to maintain production at & high
level throughout the remainder of the year.
(2) The widespread anticipation of future requirements,
however, raises the possibility that an inventory congestion
may later affect business adversely. A potential vacuus 1e
being created, which must be filled by new orders arising
from increased consumption or capital goods expansion, or
increased exports, if a business setback in 1940 is to be
avoided.
(3) Fortunately, & substantial increase in consumption
of both consumers' goods and capital goods seems in prospect.
Consumer purchasing power is being expanded by increased
factory payrolls and increased farm incomes, while larger
capital expenditures are being scheduled by various industries,
particularly by the railroads. Whether this will result in an
increase in now orders sufficient to insure against a business
setback is open to question. Our indices of basic demand,
merchandise sales, new orders, and inventories should provide
A basie for appraising developments as they occur.
(4) A marked change has occurred in the outlook for
employment. Considerable increases in factory and railroad
employment have been made, and labor shortages seem not far
dietant in some skilled lines.
Secretary Morgenthau - 2
146
The general situation
Further evidence of the improving business trend appears
in statistical data which became available last week. The New
York Times index for the week ended September 16 was carried
2.6 pointe higher to 99.8, the highest level since October 1937,
with all componente sharing in the rise. Preliminary data for
the following week show even greater increases in the adjusted
indices of steel production and automobile production.
Our index of new orders (See Chart 1) rose very sharply,
with steel ordere showing & precipitous rise and textile
orders not much below the high figure of the previous week.
All reports indicate, however, that & large part of the
buying has been purely speculative, similar to that during
the 1936-37 boom. The same influences -- fear of price
increases and fear of inability to get delivery of goods --
have been at work. The movement has apparently extended to
the general public in an even greater degree than in 1936-37.
A confidential report of & survey by the 12 Federal Reserve
banks to determine the effects of the war on individual indus-
tries mentions that orders recently placed "reflect not only
efforts to bring inventories up to current needs and provide
for an immediate larger volume of business, but also to expand
inventories beyond ourrent needs in anticipation of price
advances and delays in deliveries later on."
Certain effects of this movement seem inevitable:
(1) Industrial production will be maintained at a high
level through the remainder of 1939, due to the
backleg of unfilled orders on manufacturers' books.
(2) Inventories of manufactured goods will accumulate,
while new orders may fall off sharply after the our-
rent ruch 18 ended.
(3) The business structure in early 1940 will become
vulnerable to any unfavorable developments.
Among possible unfavorable developments which might cause
a business setback in 1940 say be listed: (1) Failure of
domestic demand to improve enough to offset the prospective
decline in orders after inventory accumulation has been
Secretary Morgenthau - 3
47
completed; (2) failure of war orders and orders from neutral
countries to increase as rapidly as now anticipated; (3) &
downturn in prices, which might cause inventories to be
liquidated; (4) & turn in war developments toward the possi-
bility that this country might become actively involved.
Consumption outlook improves
Fortunately, there has been a definite improvement in
the outlook for consumption of manufactured goods in this
country. The purchasing power of consumers has been increased
through recent payroll increases and through higher farm
incomes, while larger expenditures for capital goods are
under way in various industries.
The increase in factory employment and payrolls in the
past two months has been marked. The BLS adjusted index of
factory payrolls increased in August to 89.3 from 83.9 the
previous month. Factory employment as of mid-August rose to
the highest level since December 1937, approximately 250,000
people having been added to the rolls since the middle of
July. The Secretary of Labor estimates that an additional
300,000 had been added by the middle of September.
In Chart 2 we compare the BLS index of employment with
the unadjusted FRB index of industrial production for the
previous month, with which in the past it has been closely
related. It is significant that while the industrial pro-
duction index in August (unadjusted) was substantially below
its December peak, factory employment rose sharply above its
December level. Employment in the textile industry (lower
section of chart) has increased more promptly than usual in
response to increased production. In the steel industry,
however, employment continues relatively low, due in part to
the installation of labor-saving squipment.
Farm incomes increased substantially during August, before
the beginning of the sharp upturn in agricultural prices.
Cash farm income (including Government payments) rose $73 mil-
lions in August to a total of #643 millions, which contrasts
with a deoline of $15 millions in that month last year to a
total of $629 millions.
The outlook for increased consumption of manufactured
products 18 brightened by a movement in various industries
toward greater expenditures for capital goods. Outstanding
Secretary Morgenthau - 4
148
among these has been a strong unseasonal expansion in rail-
road equipment orders, in anticipation of heavy demands for
freight cars in the near future. In addition, old equipment
is being repaired and heavy orders are being placed for steel
rails. Purchases of rails during the week ended September 16
were the largest of any single week in recent years.
A factor in the sudden movement to increase railroad
equipment has been an unusual rise in carleadings in the past
few weeks, reflecting heavy shipments due to the widespread
buying movement. (See Chart 3.) When figures for last week's
carloadinge are released, it is expected that they will equal
or sxceed the 1937 peak.
The steel situation
The demand for steel during the past week has continued
heavy, according to trade reports, though below the high
volume reached earlier in the month. A feature of the week
has been 6. series of increases in steel scrap prices, which
wakes the week's upturn one of the sharpest on record, and
brings prices at Pittsburgh to the peak level reached in
early 1937. The scarcity of steel scrap has brought a heavy
demand for pig iron, used interchangeably in steel making.
Some observers now believe that the relatively small pig iron
capacity, which has not kept pace with the expansion of steel
capacity, may provide a bottle-neak in the current rise in
steel production.
Export inquiries for steel are increasing, but the trade
expects no large orders for several months, except perhaps
for pig iron and semi-finished steel. Outstanding in the
latter is an inquiry from the British Government for 200,000
tone, principally semi-finished.
A further increase in automobile output to 53,950 units,
versus 41,245 the previous week, has been accompanied by &
heavy demand for steel from this industry. Steel activity in
the Detroit district is running at 96 per cent of capacity,
and factory employment in that district on September 15
reached the highest level for that month since 1929.
While the domestic demand for new cars 10 reported to be
almost unpresedented for this time of year, some uncertainty
existe over the trend of automobile production during the
coming winter, owing to the effect of the war on the export
demand for passenger care. Manufacturers believe, however,
that the loss of markets in Europe will be compensated to 9058
extent by increased demand from other countries.
Secretary Morgenthau - 5
149
Basie indices improve
Our basie business indices show an improving tendency in
August, with production about in balance with demand. (See
Chart 4.) The prospect of increased consumption arising from
expanding automobile output during the fall and from some
degree of inventory replenishment were bullish factors at that
time, to which has been added the recent stimulus arising from
the war outbreak.
Basic demand in August showed & rising tendenoy. The
index of sales, which tends to lag behind business movements,
continued approximately unchanged. New orders in August 1m-
proved from the July level. These indices in succeeding months
should provide valuable indications of any malad) ustments that
may result from the recent speculative buying.
FHA mortgages decline
The volume of FHA mortgages selected for appraisal has
gradually declined since the peak reached last March, despite
& further reduction in interest rates that went into effect
on August 1. (Bee Chart 5.) While residential contrast
awards (shown on the chart) have held generally steady over
the past several months, the decline in the FHA figures appears
to foreshadow a downturn in residential awards during
September and October.
Weekly FHA data on mortgages selected for appraisal are
shown in the lower section of the chart. Currently they are
running at a slightly lower level than last year.
Prices last week alightly higher
Commodity prices in the futures markets, as represented
by the Dow-Jones futures index, held steady last week at the
approximate level of the previous week, while the volume of
speculative activity decreased. Further upward adjustments
in spot prices continued, however, reising Moody's spot index
somewhat above the previous week's level. The rise in raw
materials prices has further affected prices of semi-finished
and finished goods, raising the BLS all-commodities index to
79.3 from 78.4 the previous week.
Stock prices have continued to mark time around their
recent high levels. In the meantime, gradual liquidation of
American securities by British holders has resulted in a
consistent net sales balance in security transactions from
Great Britain over the past week or more. (See Chart 6.)
ORDERS
Combined Indes of New Orders and Selected Components
1919
1940
a
PERCENTAGE
FOINTS
140
140
130
130
120
120
TOTAL (COMBINED INDEX)
1936 . 100
110
110
100
100
90
90
BO
60
70
70
60
60
TOTAL EXCLUDING STEEL AND TEXTILES
50
50
40
40
STEEL ORDERS
30
30
20
20
10
10
TEXTILE ORDERS
0
o
A
M
,
J
A
$
o
.
D
J
F
M
A
M
J
J
A
$
o
#
a
J
F
M
1938
150:
CONFIDENTIAL CONFI DENTIAL
Chart 1
1939
1940
the el the Secretary of the Transury
85
I 1 1 . 1
Regraded Uncl
COMPARISON OF EMPLOYMENT AND PRODUCTION
Employment Current Month, Production Previous Month
1923 - *25 . 100, UNADJUSTED
1935
1936
1937
PERCENT
1938
1939
PERCENT
(CMPLOYMENT)
PRODUCTION)
110
Employment
120
and Production
105
FACTORY EMPLOYMENT, B.L.S.
112
100
104
95
96
90
88
85
INDUSTRIAL PRODUCTION, F.R.B.
80
80
72
1935
1936
1937
1938
1939
PERSONS
PERCENT
THOUSANDS
(PRODUCTION)
(EMPLOYMENT)
Iron and Steel
140
Industry
1000
130
975
950
120
925
EMPLOYMENT, B.L.S.
110
900
100
875
850
so
825
BO
800
PRODUCTION, F.R.B.
70
775
750
60
725
50
700
675
40
1935
1936
1937
1938
1939
PERSONS
PERCENT
THOUSANDS
(PRODUCTION)
(EMPLOYMENT)
Textile Industry
130
1850
1800
120
EMPLOYMENT, B.L.S.
1750
110
1700
1650
PRODUCTION, F.R.B.
100
1600
90
1550
ao
1500
1450
70
1400
8
1350
1935
1936
1937
1938
1939
*1RON AND STEEL, AND TOTILES, ACTUAL NUMBER EMPLOYED
(No of the Secretary all the Insury
C 256
Chart 2
- of - - -
Regraded Unclas
FREIGHT CAR LOADINGS
CARS
THOUSANDS
Total
900
'37
800
700
'39
600
500
38
Am. Ry. Assn.
400
JAN. MAR. MAY JULY SEPT. NOV.
Office of the Secretary of the Treasury
152
Chart
Division of Research and Statistics
C-2Regraded Uncl
INDICES OF BASIC BUSINESS TRENDS COMPARED
WITH INDUSTRIAL PRODUCTION
1923 125 - 100. SEASONALLY ADJUSTED*
PER
-LE
CENT
CENT
120
120
INDUSTRIAL PRODUCTION, F.K.B.
110
110
100
ESTIMATED BASIC DEMAND)
100
90
90
BO
80
70
70
1935
1936
1937
1938
1939
PER
PER
CENT
CENT
120
120
INDUSTRIAL PRODUCTION,
F.R.B.
110
110
100
INDEX or SALES
100
90
90
80
80
70
70
1935
1936
1937
1938
1939
PER CENT
PER CENT
(NEW ORDERS)
IND. PROD.)
160
135
NEW ORDERS
1936 = 100, UNADJUSTED
140
125
/ 120
115
100
105
BO
95
INDUSTRIAL PRODUCTION, F.R.B.
60
85
40
75
1935
1936
1937
1938
1939
*EXCEPT NDI ORDERS
REPRESENTS "OFFTAGE" or MAINFACTURED 60053, IN PHYSICAL VOLUME
Office of the Secretary of the Trussury
District of - - -
Chart 245 4
Regraded Uncla
IAL
RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES
1937
1938
1939
JFMAMJJ
A
5
o
M
D
J
F
M
A
M
JJA
5.
o
-
D
J
F
A
M
A
$
o
#
D
DOLLARS
DOLLARS
WILLIONS
MILLIONS
(AWARDS)
(MORTGARES)
Mortgages Selected for Appraisal
120
126
and F.W. Dodge'Awards
Monthly
110
114
100
102
90
90
80
78
F. W. DODGE AMARDS
70
66
60
54
50
42
40
30
MORTGAGES SELECTED FOR
APPRAISAL,F. H. A.
30
18
20
6
M
F
M
A
M
J
A
5
o
N
D
J
F
M
A
M
J
J
A
$
D
N
D
J
F
M
A
=
J
J
A
$
o
D
J
1937
1938
1939
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
DOLLARS
DOLLARS
MILLIONS
MILLIONS
Mortgages Selected
40
40
for Appraisal, F.H.A.
Weekly
35
35
30
30
1939
25
25
20
20
15
15
1938
10
10
5
5
o
o
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
154
Office of the Secretary of the Treasury
c - 260 - 2
- of Research and Statistics
Chart 5
Regraded Unclass
NET FOREIGN PURCHASSS OR SALES OF U.S. STOCKS
Not Purchases 1014 Net Bales 1-3
Daily Average by Weeks
Daily
1939
1030
....
PAC =
wwit
SEPTEMBER
-
JAM,
MAR.
MAY
JULY
SCRT.
---
JAM.
Dr A . 5 the as 20
bill (2)
Total
5.
6
4
4
2
2
0
o
-2
-2
1
T
-6
-6
19 26 2 5 16 23 30
sept. NOV. JMI. MAR. MAY JULY SEPT. JM.
e
6
United Kingdom
4
4.
2
2
o
o
-2
-2
France
0
0
7
7
Metherlands
a
o
7
4
Switserland
o
o
&
-2
Canada
0
9
2
-
JAR.
19 26 2 9 15 23 50
SEPT. NOV. JAM. MAR. MAY JULY SEPT. NOV.
AUGUST
SEPTEMBER
1938
1939
1940
1939
Regraded Unclassifie
CONFIDENTIAL
9
156
GROUP MEETING
September 25, 1939,
9:30 a.m.
Present:
Mr. Graves
Mr. Viner
Mr. Gaston
Mr. Riefler
Mr. Thompson
Mr. Duffield
Mr. Haas
Mr. Bailie
Mr. Foley
Mr. White
Mr. Bell
Mr. Cochran
Mrs Klotz
H.M.Jr:
Ed, where did Bernstein get the 1dea of the
President signing those papers?
Foley:
I don't know, Mr. Secretary. When I came back
from lunch he told me that the regulations had
been approved and he got the idea, I think, be-
cause Mr. Thompson asked our office to have a
duplicate set run off so they could be sent over
there, and I corrected that impression as soon
as I got back and found out what had happened.
H.M.Jr:
Tell Bernie not to jump to conclusions like that.
It was a perfectly silly performance on his part.
Foley:
What did Bernie do, Mr. Secretary?
H.M.Jr:
Bernie reported it had been signed. How did he
know it had been signed? Why should he jump to
any conclusion?
Klotz:
Tell Mr. Hanes about it.
H.M.Jr:
What happened about the White House was that
Thompson wanted an extra copy and Bernstein runs
around telling everybody that it was signed.
Duffield:
He didn't tell me that they had been signed. He
told me that we had been asked to send over and
pick up an envelope and he thought that meant
they had been signed.
H.M.Jr:
Why should he think it? Why let his imagination
run away? He got everybody around here excited.
157
- 2 -
I don't understand it. As a matter of fact, I
don't understand the whole business anyway, why
there has been such a tremendous build-up on
this whole thing. You would think it was the
most important thing the Treasury had to do.
Where 1s the release on 1t?
Diffield: Mr. Hanes' memo was released (handing paper to
Secretary).
My suggestion is, I told Mr. Hanes on Saturday
that we should not put out any press release, but
if you want to use that
In the first place, if you don't want me to call
down the press between now and 4:00 o'clock, you
had better tell them that they let you down and
let no down. I told them in strict confidence
that this thing was over at the White House. They
let you down and they let me down. I don't know
all the ins and outs, but they absolutely broke
faith with ne when they called up the White House
and asked where the thing was. As EL result of 1t,
I am never going to tell them again, never.
Inffield:
I think that 1s right.
6.4.Jr:
But they certainly broke faith with you and with
me. Now, without asking anybody's advice, you can
tell them that there is a statement. I asked some-
body this morning and he said so far there hasn't
been any release. They will just have to handle
it and when Mr. Leroy-Beaulieu or somebody wants
something, we can do it by word of mouth, but I
want this thing killed once and for all. It is
absolutely unnecessary and unimportant. Why make
this thing - my God, we have got things around
here one hundred times as important as this and I
want them killed. If you can't do it between now
and 4:00 o'clock, I'll have to do it.
Diffield:
I will try.
H.M.Jr:
I don't want to hear anything more about it. When
this stuff comes and we get inquiries from the
Bank and they come up to Merle Cochran - we said
we had EL Committee, didn't we, Bernstein and Bailie
and - who else was on it?
158
- 3 -
Duffield:
White.
H.M.Jr:
White. And they can refer it right up to Mr. Hanes
and Mr. Bailie, and then if they can't answer it,
they can refer it to me. This constant build-up
is one thing - I would like to know for what. If
I get in wrong with the White House, I want to get
in wrong on something that is worth while, and this
certainly isn't. Whoever started this thing had a
crust.
Gaston:
It was Bailie that originally worked on it, wasn't
it - I mean putting it out.
Foley:
The regulations?
Gaston:
Yes, the order.
Foley:
The order was, as I remember it, first prepared
over in the State Department and it wasn't submitted
along with the Neutrality Proclamation because
they thought we were going to do it and we thought
they were going to do it.
Gaston:
I remember now.
Foley:
And then we made a revision and we presented the
order.
Caston:
The order was signed.
Foley:
And the order was signed, and then we had a large
meeting in the Secretary's office and the question
of how the Federal Reserve Banks were to be noti-
fied and what sort of regulations and restrictions
we were to have, and then we drafted that regu-
lation that was never signed.
Gaston:
But it was the State Department that originally
initiated it.
Foley:
That is right.
H.M.Jr:
It is buried now.
Anything, Herbert?
159
- 4 -
Gaston:
That ship that you were interested in on Friday,
the Navy identified it as a British tanker bound
in conjunction with their Caribbean fleet.
H.M.Jr:
O. K.
Gaston:
Admiral Waesche is back in the office today. He
goes to the hospital again this afternoon and
will be back Wednesday or Thursday.
H.M.Jr:
Anything else?
Caston:
I don't know of anything else except that I went
over Saturday with Hall and Wilson to look over
the Bureau in connection with their request for
additional protection. In view of this situation,
they think that they ought to have quite con-
siderably increased guard protection at the Bureau
of Engraving.
H.M.Jr:
Take it up with Thompson.
Gaston:
I mean to take it up with the Budget people.
R.M.Jr:
I don't want to be bothered with it. Take it up
with Thompson and Harold Graves.
Gaston:
Well, I think if you don't mind, we can take it
right straight up - all right, I will take it up
through Mr. Thompson.
U.M.Jr:
Bureau of Engraving, you said?
Gaston:
Yes.
H.M.Jr:
Well, it is Secret Service and Bureau of Engraving.
Gaston:
Right, I will talk with Harold about that.
H.M.Jr:
There are enough people around here.
Gaston:
I haven't anything else.
Foley:
Here is a letter to the Attorney General in reply
to his letter (handing letter to Secretary).
H.M.Jr:
Yes, I have got it. The first time I get time I
want to see Foley. I don't know when it will be.
100
- 5 -
Your memorandum on FDIC and that other thing -
here it 1s.
Cochran:
Sterling opened at Amsterdam this morning at
3.99 That is where it closed Saturday.
H.M.Jr:
While I am at your corner, Harry, this is statis-
tics, see? Would you mind looking over my shoulder
8. minute? I asked Cochran to give me the balances
here for the principal countries. Do you also have
it, the balances of these countries in other banks?
White:
In other countries? No, they only keep....
H.M.Jr:
No, balances.
White:
Privates have it in other banks.
H.M.Jr:
Can I have a statement like this showing how much
the Bank of England has on deposit in dollars in
the United States?
White:
You also want other banks in England in the United
States, private banks?
H.M.Jr:
This 1s what I want.
White:
Yes, but private banks, persons in private banks
in the United States. Not the Bank of England,
but private banks having balances in the United
States.
H.M.Jr:
What I want to know is, how much money has the Bank
of England or its divisions got on deposit for
England?
White:
That is right. There are private banks and indi-
viduals that have balances in this country.
H.M.Jr:
And then give it to the people who are interested.
Take this sheet here. Japan - Earle, I want you
to get this....
Bailie:
I can't hear you, Mr. Secretary.
H.M.Jr:
Come up here; I can't talk any louder.
161
- 6 -
The Bank of Japan has no deposits and no earmarked
gold. That may be very misleading, because they
may have B. lot of money with the Chase or National
City, and I want to know.
White:
We have them every week but they are not on that.
They appear in the weekly report.
Bailie:
We can combine the reports.
H.M.Jr:
No you see what I mean?
Bailie:
Yes, we will get one for you.
H.M.Jr:
Maybe the Bank of Japan drew its money out of the
Fed and deposited it with the Chase. This thing
that I have got is of no use.
Bailie:
We will get that for you.
H.M.Jr:
We ought to know. We are doing it weekly now. I
think we ought to get it down to possibly daily.
Let's first get it weekly.
Bailie:
Let's get the form first.
H.M.Jr:
How much gold security has each nation got with us?
In other words, if there is B. sudden change, we
ought to know.
White:
We don't have each nation now. We haven't been
collecting it that way, but we will consider
H.M.Jr:
Take Japan and Russia or Turkey, for instance.
White:
They have been lumping with the nearest powers.
H.M.Jr:
That doesn't help us a bit. We should watch
Turkey. Turkey may....
Getting a ten-day loan
wouldn't be any good. Do you agree?
Bailie:
Yes.
Cochran:
Do we have the figures now showing the Bank of
England deposits?
H.M.Jr:
Do you fellows know what I want?
162
- 7 -
Bailie:
Yes.
H.M.Jr:
Would you like to have it?
Bailie:
I would love to have it.
H.M.Jr:
Right.
Jake, could you help on that, because you set up
this thing first. You know what I am talking
about?
Viner:
Yes.
H.M.Jr:
Don't you think I ought to have it?
Viner:
Certainly. I don't think you ought to set it up
on the daily basis, but you ought to ask them to
send a daily report when they think anything
striking occurs.
H.M.Jr:
Let's first get it weekly. There was something
supposedly striking happened and then we ran it
down and it wasn't. But let's start weekly.
Viner:
Yes.
H.M.Jr:
I am on the war path today.
Jake?
Viner:
Nothing.
H.M.Jr:
How did my son look?
Viner:
He looked fine. I think he is pretty happy.
H.M.Jr:
Did your boy go back?
Viner:
Yes,
H.M.Jr:
Got your teeth fixed?
Viner:
I thought so, but I am not 80 sure today.
H.M.Jr:
Which means you want another week off.
163
- 8 -
Viner:
Or a good dentist here in town.
H.M.Jr:
Those are available.
Haas?
(Haas hands paper to Secretary).
Anything else, George?
Haas:
That is all.
White:
We are making two studies, one to find out how
much the British and the French Empire will need
in foreign exchange resources during the first
two years of a war, the first year and the first
two years. We have gone far enough along in it
to be able to say that they have far in excess
of anything they may need. We also have a report
on what their resources are, 50 that there is no
justification at all for talking about the exten-
sion of credits to belligerents in order to aid
them. They don't need any and won't need any
in the forseeable future, but that will be ready
in B. couple of days. Much of this talk about
the abrogation of the Johnson Act, and so on, is
not needed for them.
There are EL few of the more interesting reports
that you might want to read on China (handing
documents to Secretary).
Bailie:
Without arguing out that point, it might be ex-
tremely advisable from our point of view that
sales of foreign securities in this market should
not be hastened at periods of weakness in this
market.
White:
That is B. very accepted credit.
Bailie:
I don't think it is quite as simple as Harry puts
it.
White:
It is just as simple as I put it. You must have
misunderstood me.
164
- 9 -
Bailie:
Let's go into a huddle outside.
H.M.Jr:
We have a huddlers' room down the hall.
White:
I will send him a memorandum.
H.M.Jr:
Did you arrange for that appointment with Jay Crain
today?
Cochran:
Yes, at 1:00 o'clock. I also asked him about
this friend over in London. He has not been
called in service yet. Jay was very nice, very
cordial.
H.M.Jr:
Anything else, Harry?
White:
No.
H.M.Jr:
Harold? Harold, when I asked you about coal for
the various Federal departments and they said,
"Everything is lovely," does that mean that coal
is in the bins?
Graves:
That is right. Collins is going to get more details
on that and give me a memorandum for you in the
next day or two.
H.M.Jr:
How about electric lights?
Graves:
He has already started that survey in a number of
cities.
H.M.Jr:
Anything else?
Graves:
Nothing except that I have an engagement at 10:30
to see Mr. Stone of the Bureau of the Budget.
H.M.Jr:
Good.
Dan?
Bell:
I have nothing.
H.M.Jr:
In writing up the memorandum for me, Dan, will
you particularly mention the meeting which took
place here when you brought in that letter Friday
165
- 10 -
and decided that you and Burgess should walk it
over.
Bell:
Yes, I have already dictated it.
H.M.Jr:
If anybody is interested in a battle with Federal
Reserve, Mr. Burgess and Mr. Bell can report.
Bailie:
I heard about it this morning.
Gaston:
I am interested.
Bell:
They have called about every hour, or they did on
Saturday.
H.M.Jr:
As a result of these two ambassadors going over
instead of our - I think we should stay out.
Tell columnists about it twelve hours in advance
if they are doing it. From now on, Mr. Piser will
keep Mr. Bell informed.
Bell:
Of the operations.
H.M.Jr:
And on policy matters.
Bell:
Governor Eccles will either call the Secretary or
Dr. Burgess.
H.M.Jr:
I think that is proper.
Bailie:
I think 50 too.
H.M.Jr:
We have got a lot of diplomats around here.
Bailie:
There is one part of that story I want to tell
you, because I got an entirely different story
in New York at the Federal Saturday. It is quite
interesting. You ought to know it before the close
of business today. I told it to Dan, so he knows
about it.
H.M.Jr:
Anything else, Dan?
Bell:
No.
H.M.Jr:
Thompson?
Thompson:
I have nothing to report, Mr. Secretary.
186
- 11 -
II.M.Jr:
I hear you have almost got Mr. Cochran housed.
Thompson:
Yes, we have got his room all boarded up. There
is one thing, I would like to get a new carpet
for the big room.
Klotz:
This is a bad day for that.
H.M.Jr:
Get him a piece of linoleum. He needs a non-slip
linoleum. What does he want a big carpet for?
That room should look just as bare as the old cup-
board.
Incidentally, strictly in the room, I gave the
stabilization fund $600,000 worth of long-term
Governments on Saturday, the idea being that I
want to build it up to at least 10 million to get
a little earnings. If anybody doesn't approve and
has any ideas, I would be glad to hear from them,
but we took 600,000 of our very longest - is that
right?
Bell:
Yes, sir.
H.M.Jr:
We have carried as much as 25 or 30 million.
Fell:
30 million was the high.
H.M.Jr:
And we have got five now.
Fell:
Yes.
H.M.Jr:
So if anybody doesn't think it is good, why I
would be glad to hear from them.
Is everything all right, Thompson?
Thompson:
Yes.
167
9-25-39
Louisiana Tax Cases
R.M Bell Ivas Houston
Investigatings. -Zex Fantenot
RENE L. DE ROUEN
of opelousas
MEMBER OF CONGRESS
7TH DISTRICT
LOUISIANA
9-2-39
188
September 25, 1939
11:53 a.m.
HMJr:
Hello.
Operator:
Mr. Crain. Go ahead.
HMJr:
Hello.
Jay
Crain:
Hello, Mr. Secretary.
HMJr:
How are you?
0:
Fine. Nice to hear your voice again.
HMJrt
Good. Jay Crain, I wanted to make sure that you
knew how much importance I had attached to sending
Captain Puleston up to see you.
C:
Yeah, he's Just -- he's Just come in this minute.
HXJr:
Well, I Just want to say that I'm tremendously
interested in this and so 18 the President.
0:
Yeah.
HMr:
And I just wanted to give you first hand - what I
want to know if you people can get it or have got
it or help us get it.
C:
Yeah.
HMJr:
And that 18 this whole question of the amount of
fuel oil and gasoline that the Germans have on
hand and where they're going to get it from and
how long 18 it going to last them.
C:
Yeah.
HMJr:
Now I don't know any organization that most likely
has better information than you have. Hello?
0:
Well I -- I'll be glad to do anything we possibly
can.
HMJr:
And if you -- if there are some pieces missing that
other companies have, tell me about it. See?
169
- 2 -
C:
Yeah, yeah.
HMJr:
But I thought you'd be interested to know that when
I asked the President this morning coming down, did
he know just how much the Germans had, and he said
he didn't have the faintest idea.
C:
Yeah.
HMJr:
And I told him that I'd send Puleston up to see you
and he said, "That's fine."
C:
Yeah.
HMJr:
But this whole question of the Roumanian oil and
everything else.
C:
Yeah, yeah.
HMJr:
And you keep Puleston there long enough until he
has it and if there are certain pieces missing
that you can't get, which I doubt
C:
Yeah.
HMJr:
tell us where we can get it.
C:
I will.
HMJr:
See?
c:
Yeah.
HNJr:
But I have put -- I -- I lay great stress on this.
C:
Yeah.
HMJr:
You -- you most likely have it all, haven't you?
C:
I should think we could -- I should think we could
give a pretty good idea, yes.
HMJr:
And you've got this awful smart fellow in London.
C:
Yeah, that's right.
HMJr:
What's his name?
170
- 3 -
C:
Porters.
HMr:
Yeah.
0:
Yeah.
HMJr:
Yeah.
C:
Well we'll -- we'll do everything we possibly can,
Mr. Secretary. And Captain Puleston 18 out at the
desk now and I'll talk to him and help you in any
way we can.
HMJr:
Well you -- you get what I want?
C:
Absolutely.
HMJr:
And I -- I -- as I say, I lay great importance on
it.
0:
Yeah.
HMJr:
Now let me ask you this, you're not furnishing this
to anybody else, are you - anybody else ask you for
it?
C:
No, not BO far as I know.
HMJr:
I mean, I'm not doubling on somebody else's tracks.
C:
I haven't heard of it from any -- anywhere else.
HMJr:
Well, I mean -- I didn't -- I didn't want to cover
the same ground that
C:
No.
HMJr:
......
the Army or Navy had done.
0:
Well it's -- it's -- I'll keep that in mind, but 80
far as I know they haven't asked us.
HMJr:
And I also -- well I know the President doesn't
know because I wanted to make sure that -- whether
he knew.
C:
Sure. I see.
- 4 -
171
HMJr:
And -- in other words, you -- you get the picture.
C:
Yeah.
HMJr:
This -- this one -- this war 1s going to be won
or lost on -- on
C:
That's right.
HMJr:
-- on oil and it's by
C:
Yes.
HMJr:
-- oil and it's by-products.
C:
That's right.
HMJr:
And if you -- for instance, after you get into this
thing and want to bring somebody down and explain
it to me in person
C:
Yeah.
HMJr:
I'll lay everything aside to get it.
C:
All right, sir. It's a very interesting inquiry
and I'll be glad to look into it.
HMJr:
And you understand I consider it highly confidential.
C:
Yeah, absolutely.
HMJr:
O. K.
C:
Thanks very much.
172
September 25, 1939
12:55 p.m.
Rene
DeRouen:
Mr. Secretary.
HMJr:
Talking. Now what it is - - I could help you out
on the phone.
DeR:
No, I think this is somewhat a little personal
matter if you wouldn't mind for about five minutes.
HMJr:
Oh. You're sure it's something that I've got to
do?
DeR:
No. I say -- what is that?
HMJr:
It's something -- you say you want to see me about.
DeR:
Yes, sir. I want to speak to you personally just
for about three or four minutes.
HMJr:
Three-fifteen?
DeR:
Any time to suit you, Mr. Secretary.
HMJr:
Three-fifteen.
DeR:
Three-fifteen. O. K.
HMJr:
Thank you.
DeR:
All right.
173
September 25, 1939
3:26 p.m.
HWr:
Hello.
Operator: Mr. Helvering. Go ahead,
HMJr:
Guy
Guy
Melvering: Yes.
HWr:
I have Congressmen DeRouen here.
H:
How's that?
Wr:
Congressman DeRouen -- D-E-R-O-U-E-N, of the 7th
District of Louisiana.
M
Yes.
HMJr:
And he's chairman of their delegation, and he's
telling me sbout some troubles they're having
and while he didn't use this word he feels that
if they are Treasury people, that through the
press and that sort of thing that we're persecuting
the people. That 18, he thinks everybody ought to
pay their taxes and never -- he has no objection,
but he thinks this man R. M. Bell has gone too far.
R. M. what?
HMJr:
Bell -- B-E-L-L.
55
Uh-huh.
HWr:
Now, all I want is that everybody be treated fairly
and justly
iii
Yeah.
HMJr:
as you know. And I'm not familier with the
circumstances; B.8 I told him, as far as I know that
when all the people are surrounded with these Huey
Long cases -- as far 88 I know, they've all paid
their taxes.
55
Yeah,
Regraded Unclassified
174
- 2 -
HMJr:
So I don't know of any drive on Louisiana. Now
he's here
H:
I can't hear you, Mr. Secretary.
HMJr:
He's here and when could you see him?
H:
Well I could see him -- ah -- anytime he could get
over here now.
HMJr:
Can you see him now?
H:
Yes.
HMJr:
I'll send him over with a Treasury car.
H:
Yes, all right.
HMJr:
And -- and give him the same courteous treatment you
give everybody.
H:
Yes. Mr. Secretary
HMJr:
Yes?
H:
This trial of Bergdoll up in New York.
HMJr:
Yes?
H:
It seems as though they have discovered that Mr. Hoeye
has certain information about passports.
HMJr:
Yes.
H:
And there's a letter coming over from the War Depart-
ment to you
HMJr:
Yes.
H:
okaying us giving that information.
HMJr:
I see.
H:
But in order to facilitate the thing, we have pretty
nearly got to have it this afternoon, because I've
got to trace it down through the British Consulate
HMJr:
Yes.
175
- 3 -
H:
to get the information, and I've told them
that if they'd prepare a letter I would ask you
if that would be all right and we'd get our --
we'd -- instruct Hoeye right now.
HMJr:
Well, if you -- you say it's all right?
H:
Oh, yes. I think it's all right.
HMJr:
Well, if it's all right, I'll take your word for it.
H:
Just coming from the other Department it should come
through and state reasons for it
HMJr:
That's right.
H:
and everything and I wanted something in writing
requesting it.
HMJr:
Well, you give it to them and then get him to confirm
it in writing.
H:
Yeah. Well the Secretary of War will send you a
request through the
HMJr:
Right.
H:
-- the Adjutant General -- that 18, the
Adjutant General will send a request through the
Secretary of War.
HMJr:
All right, Guy.
H:
All right.
HMJr:
Is that all?
H:
Yeah.
HMJr:
And you can see him now?
H:
Yes, right away.
HMJr:
Thank you.
176
September 25, 1939
3:40 p.m.
HMJr:
Hello.
Samuel
Rayburn:
Hello, Henry.
HMJr:
Hello, Sam.
R:
Yeah.
HMJr:
How's the lone steer?
R:
(Laughs) Up to now it's all right, but it's Just
three-thirty. I don't know what will happen
HMJr:
Yeah.
R:
the rest of the day. Henry, there's a
Mr. Samuel Cottrell who works under the Treasury
HMJr:
Yeah.
R:
in Income Tax Unit that for 12 years has been
making out the income tax returns for members of
the House and Senate up here on the Hill.
HMJr:
Yes.
R:
Now there a lot of people that are interested in
his staying on a little longer. He reaches the
retirement age on Saturday.
HMJr:
Uh-huh.
R:
And the V.P. is the first man who spoke to me about
it. He has been working with him for -- all these
years. Of course my income tax doesn't amount to
anything but he really has one. And -- well, I
think the Speaker spoke to me about it and then --
well, a lot of people around here - and I was
wondering if the -- would it be violating all
your rules and this that and the other if you
would ask the President for an executive order to
keep him on a year?
HMJr:
Well, it would be violating most of the rules, but
I'd do it for you.
177
- 2 -
R:
Well now, if you'd call the Speaker I think he'd
say exactly what the
HMJr:
I don't have to call the Speaker.
R:
And the Vice President, or anybody.
HMJr:
No, no. What the hell's the matter with Sam Rayburn?
R:
Well -- (laughs).
HMJr:
Now let me get this guy's name. What's his name?
R:
Samuel Cottrell. C-O-T-T-R-E-L-L.
HMr:
How do you spell it?
R:
C-O-T-T-R-E-L-L.
HMJr:
....T-E-R-L-L?
in
Cottrell.
HMJr:
Cottrell - and
R:
And he's been with the Treasury for 25 years.
HWr:
25 years.
R:
And he has been so capable up here that the fellows
would just like to keep him on as long as they could,'
and his retirement comes up Saturday:-
HMJr:
Well
R:
And we'd like powerful for him to be given another
year, if possible.
HMJr:
I'll send it over with my recommendation.
R:
Thank you.
HMJr:
I'll get it over either tonight or the first thing
tomorrow morning.
R:
Henry, that's mighty fine.
178
- 3 -
HMJr:
Delighted to do it.
R:
Thank you, sir. Thank you.
HMJr:
Righto.
TREASURY DEPARTMENT
179
INTER OFFICE COMMUNICATION
DATE Sept. 25, 1939.
TO Secretary Morgenthau
FROM Mr. Haas WA
I am attaching tables and a chart showing W. P. A.
employment, weekly, through September 6, 1939, and monthly,
through August, 1939, the latest figures available on
these series.
The total number of W. P. A. workers on September 6,
1939, was 1,661,000.
The decrease from the week ended August 31, 1939 was
180,000 workers.
Attachments
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed - Weekly
United States
180
Week ending
1938
Number of Workers
December 3
(In thousands)
December 10
3,287
December 17
3,241
December 24
3,186
December 31
3,124
3,094
1939
January 7
January 14
3,070
January 21
3,030
January 28
3,001
2,986
February 4
February 11
2,966
February 18
2,966
3,011
February 25
3,043
March 4
3,032
March 11
3,009
March 18
3,015
March 25
3,009
April 1
2,980
April 5
2,906
April 12
2,761
April 19
2,752
April 26
2,751
May 3
2,734
May 10
2,660
May 17
2,622
May 24
2,609
May 31
2,598
June 7
2,594
June 14
2,590
June 21
2,578
June 28
2,551
July 5
2,388
July 12
2,290
July 19
2,250
July 26
2,200
August 2
2,081
August 9
2,053
August 16
1,976
August 23
1,896
August 30
1,841
September 6
1,661
Source: Works Progress Administration.
a Confidential.
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed - Monthly
United States
181
Number of Workers
1936
(In thousands)
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
3,053
August
3,153
September
3,219
October
3,346
November
3,319
December
3,094
1939
January
2,986
February
3,043
March
3,009
April
2,751
May
2,598
June
2,551
July
2,200
August
1,841
Source: Works Progress Administration.
Confidential.
Monthly figures are weekly figures for the
latest week of the month.
They include certified and non-certified workers.
182
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
Inited States
Monthly W.P.A. Employment
Weekly W.P.A. Employeent
1930
1937
1938
1930
M
è
al
:
N
-
la
E
J
%
N
é
-
E
J
#
N
J
M
M
-
$
-
MAS.
-
JULY
sen.
wv.
-
JULY
SEPT.
NEV.
WILLIONS
MILLIONS
<<<<<<<<<<<<<<<<<<<<<<<<<
MILLIONS
or
or
or
WORKERS
BORRERS
BURNERS
3.5
3.5
3.4
1.4
()
342
3.3
a
3.2
3.2
Y/II
2.8
3.1
3.1
3.0
3,0
2.4
2.9
1.9
4.0
2.8
449
201
1.7
LA
2,6
41
1.6
2.5
14
2.4
and
4.3
1+2
2-2
---
2.1
2.1
.8
la
2.0
122
1,9
1.5
.4
1.0
1.7
1.7
1,5
MAY
JULY
son.
NOV.
o
1,6
-
E
%
a
JAN.
MAX.
MAY
JULY
SEPT.
NOV.
MAY,
-
E
5
h
4
-
E
M
.
1939
1936
1937
1539
1938
1936
SOURCE: WHS PROGRESS KONINISTRATION
the Secretary of the Treasury
1. 221 e
- of Reserved and
183
September 25, 1939.
MEMORANDUM FOR THE SECRETARY:
Mr. Noble's office telephoned this morning to say that a
meeting is to be held at Commerce on Wednesday morning with
reference to Latin America and asked whether I would be able
to come. Dr. White received a similar message.
Under the circumstances I wonder whether you would like
me to go?
JP.CP.
Joseph P. Cotton, Jr.
Sept. 26, 1939
I gave this information verbally to White and
Cotton: "I have had a talk with Mr. Noble and have
told him that unless the President asks the Treasury
to cooperate, we will not send any of our staff members
over to the Commerce Department in connection with dis-
cussions on South America.
HM,Jr.
84
MJD
GRAY
PANAMA VIA N. R.
Dated September 25, 1939.
Rec'd. 3 a. m., 26th,
Secretary of State,
Washington.
15, September 25, B p. m.
The Mexican Delegation are considering the introduction
of amendments or additions to our resolution on "Protec-
tion of the Monetary and Commercial Policies by the
American Republics" probably in form somewhat &S follows:
First. They suggest a change in the procedure for
the selection of the members of the Advisory Committee.
Thoir suggestion is as follows: substitute for our present
paragraph on the subject the following: "The Advisory
Committee shall consist of five members, selected as
follows: two selected by the Republics of South America;
one selected by the Republics of Central Amorica; and two
by the Republics of North Amorica. The members shall be
persons of acknowledged experience and competence in
monetary and excha ngo matters. In caso of the considera-
tion of a problem involving any government or governments
which may not have B. regular representative on the Ad-
visory Committee, there shall be added dolegates represent-
ing each of the directly interested governmonts."
Second.
Regraded Unclassified
185
MJD ⑉2⑉ No. 15, September 25, 8 P. m. from PANAMA
Second, The substitution for our final paragraph of
the following: "Second:
To instruct the Advisory Committee to submit to the
meeting of representatives of the treasuries, which is to
take place in Guatemala a report on the basis for the
creation of an inter-American financial institution of a
permanent character.
Among other matters, this report should give con-
sideration to the possibility that the organization which
may be created should carry out the following functions:
(a) To facilitate the settlement of payments between the
American Republics; (b) To facilitate the CL ,eration of
the central banks of this continent in their relations
with one another; (c) To facilitate cooperation for the
setisfactory solution of the monetary and exchange prob-
lems that concern the American Republics."
It will be seen that this proposal goes farther for-
ward than our own draft but seems to us in accord with
ideas discussed at previous conferences and at Washington.
We would appreciate indications as to what position to
take in regard to these suggestions if they are put for-
03V13038 ward, Please consult Treasury.
SEE1 as 072
WELLES
KLP
THE YMU2A38T
(strol sill to soilt)
- MI st
Respectfule Referred in
Commissioner of Customs
186
For Office of the Secretary
M. R. Viderla
Shanghai, September 25, 1939.
U.S. THEASURY ATTACHE
BHANGHAI, CHINA.
WANG CHING-WEI'S REPRESENTATIVE HAS UNSATISFACTORY TALK
WITH GIRMAN CONSULAR OFFICIALS
Mr. Wang Ching-wei has appointed a Mr. Feng Chung-hsing 1:5 & )
to take charge of diplomatic affairs with Germany. A few days ago, Mr. Feng
gave a party in honor of leading members of local German consulate staff in
an effort to seek the support of Germany towards Mr. Wang's proposed regime.
According to inside information received, the German consular officials at
this party frankly told Mr. Fong that under the present circumstances, Ger-
many, though desirous of complying with Japanese wishes, does not deem it
wise to antagonize Chinese public opinion. Furthermore, as Soviet Ruasia
end Great Britain still remain masters of the Far East, their policy towards
China should be taken into consideration. In case Great Britain agrees to
a compromise with Japan, and brings pressure to bear upon the Chungking Govern-
ment, Soviet Russia will undoubtedly support Chungking. In such case, Ger-
will
many/probably stand against Great Britain and side up with Soviet Russia.
Under such circumstances, Germany will not be able to support Wang Ching-wei's
puppet regime. But should Japan and Soviet Ruasia come to some sort of
terms, and Chungking maintains a friendly and neutral attitude towards Gar-
many, Soviet Russia is not likely to withdraw her support of Chungking. So
consequently Germany does not 566 her way clear to change her policy towards
China at the present time.
187
Referred of Secretary
Re:
Mr. R.
U.S. TOTALUT
Shanghai, September 26, 1939.
REAL MOTIVES OF JAPAN'S TRUCE WITH SOVIET RUSSIA
OVER BORDER DISPUTES
According to information secured from Japanese secret service the
recent truce between Japan and Soviet Russia in the border warfare was con-
cluded on the motive of Japan for the following two ressons. In the first
place, in an ancounter on the Manchukuo-Outer-Mongolia border, one and one
half divisions of crack Japenese troops belonging to the proud Kwantung
Army were practically annihilated by the Sovieta within twenty four hours.
As a result of this shameful defeat, the whole army staff of the Kwentung
Army presented their resignations. The Japanese leaders in Tokyo fearing
that the Soviet might continue their victorous drive into Manchukuo and
develop a real war were, therefore, compelled to conclude a truce with Russia.
In the second place, the truce will serve as a measure of retalia-
tion against the abrogation of Commercial and Navigation Treaty by U.S.A.
Tekyo is desirous of finding a nowerful backer to increase Janan's national
prestige in her stand against America.
It is reported that Japan also proposed a non-aggression pact with
Soviet Russia, but the latter presented a fundamental socret condition in
return for the formation of such a treaty. This secret condition 10 regard-
od as absolutely unacceptable to Japan, hence the failure. The details and
nature of the Soviet condition which Japan could not accept are unknown to
informant.
PARAPHRASE OF TELEGRAM RECEIVED
fee - Co-dray 29-29-17
FROM: American Embassy, Panama
188
DATE: September 26, 1939, 3 p.m.
NO.: 16
Mr. Jaramillo, noted Colombian economist, and the
Colombian Minister for Foreign Affairs, have placed
before us with obvious seriousness their anxieties lest
the present war in Europe affect their exchange situation
and jeopardize their present reserve, foreing them to
place restrictions on imports which are needed for
various national developments. The prospect of reduced
coffee sales and depressed coffee prices is mainly re-
sponsible for their fears. They have asked us whether
we will be prepared to give them financial assistance,
in accordance with our general declaration. We have
explained to them the various types of transactions which
our Government might consider and they have now presented
a memorandum in which they request financial assistance
in the form of a credit for the Bank of the Republic for
reserve purposes 80 that it will be able to continue
necessary imports and maintain the stability of their
currency, and for the purchase of war ships. (We will
explain to the Colombian Government that the latter
financing cannot be considered.) It is suggested by the
Government that the amount of the credit to be extended
be
189
-2-
be determined after a careful study of their most
pressing neede, the conditions which may be established
for the service of the existing debt, and the nature of
the credit and the terme on which it is advanced. The
memorandum stated that they would be willing that B. new
banking organization be established to receive the loaned
monies and control their expenditure. The United States
could supply whatever technical help it believed necessary.
The memorandum suggests that the Colombian Government 88
a first step would be willing to invite the United States
to send B. representative to Colombia to study the matter.
We are sending you copies of the memorandum by air mail.
The scope of the proposals is obvious and we believe
that it is to be foreseen that any actual arrangement
would have to be based on an exchange of letters and
commitments like those with the Brazilian Foreign
Minister last March. It would be of great help to us
if we were able to Bay either that we would accept
Colombia's invitation to send a representative there
or that our Government has authorized that en invitation
be given to the Colombian Government to send a special
representative to the United States. Will you kindly
consult the Treasury and Mesers. Pierson and Jones
and notify us by telegraph as soon as possible.
We
190
-3-
We have already explained to the Government of
Colombia that any undertakings of any agency of the
United States at the present time must be contingent on
having sufficient funds for the purpose.
The Foreign Minister of Peru has also presented
a memorandum less extensive but in the same sense.
It emphasizes that Peru has lost markets for sugar,
cotton and other products and needs financial assistance
if further depreciation of its currency and further
curtailment of imports from the United States are to
be avoided. It asks credit from the Export-Import
Bank be given to the reserve bank of Peru to finance the
payment of our exports to that country. Peru offers
deposit of equivalent sums in soles to be liquidated in
an agreed manner. The problems facing Peru will, in
our opinion, be genuinely serious, perhaps as difficult
as those faced by any other Latin American country. We
would also like authorization to tell the Foreign Minister
of Peru that he is invited to send a representative to
this country to talk over the situation with
Mr. Pierson's bank.
03913038
WELLES
@@@ 88072
at
-
TREASURY department
191
INTER OFFICE COMMUNICATION
DATE September 26, 1939
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr, Cochran
The foreign exchange market was again dull today. Sterling ranged between
3.99-1/2 and 4.00-1/4, and closed at 4.00-1/4.
Reporting banks in New York and the Federal Reserve Bank reported sales
totaling 6675,000, from the following sources:
Commercial concerns
* 261,000
Foreign banks (Far East & Europe)
à
339,000
Fed, Res. Bk, (±25,000 for Norway; $50,000 for Sweden)
1
75,000
Total
1
675,000
Purchases of sterling amounted to 1393,000, as indicated belows
By commercial concerns
i 127,000
By foreign banks
19
266,000
(Far East, Europe & South America)
Total
in 393,000
The banks also reported that the British Control purchased sterling amount-
she to $25,000 at the official rate of 4,02. The Control posted a new rate to-
day of 4.01 for sterling arising from approved transactions, delivery within
thirty days, but no transactions were reported to us.
Mr. Knoke mentioned by telephone that cotton bills covering shipments to
Great Britain under which the 4.02 rate is claimed are now in rather emall
amounts, The City Bank reports that so far all of the cotton bills it has
offered to the British control have been accepted at the official rate, Knoke
said a number of people were apparently hesitating to pay above 4.00 for sterling.
Mr. Knoke gave me the following information by telephone in regard to Russian
balances on the New York market. The holdings of the State Bank of Ruesia with
the Federal Reserve Bank are practically the name as last week, namely, around
$3,250,000, including $2,250,000 in gold, With the Chase Bank, the State Bank
of Russia today has on deposit approximately $2,000,000, as compared with
$1,500,000 last week, The gain of $500,000 is not significant. The interest-
ing point is that out of the $2,000,000. already $1,000,000 is blocked, The
reason is as follows: Up to two weeks ago the United States did business with
Russia on & credit basis. That is, exporters sold directly to Ruesia, giving
appropriate credit to the purchaser. It appears that there has now been 5
tendency to change to & cash basis 80 far as the American exporter is concerned.
Consequently, the Chase Bank has been called upon to open credits to the exporters
to Russia, As the Chase Bank gives these credits it blocks, in turn, an equivalent
192
Secretary Morgenthau.
amount in the funds deposited with it by the State Bank of Russia. Furthermore,
sue Astorg balances with the Chase Bank have risen to $4,400,000, which is up
$2,000,000 from B. week ago, The funds which have been deposited to sugment this
account have come from the State Bank of Russia which, in turn, has been getting
soney back from Scandinavia and other parts of the European continent, The
Autorg presumably needs these increased balances for the same purpose that the
Chase needs them, that 18, to give credits to exporters to Russia.
I telephoned Mr. Livesey in the State Department to learn whether the De-
partment considered it a matter of international policy of interest to it, se to
whether the Treasury should take some cognizance of the request of J. P. Morgan
& Company that we in some manner assist in bringing to this country gold which
the Italian Government 18 offering in Switzerland or at an Italian or French
2018 for taking care of the amortization service due October 1 on the To dollar
lende of the Italian Government loan, for which Morgane are trustees.
This matter originally came to my attention on September 15. On that date
&. Inoke informed me of the inquiry that had been pade of the Federal Reserve
Sank of New York by Mr. Lamont, and Mr. Livesey also let me know that Mr. Lamont
ai approached the State Department on this subject. Messre. Livesey and Knoke
the informed Morgans that this matter had been referred to the Treasury Department,
I 1st Ir, Livesey know at that time that the Treasury did not make it a practice
of accepting gold abroad, Exceptions were made only when transactions involved
Tripartite monetary operations, and WE were reducing these to 8. minimum. I also
discussed the matter with Mr. Knoke, who agreed that our past policy precluded our
intervention in this case. We decided that Knoke should pass on word to Morgans
that the Swiss National Bank had recently made B. shipment of gold, in behalf of
the National Bank of Hungary, to New York on the Italian SS CONTE DE SAVOIA.
Consequently, the Italian Government had available its own line of steanships to
take the gold from Europe to America if it would only assume the responsibility
for the shipment, including the war risk insurance,
My only other suggestion to Mr. Knoke for passing on to Morgans was that the
325 has frequently arranged swape between holders of gold on different markete.
If the BIS might have gold in New York which it WBC willing to trade against gold
in Switzerland, something could be worked out through this medium. I doubted,
Sovever, whether in present circumstances, the BIS or any other holder of gold in
Rew York would be willing to exchange this for gold in Europe.
It 10 Mr. Livesey's understanding that the sur involved in effecting the
amortization service October 1st 18 $3,614,000. Be is not aware as to bow much
toney will be required to take care of the coupons of this loan maturing December
1st. It appears that $69,000,000 of the bonds are outstanding, but that approxi-
rately one-half of these are held in Italy. It would not appear necessary, there-
fore, for the Italian Government to send to the United States gold sufficient to
cover the service of all the bonds outstanding, those in Italy being taken care of
by Italian currency. If Italy did send over gold enough for the entire service,
and then paid service on only half the bonds out of this sccount, their dollar
balances on the American market would be increased.
CONFIDENTIAL
Secretary Morgenthau
193
When I spoke with Mr. Livesey today he was personally of the opinion that,
ss much as the State and Treasury Departments might be anxious to protect the
interest of American bondholders, he did not see any reason for the Treasury to
depart in this instance from its practice of not taking gold abroad. When I
told him that Mr. Leffingwell had today spoken to Mr. Bailie and had raised the
point as to whether it might be of considerable political interest for us to
assist the Italian Government at this time through consummating the above-
mentioned transaction, Livesey said he would have to take this matter up with
the political section of the State Department. He was not able to get in touch
with Mr. Moffat, but promised to see Assistant Secretary Berle and to let me
hear later.
While I was talking with Mr. Livesey in the afternoon, Mr. Bailie informed
me that Mr. Leffingwell had just telephoned that the Italian Government had in-
formed him that they were remitting the dollars to take care of the City of Rome
bonds and themselves shipping the gold, as had been suggested, to take care of
the October 1 amortization. While the gold will thus arrive & few days late,
the matter is taken care of, I told Livesey this. He said he had no further
word from Berle, so they would consider the matter closed,
With the Secretary's approval, I suggested to Mr. Livesey that the Persian
Minister be referred to the Export-Import Bank in the matter of the $15,000,000
loan which he is seeking.
CONFIDENTIAL
Prepared by: Mr. Murphy
Mr. Lindow
Mr. Tickton
Mr. Haas
TREASURY DEPARTMENT
CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE Sept. 26, 1939
to
Secretary Morgenthau
FROM
Mr. Haas M
Subject: Current Developments in the High-grade Securities
Markets
SUMMARY
(1) The average yield of long-term Treasury bonds in-
oreased by .14 percent last week and was unchanged
on Monday, September 25 (Chart I). Most of the in-
crease took place on Wednesday and Thursday when
official support was withdrawn from the market.
Long-term securities have been much weaker than
short-term issues (Charte II and III). The decrease
in the market value of the United States security
holdings of all insured commercial banks from
June 30 until the close on Monday 18 estimated at
$599 millions.
(2) The long-term Treasury bond market has now lost sub-
stantially all of its gain since the early spring of
1935 (Chart IV). As compared with the situation at
the bottom of the 1937 break, long-term securities
are now only slightly higher, while short-term 18-
sues are muoh higher -- 1,e., their yields are much
lower (Chart V). This is about what might be ex-
peoted, considering the radically different char-
acter of the influences which brought about the 1937
break and the present one.
(3) Little change occurred in high-grade corporate bond
yields last week (Chart I). There was some revival
in public offerings, but this was overshadowed by
two large private sales to insurance companies.
(4) New York State and City bonds have increased about
the same in yield since the beginning of the war
crisis as have Treasury bonds (Chart VI). There was
some revival of new municipal financing last week.
(5) British and French Government securities showed
practically no change during the past week. Note
circulation in both England and France has receded
wlightly from the peaks established in the last
preceding weekly reports.
Regraded Unclassified
195
Secretary Morgenthau - 2
I. Current Developments in United States Securities
United States securities continued to decline during the
early part of last week, and then remained relatively stable
through Monday (September 25). The average yield of all long-
term Treasury bonds stood at 2.79 percent on Monday, as 002-
pared with 2.66 percent a week before (Chart I).
Long-term issues declined far more during the week than
shorter issues, as is shown in the following table:
:
Average Price Change
: Week : Monday :
: ended :September:
Total
: Sept. 23: 25
:
(Decimals are thirty-seconds)
Notes
1 to 3 years
- .01
+ .01
o
3 to 5 years
- .05
+ .01
- .04
Bonds
Under 5 years to call
- .13
- .01
- .14
5 to 15 years to call
-1.23
- .03
-1.26
15 years and over to call
-2.01
- .05
-2.06
Chart II shows the daily fluctuations in prices and
yields of five selected Treasury notes and bonds, beginning
with August 1. The securities included have been chosen with
special reference to their. terms and coupons. The three
bonds all have the same coupon - 2-3/4 percent - and are
thus directly comparable in all respects, except maturity
and call provisions. It will be noted that the longer 18-
sues have shown much more weakness since the outbreak of war
than the shorter issues.
This tendency is brought out even more sharply in
Chart III, which shows divergences before and after
September 6 in the prices of United States securities classi-
fied in the same manner as in the above table. Prior to
Secretary Morgenthau - 3
September 6 the prices of securities of all maturity classes
had been deolining indiscriminately. Since that date, how-
over, the market has shown a marked preference for securities
with maturities or call dates of less than five years. Às is
shown in the chart, these have rallied substantially, while
securities with maturities or call dates of over five years
have continued to decline.
The decline in the market during the past week should be
viewed in connection with the reduction in the amount of of-
ficial support. On Monday and Tuesday, the Federal Reserve
System and the Treasury together purchased $14.3 millions of
United States securities; end the average yield of long-term
Treasury securities increased by only .01 percent each day.
On Wednesday and Thursday no official purchases were made;
and the long-term Treasury average increased by .05 percent
and .07 percent, respectively. On Friday official purchases
totaled only $1.4 million, on Saturday there were none, and
on Monday they aggregated $6.9 millions; meanwhile, the long-
term average remained unchanged at 2.79 percent on Friday
through Monday, inclusive.
Commercial banks have continued to hold their Government
securities with but minor exceptions. In the week ended
September 20, weekly reporting member banks in 101 cities re-
duced their holdings of Government securities by $53 millions.
Holdinge of Treasury bills deolined by $38 millions and of
Treasury notes by $22 millions, while holdings of United
States bonds decreased by only $1 million and guaranteed ob-
ligations increased by $8 millions. Reporting banks in New
York City increased their holdinge of United States bonds
by $14 millions, while banks outside of New York City reduced
their holdings by $15 millions, making & net reduction of
$1 million for all reporting banks.
The estimated deoline in the market value of the United
States Government security holdings of all insured commercial
banks between June 30, 1939, and the close on Monday is
8599 millions. This amounts to 4.0 percent of the total
carrying value of such securities on June 30 ($15,038 mil-
lions) and to 9.2 percent of the reported capital funds of
the banks on that date ($6,515 millions). We had previously
estimated the amount of this depreciation for the period
from June 30 to the close on September 14 at $486 millions.
Memorandum dated September 15, 1939.
Regraded Unclassified
197
Secretary Morgenthau - 4
II. Longer-term Perspective of the
Government Bond Market
The average yield on long-term Treasury bonds stood at
2.79 percent at the close on Monday. The average yield first
touched this point on the way down on February 19, 1935, so
that, on net balance, all of the bull market in long-term
Treasury bonds since that date has now been wiped out, Ex-
cept for a few months following the Ethiopian War crisis in
1935 and for a time following the bad break in the Government
bond market in 1937, present yields on long-term Treasury
bonds are the highest which have obtained at any time since
the spring of 1935 (Chart IV).
A good method of securing a perspective on the major
swings in the long-term Treasury bond market 18 by following
the price movement of the 2-7/8's of 1955-60. These bonds
were first issued on March 15, 1935, at which time they were
the longest-term issue outstanding. Their closing price on
their date of issuance was 100-23/32, from which they rose to
a 1935 high of 101-27/32 on July 9. During the Ethiopian War
crisis they sold as low AS 98-30/32, and during the break in
the spring of 1937 0,8 low as 99-12/32. On June 5 of this
year, they reached an all-time high of 110-9/32, and on
Monday closed at 100-17/32 -- 1.0., within a few thirty-
seconds of their price on the first day of trading four and a
half years earlier.
While the average yield on long-term Treasury bonds is
now within .05 percent of its level on April 1, 1937 - the
bottom of the sharp deoline in the market following the
second increase in reserve requirements - the yielde on
short-term securities are much lower now than at that time
(Chart V).
The relative movement of long and short securities since
the spring of 1937 is not surprising in view of the different
situation then obtaining from that at the present time. The
break in the market in the spring of 1937 was primarily 00-
casioned by what the banks evidently considered an actual and
prospective dearth of excess reserves. The excess reserves
of all member banks got 8.8 low as $711 millions and those of
New York City banks as low 88 $67 millions in the summer of
1937, and this scarcity W&B foreshadowed in the spring de-
oline in the market.
This restriction of excess reserves had a mechanical ef-
feet on short-term money rates, and this effect was propagated
outward to the long-term bond market. The market maintained
Regraded Unclassified
158
Secretary Morgenthau - 5
its confidence in the long-time downward trend of long-term
interest rates, however, go that the long bonds suffered less
than proportionately. (It will be remembered that the of-
ficial explanation accompanying the second increase in re-
serve requirements envisaged no change at all in long-term
interest rates, but expected that the effect of the increase
in reserve requirements would be on short-term rates only.)
At the present time just the opposite situation prevails.
Excess reserves are at an all-time high and still rising. All
of the mechanical factors are making for continued low money
rates. The psychological atmosphere at the moment has changed
completely, however, and the general expectancy is now for &
protracted upswing in interest rates. The main impact of such
& change 18 naturally on long-term rates, and 1s propagated
to the short-term rates principally by means of a shook pay-
chology from which recovery is apt to be rather rapid, as is
seen in the divergent movements of long- and short-term rates
since September 6 shown in Chart III.
III. High-grade Corporate Bonds
There was little change in the high-grade corporate bond
market last week. The Treasury average of high-grade corpo-
rate bonds increased in yield from 3.31 percent on Saturday,
September 16, to 3.33 percent on Saturday, September 23, and
closed at the same figure on Monday.
These changes reflect a greater degree of stability than
existed in the market for Government securities, the spread
between long-term Treasury and high-grade corporate bonds
falling from .66 percent on Septemer 16 to .54 percent on
Monday, or baok to the level of last March.
New corporate issues last week amounted to $5,800,000 con-
sisting of $1,600,000 of 10-year 4-1/2 percent convertible de-
bentures of Durez Plastics & Chemicals, Inc., offered at par,
and $4,200,000 of 2-1/2 percent equipment trust certificates
of the Chesapeake and Ohio Railroad sold to a syndicate at a
price of 100.16.
The private placement last week with & group of insurance
companies of two issues totaling $141, 600,000 attracted con-
siderable attention. The New York Telephone Company, which
had planned & public offering about October 20 to refund ob-
ligations maturing November 1 and to repay advances by the
American Telephone and Telegraph Company decided "to protect
itself" by selling nov at private sale. The issue consisted
of $75,000,000 of 3-3/8 percent bonds, priced at 99-1/2,
equivalent to a yield of about 3.40 percent. This is e. con-
siderably higher yield than that now obtaining in the market
on comparable issues, and indicates that the Company believed
Secretary Morgenthau - 6
that it would be difficult to make a public offering of its
securities at this time. In view of the high credit standing
of the issuer and of the probability that short-term accommo-
dation could have been secured from the banks if desired, it
would also appear to indicate that the Company took B. bearish
view of the longer-term prospects of the market.
The New York Power and Light Company also sold privately
to P. group of insurance companies $66,582,000 of 3-3/4 percent
bonds due in 1964 at 8. price of approximately 104, to yield
3.50 percent. This sale occurred as 8. result of the failure
of an exchange offer to the holders of bonds called for re-
demption November 1.
Private sales of bonds to date this year have reached a
new all-time high, both in amount and in percent of total.
They accounted for almost half of corporate bond financing in
1939, as compared with one-third in 1938, the previous all-
time high.
IV. State and Municipal Bonds
Chart VI compares daily the yields of two long-term muni-
cipal bonds -- New York 01ty 3'e of 1979 and New York State
3'a of 1971 -- with the Treasury 2-3/4's of 1960-65. In gen-
eral, these bonds appear to have suffered increased yields to
about the same extent as have Treasury bonds. We are informed,
however, that the municipal market 1s very sluggish end quota-
tions are largely nominal.
There has been some revival of new municipal security
financing, the awards during the past week amounting to $5.3
millions. While this 18 a small week by ordinary standards,
it does represent 8. considerable improvement over recent weeks.
V. Foreign Markets
British and French Government securities showed practi-
cally no change during the past week. The quotation on British
2-1/2 percent consola remained at 62 all week, but since this
1a approximately the minimum price set by the London Stock Ex-
change, the quotation has little meaning. French 3 percent
rentes closed at 67.70 to yield 4.43 percent on Monday, as com-
pared with a price of 67.45 last Monday.
The regular weekly offering of British Treasury bills
sold Friday at an average rate of 3.31 percent, the best rate
since the beginning of the war, Note circulation in both
England and France has receded slightly from the peaks estab-
lished in the last preceding weekly reports.
Regraded Unclassified
200
Chart I
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1938
JAN FEB MAR - - APR is " MAY " JUNE = - JULY as - AUG " - SEPT. 14 as OCT il is NOV. - DEC II JAN - . FEE is MAR is - APR. 18 is MAY - 14 JUNE 1939 JULY + AUG - - SEPT. a 87 OCT -- NOV if DEC
1939
AUG
SEPT
OCT
Scale
*
-
4
.
a
#
a
-
PER CENT
Inverted Scale
Inverted Scale
PER CENT
PER CENT
WEEKLY. Wednesday Quotations
DAILY
22
2.2
22
24
Long Term Treasury" (N years - more - particar seif mm/
24
24
Long Term
Treasury
26
26
26
28
Corporates
20
28
10
30
30
Change -
of
12
3.2
32
Corporate
34
34
34
36
3.6
3.6
3.8
38
38
40
4.0
40
PER
PER
PER
CENT
CENT
CENT
100
100
100
80
80
80
Spread Between Long Term
Treasury and Corporate*
Spread
to
60
60
:
40
40
10
20
20
o
.
-
-
:
-
.
-
=
-
-
:
=
"
o
FEB MAR - APR is " MAY " JUNE . 17 . JULY 10 I AUG " - SEPT - M OCT. 17 NOV. e DEC JAN - FEB 18 MAR - - APR 18 - MAY - - JUNE # . JULY - . AUS . - SEPT . OCT - have NOV . DEC ES
AUG
SEPT
OCT
1939
1939
1936
"frees - - adverted change - composition of comp form Treasury average
IF the Transary
Chart II
201
PRICES AND TIELDS OF SELECTED GOVERNMENT SECURITIES
Daily
Prices
Yields
AUGUST
SEPTEMBER
OCTOBER
AUGUST
SEPTEMBER
OCTOBER
19
26
2
9
If
23
30
7
12
14
21
26.
5
5
12
19
26
2
9
16
23
30
7
14
21
28
DOLLARS
PERCENT
DOLLARS
(INVERTED)
PERCENT
(INVERTED)
102
102
.2
2
HS NOTES
101
DEC. 15, 1941
(01
H% NOTES
,4
DEC. 15, 1941
A
100
100
.6
.6
92
W
96
+8
se
.8
is NOTES
it NOTES
JUNE 15. 1944
JUNE 15, (944
97
97
1.0
1.0
110
110
1.2
1.2
109
109
24% Bowos
SEPT. 15, 1945-147
1,4
1.4
100
105
2ts Bowns
SEPT. 15. 1945-147
107
107
1.6
1.0
2ts BONDS
JUNE 15, 1951-154
100
106
1.0
1,6
105
105
2.0
2.0
104
104
2.2
2.2
103
103
2it Bowos
JUNE 15, 1951-154
1
102
2.4
2,4
102
21% BONDS
DEC, 15, 1960-165
101
101
2,6
2.4
,
200 BONDS
100
DEC. 15, 1960-165 '65
100
2,8
2.8
99
99
1.0
3.0
3
540
97
12
3.7
97
96
5
12
19
26
2
9
96
JA
3.4
AUGUST
15
23
30
7
14
21
20
5
12
19
26
2
9
16
23
30
7
14
21
a
SEPTEMBER
OCTOBER
AUGUST
SEPTEMBER
OCTOBER
1939
1939
(Pfice of the Secretary of the Treasury
Drive of - and -
F 122
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
PER CENT
PER CENT
Inverted Scale
inverted Scale
Monthly Average of Daily Figures
2.0
20
2.5
2.5
Long Term Treasury
3.0
3.0
:
3.5
3,5
lotest figures or of the "
4.0
4.0
High Grade Corporate
4,5
4.5
5.0
5.0
Moody's Aaa
5.5
5,5
PER CENT
PER CENT
25
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Spread
5
.5
o
o
1927
1928
1929
1930
1931
1932
1933
1934
1936
1936
1937
1938
1939
- of - of - Transy
- of - - -
F-70-0-1
202
Regraded Uncla
YIELDS OF TREASURY BONDS AND NOTES
Based on Closing Prices
YEARS 10 MATURITY OR CALL
5
10
15
20
25
PER
PER
CENT
CENT
3.2
3.2
APRIL 1. 1937
2.8
2.8
SEPTEMBER 25, 1939
2.4
2.4
2.0
2.0
1.6
1.6
JUNE 5, 1939
1.2
1.2
.8
.
.4
A
o
I
5
10
20
o
15
25
YEARS TO NATURITY 08 CALL
Office of the Secretary of the Treasury
,
Dear of Remover -
Regraded Uncla
204
MJD
PLAIN
LONDON
Dated September 26, 1939,
Rec'd. 12:55 P. m.
Secretary of State,
Washington.
1829, September 26, 6 P. m,
FOR TREASURY FROM BUTTERWORTH.
One. A British Tressury announcement today extends
from September 26 to October 9 the period during which
roturns must be made of overseas socurities which are
required to be registered.
In reply to my inquiry whether the exemption to be
granted to Americans resident in the United Kingdom (as
outlined in my No. 1683, September 16, 2 P. m., in respect
of securities mouns that they are also exempted from
having to surrender the dollars obtained as interest on
their securities, the British Treasury replied in writing:
"The answer is affirmative, though I gather that the pre-
cise machinery to be adopted has not been fully worked out."
Two. Rucinski, the Polish Financial Counselor, states
that there was very little Polish gold earmarked abroad
when the war began. He said that the Polish military
authorities never onvisaged such B. speedy dofeat as had
occurred and therefore many preparations were inadequate,
that in the case of the gold of the Polish National Bank
he
205
MJD -2- No. 1829, September 26, 6 P. m. from LONDON
he "hoped it was safe" but that in the main it was in e
contiguous country and until it W3.3 removed from there it
was impossible to be sure it would not fall into the hands
of Foland's cnemies.
Three. Today's official fixed exchange rates and the
principal changes since September 14 are given below:
The dollar remains at 4.02-04 and has been unchanged
since September 14. The Canadian dollar remains unchanged
since September 18 at 4.43-47 having depreciated from
September 14 from 4,38-42. The French franc has remained
unchanged at 176-7 since September 12, The Norwegian
krone 10 17.50-70 where it has remained since September
20 having appreciated on that day from 17.55-75, the rate
fixed on September 14, The Swedish krone fixed today at
16.70-90 has not changed "ince September 19 when it re-
turned to the rate fixed on Suptember 14 having in the
meantime been slightly lower at 16.80-17.00. The Argen-
tine poso which depreciated from 16.75-17.10 on September
14 to 17.00-17.60 where it stood from September 16 to 19
appreciated steadily from Septomber 20 until Monday when
it was 16.40-17.00. This rate rescted slightly today to
16.50-17.10.
The depreciation in the Dutch, Belgium and Swiss ex-
changes which occurred yesterday on fears of possible Ger-
man intentions to invade contiguous neutrals was checked
today. The Dutch guilder which had remained at 7.55-62
from September 14 to 19 and had appreciated by September 23
to
206
MJD -3- No. 1829, September 26, 6 P. m. from LONDON
to 7.45-55 was fixed on Monday at 7.50-60 and at 7.47-57
today. The Belga which had remained at 23.30-60 from
September 14 until September 22 when it went to 23.35-65
had depreciated by yesterday September 25 to 23.50-80
and was fixed today at 23.50-675 The Swiss franc which
had remained at 17.65-85 from September 14 to September
19 and at 17.55-75 until yesterday when it was fixed at
17.60-80 was unchanged today.
KENNEDY
CSB
BECEINED
eeer as 072
(100) with by
Dived NI E. National known
COT
ID 1938
to the Officers and Members,
The International Ameociation of Chiefs of Police:
Through Chief Wilson I desire to extend ov greetings to
the members of the International Association of Chiefe of Police
and to Join him in thanking all of you and the organizations you
represent for the vary fine coope ation you have given and are
giving not only to the Decret Service but to all the law enforce-
ment organizations of the Treasury Department.
with respect to this cooperation I got the Base report from
Mor Irey, Chief of the Intelligence Doit of the Dureau of Internal
and general coordinator of Treasury law enforcement, from Stowart
Dockshire, Deputy Commissioner in Charge of the loohal Tax Dait,
from Tom Corman, Deputy Commissioner of Customs, from Darry Anallinger,
Commissioner of Marcotics and from Admiral Massche, Consultant of the
Coast Cuard, as from Chief Wilson.
This report is uniformly to the effect that the efficiency of
Federal Law enforcement officers and the respect in which they are
hold is due in very great seasure to the willing and cordial help
given to then by local police authorities, from Commissioners and
Chiefe to patrolmen and plain elothes afficers.
We hope that - may continue to enjoy your aid, your support
and your confidence and it is of hope and desire that all of our AND
will always so conduct themselves M to morit it.
To deal with different lowe, but our problem is oral with
yours. It is to protect our citizens overystore within our Larders
and to defend their governmento against the operations of non of
criminal intent.
The growing respect for lew throughout the nation 10 testing
to the increasing effectiveness of your afforts. I hope you may com
time to mke progress.
Sincerely,
(Signed) H
HED/mah
Secretary of the Tronsury.
Origo file office to Gastons
Regraded Unclassified
208
September 26, 1939
To:
The Secretary
From:
Mr. Hanes
I have secured the following information about Federal Reserve
Bank deposits:
1. The Federal Reserve Bank cannot accept deposite of a govern-
ment or a government financial commission unless requested
to do so by the Secretary of the Treasury - they, the
Federal Reserve, acting in their capacity as fiscal agent
of the United States Treasury. The Federal Reserve Bank
has done this in the past, at least once, in the case of
Parker Gilbert as "Agent General of Reparations."
2. The Federal Reserve Bank can accept deposits in special
accounts from the Bank of England or the Bank of France
under instructions from those banks to honor drafts drawn
and countersigned in accordance with their own instructions.
This method is now being followed in the case of the British
and French plane purchases in this country.
As I visualize these two situations it occurs to me that subject (1)
would accomplish the purpose you have in mind better than (2), for the
simple reason that the Federal Reserve Bank, acting as our fiscal agent,
could with propriety give to the Secretary of the Treasury-such informa-
tion about these transactions as he may wish to obtain, whereas under
the second plan, I an not certain that the Federal Reserve Bank would be
at liberty to give such information without the consent of the depositor.
J.w.H.
Page
File
me
209
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: September 26, 1939, 10 a.m.
NO.: 1429
Information has come to us that Germany 1a now nego-
tiating with several countries of Europe, and will soon
begin negotiations with others, with the purpose of either
increasing its importe from them or to change the character
of the present trade to meet Germany's specific wartime
needs. Bo far as we could learn, the Germans have refrained
from any indications of military threat even though adopting
an insistant tone in the negotiations, nor have they
tried to force these governments to supply the goods on
credit. Various countries have, however, in effect granted
clearing credits to Germany, under clearing arrangements
with that country, in view of the fact that they have allowed
their exports to exceed the exports of Germany to them -
thereby they accumulate in Germany funds which are blocked.
It 1s understood that in August about 40,000,000 florins
was the amount of the Dutch clearing credit.
An authoritative source has told us that this week
& German representative will leave for Yugoslavia to negotiate
for larger supplies of ores and metale from that country.
Specific mention was made of copper and lead, but it is
larger supplies of
suppèsed that/chrome and antimony will also be to Germany's
interest.
210
- 2 -
interest. This same source informed us that Germany had
been offered practically the entire Yugoslav surplus of live
hoge and pork products, but that this opportunity was being
sacrificed to Germany's greater need for metale for her
military purposes, despite her great need for fats.
It was learned from the same source that the economic
authorities of the Reich do not anticipate that imports
from the U.S.S.R. for the next year will be in excess of the the
200,000,000 marks contemplated in the agreement signed last
summer, despite the rumor and German press propaganda that
there will be greatly increased supplies from Russia.
According to this informant, Russia had agreed to make the
bulk or total output of the Galician oil fields available
to Germany - which oil fields, contrary to previous semi-
official assurances of their acquisition to the Reich have
under the demarcation agreement now apparently been occupied
by Russia; however, our informant stated that he had not yet
received definite confirmation of the foregoing.
Reports that the Reich had successfully negotiated for
increased deliveries of oil from Rumania were confirmed by
this informant, but he admitted that for a considerable time
transportation difficulties would prevent a large increase
in deliveries from Rumania. This informant denied that
Germany
Regraded Unclassified
211
- 3 -
Germany was seriously deficient in petroleum products for any
military operations she might undertake in the near future.
He pointed out that a considerable number of private and commer-
cial vehicles are etill allowed to operate. An informed source
estimates, in this connection, that one million metric tons
of gasoline and oil were consumed by the military in the Polish
campaign.
The one serious food deficiency, it was authoritatively
stated, 18 the deficiency in fats, particularly in margarine
materials. Under present blockade conditions, the economic
authorities B&W no way of substantially overcoming this
deficiency. However, it was believed that it would be possible
for Germany to negotiate with the Netherlands and Denmark
for increased butter and bacon supplies. It was even possible
Germany could get the bulk of Denmark's export surplus,
drawing from the production which the British Isles took formerly.
It is admitted at the Belgian Embassy that their country
16 under pressure to maintain and increase deliveries of iron
and steel from Belgium. The German negotiators were told by
the Belgian Government that they would not be able to do this
since the iron ore came largely from France, which country
was limiting the amount of iron ore exported to Belgium to
the amounts needed for Belgian internal orders and for steel
orders from France. The German negotiators then declared that
they
212
- 4 -
they would supply Swedish ore, bringing it via the Baltic,
Kiel Canal, to Hamburg, and thence by German canals or
railroads to Belgium. Furthermore, the Belgian Embassy
said, in addition to restrictions on ore supplies by France,
and Belgium
several steel works in Luxemburg/which are controlled by
Frenchmen, were refusing to accept orders from Germany,
and the Belgian Government was experiencing difficulty
because of it. In this latter connection reports have cir-
culated that especially emphatic demands have been made by
Germany on Belgium during the past week.
It is requested that excerpts of the foregoing telegram
be sent to the Treasury Department.
END MESSAGE.
KIRK.
PER
ented
EA:LWW
213
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 26, 1939
TO
Secretary Morgenthau
FROM
Undersecretary Hanes
I have just discussed with Mr. Cochran the question as to whether the
Persian Minister should come to the Treasury Department in regard to the loan
of $15,000,000 which his Government has asked him to obtain.
Since there appear to be no funds or facilities available to the
Treasury itself for consummating the loan, it is recommended that Mr. Cochran
be permitted to suggest to the Department of State, through Mr. Livesey,
that the Persian Minister be referred directly to the Export-Import Bank.
J.w.H.
TREASURY DEPARTMENT
214
INTER OFFICE COMMUNICATION
DATE September 26, 1939
TO
The Secretary
FROM Mr. Cochren
In its Cablegram #62, dated November 24, 1936, to the Netherlands Bank,
the Federal Reserve Bank of New York quoted the release of the Secretary of
the Treasury of the preceding evening in regard to the addition of Belgium,
the Netherlands and Switzerland to the Tripartite accord. This cablegram,
set forth the terms upon which the Federal Reserve Bank of Nov York, as Fiscal
Agent of the United States, would work with the Netherlands Bank sa agent of
the Dutch Stabilization Fund. The pertinent paragraphs of this cablegram, in
80 far se the earmarking of gold in the Netherlands is concerned, are 20-
produced herewith:
"1. Netherlands Bank is prepared to consult with us as fiscal
agent of the United States, from time to time, as to the
amounts of dollars to be purchased or sold in Amsterdam and
the amounts of guilders to be purchased or sold in New York,
as well as to the rates at which purchases or sales of the
currencies in question will be made,
2. On the basie of reciprecity in accordance with the statements
of Mr. Morgenthan of October 12 and November 23 any dollars
thus acquired for the account of the Dutch Exchange
Equalization Fund will upon your request be converted by us
into gold at the rate of $35 per ounce fine plus 1/4 of 1%
handling charge and any guilders thus acquired for the
account of Federal Reserve Bank of New York as fiscal agent
of the United States will upon our request be converted by
you into gold on the basis of $35 per ounce fine less 1/4 of
1% handling charge.
- 2 -
3. The gold thus acquired will be earmarked for account of the
owner in the country of the other party and will at the
request of the owner be shipped to the country of the owner
by first available steawer of his country, the cost of shipment
including insurance, melting charges and any loss in weight
through melting always to be borne by the Dutch Exchange
Equalization Fund.
4. Netherlanda Bank and Federal Reserve Bank of New York will
advise each other daily of any transactions as B. result of which
gold is to be earmarked or released under this arrangement.
5. It is understood and agreed that this arrangement may be revoked
or altered by either party at 24 hours notice without prejudice
of course to past transactions."
In a letter dated September 26, 1938, the Secretary of the Treasury
authorized the Federal Reserve Bank of New York to send to the Netherlands
Bank, Amsterdam, the following cablegram:
"Secret and confidential for De Jong. Referring
telephone conversation it remains of course the
desire of the Secretary of the Treasury to cooperate
with you to the fullest extent possible. Therefore
against the next $25,000,000 which you may have to
sell in support of your currency it will be in order
for you to earmark gold in Amsterdam under the ar-
rangement set forth in our #62 STOP You must
however understand that it is not the Treasury's
intention to leave the Gold in Europe but to have it
shipped here upon their request at your expense STOP
Regarding Noordam we have not been able to get any
more insurance at 17 cente STOP For your information
war risk rates on gold shipments from channel ports
were increased today to 25$ per $100 but market very
limited STOP Marine risk retes remained unchanged
at 4 1/24."
Since this authorization was granted, there has been only one
operation thereunder, namely, on September 25, 1938, in the sum of $690,000.
thue leaving outstanding under this order 8 balance of $24,310,000.
- 3 -
216
The question now arises as to whether we should permit this order to
remain outstanding. The Tripartite Agreement definitely provides that the
cost of shipping, including insurance, from Europe to America must be borne
by the Dutch Stabilization Fund. Since var risk insurance is, however, not
applicable except to goods on board a vessel, what would our position be if
Germany should invade the Netherlands at a time that gold has been earnarked
at the Bank of the Netherlands for us, and seise this gold before it could be
placed on board ship?
The Tripartite Agreement does not fix any limit as to the amounts of
gold that the Dutch Stabilisation Fund may earmark for us, or establish any
time limits. The Agreement does provide, however, that the Netherlands Bank
is to consult with the Federal Reserve Bank, from time to time, as to the
amounts of dollars to be purchased or sold in Amsterdam and the amounts of
guilders to be purchased or sold in New York, as well as to the rates at
which purchases or sales of the currencies in question will be made,
Furthermore, in a conversation by telephone on September 7. 1938
between Mr. Knoke of the Federal Reserve Bank of New York and Mr. De Jong
of the Netherlands Bank, Mr. Knoke made the point that we preferred to
discuss earmarking operations on the Amsterdam market before rather than
after they are made,
Since the Tripartite Agreement itself does not limit the amounts, it
may not be desirable to cancel outright the $25,000,000 arrangement which
is not & commitment (the agreement itself providing the commitment) but &
voluntary limitation, and does, in fact, put a brake on possible operations
to the extent of $25,000,000. Without this, the Dutch might feel that there
is no limit. If ve should definitely anml the $25,000,000 arrangement,
- 4 -
217
they might interpret this to leave them a free field, or they might
conceivably decide that we are ending the Tripartite Agreement.
One suggestion is, therefore, that the Federal Reserve Bank of New York
be instructed to communicate with the Netherlands Bank and inform the
latter definitely that, in view of present world conditions, it is essential
that there be prior consultation between the two banks before gold is ear-
marked on the part of either Bank for the benefit of the other party.
An alternative suggestion is that the Federal Reserve Bank remind the
Netherlands Bank that this outstending authorization has not been utilized
for one year. In view of this fact and considering present world
circumstances, would they object to our recalling this order, with the
definite understanding that if the Netherlands Bank meeded dollars they
should communicate promptly with the Federal Reserve Bank of New York,
and prior to taking any action.
FEDERAL RESERVE BANK
218
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 20, 1938.
TO
CONFIDENTIAL FILES
SUBJOCT: TELEPHONE CONVENSATION WITH
FROM L. W. Knoke
DE BEDERLAN 06CHE BANK.
Mr. de Jongh called at 9:20 this soming. Having
released during the last two weeks or so # little over $20,000,000
of their gold in New York, they were wondering what ve would think
if they ssked us now to earwark some gold in In insterdam. He
also mentioned that all of the gold which they had earnarked for
us on September 8 had now reached New York. I saked his what
amount he had in mind and he replied about $10,000,000 and added
that his dollar sales today approximated $5,000,000; they would
at once
not, of course, earmark the full amount of $10,000,000/but do that
gradually, according to their needs, as they sold dollars. I told
him that naturally, particularly under prevailing conditions, I
would have to discuss this matter with Washington and that I would
telephone or cable our reply before the day was over.
I inquired how things looked in Europe st present and
de Jongh thought not 30 very bright but it may alt come out all
right yet.
de Jongh wanted to know whether we could cover more
insurance for his on the Hoorden and said what we had done as far
was altogether satinfactory. I replied that we were hopeful "
could increase the amount and would let his know before the day
was over. I asked him whether no had made it sufficiently clear
in our cable that war risk insurance, as DOW written, covered
only from the moment the gold was aboard steamer but not on land.
de Jongh replied that he will appreaiaterthat.
LUKIEW
Regraded Unclassified
67(e)
FEDERAL RESERVE BANK
OF NEW YORK
#
219
OFFICE CORRESPONDENCE
DATE September 23, 1939.
CONFIDENTIAL FILES
To
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
FROM
BANK OF ENGLAND.
I called Mr. Bolton but in his absence spoke to Mr. Hawker
at 11 o'clock a.m. Things were 8 little leshectic in London,
Hawker said. For the last two or three days they had lost more
exchange than they had gained but there were a great many dollars
flowing in. I explained that I was in search of information on a
number of points which were puzzling our market:
(1) Was it correct (as some people were doing
here) to talk of permitted and approved imports, if so,
A.
what was the difference? / There was no difference. The
situation was this:
(a) & certain class of imports was
free and required no license at all,
(b) another group of imports did
require licenses, and
(c) 8. third group of imports (luxury
articles) was prohibited.
As regards (a) no list of free imports had been
published as yet but the information was available on applica-
tion to the Board of Trade. Generally speaking foodstuffs,
essential raw materials and materials for munitions were
free, although here again it must be borne in mind that a
good many of such imports were a government monopoly and
consequently had to be referred to government departments
for special approval even though the merchandise shipped
Regraded Unclassified
LM
FEDERAL RESERVE BANK
220
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 26, 1939.
CONFIDENTIAL FILES
T2
SUBJECT TELEPHONE CONVERSATION WITH
L. w. Knoke
FROM
BANK OF ENGLAND.
2
might be on the free list. Grain seems to be one of them
and requests to import must be referred to the Ministry of
Food. Hawker had not heard of any grain bills having been
accepted by the British control up to date but there was
no reason, he thought, why they could not be accepted. In
a general way what he had told me last week still held good,
namely, that an American exporter who had the British
importer's assurances either that he held a license for the
import of merchandise in question or that the merchandise
was on the so-called free list, could be sure of getting
dollars at 4.02.
(2) How about merchandise which had arrived in
England before September 3, but payment in sterling was
made to the American exporter only after September 37
A: He could definitely get dollars at 4.02 on application;
this was 8 pre-war contract and any pre-war contract
could be liquidated at 4.02 without any difficulty at all.
(8) People frequently spoke of blocked sterling
balances. What was that? Ai There was no such thing at all,
Hawker replied. In this respect the situstion was as
follows:
(a) A nonresident could transfer his
sterling balances to another nonresident without
any formality.
221
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 25, 1939.
CONFIDENTIAL FILES
TO
SUBJECT: TELEPHONE CONVERSATION WITH
L. 1. Knoke
FROM
BANK OF ENGLAND,
3
(b) A nonresident could transfer his
sterling balances to a resident without any for-
sality provided the latter was willing to accept
this sterling (in practice it is rather of little
consequence because it would probably involve a
nonresident buyer and a resident exporter and the
latter would probably ask for payment in foreign
exchange rather than in sterling although, as
Hawker pointed out, the British control would,
of course, encourage the resident exporter to
insist on foreign exchange. He added, however,
that there was no obligation on the resident to
refuse payment in sterling).
In both cases the sterling could be
sold at current rates (not, of course, st the
official rate).
(e) Pre-war balances belonging to U.S.
nationals could be liquidated at 4.02 on conditions
previously explained by his.
That being the situation and bearing in mind what
he had told me about permitted or prohibited imports, there
was no room in the picture for blocked sterling balances.
An regards liquidation of U.S. pre-war sterling balances,
18.
1.0
FEDERAL RESERVE BANK
222
OF NEW YORK
OFFICE CORRESPONDENCE
DATE September 26, 1959.
TO
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. ". Knoke
FROM
BANK OF ENGLAND.
4
Hawker said, a good deal of them was going through now.
(4) What was the status of silver imports
A:
just now? / Silver was in a fluctuating position at the
moment and the whole matter was now being considered.
At the present time the nonresident shipper could sell
the silver in the market, would get sterling for it and
sell the sterling proceeds at current rates (not official
rates). People who wanted to handle silver, however,
should be careful lest the import be prohibited some day.
BECEIAED
2333 i S 972
TW3MTAA430 YHUSANTE
- to -
- sill øt moot dal
23
JR
GRAY
Paris
Dated September 26, 1939
REC'd 5:45 pain.
Secretary of State,
Washington.
2180, September 26, 5 p.m. (SECTION ONE).
FOR THE TREASURY.
There WETE no changes in the official fortign
Exchange rates today and authorization to purchase
forsign currencies continued to be handled with increasing
despatch particularly as regards foreigners.
The securities market was again calm but fairly
well supported with a tendency toward discrimination
between individual issues and industries, their
geographical situation, Et cetera. Rentes WETE firm
and increased their gains of yesterday, the issues with
exchange guaranty gaining 2 francs 30 centimes and
1 franc respectively for the 1925 and 1937 issues.
(END SECTION ONE).
BULLITT
PEG:KLP
224
BLS
GRAY
PARIS
Dated September 26, 1939
Rec'd 5:35 p.m.
Secretary of State,
Washington.
2180, September 26, 5 p.m. (SECTION TWO)
What may be called the first phase of France's
mobilization and entry into the war has now been terminated.
It was accomplished with remarkable precision and smooth-
ness and a minimum of unnecessary disruption of the
country's economic life. The second phase is now be-
ginning: it involves the staggering task of reorganizing
the country's civil industry and readjusting its agri-
culture to the dislocation of war. There are the mechanical
problems for Example of the collection of drafts, the pay-
ment for military requisitions, the rebuilding of admini-
strative are Engineering staffs to 347 nothing of skilled
labor, to fill the huge gap made by mobilization.
Apparently realizing the importance of the sugar beet crop
arrangements WETE made to release temporarily from the
military forces sufficient field labor to get in the
crop and sufficient cars and trucks for military requisition
to take it to the factory. The Efficiency with which
this
225
-2- "2180, September 26, 5 p.m., from Paris,
this was handled, however, is more in the nature of an
Example. The wholesale Evacuation of populations from
danger zones and the Ensuing complications of lodging,
hygiene, Etc. has been apparently less thoroughly thought
out.
BULLITT
EMB
226
Jil
GRAY
Paris
Dated September 26, 1939
Rec'd 5:30 P.m.
Secretary of State,
Washington.
2180, September 20, 5 pame (SECTION THREE).
The present tendency of trade and commerce to insist
upon immediate cash payment is likewise causing anxisty.
The Ministry of Commerce published a communique today
inviting attention to the liberal credit facilities which
the Bank of France is prepared to grant; the latter has
decided to discount drafts drawn on debtors calle! to the
colors which are reimbursed by banks. Industrial and
business concerns having direct accounts with the Bank of
France may leave with the latter drafts drawn on mobilized
solditra if such concerns are not in a position to reimburse
such drafts. The Bank of France 13 nlso persured to grant
NEW credits Either through rediscount operations or directly
THERE supplies of ray material are concerned or where
necessary to tide over temporary difficulties.
(ENT) OF UESSAGE).
BECEIAED
BULLITT
KLP
81
September 26, 1939
My dear Mr. President:
The Chinese Ambassador called on me today
and informed me that he had just learned, this
morning, that the Government of French Indo-China
had announced that from now on no munitions, motor
cars or gasoline belonging to the Chinese Govern-
ment could pass through their territory.
I have called up Ambassador Bullitt and
given him this information and asked him to try
to get an explanation. (from the French Government .....
added in HM,Jr's hand-Mi the
The Chinese Anbassador has also approached
me on an additional loan from the Export-Import
Bank against the sale of tin in this country. I
would appreciate your advising me how far you wish
me to go with this negotiation.
Yours sincerely,
(Spe) Henry Norpenthau, Jr.
The President,
The White House.
Confidential (written in Hi,Jr's bandwritin )
Regraded Unclassified
28
September 26, 1939
Ky dear Mr. President:
The Chinese Ambassador called on ne today
and informed me that he had Just learned, this
norning, that the Government of French Indo-China
had announced that from now on no munitions, motor
care or gasoline belonging to the Chinese Govern-
went could pass through their territory.
I have called up Ambassador Bullitt and
given him this information and asked him to try
to get nn explanation. (from the French Government"--
added in HM, Jr's handwriting.
The Chinese Ambassador has also approached
me on an additional loan from the Export-Import
Bank against the sale of tin in this country. I
would appreciate your advising on 110m far you wish
be to go with this negotiation.
Yours sincerely,
(Sga) Henry Morgenthau, Jr.
The President,
The White House.
Confidential (written in HM,Jr's handwriting)
129
September 26, 1939
Ky dear Nr. President:
The Chinese Ambassador called on ne today
and informed no that he had Just learned, this
morning, that the Government of French Indo-China
had announced that from now on no munitions, motor
cars or gasoline belonging to the Chinese Govern-
ment could pass through their territory.
I have called up Ambassador Bullitt and
given him this information and asked him to try
to get an explanation. (from the French Government"--
added in HM,Jr's handwriting.
The Chinese Ambassador has also approached
me on an additional loan from the Export-Import
Bank against the sale of tin in this country. I
would appreciate your advising me how far you wish
me to go with this negotiation.
Yours sincerely,
(Sgd) Henry Morgenthau, Jr.
The President,
The White House.
Confidential (written in HM,Jr's handwriting)
230
GROUP MEETING
September 26, 1939.
10:00 a.m.
Present:
Mr.
Mr.
Mr.
Mr.
Mr. Thompson
Mr.
Mr. Cochran
Mr. Riefler
Mr. Duffield
Mr. Stewart
Mr.
Harris Graves Hanes Gaston Viner White Haas Bell Bailie
Mr.
Mr.
Mr.
Mr. Burgess
Mr. Foley
Mrs Klotz
H.M.Jr:
How are we on attendance today?
Bell:
Looks pretty good.
Toley:
The clock stopped.
H.K.Jr:
I am going to have to take it a little easy until
I get well. I have got jaundice, no you will all
have to be a little patient if I am a little un-
reasonable, et cetera. The doctor says it might
take three days or three weeks, so I am going to
go to the veterinary to get well. I need 6. horse
doctor. You will have to be a little patient with
me until I get over it. I will try not to be un-
reasonable.
Harry, I have got a formal note from Cotton on
this meeting tomorrow and I have asked Mr. Noble
to come in to see me to tell me what it is about
at 11:00 o'clock.
White:
Yes, I was going to read it. It is in business
hours and it is taking on the aspects of a con-
ference instead of EL luncheon, which 15 very dif-
ferent.
11.M.Jr:
Well, I am seeing him. I would like to have it
in writing. I would also like to know If it 18
something the President wants.
White:
They asked for an answer, and I will just postpone
the answer.
231
- 2 -
H.M.Jr:
Have Mrs. Klotz let you know what happened.
Cotton approved you on this memorandum.
White:
Yes, we spoke about it.
H.M.Jr:
Just 80 we are clear on the thing, that other
memorandum from Bullitt about somebody - what
was the thing about Bullitt?
Cochran:
May I read it?
H.M.Jr:
Please.
Cochran:
"PERSONAL FOR SECRETARY MORGENTHAU:
"I AM AGAIN BEING PRESSED BY REYNAUD FOR ACTION
IN THE CASE OF MARCEL ROCHAS. I HAVE BEEN TOLD
BY WAIT THAT THE TREASURY HAS SEVERAL TIMES
RECOMMENDED THAT THE ACTION AGAINST ROCHAS BE
DROPPED, BUT THAT THE MATTER HAS BEEN DELAYED
BY THE UNITED STATES ATTORNEY IN NEW YORK. WOULD
YOU PREFER THAT I CABLE TO FRANK MURPHY DIRECTLY,
OR DO YOU WANT TO TAKE UP THE CASE WITH HIM YOUR-
SELF? IN ANY EVENT, I SHOULD LIKE TO BE IN A
POSITION TO GIVE REYNAUD A REPLY AS SOON AS IT
IS POSSIBLE.
BULLITT"
H.M.Jr:
Mr. Harris acts as though he knows about it.
Harris:
That moiety business went through me yesterday
about it.
H.M.Jr:
Who is that?
Harris:
Payment to an informer.
Foley:
John Cahill doesn't want to drop the case. He
feels that he has to go through with it and the
only reason for nolle prossing it would be because
of our friendly relations with France.
H.M.Jr:
What did the fellow do?
Foley:
Smuggled dresses into the United States.
232
- 3 -
H.M.Jr:
Why should it be nolle prossed?
Harris:
He sent them in with different women. There was
a plain case of corruption throughout.
Foley:
I think Wait feels that he cooperated with the
United States authorities in running down the
other participants in the crime and unless we
nolle pross it or show some leniency, it would be
very difficult in the future to get any kind of
cooperation.
H.M.Jr:
Unless we do nolle pross it?
Foley:
Yes.
Harris:
It is a very flagrant case,
Foley:
John Cahill doesn't want to do it and I don't want
to put it on a personal basis with John and I
initialed the letter yesterday that went to Harris.
Harris:
It isn't like a case of misunderstanding. It 1s
just a deliberate fraud and they laid their plans
well in advance.
H.M.Jr:
Well, will Mr. Harris and Mr. Foley give me - pre-
pare an answer for me to send to Bullitt?
Foley:
Yes.
Harris:
You might hold that up if it comes to you.
Gaston:
Yes.
H.M.Jr:
Are you in on it too?
Gaston:
You referred it to me some months ago and I wasn't
able to get anywhere with 1t. It doesn't appear
probable to us that Marcel Rochas wasn't guilty.
E.M.Jr:
Prepare the thing and I think just - what should
I say - to protect all entrances to the Treasury
before we accept it, why not show it to the
Attorney General? At least I would like an answer
to go out tonight to Bullitt.
233
- 4 -
Foley:
I will get up something and clear it through
Gaston and Harris.
(Discussion off the record).
H.M.Jr:
Between you, I will get something tonight?
Harris:
We will get something tonight.
H.M.Jr:
Bullitt's threat to take it up with the Attorney
General just gives me a laugh.
Hanes:
I have nothing.
H.M.Jr:
Herbert?
Gaston:
I have nothing.
Duffield:
That reporter from the New York Herald Tribune
who wanted to come in and see you at 10:30 says
it is not essential to see you. He seems to
have been satisfied with these other interviews
around here and wants to be relieved of that.
H.M.Jr:
Very nice.
Duffield:
That is all.
Foley:
I don't have anything.
Cochran:
Pinsent of the British Embassy has been raising
this question the last few days about his pay
checks and also about putting a deposit with the
Federal Reserve Bank in New York.
H.M.Jr:
Now, I don't know who all 1s interested in this,
but I am very much interested and I wish you would
go in & huddle, John, with some of these people
and I would like to know a good reason why the
French and British Governments can't open an
account in the Federal Reserve of New York just
the way I know the British have heretofore on
their planes. Now, all the planes that the British
bought, the certificates of payment were presented
to the Federal Reserve in New York and they paid
on certificate. I think the French did the same,
I am not sure.
234
- 5 -
Now, in view of the way the President feels about
this thing
(Discussion off the record)
11.1/.Jr:
I think the logical place for them to have their
account is the Federal Reserve of New York, and
that also gives us openly an opportunity to know
what they are doing. I don't know why that isn't
the place to have it.
Bell:
All those governments had accounts there during
the war.
Burgess:
There was no Bank of England, was there? It was
all through their central banks.
Bell:
No, I think we deposited money there directly to
the credit of the British Treasury when we made
loans.
H.M.Jr:
You will remember when we asked about Osborn coming
over, the answer was that the British Treasury and
the Bank of England are practically one now. It
seems to me from their standpoint and our stand-
point it is B. much cleaner thing to let them deposit
there. They have asked twice about it now. Per-
sonally, unless there is some awful good reason,
I would like to see their accounts, their pay
accounts, in the Federal of New York,
Bell:
I see no reason why it can't be done.
H.M.Jr:
I would like to have somebody tell me why it can't
be done.
Cochran:
The reason they have told me in the past was that
the Federal had taken deposits ordinarily from
central banks only principally because of the
question of signatures and so on. That 1s, the
government changing
H.M.Jr:
But Merle, I know that the British planes which
are on order here now are paid for by the Federal
of New York.
Cochran:
Yes, I know. It is the same with France. It was
the Bank of France which had the account.
235
- 6 -
H.M.Jr:
There you have got 1t. I can't understand it.
Cochran:
The Federal hasn't given any negative answer.
I just put up the question.
H.M.Jr:
I don't want to put it up, but I thought if you
fellows could have a meeting on it and look at
it from the standpoint of the United States
Government, aren't there certain advantages? It
certainly is a. great advantage to have it there
and know how much mcney and how much they are
buying, who they are paying, and tell them so,
rather than to say, "Well, can we ask 1X1 National
Bank to tell us," and so forth and so on. Do you
see any reason, John, why it shouldn't be in the
Federal?
Hanes:
No, I am quite certain the French arranged that.
H.M.Jr:
Didn't you and I tell them that?
Hanes:
Yes.
H.M.Jr:
Now, whether the French Treasury makes the deposit
with the Bank of France who does it here, or
whether it comes directly, it seems to me 30 un-
Important compared to the principle, and I am sure
it would be very pleasing to the President. Then
that cuts out all this thing of whether the Chase
should have it or whether they shouldn't have it,
or some other bank. I malce no bones about it.
I would like to know how much they have got and
what they are buying and so on, and when it goes
to the Federal, tell them I expect them to tell
me.
Walter Stewart, can you see anything wrong with
that?
Stewart:
I see distinct advantages from our point of view.
H.M.Jr:
Harry, can you see anything?
White:
No, I think the contrary would need to be defended.
H.M.Jr:
I think we ought to move on the question today
because Pinsent has raised it twice. I think he
ought to have the answer.
236
- 7 -
Hanes:
Is he asking the Treasury for....
H.M.Jr:
It was in a memorandum of last night which 1s
on your desk. It is all in there. Let's have
an answer tonight as to how we feel.
Cochran:
There was another question of the Persian loan.
The Persian Minister came to the State Depart-
ment yesterday and told them that he had in-
structions from his government to get a 15 million
dollar loan immediately.
White:
You wouldn't want to disappoint him, would you?
Cochran:
No.
R.M.Jr:
John, will you look into that? Ask them if they
are going to put up some nice Persian carpets
as a collateral.
Cochran:
He said it is partly for construction purposes.
H.M.Jr:
Well, let's get an answer on that.
Have you got something else?
Cochran:
Wallace Murphy suggests there might be some
security because this Uranian 011 Company pays
some 200,000 pounds to the Persian Government.
H.M.Jr:
Is there a lien on the oil company?
Cochran:
Just a royalty, but how well that will hold I
don't know. They want to know whether the
Minister should come over here and see anyone
in the Treasury.
H.M.Jr:
Hanes will call immediately.
Cochran:
That is all I have.
H.M.Jr:
Stewart, can't you fix up this fellow Pinsent
so he gets 4.02 and quit worrying?
Stewart:
He seems to be worried about that and I saw him
for a little while yesterday and just reviewed
old things, but told him that I didn't want to
237
- B -
have any further talk with him until I talked
with you and found out what lines, if any, you
wanted to have open between us.
H.M.Jr:
Personally, I hope Congress doesn't investigate
the fact that they have only sent over here
assistants to you or former assistants to Jake
Viner.
Viner:
No, personal friends.
H.M.Jr:
That is worse, Wait until Pearson and Allen
get hold of that.
Jake?
Viner:
Nothing.
H.M.Jr:
Are you going to do that little job for me today?
Viner:
Immediately.
Burgess:
I haven't any report yet on the market this morn-
ing. I spent a good deal of time with It yes-
terday and Saturday. I think it is gradually
getting adjusted.
H.M.Jr:
Well, let me say this in strict confidence in
this room - because 50 many people are interested,
I mean - we started with a background which Hanes
is familiar with. While I was gone, Mr. Ecoles
sold the President the idea - I will say this
was before the war started, I don't know whether
it 1s changed - about using up the free gold and
the silver certificates and everything else and
not borrowing any money and our balances ran down.
We have come to that - from that point to the
point yesterday where I brought the President's
attention to the propaganda. If between now and
the first of October the Federal Reserve doesn't
give me 8. clear track, I want him to back me up
to shove them off the track, Then he said, "I
will give you a rule of thumb," and this 1s the
most encouraging thing that has happened since I
have been here these three weeks, because after
all, raising the money is our job. He said,
238
- 9 -
"Henry, until ten-year money goes to three
percent, " he said, "don't bother me." So I
said, "Well, Mr. President, with more than
five billion excess reserves, I won't have to
bother you for B. long time."
I explained to him what is happening and all
the troubles we are having, and 80 forth. He
was very sympathetic and if I needed help as
a last resort, he would give me the backing
I need. He said to do everything possible to
get Eccles to come in line without bothering
him. He didn't say it in just so many words,
but that 1s what he meant.
Sailie:
We think we can.
Burgess:
I think we are on a basis to work with him now
much better than we have been.
H.M.Jr:
I am telling you gentlemen that October 1st is
the deadline. If I don't get a clear track, I
will just have to shove them off the track.
Burgess:
I think perhaps today or tomorrow we might sit
down and have a review of that thing if you
would like to.
H.M.Jr:
As I pointed out to the President, I am not
going to give up the advantageous position that
I have now, that I can choose the time to finance
and refund. I don't want somebody else to tell
me I have got to do it now at their terms, That
is a great deal more important than Mr. Ecoles'
philosophy of cheap money, with which he can't
do anything anyway, and I almost let it slip last
night- and I wish I had - at my press conference,
"Take 8. look at the bill market where the Federal
Reserve leaves it alone and I borrowed yesterday
at half the rate." I almost let it go, but I
didn't.
Burgess:
Glad you didn't.
H.M.Jr:
Mrs. Klotz keeps me down. I won't guarantee to
be a good boy indefinitely, though.
239
- 10 -
Bailie:
Just tell us when you are going to be bad before
you are.
H.M.Jr:
Well, after we all read Pearson and Allen I don't
know what I will do.
Riefler:
I haven't anything.
H.M.Jr:
George?
Haas:
I have nothing this morning.
Harris:
After the outbreak of hostilities, the first
American boat to get in trouble was B. boat called
the Wacosta. I think I foretold you that she
would get in trouble, because she was an American
ship and had been chartered to the British to
replace one of their ships that they were using
for troop carrying. That same company had two
other ships which they had chartered at the same
time and they now propose to fulfill that charter,
and I have discussed it with the Maritime Commis-
sion and they say, "Well, they signed the charter
before hostilities," and they propose to let
them go through with it.
Well, I would like to go on record as stating that
it is 8. very dangerous precedent and if one of
those boats loads again on that same berth and
B. Sub catches her, she will undoubtedly sink her,
and I think 1t is a matter - I have drawn you a
memorandum that you ought to at least lay before
the State Department.
H.M.Jr:
I will lay it before the President. Give me the
memorandum and I will lay it before the Presi-
dent.
Harris:
The second matter was - I don't know whether you
saw this memo last night or not, but it had to
do with the abolition of that southeast patrol
and working them in conjunction with the Coast
Guard. We feel that this plan is 8. much better
plan for the protection of our southern ports now.
H.M.Jr:
I am not familiar with it.
240
- 11 -
Gaston:
We are all agreed on it. (Mr. Harris hands docu-
ment to Secretary)
H.M.Jr:
Which is which?
Harris:
The patrol 1s underneath that.
H.M.Jr:
Well now, wait a minute. If the President read
that he wouldn't get the history on it from that.
Harris:
That is for you, you see, I will give you that
in
H.M.Jr:
Give me the background.
Harris:
Yes.
H.M.Jr:
But try to keep it to one page.
Bell:
Make the page big.
H.M.Jr:
Getting it cold, he wouldn't know, you see,
Harris:
Well, this is for you.
H.M.Jr:
What are you people doing on the southeast patrol?
Gaston:
Abolishing the Customs motorized patrol around
Florida and the Gulf. It doesn't seem to be of
any great value. The Coast Guard can take care
of it as far as belligerent ships are concerned.
Harris:
We have a lot of ports down there - ships are
going in and out and they haven't even got a
Customs man there.
H.M.Jr:
One port where you haven't got anybody and a ship
came in and out - Bocagrande.
Harris:
Wilmington is another one.
H.M.Jr:
At Bocagrande they have got a Customs fellow there
and he lets his daughter clear the papers. This
was a big boat while I was there. She took on
thousands of tons of phosphate. No Customs men
were on it or anything. I reported it at the
time. This man's daughter just gives them, as B.
241
- 12 -
matter of formality, Customs clearance. And I
think, 1f I remember rightly, he spends his
time as a Customs man down there running the
ferry. Now, Bocagrande is the place - is that
on the West Coast?
Harris:
Yes.
E.M.Jr:
That 1s the place where they shipped most of
the American agricultural chemicals. It is a
big plant and they ship their phosphate and they
have got 8. fellow there who runs the ferry and
his daughter is the clearance, and no agents go
on board. I think some of those places - Boca-
grande should have a lot of phosphate and phos-
phate seems to be, the English consider, contre-
band. You might take a look at some of those
outlying ports.
Harris:
I will.
White:
There are two minor things. A man from the State
Department came over to get our opinion with
respect to answering a request from the Liberian
Government by way of Firestone. They are in need
of currency and according to his story they asked
the British Government for more coinage and they
say the British Government turned them down and
they want to know whether It would be all right
for us. The request didn't have sufficient data
to make it appear anything but either B very
unusual transaction or one of negligible economic
aspects, so I told them that 1f he was further
Interested, to make an official request to the
Treasury so that we could comment on it, because
it may have political and psychological effects,
even though it doesn't have economical effects,
so you may or may not hear from him. We didn't
give him any opinion.
Then in one of the reports from Nicholson there
was a statement to the effect that the Japanese,
fearing that an embargo might be placed on exports
of certain types of war materials, have already
made arrangements with American concerns to ship
to the Philippines and they would be re-routed
through the Philippines. I don't know how much
there in in It, so I am just passing it on.
242
- 13 -
Then the Universal Trading Company has changed
its contract with respect to the price they are
going to charge for tung oil. I don't know whether
you were notified of that. It is a small thing,
but they are just keeping us informed and they got
the O.K. of the Treasury, I think, before they did
it.
R.W.Jr:
What are they going to charge?
White:
They are going to make the basis for the charge the
price prevailing in the previous month instead of
the previous quarter, which will enable them to up
their price more rapidly in accordance with the
rapidly changing price.
11.11.Jr:
The last I heard they were charging 12 cents.
llenes:
21 cents.
Loley:
When that price was fixed, it was fixed in the
11ght of a background contemplating control of
the source of supply. They haven't had control
of the source of supply and the independent
dealers have been cetting tung oil in this country
at around 25 cents, and this is to - it 1s to
cut down the di fference between what the indepen-
dent
H.M.Jr:
I still say that the last thing I heard, Chan told
ne that they were charging 15 cents for tung oil
and in Hongkong he was only charging 12.
White:
That mist have been some time ago.
H.M.Jr:
Last July.
Poloy:
It is up as high as 27 cents as far as the indepen-
dents are concerned.
White:
The demand is much greater than the supply and
they don't control all the supply, so that there
are certain dealers who are making an enormous
profit unless the Universal Trading Corporation
has the right to follow the market more closely.
That is what this new change 18 doing. I am
just keeping you informed.
243
- 14 -
H.M.Jr:
Well, Cotton, being on Export and Import Loan, he
ought to watch that.
White:
There was a letter which went to the Export-Import
Bank about it.
H.N.Jr:
Why don't you tell Cotton about this thing and
let him watch Universal? Will somebody tell him?
Will you tell him for me, Mrs. Elotz?
Anything else, Harry?
White:
That is all.
Graves:
Nothing.
Nothing?
Graves:
Nothing.
M.M.Jr:
Are you all right on January 1st?
Graves:
I am doing some home work now,
M.M.Jr:
Incidentally, I had a chance to tell the President
what we were doing on extending purchasing to
civil departments throughout the country. He is
very mich pleased and thinks It 16 moving in the
right direction.
What happened about this man Stone?
Graves:
Not much of anything happened.
E.M.Jr:
Tell them who Stone is.
Draves:
Stone 1s the head of the methods branch of the
Bureau of the Budget. He is the fellow who
Viner:
Another personal friend of mine.
Graves:
considers ways and means of coordinating ad-
ministrative methods throughout the departments.
Re has nothing to do with the estimates branch
of the service, as I understand. I had an hour's
conference with him yesterday and I think his
attitude was frankly - I don't believe that they
are in position over there to be of any positive
help to us.
244
- 15 -
H.K.Jr:
But they don't block us?
Graves:
No, on the contrary I am sure they will help
us in an advisory way.
H.M.Jr:
Which will be the first test case that you have
over there?
Craves:
You mean which branch of the service?
B.M.Jr:
Yes,
Graves:
Collins has just gotten in on the various depart-
ments. The data he had called for last June
giving the facts about their purchasing set-ups,
he is just beginning to digest that material. I
think he is going to tackle the Interior Department
first, because he said to me yesterday
E.M.Jr:
What is he going to do after that?
Graves:
Well, I haven't heard anybody say anything about
it. I understood him to say that he was going to
get in touch with Fry, the purchasing man for
Interior, right away. Some of the Interior agencies
have already been - that is, the arrangements have
already been made. The Housing Administration,
for instance, and the branch of Aeronautics in
Commerce. We are in the middle.
H.M.Jr:
You have got the President heartily approving this
thing and the Director of the Budget approving it,
so I guess we are all right.
Draves:
Yes.
Duffield:
As soon as possible, I would like to tell the
newspaper men what Mr. Craves 18 doing and what
the background of the whole business is.
H.M.Jr:
I would wait a little bit.
Graves:
What we have got to do before we will be in that
state, I think, is
H.M.Jr:
Then they would be calling for information and
information. I would like to let him go along
for of month or SO.
245
- 16 -
Graves:
We have got to make a blueprint of this whole
set-up before we will be in shape.
H.M.Jr:
Then they will start asking
Duffield:
They are going to see the Procurement people
going in to call on him.
H.M.Jr:
Well, no one has asked about....
Duffield:
He is the hardest man to see I ever saw. He is
never in the hall or anything.
H.M.Jr:
Try and see Graves. Let's let it go. All right?
Graves:
Yes.
H.M.Jr:
Dan?
Bell:
We know that the total bids increased yesterday
again on Treasury bills.
H.M.Jr:
Four hundred and some odd
Bell:
548 million; that was compared with 480 million
the week before and 340 million the week before
that.
E.M.Jr:
Did the Federal let theirs run off?
Bell:
Yes, about 30 million dollars worth, and they
bought less than 15 million last night. Other
securities in the market - whatever they get
today will make that much less in their port-
folio.
H.M.Jr:
How much did that run off?
Bell:
About 30 million.
H.M.Jr:
So they have got to buy another 15 million to
show
Bell:
....even. And 1f they don't get any more today
they will show a drop of something like 15 million
this week.
246
- 17 -
H.M.Jr:
That makes it perfectly consistent, doesn't it,
Mr. Stewart, in an open market operation?
Stewart:
That is right.
H.K.Jr:
You can write a text-book on how to run an open
market operation.
Stewart:
Yes,
Burgess:
I think it would be reassuring.
Viner:
I think it would be very good to show a drop to
show that they are controlling and not paying.
Stewart:
It will convince the press that it is the Treasury
that is doing the buying and not the Federal.
Bell:
That is my next question. The last two conferences
we had with the Board, this matter has come up
both times. I believe it was raised by John McKee.
He said there is a feeling on the outside that B.
billion dollars worth of bonds have been purchased
in the last two or three weeks and that the Federal
only shows half B. billion, 50 where is the other
half billion? I haven't seen any publicity to
that effect, but
H.M.Jr:
Neither have I.
Fell:
They raised the question as to whether you shouldn't
let it leak out some way, I mean not necessarily
make it a precedent, that we have purchased some
70 million dollars for our
H.M.Jr:
No, sir. Let them stew in their own juice. After
they have been out of the market for one week,
then I will talk, and maybe sooner, but not along
that line. Why should I pick their chestnuts out
of the fire?
Bell:
I wouldn't see any particular harm
H.M.Jr:
Let's take B. look at that and we will see. If
you get me giving out leaks, I am afraid.
Bell:
Well, I didn't exactly mean 8 leak but I thought
maybe a question might be asked you at 8 press
conference.
247
- 18 -
H.M.Jr:
It is dangerous, Dan, to question me.
Bell:
Let's don't do it, if it is dangerous.
H.M.Jr:
If you get me started on that thing, I am going
to talk plenty.
Bell:
I haven't seen anything in the paper about that,
but I wouldn't want the impression out that we
have purchased that half a billion and are hiding
it.
H.M.Jr:
Who has got that information?
Bell:
I don't know. I haven't seen it.
H.M.Jr:
It is imagination.
Bell:
It has been raised twice in the last two weeks.
H.M.Jr:
It is in nobody's mind except the Federal Reserve
Board.
Viner:
Ask them to send you the clippings, Dan.
Bell:
Well, they are so closely In touch with all the
banks of the country that it probably came from
the banks.
Viner:
Maybe it came from Burgess.
Burgess:
I think the primary argument now is to keep the
publicity down on this. It has been too much on
the front financial page, and 50 on, and the
less that can be said about it now, the better.
I think there is theoretically a case for the
public knowing parallel what the Reserve System
is purchasing and what we are purchasing. We
do ordinarily give that out, once & month.
H.M.Jr:
The 15th of the month for the month before. We
have never broken that.
Burgess:
Well, I think that now in view of the undesirability
of publicity that it might be just as well to let
it ride.
248
- 19 -
Bailie:
I think there 18 a very strong reason against
breaking that rule, Mr. Secretary, because you
give the impression that trust funds are being
used to manipulate markets, which we do not
wish to give at all.
H.M.Jr:
Not when we are not very good at the manipulating.
Bailie:
You said it.
H.M.Jr:
When we have been successful, we don't mind what
fund we have used,
Bailie:
You never have advertised it.
Bell:
I think the smart boys can figure out about what
we are doing because the redemptions at two per-
cent show up daily on our daily statement.
H.M.Jr:
Let John McKee put on his gas mask.
Any other news?
Bell:
That is all.
H.M.Jr:
Thompson?
Thompson:
I am having the papers prepared in the case of
Mr. Cottrell, in whom Mr. Rayburn is interested.
H.M.Jr:
Check that with the Commissioner. Tell Mr. Hanes
aboutit and then when you walk it over I will
sign it.
Thompson:
It has to do with Civil Service and he also has
to take & physical examination.
H.M.Jr:
Why don't you send for the man?
Thompson:
I have already done that.
H.M.Jr:
Fine.
249
September 26, 1939
11:15 a. m.
Present:
Chinese Ambassador
Mr. Cotton
(Dr. White at the very end)
HM,Jr: Do you know Mr. Cotton?
Ambassador: Yes; we have met before.
HM,Jr: Mr. Cotton 18 the Treasury Director on
the Export-Import Bank. Having some 1dea of what you
have in mind, 1 thought he might Just as well hear it.
Ambassador: I come to report to you an inter-
view I nad with the President, Just two weeks ago last
Friday. He was gracious enough to give me an interview.
After reporting to nim vne international situa-
tion in the East created by these stupendous changes
in Europe, I was reporting to him that this situation
made our Government very nervous. On one hand me were
afraid of the steps Russia mignt take; on the other
hand we are afraid that the Allies, England and France,
might desert us and might come to agreements that would
be very disadvantageous to China. We were most afraid
that not only the concessions, the International Con-
cessions, might be affected, but also these two routs,
the two back doors of communication, transportation,
might be affected.
Only one minute ago my Secretary called me up --
and this 18 diversion -- Just A momment ago my First
Secretary called me up. Just after I left they got a
cable from the Government saying that the French Govern-
ment had enforced under the war emergency, in French
Indo-China ordinances
Hhh,Jr: What does that mean?
Ambassador:
under which the French Govern-
250
-2-
ment forbids Chinese munitions, motor cars and gasoline --
they specified these three things: Chinese munitions,
motor Indo-China. cars and gasoline -- from passing through French
HM,Jr: That is serious.
Ambassador: That is very serious. One of those
things we were afraid.
Reporting thesee, my Government was really jittery
and I told the President that last year, at our worst mo-
ment, the American Government gave us
HM,Jr: They won't permit what to go through? Mu-
nitions?
Ambassador: Munitions, motor cars and gasoline.
HM,Jr: Munitions, motor care and gasoline.
Ambassador: Yes, to go through French Indo-China
to China.
Mr. Cotton: These are purchases already made?
Ambassador: All purchases already made. This
Just came this morning, Just after I left the house.
They were decoding when I came here. My Secretary called
me up.
HM,Jr: Humpn!
Ambassador: That was one of the things we were
afraid of. I was telling the President, last year at
our worst moments the American Government gave us this
$25,000,000 loan, credit, which really had its life-saving
and life-sustaining effect, sort of injection to strengthen
the heart at 8 time when the heart was really sinking. And
I reported what Mr. Chen had reported to me -- Mr. K. P.
Chen reported to me -- about the uses and expenditure and
the great cooperation which the Treasury Department has
given to us, given to nim and the Trade Corporations and
all the purchases. I gave the President a general sum-
mary of the purchases, of the character of the purchases,
including the 5,000 motor cars, trucks, and medical supplies,
and 80 on.
251
I reported that the money 1s now spent, although
not entirely paid out, but by October, by the middle of
October, all the payments will be made and that will
mean the end, the exhaustion of this loan. I was ask-
ing the President if at this very trying moment your
Government might be pleased to give us another injection,
another life-saving injection, in the form of a loan.
That would greatly strengthen our morale and buttress
our courage at this time. Also indirectly give a mani-
festation of the American attitude of sympathetic support
to China to the other nations.
The President was very much interested. He naked
about certain details. For example, payment of this last
credit, and I reported that three installments had been
paid on it. He was very much pleased. He said, "That
18 highly complimentary; that alone should be a good ex-
cuse of renewing or extending more credits." And he
Raked about securities. I told him that I learned from
Mr. K. P. Chen that wood 011, tung 011, the annual pro-
duotion is about 44,000 tons a year and in about five
years, under the contract, in five years the total pro-
duction will be about 220,000 tons. At the market price
of $440.00 a ton, that would be enough, would be in five
years' time worth $96,000,000.
Then I also reported to the President that Just
that week my Government and notified Kr. Chen and myself
that the Central Government was taking over the tin, the
control of the tin, production of tin, which constitutes
about 70% of the world's production, which amounts to
10,000 tons a year from the Province of Yunan and 3,000
tong from the Province of Kwangei, 80 about 13,000 tons
a year, and tin at that time was worth $1,100 a ton and
now, in 2 weeks' time, I am told, the orice is $1,200 a
ton. Bo that, 1f we talk in terms of five years, the
tin would be worth at least between $60,000,000, $60,000,000
or $70,000,000. The President was interested in this.
He said, "I will see the Secretary of the Treesury."
HM,Jr: Mr. Ambassador, I have been waiting for
two weeks to hear from you.
Ambassador: I did not dare to come in to see you
because of the disturbed condition. I know you have
252
-4-
been very busy. That's why I did not dare intrude.
HM,Jr: For two weeks I have -- I heard about
the loan against tin, which you raised, and I could
not understand why I did not hear from you.
Ambassador. I am glad you told me. I felt I
should not intrudé at a time when your Government must
be very, very busy on the war situation.
HM,Jr: I have always seen you when you have asked.
Ambassador: You are very kind and because you are
kind, I feel hesitant in intruding.
HM,Jr: Mr. Ambassador, what did the President say
about the question of a loan to you?
Ambassador: The President said, he said he was
very much, he said, that's all he said to me. He said,
he said the Chinese Government has paid promptly on this
$25,000,000 loan, on schedule, and that's, that loan will
be a good reason for extending another loan.
HM,Jr: Let me ask you this question. In view --
they won't let you bring tin out through Indo-Chine, will
they?
Ambassador: I think if these are commercial, ord-
inary business, it goes. I don't think there will be any
reason.
HM,Jr: Have you got a little time to sit down
Ambassador: Yes, sir; I have.
HM.Jr:
with Mr. Cotton and Mr. White?
Ambassador: Yes, sir.
HM.Jr: Would you?
Ambassador: Yes, sir.
HM,Jr: And go over this thing more fully?
Ambassador: Yes, sir. I don't want to take too
much of your time.
253
-5-
HM,Jr: No. I would like you, if you have &
few minutes, to sit Sown with Mr. Cotton and Mr. Write
and go into this thing more fully.
Ambassador: Yes, sir.
HM,Jr: Production, and how you get it out, and
give them in more detail just what -- I mean, 80 we would
know as much about tin 88 we do about tung oil.
Ambassador: The tin, the tin, 3,000 tons of tin
of Kwangai has already been transferred to the control
of the National Committee of Resources, but this is tin,
and the 10,000 tons of tin from Yunan has always been
under Provisional Government and the Commissioner of
Finance of the Province, Mr. Miller (7) is an American,
educated engineer there, efficient engineer, has been
running this, but they are rather Jealous of the foreign
exchange value that this tin will bring to Provisional
Treasury, 80 the Government, only last -- day before yes-
terday, Mr. K. P. Chen telephoned to me that he got wire
from Dr. Kung that this transfer is completed.
HM,Jr: I see.
Ambassador: That the Central Government promises
to pay the fixed amount of foreign exchange to the Pro-
visional Treasury 88 a guarantee of the Provisional cur-
rency BO that the Central Government from now on will be
able to take over this tin, completely.
HM.Jr: Well, it's & question of delivery and how
you are going to deliver it and where you are going to
deliver and where you are going to ship all that stuff and
everything else and, as I BAY, if you had the time to sit
down with Mr. White and Mr. Cotton, why
Ambassador: I would be very happy.
HM,Jr:
and give it to me in more detail.
Ambassador: You want me to talk over with Dr. White
and Mr. Cotton
HM,Jr: If you would.
It's 8 a privilege, Mr. Ambassador, to see you any time.
254
-6-
Ambassador: Shortly after the President returned
I noticed that the Government was calling this special
session of Congress and the President and all members of
the Government conferring with leaders of the different
parties, I thought I had better wait.
(At this point, Dr. White came in.)
HM,Jr: (To Dr. White) The Ambassador has brought
up the question of another loan to China against tin and
I have asked him to talk to you and Mr. Cotton in more de-
tail.
o0o-o0o
255
September 26, 1939
12:06 p.m.
HMJr:
Hello.
Operator:
Ambassador Bullitt. Go ahead.
HMJr:
Hello.
Bill
Bullitt:
Hello, Henry. How are you?
HMJr:
I'm all right.
B:
HMJr:
Bill, I'm just going on the theory that the French
Government listens anyway.
B:
Hello.
HMJr:
Hello.
B:
Hello, Henry. I'm afraid this call is going by way
of England and it's hard to hear.
HMJr:
Well, can you hear me fairly well?
B:
I can hear you now. I couldn't a moment ago. I
hear you now.
HMJr:
Well, the Chinese Ambassador was just in here five
minutes ago
B:
Yes.
HMJr:
and he tells me that the French Government
have gotten out an order that no more gasoline,
munitions or trucks can go through Indo-China.
B:
the Chinese
Ambassador?
HMJr:
Yes.
B:
That no more gasoline, munitions or trucks
HMJr:
Or motor trucks.
256
- 2 -
B:
Yeah.
HMJr:
Can go through French Indo-China.
B:
Yes.
HMJr:
And I thought you might ask them how come.
B:
Yeah.
HMJr:
Because that's pretty serious.
B:
Yeah. Gasoline and motor trucks especially.
HMJr:
Yeah.
B:
The other has always been forbidden.
HMJr:
That's right.
B:
Henry......
HMJr:
Yes.
B:
did you get my telegram about the American
hospital?
HMJr:
I handed it this morning to Johnny Hanes and he'll
give you an answer tonight.
B:
Fine. I'm delighted.
HMJr:
I gave it this morning to Johnny.
B:
Yeah. I'm very much obliged to you.
HMJr:
He'll do the best he can.
B:
Fine. Henry, I'll get on that job immediately
because -- and I don't believe anything new in that
regard, because I only finished discussing matters
in that area at three o'clock this afternoon.
HMJr:
I didn't get that, Bill.
B:
I say, I had a long discussion on affairs in that
area which ended only three hours ago.
- 3 -
257
HMJr:
I see.
B:
But I will get on it right away.
HMJr:
Well I thought you'd want to know because I know how
much interested you are.
B:
But I -- I'll get you something on that subject
yet.
HMJr:
Right.
B:
HMJr:
Yes. I understand.
B:
Yes.
HMJr:
Well, if you'd find out I'd appreciate it.
B:
Thank you very much indeed, Henry. Much obliged to
you. How are you?
HMJr:
I'm just fair. I've got jaundice.
B:
Oh, what a shame!
HMJr:
Yeah.
B:
Henry, tell me about the chances of the Neutrality
Act.
HMJr:
The chances?
B:
Yes.
HMJr:
I think they're good.
B:
You do think they're good?
HMJr:
Yes, I do.
B:
And when do you think it may come through?
HMJr:
Oh, I don't think it'll
under three weeks at
the earliest.
- 4 -
258
B:
Oh, you think it will take that long?
HMJr:
Yeah.
B:
That's too bad.
HMJr:
I would say -- I'm afraid three weeks.
B:
Yeah. Well, good luck, Henry. Thank you very much
for calling me.
HMJr:
Goodbye.
B:
Goodbye.
HMJr:
Goodbye.
259
September 26, 1939
2:16 p.m.
Joseph
Kennedy: Hello, Henry.
HMJr:
How are you?
K:
Oh, I'm fine.
HMJr:
Joe, I wonder if there's anybody in the British
Government who watches the sales of securities in
the United States?
X:
I wouldn't think BO.
HMJr:
You don't think 80?
K:
I don't know any way that they'd know it up until the
last two or three weeks.
HMJr:
Well I mean now.
K:
Well, now I -- I imagine that they probably do. I --
yes.
HMJr:
Well, I -- I wonder, would you mind sort of making some
inquiries?
K:
Yeah.
HXJr:
Because everything 18 going fine now but if it didn't
go 80 well in our own market why then we might want
to talk to somebody.
K;
As a matter of fact, Henry, it isn't the practical
thing for them to do
having taken everything over
HMJr:
Yeah.
K:
......
they -- they have to know every n tage because
they are permitting people to sell their securities
provided they return the -- the
power
to them at once, 80 they'd have a record of that,
HMJr:
Yeah.
K:
But I would think that it wes only a question of a short
time when their -- they take -- when even that power
would be taken away from them and that everything would
be under Government.
260
- 2 -
HMJr:
Well
K:
So I'll get busy tomorrow. Now then this -- of course
this report comes tomorrow
HMJr:
Yeah.
X:
and I'm seeing Montague Norman on Friday morning
and I'm -- I'm writing you a pretty definite report on
what I think of the financial situation here.
HMJr:
Yeah.
K:
And what I think 1s -- 18 probably the line of direction.
HMJr:
Well, there's nothing that we're worried about now but
I'm looking to the future.
K:
Yes, of course.
HMJr:
And the time might come where the -- if there was some-
body that we could talk to or you could talk to for us....
K:
Yes.
HMJr:
why, it would be helpful.
K:
I'll find out tomorrow, Henry, and then we -- we -- I
think that can be arranged.
HMJr:
Because -- for your information they're -- they're
continuous sellers here.
K:
Yes, of course.
HMJr:
And, as I say, the market takes it very nicely, but there
might come a time when they wouldn't.
K:
Well, they asked me about that question about ten days
ago.
HMJr:
Yes.
K:
And I told them that I never -- I could see no difficulty
in selling on B. rising market.
HMJr:
No.
61
- 3 -
K:
And
HMJr:
Then the -- the natural question, what are they going
to do on a falling market.
K:
Yes -- well, it's most -- it all depends on what the
demands are at that time but I'll -- I'll get on that
tomorrow. But I'll have something to say about that
as a matter of policy in my report that I'm sending
to the President and I'll put on it for you as well
as Hull.
HMJr:
Will you do that?
K:
Yeah.
HMJr:
All right. How are you otherwise?
K:
I'm fine, Henry. How are things there now, all right?
HMJr:
They're all right. I -- I think we're all right on
this legislation.
K:
You do think 80?
HMJr:
Yes, but I think it's going to take at least three weeks.
K:
Yeah. Well every -- I -- everything I had heard said it
would take a month, but I think any time anything takes
a month nowadays it's always very difficult.
HMJr:
Yes, it isn't going to be easy but I -- 8.8 far as a
fellow can tell as of today, I think it's all right.
K:
Well, I'm glad of that because that's -- that's pretty
important at the minute.
HMJr:
Yeah, the boss 18 doing nothing else but that.
K:
somebody said he was quite
tired.
HMJr:
Quite what?
K:
Tired.
HMJr:
No. No, I was with him yesterday for lunch and he --
in fact, he said he didn't have enough to do.
- 4 -
262
K:
He didn't?
HMJr:
No.
K:
(Laughs)
HMJr:
He said -- he said, "All I'm doing here is sitting
here and interviewing Senators and Congressmen on
this neutrality legislation." He said, "Outside of
that I've got nothing to do."
K:
(Laughs) Oh, my gosh!
HMJr:
What?
K:
Oh, my golly.
HMJr:
So he's all right.
K:
In spite of that, I don't know where -- where we'd
get off if he didn't have that disposition.
HMJr:
That's right. And -- and he really is working awful
hard on this neutrality thing.
M
Oh, I judged that.
HMJr:
Yeah.
X:
Well, it's very important for the peace of the world.
HMJr:
You bet.
K:
All right, Henry. Well I'll get busy on this and don't
give it any more concern. I'll get it lined up for you.
HMJr:
Yeah, and if you're sending some report over, put a
note on it to show it to me.
K:
I'll -- (connection bad)
HMJr:
Hello.
K:
(Cannot understand because of connection)
HMJr:
0. K.
263
- 5 -
K:
HMJr:
What's that?
K:
HMJr:
Hello?
K:
Is Johnny Hanes there?
HMJr:
I didn't hear that Joe.
X:
Is Johnny Hanes there?
HMJr:
Is who?
K:
Johnny Hanes.
HMJr:
I -- I'm sorry I don't get it.
K:
The Under-Secretary.
HMJr:
Is he in the room?
K:
Yeah.
HMJr:
No.
K:
I was going to ask him about a fellow.
HMJr:
No, I don't know if he's in his office. Do you want
to talk to him?
K:
Well, if he's
-- if you can connect me up
with him I'd like to speak to him a minute.
HMJr:
Well now, just a moment. Hold on a minute.
K:
All right.
0:
:
Operator.
HMJr:
If Mr. Hanes is in his office Ambassador Kennedy wants
to talk to him.
0:
All right. I'll get him right on.
HMJr:
Thank you.
264
September 26, 1939
2:44 p.m.
HMJr:
Hello.
Operator: Mr. Frank. Go ahead.
HMJr:
Hello.
Jerome
Frank:
Hello.
HMJr:
Morgenthau -- Henry.
F:
Yes, sir.
HMJr:
How are you?
F:
Very good, thank you. Aren't you feeling well?
HMJr:
No.
F:
I'm sorry to hear that.
HMJr:
I've got catarrhal jaundice.
F:
Oh, I had that once.
HMJr:
What did you do for it?
F:
Oh, you have -- one school of doctors starves you
HMJr:
Yeah.
F:
And the -- and I almost died of the starvation, and
then they -- -- the other school told me to eat as much
as I wanted to, which wouldn't be too much.
HMJr:
Yeah.
F:
And then it took me about two weeks.
HMJr:
Well, this Doctor Lyons, who 18 a good doctor, said
there is nothing that I can do to help it. It may
be several days or several weeks, 80 I told him I
was going to get myself a good veterinarian.
F:
(Laughs) Well, I tell you, the part -- the only part
that's unpleasant about it 16 you get a feeling of
lassitude
- 2 -
265
HMJr:
Yeah.
F:
but the unpleasant part 18 when it begins to itch.
HMJr:
Well I haven't got there yet. I hear that happens too.
F:
Well the only -- the only thing I found that was worth
-- worth a damn was alcohol with a lot of menthol in it.
HMJr:
Really?
F:
And that -- nothing else does you any good.
HMJr:
With menthol. You mean a rub-down?
F:
Yes, keep putting that on when it itches, because the
menthol will cool it and stop the itching.
HMJr:
Did you stay home?
F:
Oh, I did for a while and then I -- -- it doesn't make any
difference what you do.
HMJr:
No.
F:
You Just don't feel like doing anything.
HMJr:
Yeah. Well, I got it anyway.
F:
(Laughs) I don't envy you.
HMJr:
To keep you posted, I called up Joe Kennedy today and
said, "Joe, isn't there somebody in the British
Government that knows about what American securities
are selling"? See?
F:
Yes.
HMJr:
You remember you and I talked
F:
Yes.
HMJr:
about this. And he said, "Well I suppose there
18." He said, "They talked to me about it several
days ago," and he said, "I told them as long &6
they were selling on a rising market everything was
lovely."
- 3 -
266
F:
Yes.
HMJr:
So I said, "Well, that's just it, but I don't want to
have to raise the question if they start to sell on
a falling market."
F:
Yes.
HMJr:
And I said, "Can't you find out - isn't there some
person that Washington can talk to." See?
F:
Yes.
HMJr:
In case the thing - -- before anything should happen.
F:
Yes.
HMJr:
So he said, "You're quite right," and he said, "I'll
talk to them and find out." And if he does let me
know why I'll let you know right away.
F:
Fine. You mean to have somebody here that we could
talk to?
HMJr:
That's right.
F:
Yes, that would be 8. very excellent idea.
HMJr:
That's right.
F:
Thank you very much for calling me.
HMJr:
It's just 60 that you know, because
F:
Yes, all right. A splendid idea!
HMJr:
Thank you.
F:
And I hope you feel -- I hope you get over it very soon.
HMJr:
Thank you. Goodbye.
Columbia University
inthe City of Hem Dork
267
SCHOOL OF LAW
September 26, 1939
Dear Henry:
I enclose herewith a brief general memorandum on the
excess profits tax, together with a short bibliography
of discussions of it. The memorandum was prepared by
Carl Shoup, with & few amendments by myself.
We have covered the subject in the most general manner
only, since it VSS my understanding that you wanted
something brief to read for your general information.
I am sure that there must be many extensive discussions
of different aspects of the excess profite tax in the
Treasury's files, and I should think that Blough and
Tarleau could dig up for you the most useful for your
purposes. If you want Shoup or myself to work on par-
ticular aspects of the subject, please do not hesitate
to call on us.
I enjoyed very much seeing you the other day, and I
hope that we can have another visit together in the
next month or 80. I hope that you will be careful to
relax and ride horseback and the like as much as pos-
sible, for I know the strain of your day's activities
must be very great.
With varm regards,
Sincerely yours,
Roswell Magill
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
268
NOTES on THE EXCESS PROFITS TAX
The excess profits tax avolved during the World War. It
was used by most of the belligerente and several of the neutrals.
Shortly after the war it disappeared almost completely, and at the
outbreak of the present var only fragments or week imitations of
it were to be found. Under the fiscal strains now developing, how-
ever, it is likely to reappear in many countries; Canada, for
instance, enacted an excess profits tax on September 12.
The special taxation of unusual gains obtained in vartime
may take either of two main forms:
1. A tax may be levied on the increase in an individual's
wealth. This is not, strictly speaking, an excess profits tax, since
it is not based directly on income. It may, however, serve as an
alternative to, or, as in Germany in the World War, a complement to
an excess profits tax. It would probably not be available for the
United States until the constitutional restrictions on direct taxa-
tion were removed.
2. A tax may be levied on income - chiefly, perhaps wholly,
business profite. The tax strikes only that part of the profit that
is deemed "excessive." To ascertain whether a given profit is
excessive, either of two tests may be used:
- 1 -
269
(1) The firm's profite for the year in question (say,
1940) can be compared with the profit in some year fixed in the law
(say, 1938) and the tax then imposed on the amount by which the
1940 profits exceed the 1938 profite. Hence this method uses what
ve may call "the profits standard," 6.8 contrasted with the "invested
capital standard," to be discussed under (11) below. The profits
standard is arbitrary for several reasons: (1) 1938 may have been
a good year or a poor year for any particular firm. Instead, two
or three pre-war years might be taken and their results averaged.
Or the taxpayer might be given his choice of several years. Still,
the method is unsatisfactory, and grows increasingly so as time goes
on. (2) Some firms will have expanded greatly after 1938 (or/whatever
other basic year is chosen), and their total profite in 1940, 1941,
etc., may be much greater than in 1938, yet be no more than a modest
return on the total capital invested, and obviously not excessive.
(3) New firms spring up, with no pre-war year to go by. So faulty is
this method that, BO far as I an aware, none of the excess profits taxes
placed exclusive reliance on it.
(11) The firm's profite can be compared, not with the
profite of any pre-war year, but with the amount of capital invested,
and the tax can then be applied to that part of the profite that
seems to be above a fair return on the capital. Thus a fair return
might be deemed to be 8 per cent, and if the concern were earning 12
per cent, the 4 per cent would be treated as "excessive" and hence
taxable. This method therefore uses the "invested capital standard."
- 2 -
270
It is better than the profits standard, insofar 68 it takes care of
cases that the "profits standard" cannot logically cover - nov firms,
and firms that are expanding and shrinking, but it is much more
difficult to administer. The ascertaiment of "invested capital"
involves many complex problems. The setting of 6. fair rate of
return is very troublesome; for instance, concerns in an unstable
industry, where chances of loss are great, equitably should be
allowed a higher fair rate of return than concerns in stable indus-
tries, but the difference between the tvo cannot be arrived at with
precision. Ordinarily no such allowance has been made. More impor-
tant, the determination of the exact total amount of investment in a
business which has gone on for many years, obtaining new capital and
retiring old security issues, and perhaps reorganizing, presents legal
problems of great difficulty and magnitude. There 1s bound to be a
considerable amount of controversy and subsequent litigation.
Common to both methods (profits standard and invested
capital standard) are several other serious problems, of which only
the most important can be noted here. If an individual owns one
business that is making excess profits and another business that is
losing money, shall the latter be allowed to offset the former, BO
that no tax 1a imposed? If 8 business is getting only a modest rate
of return from security investments that are not necessary to the
conduct of the business, shall this modest return be averaged with
the excess profits from the business operations proper, thus lessening
- 3 -
771
the "excessiveness" subject to tax? Shall interest paid to bond-
holders (and preferred dividends, perhaps) be deductible in deter-
mining profite? Shall the heavy losses that commonly occur after
the war be allowed as an offect to the excess profite of the war
period, thue necessitating refunds, or long delay in computation
of tax due? Shall the tax be only on "real" excess profits, that
18, profits that remain after adjustment has been made for a rise
in the general level of prices? If the tax 1a believed to be a
temporary one, business men are induced to spend money in ways -
for instance, advertising - that may bring in the benefits only
later, after the tax is repealed; can this unusual, perhaps socially
wasteful, increase in business expenditures be prevented? Shall
the tax apply to corporations only; and if not, shall farmers be
included? These questions do not mean that the tax cannot be
successfully imposed; the experience of the World War shows that it
can be. But the law cannot be drafted and enacted overnight, and
it must either give vide discretion to the administrative force or
be drawn in great detail.
Both the United States and Great Britain used a combination
of the invested capital standard and the profits standard. Great
Britain put somewhat more emphasis on the profits standard than did
the United States, which used it only for 1918 and then only as an
option against the taxpayer (he had to pay under whichever standard
gave the most tax). Under the British tax the taxpayer could choose
whichever standard gave the least tax.
- 4 -
272
The British tar, enacted in 1915, and the United States
tar, enacted in 1917, were both repealed in 1921. (Both had been
preceded shortly by excess profits taxes applying to munitions
manufacturers only.) They were highly productive; the American tax
yielded $1,600,000,000 on 1917 incomes, $2,500,000,000 on 1918 incomes,
and $1,400,000,000 on 1919 incomes. In the five years 1915-16 to
1919-20, Great Britain collected nearly one billion pounds from the
excess profits duty - approximately one-fourth of her total receipts
from both tax and non-tax revenue (not including borrowings). These
amounts reflect high tax rates; at one time on another they reached
BO per cent in both countries.
The French var profite tax vas enacted in 1916. It vae in
force long enough to cover profits realized between August 1, 1914
and June 30, 1920. Apparently, chief emphasis vae placed on the
profite standard as arrived at by averaging the profite of the three
pre-war years.
Among other countries that used the excess profite tax
vere Austria, Greece, Hungary, Italy, Japan, the Netherlands, Russia,
Spain, Switzerland and parts of the British Empire.
If the United States should become involved in var, the
pressure for an excess profita tax would almost surely be irresistible.
Bo long as the United States stays out of the var, the
arguments for an excess profits tax are:
- 5 -
273
1, By reducing the chance for huge gains from dealings
with the British and French, the tax would reduce the financial stake
that our business concerns would have in the success of those nations
and might to that extent assist in preserving our neutrality.
2. By taking gaine that on the whole would be above the
level needed to induce investment and production, the tax would
repress industry and trade less than almost any other tax increase.
Even if no increase in total tax revenues were needed, the proceeds
of an excess profite tax would be useful in allowing the reduction of
certain other taxes that tend to restrict business.
3. The appropriation of part of such profits by the govern-
ment would accord with the community's sense of justice.
The arguments against the tax are chiefly the difficulties
of definition and administration adduced in earlier pages above.
- 6 -
274
Bibliography
Adams, T.S., "Excess Profits Tax," Encyclopedia of the Social Sciences,
vol. 5, 664-666.
Adams, T.S., "Should the Excess Profits Tax Be Repealed?", Quarterly
Journal of Economics, vol. IXIV (1920-21), 363-93.
Ballantine, Arthur A., Statement before War Policies Commission, May 20,
1931 [reproduced in Mills and Starr, Readings in
Public Finance and Taxation, 704-12].
Haig, R.M. and Holmes, G.E., "The Taxation of Excess Profits in Great
Britain," American Economic Review, Vol. I, No. IV,
Supplement, 1920.
Shirras, G. Findlay, Science of Public Finance, 1936, 598-605.
Shoup, Carl, "Taxation of Socially Undesirable Gains," Chapter 19
(271-93) and Notes (555-61) in Twentieth Century
Fund, Facing the Tax Problems, 1937.
Stamp, Sir Jostah, Taxation During the War, ch. VII: The Excess Profits
Duty, 146-212.
-7 -
FOO SHING TRADING CORPORATION
275
Sun Sun Gardons, Chungking.
26th Sept ember 1939.
Secretary Henry Morgenthau, Jr.
Treasury Deper tment,
Washington, D.C.
U.S.A.
M
Dear Mr. Morgenthau,
I am enclosing herewith two memoranda
which I think may be of interest to you.
Sincerely yours,
J.Lossing m.e. Buck
perm.c. per
J. Lossing Buck.
To be read by Haves White
Cotton
insured a
1838 18 TOO
so molatvkI
dossessed vistenoM
a
276
INTERVIEW WITH MR. Y. T. MIAO
Kunming, September 12th, 1939.
Mr. Miao's Personal Position.
Mr. Miao reported to me
that he was in a very difficult position and that many people
did not understand him end that he was primarily B. business man.
lie feels that he is obstructed in many things he would like to
do for the development of Yunnan and for the cooperation of
Yunnan and the Central Government by his colleagues who have a
much less broad vision. I can very readily see how this can be
entirely true since Mr. Miao has been part of the local picture
for years. of course, as a matter of fact his opinion is greatly
respected and the Governor knows that in any case, he must have
Mr. Miao's approval; otherwise, he may even give up his position
as manager of the new Futien Bank.
Mr. Miao reported the good relationship between the Governor
and the bank saying that the Governor respects the bank as a
business organization and does not require overdrafts and supports
Mr. Miao whenever unscrupulous business men attempt to obtain
loans from the bank for projects which are financially unsound.
Yunnan Tin and American Credit.
Mr. Niao stated that
Yunnan was now ready to contract its tin for 10,000 tone a year
in return for American credit to China. He spoke of the high
quality of the tin as being desired above other tin in the market.
Yunnan Wood 011.
Mr. Miso indicated his willingness to
turn over the Yunna wood oil to Foo Shing but stated that he
would like to keep one third of the foreign exchange for Yunnan.
I imagine there may be some way of adjusting this since the
- 2 -
Interview with Mr. Y. T. Miao.
277
Yunnan government and the Central Government are now discussing
the whole question of foreign exchange accruing from the export
products. The amount of wood oil exported from Yunnan from
1st July 1938 to 30th June 1939 was about 3,500 tons.
Mr. Miao and American Cooperation.
Mr. Miao on this as
on previous occasions again indicated his interest in American
technical assistance as well as American equipment. He responded
favorably to my suggestion of obtaining the services of Dr. Robert
Pendleton now with the Siam government for the purpose of practical
recommendations for crop products in Yunnan.
- 3 -
278
INTERVIEW WITH MINISTER WONG WEN-HAO
Chungking, September 24, 1939.
Dr. Wong came and had breakfast with me and we had about
a two hours' talk on various matters. I will classify these
remarks by subject.
The European War and China.
Dr. Wong is very much
discouraged over the outbreak of the European war since it means
the discontinuance of help which China was receiving from
England.
China and Internal Politics.
He is also discouraged
over the internal politics even among the small group of highest
officials. I should judge the situation is like internal
politics in any country, but he like others naturally expects
to find less of it during the period of war than in normal
times. He mentioned particularly the difficulties between
Dr. H. H. Kung and T. V. Soong and the attempts of General Chang
Chun, the Secretary-General of the Supreme Defense Council and
Vice-Premier of China to influence the Generalissimo with
appointments of as many of General Chang's own men for positions
in Szechuan province of who ch the Generalissimo 1a now Chairman.
It may be stated at this point that Governor Wang was made to
resign and it was officially announced that Governor Wang was
anxious to go to the front to fight. That is presumsbly where
he has gone.
China and American Experts.
Dr. "ong again expressed his
interest in and his desire for practical Americans to assist in
the development of West China in the field of agriculture, mining
- 4 -
Interview with Minister Wong Wen-hao.
279
and industries. be even went so far : to any that such men
should come out and hold definito positions in the Government
for doing actual work rather than holding the position of
advisership. He also stated that many Chinese would be very
happy to work with such mon and would be inspired by the opportunity.
I think Dr. Wong is correct in this analysis because the P unger
Chinese do welcome the opportunity of working under Americans of
experience in preference to Chinese without similar experience.
Dr. Wong indicated that he would be communicating with me later
in regard to this matter. He was also quit pleased with my
report of the possibility of obtaining American agricultural
extension mon to assist in the development ofChiness agriculture.
lie himself suggested e. matter I had also thought of and that is
the use of some of the China Foundation funds (American Boxer
Indemnity Funds) for the bringing out of & few such experts.
"e also indicated that It is being planned that I become one of
the trustees in the changes to be made next year.
China Tin.
Dr. Wong spoke of the possibility of
utilizing the Yunnan tin na a basis of 8 further credit from the
United States and indicated that there are only two problems
connected therewith: (1) deciding how much of the credit obtained
would be assigned to Yunnan, and (2) the quality of the tin.
In this latter point Mr. Miao in talking with me spoke as though
the quality of Yunnan tin was already such that it is preferred
in the market above other tins, but I expect there is a me point
in Dr. Wong's feeling that in making any arrangement, probably
some improvement could be made in the smelting and refining of
- 5 -
Interview with Dr. Wong Wen-hao.
280
the tin and possibly in the mining methods where the labor
conditions are most appalling.
Dr. Wong also spoke of Kwangsi tin as being entirely
contracted for in the barter arrangement between Russia and
China. He spoke of the large amount of Chinese products going
to Russia mostly from the east and south of China by steamer
and that wool was the only large export overland from Northwest
China.
The Generalissimo.
Dr. Wong in discussing various
matters spoke of the fine leadership of the Generalissimo and
stated that he believed there is no other man in China who could
succeed in as good leadership 8.5 the Generalissimo is giving
the Chinese people.
caveras
QEC 16 TOU
to polatvi(I
vistonold
.taa
FOO SHING TRADING CORPORATION
781
Sun Sun Gardens, Chungking.
27th September 1939.
Secretary Henry Morgenthau, Jr.
Treasury Department,
Washington, D.C.
U.S.A.
M
Dear Mr. Morgenthau,
I am sending you the continuation of
report on my interview with Dr. Wong Wen-hao which I mailed
to you yesterday and two other memoranda.
Sincerely yours,
J.Lousing As Buck Me.
J. Lossing Buck.
Job read Haves by
w hite
Cotton
Encl:
JLB:MC
082
CONTINUATION OF REPORT ON INTERVIEW WITH
MINISTER WONG WEN-HAO
Chungking, September 24, 1939.
Dr. Wong reported upon the co-ordination of the four Government
Banks with the Generalissimo as head. Dr. Wong deprecated the
appointment since the Generalissimo is A military man and knows
little about banking and also spoke unfavorably of Ceneral Chang
Chun's part in advising Dr. Kung to make such an appointment.
AMERICAN TRANSPORTATION MISSION
Chungking, September 27, 1939.
The Chinese Government is giving the American transportation
experts every facility and cooperating with them whole-heartedly
in the sincere desire of improving the transportation situation.
the Ministry of Communications took special pains to give these
men a well-furnished house and left no stone unturned to provide
for their personal comfort. It is A safe prediction that the
visit of these experts will result in vory matorial improvement
in transportation.
Foo Shing trucks are just beginning to be put into operation
and there are about fifty or sixty now operating. The number
should Increase by at lesst about twenty each day. Unfortunately,
there W83 a bridge washed out on the surme road which 13 delaying
one hundred trucks ready to proceed to Kunming. the French Indo-
China authorities seized thirty-six of our trucks at the time first
orders came through from France for commendeering various means
of transportation. Mr. Groff took the matter up with the French
authorities and secured the order for their release,
WOOD OIL
Chungking, September 27, 1939.
The recent slump in the amount of wood oil shipped from
Hongkong was apparently caused by several factors. (1) At
Chungking there has been difficulty in securing commercial trucks
for transporting wood oil because these commercial trucks in turn
were unable to obtain gasoline. (2) Another factor in the
situation which has not been stated to me but which I fear may
be one of the causes is the fact that the Government has a set
283
price which I understand commercial trucks find too low to cover
operating costs in case they carry government goods in both
directions, (3) the spoilage of wood oil en route by seepage of
rain water in the container; (4) the stoppage of shi pment by the
French authorities from Dong Tong to Haiphong for a short period;
(5) the flooded roads in Kwangsi.
When I passed Kunming in September from the 9th to 14th, I
found that the wood oil arriving in Kunming is being promptly shipped
to Heiphong and there has been no accumulation in the godown ns at
the end of last June. At Chungking, the present godown is not
very satisfactory and within half 5 month, the loading capacity at
one time will be ten units as compared with two at present.
Mr. Groff recommended last July 8 site further up the river which
necessitated extension of the road. Today Hr. Groff will investigate
whether or not this recommendation was carried out and whether it
is still practicable.
int
2.40
DEPARTMENT 78
CONSERLONDENCE DIATOTOM
THE
18
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